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, 1999
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: 936,600 shares of the Company's Common
Stock (no par value) were outstanding as of August 11, 1999.
Transitional Small Business Disclosure Format (check one): Yes _____ No __X__
1
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 12-15
Part II. Other Information
Item 1.
Legal Proceedings 16
Item 2.
Changes in Securities and Use of Proceeds 16
Item 3.
Defaults Upon Senior Securities 16
Item 4.
Submission of Matters to a Vote of Securities Holders 16
Item 5.
Other Information 16
Item 6.
Exhibits and Reports on Form 8-K 16
Signatures 17
2
Part I Financial Information (unaudited)
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1999 (unaudited) and December 31, 1998
(dollars in thousands, except per share data)
June 30, December 31,
1999 1998
--------------- --------------
(Unaudited)
ASSETS
Cash and Cash Equivalents:
Total cash and due from banks $ 556 $ 92
Federal funds sold 350 8,350
Total Cash and Cash Equivalents 906 8,442
------------ ------------
Securities Available for Sale, at fair value 12,759 --
Loans, less Loan Loss Reserve:
Total loans 4,649
Allowance for loan losses (70) --
------------ ------------
Net Loans 4,579 --
Net Property and Equipment 332 291
Accrued interest receivable 57 --
Other Assets 12 -
------------ ------------
Total Assets $ 18,645 $ 8,733
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing 1,963 --
Interest-bearing 8,254 --
------------ ------------
Total deposits 10,217 --
Accrued Expenses and Other Liabilities 293 126
Shareholders' Equity
Common stock, no par value; 10,000,000
shares authorized, 940,700 and 951,000 shares
issued and outstanding as of June 30, 1999 and December 31, 1998,
respectively 4,335 4,378
Capital surplus 4,336 4,378
Accumulated deficit (524) (149)
Accumulated other comprehensive income (12) --
------------ ------------
Total Shareholder Equity 8,135 8,607
------------ ------------
Total Liabilities and Shareholders' Equity $ 18,645 $ 8,733
============ ============
See accompanying notes to consolidated financial statements
3
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Three months and six months ended June 30, 1999
(dollars in thousands, except per share data)
(unaudited)
Three Months Six Months
ended ended
June 30, 1999 June 30, 1999
--------------- ----------------
Interest Income
Loans, including fees $ 59 $ 66
Securities 121 179
Federal Funds sold 37 103
------------ ------------
Total interest income 217 348
Interest Expense
Deposits 72 97
Other - --
------------ ------------
Total interest expense 72 97
Net interest income 145 251
Provision for loan losses 52 70
------------ ------------
Net interest income after provision for loan losses 93 181
Noninterest income 12 18
Noninterest expense
Salaries and benefits 127 258
Occupancy expense of premises 21 42
Furniture and equipment expense 19 39
Computer and data processing expenses 39 75
Advertising and Public Relations 29 65
Professional fees 36 59
Other expense 21 36
------------ ------------
Total noninterest expense 292 574
------------ ------------
Loss before federal income tax (187) (375)
Federal income tax 0 0
------------ ------------
Net loss $ (187) (375)
============ ------------
Basic and diluted loss per share $ (0.20) $ (0.40)
============ ------------
See accompanying notes to consolidated financial statements.
4
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(dollars in thousands)
(Unaudited)
Six Months
ended
June 30, 1999
Net Loss as Reported $ (375)
Other Comprehensive Income, Net of Tax $0
Change in unrealized gain on securities
available for sale (12)
------------
Comprehensive Loss $ (387)
=============
See accompanying notes to consolidated financial statements.
5
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six months ended June 30, 1999
(dollars in thousands)
(Unaudited)
Accumulated
Other Total
Common Capital Accumulated Comprehensive Shareholders'Equity
Stock Surplus Deficit Income
Balance, December 31, 1998 $ 4,378 $ 4,378 $ (149) $ 0 $ 8,607
Net income (loss) for six months
Ended June 30, 1999 (unaudited) (375) (375)
Purchase and retirement of 10,700 shares
Of the Corporation's common stock (43) (42) (85)
Other Comprehensive Income (12) (12)
--------- --------- ----------- ------------ -----------
Balance June 30, 1999 $ 4,375 $ 4,336 $ (524) $ (12) $ 8,135
========= ========= =========== ============ ===========
See accompanying notes to consolidated financial statements.
6
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended June 30, 1999
(dollars in thousands)
(unaudited)
Six Months
ended
June 30, 1999
(Unaudited)
Cash Flows from Operating Activities
Net loss $ (375)
Adjustments to reconcile net loss to net
cash used in operating activities:
Increase in interest receivable (57)
Depreciation and amortization 36
Increase in accrued expenses 167
Loan loss provision 70
Increase in other assets (12)
---------
Total adjustments 204
---------
Net cash used in operating activities (171)
Cash Flows from Investing Activities:
Increase in loans (4,649)
Purchase of securities (12,771)
Equipment expenditures (77)
----------
(17,497)
Cash Flows from Financing Activities:
Increase in deposits 10,217
Repurchase of 10,700 shares of common stock (85)
---------
10,132
Net decrease in cash and cash equivalents (7,536)
Cash and cash equivalents at beginning of year 8,442
---------
Cash and cash equivalents at June 30, 1999 $ 906
=========
See accompanying notes to consolidated financial statements.
