FORM 10-QSB FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C

Transcription

1 FORM 10-QSB FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF For the quarterly period ended March 31, ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF For the transition period from to. OR Clarion County Community Bank (Exact name of small business issuer as specified in its charter) Pennsylvania (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 333 Main Street Clarion, PA (Address of Principal Executive Offices) (Zip Code) (814) (Issuer s telephone number, including area code) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X Indicate the number of shares outstanding of each of the issuer s classes of common stock, as of the latest practicable date: Class Number of Shares Outstanding as of May 1, 2007 Common Stock, $1.00 par value 1,343,665 Transitional Small Business Disclosure Format (check one): Yes No X

2 INDEX TO FORM 10-QSB PART I. Item 1 FINANCIAL INFORMATION Financial Statements PAGE Statements of Financial Condition March 31, 2007 (Unaudited) and December 31, 2006 (Audited) 3 Statements of Loss (Unaudited) Three Months Ended March 31, 2007 and Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2007 and Notes to Financial Statements 6-7 Item 2 Management s Discussion and Analysis of Financial Condition and Results of Operations 8-15 Item 3 Controls and Procedures 16 PART II. OTHER INFORMATION Item 1 Legal Proceedings 17 Item 2 Unregistered Sales of Equity Securities 17 Item 5 Other Information 17 Item 6 Exhibits 18 SIGNATURES 19

3 PART 1 FINANCIAL INFORMATION CLARION COUNTY COMMUNITY BANK BALANCE SHEETS MARCH 31, 2007 AND DECEMBER 31, 2006 Assets March 31, 2007 December 31, 2006 (Unaudited) (Audited) Cash and due from banks $ 435,467 $ 510,786 Interest-bearing deposits in banks 3,707,779 3,048,896 Federal funds sold 2,000,000 - Certificates of deposit 991, ,000 Securities available for sale 1,489, ,257 Securities held to maturity 1,003,407 2,006,262 Federal Home Loan Bank stock, at cost 131, ,300 Loans 47,029,350 44,159,626 Less: Allowance for loan losses (356,625) (335,278) Net loans 46,672,725 43,824,348 Bank premises and equipment 1,620,746 1,654,507 Deferred taxes 204, ,055 Other assets 280, ,600 Total Assets $ 58,537,898 $ 53,103,011 Liabilities Non-interest bearing demand deposits $ 6,221,054 $ 5,938,315 Interest bearing deposits 44,356,676 39,160,052 Total Deposits 50,577,730 45,098,367 Accrued interest and other liabilities 223, ,478 Stockholder's Equity Total Liabilities $ 50,801,107 $ 45,397,845 Common Stock ($1 Par Value) Authorized 10,000,000 shares, Outstanding: 1,343,665 shares March 31, 2007 and 1,343,106 shares December 31, 2006 $ 1,343,665 $ 1,343,106 Surplus 9,970,887 9,965,696 Retained earnings (3,578,009) (3,603,448) Accumulated other comprehensive income 248 (188) Total Stockholder's Equity $ 7,736,791 $ 7,705,166 Total Liabilities & Stockholder s Equity $ 58,537,898 $ 53,103,011 The accompanying notes are an integral part of these statements. Page 3

4 CLARION COUNTY COMMUNITY BANK STATEMENTS OF INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 Three Months Ended March 31, (Unaudited) (Unaudited) Interest Income Loans, including fees $ 806,177 $ 504,708 Investment securities 21,373 25,295 Interest-bearing deposits 57,003 22,855 Federal funds sold 13,859 21,972 Total interest income 898, ,830 Interest Expense Deposits 429, ,978 FHLB borrowings - - Total interest expense 429, ,978 Net Interest Income 468, ,852 Provision for Loan Losses 21,000 15,000 Net Interest Income after Provision for Loan Losses 447, ,852 Other Income Service fees 22,510 16,002 Other 9,397 6,715 Total other income 31,907 22,717 Other Expenses Salaries 184, ,537 Employee benefits and taxes 51,479 49,163 Occupancy expense 51,041 48,105 Data processing 83,770 70,155 PA shares tax 18,000 21,000 Other 64,652 61,348 Total other expenses 453, ,308 Income (Loss) Before Income Tax Benefit 25,752 (32,739) Provision (Benefit) for Income Taxes 313 (4,092) Net Income (Loss) $ 25,439 $ (28,647) Basic/Diluted Earnings per Share $ 0.02 $ (0.02) The accompanying notes are an integral part of these statements. Page 4

