SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 NO FEE REQUIRED For the fiscal year ended December 31, 1996,
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
to .
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Commission File No. 333-11773
EMCLAIRE FINANCIAL CORP.
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(Name of Small Business Issuer in Its Charter)
Pennsylvania 25-1606091
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(State or Other Jurisdiction of Incorporation I.R.S. Employer or
Organizations Identification No.
612 Main Street, Box D, Emlenton, Pennsylvania 16373
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(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (412) 867-2311
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.25 per share
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(Title of Class)
Check 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 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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $8,524,867
As of March 25, 1997, there were issued and outstanding 1,030,000 shares
of the registrant's Common Stock.
The Registrant's Common Stock trades on the OTC Electronic Bulletin Board
under the symbol "EMCF." The aggregate market value of the Common Stock held by
non-affiliates of the registrant, based on the last price the registrant's
Common Stock was sold on March 24, 1997, was $11,006,371 ($14.37 per share based
on 765,927 shares of Common Stock outstanding).
Transition Small Business Disclosure Format (check one) YES [ ] NO [X]
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year
ended December 31, 1996. (Parts I, II, and IV)
2. Portions of the Proxy Statement for the Annual Meeting of
Stockholders. (Part III)
<PAGE>
PART I
Item 1. Description of Business
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General
Emclaire Financial Corp. ("Company") was incorporated in Pennsylvania in 1989 to
own and control all of the capital stock of The Farmers National Bank of
Emlenton ("Bank"). The Company is a registered bank holding company pursuant to
the Bank Holding Company Act of 1956 ("BHCA"), as amended. The Company has no
employees other than executive officers whom do not receive compensation for
serving in such capacity. Because the Company has not engaged in any significant
business to date, almost entirely all of the business conducted by the Company
on a consolidated basis is conducted through the Bank, its wholly owned
subsidiary.
The Bank was organized in 1900 as a national banking association, and operates
under the supervision of the Office of the Comptroller of the Currency ("OCC").
The Bank operated from a single office until 1978 when it opened its first
branch office in Eau Claire. A second branch was established in Clarion in 1985.
During 1991, the Bank acquired the East Brady and Emlenton branch operations of
Mellon Bank. The Emlenton office of Mellon Bank was closed and donated to the
Borough of Emlenton while the deposit accounts were transferred to the existing
Emlenton office. In May, 1996, a fifth office was established in Bon Aire Plaza
in Butler, and a sixth office opened in August, 1996 in a grocery store located
in Knox.
On September 20, 1996, the Bank completed the acquisition of a branch facility
located on Main Street in Knox from Mellon Bank, N.A. As a result, the Bank
assumed the deposit liabilities of the office and purchased the real estate,
furniture, and equipment. The Bank paid a cash premium for the deposits assumed
based upon a percentage of the total deposits acquired. The price of the real
estate, furniture, and equipment was based upon a negotiated price. (Refer to
Note 2 of the accompanying audited consolidated financial statements.)
The Bank operates as a full-service community bank, offering a variety of
financial services to meet the needs of its markets served. Those services
include accepting time and demand deposits from the general public and together
with other funds, using the proceeds to originate secured and unsecured
commercial and consumer loans, finance commercial transactions and provide
construction and mortgage loans, as well as home equity and personal lines of
credit. In addition funds are also used to purchase investment and
mortgage-backed securities.
Lending Activities
General. The principal lending activities of the Bank are the origination of
residential mortgage loans, home equity loans, commercial and commercial real
estate loans, and installment loans. Generally, loans are originated in the
Bank's primary market area. For a description of the Bank's loan portfolio, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report to Stockholders ("Annual Report")
included as Exhibit 13 and incorporated herein by reference.
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One-to-Four Family Mortgage Loans. The Bank offers first mortgage loans secured
by one-to-four family residences located in the Bank's primary lending area.
Typically such residences are single family owner occupied units. The Bank is an
approved, qualified lender for the Federal Home Loan Mortgage Corporation
("FHLMC"). As a result, the Bank may sell loans to and service loans for the
FHLMC. While the Bank has made no such sales to date, it anticipates the ability
to sell loans to the FHLMC will allow it to minimize the interest rate risk
associated with longer term fixed rate mortgages.
Home Equity Loans. The Bank originates home equity loans secured by
single-family residences. These loans may be either a single advance fixed rate
loan with a term of up to 15 years, or a variable rate revolving line of
credit. These loans are made only on owner-occupied single-family residences
Commercial and Commercial Real Estate Loans. Commercial lending constitutes a
significant portion of the Bank's lending activities comprising a combined total
of 31.15% of the total loan portfolio at December 31, 1996. Commercial real
estate loans generally consist of loans granted for commercial purposes secured
by commercial or other nonresidential real estate. Commercial loans consist of
secured and unsecured loans for such items as capital assets, inventory,
operating funds, and other commercial purposes.
Consumer Loans. Consumer loans generally consist of fixed rate term loans for
automobile purchases, home improvements not secured by real estate, capital, and
other personal expenditures. In addition, the Bank funds education loans under
various government guaranteed student loan programs. These loans are serviced
for the Bank by a third party. The Bank also offers unsecured revolving personal
lines of credit and overdraft protection
Loans to One Borrower. National banks are subject to limits on the amount of
credit which they can extend to one borrower. Under current law, loans to one
borrower are limited to an amount equal to 15% of unimpaired capital and surplus
on an unsecured basis, and an additional amount equal to 10% of unimpaired
capital and surplus if the loan is secured by readily marketable collateral. At
December 31, 1996, the Bank's loans-to-one borrower limit based upon 15% of
unimpaired capital was $1.73 million. At December 31, 1996, the Bank's largest
aggregation of loans to one borrower was approximately $786,000 of loans secured
by equipment leased to franchised fast food vendors. In addition, the lease
contracts are assigned to the Bank and the principals of the borrowing company
have provided personal guarantees. At December 31, 1996, all of these loans were
performing in accordance with their terms.
Investment Portfolio
General. The Bank maintains an investment portfolio of securities such as U.S.
government and agency securities, state and municipal debt obligations,
corporate notes and bonds, and to a lesser extent, mortgage-backed securities.
Management generally maintains an investment portfolio with relatively short
maturities to minimize overall interest rate risk.
Investment decisions are made within policy guidelines established by the Board
of Directors. This policy is aimed at maintaining a diversified investment
portfolio, which complements the overall asset/liability and liquidity
objectives of the Bank, while limiting the related credit risk to an acceptable
level. For a description of the Company's investment portfolio see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report incorporated herein by reference.
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Sources of Funds
General. Deposits are the primary source of the Bank's funds for lending and
investing activities. Secondary sources of funds are derived from loan
repayments and investment maturities. Loan repayments can be considered a
relatively stable funding source, while deposit activity is greatly influenced
by interest rates and general market conditions. The Bank also has access to
funds through credit facilities available from the Federal Home Loan Bank
("FHLB") and through its primary correspondent bank. In addition, the Bank can
obtain advances from the Federal Reserve Bank discount window. For a description
of the Bank's sources of funds see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report incorporated
herein by reference.
Deposits. The Bank offers a wide variety of retail deposit account products to
both consumer and commercial deposit customers, including time deposits,
non-interest bearing and interest bearing demand deposit accounts, savings
deposits, and money market accounts.
Deposit products are promoted in periodic newspaper and radio advertisements,
along with notices provided in customer account statements. The Bank's market
strategy is based on its reputation as a community bank that provides quality
products and personal customer service.
The Bank pays interest rates on its interest bearing deposit products that are
competitive with rates offered by other financial institutions in its market
area. Interest rates on deposits are reviewed weekly by management considering a
number of factors including (1) the Bank's internal cost of funds; (2) rates
offered by competing financial institutions; (3) investing and lending
opportunities; and (4) the Bank's liquidity position.
Subsidiary Activity
The Company has one wholly-owned subsidiary, the Bank, a national association.
As of December 31, 1996, the Bank had no subsidiaries.
Personnel
At December 31, 1996, the Bank had 74 full time equivalent employees. None of
its employees are represented by a collective bargaining unit. The Bank believes
its relationship with its employees to be satisfactory.
Competition
The Bank competes with regional and other community commercial banks, thrift
institutions, credit unions, and non financial institution entities such as
mutual funds and securities brokers, for deposit customers, in its primary
market area of Venango, Clarion, Butler and northern Armstrong Counties. In
addition to competing financial institutions, the Bank also competes with
mortgage brokers, mortgage banking companies and consumer finance companies for
loan customers.
The Bank competes for deposit funds by offering a variety of deposit products,
quality personal service and competitive interest rates. In addition, the Bank
offers a number of other services including but not limited to, safe deposit
boxes, night depositories, automated teller machines, wire transfers and direct
deposit.
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The Bank competes for loans by charging competitive interest rates and nominal
fees, along with providing efficient and comprehensive service to loan
customers.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal
and state law. Set forth below is a summary description of certain provisions of
certain laws which relate to the regulation of the Company and the Bank. The
description does not purport to be complete and is qualified in its entirety by
reference to the applicable laws and regulations.
Regulation - The Company
The Company, as a registered bank holding company, is subject to regulation
under the BHCA. The Company is required to file quarterly reports and annual
reports with the Federal Reserve Board ("FRB") and such additional information
as the FRB may require pursuant to the BHCA. The FRB may conduct examinations of
the Company and its subsidiaries.
The FRB may require that the Company terminate an activity or terminate control
of or liquidate or divest certain subsidiaries or affiliates when the FRB
believes the activity or the control of the subsidiary or affiliate constitutes
a significant risk to the financial safety, soundness, or stability of any of
its banking subsidiaries. The FRB also has the authority to regulate provisions
of certain bank holding company debt, including authority to impose interest
ceilings and reserve requirements on such debt. Under certain circumstances, the
Company must file written notice and obtain approval from the FRB prior to
purchasing or redeeming its equity securities.
Under the BHCA and regulations adopted by the FRB, a bank holding company and
its nonbanking subsidiaries are prohibited from requiring certain tie-in
arrangements in connection with any extension of credit, lease, or sale of
property or furnishing of services. Further, the Company is required by the FRB
to maintain certain levels of capital. Because the Company has less than $150
million in assets on a consolidated basis, the capital levels of the Bank are
deemed by the FRB to be the capital levels of the Company. For additional
information on the capital levels of the Bank, see "- Regulation The Bank"; and
"Management's Discussion and Analysis - Liquidity and Capital Resources -
Capital Resources" in the Annual Report incorporated herein by reference.
The Company is required to obtain the prior approval of the FRB for the
acquisition of more than 5% of the outstanding shares of any class of voting
securities or substantially all of the assets of any bank or bank holding
company. Prior approval of the FRB is also required for the merger or
consolidation of the Company and another bank holding company.
The Company is prohibited by the BHCA, except in certain statutorily prescribed
instances, from acquiring direct or indirect ownership or control of more than
5% of the outstanding voting shares of any company that is not a bank or bank
holding company and from engaging directly or indirectly in activities other
than those of banking, managing or controlling banks, or furnishing services to
its subsidiaries. However, the Company, subject to the prior approval of the
FRB, may engage in any activities, or acquire shares of companies engaged in
activities that are deemed by the FRB to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
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Bank holding companies and their subsidiary banks are subject to the provisions
of the Community Reinvestment Act of 1977, as amended ("CRA"). Under the terms
and the provisions of the CRA, the Bank's record in meeting the credit needs of
the community served by the Bank, including low- and moderate-income
neighborhoods, is generally annually assessed by the OCC. When a bank holding
company applies for approval to acquire a bank or other bank holding company,
the Federal Reserve will review the assessment of each subsidiary bank of the
applicant bank holding company, and such records may be the basis for denying
the application. At March 6, 1996, the Bank was rated "Satisfactory" with
respect to the CRA.
Under FRB regulations, a bank holding company is required to serve as a source
of financial and managerial strength to its subsidiary banks and may not conduct
its operations in an unsafe or unsound manner. In addition, it is the FRB's
policy that in serving as a source of strength to its subsidiary banks, a bank
holding company should stand ready to use available resources to provide
adequate capital funds to its subsidiary banks during periods of financial
stress or adversity and should maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. A bank holding company's failure to meet its obligations to
serve as a source of strength to its subsidiary banks will generally be
considered by the FRB to be an unsafe and unsound banking practice or a
violation of the FRB's regulations or both. This doctrine has become known as
the "source of strength" doctrine. The validity of the source of strength
doctrine has been and is likely to continue to be the subject of litigation
until definitively resolved by the courts or by Congress.
Regulation - The Bank
General - The Bank is subject to supervision and examination by the OCC and to
certain regulations of the FDIC, and the FHLB. The Bank is also subject to
various requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types,
amount and terms and conditions of loans that may be granted and limitations on
the types of investments that may be made and the types of services that may be
offered. Various consumer laws and regulations also affect the operations of the
Bank.
Dividend Restrictions - Dividends from the Bank constitute the principal source
of income to the Company. The Bank is subject to various statutory and
regulatory restrictions on its ability to pay dividends to the Company. Under
such restrictions, the amount available for payment of dividends to the Company
by the Bank totaled approximately $1.5 million at December 31, 1996. In
addition, the OCC has the authority to prohibit the Bank from paying dividends,
depending upon the Bank's financial condition, if such payment is deemed to
constitute an unsafe or unsound practice. The ability of the Bank to pay
dividends in the future is presently, and could be further, influenced by bank
regulatory and supervisory policies.
Affiliate Transactions - The Bank is subject to federal laws that limit the
transactions by subsidiary banks to or on behalf of their parent company and to
or on behalf of any nonbank subsidiaries. Such transactions by a subsidiary bank
to its parent company or to any nonbank subsidiary are limited to 10 percent of
a bank subsidiary's capital and surplus and, with respect to such parent company
and all such nonbank subsidiaries, to an aggregate of 20 percent of such bank
subsidiary's capital and surplus. Further, loans and extensions of credit
generally are required to be secured by eligible collateral in specified
amounts. Federal law also prohibits banks from purchasing "low quality" assets
from affiliates.
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Insurance Assessments - Deposits of the Bank are insured by the BIF of the FDIC
and are subject to FDIC insurance assessments. The amount of FDIC assessments
paid by the individual insured depository institution is based on their relative
risk as measured by regulatory capital ratios and certain other factors. During
1995, the FDIC significantly reduced premium rates assessed on deposits insured
by the BIF. Under the current regulations, the Bank is assessed a premium on
BIF-insured deposits.
Beginning January 1, 1997, pursuant to the Economic Growth and Paperwork
Reduction Act of 1996 (the "Act"), the Bank will pay, in addition to its normal
deposit insurance premium as a member of the BIF, an amount equal to
approximately 1.3 basis points toward the retirement of the Financing
Corporation bonds ("Fico Bonds") issued in the 1980's to assist in the recovery
of the savings and loan industry. Members of the Savings Association Insurance
Fund ("SAIF"), by contrast, will pay, in addition to their normal deposit
insurance premium, approximately 6.4 basis points. Based on total deposits as of
December 31, 1996, had the Act been in effect, the Bank's annual deposit
insurance premium would have been approximately $15,000. Beginning no later than
January 1, 2000, the rate paid to retire the Fico Bonds will be equal for
members of the BIF and the SAIF. The Act also provides for the merging of the
BIF and the SAIF by January 1, 1999 provided there are no financial institutions
still chartered as savings associations at that time. Should the insurance funds
be merged before January 1, 2000, the rate paid by all members of this new fund
to retire the Fico Bonds would be equal.
Enforcement Powers of Federal Banking Agencies - Federal Banking agencies
possess broad powers to take corrective and other supervisory action deemed
appropriate for an insured depository institution and its holding company. The
extent of these powers depends on whether the institution in question is
considered "well capitalized", "adequately capitalized", "under capitalized" or
"critically undercapitalized". At December 31, 1996, the Bank exceeded the
required ratios for classification as "well capitalized". The classification of
depository institutions is primarily for the purpose of applying the federal
banking agencies' prompt corrective action and other supervisory powers and is
not intended to be, and should not be interpreted as, a representation of the
overall financial condition or prospects of any financial institution.
The agencies' prompt corrective action powers can include, among other things,
requiring an insured depository institution to adopt a capital restoration plan
which cannot be approved unless guaranteed by the institution's parent company;
placing limits on asset growth and restrictions on activities, including
restrictions on transactions with affiliates; restricting the interest rate the
institution may pay on deposits; prohibiting the payment of principal or
interest on subordinated debt, prohibiting the holding company from making
capital distributions without prior regulatory approval; and, ultimately,
appointing a receiver for the institution. Among other things, only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and only an "adequately capitalized" depository institution
may accept brokered deposits with prior regulatory approval.
