10QSB 1 clarkston10q.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 March 31, 2001 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ Commission file number: 333-63685 CLARKSTON FINANCIAL CORPORATION (Exact name of small business issuer as specified in its charter) MICHIGAN 38-3412321 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 South Main Street, Clarkston, Michigan 48346 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (248) 625-8585 ----------------------------------------------- Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 1,026,012 shares of the Company's Common Stock (no par value) were outstanding as of March 31, 2001. Transitional Small Business Disclosure Format (check one): Yes _____ No __X__ INDEX Page Number(s) Part I. Financial Information (unaudited): Item 1. Consolidated Financial Statements 3-7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-14 Part II. Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Securities Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 2 Part I Financial Information (unaudited) CLARKSTON FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS March 31, 2001 (unaudited) and December 31, 2000 (dollars in thousands, except per share data) March 31, December 31, 2001 2000 ---------- --------- (Unaudited) ASSETS Cash and Cash Equivalents Total cash and due from banks $ 848 $ 862 Federal funds sold 6,550 2,550 ----------- ---------- Total Cash and Cash Equivalents 7,398 3,412 Securities Held to Maturity 17,032 21,342 Securities Available for Sale, at fair value 6,877 8,989 Loans, less Loan Loss Reserve Total loans 27,392 25,762 Allowance for loan losses 392 379 ----------- ---------- Net Loans 27,000 25,383 Net Property and Equipment 508 282 Accrued interest receivable 256 457 Deposit premium and conversion costs, net of amortization 144 150 Other Assets 158 205 ----------- ---------- Total Assets $ 59,373 $ 60,220 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing 7,333 6,598 Interest-bearing 43,276 44,810 ----------- ---------- Total deposits 50,609 51,408 Accrued Expenses and Other Liabilities 349 534 Shareholders' Equity Common stock, no par value: 10,000,000 Shares authorized; 1,026,012 and 1,026,012 shares issued and outstanding as of March 31, 2001 and December 31, 2000 4,306 4,306 Capital surplus 4,306 4,306 Accumulated deficit (221) (335) Accumulated other comprehensive income (loss) 24 1 ----------- ---------- Total Shareholder Equity 8,415 8,278 ----------- ---------- Total Liabilities and Shareholders' Equity $ 59,373 $ 60,220 =========== ==========
See accompanying notes to consolidated financial statements 3 CLARKSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME Three Month Periods Ended March 31, 2001, and March 31, 2000 (dollars in thousands, except per share data) (unaudited) Three Months Three Months Ended Ended March 31, 2001 March 31, 2000 -------------- -------------- Interest Income Loans, including fees $ 577 $ 273 Securities 465 296 Federal Funds sold 62 26 --------- ---------- Total interest income 1,104 595 Interest Expense Deposits 612 259 Other 0 0 --------- ---------- Total interest expense 612 259 Net Interest Income 492 336 Provision for loan losses 17 33 --------- ---------- Net interest income after provision for loan losses 475 303 Noninterest income 75 32 Noninterest expense Salaries and benefits 197 163 Occupancy expense of premises 38 32 Furniture and equipment expense 32 20 Computer and data processing expenses 47 32 Advertising and public relations 18 34 Professional fees 36 30 Amortization of deposit premium and conversion cost 6 6 Other expense 10 21 --------- ---------- Total noninterest expense 384 338 --------- ---------- Profit (Loss) before federal income tax 166 (3) Federal income tax 52 0 --------- ---------- Net profit (loss) $ 114 $ (3) ========= ========== Basic and diluted profit (loss) per share $ .11 $ (0) ========= ==========
See accompanying notes to consolidated financial statements. 4 CLARKSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Three Month Ended March 31, 2001 and March 31, 2000 (dollars in thousands) (Unaudited) Three Months Three Months Ended Ended March 31, March 31, 2001 2000 ---- ---- Net Profit (Loss) as Reported $ 114 $ (3) Other Comprehensive Income, Net of Tax: Change in unrealized gain on securities available for sale 23 (2) --------- -------- Comprehensive Profit (Loss) $ 137 $ (5) ========= ========
See accompanying notes to consolidated financial statements. 5 CLARKSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Three months ended March 31, 2001 (dollars in thousands) (Unaudited) Accumulated Other Total Common Capital Accumulated Comprehensive Shareholders' Stock Surplus Deficit Income Equity -------- ------- ------------ ------------- ------------- Balance December 31, 2000 $ 4,306 $ 4,306 $ (335) $ 1 $ 8,278 Net income for three months Ended March 31, 2001 (unaudited) 114 114 Increase in fair market value of securities available for sale 0 0 0 23 23 -------- ------- ---------- --------- ---------- Balance March 31, 2001 $ 4,306 $ 4,306 $ (221) $ 24 $ 8,415 ======== ======= ========== ========= ==========
