Attached files
file | filename |
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EX-32 - EXHIBIT 32 - First Clover Leaf Financial Corp. | ex32.htm |
EX-31.1 - EXHIBIT 31.1 - First Clover Leaf Financial Corp. | ex31_1.htm |
EX-31.2 - EXHIBIT 31.2 - First Clover Leaf Financial Corp. | ex31_2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2009
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from __________ to _________
Commission file number 000-50820
FIRST CLOVER LEAF FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Maryland |
20-4797391 |
(State or other jurisdiction of |
(I.R.S. Employer Identification No.) |
incorporation or organization) |
|
6814 Goshen Road, Edwardsville, IL |
62025 |
(Address of principal executive office) |
(Zip Code) |
Registrant's telephone number, including area code (618) 656-6122
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý. No ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨. No ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ |
Accelerated filer ¨ |
Non-accelerated filer ¨ (do not check if smaller reporting company) |
Smaller reporting company ý |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨. No ý.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class |
Outstanding November 10, 2009 | |
Common Stock, par value $.10 per share |
8,007,996 |
FIRST CLOVER LEAF FINANCIAL CORP.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2009
INDEX
PAGE NO. | |
3 | |
4 | |
5 | |
6 | |
8 | |
23 | |
38 | |
41 | |
42 | |
42 | |
43 | |
43 | |
43 | |
43 | |
43 | |
44 |
Consolidated Balance Sheets
September 30, |
December 31, |
|||||||
Assets |
2009 |
2008 |
||||||
Cash and due from banks |
$ | 7,246,835 | $ | 19,290,559 | ||||
Interest-earning deposits |
13,769,636 | 13,562,730 | ||||||
Federal funds sold |
33,853,199 | 34,282,095 | ||||||
Total cash and cash equivalents |
54,869,670 | 67,135,384 | ||||||
Interest-earning time deposits |
- | 5,210,461 | ||||||
Securities available for sale |
96,482,283 | 103,567,578 | ||||||
Federal Home Loan Bank stock |
6,306,273 | 6,306,273 | ||||||
Loans, net of allowance for loan losses |
||||||||
of $5,231,952 and $3,895,246, respectively |
413,944,253 | 430,678,727 | ||||||
Loans held for sale |
925,120 | 240,000 | ||||||
Property and equipment, net |
11,243,309 | 12,512,865 | ||||||
Accrued interest receivable |
2,251,228 | 2,461,320 | ||||||
Goodwill |
11,385,323 | 20,685,323 | ||||||
Core deposit intangible |
1,579,001 | 1,948,001 | ||||||
Foreclosed assets |
696,554 | 632,796 | ||||||
Mortgage servicing rights |
733,552 | 657,660 | ||||||
Other assets |
2,467,391 | 1,288,406 | ||||||
Total assets |
$ | 602,883,957 | $ | 653,324,794 | ||||
Liabilities and Stockholders' Equity |
||||||||
Liabilities: |
||||||||
Deposits: |
||||||||
Non-interest bearing deposits |
$ | 28,236,454 | $ | 24,994,196 | ||||
Interest bearing deposits |
416,845,963 | 422,308,722 | ||||||
Total deposits |
445,082,417 | 447,302,918 | ||||||
Federal Home Loan Bank advances |
40,680,000 | 49,967,919 | ||||||
Securities sold under agreements to repurchase |
29,595,275 | 55,103,313 | ||||||
Subordinated debentures |
3,919,192 | 3,886,144 | ||||||
Accrued interest payable |
1,454,608 | 1,245,555 | ||||||
Other liabilities |
2,567,458 | 2,162,236 | ||||||
Total liabilities |
523,298,950 | 559,668,085 | ||||||
Stockholders' Equity: |
||||||||
Preferred stock, $.10 par value; 10,000,000 shares |
||||||||
authorized; no shares issued |
- | - | ||||||
Common stock, $.10 par value; 20,000,000 shares authorized; |
||||||||
10,142,123 shares issued; 8,076,001 and 8,793,753 shares outstanding |
||||||||
at September 30, 2009 and December 31, 2008, respectively |
1,014,212 | 1,014,212 | ||||||
Additional paid-in capital |
81,356,361 | 81,339,895 | ||||||
Retained earnings |
14,217,323 | 23,230,811 | ||||||
Accumulated other comprehensive income |
1,765,620 | 1,195,673 | ||||||
Unearned Employee Stock Ownership Plan shares |
(625,913 | ) | (658,856 | ) | ||||
Treasury Stock, at cost; 2,066,122 and 1,348,370 shares at |
||||||||
September 30, 2009 and December 31, 2008, respectively |
(18,142,596 | ) | (12,465,026 | ) | ||||
Total stockholders' equity |
79,585,007 | 93,656,709 | ||||||
Total liabilities and stockholders' equity |
$ | 602,883,957 | $ | 653,324,794 | ||||
See Accompanying Notes to Consolidated Financial Statements. |
Consolidated Statements of Operations
(Unaudited)
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2009 |
2008 |
2009 |
2008 |
|||||||||||||
Interest income: |
||||||||||||||||
Interest and fees on loans |
$ | 5,975,400 | $ | 5,018,585 | $ | 18,048,966 | 14,700,713 | |||||||||
Securities: |
||||||||||||||||
Taxable interest income |
782,349 | 548,579 | 2,597,157 | 1,826,602 | ||||||||||||
Non-taxable interest income |
159,802 | 48,728 | 435,184 | 145,707 | ||||||||||||
Interest-earning deposits, federal funds sold, and other |
26,085 | 160,558 | 122,673 | 611,894 | ||||||||||||
Total interest income |
6,943,636 | 5,776,450 | 21,203,980 | 17,284,916 | ||||||||||||
Interest expense: |
||||||||||||||||
Deposits |
2,561,187 | 2,556,489 | 7,862,894 | 7,927,332 | ||||||||||||
Federal Home Loan Bank advances |
367,103 | 188,139 | 1,291,979 | 519,224 | ||||||||||||
Securities sold under agreements to repurchase |
16,826 | 104,151 | 54,525 | 310,863 | ||||||||||||
Subordinated debentures |
75,094 | 75,093 | 223,192 | 223,888 | ||||||||||||
Total interest expense |
3,020,210 | 2,923,872 | 9,432,590 | 8,981,307 | ||||||||||||
Net interest income |
3,923,426 | 2,852,578 | 11,771,390 | 8,303,609 | ||||||||||||
Provision for loan losses |
1,000,000 | 145,000 | 1,668,990 | 501,866 | ||||||||||||
Net interest income after provision for loan losses |
2,923,426 | 2,707,578 | 10,102,400 | 7,801,743 | ||||||||||||
Non-interest income: |
||||||||||||||||
Service fees on deposit accounts |
89,158 | 64,319 | 224,704 | 170,742 | ||||||||||||
Other service charges and fees |
73,952 | 55,456 | 197,211 | 130,050 | ||||||||||||
Loan servicing fees |
54,613 | 18,126 | 135,095 | 68,378 | ||||||||||||
Gain on sale of loans |
105,265 | 87,512 | 491,540 | 214,117 | ||||||||||||
Other |
9,336 | 2,802 | 34,459 | 10,060 | ||||||||||||
Total non-interest income |
332,324 | 228,215 | 1,083,009 | 593,347 | ||||||||||||
Non-interest expense: |
||||||||||||||||
Compensation and employee benefits |
1,122,790 | 901,479 | 3,398,746 | 2,529,982 | ||||||||||||
Occupancy expense |
370,092 | 286,214 | 1,087,476 | 769,753 | ||||||||||||
Data processing services |
140,808 | 114,294 | 417,899 | 338,873 | ||||||||||||
Director fees |
51,750 | 56,000 | 160,700 | 188,850 | ||||||||||||
Professional fees |
204,212 | 111,053 | 597,400 | 354,328 | ||||||||||||
Federal Deposit Insurance Corporation insurance premiums |
173,175 | 15,371 | 602,591 | 31,393 | ||||||||||||
Amortization of core deposit intangible |
108,000 | 85,000 | 369,000 | 317,000 | ||||||||||||
Amortization of mortgage servicing rights |
11,068 | 14,052 | 175,767 | 68,929 | ||||||||||||
Goodwill impairment |
- | - | 9,300,000 | - | ||||||||||||
Impairment loss on assets |
355,989 | - | 355,989 | - | ||||||||||||
Other |
436,277 | 339,570 | 1,273,525 | 955,345 | ||||||||||||
Total non-interest expense |
2,974,161 | 1,923,033 | 17,739,093 | 5,554,453 | ||||||||||||
Income (loss) before income taxes |
281,589 | 1,012,760 | (6,553,684 | ) | 2,840,637 | |||||||||||
Income taxes |
70,100 | 367,300 | 974,496 | 1,026,825 | ||||||||||||
Net income (loss) |
$ | 211,489 | $ | 645,460 | $ | (7,528,180 | ) | $ | 1,813,812 | |||||||
Basic and diluted income (loss) per share (see Note 6) |
$ | 0.03 | $ | 0.08 | $ | (0.91 | ) | $ | 0.22 | |||||||
Dividends per share |
$ | 0.06 | $ | 0.06 | $ | 0.18 | $ | 0.18 |
See Accompanying Notes to Consolidated Financial Statements. |
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2009 |
2008 |
2009 |
2008 |
|||||||||||||
Net income (loss) |
$ | 211,489 | $ | 645,460 | $ | (7,528,180 | ) | $ | 1,813,812 | |||||||
Other comprehensive income (loss): |
||||||||||||||||
Unrealized gains (losses) on securities |
||||||||||||||||
arising during the period, net of tax |
342,806 | (297,963 | ) | 569,946 | (289,661 | ) | ||||||||||
Comprehensive income (loss) |
$ | 554,295 | $ | 347,497 | $ | (6,958,234 | ) | $ | 1,524,151 | |||||||
See Accompanying Notes to Consolidated Financial Statements. |
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended |
||||||||
September 30, |
||||||||
2009 |
2008 |
|||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ | (7,528,180 | ) | $ | 1,813,812 | |||
Adjustments to reconcile net (loss) income to net cash provided by |
||||||||
(used in) operating activities: |
||||||||
Amortization of: |
||||||||
Deferred loan origination costs, net |
48,249 | 57,904 | ||||||
Premiums and discounts on securities |
(115,651 | ) | (146,824 | ) | ||||
Core deposit intangible |
369,000 | 317,000 | ||||||
Mortgage servicing rights |
175,767 | 68,929 | ||||||
Amortization of fair value adjustments on: |
||||||||
Loans |
(50,300 | ) | (227,000 | ) | ||||
Time deposits |
(125,500 | ) | 15,000 | |||||
Federal Home Loan Bank advances |
(32,999 | ) | 16,000 | |||||
Subordinated debentures |
33,048 | 33,048 | ||||||
Investment securities |
(41,700 | ) | (86,200 | ) | ||||
Property and equipment |
12,054 | 12,054 | ||||||
Goodwill impairment |
9,300,000 | - | ||||||
Impairment loss on assets |
355,989 | - | ||||||
Provision for loan losses |
1,668,990 | 501,866 | ||||||
Depreciation expense |
538,206 | 373,413 | ||||||
ESOP expense |
49,409 | 60,229 | ||||||
Gain on sale of loans |
(491,540 | ) | (214,117 | ) | ||||
Loss on sale of foreclosed real estate |
47,638 | 15,000 | ||||||
