UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
--------------- ---------------
Commission File No. 0-33413
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CLOVER LEAF FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
Delaware 37-1416016
(State of incorporation) (IRS Employer Identification No.)
200 East Park Street, Edwardsville, Illinois 62025
-------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(618) 656-6122
(Registrant's Telephone Number, including area code)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the preceding 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at May 13, 2004
--------------------------- ---------------------------
Common stock $.10 par value 622,417
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statement of Changes in Stockholders'
Equity and Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3. CONTROLS AND PROCEDURES 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES
16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURE AND CERTIFICATIONS 18
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLOVER LEAF FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in Thousands, except per share data)
March 31, December 31,
2004 2003
---------------- -----------------
ASSETS
Cash and due from banks $ 1,771 $1,811
Interest bearing deposits in other financial institutions 3,558 3,442
---------------- -----------------
Total cash and cash equivalents 5,329 5,253
Securities available-for-sale 23,591 23,857
Federal Home Loan Bank stock 3,739 3,680
Loans, net of allowance for loan losses of
$721 at March 31, 2004 and $725 at December 31, 2003 69,575 66,755
Bank premises and equipment 2,467 2,352
Accrued interest receivable 503 488
Other assets 386 315
---------------- -----------------
TOTAL ASSETS $105,590 $102,700
================ =================
LIABILITIES
Deposits:
Noninterest bearing $ 8,884 $8,002
Interest bearing 73,730 72,463
---------------- -----------------
Total deposits 82,614 80,465
Federal Home Loan Bank advances 8,455 8,000
Other borrowings 831 686
Accrued interest payable 150 167
Other liabilities 930 725
---------------- -----------------
TOTAL LIABILITIES 92,980 90,043
---------------- -----------------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value - 250,000 shares authorized;
none issued or outstanding - -
Common stock, $.10 par value - 2,000,000 shares authorized; 661,250
shares issued 66 66
Surplus 6,072 6,072
Retained earnings 7,205 7,044
Accumulated other comprehensive income 119 58
Treasury Stock, 38,833 shares and 25,300 shares at cost, at March 31, 2004 and (709) (438)
December 31, 2003, respectively.
Unearned Employee Stock Ownership Plan shares (143) (145)
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 12,610 12,657
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $105,590 $102,700
================ =================
See the accompanying notes to unaudited consolidated financial statements.
3
CLOVER LEAF FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(Dollars in Thousands, except per share data)
Three Months Ended
March 31,
------------------------------------
2004 2003
---------------- ----------------
Interest Income and dividend income:
Loans, including fees $ 985 $ 1,108
Securities 206 127
Federal Home Loan Bank dividends 60 43
Interest-bearing deposits in other banks 8 18
---------------- ----------------
TOTAL INTEREST AND FEE INCOME 1,259 1,296
---------------- ----------------
Interest Expense:
Deposits 425 528
Federal Home Loan Bank advances 39 64
Other borrowings 1 3
---------------- ----------------
TOTAL INTEREST EXPENSE 465 595
---------------- ----------------
NET INTEREST INCOME 794 701
Provision for loan losses - 23
---------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 794 678
---------------- ----------------
Noninterest Income:
Service charges on deposit accounts 27 20
Other service charges and fees 17 14
Loan servicing fees 13 8
Gain on sale of loans 35 68
Gain on sale of investments 3 -
Other 18 1
---------------- ----------------
TOTAL NONINTEREST INCOME 113 111
---------------- ----------------
Noninterest Expense:
Salaries and employee benefits 337 329
Occupancy and equipment, net 66 64
Data processing 58 60
Advertising and marketing 33 9
Directors' fees 39 30
Audit and accounting fees 25 18
Legal & collection expense 15 20
Other 88 89
---------------- ----------------
TOTAL NONINTEREST EXPENSE 661 619
---------------- ----------------
Net income before income taxes 246 170
Income taxes 85 62
---------------- ----------------
NET INCOME $ 161 $ 108
================ ================
Average Shares Outstanding:
Basic and Diluted 616,265 641,549
