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, 2001
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: 1,026,012 shares of the Company's
Common Stock (no par value) were outstanding as of March 31, 2001.
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, 2001 (unaudited) and December 31, 2000
(dollars in thousands, except per share data)
March 31, December 31,
2001 2000
---------- ---------
(Unaudited)
ASSETS
Cash and Cash Equivalents
Total cash and due from banks $ 848 $ 862
Federal funds sold 6,550 2,550
----------- ----------
Total Cash and Cash Equivalents 7,398 3,412
Securities Held to Maturity 17,032 21,342
Securities Available for Sale, at fair value 6,877 8,989
Loans, less Loan Loss Reserve
Total loans 27,392 25,762
Allowance for loan losses 392 379
----------- ----------
Net Loans 27,000 25,383
Net Property and Equipment 508 282
Accrued interest receivable 256 457
Deposit premium and conversion costs,
net of amortization 144 150
Other Assets 158 205
----------- ----------
Total Assets $ 59,373 $ 60,220
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing 7,333 6,598
Interest-bearing 43,276 44,810
----------- ----------
Total deposits 50,609 51,408
Accrued Expenses and Other Liabilities 349 534
Shareholders' Equity
Common stock, no par value: 10,000,000
Shares authorized; 1,026,012 and 1,026,012 shares
issued and outstanding as of March 31, 2001
and December 31, 2000 4,306 4,306
Capital surplus 4,306 4,306
Accumulated deficit (221) (335)
Accumulated other comprehensive income (loss) 24 1
----------- ----------
Total Shareholder Equity 8,415 8,278
----------- ----------
Total Liabilities and Shareholders' Equity $ 59,373 $ 60,220
=========== ==========
See accompanying notes to consolidated financial statements
3
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Three Month Periods Ended March 31, 2001, and March 31, 2000
(dollars in thousands, except per share data)
(unaudited)
Three Months Three Months
Ended Ended
March 31, 2001 March 31, 2000
-------------- --------------
Interest Income
Loans, including fees $ 577 $ 273
Securities 465 296
Federal Funds sold 62 26
--------- ----------
Total interest income 1,104 595
Interest Expense
Deposits 612 259
Other 0 0
--------- ----------
Total interest expense 612 259
Net Interest Income 492 336
Provision for loan losses 17 33
--------- ----------
Net interest income after provision for loan losses 475 303
Noninterest income 75 32
Noninterest expense
Salaries and benefits 197 163
Occupancy expense of premises 38 32
Furniture and equipment expense 32 20
Computer and data processing expenses 47 32
Advertising and public relations 18 34
Professional fees 36 30
Amortization of deposit premium
and conversion cost 6 6
Other expense 10 21
--------- ----------
Total noninterest expense 384 338
--------- ----------
Profit (Loss) before federal income tax 166 (3)
Federal income tax 52 0
--------- ----------
Net profit (loss) $ 114 $ (3)
========= ==========
Basic and diluted profit (loss) per share $ .11 $ (0)
========= ==========
See accompanying notes to consolidated financial statements.
4
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Month Ended March 31, 2001 and March 31, 2000
(dollars in thousands)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2001 2000
---- ----
Net Profit (Loss) as Reported $ 114 $ (3)
Other Comprehensive Income, Net of Tax:
Change in unrealized gain on securities
available for sale 23 (2)
--------- --------
Comprehensive Profit (Loss) $ 137 $ (5)
========= ========
See accompanying notes to consolidated financial statements.
5
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31, 2001
(dollars in thousands)
(Unaudited)
Accumulated
Other Total
Common Capital Accumulated Comprehensive Shareholders'
Stock Surplus Deficit Income Equity
-------- ------- ------------ ------------- -------------
Balance December 31, 2000 $ 4,306 $ 4,306 $ (335) $ 1 $ 8,278
Net income for three months
Ended March 31, 2001 (unaudited) 114 114
Increase in fair market value of securities
available for sale 0 0 0 23 23
-------- ------- ---------- --------- ----------
Balance March 31, 2001 $ 4,306 $ 4,306 $ (221) $ 24 $ 8,415
======== ======= ========== ========= ==========
See accompanying notes to consolidated financial statements.
6
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months ended March 31, 2001, and March 31, 2000
(dollars in thousands)
(unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2001 2000
----------- ---------
Net Cash Provided by Operating Activities:
Net cash provided by operating activities $ 235 $ 185
Cash Flows from Investing Activities:
Net increase in loans (1,630) (3,706)
Net decrease in securities 6,422 1,974
Property and Equipment expenditures (242) (3)
----------- ----------
Net cash provided by (used in) investing activities 4,550 (1,735)
Cash Flows from Financing Activities:
Increase (decrease) in deposits (799) 1,256
----------- -----
Net increase (decrease) in cash and cash equivalents 3,986 (294)
Cash and cash equivalents at beginning of year 3,412 2,467
----------- ----------
Cash and cash equivalents at March 31, 2001 and 2000 $ 7,398 $ 2,173
=========== ==========
See accompanying notes to consolidated financial statements.
