SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 5, 1998
Clover Community Bankshares, Inc.
(Exact name of registrant as specified in its charter)
South Carolina 000-24749 58-2381062
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
124 North Main Street, Clover, South Carolina 29710
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (803) 222-7660
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events.
Clover Community Bankshares, Inc. is a one-bank holding company formed
for the purpose of acquiring all of the common stock of Clover Community Bank, a
South Carolina state bank. The assets and liabilities of Clover Community
Bankshares, Inc. upon its acquisition of Clover Community Bank, effective June
5, 1998, were substantially the same as those of Clover Community Bank.
Clover Community Bank's common stock was registered with the Federal
Deposit Insurance Corporation pursuant to Section 12(i) of the Securities
Exchange Act of 1934 and the Bank filed periodic reports under the Exchange Act
with the Federal Deposit Insurance Corporation.
This Form 8-K is being filed for the purpose of including in the files
of the Securities and Exchange Commission the Annual Report on Form F-2 for the
year ended December 31, 1997 (which contains substantially the information
required by an annual report on Form 10-KSB) and the Form 10-QSB for the quarter
ended March 31, 1998 previously filed by Clover Community Bank with the Federal
Deposit Insurance Corporation so that such documents may be incorporated by
reference into filings with the Commission as filings of a predecessor
registrant to Clover Community Bankshares, Inc. Such documents are filed as
exhibits hereto, are incorporated by reference herein, and specifically made a
part hereof.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
Item No. from
Item 601 of
Regulation S-B Description
27.1 Financial Data Schedules for three months ended March 31,
1998.
27.2 Financial Data Schedules for year ended December 31, 1997
99.1 Form F-2 of Clover Community Bank for the year
ended December 31, 1997
99.2 Form 10-QSB of Clover Community Bank for the quarterly
period ended March 31, 1998
2
<PAGE>
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 hereunto duly authorized.
CLOVER COMMUNITY BANKSHARES, INC.
------------------------------------------
(Registrant)
s/James C. Harris, Jr.
Date: January 22, 1999 By:---------------------------------------
James C. Harris, Jr.
President and Chief Executive Officer
3
<PAGE>
EXHIBIT INDEX
Exhibits
27.1 Financial Data Schedules for three months ended March 31,
1998.
27.2 Financial Data Schedules for year ended December 31, 1997
99.1 Form F-2 of Clover Community Bank for the year
ended December 31, 1997
99.2 Form 10-QSB of Clover Community Bank for the quarterly
period ended March 31, 1998
4
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the Balance Sheet at
March 31, 1998, (unaudited) and the Statement of Income for the three months
ended March 31, 1998 (unaudited), and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,434
<INT-BEARING-DEPOSITS> 340
<FED-FUNDS-SOLD> 4,230
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,179
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 31,140
<ALLOWANCE> 272
<TOTAL-ASSETS> 53,707
<DEPOSITS> 42,938
<SHORT-TERM> 0
<LIABILITIES-OTHER> 498
<LONG-TERM> 4,000
0
0
<COMMON> 1,264
<OTHER-SE> 5,007
<TOTAL-LIABILITIES-AND-EQUITY> 53,707
<INTEREST-LOAN> 792
<INTEREST-INVEST> 236
<INTEREST-OTHER> 36
<INTEREST-TOTAL> 1,064
<INTEREST-DEPOSIT> 385
<INTEREST-EXPENSE> 446
<INTEREST-INCOME-NET> 618
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 367
<INCOME-PRETAX> 343
<INCOME-PRE-EXTRAORDINARY> 237
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
<YIELD-ACTUAL> 5.23
<LOANS-NON> 3
<LOANS-PAST> 19
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 272
<CHARGE-OFFS> 1
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 272
<ALLOWANCE-DOMESTIC> 272
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the Balance Sheet at
December 31, 1997, and the Statement of Income for the year ended December 31,
1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,451
<INT-BEARING-DEPOSITS> 441
<FED-FUNDS-SOLD> 1,535
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,136
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 31,886
<ALLOWANCE> 272
<TOTAL-ASSETS> 52,909
<DEPOSITS> 41,968
<SHORT-TERM> 0
<LIABILITIES-OTHER> 400
<LONG-TERM> 4,000
0
0
<COMMON> 1,264
<OTHER-SE> 5,277
<TOTAL-LIABILITIES-AND-EQUITY> 52,909
<INTEREST-LOAN> 3,112
<INTEREST-INVEST> 945
<INTEREST-OTHER> 165
<INTEREST-TOTAL> 4,222
<INTEREST-DEPOSIT> 1,613
<INTEREST-EXPENSE> 1,847
<INTEREST-INCOME-NET> 2,375
<LOAN-LOSSES> 5
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,375
<INCOME-PRETAX> 1,336
<INCOME-PRE-EXTRAORDINARY> 903
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 903
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
<YIELD-ACTUAL> 4.96
<LOANS-NON> 70
<LOANS-PAST> 7
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 270
<CHARGE-OFFS> 10
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 272
<ALLOWANCE-DOMESTIC> 272
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
FORM F-2
ANNUAL REPORT
UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
FDIC Certificate No.27055-5
CLOVER COMMUNITY BANK
a South Carolina Corporation
IRS Employer Identification No. 57-0840819
124 North Main Street. P.O. Box 69, Clover, South Carolina 29710
Telephone Number: (803) 222-7660
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section
12(g) of the Act:
Common Stock ($1.25 par value)
Indicate by check mark if the bank, as a "small business issuer" as defined
under 17 C.F.R. 240.12b-2, is providing alternative disclosures as permitted for
small business issuers in this Form F-2. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
10 is not contained herein, and will not he contained, to the best of bank's
knowledge, in definitive proxy or information statements incorporated by
reference in part III of this Form F-2 or any amended of this Form F-2. [X]
Indicate by check mark whether the bank (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange act of 1934 during the
preceding 12 months (or for such shorter period that the bank was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES X NO __
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
Although a limited number of shares of the Bank's common stock is traded from
time to time on an individual basis, there is no established market for the
registrant's common stock, and trades are limited and sporadic. In the most
recent transaction of which management is aware, the Bank's common stock traded
at $40.00 per share. Based on that price per share, the aggregate market value
of all shares held by nonaffiliates would have been $32,889,320.
As of March 2, 1998, 1,011,020 shares of the registrant's commons stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31,1997 - Parts I and II.
(2) Portions of the Registrant's definitive Proxy Statement for its April 20,
1998 Annual Meeting of Shareholders - Part III.
<PAGE>
Index to Form F-2*
<TABLE>
<CAPTION>
Location
PART I
<S> <C>
Item 1. Business........................................................................ ...........3-4
Item 2. Properties...................................................................... .............4
Item 3. Legal Proceedings............................................................... .............4
Item 4. Security Ownership of Certain Beneficial Owners and Management.................. ......PS 20-21
PART II
Item 5. Market for the Bank's Common Stock and Related Security Holder Matters.......... ..........AR 4
Item 6 Selected Financial Data......................................................... ..........AR 3
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations............................... .......AR 4-20
Item 8. Financial Statements and Supplementary Data..................................... ......AR 21-38
PART III
Item 9. Directors and Principal Officers of the Bank.................................... .5-6, PS 17-19
Item 10. Management Compensation and Transactions........................................ ......PS 19-21
PART IV
Item 11. Exhibits, Financial Statements and Reports on Form F-3.......................... .......6-7, AR
</TABLE>
* Documents from which portions are incorporated into the F-2 by reference are
referred to as follows in the Index:
(1) Annual Report to Shareholders for the year ended December 31, 1997: AR
(2) Definitive Proxy Statement for April 20, 1998 Annual Meeting of
Shareholders: PS. The Proxy Statement is part of the Registration
Statement on Form S-4EF, as amended, of Clover Community Bankshares,
Inc. (No. 333-47597)
<PAGE>
PART I
Item 1. Business
General
The Bank was incorporated under the laws of the State of South Carolina
as a state chartered bank on August 18, 1987 and commenced operations on October
1, 1987. The Bank operates under the jurisdiction of the South Carolina Bank
Board, and its deposits are insured by the Federal Deposit Insurance Corporation
("FDIC"). The Bank is not a member of the Federal Reserve System. The Bank
engages in a general commercial banking business, emphasizing the banking needs
of individuals and small to medium-sized business and professional concerns in
its primary service area, and offers a full range of deposit services and short
to medium term commercial and other loans, as well as various other services
from a single office in Clover, South Carolina. The Bank does not exercise trust
powers nor offer brokerage or other fiduciary services at this time.
The Bank offers the full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts, and other time deposits of various
types ranging from daily money market accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to the
Bank's principal market area at rates competitive to those offered in the area.
All deposit accounts are insured by the FDIC up to the maximum amount ($100,000
per depositor, subject to aggregation rules). The Bank solicits these accounts
from individuals, businesses, associations and organizations, and governmental
authorities.
The Bank offers a full range of short to medium-term commercial,
personal, and mortgage loans. Commercial loans include both secured and
unsecured loans for working capital (including inventory and receivables),
business expansion (including acquisition of real estate and improvements), and
purchase of equipment and machinery. Personal (or consumer) loans include
secured and unsecured loans for financing automobiles, home improvements,
education, and personal investments. The Bank also offers mortgage loans secured
by personal residences.
The Bank offers travelers checks, safe deposit boxes, MasterCard and
Visa accounts, ATM cards, and overdraft lines of credit to its customers. The
Bank does not offer trust services. The Bank is a member of regional and
national networks of automated teller machines that may be used by Bank
customers in major cities throughout South Carolina and the United States, as
well as in various cities worldwide.
Market Area
The Bank's primary service area includes the Clover community in York
County, South Carolina. York County is located in the north central portion of
South Carolina about 75 miles north of Columbia, South Carolina and just
southwest of Charlotte, North Carolina. The county is bounded by North Carolina
to the north, by Lancaster County to the east, by Cherokee County to the west,
and by Chester County to the south. Clover is near the North Carolina line in
the northwest corner of the county. According to the York County Economic
Development Council, as of 1995 the population of York County was 141,302
people, and by the year 2000 the population of Clover is projected to be 19,368.
<PAGE>
Competition
The Bank generally competes with other financial institutions through
the selection of banking products and services offered, the pricing of services,
the level of service provided, the convenience and availability of services, and
the degree of expertise and the personal manner in which services are offered.
South Carolina law permits statewide branching by banks and savings
institutions, and many financial institutions in the state have branch networks.
Consequently, commercial banking in South Carolina is highly competitive.
Furthermore, as a consequence of legislation recently enacted by the United
States Congress, out-of-state banks not previously allowed to operate in South
Carolina may commence operations and compete in the Bank's primary service
areas. Many large banking organizations currently operate in the respective
market areas of the Bank, several of which are controlled by out-of-state
ownership. In addition, competition between commercial banks and thrift
institutions (savings institutions and credit unions) has been intensified
significantly by the elimination of many previous distinctions between the
various types of financial institutions and the expanded powers and increased
activity of thrift institutions in areas of banking which previously had been
the sole domain of commercial banks. Recent legislation, together with other
regulatory changes by the primary regulators of the various financial
institutions, has resulted in the almost total elimination of practical
distinctions between a commercial bank and a thrift institution. Consequently,
competition among financial institutions of all types is largely unlimited with
respect to legal ability and authority to provide most financial services.
The Bank faces increased competition from both federally chartered and
state-chartered financial and thrift institutions, as well as credit unions,
consumer finance companies, insurance companies, and other institutions in the
Bank's market area. Some of these competitors are not subject to the same degree
of regulation and restriction imposed upon the Bank. Many of these competitors
also have broader geographic markets and substantially greater resources and
lending limits than the Bank and offer certain services such as trust banking
that the Bank does not currently provide. In addition, many of these competitors
have numerous branch offices located throughout the extended market area of the
Bank which may provide these competitors with an advantage in geographic
convenience that the Bank does not have at present. Such competitors may also be
in a position to make more effective use of media advertising, support services,
and electronic technology than can the Bank.
Currently there are two other commercial banks operating in the
community of Clover, which is the Bank's existing primary service area. There
are eight other commercial banks, five credit unions, and one savings
institutions operating in York County.
Item 2. Properties
The Bank owns in fee simple with no major encumbrances, real property
at the corner of North Main and Marion Street (124 Main Street) in Clover, South
Carolina, where its offices are located. The building thereon contains
approximately 7,000 square feet.
Management of the Bank believes the Bank's facilities are suitable and
adequate for the Bank's needs.
Item 3. Legal Proceedings
The Bank is from time to time a party to various legal proceedings
arising in the ordinary course of business, but management of the Bank is not
aware of any pending or threatened litigation or unasserted claims or
assessments that are expected to result in losses, if any, that would be
material to the Bank's business and operations.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information set forth in the Bank's definitive Proxy Statement for
the April 20, 1998 Annual Meeting of Shareholders, (the "1998 Proxy Statement"),
under the caption "Principal Shareholders of the Bank," pages 20 through 21 is
hereby incorporated by reference herein.
<PAGE>
PART II
Item 5. Market for the Bank's Common Stock and Related Security Holder Matters
The information set forth under "Market for Common Stock and Dividends"
on page 4 of the Bank's Annual Report to Shareholders for the year ended
December 31, 1997 (the "1997 Annual Report") is hereby incorporated by reference
herein.
Item 6. Selected Financial Data
The information set forth under "Financial Summary" on page 3 of the
1997 Annual Report is hereby incorporated by reference herein.
Item 7. Management's Discussion and Analysis or Financial Condition and Results
of Operations
The information set forth under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 4 through 20 of the
Registrant's 1997 Annual Report is hereby incorporated by reference herein.
Item 8. Financial Statement and Supplementary Data
The Registrant's audited financial statements are set forth on pages 21
through 38 of the 1997 Annual Report and are hereby incorporated by reference
herein.
PART III
Item 9. Directors and Principal Officers of the Bank.
(a) Directors of the Bank. The information set forth under "Management;
Election of Directors" on pages 17 through 19 of the 1998 Proxy Statement is
hereby incorporated by reference herein.
(b)(1) Principal Officers of the Bank
Name and Officer Since Age Position
James C. Harris, Jr. 48 President and Chief
1987 Executive Officer
Gwen M. Thompson 44 Senior Vice President,
1987 Cashier, and Secretary
Frank M. Gadsden 39 Vice President
1989
Earnest A. Robertson 54 Vice President
1992
(2) Significant Employees. The Bank employs no persons, such as special
consultants who are not principal officers, who make or are expected to make
significant contributions to the business of the bank.
(3) Business Experience of Principal Officers. Prior to his employment
with the Bank, Mr. Robertson served as Assistant Vice President and Commercial
Loan Relationship Manager for Citizens and Southern National Bank of Florida, in
Neptune Beach, Florida, from 1989 to 1992.