Basic and Diluted Earnings Per Share $.26 $.17
==== ====
Dividends Per Share - -
See accompanying notes to unaudited consolidated financial statements
4
CLOVER LEAF FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (Unaudited)
(Dollars in Thousands)
Three Months Ended March 31, 2004
----------------------------------------------------------------------------------------------------
Unearned
Accumulated Employee
Other Stock
Retained Comprehensive Treasury Ownership
Common Stock Surplus Earnings Income Stock Plan Shares Total Equity
-------------- ------------- ------------ ------------- -------------- -------------- --------------
Balance at December 31, 2003 $ 66 $ 6,072 $ 7,044 $ 58 (438) $ (145) $ 12,657
Comprehensive income
Net income -- -- 161 -- -- -- 161
Other comprehensive income,
net of tax:
Change in unrealized -- -- -- 63 -- -- 63
gain on securities
available-for-sale
arising during the
period, net of tax of $50
--------------
Reclassification
adjustment, net of tax (2) (2)
of $(1)
--------------
Comprehensive income 222
--------------
Allocation of ESOP shares -- -- -- -- -- 2 2
Purchase of treasury stock -- -- -- -- (271) -- (271)
-------------- ------------- ------------ ------------- -------------- -------------- --------------
Balance at March 31, 2004 $ 66 $ 6,072 $ 7,205 $ 119 $ (709) $ (143) $ 12,610
============== ============= ============ ============= ============== ============== ==============
See the accompanying notes to unaudited consolidated financial statements.
--------------------------------------------------------------------------------
5
CLOVER LEAF FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31,
---------------------------------------------
2004 2003
-------------------- --------------------
Cash Flows from Operating Activities
Net income $ 161 $ 108
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 34 30
Provision for loan losses - 23
Net amortization (accretion) on investments 64 (18)
Deferred tax provision 17 (2)
Realized gain on sale of investments (3) -
Federal Home Loan Bank stock dividend (59) (52)
Gain on sale of loans (35) (68)
Proceeds from sales of loans held for sale 3,524 2,418
Origination of loans held for sale (3,489) (2,350)
(Increase) in accrued interest receivable (15) 73
(Increase) in other assets (123) (20)
Decrease in accrued interest payable (17) (7)
Increase in other liabilities 205 93
-------------------- --------------------
Net cash provided by operating activities 264 228
-------------------- --------------------
Cash Flows from Investing Activities:
Purchase of securities available-for-sale (1,267) (6,650)
Proceeds of sales and maturities of securities available-for-sale and paydowns 1,568 3,559
Increase in loans, net (2,820) (3,652)
Purchases of premises and equipment (149) (508)
-------------------- --------------------
Net cash (used in) investing activities (2,668) (7,251)
-------------------- --------------------
Cash Flows from Financing Activities
Increase in deposits 2,149 7,997
Proceeds from Federal Home Loan Bank advances 1,455 -
Repayments of Federal Home Loan Bank advances (1,000) -
Increase in other borrowings 145 867
Allocation of ESOP shares 2 9
Purchase of Treasury Stock (271) (243)
-------------------- --------------------
Net cash provided by financing activities 2,480 8,630
-------------------- --------------------
Net increase in cash and cash equivalents 76 1,607
Cash and cash equivalents:
Beginning 5,253 8,117
-------------------- --------------------
Ending $ 5,329 $9,724
==================== ====================
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $482 $602
Income taxes - 27
See the accompanying notes to unaudited consolidated financial statements.
6
CLOVER LEAF FINANCIAL CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note A--Principles of Accounting
The consolidated financial statements of Clover Leaf Financial Corp.
("Clover Leaf Financial" or the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States of America and in
the banking industry and with the instructions to Form 10-QSB. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for annual
reporting. Reference is hereby made to the notes to consolidated financial
statements contained in Clover Leaf Financial's annual report on Form 10-KSB.
The foregoing consolidated financial statements are unaudited. However, in the
opinion of management, all adjustments necessary for a fair presentation of the
consolidated financial statements have been made. All such adjustments are of a
normal recurring nature. The results of operations for the interim periods
presented herein are not necessarily indicative of the results to be expected
for the full year.
