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 June 30, 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 June 30, 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
June 30, 2001 (unaudited) and December 31, 2000
(dollars in thousands, except per share data)
June 30, December 31,
2001 2000
------ ----
(Unaudited)
ASSETS
Cash and Cash Equivalents
Total cash and due from banks $ 1,237 $ 862
Federal funds sold 5,150 2,550
--------- ----------
Total Cash and Cash Equivalents 6,387 3,412
Securities Held to Maturity 10,400 21,342
Securities Available for Sale, at fair value 20,648 8,989
Loans, less Loan Loss Reserve
Total loans 29,644 25,762
Allowance for loan losses 417 379
--------- ----------
Net Loans 29,227 25,383
Net Property and Equipment 683 282
Accrued interest receivable 250 457
Deposit premium and conversion costs,
net of amortization 138 150
Other Assets 186 205
--------- ----------
Total Assets $ 67,919 $ 60,220
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing 8,556 6,598
Interest-bearing 50,516 44,810
--------- ----------
Total deposits 59,072 51,408
Accrued Expenses and Other Liabilities 340 534
Shareholders' Equity
Common stock, no par value: 10,000,000
Shares authorized; 1,026,012 shares
issued and outstanding as of June 30, 2001
and December 31, 2000 4,306 4,306
Capital surplus 4,306 4,306
Accumulated deficit (123) (335)
Accumulated other comprehensive income (loss) 18 1
--------- ----------
Total Shareholder Equity 8,507 8,278
--------- ----------
Total Liabilities and Shareholders' Equity $ 67,919 $ 60,220
========= ==========
See accompanying notes to consolidated financial statements
3
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Three and Six Month Periods Ended June 30, 2001, and June 30, 2000
(dollars in thousands, except per share data)
(unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
-------------- -------------- ------------- -------------
Interest Income
Loans, including fees $ 590 $ 359 $ 1,167 $ 628
Securities 468 328 933 624
Federal Funds sold 38 24 100 51
-------- -------- -------- --------
Total interest income 1,096 711 2,200 1,303
Interest Expense
Deposits 597 333 1,209 592
Other 0 0 0 0
-------- -------- -------- --------
Total interest expense 597 333 1,209 592
Net Interest Income 499 378 991 711
Provision for loan losses 24 29 41 62
-------- -------- -------- --------
Net interest income
after provision for loan losses 475 349 950 649
Noninterest income
Gains (losses) on sale of securities 17 (11) 38 (11)
Other income 80 56 155 92
-------- -------- -------- --------
Total noninterest income 97 45 193 81
-------- -------- -------- --------
Noninterest expense
Salaries and benefits 207 157 404 320
Occupancy expense of premises 36 31 74 63
Furniture and equipment expense 38 22 70 42
Computer and data processing expenses 50 32 97 65
Advertising and public relations 34 31 52 65
Professional fees 21 19 57 48
Amortization of deposit premium
and conversion cost 6 6 2 11
Other expense 37 21 68 45
-------- -------- -------- --------
Total noninterest expense 429 319 834 659
-------- -------- -------- --------
Profit before federal income tax 143 75 309 71
Federal income tax 45 0 97 0
-------- -------- -------- --------
Net profit $ 98 $ 75 $ 212 $ 71
======== ======== ======== ========
Basic and diluted profit per share $ .10 $ .08 $ .21 $ .08
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
4
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three and Six Month Periods Ended June 30, 2001 and June 30, 2000
(dollars in thousands)
(Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
------- ------- -------- -------
Net Profit as Reported $ 98 $ 75 $ 212 $ 71
Other Comprehensive Income, Net of Tax:
Change in unrealized gain on securities
available for sale (6) 9 17 7
------- ------- -------- -------
Comprehensive Profit $ 92 $ 84 $ 229 $ 78
======= ======= ======== =======
See accompanying notes to consolidated financial statements.
5
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months ended June 30, 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 six months
Ended June 30, 2001 (unaudited) 212 212
Increase in fair market value of securities
available for sale 0 0 0 17 17
-------- ------- ------- -------- ---------
Balance June 30, 2001 $ 4,306 $ 4,306 $ (123) $ 18 $ 8,507
======== ======= ======= ======== =========
See accompanying notes to consolidated financial statements.