7
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 (unaudited) and December 31, 1998
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 and six month
periods ended June 30, 1999, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Proxy Statement dated March 5, 1999 containing audited financial
statements for the period from May 18, 1998 (date of inception), through
December 31, 1998.
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.
NOTE 4 COMPARATIVE DATA
The Company was incorporated on May 18, 1998, and the Bank opened for
operations on January 4, 1999. Comparable statements of income and cash flows
for the six months ended June 30, 1998, have not been presented since the
Company had not been incorporated and did not have operations during that
period.
8
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 (unaudited) and December 31, 1998
NOTE 5 - SECURITIES
The amortized cost and fair values of securities were as follows (dollars in
thousands):
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
June 30, 1999 (Unaudited)
Taxable variable rate demand
municipal revenue bonds,
short-term corporate
commercial paper, and bonds of
government agencies $ 12,771 $ 0 $ (12) $ 12,759
======== ========= ========== ========
Contractual maturities of debt securities at June 30, 1999, were as follows. No
held-to-maturity securities existed at June 30, 1999. 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 Fair
Cost Values
(dollars in thousands)
Due from 1999 to 2002 $ 10,770 $ 10,768
Due from 2003 to 2004 2,001 1,991
------------ ---------
$ 12,771 $ 12,759
============ =========
(Continued)
9
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 (unaudited) and December 31, 1998
NOTE 6 - LOANS
Loans are as follows (dollars in thousands):
June 30 December 31,
1999 1998
(Unaudited)
Commercial $ 2,743 $ -
Mortgage 1,136 -
Consumer 770 -
-----------
4,649
Allowance for loan losses 70 -
----------- -----------
$ 4,579 $ -
=========== ===========
Activity in the allowance for loan losses is as follows (dollars in thousands):
Period from
Six May 18,
months (date of inception)
ended through
June 30, December 31,
1999 1998
(Unaudited)
Balance at beginning of period $ 0 $ -
Provision charged to operating expense 70 -
Loans charged off - -
----------- ------------
Balance at end of period $ 70 $ -
=========== ============
Allowance for loan losses as a percentage of
Loans at end of period 1.5% -0-
=========== ============
(Continued)
10
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 (unaudited) and December 31, 1998
NOTE 7 - PREMISES AND EQUIPMENT - NET
Premises and equipment are as follows (dollars in thousands):
Accumulated Carrying
Cost Depreciation Value
June 30, 1999 (unaudited)
Building and improvements $ 75 $ 4 $ 71
Furniture and equipment 293 32 261
-------- --------- ---------
$ 368 $ 36 $ 332
======== ========= =========
December 31, 1998
Building and improvements $ 59 $ 0 $ 59
Furniture and equipment 232 0 232
-------- --------- ---------
$ 291 $ 0 $ 291
======== ========= =========
NOTE 8 - DEPOSITS
Deposits are summarized as follows (dollars in thousands):
June 30, December 31,
1999 1998
Demand deposit accounts $ 2,373 $ -
Money market accounts 1,835 -
Savings accounts 1,555 -
Certificates of deposit 4,454 -
----------- ----------
$ 10,217 -
===========================
(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
and was 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 are 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. Management believes that it has
been successful in establishing its management team and that it can administer
the Company's growth.
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
Foodtown grocery store at 6555 Sashabaw Road, Clarkston, Michigan. All necessary
regulatory approvals having been received, 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) will be paid to The State
Bank for these deposits, along with $17,000 for various fixed assets and
equipment. The Bank leased the branch space from Foodtown, Inc. at a rental rate
of $2,500 per month under a lease which runs until July, 2002. The Chairman of
the Company's Board of Directors is the principal owner of Foodtown, Inc. 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 $9.9 million or 113% to $18.7
million at June 30, 1999, from $8.7 million at December 31, 1998. The increase
in assets is primarily attributable to the Bank continuing to attract customer
deposits. The first half of 1999 was the Company's first full six months of
operations, and the number of deposit accounts increased from none at December
31, 1998, to 806 deposit accounts at June 30, 1999. The Company anticipates that
the Bank's assets will continue t increase during 1999, which will be the Bank's
first full year of operations.
Cash and cash equivalents, which includes federal funds sold and short-term
investments, decreased $7.5 million or 89% to $.9 million at June 30, 1999, from
$8.4 million at December 31, 1998. The decrease is the result of the increase in
the investment and loan portfolios since December 31, 1998.
Securities available for sale increased $12.8 million to $12.8 million at
June 30, 1999 from $0 at December 31, 1998. The increase is the result of the
investment of customer deposits that have been obtained since December 31, 1998,
and also the purchase of securities using cash generated by a reduction in
federal funds sold.
The allowance for loan losses as of June 30, 1999 was $70,000, representing
approximately 1.51% of total loans outstanding, compared to no loan loss
reserves at December 31, 1998, at which time the Bank had not yet opened for
business. Clarkston Financial Corporation has not experienced any credit losses
as of June 30, 1999.
