<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q.B.
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 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
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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 May 5, 1997, there were 1,030,000 shares outstanding of the issuer's
common stock, par value $1.25 per share.
page 1
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Emclaire Financial Corp.
INDEX TO QUARTERLY REPORT OF FORM 10-Q.B.
Part I Financial Information Page
----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet, March 31, 1997 and
December 31, 1996 3
Consolidated Statement of Income
Three months ended March 31, 1997 and 1996 4
Consolidated Statement of Changes in
Stockholders' Equity 5
Consolidated Statement of Cash Flows
Three months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Securities Holders 12
Signatures 13
page 2
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EMCLAIRE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited - dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,667 $ 4,742
Federal funds sold 400 3,500
Investment securities:
Available for sale 33,793 36,208
Held to maturity (estimated market value
of $8,798 and $10,247) 8,902 10,275
Loans 73,924 68,428
Less allowance for loan losses 768 733
------------ ------------
Net loans 73,156 67,695
Premises and equipment 2,260 2,308
Accrued interest and other assets 3,480 3,275
------------ ------------
TOTAL ASSETS $ 126,658 $ 128,003
============ ============
LIABILITIES
Deposits
Non-interest bearing demand $ 17,909 $ 17,650
Interest bearing demand 15,684 15,784
Savings 14,276 14,168
Money market 18,300 19,059
Time 47,290 48,064
------------ ------------
Total deposits 113,459 114,725
Obligation under capital lease 94 104
Accrued interest and other liabilities 646 542
------------ ------------
TOTAL LIABILITIES 114,199 115,371
============ ============
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 7,714 7,598
Net unrealized gain (loss) on securities (165) 124
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,459 12,632
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 126,658 $ 128,003
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
page 3
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EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited - dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 1,546 $ 1,478
Interest bearing deposits in other banks - 1
Federal funds sold 18 39
Investment securities:
Taxable 620 318
Exempt from federal income tax 50 35
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Total interest income 2,234 1,871
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INTEREST EXPENSE
Deposits 898 761
Short-term borrowings 3 -
Lease obligation 2 2
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Total interest expense 903 763
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NET INTEREST INCOME 1,331 1,108
Provision for loan losses 45 36
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,286 1,072
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OTHER OPERATING INCOME
Service fees on deposit accounts 84 75
Other 23 20
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Total other operating income 107 95
------------ ------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 556 376
Occupancy, furniture and equipment 173 108
Other 340 241
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Total other operating expense 1,069 725
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Income before income taxes 324 442
Income taxes 95 139
------------ ------------
NET INCOME $ 229 $ 303
============ ============
EARNINGS PER SHARE $ .22 $ .38
DIVIDEND PER SHARE .11 .10
AVERAGE SHARES OUTSTANDING 1,030,000 799,200
</TABLE>
See accompanying notes to the consolidated financial statements.
page 4
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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 229 229
Dividends declared
($.11 per share) (113) (113)
Net unrealized loss on securities (289) (289)
---------- ---------- ---------- ---------- ----------
Balance March 31, 1997 $ 1,288 $ 3,622 $ 7,714 $ (165) $ 12,459
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
page 5
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 229 $ 303
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 149 70
Net amortization of investment security
discounts and premiums 58 61
Provision for loan losses 45 36
Increase in accrued interest receivable (10) (175)
Increase (decrease) in accrued interest payable (320) 6
Other, net 300 (95)
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Net cash provided by operating activities 451 206
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INVESTING ACTIVITIES
Proceeds from maturities and repayments of
investment securities:
Available for sale 1,000 -
Held to maturity 1,353 1,217
Proceeds from sales of investment securities:
Available for sale 1,990 14
Purchases of investment securities:
Available for sale (1,051) -
Held to maturity - (3,136)
Net loan (originations) repayments (5,509) 977
Purchases of premises and equipment (20) (52)
------------ ------------
Net cash used for investing activities (2,237) (980)
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FINANCING ACTIVITIES
Net increase (decrease) in deposits (1,266) 865
Payments for obligation under capital lease (10) (9)
Cash dividends paid (113) (80)
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Net cash provided by financing activities (1,389) 776
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Increase in cash and cash equivalents (3,175) 2
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,242 5,675
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,067 $ 5,677
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
page 6
<PAGE>
EMCLAIRE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The accounting and financial reporting polices 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, or for
any other periods.
