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, 2002
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
----------------------
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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
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, 2002
--------------------------------- ---------------------------
Common stock $.10 par value 648,550
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
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURE PAGE 18
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLOVER LEAF FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
March 31 December 31
2002 2001
---------------- -----------------
ASSETS
Cash and due from banks $ 1,539 $2,513
Interest bearing due from banks 3,932 10,279
Investment securities:
Available-for-sale, at fair value (cost of $14,257 and
$14,037 at March 31, 2002 and December 31, 2001, respectively) 14,496 14,306
Federal Home Loan Bank Stock 4,621 3,065
Loans 61,989 63,081
Allowance for loan losses (656) (646)
---------------- -----------------
Net Loans 61,333 62,435
Accrued interest receivable 444 488
Bank premises and equipment 2,577 2,601
Other assets 370 414
---------------- -----------------
TOTAL ASSETS $89,312 $96,101
================ =================
LIABILITIES
Deposits:
Noninterest bearing $7,382 $13,061
Interest bearing 67,592 67,872
---------------- -----------------
Total Deposits 74,974 80,933
Securities sold under agreements to repurchase 5 354
Federal Home Loan Bank advances 1,500 1,500
Accrued interest payable 281 315
Other liabilities 98 489
---------------- -----------------
TOTAL LIABILITIES 76,858 83,591
---------------- -----------------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value - 250,000 shares authorized;
none issued or outstanding at March 31, 2002 or December 31, 2001 - -
Common stock, $.10 par value - 2,000,000 shares authorized; 661,250
shares issued at March 31, 2002 and December 31, 2001 66 66
Surplus 6,123 6,134
Retained earnings 6,273 6,158
Accumulated other comprehensive income 158 177
Unearned Employee Stock Ownership Plan shares (166) (25)
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 12,454 12,510
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $89,312 $96,101
================ =================
See the accompanying notes to consolidated financial statements.
3
CLOVER LEAF FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31
---------------------------------------
2002 2001
----------------- -----------------
Interest and Fee Income:
Interest and fees on loans $1,093 $1,159
Interest on U.S. Treasuries and agencies 171 224
Interest on other securities 13 21
Federal Home Loan Bank dividends 56 10
Interest on deposits with banks 11 79
----------------- -----------------
TOTAL INTEREST AND FEE INCOME 1,493
----------------- -----------------
Interest Expense:
NOW, money market and savings deposits 105 107
Certificates of deposit 546 869
Securities sold under agreements to repurchase 1 -
Federal Home Loan Bank advances 21 44
----------------- -----------------
TOTAL INTEREST EXPENSE 1,020
----------------- -----------------
NET INTEREST INCOME 671 473
Provision for loan losses 21 4
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 650 469
----------------- -----------------
Noninterest Income:
Service charges on deposit accounts 18 19
Other service charges and fees 15 17
Gain on sale of investment securities, net 4 6
Gain on sale of loans 18 -
Other 5 2
----------------- -----------------
TOTAL NONINTEREST INCOME 60 44
----------------- -----------------
Noninterest Expense:
Salaries and employee benefits 269 244
Occupancy and equipment, net 66 70
Data processing 57 54
Advertising and marketing 15 1
Directors' fees 24 24
Audit and accounting fees 18 5
Other 96 56
----------------- -----------------
TOTAL NONINTEREST EXPENSE 545 454
----------------- -----------------
INCOME BEFORE INCOME TAXES 165 59
Income Tax Expense 50 18
----------------- -----------------
NET INCOME $115 $41
================= =================
Average Shares Outstanding:
Basic and Diluted 649,990 N/A
Basic and Diluted Earnings Per Share $.18 N/A
==== ===
See the accompanying notes to 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, 2002
------------------------------------------------------------------------------------------------------------------------------------
Unearned
Accumulated Employee
Other Stock
Common Retained Comprehensive Ownership Total
Stock Surplus Earnings Income (Loss) Plan Shares Equity
-------------------------------------------------------------------------------------
Balance at December 31, 2001 $66 $6,134 $6,158 $177 $(25) $12,510
Comprehensive income
Net income - - 115 - - 115
Other comprehensive income, net of tax:
Change in unrealized gain on securities - - - (16) -
available-for-sale arising during the (16)
period, net of tax of $(9)
Reclassification adjustment, net of tax of - - - (3) -
$(1) (3)
--------
Other comprehensive income net of tax of
$(10) (19)
--------
Comprehensive income
96
Loan to ESOP for purchase of unallocated - - - -
shares (141) (141)
Costs related to issuance of common stock - (11) - - - (11)
-------------------------------------------------------------------------------------
Balance at March 31, 2002 $66 $6,123 $6,273 $158 $(166) $12,454
=====================================================================================
See the accompanying notes to consolidated financial statements.
