UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 1998
--------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from to
--------------------- ------------------
Commission file Number: 000-18464
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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: (724) 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 11, 1998, there were 1,081,453 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
<TABLE>
<CAPTION>
Part I Financial Information Page
----
<S> <C> <C> <C>
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet, March 31, 1998 and
December 31, 1997 3
Consolidated Statement of Income
Three months ended March 31, 1998 and 1997 4
Consolidated Statement of Comprehensive Income
Three months ended March 31, 1998 and 1997 5
Consolidated Statement of Changes in
Stockholders' Equity 6
Consolidated Statement of Cash Flows
Three months ended March 31, 1998 and 1997 7
Notes to Consolidated Financial Statements 8 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 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
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited - dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,110 $ 4,975
Federal funds sold 2,200 -
Investment securities:
Available for sale 30,946 31,977
Held to maturity (estimated market value
of $4,561 and $6,053) 4,557 6,057
Loans 89,222 86,144
Less allowance for loan losses 888 874
-------- --------
Net loans 88,334 85,270
Premises and equipment 2,930 2,619
Accrued interest and other assets 2,997 3,058
-------- --------
TOTAL ASSETS $136,074 $133,956
======== ========
LIABILITIES
Deposits
Non-interest bearing demand $ 20,600 $ 19,765
Interest bearing demand 16,865 17,276
Savings 16,779 16,261
Money market 17,745 18,077
Time 47,683 46,276
-------- --------
Total deposits 119,672 117,655
Obligation under capital lease 52 63
Borrowed Funds 2,000 2,200
Accrued interest and other liabilities 650 540
-------- --------
TOTAL LIABILITIES 122,374 120,458
-------- --------
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, 1,081,453 shares issued 1,352 1,352
Additional paid in capital 4,432 4,432
Retained earnings 7,701 7,492
Net unrealized gain on securities 215 222
-------- --------
TOTAL STOCKHOLDERS' EQUITY 13,700 13,498
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $136,074 $133,956
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited - dollars in thousands, except per share data)
Three Months Ended March 31,
1998 1997
---------- ----------
INTEREST INCOME
Loans, including fees $ 1,926 $ 1,546
Federal funds sold 12 18
Investment securities:
Taxable 513 620
Exempt from federal income tax 52 50
---------- ----------
Total interest income 2,503 2,234
---------- ----------
INTEREST EXPENSE
Deposits 958 898
Borrowed funds 29 3
Lease obligation 1 2
---------- ----------
Total interest expense 988 903
---------- ----------
NET INTEREST INCOME 1,515 1,331
Provision for loan losses 45 45
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,470 1,286
---------- ----------
OTHER OPERATING INCOME
Service fees on deposit accounts 122 84
Other 37 23
---------- ----------
Total other operating income 159 107
---------- ----------
OTHER OPERATING EXPENSE
Salaries and employee benefits 584 556
Occupancy, furniture and equipment 183 173
Other 374 340
---------- ----------
Total other operating expense 1,141 1,069
---------- ----------
Income before income taxes 488 324
Income taxes 149 95
---------- ----------
NET INCOME $ 339 $ 229
========== ==========
EARNINGS PER SHARE $ 0.31 $ 0.21
DIVIDENDS PER SHARE 0.12 0.105
AVERAGE SHARES OUTSTANDING 1,081,453 1,081,453
See accompanying notes to the consolidated financial statements.
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited - dollars in thousands, except per share data)
Three Months Ended March 31,
1998 1997
----- -----
Net Income $ 339 $ 229
Other Comprehensive income, net of tax:
Unrealized loss on securities (7) (289)
----- -----
COMPREHENSIVE NET INCOME 332 (60)
===== =====
See accompanying notes to the consolidated financial statements.
