SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transaction period from to
Commission File Number: 0-33413
CLOVER LEAF FINANCIAL CORP.
---------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 37-1416016
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
200 EAST PARK STREET, EDWARDSVILLE, ILLINOIS 62025
-------------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
(618) 656-6122
--------------
(Registrant's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
----
Securities Registered Pursuant to Section 12(g) of the Act:
(Title of Class) COMMON STOCK, PAR VALUE $0.10 PER SHARE
---------------------------------------
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 past 12 months
(or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such requirements for the past 90 days.
YES X NO
--- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. [x ]
The registrant's revenues for the fiscal year ended December 31, 2003
were $5.8 million.
As of February 29, 2004, there were issued and outstanding 629,950 shares
of the Registrant's Common Stock. The aggregate value of the voting stock held
by non-affiliates of the Registrant, computed by reference to the closing price
of the Common Stock as of February 29, 2004 was $8.3 million.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the 2003 Annual Report to Stockholders (Parts II and IV)
2. Proxy Statement for the 2004 Annual Meeting of Stockholders (Part III)
PART I
ITEM 1. DESCRIPTION OF BUSINESS
CLOVER LEAF FINANCIAL CORP.
Clover Leaf Financial Corp. was organized at the direction of the Board
of Directors of Clover Leaf Bank, SB for the purpose of acting as the stock
holding company of Clover Leaf Bank. Clover Leaf Financial's assets consist
primarily of the outstanding capital stock of Clover Leaf Bank and cash and
investments of $1.3 million, representing a portion of the net proceeds from
Clover Leaf Financial's stock offering completed December 27, 2001. At December
31, 2003, 635,950 shares of Clover Leaf Financial's common stock, par value
$0.10 per share, were held by the public. Clover Leaf Financial's principal
business is overseeing and directing the business of Clover Leaf Bank and
investing the net stock offering proceeds retained by it. At December 31, 2003,
Clover Leaf Financial had total consolidated assets of $102.7 million, total
deposits of $80.5 million and stockholders' equity of $12.7 million.
Clover Leaf Financial's office is located at 200 East Park Street,
Edwardsville, Illinois 62025. Its telephone number is (618) 656-6122.
CLOVER LEAF BANK
Founded in 1889, Clover Leaf Bank converted its charter from an
Illinois-chartered savings bank to an Illinois-chartered commercial bank in
December 2002. Clover Leaf Bank operates from its main office in Edwardsville,
Illinois, and one branch office. Clover Leaf Bank's deposits are insured by the
Bank Insurance Fund, as administered by the Federal Deposit Insurance
Corporation, up to the maximum amount permitted by law.
Clover Leaf Bank's executive office is located at 200 East Park Street,
Edwardsville, Illinois 62025. Its telephone number is (618) 656-6122.
MARKET AREA
Clover Leaf Bank's lending and deposit-gathering area is concentrated in
the neighborhoods surrounding its two offices in Edwardsville, Illinois, which
is located in Madison County. The population of Madison County grew 3.9% from
1990 to 2000, compared to an 8.6% increase in the population of the State of
Illinois during the same period. During this same period, however, our local
market area, consisting of Edwardsville and surrounding towns, has experienced a
significant increase in housing starts. The economy in Clover Leaf Bank's market
area is not dependent on any single employer or type of business. While Madison
County's economy is primarily industrial, Edwardsville, as the county seat, has
a primarily service-oriented economy. The three largest employers in Madison
County, all of which are headquartered in Edwardsville, are Southern Illinois
University at Edwardsville, the Madison County Government and Edwardsville
Community Schools.
COMPETITION
We face significant competition in both originating loans and attracting
deposits. Madison County has a significant number of financial institutions,
many of which are significantly larger and have greater financial resources than
Clover Leaf Bank, and all of which are our competitors to varying degrees. Our
competition for loans comes principally from commercial banks, savings
institutions, mortgage banking companies, credit unions and insurance companies.
Our most direct competition for deposits historically has come from commercial
banks and credit unions. We face additional competition for deposits from
non-depository competitors such as mutual funds, securities and brokerage firms
and insurance companies. Management believes that the Gramm-Leach-Bliley Act,
which permits affiliation among banks, securities firms and insurance companies,
will increase competition in our market area.
1
LENDING ACTIVITIES
GENERAL. Our loan portfolio consists primarily of one- to four-family
residential real estate loans. The vast majority of these loans have fixed rates
of interest. In addition to one- to four-family residential real estate loans,
our loan portfolio consists of commercial and consumer loans, and, to a lesser
extent, construction and overdraft loans.
In an effort to increase our interest income and to reduce the risk to
our net income from changes in market interest rates, we have emphasized the
origination of commercial real estate and commercial business loans. Compared to
our residential mortgage loans, commercial real estate and commercial business
loans generally have higher interest rates and are more sensitive to changes in
market interest rates because they have adjustable interest rates and shorter
terms to maturity. In addition, in order to improve our asset quality and reduce
our delinquencies, we have discontinued our indirect automobile lending.
LOAN PORTFOLIO COMPOSITION. The following table shows the composition of
our loan portfolio in dollar amounts and in percentages (before deductions for
deferred fees and allowances for loan losses) as of the dates indicated.
AT DECEMBER 31,
-------------------------------------------------
2003 2002
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Real Estate Loans:
------------------
One- to four-family................ $ 31,709 46.98% $ 34,300 50.26%
Commercial......................... 24,335 36.06 22,797 33.40
Construction and land.............. 1,105 1.64 761 1.12
-------- -------- -------- --------
Total real estate loans....... 57,149 84.68 57,858 84.78
-------- -------- -------- --------
Other Loans:
------------
Consumer:
Automobile....................... 1,014 1.50 1,425 2.09
Home equity...................... 1,843 2.73 1,611 2.36
Other............................ 1,351 2.00 1,595 2.34
-------- -------- -------- --------
Total consumer loans.......... 4,208 6.23 4,631 6.79
-------- -------- -------- --------
Commercial business............... 6,133 9.09 5,759 8.43
-------- -------- -------- --------
Total gross loans.......... 67,490 100.00% 68,248 100.00%
======== ========
Less:
-----
Deferred fees and discounts....... 10 14
Allowance for loan losses......... 725 690
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Total loans receivable, net....... $ 66,755 $ 67,544
======== ========
2
The following table illustrates the interest rate sensitivity of our loan
portfolio at December 31, 2003. Mortgages that have adjustable or renegotiable
interest rates are shown as maturing in the period during which the full
principal amount of the mortgage is due. The schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses.
DUE IN ONE YEAR OR DUE AFTER ONE YEAR DUE AFTER FIVE
LESS THROUGH FIVE YEARS YEARS TOTAL
------------------- -------------------- ------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- --------- --------- --------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Real Estate loans:
One- to four-family................. $ 1,880 5.77% $ 10,386 5.87% $ 19,443 5.69% $ 31,709 5.75%
Commercial.......................... 11,105 5.04 13,155 6.20 75 7.94 24,335 5.68
Construction and land............... 1,105 5.85 -- -- -- -- 1,105 5.85
Commercial business loans.............. 3,710 4.91 2,257 5.94 166 5.80 6,133 5.32
Consumer loans......................... 2,787 6.14 1,180 6.60 241 6.76 4,208 6.30
-------- -------- -------- --------
Gross loans............................ $ 20.587 5.28% $ 26,978 6.07% $ 19,925 5.71% $ 67,490 5.72%
======== ======== ======== ========
The total amount of loans due after December 31, 2004 which have
predetermined interest rates is $34 million, while the total amount of loans due
after such date which have floating or adjustable interest rates is $13 million.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. Historically, we have
emphasized the origination of one- to four-family loans secured by residential
real estate. As of December 31, 2003, these loans totaled $31.7 million, or
47.0% of our total loan portfolio. 99.0% of our residential real estate loans
have fixed rates of interest. The remaining 1.0% are adjustable rate mortgages
that were originated several years ago. Currently, we do not offer adjustable
interest rates on our one- to four-family mortgage loans primarily because our
customers prefer fixed-rate mortgage loans in the relatively low interest rate
environment that currently exists. We generally retain most of the loans that we
originate, although in the past we have sold loans on a servicing-retained
basis. We intend to sell a greater percentage of our residential real estate
loan originations on a servicing-retained basis. At December 31, 2003, we were
servicing $17.6 million in loans for others.
We currently offer one- to four-family residential mortgage loans with
terms of 5, 15 and 30 years. Our five-year loans provide for principal and
interest amortization of up to 30 years with a balloon payment at the end of the
five-year term. All of our 15- and 30-year loans amortize over the term of the
loan.