6
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months ended June 30, 2001, and June 30, 2000
(dollars in thousands)
(unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
2001 2000
------- ----------
Net Cash Provided by Operating Activities:
Net cash provided by operating activities $ 242 $ 177
Cash Flows from Investing Activities:
Net increase in loans (3,775) (6,730)
Purchase of held-to-maturity securities (2,906) (5,029)
Proceeds from maturities of held-to-maturity securities 10,605 495
Proceeds from sales of held-to-maturity securities 3,243 0
Purchase of available-for-sale securities (30,465) (1,653)
Proceeds from sales of available-for-sale securities 18,806 3,593
Property and equipment expenditures (439) (18)
--------- ---------
Net cash provided by (used in) investing activities (4,931) (9,342)
Cash Flows from Financing Activities:
Increase on deposits 7,664 8,440
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,975 (725)
Cash and cash equivalents at beginning of year 3,412 2,467
--------- ---------
Cash and cash equivalents at June 30, 2001 and 2000 $ 6,387 $ 1,742
========= =========
See accompanying notes to consolidated financial statements.
7
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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
June 30, 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
June 30, 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
--------- ---------- ---------- ----------
June 30, 2001 (Unaudited)
Taxable variable rate demand
Municipal revenue bonds,
Short term corporate
Commercial paper, and bonds
of government agencies $ 20,630 $ 107 $ 89 $ 20,648
======== ======== ========= ========
Held to Maturity
June 30, 2001 (Unaudited)
Taxable variable rate demand
Municipal revenue bonds,
Short term corporate
Commercial paper, and bonds
of government agencies $ 10,400 $ 294 $ 0 $ 10,694
======== ====== ========= ========
During the six month period ended June 30, 2001, the bank sold approximately
$3,200,000 of securities, classified as held-to-maturity, due to concerns about
the issuer's creditworthiness and in some cases, adverse prepayment risks.
Contractual maturities of debt securities at June 30, 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
------------------------------------
Amortized Estimated
Cost Market Value
--------- ------------
(dollars in thousands)
Due from 2001 to 2002 $ 315 $ 319
Due from 2002 to 2004 498 513
Due from 2004 to 2006 1,000 998
Due from 2006 to 2034 18,817 18,818
-------- ------
$20,630 $20,648
Held-To-Maturity
--------------------------------------
Amortized Estimated
Cost Market Value
----------- -------------
Due from 2001-2004 $ 0 $ 0
Due from 2004-2006 1,807 1,860
Due from 2006-2031 8,593 8,834
------- --------
$10,400 $ 10,694
======= ========
9
(Continued)
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 (unaudited) and December 31, 2000
NOTE 5 - LOANS
Loans are as follows (dollars in thousands):
June 30, December 31,
2001 2000
----------- ---------
(Unaudited)
Commercial $19,892 $16,100
Mortgage 3,454 3,955
Consumer 6,298 5,707
------- --------
29,644 25,762
Allowance for loan losses 417 379
------- --------
$29,227 $ 25,383
======= ========
Activity in the allowance for loan losses is as follows (dollars in thousands):
Six months For the
Ended Year Ended
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
Balance at beginning of period $379 $ 140
Provision charged to operating expense 41 243
Net loans (charge-offs) recoveries (3) (4)
---- ---------
Balance at end of periods $417 $ 379
==== =========
Allowance for loan losses as a percentage of
loans at end of period 1.41% 1.47%
===== =========
10
(Continued)
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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
---- ------------ ---------
June 30, 2001 (unaudited)
Building and improvements $ 491 $ 16 $ 475
Furniture and equipment 406 198 208
--- -------- --------
$897 $ 214 $ 683
==== ======== ========
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):
June 30, December 31,
2001 2000
--------- ----------
Demand deposit accounts $ 1,825 $ 1,635
Money market accounts 2,768 3,524
Savings accounts 5,529 5,796
Certificates of Deposit 40,394 33,855
------ --------
$ 50,516 $ 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 has opened a full service branch 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 increased by $7.7 million or 12.8% to $67.9
million at June 30, 2001, from $60.2 million at December 31, 2000. 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 2001, which will be the Bank's third full year of operations.