<PAGE>
(c) Family Relationship and Involvement in Certain Legal Proceedings.
Mr. Harris is the nephew by marriage of two directors of the Bank, Ruby M.
Bennett and H. Marvin McCarter. Based on representations to the Bank by the
principal officers, none of the principal officers of the Bank is, or has been
within the past five years, subject to any of the legal proceedings described in
Item 6(d) of Form F-5, 12 C.F.R. ss. 335.212.
Item 10. Management Compensation and Transactions.
The information set forth under the caption "Board Meetings and
Committees" on page 19 of the 1998 Proxy Statement, and under the captions
"Compensation," "Transactions with Management and Others," and "Compliance with
the Securities Exchange Act of 1934" on pages 19 through 21 of the 1998 Proxy
Statement is hereby incorporated by reference herein.
PART IV
Item 11. Exhibits. Financial Statements and Reports on Form F-3.
(a) Financial Statements.
(1) The following Financial Statements of the Bank are incorporated
by reference herein from the 1997 Annual Report:
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1997
Statements of Income for the years ended December 31, 1996 and
1997
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1996 and 1997
Statements of Cash Flows for the years ended December 31, 1996
and 1997
Notes to Financial Statements
(2) Additional financial statement schedules:
(a) Securities: Incorporated herein by reference to pages 29-30
of the 1997 Annual Report.
(b) Loans to Officers, Directors, Principal Security Holders and
Associates: Schedule II.
(c) Loans and lease Financing Receivables: Incorporated herein
by reference to pages 29 of the 1997 Annual Report.
(d) Bank Premises and Equipment: Incorporated herein by
reference to page 32 of the 1997 Annual Report.
(e) Allowance for Possible Loan Losses: Incorporated herein by
reference to page 27 of the 1997 Annual Report.
Schedules not listed above are omitted because of the
absence of conditions under which they are required or
because the information required thereby is included in the
financial statements or notes thereto.
<PAGE>
(b) Reports on Form F-3.
No reports on Form F-3 have been filed during the last
quarter covered by this report
(c) Exhibits.
(1) The Articles of Incorporation and Bylaws included in
Exhibit 1 to the Registrant's Annual Report on Form F-2
for the fiscal year ended December 31, 1995 are hereby
incorporated by reference herein.
(2) The Specimen of Securities included as Exhibit 3 to the
Registrant's Registration Statement on Form F-1, filed
April 29, 1988, and effective June 29, 1988, is hereby
incorporated by reference herein.
(3) Material Contracts. None
(4) Statement re: computation of per share earnings - Not
Applicable
(5) Statements re: computation of ratios - Not Applicable
(6) 1997 Annual Report to security holders - Exhibit 6
(6A) Manually signed Independent Auditors' Report of Donald
G. Jones and Company, P.A. - Exhibit 6A
(7) Letter re: change in accounting principles - Not
Applicable
(8) Previously unfiled documents - None
(9) List of subsidiaries - None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CLOVER COMMUNITY BANK
Date: March 23, 1998 By: s/James C. Harris. Jr.
--------------------------
James C. Harris, Jr.
Its: President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
s/Ruby M. Bennett Director March 23,1998
- -----------------------------
(Ruby M. Bennett)
s/Charles R. Burrell Director March 23, 1998
- -----------------------------
(Charles R. Burrell)
s/James C. Harris. Jr. President, Chief Executive Officer. March 23, 1998
- ----------------------------- and Director
(James C. Harris. Jr.)
s/ Herbert Kirsh Chairman and Director March 23, 1998
- -----------------------------
(Herbert Kirsh)
s/H. Marvin McCarter Director March 23, 1998
- -----------------------------
(H. Marvin McCarter)
s/James H. Owen, Jr. Director March 23,1998
- -----------------------------
(James H. Owen, Jr.)
s/Gwen M. Thompson Senior Vice President, Chief Financial and March 23, 1998
- ----------------------------- Accounting Officer, Cashier, Secretary
(Gwen M. Thompson) and Director
s/ William C. Turner Director March 23, 1998
- -----------------------------
(William C. Turner)
</TABLE>
<PAGE>
Exhibit 6
<PAGE>
CLOVER COMMUNITY BANK
1997 ANNUAL REPORT
Contents
Page
Report to Shareholders 2
Financial Summary 3
Market for Common Stock and Dividends 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 4
Independent Auditors' Report 21
Financial Statements 22
Board of Directors 39
Officers and Employees 40
<TABLE>
<CAPTION>
Financial Highlights
December 31, Percent Change
---------------------- ----------------
(Dollars in thousands, except per share) 1997 1996 1995 1997/96 1996/95
---- ---- ---- ------- -------
Balance sheet
<S> <C> <C> <C> <C> <C>
Total interest earning assets $50,375 $49,770 $47,096 1.2% 5.7%
Total assets 52,909 52,611 49,611 .6% 6.0%
Total deposits 41,968 42,220 39,340 (.6)% 7.3%
Shareholders' equity 6,541 6,037 5,494 8.3% 9.9%
For the year
Net interest income $ 2,375 $ 2,164 $ 2,084 9.8% 3.8%
Provision for loan losses 5 32 45 (86.4)% (28.9)%
Net income 903 804 718 12.3% 12.0%
Cash dividends paid $ 505 $ 202 $ 152 150.0% 32.9%
Per share*
Net income $ .89 $ .80 $ .71 11.3% 12.7%
Cash dividends paid .50 .20 .15 150.0% 33.3%
Book value at year end 6.47 5.97 5.43 8.4% 9.9%
Ratios
Return on assets 1.72% 1.61% 1.49%
Return on equity 14.84% 14.14% 14.63%
</TABLE>
*Per share amounts have been retroactively adjusted to reflect a 2-for-1 stock
split effective May 11, 1995.
Nature of Business and Location
Clover Community Bank is a state chartered institution providing
domestic commercial banking services to communities within its service area in
York County, South Carolina from the following location:
Clover Community Bank
124 North Main Street
Clover, South Carolina 29710
(803) 222-7660
- --------------------------------------------------------------------------------
This Annual Report serves as the ANNUAL FINANCIAL DISCLOSURE STATEMENT furnished
pursuant to Part 350 of the Federal Deposit Insurance Corporation's Rules and
Regulations. THIS STATEMENT HAS NOT BEEN REVIEWED, OR CONFIRMED FOR ACCURACY OR
RELEVANCE, BY THE FEDERAL DEPOSIT INSURANCE CORPORATION. Clover Community Bank
will furnish free of charge a copy of the annual report on Form F-2 upon written
request to Gwen M. Thompson, Senior Vice President, Clover Community Bank, Post
Office Box 69, Clover, South Carolina 29710
- --------------------------------------------------------------------------------
-1-
<PAGE>
Report to the Shareholders of Clover Community Bank
Dear Shareholders,
It is a pleasure to report on the year of 1997. What a great year for
Clover Community Bank.
First of all it marked the 10th year of service for the people of
Clover. We celebrated this event with a "BBQ under a tent". A large crowd,
estimated at around 1,200, customers and shareholders attended. It was fun to
remember the past 10 years of growing and maturing.
Secondly, it was great to see the bank continue to grow as an
investment for our shareholders. We paid a dividend of $.50 per share, a 150%
increase over the previous year, and still increased the shareholders equity by
8.3%. We were able to do this because of the increase in net income to $903,000
for 1997 from $804,000 for 1996. This represents a 12.3% increase from 1996 to
1997.
The Board of Directors and our staff are dedicated to giving high
quality service to everyone in the Clover area. We continue to upgrade our
equipment to make sure that we are able to do this and we are always making
plans to offer more services that we feel will also help accomplish our goals.
The year 2000 is fast approaching and our Y2K Committee is at work to
make sure that the century change does not affect your bank or our customers.
Sincerely,
James C. Harris, Jr.
President and Chief
Executive Officer
-2-
<PAGE>
Financial Summary
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
Financial Condition
<S> <C> <C> <C> <C> <C>
Securities $ 16,136 $ 16,016 $ 17,009 $ 15,019 $ 8,810
Allowance for loan losses 272 270 245 248 257
Net loans 31,614 31,282 27,975 26,007 26,288
Premises and equipment - net 760 842 924 622 651
Total assets 52,909 52,611 49,611 46,852 40,747
Noninterest bearing deposits 3,890 3,341 3,494 2,499 2,172
Interest bearing deposits 38,078 38,879 35,846 35,605 33,947
Total deposits 41,968 42,220 39,340 38,104 36,119
Long-term debt 4,000 4,000 4,000 4,000 -
Total liabilities 46,368 46,574 44,117 42,359 36,371
Total shareholders' equity 6,541 6,037 5,494 4,493 4,376
Results of Operations
Interest income $ 4,222 $ 3,986 $ 3,891 $ 3,231 $ 3,157
Interest expense 1,847 1,822 1,807 1,381 1,349
-------- -------- -------- -------- --------
Net interest income 2,375 2,164 2,084 1,850 1,808
Provision for loan losses 5 32 45 - 15
-------- -------- -------- -------- --------
Net interest income
after provision 2,370 2,132 2,039 1,850 1,793
Securities gains - - - - 9
Other income 341 297 267 253 207
Other expenses 1,375 1,250 1,231 1,183 1,180
-------- -------- -------- -------- --------
Income before income taxes 1,336 1,179 1,075 920 829
Income tax expense 433 375 357 334 284
-------- -------- -------- -------- --------
Net income $ 903 $ 804 $ 718 $ 586 $ 545
======== ======== ======== ======== ========
Per Share Data*
Net income $ .89 $ .80 $ .71 $ .58 $ .54
Cash dividends declared .50 .20 .15 .125 .075
Period end book value 6.47 5.97 5.43 4.44 4.33
</TABLE>
*Per share figures have been retroactively adjusted to reflect a 2-for-1 stock
split effective May 11, 1995.
-3-
<PAGE>
Market for Common Stock and Dividends
Although a limited number of shares of common stock of Clover Community
Bank (the "Bank") is traded from time to time on an individual basis, no
established trading market has developed and none is expected to develop in the
foreseeable future. The common stock is not traded on the NASDAQ National Market
System, nor are there any market makers known to management.
As of February 28, 1998, there were approximately 636 holders of record
of the Bank's common stock, excluding individual participants in security
position listings.
The Bank has paid an annual cash dividend since 1991. In 1997 and 1996,
the Bank declared and paid cash dividends of $.50 and $.20 per share,
respectively. In February, 1998, the Bank paid a cash dividend of $.50 per
share. The Board of Directors considers such factors as adequacy of capital to
support future growth, regulatory capital requirements and profitability levels
in making its decisions regarding cash dividends. South Carolina banking
regulations restrict the amount of cash dividends that can be paid to
shareholders. All of the Bank's cash dividends to shareholders are subject to
the prior approval of the South Carolina Commissioner of Banking.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This discussion is intended to assist in understanding the financial
condition and results of operations of Clover Community Bank, and should be read
in conjunction with the financial statements and related notes contained
elsewhere in this report.
Earnings Performance
1997 Compared with 1996
Clover Community Bank recorded a significant increase in earnings for
1997. Net income increased to $903,000 or $.89 per share, compared with $804,000
or $.80 per share for 1996. The return on average assets was 1.72% for 1997,
compared with 1.61% for 1996. Return on average shareholders' equity increased
to 14.84% for 1997, compared with 14.14% for 1996. The Bank declared and paid a
substantially larger cash dividend in 1997 in recognition of its tenth
anniversary. The 1997 cash dividend of $.50 per share represented an increase of
150% over the 1996 cash dividend of $.20 per share.
The increase in net income for 1997 was caused primarily by higher net
interest income. Net interest income increased by $211,000 due to higher volumes
of interest earning assets at a more favorable interest rate spread. Interest
expense increased by only $25,000 in 1997. The Bank reduced its provision for
loan losses for 1997 by $27,000 as compared with 1996 because of the excellent
performance of the loan portfolio in 1997. Management believes that the
allowance for loan losses is adequate at its current level. Noninterest income
increased $44,000 mainly due to higher service charges on deposit accounts.
Noninterest expenses increased $125,000, primarily due to depreciation,
amortization and maintenance expenses of the Bank's new computer equipment and
software.
-4-
<PAGE>
1996 Compared with 1995
Net income for the year ended December 31, 1996 was $804,000 or $.80
per share, compared with $718,000 or $.71 per share for 1995. The return on
average total assets increased to 1.61% for 1996, compared with 1.49% for 1995.
Return on average shareholders' equity decreased, however, to 14.14% for 1996
from 14.63% for 1995 because the rate of growth of net income (12.0%) was less
than the rate of growth of average shareholders equity (15.9%). Dividends paid
to shareholders increased 33.3% from $.15 per share for 1995 to $.20 per share
for 1996.
The increase in net income for 1996 was due to increased interest
income on loans and tax-exempt securities. Also, service charge income for 1996
was $34,000 greater than for 1995 and the Bank was able to reduce its provision
for loan losses by $13,000 for 1996 while maintaining its allowance for loan
losses at an acceptable level. The Bank was affected positively by a reduction
of deposit insurance premium expense resulting from the Bank Insurance Fund's
achieving its federally required funding level.
Net Interest Income
Net interest income is the amount of interest earned on interest
earning assets (loans, securities, time deposits in other banks, federal funds
sold and other investments), less the interest expense incurred on interest
bearing liabilities (interest bearing deposits and other borrowings), and is the
principal source of the Bank's earnings. Net interest income is affected by the
level of interest rates, volume and mix of interest earning assets and interest
bearing liabilities and the relative funding of these assets.
For analysis purposes, interest income from tax-exempt investments is
adjusted to an amount which would have to be earned on taxable investments to
produce the same after-tax yields. This adjusted amount is referred to as fully
taxable equivalent ("FTE") interest income.
FTE net interest income was $2,467,000, $2,250,000 and $2,126,000 for
1997, 1996 and 1995. The $217,000 increase in FTE net interest income for 1997
resulted from larger average amounts of earning assets and a slight 13 basis
point increase in interest rates associated with these assets. Lower rates paid
on interest bearing liabilities partially offset the effects of larger volumes
of such funding sources. As a result, interest expense increased by only $25,000
in 1997.
The table, "Average Balances, Yields and Rates", provides a detailed
analysis of the effective yields and rates on the categories of interest earning
assets and interest bearing liabilities for the years ended December 31, 1997,
1996, and 1995.