For one- to four-family residential real estate loans, we may lend up to
80% of the property's appraised value, or up to 90% of the property's appraised
value if the borrower obtains private mortgage insurance. We require title
insurance on all of our one- to four-family mortgage loans, and we also require
that fire and extended coverage casualty insurance (and, if appropriate, flood
insurance) be maintained in an amount equal to at least the lesser of the loan
balance or the replacement cost of the improvements on the property. We require
a property appraisal for all mortgage loans that are underwritten to comply with
secondary market standards. Appraisals are conducted by our on-staff appraisers
as well as independent appraisers from a list approved by our board of
directors. Our residential real estate loans include "due-on-sale" clauses.
COMMERCIAL REAL ESTATE LOANS. We have increased our emphasis on
commercial real estate lending in recent years. Loans secured by commercial real
estate totaled $24.3 million, or 36.1% of our total loan portfolio as of
December 31, 2003. Our commercial real estate loans are secured predominately by
office buildings, and to a lesser extent warehouse properties and more
specialized properties such as churches. We originate commercial real estate
loans with a maximum term of three years. We offer both adjustable and fixed
rates of interest on commercial real estate loans, with the interest rate for
adjustable rate loans tied to the prime interest rate. Our largest commercial
real estate loan at December 31, 2003 had a principal balance of $2.2 million
and was collateralized by an apartment complex. This loan is performing in
accordance with its payment terms.
3
Commercial real estate loans generally have higher interest rates than
the interest rates on residential mortgage loans, and are more sensitive to
changes in market interest rates because they often have adjustable interest
rates and shorter terms. Commercial real estate loans have significant
additional risk compared to one- to four-family residential mortgage loans, as
they typically involve large loan balances concentrated with single borrowers or
groups of related borrowers. In addition, the repayment of commercial real
estate loans typically depends on the successful operation of the related real
estate project, and thus may be subject to a greater extent than residential
mortgage loans to adverse conditions in the real estate market or in the economy
generally.
In our underwriting of commercial real estate loans, we may lend up to
80% of the property's appraised value in the case of loans secured by
apartments, and up to 75% of the property's appraised value on loans secured by
other commercial properties. We require independent appraisals for all
commercial real estate loans in excess of $250,000. For loans that do not exceed
this amount, we require that an officer prepare a memorandum of value detailing
comparable values based upon tax bills, prior appraisals, and income information
on revenue-producing property. Decisions to lend are based on the economic
viability of the property and the creditworthiness of the borrower.
Creditworthiness is determined by considering the character, experience,
management and financial strength of the borrower, and the ability of the
property to generate adequate funds to cover both operating expenses and debt
service. In evaluating whether to make a commercial real estate loan, we place
primary emphasis on the ratio of net cash flow to debt service on the property,
and we generally require a ratio of cash flow to debt service of at least 120%,
computed after deduction for a vacancy factor and property expenses we deem
appropriate.
We require title insurance on all of our commercial real estate loans,
and we also require that fire and extended coverage casualty insurance (and, if
appropriate, flood insurance) be maintained. In addition, we generally require
that the borrower personally guarantee the repayment of the loan.
CONSTRUCTION AND LAND LOANS. We originate two types of residential
construction loans: (i) construction/speculative loans, and (ii)
construction/permanent loans. As of December 31, 2003, construction and land
loans totaled $1.1 million, or 1.6% of our total loan portfolio.
Construction/speculative loans are made to area homebuilders who do not
have, at the time the loan is originated, a signed contract with a homebuyer who
has a commitment for permanent financing with either Clover Leaf Bank or another
lender. The homebuyer may enter into a purchase contract either during or after
the construction period. These loans have the risk that the builder will have to
make interest and principal payments on the loan and finance real estate taxes
and other holding costs of the completed home for a significant time after the
completion of construction. Funds are disbursed in phases as construction is
completed. All construction/speculative loans require that the builder-borrower
personally guarantee the full repayment of the principal and interest on the
loan. These loans are generally originated for a term of twelve months, with
interest rates that are tied to the prime lending rate, and with a loan-to-value
ratio of no more than 75% of the lower of cost or the estimated value of the
completed property. Generally, we limit our construction/speculative loans to
one property per borrower at any given time, and the largest number of
construction/speculative loans we have originated to a single borrower at any
given time was for three properties. At December 31, 2003, the largest
outstanding concentration of credit to one builder consisted of one
construction/speculative loan with an aggregate balance of $441,724, which was
performing in accordance with its payment terms.
Construction/permanent loans are made to either a homebuilder or a
homeowner who, at the time of construction, has a signed contract together with
a commitment for permanent financing from Clover Leaf Bank for the finished
home. The construction phase of a loan generally lasts up to six months, and the
interest rate charged generally corresponds to the rate of the committed
permanent loan, with loan-to-value ratios of up to 80% (or up to 90% if the
borrower obtains private mortgage insurance) of the appraised estimated value of
the completed property or cost, whichever is less. Following the initial 6-month
period, construction/permanent loans convert to permanent loans, regardless of
whether the construction phase has been completed. At December 31, 2003 the
largest single outstanding construction loan of this type had an outstanding
balance of $0, but had a committed line of credit of $500,000.
4
Construction lending generally involves a greater degree of risk than
other one- to four-family mortgage lending. The repayment of the construction
loan is, to a great degree, dependent upon the successful and timely completion
of the home construction. Construction delays or the financial impairment of the
builder may further impair the borrower's ability to repay the loan.
Our procedures for underwriting construction/speculative loans include an
assessment of the borrower's credit history and the borrower's ability to meet
other existing debt obligations, as well as payment of principal and interest on
the proposed loan. We use the same underwriting standards and procedures for
construction/permanent lending as we do for one- to four-family residential real
estate lending.
We also originate land development loans to area homebuilders that are
secured by individual unimproved or improved residential building lots. Land
loans are generally offered with variable prime-based interest rates with terms
of up to two years. The maximum loan-to-value ratio is 65% of the lower of cost
or appraised value of the property.
CONSUMER LOANS. Our consumer loans consist primarily of automobile loans,
home equity lines of credit and overdraft loans, loans secured by deposits and
securities, and unsecured personal loans. As of December 31, 2003, consumer
loans totaled $4.2 million, or 6.2% of our total loan portfolio.
Automobile loans are generally offered with maturities of up to 60 months
for new automobiles, while loans secured by used automobiles will have maximum
terms that vary depending on the age of the automobile. We require all borrowers
to maintain collision insurance on automobiles securing loans in excess of
$1,000, with Clover Leaf Bank listed as loss payee. In those instances where the
borrower fails to maintain adequate insurance coverage, we are further protected
against loss by vendors single interest insurance coverage.
Our indirect automobile loans have experienced higher than average
delinquency and loss rates, and we discontinued this type of automobile lending
in July 2000. Our automobile loan portfolio totaled $1.0 million or 1.5% of
total loans at December 31, 2003, compared to $1.4 million, or 2.1% of total
loans at December 31, 2002.
Home equity lines of credit are generally made for owner-occupied homes,
and are secured by first or second mortgages on residential properties. We are
attempting to increase our originations of home equity loans through targeted
marketing. We generally offer home equity lines of credit with a maximum loan to
appraised value ratio of 85% (including senior liens on the subject property).
We currently offer these loans for terms of up to 10 years, and with adjustable
rates that are tied to the prime lending rate.
We offer overdraft loans by providing unsecured lines of credit to
qualifying checking accountholders. The line of credit must be pre-approved by
Clover Leaf Bank's loan department. Overdraft loans totaled $140,000, or 0.2% of
our total loan portfolio as of December 31, 2003.
Consumer loans generally entail greater credit risk than residential
mortgage loans, particularly in the case of loans that are unsecured or are
secured by assets that tend to depreciate in value, such as automobiles. In
these cases, repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment for the outstanding loan and the
remaining value often does not warrant further substantial collection efforts
against the borrower. Further, consumer loan collections depend on the
borrower's continuing financial stability, and therefore are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Our procedures for underwriting consumer loans include an assessment of
the borrower's credit history and ability to meet other existing debt
obligations, as well as payments of principal and interest on the proposed
loans. The stability of the borrower's monthly income may be determined by
verification of gross monthly income from primary employment, and additionally
from any verifiable secondary income. Although the borrower's creditworthiness
is a primary consideration, the underwriting process also includes a comparison
of the value of the collateral security, if any, to the proposed loan amount. We
require independent appraisals for all consumer loans in excess of $50,000. For
loans that do not exceed this amount, we require that an officer prepare a
memorandum of value detailing comparable values based upon tax bills or other
available information.