Bank premises and equipment increased by $41,000 or 14% to $332,000 at June
30, 1999 from $291,000 at December 31, 1998. The increase included the purchase
of an ATM machine and related software, an automobile for the Bank's courier,
additional printers, and other miscellaneous items.
12
Results of Operations
The net loss for the three and six month periods ended June 30, 1999, was
$187,000 and $375,000, respectively. As of December 31, 1998, the Company had a
retained deficit of $149,000, and as of June 30, 1999, the Company had a
retained deficit of $524,000. The retained deficit and net losses are primarily
the result of costs of opening the Bank's office, wages paid to employees, and
fees and expenses incurred in forming the Company and applying for regulatory
approvals. Significant ongoing additions to loan loss reserves will also
contribute to net losses in 1999 as the Bank increases its loan portfolio.
Management believes that the Company will generate a net loss for 1999 as a
result of expenditures made to build its management team and open its main
office, together with the time needed to more effectively utilize its capital
and generate loan interest and fee income by making additional loans. Management
believes that the expenditures made in 1998 and 1999 will create the
infrastructure and lay the foundation for future growth and profitability in
subsequent years.
Interest income was $217,000 and $348,000 for the three and six month
periods ended June 30, 1999, consisting primarily of interest income on federal
funds and securities and secondarily from lending activities ($7,000 and $66,000
for the three and six month periods ended June 30, 1999). Interest expense was
$72,000 and $97,000 for the three and six month periods ended June 30, 1999 and
relates to interest incurred on interest bearing deposits.
The Company has an allowance for loan losses of approximately 1.5% of total
loans at June 30, 1999. The provision for loan losses for the three and six
month periods ended June 30, 1999 was $52,000 and $72,000, respectively. This
amount is expected to increase substantially in the last half of 1999 as a
result of anticipated increases in the total loan portfolio. Management believes
the current rate of providing for 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 payment.
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 existence of collateral and value for selected loans.
Other income of $12,000 and $18,000 for the three and six month periods
ended June 30, 1999 consisted of income from deposit service charges and other
miscellaneous fees.
The main components of other expenses were primarily salaries and benefits.
Other expense for the three and six month periods ended June 30, 1999 was
$187,000 and $375,000 respectively, consisting primarily of occupancy and
equipment expenses, legal and accounting fees, marketing expenses, insurance and
supplies.
13
Liquidity and Capital Resources
The Company obtained its initial equity capital in an initial public
offering of its common stock to investors 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.
Year 2000 Compliance
Because many computerized systems use only two digits to record the year in
date fields (for example, the year 1998 is recorded as 98), such systems may not
be able to accurately process dates ending in the year 2000 and after. The
effects of the issue will vary from system to system and may adversely affect
the ability of a financial institution's operations as well as its ability to
prepare financial statements. The Company and the Bank were organized in 1998
and the Company acquired its computer equipment within the past twelve months
and has contracted with a leading supplier of information processing services.
This equipment and these services were purchased with assurances of Year 2000
compliance.
Company management has developed a comprehensive Year 2000 Compliance Plan.
The Company has procedures in place to assess Year 2000 compliance by the
Company and its vendors. In addition, the Bank asks commercial borrowers about
Year 2000 compliance as part of the loan application and review process.
To date, the Company has spent less than $15,000 on Year 2000 compliance.
Management believes that the additional costs to complete the Company's Year
2000 compliance will be minimal.
The Company presently anticipates that it will complete its Year 2000
assessment and any necessary remediation by December 31, 1999. However, there
can be no assurance that the Company will be successful in implementing its Year
2000 remediation plan according to the anticipated schedule. In addition, the
Company may be adversely affected by the inability of other companies whose
systems interact with the Company to become Year 2000 compliant.
The Bank's core processing applications are provided by a third party
vendor, Jack Henry and Associates, Inc. The Company has received correspondence
from Jack Henry and Associates, Inc. which documents the status of their Year
2000 compliance. The Company has been advised that the Jack Henry and
Associates, Inc. software has been successfully tested for Year 2000 compliance.
In addition, the Bank has repeated a number these tests internally for specific
Year 2000 critical dates, and has had the successful results of such tests
validated by an outside consultant.
Although the Company expects its internal systems to be Year 2000 compliant
as described above, the Company has prepared a contingency plan that specifies
what it plans to do if important internal or external systems are not Year 2000
compliant in a timely manner. Further, the bank has successfully tested major
portions of the contingency plan by operating manually, as if no computers were
available, for several days at each location
14
Management does not anticipate that the Company will incur material
operating expenses or be required to invest heavily in computer system
improvements to be Year 2000 compliant. Nevertheless, the inability of the
Company to successfully address Year 2000 issues could result in interruptions
in the Company's business and have a material adverse effect on the Company's
results of operations.
