<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from to
---------- -----------
Commission File Number: 333-11773
---------------
EMCLAIRE FINANCIAL CORP.
---------------------------
(Exact name of small business issuer as specified in its charter)
PENNSYLVANIA 25-1606091
- -------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
612 Main Street
Emlenton, PA 16373-0046
---------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (412) 867-2311
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of August 11, 1997, there were 1,030,000 shares outstanding of the
issuer's common stock, par value $1.25 per share.
1
<PAGE>
Emclaire Financial Corp.
INDEX TO QUARTERLY REPORT OF FORM 10-QSB
Page
Part I Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet, June 30, 1997 and
December 31, 1996 3
Consolidated Statement of Income
Three and Six months ended June 30, 1997
and 1996 4
Consolidated Statement of Changes in
Stockholders' Equity 5
Consolidated Statement of Cash Flows
Six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 14
Part II Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a
Vote of Securities Holders 15
Signatures 16
2
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited - dollars in thousands, except share data)
June 30, December 31,
1997 1996
-------- ------------
ASSETS
Cash and due from banks $ 5,387 $ 4,742
Federal funds sold - 3,500
Investment securities:
Available for sale 32,031 36,208
Held to maturity (estimated market value
of $7,728 and $10,247) 7,785 10,275
Loans 80,313 68,428
Less allowance for loan losses 804 733
---------- ----------
Net loans 79,509 67,695
Premises and equipment 2,231 2,308
Accrued interest and other assets 3,170 3,275
---------- ----------
TOTAL ASSETS $ 130,113 $ 128,003
========== ==========
LIABILITIES
Deposits
Non-interest bearing demand $ 19,604 $ 17,650
Interest bearing demand 16,338 15,784
Savings 14,672 14,168
Money market 17,616 19,059
Time 46,461 48,064
---------- ----------
Total deposits 114,691 114,725
Obligation under capital lease 84 104
Borrowed funds 2,075 -
Accrued interest and other liabilities 435 542
---------- ----------
TOTAL LIABILITIES 117,285 115,371
---------- ----------
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 shares
issued 1,288 1,288
Additional paid in capital 3,622 3,622
Retained earnings 7,900 7,598
Net unrealized gain (loss) on securities 18 124
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 12,828 12,632
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 130,113 $ 128,003
========== ==========
[FN]
See accompanying notes to the consolidated financial statements.
3
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited - dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
--------------------------- -------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 1,699 $ 1,407 $ 3,245 $ 2,885
Interest bearing deposits in other banks 1 - 1 1
Federal funds sold 14 38 32 77
Investment securities:
Taxable 585 417 1,205 735
Exempt from federal income tax 46 33 96 68
--------- --------- --------- ---------
Total interest income 2,345 1,895 4,579 3,766
--------- --------- --------- ---------
INTEREST EXPENSE
Deposits 890 761 1,788 1,522
Short-term borrowings 7 13 10 13
Lease obligation 1 2 3 4
--------- --------- --------- ---------
Total interest expense 898 776 1,801 1,539
--------- --------- --------- ---------
NET INTEREST INCOME 1,447 1,119 2,778 2,227
Provision for loan losses 70 36 115 72
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,377 1,083 2,663 2,155
--------- --------- --------- ---------
OTHER OPERATING INCOME
Service fees on deposit accounts 122 82 206 157
Other 29 18 52 38
--------- --------- --------- ---------
Total other operating income 151 100 258 195
--------- --------- --------- ---------
OTHER OPERATING EXPENSE
Salaries and employee benefits 554 512 1,110 888
Occupancy, furniture and equipment 170 111 343 219
Other 371 277 711 518
--------- --------- --------- ---------
Total other operating expense 1,095 900 2,164 1,625
--------- --------- --------- ---------
Income before income taxes 433 283 757 725
Income taxes 133 85 228 224
--------- --------- --------- ---------
NET INCOME $ 300 $ 198 $ 529 $ 501
========= ========= ========= =========
EARNINGS PER SHARE $ 0.29 $ 0.25 $ 0.51 $ 0.63
DIVIDENDS PER SHARE $ 0.11 $ 0.11 $ 0.22 $ 0.21
AVERAGE SHARES OUTSTANDING 1,030,000 799,200 1,030,000 799,200
</TABLE>
[FN]
See accompanying notes to the consolidated financial statements.