Under the risk-based capital guidelines applicable to the Company and the Bank,
the minimum guideline for the ratio of total capital to risk-weighted assets
(including certain off-balance-sheet activities) is 8.00 percent. At least half
of the total capital must be "Tier 1" or core capital, which primarily includes
common stockholders' equity and qualifying preferred stock, less goodwill and
other disallowed intangibles. "Tier 2" or supplementary capital includes, among
other items, certain cumulative and limited-life preferred stock, qualifying
subordinated debt and the allowance for loan losses, subject to certain
limitations, less required deductions as prescribed by regulation.
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In addition, the federal bank regulators established leverage ratio (Tier 1
capital to total adjusted average assets) guidelines providing for a minimum
leverage ratio of 3 percent for bank holding companies and banks meeting certain
specified criteria, including that such institutions have the highest regulatory
examination rating and are not contemplating significant growth or expansion.
Institutions not meeting these criteria are expected to maintain a ratio which
exceeds the 3 percent minimum by at least 100 to 200 basis points. The federal
bank regulatory agencies may, however, set higher capital requirements when
particular circumstances warrant. Under federal banking laws, failure to meet
the minimum capital requirements could subject a bank to a variety of
enforcement remedies available to federal bank regulatory agencies.
At December 31, 1996, the Bank's respective total and Tier 1 risk-based capital
ratios and leverage ratios exceeded the minimum regulatory requirements. See
Note 13 in the audited consolidated financial statements included in the Annual
Report and incorporated herein by reference.
Legislative Proposals and Reforms
In recent years, significant legislative proposals and reforms affecting the
financial services industry have been discussed and evaluated by U.S. Congress.
In the last Congress, such proposals included legislation to revise the BHCA to
expand permissible activities for banks, principally to facilitate the
convergence of commercial and investment banking. Certain proposals also sought
to expand insurance activities of banks. It is unclear whether any of these
proposals, or any form of them, will be reintroduced in the current Congress and
become law. Consequently, it is not possible to determine what effect, if any,
they may have on the Company and the Bank.
Item 2. Description of Property
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(a) Properties.
The Company owns no real property but utilizes the main office of the Bank. The
Company's and the Bank's executive offices are located at 612 Main Street,
Emlenton, Pennsylvania. The Company pays no rent or other form of consideration
for the use of this facility. The Bank has seven offices located in Venango,
Clarion, and Butler counties, Pennsylvania. The Bank's total investment in
office property and equipment was $3.4 million with a net book value of $2.3
million at December 31, 1996.
Main Office Eau Claire Office Clarion Office
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612 Main Street 207 South Washington Sixth and Wood
Emlenton, Street Streets
Pennsylvania Eau Claire, Clarion,
Venango County Pennsylvania Pennsylvania
Butler County Clarion County
East Brady Office Bon Aire Office Knox 338 Office Knox Main Street
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Broad and Brady 1101 North Main Street Rt. 338 South Office
Streets Butler, Pennsylvania Knox, Pennsylvania Main and State
East Brady, Butler County Clarion County Streets
Pennsylvania Knox, Pennsylvania
Clarion County Clarion County
All offices are owned by the Bank, except for the Bon Aire and Knox 338 offices
which are leased. The Bon Aire office is a unit in the Bon Aire Plaza operated
under a 5 year lease with an option to renew. The Knox 338 office is located in
a supermarket, and is operated under a 5 year lease with three (3) options to
renew. The Bank also maintains a remote ATM facility located in a supermarket in
East Brady.
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The Bank also owns two lots located on Main Street in Emlenton, Pennsylvania.
The lots are currently used for employee parking.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's investment
policies and any regulatory or Board of Directors' percentage of assets
limitations regarding certain investments. All of the Bank's investment policies
are reviewed and approved by the Board of Directors of the Bank, and such
policies, subject to regulatory restrictions (if any), can be changed without a
vote of stockholders. The Bank's investments are primarily acquired to produce
income, and to a lesser extent, possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Business - Lending Activities," "Item 1. Business - Regulation of the
Bank," and "Item 2. Description of Property - (a) Properties" above.
(2) Investments in Real Estate Mortgages. See "Item 1. Business -
Lending Activities" and "Item 1. Business - Regulation of the Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending
Activities," "Item 1. Business - Regulation of the Bank," and "Item 1.
Business - Subsidiary Activity."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
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Neither the Bank nor the Company is involved in any material legal proceedings.
The Bank, from time to time, is party to litigation which arises in the ordinary
course of business, such as claims to enforce liens, claims involving the
origination and servicing of loans, and other issues related to the business of
the Bank. In the opinion of management the resolution of any such issues would
not have a material adverse impact on the financial position, results of
operation, or liquidity of the Bank or the Company.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to stockholders for a vote during the quarter ended
December 31, 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
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The information contained under the section captioned "Common Stock Information"
in the Company's Annual Report for the fiscal year ended December 31, 1996, is
incorporated herein by reference.
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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The required information is contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report and is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The Company's consolidated financial statements required herein are contained in
the Annual Report and are incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
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Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(b) of the Exchange Act
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The information contained under the sections captioned "Principal Beneficial
Owners of the Corporation's Common Stock" and "Information as to Nominees,
Directors and Executive Officers" in the Company's definitive proxy statement
for the Company's Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated herein by reference.
Item 10. Executive Compensation
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The information contained under the section captioned "Information as to
Nominees, Directors and Executive Officers" in the Proxy Statement is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
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(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Principal Beneficial Owners of
the Corporation's Common Stock" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Principal Beneficial Owners of
the Corporation's Common Stock" in the Proxy Statement.
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(c) Changes in Control
Management of the Company knows of no arrangements, including any
pledge by any person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the
Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by reference to the
section captioned "Information as to Nominees, Directors and Executive Officers"
in the Proxy Statement.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits are either attached as part of this Report or incorporated
herein by reference.
3.1 Articles of Incorporation of Emclaire Financial Corp. *
3.2 Bylaws of Emclaire Financial Corp. *
4 Specimen Stock Certificate of Emclaire Financial Corp. *
10 Form of Change in Control Agreement between Registrant and
three (3) executive officers
11 Statement regarding computation of earnings per share (see
Note 1 to the Notes to Consolidated Financial Statements in
the Annual Report)
13 Annual Report to Stockholders for the fiscal year ended
December 31, 1996.
19 Proxy Statement for Company's Annual Meeting of
Stockholders.
21 Subsidiaries of the Registrant (see information contained
herein under "Business - Subsidiary Activity").
27 Financial Data Schedule **
(b) Reports on Form 8-K.
On December 23, 1996, the Registrant filed a current report on Form
8-K with the SEC announcing the completion of the sale of 230,800
shares of Common Stock (Items 5, 7).
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* Incorporated by reference to the Registrant's Registration Statement on
Form SB-2, as amended, (File No. 333-11773) declared effective by the
SEC on October 25, 1996
** Only in electronic filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EMCLAIRE FINANCIAL CORP.
Dated: March 25, 1997 By: /s/David L. Cox
-------------------------------------------
David L. Cox
President, Chief Executive Officer, and
Director
(Duly Authorized Representative)
Pursuant to the requirement 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.
By: /s/David L. Cox By: /s/John J. Boczar
----------------------------------- ----------------------------------
David L. Cox John J. Boczar
President, Chief Executive Treasurer (Principal Financial and
Officer, and Director Accounting Officer)
(Principal Executive Officer)
Date: March 25, 1997 Date: March 25, 1997
By: /s/Ronald L. Ashbaugh By: /s/Dr. Clinton R. Coulter
----------------------------------- ----------------------------------
Ronald L. Ashbaugh Dr. Clinton R. Coulter
Director Director
Date: March 25, 1997 Date: March 25, 1997
By: /s/Bernadette H. Crooks By: /s/George W. Freeman
----------------------------------- ----------------------------------
Bernadette H. Crooks George W. Freeman
Director Director
Date: March 25, 1997 Date: March 25, 1997
By: /s/Rodney C. Heeter By: /s/Robert L. Hunter
----------------------------------- ----------------------------------
Rodney C. Heeter Robert L. Hunter
Director Director
Date: March 25, 1997 Date: March 25, 1997
By: /s/J. Michael King By: /s/John B. Mason
----------------------------------- ----------------------------------
J. Michael King John B. Mason
Director Director
Date: March 25, 1997 Date: March 25, 1997
By: /s/Elizabeth C. Smith
-----------------------------------
Elizabeth C. Smith
Director
Date: March 25, 1997
EXHIBIT 10
Form of Change in Control Agreement between Registrant and three (3)
executive officers
<PAGE>
CHANGE OF CONTROL SEVERANCE BENEFITS AGREEMENT
----------------------------------------------
THIS AGREEMENT, executed in duplicate at Emlenton, Pennsylvania, this ,
by and between the FARMERS NATIONAL BANK OF EMLENTON, a National Bank organized
and existing under and by virtue of the Laws of the United States of America
with its principal place of business at 612 Main Street, Emlenton, Venango
County, Pennsylvania 16373, (hereinafter referred to as the "Bank");
AND
,
(hereinafter referred to as "Employee").
WHEREAS, the Employee has been offered employment by the Bank as and
will become an integral part of, and important to, the reliable and efficient
operation of the Bank; and
WHEREAS, the parties recognize that a change in control of the Bank may
have an adverse effect on or cause the departure of the Employee; and
WHEREAS, the Employee has requested severance benefits in the event of
the change of control and the Bank has offered severance benefits in the event
of such change of control of the Bank as an inducement to Employee to accept
employment with the Bank; and
1
<PAGE>
WHEREAS, the parties wish to reduce the agreement to provide severance
benefits in the event of a change in control of the Bank to writing.
NOW THEREFORE, in consideration of the mutual promises contained
herein, the Bank and Employee agree as follows:
1. DEFINITIONS. The following terms shall have the
meanings set forth below:
A. "Change of Control" of the Bank shall be deemed to have occurred if:
(i) A change in control of a nature that would be required to
be reported pursuant to the regulations promulgated under the
Securities Exchange Act of 1934 the ("Exchange Act") to the
extent that any "person", as such term is used in the Exchange
Act other than any "person" who is on this date a director or
officer of Emclaire Financial Corp, is or becomes the
"Beneficial Owner" as defined under the rules promulgated
under the Exchange Act, directly or indirectly, of securities
of Emclaire Financial Corp representing twenty-five percent
(25%) or more of the combined voting power of Emclaire
Financial Corp's then outstanding securities; or
2
<PAGE>
(ii) During any period of two (2) consecutive years during the
term of this Agreement, individuals who at the beginning of
such period constitute the Board of Directors of Emclaire
Financial Corp cease for any reason to constitute at least a
majority, unless the election of each director who is not a
director at the beginning of the period has been approved in
advance by directors representing at least two-thirds (2/3rds)
of the directors then in office who were directors at the
beginning of the period.
B. "Disability" shall mean an illness or accident which
prevents the Employee from performing his duties and
responsibilities for the Bank for a period of at least
six (6) consecutive months.
C. "Good Reasons" shall have the meaning set forth in
paragraph 5 hereinafter.
D. "Normal Retirement" shall mean retirement on or after
the "Normal Retirement Age" as defined in the
Retirement Plan for Employees of the Farmers National
Bank of Emlenton currently in effect or as amended in
the future.
E. "Qualifying Termination" shall have the meaning set
forth in paragraph 4 hereinafter.
3
<PAGE>
F. "Retirement" shall mean retirement at any time prior to
"Normal Retirement" as defined in paragraph 1.D. of
this Agreement
G. "Severance Benefits" shall have the meaning
described in paragraph 6 hereinafter.
2. TERM. This Agreement shall commence as of the date hereof
and shall terminate except to the extent that any obligation of the Bank
hereunder remains unpaid as of such time, upon the earliest of:
A. Five (5) years from the date of this Agreement, unless a
change of control of the Bank has occurred within such five
year period, in which case the term of years under this
Section shall be the later of
(i) Five years from the date of this Agreement; or
(ii) Two years from the date of the change of control; or
(iii) The date on which all payments payable under this
Agreement are paid if a termination of employment or
a notice relating to the Employee's termination of
employment occurs or is provided on or before two (2)
years from the date of change of control.
B. The Employee's disability; or
C. The termination of the Employee's employment with the
4
<PAGE>
Bank as a result of the Employee's death, conviction of a
felony, retirement or the Employee's voluntary resignation of
employment other than for good reason.
D. The term of this Agreement specified in paragraph 2.A. herein
shall be extended for a period of one year beyond the
expiration date then in effect on each anniversary date of the
commencement date of this Agreement unless the Bank shall
provide the Employee with written notice to the contrary prior
to each renewal date. In no event shall the Term continue
after the date of Normal Retirement.
3. EMPLOYMENT STATUS. Notwithstanding any provisions set forth
in this Agreement, nothing herein shall be deemed to create an employment
agreement between the Bank and Employee. Unless the Bank and Employee are bound
by a separate Employment Agreement, the Employee's employment with the Bank is
terminable at will by the Bank or the Employee may terminate his employment at
any time, with or without cause, subject to the Bank's obligations to provide
Severance Benefits as required hereunder.
4. QUALIFYING TERMINATION. A voluntary termination by employee
for Good Reason, or termination for reasons other than death, conviction of a
felony, disability, normal retirement within twenty-four (24) months after the
date of a change of control of Emclaire Financial Corp shall result in the
payment of Severance Benefits.
5
<PAGE>
5. TERMINATION FOR GOOD REASON. The Employee may terminate his
employment with the Bank for Good Reason at any time within twenty-four (24)
months after the date of a change of control and be entitled to compensation
under paragraph 6 of this Agreement. For purposes of this Agreement "Good
Reason" shall mean:
A. Any change in Employee's duties, responsibilities,
status, titles, or offices in effect immediately prior
to a change in control of the Bank.
B. A reduction in Employee's annual salary immediately prior to a
change of control or as the same may be increased from time to
time.
C. Any material diminution of the benefits (including
insurance, vacation or disability) which were in effect
prior to the change of control of the Bank.
D. A relocation of the Bank's headquarters offices or the
Employee's place of business following a change of control to
a place beyond ten (10) miles from the current headquarters
offices or the Employee's place of business.
E. Any material breach of this Agreement which has not
been cured within ten (10) days after a notice of non-
compliance has been given by Employee to the Bank.
6
<PAGE>
F. Any failure of the Bank to obtain the assumption of
this Agreement by any successor or assign of the Bank.
6. SEVERANCE BENEFITS UPON TERMINATION OF EMPLOYMENT. In the
event of a qualifying termination within two (2) years from the date from a
change of control, the Bank shall pay or provide the following severance
benefits to the Employee:
A On the fifth (5th) business day following the date of
termination, a lump sum cash payment in the amount of two (2)
times the Employee's base annual compensation immediately
preceding a change of control or immediately prior to the date
of termination, whichever is higher; and
B. For two (2) years after the date of termination the Bank shall
arrange to provide the Employee with life, disability,
accident and health insurance benefits substantially similar
to what was in place immediately prior to the date of
termination, provided however, that any such payment shall be
reduced to the extent that these benefits are provided to
Employee from a subsequent employer; and
C. Legal expenses and fees incurred by Employee in his or her
attempt to obtain severance benefits following a qualifying
termination; and
7
<PAGE>
D. Unpaid salary and accrued vacation pay.
E. The Employee shall not be required to mitigate the amount of
any payment of severance benefits if he is seeking other
employment, except as set forth hereinbefore.
7. SUCCESSORS. In addition to any obligations imposed by law upon any
successor to the Bank, the Bank will require any successor to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Bank would be required to perform if no such event had taken place.
8. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not effect the validity or enforceability of any other
provision hereof.
9. NON-DISCLOSURE. Employee will not, during or after the term of this
Agreement, directly or indirectly, disseminate or disclose to any person, firm
or entity, except to his or her family and legal advisor, the terms of this
Agreement without the written consent of the Bank.
10. APPLICABLE LAW. This Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania.
8
<PAGE>
11. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extent that the parties may otherwise reach a mutual
settlement of such issue. The Bank shall incur the cost of all fees and expenses
associated with filing a request for arbitration with the AAA, whether such
filing is made on behalf of the Bank or the employee, and the costs and
administrative fees associated with employing the arbitrator and related
administrative expenses assessed by the AAA. The Bank shall reimburse the
Employee for all reasonable costs and expenses, including reasonable attorneys'
fees, arising from such dispute, proceedings or actions, following delivery of
the decision of the arbitrator. Such reimbursement shall be paid within ten (10)
days of Employee furnishing to the Bank evidence, which may be in the form,
among other things, of a canceled check or receipt, of any costs or expenses
incurred by Employee.
EXHIBIT 13
Annual Report to Stockholders for the fiscal year ended December 31, 1996
<PAGE>
The Cover [PICTURE OMITTED]
The grist mill at McDonnell's Mill State Park, located west of Butler, PA, was
originally constructed in 1852. It was destroyed by fire and rebuilt in 1867.
The mill was reconstructed in 1963 and is the focal point of the 2,500 acre
park.