Proceeds from sales of loans held for sale |
24,232,976 | 13,747,635 | ||||||
Originations of loans held for sale |
(24,426,556 | ) | (14,142,918 | ) | ||||
Change in assets and liabilities: |
||||||||
Decrease (increase) in accrued interest receivable |
210,092 | (75,581 | ) | |||||
Increase in mortgage servicing rights |
(251,659 | ) | (142,208 | ) | ||||
Increase in other assets |
(353,985 | ) | (531,882 | ) | ||||
Increase (decrease) in accrued interest payable |
209,053 | (294,549 | ) | |||||
Increase in other liabilities |
70,185 | 258,885 | ||||||
Net cash flows from operating activities |
3,902,586 | 1,429,496 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from maturity of interest-earning time deposits |
25,847,832 | 17,619,286 | ||||||
Purchase of interest-earning time deposits |
(20,637,371 | ) | (12,852,194 | ) | ||||
Available for sale securities: |
||||||||
Purchases |
(92,450,000 | ) | (119,740,000 | ) | ||||
Proceeds from calls, maturities and paydowns |
100,597,630 | 95,993,584 | ||||||
Net decrease (increase) in loans |
13,953,232 | (41,644,152 | ) | |||||
Purchase of property and equipment |
(461,693 | ) | (3,385,359 | ) | ||||
Proceeds from the sale of foreclosed real estate |
1,002,907 | 285,000 | ||||||
Net cash flows provided by (used in) investing activities |
$ | 27,852,537 | $ | (63,723,835 | ) | |||
(Continued) |
(Continued) |
||||||||
Nine Months Ended |
||||||||
September 30, |
||||||||
2009 |
2008 |
|||||||
Cash flows from financing activities: |
||||||||
Net (decrease) increase in deposits |
$ | (2,095,001 | ) | $ | 40,930,937 | |||
Net (decrease) increase in securities sold under agreements to repurchase |
(25,508,038 | ) | 25,528,020 | |||||
Proceeds from Federal Home Loan Bank advances |
5,000,000 | 10,000,000 | ||||||
Repayment of Federal Home Loan Bank advances |
(14,254,920 | ) | (3,000,000 | ) | ||||
Repurchase of Common Stock |
(5,677,570 | ) | (4,192,830 | ) | ||||
Cash dividends |
(1,485,308 | ) | (1,447,321 | ) | ||||
Net cash flows (used in) provided by financing activities |
(44,020,837 | ) | 67,818,806 | |||||
Net (decrease) increase in cash and cash equivalents |
(12,265,714 | ) | 5,524,467 | |||||
Cash and cash equivalents at beginning of period |
67,135,384 | 37,084,575 | ||||||
Cash and cash equivalents at end of period |
$ | 54,869,670 | $ | 42,609,042 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 9,348,988 | $ | 9,211,808 | ||||
Income tax payments, net |
1,233,593 | 940,071 | ||||||
Non-cash transactions |
||||||||
Loans transferred to foreclosed assets |
1,114,303 | - | ||||||
Property and equipment transferred to other assets |
825,000 | - | ||||||
See Accompanying Notes to Consolidated Financial Statements. |
(1) |
Summary of Significant Accounting Policies: |
The information contained in the accompanying consolidated financial statements is unaudited. In the opinion of management, the consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations for the interim periods. The results of operations for the interim periods are not
necessarily indicative of the results which may be expected for the entire fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements of First Clover Leaf Financial Corp. (the “Company” or “First Clover Leaf”) for the year ended December 31, 2008 contained in the 2008 Annual Report to Stockholders that is filed as an exhibit to the Company’s Annual Report on Form 10-K.
The Company is a Maryland corporation that was incorporated in March 2006 as the successor corporation to First Federal Financial Services, Inc., in connection with the July 2006 “second-step” conversion of First Federal Financial Services, MHC and the simultaneous acquisition of Clover Leaf Financial Corp. and its wholly owned
savings bank subsidiary, Clover Leaf Bank. The accompanying interim consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, First Clover Leaf Bank (the “Bank”) and its wholly owned subsidiary, Clover Leaf Financial Services. First Clover Leaf’s common stock is traded on the NASDAQ Capital Market under the symbol “FCLF.”
Reclassifications have been made to certain balances, with no effect on net income or stockholders’ equity, for the nine months ended September 30, 2008, to be consistent with the classifications adopted for the nine months ended September 30, 2009.
(2) |
Intangible Assets: |
The gross carrying value and accumulated amortization of the core deposit intangible is presented below:
September 30, |
December 31, |
|||||||
2009 |
2008 |
|||||||
Core deposit intangible |
$ | 3,258,000 | $ | 3,258,000 | ||||
Accumulated amortization |
(1,678,999 | ) | (1,309,999 | ) | ||||
Total |
$ | 1,579,001 | $ | 1,948,001 |
Amortization expense on the core deposit intangible for the three and nine months ended September 30, 2009 was $108,000 and $369,000, respectively and $85,000 and $317,000 for the comparable periods in 2008.
Estimated amortization expense on the core deposit intangible for the remaining three months of 2009 and each of the five succeeding fiscal years is as follows:
Core |
||||
Deposit |
||||
Intangible |
||||
Three months ending December 31, 2009 |
$ | 99,000 | ||
Year ending December 31, 2010 |
359,000 | |||
Year ending December 31, 2011 |
304,000 | |||
Year ending December 31, 2012 |
281,000 | |||
Year ending December 31, 2013 |
223,000 | |||
Year ending December 31, 2014 |
116,001 |
(3) |
Investment Securities: |
The following table sets forth the composition of our available-for-sale securities portfolio at the dates indicated:
September 30, 2009 |
||||||||||||||||
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost |
Gains |
(Losses) |
Value |
|||||||||||||
Investment Securities: |
||||||||||||||||
U.S. government sponsored agency obligations |
$ | 55,736,998 | $ | 855,342 | $ | (72,799 | ) | $ | 56,519,541 | |||||||
Corporate bonds |
2,595,052 | 31,739 | (102,436 | ) | 2,524,355 | |||||||||||
State and municipal securities |
14,621,026 | 895,184 | - | 15,516,210 | ||||||||||||
Other Securities |
75,251 | - | - | 75,251 | ||||||||||||
Mortgage-backed securities |
20,651,059 | 1,195,957 | (90 | ) | 21,846,926 | |||||||||||
Total Investment Securities available for sale |
$ | 93,679,386 | $ | 2,978,222 | $ | (175,325 | ) | $ | 96,482,283 |
December 31, 2008 |
||||||||||||||||
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost |
Gains |
(Losses) |
Value |
|||||||||||||
Investment Securities: |
||||||||||||||||
U.S. government sponsored agency obligations |
$ | 58,413,597 | $ | 965,204 | $ | (32,656 | ) | $ | 59,346,145 | |||||||
Corporate bonds |
3,093,991 | - | (264,725 | ) | 2,829,266 | |||||||||||
State and municipal securities |
12,238,209 | 303,990 | (91,616 | ) | 12,450,583 | |||||||||||
Other Securities |
75,251 | - | - | 75,251 | ||||||||||||
Mortgage-backed securities |
27,848,619 | 1,018,724 | (1,010 | ) | 28,866,333 | |||||||||||
Total Investment Securities available for sale |
$ | 101,669,667 | $ | 2,287,918 | $ | (390,007 | ) | $ | 103,567,578 |
(3) |
Investment Securities (Continued): |
Unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 2009 and December 31, 2008, are summarized as follows:
September 30, 2009 |
||||||||||||||||||||||||
Less than 12 Months |
12 Months or More |
Total |
||||||||||||||||||||||
Fair |
Unrealized |
Fair |
Unrealized |
Fair |
Unrealized |
|||||||||||||||||||
Value |
loss |
Value |
loss |
Value |
loss |
|||||||||||||||||||
U.S. government sponsored |
||||||||||||||||||||||||
agency obligations |
$ | 15,734,920 | 72,799 | $ | - | $ | - | $ | 15,734,920 | $ | 72,799 | |||||||||||||
Corporate bonds |
- | - | 744,564 | 102,436 | 744,564 | 102,436 | ||||||||||||||||||
Mortgage-backed securities |
52,006 | 90 | - | - | 52,006 | 90 | ||||||||||||||||||
$ | 15,786,926 | $ | 72,889 | $ | 744,564 | $ | 102,436 | $ | 16,531,490 | $ | 175,325 |
December 31, 2008 |
||||||||||||||||||||||||
Less than 12 Months |
12 Months or More |
Total |
||||||||||||||||||||||
Fair |
Unrealized |
Fair |
Unrealized |
Fair |
Unrealized |
|||||||||||||||||||
Value |
loss |
Value |
loss |
Value |
loss |
|||||||||||||||||||
U.S. government sponsored |
||||||||||||||||||||||||
agency obligations |
$ | 4,996,362 | 32,656 | $ | - | $ | - | $ | 4,996,362 | $ | 32,656 | |||||||||||||
Corporate bonds |
2,152,307 | 94,684 | 676,959 | 170,041 | 2,829,266 | 264,725 | ||||||||||||||||||
State and municipal securities |
1,657,919 | 91,616 | - | - | 1,657,919 | 91,616 | ||||||||||||||||||
Mortgage-backed securities |
297,325 | 1,010 | - | - | 297,325 | 1,010 | ||||||||||||||||||
$ | 9,103,913 | $ | 219,966 | $ | 676,959 | $ | 170,041 | $ | 9,780,872 | $ | 390,007 |
Management evaluates the investment portfolio on at least a quarterly basis to determine if investments have suffered an other-than-temporary decline in value. In addition, management monitors market trends, investment grades, bond defaults and other circumstances to identify trends and circumstances that might impact the carrying
value of equity securities.
At September 30, 2009, the Company had 14 securities in an unrealized loss position which included: 10 U.S. government sponsored agency obligations, two corporate bonds, and two mortgaged-backed securities. The unrealized losses resulted from changes in market interest rates and liquidity, not from changes in the probability of
contractual cash flows. The Company does not intend to sell the securities, and it is not more-likely-than-not that the Company will be required to sell the securities prior to recovery of amortized cost. Full collection of the amounts due according to the contractual terms of the securities is expected; therefore, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2009.