5
COMMERCIAL BUSINESS LOANS. We currently offer commercial business loans
to existing customers in our market area, some of which are secured in part by
additional real estate collateral. We make various types of secured and
unsecured commercial business loans for the purpose of financing equipment
acquisition, expansion, working capital and other general business purposes. The
terms of these loans are generally for less than three years. Equipment loans
usually involve a one-time disbursement of funds, with repayment over the term
of the loan, while operating lines of credit involve multiple disbursements and
revolving notes that can be renewed annually. The loans are either negotiated on
a fixed-rate basis or carry variable interest rates indexed to the prime rate.
At December 31, 2003, we had 88 commercial business loans outstanding with an
aggregate balance of $6.1 million, or 9.1%, of the total loan portfolio. As of
December 31, 2003, our largest commercial business loan consisted of our
participation interest in a $604,148 loan to a car dealer, which is secured by
stock of the car dealership.
In recent years, we have increased our emphasis on commercial business
lending. These loans tend to have higher rates of interest than residential
mortgage loans, and are more sensitive to changes in market interest rates
because they often have adjustable interest rates and shorter terms. In
addition, commercial business lending gives us greater access to commercial
borrowers that may open transactional checking accounts with Clover Leaf Bank.
Commercial credit decisions are based upon a complete credit review of
the borrower. A determination is made as to the borrower's ability to repay in
accordance with the proposed terms as well as an overall assessment of the
credit risks involved. Personal guarantees of borrowers are generally required.
In evaluating a commercial real estate loan, we place primary emphasis on the
ratio of net cash flow to debt service for the property, generally requiring a
ratio of at least 120%. Credit agency reports of the borrower's credit history
as well as bank checks and trade investigations supplement the analysis of the
borrower's creditworthiness. Collateral supporting a secured transaction is also
analyzed to determine its marketability and liquidity. Commercial business loans
generally bear higher interest rates than residential loans, but they also may
involve a higher risk of default since their repayment generally depends on the
successful operation of the borrower's business.
LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING. Although we originate
both fixed-rate and adjustable-rate loans, our ability to generate each type of
loan depends upon borrower demand, market interest rates, borrower preference
for fixed- versus adjustable-rate loans, and the interest rates offered on each
type of loan by competing lenders in our market area. This includes banks,
savings institutions, credit unions, mortgage banking companies, and life
insurance companies. Loan originations are derived from a number of sources,
including existing or prior customers and walk-in customers.
Loan originations are adversely affected by rising interest rates, which
typically result in decreased loan demand. Accordingly, the volume of our loan
originations and the interest rates we can charge on loans vary from period to
period. One- to four-family residential mortgage loans are generally
underwritten to conform to Fannie Mae and Freddie Mac seller/servicer
guidelines, and are currently originated on a fixed interest rate basis only. We
generally retain the loans that we originate. When we do sell mortgage loans, we
generally retain the servicing rights, which means that we will continue to
collect payments on the loans and supervise foreclosure proceedings, if
necessary. We retain a portion of the interest paid by the borrower on the
loans, generally 25 basis points, as consideration for our services. We
currently service $17.6 million of loans for others, and we intend to sell a
portion of our one- to four-family residential mortgage loans in the future in
an effort to reduce our interest rate risk.
6
The following table summarizes our loan origination and repayment
activities for the periods indicated. We did not purchase any loans during the
periods indicated.
YEARS ENDED DECEMBER,
----------------------------
2003 2002
------------ ------------
(IN THOUSANDS)
Loans receivable, net, at beginning of period. $ 67,544 $ 62,435
Originations by type:
Real estate
One- to four-family................................... 24,793 26,076
Commercial............................................ 10,094 13,289
Non-real estate
Consumer.............................................. 1,456 1,614
Commercial business................................... 9,091 --
------------ ------------
Total loans originated........................... 45,434 40,979
------------ ------------
Sales and Repayments......................................
Sales:
Real estate
One- to four-family................................ 13,314 8,204
Commercial......................................... 1,400 --
Non-real estate
Commercial business................................. 500 --
------------ ------------
Total loans sold................................. 15,214 8,204
Principal repayments.................................... 30,974 27,709
------------ ------------
Total reductions................................. 46,188 35,913
Increase (decrease) in other items, net................... (35) 43
------------ ------------
Net increase..................................... 789 5,109
------------ ------------
Loans receivable, net, at end of period................... $ 66,755 $ 67,544
============ ============
LOAN APPROVAL PROCEDURES AND AUTHORITY. Our lending activities are
subject to written underwriting standards and loan origination procedures
adopted by management and the Board of Directors. For single family,
owner-occupied real estate loans, the President of Clover Leaf Bank is
authorized to approve loans up to $250,000, while the Senior Vice President is
authorized to approve loans up to $200,000. For secured commercial real estate
loans and construction and land loans, the President and Senior Vice President
are authorized to approve loans up to $150,000 and $75,000, respectively; for
secured consumer loans, these officers may approve loans up to $50,000; and for
overdrafts and unsecured credits, these officers may approve loans up to $25,000
and $15,000, respectively. When acting together, these officers may approve new
loans in amounts up to 150% of their combined lending limits, and may approve
renewals of commercial business and commercial real estate loans in amounts up
to 200% of their combined lending limits where there has been no deterioration
in either the payment pattern or financial strength of the borrower. However,
the entire Board of Directors must approve all loans in excess of $625,000. In
addition, the Board of Directors generally ratifies all pre-authorized loan
approvals.
7
ASSET QUALITY
DELINQUENT LOANS. The following table sets forth Clover Leaf Bank's loan
delinquencies by type, amount and percentage at December 31, 2003.
LOANS DELINQUENT FOR:
-------------------------------------------------------------- ------------------------------
60-89 DAYS 90 DAYS AND OVER TOTAL DELINQUENT LOANS
------------------------------ ------------------------------ ------------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
Real Estate:
Commercial 1 $ 171 0.7% -- $ -- --% 1 $ 171 0.7%
One- to four-family... 8 250 0.8 1 12 0.03 9 262 0.8
Consumer................ 18 73 1.7 -- -- -- 18 73 1.7
Commercial business..... -- -- -- -- -- -- -- -- --
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
Total.............. 27 $ 494 0.7% 1 $ 12 --% 28 $ 506 0.8%
======== ======== ========== ======== ======== ========== ======== ======== ==========
LOAN DELINQUENCIES AND COLLECTION PROCEDURES. When a borrower fails to
make required payments on a loan, we take a number of steps to induce the
borrower to correct the delinquency and restore the loan to a current status. We
will send a borrower a reminder notice 15 days after an account becomes
delinquent, and our employees are authorized to use their discretion whether
direct telephone contact is required at that time. If the borrower does not
remit the entire payment due by the end of the month, we try to make direct
contact with the borrower to arrange a payment plan. If a satisfactory payment
plan is not established within 50 days of a delinquency, we will send a demand
letter to the borrower. If a satisfactory payment plan has not been arranged
within 60 days following a delinquency, we may instruct our attorneys to
institute foreclosure proceedings depending on the loan-to-value ratio or our
relationship with the borrower. Foreclosed property is held as other real estate
owned.
Our policies require that management continuously monitor the status of
the loan portfolio and report to the Board of Directors on a monthly basis.
These reports include information on delinquent loans and foreclosed real estate
and our actions and plans to cure the delinquent status of the loans and to
dispose of any real estate acquired through foreclosure.
NON-PERFORMING LOANS. All loans are reviewed on a regular basis and are
placed on non-accrual status when, in the opinion of management, there is
reasonable probability of loss of principal or the collection of additional
interest is deemed insufficient to warrant further accrual. Generally, we place
all loans 90 days or more past due on non-accrual status. In addition, we place
any loan on non-accrual status if any part of it is classified as loss or if any
part has been charged-off. When a loan is placed on non-accrual status, total
interest accrued and unpaid to date is reversed. Subsequent payments are either
applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectibility of the loan. Loans
are charged-off no later than 120 days following their delinquency, unless the
loans are well-collateralized or in the process of collection.
As of December 31, 2003, our total non-accrual loans amounted to $896,000
compared to $1.5 million at December 31, 2002. As of December 31, 2003,the
largest contributor of these loans was a residential mortgage loan with an
outstanding balance of $141,391. The decline in non-accrual loans was the result
of several loans paying off in the fourth quarter of 2003, the largest being a
settlement from an insurance company on a commercial business loan.