-5-
<PAGE>
Average Balances, Yields and Rates
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
------------------------------ ------------------------------ ----------------------------
Interest Interest Interest
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances(1) Expense Rates Balances(1) Expense Rates Balances(1) Expense Rates
----------- ------- ----- ----------- ------- ----- ----------- ------- -----
(Dollars in thousands)
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Time deposits in other banks $ 481 $ 29 6.03% $ 495 $ 31 6.26% $ 292 $ 14 4.79%
Securities
Taxable 11,793 766 6.50% 12,249 785 6.41% 13,273 873 6.58%
Tax-exempt (2) 4,040 272 6.73% 3,661 253 6.91% 1,969 123 6.25%
-------- -------- -------- -------- -------- --------
Total investment securities 15,833 1,038 6.56% 15,910 1,038 6.52% 15,242 996 6.53%
Other investments 377 26 6.90% 377 20 5.31% 374 30 8.02%
Federal funds sold 2,004 109 5.44% 1,610 84 5.22% 2,775 162 5.84%
Loans (3) 31,033 3,112 10.03% 29,206 2,899 9.93% 27,307 2,731 10.00%
-------- -------- -------- -------- -------- --------
Total interest earning assets 49,728 4,314 8.68% 47,598 4,072 8.55% 45,990 3,933 8.55%
Cash and due from banks 1,555 1,390 1,417
Allowance for loan losses (270) (247) (272)
Premises and equipment 800 943 656
Other assets 673 396 355
-------- -------- --------
Total assets $ 52,486 $ 50,080 $ 48,146
======== ======== ========
Liabilities and shareholders' equity
Interest bearing deposits
Interest bearing transaction
accounts $ 11,824 $ 261 2.21% $ 9,704 $ 207 2.13% $ 9,154 $ 217 2.37%
Savings 2,624 65 2.48% 2,815 80 2.84% 2,679 82 3.06%
Time deposits $100M and over 4,352 207 4.76% 3,840 184 4.79% 3,546 152 4.29%
Other time deposits 19,784 1,080 5.46% 20,122 1,122 5.58% 20,295 1,107 5.45%
-------- -------- -------- -------- -------- --------
Total interest bearing
deposits 38,584 1,613 4.18% 36,481 1,593 4.37% 35,674 1,558 4.37%
Federal funds purchased 41 2 4.88% 31 2 6.45% 15 1 6.67%
Long-term debt 4,000 232 5.80% 4,000 227 5.68% 4,000 248 6.20%
-------- -------- -------- -------- -------- --------
Total interest bearing
liabilities 42,625 1,847 4.33% 40,512 1,822 4.50% 39,689 1,807 4.55%
Noninterest bearing demand
deposits 3,362 3,460 3,247
Other liabilities 416 420 301
Shareholders' equity 6,083 5,688 4,909
-------- -------- --------
Total liabilities and
shareholders' equity $ 52,486 $ 50,080 $ 48,146
======== ======== ========
Interest rate spread (4) 4.35% 4.05% 4.00%
Net interest income and net yield
on earning assets (5) $ 2,467 4.96% $ 2,250 4.73% $ 2,126 4.62%
Interest free funds supporting
earning assets (6) $ 7,103 $ 7,086 $ 6,301
</TABLE>
(1) Average balances are computed on a daily basis.
(2) Computed on a fully taxable equivalent basis using a federal income tax
rate of 34%.
(3) Nonaccruing loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
(4) Total interest bearing assets yield less the total interest bearing
liabilities rate.
(5) Net interest income divided by total interest earning assets.
(6) Total interest earning assets less total interest bearing liabilities.
-6-
<PAGE>
The table, "Volume and Rate Variance Analysis", provides a summary of
changes in FTE net interest income resulting from changes in volumes of interest
earning assets and interest bearing liabilities, and the rates earned and paid
on such assets and liabilities.
Volume and Rate Variance Analysis
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
---------------------------- ------------------------
Volume(1) Rate (1) Total Volume(1) Rate (1) Total
--------- -------- ----- --------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits in other banks $ (1) $ (1) $ (2) $ 12 $ 5 $ 17
Taxable securities (29) 10 (19) (66) (22) (88)
Tax-exempt securities (2) 25 (6) 19 116 14 130
Other investments - 6 6 - (10) (10)
Federal funds sold 21 4 25 (62) (16) (78)
Loans 183 30 213 188 (20) 168
------ ------ ------ ------ ------ ------
Total interest income 199 43 242 188 (49) 139
------ ------ ------ ------ ------ ------
Interest bearing deposits
Interest bearing transaction accounts 47 7 54 15 (25) (10)
Savings (5) (10) (15) 3 (5) (2)
Time deposits $100M and over 24 (1) 23 13 19 32
Other time deposits (19) (23) (42) (9) 24 15
Federal funds purchased 1 (1) - 1 - 1
Long-term debt - 5 5 - (21) (21)
------ ------ ------ ------ ------ ------
Total interest expense 48 (23) 25 23 (8) 15
------ ------ ------ ------ ------ ------
Net interest income $ 151 $ 66 $ 217 $ 165 $ (41) $ 124
====== ====== ====== ====== ====== ======
</TABLE>
(1) The rate/volume variance for each category has been allocated on a
consistent basis between rate and volume variances based on the percentage
of rate or volume variance to the sum of the two absolute variances except
in categories having balances in only one period. In such cases, the entire
variance is attributed to volume differences.
(2) Computed on a fully taxable equivalent basis using a federal income tax
rate of 34%.
During 1998, management expects that interest rates will move within a
narrow range, and management has not identified any factors that would cause
interest rates to increase sharply in a short period of time. Therefore, any
improvements in net interest income for 1998 are expected to be largely the
result of increases in the volume of interest earning assets and liabilities or
changes in the mix of interest earning assets, such as increased loan volume.
Management expects to continue to use marketing strategies to increase the
Bank's market share for both deposits and quality loans within its service area.
These strategies involve offering attractive interest rates and continuing the
Bank's commitment to providing outstanding customer service.
Interest Rate Sensitivity
Interest rate sensitivity measures the timing and magnitude of the
repricing of assets compared with the repricing of liabilities and is an
important part of asset/liability management. The objective of interest rate
sensitivity management is to generate stable growth in net interest income, and
to control the risks associated with interest rate movements. Management
constantly reviews interest rate risk exposure and the expected interest rate
environment so that adjustments in interest rate sensitivity can be timely made.
-7-
<PAGE>
The table, "Interest Sensitivity Analysis", indicates that, on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets, resulting in a liability sensitive position at the end of 1997
of $7,075,000, for a cumulative gap ratio of .81. When interest sensitive assets
exceed interest sensitive liabilities for a specific repricing "horizon", a
positive interest sensitivity gap results. The gap is negative when interest
sensitive liabilities exceed interest sensitive assets, as was the case at the
end of 1997 with respect to the one year time horizon. For a bank with a
negative gap, falling interest rates would be expected to have a positive effect
on net interest income and rising rates would be expected to have the opposite
effect.
The table below reflects the balances of interest earning assets and
interest bearing liabilities at the earlier of their repricing or maturity
dates. Amounts of fixed rate loans are reflected at the loans' final maturity
dates. Variable rate loans are reflected at the earlier of their contractual
maturity date or the date at which the loan may be repriced contractually.
Deposits in other banks and debt securities are reflected at the earlier of each
instrument's repricing date for variable rate instruments or the ultimate
maturity date for fixed rate instruments. Overnight federal funds sold are
reflected in the earliest repricing interval due to the immediately available
nature of these funds. Interest bearing liabilities with no contractual
maturity, such as interest bearing transaction accounts and savings deposits are
reflected in the earliest repricing interval due to contractual arrangements
which give management the opportunity to vary the rates paid on these deposits
within a thirty-day or shorter period. However, the Bank is under no obligation
to vary the rates paid on those deposits within any given period. Fixed rate
time deposits, principally certificates of deposit, are reflected at their
contractual maturity dates. Federal funds purchased and long-term debt are
presented in the earliest repricing interval because their rates are adjustable
immediately by the lenders.
Interest Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Within 4-12 Over 1-5 Over 5
3 Months Months Years Years Total
-------- ------ ----- ----- -----
(Dollars in thousands)
Interest earning assets
<S> <C> <C> <C> <C> <C>
Time deposits in other banks $ 147 $ - $ 294 $ - $ 441
Securities
Fixed rate 810 - 3,983 2,519 7,312
Variable rate 8,667 157 8,824
Other investments 377 - - - 377
Federal funds sold 1,535 - - - 1,535
Loans(1)
Fixed rate 1,202 2,447 11,396 1,227 16,272
Variable rate 15,514 30 - - 15,544
-------- -------- -------- -------- --------
Total interest earning assets 28,252 2,634 $ 15,673 $ 3,746 $ 50,305
-------- -------- ======== ======== ========
Interest bearing liabilities
Interest bearing deposits
Interest bearing transaction accounts $ 12,294 $ - $ - $ - $ 12,294
Savings 2,439 - - - 2,439
Time deposits $100M and over 737 2,123 1,393 - 4,253
Other time deposits 5,729 10,639 2,697 27 19,092
Long-term debt 4,000 - - - 4,000
-------- -------- -------- -------- --------
Total interest bearing liabilities 25,199 12,762 $ 4,090 $ 27 $ 42,078
-------- -------- ======== ======== ========
Interest sensitivity gap $ 3,053 $(10,128)
Cumulative interest sensitivity gap $ 3,053 $ (7,075)
Gap ratio 1.12 .21
Cumulative gap ratio 1.12 .81
</TABLE>
(1) Loans are net of nonaccruing loans totaling $70,000 and net unamortized
deferred loan fees of $30,000.
Provision for Loan Losses
-8-
<PAGE>
The provision for loan losses is charged to earnings based on
management's continuing review and evaluation of the loan portfolio and general
economic conditions. Provisions for loan losses were $5,000, $32,000 and $45,000
for the years ended December 31, 1997, 1996 and 1995, respectively. The steadily
decreasing provisions are the result of continued favorable economic conditions
and the outstanding performance of the Bank's loan portfolio. Gross charge-offs
in 1997 and 1996 were only $10,000 for each year, and were $50,000 in 1995.
Recovery rates on previously charged-off loans has been good as well. In
addition, non-accrual, past due and other unfavorable performance-characteristic
loans continue to be experienced at only nominal levels. See "Impaired Loans"
and "Allowance for Loan Losses" for a discussion of the factors management
considers in its review of the adequacy of the allowance and provision for loan
losses.
Other Income
Noninterest income for 1997 increased $44,000 or 14.8% compared with an
increase of $30,000 or 11.2% for 1996 compared with the 1995 period. Service
charges on deposit accounts increased $39,000 in 1997 compared with 1996, and
increased $34,000 in 1996 compared with 1995. These increases were caused
primarily by increased chargeable account activity. There have been no
significant realized securities gains on losses in any of the past three years.
Other Expenses
Noninterest expenses for 1997 increased $125,000 or 10.0%, compared
with an increase of $19,000 or 1.5% for 1996. Salaries and employee benefits
accounted for $34,000 of the increase in 1997, and increased $26,000 in 1996.
Net occupancy and furniture and equipment expenses increased by $56,000 in 1997,
largely as a result of the Bank's acquisition of new data processing equipment
and software that was placed in service late in the second quarter of 1996. The
year 1997 was the first full year of depreciation, amortization and maintenance
expenses for these assets.
Noninterest overhead expenses for 1998 are expected to surpass the
amounts for 1997 in most categories due in part because of continued growth and
investment in technology, along with some inflationary increases. Management
believes that continued investment in technology is necessary to provide
expansion of products and services that will be needed to keep the Bank
competitive. However, growth in noninterest expenses is being closely monitored
and cost control continues to be emphasized by management where possible in
order to achieve profitability objectives and attain the goals of growth and
outstanding customer service in the Bank's market area.
Income Taxes
For 1997, federal and state income tax expense increased to $433,000
from $375,000 in 1996. This increase was due to higher taxable earnings. The
effective income tax rate (income tax expense divided by income before income
taxes) was 32.4% for 1997 compared with 31.8% for 1996.
-9-
<PAGE>
Securities
The following table summarizes the carrying amounts of securities held
by the Bank at each of the dates indicated.
Securities Portfolio Composition
1997 1996 1995
Available- Available- Available-
for-Sale for-Sale for-Sale
-------- -------- --------
(Dollars in thousands)
U.S. Treasury $ 998 $ 994 $ 2,000
U.S. Government agencies 2,978 2,987 3,548
State, county and municipal 4,188 4,087 3,232
Mortgage-backed securities 7,972 7,948 8,229
---------- ---------- ----------
Total $ 16,136 $ 16,016 $ 17,009
========== ========== ==========
Available-for-sale securities are stated at estimated fair value.
The following table presents maturities and weighted average yields of
securities at December 31, 1997.
Securities Portfolio Maturities and Yields
December 31, 1997
-----------------
Available-
for-Sale Yield
-------- -----
(Dollars in thousands)
U.S. Treasury
After one through five years $ 998 5.83%
----------
U.S. Government agencies
After one through five years 1,454 5.55%
After five through ten years 1,524 7.36%
----------
2,978 6.47%
----------
State, county and municipal (1)
Within one year 808 6.06%
After one through five years 2,529 6.54%
After five through ten years 851 6.35%
----------
4,188
----------
Mortgage-backed securities (2)
After one through five years 68 5.50%
After five through ten years 64 6.02%
Over ten years 7,840 6.60%
----------
7,972 6.58%
----------
Total
Within one year 808 6.06%
After one through five years 5,049 6.10%
After five through ten years 2,439 6.97%
Over ten years 7,840 6.60%
----------
Total $ 16,136 6.47%
==========
(1) Computed on a fully taxable equivalent basis using a federal income tax
rate of 34%.
(2) Maturity categories based upon final stated maturity dates. Average
maturity is substantially shorter because of the monthly return of
principal on certain securities.
In December 1995, securities classified as held-to-maturity with an
amortized cost of $4,920,000 and an estimated fair value of $5,076,000 were
transferred on a one-time basis to the available-for-sale category. The transfer
was made in accordance with provisions of the Special Report on implementation
of Statement of Financial Accounting Standards ("SFAS") No. 115 issued by the
Financial Accounting Standards Board. During 1997 and 1996, there were no sales
or transfers of held-to-maturity securities.
-10-
<PAGE>
Management assigns securities upon purchase into one of the categories
(trading, available-for-sale and held-to-maturity) designated by Statement of
Financial Accounting Standards ("SFAS") No. 115 based on intent, taking into
consideration other factors including expectations for changes in market rates
of interest, liquidity needs, asset/liability management strategies, and capital
requirements. The bank has never held securities for trading purposes.
All mortgage-backed securities held by the bank as of December 31, 1997
were issued by the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association.
At December 31, 1997, the Bank had concentrated an amortized cost of
$1,276,000 into Clover, South Carolina School District bonds (Moody's rating AA)
carried in the balance sheet at an estimated fair value of $1,280,000 and an
amortized cost of $704,000 into Fairfield County, South Carolina School District
bonds (Moody's rating AAA) carried in the balance sheet at an estimated fair
value of $711,000. Management is not aware of any special risks involving these
investments.