(3) |
Investment Securities (Continued): |
The amortized cost and fair value at September 30, 2009, by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, stated maturities are not disclosed.
Available for Sale |
||||||||
Amortized |
Fair |
|||||||
Cost |
Value |
|||||||
Due in one year or less |
$ | 4,412,654 | $ | 4,473,915 | ||||
Due after one year through five years |
38,246,441 | 39,218,587 | ||||||
Due after five years through ten years |
26,254,938 | 26,811,224 | ||||||
Due after ten years |
4,039,043 | 4,056,380 | ||||||
Mortgage-backed securities |
20,651,059 | 21,846,926 | ||||||
Other Securities |
75,251 | 75,251 | ||||||
$ | 93,679,386 | $ | 96,482,283 |
Securities with a carrying amount of approximately $90,320,000 and $86,796,000 were pledged to secure deposits as required or permitted by law at September 30, 2009 and December 31, 2008, respectively.
(4) |
Loans: |
The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated:
At September 30, |
At December 31, |
|||||||||||||||
2009 |
2008 |
|||||||||||||||
Amount |
Percent |
Amount |
Percent |
|||||||||||||
Real Estate Loans |
||||||||||||||||
One- to four-family residential loans(1) |
$ | 100,113,763 | 23.7 | % | $ | 110,925,168 | 25.3 | % | ||||||||
Multi-family |
20,746,817 | 4.9 | 18,150,435 | 4.2 | ||||||||||||
Commercial |
177,151,044 | 41.9 | 168,432,417 | 38.4 | ||||||||||||
Construction and land |
54,910,237 | 13.0 | 52,337,453 | 11.9 | ||||||||||||
Total real estate loans |
352,921,862 | 83.5 | 349,845,473 | 79.8 | ||||||||||||
Commercial business |
55,367,752 | 13.1 | 78,159,496 | 17.8 | ||||||||||||
Consumer Loans |
14,338,925 | 3.4 | 10,269,781 | 2.4 | ||||||||||||
Total loans and loans held for sale |
422,628,538 | 100.0 | % | 438,274,750 | 100.0 | % | ||||||||||
Less: |
||||||||||||||||
Undisbursed portion of construction loans |
2,513,177 | 3,401,803 | ||||||||||||||
Deferred loan origination fees, net |
14,036 | 58,974 | ||||||||||||||
Allowance for loan losses |
5,231,952 | 3,895,246 | ||||||||||||||
Total loans and loans held for sale, net |
$ | 414,869,373 | $ | 430,918,727 | ||||||||||||
(1) Includes loans held for sale of $925,120 and $240,000 at September 30, 2009 and December 31, 2008, respectively. |
(5) |
Asset Quality: |
The following table sets forth information with respect to the Company’s nonperforming and impaired loans at the dates indicated:
September 30, |
December 31, |
|||||||
2009 |
2008 |
|||||||
Loans 90 days or more past due and still accruing |
$ | 849,770 | $ | 763,659 | ||||
Nonaccrual loans, including $9,947,599 and $3,500,954 classified as impaired |
||||||||
as of September 30, 2009 and December 31, 2008, respectively |
11,253,121 | 5,617,507 | ||||||
Other impaired loans |
17,861,243 | 1,152,151 | ||||||
Total nonperforming and impaired loans |
$ | 29,964,134 | $ | 7,533,317 | ||||
Allowance for loan losses on nonperforming and impaired loans |
$ | 2,876,107 | $ | 670,547 | ||||
Asset Quality Ratios: | ||||||||
Non-performing assets and impaired loans to total assets |
4.97 | % | 1.15 | % | ||||
Non-performing and impaired loans to total loans |
7.24 | 1.75 | ||||||
Allowance for loan losses to non-performing and impaired loans |
17.46 | 51.71 | ||||||
Allowance for loan losses to total loans |
1.26 | 0.90 |
Following is a summary of the activity in the allowance for loan losses:
Nine Months Ended |
||||||||
September 30, |
||||||||
2009 |
2008 |
|||||||
Balance at beginning of period |
$ | 3,895,246 | $ | 1,897,945 | ||||
Charge-offs |
(332,284 | ) | (96,177 | ) | ||||
Recoveries |
- | 15,517 | ||||||
Provision charged to expense |
1,668,990 | 501,866 | ||||||
Balance at end of period |
$ | 5,231,952 | $ | 2,319,151 |
Further discussion of asset quality and of the adequacy of the allowance for loan losses at September 30, 2009 is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(6) |
Earnings (losses) per Share: |
Basic and diluted earnings (losses) per share represents net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding. Employee stock ownership plan shares which are committed to be released are considered outstanding for basic and diluted earnings (losses) per share.
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
2009 |
2008 |
2009 |
2008 |
|||||||||||||
Net earnings (losses) available to common stockholders |
$ | 211,489 | $ | 645,460 | $ | (7,528,180 | ) | $ | 1,813,812 | |||||||
Basic potential common shares: |
||||||||||||||||
Weighted average shares outstanding |
8,111,107 | 8,176,731 | 8,363,902 | 8,229,111 | ||||||||||||
Weighted average unallocated Employee Stock |
||||||||||||||||
Ownership Plan shares |
(123,280 | ) | (131,784 | ) | (125,390 | ) | (133,902 | ) | ||||||||
Basic weighted average shares outstanding |
7,987,827 | 8,044,947 | 8,238,512 | 8,095,209 | ||||||||||||
Dilutive potential common shares |
- | - | - | - | ||||||||||||
Dilutive weighted average shares outstanding |
7,987,827 | 8,044,947 | 8,238,512 | 8,095,209 | ||||||||||||
Basic and diluted earnings (losses) per share |
$ | 0.03 | $ | 0.08 | $ | (0.91 | ) | $ | 0.22 |
(7) |
Employee Stock Ownership Plan: |
The Company has an employee stock ownership plan (ESOP) which covers substantially all employees who have attained the age of 21 and completed one year of service. In connection with its initial stock offering in 2004, the Company loaned funds to the ESOP for the purchase of its common stock at the initial public offering price. The
loan is being repaid based on a variable interest rate over 20 years beginning December 31, 2004. All shares are held in a suspense account for allocation among the participants as the loan is repaid. Shares are released for allocation to participants based upon the ratio of the current year’s debt service to the sum of total principal and interest payments over the remaining life of the note. Shares released from the suspense account are allocated among the participants
based upon their pro rata annual compensation. The purchase of shares by the ESOP was recorded by the Company as unearned ESOP shares in a contra equity account. As ESOP shares are committed to be released to compensate employees, the contra equity account is reduced and the Company recognizes compensation expense equal to the average fair market value of the shares committed to be released. Compensation expense of $16,244 and $49,409 was incurred for the three and nine months
ended September 30, 2009, respectively and $18,927 and $60,229 for the comparable periods in 2008.
(7) |
Employee Stock Ownership Plan (Continued): |
Dividends on unallocated ESOP shares, together with Company contributions, are used by the ESOP to repay principal and interest on the outstanding note.
The following table reflects the shares held by the plan at September 30, 2009 and December 31, 2008:
September 30, |
December 31, |
|||||||
2009 |
2008 |
|||||||
Unallocated shares (fair value at September 30, 2009 and |
||||||||
December 31, 2008 of $848,239 and $875,027, respectively) |
121,177 | $ | 127,555 | |||||
Allocated Shares |
49,582 | 43,204 | ||||||
Total ESOP Shares |
170,759 | $ | 170,759 |
(8) |
Recent Accounting Pronouncements: |
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-01 (formerly Statement No. 168), Topic 105 – Generally Accepted Accounting Principles - amendments based on-Statement of Financial Accounting Standards No. 168 -The FASB
Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles. The Codification is the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”). The Codification does not change current GAAP, but rather it is intended to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular topic in one place. The Company adopted
this standard for the interim reporting period ending September 30, 2009. The adoption of this statement did not have a material impact on the Company’s financial condition, results of operations or cash flows.
On January 1, 2010, the Company will be required to follow the new disclosure guidance in FASB Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing, which is related to transfers of assets. This guidance is intended to improve the information
provided in financial statements concerning transfers of financial assets, including the effects of transfers on financial position, financial performance and cash flows, and any continuing involvement of the transferor with the transferred financial assets. The Company is currently evaluating the impact of adopting the guidance.
(9) |
Fair Value of Financial Instruments: |
FASB ASC Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. Fair value is determined under the framework established by ASC Topic 820, Fair
Value Measurements and Disclosures. ASC Topic 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirement. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following information presents estimated fair values of the Company’s financial instruments as of September 30, 2009 and December 31, 2008 and the methods and assumptions used to estimate
those fair values.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values.
Interest-earning time deposits: Due to the short term nature of these deposits, generally three months or less, the carrying amounts of these deposits approximate fair values.
Securities: When available, quoted market prices are used to determine the fair value of investment securities and such items are classified within Level 1 of the fair value hierarchy. An example is U.S. Treasury securities. For other securities,
the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar bonds where a price for the identical bond is not observable. Securities measured at fair value by such methods are classified as Level 2.
Federal Home Loan Bank stock: The Company is required to maintain these equity securities as a member of the Federal Home Loan Bank of Chicago and in amounts as required by this institution. These equity securities are “restricted” in that they
can only be sold back to the respective institution or another member institution at par. Therefore, they are less liquid than other tradable securities and their fair value is not readily available.
Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial real estate, residential mortgage, indirect and other consumer loans. Each loan category
is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. The fair value of fixed rate loans and non-performing loans is estimated by discounting future cash flows using discount rates that reflect the Company’s current pricing for loans with similar characteristics, such as loan type, credit risk, pricing and remaining maturity.
Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.
(9) |
Fair Value of Financial Instruments (Continued): |
Deposit liabilities: The fair values disclosed for demand deposits (savings) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and
certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Federal Home Loan Bank advances: The fair value of variable rate Federal Home Loan Bank advances approximate carrying value. The fair value of fixed rate Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on current rates for similar
advances.
Securities sold under agreements to repurchase: The carrying amounts of securities sold under agreements to repurchase approximate fair value.
Subordinated debentures: The fair value of fixed rate trust preferred debentures are estimated using discounted cash flow analyses based on current rates for similar advances.
Accrued interest payable: The carrying amount of accrued interest payable approximates its fair value.