<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 on
Stock Capital Earnings Securities Total
--------- ----------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 1,352 4,432 7,492 222 13,498
Net income 339 339
Dividends declared
($.12 per share) (130) (130)
Net unrealized loss on securities (7) (7)
-------- ----------- ---------- --------------- ----------
Balance March 31, 1998 $ 1,352 $ 4,432 $ 7,701 $ 215 $ 13,700
======== ========== ========== =============== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 339 $ 229
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 153 149
Net amortization of investment security
discounts and premiums 32 58
Provision for loan losses 45 45
Increase in accrued interest receivable (107) (10)
Increase (decrease) in accrued interest payable 25 (320)
Other, net 174 300
------- -------
Net cash provided by operating activities 661 451
------- -------
INVESTING ACTIVITIES
Proceeds from maturities and repayments of
investment securities:
Available for sale 1,000 1,000
Held to maturity 1,488 1,353
Proceeds from sales of investment securities:
Available for sale - 1,990
Purchases of investment securities:
Available for sale - (1,051)
Net loan originations (3,113) (5,509)
Purchases of premises and equipment (377) (20)
------- -------
Net cash used for investing activities (1,002) (2,237)
------- -------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 2,017 (1,266)
Decrease in short-term borrowings (200) -
Payments for obligation under capital lease (11) (10)
Cash dividends paid (130) (113)
------- -------
Net cash provided by (used for) financing activities 1,676 (1,389)
------- -------
Increase (decrease) in cash and cash equivalents 1,335 (3,175)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,975 8,242
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,310 $ 5,067
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<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" or
"Farmers"), 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" or "Emclaire") 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. SUBSEQUENT EVENT
On April 7, 1998, the Company entered into an Agreement and Plan and of
Reorganization with Peoples Savings Financial Corporation ("Peoples") and its
wholly-owned subsidiary Peoples Savings Bank ("Peoples Savings") to acquire 100%
of the outstanding common shares of Peoples for $26 per share, payable in a
combination of cash and Emclaire common stock, in a transaction to be accounted
for as a purchase. Upon completion of the merger, the operations of Peoples
Savings will be consolidated with and become part of Farmers. The merger which
is subject to regulatory approval and the approval of the shareholders of both
the Company and Peoples is expected to be completed in the third quarter of
1998. At December 31, 1997, Peoples had total assets, total deposits and total
capital of $44.5 million, $35.1 million and $9.3 million, respectively. It is
expected this transaction will be completed prior to December 31, 1998.
3. EARNINGS PER SHARE
In December 1997, the Company adopted the Financial Accounting Standards Board
Statement No. 128 "Earnings per Share". This statement requires the presentation
of basic an diluted earnings per share. Basic earnings per share excludes the
dilutive effects of such items as stock options, warrants and convertible
securities, while diluted earnings per share reflects the dilutive effect of
these common stock equivalents. The Company maintains a simple capital
structure, thus resulting in no dilutive effects on earnings per share.
4. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board Statement No. 130 "Reporting Comprehensive Income". This
statement establishes standards for reporting the components of comprehensive
income by requiring all items that are to be recognized as under accounting
standards as components of comprehensive income be reported a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income includes net income, as well as, certain items
that are reported directly within separate components of stockholders' equity,
and thus bypass net income. Financial statements for earlier periods, provided
for comparative purposes, have been reclassified.
The company has opted to disclose comprehensive income in a separate financial
statement, in which the components of comprehensive income are presented net of
applicable income taxes. The following table sets forth the related tax effects
allocated to each element of comprehensive income for the three months ended
March 31, 1998 and 1997:
8
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<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
------------------------------------------------
Before Tax Net of
Tax Amount Benefit Tax Amount
---------- ------- ----------
<S> <C> <C> <C>
Unrealized gain on securities:
Unrealized holding loss during the period $ (10) $ (3) $ (7)
--------- ------- ----------
Other comprehensive income $ (10) $ (3) $ (7)
========= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
----------------------------------------------
Before Tax Net of
Tax Amount Benefit Tax Amount
---------- ------- ----------
<S> <C> <C> <C>
Unrealized gain (loss) on securities:
Unrealized holding loss during the period $ (438) $ (149) $ (289)
---------- ---------- ----------
Other comprehensive income $ (438) $ (149) $ (289)
========== ========== ==========
</TABLE>
The components of accumulated other comprehensive income for the three months
ended March 31, 1998, consist of the items presented under the heading Net
Unrealized Gain on Securities as presented in the Consolidated Statement of
Changes in Stockholders' Equity. For the three months ended March 31, 1997, the
net unrealized gain or loss on securities had a beginning balance of $124, a net
unrealized loss of $289, and an ending balance of $(165).
5. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------------- ----------------
<S> <C> <C>
Commercial and industrial $ 11,744 $ 11,147
Real estate mortgages
Residential 47,017 45,709
Commercial and other 16,397 15,188
Consumer 14,064 14,100
----------------- ----------------
89,222 86,144
Less allowance for loan losses 888 874
----------------- ----------------
$ 88,334 $ 85,270
================= ================
</TABLE>
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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information presented in this discussion and analysis and other
statements concerning future performance, developments or events, and
expectations for growth and market forecasts are subject to a number of risks
and uncertainties, including interest rate fluctuations, changes in local or
national economic conditions, and government or regulatory actions which might
cause actual results to differ materially from stated expectations or estimates.
