10QSB 1 0001.txt 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 September 30, 2000 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ Commission file number: 333-63685 CLARKSTON FINANCIAL CORPORATION (Exact name of small business issuer as specified in its charter) MICHIGAN 38-3412321 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 South Main Street, Clarkston, Michigan 48346 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (248) 625-8585 ----------------------------------------------- Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 931,600 shares of the Company's Common Stock (no par value) were outstanding as of September 30, 2000. Transitional Small Business Disclosure Format (check one): Yes_____ No__X__ INDEX Page Number(s) Part I. Financial Information (unaudited): Item 1. Consolidated Financial Statements 3-7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-14 Part II. Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Securities Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 2 Part I Financial Information (unaudited) CLARKSTON FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 2000 (unaudited) and December 31, 1999 (dollars in thousands, except per share data) September 30, December 31, 2000 1999 --------------- --------- (Unaudited) ASSETS Cash and Cash Equivalents Total cash and due from banks $ 1,278 $ 867 Federal funds sold 1,500 1,600 ----------- ----------- Total Cash and Cash Equivalents 2,778 2,467 Securities Held to Maturity 18,268 9,604 Securities Available for Sale, at fair value 8,659 9,294 Loans, less Loan Loss Reserve Total loans 21,450 11,263 Allowance for loan losses 234 140 ----------- ----------- Net Loans 21,216 11,123 Net Property and Equipment 303 337 Accrued interest receivable 300 256 Deposit premium and conversion costs, net of amortization 156 173 Other Assets 8 12 ----------- ----------- Total Assets $ 51,688 $ 33,266 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing 3,588 2,676 Interest-bearing 39,799 22,595 ----------- ----------- Total deposits 43,387 25,271 Accrued Expenses and Other Liabilities 264 158 Shareholders' Equity Common stock, no par value: 10,000,000 Shares authorized; 931,600 and 951,600 shares issued and outstanding as of September 30, 2000 and December 31, 1999 4,306 4,306 Capital surplus 4,306 4,306 Accumulated deficit (570) (753) Accumulated other comprehensive income (loss) (5) (22) ----------- ----------- Total Shareholder Equity 8,037 7,837 ----------- ----------- Total Liabilities and Shareholders' Equity $ 51,688 $ 33,266 =========== ===========
See accompanying notes to consolidated financial statements 3 CLARKSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME Three and Nine Month Periods Ended September 30, 2000 and September 30, 1999 (dollars in thousands, except per share data) (unaudited) Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------- ------------ ------------ ------------- Interest Income Loans $ 438 $ 121 $ 1,066 $ 187 Securities 417 194 1,041 373 Federal Funds sold 35 22 86 125 --------- ---------- ---------- --------- Total interest income 890 337 2,193 685 Interest Expense Deposits 475 124 1,066 220 Other 0 0 0 0 --------- ---------- ---------- --------- Total interest expense 475 124 1,066 220 Net Interest Income 415 213 1,127 465 Provision for loan losses 36 27 98 97 --------- ---------- ---------- --------- Net interest income after provision for loan losses 379 186 1,029 368 Noninterest income 84 21 176 38 Noninterest expense Salaries and benefits 159 151 479 409 Occupancy expense of premises 31 33 94 75 Furniture and equipment expense 22 33 65 72 Computer and data processing expenses 61 43 126 118 Advertising and public relations 30 33 95 98 Professional fees 24 25 72 84 Amortization of deposit premium and conversion cost 6 4 17 4 Other expense 19 10 74 45 --------- ---------- ---------- --------- Total noninterest expense 352 332 1,022 905 --------- ---------- ---------- --------- Profit (Loss) before federal income tax 111 (125) 183 (499) Federal income tax 0 0 0 0 --------- ---------- ---------- --------- Net profit (loss) $ 111 $ (125) $ 183 $ (499) ========= ========== ========== ========= Basic and diluted profit (loss) per share $ .12 $ (0.13) $ .20 $ (0.53) ========= ========== ========== =========
See accompanying notes to consolidated financial statements. 4 CLARKSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Three and Nine Month Periods Ended September 30, 2000 and September 30, 1999 (dollars in thousands) (Unaudited) Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------ Net Profit (Loss) as Reported $ 111 $ (125) $ 183 $ (499) Other Comprehensive Income, Net of Tax: Change in unrealized gain on securities available for sale (5) (76) 17 (88) --------- --------- --------- --------- Comprehensive Profit (Loss) $ 106 $ (201) $ 200 $ (587) ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 5 CLARKSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Nine months ended September 30, 2000 (dollars in thousands) (Unaudited) Accumulated Other Total Common Capital Accumulated Comprehensive Shareholders' Stock Surplus Deficit Income Equity ------- ------- ----------- ------------- ------------- Balance December 31, 1999 $ 4,306 $ 4,306 $ (753) $ (22) $ 7,837 Net income for six months Ended September 30, 2000 (unaudited) 183 183 Increase in fair market value of securities available for sale 0 0 0 17 17 -------- ------- -------- -------- -------- Balance September 30, 2000 $ 4,306 $ 4,306 $ (570) $ (5) $ 8,037 ======== ======= ======== ======== ========
