SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2000 Commission File No. 000-24749
CLOVER COMMUNITY BANKSHARES, INC.
-------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
South Carolina 58-2381062
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
124 NORTH MAIN STREET
CLOVER, SOUTH CAROLINA 29710
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(Address of principal executive offices)
(803) 222-7660
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(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, $.01 par
value, 1,018,353 shares Outstanding on October 31, 2000.
Transitional Small Business Format (Check one): Yes [ ] No [X]
<PAGE>
CLOVER COMMUNITY BANKSHARES, INC.
FORM 10-QSB
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet ............................. 3
Consolidated Statement of Income ....................... 4
Consolidated Statement of Changes
in Shareholders' Equity .......................... 5
Consolidated Statement of Cash Flows ................... 6
Notes to Unaudited Consolidated
Financial Statements ............................. 7-8
Item 2. Management's Discussion and Analysis ................... 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................... 11
SIGNATURES ............................................................ 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CLOVER COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
----- ----
(Dollars in thousands)
Assets
<S> <C> <C>
Cash and due from banks ............................................................. $ 1,864 $ 1,198
Interest bearing deposits in other banks ............................................ 51 35
Federal funds sold .................................................................. 2,010 2,440
Securities available-for-sale ....................................................... 17,736 17,554
Other investments ................................................................... 250 250
Loans ............................................................................... 29,175 29,519
Allowance for loan losses ....................................................... (250) (259)
-------- --------
Loans - net .................................................................. 28,925 29,260
Premises and equipment - net ........................................................ 836 874
Accrued interest receivable ......................................................... 317 361
Other assets ........................................................................ 351 368
-------- --------
Total assets ................................................................. $ 52,340 $ 52,340
======== ========
Liabilities
Deposits
Noninterest bearing demand ...................................................... $ 4,229 $ 3,084
Interest bearing transaction accounts ........................................... 12,979 12,889
Savings ......................................................................... 2,531 2,360
Certificates of deposit $100M and over .......................................... 4,234 4,095
Other time deposits ............................................................. 16,627 18,430
-------- --------
Total deposits ............................................................... 40,600 40,858
Long-term debt ...................................................................... 4,000 4,000
Accrued interest payable ............................................................ 356 319
Other liabilities ................................................................... 6 1
-------- --------
Total liabilities ............................................................ 44,962 45,178
-------- --------
Shareholders' equity
Common stock - $.01 par value, 10,000,000 shares authorized,
1,018,355 shares issued and outstanding for 2000 and
1,014,096 shares issued and outstanding for 1999 ................................ 10 10
Capital surplus ..................................................................... 3,512 3,390
Retained earnings ................................................................... 3,968 3,877
Accumulated other comprehensive income .............................................. (112) (115)
-------- --------
Total shareholders' equity ................................................... 7,378 7,162
-------- --------
Total liabilities and shareholders' equity ................................... $ 52,340 $ 52,340
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
CLOVER COMMUNITY BANKSHARES, INC.