8
The table below sets forth the amounts and categories of non-performing
assets in our loan portfolio. For all years presented, we had no troubled debt
restructurings (which involve forgiving a portion of interest or principal on
loans or making loans at materially less than market interest rates), and no
foreclosed assets.
YEARS
ENDED DECEMBER 31,
--------------------------
2003 2002
---------- ----------
(DOLLARS IN THOUSANDS)
Non-accruing loans:
One- to four-family..................................... $ 644 $ 809
Construction............................................ -- 182
Commercial business..................................... 160 283
Commercial real estate.................................. -- 59
Consumer................................................ 92 196
---------- ----------
Total................................................ $ 896 $ 1,529
---------- ----------
Accruing loans delinquent more than 90 days:
One- to four-family..................................... 12 29
Commercial business..................................... -- 10
Commercial real estate.................................. -- 151
Consumer................................................ -- 5
---------- ----------
Total................................................ 12 195
---------- ----------
Total non-performing loans................................ $ 908 $ 1,724
========== ==========
Total non-performing loans as a percentage of total assets. 0.88% 1.80%
========== ==========
Allowance for loan losses as a percentage of non-performing
loans.................................................... 79.85% 40.02%
========== ==========
Allowance for loan losses as a percentage of gross loans
receivable............................................... 1.07% 1.01%
========== ==========
For the years ended December 31, 2003 and 2002, respectively, $90,000 and
$119,000 of gross interest income would have been recorded had our non-accruing
loans been current in accordance with their original terms.
TROUBLED DEBT RESTRUCTURINGS. A troubled debt restructuring occurs when
we, for economic or legal reasons related to a borrower's financial
difficulties, grant a concession to the borrower, either as a deferment or
reduction of interest or principal on the loan, that we would not otherwise
consider. We had no troubled debt restructurings as of December 31, 2003 or
2002.
REAL ESTATE OWNED. Real estate owned consists of property acquired
through formal foreclosure or by deed in lieu of foreclosure and is recorded at
the lower of recorded investment or fair value. Write-downs from recorded
investment to fair value which are required at the time of foreclosure are
charged to the allowance for loan losses. After transfer, the property is
carried at the lower of recorded investment or fair value, less estimated
selling expenses. Adjustments to the carrying value of the properties that
result from subsequent declines in value are charged to operations in the period
in which the declines occur. We held no property that was classified as real
estate owned as of December 31, 2003 or, 2002.
CLASSIFICATION OF ASSETS. Our policies, consistent with regulatory
guidelines, require that we classify loans and other assets, such as securities,
that are considered to be of lesser quality, as substandard, doubtful, or loss
assets. An asset is considered 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 the savings institution will sustain some loss if the
deficiencies are not corrected. Assets classified as doubtful have all of 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 and improbable. Assets classified as loss are those considered
uncollectable and of such little value that their continuance as assets is not
warranted. Assets that do not expose us to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated as special mention by management.
9
When we classify assets as either substandard or doubtful, we allocate
for analytical purposes a portion of our general valuation allowances or loss
reserves to these assets as deemed prudent by management. General allowances
represent loss allowances that have been established to recognize the probable
risk associated with lending activities, but which have not been allocated to
particular problem assets. When we classify problem assets as loss, we are
required either to establish a specific allowance for losses equal to 100% of
the amount of the assets so classified, or to charge-off the amount of the
assets. Our determination as to the classification of assets and the amount of
valuation allowances is subject to review by regulatory agencies, which can
order the establishment of additional loss allowances. Management regularly
reviews our asset portfolio to determine whether any assets require
classification in accordance with applicable regulatory guidelines and generally
accepted accounting principles.
On the basis of management's review of our assets, at December 31, 2003,
we had classified a total of $3.9 million of our loans and other assets as
follows:
AT OR FOR THE YEAR
ENDED
DECEMBER 31, 2003
------------------
(IN THOUSANDS)
Special Mention.................. $ 2,692
Substandard...................... 1,177
Doubtful assets.................. --
Loss assets...................... --
------------------
Total....................... $ 3,869
==================
General loss allowance........... $ 725
Specific loss allowance.......... --
Charge-offs...................... 41
ALLOWANCE FOR LOAN LOSSES. The following table sets forth information
regarding our allowance for loan losses and other ratios at or for the dates
indicated.
YEARS ENDED DECEMBER 31,
--------------------------
2003 2002
----------- -----------
(DOLLARS IN THOUSANDS)
Balance at beginning of period.............................. $ 690 $ 646
Charge-offs:
Commercial business....................................... 40 -
---------- ----------
Consumer.................................................. 28 (105)
---------- ----------
68 (105)
Recoveries:
Commercial business....................................... 2 4
---------- ----------
Consumer.................................................. 25 52
---------- ----------
27 56
Net charge-offs............................................. 41 (49)
Additions charged to operations............................. 76 93
---------- ----------
Balance at end of period.................................... $ 725 $ 690
========== ==========
Ratio of net charge-offs during the period to
average loans outstanding during the period............... 0.06% 0.07%
========== ==========
Ratio of net charge-offs during the period to
average non-performing assets.............................. 2.57% 2.84%
========== ==========
The allowance for loan losses is a valuation account that reflects our
evaluation of the credit losses inherent in our loan portfolio. We maintain the
allowance through provisions for loan losses that we charge to income. We
10
charge losses on loans against the allowance for loan losses when we believe the
collection of loan principal is unlikely.
Our evaluation of risk in maintaining the allowance for loan losses
includes the review of all loans on which the collectibility of principal may
not be reasonably assured. We consider the following factors as part of this
evaluation: our historical loan loss experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, peer group information and
prevailing economic conditions. There may be other factors that may warrant our
consideration in maintaining an allowance at a level sufficient to provide for
probable losses. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available or as future events change. Although we believe that we have
established and maintained the allowance for loan losses at adequate levels,
future additions may be necessary if economic and other conditions in the future
differ substantially from the current operating environment.
In addition, the Illinois Office of Banks and Real Estate and the Federal
Deposit Insurance Corporation, as an integral part of their examination process,
periodically review our loan portfolio and the related allowance for loan
losses. The Illinois Office of Banks and Real Estate and the Federal Deposit
Insurance Corporation may require us to increase the allowance for loan losses
based on their judgments of information available to them at the time of their
examination, thereby adversely affecting our results of operations.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES. The following table presents
our allocation of the allowance for loan losses by loan category and the
percentage of loans in each category to total loans at the periods indicated.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
2003 2002
--------------------------------- ---------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
LOAM IN EACH LOAN IN EACH
AMOUNT OF AMOUNTS CATEGORY AMOUNT OF AMOUNTS CATEGORY
LOAN LOSS BY TO TOTAL LOAN LOSS BY TO TOTAL
ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Real Estate Loans:
One- to four-family.......... $ 209 $ 31,709 46.98% $ 253 $ 34,300 50.26%
Commercial................... 409 24,335 36.06 279 22,797 33.40
Construction and
land........................ -- 1,105 1.64 -- 761 1.12
Commercial business............ 40 6,133 9.09 44 5,759 8.43
Consumer....................... 67 4,208 6.23 114 4,631 6.79
--------- --------- ------ --------- --------- ------
Total..................... $ 725 $ 67,490 100.00% $ 690 $ 68,248 100.00%
========= ========= ====== ========= ========= ======
Management evaluates the total balance of the allowance for loan losses
based on several factors that are not loan specific but are reflective of the
losses inherent in the loan portfolio, including management's periodic review of
loan collectibility in light of historical experience, the nature and volume of
the loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, prevailing economic
conditions such as housing trends, inflation rates and unemployment rates,
geographic concentrations of loans within Clover Leaf Bank's immediate market
area, and both peer financial institution historic loan loss experience and
allowance for loan loss levels.
INVESTMENT ACTIVITIES
Clover Leaf Bank is permitted under federal and state law to invest in
various types of liquid assets, including U.S. Government obligations,
securities of various federal agencies and of state and municipal governments,
deposits at the Federal Home Loan Bank of Chicago, certificates of deposit of
federally insured institutions, certain bankers' acceptances and federal funds.
Within certain regulatory limits, Clover Leaf Bank may also invest a portion of
its assets in commercial paper and corporate debt securities. We are also
required to invest
11
in Federal Home Loan Bank stock. See "Regulation" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that securities be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity."