TABLE OF CONTENTS
President's letter 1
Selected Financial Data 2
Consolidated Financial Statements 3-6
Notes to Consolidated Financial Statements 7-19
Report of Independent Auditors 20
Management's Discussion and Analysis of
Financial Condition and Results of Operations 21-33
Common Stock Information 33
<PAGE>
Dear Stockholders and Friends:
The year was one full of growth and change. We took advantage of several
opportunities to expand and strengthen our branch network. A significant
technology investment was made which should allow us to better serve our current
and future customers. Your Company also sought to further improve stockholder
value by effecting a 4-for-1 stock split, completing a sale of common stock, and
arranging for the stock to be listed on the NASD Electronic Bulletin Board.
In May, we expanded our branch network with the opening of the Bon Aire branch
office, located in the Bon Aire Plaza in Butler, PA. This office has been well
received by the residents and merchants of Butler, having accumulated deposits
in excess of $6 million in its first seven months of operation.
We strengthened our market presence in western Clarion County by establishing
two offices in Knox, PA. In August our first supermarket office was opened in
Tom's Riverside Market. This office has become quite popular due to its extended
hours, convenience and automated teller machine. The second office, located on
Main Street, was acquired from Mellon Bank in September. This operation and the
new employees it brought have been a welcome addition.
The opening of these new offices allowed us to increase our total assets to
$128.0 million, and total deposits to $114.7 million, an increase of 29.8% and
29.0%, respectively, from 1995. This growth did not come without a price. As a
result of the capital outlay and increase in overhead, net income for 1996,
decreased 16.3% to $981,000, as compared to $1,172,000 reported in 1995. These
results mirror those experienced in 1991, when the last branch expansion took
place.
During 1996, a wide area personal computer network and teller processing
platform system were installed. These improvements allow for tellers to process
a greater variety of transactions for the customer, while the network allowed
for the installation of deposit and loan processing software systems. We believe
this investment in technology will enable us to provide more and better service
to our customers, while still maintaining that personal touch our customers
deserve.
In December, we completed the sale of 230,800 shares of common stock. As result,
the number of stockholders more than doubled to 570 at year end. I am pleased
that the vast majority of our new stockholders reside in communities served by
Farmers National Bank. This stock sale resulted in net proceeds in excess of
$2.9 million, of which, $2.8 million was contributed to the Bank. As part of the
stock sale, the Board of Directors authorized the listing of the common stock on
the NASD Electronic Bulletin Board under the symbol "EMCF". This change should
afford current and prospective stockholders the opportunity to purchase
additional shares by contacting a local broker, or one of the market makers
listed in the back of this annual report.
The biggest change in 1996, had nothing to do with branch expansion, high tech
gadgets, or stock symbols. On December 31, 1996, Ron Ashbaugh retired as
president and chief executive officer, after a thirty-seven year career,
including twenty-two as president and chief executive officer. It is a
reflection of a man that he leaves a place better than he found it; and it was
Ron's vision and energy that allowed the Company to survive and prosper in an
era of stiff competition and rapid consolidation in the banking industry. While
we all will miss seeing Ron on a daily basis, he has agreed to continue as a
member of the Board of Directors.
As I begin my tenure as president of your company, I hope that we will be able
to continue to grow and prosper by providing timely and effective products to
our customers, while maintaining a high level of customer service. For 1997, we
plan on offering a debit card, which will allow our customers access to point of
sale purchases at over 13 million merchants worldwide, along with access to over
200,000 ATM's on the MAC and Plus networks.
In addition, the expansion undertaken this past year has caused us to review our
entire data processing system. As part of that process, we are considering the
construction of a separate facility to house the data processing and bookkeeping
operations. A site in downtown Emlenton is currently under consideration. A
decision on this project should be made by mid-year.
I would like to thank our Board of Directors and employees, for their support
and effort over the past year. The projects undertaken in 1996 were vast, and
could not have been achieved without their commitment and hard work.
Lastly, I encourage each of you to attend the annual meeting of stockholders to
be held at 7:00 p.m., on May 21, 1997, at the Holiday Inn in Clarion, PA. It
will be a great opportunity to meet the directors, officers and employees, and
to share in the discussion with your fellow stockholders.
Sincerely,
/s/David L. Cox
David L. Cox
President and Chief Executive Officer
1
<PAGE>
Selected Financial Data
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Interest income $ 8,098 $ 7,437 $ 6,751 $ 6,772 $ 7,144
Interest expense 3,352 2,986 2,573 2,651 3,256
------------- ------------- ------------- ------------- -------------
Net interest income 4,746 4,451 4,178 4,121 3,888
Provision for loan losses 120 143 132 180 165
------------- ------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 4,626 4,308 4,046 3,941 3,723
Other income 427 389 384 301 299
Other expense 3,636 3,005 2,899 2,780 2,678
------------- ------------- ------------- ------------- -------------
Income before income taxes and
cumulative effect adjustment 1,417 1,692 1,531 1,462 1,344
Applicable income tax expense 436 520 454 450 432
------------- ------------- ------------- ------------- -------------
Net income before cumulative
effect adjustment 981 1,172 1,077 1,012 912
Cumulative effect adjustment - - - -
------------- ------------- ------------- ------------- -------------
NET INCOME $ 981 $ 1,172 $ 1,077 $ 1,043 $ 912
============= ============= ============= ============= =============
PER SHARE DATA (1) Earnings per share:
Prior to cumulative effect adjustment $ 1.21 $ 1.47 $ 1.35 $ 1.27 $ 1.14
Cumulative effect adjustment - - - .04 -
============= ============= ============= ============= =============
Earnings per share $ 1.21 $ 1.47 $ 1.35 $ 1.31 $ 1.14
============= ============= ============= ============= =============
Dividends paid $ .43 $ .45 $ .40 $ .38 $ .27
Book value per share at period end $ 12.26 $ 11.30 $ 10.20 $ 9.26 $ 8.33
Average number of shares outstanding 811,812 799,200 799,200 799,200 799,200
BALANCE SHEET STATISTICS
(at end of period)
Assets $ 128,002 $ 98,599 $ 96,714 $ 94,774 $ 91,520
Deposits 114,725 88,944 87,986 86,996 84,014
Loans 68,428 64,322 64,086 61,378 60,365
Allowance for loan losses 733 687 688 639 573
Federal funds sold 3,500 2,500 900 3,350 4,175
Investment securities 46,483 26,361 25,436 23,180 18,795
Stockholders' equity 12,631 9,032 8,155 7,397 6,654
SIGNIFICANT RATIOS
Return on average equity 10.33 % 13.56 % 13.80 % 14.69 % 14.51 %
Return on average assets .89 1.20 1.12 1.11 1.01
Net yield on earning assets 4.68 4.97 4.81 4.80 4.64
Net loans as a percent of deposits 59.01 71.55 72.05 69.82 71.17
Equity to assets at period end 9.87 9.16 8.43 7.80 7.27
Earning average assets to total assets 93.63 94.11 92.84 92.62 92.60
Average interest bearing liabilities to assets 77.02 77.26 78.36 79.84 80.94
Dividends as a percent of net income (1) 35.54 30.61 29.63 29.01 23.68
Allowance for loan losses to total loans 1.07 1.07 1.07 1.04 0.95
Full time equivalent employees 74 52 47 47 47
Banking offices 7 4 4 4 4
</TABLE>
(1) - Adjusted for a four-for-one stock split effected June 20, 1996.
2
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,741,568 $ 3,175,347
Federal funds sold 3,500,000 2,500,000
Investment securities(Note 3):
Available for sale 36,207,683 10,111,138
Held to maturity (estimated market value
of $10,246,617 and $16,299,328) 10,274,937 16,249,637
Loans (Note 4) 68,428,063 64,322,111
Less allowance for loan losses(Note 5) 733,202 687,415
----------- -----------
Net loans 67,694,861 63,634,696
Premises and equipment (Note 6) 2,308,374 1,663,096
Accrued interest and other assets 3,274,895 1,264,867
----------- -----------
TOTAL ASSETS $128,002,318 $98,598,781
============ ===========
LIABILITIES
Deposits
Non-interest bearing demand 17,649,969 12,606,044
Interest bearing demand 15,784,028 12,370,668
Savings 14,167,947 12,805,694
Money market 19,058,897 15,604,881
Time (Note 7) 48,064,028 35,556,273
----------- -----------
Total deposits 114,724,869 88,943,560
Obligation under capital lease 104,233 143,083
Accrued interest and other liabilities 542,218 479,841
----------- -----------
TOTAL LIABILITIES 115,371,320 89,566,484
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00, 3,000,000 shares
authorized; none issued - -
Common stock, par value $1.25 per share;
12,000,000 shares authorized,
1,030,000 and 800,000 shares issued 1,287,500 1,000,000
Additional paid-in capital 3,621,758 1,013,080
Retained earnings 7,597,592 6,959,932
Net unrealized gain on securities 124,148 65,685
Treasury stock, at cost (800 shares) - (6,400)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,630,998 9,032,297
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $128,002,318 $98,598,781
============ ===========
</TABLE>
See the accompanying notes to the consolidated financial statements.
3
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 5,839,546 $ 6,035,217
Interest bearing deposits in other banks 2,120 2,122
Federal funds sold 236,020 198,240
Investment securities:
Taxable 1,879,123 1,033,546
Exempt from federal income tax 140,743 168,164
----------- -----------
Total interest income 8,097,552 7,437,289
----------- -----------
INTEREST EXPENSE
Deposits 3,281,826 2,976,453
Short-term borrowings (Note 11) 63,198 -
Lease obligation 7,470 9,943
----------- -----------
Total interest expense 3,352,494 2,986,396
----------- -----------
NET INTEREST INCOME 4,745,058 4,450,893
Provision for loan losses 120,000 143,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,625,058 4,307,893
----------- -----------
OTHER OPERATING INCOME
Service fees on deposit accounts 343,727 296,148
Other 83,588 92,786
----------- -----------
Total other operating income 427,315 388,934
----------- -----------
OTHER OPERATING EXPENSE
Salaries and employee benefits 1,902,901 1,544,172
Occupancy, furniture and equipment 524,038 388,358
Other (Note 8) 1,208,564 1,072,227
----------- -----------
Total other operating expense 3,635,503 3,004,757
----------- -----------
Income before income taxes 1,416,870 1,692,070
Income taxes (Note 9) 435,554 520,468
----------- -----------
NET INCOME $ 981,316 $ 1,171,602
=========== ===========
EARNINGS PER SHARE $ 1.21 $ 1.47
AVERAGE SHARES OUTSTANDING 811,812 799,200
</TABLE>
See the accompanying notes to the consolidated financial statements.
4
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid-in Retained Gain Treasury
Stock Capital Earnings on Securities Stock Total
---------- --------- ---------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ 1,000,000 $ 1,013,080 $ 6,147,970 $ - $ (6,400) $ 8,154,650
Net income 1,171,602 1,171,602
Dividends declared
($.45 per share) (359,640) (359,640)
Net unrealized gain on securities 65,685 65,685
----------- ----------- ----------- ---------- ----------- -----------
Balance December 31, 1995 1,000,000 1,013,080 6,959,932 65,685 (6,400) 9,032,297
Net income 981,316 981,316
Dividends declared
($.43 per share) (343,656) (343,656)
Net proceeds from sale
of 230,800 shares of common
stock (Note 14) 287,500 2,608,678 6,400 2,902,578
Net unrealized gain on securities 58,463 58,463
----------- ----------- ----------- ---------- ----------- -----------
Balance December 31, 1996 $ 1,287,500 $ 3,621,758 $ 7,597,592 $ 124,148 $ - $12,630,998
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 981,316 $ 1,171,602
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 364,618 240,571
Net amortization of investment security
discounts and premiums 219,856 224,633
Provision for loan losses 120,000 143,000
Deferred income taxes (60,602) (24,062)
Increase in accrued interest receivable (358,229) (35,425)
Increase in accrued interest payable 60,883 63,907
Other, net (369,314) 111,108
----------- -----------
Net cash provided by operating activities 958,528 1,895,334
----------- -----------
INVESTING ACTIVITIES
Proceeds from maturities and repayments of
investment securities:
Held to maturity 8,961,382 6,524,531
Proceeds from sales of investment securities:
Available for sale 89,800 -
Purchases of investment securities:
Available for sale (26,167,933) -
Held to maturity (3,136,371) (7,574,662)
Net loan originations (4,217,569) (332,827)
Purchases of premises and equipment (779,239) (153,913)
Proceeds from sales of other real estate 50,201 231,163
Net proceeds from branch acquisition 12,682,685 -
------------ ----------
Net cash used for investing
activities (12,517,044) (1,305,708)
----------- ----------
FINANCING ACTIVITIES
Net increase in deposits 11,604,665 957,434
Payments for obligation under capital lease (38,850) (36,377)
Proceeds from sale of common stock, net of cost 2,902,578 -
Cash dividends paid (343,656) (359,640)
----------- ----------
Net cash provided by financing activities 14,124,737 561,417
----------- -----------
Increase in cash and cash equivalents 2,566,221 1,151,043
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,675,347 4,524,304
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,241,568 $ 5,675,347
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
EMCLAIRE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
Emclaire Financial Corp. (Company) is a Pennsylvania corporation organized
as the holding company of The Farmers National Bank of Emlenton (Bank).
The Bank is a national association headquartered in Emlenton,
Pennsylvania. The Company's principal sources of revenue emanate from its
investment securities portfolio, its portfolio of residential real estate,
commercial mortgage, commercial and consumer loans, as well as a variety
of deposit services offered to its customers through seven offices. The
Company is supervised by the Board of Directors of the Federal Reserve
System, while the Bank is subject to regulation and supervision by the
Office of the Comptroller of the Currency.
Basis of Presentation
- ---------------------
The consolidated financial statements of the Company include its
wholly-owned subsidiary, the Bank. All intercompany transactions have
been eliminated in consolidation. The investment in subsidiary, on the
parent company financial statements, is carried at the parent company's
equity position in the underlying net assets.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates
Investment Securities
- ---------------------
Investment securities have been classified into two categories: Held to
Maturity and Available for Sale. Debt securities acquired with the
ability and intent to hold to maturity are stated at cost adjusted for
amortization of premium and accretion of discount which are computed using
the interest method and recognized as adjustments of interest income. All
other debt securities have been classified as available for sale to serve
principally for liquidity purposes. Unrealized holding gains and losses
for available for sale securities are reported as a separate component of
stockholders' equity, net of tax, until realized.
Realized securities gains and losses are computed using the specific
identification method. Interest and dividends on securities are
recognized as income when earned.
Common stock of the Federal Home Loan Bank and Federal Reserve Bank
represents ownership in institutions which are wholly-owned by other
financial institutions. These equity securities are accounted for at cost.
Loans
- -----
Loans are reported at their principal amount net of the allowance for loan
losses. Interest on all loans is recognized as income when earned on the
accrual method. The accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions,
that the borrower's financial condition is such that collection of
interest is doubtful. Interest payments received on nonaccrual loans is
recorded as income or applied against principal according to management's
judgment as to the collectibility of such principal.
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of the related loan
yield. The Company is amortizing these amounts over the contractual lives
of the related loans.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses represents the amount which management
estimates is adequate to provide for potential losses in its loan
portfolio. The allowance method is used in providing for loan losses.
Accordingly, all loan losses are charged to the allowance, and all
recoveries are credited to it. The allowance for loan losses is
established through a provision for loan losses which is charged to
operations. The provision is based upon managemen's periodic evaluation
of individual loans, the overall risk characteristics of the various
portfolio segments, past experience with losses, the impact of economic
conditions on borrowers, and other relevant factors. The estimates used
in determining the adequacy of the allowance for loan losses are
particularly susceptible to significant change in the near term.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a
Loan", as amended by Statement No. 118 "Accounting by Creditors For
Impairment of a Loan Income Recognition and Disclosures". These
statements address the accounting by creditors, such as banks, for the
impairment of certain loans. The Company considers a commercial or
7
<PAGE>
commercial real estate loan to be impaired when, based on current
information and events, it is probable that the Company will be unable to
collect principal or interest due according to the contractual terms of
the loan. Loan impairment is measured based on the present value of
expected cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loans observable market price or the
fair value of the collateral if the loan is collateral dependent.
Payments received on impaired loans are applied against the recorded
investment in the loan. For loans other than those that the Company
expects repayment through liquidation of the collateral, when the
remaining recorded investment in the impaired loans is less than or equal
to the present value of the expected cash flows, income is recorded on a
cash basis.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are
charged against income as incurred. Costs of major additions and
improvements are capitalized.
Other Real Estate
- -----------------
Other real estate owned acquired in settlement of foreclosed loans is
carried as a component of other assets at the lower of cost or fair valued
minus the cost to sell. Valuation allowances for estimated losses are
provided when the carrying value of the real estate acquired exceeds the
fair value. Direct costs incurred in the foreclosure process and
subsequent holding costs incurred on such properties are recorded as
expenses of current operations.