The consolidated financial statements include the accounts of the
Company's subsidiary. Clover Leaf Financial is a bank holding company that
engages in its business through its sole subsidiary, Clover Leaf Bank (the
"Bank"), an Illinois-chartered commercial bank. All material intercompany
transactions and balances are eliminated. Clover Leaf Financial was organized at
the direction of the Board of Directors of the Bank for the purpose of owning
all of the outstanding capital stock of the Bank following the completion of the
Bank's mutual-to- stock conversion. Clover Leaf Financial offered for sale
661,250 shares of its outstanding common stock in a public offering to eligible
depositors and members of the general public and this offering was completed on
December 27, 2001.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated balance sheet and revenues and
expenses for the period. Actual results could differ significantly from those
estimates.
Note B--Business Segments
Financial Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information," requires business segments to be
reported based on the way management organizes segments within an organization
for making operating decisions and assessing performance. Management has not
included disclosures regarding segments since management makes operating
decisions and assesses performance based on Clover Leaf Financial as a whole.
Note C--Net Income Per Share
Basic earnings per share are determined by dividing net income by the
weighted average number of common shares outstanding. Shares acquired by the
ESOP are held in trust but are not considered in the weighted average shares
outstanding until the shares are committed for allocation or vested to an
employee's individual account.
The Company has not issued any stock options or other potentially
dilutive shares, therefore, diluted earnings are the same as basic earnings per
share.
7
CLOVER LEAF FINANCIAL CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data) Three Months Ended
March 31,
----------------------------
2004 2003
------------ ------------
Net income available to common shareholders $161 $108
Weighted average shares outstanding 627,292 653,855
Weighted average ESOP shares (11,027) (12,306)
------------ ------------
Basic average shares outstanding 616,265 641,549
------------ ------------
Basic and diluted earnings per share $.26 $.17
============ ============
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion describes Clover Leaf Financial's results of
operations during the three-month periods ended March 31, 2004 and 2003, and its
financial condition, asset quality, and capital resources as of March 31, 2004.
This discussion should be read in conjunction with Clover Leaf Financial's
unaudited consolidated financial statements and notes thereto. The results of
operations for the interim periods presented herein are not necessarily
indicative of the results to be expected for the full year.
FORWARD-LOOKING STATEMENTS
This filing and future filings made by Clover Leaf Financial with the
Securities and Exchange Commission, as well as other filings, reports and press
releases made or issued by Clover Leaf Financial, and oral statements made by
executive officers or directors of Clover Leaf Financial may include
forward-looking statements, which are based on assumptions and describe future
plans, strategies, projections and expectations of Clover Leaf Financial. These
forward-looking statements are generally identified by use of terms "believe",
"expect", "anticipate", "should", "planned", "estimated" and "potential".
Examples of forward-looking statements include, but are not limited to,
estimates with respect to Clover Leaf Financial's financial condition, results
of operations and business that are subject to various factors which could cause
actual results to differ materially from these estimates and most other
statements that are not historical in nature. These factors include, but are not
limited to, general and local economic conditions, changes in interest rates,
deposit flows, demand for mortgage and other loans, real estate values, and
competition; changes in accounting principles, policies or guidelines; changes
in legislation or regulation; and other economic, competitive, governmental,
regulatory, and technological factors affecting Clover Leaf Financial's
operations, pricing, products and services.
FINANCIAL CONDITION
At March 31, 2004, total assets were $105.6 million, an increase of $2.9
million, or 2.8%, from $102.7 million at December 31, 2003. Loans receivable at
March 31, 2004 were $69.6 million, an increase of $2.8 million or 4.2%, from
$66.8 million at December 31, 2003. Commercial real estate loans increased $5.1
million, or 21.0% compared to the 2003 year end. This increase was due to a
continued focus by the Bank on commercial lending and a favorable interest rate
environment. Consumer loans increased $296,000 or 7.0% compared to the 2003 year
end. These increases were partially offset by a $2.3 million, or 7.3% decline in
one-to-four family mortgage, and a $332,000, or 30.0% decline in construction
and land loans. The decline in one-to-four family mortgage loans was due to the
sale of $3.5 million in loans to the Federal Home Loan Bank during the first
quarter, as part of the Mortgage Partnership Finance program, where the Bank
sells the loans and retains servicing rights. Servicing income on loans sold
generated income of $13,000 in the first quarter of 2004 compared to $8,000 for
the first quarter of 2003. Securities, including Federal Home Loan Bank stock,
decreased $207,000, or 0.8%, to $27.3 million at March 31, 2004 from $27.5
million at December 31, 2003. Bank premises and equipment increased $115,000, or
4.9% to $2.5 million at March 31, 2004. The increase resulted from expenses
related to the planning and design for the future construction of a new branch
office.