Consolidated Statement of Income
<TABLE>
<CAPTION>
(Unaudited)
Period Ended September 30,
--------------------------
Three Months Nine Months
------------ -----------
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in thousands, except per share)
Interest income
<S> <C> <C> <C> <C>
Loans, including fees ............................. $ 743 $ 721 $ 2,231 $ 2,141
Time deposits in other banks ...................... 1 3 3 17
Securities
Taxable ...................................... 233 195 680 585
Tax-exempt ................................... 48 42 142 132
Federal funds sold ................................ 47 110 132 282
Other investments ................................. 5 4 14 20
---------- ---------- ---------- ----------
Total interest income ......................... 1,077 1,075 3,202 3,177
---------- ---------- ---------- ----------
Interest expense
Time deposits $100M and over ...................... 51 53 137 157
Other deposits .................................... 286 295 841 918
Federal funds purchased ........................... - - 1 -
Long-term debt .................................... 68 54 195 157
---------- ---------- ---------- ----------
Total interest expense ........................ 405 402 1,174 1,232
---------- ---------- ---------- ----------
Net interest income .................................... 672 673 2,028 1,945
Provision for loan losses .............................. 23 - 24 -
---------- ---------- ---------- ----------
Net interest income after provision .................... 649 673 2,004 1,945
---------- ---------- ---------- ----------
Other income
Service charges on deposit accounts ............... 99 102 305 292
Credit life insurance commissions ................. 5 5 15 13
Other income ...................................... 12 16 46 45
---------- ---------- ---------- ----------
Total other income ............................ 116 123 366 350
---------- ---------- ---------- ----------
Other expenses
Salaries and employee benefits .................... 213 198 648 598
Net occupancy expense ............................. 15 17 48 48
Furniture and equipment expense ................... 57 55 169 157
Other expense ..................................... 108 109 339 321
---------- ---------- ---------- ----------
Total other expenses .......................... 393 379 1,204 1,124
---------- ---------- ---------- ----------
Income before income taxes ............................. 372 417 1,166 1,171
Income tax expense ..................................... 127 115 365 346
---------- ---------- ---------- ----------
Net income ............................................. $ 245 $ 302 $ 801 $ 825
========== ========== ========== ==========
Per share
Average shares outstanding ........................ 1,018,379 1,015,400 1,018,029 1,014,501
Net income ........................................ $ 0.24 $ 0.29 $ 0.79 $ 0.81
Cash dividends declared ........................... - - 0.70 0.60
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
CLOVER COMMUNITY BANKSHARES, INC.
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
(Unaudited)
Common Stock
-------------- Accumulated
Number of Capital Retained Other Comprehensive
Shares Amount Surplus Earnings Income Total
------ ------ ------- -------- ------ -----
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 .................. 1,011,020 $ 10 $ 3,324 $ 3,464 $ 124 $ 6,922
----------
Comprehensive income:
Net income ............................ - - - 825 - 825
Change in unrealized holding
gains and losses on
available-for-sale
securities, net of income taxes ..... - - - - (205) (205)
----------
Total comprehensive income ...... 620
----------
Sales of common stock under
dividend reinvestment plan,
net of costs to establish plan ........ 4,778 - 118 - - 118
Repurchase and cancellation of
common stock .......................... (571) - (19) - - (19)
Cash dividends declared -
$.60 per share ........................ - - - (607) - (607)
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1999 ............... 1,015,227 $ 10 $ 3,423 $ 3,682 $ (81) $ 7,034
========== ========== ========== ========== ========== ==========
Balance, January 1, 2000 .................. 1,014,096 $ 10 $ 3,390 $ 3,877 $ (115) $ 7,162
Comprehensive income:
Net income ............................ - - - 801 - 801
Change in unrealized holding
gains and losses on
available-for-sale
securities, net of income taxes ..... - - - - 3 3
----------
Total comprehensive income ...... 804
----------
Sales of common stock under
dividend reinvestment plan ............ 6,118 - 174 - - 174
Repurchase and cancellation of
common stock .......................... (1,859) - (52) - - (52)
Cash dividends declared -
$.70 per share ........................ - - - (710) - (710)
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 2000 ............... 1,018,355 $ 10 $ 3,512 $ 3,968 $ (112) $ 7,378
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
CLOVER COMMUNITY BANKSHARES, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
(Dollars in thousands)
Operating Activities
<S> <C> <C>
Net income ............................................................................ $ 801 $ 825
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses ...................................................... 24 -
Depreciation ................................................................... 94 87
Securities accretion and premium amortization .................................. 3 (29)
Amortization of net loan fees and costs ........................................ (23) (38)
Decrease in interest receivable ................................................ 44 57
Increase (decrease) in interest payable ........................................ 37 (13)
Decrease (increase) in prepaid expenses and other assets ....................... 3 (14)
Increase in other accrued expenses ............................................. 5 1
------- -------
Net cash provided by operating activities .................................. 988 876
------- -------
Investing activities
Maturities of interest bearing deposits in other banks ................................ - 196
Purchases of available-for-sale securities ............................................ (1,527) (7,050)
Maturities of available-for-sale securities ........................................... 1,348 5,816
Proceeds of sales of other investments ................................................ - 127
Net decrease in loans made to customers ............................................... 296 826
Purchases of premises and equipment ................................................... (56) (54)
Proceeds from sales of repossessions .................................................. 49 -
------- -------
Net cash provided (used) by investing activities ........................... 110 (139)
------- -------
Financing activities
Net increase (decrease) in demand deposits, interest
bearing transaction accounts and savings accounts ................................. 1,406 (88)
Net decrease in certificates of deposit and other
time deposits ..................................................................... (1,664) (1,834)
Cash dividends paid ................................................................... (710) (607)
Common stock sold under dividend reinvestment plan (1999 amount
is net of $14 to establish plan) .................................................. 174 118
Common stock repurchased and cancelled ................................................ (52) (19)
------- -------
Net cash used by financing activities ...................................... (846) (2,430)
------- -------
Increase (decrease) in cash and cash equivalents ........................................... 252 (1,693)
Cash and cash equivalents, beginning ....................................................... 3,673 9,823
------- -------
Cash and cash equivalents, ending .......................................................... $ 3,925 $ 8,130
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
CLOVER COMMUNITY BANKSHARES, INC.