Loan Portfolio
Management believes the loan portfolio is adequately diversified. There
are no significant concentrations of loans in any particular individuals or
industry or group of related individuals or industries, and there are no foreign
loans.
The amount of loans outstanding at December 31, 1997, 1996, and 1995
are shown in the following table according to type of loan:
Loan Portfolio Composition
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- --------------------
Amount % Amount % Amount %
------ ------ ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 5,611 17.6% $ 5,917 18.7% $ 5,101 18.1%
Real estate - construction 6,447 20.2% 5,445 17.2% 2,523 8.9%
Real estate - mortgage
Farmland 244 .7% 185 .6% 226 .8%
1-4 family residential 11,359 35.6% 11,034 35.0% 11,597 41.0%
Multifamily (5 or more) residential - - - - 3 -
Nonfarm, nonresidential 5,092 16.0% 5,966 18.9% 6,032 21.4%
Consumer installment 3,163 9.9% 3,037 9.6% 2,767 9.8%
-------- ------ -------- ------ -------- ------
Total $ 31,916 100.0% $ 31,584 100.0% $ 28,249 100.0%
======== ====== ======== ====== ======== ======
</TABLE>
A certain degree of risk taking is inherent in the extension of credit.
Management has established loan and credit policies designed to control both the
types and amounts of risks assumed and to ultimately minimize losses. Such
policies include limitations on loan-to-collateral values for various types of
collateral, requirements for appraisals of real estate collateral, problem loan
management practices and collection procedures, and nonaccrual and charge-off
guidelines.
-11-
<PAGE>
Commercial and industrial loans primarily represent loans made to
businesses, and may be made on either a secured or an unsecured basis. When
taken, collateral consists of liens on receivables, equipment, inventories,
furniture and fixtures. Unsecured business loans are generally short-term with
emphasis on repayment strengths and low debt to worth ratios. During 1997, total
commercial and industrial loans decreased $306,000 or 5.2%. Also, loans mainly
for business or investment purposes that are secured by real estate (nonfarm,
nonresidential) decreased by $874,000 or 14.6%. Commercial lending involves
significant risk because repayment usually depends on the cash flows generated
by a borrower's business, and the debt service capacity of a business can
deteriorate because of downturns in national and local economic conditions. To
control risk, more in-depth initial and continuing financial analysis of a
borrower's cash flows and other financial information is generally required.
Real estate construction loans generally consist of financing the
construction of 1-4 family dwellings and some nonfarm, nonresidential real
estate. Usually, loan to cost ratios are limited to 75% to 80% and permanent
financing commitments are usually required prior to the advancement of loan
proceeds.
Loans secured by real estate mortgages comprised approximately 52% and
55% of the Bank's loan portfolio at the end of 1997 and 1996, respectively. Real
estate mortgage loans of all types decreased by $490,000 during 1997.
Residential real estate loans consist mainly of first and second mortgages on
single family homes. Loan-to-value ratios for these instruments are generally
limited to 80%. Nonfarm, nonresidential loans are secured by business and
commercial properties with loan-to-value ratios generally limited to 75%. The
repayment of both residential and business real estate loans is dependent
primarily on the income and cash flows of the borrowers, with the real estate
serving as a secondary or liquidation source of repayment.
Maturity Distribution of Loans
The following table sets forth the maturity distribution of the Bank's
loans, by type, as of December 31, 1997, as well as the type of interest
requirement on such loans.
<TABLE>
<CAPTION>
December 31, 1997
-----------------
1 Year 1-5 5 Years
or Less Years or More Total
------- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial $ 2,127 $ 2,876 $ 608 $ 5,611
Real estate - construction 3,785 2,564 98 6,447
Real estate - mortgage 1,252 8,477 6,966 16,695
Consumer installment 901 2,216 46 3,163
-------- -------- -------- --------
Total $ 8,065 $ 16,133 $ 7,718 $ 31,916
======== ======== ======== ========
Predetermined rate, maturity
greater than one year $ 11,373 $ 1,228 $ 12,601
======== ======== ========
Variable rate or maturity
within one year $ 8,065 $ 4,760 $ 6,490 $ 19,315
======== ======== ======== ========
</TABLE>
-12-
<PAGE>
Impaired Loans
A loan is considered to be impaired when, in management's judgment
based on current information and events, it is probable that the obligation's
principal or interest will not be collectible in accordance with the terms of
the original loan agreement. Impaired loans, when not material, are carried in
the balance sheet at a value not to exceed their observable market price or the
fair value of the collateral if the repayment of the loan is expected to be
provided solely by the underlying collateral. The carrying value of any material
impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, which is the contractual
interest rate adjusted for any deferred loan fees or costs, premium or discount
existing at the inception or acquisition of the loan.
Loans which management has identified as impaired generally are
nonperforming loans. Nonperforming loans include nonaccrual loans or loans which
are 90 days or more delinquent as to principal or interest payments. Following
is a summary of the Bank's impaired loans:
Nonaccrual and Past Due Loans
December 31,
------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Nonaccrual loans $ 70 $ 50 $170
Accruing loans 90 days or more past due 7 - -
---- ---- ----
Total $ 77 $ 50 $170
==== ==== ====
Percent of total loans .2% .2% .6%
Generally, the accrual of interest is discontinued on impaired loans
and any previously accrued interest on such loans is reversed against current
income. Any subsequent interest income is recognized on a cash basis when
received unless collectibility of a significant amount of principal is in
serious doubt. In such cases, collections are credited first to the remaining
principal balance on a cost recovery basis. An impaired loan is not returned to
accrual status unless principal and interest are current and the borrower has
demonstrated the ability to continue making payments as agreed. The effects of
interest income accrued and collected on impaired loans were immaterial to the
financial statements for 1997, 1996 and 1995.
At December 31, 1997, there were no commitments to lend additional
funds to debtors owing amounts on nonaccrual loans.
Allowance for Loan Losses
The allowance for loan losses is increased by direct charges to
operating expense. Losses on loans are charged against the allowance in the
period in which management has determined that it is more likely than not such
loans have become uncollectible. Recoveries of previously charged off loans are
credited to the allowance. The table, "Summary of Loan Loss Experience",
summarizes loan balances at the end of each period indicated, averages for each
period, changes in the allowance arising from charge-offs and recoveries by loan
category, and additions to the allowance which have been charged to expense.
-13-
<PAGE>
In reviewing the adequacy of the allowance for loan losses at each year
end, management took into consideration the historical loan losses experienced
by the bank, current economic conditions affecting the borrowers' ability to
repay, the volume of loans, and the trends in delinquent, nonaccruing, and any
potential problem loans, and the quality of collateral securing nonperforming
and problem loans. After charging off all known losses, management considers the
allowance for loan losses adequate to cover its estimate of possible future loan
losses inherent in the loan portfolio as of December 31, 1997.
In calculating the amount required in the allowance for loan losses,
management applies a consistent methodology that is updated quarterly. The
methodology utilizes a loan risk grading system and detailed loan reviews to
assess credit risks and the overall quality of the loan portfolio, as well as
considering other off-balance-sheet credit risks such as loan commitments and
standby letters of credit. Also, the calculation provides for management's
assessment of trends in national and local economic conditions that might affect
the general quality of the loan portfolio.
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Total loans outstanding at end of period,
net of deferred net loan fees $ 31,886 $ 31,552 $ 28,220
Average amount of loans outstanding 31,033 29,206 27,307
Balance of allowance for loan losses - beginning 270 245 248
-------- -------- --------
Loans charged off
Commercial and industrial 4 - 40
Consumer installment 6 10 10
-------- -------- --------
Total charge-offs 10 10 50
-------- -------- --------
Recoveries of loans previously charged-off
Commercial and industrial 4 - -
Consumer installment 3 3 2
-------- -------- --------
Total recoveries 7 3 2
-------- -------- --------
Net charge-offs (recoveries) 3 7 48
-------- -------- --------
Additions to allowance charged to expense 5 32 45
-------- -------- --------
Balance of allowance for loan losses - ending $ 272 $ 270 $ 245
======== ======== ========
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Ratios
Net charge-offs to average loans outstanding .01% .02% .18%
Net charge-offs to loans at end of period .01% .02% .17%
Allowance for loan losses to average loans .88% .92% .90%
Allowance for loan losses to loans at end of period .85% .86% .87%
Net charge-offs to allowance for loan losses 1.10% 2.59% 19.59%
Net charge-offs to provision for loan losses 60.00% 21.88% 106.67%
</TABLE>
The following table presents the allocation of the allowance for loan
losses at the end of each of the last three years, compared with the percent of
loans in the applicable categories to total loans.
Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
% of % of % of
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 57 17.6% $ 56 18.7% $ 68 18.1%
Real estate - construction 48 20.2% 42 17.2% 19 8.9%
Real estate - mortgage 125 52.3% 130 54.5% 134 63.2%
Consumer installment 42 9.9% 42 9.6% 24 9.8%
-------- ------ -------- ------ -------- ------
Total $ 272 100.0% $ 270 100.0% $ 245 100.0%
======== ====== ======== ====== ======== ======
</TABLE>
-14-
<PAGE>
Deposits
The average amounts and percentage composition of deposits held by the
Bank for the years ended December 31, 1997, 1996 and 1995, are summarized below:
Average Deposits
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Amount % Amount % Amount %
------- ------ ------- ------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand $ 3,362 8.0% $ 3,460 8.7% $ 3,247 8.3%
Interest bearing transaction accounts 11,824 28.2% 9,704 24.3% 9,154 23.5%
Savings 2,624 6.3% 2,815 7.0% 2,679 6.9%
Time deposits $100M and over 4,352 10.4% 3,840 9.6% 3,546 9.1%
Other time 19,784 47.1% 20,122 50.4% 20,295 52.2%
-------- ------ -------- ------ -------- ------
Total deposits $ 41,946 100.0% $ 39,941 100.0% $ 38,921 100.0%
======== ====== ======== ====== ======== ======
</TABLE>
As of December 31, 1997, the Bank held $4,253,000 in time deposits of
$100,000 or more with approximately $737,000 maturing within three months,
$913,000 maturing over three through six months, $1,210,000 maturing over six
through twelve months, and $1,393,000 maturing over twelve months. Average time
deposits $100,000 and over comprised approximately 10% of total average deposits
during 1997, 1996 and 1995. The vast majority of time deposits $100,000 and over
are acquired from customers within the Bank's service area in the ordinary
course of business. The Bank does not purchase brokered deposits. While most of
the large time deposits are acquired from customers with standing relationships
with the Bank, it is a common industry practice not to consider these types of
deposits as core deposits because their retention can be expected to be heavily
influenced by rates offered, and therefore such deposits may have the
characteristics of shorter-term purchased funds. Certificates of deposit
$100,000 and over involve the maintenance of an appropriate matching of maturity
distribution and a diversification of sources to achieve an appropriate level of
liquidity.
Return on Equity and Assets
The following table shows the return on assets (net income divided by
average total assets), return on equity (net income divided by average equity),
dividend payout ratio (dividends declared per share divided by net income per
share), and equity to assets ratio (average equity divided by average total
assets) for each period indicated.
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Return on assets 1.72% 1.61% 1.49%
Return on equity 14.84% 14.14% 14.63%
Dividend payout ratio 56.18% 25.00% 21.13%
Equity to assets ratio 11.59% 11.36% 10.20%
-15-
<PAGE>
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in the most timely and economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted into cash at minimal cost (amounts due from banks and federal funds
sold). However, the most manageable sources of liquidity are composed of
liabilities, with the primary focus on liquidity management being on the ability
to obtain deposits within the Bank's service area. Core deposits (total deposits
less time deposits of $100,000 and over) provide a relatively stable funding
base, and the average of these deposits represented 71.6% of average total
assets during 1997, 72.1% of average total assets during 1996, and 73.5% of
average total assets during 1995. The Bank has available at the end of 1997
unused short-term lines of credit to purchase up to $2,250,000 of federal funds
from unrelated correspondent institutions and an undrawn long-term debt
availability from the Federal Home Loan Bank of Atlanta of $2,000,000. Asset
liquidity is provided from several sources, including amounts due from banks and
federal funds sold. Available-for-sale securities maturing within one year
provide a secondary source of liquidity. Funds from maturing loans provide an
additional source of liquidity. Management believes that the Bank's overall
liquidity sources are adequate to meet its operating needs.
Understanding the changes in the Bank's financial condition and
liquidity is enhanced by reviewing the changes in the size and composition of
the various categories of earning and non-earning assets due to cash flows and
the sources of cash for those changes. The table, "Sources and Uses of Cash", is
closely related to the statement of cash flows appearing in the financial
statements and related notes contained elsewhere in this report. The information
in this table focuses on changes in year end balances between 1997 and 1996, and
between 1996 and 1995, caused by cash flows.
As shown in the table, net decreases core deposits comprised 1.0% of
all uses of funds in 1997. During 1996, net increases in core deposits provided
49.5% of the Bank's funding sources. Additionally, decreases in time deposits of
$100,000 and over made up 31.1% of cash uses in 1997 compared with providing
16.5% of funding sources in 1996. Sources of funds in 1997 were limited
primarily to operating activities (net income adjusted for certain non-cash
transactions such as depreciation, etc.). Other uses of funds in 1997 were to
fund increases in federal funds sold, loans and to purchase premises and
equipment.
-16-
<PAGE>
Sources and Uses of Cash
<TABLE>
<CAPTION>
Increase (Decrease) December 31,
--------------------------------
1997 % 1996 %
-------- -------- --------- -------
(Dollars in thousands)
Sources of cash
Core deposits
<S> <C> <C> <C> <C>
Noninterest bearing demand $ - - $ (154) (3.5)%
Interest bearing transaction accounts - - 2,525 57.9%
Savings - - 75 1.7%
Time deposits under $100M - - (288) (6.6)%
-------- ------- -------- -------
Total core deposits - - 2,158 49.5%
-------- ------- -------- -------
Time deposits $100M and over - - 721 16.5%
-------- ------- -------- -------
Shareholders' equity
Payment of cash dividends (505) (64.4)% (202) (4.6)%
Operating activities 970 123.7% 685 15.7%
-------- ------- -------- -------
Total shareholders' equity 465 59.3% 483 11.1%
-------- ------- -------- -------
Earning assets
Time deposits in other banks 55 7.0% - -
Securities 22 2.8% 886 20.3%
-------- ------- -------- -------
Total earning assets 77 9.8% 886 20.3%
-------- ------- -------- -------
Non-earning assets
Cash and due from banks 242 30.9% - -
Sales of other real estate - - 112 2.6%
-------- ------- -------- -------
Total non-earning assets 242 30.9% 112 2.6%
-------- ------- -------- -------
Total sources of cash 784 100.0% 4,360 100.0%
======== ======= ======== =======
Uses of cash
Core deposits
Noninterest bearing demand $ (549) (70.0)% $ - -
Interest bearing transaction accounts (490) (62.5)% - -
Savings 303 38.6% - -
Time deposits under $100M 744 94.9% - -
-------- ------- -------- -------
Total core deposits 8 1.0% - -
-------- ------- -------- -------
Time deposits $100M and over 244 31.1% - -
-------- ------- -------- -------
Borrowings
Federal funds purchased - - 300 6.9%
-------- ------- -------- -------
Earning assets
Time deposits in other banks - - 5 0.1%
Federal funds sold 205 26.1% 330 7.6%
Loans made to customers 295 37.7% 3,412 78.2%
-------- ------- -------- -------
Total earning assets 500 63.8% 3,747 85.9%
-------- ------- -------- -------
Non-earning assets
Cash and due from banks - - 300 6.9%
Premises and equipment 32 4.1% 13 0.3%
-------- ------- -------- -------
Total non-earning assets 32 4.1% 313 7.2%
-------- ------- -------- -------
Total uses of cash $ 784 100.0% $ 4,360 100.0%
======== ======= ======== =======
</TABLE>
-17-
<PAGE>
Capital Resources
Shareholders' equity of the Bank increased by $504,000 and $543,000
during 1997 and 1996, respectively. During 1997, net income increased
shareholders' equity by $903,000 and unrealized holding gains and losses on
available-for-sale securities totaling $106,000 increased shareholders' equity.