Recent Regulatory Developments
Various bills have been introduced in the Congress that would allow bank
holding companies to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities. While the
scope of permissible nonbanking activities and the conditions under which the
new powers could be exercised varies among the bills, the expanded powers
generally would be available to a bank holding company only if the bank holding
company and its bank subsidiaries remain well-capitalized and well-managed. The
bills also impose various restrictions on transactions between the depository
institution subsidiaries of bank holding companies and their non-bank
affiliates. These restrictions are intended to protect the depository
institutions from the risks of the new nonbanking activities permitted to such
affiliates. At this time, the Company is unable to predict whether any of the
pending bills will be enacted and, therefore, is unable to predict the impact
such legislation may have on the operations of the Company and the Bank.
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 limite 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.
15
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
(a) The annual meeting of shareholders of the Corporation was
held on April 20, 1999.
(b) The following directors were elected at the Annual Meeting
for terms expiring in 2002: Louis Beer and William Clark.
Other directors whose terms continued after the meeting are
as follows: Charles Fortinberry, Bruce McIntyre and Robert
Olsen, whose terms expire in 2000; and Edwin Adler, David
Harrison and John Welker, whose terms expire in 2001.
(c) At the Annual Meeting, two directors were elected for terms
expiring in 2002. The vote was as follows:
Director nominee Louis Beer---
812,660 for, none against, 5,200 abstained.
Director nominee William Clark---
812,440 for, none against, 5,400 abstained.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
10 Lease between Clarkston State Bank and Foodtown, Inc.
27 Financial Data Schedule
(EDGAR version only)
(b) Reports on Form 8-K - None.
16
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, 1999, 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/ James L. Richardson
James L. Richardson
Treasurer
DATE: August 12, 1999
17
329527v1
EXHIBIT 10
LEASE
THIS LEASE, is made April ___ 1999 between Waldon Properties, Inc., a Michigan
corporation with offices at 20 W. Washington, Suite 15, Clarkston, Michigan
48346, (hereinafter referred to as "Landlord"), and Clarkston State Bank, a
Michigan banking corporation, with offices at 15 S. Main St., Clarkston, MI
48346, (hereinafter referred to as "Tenant").
DEMISED PREMISES 1. In consideration of the rents to be paid and the covenants
and agreements to be performed by Tenant, Landlord leases to Tenant the retail
premises containing approximately 480 square feet, situated in the Township of
Independence, County of Oakland, State of Michigan, located on the main floor in
that certain building currently housing a Foodtown grocery store, with street
address of 6555 Sashabaw Rd., Clarkston, Michigan, (which premises are
hereinafter referred to as the "demised premises"), together with the
non-exclusive right to use the parking and common facilities which may from time
to time be furnished by Landlord, in common with Landlord and the tenants and
occupants, their agents, employees, customers and invitees, of the building in
which the demised premises are located.
TERM 2. The term of this Lease shall be for a period of three years, commencing
on July ___, 1999, fully to be completed and ended. Tenant accepts the premises
for occupancy "as is", subject only to any "latent defects" that Tenant could
not reasonably have discovered with a careful inspection of the premises.
MINIMUM RENT 3. Tenant shall pay to Landlord, in advance, without any set-off or
deduction whatsoever, as minimum rent for the demised premises, the sum of
Ninety-nine Thousand Dollars ($99,000.00), payable in monthly installments of
Twenty-seven Hundred Fifty Dollars ($2,750.00) on the first day of each and
every month throughout the term of this Lease.
USE AND OCCUPANCY 4. During the continuation of this Lease, the demised premises
shall be used and occupied for retail banking offices, and related and
incidental purposes, and for no other purposes without the written consent of
Landlord. Tenant shall not conduct its business in a manner which will cause an
increase in fire and extended coverage insurance premiums for the demised
premises or building, and Tenant will comply with all requirements of applicable
insurance policies and of the American Insurance Association relating to the
demised premises. Tenant shall not use the demised premises for any purpose in
violation of any law, municipal ordinance, or regulation, nor shall Tenant
perform any acts or carry on any practices which may injure the demised premises
or the building in which the demised premises are located or be a nuisance,
disturbance or menace to the other tenants of said building.
The demised premises are located entirely within the Landlord's building, and
have no separate access except through premises leased to another tenant of the
building. Tenant acknowledges that access to the demised premises will be
limited to the hours in which the Landlord's other tenant is open for business.
Notwithstanding anything herein to the contrary, it is understood by the parties
that Tenant's employees may solicit banking business from the customers and
employees of the supermarket in the building outside of the demised premises,
and that this right shall be exclusive to the Tenant.
UTILITIES AND SERVICES 5. Landlord shall provide at its expense all utilities
for the demised premises including gas, electrical, water and sewer, heating and
air conditioning. Landlord shall provide utilities for common areas at such
times and in the manner the same are customarily provided in similar office
buildings in the area. Landlord shall not be liable or responsible for any
interruption in such utilities or other services due to causes beyond Landlord's
reasonable control, or for interruptions in connection with the making of
repairs or improvements to the demised premises or the building in which the
demised premises are located, nor shall such interruption be deemed an actual or
constructive eviction or partial eviction or result in an abatement of rental.
Tenant shall install and pay for all necessary electrical, communication,
security, networking and computer cabling.