Notes to Unaudited Consolidated Financial Statements
Organization - Clover Community Bankshares, Inc. (the "Company"), a bank holding
company, and its wholly-owned subsidiary, Clover Community Bank, are engaged in
providing domestic banking services from their headquarters office in Clover,
South Carolina. The Company is a South Carolina corporation and its banking
subsidiary is a state chartered commercial bank with its deposits insured by the
Federal Deposit Insurance Corporation ("FDIC"). Therefore, the Company and its
subsidiary operate under the supervision, rules and regulations of the Board of
Governors of the Federal Reserve System, the FDIC and the South Carolina State
Board of Financial Institutions. The holding company was incorporated on March
4, 1998, pursuant to a plan of reorganization. Clover Community Bank was
organized in September, 1986, and received its charter and commenced operations
on October 1, 1987.
Accounting Policies - A summary of significant accounting policies is included
in the Company's Annual Report for the year ended December 31, 1999 on Form
10-KSB filed with the Securities and Exchange Commission.
Management Opinion - In the opinion of management, the accompanying unaudited
consolidated financial statements of Clover Community Bankshares, Inc. reflect
all adjustments necessary for a fair presentation of the results of the periods
presented. Such adjustments were of a normal, recurring nature.
Comprehensive Income - The components of other comprehensive income or loss and
related tax effects are as follows:
<TABLE>
<CAPTION>
(Unaudited)
Period Ended September 30,
--------------------------
Three Months Nine Months
------------ -----------
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income ....................................................... $ 245 $ 302 $ 801 $ 825
----- ----- ----- -----
Other comprehensive income (loss)
Change in unrealized holding gains and
losses on available-for-sale securities ................. 82 (33) 6 (319)
Income tax expense (benefit) on other
comprehensive income (loss) ............................. 32 (4) 3 (114)
----- ----- ----- -----
Total other comprehensive
income (loss) ...................................... 50 (29) 3 (205)
----- ----- ----- -----
Comprehensive income ............................................. $ 295 $ 273 $ 804 $ 620
===== ===== ===== =====
</TABLE>
Statement of Cash Flows - Interest paid on deposits and other borrowings
amounted to $1,137,000 for the nine months ended September 30, 2000, and was
$1,245,000 for the nine months ended September 30, 1999. Income tax payments of
$438,000 were made during the first nine months of 2000, and income tax payments
of $316,000 were made in the 1999 period. Non-cash investment security valuation
adjustments increased available-for-sale securities by $6,000 during the 2000
period, a related shareholders' equity account increased by $3,000 and the
associated deferred income taxes changed by $3,000. During the 1999 period,
non-cash valuation adjustments decreased available-for-sale securities by
$319,000, decreased shareholders' equity by $205,000, and deferred income taxes
changed by $114,000. In 2000, non-cash transfers of $38,000 were made from loans
to other assets for the repossession of loan collateral.
Nonperforming Loans - As of September 30, 2000, there were $19,000 in nonaccrual
loans and $4,000 in loans 90 days or more past due and still accruing interest
income.
7
<PAGE>
Earnings Per Share - Earnings per common share is computed on the basis of the
weighted average number of shares outstanding during each period, retroactively
adjusted to give effect to any stock splits and stock dividends. The Company has
never had any dilutive potential common shares or dilutive stock options or
warrants.