Cash dividends of $505,000 decreased shareholders' equity in 1997. During 1996,
net income increased shareholders' equity $804,000. Cash dividends of $202,000
and changes in unrealized holding gains and losses on available-for-sale
securities totaling $59,000 decreased shareholders' equity in 1996.
The Bank is subject to regulatory risk-based capital adequacy
standards. Under those standards, banks are required to maintain certain minimum
ratios of capital to risk-weighted assets and average total assets. Under the
provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA), federal bank regulatory authorities are required to implement
prescribed "prompt corrective actions" upon the deterioration of the capital
position of a bank. If the capital position of an affected institution were to
fall below certain levels, increasingly stringent regulatory corrective actions
are mandated. Unrealized holding gains and losses on available-for-sale
securities are excluded for purposes of calculating regulatory capital ratios.
However, the extent of any unrealized appreciation or depreciation on securities
will continue to be a factor that regulatory examiners consider in their overall
assessment of a bank's capital adequacy.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios set forth in
the table below of Total and Tier I capital, as defined in the regulations, to
risk weighted assets, as defined, and of Tier I capital, as defined, to average
assets, as defined. Management believes, as of December 31, 1997, that the Bank
exceeds all capital adequacy minimum requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category. The
Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
Minimum Minimum to
for Capital be Well
Actual Adequacy Capitalized
-------------- -------------- --------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
December 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk weighted assets $6,645 19.3% >$2,753 > 8.0% >$3,441 >10.0%
- - - -
Tier I capital to risk weighted assets $6,373 18.5% >$1,376 > 4.0% >$2,065 > 6.0%
- - - -
Tier I capital to average assets (leverage) $6,373 12.1% >$1,585 > 3.0% >$2,642 > 5.0%
- - - -
December 31, 1996
Total capital to risk weighted assets $6,245 19.4% >$2,572 > 8.0% >$3,215 >10.0%
- - - -
Tier I capital to risk weighted assets $5,975 18.6% >$1,286 > 4.0% >$1,929 > 6.0%
- - - -
Tier I capital to average assets (leverage) $5,975 12.0% >$1,499 > 3.0% >$2,498 > 5.0%
- - - -
</TABLE>
-18-
<PAGE>
Year 2000 Compliance
The end of the century presents a technological problem to
computer-dependent organizations such as a bank. Because of the high costs of
electronic storage and memory, early computer programmers adopted a convention
of using only two digits to designate the year in a date. Unless appropriate
systems testing and correction are undertaken, the viability of banking
operations could be seriously jeopardized when the year 2000 arrives.
Clover Community Bank's management is aware of the importance of the
year 2000 issue. All of the Bank's data processing equipment and software is
potentially susceptible to failure due to this cause. Certain other non-computer
equipment and systems, such as vault doors and telephone systems, may also be
affected. Management has appointed a committee of senior officers and other
personnel to carefully review the Bank's potentially affected systems and
equipment to determine that the actions necessary to ensure that correct,
uninterrupted functioning of these devices across the millennial threshold are
initiated.
The Bank's primary federal regulator, the Federal Deposit Insurance
Corporation ("FDIC") is also concerned with this issue. The FDIC has issued
policy statements which require the Bank to consider adequately the responses
needed to ensure that systems are able to make the year 2000 transition
successfully. The FDIC has established time frames for completion of various
elements of the Bank's review and implementation process and intends to perform
examinations of institutions specifically to evaluate progress toward achieving
year 2000 readiness.
Management has determined that the Bank's new mainframe computer
equipment acquired in 1996 is year 2000 compliant, and has been assured by the
Bank's primary application software vendors that any and all changes needed to
achieve or maintain such compliance will be made in a timely manner. Final
testing of the mainframe equipment and related software is planned to be
completed early in the first quarter of 1999. However, the mainframe's operating
system software vendor has not yet commented on a timetable for year 2000
testing and compliance. Other microcomputer equipment and software has been or
will be tested for year 2000 readiness well in advance of that date. Other
potentially vulnerable systems and devices are expected to be tested before the
end of 1998.
Management continues to evaluate the estimated costs associated with
the year 2000 compliance efforts based on developing information. While these
efforts will involve additional costs, management currently believes that it
will be able to manage the year 2000 transition without any material adverse
effect on the Bank's financial condition, business operations or customer
service.
-19-
<PAGE>
Inflation
Since the assets and liabilities of a bank are primarily monetary in
nature (payable in fixed, determinable amounts), the performance of a bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same.
While the effect of inflation on banks is normally not as significant
as is its influence on those businesses which have large investments in plant
and inventories, it does have an effect. During periods of high inflation, there
are normally corresponding increases in the money supply, and banks will
normally experience above average growth in assets, loans and deposits. Also
general increases in the prices of goods and services will result in increased
operating expenses.
Forward Looking Statements
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in
nature, are intended to be and are hereby identified as "forward looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended. The Bank cautions readers that
forward looking statements, including without limitation, those relating to the
Bank's future business prospects, revenues, working capital, liquidity, capital
needs, interest costs and income, are subject to certain risks and uncertainties
that could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Bank's reports filed with the Federal Deposit Insurance Corporation.
-20-
<PAGE>
DONALD G. JONES AND COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
7812 WINNSBORO ROAD
COLUMBIA, S.C. 29203
TELEPHONE
(803)786-9963
FACSIMILE
(803)786-9910
MEMBER MEMBER
SOUTH CAROLINA AMERICAN INSTITUTE OF
ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS
CERTIFIED PUBLIC ACCOUNTANTS DIVISION FOR CPA FIRMS
SECPS AND PCPS
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
of Clover Community Bank
We have audited the accompanying balance sheets of Clover Community Bank
as of December 31, 1997 and 1996, and the related statements of income, changes
in shareholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Clover Community
Bank as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
s/Donald G. Jones and Company, P.A.
Columbia, South Carolina
January 16, 1998
-21-
<PAGE>
Balance Sheet
Clover Community Bank
December 31,
------------
1997 1996
---- ----
Assets
Cash and due from banks (Note B) $ 1,450,549 $ 1,692,968
Time deposits in other banks 440,602 495,208
Federal funds sold 1,535,000 1,330,000
Securities available-for-sale (Note C) 16,135,915 16,015,567
Other investments (Note D) 377,400 377,400
Loans - net (Note E) 31,614,019 31,281,538
Premises and equipment - net (Note F) 759,733 842,081
Accrued interest receivable 344,590 333,180
Other assets 250,831 242,898
------------ ------------
Total assets $ 52,908,639 $ 52,610,840
============ ============
Liabilities
Deposits (Note G)
Noninterest bearing $ 3,890,742 $ 3,340,686
Interest bearing 38,077,630 38,879,043
------------ ------------
Total deposits 41,968,372 42,219,729
Long-term debt (Note I) 4,000,000 4,000,000
Accrued interest payable 351,346 345,380
Other liabilities 48,353 8,249
------------ ------------
Total liabilities 46,368,071 46,573,358
------------ ------------
Commitments and contingent liabilities (Note N)
Shareholders' equity (Note J)
Common stock - $1.25 par value; 3,000,000
shares authorized; issued and outstanding
1,011,020 for 1997 and 1996 1,263,775 1,263,775
Capital surplus 2,070,196 2,070,196
Undivided profits 3,038,658 2,640,951
Unrealized holding gains and losses
on available-for-sale securities 167,939 62,560
------------ ------------
Total shareholders' equity 6,540,568 6,037,482
------------ ------------
Total liabilities and shareholders' equity $ 52,908,639 $ 52,610,840
============ ============
See accompanying notes to financial statements.
-22-
<PAGE>
Statement of Income
Clover Community Bank
Years Ended December 31,
------------------------
1997 1996
---- ----
Interest income
Loans, including fees $3,112,053 $2,899,062
Time deposits in other banks 28,955 30,623
Securities
Taxable 765,822 785,466
Tax-exempt 179,662 166,966
Federal funds sold 109,441 84,303
Other investments 26,130 19,821
---------- ----------
Total interest income 4,222,063 3,986,241
---------- ----------
Interest expense
Time deposits $100,000 and over 207,534 184,120
Other deposits 1,405,942 1,408,962
Federal funds purchased 2,039 1,812
Long-term debt 231,674 227,346
---------- ----------
Total interest expense 1,847,189 1,822,240
---------- ----------
Net interest income 2,374,874 2,164,001
Provision for loan losses (Note E) 5,000 31,500
---------- ----------
Net interest income after provision 2,369,874 2,132,501
---------- ----------
Other income
Service charges on deposit accounts 294,572 255,081
Credit insurance commissions 25,474 23,103
Securities losses (64)
Other income 20,648 18,712
---------- ----------
Total other income 340,694 296,832
---------- ----------
Other expenses (Notes K and M)
Salaries and employee benefits 757,882 723,810
Net occupancy expense 48,091 56,661
Furniture and equipment expense 200,247 136,095
Other expense 368,750 333,341
---------- ----------
Total other expenses 1,374,970 1,249,907
---------- ----------
Income before income taxes 1,335,598 1,179,426
Income tax expense (Note L) 432,382 375,440
---------- ----------
Net income (Note P) $ 903,216 $ 803,986
========== ==========
Per share (Note J)
Average shares outstanding 1,011,020 1,011,020
Net income $ .89 $ .80
See accompanying notes to financial statements.
-23-
<PAGE>
Statement of Changes in Shareholders' Equity
Clover Community Bank
<TABLE>
<CAPTION>
Unrealized
Holding
Common Stock Gains and
------------------- Losses on
Number Available-
of Capital Undivided for-Sale
Shares* Amount Surplus Profits Securities Total
------- ------ ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 1,011,020 $1,263,775 $2,070,196 $2,039,169 $ 121,170 $5,494,310
Net income 803,986 803,986
Cash dividends declared - $.20 per share (202,204) (202,204)
Change in unrealized holding gains and
losses on available-for-sale securities,
net of income tax benefit of $32,825 (58,610) (58,610)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 1,011,020 1,263,775 2,070,196 2,640,951 62,560 6,037,482
Net income 903,216 903,216
Cash dividends declared - $.50 per share (505,509) (505,509)
Change in unrealized holding gains and
losses on available-for-sale securities,
net of income taxes of $59,020 105,379 105,379
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 1,011,020 $1,263,775 $2,070,196 $3,038,658 $ 167,939 $6,540,568
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
-24-
<PAGE>
Statement of Cash Flows
Clover Community Bank
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
---- ----
Operating activities
<S> <C> <C>
Net income $ 903,216 $ 803,986
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 5,000 31,500
Depreciation 114,672 95,476
Deferred income taxes 32,804 (37,446)
Securities accretion and premium amortization 22,116 15,461
Securities losses 64
Amortization of net deferred loan fees (42,496) (33,001)
Gain on sale of other real estate (5,638)
Loss on disposal of equipment 117
(Increase) decrease in interest receivable (11,410) 3,505
Increase in interest payable 5,966 3,585
Increase in prepaid expenses
and other assets (51,404) (92,921)
Decrease in other liabilities
and accrued expenses (8,249) (99,932)
------------ ------------
Net cash provided by operating activities 970,332 684,639
------------ ------------
Investing activities
Net decrease in time deposits in other banks 98,000
Purchases of available-for-sale securities (1,120,031) (1,724,190)
Sales of available-for-sale securities 999,492
Maturities of available-for-sale securities 1,141,966 1,610,719
Net increase in loans made to customers (294,985) (3,412,097)
Proceeds from sale of other real estate 112,484
Purchases of premises and equipment (32,441) (13,336)
------------ ------------
Net cash used by investing activities (207,491) (2,426,928)
------------ ------------
Financing activities
Net increase in demand deposits, interest bearing
transaction accounts and savings accounts 736,734 2,446,045
Net (decrease) increase in certificates of deposit
and other time deposits (988,091) 433,546
Net decrease in federal funds purchased (300,000)
Proceeds from long-term debt 4,000,000
Repayment of long-term debt (4,000,000)
Cash dividends paid (505,509) (202,204)
------------ ------------
Net cash (used) provided by
financing activities (756,866) 2,377,387
------------ ------------
Increase in cash and cash equivalents 5,975 635,098
Cash and cash equivalents, beginning 3,126,176 2,491,078
------------ ------------
Cash and cash equivalents, ending $ 3,132,151 $ 3,126,176
============ ============
</TABLE>
See accompanying notes to financial statements.
-25-
<PAGE>
Notes to Financial Statements
Clover Community Bank
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Clover Community Bank (the "Bank"), is engaged in domestic
commercial banking operations from its one banking office located in Clover,
South Carolina. The Bank is state chartered and its deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC"). Therefore, the Bank operates
under the supervision, rules and regulations of the FDIC and South Carolina
State Board of Financial Institutions. The Bank was organized in September 1986,
and commenced operations on October 1, 1987.
The Bank is a community-oriented institution offering a full range of
traditional banking services, with the exception of trust services.
Substantially all of the Bank's loans are made to individuals and businesses
within the Bank's service area primarily within York County, South Carolina. The
Bank acquires substantially all of its deposits within its service area and does
not accept brokered deposits.
Basis of Presentation - The accounting and reporting policies of the Bank are in
conformity with generally accepted accounting principles and general practices
within the banking industry. In certain instances, the amounts reported in the
prior year financial statements have been reclassified to present them on a
comparable basis to the amounts reported in the December 31, 1997 financial
statements. These re-classifications have no effect on shareholders' equity or
net income.