Comparison of the Three Months Ended March 31, 1998 and 1997
- ------------------------------------------------------------
Net Income - Net income for the three months ended March 31, 1998 totaled
$339,000 or $.31 per share, a $110,000 or 48% increase from the $229,000 or $.21
per share recorded during the same period in 1997, adjusted for the five percent
stock dividend paid in December 1997. The increase in net income is primarily
attributed to increases in net interest income, which rose $184,000 or 14%
reflecting the increase in interest earnings from the loan portfolio. The
increase in net interest income offset the rise in other operating expense which
increased $72,000 or 7% during the comparative three month periods, due
principally to normal periodic increases.
The improved net income resulted in annualized returns on average assets and
average equity of 1.02% and 10.01% for the quarter ended March 31, 1998, as
compared to returns of .73% and 7.31% for the same period in 1997.
Interest Income - Interest income for the three months ended March 31, 1998
increased approximately $269,000 or 12% from the same period in 1997, due to the
increase in the loan portfolio. The average balance of the loan portfolio
increased $17.0 million from the same period in 1997 to $87.9 million, due
largely to the increase in residential mortgage loans. The tax equivalent yield
on the loan portfolio for the first three months of 1998 increased 10 basis
points to 9.01% from the same period in 1997, due to the effect of a 25 basis
point increase in the prime rate in March 1997.
Average investment securities for the first quarter of 1998 were $37.4 million
resulting in a tax-equivalent yield of 6.41% for the quarter, compared to $45.8
million and 6.16% during the same period in 1997. Due to ongoing loan demand,
investment portfolio maturities continue to be reinvested in the loan portfolio.
As a result of the growth in the volume of earning assets, combined with funding
loan growth with securities maturities, the tax equivalent yield on earning
assets rose to 8.21% during the first quarter of 1998, as compared to 7.80%
during the same period in 1997.
Interest expense - Interest expense increased $85,000 or 9% during the first
quarter of 1998, as compared to the same period in 1997. The average volume of
interest bearing liabilities increased $4.5 million or 5% during the comparative
periods, while the overall rate paid on these liabilities rose from 3.80% to
3.97%. This higher cost of funds is related to continuing competition for
deposit customers, combined with the use of Federal Home Loan Bank advances as
an alternative source of funds.
10
<PAGE>
Despite the generally low interest rate environment, the ongoing competition for
deposit customers by traditional and non-traditional financial services
providers, can be expected to continue to affect the overall cost of 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 $184,000 or 14% for the quarter ended March 31, 1998, as compared to
the same period in 1997.
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 1998, the provision for loan losses for the first quarter
of 1998 totaled $45,000, equaling that provided during the same period in 1997.
Other operating income - Other operating income increased $52,000 or 49% for the
first three months of 1998, due principally to the impact from fees generated
from new or enhanced products and services introduced during the second and
third quarters of 1997, combined with the increase in the number of deposit
accounts During the second quarter of 1997, fees for transacting wire transfers
and for processing returned checks were adjusted. In addition, convenience fees
levied on non-Farmers customers who use an ATM sponsored by Farmers National
Bank were initiated during the second quarter of 1997. While during the third
quarter of 1997, the Bank introduced its MasterMoney(TM) debit card. These
changes resulted in new or additional fee income totaling $50,000 during the
first quarter of 1998, as compared to the same period in 1997.
Other Operating Expense - During the first quarter of 1998, total other
operating expenses increased $72,000 or 7% to $1.14 million from the same period
in 1997. The rise in other operating expenses is due to a combination of
increases in recurring expenses for such things as salaries and employee
benefits, equipment service contracts and ATM network fees, combined with
generally non-recurring costs related to a loss on a customer deposit account,
and legal costs for loan collections.
Salary and employee benefit costs increased $28,000 or 5%, due principally to an
accrual for a profit sharing payments totaling $30,000 recorded during the first
quarter of 1998, that was not recorded during the same period in 1997. In
addition, scheduled employee health insurance premiums have increased
approximately 14% for 1998. This increase approximates the savings generated
from the Bank's converting to the point of service health care program during
the second quarter of 1997.
Periodic costs associated with equipment service contracts increased $12,000 or
27% during the first quarter of 1998, as compared to the same period in 1997.
These costs relate principally to maintenance agreements on the Bank's data and
document processing equipment. Much of this equipment is scheduled to be
upgraded or replaced, which may help to control in the short-term the related
maintenance costs.