5
CLOVER LEAF FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
Three Months Ended
March 31
----------------------------------------------
2002 2001
-------------------- ---------------------
Cash Flows from Operating Activities
Net income $ 115 $ 41
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 36 41
Provision for loan losses 21 4
Net amortization of premiums on investments 6 4
Deferred tax provision (7) (6)
Realized gain on sale of investments (4) (6)
Federal Home Loan Bank stock dividend (44) (9)
Gain on sale of loans (18) -
Proceeds from sales of loans held for sale 3,070 -
Decrease in accrued interest receivable 44 44
(Increase) decrease in other assets 90 241
Decrease in accrued interest payable (34) (23)
Decrease in other liabilities (384) (479)
-------------------- ---------------------
Net cash provided by operating activities 2,891 (148)
-------------------- ---------------------
Cash Flows from Investing Activities
Purchase of securities available-for-sale (1,633) (3,008)
Proceeds of sales and maturities of securities available-for-sale and 1,396 2,262
paydowns
Purchase of Federal Home Loan Bank stock (1,500) -
Increase in loans, net (2,003) (1,760)
Purchases of premises and equipment (12) (4)
-------------------- ---------------------
Net cash used in investing activities (3,752) (2,510)
-------------------- ---------------------
Cash Flows from Financing Activities
Increase (decrease) in deposits (5,959) 1,466
Repayments of Federal Home Loan Bank advances - (1,500)
Net increase (decrease) in securities sold under agreements to repurchase (349) 38
Loans to ESOP for purchase of shares (141) -
Cost associated with issuance of stock (11) -
-------------------- ---------------------
Net cash used in financing activities (6,460) 4
-------------------- ---------------------
Net decrease in cash and cash equivalents (7,321) (2,654)
Cash and cash equivalents:
Beginning 12,792 9,210
-------------------- ---------------------
Ending $5,471 $6,556
==================== =====================
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $707 $1,046
Income taxes - -
Supplemental disclosure of non cash investing activities
Real estate acquired through foreclosure 32 -
See the accompanying notes to consolidated financial statements.
6
CLOVER LEAF FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 savings 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. Prior to that date,
Clover Leaf Financial had no assets or liabilities. Accordingly, the
accompanying unaudited consolidated financial statements for the three months
ended March 31, 2001 represent only the accounts of the Bank and its wholly
owned subsidiary, Clover Leaf Financial Services, Inc.
In preparing the consolidated 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.
7
Note C--Net Income Per Share
Basic earnings per share are determined by dividing net income by the weighted
average number of common shares. Shares acquired by the ESOP are held in trust
but were 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.
Three months ended
March 31
---------------------------------
2002 2001
---------------- -------------
(In thousands, except per
share data)
Net income available to common shareholders $ 115 $ 41
Weighted average shares outstanding 661,250 N/A
Weighted average ESOP shares N/A
(11,260)
---------------- -------------
Basic average shares outstanding 649,990 N/A
---------------- -------------
Basic and diluted earnings per share 0.18 N/A
------------------ -------------
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, 2002 and 2001, and its
financial condition, asset quality, and capital resources as of March 31, 2002.
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.
OVERVIEW
Net income for the first quarter of 2002 was $115,000 or $.18 per
diluted common share compared to net income of $41,000 for the first quarter of
2001. Prior to the formation and incorporation of Clover Leaf Financial in
December 2001, the existing entity consisted of Clover Leaf Bank, a
state-chartered mutual savings association. Return on average assets for the
first quarter of 2002 was .53% compared to .20% for the first quarter of 2001.