REPAIRS 6. Landlord shall make all necessary repairs and replacements to the
building in which the demised premises are located, and to the common areas,
including parking areas, and Landlord shall also make all repairs to the demised
premises which are structural in nature or required due to fire, casualty, or
other act of God. Tenant shall reimburse Landlord, within 30 days of invoice
therefor, for the full cost of repairs and replacements made necessary by
Tenant's act, neglect, default or omission. Tenant shall, at its own cost and
expense, make all repairs and provide all maintenance in connection with the
demised premises. Tenant shall keep the demised premises in good repair, and
Tenant shall upon the expiration of the term of this Lease, yield and deliver up
the demised premises in like condition as when taken, reasonable use and wear
thereof and repairs required to be made by Landlord excepted.
In the event that the Landlord shall deem it necessary or be required by any
governmental authority to repair, alter, remove, reconstruct or improve any part
of the demised premises or of the building in which the demised premises are
located, the same shall be made by Landlord with reasonable dispatch, and should
the making of such repairs, alterations or improvements cause any interference
with Tenant's use of the demised premises, such interference shall not relieve
Tenant from the performance of its obligations hereunder nor shall such
interference be deemed an actual or constructive eviction or partial eviction or
result in an abatement of rental.
Waldon Properties, Inc. Lease - 4/20/99 - Page 2
ALTERATIONS 7. Tenant shall not make any alterations, additions or improvements
to the demised premises (whether or not the same may be structural in nature)
without Landlord's prior written consent, and all alterations, additions or
improvements made by either party hereto to the demised premises, except movable
office furniture and equipment installed at Tenant's expense, shall be the
property of Landlord and remain upon and be surrendered with the demised
premises at the expiration of the term thereof. Provided, however, that Landlord
may require Tenant to remove any additions, alterations, or improvements made by
Tenant to the premises and to repair any damage caused by such removal, and
provided further, that if Tenant has not removed its property and equipment
within thirty (30) days after the expiration or termination of this Lease,
Landlord may elect to retain the same as abandoned property, and recover from
Tenant the cost of removal and repair.
Tenant shall only use contractors approved by Landlord for the permitted
alterations to the premises and shall not permit any mechanics liens to be
placed or remain upon the premises. In the event Tenant permits such a lien,
Landlord may, at its option, cause such lien to be discharged, and be entitled
to reimbursement of the full costs thereof within 30 days of invoice therefor.
ASSIGNMENT AND SUBLETTING 8. Tenant covenants not to assign or transfer this
Lease or hypothecate or mortgage the same or sublet the demised premises or any
part thereof without the prior written consent of the Landlord, which consent
shall not be unreasonably withheld. In the event of any such assignment or
transfer, Tenant shall remain fully liable to perform all of the obligations
under this Lease. Any assignment, transfer (including transfers by operation of
law or otherwise), hypothecation, mortgage or subletting without such written
consent shall give Landlord the right to terminate this Lease and to re-enter
and repossess the demised premises pursuant to legal proceedings, but Landlord's
right to damages shall survive. No consent by Landlord to any assignment,
transfer, hypothecation, mortgage or subletting on any one occasion shall be
deemed a consent to any subsequent assignment, transfer, hypothecation, mortgage
or subletting by Tenant or by any successors, assigns, transferees, mortgagees
or subleases of Tenant. Nothwithstanding the foregoing, Tenant may assign this
Lease to, or at the order of, banking regulators, FDIC, or other regulatory
agencies.
INSURANCE AND INDEMNIFICATION 9. Tenant shall indemnify and hold Landlord
harmless from any liability for damages or death to any person or property in,
on, or about the demised premises and common areas from any cause whatsoever,
excepting that caused by the negligence of the Landlord, its agents or
employees. Tenant shall procure and keep in effect during the entire term hereof
public liability and property damage insurance protecting Landlord and Tenant
from all causes including their own negligence, having as limits of liability
One Million Dollars ($1,000,000.00) for damages or death resulting to one
person; Two Million Dollars ($2,000,000.00) for
Waldon Properties, Inc. Lease - 4/20/99 - Page 3
damages or death resulting from one casualty; and Five Hundred Thousand Dollars
($500,000.00) for property damage resulting from any one occurrence. The
policies shall name Landlord as additional insured, and provide that such
insurance shall be primary with respect to Landlord, and any insurance
maintained by Landlord is excess and noncontributing with such insurance. Tenant
shall deliver policies of such insurance or certificates thereof to Landlord and
such policies shall not be cancelable without thirty (30) days' written notice
to Landlord. In the event Tenant shall fail to procure such insurance, Landlord
may, at its option, procure the same for the account of Tenant, and the full
cost thereof shall be paid to Landlord within 30 days of invoice therefor. The
provisions hereof shall survive the termination or earlier expiration of this
Lease with respect to any damage, injury, or death occurring prior to such
termination or expiration.
Landlord and Tenant do each hereby release the other from any liability
resulting from damage by fire or any other peril covered by extended coverage
insurance with waiver of subrogation normally available in the State of Michigan
irrespective of the cause therefor; provided, however, that if an increase in
premium is required for such waiver of subrogation, the other party will pay
such increase or the waiver will not be furnished. The policies required by this
Lease shall provide that this waiver shall not invalidate the coverage.