Securities - Equity securities that have readily determinable fair values and
all debt securities are classified generally at the time of purchase into one of
three categories: held-to-maturity, trading and available-for-sale. Debt
securities which the Bank has the positive intent and ability to hold to
ultimate maturity are classified as held-to-maturity and accounted for at
amortized cost. Debt and equity securities that are bought and held primarily
for sale in the near term are classified as trading and are accounted for on an
estimated fair value basis, with unrealized gains and losses included in other
income. However, the Bank has never held any securities for trading purposes.
Securities not classified as either held-to-maturity or trading are classified
as available-for-sale and are accounted for at estimated fair value. Unrealized
holding gains and losses on available-for-sale securities are excluded from
earnings and recorded in a separate account included in shareholders' equity,
net of applicable income tax effects. Dividend and interest income, including
amortization of any premium or accretion of discount arising at acquisition, is
included in earnings for all three categories of securities. Realized gains and
losses on all categories of securities are included in other operating income,
based on the amortized cost of the specific certificate on a trade date basis.
Other Investments - Other investments consist of restricted securities which are
carried at cost. Management periodically evaluates these securities for
impairment, with any appropriate downward valuation adjustments being made when
necessary.
Loans and Interest Income - Loans are carried at principal amounts outstanding
reduced by deferred net loan fees. Interest income on loans is recognized using
the interest method based upon the principal amounts outstanding. Loan
origination and commitment fees and certain direct loan origination costs
(principally salaries and employee benefits) are being deferred and amortized as
an adjustment of the related loan's yield. Generally, these amounts are being
amortized over the contractual life of the related loans or commitments.
-26-
<PAGE>
A loan is considered to be impaired when, in management's judgment based on
current information and events, it is probable that the obligation's principal
or interest will not be collectible in accordance with the terms of the original
loan agreement. Impaired loans, when not material, are carried in the balance
sheet at a value not to exceed their observable market price or the fair value
of the collateral if the repayment of the loan is expected to be provided solely
by the underlying collateral. The carrying value of any material impaired loans
are measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate, which is the contractual interest rate
adjusted for any deferred loan fees or costs, premium or discount existing at
the inception or acquisition of the loan. Generally, the accrual of interest is
discontinued on impaired loans and any previously accrued interest on such loans
is reversed against current income. Any subsequent interest income is recognized
on a cash basis when received unless collectibility of a significant amount of
principal is in serious doubt. In such cases, collections are credited first to
the remaining principal balance on a cost recovery basis. An impaired loan is
not returned to accrual status unless principal and interest are current and the
borrower has demonstrated the ability to continue making payments as agreed.
Allowance for Loan Losses - An allowance for possible loan losses is maintained
at a level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current economic conditions which may
affect the borrowers' ability to pay and the underlying collateral value of the
loans. When management determines that a loan will not perform substantially as
agreed, a review of the loan is initiated to ascertain whether it is more likely
than not that a loss has occurred. If it is determined that a loss is likely,
the estimated amount of the loss is charged off and deducted from the allowance.
The provision for possible loan losses and recoveries on loans previously
charged off are added to the allowance.
Premises and Equipment - Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed by using
both accelerated and straight-line methods. Rates of depreciation are generally
based on the following estimated useful lives: buildings - 31.5 years; furniture
and equipment - 5 to 7 years. The cost of assets sold or otherwise disposed of,
and the related allowance for depreciation is eliminated from the accounts and
the resulting gains or losses are reflected in the income statement. Maintenance
and repairs are charged to current expense as incurred and the costs of major
renewals and improvements are capitalized.
Other Real Estate - Other real estate includes properties acquired through
foreclosure or acceptance of a deed in lieu of foreclosure. Other real estate is
initially recorded at the lower of cost or the estimated fair value less
estimated selling costs. Loan losses arising from the acquisition of such
property are charged to the allowance for loan losses. An allowance for losses
on other real estate is maintained for subsequent downward valuation
adjustments. Gains or losses on other real estate sold, writedowns from
subsequent reevaluation and other holding costs are charged to other operating
expense as incurred.
Retirement Plan - The Bank has a profit-sharing plan pursuant to Section 401(k)
of the Internal Revenue Code as more fully described in Note M. The Bank does
not sponsor any postretirement or postemployment benefits.
-27-
<PAGE>
Deferred Income Taxes - The Bank uses an asset and liability approach for
financial accounting and reporting of deferred income taxes. Deferred tax assets
and liabilities are determined based on the difference between the financial
statement and income tax bases of assets and liabilities as measured by the
currently enacted tax rates which are assumed will be in effect when these
differences reverse. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is recognized.
Deferred income tax expense or credit is the result of changes in deferred tax
assets and liabilities.
Statement of Cash Flows - The statement of cash flows reports net cash provided
or used by operating, investing and financing activities and the net effect of
those flows on cash and cash equivalents. Cash equivalents include amounts due
from banks, time deposits in other banks maturing within three months, and
federal funds sold.
During 1997 and 1996, interest paid on deposits and other borrowings amounted to
$1,841,223 and $1,818,655, respectively. Income tax payments totaling $426,000
and $522,880 were made during 1997 and 1996, respectively. During 1997 and 1996,
noncash valuation adjustments, net of deferred income taxes, totaling $105,379
and $58,610 were made which increased and decreased the unrealized gain or loss
on available-for- sale securities, respectively. In 1996, a noncash transfer of
$106,846 was made from loans to other real estate.
Fair Value Estimates - Fair value estimates are made at a specific point in time
based on relevant market information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bank's entire holdings of a particular financial
instrument. Because no active trading market exists for a significant portion of
the Bank's financial instruments, fair value estimates are based on management's
judgements regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include net deferred tax assets and
premises and equipment. In addition, the income tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
For cash and due from banks, time deposits in other banks, federal funds sold
and purchased, other investments, and accrued interest receivable and payable,
the carrying amount approximates estimated fair value.
NOTE B - CASH AND DUE FROM BANKS
Banks are generally required by regulation to maintain an average cash reserve
balance based on a percentage of deposits. The average amount of the cash
reserve balances at December 31, 1997 and 1996 were approximately $169,000 and
$139,000, respectively.
-28-
<PAGE>
NOTE C - SECURITIES
The aggregate amortized cost and estimated fair values of securities, as well as
gross unrealized gains and losses of securities were as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
----------------------------------------------------- -----------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Estimated Unrealized Unrealized Estimated
Amortized Holding Holding Fair Amortized Holding Holding Fair
Cost Gains Losses Value Cost Gains Losses Value
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Available-for-sale
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 996,908 $ 1,217 $ 998,125 $ 994,240 $ 490 $ 993,750
U.S. Government
agencies 2,955,519 24,495 $ 2,078 2,977,936 2,953,752 $ 36,420 2,934 2,987,238
State, county and
municipal 4,107,940 80,380 4,188,320 4,021,149 65,508 4,086,657
Mortgage-backed
securities 7,813,552 285,496 127,514 7,971,534 7,948,829 206,754 207,661 7,947,922
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $15,873,919 $ 391,588 $ 129,592 $16,135,915 $15,917,970 $ 308,682 $ 211,085 $16,015,567
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
The amortized cost and estimated fair value of securities by contractual
maturity are shown below:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ---------- ----------- -----------
Available-for-sale
<S> <C> <C> <C> <C>
Due in one year or less $ 807,044 $ 808,473
Due after one through five years 4,958,373 4,981,242 $ 6,529,301 $ 6,556,830
Due after five through ten years 2,294,950 2,374,666 1,291,907 1,346,472
Due after ten years 147,933 164,343
----------- ----------- ----------- -----------
8,060,367 8,164,381 7,969,141 8,067,645
Mortgage-backed securities 7,813,552 7,971,534 7,948,829 7,947,922
----------- ----------- ----------- -----------
Total $15,873,919 $16,135,915 $15,917,970 $16,015,567
=========== =========== =========== ===========
</TABLE>
The fair value of U.S. Treasury and U.S. Government agencies debt securities is
estimated based on published closing quotations. The fair value of state, county
and municipal securities is generally not available from published quotations;
consequently, their fair value estimates are based on matrix pricing or quoted
market prices of similar instruments adjusted for credit quality differences
between the quoted instruments and the instruments being valued. Fair value for
mortgage-backed securities is estimated primarily using dealers' quotes. All of
the Bank's mortgage-backed securities held at December 31, 1997 and 1996 were
issued by either the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association.
The proceeds from sales of available-for-sale securities and the gross realized
gains and gross realized losses on such sales were as follows:
Years Ended December 31,
------------------------
1997 1996
---- ----
Proceeds from sales $ - $ 999,492
Gross realized gains - -
Gross realized losses - 64
-29-
<PAGE>
At December 31, 1997 and 1996, securities with a carrying amount of $1,951,053
and $1,916,415, respectively, were pledged as collateral to secure public
deposits.
At December 31, 1997 and 1996, the Bank had concentrated investments in state,
county and municipal obligations secured by or payable from the same taxing
authority or revenue source and that exceeded ten percent of total shareholders'
equity as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Clover, S.C. School District (Moody's rating AA) $ 1,276,329 $ 1,280,434 $ 1,284,300 $ 1,288,799
Fairfield County, S.C. School District
(Moody's rating AAA) 704,106 711,079 721,743 728,628
</TABLE>
Management is not aware of any special risks involving these investments.
NOTE D - OTHER INVESTMENTS
Other investments consisted of:
December 31,
------------
1997 1996
---- ----
Federal Home Loan Bank stock $ 327,400 $ 327,400
Community Financial Services, Inc. stock 50,000 50,000
---------- ----------
Total $ 377,400 $ 377,400
========== ==========
NOTE E - LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Commercial and industrial $ 5,611,469 $ 5,557,059 $ 5,916,762 $ 5,856,563
Real estate - construction 6,447,441 6,397,089 5,445,105 5,402,043
Real estate - mortgage 16,694,162 16,537,829 17,184,598 17,020,491
Consumer installment 3,163,234 3,134,512 3,037,325 3,005,158
----------- ----------- ----------- -----------
Total 31,916,306 31,626,489 31,583,790 31,284,255
Less
Allowance for loan losses (272,096) (270,393)
Deferred net loan fees (30,191) (31,859)
----------- ----------- ----------- -----------
Loans - net $31,614,019 $31,626,489 $31,281,538 $31,284,255
=========== =========== =========== ===========
</TABLE>
Fair values are estimated for loan categories with similar financial
characteristics. Within each category, the fair value of loans is calculated by
discounting estimated cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. For certain categories of loans, such as variable rate loans, credit
card receivables, and other lines of credit, the carrying amount, adjusted for
credit risk, is a reasonable estimate of fair value because there is no
contractual maturity or because the Bank has the ability to reprice the loans as
interest rate shifts occur. Since the discount rates are based on current loan
rates offered as well as management's estimates, the fair values presented may
not necessarily be indicative of the value negotiated in an actual sale.
-30-
<PAGE>
Loans which management has identified as impaired generally are nonperforming
loans. Nonperforming loans include nonaccrual loans or loans which are 90 days
or more delinquent as to principal or interest payments. Following is a summary
of activity regarding the Bank's impaired loans:
December 31,
------------
1997 1996
---- ----
Investment in impaired loans
Nonaccrual $ 70,143 $ 49,565
Accruing 90 days and over past due 6,697 -
-------- --------
Total $ 76,840 $ 49,565
======== ========
Average total investment in impaired loans during year $ 55,250 $ 38,891
Allowance for loan losses on impaired loans $ 650 $ 407
There were no outstanding commitments at December 31, 1997, to lend additional
funds to debtors owing amounts on impaired loans.
As of December 31, 1997 and 1996, there were no significant concentrations of
credit risk in any single borrower or groups of borrowers. The Bank's loan
portfolio consists primarily of extensions of credit to businesses and
individuals in its service area within York County, South Carolina. The economy
of this area is diversified and does not depend on any one industry or group of
related industries. Management has established loan policies and practices that
include set limitations on loan-to-collateral value for different types of
collateral, requirements for appraisals, obtaining and maintaining current
credit and financial information on certain borrowers, and credit approvals.
Transactions in the allowance for loan losses are summarized below:
Years Ended December 31,
------------------------
1997 1996
---- ----
Balance at January 1 $ 270,393 $ 244,924
Provision charged to expense 5,000 31,500
Recoveries 7,092 3,893
Charge-offs (10,389) (9,924)
---------- ----------
Balance at December 31 $ 272,096 $ 270,393
========== ==========
For federal income tax purposes, the Bank's bad debt deductions were $3,300 and
$6,028, respectively, on its 1997 and 1996 income tax returns. The Bank's
federal income tax allowance for loan losses at both December 31, 1997 and 1996
was $72,061 which was the maximum allowable amount.
Certain officers and directors of the Bank, their immediate families and
business interests were loan customers of, and had other transactions in the
normal course of business with the Bank. Related party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than normal risk of collectibility. The aggregate dollar amount
of these loans was $2,187,683 and $2,075,209 at December 31, 1997 and 1996,
respectively. During 1997, $917,403 of new loans were made and repayments
totaled $804,929.
-31-
<PAGE>
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
Accumulated
Depreciation
and Book
Cost Amortization Value
---- ------------ -----
December 31, 1997
Land $ 88,030 $ 88,030
Building and land improvements 563,459 $ 188,495 374,964
Furniture and equipment 930,850 634,111 296,739
----------- ----------- -----------
Total $ 1,582,339 $ 822,606 $ 759,733
=========== =========== ===========
December 31, 1996
Land $ 88,030 $ 88,030
Building and land improvements 548,605 $ 169,453 379,152
Furniture and equipment 913,632 538,733 374,899
----------- ----------- -----------
Total $ 1,550,267 $ 708,186 $ 842,081
=========== =========== ===========
Depreciation expense for the years ended December 31, 1997 and 1996 was $114,672
and $95,476, respectively.
NOTE G - DEPOSITS
A summary of deposits follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Noninterest bearing demand $ 3,890,742 $ 3,890,742 $ 3,340,686 $ 3,340,686
Interest bearing transaction accounts 12,294,040 12,294,040 11,803,860 11,803,860
Savings 2,439,481 2,439,481 2,742,984 2,742,984
Time deposits $100,000 and over 4,252,562 4,269,085 4,496,087 4,521,314
Other time deposits 19,091,547 19,098,196 19,836,112 19,872,932
----------- ----------- ----------- -----------
Total deposits $41,968,372 $41,991,544 $42,219,729 $42,281,776
=========== =========== =========== ===========
</TABLE>
The fair value of deposits with no stated maturity (noninterest bearing demand,
interest bearing transaction accounts and savings) is equal to the amount
payable on demand, or carrying amount, as of December 31, 1997 and 1996. The
fair value of time deposits is estimated based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered as of December 31, 1997 and 1996, for deposits of similar remaining
maturities.