Debt and equity securities held for current resale are classified as
"trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities are included in earnings. Clover
Leaf Bank does not currently use or maintain a trading account. Debt and equity
securities not classified as either "held to maturity" or "trading securities"
are classified as "available for sale." These securities are reported at fair
value, and unrealized gains and losses on the securities are excluded from
earnings and reported, net of deferred taxes, as a separate component of equity.
Clover Leaf Bank has classified all of its securities as available for sale.
All of our securities carry market risk insofar as increases in market
interest rates may cause a decrease in their market value. Many also carry
prepayment risk insofar as they may be called prior to maturity in times of low
market interest rates, so that we may have to invest the funds at a lower
interest rate. Investments in securities are made based on certain
considerations, which include the interest rate, tax considerations, yield,
settlement date and maturity of the security, our liquidity position, and
anticipated cash needs and sources. The effect that the proposed security would
have on our credit and interest rate risk and risk-based capital is also
considered. We purchase securities to provide necessary liquidity for day-to-day
operations, and when investable funds exceed loan demand.
Generally, the investment policy of Clover Leaf Bank, as established by
the Board of Directors, is to invest funds among various categories of
investments and maturities based upon our liquidity needs, asset/liability
management policies, investment quality, marketability and performance
objectives.
Our investment policy does not permit engaging directly in hedging
activities or purchasing high-risk mortgage derivative products.
Our debt securities are mainly composed of securities issued by the U.S.
Government and government agencies (primarily Federal Home Loan Bank, Fannie Mae
and Freddie Mac), although from time to time we make other investments as
permitted by applicable laws and regulations.
The following table sets forth information relating to the amortized cost
and fair value of our securities, all of which are classified as available for
sale. For further information, see Notes 1 and 3 of the Notes to Consolidated
Financial Statements.
DECEMBER 31,
---------------------------------------------
2003 2002
---------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- --------- ----------
(IN THOUSANDS)
Federal agencies........... $ 16,120 $ 16,121 $ 9,352 $ 9,426
State and municipal........ 1,820 1,853 844 852
Mortgage-backed securities. 4,814 4,813 2,601 2,613
Corporate.................. 1,011 1,070 509 557
---------- ---------- --------- ----------
Total................. $ 23,765 $ 23,857 $ 13,306 $ 13,448
========== ========== ========= ==========
12
The following table sets forth the scheduled maturities, amortized cost
and weighted average yields for our securities at December 31, 2003. Due to the
current interest rate environment, the Company has experienced significant calls
on securities. Therefore, the following schedule reflects maturity by call date
if that date is different than the stated maturity date.
DUE IN ONE YEAR OR DUE AFTER ONE YEAR DUE AFTER FIVE YEARS
LESS THROUGH FIVE YEARS THROUGH TEN YEARS DUE AFTER TEN YEARS TOTAL
------------------- ------------------- --------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE
COST RATE COST RATE COST RATE COST RATE COST RATE
--------- -------- --------- -------- ---------- --------- ---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
U. S. Government
agency securities $ 13,399 4.47% $ 2,721 5.09% $ -- --% $ -- --% $ 16,120 4.57%
Obligations of
states and
political
subdivisions.. 1,525 4.14 295 5.76 -- -- -- -- 1,820 4.40
Mortgage-backed
securities.... -- -- 261 8.13 3,542 4.42 404 5.30 4,207 4.73
Asset-backed
securities.... -- -- -- -- 607 2.19 -- -- 607 2.19
Corporate....... -- -- 1,011 5.44 -- -- -- 1,011 5.45
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total......... $ 14,924 4.43% $ 4,288 5.40% $ 4,149 4.09% $ 404 5.30% $ 23,765 4.56%
======== ======= ======== ======= ======== ======= ======== ======= ======== =======
SOURCES OF FUNDS
GENERAL. 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. 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.
DEPOSITS. Residents of our primary market area are our main source of
deposits. Deposit account terms vary, with the principal differences being the
minimum balance required, the time periods the funds must remain on deposit and
the interest rate. We do not use brokers to obtain deposits. Our deposit
products include demand and NOW, money market, savings, and term certificate
accounts. In recent years, and in connection with our emphasis on the
origination of commercial business loans, we have promoted money market accounts
with adjustable interest rates. Interest rates paid, maturity terms, service
fees and withdrawal penalties are established by Clover Leaf Bank on a periodic
basis. Management determines the rates and terms based on rates paid by our
competitors, our needs for funds or liquidity, growth goals and federal and
state regulations.
13
DEPOSIT ACCOUNTS BY TYPE. The following table sets forth the dollar
amount of our deposits in the various types of deposit programs as of the dates
indicated.(See separate worksheet for all CD and IRA comments. I believe we
should add some more detail to the interest rates to make it more meaningful. If
you choose to leave as is, see comments below for footing/rounding differences.)
YEARS ENDED DECEMBER 31,
-------------------------------------------
2003 2002
-------------------- ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Transactions and savings deposits:
----------------------------------
Demand accounts...................... $ 8,002 9.94% $ 7,153 9.87%
Savings accounts..................... 4,391 5.46 3,998 5.52
NOW accounts......................... 3,128 3.89 2,844 3.92
Money market accounts................ 18,401 22.87 17,329 23.90
-------- -------- -------- --------
Total non-certificates............. 33,922 42.16 31,324 43.21
-------- -------- -------- --------
Certificates of deposit:
------------------------
1.00 - 1.99%......................... 11,465 14.25 136 0.19
2.00 - 2.99%......................... 12,058 14.99 16,310 22.50
3.00 - 3.99%......................... 8,231 10.23 3,841 5.30
4.00 - 4.99%......................... 5,742 7.14 5,175 7.14
5.00 - 5.99%......................... 3,302 4.10 4,445 6.13
6.00 - 6.99%......................... 189 0.23 1,240 1.71
7.00 - 7.25%......................... -- -- 5,046 6.96
-------- -------- -------- --------
Total certificates of deposit...... 40,987 50.94 36,193 49.93
-------- -------- -------- --------
Individual retirement accounts:
-------------------------------
1.00 - 1.99%......................... 920 1.14 -- --
2.00 - 2.99%......................... 1,343 1.67 1,140 1.57
3.00 - 3.99%......................... 1,160 1.44 513 0.71
4.00 - 4.99%......................... 1,137 1.41 1,077 1.49
5.00 - 5.99%......................... 796 0.99 1,314 1.81
6.00 - 6.99%......................... 200 0.25 608 0.84
7.00 - 7.25%......................... -- -- 318 0.44
-------- -------- -------- --------
Total individual retirement
accounts........................... 5,556 6.90 4,970 6.86%
-------- -------- -------- --------
Total time deposits................ $ 46,543 57.84% $ 41,163 56.79%
======== ======== ======== ========
Total deposits....................... $ 80,465 100.00% $ 72,487 100.00%
======== ======== ======== ========
TIME DEPOSIT RATES AND MATURITIES. The following table indicates interest
rate and maturity information for our time deposits as of December 31, 2003.
MATURITY
--------------------------------------------------------
OVER OVER
INTEREST RATE ONE YEAR 1 TO 2 2 TO 3 OVER
OR LESS YEARS YEARS 3 YEARS TOTAL
--------------------------------- ------------- ------------ ------------- ------------ ------------
(In Thousands)
1.00 - 1.99%..................... $ 8,717 $ 3,500 $ 168 $ -- $ 12,385
2.00 - 2.99%..................... 10,901 1,937 563 -- 13,401
3.00 - 3.99%..................... 1,567 2,259 1,995 3,570 9,391
4.00 - 4.99%..................... 690 307 931 4,951 6,879
5.00 - 5.99%..................... 404 362 99 3,233 4,098
6.00 - 6.99%..................... 169 220 -- -- 389
------------ ------------ ------------ ------------ ------------
Total time deposits.............. $ 22,448 $ 8,585 $ 3,757 $ 11,753 $ 46,543
============ ============ ============ ============ ============
14
TIME DEPOSIT BALANCES AND MATURITIES. The following table indicates balance
and maturity information for our time deposits as of December 31, 2003.
MATURITY
-------------------------------------------------------
OVER OVER
3 MONTHS 3 TO 6 6 TO 12 OVER
OR LESS MONTHS MONTHS 12 MONTHS TOTAL
------------ ------------- ------------ ------------- ------------
(IN THOUSANDS)
Time deposits less than $100,000...... $ 6,038 $ 6,011 $ 5,591 $ 21,855 $ 39,495
Time deposits of $100,000 or more..... 3,140 622 1,053 2,233 7,048
------------ ------------ ------------ ------------ ------------
Total time deposits................... $ 9,178 $ 6,633 $ 6,644 $ 24,088 $ 46,543
============ ============ ============ ============ ============
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.