Deposits as of March 31, 2004 were $82.6 million, an increase of $2.1 million,
or 2.7%, from December 31, 2003. Non-interest bearing deposits increased
$882,000 or 11.0% due to an increase in the number of commercial deposit
accounts held at the Bank. Interest-bearing deposits increased $1.3 million or
1.7%. This increase was primarily in time deposits. Short-term time deposits
have continued to be a popular product due to the volatile stock market and lack
of high yielding investment options for consumers.
Federal Home Loan Bank advances as of March 31, 2004 were $8.5 million, an
increase of $455,000, or 5.7% from December 31, 2003. Declining borrowing rates
have made Federal Home Loan Bank advances an attractive alternative for funding
increased loan volumes.
Total stockholders' equity as of March 31, 2004 was $12.6 million, a decrease of
$47,000 or 0.4% from December 31, 2003. The decrease in equity from December 31,
2003 to March 31, 2004 was the result of the purchase of 13,533 shares of
treasury stock totaling $271,000 by Clover Leaf Financial during the first
quarter of 2004. This
9
decrease in equity was partially offset by the recording of $161,000 in net
income and an increase of $61,000 in the unrealized gain on investment
securities held for sale. At March 31, 2004 there were 622,417 shares of common
stock outstanding, at a book value of $20.26 per share.
ASSET QUALITY
Clover Leaf Financial's asset quality management program, particularly
with regard to loans, is designed to analyze potential risk elements and to
support the growth of a high quality loan portfolio. Clover Leaf Financial's
policies, consistent with regulatory guidelines, require that loans and other
assets be classified as substandard, doubtful or loss if they are determined to
be of lesser quality. Assets which possess some weaknesses, but do not warrant
classification in the aforementioned categories are required to be designated as
special mention. Management regularly reviews the asset portfolio to determine
whether any assets require classification in accordance with applicable
regulatory guidelines and accounting principles generally accepted in the United
States of America.
At March 31, 2004 nonperforming assets totaled $836,000, or .79% of
total assets, compared to nonperforming assets at year-end 2003 of $908,000, or
..88% of total assets. The Bank held no foreclosed assets at March 31, 2004 or
December 31, 2003.
10
The following table sets forth a summary of Clover Leaf Financial's
loan portfolio mix and nonperforming assets.
(Dollars in Thousands) March 31, 2004 December 31, 2003
---------------------------------------------- ------------------------------------
Loans and Loans and
Foreclosed Non-performing Foreclosed Non-performing
Assets Assets Assets Assets
------------------ ---------------------- -------------- ------------------
Real Estate
One- to four-family...................... $29,458 $589 $31,709 $656
Commercial............................... 29,436 - 24,335 -
Construction and land.................... 773 - 1,105 -
Non-real estate
Consumer................................ 4,504 89 4,208 92
Commercial Business..................... 6,125 158 6,133 160
------------------ ---------------------- -------------- ------------------
Gross loans............................... 70,296 836 67,490 908
Foreclosed assets......................... - - - -
------------------ ---------------------- -------------- ------------------
Total........................... $70,296 836 $67,490 $908
================== ====================== ============== ==================
Nonaccrual loans.......................... $836 $896
Accruing loans past due
90 days or more...................... - 12
Troubled debt restructurings.............. - -
---------------------- ------------------
Total nonperforming loans............ 836 908
Foreclosed assets......................... - -
---------------------- ------------------
Total nonperforming assets........... $836 $908
====================== ==================
Nonperforming loans to gross loans........ 1.19% 1.35%
Nonperforming assets to gross loans
and foreclosed assets................ 1.19% 1.35%
Nonperforming assets to total assets...... .79% .88%
The Bank recorded net charge-offs of $4,000 for the first quarter of
2004 compared to net recoveries of $4,000 for the first quarter of 2003. Net
charge-offs as a percentage of average total loans was .01% for the first
quarter of 2004 compared to net recoveries as a percentage of average total
loans of (.01)% for the first quarter of 2003.