See accompanying notes to consolidated financial statements. 6 CLARKSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS Three Months ended March 31, 2001, and March 31, 2000 (dollars in thousands) (unaudited) Three Months Three Months Ended Ended March 31, March 31, 2001 2000 ----------- --------- Net Cash Provided by Operating Activities: Net cash provided by operating activities $ 235 $ 185 Cash Flows from Investing Activities: Net increase in loans (1,630) (3,706) Net decrease in securities 6,422 1,974 Property and Equipment expenditures (242) (3) ----------- ---------- Net cash provided by (used in) investing activities 4,550 (1,735) Cash Flows from Financing Activities: Increase (decrease) in deposits (799) 1,256 ----------- ----- Net increase (decrease) in cash and cash equivalents 3,986 (294) Cash and cash equivalents at beginning of year 3,412 2,467 ----------- ---------- Cash and cash equivalents at March 31, 2001 and 2000 $ 7,398 $ 2,173 =========== ==========
See accompanying notes to consolidated financial statements. 7 CLARKSTON FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (unaudited) and December 31, 2000 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Proxy Statement dated April 2, 2001 containing audited financial statements as of December 31, 2000 and 1999. NOTE 2 - COMPUTATION OF EARNINGS PER SHARE Basic earnings (loss) per share is based on net income (loss) divided by the weighted average number of shares outstanding during the period. NOTE 3 - PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Clarkston Financial Corporation (the "Company"), and its wholly-owned subsidiary, Clarkston State Bank (the "Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation. 8 CLARKSTON FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (unaudited) and December 31, 2000 NOTE 4 - SECURITIES The amortized cost and fair values of securities were as follows (dollars in thousands): Available for Sale Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- ---------- March 31, 2001 (Unaudited) Taxable variable rate demand Municipal revenue bonds, Short term corporate Commercial paper, and bonds of government agencies $ 6,852 $ 37 $ (12) $6,877 ======= ========= ========== ====== Held to Maturity March 31, 2001 (Unaudited) Taxable variable rate demand Municipal revenue bonds, Short term corporate Commercial paper, and bonds of government agencies $ 17,032 $ 196 $ (31) $ 17,197 ======== ========= ========== ========
Contractual maturities of debt securities at March 31, 2001, were as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Available-for-Sale Securities Estimated Amortized Market Cost Value ---------- ------- (dollars in thousands) Due from 2001 to 2002 $ 291 $ 293 Due from 2002 to 2003 865 869 Due from 2003 to 2032 5,696 5,715 ----- ----- $6,852 $6,877 ====== ====== Held-To-Maturity Estimated Amortized Market Cost Value --------- --------- Due from 2001-2003 $ 0 $ 0 Due from 2004-2006 4,066 4,105 Due from 2006-2032 12,966 13,092 ------ ------ $17,032 $ 17,197 ======= ========
(Continued) 9 CLARKSTON FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (unaudited) and December 31, 2000 NOTE 5 - LOANS Loans are as follows (dollars in thousands): March 31, December 31, 2001 2000 ----------- ----------- (Unaudited) Commercial $17,761 $16,100 Mortgage 3,466 3,955 Consumer 6,165 5,707 -------- -------- 27,392 25,762 Allowance for loan losses 392 379 -------- -------- $27,000 $ 25,383 ======= ========
Activity in the allowance for loan losses is as follows (dollars in thousands): Three months For the Ended Year Ended March 31, December 31, 2001 2000 ----------- ---------- (Unaudited) Balance at beginning of period $ 379 $ 140 Provision charged to operating expense 17 243 Net loans (charge-offs) recoveries (4) (4) ------ -------- Balance at end of periods $392 $ 379 ====== ======= Allowance for loan losses as a percentage of loans at end of period 1.43% 1.47% ====== =======
(Continued) 10 CLARKSTON FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (unaudited) and December 31, 2000 NOTE 6 - PREMISES AND EQUIPMENT - NET Premises and equipment are as follows (dollars in thousands): Accumulated Carrying Cost Depreciation Value ---- ------------ ----- March 31, 2001 (unaudited) Building and improvements $ 323 $ 12 $ 311 Furniture and equipment 377 180 197 --------- --------- --------- $ 700 $ 192 $ 508 ========= ========= ========= December 31, 2000 Building and improvements $ 86 $ 8 $ 78 Furniture and equipment 372 168 204 --------- --------- --------- $ 458 $ 176 $ 282 ========= ========= =========
NOTE 7 - DEPOSITS Interest-bearing deposits are summarized as follows (dollars in thousands): March 31, December 31, 2001 2000 ---------- ---------- Demand deposit accounts $ 2,067 $ 1,635 Money market accounts 2,947 3,524 Savings accounts 5,769 5,796 Certificates of Deposit 32,493 33,855 -------- -------- $ 43,276 $ 44,810 ======== ========
(Continued) 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Clarkston Financial Corporation (the "Company") is a Michigan corporation incorporated on May 18, 1998. The Company is the bank holding company for Clarkston State Bank (the "Bank"). The Bank commenced operations on January 4, 1999. The Bank is a Michigan chartered bank with depository accounts insured by the Federal Deposit Insurance Corporation. The Bank provides a full range of commercial and consumer banking services, primarily in Clarkston, Michigan and the surrounding market area primarily located in north Oakland County, Michigan. The Bank also operates a branch office in the Farmer Jack grocery store in Clarkston, Michigan. The Bank is planning to open a third branch, which will be full service, around June 1, 2001, and will be located at 6600 Highland Road, Suite #2 in Waterford, Michigan. The Bank will also open a temporary office just north of Clarkston, this summer, to help our customers because of the downtown construction. Financial Condition Total assets of the Company decreased by $0.8 million or 1.4% to $59.4 million at March 31, 2001, from $60.2 million at December 31, 2000. The