See accompanying notes to consolidated financial statements. 6 CLARKSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS Nine Month Periods Ended September 30, 2000, and September 30, 1999 (dollars in thousands) (unaudited) Nine Months Nine Months Ended Ended September 30, September 30, 2000 1999 ------------- ----------- Net Cash Provided by (used in) Operating Activities: Net cash provided by (used in) operating activities $ 441 $ (546) Cash Flows from Investing Activities: Net increase in loans (10,191) (7,699) Net increase in securities (8,022) (14,228) Deposit premium and conversion cost 0 (182) Equipment expenditures (33) (126) ----------- ---------- Net cash used in investing activities (18,246) (22,235) Cash Flows from Financing Activities: Increase in deposits 18,116 16,276 Repurchase of 14,400 shares of common stock 0 (112) ----------- ----------- Net cash provided by financing activities 18,116 16,164 Net increase (decrease) in cash and cash equivalents 311 (6,617) Cash and cash equivalents at beginning of year 2,467 8,442 ------------ ---------- Cash and cash equivalents at September 30, 2000 and 1999 $ 2,778 $ 1,825 ============ ==========
See accompanying notes to consolidated financial statements. 7 CLARKSTON FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (unaudited) and December 31, 1999 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles Ifor 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 September 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Proxy Statement dated March 20, 2000 containing audited financial statements for the period from May 18, 1998 (date of inception), through December 31, 1999. NOTE 2 - COMPUTATION OF EARNINGS PER SHARE Basic earnings (loss) per share is based on net income (loss) divided by the weighted average number of shares outstanding during the period. NOTE 3 - PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Clarkston Financial Corporation (the "Company"), and its wholly-owned subsidiary, Clarkston State Bank (the "Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation. 8 CLARKSTON FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (unaudited) and December 31, 1999 NOTE 4 - SECURITIES The amortized cost and fair values of securities were as follows (dollars in thousands): Available for Sale Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ------- -------- ---------- --------- September 30, 2000 (Unaudited) Taxable variable rate demand Municipal revenue bonds, Short term corporate Commercial paper, and bonds of government agencies $ 8,664 $ 0 $ (5) $ 8,659 ======= ========== ========= ======= Held to Maturity September 30, 2000 (Unaudited) Taxable variable rate demand Municipal revenue bonds, Short term corporate Commercial paper, and bonds of government agencies $ 18,268 $ 0 $ (71) $ 18,197 ======== ========= ========= ========
Contractual maturities of debt securities at September 30, 2000, were as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Available-for-Sale Securities ----------------------------- Estimated Amortized Market Cost Value ---------- ------- (dollars in thousands) Due from 2000 to 2001 $7,269 $7,277 Due from 2001 to 2002 1,305 1,292 Due from 2002 to 2022 90 90 ------ ------ $8,664 $8,659 ====== ====== Held-To-Maturity ---------------------------- Estimated Amortized Market Cost Value Due from 2000-2003 $4,540 $4,505 Due from 2004-2006 6,731 6,676 Due from 2006-2028 6,997 7,016 ------- -------- $18,268 $ 18,197 ======= ========
(Continued) 9 CLARKSTON FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (unaudited) and December 31, 1999 NOTE 5 - LOANS Loans are as follows (dollars in thousands): September 30 December 31, 2000 1999 ------------------ ----------- (Unaudited) Commercial $12,754 $ 5,936 Mortgage 3,596 2,529 Consumer 5,100 2,798 -------- -------- 21,450 11,263 Allowance for loan losses 234 140 -------- -------- $21,216 $ 11,123 ======= ========
Activity in the allowance for loan losses is as follows (dollars in thousands): Nine months For the Ended Year Ended September 30 December 31, 2000 1999 ------------------ ---------- (Unaudited) Balance at beginning of period $ 140 $ 0 Provision charged to operating expense 98 142 Net loans (charge-offs) recoveries (4) (2) ----- --------- Balance at end of periods $ 234 $ 140 ===== ========= Allowance for loan losses as a percentage of loans at end of period 1.09% 1.24% ===== =========
(Continued) 10 CLARKSTON FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (unaudited) and December 31, 1999 NOTE 6 - PREMISES AND EQUIPMENT - NET Premises and equipment are as follows (dollars in thousands): Accumulated Carrying Cost Depreciation Value ---- ------------ -------- September 30, 2000 (unaudited) Building and improvements $ 97 $ 11 $ 89 Furniture and equipment 355 138 217 ------- -------- -------- $ 452 $ 149 $ 303 ======= ======== ======== December 31, 1999 Building and improvements $ 87 $ 5 $ 82 Furniture and equipment 332 77 255 ------- --------- -------- $ 419 $ 82 $ 337 ======= ========= ========