(9) |
Fair Value of Financial Instruments (Continued): |
The estimated fair values and related carrying or notional amounts of the Company's financial instruments are as follows:
September 30, 2009 |
December 31, 2008 |
|||||||||||||||
Carrying |
Fair |
Carrying |
Fair |
|||||||||||||
Amount |
Value |
Amount |
Value |
|||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 54,869,670 | $ | 54,869,670 | $ | 67,135,384 | $ | 67,135,384 | ||||||||
Interest-earning time deposits |
- | - | 5,210,461 | 5,210,461 | ||||||||||||
Securities available for sale |
96,482,283 | 96,482,283 | 103,567,578 | 103,567,578 | ||||||||||||
Federal Home Loan Bank stock |
6,306,273 | 6,306,273 | 6,306,273 | 6,306,273 | ||||||||||||
Loans, net |
414,869,373 | 408,433,325 | 430,918,727 | 437,952,913 | ||||||||||||
Accrued interest receivable |
2,251,228 | 2,251,228 | 2,461,320 | 2,461,320 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Non-interest bearing deposits |
28,236,454 | 28,236,454 | 24,994,196 | 24,994,196 | ||||||||||||
Interest bearing deposits |
416,845,963 | 420,669,963 | 422,308,722 | 424,696,738 | ||||||||||||
Federal Home Loan Bank advances |
40,680,000 | 41,732,000 | 49,967,919 | 50,673,734 | ||||||||||||
Securities sold under agreement |
||||||||||||||||
to repurchase |
29,595,275 | 29,595,275 | 55,103,313 | 55,103,313 | ||||||||||||
Subordinated debentures |
3,919,192 | 3,898,192 | 3,886,144 | 3,957,709 | ||||||||||||
Accrued interest payable |
1,454,608 | 1,454,608 | 1,245,555 | 1,245,555 |
In addition, other assets and liabilities of the Company that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, nonfinancial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include,
among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill and similar items.
(10) |
Fair Value Disclosures: |
The Company determines the fair market values of its financial instruments based on the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures, which requires an entity to maximize the use of observable inputs and minimizes the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included with Level 1 that are observable for the asset or liability either directly or indirectly. These
might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks,
(10) |
Fair Value Disclosures (Continued): |
etc.) or inputs that are derived from or corroborated by market data by correlation or other means. Level 3 inputs are unobservable inputs for determining the fair value of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Assets and liabilities measured at fair value on a recurring basis segregated by fair value hierarchy level during the period ended September 30, 2009 are summarized below:
Quoted Prices in Active Markets for Identical Assets |
Significant Other
Observable Inputs |
Significant
Unobservable
Inputs |
|
|||||||||||||
Assets: |
(Level 1) |
(Level 2) |
(Level 3) |
Total |
||||||||||||
Investment Securities: |
||||||||||||||||
U.S. government sponsored agency obligations |
$ | - | $ | 56,519,541 | $ | - | $ | 56,519,541 | ||||||||
Corporate bonds |
- | 2,524,355 | - | 2,524,355 | ||||||||||||
State and municipal securities |
- | 15,516,210 | - | 15,516,210 | ||||||||||||
Other securities |
- | 75,251 | - | 75,251 | ||||||||||||
Mortgage-backed securities |
- | 21,846,926 | - | 21,846,926 | ||||||||||||
Total Investment Securites available for sale |
$ | - | $ | 96,482,283 | $ | - | $ | 96,482,283 |
Assets and liabilities measured at fair value on a nonrecurring basis by fair value hierarchy level during the period ended September 30, 2009 are summarized below:
Quoted Prices in
Active Markets for
Identical Assets |
Significant Other
Observable Inputs |
Significant
Unobservable
Inputs |
|
|||||||||||||
(Level 1) |
(Level 2) |
(Level 3) |
Total |
|||||||||||||
Impaired loans |
$ | - | $ | 27,639,187 | $ | 169,655 | $ | 27,808,842 | ||||||||
Foreclosed assets |
$ | - | $ | 696,554 | $ | - | $ | 696,554 | ||||||||
Goodwill |
$ | - | $ | 11,385,323 | $ | - | $ | 11,385,323 |
Impaired loans that are collateral dependent have been written down to the fair value of the collateral, less estimated costs to sell, of $27.8 million through the establishment of specific reserves or by recording charge-offs when the carrying value exceeds the fair value of the collateral. Valuation techniques consistent with
the market approach, income approach, and/or cost approach were used to measure fair value and primarily included observable inputs for the individual impaired loans being evaluated such as recent sales of similar assets or observable market data for operational or carrying costs. In cases where such inputs were unobservable, the loan balance is reflected within the Level 3 hierarchy. The calculated valuation amount does not necessarily represent the fair value of the loan. Management
believes it is more likely than not that a workout solution or liquidation of the collateral is the best use of the asset and therefore has measured fair value based on the underlying collateral of the loan. If management were to sell the impaired loan portfolio to a third party instead of liquidating the collateral, the measurement of fair value could be significantly different.
(10) |
Fair Value Disclosures (Continued): |
As noted in Note 11, an implied fair value of goodwill was measured for the reporting unit, in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and
identifiable intangibles as if the reporting unit was being acquired in a business combination. The fair values disclosed in Note 9 reflect the estimated fair values of the assets and liabilities assuming the sale of those assets and liabilities to a willing third party.
(11) |
Goodwill Impairment: |
The company reported goodwill from its acquisition of Clover Leaf Bank in 2006 in the amount of $9.4 million and its acquisition of Partners Bank in 2008 in the amount of $11.3 million, for a total of $20.7 million in goodwill. In accordance with ASC Topic 350, Intangibles-Goodwill
and Other, goodwill and intangible assets with indefinite useful lives are no longer amortized, rather they are assessed, at least annually, for impairment. The Company tests goodwill for impairment on an annual basis as of September 30, or more often if events or circumstances indicate there may be impairment. Management has determined that the Company has only one reporting unit for purposes of evaluating goodwill.
As outlined in ASC Topic 350, the goodwill impairment analysis involves a two-step test. Step one includes two valuation methodologies; (i) the comparable transactions approach, and (ii) the control premium approach. The first valuation methodology, used to identify potential impairment,
involves comparing the fair value of the reporting unit to its carrying value including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired. If the carrying value exceeds fair value, there is an indication of impairment, and the second valuation methodology is performed to measure the amount of impairment. The second valuation methodology involves calculating an implied fair value of goodwill for the reporting unit,
in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first valuation methodology, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the carrying value of the reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment charge is recorded against
earnings for the excess.
As a result of ongoing volatility in the financial industry, primarily a decline in pricing ratios recently paid in the sale or merger of banking franchises, and the corresponding decline in the industry based control premiums, First Clover Leaf determined it was necessary to perform an interim
goodwill impairment test during the second quarter of 2009. An independent third party was engaged to assist with the impairment assessment. The two step valuation approach was performed as of June 30, 2009, and the results indicated that goodwill was impaired. As a result, a non-cash goodwill impairment charge of $9.3 million was recorded as of June 30, 2009. The impairment charge was included in noninterest expense and did not affect our regulatory or tangible capital
ratios.
Effective September 30, 2009, we performed our annual goodwill impairment test. Upon completion of the first step of the goodwill impairment test, the fair value of the reporting unit was less than its carrying value by approximately $300,000. As such, the second step of the goodwill impairment test was required to determine the amount of
impairment loss, if any. The second step is being completed with the assistance of an independent valuation firm and the preliminary results indicate that no further goodwill impairment loss is necessary, beyond what was recorded as of June 30, 2009. The preliminary results show an increase in non-performing loans during the third quarter, which resulted in assigning a lower fair value to certain of the Company’s net assets in the second step of the goodwill impairment test as compared to their carrying
amounts. This increased the implied fair value of goodwill to an amount greater than the recorded amount. We will complete the second step of the goodwill impairment test in the fourth quarter and if our preliminary results change such that a goodwill impairment loss is required, we will record that loss in the fourth quarter.
(11) |
Goodwill Impairment (Continued): |
Due to the current economic environment and other uncertainties, it is possible that our estimates and assumptions may adversely change in the future, and we may be required to record additional goodwill impairment losses in future periods. It is not possible at this time to determine
if any such future impairment loss would result or, it if does, whether such charge would be material. However, any such future impairment loss would be limited to the remaining goodwill balance of $11.4 million at September 30, 2009. Subsequent reversal of goodwill impairment losses is not permitted.
(12) |
Subsequent Events: |
Events occurring subsequent to September 30, 2009, have been evaluated as to their potential impact to the financial statements through November 12, 2009, the date of filing this Form 10-Q.
On October 27, 2009, the Board of Directors of the Company declared a cash dividend on the Company’s common stock of $0.06 per share for the quarter ended September 30, 2009. The dividend will be payable to stockholders of record as of November 13, 2009 and is expected to be paid on November 20, 2009.
22
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
When used in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations
or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities, if any; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company
Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution you not to place undue reliance on any such forward-looking
statements, which only speak as of the date made. The Company wishes to advise you that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Critical Accounting Policies
We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. Management makes significant estimates and has identified the allowance for loan losses and goodwill and
other intangible assets as critical accounting policies.
Allowance for loan losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
23
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans 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 and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard or special mention and also considered to be impaired. For such loans an allowance is established when the fair value of the collateral, less estimated costs to sell, is lower than the carrying value
of that loan. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the
amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.
Goodwill and Other Intangible Assets. Over the past several years, First Clover Leaf has grown through acquisitions accounted for under the purchase method of accounting. Under the purchase method, First Clover Leaf was required to allocate the
cost of an acquired company to the assets acquired, including identified intangible assets, and liabilities assumed based on their estimated fair values at the date of acquisition. The excess cost over the net assets acquired represents goodwill, which is not subject to amortization.
Customer relationship intangibles are required to be amortized over their estimated useful lives. The method of amortization reflects the pattern in which the economic benefits of the intangible assets are estimated to be consumed or otherwise used up. Since First Clover Leaf’s acquired customer relationships are
subject to routine customer attrition, the relationships are more likely to produce greater benefits in the near-term than in the long-term, which typically supports the use of an accelerated method of amortization for the related intangible assets. Management is required to evaluate the useful life of customer relationship intangibles to determine if events or circumstances warrant a change in the estimated life. Should management determine that the estimated life of any intangible asset
is shorter than originally estimated, First Clover Leaf would adjust the amortization of that asset, which could increase future amortization expense.
24
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. Goodwill recorded by First Clover Leaf in connection with its acquisitions relates to the inherent value in the businesses acquired, and this value is dependent upon First Clover Leaf’s
ability to provide quality, cost effective services in a competitive market place. The continued value of recorded goodwill is impacted by the value of our stock and continued profitability of the organization. In the event that the stock price experiences significant declines or the operations of the company lack profitability an impairment of goodwill would need to be recognized. Any impairment recognized would adversely impact earnings in the period in which it is recognized.