At December 31, 1997, the scheduled maturities of time deposits are as follows:
Year Amount
---- ------
1998 $17,948,542
1999 4,767,792
2000 473,663
2001 12,230
2002 and thereafter 141,882
-32-
<PAGE>
NOTE H - FEDERAL FUNDS PURCHASED
At December 31, 1997, the Bank had unused short-term lines of credit to purchase
up to $2,250,000 in federal funds from correspondent institutions. One line for
$1,500,000 expires October 1, 1998 and the remaining $750,000 may be withdrawn
at the option of the lender.
NOTE I - LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Floating rate notes issued to the Federal Home
Loan Bank of Atlanta
<S> <C> <C> <C> <C>
6.04% note, due November 28, 2000 $ 4,000,000 $ 4,000,000
5.76% note, due November 14, 1997 $ 1,600,000 $ 1,600,000
5.81% note, due November 28, 1997 2,400,000 2,400,000
----------- ----------- ----------- -----------
Total $ 4,000,000 $ 4,000,000 $ 4,000,000 $ 4,000,000
=========== =========== =========== ===========
</TABLE>
The fair value of floating rate debt is estimated at the carrying amount because
the interest rate associated with such debt reprices immediately with changes in
the lender's program rate, and management is not aware of any significant change
in the credit risk associated with the debt.
The Bank has an additional $2,000,000 long-term debt availability from the
Federal Home Loan Bank of Atlanta that had not been drawn at December 31, 1997.
Long-term debt is secured by a lien on all of the Bank's 1-4 family residential
first lien mortgage loans with a carrying amount of approximately $8,313,000 on
December 31, 1997.
NOTE J - SHAREHOLDERS' EQUITY
Cash Dividends - South Carolina banking regulations restrict the amount of cash
dividends that can be paid to shareholders. All of the Bank's cash dividends are
subject to the prior approval of the South Carolina Commissioner of Banking.
Earnings Per Share - Earnings per common share is computed on the basis of the
average number of shares outstanding during each year, retroactively adjusted to
give effect to any stock splits and stock dividends. As required, the Bank
adopted the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share" for the year ended December 31, 1997. Because the Bank has
never had any dilutive potential common shares or dilutive stock options or
warrants, adoption of the statement had no effect on the Bank's financial
statements for any period.
Regulatory Capital - All banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
banks must meet specific capital guidelines that involve quantitative measures
of a bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. A Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
-33-
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios set forth in the table
below of Total and Tier I capital, as defined in the regulations, to risk
weighted assets, as defined, and of Tier I capital, as defined, to average
assets, as defined. Management believes, as of December 31, 1997 and 1996, that
the Bank exceeds all capital adequacy minimum requirements to which it is
subject.
As of December 31, 1997, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain
minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the Bank's category. The Bank's actual
capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
Minimum Minimum to
for Capital be Well
Actual Adequacy Capitalized
-------------- -------------- --------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
December 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk weighted assets $6,645 19.3% >$2,753 > 8.0% >$3,441 >10.0%
- - - -
Tier I capital to risk weighted assets $6,373 18.5% >$1,376 > 4.0% >$2,065 > 6.0%
- - - -
Tier I capital to average assets (leverage) $6,373 12.1% >$1,585 > 3.0% >$2,642 > 5.0%
- - - -
December 31, 1996
Total capital to risk weighted assets $6,245 19.4% >$2,572 > 8.0% >$3,215 >10.0%
- - - -
Tier I capital to risk weighted assets $5,975 18.6% >$1,286 > 4.0% >$1,929 > 6.0%
- - - -
Tier I capital to average assets (leverage) $5,975 12.0% >$1,499 > 3.0% >$2,498 > 5.0%
- - - -
</TABLE>
NOTE K - OTHER EXPENSES
Other expenses are summarized below:
Years Ended December 31,
------------------------
1997 1996
---- ----
Salaries and employee benefits $ 757,882 $ 723,810
Net occupancy expense 48,091 56,661
Furniture and equipment expense 200,247 136,095
Other expense
Stationery, supplies, printing and postage 84,725 85,474
Telephone 11,735 12,064
Advertising 9,967 9,003
Professional services 50,636 47,578
Insurance 11,858 11,513
FDIC insurance assessment 5,313 2,291
Directors' fees 31,200 28,800
Data processing and service expenses 42,985 40,524
Other 120,331 96,094
----------- -----------
Total $ 1,374,970 $ 1,249,907
=========== ===========
-34-
<PAGE>
NOTE L - INCOME TAXES
Income tax expense consisted of:
Years Ended December 31,
------------------------
1997 1996
---- ----
Current
Federal $ 361,308 $ 375,055
State 38,270 37,831
------------ ------------
Total current 399,578 412,886
Deferred 32,804 (37,446)
------------ ------------
Total income tax expense $ 432,382 $ 375,440
============ ============
Income before income taxes presented in the statement of income for the years
ended December 31, 1997 and 1996, included no foreign component. A
reconciliation between the income tax expense and the amount computed by
applying the federal statutory rate of 34% to income before income taxes
follows:
Years Ended December 31,
------------------------
1997 1996
---- ----
Tax expense at statutory rate $ 454,103 $ 401,005
State income tax, net of federal
income tax benefit 26,995 22,986
Tax-exempt interest income (61,020) (46,840)
Non-deductible interest expense to
carry tax-exempt instruments 9,762 9,031
Other, net 2,542 (10,742)
------------ ------------
Total $ 432,382 $ 375,440
============ ============
Deferred tax assets and liabilities included in the balance sheet consisted of
the following:
December 31,
------------
1997 1996
------------ ------------
Deferred tax assets
Allowance for loan losses $ 71,813 $ 71,202
Accrued interest payable 126,133 123,991
Net deferred loan fees 10,839 11,437
------------ ------------
Gross deferred tax assets 208,785 206,630
Valuation allowance - -
------------ ------------
Total 208,785 206,630
------------ ------------
Deferred tax liabilities
Accrued interest receivable 101,221 97,135
Prepaid expenses 41,724 27,590
Accelerated depreciation 18,843 2,906
Unrealized holding gains and losses on
available-for-sale securities 94,057 35,037
Other 1,293 491
------------ ------------
Total deferred tax liabilities 257,138 163,159
------------ ------------
Net deferred income tax (liabilities) assets $ (48,353) $ 43,471
============ ============
-35-
<PAGE>
A portion of the change in net deferred tax assets or liabilities related to
unrealized holding gains and losses on available-for-sale securities is charged
or credited directly to a component of shareholders' equity. The balance of the
change in net deferred tax assets or liabilities is charged or credited to
income tax expense. In 1997, $59,020 was charged to shareholders' equity and
$32,804 was charged to income tax expense. In 1996, $32,825 was credited to
shareholders' equity and $37,446 was credited to income tax expense.
Management believes that the Bank will fully realize the deferred tax assets as
of December 31, 1997 and 1996 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.
NOTE M - RETIREMENT PLAN
The Bank established the Clover Community Bank Employees' Retirement Savings
Plan ("the Plan"), in January 1993, for the exclusive benefit of all eligible
employees and their beneficiaries. Employees are eligible to participate in the
Plan after attaining age 21, completing 12 months of service, and are credited
with 1000 hours of service during the eligibility computation period. Employees
are allowed to defer their salary up to the maximum dollar amount determined by
the federal government each year. The Bank will make a matching contribution of
$.50 for each dollar contributed by the employees up to 6% of their pay, and can
elect to make discretionary contributions as well. Employees are fully vested in
both the matching and any discretionary contributions after 6 years of service.
The matching employer contributions for 1997 and 1996 were $16,681 and $14,309,
respectively.
NOTE N - COMMITMENTS AND CONTINGENCIES
Commitments to Extend Credit - In the normal course of business, the Bank is
party to financial instruments with off-balance-sheet risk. These financial
instruments include commitments to extend credit and standby letters of credit,
and have elements of credit risk in excess of the amount recognized in the
balance sheet. The exposure to credit loss in the event of nonperformance by the
other parties to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. Generally, the same credit policies used for on-balance-sheet
instruments, such as loans, are used in extending loan commitments and standby
letters of credit.
Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:
December 31,
------------
1997 1996
---- ----
Loan commitments $5,687,350 $5,075,418
Standby letters of credit 30,500 35,000
Loan commitments involve 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 some involve
payment of a fee. Many of the commitments are expected to expire without being
fully drawn; therefore, the total amount of loan commitments does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon extension of credit is based on management's credit evaluation of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.
-36-
<PAGE>
Standby letters of credit are conditional commitments to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
standby letters of credit is the same as that involved in making loan
commitments to customers.
Statement of Financial Accounting Standards No. 107 requires the disclosure of
the estimated fair values of off-balance-sheet financial instruments for which
it is practicable to estimate fair value. The estimated fair values of such
off-balance-sheet financial instruments as loan commitments and standby letters
of credit are generally based upon fees charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' creditworthiness. The vast majority of the Bank's loan
commitments do not involve the charging of a fee, and fees associated with
outstanding standby letters of credit are not material. Therefore, as of
December 31, 1997 and 1996, the difference in the estimated fair values of the
Bank's off-balance-sheet financial instruments and the notional amounts are
nominal. For loan commitments and standby letters of credit, the committed
interest rates are either variable or approximate current interest rates offered
for similar commitments. Management is not aware of any significant change in
the credit risk associated with these commitments.
Litigation - The Bank is, from time to time, involved as defendant in various
legal proceedings arising in the normal course of business. As of December 31,
1997, management and legal counsel are not aware of any pending or threatened
litigation, or unasserted claims or assessments that are expected to result in
losses, if any, that would be material to the financial statements.
Accounting Estimates - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly from
those estimates. Material estimates that are particularly susceptible to
significant change in the near-term relate to the determination of the allowance
for loan losses. In connection with the determination of the allowance for loan
losses, management has identified specific loans as well as adopting a policy of
providing amounts for loan valuation purposes which are not identified with any
specific loans and are derived from actual loss experience ratios, loan types,
loan volume, economic conditions and industry standards.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination.
-37-
<PAGE>
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
Following is summary information on the estimated fair value of financial
instruments, cross-referenced to the location in the financial statements and
notes where more detailed information can be obtained:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
of Assets of Assets of Assets of Assets
(Liabilities) (Liabilities) (Liabilities) (Liabilities)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and due from banks (Note A) $ 1,450,549 $ 1,450,549 $ 1,692,968 $ 1,692,968
Time deposits in other banks (Note A) 440,602 440,602 495,208 495,208
Securities (Note C) 16,135,915 16,135,915 16,015,567 16,015,567
Other investments (Note A) 377,400 377,400 377,400 377,400
Federal funds sold (Note A) 1,535,000 1,535,000 1,330,000 1,330,000
Loans (Note E) 31,614,019 31,626,489 31,281,538 31,284,255
Accrued interest receivable (Note A) 344,590 344,590 333,180 333,180
Deposits (Note G) (41,968,372) (41,991,544) (42,219,729) (42,281,776)
Long-term debt (Note I) (4,000,000) (4,000,000) (4,000,000) (4,000,000)
Accrued interest payable (Note A) (351,346) (351,346) (345,380) (345,380)
Loan commitments (Note N) (5,687,350) (5,075,418)
Standby letters of credit (Note N) (30,500) (35,000)
</TABLE>
NOTE P - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued its Statement of
Financial Accounting Standards No. 130, "Comprehensive Income". The provisions
of this Statement are to become effective for the Bank beginning January 1,
1998, with reclassifications included for any earlier comparative accounting
periods presented after that date. Comprehensive income consists of net income
or loss for the current period and other comprehensive income -- income,
expenses, gains and losses that bypass the statement of income and are reported
directly in a separate component of shareholders' equity. The Statement requires
the Bank to classify and report items of other comprehensive income by their
nature and report total comprehensive income in a financial statement and
display the accumulated balance of other comprehensive income separately in the
shareholders' equity section of the balance sheet.
Currently, the Bank's only other comprehensive income item is the change in
unrealized holding gains and losses on available-for-sale securities, net of
income tax effects, which is presently accounted for in the statement of changes
in shareholder's equity. Had the Statement been applied to the financial
statements for the years ended December 31, 1997 and 1996, total shareholders'
equity would remain unchanged and comprehensive income would have been computed
as follows:
Years Ended December 31,
------------------------
1997 1996
---- ----
Net income $ 903,216 $ 803,986
------------ ------------
Other comprehensive income (loss)
Change in unrealized holding gains and
losses on available-for-sale securities 164,399 (91,435)
Income tax expense (benefit) on other
comprehensive income (loss) 59,020 (32,825)
------------ ------------
Total 105,379 (58,610)
------------ ------------
Comprehensive income $ 1,008,595 $ 745,376
============ ============
-38-
<PAGE>
Board of Directors
Ruby M. Bennett......................Secretary and Treasurer, Clover Knits, Inc.
Charles R. Burrell............................Vice President and General Manager
Boyd Tire and Appliance, Inc.
James C. Harris, Jr........................President and Chief Executive Officer
Clover Community Bank
Herbert Kirsh........................Member, S.C. State House of Representatives
Owner, Treasures Unlimited
H. Marvin McCarter..............................President, Versatile Knits, Inc.
James H. Owen, Jr...........................Attorney, Haselden, Owen and Boloyan
Gwen M. Thompson..........Senior Vice President, Cashier and Corporate Secretary
Clover Community Bank
William C. Turner.........................Co-Owner, Clover Builders Supply, Inc.