Intangible Assets
- -----------------
The excess cost over net tangible assets and identified intangible assets
of acquired branch offices is amortized using the straight-line method
over a period not to exceed fifteen years. Core deposit intangible
premiums are amortized on a straight-line basis over the average remaining
lives of the acquired deposits, not to exceed ten years. Other
identified intangible assets are amortized over the estimated benefited
period, not to exceed ten years.
Pension Plan
- ------------
The Bank maintains a non-contributory defined benefit pension plan
covering substantially all employees and officers. The plan calls for
benefits to be paid to eligible employees at retirement based primarily
upon years of service with the Bank and compensation rates near retirement.
Income Taxes
- ------------
The Company and the Bank file a consolidated federal income tax return.
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
Earnings Per Share
- ------------------
Earnings per share are calculated using the weighted average number of
shares of stock outstanding which were 811,812 and 799,200 for 1996 and
1995, respectively, after giving effect for the 4-for-1 stock split in
1996. (Note 14)
Cash Flow Information
- ---------------------
The Company has defined cash equivalents as those amounts included in due
from banks and federal funds sold.
Cash payments for interest in 1996 and 1995 were $3,291,611 and
$2,922,489, respectively. Cash payments for income taxes in 1996 and 1995
were $501,308 and $541,000, respectively.
2. BRANCH ACQUISITION
On September 20, 1996, the Bank acquired certain deposit liabilities of
the Knox, Pennsylvania office of Mellon Bank, N.A. in a transaction
recorded as a branch purchase. The Bank assumed deposit liabilities of
approximately $14.1 million and acquired the land, building and
equipment. The difference between the liabilities assumed and the assets
acquired was received in cash totaling approximately $12.6 million. The
amount by which the acquisition cost exceeded the value of the assets
purchased, totaling approximately $1.4 million, was recorded as an
intangible asset.
3. INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities
are summarized as follows:
8
<PAGE>
<TABLE>
<CAPTION>
Available for Sale 1996
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury securities and
Obligations of U. S. Government
corporations and agencies $23,539,460 $ 165,784 $(42,832) $23,662,412
Obligations of states and political
subdivisions 1,919,500 1,206 (3,020) 1,917,686
Corporate notes 10,156,821 94,005 (27,041) 10,223,785
----------- --------- --------- -----------
Total debt securities 35,615,781 260,995 (72,893) 35,803,883
Equity investment in Federal Reserve
and Federal Home Loan Banks 403,800 - - 403,800
----------- --------- --------- -----------
Total $36,019,581 $ 260,995 $(72,893) $36,207,683
=========== ========= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity 1996
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury securities and
Obligations of U. S.
Government
corporations and agencies $ 2,011,764 $ - $ (1,139) $ 2,010,625
Obligations of states and
political subdivisions 3,129,733 4,759 (749) 3,133,743
Corporate notes 3,527,955 9,180 (5,743) 3,531,392
Mortgage-backed securities 1,605,485 - (34,628) 1,570,857
------------ ------------ ----------- -----------
Total $10,274,937 $ 13,939 $ (42,259) $10,246,617
============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Available for Sale 1995
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury securities and
Obligations of U. S.
Government
corporations and agencies $ 9,593,915 $ 121,733 $ (22,210) $ 9,693,438
Equity investment in Federal
Reserve and Federal Home Loan
Banks 417,700 - - 417,700
------------ ------------ ----------- -----------
Total $10,011,615 $ 121,733 $ (22,210) $10,111,138
============ ============ =========== ===========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Held to Maturity 1995
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury securities and
Obligations of U. S.
Government
corporations and agencies $ 7,077,756 $ 26,891 $ (4,147) $ 7,100,500
Obligations of states and
political subdivisions 3,869,528 3,262 (9,283) 3,863,507
Corporate notes 2,758,448 52,433 (5,451) 2,805,430
Mortgage-backed securities 2,543,905 2,276 (16,290) 2,529,891
------------ ------------ ----------- -----------
Total $16,249,637 $ 84,862 $ (35,171) $16,299,328
============ ============ =========== ===========
</TABLE>
In December, 1995, in accordance with the Financial Accounting Standards
Board Special Report, "A Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities", the
Company reclassified investment securities from the held to maturity
classification to the available for sale classification with an amortized
cost of $10,012,503 and an estimated market value of $10,057,238. The net
appreciation of these securities was recorded net of federal income taxes
to an unrealized gain account, which is a component of stockholders'
equity.
Proceeds from the sale of investment securities classified as available
for sale totaled $89,800 and represented proceeds from the sale of Federal
Home Loan Bank stock. Such periodic sales are transacted at cost. No
sales of investment securities occurred in 1995.
Investment securities with a carrying value of approximately $5,362,820
and $3,551,250 at December 31, 1996, and 1995, respectively, were pledged
to secure deposits and for other purposes as required by law. The
carrying value approximated the estimated market value of the investment
securities for both years.
The amortized cost and estimated market value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------- ----------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 6,052,779 $ 6,029,061 $ 3,248,244 $ 3,251,760
Due after 1 year through 5 years 29,348,502 29,560,316 5,421,208 5,424,000
Due after 5 years through 10 years 214,500 214,506 - -
------------ ------------ ----------- -----------
35,615,781 35,803,883 8,669,452 8,675,760
Mortgage-backed securities - - 1,605,485 1,570,857
------------ ------------ ----------- -----------
Total $ 35,615,781 $ 35,803,883 $10,274,937 $10,246,617
============ ============ =========== ===========
</TABLE>
10
<PAGE>
4. Loans
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commercial and industrial $10,390,129 $ 9,611,079
Real estate mortgages:
Residential 34,251,136 31,195,745
Commercial and other 11,400,243 10,969,236
Consumer 12,386,555 12,546,051
----------- -----------
68,428,063 64,322,111
Less allowance for loan losses 733,202 687,415
----------- -----------
$67,694,861 $63,634,696
=========== ===========
</TABLE>
In the normal course of business, loans are extended to directors,
executive officers, and their associates. In management's opinion, all of
these loans are on substantially the same terms and conditions as loans to
other individuals and businesses of comparable creditworthiness. A
summary of loan activity for those directors, executive officers, and
their associates with aggregate loan balances in excess of $60,000 for the
year ended December 31, 1996, is as follows:
Balance Balance
December 31, December 31,
1995 New Loans Repayments 1996
------------- ------------- ------------- -------------
$ 1,389,697 573,372 710,336 $ 1,252,733
The Bank's primary business activity is with customers located within
Venango, Clarion, and Butler Counties. Commercial, residential, personal,
and agricultural loans are granted. Although the Bank has a diversified
loan portfolio at December 31, 1996 and 1995, loans outstanding to
individuals and businesses are dependent upon the local economic
conditions within the immediate trade area.
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance, January 1 $ 687,415 $ 687,578
Provision charged to operations 120,000 143,000
Recoveries
46,658 61,869
Less loans charged off 120,871 205,032
----------- -----------
Balance, December 31 $ 733,202 $ 687,415
=========== ===========
</TABLE>
At December 31, 1996, the recorded investment in loans which are
considered to be impaired was $742,805, all of which was placed in
nonaccrual status. In addition, $80,000 of the related allowance for loan
losses has been allocated for these impaired loans. At December 31, 1996,
there were commitments for unfunded letters of
11
<PAGE>
credit totaling $7,500, to a borrower with outstanding loans considered to be
impaired. At December 31, 1995, no loans were considered to be impaired.
The average recorded investment in impaired loans during the year ended
December 31, 1996, was approximately $820,007. Interest income totaling
$13,330 was recognized on impaired loans, all of which was recognized
using the cash basis method of income recognition.
6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land and improvements $ 221,342 $ 208,742
Buildings 1,430,275 1,358,247
Leasehold improvements 128,862 -
Furniture and fixtures 1,655,951 1,025,630
----------- -----------
3,436,430 2,592,619
Less accumulated depreciation 1,128,056 929,523
----------- -----------
$ 2,308,374 $1,663,096
=========== ===========
</TABLE>
Depreciation and amortization charged to operations was $201,052 in 1996
and $146,361 in 1995.
7. TIME DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000
or more. Such deposits aggregated $4,583,000 and $3,597,000 at December
31, 1996 and 1995, respectively.
The following schedule presents the contractual maturities for time
deposits at December 31, 1996:
Within one year $30,963,299
After one year through three years 13,258,111
After three years through five years 3,729,986
after five years 112,632
-----------
$48,064,028
===========
8. OTHER EXPENSES
The following is an analysis of other expense:
1996 1995
----------- -----------
FDIC insurance $ 1,500 $ 100,722
Telephone 91,486 48,619
Printing, forms and supplies 183,390 101,854
Postage 97,413 93,596
Amortization of intangible 129,165 91,115
Other 705,610 636,321
----------- -----------
$1,208,564 $1,072,227
=========== ===========
12
<PAGE>
9. INCOME TAXES
The provision for income taxes is summarized as follows:
1996 1995
----------- -----------
Currently payable $496,156 $544,530
Deferred (60,602) (24,062)
----------- -----------
$435,554 $520,468
=========== ===========
The reconciliation between the federal statutory rate and the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- ------------------------
% of % of
Pre-Tax Pre-Tax
Amount Income Amount Income
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 481,736 34.0% $ 575,304 (34.4)
Effect of tax exempt income (56,785) (4.0) (57,450) (3.4)
Other 10,603 .7 2,614 .2
------------ ------------ ----------- -----------
$ 435,554 30.7% $ 520,468 30.8%
============ ============ =========== ===========
</TABLE>
The tax effects of deductible and taxable temporary differences that give
rise to significant portions of the deferred tax assets and deferred tax
liabilities, respectively, at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets
Provision for loan losses $ 195,551 $ 179,983
Intangible asset amortization 50,964 33,977
Capital lease obligation 35,439 48,648
Pension expense 15,753 10,762
----------- -----------
Gross tax assets 297,707 273,370
----------- -----------
Deferred tax liabilities
Net unrealized gain on securities 63,955 33,838
Depreciation 142,579 166,422
Net loan origination costs 6,878 5,742
Discount accretion - 13,559
----------- -----------
Gross deferred tax liabilities 213,412 219,561
----------- -----------
Net deferred tax asset $ 84,295 53,809
=========== ===========
</TABLE>
No valuation allowance was established at December 31, 1996 and 1995, in
view of the Company's ability to carry-back to taxes paid in previous
years and future anticipated taxable income which is evidenced by the
Company's earnings potential.
10. PENSION PLAN
The following presents the components of the pension expense for each year:
13
<PAGE>
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Service cost of benefits earned during the period $ 65,517 $ 47,800
Interest cost on projected benefit obligation 75,340 62,534
Return on plan assets (176,605) (287,502)
Net amortization and deferral 50,427 186,302
----------- -----------
Net periodic pension cost $ 14,679 $ 9,134
=========== ===========
</TABLE>
The actuarial present value of accumulated benefit obligations at December
31, 1996 and 1995, was $737,527 and $607,103 including vested benefit
obligations of $714,831 and $600,275. The following table sets forth the
funded status and amounts recognized in the balance sheets at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Plan assets at fair value $1,509,521 $1,339,813
Projected benefit obligation 1,319,173 1,010,270
----------- -----------
Funded status 190,348 329,543
Unrecognized net gain from past experience
different from assumed (116,657) (233,154)
Unamortized prior service cost 1,102 1,174
Unrecognized net transition asset (121,125) (129,216)
----------- -----------
Accrued pension cost $ (46,332) $ (31,653)
=========== ===========
</TABLE>
Plan assets are primarily comprised of debt and equity mutual funds at
December 31, 1996 and 1995.
In preparing the above information the following actuarially assumed rates
were used.
1996 1995
----------- -----------
Discount rate 7.5% 7.5%
Rate of increase in future compensation levels 5.0 5.0
Rate of return on plan assets 8.5 8.5
11. SHORT-TERM BORROWINGS AND AVAILABLE LINES OF CREDIT
The Bank maintains two credit arrangements as a source of additional
liquidity. One of these arrangements, with a borrowing limit at December
31, 1996, of approximately $3.2 million is with the Federal Home Loan Bank
of Pittsburgh. This credit line is subject to annual renewal, incurs no
service charges, and is secured by a blanket security agreement on
outstanding residential mortgage loans and the FHLB stock owned by the
Bank. The second arrangement is an unsecured federal funds line or
credit, with a borrowing limit at December 31, 1996 of $2.0 million,
maintained with a correspondent bank. There were no borrowings outstanding
during 1995. While there were no balances outstanding on either of these
lines of credit at December 31, 1996, the following presents information
pertaining to borrowings initiated and repaid during 1996:
1996
-----------
Average balance outstanding $ 1,128,415
Maximum month-end balance 5,000,000
Weighted average interest rate 5.6%
14
<PAGE>
12. COMMITMENTS AND CONTINGENT LIABILITIES
Loans and Letters of Credit
- ---------------------------
In the normal course of business, the Bank makes various commitments which
are not reflected in the accompanying financial statements. The Bank
offers such products to enable its customers to meet their financing
objectives. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
balance sheet. The Bank's exposure to credit loss in the event of
nonperformance by the other parties to the financial instruments is
represented by the contractual amounts as disclosed. Losses, if any, are
charged to the allowance for loan losses. The Bank minimizes its exposure
to credit loss under these commitments by subjecting them to credit
approval and review procedures and collateral requirements as deemed
necessary.
The off-balance sheet commitments were comprised of the following at
December 31:
1996 1995
----------- -----------
Commitments to extend credit $ 6,810,000 $ 5,002,000
Standby letters of credit 1,112,000 1,089,000
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the loan
agreement. These commitments are comprised primarily of available
commercial and personal lines of credit and loans approved but not yet
funded. The Bank uses the same credit policies in making loan commitments
and conditional obligations as it does for on-balance sheet instruments.
Since many of the credit line commitments are expected to expire without
being fully drawn upon, the total contractual amounts do not necessarily
represent future funding requirements.
Standby letters of credit obligate the Bank to disburse funds to a third
party if the Bank's customer fails to perform under the terms of the
agreement with the beneficiary. These instruments are issued primarily to
support bid or performance-related contracts. The coverage period for
these instruments is typically a one year period with an annual renewal
option subject to prior approval by management. The Bank holds collateral
for these instruments, as deemed necessary, which are typically Bank
deposit instruments.
Operating Leases
- ----------------
Certain office facilities are leased under various operating leases.
Rental expense was $23,027 in 1996. No such rental expense was incurred
in 1995. Future minimum rental commitments under noncancellable leases
are:
Future
Minimum
Lease
Payments
--------------
1997 $ 43,008
1998 45,339
1999 48,046
2000 48,254
2001 24,168
13. REGULATORY MATTERS
Cash and Due from Banks
- -----------------------
The district Federal Reserve Bank requires the Bank to maintain certain
reserve balances. As of December 31, 1996 and 1995, the Bank had required
reserves of $880,000 and $603,000 comprised of vault cash, and a
depository amount held with the Federal Reserve Bank.
Loans
- -----
The Federal Reserve Act limits extensions of credit by the Bank to the
Company and requires such credits to be collateralized. Further such
secured loans are limited in amount to 10% of the Bank's capital and
surplus. There were no loans between the Bank and the Company during 1996
and 1995.
15
<PAGE>
Dividends
- ---------
The Bank is subject to a dividend restriction which generally limits the
amount of dividends that can be paid by a national bank. Prior approval
of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds net
profits as defined for the year combined with its retained net profits for
the two preceding calendar years less any required transfer to surplus.
Using this formula, the amount available for payment of dividends by the
Bank to the Company in 1997, without approval of the Comptroller, will be
limited to $1,478,000 plus net profits retained up to the date of the
dividend declaration.
Regulatory Capital Requirements
- -------------------------------
Various regulatory agencies require banks and bank holding companies to
maintain minimum capital amounts and ratios. These regulations require
the Bank to meet specific capital adequacy guidelines which involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance sheet items as calculated and defined by regulation.
Due to the size and corporate structure of the consolidated Company,
regulatory capital compliance is monitored based on the Bank's capital
structure. The following table sets forth the Bank's actual regulatory
capital and ratios, as well as, the capital and ratios generally required
for a bank to be considered adequately capitalized under the regulatory
framework for prompt corrective action:
<TABLE>
<CAPTION>
Actual Required
------------------------- ----------------------
Amount Ratio Amount Ratio
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
December 31, 1996
Total capital to risk weighted assets $11,557,617 15.7% $ 5,896,480 8.0%
Tier 1 capital to risk weighted assets 10,824,415 14.7 2,948,240 4.0
Tier 1 capital to average assets 10,824,415 8.7 4,990,340 4.0
December 31, 1995
Total capital to risk weighted assets $ 9,322,471 15.9% $ 4,684,480 8.0%
Tier 1 capital to risk weighted assets 8,635,056 14.7 2,342,240 4.0
Tier 1 capital to average assets 8,635,056 8.7 3,953,204 4.0
</TABLE>
14. COMMON STOCK
Stock Split
- -----------
On June 20, 1996, the Company effected a four-for-one split of its common
stock. As a result of this transaction, the authorized and issued number
of shares increased from 3,000,000 and 200,000 to 12,000,000 and 800,000,
respectively, and the par value was reduced from $5.00 per share to $1.25
per share. All references in the accompanying financial statements to the
number of shares and the per share amounts have been restated to reflect
this stock split.