5 CLARION COUNTY COMMUNITY BANK STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 Three Months Ended March 31, CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 25,439 $ (28,647) Adjustments to reconcile net cash from operating activities: Depreciation and amortization 34,712 35,393 Net amortization / accretion of premiums and discounts (631) 2,654 Provision for loan losses 21,000 15,000 Net (gain) loss on disposal of premises and equipment - (269) Deferred taxes 313 (4,091) Increase (decrease) in cash due to changes in assets and liabilities: Other assets (8,475) 5,494 Accrued interest and other liabilities (76,229) (75,479) Net Cash Used By Operating Activities (3,871) (49,945) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of held to maturity securities 1,000,000 1,000,000 Purchases of available for sale securities (992,122) - Purchases of certificates of deposit - (491,000) Purchases of Federal Home Loan Bank stock (12,400) (8,500) Net loans made to customers (2,892,205) (3,798,025) Purchases of premises and equipment (951) (178,237) Net Cash Used By Investing Activities (2,897,678) (3,475,762) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 5,479,363 3,476,255 Proceeds from issuing common stock 5,750 7,452 Net Cash From Financing Activities 5,485,113 3,483,707 Net Change in Cash and Cash Equivalents 2,583,564 (42,000) Cash and Cash Equivalents at December 31 3,559,682 4,529,475 Cash and Cash Equivalents at March 31 $ 6,143,246 $ 4,487,475 The accompanying notes are an integral part of these statements. Page 5

6 NOTES TO FINANCIAL STATEMENTS NOTE 1 BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions for Form 10-QSB of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007 or any future interim period. The interim financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Clarion County Community Bank Annual Report on Form 10-KSB for the year ended December 31, 2006 filed with the FDIC. NOTE 2 - ORGANIZATION The Bank was incorporated on June 18, 2003 pursuant to filing its Articles of Incorporation with the Commonwealth of Pennsylvania. The Bank completed an initial public offering of its common stock on January 6, 2004, raising gross proceeds of approximately $11.0 million. The Bank opened for business on January 8, Prior to opening, the Bank received the requisite approvals from the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation. The Bank currently provides commercial and retail banking products and services as a Pennsylvania chartered commercial bank. NOTE 3 EARNINGS/LOSS PER SHARE Earnings/Loss per Share: Earnings/Loss per share is calculated using the weighted-average number of shares outstanding. The weighted average shares outstanding were 1,343,379 for the three months ended March 31, 2007 and 1,339,807 for the three months ended March 31, (See Note 6) NOTE 4 COMPREHENSIVE INCOME Total comprehensive income (loss) for the three months ended March 31, 2007 and 2006 was $436 and $2,611, respectively. Page 6

7 NOTE 5 INVESTMENT SECURITIES Held-to-maturity securities consisted of the following: March 31, 2007 Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value U.S. Treasury securities $ 1,003,407 $ - $ (10,087) $ 993,320 Obligations of U.S. government agencies $ 1,003,407 $ - $ (10,087) $ 1,976,719 Available-for-sale securities consisted of the following: March 31, 2007 Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value Obligations of U.S. government agencies $ 1,489,151 - $ 375 $ 1,489,526 $ 1,489,151 $ - $ 375 $ 1,489,526 NOTE 6 STOCK DIVIDENDS On April 20, 2006, the Bank declared a 10% stock dividend on the Bank's outstanding common stock. Pursuant to this dividend, one additional share of common stock was issued for each ten shares of common stock held by shareholders of record as of the close of business on June 1, The new shares were distributed on July 14, The Bank has retroactively restated common stock and surplus for all periods presented to reflect this stock dividend. Par value will remain unchanged at $1.00 per share. All reference to the number of shares and per share amounts elsewhere in the financial statements and related footnotes have been restated as appropriate to reflect the effect of the stock dividends for all periods presented On April 19, 2007, the Bank declared a 10% stock dividend on the Bank's outstanding common stock. Pursuant to this dividend, one additional share of common stock will be issued for each ten shares of common stock held by shareholders of record as of the close of business on June 1, Par value will remain unchanged at $1.00 per share. Reference to the number of shares and per share amounts have not been restated to reflect the effect of the stock dividend for all periods presented because the record date has not occurred as of the issuance of these statements. Page 7