Other operating expense increased $34,000 or 10% during the first three months
of 1998, as compared to the same period in 1997, due to increased ATM and debit
card processing fees which increased 68% to $32,000 for the first quarter of
1998. In addition, legal fees related to loan collections increased
approximately $9,000. Deposit account losses increased $12,000 to $15,000, due
to a single loss incurred by a customer cashing stolen checks. Printing and
supplies increased
11
<PAGE>
$5,000 or 17% to $35,000 due to costs associated with opening the eighth branch
office, and costs associated with a change in the area code for several office
locations. Minor cost reductions for such things as advertising, postage,
insurance and other expenses helped to offset these increases.
While other operating expenses experienced only a marginal increase during the
first quarter of 1998, as compared to 1997, several projects undertaken by the
Company, intended to enhance the long-term growth of the Company, will result in
increased overhead expenses.
In March 1998, the Bank opened its eighth office in the Clarion Mall. This de
novo branch operation is the Bank's second office in the Clarion area and is
located in an area which has experienced recent commercial growth. As with any
start-up operation, this office can not be expected to produce a profit until a
deposit base sufficient to support the operation can be generated. It is
estimated this facility will generate a loss of approximately $200,000 during
the first full year of operation.
The data processing center construction started in the third quarter of 1997,
will be completed in the second quarter of 1998. This facility will allow for
the expansion of the bookkeeping and data processing operations, by providing
sufficient capacity to absorb future growth. With the planned acquisition of
Peoples Savings Financial Corporation (See Note 2 of the accompanying financial
statements) three branch office operations with approximately $35 million in
deposits will become part of Farmers' branch network. When the data center
becomes operational, overhead costs related to the building and furniture,
excluding upgrades to the Bank's data processing and check processing equipment,
are estimated to be approximately $75,000 the first full year of operation.
During 1997, management began to assess the current data processing operation in
order to plan for the future growth and operations of the Company. Based on the
results of that process, the Company has entered into an agreement to replace
its current main frame computer, to upgrade its core operating software and to
implement a check imaging system for the processing and storage of customer
transactions. The capital investment required for these improvements is
estimated to be approximately $500,000. The replacement of the main frame
computer became necessary as the growth experienced by the Company over the last
two years absorbed the available capacity of the system. This replacement is
approximately one year in advance of the scheduled replacement of the computer.
The upgraded core application software offers program enhancements, improved
usability by being converted to a MS windows environment, and graphics
interfaces. The planned check imaging system should reduce the time devoted to
the processing and handling of transactions by the bookkeeping department, and
improve our ability to perform customer research. It is expected these systems
will be installed during the third quarter of 1998.
Income Taxes - The provision for income taxes of $149,000 for the three months
ended March 31, 1998, represented a 57% increase from the $95,000 recorded
during the same period of 1997. This increase paralleled the rise in pre-tax
income which increased $164,000 or 51% during the period.
12
<PAGE>
Financial Condition
- -------------------
At March 31, 1998, the Company reported total consolidated assets of $136.0
million, an increase of $2.1 million or 2% from December 31, 1997. This increase
in total assets resulted from an increase in total deposits which rose 2% to
$119.7 million from $117.7 million at December 31, 1997.
The increase in deposits resulted from the demand deposit, savings and time
deposit segments of the portfolio which increased $835,000, $518,000 and $1.4
million respectively. These increases offset declines in the NOW and money
market account components of the portfolio. As previously discussed, competition
for deposit customers continues. The Company continues to focus on its personal
customer service, while providing deposit services at minimal or no fees, and
offering competitive interest rates to maintain its share of the deposit market.
Total loans increased $3.1 million or 4% to $89.2 million during the first three
months of 1998. This increase represents a decline from the $5.5 million
increase during the first three months of 1997. The increase is attributed to
continuing customer loan demand, particularly demand for residential mortgage
loans, which increased $1.3 million from December 31, 1997. Commercial and other
real estate loans increased $1.2 during the same period. The three offices
opened or acquired in 1996 continue to account for the majority of the loan
growth providing $2.2 million or 71% of the growth experienced during the first
quarter of 1998.
While loan growth continues to be strong, the decline in the comparative three
month periods indicates a moderate lessening in loan demand. Should this trend
continue, it is likely that total interest income over the next three quarters,
in comparison to the same periods in 1997, would begin to level out.
Stockholders' equity of $13.7 million at March 31, 1998, represented a $202,000
or 2% increase from December 31, 1997, due principally from $209,000 of net
retained income for the quarter. At March 31, 1998, the Bank had Tier 1
risk-based, total risk-based and leverage capital ratios of 14.0%, 15.0% and
9.1%, respectively. Each of these ratios exceeds the minimum ratios mandated by
law and banking regulations.
Liquidity
- ---------
Operating activities, particularly net income of $339,000 and depreciation and
amortization of $153,000, provided cash totaling $661,000, which was used to
fund investing and financing activities during the first three months of 1998.