The following table sets forth the maximum month-end balance and average
balance of Federal Home Loan Bank advances for the periods indicated. Other than
Federal Home Loan Bank advances, we had no other borrowings during the periods
indicated.
YEARS ENDED DECEMBER 31,
---------------------------
2003 2002
------------ ------------
(IN THOUSANDS)
Maximum Balance:
----------------
FHLB advances........................ $ 9,000 $ 9,000
Average Balance:
----------------
FHLB advances........................ $ 8,830 $ 5,675
The following table sets forth total borrowings and the weighted average
interest rate paid on such borrowings at the dates indicated.
YEARS ENDED DECEMBER 31,
--------------------------
2003 2002
------------ ------------
(DOLLARS IN THOUSANDS)
FHLB advances............................ $ 8,000 $ 9,000
Weighted average interest rate of FHLB
advances................................. 2.11% 2.83%
REGULATION
The following summarizes certain laws and regulations that are considered
material to Clover Leaf Financial and Clover Leaf Bank. However, this summary
does not purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations. Any change in this regulation, whether by the
Federal Deposit Insurance Corporation, the Illinois Office of Banks and Real
Estate, the Board of Governors of the Federal Reserve System, the Illinois
General Assembly or Congress, could have a material adverse impact on Clover
Leaf Financial and Clover Leaf Bank.
CLOVER LEAF FINANCIAL
HOLDING COMPANY ACQUISITIONS. Clover Leaf Financial is a bank holding
company within the meaning of the Bank Holding Company Act and is registered
with and regulated by the Federal Reserve Board. Federal law generally prohibits
a company, without prior Federal Reserve approval, from acquiring the ownership
or control of
15
any bank. In accordance with Federal Reserve Board policy, Clover Leaf Financial
is expected to act as a source of financial strength to Clover Leaf Bank and to
commit resources to support Clover Leaf Bank in circumstances where Clover Leaf
Financial might not do so absent such policy. Under the Bank Holding Company
Act, Clover Leaf Financial is subject to periodic examination by the Federal
Reserve Board and will be required to file periodic reports of its operations
and such additional information as the Federal Reserve Board may require. Clover
Leaf Financial also is subject to regulation by, the Commissioner under the
Illinois Bank Holding Company Act.
BANK HOLDING COMPANY ACT ACTIVITIES AND OTHER LIMITATIONS. A bank holding
company is a legal entity separate and distinct from its subsidiary bank.
Normally, the major source of a holding company's revenue is dividends from its
subsidiary bank. The right of a bank holding company to participate as a
stockholder in any distribution of assets of its subsidiary bank upon its
liquidation or reorganization is subject to the prior claims of creditors of the
subsidiary bank. The subsidiary bank is subject to claims by creditors for
long-term and short-term debt obligations, including obligations for federal
funds purchased and securities sold under repurchase agreements, as well as
deposit liabilities.
The Bank Holding Company Act also prohibits a bank holding company, with
certain exceptions, from acquiring more than 5% of the voting shares of any
company that is not a bank and from engaging in any business other than banking
or managing or controlling banks. Under the Bank Holding Company Act, the
Federal Reserve Board is authorized to approve the ownership of shares by a bank
holding company in any company, the activities of which the Federal Reserve
Board has determined to be so closely related to banking or to managing or
controlling banks as to be a proper incident thereto. The Federal Reserve Board
has by regulation determined that certain activities are closely related to
banking within the meaning of the Bank Holding Company Act. These activities
include operating a mortgage company, finance company, credit card company,
factoring company, trust company or savings association; performing certain data
processing operations; providing limited securities brokerage services; acting
as an investment or financial advisor; acting as an insurance agent for certain
types of credit-related insurance; leasing personal property on a full-payout,
non-operating basis; providing tax planning and preparation services; operating
a collection agency; and providing certain courier services. The Federal Reserve
Board also has determined that certain other activities, including real estate
brokerage and syndication, land development and property management, are not
closely related to banking and a proper incident thereto. In making such
determinations, the Federal Reserve Board is required to weigh the expected
benefit to the public, such as greater convenience, increased competition or
gains in efficiency, against the possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices.
A bank holding company that is registered as a "financial holding company"
is also permitted to engage in activities that are financial in nature or
incidental to such financial activities. Activities that are considered
financial in nature include: securities underwriting, dealing and market making;
insurance underwriting; and merchant banking. Clover Leaf Financial has not
elected to qualify as a financial holding company, although it may seek to do so
in the future. Bank holding companies may qualify to become a financial holding
company if:
o each of its depository institution subsidiaries is "well capitalized";
o each of its depository institution subsidiaries is "well managed";
o each of its depository institution subsidiaries has at least a
"satisfactory" Community Reinvestment Act rating at its most recent
examination; and
o the bank holding company has filed a certification with the Federal
Reserve Board that it elects to become a financial holding company.
SARBANES-OXLEY ACT OF 2002. The Sarbanes-Oxley Act of 2002 implemented
legislative reforms intended to address corporate and accounting irregularities.
In addition to the establishment of a new accounting oversight board that
enforces auditing, quality control and independence standards and is funded by
fees from all publicly traded companies, the Act restricts accounting companies
from providing both auditing and consulting services. To ensure auditor
independence, any non-audit services being provided to an audit client will
require preapproval by the
16
company's audit committee members. In addition, the audit partners must be
rotated. The Act requires chief executive officers and chief financial officers,
or their equivalent, to certify to the accuracy of periodic reports filed with
the SEC, subject to civil and criminal penalties if they knowingly or willfully
violate this certification requirement. In addition, under the Act, counsel will
be required to report evidence of a material violation of the securities laws or
a breach of fiduciary duty by a company to its chief executive officer or its
chief legal officer, and, if such officer does not appropriately respond, to
report such evidence to the audit committee or other similar committee of the
board of directors or the board itself.
The legislation accelerates the time frame for disclosures by public
companies, as they must immediately disclose any material changes in their
financial condition or operations. Directors and executive officers must also
provide information for most changes in ownership in a company's securities
within two business days of the change. The period during which certain types of
law suits can be instituted against a company or its officers has been extended,
and bonuses issued to top executives prior to restatement of a company's
financial statements are now subject to disgorgement if such restatement was due
to corporate misconduct. Executives are also prohibited from insider trading
during retirement plan "blackout" periods, and loans to company executives are
restricted. In addition, civil and criminal penalties have been enhanced.
The Act also increases the oversight of, and codifies certain requirements
relating to, audit committees of public companies and how they interact with the
company's "registered public accounting firm" (RPAF). Audit Committee members
must be independent and are barred from accepting consulting, advisory or other
compensatory fees from the issuer. In addition, companies must disclose whether
at least one member of the committee is a "financial expert" (as such term will
be defined by the SEC) and if not, why not. Under the Act, a RPAF is prohibited
from performing statutorily mandated audit services for a company if such
company's chief executive officer, chief financial officer, comptroller, chief
accounting officer or any person serving in equivalent positions has been
employed by such firm and participated in the audit of such company during the
one-year period preceding the audit initiation date. The Act also prohibits any
officer or director of a company or any other person acting under their
direction from taking any action to fraudulently influence, coerce, manipulate
or mislead any independent public or certified accountant engaged in the audit
of the company's financial statements for the purpose of rendering the financial
statement's materially misleading. In accordance with the Act, the SEC proposed
rules requiring inclusion of an internal control report and assessment by
management in the annual report to shareholders. The Act requires the RPAF that
issues the audit report to attest to and report on management's assessment of
the company's internal controls. In addition, the Act requires that each
financial report required to be prepared in accordance with (or reconciled to)
generally accepted accounting principles and filed with the SEC reflect all
material correcting adjustments that are identified by a RPAF in accordance with
generally accepted accounting principles and the rules and regulations of the
SEC.
CAPITAL REQUIREMENTS. The Federal Reserve Board has adopted capital
adequacy guidelines for bank holding companies (on a consolidated basis)
substantially similar to those of the FDIC for Clover Leaf Bank. Clover Leaf
Financial's pro forma Tier 1 and total capital significantly exceed the Federal
Reserve Board's capital adequacy requirements.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between a bank
and its "affiliates" are subject to quantitative and qualitative restrictions
under Sections 23A and 23B of the Federal Reserve Act and FDIC regulations.
Affiliates of a bank include, among other entities, the bank's holding company
and companies that are controlled by or under common control with the bank.