Stock Sale
On December 12, 1996, the Company completed the sale of 230,800 shares of
common stock, par value $1.25. These shares were sold at a price of
$13.50 per share, resulting in net proceeds to the Company of $2,902,578.
Included in the shares offered were 800 shares of stock which had been
previously held as treasury shares. Upon completion of the stock sale the
Company directly contributed $2,800,000 to the Bank in the form of
additional paid-in capital.
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Financial instruments are defined as cash, evidence of an ownership
interest in an entity, or a contract which creates an obligation or right
to receive or deliver cash or another financial instrument from/to a
second entity on potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or
16
<PAGE>
liquidation sale. If a quoted market price is available for a financial
instrument, the estimated fair value would be calculated based upon the market
price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for
financial instruments would be based upon management's judgment regarding
current economic conditions, interest rate risk, expected cash flows,
future estimated losses, and other factors as determined through various
option pricing formulas or simulation modeling. As many of these
assumptions result from judgments made by management based upon estimates
which are inherently uncertain, the resulting estimated fair values may
not be indicative of the amount realizable in the sale of a particular
financial instrument. In addition, changes in the assumptions on which
the estimated fair values are based may have a significant impact on the
resulting estimated fair values.
As certain assets and liabilities, such as deferred tax assets and
premises and equipment, are not considered financial instruments, the
estimated fair value of financial instruments would not represent the full
value of the Company.
The estimated fair values at December 31, 1996 and 1995, of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks
and federal
funds sold $ 8,241,568 $ 8,241,568 $ 5,675,347 $ 5,675,347
Investment securities:
Available for sale 36,207,683 36,207,683 10,111,138 10,111,138
Held to maturity 10,274,937 10,246,617 16,249,637 16,299,328
Net loans 67,694,861 68,583,000 63,634,696 65,317,000
Accrued interest receivable 1,111,424 1,111,424 753,195 753,195
----------------------------------------------------
$123,530,473 $124,390,292 $ 96,424,013 $ 98,156,008
====================================================
Financial liabilities
Deposits $114,724,869 $114,423,000 $ 88,943,560 $ 89,259,000
Accrued interest payable
320,486 320,486 259,603 259,603
----------------------------------------------------
$115,045,355 $114,743,486 $ 89,203,163 $ 89,518,603
====================================================
</TABLE>
The Company employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available based upon the following assumptions:
Cash and Due From Banks, Federal Funds Sold, Accrued Interest Receivable,
and Accrued Interest Payable
- --------------------------------------------------------------------------------
The fair value is equal to the current carrying value.
Investment Securities
- ---------------------
The fair value of securities held to maturity is equal to the available
quoted market price. If no quoted market price is available, fair values
are estimated using the quoted market price for similar securities.
The fair value of securities available for sale is equal to the current
carrying value.
Loans and Deposits
- ------------------
The fair value of loans is estimated by discounting the future cash flows using
a simulation model which estimates future cash flows and constructs discount
rates that consider reinvestment opportunities, operating expenses, non-interest
income, credit quality, and prepayment risk. Demand, savings, and money market
deposit accounts are valued at the amount payable on
17
<PAGE>
demand as of year end. Fair value for time deposits are estimated using a
discounted cash flow calculation that applies contractual costs currently being
offered in the existing portfolio to current market rates being offered for
deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
- ----------------------------------------------------------
These financial instruments are generally not subject to sale and
estimated fair values are not readily available. The carrying value,
represented by the net deferred fee arising from the unrecognized
commitment or letter of credit, and the fair value, determined by
discounting the remaining contractual fee over the term of the commitment
using fees currently charged to enter into similar agreements with similar
credit risk, are not considered material for disclosure. The contractual
amounts of unfunded commitments and letters of credit are presented in
Note 12.
16. PARENT COMPANY
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash on deposit in subsidiary bank $ 165,835 $ 10,024
Investment in bank subsidiary 12,539,063 9,019,643
Other assets 2,774 2,630
----------- -----------
TOTAL ASSETS $12,707,672 9,032,297
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 76,674 $ -
Stockholders' equity 12,630,998 9,032,297
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,707,672 9,032,297
=========== ===========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
Year Ended December 31,
1996 1995
----------- -----------
INCOME
<S> <C> <C>
Dividends from subsidiary $ 325,744 $ 359,640
EXPENSES 8,159 7,310
----------- -----------
Income before income taxes and equity in undistributed
earnings of subsidiary 317,585 352,330
Income tax benefit
(2,774) (2,486)
----------- -----------
Income before equity in undistributed earnings in
subsidiary 3 20,359 354,816
Equity in undistributed earnings in subsidiary 660,957 816,786
----------- -----------
NET INCOME $ 981,316 $1,171,602
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31,
1996 1995
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 981,316 $ 1,171,602
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of subsidiary (660,957) (816,786)
Amortization - 3,097
Other, net 76,530 3,332
----------- -----------
Net cash provided by operating activities 396,889 361,245
----------- -----------
INVESTING ACTIVITIES
Investment in subsidiary (2,800,000) -
----------- -----------
Net cash used for investing activities (2,800,000) -
----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of common stock, net of cost 2,902,578 -
Cash dividends paid (343,656) (359,640)
----------- -----------
Net cash provided by (used for) financing
activities 2,558,922 (359,640)
----------- -----------
Increase in cash 155,811 1,605
CASH AT BEGINNING OF YEAR 10,024 8,419
----------- -----------
CASH AT END OF YEAR $ 165,835 $ 10,024
=========== ===========
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors and Stockholders
Emclaire Financial Corp.
We have audited the consolidated balance sheet of Emclaire Financial Corp.
and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company'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 misstatements. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Emclaire Financial Corp. and Subsidiary as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As explained in the notes to the consolidated financial statements,
effective January 1, 1995, the Company changed its method of accounting
for impaired loans and the related allowance for loan losses.
/s/S. R. Snodgrass, A.C.
S. R. Snodgrass, A.C.
Wexford, PA
February 28, 1997
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Emclaire Financial Corp. ("Company") is the parent holding company for the
Farmers National Bank of Emlenton ("Bank"). The following discussion and
analysis is intended to provide information about the financial condition and
results of operation of the Company and should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto appearing
elsewhere in this annual report.
Certain information presented in this discussion and analysis and other
statements concerning future performance, developments or events, and
expectations for growth and market forecasts constitute forward-looking
statements which are subject to a number of risks and uncertainties, including
interest rate fluctuations, changes in local or national economic conditions,
and government and regulatory actions which might cause actual results to differ
materially from stated expectations or estimates.
[GRAPHIC OMITTED]
[Amounts in Thousands]
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Assets 91,520 94,774 96,714 98,599 128,002
OVERVIEW
During 1996, the Company took advantage of several opportunities to expand its
branch network. The Company through its bank subsidiary commenced operations at
two start-up branch offices, Bon Aire Plaza in Butler, and Route 338 in Knox;
and purchased a third office with deposits totaling $14.1 million, also located
in Knox, from another commercial bank. These additions increased the number of
branch offices to seven, and contributed greatly to the 29.82% and 28.99%
increases in total assets and total deposits, respectively. In addition, this
growth expanded the Company's market area into central Butler county, while
increasing its market share in western Clarion county.
As part of the branch expansion, the Company also upgraded its data processing
capabilities by installing a wide area network throughout its branch system, to
replace the previous dedicated terminal system; and a teller platform system was
installed. In addition, software was installed for loan originations and deposit
account openings.
To support the growth experienced during 1996, in December, the Company
completed the sale of 230,800 shares of common stock, resulting in net proceeds
of $2.9 million, of which $2.8 million was directly contributed to the Bank in
the form of additional paid in capital. Prior to the stock sale, the Company
effected a four-for-one split of its common stock, in June 1996.
Interest rates in 1996 remained relatively stable after declining early in the
year. This relatively low level of interest rates combined with the increase in
lower yielding earning assets, principally investment securities purchased with
proceeds from the branch purchase, resulted in a decline in the total and net
yields on earning assets.
RESULTS OF OPERATIONS
Summary
As a result of the costs incurred and capital investment made in the expansion
and data processing projects, net income for the year ended December 31, 1996
declined 16.30% to $981,000 or $1.21 per share, from $1,172,000 or $1.47 per
share reported in 1995, after giving effect for the four-for-one stock split
declared in June 1996.
While it is expected the new branch operations will eventually contribute to the
future earnings of the Company, their short-term impact resulted in additional
overhead and operating costs. In addition to the costs associated with the new
offices, the Company hired, promoted or transferred additional personnel to
staff newly created positions within the Company. These positions included a
chief financial officer, consumer loan manager, manager of human resources and
assistant marketing director. In addition, several persons were hired as loan
officers or management trainees at existing branch offices.
Total other operating expenses for the Company increased 20.99% to $3.6 million
in 1996 as compared to $3.0 million in 1995. This increase in other operating
costs exceeded the increase in net interest income which rose $295,000 or 6.61%
due principally to the increase in earning assets, particularly investment
securities.
Earnings per share for 1996 decreased 17.69% to $1.21 from $1.47 in 1995, due to
the decrease in net income, combined with additional weighted shares outstanding
due to the sale of 230,800 shares of common stock which was completed in
December 1996.
21
<PAGE>
Net interest income
The Company's net interest income on a tax equivalent basis increased $278,000
or 6.10% to $4.8 million in 1996, due to an increase of $644,000 or 8.54% in
interest income on a tax equivalent basis, which totaled $8.2 million for 1996
as compared to $7.5 million in 1995. This increase in interest income more than
offset the $366,000 or 12.26% increase in interest expense.
The increase in interest income in 1996, resulted primarily from an increase of
$845,000 or 81.72% in earnings on taxable investment securities, due to an
increase in the average outstanding balance of these securities, which rose to
$30.8 million for the year. This 62.81% increase in taxable investment
securities was funded by deposit growth. In addition, the yield on taxable
investment securities increased 11.72% to 6.10% in 1996 as compared to 5.46% in
1995. This increase was the result of the combination of changing the mix of
securities held by increasing investments in corporate debt, slightly extending
the maturities of securities purchased, and a slight, temporary upturn in rates
experienced in May and June when a number of investment purchases were executed.
The increase in taxable security interest income more than offset declines in
earnings in tax exempt investment securities and loans which decreased $41,000
or 16.08% and $198,000 or 3.27%, respectively, on a tax equivalent basis. The
decline in earnings on tax exempt securities resulted from maturities in this
portfolio being replaced with securities offering a lower yield due to the
general decline in interest rates. Management endeavors to maintain a portion of
the investment portfolio in tax exempt securities to support debt issues by
local governmental entities and as part of the overall tax planning strategy.
Interest income on loans on a tax equivalent basis declined $198,000 or 3.27% to
$5.9 million during 1996 as compared to $6.1 million in 1995. The decrease is
due principally, to the lower interest rates experienced during 1996, resulting
in a yield of 9.09% for the year as compared to 9.35% in 1995. The average
balance of the loan portfolio for 1996 of $64.4 million remained virtually
unchanged from $64.7 million in 1995. While the average balance at December 31,
1996 approximates that at December 31, 1995, the ending balance at December 31,
1996 of $68.4, as compared to $64.3 at December 31, 1995, indicates an increase
in loan demand that should result in an increase in loan interest income in
1997. While this recent increase in loan demand is promising, future loan demand
is subject to a number of factors, including general economic conditions,
competition and interest rates.
The combination of flat interest rates, and the increase in investable funds,
which were placed in the lower yielding investment portfolio, resulted in a
decline in the yield on earning assets which decreased 3.65% to 7.93% for 1996
as compared to 8.23% in 1995.
Interest expense increased $366,000 or 12.26% to $3.4 million for 1996, from
$3.0 million in 1995, due to the increase in the average volume of
interest-bearing liabilities which increased $9.7 million during 1996, to $84.9
million. The average volume of time deposits increased $6.8 million or 20.29%
during 1996, resulting in an increase in the related interest expense of
$333,000 or 18.87%. In addition, in May 1996, in anticipation of the purchase of
the branch office in Knox, a short-term borrowing totaling $4.0 million from the
Federal Home Loan Bank was incurred and used for the purchase of taxable
investment securities.
The cost of interest bearing liabilities decreased slightly to 3.95% for 1996 as
compared to 3.97% for 1995, due to the slight decrease in interest rates
experienced early in 1996.
As a result of the decline in the yield on total earning assets, the net yield
on earning assets decreased 5.84% to 4.68% for 1996 as compared to 4.97% in
1995.
The following tables set forth for the periods indicated information regarding
the total dollar amounts of interest income from interest-earning assets and the
resulting average yields, the total dollar amount of interest expense on
interest-bearing liabilities and the resulting average rate paid, net interest
income and the net yield on interest-earning assets (dollars in thousands):
22
<PAGE>
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ---------------------------------------
Average Yield/ Average Yield/
Balance Interest (2) Rate (2) Balance Interest Rate (2)
------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Investment securities
Taxable $ 30,810 $ 1,879 6.10% $ 18,924 $ 1,034 5.46%
Exempt from federal income tax 3,644 214 5.87 4,588 255 5.56
Interest bearing deposits in other banks 37 2 5.41 38 2 5.26
Loans (1)(3) 64,414 5,853 9.09 64,701 6,051 9.35
Federal funds sold 4,348 236 5.43 3,408 198 5.81
------------ ------------- ------------- ------------ -----------
Total interest-earning assets 103,253 8,184 7.93 91,659 7,540 8.23
-------------
Noninterest-earning assets
Cash and due from banks 3,638 3,226
Allowance for loan losses (714) (680)
Other assets 4,101 3,188
------------ -------------
Total assets $ 110,278 $ 97,393
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
NOW accounts $ 12,966 267 2.06% $ 12,217 272 2.23%
Money market accounts 16,921 544 3.21 16,793 554 3.30
Savings deposits 13,543 373 2.75 12,600 385 3.06
Time deposits 40,266 2,098 5.21 33,473 1,765 5.27
Obligation under capital lease 124 7 5.65 162 10 6.17
Borrowed funds 1,128 63 5.59 - -
------------ ------------- ------------- ------------ -----------
Total interest-bearing liabilities 84,948 3,352 3.95 75,245 2,986 3.97
------------- ------------
Noninterest-bearing liabilities
Demand deposits 15,257 13,080
Other liabilities 584 431
Capital 9,499 8,637
------------ -------------
Total liabilities and stockholders'
equity $ 110,288 $ 97,393
============ =============
Net interest income and net yield on
interest-earning assets $ 4,832 $ 4,554
=============== ============
</TABLE>
(1) - Interest on loans includes fee income.
(2) - Tax exempt income on loans and investment securities and the related
yields are computed on a tax equivalent basis computed using the federal
statutory rate of 34%.
(3) - Nonaccrual loans included.