4
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited - dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid in Retained Gain (Loss)
Stock Capital Earnings on Securities Total
---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 $ 1,288 $ 3,622 $ 7,598 $ 124 $ 12,632
Net income 529 529
Dividends declared
($.22 per share) (227) (227)
Net unrealized loss on securities (106) (106)
---------- ---------- ---------- ---------- ----------
Balance June 30, 1997 $ 1,288 $ 3,622 $ 7,900 $ 18 $ 12,828
========== ========== ========== ========== ==========
</TABLE>
[FN]
See accompanying notes to the consolidated financial statements.
5
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - dollars in thousands)
Six Months Ended June 30,
1997 1996
--------- ---------
OPERATING ACTIVITIES
Net income $ 529 $ 501
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 299 137
Net amortization of investment security
discounts and premiums 109 118
Provision for loan losses 115 72
(Increase) decrease in accrued interest
receivable 13 (253)
Increase in accrued interest payable 2 26
Other, net (122) (278)
--------- ---------
Net cash provided by operating activities 945 323
--------- ---------
INVESTING ACTIVITIES
Proceeds from maturities and repayments of
investment securities:
Available for sale 3,000 -
Held to maturity 2,458 3,655
Proceeds from sales of investment securities:
Available for sale 1,990 14
Purchases of investment securities:
Available for sale (1,051) (13,221)
Held to maturity - (3,136)
Net loan (originations) repayments (11,937) 788
Purchases of premises and equipment (64) (561)
Proceeds from sales of premises and equipment 10 -
--------- ---------
Net cash used for investing activities (5,594) (12,461)
--------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (34) 5,707
Net increase in short-term borrowings 2,075 5,000
Payments for obligation under capital lease (20) (19)
Cash dividends paid (227) (168)
--------- ---------
Net cash provided by financing activities 1,794 10,520
--------- ---------
Increase in cash and cash equivalents (2,855) (1,618)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,242 5,675
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,387 $ 4,057
========= =========
[FN]
See accompanying notes to the consolidated financial statements.
6
<PAGE>
EMCLAIRE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
- ----------
The accounting and financial reporting policies of Emclaire Financial Corp.
and its wholly-owned subsidiary The Farmers National Bank of Emlenton
("Bank"), conform to generally accepted accounting principles and to general
practice within the banking industry. In the opinion of management, the
accompanying unaudited consolidated financial statements of Emclaire Financial
Corp. ("Company") contain all adjustments, consisting of only normal and
recurring adjustments, necessary for the fair presentation of the Company's
financial position, results of operations and cash flows for the periods
presented. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
2. LOANS
- --------
Major classifications of loans are summarized as follows:
June 30, December 31,
1997 1996
----------- ------------
Commercial and industrial $ 11,134 $ 10,390
Real estate mortgages
Residential 41,409 34,251
Multi-family and other 14,372 11,400
Consumer 13,398 12,387
----------- ------------
80,313 68,428
Less allowance for loan losses 804 733
----------- ------------
$ 79,509 $ 67,695
=========== ============
The Bank's primary business activity is with customers located within Venango,
Clarion, Butler and Armstrong Counties. Commercial, residential, personal,
and agricultural loans are granted. Although the Bank has a diversified loan
portfolio at June 30, 1997 and December 31, 1996, loans outstanding to
individuals and businesses are dependent upon the local economic conditions
within the immediate trade area.
3. RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income". This standard which is effective for years beginning after December
15, 1997, establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements, by requiring that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed in a financial.
This statement requires an enterprise to classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position.
The FASB issued Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" in June
1997. This statement establishes standards for the way public
7
<PAGE>
3. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
- -----------------------------------------------
companies report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This statement supersedes
FASB Statement No. 14 "Financial Reporting for Segments of a Business
Enterprise," and amends FASB Statement No. 94 "Consolidation of All
Majority-Owned Subsidiaries" to remove the special disclosure requirements for
previously unconsolidated subsidiaries.
This Statement requires, among other things, that a public company report
financial and descriptive information about its reportable operating segments.
This includes a reporting of a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. A reconciliation of
total segment revenues, profit or loss, segment assets, and other amounts
disclosed for segments to corresponding amounts in the enterprise's general
purpose financial statements.
Statement No. 131 is effective for financial statements for periods beginning
after December 15, 1997.