In general, the extent to which a bank or its subsidiaries may engage in
certain "covered transactions" with affiliates is limited to an amount equal to
10% of the institution's capital and surplus, in the case of covered
transactions with any one affiliate, and to an amount equal to 20% of such
capital and surplus, in the case of covered transactions with all affiliates. In
addition, a bank and its subsidiaries may engage in covered transactions and
certain other transactions only on terms and under circumstances that are
substantially the same, or at least as favorable to the bank or its subsidiary,
as those prevailing at the time for comparable transactions with nonaffiliated
companies. A "covered transaction" is defined to include a loan or extension of
credit to an affiliate; a purchase of investment securities issued by an
affiliate; the purchase of assets from an affiliate, with certain exceptions;
the
17
acceptance of securities issued by an affiliate as collateral for a loan or
extension of credit to any party; or the issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a bank, and certain affiliated interests of
either, may not exceed, together with all other outstanding loans to such person
and affiliated interests, the bank's loans to one borrower limit (generally
equal to 15% of the institution's unimpaired capital and surplus). Section 22(h)
also requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered in comparable
transactions to other persons and also requires prior board approval for certain
loans. In addition, the aggregate amount of extensions of credit by a bank to
all insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers.
FEDERAL SECURITIES LAWS. Clover Leaf Financial's common stock is registered
with the SEC under Section 12(g) of the Securities Exchange Act of 1934. Clover
Leaf Financial is subject to the proxy and tender offer rules, insider trading
reporting requirements and restrictions, and certain other requirements under
the Exchange Act.
CLOVER LEAF BANK
GENERAL. Clover Leaf Bank is an Illinois-chartered commercial bank, the
deposit accounts of which are insured by the Bank Insurance Fund of the FDIC. As
an FDIC insured, Illinois-chartered commercial bank, Clover Leaf Bank is subject
to the examination, supervision, reporting and enforcement requirements of the
Illinois Office of Banks and Real Estate, as the chartering authority for
Illinois banks, and the FDIC, as administrator of the Bank Insurance Fund, and
to the statutes and regulations administered by the Illinois Office of Banks and
Real Estate and the FDIC governing such matters as capital standards, mergers,
establishment of branch offices, subsidiary investments and activities and
general investment authority. Clover Leaf Bank is required to file reports with
the Illinois Office of Banks and Real Estate and the FDIC concerning its
activities and financial condition, and will be required to obtain regulatory
approvals prior to entering into certain transactions, including mergers with,
or acquisitions of, other financial institutions.
The Illinois Office of Banks and Real Estate and the FDIC have extensive
enforcement authority over Illinois-chartered commercial banks, such as Clover
Leaf Bank. This enforcement authority includes, among other things, the ability
to issue cease-and-desist or removal orders, to assess civil money penalties and
to initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe and unsound
practices.
INSURANCE OF DEPOSIT ACCOUNTS. The Federal Deposit Insurance Corporation
has adopted a risk-based system for assessing deposit insurance premiums. The
Federal Deposit Insurance Corporation assigns an institution to one of three
capital categories based on the institution's financial information, as of the
reporting period ending seven months before the assessment period, and one of
three supervisory subcategories within each capital group. The three capital
categories are well capitalized, adequately capitalized and undercapitalized.
The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the Federal Deposit Insurance Corporation by
the institution's primary federal regulator and information which the Federal
Deposit Insurance Corporation determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned. The Federal Deposit Insurance Corporation is
authorized to raise the assessment rates. The Federal Deposit Insurance
Corporation has exercised this authority several times in the past and may raise
insurance premiums in the future. If this type of action is taken by the Federal
Deposit Insurance Corporation, it could have an adverse effect on the earnings
of Clover Leaf Bank.
CAPITAL REQUIREMENTS. The FDIC has capital adequacy regulations and
policies regarding the capital adequacy of state-chartered commercial banks
that, like Clover Leaf Bank, are not members of the Federal Reserve System. The
FDIC's capital regulations establish a minimum 3.0% Tier 1 leverage capital
requirement for the most highly-rated state-chartered, non-member banks, with
additional capital of at least 100 to 200 basis points for all
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other state-chartered, non-member banks, which effectively will increase the
minimum Tier 1 leverage ratio for such other banks to 4.0% to 5.0% or more.
Under the FDIC's regulation, the highest-rated banks are those that the FDIC
determines are not anticipating or experiencing significant growth and have well
diversified risk, including no undue interest rate risk exposure, excellent
asset quality, high liquidity, good earnings and, in general, are considered
strong banking organizations, rated composite 1 under the Uniform Financial
Institutions Rating System. Leverage or core capital is defined as the sum of
common stock, capital surplus, retained earnings, noncumulative perpetual
preferred stock and related surplus, and minority interests in consolidated
subsidiaries, minus all intangible assets other than certain qualifying
supervisory goodwill, and certain purchased mortgage servicing rights and
purchased credit and relationships.
The FDIC also requires that banks meet a risk-based capital standard. Under
the risk-based capital standard, total capital, which is defined as Tier 1
capital and supplementary (Tier 2 capital), must equal at least 8% of
risk-weighted assets. In determining the amount of risk-weighted assets, all
assets, plus certain off balance sheet assets, are multiplied by a risk-weight
of 0% to 100%, based on the risks the FDIC believes are inherent in the type of
asset.
The components of Tier 1 capital are equivalent to those discussed above
under the 3% leverage standard. The components of supplementary (Tier 2) capital
include certain perpetual preferred stock, certain mandatory convertible
securities, certain subordinated debt and intermediate preferred stock and
general allowances for loan and lease losses. Allowance for loan and lease
losses includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of core capital. At December 31, 2003,
Clover Leaf Bank met each of its capital requirements.
A bank which has less than the minimum leverage capital requirement must,
within 60 days from the date it fails to comply with this requirement, submit to
its FDIC regional director for review and approval a reasonable plan describing
the means and timing by which the bank will achieve its minimum leverage capital
requirement. A bank that fails to file such a plan with the FDIC is deemed to be
operating in an unsafe and unsound manner and may be subject to a
cease-and-desist order from the FDIC. FDIC regulations also provide that any
insured depository institution with a ratio of Tier 1 capital to total assets
that is less than 2.0% is deemed to be operating in an unsafe or unsound
condition and is subject to potential termination of deposit insurance. However,
such an institution will not be subject to an enforcement proceeding solely on
account of its capital ratios if it has entered into and is in compliance with a
written agreement with the FDIC to increase its Tier 1 leverage capital ratio
and to take such other action as may be necessary to operate in a safe and sound
manner. The FDIC capital regulation also provides, among other things, for the
issuance by the FDIC of a capital directive, which is a final order issued to a
bank that fails to maintain minimum capital to restore its capital to the
minimum leverage capital requirement within a specified time period. Such
directive is enforceable in the same manner as a final cease-and-desist order.
At December 31, 2003, Clover Leaf Bank exceeded all of its regulatory
capital requirements, with leverage, Tier 1 risk-based and total risk-based
capital ratios of 10.51%, 16.42% and 17.53%, respectively.
Any bank that fails any of the capital requirements is subject to possible
enforcement actions by the FDIC. These actions could include a capital
directive, a cease and desist order, civil money penalties, the establishment of
restrictions on the institution's operations, termination of Federal deposit
insurance and the appointment of a conservator or receiver.
At December 31, 2003, Clover Leaf Bank was deemed a well-capitalized
institution for purposes of the above regulations and as such is not subject to
the above-mentioned restrictions.
Clover Leaf Bank would not be able to pay dividends on its capital stock if
its capital were reduced below the remaining balance of the liquidation account
established in connection with the conversion.
SAFETY AND SOUNDNESS GUIDELINES. The FDIC and the other federal banking
agencies have established guidelines for safety and soundness, addressing
operational and managerial standards, as well as compensation matters for
insured financial institutions. Institutions failing to meet these standards are
required to submit
19
compliance plans to their appropriate federal regulators. The FDIC and the other
agencies also have established guidelines regarding asset quality and earnings
standards for insured institutions. Clover Leaf Bank believes that it is in
compliance with these guidelines and standards.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. Commercial banks, such as
Clover Leaf Bank, have a responsibility under the Community Reinvestment Act and
related regulations of the FDIC to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods. In addition, the
Equal Credit Opportunity Act and the Fair Housing Act (together, the "Fair
Lending Laws") prohibit lenders from discriminating in their lending practices
on the basis of characteristics specified in those statutes. An institution's
failure to comply with the provisions of Community Reinvestment Act could, at a
minimum, result in regulatory restrictions on its activities. Failure to comply
with the Fair Lending Laws could result in enforcement actions by the FDIC, as
well as the Department of Justice.