Cash and cash equivalents, which include federal funds sold and short-term
investments, increased $3.0 million or 88.2% to $6.4 million at June 30, 2001,
from $3.4 million at December 31, 2000. The increase is the result of the
increase in deposits since December 31, 2000.
Securities increased $0.7 million or 2.3% to $31.0 million at June 30, 2001
from $30.3 million at December 31, 2000. The increase is the result of increased
deposits.
The Company's portfolio of held-to-maturity securities declined to $10.4
million at June 30, 2001 from $21.3 million at December 31, 2000. The decrease
is primarily a result of call options being exercised by the issuers of the
securities, and, in some cases, management's decision to sell certain securities
as a result of concerns over the issuer's creditworthiness. New securities
purchased by the Bank with proceeds from those maturities and from new deposits
have been classified as available-for-sale.
Total loans increased by $3.8 million or 14.7% to $29.6 million at June 30,
2001, from $25.8 million at December 31, 2000. Management believes that the
total loans will continue to increase over time, although potentially at a lower
rate of increase.
The allowance for loan losses as of June 30, 2001 was $417,000,
representing approximately 1.41% 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 June 30, 2001, the accumulated deficit was $123,000. The accumulated
deficit is primarily the result of opening the Bank's main office and its
branches, wages paid to employees, fees and expenses incurred in forming the
Company and applying for regulator approvals. Future operating profits are
expected to eliminate the accumulated deficit.
12
Results of Operations
The Company's net profit was $98,000 for the second quarter of 2001
compared to net profit of $75,000 for the second quarter of 2000. Basic and
diluted earnings per share were $0.10 in the second quarter of 2001 compared to
$0.08 for the second quarter of 2000. Net profit was $212,000 for the six months
ended June 30, 2001, compared to $71,000 for the six months ended June 30, 2000.
The Bank began operations in 1999 and has earned a profit every month since
January, 2000. Net profit for the three and six month periods ended June 30,
2001 included federal income tax provision of $45,000 and $97,000, respectively.
The comparable periods in 2000 did not include any federal income tax provision
due to the Company's operating loss carryforward for federal tax purposes.
Interest income for the second quarter of 2001 was $1.1 million, an
increase of 54.7% from interest income of $711,000 for the second quarter of
2000. This increase resulted primarily from the increase in loans and
securities. Interest income was $2.2 million for the six months ended June 30,
2001, an increase of 69.2% from interest income of $1.3 million for the six
months ended June 30, 2000.
Interest expense was $1.2 million for the six months ended June 30, 2001,
an increase of 104.2% from interest expense of $592,000 for the six months ended
June 30, 2000. This consisted of interest paid on interest bearing deposits.
The Company had an allowance for loan losses of approximately 1.41% of
total loans at June 30 , 2001. The provision for loan loss for the three and six
month periods ended June 30, 2001, was $25,000 and $41,000, respectively.
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 $80,000 for the second quarter of 2001 compared to
$56,000 for the second quarter of 2000. This increase was due in part to
increases in service charges, loan fees (net) and other miscellaneous fees.
Noninterest expense was $411,000 for the second quarter of 2001, an $81,000
(or 24.5%) increase over the second quarter of 2000, with the increase primarily
attributable to increases in salaries and benefits due to the increase of full
time equivalents 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.
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
(a) The annual meeting of the shareholders of the Corporation was
held on May 8, 2001.
(b) The following directors were elected at the annual meeting for a
term expiring in 2004: Edwin L. Adler, David T. Harrison and John
H. Welker. Other directors whose terms continued after the
meeting are as follows: Louis D. Beer, William J. Clark, Charles
L. Fortinberry, Bruce H. McIntyre and Robert A. Olsen.
(c) At the Annual Meeting directors were elected for terms expiring
in 2004:
Director Nominee For Against Abstain
---------------- --- ------- -------
Edwin L. Adler 933,658 11,550 0
David T. Harrison 912,759 32,450 0
John H. Welker 933,459 11,750 0
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 June 30, 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 Account Officer
DATE: August 10, 2001
16