NOTE 7 - DEPOSITS Interest-bearing deposits are summarized as follows (dollars in thousands): September 30, December 31, 2000 1999 -------------- ----------- Demand deposit accounts $ 4,237 $ 3,111 Money market accounts 2,084 1,908 Savings accounts 7,694 6,170 Certificates of Deposit 25,784 11,406 -------- -------- $ 39,799 $ 22,595 ======== ========
(Continued) 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Clarkston Financial Corporation (the "Company") is a Michigan corporation incorporated on May 18, 1998. The Company is the bank holding company for Clarkston State Bank (the "Bank"). The Bank commenced operations on January 4, 1999. The Bank is a Michigan chartered bank with depository accounts insured by the Federal Deposit Insurance Corporation. The Bank provides a full range of commercial and consumer banking services, primarily in Clarkston, Michigan and the surrounding market area primarily located in north Oakland County, Michigan. The Bank also operates a branch office in the Farmer Jack grocery store in Clarkston, Michigan. Financial Condition Total assets of the Company increased by $18.4 million or 55.3% to $51.7 million at September 30, 2000, from $33.3 million at December 31, 1999. The increase in assets is primarily attributable to the Bank continuing to attract customer deposits. The Company anticipates that the Bank's assets will continue to increase during 2000, which will be the Bank's second full year of operations. Cash and cash equivalents, which include federal funds sold and short-term investments, increased $0.3 million or 12.0% to $2.8 million at September 30, 2000, from $2.5 million at December 31, 1999. The increase is the result of the increase in the balance of the Bank's Due From Banks account since December 31, 1999. Securities increased $8.0 million or 42.3% to $26.9 million at September 30, 2000 from $18.9 million at December 31, 1999. The increase is the result of increased deposits that have been invested in securities. Total loans increased by $10.2 million or 90.0% to $21.5 million at September 30, 2000, from $11.3 million at December 31, 1999. 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 September 30, 2000 was $234,000, representing approximately 1.09% of total loans outstanding, compared to $140,000 December 31, 1999. This increase resulted primarily from the increase in the Bank's total loans. As of December 31, 1999, the Company had an accumulated deficit of $753,000 and as of September 30, 2000, the accumulated deficit was $570,000. 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 $111,000 for the third quarter of 2000 compared to a loss of $125,000 for the third quarter of 1999. The Bank began operations in 1999, and became profitable in the first quarter of 2000. 12 Interest income was $890,000 for the three months ended September 30, 2000, an increase of $553,000 from interest income of $337,000 for the three months ended September 30, 1999. Interest expense was $475,000 for the three months ended September 30, 2000, an increase of $351,000 from interest expense of $124,000 for the three months ended September 30, 1999, and relates to interest paid on interest bearing deposits. The Company had an allowance for loan losses of approximately 1.09% of total loans at September 30, 2000. The provision for loan loss for the three months ended September 30, 2000 was $36,000. 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 $84,000 for the third quarter of 2000 compared to $21,000 for the third quarter of 1999. This increase was due in part to the fact that noninterest income for the third quarter of 1999 was net of ATM charges paid by the Bank. In the third quarter of 2000, noninterest income was increased by NSF fees of $16,000 and ATM income of $31,000 before the ATM charges paid by the Bank, which are now reflected in noninterest expense as part of computer and data processing expenses. Noninterest expense was $352,000 for the third quarter of 2000, a $20,000 (or 6.0%) increase over the third quarter of 1999, with the increase primarily attributable to the increase in computer and data processing expenses. 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 to 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 13 including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company and the subsidiaries include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Securities Holders None Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - 27 Financial Data Schedule (EDGAR version only) (b) Reports on Form 8-K - None. 15 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-QSB for the quarter ended September 30, 2000, to be signed on its behalf by the undersigned, thereunto duly authorized. CLARKSTON FINANCIAL CORPORATION /s/ David T. Harrison David T. Harrison President and Chief Executive Officer /s/ Terry R. Wolf Terry R. Wolf Treasurer DATE: November 10, 2000 16