8 Item 2 - MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-QSB may contain forward-looking statements related to such matters as anticipated financial performance, business prospects, technological developments, new products and similar matters. The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the word believes, anticipate, contemplates, expects, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Those risks and uncertainties include the following: interest rates; general economic conditions; business conditions in the banking industry; the regulatory environment; rapidly changing technology and evolving banking industry standards; competitive factors; new service and product offerings by competitors and price pressures; and similar items such as those reflected in the section entitled Risk Factors in our Annual Report on Form 10-KSB for the year ended December 31, General The Bank was incorporated on June 18, 2003 and formally commenced operations on January 8, The Bank is a Pennsylvania-chartered commercial bank that received its Certificate of Authority to do business from the Pennsylvania Department of Banking on January 6, Financial Condition At March 31, 2007, the Bank's total assets had increased since December 31, 2006 by $5.4 million resulting primarily from increases of approximately $2.9 million in net loans, $2.6 million in liquid assets such as cash and due from banks and federal funds sold and $1.0 million in securities available for sale, offset slightly by a decrease of $1.0 million in securities held to maturity. Since March 31, 2006, the Bank's total assets increased by $15.4 million resulting from increases of $14.7 million in net loans, $1.7 million in liquid assets such as cash and due from banks and federal funds sold and other assets of $0.1 million all as partially offset by decreases of $1.0 million in securities held to maturity and $0.1 million in fixed assets. The increase in assets was funded by increases in deposits of $5.5 million since December 31, 2006 and $15.4 million since March 31, The growth in deposits was substantially the result of an increase in interestbearing deposits, which generally was due to the growth of the Bank. At March 31, 2007, the Bank held no brokered deposits. The increase in loans since December 31, 2006 was funded by a $5.4 million increase in total liabilities, which is attributable to increases in deposits of $5.5 million and a slight decrease in accrued interest and other liabilities of $0.1 million. The increase in total liabilities of $15.5 million from March 31, 2006 to March 31, 2007 is attributable to increases in deposits of $15.4 million and $0.1 million in accrued interest and other liabilities. As of March 31, 2007, the Bank had one non-performing loan totaling $2,360. At March 31, 2007, the allowance for possible loan losses was $357,000, which represented 0.76% of total loans as compared to an allowance of $335,000 representing 0.76% of total loans at December 31, 2006 Page 8

9 and an allowance of $250,000 representing 0.78% of total loans at March 31, In management's opinion, the allowance for possible loan losses at March 31, 2007 is adequate to absorb future loan losses based on information presently known. Management cannot assure, however, that additions to the allowance will not be required in the future to cover losses that are presently unforeseen. Average Balance Sheet The following tables set forth certain information relating to the Bank's three month average balance sheets and reflect the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived from average daily balances. The yield on earning assets and the net interest margin are presented on a fully taxable-equivalent (FTE) and annualized basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 34% for each period presented. The Bank believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. Page 9