-39-
<PAGE>
Officers and Employees
Brandy Bell...............................................................Teller
Amy Bradley...............................................................Teller
Jill Cameron.........................................................Bookkeeping
Carol J. Falls...................................Customer Service Representative
Frank M. Gadsden......................................Vice President, Operations
Sheila Goss....................................................Teller Supervisor
Dana Harris...............................................................Teller
James C. Harris, Jr........................President and Chief Executive Officer
Shari W. Helton..................................Customer Service Representative
Elizabeth B. Jackson.................................................Bookkeeping
Sarah B. Jackson.............................................Loan Administration
Kim A. Killian.......................................................Bookkeeping
Judy M. Lark.................................................Executive Secretary
Donna M. McSwain......................Assistant Vice President, Consumer Lending
Tonya Norris..............................................................Teller
Jeannie D. Reiss...................Assistant Vice President, Real Estate Lending
Earnest A. Robertson.....................................Vice President, Lending
Latonya M. Sanders...........................................Loan Administration
Michelle F. Sandifer.................................................Bookkeeping
Ruth E. Seay..............................................................Teller
Gwen M. Thompson..........Senior Vice President, Cashier and Corporate Secretary
-40-
<PAGE>
SCHEDULE II - LOANS TO OFFICERS, DIRECTORS, PRINCIPAL SECURITY HOLDERS, AND ANY
ASSOCIATES OF THE FOREGOING PERSONS
CLOVER COMMUNITY BANK
For the Year Ended December 31, 1997
------------------------------------
Deductions
Balance at ----------------------- Balance
Beginning Amounts Amounts at End
Name of Borrowers of Period Additions Collected Charged-off of Period
- ----------------- --------- --------- --------- ----------- ---------
Other directors and
related business
interest
(2 in total) $566,866 $ 0 $147,912 $ 0 $418,954
======== ======== ======== ========= ========
For the Year Ended December 31, 1996
------------------------------------
Deductions
Balance at ----------------------- Balance
Beginning Amounts Amounts at End
Name of Borrowers of Period Additions Collected Charged-off of Period
- ----------------- --------- --------- --------- ----------- ---------
Other directors and
related business
interest
(3 in total) $431,981 $320,227 $185,342 $ 0 $566,866
======== ======== ======== ========= ========
<PAGE>
Exhibit 6A
----------
<PAGE>
DONALD G. JONES AND COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
7812 WINNSBORO RD.
COLUMBIA, S.C. 29203
TELEPHONE
(803) 786-9963
FACSIMILE
(803) 786-9910
MEMBER MEMBER
SOUTH CAROLINA AMERICAN INSTITUTE OF
ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS
CERTIFIED PUBLIC ACCOUNTANTS DIVISION FOR CPA FIRMS
SECPS AND PCPS
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
of Clover Community Bank
We have audited the accompanying balance sheets of Clover Community Bank as
of December 31, 1997 and 1996, and the related statements of income, changes in
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. an audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Clover Community Bank as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The information contained in
Schedule II is presented for purposes of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by the rules and regulations of the Federal Deposit
Insurance Corporation. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/Donald G. Jones and Company, P.A.
Columbia, South Carolina
January 16, 1998
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1998
FDIC Certificate Number 27055-5
CLOVER COMMUNITY BANK
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
SOUTH CAROLINA 57-0840819
- --------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
124 N. MAIN STREET
CLOVER, SOUTH CAROLINA 29710
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(803) 222-7660
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock, $1.25 par value,
1,011,020 Shares Outstanding on April 30, 1998
Transitional Small Business Format (Check one): Yes [ ] No [X]
-1-
<PAGE>
CLOVER COMMUNITY BANK
FORM 10-QSB
Index Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet 3
Statement of Income 4
Statement of Comprehensive Income 5
Statement of Changes in Shareholders' Equity 6
Statement of Cash Flows 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis 9-10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities and Use of Proceeds *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote *
of Security Holders
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K *
SIGNATURES
*Item is not applicable or the answer thereto is in the negative. 11
-2-
<PAGE>
CLOVER COMMUNITY BANK
Balance Sheet
(Unaudited)
March 31, December 31,
1998 1997
------------ --------
(Dollars in thousands)
Assets
Cash and due from banks $ 1,434 $ 1,451
Interest bearing deposits in other banks 340 441
Federal funds sold 4,230 1,535
Available-for-sale securities 15,179 16,136
Other investments 377 377
Loans 31,140 31,886
Less allowance for loan losses (272) (272)
---------- ----------
Loans - net 30,868 31,614
Premises and equipment - net 780 760
Accrued interest receivable 269 344
Other assets 230 251
---------- ----------
Total assets $ 53,707 $ 52,909
========== ==========
Liabilities
Deposits
Noninterest bearing demand $ 4,674 $ 3,891
Interest bearing transaction accounts 12,223 12,294
Savings 2,624 2,439
Certificates of deposit $100M and over 3,713 4,253
Other time deposits 19,704 19,091
---------- ----------
Total deposits 42,938 41,968
Long-term debt 4,000 4,000
Accrued interest payable 383 351
Other liabilities 115 49
---------- -----------
Total liabilities 47,436 46,368
---------- -----------
Shareholders' equity
Common stock - $1.25 par value; 3,000,000 shares
authorized; 1,011,020 shares issued
and outstanding 1,264 1,264
Capital surplus 2,070 2,070
Undivided profits 2,770 3,039
Accumulated other comprehensive income 167 168
---------- -----------
Total shareholders' equity 6,271 6,541
---------- -----------
Total liabilities and
shareholders' equity $ 53,707 $ 52,909
========== ===========
See notes to financial statements.
-3-
<PAGE>
CLOVER COMMUNITY BANK
Statement of Income
(Unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
(Dollars in thousands, except per share)
Interest income
Loans, including fees $ 792 $ 758
Interest bearing deposits in other banks 5 7
Securities
Taxable 193 191
Tax-exempt 43 44
Federal funds sold 22 21
Other investments 9 8
---------- ----------
Total interest income 1,064 1,029
---------- ----------
Interest expense
Time deposits $100,000 and over 47 53
Other deposits 338 352
Federal funds purchased 2
Long-term debt 59 56
---------- ----------
Total interest expense 446 461
---------- ----------
Net interest income 618 568
Provision for loan losses - -
---------- ----------
Net interest income after provision 618 568
---------- ----------
Other income
Service charges on deposit accounts 84 67
Credit life insurance commissions - 6
Other service charges, commissions and fees 8 7
---------- ----------
Total other income 92 80
---------- ----------
Other expenses
Salaries and employee benefits 186 175
Net occupancy expense 25 12
Furniture and equipment expense 54 43
Other expense 102 86
---------- ----------
Total other expenses 367 316
---------- ----------
Income before income taxes 343 332
Income tax expense 106 103
---------- ----------
Net income $ 237 $ 229
========== ==========
Per share
Average shares outstanding 1,011,020 1,011,020
Net income $ .23 $ .23
Cash dividends declared .50 .50
See notes to financial statements.
-4-
<PAGE>
CLOVER COMMUNITY BANK
Statement of Comprehensive Income
(Unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
(Dollars in thousands)
Net income $ 237 $ 229
---------- ----------
Other comprehensive income (loss)
Change in unrealized holding gains and
losses on available-for-sale securities (1) 23
Income tax expense (benefit) on other
comprehensive income - 8
---------- ----------
Total other comprehensive income (loss) (1) 15
---------- ----------
Comprehensive income $ 236 $ 244
========== ==========
See notes to financial statements.
-5-
<PAGE>
CLOVER COMMUNITY BANK
Statement of Changes in Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Accumulated
Number Other Com-
of Capital Undivided prehensive
Shares Amount Surplus Profits Income Total
------ ------ ------- ------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 1,011,020 $ 1,264 $ 2,070 $ 2,641 $ 62 $ 6,037
Net income for period 229 229
Cash dividends declared -
$.50 per share (506) (506)
Unrealized net holding gains on
available-for-sale securities,
net of taxes 15 15
---------- ---------- ---------- ---------- ---------- ----------
Balance March 31, 1997 1,011,020 $ 1,264 $ 2,070 $ 2,364 $ 77 $ 5,775
========== ========== ========== ========== ========== ==========
Balance January 1, 1998 1,011,020 $ 1,264 $ 2,070 $ 3,039 $ 168 $ 6,541
Net income for period 237 237
Cash dividends declared -
$.50 per share (506) (506)
Unrealized net holding losses on
available-for-sale securities,
net of taxes (1) (1)
---------- ---------- ---------- ---------- ---------- ----------
Balance March 31, 1998 1,011,020 $ 1,264 $ 2,070 $ 2,770 $ 167 $ 6,271
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
-6-
<PAGE>
CLOVER COMMUNITY BANK
Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
(Dollars in thousands)
Operating activities
Net income $ 237 $ 229
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 33 28
Securities accretion and premium amortization 5 5
Decrease in interest receivable 75 57
Increase in interest payable 32 57
Decrease (increase) in prepaid expenses
and other receivables 21 (77)
Decrease in other accrued expenses 66 96
---------- ----------
Net cash provided by
operating activities 469 395
---------- ----------
Investing activities
Maturities of available-for-sale securities 951 43
Net decrease in loans made to customers 746 884
Purchases of premises and equipment (53) -
---------- ---------
Net cash provided by
investing activities 1,644 927
---------- ---------
Financing activities
Net increase in demand deposits,
interest bearing transaction accounts
and savings accounts 897 621
Net increase in certificates of
deposit and other time deposits 73 246
Cash dividends paid (506) (506)
---------- ---------
Net cash provided by
financing activities 464 361
---------- ---------
Increase in cash and cash equivalents 2,577 1,683
Cash and cash equivalents, beginning 3,132 3,023
---------- ---------
Cash and cash equivalents, ending $ 5,709 $ 4,706
========== =========
See notes to financial statements.
-7-
<PAGE>
CLOVER COMMUNITY BANK
Notes to Financial Statements
Accounting Policies - A summary of significant accounting policies is included
in Form 10-KSB Annual Report, for the year ended December 31, 1997.
Management Opinion - In the opinion of management, the accompanying unaudited
financial statements of Clover Community Bank reflect all adjustments which are
necessary for a fair presentation of the results of the periods presented. Such
adjustments are of a normal recurring nature.
Nonperforming Loans - As of March 31, 1998, nonaccrual loans totaled $3,000 and
there were $19,000 in loans 90 days or more past due as to principal or interest
payments and still accruing interest income.
Statement of Cash Flows - Interest paid on deposits and other borrowings
amounted to $414,000 and $404,000 for the three months ended March 31, 1998 and
1997, respectively. Income tax payments of $12,000 were made during the first
three months of 1998, and income tax payments of $11,000 were made during the
first three months of 1997. Non-cash investment security valuation adjustments
totaling $1,000 were made in the first quarter of 1998 decreasing
available-for-sale securities, with a related shareholders' equity account
decreasing a total of $1,000. During the same period for 1997, such adjustments
increased available-for-sale securities by $23,000, increased net deferred
income taxes $8,000, and increased the related shareholders' equity account by
$15,000.
Earnings Per Share - Earnings per common share is computed on the basis of the
average number of shares outstanding during each year, retroactively adjusted to
give effect to any stock splits and stock dividends. As required, the Bank
adopted the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share" for the year ended December 31, 1997. Because the Bank has
never had any dilutive potential common shares or dilutive stock options or
warrants, adoption of the statement had no effect on the Bank's financial
statements for any period.
-8-
<PAGE>
CLOVER COMMUNITY BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Clover Community Bank (the "Bank") recorded net income of $237,000 or
$.23 per share for the first quarter of 1998. These results compare favorably
with net income of $229,000 or $.23 per share for the first quarter of 1997.
Return on average assets was 1.82% and 1.78% for the 1998 and 1997 periods,
respectively, and return on average shareholders' equity was 15.01% and 15.87%
for the same periods.
The principal source of the Bank's increase in net income for the first
quarter of 1998 was an increase in net interest income. Net interest income for
1998 was $618,000, representing an increase of $50,000 or 8.8% over the same
quarter of 1997. This increase resulted primarily from improved interest rate
spreads and net yields on earning assets. These rate differential improvements
were enhanced further by a slight increase in average earning assets and a
slight decrease in average interest bearing liabilities. The interest rate
spread for the 1998 period was 4.53% or 37 basis points greater than for the
same period of 1997. The net yield on earning assets was 5.23% or 40 basis
points greater than for the 1997 period. Average earning assets for the 1998
period were $212,000 or .4% greater than for the 1997 period and 1998 average
interest bearing liabilities were $427,000 or 1.0% less than for the 1997
period.
Provision and Allowance for Loan Losses
No provision for loan losses was made during the first quarter of
either 1998 or 1997. At March 31, 1998, the allowance for loan losses stood at
.87% of loans, compared with .85% at December 31, 1997. Net charge-offs totaled
$1,000 for the first quarter of 1998, compared with net recoveries of $1,000 for
the first three months of 1997. As of March 31, 1998, there were $19,000 in real
estate loans 90 days past due still accruing interest income, and nonaccrual
loans totaled $3,000, with all of this amount being comprised of consumer
installment loans.
Management maintains the allowance at a level deemed sufficient to
absorb all estimated future risk of loss inherent in the loan portfolio.
Noninterest Income
Noninterest income was $92,000 for the first quarter of 1998, compared
with $80,000 for 1997. Service charges on deposit accounts increased by $17,000
due to increased levels of chargeable activity, and credit life insurance
commissions decreased by $6,000 primarily because of early payouts of loans
requiring rebates of such commission income.
Noninterest Expenses
Noninterest expenses increased by $51,000 or 16.1% for the first
quarter of 1998 compared with the first quarter of 1997. Salaries and employee
benefits increased $11,000 or 6.3% and occupancy and furniture and equipment
expenses increased by $24,000 or 43.6% due to increased depreciation, service
agreements and other costs associated with computer equipment. Other expenses
increased by $16,000 or 18.6%. No particular category of expense was responsible
for this increase; rather, it was the result of small increases in several
categories. Management continuously monitors the growth in noninterest expenses
in order that such growth in overhead remains commensurate with the Bank's
growth.
-9-
<PAGE>
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Clover Community Bank manages both assets and liabilities to
achieve appropriate levels of liquidity. Cash and short-term investments are the
Bank's primary source of asset liquidity. These funds provide a cushion against
short-term fluctuations in cash flow from both deposits and loans. Securities,
particularly the available-for-sale category, are the Bank's principal source of
secondary asset liquidity. However, the availability of this source of funds is
influenced by market conditions. Individual and commercial deposits are the
Bank's primary source of funds for credit activities. The Bank's ratio of loans
to total deposits at March 31, 1998 was 72.5%. Management believes that the
Bank's liquidity sources are adequate to meet its operating needs.
Capital Resources
The capital base for the Bank decreased by $270,000 since December 31, 1997
as the result of the $237,000 net income for the three months ended March 31,
1998, less a $1,000 decrease in unrealized net holding gains on
available-for-sale securities, less $506,000 for cash dividends paid to
shareholders.
The Bank is subject to regulatory risk-based capital adequacy standards.
Under these standards, banks are required to maintain certain minimum ratios of
capital to risk-weighted assets and average total assets. Under the provisions
of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),
federal bank regulatory authorities are required to implement prescribed "prompt
corrective actions" upon the deterioration of the capital position of a bank. If
the capital position of an affected institution were to fall below certain
levels, increasingly stringent regulatory corrective actions are mandated.
The Bank's March 31, 1998 risk-based capital ratios are presented in
the following table, compared with the minimum ratios under the FDIC regulatory
definitions and guidelines:
Minimum
The Require-
Bank ments
---- -----
Tier 1 (core capital) 18.0% 4.0%
Total capital (tier 1 plus tier
2 or supplementary capital) 18.8% 8.0%
Leverage 11.6% 3.0%
-10-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CLOVER COMMUNITY BANK
May 8, 1998 /s/James C. Harris, Jr.
- --------------------------- -----------------------------------------
Date James C. Harris, Jr., President and Chief
Executive Officer
May 8, 1998 /s/Gwen M. Thompson
- --------------------------- -----------------------------------------
Date Gwen M. Thompson, Senior Vice President,
Cashier, and Secretary (Principal
accounting officer)
-11-