Item 2. - Management's Discussion and Analysis
This discussion is intended to assist in understanding the consolidated
financial condition and results of operations of Clover Community Bankshares,
Inc. (the "Company") and its wholly-owned subsidiary, Clover Community Bank. The
information should be reviewed in conjunction with the unaudited consolidated
financial statements and the related notes contained elsewhere in this report.
Forward Looking Statements
Statements included in Management's Discussion and Analysis 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 Company cautions
readers that forward looking statements, including without limitation, those
relating to the Company'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 Company's reports filed with the Securities and
Exchange Commission.
Results of Operations
The Company recorded consolidated net income of $245,000 or $.24 per
share for the third quarter of 2000. These results are $57,000, or $.05 per
share, less than net income of $302,000 or $.29 per share for the third quarter
of 1999. For the first nine months of 2000, the Company recorded consolidated
net income of $801,000 or $.79 per share, compared with $825,000 or $.81 per
share in the same 1999 period.
Net Interest Income
Net interest income is the amount of interest income earned on interest
earning assets (loans, securities, interest bearing 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 Company'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 that would have to be earned on taxable investments to
produce the same after-tax yields, assuming a 34% Federal income tax rate. This
adjusted amount is referred to as fully taxable equivalent ("FTE") interest
income.
For the first nine months of 2000, FTE net interest income was
$2,101,000, an increase of $88,000 or 4.4% over the first nine months of 1999.
The increase in FTE net interest income was achieved primarily by increasing the
average rates earned on interest earning assets and reducing the average amounts
of interest bearing liabilities outstanding during the 2000 period. Although the
average amounts of interest earning assets held in the 2000 nine-month period
decreased by $3,854,000 when compared with 1999, the Company increased the
amount of its FTE interest income by $30,000 because the average yield on those
assets increased by 70 basis points. Average interest bearing liabilities in the
2000 nine-month period were $3,796,000 less than during the same period of 1999.
In addition, interest rates paid on those liabilities increased by only 14 basis
points to 3.75% for the 2000 nine month period. As a result, interest expense
for the 2000 nine month period was $58,000 less than in 1999.
8
<PAGE>
The average interest rate spread (average yield on interest earning
assets less the average rate paid on interest bearing liabilities) for the first
nine months of 2000 was 4.99%, an increase of 56 basis points over the 4.43%
realized for the same period of 1999. Net yield on earning assets (net interest
income divided by average interest earning assets) was 5.60% for the first nine
months of 2000, an increase of 61 basis points over the 4.99% for the first nine
months of 1999.
The decreases in interest earning assets and interest bearing
liabilities resulted from the Company's strategy of maintaining its deposit
market share in its local service area in York County of South Carolina at a
level commensurate with the demand for good quality loans. Management expects to
continue to utilize such strategies during the remainder of 2000. Increases in
yields earned and rates paid resulted from increases in market rates of interest
initiated by the Federal Reserve Bank in the second quarter of 1999 and
continuing through the present, and other competitive pressures.
Provision and Allowance for Loan Losses
The Company recorded provisions for losses of $24,000 for the first
nine months of 2000 and no provisions for loan losses during the first nine
months of 1999. At September 30, 2000, the allowance for loan losses was .86% of
loans, compared with .88% of loans at December 31, 1999. During the 2000 nine
month period, net charge-offs totaled $33,000, compared with net charge-offs of
$5,000 during the same period of 1999. As of September 30, 2000, there were
$19,000 of nonaccrual loans and $4,000 of loans over 90 days past due and still
accruing interest. There were no nonaccrual loans at September 30, 1999 and
there were no loans 90 days or more past due and still accruing interest.
Management believes that the allowance for loan losses is adequate to
absorb all estimated future risk of loss inherent in the loan portfolio as of
September 30, 2000.
Noninterest Income
Noninterest income totaled $366,000 for the first nine months of 2000,
compared with $350,000 for the same 1999 period. The higher noninterest income
in 2000 was attributable primarily to an increase of $13,000 in service charges
on deposit accounts. There were no realized securities gains or losses in either
the 2000 or 1999 periods.
Noninterest income totaled $116,000 for the three months ended
September 30, 2000 compared with $123,000 for the third quarter of 1999. Service
charges on deposit accounts were $3,000 less in the 2000 quarter than in 1999.