First Clover Leaf utilizes a two step valuation approach to test for goodwill impairment. We estimate the fair value as of the measurement date utilizing two valuation methodologies including the comparable transactions approach, and the control premium approach. We then compare the estimated fair value to the current
carrying value to determine if goodwill impairment had occurred as of the measurement date. Future events, such as adverse changes to First Clover Leaf’s business or changes in the economic market, could cause management to conclude that impairment indicators exist and require management to re-evaluate goodwill. Should such re-evaluation determine that goodwill is impaired, the resulting impairment loss recognized could have a material, adverse impact on First Clover Leaf’s financial
condition and results of operations. In accordance with current accounting guidance, management has determined that the Company has only one reporting unit for purposes of evaluating goodwill. See Item 1 Note 11 for additional information on goodwill impairment.
Overview
Net income decreased to $211,000 for the three months ended September 30, 2009 from $645,000 for the same period last year. This decrease was due primarily to an increase in provision for loan losses, an impairment loss on assets related to a building held for sale, and higher expenses for compensation and FDIC insurance premiums
offset by higher net interest income. For the nine months ended September 30, 2009, First Clover Leaf recorded a net loss of $7.5 million compared to net income of $1.8 million for the same period in 2008 due primarily to the $9.3 million goodwill impairment charge recorded as of June 30, 2009. Net interest income increased $3.5 million over the prior period. During the nine-month period of 2009, we incurred a $356,000 impairment loss on assets, a $280,000 FDIC special assessment
charge, and also experienced higher expenses for compensation and employee benefits and occupancy as a result of the opening of a new branch in June 2008 and the acquisition of Partners Bank in October 2008. We also experienced higher expenses for provisions for loan losses, regular FDIC insurance premiums, and professional fees.
25
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition
Total Assets. Total assets decreased to $602.9 million at September 30, 2009 from $653.3 million at December 31, 2008. Total cash and cash equivalents decreased to $54.9 million at September 30,
2009 from $67.1 million at December 31, 2008. The decrease in cash and cash equivalents was due primarily to a decrease in cash and due from banks as the balance in our securities sold under agreements to repurchase decreased $25.5 million. Securities available for sale decreased to $96.5 million at September 30, 2009 from $103.6 million at December 31, 2008. The decrease was due primarily to calls, maturities and pay-downs of $100.6 million, partially offset by purchases of $92.5
million. Loans, net amounted to $414.9 million at September 30, 2009, compared to $430.9 million at December 31, 2008. This decrease was a result of loan paydowns and maturities exceeding new loan originations. Due to the current economic environment, new loan demand, especially in the commercial real estate market, is not as strong as it has been in prior periods. Goodwill decreased to $11.4 million at September 30, 2009 from $20.7 million at December 31, 2008. This
decrease was a result of a $9.3 million impairment charge recorded in June 2009.
Total Liabilities. Deposits decreased slightly to $445.1 million at September 30, 2009 from $447.3 million at December 31, 2008. Securities sold under agreements to repurchase decreased to $29.6 million at September 30, 2009 from $55.1 million
at December 31, 2008. The change in securities sold under agreements to repurchase was due primarily to fluctuations by one significant customer. This type of fluctuation is a normal occurrence for this customer. Federal Home Loan Bank advances at September 30, 2009 were $40.7 million compared to $50.0 million at December 31, 2008.
Stockholders’ Equity. Stockholders’ equity decreased to $79.6 million at September 30, 2009 from $93.7 million at December 31, 2008, principally as a result of a $7.5 million net loss which included a $9.3 million goodwill impairment charge
recorded in June 2009 that did not impact our regulatory capital ratios, including our classification as “well capitalized.” Stockholders’ equity was also reduced as a result of the repurchase of $5.7 million of the Company’s common stock, and the payment of cash dividends of $1.5 million during the nine months ended September 30, 2009.
Asset Quality
The Company has experienced an increase in nonperforming loans due to the current economic slowdown. Detailed information concerning the Company’s nonaccrual, impaired and substandard loans is described in the paragraphs that follow. Overall, the Company has a very limited number and value of what would be classified
as high risk loans. The Company does not originate subprime loans and holds a very small number and dollar value of ARM products. The Company does hold some junior lien mortgages and high loan-to-value ratio mortgages; however, they total a very insignificant portion of our loan portfolio. The Company is reviewing these loans regularly and has not seen any increase in the delinquency trends for these products. Our allowance for loan loss methodology has remained consistent.
As commercial loans mature and requests for renewals are processed, either a new appraisal is obtained or the Company performs an internal valuation of the collateral based on comparable sales. Additionally, the original appraisal is discounted if the Company believes it is warranted.
26
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
At September 30, 2009, the Company’s nonaccrual loans increased $5.7 million to $11.3 million from $5.6 million at December 31, 2008, while other impaired loans increased $16.7 million to $17.9 million from $1.2 million at December 31, 2008. The increase in nonaccrual loans was a result of nine loans being reclassified to
nonaccrual status. The largest loan is a $1.9 million loan to a real estate investor, who is experiencing high vacancy rates and property repairs resulting in decreased cash flows due to the economic slowdown. The borrower is currently working with a management company to decrease the vacancy rates. The next largest loan is a $1.4 million loan to a commercial contractor whose project has been adversely impacted by the current economic slowdown. The next largest loan
is a $750,000 real estate development for single family residences. This is a new development that, due to economic conditions, has had a very slow start. The next largest loan is a $674,000 loan to a real estate developer. This loan is in the process of being restructured. The remaining balance is made up of small credits, each less than $500,000. Appraisals have been obtained for all of the above mentioned credits and shortfalls are being reserved through provisions for loan
losses.
The increase in other impaired loans was due to the addition of several accounts that were all related to investment real estate. The largest credit reclassified to impaired loans was a $6.9 million credit to a builder with excess inventory. This loan is secured by residential investment property for which appraisals
have been obtained. Currently the collateral on this loan is sufficient to cover the majority of the outstanding balance, and sufficient reserves have been set aside for the remaining outstanding balance. The next largest loan is a $3.9 million development loan to a subdivision developer with excess inventory that is selling slowly due to the economic slowdown. The loan is secured by the residential property, and the appraisal for the property has been reviewed and updated to reflect current
market conditions and sales values. The next three largest relationships are a $2.1 million credit to a commercial contractor, a $2.0 million credit secured by residential investment property, and a $1.6 million credit to a residential builder. The $2.1 million credit is to a builder whose situation has been impacted by the current economic slowdown and other business issues. This credit is currently being evaluated for a possible restructuring arrangement. The $2.0 million credit
is secured by rental property for which vacancies have increased substantially, and the $1.6 million credit is secured by single family residences. The Company has appraisals on all of the aforementioned properties. The appraised values are sufficient to cover the outstanding balance on two of the credits, and reserves have been allocated for the shortfall in the appraised value of the remaining credit. The remaining $1.6 million increase in impaired loans is made up of several properties
that each have outstanding balances of less than $1.0 million.
Under the Company’s internal review policy, loans classified as substandard totaled $27.8 million at September 30, 2009 and $6.1 million at December 31, 2008. The $21.7 million increase was due to the reclassification of several real estate related accounts that had been previously classified as special mention, but due to
no significant improvement in their financial condition since year end, we have elected to downgrade the credits to substandard. The largest addition was a $6.9 million credit to a builder with excess inventory (as discussed above). This loan is secured by residential investment property for which recent appraisals have been obtained. The next largest loan is a $3.9 million development loan to a subdivision developer with excess inventory that is selling slowly due to the economy
(as discussed above). The loan is secured by the residential property. The appraisal has been reviewed and updated to reflect current market conditions and sales values. The next four largest relationships are (i) a $2.1 million credit to a commercial contractor (as discussed above), (ii) a $2.0 million credit secured by residential investment property (as discussed above), (iii) a $2.0 million credit to a real estate builder and developer, and (iv) a $1.3 million credit to a real estate
broker. The $2.1 million credit is to a builder whose project has been impacted by the current economic slowdown.
27
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This credit is currently being evaluated for a possible restructuring arrangement. One of the $2.0 million credits is secured by rental property for which vacancies have increased substantially, and the remaining $2.0 million credit is secured by residential and commercial real estate. A restructuring of this last credit
has been proposed to the borrower and is currently being evaluated. The $1.3 million credit is primarily secured by commercial real estate. The borrower in this case is struggling with decreased cash flows. The remaining $2.7 million increase in substandard loans is made up of several properties that each have outstanding balances of less than $1.0 million.
The allowance for loan losses to non-performing and impaired loans, which is listed in the “Asset Quality Ratios” table in Item 1 Note 5, decreased significantly to 17.46% at September 30, 2009, compared to 51.71% at December 31, 2008. This decline is due to the large increase in non-performing loans that did not require
proportionate reserves under our allowance methodology. The loans that were reclassified to impaired loan status were previously classified as special mention loans. Loans classified as special mention are not evaluated individually for loan loss reserves. The loan loss reserve for special mention loans is calculated on a percentage allocation, which is based on the Company’s historical loss performance adjusted for qualitative factors. Once a special mention loan is reclassified
to an impaired or substandard loan, they are evaluated individually with consideration being given to vacancies, market stabilization, cash flows and appraisals. Specific loan loss reserves are allocated to each loan based on the above conditions. Of the loans that were reclassified to impaired status in the third quarter of 2009, the majority required little to no special allocation of loan loss reserve. Therefore, our loan loss reserve balance did not increase proportionately
to the increase in the volume of non-performing loans.
Results of Operations
General. Net income decreased by $9.3 million to a $7.5 million loss for the nine months ended September 30, 2009 compared to $1.8 million in net income for the same period last year. The decrease in net income was due primarily to a $9.3 million
goodwill impairment charge, discussed above. Despite the overall net loss due to the above charges, the Company recorded higher net interest income and non-interest income for the three and nine months ended September 30, 2009 compared to the same periods in 2008.
Yields on all interest-earning assets declined for the nine months ended September 30, 2009 compared to the same period in 2008 due to the interest rate cuts instituted by the Federal Reserve. These rate cuts resulted in declining yields in our loan portfolio, as a significant number of our loans are adjustable-rate loans that
reprice according to the prime rate changes. The rate cuts also impacted our interest-earning deposits with depository institutions as those assets also have adjustable-rates versus fixed rates. The declining rate environment has resulted in a number of the bonds in our securities portfolio being called and the Company reinvesting the proceeds in lower yielding bonds. We continue to attempt to absorb the effects of the interest rate cuts through lowering the rates we pay on deposits. However,
a significant number of our interest-bearing deposits are time deposits, which are fixed-rate contracts until maturity that do not allow for immediate repricing as rates fluctuate. Overall, further downward pressure on interest rates is unlikely to benefit our net interest margin or net income.
28
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The results for the three and nine months ended September 30, 2009 reflect the October 2008 acquisition of Partners Bank, which had $170.0 million in assets, $101.6 million in loans, and $108.7 million of deposits at the time of acquisition.