Clover Leaf Financial's allowance for loan losses at March 31, 2004
decreased to $721,000 from $725,000 at December 31, 2003. At March 31, 2004, the
allowance for loan losses represented 86.24% of non-performing loans compared to
79.85% at December 31, 2003. The ratio of the allowance for loan losses to total
loans was 1.03% at March 31, 2004 compared to 1.07% at December 31, 2003.
Management believes that the allowance for loan losses at March 31, 2004 was
adequate to absorb probable losses inherent in the loan portfolio. However, past
loan loss experience as it relates to current portfolio mix, evaluation of
potential losses in the portfolio, subsequent changes in economic conditions and
other factors may require changes in the levels of the allowance for loan
losses.
Potential Problem Loans. We utilize an internal asset classification
system as a means of reporting problem and potential problem assets. At each
scheduled meeting of the board of directors of our subsidiary bank, a watch list
is presented, showing all loans listed as "Special Mention," "Substandard,"
"Doubtful" and "Loss." An asset is classified Substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility that we will sustain some loss if the deficiencies are
not corrected. Assets classified as Doubtful have all the weaknesses inherent in
those classified Substandard with the added characteristic that the weaknesses
present make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, highly questionable
11
and improbable. Assets classified as Loss are those considered uncollectible and
viewed as non-bankable assets, worthy of charge-off. Assets that do not
currently expose us to sufficient risk to warrant classification in one of the
aforementioned categories, but possess weaknesses that may or may not be within
the control of the customer are deemed to be Special Mention.
Our determination as to the classification of our assets and the amount
of our valuation allowances is subject to review by the Bank's primary
regulators, which can require the establishment of additional general or
specific loss allowances. The Office of Banks and Real Estate, in conjunction
with the other federal banking agencies, has adopted an interagency policy
statement on the allowance for loan losses. The policy statement provides
guidance for financial institutions on both the responsibilities of management
for the assessment and establishment of adequate allowances and guidance for
banking agency examiners to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that (1) institutions
have effective systems and controls to identify, monitor and address asset
quality problems; (2) management has analyzed all significant factors that
affect the collectibility of the portfolio in a reasonable manner; and (3)
management has established acceptable allowance evaluation processes that meet
the objectives set forth in the policy statement. Management believes it has
established an adequate allowance for probable loan losses. We analyze our
process regularly, with modifications made if needed, and report those results
four times per year at meetings of our board of directors however, there can be
no assurance that regulators, in reviewing our loan portfolio, will not request
us to materially increase our allowance for loan losses at the time. Although
management believes that adequate specific and general loan loss allowances have
been established, actual losses are dependent upon future events and, as such,
further additions to the level of specific and general loan loss allowances may
become necessary.
Potential problem loans are loans included on the watchlist presented
to the Board of Directors that do not meet the definition of a non-performing
loan, but where known information about possible credit problems of borrowers
causes management to have serious doubts as to the ability of such borrowers to
comply with present loan repayment terms. The aggregate principal amounts of
potential problem loans as of March 31, 2004 and December 31, 2003, were $1.1
million, and $1.3 million, respectively.
Allowance for Loan Losses. Management believes the allowance for loan
losses accounting policy is critical to the portrayal and understanding of our
financial condition and results of operations. As such, selection and
application of this "critical accounting policy" involves judgements, estimates
and uncertainties that are susceptible to change. In the event that different
assumptions or conditions were to prevail, and depending upon the severity of
such changes, the possibility of materially different financial condition or
results of operations is a reasonable likelihood.
12
The following table presents information pertaining to the activity in
and an analysis of Clover Leaf Financial's allowance for loan losses for the
periods presented.
(Dollars in Thousands)
Three Months Ended
March 31
------------------------------------
2004 2003
---------------- ----------------
Balance at beginning of period................... $725 $690
Loans charged off:
Commercial, financial and agricultural...... 10 -
Consumer.................................... 2 3
---------------- ----------------
Total charge-offs................. 12 3
---------------- ----------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural...... - 1
Consumer.................................... 8 6
---------------- ----------------
Total recoveries.................. 8 7
---------------- ----------------
Net charge-offs (recoveries)..................... 4 (4)
Provision for loan losses........................ - 23
---------------- ----------------
Balance at end of period......................... $721 $717
================ ================
Net charge-offs (recoveries) as a percent of
average total loans......................... .01% (.01)%
Allowance for loans losses to gross loans........ 1.03% 1.00%
Allowance for loan losses to
nonperforming loans......................... 86.24% 44.87%
Income Information
The Company recorded net income for the three months ended March 31, 2004 of
$161,000, compared to net income of $108,000 for the three months ended March
31, 2003.