Return on average equity for the first quarter of 2002 was 3.74% compared to
2.69% for the first quarter of 2001.
The increase in net income, for the quarters compared, resulted from
increases in net interest income and noninterest income, partially offset by
increases in the provision for loan losses and noninterest expense.
Total assets at March 31, 2002 decreased to $89,312,000 from
$96,101,000 at December 31, 2001. Interest bearing due from bank balances
decreased $6,347,000 during the first quarter of 2002 and net loans outstanding
decreased $1,102,000 for the same period. Investment securities increased
$1,746,000 from $17,371,000 at December 31, 2001 to $19,117,000 at March 31,
2002. Loans decreased due to sales of a portion of the 1-4 family residential
portfolio, the proceeds were invested in investment securities. Total deposits
decreased $5,959,000 during the first quarter of 2002 to $74,974,000 from
$80,933,000 at year-end 2001. The overall decrease in deposits and interest
bearing deposits with banks was attributable to subscription funds of $6,411,000
held by the Bank as part of the stock offering that were subsequently returned
to subscribers.
RESULTS OF OPERATIONS
Table 1 summarizes Clover Leaf Financial's statement of income and the
change in each category for the periods presented.
9
TABLE 1 - Comparative Statements of Income
(Dollars in Thousands)
Three Months Ended
March 31 Change
-------------------------------------- ---------------------------------
2002 2001 Amount Percent
----------------- ----------------- ----------------- ------------
Total interest income
(fully tax-equivalent)........................ $1,350 $1,498 $ (148) (9.9)%
Total interest expense............................. 673 1,020 (347) (34.0)
----------------- ----------------- -----------------
Net interest income...................... 677 478 199 41.6
Provision for loan losses.......................... 21 4 17 425.0
Noninterest income:
Service charges on deposit accounts............ 18 19 (1) (5.3)
Other service charges and fees................ 15 17 (2) (11.8)
Gain on sale of investment securities, net..... 4 6 (2) (33.3)
Gain on sale of loans......................... 18 - 18 N/M
Other.......................................... 5 2 3 150.0
----------------- ----------------- -----------------
Total..................................... 60 44 16 36.4
----------------- ----------------- -----------------
Noninterest expense:
Salaries and employee benefits................. 269 244 25 10.2
Occupancy and equipment, net................... 66 70 (4) (5.7)
Data processing................................ 57 54 3 5.6
Other.......................................... 153 86 67 77.9
----------------- ----------------- -----------------
Total..................................... 545 454 91 20.0
----------------- ----------------- -----------------
Income before income taxes.......................... 171 64 107 167.2
Less: tax-equivalent adjustment.................... 6 5 1 20.0
Income tax expense.................................. 50 18 32 177.8
----------------- ----------------- -----------------
Net income.......................................... $ 115 $ 41 $ 74 180.5
================= ================= =================
NM-Not Meaningful
Net Interest Income
Tax-equivalent net interest income increased $199,000 or 41.6% for the
first quarter of 2002 compared to the first quarter of 2001. The increase was
attributable to a decrease in interest expense partially offset by a decrease in
tax-equivalent interest income.
Total tax-equivalent interest income decreased $148,000 or 9.9% for the
first quarter of 2002 compared to the first quarter of 2001. This decrease was
primarily the result of reduced yields on interest earning assets and lower
volume of interest-bearing, due-from-bank balances during the first quarter of
2002. Due to a decline in market interest rates, the yield on average interest
earning assets decreased from 7.29% for the three months ended March 31, 2001 to
6.38% for the three months ended March 31, 2002.
Total interest expense decreased $347,000 or 34.0% for the first
quarter of 2002 compared to the first quarter of 2001. The decrease in interest
expense was primarily attributable to reduced interest rates on interest bearing
deposit accounts, particularly certificates of deposit. While the average rate
on time deposits decreased from 6.10% to 4.79% the average rate on other deposit
accounts decreased from 3.99% to 2.23% for the comparable periods.