7
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 (unaudited) and December 31, 2000
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, 2001, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Proxy Statement dated April 2, 2001 containing audited financial
statements as of December 31, 2000 and 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, 2001 (unaudited) and December 31, 2000
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, 2001 (Unaudited)
Taxable variable rate demand
Municipal revenue bonds,
Short term corporate
Commercial paper, and bonds
of government agencies $ 6,852 $ 37 $ (12) $6,877
======= ========= ========== ======
Held to Maturity
March 31, 2001 (Unaudited)
Taxable variable rate demand
Municipal revenue bonds,
Short term corporate
Commercial paper, and bonds
of government agencies $ 17,032 $ 196 $ (31) $ 17,197
======== ========= ========== ========
Contractual maturities of debt securities at March 31, 2001, 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 2001 to 2002 $ 291 $ 293
Due from 2002 to 2003 865 869
Due from 2003 to 2032 5,696 5,715
----- -----
$6,852 $6,877
====== ======
Held-To-Maturity
Estimated
Amortized Market
Cost Value
--------- ---------
Due from 2001-2003 $ 0 $ 0
Due from 2004-2006 4,066 4,105
Due from 2006-2032 12,966 13,092
------ ------
$17,032 $ 17,197
======= ========
(Continued)
9
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 (unaudited) and December 31, 2000
NOTE 5 - LOANS
Loans are as follows (dollars in thousands):
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
Commercial $17,761 $16,100
Mortgage 3,466 3,955
Consumer 6,165 5,707
-------- --------
27,392 25,762
Allowance for loan losses 392 379
-------- --------
$27,000 $ 25,383
======= ========
Activity in the allowance for loan losses is as follows (dollars in thousands):
Three months For the
Ended Year Ended
March 31, December 31,
2001 2000
----------- ----------
(Unaudited)
Balance at beginning of period $ 379 $ 140
Provision charged to operating expense 17 243
Net loans (charge-offs) recoveries (4) (4)
------ --------
Balance at end of periods $392 $ 379
====== =======
Allowance for loan losses as a percentage of
loans at end of period 1.43% 1.47%
====== =======
(Continued)
10
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 (unaudited) and December 31, 2000
NOTE 6 - PREMISES AND EQUIPMENT - NET
Premises and equipment are as follows (dollars in thousands):
Accumulated Carrying
Cost Depreciation Value
---- ------------ -----
March 31, 2001 (unaudited)
Building and improvements $ 323 $ 12 $ 311
Furniture and equipment 377 180 197
--------- --------- ---------
$ 700 $ 192 $ 508
========= ========= =========
December 31, 2000
Building and improvements $ 86 $ 8 $ 78
Furniture and equipment 372 168 204
--------- --------- ---------
$ 458 $ 176 $ 282
========= ========= =========
NOTE 7 - DEPOSITS
Interest-bearing deposits are summarized as follows (dollars in thousands):
March 31, December 31,
2001 2000
---------- ----------
Demand deposit accounts $ 2,067 $ 1,635
Money market accounts 2,947 3,524
Savings accounts 5,769 5,796
Certificates of Deposit 32,493 33,855
-------- --------
$ 43,276 $ 44,810
======== ========
(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 Bank also operates a branch office in the Farmer Jack grocery store in
Clarkston, Michigan. The Bank is planning to open a third branch, which will be
full service, around June 1, 2001, and will be located at 6600 Highland Road,
Suite #2 in Waterford, Michigan. The Bank will also open a temporary office just
north of Clarkston, this summer, to help our customers because of the downtown
construction.
Financial Condition
Total assets of the Company decreased by $0.8 million or 1.4% to $59.4
million at March 31, 2001, from $60.2 million at December 31, 2000. The decrease
in assets is primarily attributable to a reduction in securities because of the
high number of called issues by the government. The Company anticipates that the
Bank will turn this trend around and increase its asset base during 2001, which
will be the Bank's third full year of operations.
Securities decreased $6.4 million or 21.2% to $23.9 million at March 31,
2001 from $30.3 million at December 31, 2000. The decrease is the result of a
reduction in deposits of $0.8 million, increases in loans of $1.6 million and
increases in federal funds of $4.0 million.
Total loans increased by $1.6 million or 6.2% to $27.4 million at March 31,
2001, from $25.8 million at December 31, 2000. Management believes that the
total loans will continue to grow, although at a lower percentage rate of
increase.
The allowance for loan losses as of March 31, 2001 was $392,000,
representing approximately 1.43% of total loans outstanding, compared to
$379,000 as of December 31, 2000. This increase resulted primarily from the
increase in the Bank's total loans.
As of December 31, 2000, the Company had an accumulated deficit of $335,000
and as of March 31, 2001, the accumulated deficit was $222,000. The accumulated
deficit is primarily the result 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. Future retained earnings are
expected to further reduce and eventually eliminate the accumulated deficit.
Results of Operations
The Company's net income was $114,000 for the first quarter of 2001
compared to a loss of $3,000 for the first quarter of 2000. The Bank began
operations in 1999, and became profitable in the first quarter of 2000.
Interest income was $1,104,000 for the three months ended March 31, 2001,
an increase of $513,000 from interest income of $591,000 for the three months
ended March 31, 2001. Interest expense
12
was $612,000 for the three months ended March 31, 2001, an increase of $353,000
from interest expense of $259,000 for the three months ended March 31, 2000, and
relates to interest paid on interest bearing deposits.
The Company had an allowance for loan losses of approximately 1.43% of
total loans at March 31, 2001. The provision for loan loss for the three months
ended March 31, 2001 was $17,000. 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. 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.
Noninterest income was $75,000 for the first quarter of 2001 compared to
$32,000 for the first quarter of 2000. This increase was due in part to
increases of service charges from $4,000 to $11,000, loan fees (net) from $4,000
to $10,000 and other miscellaneous fees from $24,000 to $54,000.
Noninterest expense was $384,000 for the first quarter of 2001, a $46,000
(or 13.6%) increase over the first quarter of 2000, with the increase primarily
attributable to increases in salaries and benefits due to the increase of full
time equivalents from 14.8 to 16.8 and normal raises given to employees. There
were also increases in computer and data processing expenses due to growth in
the number of accounts processed.
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 one or two years.
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
13
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 -
(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, 2001, 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
Principal Financial and Accounting Officer
DATE: May 14, 2001
16