Interest income for the three months ended March 31, 2004 decreased $37,000, or
2.9% to $1.3 million. The average loan yield declined 48 basis points to 5.70%
at March 31, 2004 from 6.18% for the same period in the prior year. The Bank's
loan rate was negatively impacted by the high volume of mortgage loan
refinancing activity as well as the decline in the prime rate, which impacted
those commercial loans that re-price with the prime rate. The average security
yield increased 10 basis points to 3.88% at March 31, 2004 from 3.78% for the
same period in the prior year. The security yield was positively impacted by the
dividends received on Federal Home Loan Bank stock. Dividends recorded for the
period ended March 31, 2004 were 6.59% compared to 5.03% for the same period in
the prior year. In addition to an increase in the security yield, interest
income was positively impacted by the increased balance of securities held by
the Bank. Average security balances, including Federal Home Loan Bank stock,
increased $9.3 million, or 51.1% to $27.5 million at March 31, 2004 compared to
$18.2 million for the period ended March 31, 2003.
Interest expense for the most recent three-month period fell by $130,000 to
$465,000, a decrease of 21.8% compared to the same period last year. The
decrease was due to lower rates paid on interest-bearing deposits and
borrowings. The average rate paid on interest-bearing liabilities for the three
months ended December 31, 2003 declined by 76 basis points to 2.31% from 3.07%
for the same period last year. The largest rate decline was in certificates of
deposits, where the average interest rate paid fell by 85 basis points to 2.78%
for the three months ended March 31, 2004, from 3.63% for the prior-year period.
No provision expense was recorded for the period ended March 31, 2004, compared
to $23,000 for the three months ended March 31, 2003. Despite loan growth, the
Bank has experienced very little loss, and non-performing loan balances have
declined to $836,000 at March 31, 2004. During the year 2003, the Bank's
non-performing loan
13
balances had reached a high of $2.1 million. Since the Bank's non-performing
assets have declined so significantly with very little loss recorded, the Bank's
provision level is adequate to support the current non-performing loan volume
and total outstanding gross loan receivables, allowing the Bank to record no
monthly provision expense during the first quarter of 2004. Management
reevaluates the allowance for loan losses at least quarterly to ensure the
provision is maintained at a level that represents management's best estimate of
probable loan losses in the loan portfolio.
Net interest income after provision for loan losses for the three months ended
March 31, 2004 was $794,000, compared to $678,000 for the three months ended
March 31, 2003 an increase of $116,000, or 17.1%. The increase in net interest
income resulted primarily from the increase in net interest margin to 3.32% from
3.07% for the same period last year.
Non-interest income for the three months ended March 31, 2004 was $113,000
compared to $111,000 for the three months ended March 31, 2003, an increase of
$2,000, or 1.8%. The only income category showing a decline for the current
period was gain on sale of loans which declined $33,000, or 48.5% compared to
the same period last year. This decline is due to the declining rate environment
and spreads narrowing on sold loans. All other income categories increased for
the current three month period ending March 31, 2004 compared to the prior
period ended March 31, 2003. The largest income increase was in other income
where a $17,000 reimbursement check for accumulated service fees was received
from Freddie Mac.
Non-interest expense for the three months ended March 31, 2004 increased by
$42,000, or 6.8% from $619,000 for the three months ended March 31, 2003. The
increase was primarily attributable to increases in advertising expense,
director's fees, and compensation expense. Advertising expense increased
$24,000, or 266.7% due to the Bank hiring a marketing consultant and initiating
a more aggressive advertising campaign focused on promoting the Bank and various
new products. Directors fees increased $9,000, or 30% due to a one-time payment
to an emeritus director instead of paying that director over the course of the
year. Compensation expense increased $8,000, or 2.4% due to annual merit
increases.