Net interest income. Net interest income increased by $1.0 million to $3.9 million for the three months ended September 30, 2009 from $2.9 million for the same period last year. Net interest income increased by $3.5 million to $11.8 million for
the nine months ended September 30, 2009 from $8.3 million for the comparable period in 2008. Net average interest-earning assets were $71.4 million for the nine months ended September 30, 2009, compared to $76.3 million for the same period in 2008. The ratio of interest-earning assets to interest-bearing liabilities decreased to 113.68% for the nine months ended September 30, 2009 from 123.63% for the same period in 2008. The net interest rate spread increased to 2.36% for the nine months
ended September 30, 2009, compared to 2.06% for the comparable period in 2008. The average rate earned on interest-earning assets decreased by 100 basis points for the nine months ended September 30, 2009 to 4.78% from 5.78% for the same period in 2008, while the average rate paid on interest-bearing liabilities decreased by 130 basis points during these periods. The increase in the interest rate spread was attributable to the cost of funds declining faster than the yield on interest-earning
assets.
29
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following tables set forth the average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the
computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred loan fees, discounts and premiums that are amortized or accreted to interest income or expense. Yields and rates have been annualized.
Three Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||||||||||
2009 |
2008 |
|||||||||||||||||||||||
Average
Outstanding
Balance |
Interest (4) |
Yield/
Rate |
Average
Outstanding
Balance |
Interest (4) |
Yield/
Rate |
|||||||||||||||||||
(Dollars in thousands) |
||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Loans, gross |
$ | 421,621 | $ | 5,975 | 5.62 | % | $ | 327,564 | $ | 5,019 | 6.10 | % | ||||||||||||
Securities |
99,183 | 942 | 3.77 | 53,182 | 597 | 4.47 | ||||||||||||||||||
Federal Home Loan Bank stock |
6,306 | - | - | 5,604 | - | - | ||||||||||||||||||
Interest-earning balances from depository institutions |
46,290 | 27 | 0.23 | 26,920 | 161 | 2.38 | ||||||||||||||||||
Total interest-earning assets |
573,400 | 6,944 | 4.80 | 413,270 | 5,777 | 5.56 | ||||||||||||||||||
Non-interest-earning assets |
39,267 | 30,725 | ||||||||||||||||||||||
Total assets |
$ | 612,667 | $ | 443,995 | ||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing transaction |
$ | 167,404 | 719 | 1.70 | $ | 111,237 | 728 | 2.60 | ||||||||||||||||
Savings deposits |
18,815 | 51 | 1.08 | 18,029 | 102 | 2.25 | ||||||||||||||||||
Time deposits |
218,540 | 1,792 | 3.25 | 157,131 | 1,727 | 4.37 | ||||||||||||||||||
Securities sold under agreements to repurchase |
48,663 | 17 | 0.14 | 31,142 | 104 | 1.33 | ||||||||||||||||||
Federal Home Loan Bank advances |
41,305 | 367 | 3.53 | 17,447 | 188 | 4.29 | ||||||||||||||||||
Subordinated debentures |
3,911 | 75 | 7.61 | 3,869 | 75 | 7.71 | ||||||||||||||||||
Total interest-bearing liabilities |
498,638 | 3,021 | 2.40 | 338,855 | 2,924 | 3.43 | ||||||||||||||||||
Non-interest-bearing liabilities |
33,678 | 20,002 | ||||||||||||||||||||||
Total liabilities |
532,316 | 358,857 | ||||||||||||||||||||||
Stockholders’ equity |
80,351 | 85,138 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity |
$ | 612,667 | $ | 443,995 | ||||||||||||||||||||
Net interest income |
$ | 3,923 | $ | 2,853 | ||||||||||||||||||||
Net interest rate spread (1) |
2.40 | % | 2.13 | % | ||||||||||||||||||||
Net interest-earning assets (2) |
$ | 74,762 | $ | 74,415 | ||||||||||||||||||||
Net interest margin (3) |
2.71 | % | 2.75 | % | ||||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities |
114.99 | % | 121.96 | % |
(1) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
(2) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
(3) Net interest margin represents net interest income divided by average total interest-earning assets. |
(4) Interest on loans includes loan fees collected in the amount of $38,191 and $28,066 for the three months ended September 30, 2009 and 2008, respectively. |
30
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Nine Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||
2009 |
2008 |
|||||||||||||||||||||||
Average
Outstanding
Balance |
Interest (4) |
Yield/
Rate |
Average
Outstanding
Balance |
Interest (4) |
Yield/
Rate |
|||||||||||||||||||
(Dollars in thousands) |
||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Loans, gross |
$ | 424,224 | $ | 18,049 | 5.69 | % | $ | 313,564 | $ | 14,701 | 6.26 | % | ||||||||||||
Securities |
98,853 | 3,032 | 4.10 | 53,542 | 1,972 | 4.92 | ||||||||||||||||||
Federal Home Loan Bank stock |
6,306 | - | - | 5,604 | - | - | ||||||||||||||||||
Interest-earning balances from depository institutions |
63,928 | 123 | 0.26 | 26,501 | 612 | 3.08 | ||||||||||||||||||
Total interest-earning assets |
593,311 | 21,204 | 4.78 | 399,211 | 17,285 | 5.78 | ||||||||||||||||||
Non-interest-earning assets |
48,268 | 28,529 | ||||||||||||||||||||||
Total assets |
$ | 641,579 | $ | 427,740 | ||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing transaction |
$ | 187,653 | 2,173 | 1.55 | $ | 93,221 | 1,931 | 2.77 | ||||||||||||||||
Savings deposits |
18,678 | 174 | 1.25 | 18,347 | 317 | 2.31 | ||||||||||||||||||
Time deposits |
216,267 | 5,516 | 3.41 | 163,204 | 5,679 | 4.65 | ||||||||||||||||||
Securities sold under agreements to repurchase |
48,946 | 55 | 0.15 | 27,700 | 311 | 1.50 | ||||||||||||||||||
Federal Home Loan Bank advances |
46,464 | 1,292 | 3.72 | 16,567 | 519 | 4.18 | ||||||||||||||||||
Subordinated debentures |
3,901 | 223 | 7.64 | 3,857 | 224 | 7.76 | ||||||||||||||||||
Total interest-bearing liabilities |
521,909 | 9,433 | 2.42 | 322,896 | 8,981 | 3.72 | ||||||||||||||||||
Non-interest-bearing liabilities |
31,376 | 19,275 | ||||||||||||||||||||||
Total liabilities |
553,285 | 342,171 | ||||||||||||||||||||||
Stockholders’ equity |
88,294 | 85,569 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity |
$ | 641,579 | $ | 427,740 | ||||||||||||||||||||
Net interest income |
$ | 11,771 | $ | 8,304 | ||||||||||||||||||||
Net interest rate spread (1) |
2.36 | % | 2.06 | % | ||||||||||||||||||||
Net interest-earning assets (2) |
$ | 71,402 | $ | 76,315 | ||||||||||||||||||||
Net interest margin (3) |
2.65 | % | 2.78 | % | ||||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities |
113.68 | % | 123.63 | % |
(1) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
(2) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
(3) Net interest margin represents net interest income divided by average total interest-earning assets. |
(4) Interest on loans includes loan fees collected in the amount of $157,552 and $143,561 for the nine months ended September 30, 2009 and 2008, respectively. |
31
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Interest income. Interest and fee income on loans increased to $6.0 million for the three months ended September 30, 2009 from $5.0 million for the comparable period in 2008. Interest income on
loans increased primarily as a result of a higher average balance offset by a lower yield. Interest and fee income on loans increased by $3.3 million to $18.0 million for the nine months ended September 30, 2009 from $14.7 million for the comparable period in 2008. Interest income on loans increased primarily as a result of a higher average balance offset by a lower yield. The average balance of loans was $424.2 million and $313.6 million for the nine months ended September 30,
2009 and 2008, respectively. The average balance increased primarily due to the Partners Bank acquisition. The average yield on loans decreased to 5.69% for the nine months ended September 30, 2009 from 6.26% for the comparable period in 2008.
Interest income on securities increased to $942,000 for the three months ended September 30, 2009 from $597,000 for the comparable period in 2008. The increase was due primarily to a higher average balance offset by a decline in yield. Interest income on securities increased to $3.0 million for the nine months ended
September 30, 2009 from $2.0 million for the comparable period in 2008. The increase was due primarily to a higher average balance offset by a decline in yield. The average balance of securities was $98.9 million and $53.5 million for the nine months ended September 30, 2009 and 2008, respectively. The average balance increased primarily due to the Partners Bank acquisition. The average yield on securities decreased to 4.10% from 4.92% for the nine months ended September
30, 2009 and 2008, respectively.
Interest on other interest-earning deposits decreased to $26,000 for the three months ended September 30, 2009 from $161,000 for the comparable period in 2008. The decrease was due to an interest rate decline of 215 basis points despite an increased average balance. Interest on other interest-earning deposits decreased
to $123,000 for the nine months ended September 30, 2009 from $612,000 for the comparable period in 2008. The average balance of other interest-earning deposits increased to $63.9 million from $26.5 million for the nine months ended September 30, 2009 and 2008, respectively, however, the average yield on other interest-earning deposits decreased to 0.26% for the nine months ended September 30, 2009 from 3.08% for the comparable period in 2008. The lower yield on other interest-earning deposits
was due to a declining interest rate environment, specifically the federal funds rate, which reprices on a daily basis.
Interest expense. Interest expense on deposits remained at $2.6 million for the three months ended September 30, 2009 and 2008. A decline in yield offset the increase in average interest-bearing deposits. Interest expense on deposits
remained at $7.9 million for the nine months ended September 30, 2009 and 2008 despite a significant increase in average interest-bearing deposits. The average balance of interest-bearing deposits, comprised of interest bearing transactions, savings deposits, and time deposits, was $422.6 million and $274.8 million for the nine months ended September 30, 2009 and 2008, respectively. The average balance increased primarily due to the Partners Bank acquisition. The largest yield
decline for the nine months ended September 30, 2009 compared to the same period in 2008 was in time deposits which experienced a yield decline of 124 basis points, followed by the yield on interest-bearing transactions which declined 122 basis points, and then by the yield on savings deposits which declined 106 basis points.
Interest expense on securities sold under agreements to repurchase decreased to $17,000 for the three months ended September 30, 2009 from $104,000 for the three months ended September 30, 2008. The decrease was due to a decline in yield offset by a higher average balance. Interest expense on securities sold under agreements
to repurchase decreased to $55,000 for the nine months ended September 30, 2009 from $311,000 for the nine months ended September 30, 2008.
32
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Although the average balance increased to $48.9 million from $27.7 million for the nine months ended September 30, 2009 and 2008, respectively, the yield decreased to 0.15% for the nine months ended September 30, 2009 from 1.50% for the comparable period in 2008. The average balance increased primarily due to the Partners Bank acquisition.