decrease in assets is primarily attributable to a reduction in securities because of the high number of called issues by the government. The Company anticipates that the Bank will turn this trend around and increase its asset base during 2001, which will be the Bank's third full year of operations. Securities decreased $6.4 million or 21.2% to $23.9 million at March 31, 2001 from $30.3 million at December 31, 2000. The decrease is the result of a reduction in deposits of $0.8 million, increases in loans of $1.6 million and increases in federal funds of $4.0 million. Total loans increased by $1.6 million or 6.2% to $27.4 million at March 31, 2001, from $25.8 million at December 31, 2000. Management believes that the total loans will continue to grow, although at a lower percentage rate of increase. The allowance for loan losses as of March 31, 2001 was $392,000, representing approximately 1.43% of total loans outstanding, compared to $379,000 as of December 31, 2000. This increase resulted primarily from the increase in the Bank's total loans. As of December 31, 2000, the Company had an accumulated deficit of $335,000 and as of March 31, 2001, the accumulated deficit was $222,000. The accumulated deficit is primarily the result of opening the Bank's main office and its one branch, wages paid to employees, fees and expenses incurred in forming the Company and applying for regulator approvals. Future retained earnings are expected to further reduce and eventually eliminate the accumulated deficit. Results of Operations The Company's net income was $114,000 for the first quarter of 2001 compared to a loss of $3,000 for the first quarter of 2000. The Bank began operations in 1999, and became profitable in the first quarter of 2000. Interest income was $1,104,000 for the three months ended March 31, 2001, an increase of $513,000 from interest income of $591,000 for the three months ended March 31, 2001. Interest expense 12 was $612,000 for the three months ended March 31, 2001, an increase of $353,000 from interest expense of $259,000 for the three months ended March 31, 2000, and relates to interest paid on interest bearing deposits. The Company had an allowance for loan losses of approximately 1.43% of total loans at March 31, 2001. The provision for loan loss for the three months ended March 31, 2001 was $17,000. Management believes the current rate of providing for the loan loss reserve is adequate. In each accounting period, management evaluates the problems and potential losses in the loan portfolio. Consideration is also given to off-balance sheet items that may involve credit risk, such as commitments to extend credit. Management's evaluation of the allowance is further based on consideration of actual loss experience, the present and prospective financial condition of borrowers, adequacy of collateral, industry concentrations within the portfolio and general economic conditions. The results of these evaluations are reflected in the allowance and periodic provision for credit losses. The primary risk element considered by management regarding each installment and residential real estate loan is the lack of timely payments. Management has a reporting system that monitors past due loans and has adopted policies to pursue its creditor's rights in order to preserve the Bank's position. The primary risk elements concerning commercial loans are the financial condition of the borrower, the sufficiency of the collateral and lack of timely payment. Management has a policy of requesting and reviewing annual financial statements from its commercial loan customers and periodically reviews the existence and value of collateral for selected loans. Noninterest income was $75,000 for the first quarter of 2001 compared to $32,000 for the first quarter of 2000. This increase was due in part to increases of service charges from $4,000 to $11,000, loan fees (net) from $4,000 to $10,000 and other miscellaneous fees from $24,000 to $54,000. Noninterest expense was $384,000 for the first quarter of 2001, a $46,000 (or 13.6%) increase over the first quarter of 2000, with the increase primarily attributable to increases in salaries and benefits due to the increase of full time equivalents from 14.8 to 16.8 and normal raises given to employees. There were also increases in computer and data processing expenses due to growth in the number of accounts processed. Liquidity and Capital Resources The Company obtained its initial equity capital in an initial public offering of its common stock in November, 1998. The Company's plan of operation for the next twelve months does not contemplate the need to raise additional capital during that period. Management believes that its current capital and liquidity will provide the Company with adequate capital to support its expected level of deposit and loan growth and to otherwise meet its cash and capital requirements for at least the next one or two years. Forward Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the 13 Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company and the subsidiaries include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Securities Holders None Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - (b) Reports on Form 8-K - None. 15 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-QSB for the quarter ended March 31, 2001, to be signed on its behalf by the undersigned, thereunto duly authorized. CLARKSTON FINANCIAL CORPORATION /s/ David T. Harrison David T. Harrison President and Chief Executive Officer /s/ Terry R. Wolf Terry R. Wolf Principal Financial and Accounting Officer DATE: May 14, 2001 16