The net interest margin was 3.09% for the first quarter of 2002
compared to 2.26% for the first quarter of 2001. During the first quarter of
2002 compared to the first quarter of 2001, the Company's yield on earning
assets declined. During the same period, a reduction in the cost of funds rates
more than offset the effect of the lower yield on earning assets. Other
significant factors in the improved net interest margin for the first quarter of
2002 compared to the first quarter of 2001 were a shift in the volume of
deposits from higher costing time deposits to other interest bearing deposits
and a higher level of capital, which allowed for an increase in the average
balance of interest earning assets.
10
Provision For Loan Losses
The Company recorded a provision for loan losses of $21,000 during the
first quarter of 2002 compared to $4,000 recorded during the first quarter of
2001. The Company increased the provision for loan losses because of an increase
in the Company's portfolio of both commercial business and commercial real
estate loans, which entail greater risk than one- to four-family residential
mortgage loans. The provision for loan losses is established with the intent to
bring the allowance for loan losses to a level which management believes is
appropriate to absorb the best estimate of probable loan losses in the loan
portfolio incurred as of the balance sheet date. Activity in the allowance for
loan losses and nonperforming loan data is presented under "ASSET QUALITY."
Noninterest Income
Total noninterest income increased from $44,000 in the first quarter of
2001 to $60,000 in the first quarter of 2002. The most significant factor in
this increase related to gains on the sale of loans which increased $18,000 for
the quarters compared. Service charges on deposit accounts and other service
charges and fees remained relatively unchanged for the periods compared. Net
gains on the sale of investment securities amounted to $4,000 for the first
quarter of 2002 and $6,000 for the first quarter of 2001.
Noninterest Expense
Total noninterest expense was $545,000 for the first quarter of 2002
compared to $454,000 for the first quarter of 2001. A portion of the increase in
noninterest expense was attributable to an increase in employee compensation and
benefits, the largest single component of noninterest expense. Employee
compensation and other benefit expenses increased $25,000 for the first quarter
of 2002 compared to the first quarter of 2001. The increase in this category of
expense for the quarters compared was primarily due to normal merit increases
and staff additions. Net occupancy and equipment expenses decreased $4,000 to
$66,000 for the first quarter of 2002 compared to the first quarter of 2001.
Expenses related to data processing increased $3,000 to $57,000 for the first
quarter of 2002 compared to the first quarter of 2001. Other noninterest
expenses increased $67,000 for the first quarter of 2002 compared to the first
quarter of 2001. Included in this category are expenses related to advertising,
audit and accounting fees, FDIC insurance premiums, legal and professional fees,
loan collection costs, and other operating expenses of the Company. Audit,
accounting, and professional fees for the first quarter of 2002 compared to the
first quarter of 2001 increased $13,000 primarily as a result of the filing and
accounting regulations related to being a stock owned company as compared to a
mutual held bank. Advertising expense increased $14,000 during the first quarter
of 2002 compared to the first quarter of 2001 as the Company engaged an
advertising firm to conduct an ongoing advertising campaign. Loan expense
increased $7,000 during the first quarter of 2002 compared to the first quarter
of 2001 due to the shift in the portfolio to more commercial loans, which have
higher loan origination expenses that were not all reimbursed by the customer,
rather than consumer and mortgage loans.
Income Tax Expense
Clover Leaf Financial recorded income tax expense of $50,000 for the
first quarter of 2002 compared to income tax expense of $18,000 for the first
quarter of 2001 as a result of the higher level of taxable income in the first
quarter of 2002. Clover Leaf Financial's effective income tax rate remained
relatively stable at 30.3% for the first quarter of 2002 compared to 30.5% for
the first quarter of 2001.
11
FINANCIAL CONDITION
General
Certain components of Clover Leaf Financial's consolidated balance
sheet at March 31, 2002 compared to December 31, 2001 are presented in summary
form in Table 2. Total assets decreased $6,789,000 to $89,312,000 at March 31,
2002 compared to $96,101,000 at December 31, 2001. This decrease resulted from a
decrease of $1,092,000 in gross loans outstanding and a reduction in interest
bearing due from bank balances in the amount of $6,347,000, partially offset by
an increase in investment securities of $1,746,000. Total deposits decreased
$5,959,000 from December 31, 2001 to March 31, 2002.