FIRE 10. In the event the demised premises are damaged or destroyed in whole or
in part by fire or other insured casualty during the term hereof, Landlord
shall, at its own cost and expense, repair and restore the same to tenantable
condition with reasonable dispatch, and the rent herein provided shall be
reduced in direct proportion to the amount of the demised premises so damaged or
destroyed until such time as the demised premises are restored to tenantable
condition. If the demised premises cannot be restored to tenantable condition
within a period of Sixty (60) days, Landlord and Tenant shall each have the
right to terminate this Lease upon written notice to the other (Tenant's
cancellation notice shall be given with thirty (30) days after receipt of
written notice from Landlord that the demised premises cannot be timely
restored), and any rent paid for any period in advance of the date of such
damage and destruction shall be refunded to Tenant. If the demised premises are
damaged due to fire or other casualty, Tenant shall, at its own cost and
expense, remove such of its furniture and other belongings from the demised
premises as Landlord shall require in order to repair and restore the demised
premises. Landlord shall use reasonable discretion as to the extent of the
untenantability of the demised premises and of the time required for the repair
and rebuilding of the same and no such damage or untenantability shall be deemed
either an actual or constructive eviction or result in an abatement of rental
(except as provided herein for insured casualties).
In the event the building in which the demised premises are located is destroyed
to the extent of more than one-half of the then value thereof, Landlord shall
have the right to
Waldon Properties, Inc. Lease - 4/20/99 - Page 4
terminate this Lease upon written notice to Tenant, in which event any rent paid
in advance of the date of such destruction shall be refunded to Tenant.
EMINENT DOMAIN 11. If the whole or any substantial part of the demised premises
or the building in which the demised premises are located shall be taken by any
public authority under the power of eminent domain, then the term of this Lease
shall cease on the part so taken on the date possession of that part shall be
required for public use, and any rent paid in advance of such date shall be
refunded to Tenant. Landlord and Tenant shall each have the right to terminate
this Lease as to the balance of the demised premises upon written notice to the
other, which notice shall be delivered within thirty (30) days following the
date notice is received of such taking, and such termination shall be effective
on the date of possession of the condemned premises. In the event that neither
party hereto shall terminate this Lease, Landlord shall, to the extent the
proceeds of the condemnation award (other than any proceeds awarded for the
value of any land taken) are available, make all necessary repairs to the
demised premises and the building in which they are located to render and
restore the same to a complete architectural unit and Tenant shall continue in
possession of the portion of the demised premises not taken under the power of
eminent domain, under the same terms and conditions as are herein provided,
except that the rent reserved herein shall be reduced in direct proportion to
the amount of the demised premises so taken. All damages a warded for such
taking shall belong to and be the property of Landlord, whether such damages be
awarded as compensation for diminution in value of the leasehold or the fee of
the demised premises; provided, however, Landlord shall not be entitled to any
portion of the award made to Tenant for removal and reinstallation of trade
fixtures, loss of business, or moving expenses.
REAL & PERSONAL PROPERTY TAXES 12. Tenant shall pay all personal property taxes
levied or assessed against Tenant's property and improvements on or affixed to
the demised premises, including without limitation taxes attributable to all
alterations, additions or improvements made by Tenant. In the event Tenant shall
fail to pay such latter taxes, Landlord may, at its option, pay the same for the
account of Tenant, and the cost thereof shall be paid to Landlord within 30 days
of invoice therefor.
QUIET ENJOYMENT 13. Landlord warrants that Tenant, upon paying the rents herein,
and in performing each and every covenant hereof, shall peacefully and quietly
hold, occupy and enjoy the demised premises throughout the term hereof, without
molestation or hindrance by any person holding under or through Landlord.
SUBORDINATION 14. Landlord and its mortgagee(s) reserve the right to subject and
subordinate this Lease at all times to the lien of any mortgages) or ground or
underlying lease(s) now or hereafter placed upon Landlord's interest in the
demised premises or on the land and building of which the demised premises are a
part, or upon
Waldon Properties, Inc. Lease - 4/20/99 - Page 5
any building hereafter placed upon the land parcel of which the demised premises
are a part, and Tenant agrees upon request to execute an agreement subordinating
its interest and/or attornment agreement to such mortgagees and lessors and
appoints Landlord its attorney-in-fact to execute and deliver any such
instruments in the event Tenant fails to execute such agreement within 30 days
of written request by the Landlord; provided, however, that no default by
Landlord under any such mortgage or ground lease shall affect Tenant's rights
hereunder so long as Tenant shall not be in default.