While management has not fully assessed the impact of these changes, the
disclosure requirements of Statement No. 130 could result in times when
comprehensive income differs significantly from net income from operations,
due to such things as unrealized gains or losses on investment securities. It
is believed Statement No. 131 will not have a material impact on the Company's
financial position or results of operation.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 1997 and 1996
- -----------------------------------------------------------
Net Income - Net income for the three months ended June 30, 1997 totaled
$300,000 or $.29 per share, a $102,000 or 51.5% increase from the $198,000 or
$.25 per share recorded during the same period in 1996. The increase in net
income is primarily attributed to the increase in net interest income which
rose $328,000 or 29.3% for the second quarter of 1997 as compared to 1996.
This increase is a direct result of the continued loan growth, as total loans
increased $6.4 million to $80.3 million during the second quarter of 1997.
This increase in interest income has helped to offset the additional
operating costs associated with the branch offices opened or purchased during
1996. Other operating expenses totaled $1.1 million for the quarter ended
June 30, 1997, a $195,000 or 21.7% increase from the same period in 1996.
Interest Income - Interest income for the three months ended June 30, 1997
increased approximately $450,000 or 23.8% from the same period in 1996, due to
the increase in investable funds, principally loans and investment securities.
Average loans outstanding for the second quarter of 1997 were $76.9 million,
an increase of $13.9 million or 22.1% from the same period in 1996. The
increase in loan volume is principally due to the increase in customer demand,
and the expansion of the lending area in 1996.
Interest income on taxable investment securities for 1997 increased $168,000
or 40.3% for the comparative quarters to $470,000, due to the increase in the
average volume of these securities which totaled approximately $36.9 million
for the second quarter of 1997 as compared to $28.1 during the same period of
1996. During the second and third quarters of 1996, management increased the
volume of the investment portfolio in response to the increase in deposits
from the new branch offices, as well as the anticipated receipt of funds from
the branch office purchase which was consummated in September 1996. It is
anticipated that maturities, repayments, and to a certain degree sales of
these investments will be used, in conjunction with other liquidity sources,
to fund future loan growth.
Interest expense - Interest expense increased $122,000 or 15.7% during the
first second of 1997, as compared to the same period in 1996, due to the
increase in total deposits resulting from the branch expansion in 1996. While
the average volume of interest bearing liabilities increased 22.1% during the
comparative periods, the overall rate paid on these liabilities decreased from
4.0% to 3.8%. This lower cost of funds is related to the generally lower rate
environment of the latter portion of 1996 and the first quarter of 1997.
During the second quarter of 1997, interest rates offered on a number of
certificates of deposit were increased in response to higher rates offered by
competing financial institutions. This increase in interest rates on time
deposits will not have an immediate significant effect on the overall cost of
funds, but will serve to increase the overall rate paid on interest bearing
funds.
Net Interest Income - As a result of the increase in the volume of earning
assets which more than offset the increase in interest expense, net interest
income rose $328,000 for the quarter ended June 30, 1997, as compared to the
same period in 1996.
9
<PAGE>
Provision for Loan Losses - Based upon management's ongoing assessment of the
quality of the loan portfolio, and considering the growth experienced during
the first six months of 1997, the provision for loan losses for the second
quarter of 1997 totaled $70,000, a 94.4% increase from that provided during
the same period in 1996. This increase in the provision is not an indication
of any deterioration in the quality of the loan portfolio, but is largely a
response to the overall growth of the portfolio.
Other operating income - Other operating income increased $51,000 or 51.0% for
the second three months of 1997, due principally to the increase in the number
of deposit accounts. Increased fees for wire transfers, along with charges
for returned checks, and an ATM surcharge on all non-Farmers' customer,
implemented during the second quarter of 1997, provided approximately
$13,000 in additional revenue.
During the third quarter, the Company will introduce a MasterMoney( debit card
product to its customers. This product will allow customers to make purchases
with the card which will be directly deducted from their checking accounts.
In addition, the card will have the same features provided by the current ATM
card. It is hoped this product will enhance the benefits and convenience of
having a checking account, while providing additional fee income to the
Company through fees assessed by MasterCard to merchants who process
transactions initiated with the card. In addition, use of the card should
also reduce the number of checks requiring processing.
Other Operating Expense - While net interest income increased, due to the
expansion undertaken during 1996, the increase in other operating expenses
more than offset the increase in net interest income. During the second
quarter of 1997, total other operating expenses increased $195,000 or to $1.1
million from $900,000 during the same period in 1996. The rise in other
operating expenses is directly attributable to the expansion undertaken in
1996 during which three branch offices were either opened or purchased, the
number of full time equivalent employees increased from 52 to 75, and a
capital investment of approximately $650,000 was made in a wide area computer
network. Management believes the impact of these costs will, over time, be
mitigated as the new branch offices grow and develop and the earning assets
mix is improved through further loan growth. The increase in interest and net
interest income previously discussed, is an indication of the positive impact
the added branch operations have had on loan growth and the overall increase
in earning assets. However, until the time that these added branch facilities
are fully integrated into the overall operations of the Company, the
additional overhead will adversely impact earnings.