TABLE 2 - Selected Comparative Balance Sheet Items
(Dollars in Thousands)
March 31 December 31
2002 2001
----------- -------------
Total assets....................................... $89,312 $96,101
Loans.............................................. 61,989 63,081
Investment securities.............................. 19,117 17,371
Deposits........................................... 74,974 80,933
Securities sold under agreements to repurchase..... 5 354
Federal Home Loan Bank advances.................... 1,500 1,500
Stockholders' equity............................... 12,454 12,510
Loans
Loans decreased 1.7%, or $1,092,000, from December 31, 2001 to March
31, 2002. Commercial loans decreased $1,707,000 during the first quarter of
2002. Commercial real estate loans increased $1,675,000 during the first quarter
of 2002. Total consumer loans decreased $849,000, comprised of an increase in
consumer real estate loans amounting to $1,292,000 and a decrease in other
consumer loan categories amounting to $2,141,000.
Table 3 presents the composition of the loan portfolio by type of
borrower and major loan category and the percentage of each to the total
portfolio for the periods presented.
TABLE 3 - Loan Portfolio Composition
(Dollars in Thousands)
March 31 December 31
2002 2001
------------------------------- -------------------------------
Commercial borrowers: Amount Percent Amount Percent
--------------------- ---------------- ----------- ---------------- -----------
Commercial, financial and
agricultural............ $6,025 9.7% $ 7,732 12.3%
Commercial real estate....... 15,646 25.2 13,971 22.1
Real estate construction..... 982 1.6 1,193 1.9
---------------- ----------- ---------------- -----------
Total commercial... 22,653 36.5 22,896 36.3
---------------- ----------- ---------------- -----------
Consumer borrowers:
1-4 family residential
real estate............. 35,065 56.6 33,773 53.5
Other consumer loans......... 4,271 6.9 6,412 10.2
---------------- ----------- ---------------- -----------
Total consumer..... 39,336 63.5 40,185 63.7
---------------- ----------- ---------------- -----------
Total loans........ $61,989 100.0% $63,081 100.0%
================ =========== ================ ===========
Investments
Total investments increased to $19,117,000 at March 31, 2002 compared
to $17,371,000 at year-end 2001 as discussed in "Management's discussion and
analysis of financial condition and results of operations-overview".
Investments in securities are made based on certain considerations,
which include the interest rate, tax considerations, yield, settlement date and
maturity date of the securities, Clover Leaf Financial's liquidity position, and
anticipated cash needs and sources. The effect that the proposed securities
would have on Clover Leaf Financial's credit and interest rate risk and
risk-based capital is also considered. Clover Leaf Financial purchases
securities to provide necessary liquidity for day-to-day operations, and when
investable funds exceed loan demand.
Available-for-sale investment securities are recorded at fair value.
Net unrealized gains on available-for-sale investment securities totaled
$239,000 and $269,000 at March 31, 2002, and December 31, 2001, respectively.
Table 4 presents the composition of investment securities at their
carrying values for the periods presented.
TABLE 4 - Investment Securities Portfolio Composition
(Dollars in Thousands)
March 31 December 31
2002 2001
--------------------- ---------------------
Available-for-sale securities:
Obligations of U. S. government corporations and agencies.. $7,671 $8,532
Mortgage-backed securities................................. 5,451 4,365
Obligations of states and political subdivisions........... 849 874
Federal Home Loan Bank stock............................... 4,621 3,065
Corporate securities....................................... 525 535
--------------------- ---------------------
Total available-for-sale.............................. $19,117 $17,371
===================== =====================
Deposits
Clover Leaf Financial's deposit base is its primary source of liquidity
and consists of deposits originating within the communities served by its
banking locations. Deposits are Clover Leaf Financial's primary and most
reliable funding source for interest earning assets.