NON-LIABILITY 15. Landlord shall not be responsible or liable to Tenant for any
loss or damage that may be occasioned by or through the acts or omission of
persons occupying adjoining premises or any part of the premises adjacent to or
connected with the demised premises or any part of the building of which the
demised premises are a part or for any loss or damage resulting to Tenant or his
property from burst, stopped, or leaking water, gas, sewer, or steam pipes, or
for any damage or loss of property within the demised premises from any cause
whatsoever. In the event of any sale or transfer (including any transfer by
operation of law) of the demised premises, Landlord (and any subsequent owner of
the demised premise making such a transfer) shall be relieved from any and all
obligations and liabilities under this Lease except such obligations and
liabilities as shall have arisen during Landlord's (or such subsequent owner's)
respective period of ownership, provided that the transferee assumes in writing
all of the obligations of the Landlord under this Lease.
NON-WAIVER 16. One or more waivers by Landlord of any breach of a covenant or
condition hereof by Tenant shall not be construed as a waiver of a subsequent
breach of the same covenant or condition, and the consent or approval by
Landlord to or of any act by Tenant requiring Landlord's consent or approval
shall not be deemed to waive or render unnecessary Landlord's consent or
approval to or of any subsequent similar act by Tenant.
BANKRUPTCY 17. Notwithstanding any other provisions herein, in the event (a)
Tenant or its successors or assignees shall become insolvent or bankrupt, or if
it or its interests under this Lease shall be levied upon or sold under
execution or other legal process, or (b) the depository institution then
operating on the demised premises is closed, or is taken over by any depository
institution supervisory authority ("Authority"), Landlord may, in either such
event, terminate this Lease only with the concurrence of any Receiver or
Liquidator appointed by such Authority; provided, that in the event this Lease
is terminated by the Receiver or Liquidator, the maximum claim of Landlord for
rent, damages, or indemnity for injury resulting from the termination,
rejection, or abandonment of the unexpired Lease shall by law in no event be in
an amount exceeding an amount equal to all accrued and unpaid rent to the date
of termination.
Waldon Properties, Inc. Lease - 4/20/99 - Page 6
LANDLORD'S REMEDIES 18.
(a) In the event Tenant shall fail to pay the rent or any other obligation
involving the payment of money reserved herein when due, and if Tenant shall
fail to cure such default within seven (7) days after the written notice,
Landlord shall, in addition to these other remedies provided by law, and in this
Lease, have the remedies set forth in subparagraph (c) below.
(b) If Tenant shall be in default in performing any of the terms of this
Lease other than the payment of rent or any other obligation involving the
payment of money, Landlord shall give Tenant written notice of such default, and
if Tenant shall fail to cure such default within ten (10) days after the receipt
of such notice, or if the default is of such a character as to require more than
ten (10) days to cure, then if Tenant shall fail within said ten (10) day period
to commence and thereafter proceed diligently to cure such default, then and in
either of such events, Landlord may (at its option and in addition to its other
legal remedies) cure such default for the account of Tenant and the full sum so
expended by Landlord shall be owed Landlord forthwith as additional rental as
provided in Section 3.
(c) If any rent or any other obligation involving the payment of money
shall be due and unpaid or Tenant shall be in default upon any of the other
terms of this Lease, and such default has not been cured after notice and within
the time provided in subparagraphs (a) and (b) above, or, if the premises are
abandoned or vacated, then Landlord, in addition to its other remedies, shall
have the immediate right to re-entry. Should Landlord elect to re-enter or take
possession pursuant to legal proceedings or any notice provided for by law,
Landlord may either terminate this Lease or from time to time, without
terminating this Lease, relet the premises or any part thereof on such terms and
conditions as Landlord shall in its sole discretion deem advisable. The avails
of such reletting shall be applied first to the payment of any indebtedness of
Tenant to Landlord other than rent due hereunder; second, to the payment of any
reasonable costs of such reletting, including the cost of any reasonable
alterations and repairs to the premises; third, to the payment of rent due and
unpaid hereunder; and the residue, if any, shall be held by Landlord and applied
in payment of future rent as the same may become due and payable hereunder.
Should the avails of such reletting during any month be less than the monthly
rent reserved hereunder, then Tenant shall during each such month pay such
deficiency to Landlord.
(d) All rights and remedies of Landlord hereunder shall be cumulative and
none shall be exclusive of any other rights and remedies allowed by law. Should
Landlord pursue the remedy of summary proceedings for default of Tenant, give
notice to quit as required thereby, obtain a judgment for possession, and/or
recover possession of the demised premises, such acts shall not constitute
forfeiture or termination of Tenant's obligation to pay rent hereunder, which
shall continue for the full term of the Lease Agreement.
Waldon Properties, Inc. Lease - 4/20/99 - Page 7
(e) Tenant shall reimburse Landlord for all its reasonable costs of
enforcing the terms of this Lease, including reasonable attorney fees.
HOLDING OVER 19. It is hereby agreed that in the event of Tenant holding over
after the termination of this Lease, thereafter the tenancy shall be from month
to month in the absence of a written agreement to the contrary, and Tenant shall
pay to Landlord a daily occupancy charge equal to seven percent (7%) of the
monthly rental under Paragraph three (3) for the last lease year, for each day
from the expiration or termination of this Lease until the date the demised
premises are delivered to Landlord in the condition required herein, plus all
other charges payable by Tenant under this Lease, and Landlord's right to
damages for such illegal occupancy shall survive.