23
<PAGE>
Changes in net interest income are attributable to three factors: 1) a change in
the volume of an interest-earning asset or interest-bearing liability, 2) a
change in interest rates, or 3) a change attributable to a combination of
changes in volume and rate. The following table sets forth certain information
regarding changes in interest income, on a tax-equivalent basis, and interest
expense of the Company for the periods indicated. For each category of
interest-earning asset and interest-bearing liability, information is provided
on changes attributable to 1) changes in volume (changes in volume multiplied by
the old interest rate); and 2) changes in rates (changes in interest rates
multiplied by the old average volume. Changes attributable to a combination of
changes in volume and rate are proportionately allocated to changes in volume
and changes in rate. (in thousands)
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
1996 Change from 1995 1995 Change from 1994
--------------------------- -------------------------
Total Change due to Total Change due to
Change Volume Rate Change Volume Rate
-------- --------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON:
Taxable investment securities $ 845 712 133 99 (7) 106
Non-taxable investments (41) (54) 13 (53) (59) 6
Interest bearing deposits in other
banks -- -- -- 1 1 --
Loans (198) (31) (167) 541 289 252
Federal funds sold 38 52 (14) 83 22 61
----- ----- ----- ----- ----- -----
Total interest income 644 679 (35) 671 246 425
----- ----- ----- ----- ----- -----
INTEREST EXPENSE ON:
NOW accounts (5) 17 (22) (5) (8) 3
Money market accounts (10) 5 (15) 41
Savings deposits (12) 29 (41) 4
Time deposits 333 353 (20) 471 150 321
Obligation under capital lease (3) (2) (1) 3 7
Borrowed funds 63 63 -- -- -- --
----- ----- ----- ----- ----- -----
Total interest expense 366 465 (99) 413 48 365
----- ----- ----- ----- ----- -----
NET INTEREST INCOME $ 278 214 64 258 198 60
===== ===== ===== ===== ===== =====
</TABLE>
Provision for loan losses
The provision for loan losses of $120,000 for the year ended December 31, 1996
represented a 16.08% decrease from the $143,000 provided in 1995. Management
makes periodic provisions to the allowance for loan losses to maintain the
allowance at an acceptable level commensurate
with the credit risk inherent in the loan portfolio. See "Loan Quality" for
additional discussion of the allowance for loan losses. The following table
presents a summary of loan losses by loan type and changes in the allowance for
loan losses for the two years ended December 31, 1996 (dollars in thousands):
24
<PAGE>
Year Ended December 31,
-----------------------------
1996 1995
-------- -------
Total loans outstanding $ 68,428 $ 64,322
====== ======
Average loans outstanding 64,414 64,701
====== ======
Allowance for loan losses at
beginning of year $ 687 $ 688
Provision charged to expense 120 143
Charge-offs:
Commercial and industrial 11 10
Real estate 1 55
Consumer 109 140
------ ------
Total 121 205
------ ------
Recoveries:
Commercial and industrial 1 6
Real estate 1 30
Consumer 45 25
------ ------
Total 47 61
------ ------
Net charge-offs 74 144
------ ------
Allowance for loan losses at end of period $ 733 $ 687
====== ======
Allowance for loan losses as a percent of total loans 1.07% 1.07%
Net charge-offs as a percent of average loans .11% .22%
Other operating income
Other operating income which is comprised principally of fees and charges on
customer deposit accounts increased $38,000 or 9.77% to $427,000 in 1996 from
$389,000 in 1995. Service charges on customer accounts increased $48,000 or
16.22 %, due to the increase in the volume and number of deposit accounts. Other
income decreased $9,000 during the same period due primarily to a decline in
fees recognized for the issuance of letters of credit, which fell $4,000.
Other operating expense
Other operating expense increased $631,000 or 20.99% to $3.6 million in 1996 as
compared to $3.0 million in 1995. This increase is largely attributed to the
costs associated with the establishment, staffing and operation of the branch
offices added in 1996, which totaled approximately $475,000. The hiring of
personnel not assigned to the new branch office operations and the installation
of the computer network system increased total other operating expense
approximately $125,000.
Salaries and employee benefits for 1996 totaled $1.9 million, an increase of
$359,000 or 23.23% from $1.5 million reported in 1995. Of this total increase,
approximately $252,000 represented costs associated with new employees added
during 1996, including those at the new branch offices, and $177,000 represents
normal recurring employee cost increases for such things as salaries and
hospitalization insurance. Increased employee costs in 1996 were offset by a
reduction in a discretionary bonus paid to employees and officers, based upon
the Bank meeting certain earnings goals, which was reduced by approximately
$70,000 or 49.94% from that paid in 1995.
Occupancy and equipment expenses increased $137,000 or 34.94% in 1996. Of this
increase, $119,000 is due to additional costs related to the operation of the
new branch offices, the addition of automatic teller machines at two existing
offices and an off-site location, and depreciation costs associated with the
wide area network and teller terminal projects. The remaining $17,000 represents
normal costs for improvements, repairs and maintenance, along with periodic
increases in maintenance contracts and service agreements.
25
<PAGE>
Other expense for 1996 totaled $1.2 million, a $136,000 or 12.72% increase from
the $1.1 million reported in 1995. Costs associated with the additional branch
offices primarily accounted for this increase. Telephone, office supplies and
postage increased $43,000, $81,000 and $4,000, respectively. Amortization of
intangible assets increased approximately $38,000 due to the purchase of the
Knox branch office. With the installation of the ATM's, previously discussed,
costs associated with participating in the MAC(R) network increased $53,000 or
50.79% in 1996. The increase in other costs was lessened somewhat by the
reduction in deposit insurance premiums, which decreased approximately $99,000
from 1995.
Certain other expenses incurred in 1996, are considered to be non recurring,
including costs associated with the opening of the branch offices for such
things as professional and regulatory fees, data processing conversion and free
checks provided to deposit customers acquired in the branch purchased, totaled
approximately $ 32,000 in 1996. While these costs are not expected to be
repeated in 1997, management anticipates recurring costs associated with the new
branch offices and computer network to increase total other operating costs an
additional $568,000 in 1997. This increase reflects the timing of the branch
openings, which occurred in the second and third quarters of 1996, while the
computer network became operational during the fourth quarter of 1996.
Management has begun an assessment of the current data processing operation,
including the space occupied by the data processing and bookkeeping departments
located at the Emlenton office. The branch expansion in 1996 consumed a sizable
portion of the available data processing capacity. In assessing future data
processing needs, management is considering the possibility of building a
separate facility to house the data processing and bookkeeping operations. A lot
acquired in Emlenton and used for employee parking is being considered as the
site of this possible data processing center. Should this site be constructed,
it is expected future occupancy and equipment costs would increase for such
items as depreciation, maintenance and utilities. However, at this time a
detailed estimate of these costs has not been developed.
Income Tax Expense
Income tax expense decreased $85,000 or 16.31% during 1996 when compared to
1995, due to the 16.26% decline in income before income taxes.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31, 1995
Total assets at December 31, 1996, amounted to $128.0 million, an increase of
$29.4 million or 29.82%, over total assets at December 31, 1995. The increase
was due principally to funds received in the purchase of the Knox branch office,
combined with funds obtained through the other branch offices, and the
completion of the stock offering resulting in net proceeds of $2.9 million.
These funds were used for the purchase of investment securities and the funding
of loans.
Investment Securities
Total investment securities increased $20.1 million or 76.33% to $46.5 million
at December 31, 1996. This increase was in the available for sale classification
which increased $26.1 million to $36.2 million, as all investment purchases made
during 1996 were classified as available for sale. Held to maturity investment
securities fell $6.0 million to $10.3 million during 1996, due to funds from
maturities being reinvested in the available for sale classification. While this
increase in available for sale securities does not indicate a fundamental change
from management's past investment practices, it does allow the investment
portfolio to be used as a tool to provide additional liquidity beyond that of
normal principal and interest payments. Information detailing the book value of
the investment portfolio by security type and classification is presented in
Note 3 to the audited consolidated financial statements.
[GRAPH OMITTED]
[Amounts in Thousands]
Investments 1992 1993 1994 1995 1996
----------- ---- ---- ---- ---- ----
Available for sale -- -- -- 10,111 36,208
Held to maturity 18,795 23,180 25,436 16,250 10,275
Loans
Loans receivable at December 31, 1996 totaled $68.4 million, an increase of $4.1
million or 6.38% from 1995. Of this increase, $3.3 million was realized during
the fourth quarter of 1996. During the first six months of 1996, total loans
decreased $876,000 from December 1995, as a result of a soft loan market. The
opening of the three additional offices during the second and third quarters of
1996, served to increase loan demand, with $3.4 million of the total increase in
loans originating from these three offices. The
26
<PAGE>
following table presents the composition of the loan portfolio and the
percentage of loans by type at December 31, 1996 and 1995 (dollars in
thousands):
[GRAPH OMITTED]
[In Thousands]
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Loans
60,365 61,378 64,086 64,322 68,428
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1996 1995
---------------------------- ----------------------------
% of Loans % of Loans
to to
Amount Total Loans Amount Total Loans
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial and industrial 10,390 15.18% 9,647 15.00%
Commercial and multi-family real estate 11,400 16.66 10,969 17.05
1 - 4 Family real estate 34,251 50.06 31,196 48.50
Consumer 12,387 18.10 12,510 19.45
------------ -------------- ------------ -------------
Total loans 68,428 100.00% 64,322 100.00%
============== =============
Less: allowance for loan losses 733 687
------------ ------------
Net loans $ 67,695 $ 63,635
============ ============
</TABLE>
Loan Quality
Loans are continually monitored by management and the Board of Directors. Loans
are placed on nonaccrual status when, in the opinion of management, the
collection of additional interest is doubtful; but not longer than 90 days past
due for non-real estate loans and 120 days past due for loans secured by real
estate. Interest accrued and unpaid at the time the account is placed on
nonaccrual status is generally charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income based upon management's assessment of the collectibility of the
account. At December 31, 1996, the Bank had $111,000 in loans greater than 90
days past due and still accruing interest, and $778,000 in loans on nonaccrual
status.
Of the nonaccrual and nonperforming loans, $743,000 in principal amounts of
loans to a single customer were classified as impaired loans. Under SFAS No.
114, a loan is considered to be impaired when, based on current information, it
is probable the Company will be unable to collect all principal and interest due
in accordance with the contractual terms of the loan agreement. These impaired
loans consist of six commercial and commercial real estate loans to one
borrower. The loans are secured by real estate and vehicles. During 1996, the
borrower sought bankruptcy protection under Chapter 11. However, the borrower
has yet to file a plan of reorganization. While management believes the Company
is adequately secured by the underlying collateral, the lack of a plan of
reorganization and the number of unsecured creditors, is likely to cause a delay
of time before a plan of reorganization can be adopted and implemented.
27
<PAGE>
As part of management's ongoing assessment of its loan portfolio, $80,000 of the
allowance for loan losses at December 31, 1996 had been allocated for these
loans. The following table sets forth non-performing loans at December 31, 1996
and 1995 along with nonaccrual loan interest data for 1996 (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
------------ ------------
Loans past due 90 days or more and
<S> <C> <C>
accruing $ 111 $ 77
Nonaccrual loans 778 194
------------ ------------
Non performing loans $ 889 271
============ ============
Non-performing loans to total loas 1.30% .42%
Allowance for loan losses to non-
performing loans 82.45% 253.51%
Non-performing loans to total assets .69% .27%
Nonaccrual loan interest data:
Interest computed on original terms $ 92
============
Interest recognized in income $ 14
============
</TABLE>
At December 31, 1996, no real estate or other assets were held as foreclosed or
repossessed property. In addition, based upon the ongoing quarterly review and
assessment of credit quality management is not aware of any trends or
uncertainties related to any accounts which might have a material adverse effect
on future earnings, liquidity, or capital resources.
Based upon the results of the quarterly internal loan review process, and
considering the trend of past loan losses and recoveries, as well as, the
current risk elements in the loan portfolio, management believes the allowance
for loan losses at December 31, 1996 is adequate. The following table presents
management's estimate of the allocation of the allowance for loan losses among
the loan categories, along with the percentage of loans in each category to
total loans (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
% of Loans % of Loans
to to
Amount Total Loans Amount Total Loans
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Commercial and industrial $ 106 15.18% $ 158 15.00%
Commercial & multi-family real estate 158 16.66 87 17.05
1-4 family real estate 13 50.06 33 48.50
Consumer 106 18.10 113 19.45
Unallocated 350 - 296 -
-------------- --------------- -------------- --------------
$ 733 100.00% $ 687 100.00%
============== =============== ============== ==============
</TABLE>
28
<PAGE>
Deposits
Total deposits of $114.7 million at December 31, 1996 represented an increase of
$25.8 million or 28.99% from December 31, 1995. The increase in deposits is
principally related to the branch offices opened or acquired in 1996.
See also, "Average Balance Sheets and Net Interest Analysis" for information
related to the average amount and average interest rate paid on deposit accounts
during 1996 and 1995. The following table presents a maturity schedule for time
deposits of $100,000 and over at December 31, 1996 (dollars in thousands):
[GRAPH OMITTED]
[Amounts in Thousands]
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Deposits 84,014 86,996 87,986 88,944 114,725
Certificates
Maturity Period of Deposit
- ----------------------------------------------- ---------------
Within ninety days $ 1,138
Three Months to one year 2,025
Greater than one year 1,420
---------
Total $ 4,583
=========
Stockholders' Equity
Stockholders' equity increased $3.6 million or 39.84% during 1996 to $12.6
million. This increase was the result of the net proceeds of the stock offering
of approximately $2.9 million combined with net retained income of $637,000.
[GRAPH OMITTED]
[Amounts in Thousands]
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Equity 6,654 7,397 8,155 9,032 12,631
Asset/Liability Management
One of the principal functions of the Company's asset/liability management
program is to monitor the level to which the balance sheet is subject to
interest rate risk. The goal of this program is to manage the relationship
between interest-earning assets and interest-bearing liabilities to minimize the
fluctuations in the net interest spread and achieve consistent growth in net
interest income during periods of changing interest rates.
Interest rate sensitivity is the relationship of differences in the amounts and
repricing dates of interest-earning assets and interest-bearing liabilities.
These differences, or interest rate repricing "gap", provide an indication to
the extent to which net interest income could be effected by changes in interest
rates. During a period of rising interest rates a positive gap (a point where
interest-earning assets are greater than interest-bearing liabilities) is
desirable. A falling interest rate environment would favor a negative gap
position (a point where interest-earning assets are less than interest-bearing
liabilities). However, not all assets and liabilities with similar maturities
and repricing opportunities will reprice at the same time or to the same degree.
As a result, the Company's gap position does not necessarily predict the impact
on net interest income given a change in interest rate levels.
The following table sets forth the Company's gap position for December 31, 1996
based upon contractual repricing opportunities or maturities, with variable rate
products measured to the date of the next repricing opportunity as opposed to
contractual maturities. Fixed rate products are measured to contractual maturity
considering scheduled payment amortization for fixed rate loans (dollars in
thousands):
29
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996
-------------------------------------------------------------------------------
0-90 91 Days - 1 - 3 3 - 5 5 - 10 Over
Balance Days 1 Year Years Years Years 10 Years
---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits $ 30 $ 30 $ - $ - $ - $ -
Federal funds sold 3,500 3,500
Investment securities (2) 45,890 2,193 7,752 18,687 17,044 214 -
Loans (1) 68,428 21,078 6,774 12,481 8,507 13,458 6,130
---------- ----------- ---------- ----------- ---------- ----------- ----------
Total earning assets 117,848 26,801 14,526 31,168 25,551 13,672 6,130
---------- ----------- ---------- ----------- ---------- ----------- ----------
LIABILITIES
Interest bearing demand 15,784 15,784 - - - - -
Savings 14,168 14,168 - - - - -
Money market funds 19,059 19,059 - - - - -
Certificates greater than $100,000 4,583 1,138 2,025 1,252 168 - -
Other time deposits 43,481 9,398 18,401 12,007 3,561 114 -
Capital lease obligation 104 10 31 63 - - -
---------- ----------- ---------- ----------- ---------- ----------- ----------
Total interest bearing liabilities 97,179 59,557 20,457 13,322 3,729 114 -
---------- ----------- ---------- ----------- ---------- ----------- ----------
Interest rate sensitivity gap 20,669 (32,756) (5,931) 17,846 21,822 13,558 6,130
Cumulative interest rate sensitivity gap (32,756) (38,687) (20,841) 981 14,539 20,669
Rate sensitive assets/rate sensitive liabilities 45.00% 71.01% 233.96% 685.20% 11,933% N/A
Interest rate sensitivity gap/total assets (25.59)% (4.63)% 13.94% 17.05% 10.59% 4.79%
Cumulative rate sensitivity gap/total assets (25.59)% (30.22)% (16.28)% .77% 11.36% 16.15%
</TABLE>
(1) Includes nonaccrual loans.
(2) Includes debt securities available for sale at amortized cost. Excludes
Federal Reserve and FHLB stock.
Liquidity
Liquidity represents the Company's ability to meet normal cash flow requirements
of its customers for the funding of loans and repayment of deposits. Liquidity
is generally derived from the repayments and maturities of loans and investment
securities, and the receipt of deposits. Management monitors liquidity daily,
and on a monthly basis incorporates liquidity management into its
asset/liability program.
Operating activities, as presented in the statement of cash flows in the
accompanying financial statements presented elsewhere herein, provided $959,000
in cash during 1996, generated principally from net income, as compared to the
$1,895,000 provided during 1995. The primary reasons for the decrease during
1996 was the increase of accrued interest receivable due to the increase in
investment securities which generally pay interest semi-annually, and the
decline in net income.
Investing activities consist primarily of loan originations and repayments, and
investment purchases and maturities. These activities used $12.5 million in
funds during 1996, principally for the purchase of investment securities which
totaled $29.3 million and the net funding of loans which totaled $4.2 million
for the year. These cash outlays exceeded funds received in the purchase of the
Knox branch office which totaled $12.7 million, and $9.0 million of investment
repayments and maturities. For 1995, investing activities used $1.3 million,
resulting from $7.6 million in investment securities purchases, which were
principally funded by $6.5 million in investment maturities. Financing
activities consist of the solicitation and repayment of customer deposits,
borrowings and repayments and the payment of dividends, and for 1996, the sale
of common stock. During 1996, financing activities yielded $11.6 million in
funds, derived from an increase in deposit accounts, exclusive of the funds
acquired in the branch purchase. In addition, the sale of common stock provided
30
<PAGE>
net proceeds of approximately $2.9 million. During 1995, financing provided
$561,000 derived from a net increase in deposits of $957,000 which exceeded the
payment of dividends.