10 Three months ended March 31, (Dollars in thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield Rate EARNING ASSETS: Federal funds sold $1,067 $ % $2,000 $ % Interest-bearing deposits 4, , Investment securities (2) 2, , Loans Commercial 21, , Residential real estate 21, , Consumer 2, , Total Loans 45, , Total interest earning assets 54,250 $ % 39,161 $ % Less Allowance for possible loan losses (344) (240) All other assets 2,603 2,355 Total Assets $56,509 $41,275 LIABILITIES AND SHAREHOLDERS EQUITY Deposits Interest-bearing checking $2,786 $ % $1,307 $ % Money Market accounts 5, , Savings accounts 4, , Time deposits 29, , Total interest-bearing deposits 42, , Total interest-bearing liabilities 42,313 $ % 26,962 $ Non-interest bearing demand deposits 6,197 6,335 Other liabilities Shareholders equity 7,720 7,878 Total liabilities and shareholders equity $56,509 $41,275 NET INTEREST INCOME $ 469 $ 371 INTEREST RATE SPREAD (3) 2.61 % 2.89 % NET INTEREST MARGIN (4) 3.52 % 3.85 % (1) Average rates are computed using annualized interest income and expense for the period. (2) Securities available-for-sale are presented at amortized cost. (3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (4) Net interest margin represents net interest income as a percentage of average interest-earning assets. Results of Operations Net Income For the three-month period ended March 31, 2007, the Bank recognized a net profit of $25,000, an improvement of $54,000 over the net loss of $29,000 incurred in the same period in the prior year. This improvement is attributable to increases of $92,000 in net interest income after provision for loan losses and $9,000 in service fees and other income, as partially offset by an increase in other expenses of $43,000 and the application of its deferred tax asset in 2006 of $4,000. Page 10

11 Due to the recent trend of a flat to inverted yield curve in the national interest rate market and the continued increases in deposit rates to remain competitive, the net interest margin the Bank has experienced through the three month period ended March 31, 2007 may be negatively affected and may compress the net interest margin in future quarters. Net Interest Income Interest income for the three-month period ended March 31, 2007 was $899,000, an increase of $324,000 from the three-month period ended March 31, This increase is primarily attributed to a $14.7 million increase in the loan portfolio during this period in addition to increases in interest rates due to increases in the prime lending rates. Interest expense for the three-month period ended March 31, 2007 was approximately $430,000, a $226,000 increase compared to the same three-month period ended March 31, Management attributes this increase primarily to the $15.7 million increase in interest-bearing deposits from the period ended March 31, 2006 to the period ended March 31, 2007, and also to a lesser extent, to the 1.05% increase in the average rate paid on deposits during those two periods. Provision for Loan Losses The provision for loan losses is based upon management's ongoing assessment of the inherent risk of loss in its loan portfolio. Management's risk assessment is based on the evaluation of individual loans, current economic conditions, and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the allowance will be made to reflect changes to that information. Clarion County Community Bank continues to monitor its loan portfolio on a regular basis and will make additions to its allowance based on its determination of the necessary level of the allowance. For the three-month period ended March 31, 2007, the Bank recorded $21,000 to the provision for loan losses as compared to $15,000 for the same period of The Bank had no charged-off loans during each of these periods. At March 31, 2007, the Bank had non-performing loans totaling $2,360, no impaired loans, no foreclosed real estate, no other real estate owned and no troubled debt restructurings. Activity in the allowance for loan losses was as follows: Three-Months Ended Year Ended March 31, 2007 December 31, Balance, beginning of period $335,278 $ 235,000 Provision 21, ,000 Charge-offs 0 4,722 Recoveries Balance, end of period $356,625 $ 335,278 ======= ======= Page 11