During the second quarter of 1997, management converted the current employee
health care program from an insurance based benefit to a point of service
program. Based on past costs, this change will result in savings of
approximately $18,000 annually, while resulting in no reduction in the level
of benefit afforded each employee. In addition, building and contents
insurance, and workers' compensation insurance were subject to review, during
the second quarter of 1997, resulting in a combined savings of $9,000
annually.
Historically the Company has paid an annual bonus to its employees based upon
the meeting certain earnings goals. However, due to the expansion in 1996 and
its continuing impact, at June 30, 1997, it appears unlikely those goals will
be met in 1997, and accordingly no provision for a bonus was recorded during
the first six months of 1997. The board of directors has authorized management
to commence a monthly accrual for a discretionary bonus. This accrual will
10
<PAGE>
increase other operating expenses approximately $30,000 per quarter for the
final two quarters of 1997.
In July 1997, the board of directors authorized management to enter into an
agreement for the construction of separate facility to house the data
processing and bookkeeping operations of the Company. This facility is to be
constructed on a lot currently used for employee parking. In May 1997, a
residence adjoining this lot was purchased. The residence was razed in July,
and was incorporated with the lot being used for the data processing
center. The construction costs for this new facility are estimated to be
approximately $860,000. Construction is expected to begin during the third
quarter of 1997 and should take approximately seven months to complete. Once
this facility is constructed and operational, it is expected future occupancy
and equipment costs will increase for such items as depreciation, insurance,
maintenance and utilities. In addition, management is continuing to assess
the data processing operation, to determine the extent to which the current
main frame data processing equipment needs to be upgraded.
Income Taxes - The provision for income taxes of $133,000 for the three months
ended June 30, 1997, represented a 56.5% increase from the $85,000 recorded
during the same period of 1996. This increase paralleled the increase in
pre-tax earnings which rose $150,000 or 53.0% during the period.
Comparison of the Six Months Ended June 30, 1997 and 1996
- ---------------------------------------------------------
Net Income - Net income for the first six months of 1997 totaled $529,000 or
$.51 per share an increase of $28,000 or 5.6% from the $501,000 or $.63 per
share reported for the same period in 1996. Net income for the first six
months of 1997, was impacted by the loan growth and increased operating costs
which affected the second quarter earnings.
Interest Income - As previously discussed, the increases in loans and
investment securities resulted in an increase in interest income of $813,000
or 21.6% during the six months ended June 30, 1997 as compared to 1996.
Interest expense - The increase in interest-bearing liabilities resulted in a
$262,000 or 17.0% increase in interest expense during the first six months of
1997 as compared to the same period in 1996.
Net Interest Income - As a result of the significant loan growth experienced
during the first six months of 1997, net interest income increased $551,000 or
24.7%.
Provision for Loan Losses - The provision for loan losses during the first
six months of 1997 totaled $115,000 an increase of 59.7% over that recorded
during the same period in 1996. As discussed this increase in the provision
mirrors the growth in the loan portfolio.
Other operating income - Other operating income increased $63,000 or 32.3% in
the six months ended 1997 as compared to 1996. The largest portion of this
growth occurred during the second quarter of 1997, due to increases in the
number of deposit accounts and the restructuring and implementation of several
fees and charges, previously discussed.
11
<PAGE>
Other Operating Expense - Other operating expense increased $539,000 or 33.2%
for the comparative six month periods. The year-to-date increase exceeded the
increase experienced for the most recent three months ended as the second
quarter of 1996, began to reflect the additional costs associated with opening
the new branch offices, including certain non-recurring costs associated with
regulatory filings and professional fees. The gap in operating expenses
should narrow further during the third quarter as the costs associated with
the third quarter 1996 branch office opening and acquisition reflected.
Income Taxes - The provision for income taxes of $228,000 for the six months
ended June 30, 1997, approximates the $224,000 recorded during the same period
of 1996. This resulted in an effective tax rate of 30.1% for the first six
months of 1997 and approximates the 30.1% rate obtained during the same period
in 1996.