In addition to using the loan, investment and deposit portfolios as sources of
liquidity, the Company has access to funds from other sources if a need for
additional funds would arise. There are available lines of credit through the
FHLB, along with a federal funds line of credit available through the Bank's
primary correspondent bank. In addition, the Bank has access to funds through
the discount window at the Federal Reserve Bank. During 1996, the Company used
short-term borrowings to fund investment purchases made in anticipation of the
purchase of the Knox branch office. Information detailing the average volume of
these borrowings is presented in Note 11 of the accompanying consolidated
financial statements. The Company also has a ready source of funds through the
available-for-sale component of the investment securities portfolio. The
following table presents the amortized cost of the investment portfolio, the
weighted average yield and maturities at December 31, 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
Available for Sale After 1 Year After 5 Years
Within Within Within After
1 Year 5 Years 10 Years 10 Years Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U. S. Treasury $ 5,053 $ 12,484 $ - $ - $ 17,537
U. S. Government Agency 1,000 5,002 - - 6,002
Obligations of states and political
subdivisions - 1,705 215 - 1,920
Corporate - 10,157 - - 10,157
-------------- -------------- --------------- -------------- ---------------
Total 6,053 29,348 215 - 35,616
============== ============== =============== ============== ===============
Yield 5.66% 6.32% 4.55% N/A 6.20%
Held to Maturity
U. S. Treasury 1,004 1,008 - - 2,012
Obligations of states and political
subdivisions 1,740 1,390 - - 3,130
Corporate 504 3,024 - - 3,528
Mortgage-backed securities - 960 - 645 1,605
-------------- -------------- --------------- -------------- ---------------
Total $ 3,248 $ 6,382 $ - $ 645 $ 10,275
============== ============== =============== ============== ===============
Yield 4.64% 5.62% N/A 7.60% 5.43%
</TABLE>
31
<PAGE>
The following table presents the maturity distribution and interest rate
sensitivity of commercial and industrial loans, and commercial and multi-family
real estate loans at December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
After 1 Year
Within Within
1 Year 5 Years After 5 Years Total
-------------------------------------------------- ------------
<S> <C> <C> <C> <C>
Commercial and industrial $ 6,498 $ 3,414 $ 478 $ 10,390
Commercial and multi-family real estate 417 1,444 9,539 11,400
--------------- --------------- --------------- ------------
$ 6,915 $ 4,858 $ 10,017 $ 21,790
=============== =============== =============== ============
Predetermined interest rates $ 636 $ 4,123 $ 4,070 $ 8,829
Floating interest rates 6,279 735 5,947 12,961
--------------- --------------- --------------- ------------
$ 6,915 $ 4,858 $ 10,017 $ 21,790
=============== =============== =============== ============
</TABLE>
Generally, commercial loans with maturities of one year or less consist of funds
drawn on commercial lines of credit, short-term notes written with maturities of
ninety days to six months, and demand notes written without alternative maturity
schedules. All lines of credit and demand loans are subject to annual review
where the account may be approved for up to one year. Short-term notes are
generally permitted two renewals, prior to being placed on a fixed repayment
schedule.
The Company anticipates it will have sufficient funds available to meet the
needs of its customers for deposit repayments and loan fundings. At December 31,
1996, loan and letter of credit commitments totaled $7.9 million. Many of these
commitments are in the form of lines of credit and letters of credit which are
available for use by the borrower, but are generally not drawn on. Certificates
of deposit scheduled to mature in one year or less totaled $30.9 million at
December 31, 1996.
Capital Resources
Capital adequacy is the ability of the Company to support growth while
protecting the interests of shareholders and depositors. Bank regulatory
agencies have developed certain capital ratio requirements, which are used to
assist them in monitoring the safety and soundness of financial institutions.
Management continually monitors these capital requirements and believes the
Company to be in compliance with these regulations at December 31, 1996.
The Bank's regulatory capital position at December 31, 1996, as compared to the
minimum regulatory capital requirements imposed on the Bank by banking
regulators at that date is presented in Note 13 of the accompanying financial
statements. Management is not aware of any actions contemplated by banking
regulators which would result in the Bank being in non-compliance with any of
the above requirements.
Impact of Inflation and Changing Prices
The financial statements of the Company and the notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting standards, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Company's operations.
Unlike most industrial companies, nearly all of the Company's assets and
liabilities are monetary. As a result, interest rates have a greater impact on
the Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
Impact of recent accounting pronouncements
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS No. 125). This statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings based on a control-oriented
"financial components" approach. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and liabilities it has incurred,
32
<PAGE>
derecognizes financial assets when control has been surrendered and derecognizes
liabilities when extinguished. The provisions of SFAS No. 125 are effective for
transactions occurring after December 31, 1996, except those provisions relating
to repurchase agreements, securities lending, and other similar transactions and
pledged collateral, which have been delayed until after December 31, 1997 by
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125, an Amendment of FASB Statement No. 125".
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share" (SFAS No.
128). This statement, which replaces Accounting Principles Board Statement No.
15, is intended to simplify the computation of earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS. SFAS
No. 128 requires dual presentation of basic and diluted EPS by entities with
complex capital structures. Basic EPS includes no dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings of the entity, similar
to fully diluted EPS. SFAS No. 128 is effective for periods ending after
December 15, 1997.
In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure" (SFAS No. 129). This statement is intended to consolidate
existing capital disclosure requirements, and contains no change in disclosure
requirements for entities that were subject to the previously existing
requirements. SFAS No. 129 is effective for periods ending after December 15,
1997.
The adoption of these statements is not expected to have a material impact on
the Company's financial position or results of operation.
COMMON STOCK INFORMATION
Prior to December 1996, there was no established public trading market for the
Company's common stock. In December 1996, the Company began trading its stock in
the local over-the-counter market through the National Association of Securities
Dealers OTC Electronic Bulletin Board. Price quotations for the fourth quarter
of 1996, reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The following table
summarizes the high and low prices and dividend information since January 1,
1995, after adjustment for the 4-for-1 stock split effected June 20, 1996.
Prices are based upon information made available to the Company. Cash dividends
are declared on a quarterly basis.
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ---------------------------------------
Dividend Dividend
High Low Declared High Low Declared
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ - $ - $ .10 $ - $ - $ .10
Second Quarter 11.25 11.25 .11 - - .10
Third Quarter - - .11 10.50 10.50 .10
Fourth Quarter (1) 13.50 13.00 .11 - - .15
</TABLE>
(1) - Includes a $.05 special dividend declared in the fourth quarter of 1995.
At December 31, 1996, the Company had approximately 590 shareholders of record.
33
<PAGE>
BOARD OF DIRECTORS
Ronald L. Ashbaugh
Retired President
Emclaire Financial Corp. and
Farmers National Bank
Dr. Clinton R. Coulter
Retired Medical Doctor
David L. Cox
President, Emclaire Financial Corp.
President, Farmers National Bank
Bernadette H. Crooks
Consultant - Crooks Clothing Store
George W. Freeman
Freeman's Tree Farm
Rodney C. Heeter
Heeter Lumber, Co.
Robert L. Hunter
Hunter Truck Sales and Service
Hunter Leasing
J. Michael King
Senior Partner
Lynn, King & Schreffler
Attorneys at Law
John B. Mason
H. B. Beels & Sons, Inc.
Elizabeth C. Smith
Retired
Former Owner-The Inn at Oakmont
The above listed persons are members of the Board of Directors of both
the Company and the Bank.
EXECUTIVE OFFICERS
Emclaire Financial Corp.
David L. Cox
President and Chief Executive Officer
Ronald L. Larimore
Secretary
John J. Boczar, CPA
Treasurer
Farmers National Bank
David L. Cox
President and Chief Executive Officer
Ronald L. Larimore
Vice President /Cashier and Chief Operations Officer
John J. Boczar, CPA
Vice President and Chief Financial Officer
Robert W. Foust
Vice President and Branch Administrator
Other Officers
Edith M. Beckwith
Manager - Eau Claire
Ray K. Cornelius
Manager - Collections
Scott B. Daum
Manager - Human Resources
Janice F. Dittman
Manager - Data Processing
Cindy L. Elder
Assistant Vice President
Manager - Emlenton
Allan I. Johnson
Manager - Knox
James W. LeVier
Assistant Vice President
Compliance Officer
Thomas E. McFadden
Assistant Vice President
Assistant Cashier
Troy J. Moore
Acting Manager - East Brady
Fred S. Port
Manager - Clarion
Joseph M. Sporer
Assistant Vice President
Manager - Consumer Loans
Robert A. Vernick
Assistant Vice President
Manager - Bon Aire
ANNUAL MEETING
The Annual Meeting of Shareholders of Emclaire Financial Corp. will be held at
the Holiday Inn, I-80 and Rt. 68, Clarion Pennsylvania, on Wednesday, May 21,
1997 at 7:00 p.m.
ADDITIONAL FINANCIAL INFORMATION
A copy of Emclaire Financial Corp.'s Annual Report on Form 10-KSB, as filed with
the Securities and Exchange Commission, will be furnished, free of charge, upon
written request to John J. Boczar, Treasurer, Drawer D, Emlenton, PA,
16373-0046.
The Annual Report and other Company reports are also filed electronically
through the Electronic Data Gathering, Analysis, and Retrieval System ("EDGAR")
which performs automated collection, validation, indexing, acceptance, and
forwarding of submissions to the Securities and Exchange Commission and is
accessible to the public by using the Internet at
http://www.sec.gov/edgarhp.htm.
TRANSFER AGENT
Emclaire Financial Corp.
612 Main Street
P.O. Drawer D
Emlenton, PA 16373
412/867-2311
INVESTOR INFORMATION
Emclaire Financial Corp. common stock is traded on the OTC Electronic Bulletin
Board under the symbol "EMCF". The following companies act as market makers:
Hopper Soliday & Co., Inc.
1703 Oregon Pike
Lancaster, PA 17601
(800) 646-8647
Elmer Powell & Co., Inc.
1100 Gulf Tower
Pittsburgh, PA 15219
(412) 391-4594
F. J. Morrissey & Co., Inc.
1700 Market Street - Suite 1420
Philadelphia, PA 19103
(215) 563-8500
Ryan Beck & Co.
80 Main Street
West Orange, NJ 07052
(201) 325-3200
BRANCH OFFICE LOCATIONS
Emlenton Eau Claire Clarion
612 Main Street 207 S. Washington Street Sixth & Wood Streets
Emlenton, PA 16373 Eau Claire, PA 16030 Clarion, PA 16214
412/867-2311 412/791-2591 814/226-7523
East Brady Butler Knox - 2 Locations
Broad & Brady Streets Bon Aire Plaza Rt. 338 South
East Brady, PA 16028 1101 North Main Street Knox, PA 16232
412/526-5793 Butler, PA 16003 814/797-2200
412/286-4666 and
Main & State Streets
Knox, PA 16232
814/797-1136
34
EXHIBIT 19
Proxy Statement for Company's Annual Meeting of Stockholders
<PAGE>
EMCLAIRE FINANCIAL CORP.
EMLENTON, PENNSYLVANIA 16373
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF EMCLAIRE FINANCIAL CORP.:
Notice is hereby given that the Annual Meeting of Shareholders
of Emclaire Financial Corp. (the "Corporation") will be held at 7:00 p.m.,
prevailing time, on Wednesday, May 21, 1997, at the Holiday Inn, I-80 and Route
68, Clarion, Pennsylvania 16214, for the following purposes:
1. To elect four (4) Class C directors to serve for 3-year
terms and until their successors are duly elected and qualified;
2. To ratify the selection of S. R. Snodgrass, A.C., Certified
Public Accountants, of Wexford, Pennsylvania, as the independent auditors of the
Corporation for the fiscal year ending December 31, 1997; and
3. To transact such other business as may properly come before
the Annual Meeting and any adjournment or postponement thereof.
Only those shareholders of record at the close of business, at
5:00 p.m., on Monday, April 7 , 1997, will be entitled to notice of and to vote
at the Annual Meeting.
A copy of the Corporation's Annual Report for the fiscal year
ended December 31, 1996, is being mailed with this notice.
You are urged to mark, sign, date and promptly return your
proxy in the enclosed envelope so that your shares may be voted in accordance
with your wishes and in order that the presence of a quorum may be assured. The
prompt return of your signed proxy, regardless of the number of shares you hold,
will aid the Corporation in reducing the expense of additional proxy
solicitation. The giving of such proxy does not affect your right to vote in
person if you attend the meeting.
By Order of the Board of Directors,
David L. Cox, President
April 14, 1997
<PAGE>
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD MAY 21, 1997
GENERAL
Introduction, Date, Place and Time of Meeting
This Proxy Statement is being furnished for the solicitation
by the Board of Directors of Emclaire Financial Corp. (the "Corporation"), a
Pennsylvania business corporation, of proxies to be voted at the Annual Meeting
of Shareholders of the Corporation ("Annual Meeting") to be held at the Holiday
Inn, I-80 and Route 68, Clarion, Pennsylvania 16214, on Wednesday, May 21, 1997,
at 7:00 p.m. prevailing time, or at any adjournment or postponement of the
Annual Meeting.
The main office of the Corporation is located at The Farmers
National Bank of Emlenton (the "Bank"), 612 Main Street, Emlenton, Pennsylvania
16373. The telephone number for the Corporation is (412) 867-2311. All inquiries
should be directed to David L. Cox, President. This Proxy Statement and the
enclosed form of proxy (the "Proxy") are first being sent to shareholders of the
Corporation on April 14, 1997.
Solicitation
Shares represented by proxies on the accompanying Proxy, if
properly signed and returned, will be voted in accordance with the
specifications made thereon by the shareholders. Any Proxy not specifying to the
contrary will be voted for the election of the four (4) nominees for Class C
Director named below and for the approval of S. R. Snodgrass, A.C., Certified
Public Accountants as the independent auditors for the fiscal year ending
December 31, 1997. Execution and return of the enclosed Proxy will not affect a
shareholder's right to attend the Annual Meeting and vote in person.
The cost of preparing, assembling, mailing and soliciting
proxies will be borne by the Corporation. In addition to the use of the mails,
certain directors, officers and employees of the Corporation intend to solicit
proxies personally, by telephone and by telefacsimile. Arrangements will be made
with brokerage houses and other custodians, nominees and fiduciaries to forward
proxy solicitation material to the beneficial owners of stock held of record by
these persons, and, upon request therefor, the Corporation will reimburse them
for their reasonable forwarding expenses.
Right of Revocation
A shareholder who returns a Proxy may revoke it at any time
before it is voted by: (1) delivering written notice of revocation to Ronald L.
Larimore, Secretary, Emclaire Financial Corp., 612 Main Street, Post Office Box
D, Emlenton, Pennsylvania 16373, telephone: (412) 867-2311; (2) executing a
later-dated Proxy and giving written notice thereof to the Secretary of the
Corporation or (3) voting in person after giving written notice to the Secretary
of the Corporation.
1
<PAGE>
Voting Securities and Quorum
At the close of business on April 7, 1997, the Corporation had
outstanding 1,030,000 shares of common stock, $1.25 par value. A majority of the
outstanding shares will constitute a quorum at the Annual Meeting.
Only holders of common stock of record at the close of
business on April 7, 1997, will be entitled to notice of and to vote at the
Annual Meeting. On all matters to come before the Annual Meeting, each share of
common stock is entitled to one (1) vote.
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S STOCK
Principal Owners
The following table sets forth, as of April 7, 1997, the name
and address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of five percent (5%) or more the
Corporation's outstanding Common Stock, the number of shares beneficially owned
by such person and the percentage of the Corporation's outstanding Common Stock
so owned.
<TABLE>
<CAPTION>
Percent of Outstanding
Shares Beneficially Common Stock
Name and Address Owned (1) Beneficially Owned
- ---------------- ------------------ ---------------------
<S> <C> <C>
Barbara C. McElhattan 63,140(2) 6.13%
P. O. Box 515
Emlenton, PA 16373
Bernadette H. Crooks 82,840(3) 8.04%
RR 1, Box 368
Clarion, PA 16214
Mary E. Dascombe 86,262(4) 8.37%
6906 Buckhead Drive
Raleigh, NC 27609
George W. Freeman 76,800(5) 7.46%
P. O. Box 667
Knox, PA 16232
</TABLE>
- --------------------
(1) See footnote (1) under the following caption entitled "Beneficial Ownership
by Officers, Directors and Nominees" for the definition of "beneficial
ownership."
(2) Of the 63,140 shares beneficially owned by Mrs. McElhattan, 31,980 shares
are owned individually, 26,640 shares are owned jointly with her spouse,
and 4,520 shares are owned individually by her spouse.