Total deposits decreased $5,959,000, or 7.4% to $74,974,000 at March
31, 2002 from $80,933,000 at December 31, 2001. The overall decrease in deposits
was attributable to subscription funds of $6,411,000 held by the Bank as part of
the stock offering that were subsequently returned to the subscribers. Those
funds were on deposit at the Bank at December 31, 2001, but were returned to
subscribers prior to March 31, 2002. Time deposits decreased $3,151,000 from
year-end 2001. Savings and money market deposits increased $3,211,000 from
year-end 2001.
Balances in the noninterest bearing demand and interest bearing demand
deposits decreased $5,679,000 and $340,000, respectively, from year-end 2001.
The decrease in noninterest bearing demand deposits was primarily attributable
to the subscription funds held by the Bank at December 31, 2001, as discussed
above.
13
Table 5 sets forth the composition of deposits and the percentage of
each category to total deposits for the periods presented.
TABLE 5 - Deposit Liability Composition
(Dollars in Thousands)
March 31 December 31
2002 2001
------------------------------ ------------------------------
Amount Percent Amount Percent
--------------- ----------- --------------- -----------
Noninterest bearing demand deposits... $7,382 9.9% $13,061 16.1%
Interest bearing demand deposits...... 2,464 3.3 2,804 3.5
Savings and money market deposits..... 21,087 28.1 17,876 22.1
Time deposits $100,000 or more........ 2,565 3.4 7,445 9.2
Time deposits less than $100,000...... 41,476 55.3 39,747 49.1
--------------- ----------- --------------- -----------
Total deposits................... $74,974 100.0% $80,933 100.0%
=============== =========== =============== ===========
Borrowings
Clover Leaf Bank may obtain advances from the Federal Home Loan Bank of
Chicago upon the security of the common stock it owns in that bank and certain
of its residential mortgage loans and mortgage-backed securities, provided
certain standards related to creditworthiness have been met. These advances are
made pursuant to several credit programs, each of which has its own interest
rate and range of maturities. Federal Home Loan Bank advances are generally
available to meet seasonal and other deposit withdrawals and to permit increased
lending.
At March 31, 2002 and December 31, 2001, Clover Leaf Bank had
$1,500,000 outstanding in Federal Home Loan Bank advances. This borrowing
consisted of two advances, one in the amount of $1,000,000 due February 2004 at
a rate of 5.49% and one in the amount of $500,000 due February 2009 at a rate of
5.96%.
Repurchase agreements in the amount of $5,000 and $354,000 were
outstanding as of March 31, 2002 and December 31, 2001, respectively.
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 are 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, 2002, nonperforming assets totaled $1,600,000 or 1.79% of
total assets, compared to nonperforming assets at December 31, 2001 of
$1,554,000 or 1.62% of total assets. Nonperforming assets at March 31, 2002
included $32,000 relating to foreclosed assets. There were no foreclosed assets
in the nonperforming assets at December 31, 2001. Management does not anticipate
any significant losses upon disposition of the foreclosed assets held at March
31, 2002.
14
Table 6 sets forth a summary of Clover Leaf Financial's loan portfolio
mix and nonperforming assets.
TABLE 6 - Loan Portfolio Mix and Nonperforming Assets
(Dollars in Thousands)
March 31, 2002 December 31, 2001
---------------------------------------- ----------------------------------------
Loans and Loans and
Foreclosed Non-performing Foreclosed Non-performing
Property Assets Property Assets
------------------ ------------------ ------------------ ------------------
Commercial borrowers:
Commercial, financial and
agricultural......................... $6,025 $465 $7,732 $490
Commercial real estate.................... 15,646 - 13,971 -
Real estate construction.................. 982 515 1,193 483
------------------ ------------------ ------------------ ------------------
Total commercial................ 22,653 980 22,896 973
Consumer borrowers:
1-4 family residential
real estate.......................... 35,065 316 33,773 406
Other consumer loans...................... 4,271 272 6,412 175
------------------ ------------------ ------------------ ------------------
Total consumer.................. 39,336 588 40,185 581
------------------ ------------------ ------------------ ------------------
Total loans..................... 61,989 1,568 63,081 1,554
Foreclosed assets......................... 32 32 - -
------------------ ------------------ ------------------ ------------------
Total........................... $62,021 $1,600 $63,081 $1,554
================== ================== ================== ==================
Nonaccrual loans.......................... $1,515 $1,439
Accruing loans past due
90 days or more...................... 53 115
Troubled debt restructurings.............. - -
------------------ ------------------
Total nonperforming loans............ 1,568 1,554
Foreclosed assets......................... 32 -
------------------ ------------------
Total nonperforming assets........... $1,600 $1,554
================== ==================
Nonperforming loans to total loans........ 2.35% 2.46%
Nonperforming assets to total loans
and foreclosed assets................ 2.58% 2.46%
Nonperforming assets to total assets...... 1.79% 1.62%
Net charge-offs for the first quarter of 2002 totaled $11,000 compared
to $7,000 for the first quarter of 2001. Net charge-offs, as a percent of
average total loans was .02% during the first quarter of 2002 compared to .01%
for the first quarter of 2001.