FEDERAL HOME LOAN BANK SYSTEM. Clover Leaf Bank is a member of the Federal
Home Loan Bank of Chicago, which is one of 12 regional Federal Home Loan Banks
that administers the home financing credit function of savings institutions.
Each Federal Home Loan Bank serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the Federal Home Loan Bank System. It
makes loans to members (i.e., advances) in accordance with policies and
procedures established by the Board of Directors of the Federal Home Loan Bank.
At December 31, 2003, Clover Leaf Bank had $8.0 million of Federal Home Loan
Bank advances. See the Notes to the Consolidated Financial Statements.
As a member, Clover Leaf Bank is required to purchase and maintain stock in
the Federal Home Loan Bank of Chicago in an amount equal to at least 1% of its
aggregate unpaid residential mortgage loans or similar obligations at the
beginning of each year. At December 31, 2003, Clover Leaf Bank had $3.7 million
in Federal Home Loan Bank stock, which was in compliance with this requirement.
The Federal Home Loan Banks are required to provide funds for the
resolution of troubled savings institutions and to contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects. These
contributions have adversely affected the level of Federal Home Loan Bank
dividends paid in the past and could do so in the future. These contributions
also could have an adverse effect on the value of Federal Home Loan Bank stock
in the future. The average dividend yield on Clover Leaf Bank's Federal Home
Loan Bank stock was 6.16% in 2003 and 5.20% in 2002.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts (primarily
NOW and Super NOW checking accounts) and non-personal time deposits. As of
November 3, 1999, no reserves were required to be maintained on the first $5.0
million of transaction accounts, reserves of 3% were required to be maintained
against the next $44.3 million of net transaction accounts, and a reserve of
$1.3 million plus 10% against net transaction accounts above this amount. The
above dollar amounts and percentages are subject to periodic adjustment by the
Federal Reserve Board. Because required reserves must be maintained in the form
of vault cash or a noninterest-bearing account at a Federal Reserve Bank, the
effect of this reserve requirement is to reduce an institution's earning assets
and constrain its ability to lend.
TAXATION
FEDERAL TAXATION
For federal income tax purposes, Clover Leaf Financial and Clover Leaf Bank
file a consolidated federal income tax return on a calendar year basis using the
accrual method of accounting.
Deferred income taxes arise from the recognition of items of income and
expense for tax purposes in years different from those in which they are
recognized in the consolidated financial statements. Clover Leaf Financial
accounts for deferred income taxes by the asset and liability method, applying
the enacted statutory rates in effect at
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the balance sheet date to differences between the book basis and the tax basis
of assets and liabilities. The resulting deferred tax liabilities and assets are
adjusted to reflect changes in the tax laws.
Clover Leaf Financial is not currently subject to the alternative minimum
tax. Clover Leaf Financial may be subject to the corporate alternative minimum
tax in the future, to the extent it exceeds Clover Leaf Financial's regular
income tax for the year if its annual gross receipts for a three-year
consecutive period exceed $7 million. The alternative minimum tax will be
imposed at the rate of 20% of a specially computed tax base. Included in this
base are a number of preference items, including interest on certain tax-exempt
bonds issued after August 7, 1986, and an "adjusted current earnings"
computation which is similar to a tax earnings and profits computation. In
addition, for purposes of the alternative minimum tax, the amount of alternative
minimum taxable income that may be offset by net operating losses is limited to
90% of alternative minimum taxable income.
Clover Leaf Bank's income tax returns have not been audited by the Internal
Revenue Service for the past five years.
STATE TAXATION
ILLINOIS STATE TAXATION. Clover Leaf Financial is required to file Illinois
income tax returns and pay tax at a stated tax rate of 7.30% of Illinois taxable
income. For these purposes, Illinois taxable income generally means federal
taxable income subject to certain modifications, the primary one of which is the
exclusion of interest income on United States obligations.
DELAWARE TAXATION. As a Delaware holding company not earning income in
Delaware, Clover Leaf Financial is exempt from Delaware corporate income tax but
is required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
ITEM 2. DESCRIPTION OF PROPERTIES
At December 31, 2003, Clover Leaf Financial conducted its business from our
main office at 200 East Park Street, Edwardsville, Illinois. The following table
sets forth certain information with respect to the offices of Clover Leaf Bank
at December 31, 2003.
ORIGINAL YEAR
LEASED OR LEASED OR
LOCATION OWNED ACQUIRED NET BOOK VALUE
-------- ----- -------- --------------
200 East Park Street Owned 1976 $137,673
Edwardsville, Illinois 62025
2143 South State Route 157 Owned 1999 $1,198,091
Edwardsville, Illinois 62025
ITEM 3. 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. Other
than litigation previously disclosed, at December 31, 2003, Clover Leaf
Financial and Clover Leaf Bank were not involved in any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of the year under report.
21
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The section entitled "Market for Common Stock" section of Clover Leaf
Financial's Annual Report to Stockholders is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Clover Leaf Financial's Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of Clover Leaf Financial's Annual Report to
Stockholders are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation as of the end of the period covered by this
quarterly report, that the Company's disclosure controls and procedures (as
defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 has been no change
in the Company's internal control over financial reporting during the most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The "Proposal I--Election of Directors" section of the Company's definitive
Proxy Statement for the Company's 2004 Annual Meeting of Stockholders (the "2004
Proxy Statement") is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The "Proposal I--Election of Directors" section of the Company's 2004 Proxy
Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The "Proposal I--Election of Directors" section of the Company's 2004 Proxy
Statement is incorporated herein by reference.
The Company does not have any equity compensation plan that was not
approved by stockholders, other than its employee stock ownership plan.
22
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The "Transactions with Certain Related Persons" section of the Company's
2004 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The exhibits and financial statement schedules filed as a part of this Form
10-KSB are as follows:
(A) Independent Auditors' Report
(B) Consolidated Balance Sheets
(C) Consolidated Statements of Income
(D) Consolidated Statements of Changes in Stockholders' Equity
(E) Consolidated Statements of Cash Flows
(F) Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted as the required
information is inapplicable or has been included in the Notes to Consolidated
Financial Statements.
(b) REPORTS ON FORM 8-K
On November 12, 2003, the company filed a current report on Form 8-K, Item
12. Results of Operations and Financial Condition, in which it announced its
September 30, 2003 financial results.
(c) EXHIBITS
3.1 Certificate of Incorporation of Clover Leaf Financial Corp.*
3.2 Bylaws of Clover Leaf Financial Corp.*
4 Form of Common Stock Certificate of Clover Leaf Financial
Corp.*
10.1 Form of Employee Stock Ownership Plan*
10.2 Director Emeritus Plan*
10.3 Form of Director's Deferred Compensation Agreement*
10.4 Officer's Deferred Bonus Compensation Agreement*
10.5 Employment Agreement with Dennis M. Terry
10.6 Change in Control Agreement with Dennis M. Terry
10.7 Change in Control Agreement with Darlene McDonald
10.8 Change in Control Agreement with Lisa Fowler
13 Portions of 2003 Annual Report to Stockholders
14 Code of Ethics
23
21 Subsidiaries of the Registrant*
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 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
----------------------------
* Incorporated by reference to the Registration Statement on Form SB-2 of
Clover Leaf Financial Corp. (Registration No. 333-69762) initially filed
with the Securities and Exchange Commission on September 21, 2001.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The "Proposal II--Ratification of Appointment of Auditors" section of the
Company's 2004 Proxy Statement is incorporated herein by reference.
24
SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: March 26, 2004 By: /s/ Dennis M. Terry
-------------------------------------
Dennis M. Terry
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Dennis M. Terry President, Chief Executive March 26, 2004
---------------------------- Officer and Director (Principal --------------
Dennis M. Terry Executive Officer)
/s/ Darlene F. McDonald Senior Vice President and March 26, 2004
---------------------------- Treasurer (Principal Financial --------------
Darlene F. McDonald and Accounting Officer)
/s/ Joseph J. Gugger Director March 26, 2004
---------------------------- --------------
Joseph J. Gugger
/s/ Kenneth P. Highlander Director March 26, 2004
---------------------------- --------------
Kenneth P. Highlander
/s/ Gary D. Niebur Director March 26, 2004
---------------------------- --------------
Gary D. Niebur
/s/ Robert W. Schwartz Director March 26, 2004
---------------------------- --------------
Robert W. Schwartz
/s/ Dennis Ulrich Director March 26, 2004
---------------------------- --------------
Dennis Ulrich
25