As a result of the increase in loan demand previously discussed, financing
activities used approximately $1.0 million in funds during the first quarter of
1998, as compared to $2.2 million used during the same period in 1997. Net loan
originations used $3.1 million and was partially funded by investment maturities
which totaled approximately $2.5 million. By comparison, during the first three
months of 1997, net loan originations totaled $5.5 million, which was partially
funded by net investment maturities and sales totaling $3.3 million.
In addition to the funds used for investing activities, financing activities
during the first three months of 1998 provided approximately $1.7 million, due
principally to the net increase in
13
<PAGE>
deposits of $2.0 million. During the same period of 1997, financing activities
used approximately $1.4 million of funds due to a $1.3 million decrease 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,
1998, two short-term credit facilities were available through the Federal Home
Loan Bank, including a revolving line of credit of approximately $4.6 million,
and a second revolving facility with a maximum borrowing of $10 million.
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, 1998, non-performing loans, including those past due ninety days or
more, and loans on nonaccrual status totaled approximately $991,000. Of these
non-performing loans, $685,000 are considered to be impaired for financial
reporting purposes. These impaired loans consist of four commercial and
commercial real estate loans to a single borrower, secured by real estate. The
borrower continues to operate under Chapter 11 bankruptcy protection. As part of
management's ongoing assessment of the loan portfolio, $70,000 of the allowance
for loan losses at March 31, 1998, has been allocated for these loans. In April
1998, the borrower completed the sale of a parcel of real estate securing this
account. As a result of the sale, the Company received approximately $148,000
which was applied against the principal balance. Management believes the Company
is adequately secured by the underlying collateral.
Year 2000
- ---------
As discussed in the 1997 Annual Report, the Company formed a committee in
September 1997, to implement an action plan designed to ensure the Company's
computer systems, software applications and other date reliant equipment would
function properly after December 31, 1999.
For items or vendors that are not compliant and have not achieved significant
progress toward compliance by October 1, 1998, the Company will implement
contingency plans to either replace the product or vendor, or implement an
alternative procedure to mitigate the affected area.
All software programs used by the Company are purchased directly from vendors,
and are not modified internally by the Company. This eliminates the need for the
direct hiring of programmers to rewrite or modify computer software. The
computer hardware and software upgrades previously discussed have been
represented as being compliant by the vendors. They will be subject to testing
by the Company prior to being implemented.
Management believes that substantially all date reliant equipment and software
will be tested and, if needed, upgraded or replaced by December 31, 1998. In
addition, assessments of significant vendors, service providers and customers
will also be completed. Despite the best efforts of management to address this
issue, the vast number of external entities that have direct and indirect
business relationships with the Company, such as customers, vendors, payment
system providers and other financial institutions, makes it impossible to assure
that a failure to achieve compliance by one or more of these entities would not
have a material adverse impact on the operations 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
(None)
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) Reports on Form 8-K
On March 23, 1998, the Company filed Form 8-K disclosing it
had entered into a letter of intent to acquire all of the
outstanding stock of Peoples Savings Financial Corporation.
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: May 14, 1998 By: /s/ David L. Cox
------------- ----------------
David L. Cox
President and CEO
Date: May 14, 1998 By: /s/ John J. Boczar
------------- ------------------
John J. Boczar, CPA
Treasurer
16
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<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,089
<INT-BEARING-DEPOSITS> 21
<FED-FUNDS-SOLD> 2,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,946
<INVESTMENTS-CARRYING> 4,557
<INVESTMENTS-MARKET> 4,561
<LOANS> 89,222
<ALLOWANCE> 888
<TOTAL-ASSETS> 136,074
<DEPOSITS> 119,672
<SHORT-TERM> 0
<LIABILITIES-OTHER> 650
<LONG-TERM> 2,052
0
0
<COMMON> 1,352
<OTHER-SE> 4,432
<TOTAL-LIABILITIES-AND-EQUITY> 13,700
<INTEREST-LOAN> 1,926
<INTEREST-INVEST> 565
<INTEREST-OTHER> 12
<INTEREST-TOTAL> 2,503
<INTEREST-DEPOSIT> 958
<INTEREST-EXPENSE> 988
<INTEREST-INCOME-NET> 1,515
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,141
<INCOME-PRETAX> 488
<INCOME-PRE-EXTRAORDINARY> 488
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 339
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<YIELD-ACTUAL> 5.04
<LOANS-NON> 828
<LOANS-PAST> 132
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 874
<CHARGE-OFFS> 44
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 888
<ALLOWANCE-DOMESTIC> 383
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 505
</TABLE>