Noninterest Expenses
Noninterest expenses totaled $1,204,000 for the first nine months of
2000, compared with $1,124,000 for 1999. Salaries and employee benefits
increased by $50,000, or 8.4%, to $648,000 for the 2000 period due to costs of
additional personnel, officer promotions, increases in insurance benefits costs
and normal salary increases, which are granted from time to time. Furniture and
equipment expenses for 2000 increased by $12,000 compared with 1999 due to
higher depreciation and equipment maintenance expenses. Other expenses for the
2000 period were $18,000 more than in 1999 primarily due to higher fees
associated with processing the Bank's ATM and debit card products and costs
incurred in connection with the Company's discontinued evaluation of a potential
business acquisition.
Noninterest expenses for the third quarter of 2000 were $14,000 greater
than for the same period of 1999. Salaries and employee benefits increased by
$15,000 and other expenses decreased by $1,000. Management expects that
noninterest expenses for the remainder of 2000 will continue to trend somewhat
above the level of the prior year.
9
<PAGE>
Liquidity
Liquidity is the ability to meet current and future obligations through
the liquidation or maturity of existing assets or the acquisition of additional
liabilities. The Company manages both assets and liabilities to achieve
appropriate levels of liquidity. Cash and short-term investments are the
Company's primary sources of asset liquidity. These funds provide a cushion
against short-term fluctuations in cash flow from both deposits and loans.
Securities available-for-sale are the Company's principal source of secondary
asset liquidity. However, the availability of this source is influenced by
market conditions. Individual and commercial deposits are the Company's primary
source of funds for credit activities.
As of September 30, 2000, the ratio of loans to total deposits was
71.9%, compared with 72.2% as of December 31, 1999 and 64.8% as of September 30,
1999. Deposits as of September 30, 2000 were $258,000 or .6% less than at
December 31, 1999 and $3,084,000 or 7.1% less than their level of September 30,
1999.
Management believes that the Company's liquidity sources are adequate
to meet its operating needs.
Capital Resources
The Company's equity capital increased by $216,000 since December 31,
1999 as the result of net income of $801,000 for the first nine months of 2000,
less cash dividends declared totaling $710,000, plus $174,000 in net proceeds
added from the sale of 6,118 shares of stock under the Company's dividend
reinvestment plan, less $52,000 paid to non-profit organizations to reacquire
and cancel 1,859 shares of the Company's outstanding common stock, plus a $3,000
change in unrealized holding gains and losses on available-for-sale securities,
net of deferred tax effects. The Company historically pays an annual dividend in
the first quarter of each year. However, the amount, if any, and frequency of
dividend payments is subject to the discretion of the Board of Directors and
regulatory limitations.
The Company and its banking subsidiary (the "Bank") are subject to
regulatory risk-based capital adequacy standards. Under these standards, bank
holding companies and 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 September 30, 2000 risk based and average total asset capital
ratios for the Company and the Bank are presented in the following table,
compared with the "well capitalized" and minimum ratios under the regulatory
definitions and guidelines:
Total
Tier 1 Capital Leverage
------ ------- --------
Clover Community Bankshares, Inc. ........... 23.2% 24.0% 14.3%
Clover Community Bank ....................... 21.3% 22.0% 13.1%
Minimum "well-capitalized" requirement ...... 6.0% 10.0% 5.0%
Minimum requirement ......................... 4.0% 8.0% 3.0%
10
<PAGE>
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No.
from Item 601 of
Regulation S-B Description
--------------- ----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K. None.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CLOVER COMMUNITY BANKSHARES, INC.
November 10, 2000 /s/ James C. Harris, Jr.
---------------------------- ------------------------------------
Date James C. Harris, Jr., President and
Chief Executive Officer
November 10, 2000 /s/ Gwen M. Thompson
---------------------------- ------------------------------------
Date Gwen M. Thompson, Senior Vice
President, Cashier, and Secretary
(Principal accounting officer)
12
<PAGE>
Exhibit Index
Exhibits
Exhibit No.
from Item 601 of
Regulation S-B Description
--------------- ----------------------
27 Financial Data Schedule
13