ENTIRE AGREEMENT 20. This Lease shall constitute the entire agreement of the
parties hereto; all prior agreements between the parties, whether written or
oral, are merged herein and shall be of no force and effect. This Lease cannot
be changed, modified or discharged orally, but only by an agreement in writing,
signed by the party against whom enforcement of the change, modification or
discharge is sought.
NOTICES 21. Whenever under this Lease a provision is made for notice of any kind
it shall be deemed sufficient notice and service thereof if such notice to
Tenant is in writing addressed to Tenant at 15 South Main St., Clarkston,
Michigan 48346, Attention President and CEO, and deposited in the mail,
certified or registered mail, with postage prepaid, and if such notice to
Landlord is in writing addressed to the last known post office address of
Landlord and deposited in the mail, certified or registered mail, with postage
prepaid. Notice need be sent to only one Tenant or Landlord where Tenant or
Landlord is more than one person.
SUCCESSORS 22. This agreement shall inure to the benefit of and be binding upon,
the parties hereto, their respective heirs, administrators, executors,
representatives, successors and assigns.
OBLIGATIONS FOR PREPARATION OF DEMISED PREMISES 23. Except as specified in
Paragraph One hereof, all costs of making the premises ready for occupancy,
including, but not limited to, telephone lines and computer lines, shall be the
responsibility of Tenant. Notwithstanding any provision herein to the contrary,
Tenant shall be solely responsible for the demised premises' compliance with the
Americans with Disabilities Act, and regulations thereunder, as amended from
time to time, and shall indemnify and hold Landlord harmless from any liability
therefor. Landlord shall fully comply with the ADA as to all common areas.
Waldon Properties, Inc. Lease - 4/20/99 - Page 8
OPTION TO RENEW LEASE 24. Landlord grants to Tenant the right and option to
renew the term of this Lease for one additional term of three years upon the
same terms, conditions, and provisions set forth herein, except:
(a) Tenant shall pay to Landlord as minimum rent during any renewal term
of this Lease the minimum rental payable during the original term,
plus a percentage of that minimum rental that is the percentage
increase in the cost of living in the Detroit Metropolitan area, as
determined by regularly published statistics of the United States
Department of Labor, from the commencement date of this Lease to the
commencement date of the renewal term. In no event shall the minimum
rental for the renewal term be less than the minimum rental for the
original term. The minimum rental for the renewal term shall be paid
in advance, without any set-off or deduction whatsoever, in equal
monthly installments on the first day of each and every month
throughout the renewal term of this Lease; and
(b) The renewal term shall have no option to renew.
The right and option to renew shall be contingent upon Tenant being current in
its rental and other obligations under this Lease on the date the option to
renew is exercised and on the date the renewal term is to commence. Notice of
Tenant's intention to exercise its option shall be given by Tenant to Landlord,
in writing, at least one hundred eighty days prior to the expiration of the
original term of the Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Agreement to be
executed as of the day and year first above written.
WITNESSES: WALDON PROPERTIES, Inc., a Michigan
Corporation, Landlord
/s/ Dawn M. Horner
Dawn M. Horner By: /s/ Ed L. Adler
Its: Partner
/s/ Doreen L. Schwaze
Doreen L. Schwaze
WITNESSES: CLARKSTON STATE BANK, a Michigan
Banking Corporation, Tenant
/s/ Dawn M. Horner /s/ David Harrison
Dawn M. Horner By: D. T. Harrison
Its: President
/s/ Doreen L. Schwaze
Doreen L. Schwaze
Waldon Properties, Inc. Lease - 4/20/99 - Page 9
STATE OF MICHIGAN )
)ss
COUNTY OF OAKLAND )
On this 27 day of April, 1999 before me a Notary Public in and for said
County, Oakland, personally known to me, who, being sworn by me, did depose and
say that (s)he is, the President of Waldon Properties, Inc., a Michigan
corporation with offices at 20 W. Washington, Ste 15, Clarkston, Michigan, the
corporation named as Landlord in and which executed the within instrument, and
that the seal affixed to said instrument is the corporate seal of said
corporation, and that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors, and said he acknowledges the
said instrument to be the free act and deed of said corporation.
/s/ Roberta S. Trzos Roberta S. Trzos
Notary Public, Oakland County, MI
Notary Public, Oakland County, Michigan. My Commission Expires: 05/21/2003
STATE OF MICHIGAN )
)ss
COUNTY OF OAKLAND )
On this 27 day of April, 1999 before me a Notary Public in and for said
County, Oakland, personally known to me, who, being sworn by me, did depose and
say that (s)he is, the President of Clarkston State Bank, a Michigan Corporation
with offices at 15 South Main, Clarkston, Michigan, the corporation named as
Tenant in and which executed the within instrument, and that the seal affixed to
said instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed in behalf of said corporation by authority of
its Board of Directors, and said he acknowledges the said instrument to be the
free act and deed of said corporation.
/s/ Roberta S. Trzos Roberta S. Trzos
Notary Public, Oakland County, MI
Notary Public, Oakland County, Michigan. My Commission Expires: 05/21/2003
Waldon Properties, Inc. Lease - 4/20/99 - Page 11
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