12 Other Income Other income for the three-month period ended March 31, 2007 was approximately $32,000, an increase of $9,000 over the three-month period ended March 31, This increase is primarily attributable to increases in service fees of $6,000 and other miscellaneous income of $3,000. Other Expenses Total other expenses for the three-month period ended March 31, 2007 were approximately $454,000, an increase of $43,000 when compared to the same period in the prior year. This increase is attributed to increases in salaries and employee benefits of $26,000, data processing expenses of $14,000 due to our increased business activity, occupancy expense of $3,000 due primarily to increased depreciation costs, and various other operating expenses of $3,000. These increases were slightly offset by decreases in the reserve for Pennsylvania Shares Tax of $3,000. Maintaining our focus on operating cost control continues to be a top priority for us, and from 2006 to 2007 the Bank has maintained a relatively stable overhead cost structure. Income Taxes Management does not anticipate having to pay income taxes for the year 2007 due to existing net operating losses for federal tax purposes. Liquidity and Capital Resources Liquidity represents the ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, federal funds sold, balances with banks such as Federal Home Loan Bank, securities classified as available for sale or those maturing within one year, and loans maturing within one year. Because the Bank has been able to invest a sufficient portion of its assets in liquid assets, management believes that the Bank maintains liquidity sufficient to satisfy its deposit requirements and meet its customers credit needs. Net cash used by operating activities at March 31, 2007 totaled $4,000 and resulted primarily from decreases in cash of $76,000 related to accrued interest and other liabilities, other assets of $8,000 and non-cash adjustments of $1,000 for deferred taxes, which were substantially offset by noncash adjustments for depreciation and amortization of $35,000, net income of $25,000 and the provision for loan losses of $21,000. Net cash used by investing activities at March 31, 2007 totaled $2.9 million and resulted from net loans to customers of $2.9 million and purchases of available for sale securities of $1.0 million, partially offset by maturities of held to maturity securities of $1.0 million. Net cash from financing activities at March 31, 2007 totaled $5.5 million resulting from an increase in deposits of $5.5 million. Deleted: due to the timing of payroll, Page 12

13 As of March 31, 2007, cash, federal funds sold, and balances with banks were 12.9% of total assets. Asset liquidity is also provided by managing loan and securities investment maturities. To the extent possible, loans are funded with deposits or other funding with coinciding maturity or repricing data. At March 31, 2007, the Bank s ratio of total loans to total deposits was 93.0%. The Bank also currently has an available line of credit for borrowing from the Federal Home Loan Bank in the amount of $29.3 million. The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions, economic forces and growth and expansion activities. The Bank seeks to maintain a capital base to support its growth and expansion activities, to provide stability to current operations and to promote public confidence. The Bank s capital position exceeds regulatory minimums. The primary indicators relied upon by bank regulators in measuring strength of capital position are the Tier 1 Risk-Based Capital Ratio, Total Risk-Based Capital Ratio and Leverage Ratio. Tier 1 Capital consists of common and qualifying preferred stockholders equity less goodwill. Total Capital consists of Tier 1 Capital and a portion of the allowance for possible loan losses. Risk-based capital ratios are calculated with reference to risk weighted assets that consist of both on and off balance sheet risks, such as letters of credit and unused lines of credit. The Leverage Ratio consists of Tier 1 Capital divided by quarterly average assets. At March 31, 2007, the Bank s Tier 1 Risk Based Capital Ratio and Total Risk Based Capital Ratios of 17.80% and 18.64%, respectively, are in excess of the mandated minimum requirements of 4.0% and 8.0%, respectively. At March 31, 2007, the Bank s Leverage Ratio of 13.37% exceeded its required minimum leverage ratio of 4.0%. Regulatory Activity From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and restrictions on, the business of the Bank. Management cannot predict whether such legislation will be adopted, or if adopted, how such legislation would affect the business of the Bank. As a consequence of the extensive regulation of commercial banking activities in the United States, the legislation and regulation may increase the costs of doing business. In addition to banking laws and regulations, the Bank is also subject to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002 (SOX) and the rules and regulations under those laws. These laws and regulations impose, among other things, significant responsibilities on officers, auditors, boards of directors and audit committees, and result in additional expenses related to services rendered by our accountants, legal counsel and consultants in order to ensure compliance with these laws and regulations. Under Section 404 of SOX, we will be required to conduct a comprehensive review and assessment of the adequacy of our existing systems and controls at December 31, 2007 and each December 31st thereafter, and our auditors will be required to attest to our assessment made at December 31, This will result in additional expenses in 2007 and thereafter that may adversely affect our results of operations. In a SOX 404 review, we could uncover deficiencies in existing systems and controls. If that is the case, we Page 13