Clover Leaf Financial's allowance for loan losses at March 31, 2002,
increased to $656,000 from $646,000 at December 31, 2001. At March 31, 2002, the
allowance for loan losses represented 41.00% of nonperforming loans compared to
41.57% and 126.42% at December 31, 2001 and March 31, 2001, respectively. The
ratio of the allowance for loan losses to total loans was 1.06% at March 31,
2002 compared to 1.02% and 1.05% at December 31, 2001 and March 31, 2001,
respectively. Management believes that the allowance for loan losses at March
31, 2002 was adequate to absorb potential 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.
15
Table 7 presents information pertaining to the activity in and an analysis of
Clover Leaf Financial's allowance for loan losses for the periods presented.
TABLE 7 - Allowance For Loan Losses
(Dollars in Thousands)
Three Months Ended
March 31
----------------------------
2002 2001
------------ ------------
Balance at beginning of period................... $646 $625
Loans charged off:
Commercial, financial and agricultural...... - 4
Consumer.................................... 21 17
------------ ------------
Total charge-offs................. 21 21
------------ ------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural...... - -
Consumer.................................... 10 14
------------ ------------
Total recoveries.................. 10 14
------------ ------------
Net charge-offs.................................. 11 7
Provision for loan losses........................ 21 4
------------ ------------
Balance at end of period......................... $656 $622
============ ============
Net charge-offs as a percent of
average total loans......................... .02% .01%
Allowance for loan losses to total loans......... 1.06% 1.05%
Allowance for loan losses to
nonperforming loans......................... 41.00% 126.42%
CAPITAL RESOURCES
Capital Resources
Total stockholders' equity decreased $56,000 from $12,510,000 at
December 31, 2001 to $12,454,000 at March 31, 2002. This decrease in
stockholders' equity during the first quarter of 2002 was primarily due to the
additional purchase of shares by the Employee Stock Ownership Plan. Also
contributing to the decline were payments made during the first quarter of 2002
relative to the stock offering completed in December 2001, and a decrease in the
net unrealized gains within the available for sale securities portfolio from the
level at December 31, 2001. Net income of $115,000 for the quarter partially
offset these items which reduced stockholders' equity during the first quarter
of 2002..
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, 2002, Clover Leaf
Bank's Tier 1 and Total capital ratios were 17.48% and 18.65%, 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, 2002, was 11.17%. Accordingly, Clover Leaf Bank has satisfied
these regulatory guidelines.
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Clover Leaf Bank is involved, from time to time, as plaintiff or
defendant in various legal actions arising in the normal course of its
business. At March 31, 2002, Clover Leaf Bank was not involved in any
material legal proceedings.
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 SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index on page 19 hereof.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by Clover
Leaf Financial during the first quarter of 2002.
17
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 15, 2002 By:/s/ Dennis M. Terry
------------------- ------------------------------
Dennis M. Terry
President and Chief
Executive Officer
DATE: May 15, 2002 By:/s/ Darlene F. McDonald
------------------- ------------------------------
Darlene F. McDonald
Senior Vice President and
Treasurer (Principal Financial
And Accounting Officer)