(3) Of the 82,840 shares beneficially owned by Mrs. Crooks, 73,240 shares are
owned individually and 9,600 shares are owned individually by her spouse.
(4) Of the 86,262 shares beneficially owned by Mrs. Dascombe, 61,320 shares are
owned individually, 2,550 shares are owned jointly with her spouse, and
22,392 shares are owned individually by her spouse.
(5) Of the 76,800 shares beneficially owned by Mr. Freeman, 74,700 shares are
owned individually and 2,100 shares are owned individually by his spouse.
2
<PAGE>
Beneficial Ownership by Officers, Directors and Nominees
The following table sets forth as of April 7, 1997, the amount
and percentage of the Common Stock of the Corporation beneficially owned by each
director, each nominee and all officers and directors of the Corporation as a
group.
Name of Individual Amount and Nature of Percent
or Identity of Group Beneficial Ownership(1)(2) of Class
- -------------------- -------------------------- --------
Dr. Clinton R. Coulter (4) (7) 18,000 1.75%
George W. Freeman (4) (8) 76,800 7.46%
Ronald L. Ashbaugh (4) (7) 10,000 (3)
Elizabeth C. Smith (4) (9) 37,580 3.65%
Robert L. Hunter (5) (10) 8,550 (3)
John B. Mason (5) (11) 4,210 (3)
Bernadette H. Crooks (5) (12) 82,840 8.04%
J. Michael King (6) (7) 5,000 (3)
Rodney C. Heeter (6) (13) 5,000 (3)
David L. Cox (6) (7) 9,600 (3)
All Officer and Directors 264,073 25.64%
as a Group (12 persons)
- ----------------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after April
7, 1997. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Information furnished by the Directors and the Corporation.
(3) Less than one percent (1%).
(4) A Class C Director Whose Term Expires in 1997 and a nominee for Class C
Director Whose Term Expires in 2000, with the exception of Dr. Coulter who
has decided not to stand for reelection.
(5) A Class B Director Whose Term Expires in 1999 .
(6) A Class A Director Whose Term Expires in 1998.
(7) All Shares are owned individually.
(8) See footnote (5) above under the caption entitled "Principal Beneficial
Owners of the Corporation's Stock."
(9) Of the 37,580 shares beneficially owned by Mrs. Smith, 31,980 are owned
individually and 5,600 are held as custodian for her grandchildren.
(10) Of the 8,550 shares beneficially owned by Mr. Hunter, 4,800 shares are
owned individually and 3,750 shares are owned individually by his spouse.
(11) Of the 4,210 shares beneficially owned by Mr. Mason, 4,110 shares are owned
individually and 100 shares are held as custodian for his daughter.
(12) See footnote (3) above under the caption entitled "Principal Beneficial
Owners of the Corporation's Stock."
(13) Of the 5,000 shares beneficially owned by Mr. Heeter, 2,500 shares are
owned individually and 2,500 shares are owned individually by his spouse.
3
<PAGE>
ELECTION OF DIRECTORS
The Corporation has a classified Board of Directors with
staggered 3-year terms of office. In a classified board, the directors are
generally divided into separate classes of equal number. The terms of the
separate classes expire in successive years. Thus, at each Annual Meeting of
Shareholders, successors to the class of directors whose term shall then expire
shall be elected to hold office for a term of three years, so that the office of
one class shall expire each year.
Unless otherwise instructed, the Board of Directors of the
Corporation or its designee, the proxy holder, will have the right to cast their
votes for the nominees, unless the shareholder indicates on his or her Proxy how
he or she desires the votes to be cast. If any nominee should become unavailable
for any reason, proxies will be voted in favor of a substitute nominee as the
Board of Directors of the Corporation shall determine. The Board of Directors
has no reason to believe the nominees named will be unable to serve if elected.
Any vacancy occurring on the Board of Directors of the Corporation for any
reason may be filled by a majority of the directors then in office until the
expiration of the term of the vacancy. The Board of Directors recommends that
its nominees be elected as Directors.
INFORMATION AS TO NOMINEES,
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information with respect
to the directors, executive officers and nominees:
<TABLE>
<CAPTION>
Age as of Principal Occupation Director Since
Name 12/31/96 for Past Five Years Bank/Corporation
- ---- -------- ------------------- ----------------
Class C Directors Whose Term Expires in 1997 and/or
Nominees for Class C Director whose Term Expires in 2000
- --------------------------------------------------------
<S> <C> <C> <C>
Ronald L. Ashbaugh 61 President 1971/1989
(1) (5) (8)
Clinton R. Coulter * 88 Retired Medical Doctor 1962/1989
(1)
George W. Freeman 66 Owner of Freeman's Tree Farm 1964/1989
(4) (5) (6)
Elizabeth C. Smith 65 Retired 1995/1995
(3) former Owner of The Inn at Oakmont
Brian C. McCarrier 33 President Interstate Pipe and
Supply Company
</TABLE>
* Dr. Coulter has declined to stand for reelection. He will serve as director
emeritus subsequent to the election of directors in 1997.
4
<PAGE>
<TABLE>
<CAPTION>
Class A Directors Whose Term Expires in 1998
<S> <C> <C> <C>
Rodney C. Heeter 59 Owner of Heeter Lumber Co. 1988/1989
(1) (2) (3)
J. Michael King 49 Senior Partner of Lynn, King & 1988/1989
(1) (4) (5) (6) Schreffler, Attorneys at Law
David L. Cox 46 Senior Vice President 1991/1991
(1) (5) (6) (8)
Class B Directors Whose Term Expires in 1999
Bernadette H. Crooks 74 Clothing Store Consultant for 1985/1989
(1) (2) (3) Crooks Clothing
Robert L. Hunter 55 Truck Dealer, part owner of 1974/1989
(3) (4) Hunter Truck Sales and Service,
Inc., Director of Idealease of
North America, Inc.
John B. Mason 48 Insurance Broker for H. B. 1985/1989
(2) (4) (5) (6) Beels & Son, Inc.
</TABLE>
- --------------------------------
(1) Member of the Investment and Funds Management Committee. This Committee is
appointed by the Chairman of the Board and determines investment policy and
funds management policy. This committee also recommends investment
purchases for the bank portfolio.
(2) Member of the Building Committee. This committee is appointed by the
Chairman of the Board and is responsible for overseeing the maintenance of
the physical properties of the Bank.
(3) Member of the Audit Committee. This committee is appointed by the Chairman
of the Board and meets with the independent auditors to review their audit
of the financial reports of the Corporation.
(4) Member of the Salary and Personnel Committee. This committee is appointed
by the Chairman of the Board and reviews salary and personnel policy and
recommends changes to the Board.
(5) Member of the Loan and Discount committee. This committee is appointed by
the Chairman of the Board and is responsible to review and approve loans
which exceed the loan officer's lending limits.
(6) Member of the Branching committee. This committee is appointed by the
Chairman of the Board and examines and recommends future expansion to the
Board of Directors.
(7) Member of the Executive Committee. This committee is appointed by the
Chairman of the Board and exercises the authority of the Board of Directors
between regularly scheduled meetings of the Board of Directors unless
prohibited from so doing by law or regulation.
(8) Mr. Ashbaugh retired as President of the Corporation and Bank, December 31,
1996 and Mr. Cox was appointed President of the Corporation and Bank.
Directors received four hundred dollars ($400) per month for
their services as Director of the Bank. No additional compensation is paid for
service as Directors of the Corporation. During 1996, the Board of Directors of
the Corporation held four regular meetings and five special meetings and the
Board Of Directors of the Bank held twelve (12) regular meetings. In 1996, each
Director was paid
5
<PAGE>
a retainer of $4,800 for service as a Board Member. In addition, outside
Directors received $100 for each committee meeting that they attended. Prior to
May 1996, outside Directors received $50 for each committee meeting attended.
During 1996, total fees paid to all Directors were $54,950.
Each of the Directors, attended at least seventy-five percent
(75%) of the combined total number of meetings of the Corporation's and Bank's
Board of Directors and of the committees on which they serve.
The Corporation's full Board of Directors acts as the
nominating committee. A shareholder who desires to propose an individual for
consideration by the Board of Directors as a nominee for director should submit
a proposal in writing to the Secretary of the Corporation in accordance with
Section 10.1 of the Corporation's Bylaws.
Remuneration of Officers and Directors
The following table sets forth all cash compensation for
services in all capacities paid by the Bank during 1996 to the chief executive
officer. No other officer's compensation exceeded $100,000. The Corporation pays
no salaries or benefits.
SUMMARY COMPENSATION TABLE
--------------------------
All Other Annual
Name and Principal Position Year Salary Bonus Compensation (1)
- --------------------------- ---- ------ ----- ----------------
Ronald L. Ashbaugh 1996 $91,418 $ 3,905 $4,800
President and Chairman of 1995 $85,813 $10,243 $4,800
the Board 1994 $81,375 $ 9,732 $4,800
- -------------------------------
(1) Does not include the value of certain other benefits, which do not exceed
10% of the total salary and bonus of the individual.
Pension Plan
The Bank maintains a defined benefit pension plan (the
"Plan"). The Plan is intended to provide retirement and certain other benefits
to eligible employees and their beneficiaries. An individual is eligible to
participate in the Plan if he or she is an employee of the Bank and has
completed five (5) years of service or reached fifty-five (55) years of age
unless (1) the employee is covered under another plan to which the Bank
contributes; or (2) the employee is covered under a collective bargaining
agreement with the Bank that does not provide for coverage under the Plan.
An employee's expected monthly pension payable is based upon a
formula. Full vesting occurs after the completion of five (5) years of service.
In 1996, the Bank made no contribution to the Plan.
As of December 31, 1996, Mr. Ashbaugh had 38 years of credited
service under the Plan; Mr. Cox had 23 years of credited service under the Plan;
Mr. Larimore had 23 years of credited service under the Plan.
6
<PAGE>
Certain Transactions
There have been no material transactions, proposed or
consummated, between the Corporation and the Bank with any director or executive
officer of the Corporation or the Bank, or any associate of the foregoing
persons. The Bank, like many financial institutions, has followed a policy of
granting various types of loans to officers, directors, and employees. All loans
to executive officers and directors of the Corporation and the Bank have been
made in the ordinary course of business and on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the Bank's other customers, and do not
involve more than the normal risk of collectibility nor present other
unfavorable features.
Principal Officers of the Corporation
The following table sets forth selected information about the
principal officers of the Corporation, each of whom is selected by the Board of
Directors and each of whom holds office at the discretion of the Board of
Directors:
Bank
Held Employee Age as of
Since Since December 31, 1996
----- ----- -----------------
Ronald L. Ashbaugh 1989 1959 61
President (1)
David L. Cox, 1989 1973 46
Vice President (1)
Ronald L. Larimore, 1989 1973 50
Secretary
John J. Boczar, CPA 1996 1996 38
Treasurer
- ---------------------
(1) Mr. Ashbaugh retired as President of the Corporation and Bank, December 31,
1996 and Mr. Cox was appointed President of the Corporation and Bank.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Unless instructed to the contrary, it is intended that votes
will be cast pursuant to the proxies for the ratification of the selection of S.
R. Snodgrass, A.C., Certified Public Accountants, of Wexford, Pennsylvania
("Snodgrass"), as the Corporation's independent public accountants for its
fiscal year ending December 31, 1997. The Corporation has been advised by
Snodgrass that none of its members has any financial interest in the
Corporation. Ratification of Snodgrass will require an affirmative vote of a
majority of the shares of Common Stock represented at the Annual Meeting.
Snodgrass served as the Corporation's independent public accountants for the
Corporation's 1996 fiscal year.
7
<PAGE>
In addition to performing customary audit services, Snodgrass
assisted the Corporation with the preparation of its federal and state tax
returns, and provided assistance in connection with regulatory matters, charging
the Corporation for such services at its customary hourly billing rates. These
non-audit services were approved by the Corporation's and the Bank's Board of
Directors, after due consideration of the effect of the performance thereof on
the independence of the accountants and after the conclusion by the
Corporation's and the Bank's Board of Directors that there was no effect on the
independence of the accountants.
In the event that the shareholders do not ratify the selection
of Snodgrass as the Corporation's independent public accountants for the 1997
fiscal year, another accounting firm will be chosen to provide independent
public accountant audit services for the 1997 fiscal year. The Board of
Directors recommends that the shareholders vote FOR the ratification of the
selection of Snodgrass as the auditors for the Corporation for the year ending
December 31, 1997.
It is understood that even if the selection of Snodgrass is
ratified, the Board of Directors, in its discretion, may direct the appointment
of a new independent auditing firm at any time during the year if the Board of
Directors determines that such a change would be in the best interests of the
Corporation and its shareholders.
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year
ended December 31, 1996, is being mailed with this Proxy Statement. Such Annual
Report is not to be treated as part of the proxy solicitation material or having
been incorporated herein by reference. A representative of Snodgrass, the
accounting firm which examined the financial statements in the Annual Report,
will not attend the Annual Meeting.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the
provisions of the proxy rules of the Securities and Exchange Commission, wishes
to submit a proposal for inclusion in the Corporation's proxy statement for its
1998 Annual Meeting of Shareholders must deliver such proposal in writing to the
Secretary of Emclaire Financial Corp. at the principal executive offices of the
Corporation at 612 Main Street, Post Office Box D, Emlenton, Pennsylvania 16373,
not later than Friday, December 15, 1997.
OTHER MATTERS
The Board of Directors does not know of any matters to be
presented for consideration other than the matter described in the Notice of
Meeting, but if any matters are properly presented, it is the intention of the
persons named in the accompanying Proxy to vote on such matters in accordance
with their judgment.
ADDITIONAL INFORMATION
Upon written request, a copy of the Annual Report on Form
10-KSB of Emclaire Financial Corp. may be obtained, without charge from John
J. Boczar, Treasurer, Emclaire Financial Corp., 612 Main Street, Post Office
Box D, Emlenton, Pennsylvania 16373.
8
<PAGE>
Appendix A
EMCLAIRE FINANCIAL CORP.
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 21, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints the Board of
Directors of Emclaire Financial Corp. (the "Corporation"), or its designee,
proxy of the undersigned, with full power of substitution, to vote all of the
shares the Corporation that the undersigned may be entitled to vote at the
Annual Meeting of Shareholders of the Corporation to be held on Wednesday, May
21, 1997, at the Holiday Inn, I-80 and Route 68, Clarion, Pennsylvania 16214, at
7:00 p.m., prevailing time, and at any adjournment or postponement thereof as
follows:
1. ELECTION OF CLASS C DIRECTORS
FOR AGAINST
Ronald L. Ashbaugh [ ] [ ]
George W. Freeman [ ] [ ]
Elizabeth C. Smith [ ] [ ]
Brian C. McCarrier [ ] [ ]
2. Ratification of the selection of S. R. Snodgrass, A.C., Certified Public
Accountants, as auditors of the Corporation for the year ending December
31, 1997.
[ ] FOR [ ] AGAINST
3. In its discretion, the proxy is authorized to vote upon such other business
as may properly come before the meeting and any adjournment or postponement
thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL NOMINEES LISTED ABOVE AND FOR PROPOSAL NO. 2.
Dated:____________, 1997 [ ] Please check here if you plan to attend
the Annual Meeting
Number attending _________________
- -------------------------------------- ----------------------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
- -------------------------------------- ----------------------------------------
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
Number of Shares Held of
Record on April 7, 1997:_______________
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED PROMPTLY
TO THE CORPORATION IN THE ENCLOSED ENVELOPE. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE. IF MORE THAN ONE
TRUSTEE, ALL SHOULD SIGN. IF STOCK IS HELD JOINTLY, EACH OWNER MUST SIGN.
-----------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,712
<INT-BEARING-DEPOSITS> 30
<FED-FUNDS-SOLD> 3,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,208
<INVESTMENTS-CARRYING> 10,275
<INVESTMENTS-MARKET> 10,247
<LOANS> 68,428
<ALLOWANCE> 733
<TOTAL-ASSETS> 128,002
<DEPOSITS> 114,725
<SHORT-TERM> 0
<LIABILITIES-OTHER> 646
<LONG-TERM> 0
0
0
<COMMON> 1,288
<OTHER-SE> 11,343
<TOTAL-LIABILITIES-AND-EQUITY> 128,002
<INTEREST-LOAN> 5,840
<INTEREST-INVEST> 2,020
<INTEREST-OTHER> 238
<INTEREST-TOTAL> 8,098
<INTEREST-DEPOSIT> 3,282
<INTEREST-EXPENSE> 3,353
<INTEREST-INCOME-NET> 4,745
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,636
<INCOME-PRETAX> 1,417
<INCOME-PRE-EXTRAORDINARY> 981
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 981
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 4.68
<LOANS-NON> 778
<LOANS-PAST> 111
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 687
<CHARGE-OFFS> 121
<RECOVERIES> 47
<ALLOWANCE-CLOSE> 733
<ALLOWANCE-DOMESTIC> 383
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 350
</TABLE>
