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__
<PAGE>
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
<PAGE>
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)
<TABLE>
September 30, December 31,
2000 1999
--------------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
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
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
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)
<TABLE>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
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)
========= ========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
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)
<TABLE>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
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)
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended September 30, 2000
(dollars in thousands)
(Unaudited)
<TABLE>
Accumulated
Other Total
Common Capital Accumulated Comprehensive Shareholders'
Stock Surplus Deficit Income Equity
------- ------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
======== ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Month Periods Ended September 30, 2000, and September 30, 1999
(dollars in thousands)
(unaudited)
<TABLE>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
------------- -----------
<S> <C> <C>
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
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
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
<PAGE>
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
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------- -------- ---------- ---------
<S> <C> <C> <C> <C>
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
======== ========= ========= ========
</TABLE>
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.
<TABLE>
Available-for-Sale Securities
-----------------------------
Estimated
Amortized Market
Cost Value
---------- -------
(dollars in thousands)
<S> <C> <C>
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
======= ========
</TABLE>
(Continued)
9
<PAGE>
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):
<TABLE>
September 30 December 31,
2000 1999
------------------ -----------
(Unaudited)
<S> <C> <C>
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
======= ========
</TABLE>
Activity in the allowance for loan losses is as follows (dollars in thousands):
<TABLE>
Nine months For the
Ended Year Ended
September 30 December 31,
2000 1999
------------------ ----------
(Unaudited)
<S> <C> <C>
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%
===== =========
</TABLE>
(Continued)
10
<PAGE>
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):
<TABLE>
Accumulated Carrying
Cost Depreciation Value
---- ------------ --------
<S> <C> <C> <C>
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
======= ========= ========
</TABLE>
NOTE 7 - DEPOSITS
Interest-bearing deposits are summarized as follows (dollars in thousands):
<TABLE>
September 30, December 31,
2000 1999
-------------- -----------
<S> <C> <C>
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
======== ========
</TABLE>
(Continued)
11
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