Financial Condition
- -------------------
At June 30, 1997, the Company reported total consolidated assets of $130.1
million, an increase of $2.1 million or 1.6% from December 31, 1996. This
increase in total assets was funded by a short-term borrowing, as total
deposits remained unchanged from $114.7 million reported at December 31, 1996.
While total deposits remained unchanged from December 31, 1996, at June 30,
1997, the mix of the deposit portfolio changed as decreases occurred in the
time and money market components of the portfolio, which resulted from several
factors, including, a cyclical decline in deposits, and maturities and
withdrawals of certificates of deposit, combined with a transfer of funds into
mutual funds and brokerage money market accounts as customers sought higher
returns. Money market and time deposits have decreased 7.6% and 3.3% during
the first six months of 1997. The decrease in time deposits was principally
related to a promotional certificate of deposit offered during 1996. This
deposit product had an eleven month maturity, but allowed for early
withdrawals without penalty. Due to the early withdrawal feature, many
customers used this product for short-term investing, and withdrew the funds
prior to maturity.
The reduction in time and money market accounts was offset by increases in
both noninterest-bearing and interest-bearing demand accounts which increased
9.5% and 5.3% respectively since December 31, 1996. The increase in these
accounts can be attributed to the no fee checking accounts offered to both
consumer and commercial customers.
Total loans increased $11.9 million or 17.4% to $80.3 million during the first
six months of 1997. This increase is attributed to a rise in customer loan
demand, particularly demand for residential mortgage loans; new or expanded
lending areas resulting from the opening of the three branch offices in 1996;
the use of a mortgage broker to assist in the origination of certain purchase
money and construction mortgage loans; and a direct mail consumer loan
solicitation. The direct mail solicitation and broker originated loans
resulted in $926,000 and $ 1.9 million, respectively in net loan originations
for the first six months of 1997. In addition, net loan originations at the
Butler and Knox offices amounted to $5.3 million during the first six months
of 1997. As a result of these efforts, the net loan to deposit ratio was
69.3% at June 30, 1997, as compared to 59.0% at December 31, 1996. While the
loan growth experienced during the first six months of 1997, has been
significant, it is not reasonable to expect the rate of growth to continue
indefinitely. Indications are that while the growth of loan portfolio will
continue, it is
12
<PAGE>
not expected to continue to grow at the same pace experience
during the first six months of 1997. Furthermore, there are various other
events outside of the control of the Company which could negatively impact
lending activities such as changes in market rates of interest, local and
national economic conditions and competition from local lending entities.
The investment portfolio totaled $39.8 million at June 30, 1997, a decrease of
$6.7 million or 14.3% from December 31, 1996. This decrease in the investment
portfolio, combined with a $3.5 million decrease in federal funds sold was
used to fund the increase in the loan portfolio. During the first six months
of 1997 investment maturities and repayments totaled $5.5 million, and sales
proceeds of approximately $2.0 million were realized.
Stockholders' equity of $12.8 million at March 31, 1997, represented a
$196,000 or 1.6% increase from December 31, 1996, due principally to net
retained income of $302,000 which more than offset a $106,000 net unrealized
loss on investment securities available for sale. At June 30, 1997, the Bank
had Tier 1 risk-based, total risk-based and leverage capital ratios of 13.9%,
14.9% and 8.8%, respectively. Each of these ratios exceeds the minimum ratios
mandated by law and banking regulations.
Liquidity
- ---------
Operating activities, provided cash totaling $945,000, which was used to fund
investing and financing activities during the first six months of 1997. The
principal sources of these funds were net income of $529,000 and depreciation
and amortization of $299,000.
As a result of the increase in loan demand previously discussed, financing
activities used approximately $5.6 million in funds during the first six
months of 1997. During this period, net loan originations used $11.9 million
and was partially funded by net investment maturities and sales which totaled
approximately $6.4 million. By comparison, during the first six months of
1996, investing activities used $12.5 million, of which $12.7 million was
used to fund the net growth in the investment portfolio, while loan activity
resulted in net repayments of approximately $788,000.
In addition to the funds used for investing activities, financing activities
during the first six months of 1997 provided approximately $1.8 million, of
which $2.1 million was obtained from short-term borrowings from the Federal
Home Loan Bank. During the same period in 1996, financing activities
generated approximately $10.5 million in funds due to a $5.7 million net
increase in deposits and a $5 million short-term borrowing.