14 would have to take the necessary steps to correct any deficiencies, which may be costly and may strain our management resources. We also would be required to disclose any such deficiencies, which could adversely affect the market price of our common stock. Except as described above, management is not aware of any current specific recommendations by regulatory authorities or proposed regulation, which, if they were implemented, would have a material adverse effect upon liquidity, capital resources, or results of operation, although the general cost of compliance with the numerous and multiple federal and state laws and regulations does have a negative impact on the Bank s result of operations. Further, the business of the Bank is also affected by the state of the financial services industry in general. As a result of legal and industry changes, management expects the industry will continue to experience an increase in consolidations and mergers as the financial services industry strives for greater cost efficiencies and market share. Management also expects increased diversification of financial products and services offered by the Bank and its competitors. Management believes that such consolidations and mergers may enhance Clarion County Community Bank s competitive position as a community bank. Interest Rate Sensitivity The Bank is subject to interest rate risk inherent in its lending, investing and financing activities. Fluctuations in interest rates will impact both interest income and interest expense on all interestearning assets and interest-bearing liabilities, other than those with short-term maturities. The following table sets forth our interest rate risk profile at March 31, The interest rate sensitivity of our assets and liabilities, and the impact on net interest income over the next twelve months illustrated in the following table, would vary substantially if different assumptions were used or if actual experience differs from that indicated by the assumptions. Change in Net Interest Income At March 31, 2007 % Change in Net Interest Income (Dollars in thousands) Up 200 basis points % Up 100 basis points % Down 100 basis points (22) (1.14%) Down 200 basis points (61) (3.17%) At March 31, 2007, 46.2% of the Bank s loan portfolio consisted of fixed-rate residential mortgage loans, a decrease from 49.3% of the loan portfolio at December 31, The Bank has been seeking to increase its commercial loan portfolio to diversify its loan portfolio and reduce its exposure to the interest rate risk associated with fixed-rate residential mortgages. Page 14

15 Item 3 CONTROLS AND PROCEDURES Based on the evaluation of disclosure controls and procedures as of March 31, 2007, the Bank's principal executive officer and principal financial officer have concluded that the Bank's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that information required to be disclosed by the Bank in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in the Bank s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act that occurred during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Bank s internal control over financial reporting. Page 15

16 PART II OTHER INFORMATION Item 1 Legal Proceedings As of March 31, 2007, the Bank was not a party to any litigation except the following. The Bank was served with a civil action lawsuit on January 31, 2005 in the Clarion County, Pennsylvania Court of Common Pleas by the property owner adjacent to our branch office in New Bethlehem, Pennsylvania. The complaint named the previous owners of the property individually and by their partnership and the Bank. The Plaintiff claims that following a fire at the location in April 2002, followed by the razing of the building that previously housed the Dollar General store, the contour of the property was altered causing ground water to begin leaking into his basement. He therefore suggests that structural damage has occurred at his property and is seeking damages in the amount of $1,000,000. The Bank filed a Preliminary Objection to the Plaintiff s Complaint and Motion and a Brief in Support of Preliminary Objections to the Plaintiff s Complaint and Motion in the Alternative to Dismiss. A second amended complaint in civil action has been filed by the plaintiff. It is our opinion, after consultation with our counsel, that the Bank will be successful on the merits of this case and that the outcome of the case will not have a material adverse effect on the Bank. Item 2 Unregistered Sales of Equity Securities and Use of Proceeds On January 6, 2004, the Bank completed its initial public offering of common stock, par value $1.00 per share, by selling 1,099,900 shares of common stock at a price of $10.00 per share, in cash, for total gross proceeds of approximately $11.0 million. Each purchaser of common stock in the Bank s offering received a warrant to purchase one share of common stock of the Bank for every five shares of common stock purchased in the offering. Each warrant is exercisable at any time during the five-year period ending January 8, 2009 for an exercise price (after the adjustment reflecting the 10% stock dividends paid in July 2005 and July 2006) of $10.33 per share. Each warrant also contains customary anti-dilution provisions. During the quarter ended March 31, 2007, 559 warrants were exercised resulting in the issuance by the Bank of 559 shares of common stock and the receipt by the Bank of gross proceeds of $5,750. The sale of the common stock upon exercise of the warrants was exempt from registration under the Securities Act of 1933 pursuant to Section 3(2) thereof, as the Bank is a Pennsylvaniachartered bank. There are 253,068 warrants outstanding as of March 31, Item 5 Other Information On April 19, 2007, the Bank declared a 10% stock dividend on its outstanding common stock. Pursuant to this dividend, one share of common stock will be issued for each ten shares of common stock held by shareholders of record as of the close of business on June 1, The distribution date of new shares will be July 13, No cash will be distributed to the Bank's shareholders in connection with this stock dividend. In lieu of any fractional share to which any shareholder may be otherwise entitled by virtue of the stock dividend, the Bank will distribute one (1) whole share of Common Stock to such shareholder. Page 16