Interest expense on Federal Home Loan Bank advances increased to $367,000 from $188,000 for the three months ended September 30, 2009 and 2008, respectively due primarily to a higher average balance offset by a decline in yield. Interest expense on Federal Home Loan Bank advances increased to $1.3 million from $519,000 for the
nine months ended September 30, 2009 and 2008, respectively. The increase was due primarily to a higher average balance offset by a decline in yield. The average balance of Federal Home Loan Bank advances was $46.5 million and $16.6 million for the nine months ended September 30, 2009 and 2008, respectively. The average balance increased due to balances acquired in the Partners Bank acquisition in addition to new advances utilized at the time of the acquisition. The
average yield on Federal Home Loan Bank advances decreased to 3.72% for the nine months ended September 30, 2009 compared to 4.18% for the comparable period in 2008.
Provision for loan losses. Provisions for loan losses were $1.0 million and $145,000 for the three months ended September 30, 2009 and 2008, respectively. Provisions for loan losses were $1.7 million and $502,000 for the nine months ended September
30, 2009 and 2008, respectively. The increase for the nine months ended September 30, 2009 compared to the same period in 2008 was primarily due to an increase in the nonperforming and impaired loans which totaled $30.0 million at September 30, 2009 compared to $7.5 million at September 30, 2008. Other factors included the overall increase in the loan portfolio as well as a change in the composition of the portfolio that now includes a larger share of commercial business, construction and
land, and commercial real estate loans. Provisions for loan losses are based upon management’s consideration of current economic conditions, the Company’s loan portfolio composition and historical loss experience coupled with current market valuations on collateral, used to estimate probable losses as well as the level of nonperforming assets and classified assets. Management also reviews individual loans for which full collectibility may not be reasonably assured and considers,
among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in the Company’s provision for loan losses. The Company is subject to periodic examination by the Office of Thrift Supervision, which may require the Company to record increases in the allowance based on its evaluation of available information. There can be no assurance that the Office of Thrift Supervision will not require further increases to the allowance.
Non-interest income. Non-interest income increased to $332,000 for the three months ended September 30, 2009 from $228,000 for the comparable period in 2008. Non-interest income increased to $1.1 million for the nine months ended September 30,
2009 from $593,000 for the comparable period in 2008. The most significant increase was in gain on sale of loans. This income category increased $277,000 for the nine months ended September 30, 2009 compared to the same period in 2008. This was partially due to refinancing activity related to record low mortgage rates, as we have sold newly-originated, longer-term loans to manage interest rate risk. Service fees on deposit accounts increased $54,000 and other service
charges and fees increased $67,000 for the nine months ended September 30, 2009 compared to the same period in 2008 due primarily to the increased number of deposit accounts acquired in the Partners Bank acquisition.
33
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Non-interest expense. Non-interest expense totaled $3.0 million for the three months ended September 30, 2009 and $1.9 million for the same period in 2008. Non-interest expense totaled $17.7 million for the nine months ended September 30, 2009
and $5.6 million for the same period in 2008. The primary reason for the increase in non-interest expense in 2009 compared to 2008 was a $9.3 million goodwill impairment charge, discussed previously.
Compensation and employee benefits increased to $1.1 million for the three months ended September 30, 2009 from $901,000 for the comparable period in 2008 and increased to $3.4 million for the nine months ended September 30, 2009 from $2.5 million for the comparable period in 2008. Compensation and employee benefits increased primarily
as a result of a higher number of personnel due to growth of the Company, the addition of our Wood River branch in June 2008, and the Partners Bank acquisition in October 2008.
Occupancy expense increased to $370,000 for the three months ended September 30, 2009 compared to $286,000 for the comparable period in 2008. Occupancy expense increased to $1.1 million for the nine months ended September 30, 2009 compared to $770,000 for the comparable period in 2008. Occupancy expense increased primarily
due to expenses related to a new branch office that opened during the second quarter of 2008, the renovation and expansion of an existing facility in Edwardsville, Illinois, and the acquisition of the Partners Bank facilities.
Professional fees increased to $204,000 for the three months ended September 30, 2009 compared to $111,000 for the comparable period in 2008. Professional fees increased to $597,000 for the nine months ended September 30, 2009 compared to $354,000 for the comparable period in 2008. This increase was due primarily to
the consulting agreement entered into with the former CEO of Partners Bank.
FDIC insurance premium expense increased to $173,000 for the three months ended September 30, 2009 compared to $15,000 for the comparable period in 2008. FDIC insurance premium expense increased to $603,000 for the nine months ended September 30, 2009 compared to $31,000 for the comparable period in 2008. This increase
included a $280,000 special assessment by the FDIC which was recorded in June 2009. The remainder of the increase was due to an increase in deposit volume and increased insurance assessment rates.
Impairment loss on assets totaled $356,000 for the three and nine months ended September 30, 2009. This expense was related to a building classified as held for sale as of September 30, 2009. This building was originally acquired in the Partners Bank acquisition. There was no impairment loss on assets for the comparable
periods in 2008.
Expenses related to foreclosed property, which is included in other expenses, increased to $93,000 and $187,000 for the three and nine months ended September 30, 2009, respectively. Expenses related to foreclosed property totaled $36,000 for each of the comparable periods in 2008.
Income taxes. Income taxes decreased to $70,000 for the three months ended September 30, 2009 from $367,000 for the comparable period in 2008. Income taxes decreased to $974,000 for the nine months ended September 30, 2009 from $1.0 million for
the comparable period in 2008. During the nine months ended September 30, 2009, the $9.3 million non-cash expense recorded for goodwill impairment was not tax deductible, and therefore, the goodwill impairment expense was not tax effected.
34
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
We maintain liquid assets at levels considered adequate to meet liquidity needs. We adjust our liquidity levels to fund deposit outflows, repay our borrowings and fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.
Our primary sources of liquidity are deposits, amortization and prepayment of loans, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments
are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.
A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities. At September 30, 2009 and December 31, 2008, $54.9 million and $67.1 million, respectively, were invested in cash and cash equivalents. The primary sources of cash are principal repayments
on loans, proceeds from the calls and maturities of investment securities, increases in deposit and securities sold under agreements to repurchase accounts, and advances from the Federal Home Loan Bank of Chicago.
Cash flows are derived from operating activities, investing activities and financing activities as reported in the Consolidated Statements of Cash Flows included with the Consolidated Financial Statements.
Our primary investing activities are the origination of loans and the purchase of investment securities. During the nine months ended September 30, 2009 loans decreased by $14.0 million compared to an increase of $41.6 million for the nine months ended September 30, 2008. Cash received from calls, maturities, and paydowns
of available-for-sale investment securities totaled $100.6 million and $96.0 million for the nine months ended September 30, 2009 and 2008, respectively. We purchased $92.5 million and $119.7 million in available-for-sale investment securities during the nine months ended September 30, 2009 and 2008, respectively. We received proceeds of $25.8 million and $17.6 million from the maturities of interest-earning time deposits during the nine months ended September 30, 2009 and 2008, respectively. We
invested $20.6 million and $12.9 million in interest-earning time deposits for the nine months ended September 30, 2009 and 2008, respectively.
Purchases of premises and equipment were $462,000 for the nine months ended September 30, 2009 compared to $3.4 million for the same period in 2008. Purchases of premises and equipment for the nine months ended September 30, 2008 were primarily related to the construction of a new branch facility in Wood River, Illinois.
Deposit flows are generally affected by the level of interest rates, the interest rates and products offered by local competitors, and other factors. Net deposits decreased by $2.1 million for the nine months ended September 30, 2009. During the comparable period in 2008 the net increase in deposits was $40.9 million. Securities
sold under agreements to repurchase had a net decrease of $25.5 million and a net increase of $25.5 million for the nine months ended September 30, 2009 and 2008, respectively. Proceeds from Federal Home Loan Bank advances of $5.0 million for the nine months ended September 30, 2009 were offset by $14.3 million for the repayment of such advances.
35
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the comparable period in 2008, proceeds from Federal Home Loan Bank advances of $10.0 million were offset by $3.0 million for the repayment of such advances. Repurchases of the Company’s common stock were $5.7 million and $4.2 million for the nine months ended September 30, 2009 and 2008, respectively.
Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Chicago, which provides an additional source of funds. At September 30, 2009, we had $40.7 million of advances
from the Federal Home Loan Bank of Chicago and additional available credit of approximately $19.4 million.
The Bank is required to maintain certain minimum capital requirements under Office of Thrift Supervision regulations. Failure by a savings institution to meet minimum capital requirements can result in certain mandatory and possible discretionary actions by regulators, which, if undertaken, could have a direct material effect on
the Bank’s financial statements. The Bank was considered “well-capitalized” at September 30, 2009. Under the capital adequacy guidelines and regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
The Bank’s actual and required capital amounts and ratios at September 30, 2009 were as follows:
Minimum Required |
||||||||||||||||||||||||
for Capital |
to be "Well |
|||||||||||||||||||||||
Actual |
Adequacy |
Capitalized" |
||||||||||||||||||||||
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
|||||||||||||||||||
(Dollars in Thousands) |
||||||||||||||||||||||||
Stockholders' equity |
$ | 70,796 | ||||||||||||||||||||||
Goodwill and core deposit intangible |
(12,964 | ) | ||||||||||||||||||||||
Disallowed servicing assets |
(734 | ) | ||||||||||||||||||||||
Unrealized gain on securities AFS, net |
(1,761 | ) | ||||||||||||||||||||||
Tangible capital to adjusted total assets |
$ | 55,337 | 9.5 | % | $ | 8,779 | 1.5 | % | N/A | - | ||||||||||||||
General valuation allowance |
5,232 | |||||||||||||||||||||||
Deduction for low-level recourse |
(1,607 | ) | ||||||||||||||||||||||
Total capital to risk-weighted assets |
$ | 58,962 | 14.1 | % | $ | 33,506 | 8.0 | % | $ | 41,883 | 10.0 | % | ||||||||||||
|
||||||||||||||||||||||||
Tier 1 capital to risk-weighted assets |
$ | 55,337 | 13.2 | % | $ | N/A | - | $ | 25,130 | 6.0 | % | |||||||||||||
Tier 1 capital to total assets |
$ | 55,337 | 9.5 | % | $ | 23,411 | 4.0 | % | $ | 29,264 | 5.0 | % |
36
FIRST CLOVER LEAF FINANCIAL CORP.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Off-Balance Sheet Arrangements
In the ordinary course of business, the Company is a party to credit-related financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit. The Company follows the same credit policies in making commitments as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn
upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer. Unfunded commitments under construction lines of credit for residential and multi-family properties are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified
maturity date and may not be drawn upon to the total extent to which the Company is committed.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.