2. LOANS
Major classifications of loans are summarized as follows:
March 31, December 31,
1997 1996
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Commercial and industrial $ 11,174 $ 10,390
Real estate mortgages
Residential 37,068 34,251
Multi-family and other 12,559 11,400
Consumer 13,123 12,387
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73,924 68,428
Less allowance for loan losses 768 733
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$ 73,156 $ 67,695
============ ============
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 March 31, 1997 and December 31, 1996, loans outstanding to
individuals and businesses are dependent upon the local economic conditions
within the immediate trade area.
page 7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1997 and 1996
- ------------------------------------------------------------
Net Income - Net income for the three months ended March 31, 1997 totaled
$229,000 or $.22 per share, a $74,000 or 24.4% decrease from the $303,000 or
$.38 per share recorded during the same period in 1996. The decrease in net
income is primarily attributed to increases in other operating expenses
related to the opening of the two de novo branch offices in May and August of
1996, and the purchase of the third office in September 1996. The additional
overhead costs associated with these offices exceeded the increase in net
interest income and other income which increased 20.1% and 12.6%,
respectively, during the first quarter of 1997 as compared to the same period
in 1996. Earnings on a per share basis were also impacted by the issuance of
230,800 shares of common stock during the fourth quarter of 1996. This stock
sale increased the average number of shares outstanding to 1,030,000 during
the first quarter of 1997, as compared to 799,200 for the same period in 1996.
Interest Income - Interest income for the three months ended March 31, 1997
increased approximately $363,000 or 19.4% from the same period in 1996, due to
the increase in investable funds, principally loans and investment securities.
Average loans outstanding for the first quarter of 1997 were $70.9 million, an
increase of $7.1 million or 11.0% from the same period in 1996. The increase
in loan volume is principally due to the increase in customer demand, the
expansion of the lending area in 1996, and several other factors previously
discussed. The yield on the loan portfolio for the first three months of
1997 decreased to 8.8% from 9.3% in 1996, due to lower interest rates realized
on the loan portfolio on loans made during the last three quarters of 1996 and
the first quarter of 1997. With the recent increase of .25% in the prime
interest rate, approximately $12 million in current loans were repriced for
the second quarter of 1997.
Average investment securities for the first quarter of 1997 were $45.8 million
resulting in a nontax-effected yield of 5.9% for the quarter, compared to
$26.2 million and 5.4% during the same period in 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 $140,000 or 18.4% during the
first quarter 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 23.1% during the
comparative periods, the overall rate paid on these liabilities decreased from
4.1% to 3.8%. This lower cost of funds is related to the generally lower rate
environment of the last three quarters of 1996 and the first quarter of 1997.
During April 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.
page 8
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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 $223,000 or 20.1% for the quarter ended March 31, 1997, as
compared to the same period in 1996.
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 three months of 1997, the provision for loan losses for the first
quarter of 1997 totaled $45,000, a 25.0% increase from that provided during
the same period in 1996.
Other operating income - Other operating income increased $12,000 or 12.6% for
the first three months of 1997, due principally to the increase in the number
of deposit accounts. In addition, certain fees for services provided were
recently reviewed and increased in order to offset the rising cost of
providing these services. Effective April 1, 1997, fees for transacting wire
transfers and for processing returned checks were adjusted. In addition,
management has begun the process necessary to initiate a surcharge for non
Farmers customers who use an ATM sponsored by Farmers National Bank. This
charge was initiated in response to surcharges imposed by other area financial
institutions, and is expected to take effect during the second quarter of 1997.
Other Operating Expense - While net interest income increased, due to the
growth experienced during 1996, the increase in other operating expenses more
than offset the increase in net interest income. During the first quarter of
1997, total other operating expenses increased $344,000 or 47.5% to $1.1
million from 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 74, 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. Until that time, the additional overhead will adversely
impact earnings.
To further limit the impact of ongoing other operating expenses, management
has commenced a review of a number of overhead related costs. As part of this
process, management is in the process of converting employee health care 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 resulting in a combined savings
of $9,000 annually. These changes take effect during the second quarter of
1997.
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 located in Emlenton and currently used for
employee parking is being considered as the site of this possible data
processing center. In April 1997, a purchase agreement was signed to acquire
a residence adjoining this lot. It is anticipated the residence will be razed
and the lot incorporated with the lot being considered for the data processing
center. Should this facility be constructed, it is expected future occupancy
and equipment costs would increase for such items as
page 9
<PAGE>
depreciation, insurance, maintenance and utilities. However, at this time a
detailed estimate of these costs has not been developed.
Income Taxes - The provision for income taxes of $95,000 for the three months
ended March 31, 1997, represented a 31.7% decrease from the $139,000 recorded
during the same period of 1996. This decline paralleled the decrease in
pre-tax income which declined $188,000 or 26.7% during the period.