17 Item 6 Exhibits Number Title 3.1 Articles of Incorporation of Clarion County Community Bank (Incorporated by reference to Exhibit 2.1 to the Bank s Form 10-SB filed with the FDIC.) 3.2 Articles of Amendment to Articles of Incorporation of Clarion County Community Bank (Incorporated by reference to Exhibit 2.2 to the Bank s Form 10-SB filed with the FDIC.) 3.3 Bylaws of Clarion County Community Bank (Incorporated by reference to Exhibit 2.3 to the Bank s Form 10-SB filed with the FDIC.) 4.1 Form of certificate evidencing shares of Clarion County Community Bank Common Stock (Incorporated by reference to Exhibit 3.1 to the Bank s Form 10-SB filed with the FDIC.) 4.2 Specimen Common Stock Purchase Warrant of Clarion County Community Bank (Incorporated by reference to Exhibit 3.2 to the Bank s Form 10-SB filed with the FDIC.) 4.3 Warrant Agreement dated January 7, 2004 between Clarion County Community Bank and StockTrans, Inc. (Incorporated by reference to Exhibit 3.3 to the Bank s Form 10-SB filed with the FDIC.) 31.1 Chief Executive Officer / Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Certification of the Chief Executive Officer / Chief Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Page 17

18 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CLARION COUNTY COMMUNITY BANK Date: May 11, 2007 By: James L. Kifer President, Chief Executive Officer and Chief Financial Officer Page 18

19 EXHIBIT INDEX Exhibit No. Title Page Number In Manually Signed Original The following exhibits are files herewith or incorporated by reference as a part of this Quarterly Report. 3.1 Articles of Incorporation of Clarion County Community Bank (Incorporated by reference to Exhibit 2.1 to the Bank s Form 10-SB filed with the FDIC.) 3.2 Articles of Amendment to Articles of Incorporation of Clarion County Community Bank (Incorporated by reference to Exhibit 2.2 to the Bank s Form 10-SB filed with the FDIC.) 3.3 Bylaws of Clarion County Community Bank (Incorporated by reference to Exhibit 2.3 to the Bank s Form 10-SB filed with the FDIC.) 4.1 Form of certificate evidencing shares of Clarion County Community Bank Common Stock (Incorporated by reference to Exhibit 3.1 to the Bank s Form 10-SB filed with the FDIC.) 4.2 Specimen Common Stock Purchase Warrant of Clarion County Community Bank (Incorporated by reference to Exhibit 3.2 to the Bank s Form 10-SB filed with the FDIC.) 4.3 Warrant Agreement dated January 7, 2004 between Clarion County Community Bank and StockTrans, Inc. (Incorporated by reference to Exhibit 3.3 to the Bank s Form 10-SB filed with the FDIC.) 31.1 Chief Executive Officer / Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of Certification of the Chief Executive Officer / Chief Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Page 19