A summary of the notional or contractual amounts of financial instruments, with off-balance-sheet risk at September 30, 2009 follows:
Range of | ||||||||||||||
Variable |
Fixed |
Rates on | ||||||||||||
Rate |
Rate |
Total |
Fixed Rate | |||||||||||
Commitments |
Commitments |
Commitments |
Commitments | |||||||||||
Commitments to extend credit |
$ | 34,855,839 | $ | 9,336,401 | $ | 44,192,240 | 2.75%-18.00% | |||||||
Standby letters of credit |
$ | 71,704 | $ | 4,460,705 | $ | 4,532,409 | 3.25%-9.25% |
Loans sold to the Federal Home Loan Bank (“FHLB”) of Chicago under the Mortgage Partnership Finance (“MPF”) program were sold with recourse. The Bank has an agreement to sell residential loans of up to $71.0 million to the FHLB of Chicago. Approximately $65.7 million have been sold. As
a part of the agreement, the Bank has a maximum credit enhancement of $1.6 million at September 30, 2009. Based upon a favorable payment history, the Bank does not anticipate recognizing any losses on these residential loans. During 2008, the FHLB of Chicago announced that they would no longer enter into new master commitments or renew existing master commitments to purchase mortgage loans from participating financial institutions. The FHLB of Chicago rescinded that decision in
October 2008 and has continued to purchase loans under a reorganized MPF program. The Company intends to continue originating mortgage loans and selling them while retaining the servicing. In addition to the FHLB of Chicago MPF program, the Company currently has a relationship to sell loans to Fannie Mae.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The majority of First Clover Leaf Bank’s assets and liabilities are monetary in nature. Consequently, the most significant form of market risk is interest rate risk. First Clover Leaf’s assets, consisting primarily of loans, have longer maturities than its liabilities, consisting primarily of deposits. As
a result, a principal part of First Clover Leaf’s business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, the Board of Directors has established an Asset/Liability Management Committee which is responsible for evaluating the interest rate risk inherent in assets and liabilities, for determining the level of risk that is appropriate given First Clover Leaf’s business strategy, operating environment,
capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. Senior management monitors the level of interest rate risk on a regular basis, and the Asset/Liability Management Committee meets as needed to review the asset/liability policies and interest rate risk position.
During the relatively low interest rate environment that has existed in recent years, we have implemented the following strategies to manage interest rate risk: (i) maintaining a high equity-to-assets ratio; and (ii) offering a variety of adjustable rate loan products, including adjustable rate one- to four-family, multifamily and non-residential
mortgage loans, short-term consumer loans, and a variety of adjustable-rate commercial loans. By maintaining a high equity-to-assets ratio and by investing in adjustable-rate and short-term assets, we are better positioned to react to increases in market interest rates. However, maintaining high equity balances reduces the return-on-equity ratio, and investments in shorter-term assets generally bear lower yields than longer-term investments.
The Office of Thrift Supervision requires the computation of amounts by which the net present value of an institution’s cash flow from assets, liabilities and off-balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. The
Office of Thrift Supervision provides all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value
of each type of asset, liability and off-balance-sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, due to the low interest rate environment, the Quarterly Interest Rate Risk Exposure Report, provided by the Office of Thrift Supervision, will not display results for scenarios of minus 200 basis points or below until further notice, and the model has changed to include
the change increments of plus or minus 50 basis points. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.
38
FIRST CLOVER LEAF FINANCIAL CORP.
Item 3. Quantitative and Qualitative Disclosures about Market Risk (Continued)
The tables below set forth, as of June 30, 2009 and December 31, 2008, the estimated changes in the NPV that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market
interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.
June 30, 2009 | ||||||||||||||||||||||
NPV |
Net Portfolio Value as a Percentage of
Present Value of Assets | |||||||||||||||||||||
|
Estimated Increase (Decrease) in NPV |
|
||||||||||||||||||||
Change in Interest
Rates |
Estimated
NPV |
Amount |
Percent |
NPV Ratio |
Change | |||||||||||||||||
(Dollars in thousands) |
||||||||||||||||||||||
+300 | bp | $ | 67,039 | $ | (11,094 | ) | (14 | ) % | 11.23 | % | -143 | bp | ||||||||||
+200 | bp | 71,234 | (6,899 | ) | (9 | ) | 11.79 | -86 | bp | |||||||||||||
+100 | bp | 75,068 | (3,065 | ) | (4 | ) | 12.28 | -37 | bp | |||||||||||||
+50 | bp | 76,484 | (1,649 | ) | (2 | ) | 12.45 | -20 | bp | |||||||||||||
0 | bp | 78,133 | — | — | 12.65 | 0 | bp | |||||||||||||||
-50 | bp | 78,065 | (68 | ) | — | 12.61 | -4 | bp | ||||||||||||||
-100 | bp | 77,864 | (269 | ) | — | 12.55 | -10 | bp |
December 31, 2008 | ||||||||||||||||||||||
NPV |
Net Portfolio Value as a Percentage of
Present Value of Assets | |||||||||||||||||||||
|
Estimated Increase
(Decrease) in NPV |
|
||||||||||||||||||||
Change in Interest Rates |
Estimated
NPV |
Amount |
Percent |
NPV Ratio |
Change | |||||||||||||||||
(Dollars in thousands) |
||||||||||||||||||||||
+300 | bp | $ | 57,120 | $ | (9,578 | ) | (14 | ) % | 9.05 | % | -121 | bp | ||||||||||
+200 | bp | 61,568 | (5,130 | ) | (8 | ) | 9.64 | -62 | bp | |||||||||||||
+100 | bp | 65,158 | (1,541 | ) | (2 | ) | 10.10 | -16 | bp | |||||||||||||
+50 | bp | 65,955 | (743 | ) | (1 | ) | 10.18 | -8 | bp | |||||||||||||
0 | bp | 66,698 | — | — | 10.26 | 0 | bp | |||||||||||||||
-50 | bp | 66,721 | 23 | — | 10.24 | -2 | bp | |||||||||||||||
-100 | bp | 65,417 | (1,281 | ) | (2 | ) | 10.04 | -22 | bp |
The 2009 table above indicates that at June 30, 2009, in the event of a 100 basis point decrease in interest rates, we would experience a minor change in the net portfolio value. In the event of a 300 basis point increase in interest rates, we would experience a 14% decrease in the net portfolio value. Management does
not believe that the Company’s primary market risk exposures at September 30, 2009, and how those exposures were managed during the nine months ended September 30, 2009 have changed significantly when compared to the immediately preceding quarter ended June 30, 2009.
39
FIRST CLOVER LEAF FINANCIAL CORP.
Item 3. Quantitative and Qualitative Disclosures about Market Risk (Continued)
However, the Company’s primary market risk exposure has not yet been quantified at September 30, 2009 as the Office of Thrift Supervision Net Portfolio Value Model is not yet available and the complexity of the model makes it difficult to accurately predict results.
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net
portfolio value table presented assumes that the composition of the interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of the interest rate risk exposure at a particular point
in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on its net interest income and will differ from actual results.
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on
this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic SEC reports.
In addition, there have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - Other Information
Item 1 - Legal Proceedings.
There are no material legal proceedings to which the Company or its subsidiaries is a party or of which any of its property is subject. From time to time, the Company is a party to various legal proceedings incident to its business.
Item 1A – Risk Factors.
In addition to the other information contained this Quarterly Report on Form 10-Q, the following risk factors represent material updates and additions to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2008, as filed with the Securities and Exchange Commission. Additional
risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements
made by or on behalf of us.
The FDIC Has Proposed a Rule That Would Require us to Prepay Insurance Premiums.
On September 29, 2009, the Federal Deposit Insurance Corporation issued a proposed rule pursuant to which all insured depository institutions would be required to prepay their estimated assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. Under the proposed rule, this pre-payment would be due on December
30, 2009. Under the proposed rule, the assessment rate for the fourth quarter of 2009 and for 2010 would be based on each institution’s total base assessment rate for the third quarter of 2009, modified to assume that the assessment rate in effect on September 30, 2009 had been in effect for the entire third quarter, and the assessment rate for 2011 and 2012 would be equal to the modified third quarter assessment rate plus an additional 3 basis points. In addition, each institution’s
base assessment rate for each period would be calculated using its third quarter assessment base, adjusted quarterly for an estimated 5% annual growth rate in the assessment base through the end of 2012. Based on our deposits and assessment rate at September 30, 2009, we estimate that our prepayment amount will be approximately $3.4 million. We expect that we will be able to make the prepayment from available cash on hand.
A Legislative Proposal Has Been Introduced That Would Eliminate our Primary Federal Regulator and Require us to Convert to a National Bank or State Bank.
The House Financial Services Committee has released a draft of proposed restructuring legislation that would implement sweeping changes to the current bank regulatory structure. The proposed legislation, developed in conjunction with the U.S. Treasury Department, would establish a Financial Services Oversight Council and merge our primary
regulator, the Office of Thrift Supervision, into the Office of the Comptroller of the Currency, the primary federal regulator for national banks. The proposal also contemplates that a division of thrift supervision within the Office of the Comptroller of the Currency would regulate federal thrifts. The proposal, if adopted, also would subject all holding companies of thrifts such as First Clover Leaf Financial Corp. to regulation by the Federal Reserve to be regulated as a bank holding company.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds.
(a) |
No equity securities were sold during the quarter that were not registered under the Securities Exchange Act. |
(b) |
Not applicable. |
(c) |
The following table presents for the periods indicated a summary of the purchases made by or on behalf of the Company of shares of its common stock. |
Period |
Total
Number of
Shares
Purchased |
Average
Price
Paid per
Share |
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs |
Maximum Number of
Shares That May Yet
Be Purchased Under
the Plans or
Programs(1) |
||||||||||||
July 1 - 31, 2009 |
23,475 | $ | 8.03 | 23,475 | 188,799 | |||||||||||
August 1 - 31, 2009 |
50,500 | $ | 7.80 | 50,500 | 138,299 | |||||||||||
September 1 - 30, 2009 |
- | $ | - | - | 138,299 | |||||||||||
Total |
73,975 | 73,975 |
(1) |
The Company’s board of directors approved a stock repurchase program on November 12, 2008 for the repurchase of up to 924,480 shares of common stock, and on December 11, 2008, they increased the number of shares that may be repurchased pursuant to that plan by an additional 382,641 shares. The plan has no expiration date. |
Item 3 - Defaults upon Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
None
Item 5 - Other Information.
None
Item 6 – Exhibits.
(a) Exhibits.
|
31.1: |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2: |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32: |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST CLOVER LEAF FINANCIAL CORP.
(Registrant)
DATE: November 12, 2009 |
BY: |
/s/ Dennis M. Terry |
Dennis M. Terry, President and Chief Executive Officer | ||
BY: |
/s/ Darlene F. McDonald | |
Darlene F. McDonald, Senior Vice-President and Chief Financial Officer |
44