Aside from liquidity available from customer deposits or through sales and
maturities of the investment portfolio, the Company has alternative sources of
funds such as lines of credit available with correspondent banks. At June 30,
1997, a revolving line of credit of approximately $3.4 million was available
through the Federal Home Loan Bank, along with a $3.1 million federal funds
line of credit available through a correspondent bank.
In July, the Company borrowed $2.0 million from the Federal Home Loan Bank.
This credit facility has a stated maturity of five years, but contains a put
feature allowing the Company to prepay the debt without penalty should the
benchmark interest rate increase to certain predefined levels.
13
<PAGE>
Management is not aware of any conditions, including any regulatory
recommendations or requirements, which would adversely affect its liquidity or
its ability to meet funding needs in the ordinary course of business.
Risk Elements
- -------------
At June 30, 1997, non-performing loans, including those past due ninety days
or more, and loans on nonaccrual status totaled approximately $1,028,000. Of
these non-performing loans, $743,000 are considered to be impaired for
financial reporting purposes. These impaired loans consist of six commercial
and commercial real estate loans to a single borrower, secured by real estate
and vehicles. The borrower sought bankruptcy protection under Chapter 11, and
filed a draft plan of reorganization late in the first quarter of 1997.
Pending review and acceptance of the plan of reorganization, the borrower
continues to operate. In July 1997, an affiliated entity of the borrower
entered into an agreement to sell a parcel of real estate which is held as
collateral against one of the borrower's nonaccrual accounts. Should this
sale be consummated, the net proceeds to the Bank could approximate $380,000.
Management does not believe this account or any of the remaining
non-performing loans pose any significant risk to the operations, liquidity or
capital of the Company.
14
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
(None)
Item 2. Changes in Securities
(None)
Item 3. Defaults Upon Senior Securities
(None)
Item 4. Submission of Matters to a Vote of Security Holders
a) The annual meeting of stockholders was held May 21, 1997. Of 1,030,000
shares eligible to vote, 882,198 or 85.65% were voted in person or by proxy.
b) The following Class C directors were elected for a three year term expiring
in 2000:
Shares Shares Shares
Name in Favor Withheld Abstaining
- ------------------ -------- -------- ----------
Ronald L. Ashbaugh 875,933 6,165 100
George W. Freeman 875,213 6,885 100
Brain C. McCarrier 868,748 13,350 100
Elizabeth C. Smith 873,983 8,115 100
In addition to the above listed individuals, the following persons continue to
serve as directors:
David L. Cox Bernadette H. Crooks
Rodney C. Heeter Robert L. Hunter
J. Michael King John B. Mason
c) The recommendation by the Board of Directors to ratify the appointment of
S. R. Snodgrass, A.C., as the Company's independent auditors, as described in
the Proxy Statement for the Annual Meeting, was approved with 874,582 shares
in favor, 7,185 shares against and 431 shares abstaining
Item 5. Other Information
(None)
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27 - Financial Data Schedule (in electronic filing only)
b) Reprots of Form 8-K
(None)
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Emclaire Financial Corp.
(Registrant)
Date: August 12, 1997 By: /s/ David L. Cox
----------------
David L. Cox
President and CEO
Date: August 12, 1997 By: /s/ John J. Boczar
------------------
John J. Boczar, CPA
Treasurer
16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 5,355
<INT-BEARING-DEPOSITS> 32
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,031
<INVESTMENTS-CARRYING> 7,785
<INVESTMENTS-MARKET> 7,728
<LOANS> 80,313
<ALLOWANCE> 804
<TOTAL-ASSETS> 130,113
<DEPOSITS> 114,691
<SHORT-TERM> 2,075
<LIABILITIES-OTHER> 435
<LONG-TERM> 84
0
0
<COMMON> 1,288
<OTHER-SE> 11,540
<TOTAL-LIABILITIES-AND-EQUITY> 130,113
<INTEREST-LOAN> 3,245
<INTEREST-INVEST> 1,301
<INTEREST-OTHER> 33
<INTEREST-TOTAL> 4,579
<INTEREST-DEPOSIT> 1,788
<INTEREST-EXPENSE> 1,801
<INTEREST-INCOME-NET> 2,778
<LOAN-LOSSES> 115
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,164
<INCOME-PRETAX> 757
<INCOME-PRE-EXTRAORDINARY> 529
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 529
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
<YIELD-ACTUAL> 4.73
<LOANS-NON> 967
<LOANS-PAST> 61
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 733
<CHARGE-OFFS> 51
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 804
<ALLOWANCE-DOMESTIC> 391
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 413
</TABLE>