LIQUIDITY AND CAPITAL RESOURCES
Total stockholders' equity decreased $47,000 from $12.7 million, at
December 31, 2003 to $12.6 million, at March 31, 2004. This decrease in
stockholders' equity during the first three months of 2004 was primarily the
result of the purchase of 13,533 shares of treasury stock totaling $271,000
during the first quarter of 2004. This decrease was partially offset by the
recording of $161,000 in net income, and a $61,000 change in unrealized gains on
available-for-sale securities during the first quarter of 2004.
Financial institutions are required to maintain ratios of capital to
assets in accordance with guidelines promulgated by the federal banking
regulators. The guidelines are commonly known as "Risk-Based Guidelines" as they
define the capital level requirements of a financial institution based upon the
level of credit risk associated with holding various categories of assets. The
Risk-Based Guidelines require minimum ratios of Tier 1 and Total Capital to
risk-weighted assets of 4% and 8%, respectively. At March 31, 2004, Clover Leaf
Bank's Tier 1 and Total capital ratios were 15.69% and 16.73% respectively. In
addition to the Risk-Based Guidelines, the federal banking agencies have
established a minimum leverage ratio guideline for financial institutions (the
"Leverage Ratio Guideline"). The Leverage Ratio Guideline provides for a minimum
ratio of Tier 1 capital to average assets of 4%. Clover Leaf Bank's leverage
ratio at March 31, 2004, was 10.67%. Accordingly, at March 31, 2004 Clover Leaf
Bank satisfied these regulatory guidelines.
Clover Leaf Bank's primary sources of liquidity or internally generated
funds are principal and interest payments on loans receivable, cash flows
generated from operations, and cash flows generated by investments. External
sources of liquidity consist primarily of increases in deposits.
At March 31, 2004, Clover Leaf Bank had loan commitments of $5.2
million and unused lines of credit of $5.5 million. Clover Leaf Bank believes it
has adequate resources to fund loan commitments as they arise. If Clover Leaf
Bank requires funds beyond its internal funding capabilities, advances from the
Federal Home Loan Bank of Chicago are available. At March 31, 2004,
approximately $23.4 million of time deposits were scheduled to mature
14
within one year. We expect that substantially all of these time deposits either
will be renewed upon maturity or will be placed in money market accounts at
Clover Leaf Bank. Clover Leaf Bank intends to sell a greater percentage of its
residential real estate loan originations, which will provide additional
liquidity.
Sources of Funds
Deposits have been our primary source of funds for lending and other
investment purposes. In addition to deposits, we derive funds primarily from
principal and interest payments on loans. These loan repayments are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by market interest rates. Borrowings may be used on a short-term
basis to compensate for reductions in the availability of funds from other
sources, and may be used on a longer-term basis for general business purposes.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation within 90 days prior to the filing date of
this report, that the Company's disclosure controls and procedures (as defined
in Securities Exchange Act Rules 13a-14(c) and 15d-14(c)) are effective to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of the
foregoing evaluation.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES
OF EQUITY SECURITIES
Total Number of
Shares Purchased as Maximum Number of
Total Number Average Part of Publicly Shares that May Yet
of Shares Price Paid Announced Plans or Be Purchased Under
Purchased per Share Programs the Plans or Programs
------------ ----------- -------------------- ---------------------
January 1, 2004 to January
31, 2004.................. 2,000 $ 19.50 2,000 -
February 1, 2004 to
February 29, 2004......... 4,000 20.06 4,000 -
March 1, 2004 to March
31, 2004.................. 7,533 20.06 7,533 -
------------ ----------- -------------------- ---------------------
Total.................... 13,533 $ 19.98 13,533 -
============ =========== ==================== =====================
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K: On February 3, 2004, the Company filed a current
report on Form 8-K pursuant to Item 12. Results of Operations and
Financial Condition, in which it announced its December 31, 2003
financial results.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLOVER LEAF FINANCIAL CORP.
(Registrant)
DATE: May 14, 2004 By:/s/ Dennis M. Terry
-------------------- ------------------------------
Dennis M. Terry
President and Chief
Executive Officer
DATE: May 14, 2004 By:/s/ Darlene F. McDonald
------------------- ------------------------------
Darlene F. McDonald
Senior Vice President and
Treasurer (Principal Financial
And Accounting Officer)
18