Financial Condition
- -------------------
At March 31, 1997, the Company reported total consolidated assets of $126.7
million, a decrease of $1.3 million or 1.1% from December 31, 1996. This
decline in total assets resulted from a decline in total deposits which fell
1.1% to $113.5 million from $114.7 million at December 31, 1996.
The decrease in total deposits occurred in the time and money market
components of the portfolio, and resulted from several factors, including, a
cyclical decline in deposits, and maturities and withdrawals of certificates
of deposit. 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.
During the first three months of 1997, approximately $913,000 of these
deposits were withdrawn or redeemed at maturity.
Total loans increased $5.5 million or 8.0% to $73.9 million during the first
three 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 $626,000 and $1.1 million, respectively in net loan originations
for the first quarter of 1997. In addition, net loan originations at the
Butler and Knox offices amounted to $2.5 million during the first three months
of 1997. As a result of these efforts, the loan to deposit ratio was 64.5% at
March 31, 1997, as compared to 59.0% at December 31, 1996.
The investment portfolio totaled $42.7 million at March 31, 1997, a decrease
of $3.8 million or 8.1% from December 31, 1996. This decrease in the
investment portfolio, combined with a $3.1 million decrease in federal funds
sold was used to fund the increase in the loan portfolio and the decrease in
deposit accounts. During the first three months of 1997 investment maturities
and repayments totaled $2.4 million and sales proceeds of approximately $2.0
million were realized.
Stockholders' equity of $12.5 million at March 31, 1997, represented a
$173,000 or 1.1% decrease from December 31, 1996, due principally from a
$289,000 net unrealized loss on investment securities available for sale,
which exceed the net retained income for the quarter. At March 31, 1997, the
Bank had Tier 1 risk-based, total risk-based and leverage capital ratios of
14.2%, 15.2% and 8.8%, respectively. Each of these ratios exceeds the minimum
ratios mandated by law and banking regulations.
page 10
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Liquidity
- ---------
Operating activities, particularly net income of $229,000 and depreciation and
amortization of $149,000, provided cash totaling $451,000, which was used to
fund investing and financing activities during the first three months of 1997.
As a result of the increase in loan demand previously discussed, financing
activities used approximately $2.2 million in funds during the first quarter
of 1997, as compared to $980,000 used during the same period in 1996. Net
loan originations used $5.5 million and was partially funded by net investment
maturities and sales which totaled approximately $3.3 million. By comparison,
during the first three months of 1996, loan activity resulted in net
repayments of approximately $977,000.
In addition to the funds used for investing activities, financing activities
during the first three months of 1997 used approximately $1.4 million,
principally to fund the net decrease in deposits previously discussed. During
the same period of 1996, financing activities generated approximately $776,000
in funds due to a net increase in deposits.
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 March
31, 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.
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 March 31, 1997, non-performing loans including those past due ninety days
or more, and loans on nonaccrual status totaled approximately $972,000. 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. 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.
page 11
<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
(None)
Item 5. Other Information
(None)
Item 6. Exhibits and Reports on Form 8-K
(None)
page 12
<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: May 12, 1997 By: /s/ David L. Cox
----------------------------
David L. Cox
President and CEO
Date: May 12, 1997 By: /s/ John J. Boczar
----------------------------
John J. Boczar, CPA
Treasurer
page 13
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 4,647
<INT-BEARING-DEPOSITS> 20
<FED-FUNDS-SOLD> 400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,793
<INVESTMENTS-CARRYING> 8,902
<INVESTMENTS-MARKET> 8,798
<LOANS> 73,924
<ALLOWANCE> 768
<TOTAL-ASSETS> 126,658
<DEPOSITS> 113,459
<SHORT-TERM> 0
<LIABILITIES-OTHER> 646
<LONG-TERM> 94
0
0
<COMMON> 1,288
<OTHER-SE> 11,171
<TOTAL-LIABILITIES-AND-EQUITY> 126,658
<INTEREST-LOAN> 1,546
<INTEREST-INVEST> 670
<INTEREST-OTHER> 18
<INTEREST-TOTAL> 2,234
<INTEREST-DEPOSIT> 898
<INTEREST-EXPENSE> 903
<INTEREST-INCOME-NET> 1,331
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,069
<INCOME-PRETAX> 324
<INCOME-PRE-EXTRAORDINARY> 229
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 7.67
<LOANS-NON> 907
<LOANS-PAST> 65
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 733
<CHARGE-OFFS> 16
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 768
<ALLOWANCE-DOMESTIC> 768
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 365
</TABLE>
