<PAGE>
As filed with the Securities and Exchange Commission on July ^ 24, 1998
Registration No. 333-52635
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO.1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EMCLAIRE FINANCIAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania 6036 25-1606091
- ------------------------------- --------------------------- -------------------
(State or Other Jurisdiction of Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
612 Main Street
Emlenton, Pennsylvania 16373
(724) 867-2311
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
David L. Cox, President and Chief Executive Officer
Emclaire Financial Corp.
612 Main Street
Emlenton, Pennsylvania 16373
(724) 867-2311
(Name, address, including zip code, and telephone number,
including area code,of agent for service)
COPY TO:
Gregory A. Gehlmann, Esq.
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700, East
Washington, DC 20005
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effectiveness of the
Registration Statement.
If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. |_|
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount to Offering Price Aggregate Offering Amount of
to be Registered be Registered Per Share Price (1) Registration Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $1.25 per share.... 338,000 $24.25 $5,902,057 $1,741.11
==========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
for the filing of the Form S-4 pursuant to Rule 457(f)(1) and (3) under
the Securities Act based on the last sales price reported by the OTC
Bulletin Board for Peoples Savings Financial Corporation common stock
as of May 8, 1998, and reduced by 45.0% of cash to be paid by Emclaire
Financial Corp. As of May 8, 1998, Peoples Savings Financial
Corporation had 442,516 shares of common stock issued. Shareholders of
Peoples Savings Financial Corporation will be entitled to elect their
preference with respect to each share of Peoples Savings Financial
Corporation common stock held by them, subject to pro-rata allocation,
such that an aggregate of 45.0% will be converted into cash and 55.0%
will be converted into stock.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Emclaire Financial Corp.
612 Main Street
Emlenton, Pennsylvania 16373
July 30, 1998
To the Shareholders of
Emclaire Financial Corp.
You are cordially invited to attend the Special Meeting of
Shareholders (the "Special Meeting") of Emclaire Financial Corp. ("Emclaire"),
the holding company for The Farmers National Bank of Emlenton ("Farmers
National"), which will be held on Thursday, August 27, 1998, at ^ 4:00 p.m.,
local time at ^ the main office of Farmers National, 612 Main Street, Emlenton,
Pennsylvania.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Reorganization, dated April 7, 1998
(the "Reorganization Agreement") by and between Emclaire, Farmers National,
Peoples Savings Financial Corporation ("PSFC"), a Pennsylvania corporation and
the holding company for Peoples Savings Bank, a Pennsylvania stock savings bank
("Peoples Bank") and Peoples Bank. Pursuant to the Reorganization Agreement,
PSFC will be merged with and into Emclaire, and as soon as practicable
thereafter, Peoples Bank will be merged with and into Farmers National
(together, the "Merger"). According to the terms of the Reorganization
Agreement, shareholders of PSFC may elect, subject to certain election and
allocation procedures, to exchange their shares of PSFC common stock for $26.00,
payable in the aggregate form of 45% cash and 55% Emclaire common stock.
Hopper Soliday & Co., Inc., an investment banking firm, has issued its
opinion to your board of directors regarding the fairness from a financial point
of view, of the consideration to be received by the shareholders of PSFC
pursuant to the Reorganization Agreement as of the date of such opinion. A copy
of the opinion is attached as Appendix ^ C to the Prospectus/Proxy Statement.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED MERGER
AND RECOMMENDS THAT SHAREHOLDERS VOTE THEIR SHARES "FOR" APPROVAL OF THE MERGER.
THE AFFIRMATIVE VOTE OF A MAJORITY OF EMCLAIRE'S OUTSTANDING SHARES ENTITLED TO
VOTE IS NECESSARY TO APPROVE THE MERGER. ACCORDINGLY, FAILURE TO VOTE, EITHER BY
RETURNING YOUR PROXY CARD OR VOTING IN PERSON AT THE SPECIAL MEETING WILL HAVE
THE EFFECT OF A VOTE AGAINST THE MERGER.
The accompanying Notice of Special Meeting of Shareholders and the
Prospectus/Proxy Statement describe the matters to be acted upon at the Special
Meeting, including matters incidental to the conduct of the Special Meeting.
Shareholders are urged to review carefully the attached Prospectus/Proxy
Statement, including the Appendices, which together describe the Merger and its
terms and conditions in detail. Also enclosed is a proxy solicited by Emclaire's
Board of Directors in connection with the Special Meeting.
Sincerely,
David L. Cox
President and Chief Executive Officer
<PAGE>
Peoples Savings Financial Corporation
173 Main Street
Ridgway, Pennsylvania 15801
July 30, 1998
To the Shareholders of
Peoples Savings Financial Corporation
Dear Shareholder:
You are cordially invited to attend our special meeting of shareholders
to be held on Thursday, August 27, 1998 at ^ 10:00 a.m. pm local time at ^ the
main office of Peoples Savings Bank, 173 Main Street, Ridgway, Pennsylvania. The
purpose of the meeting is to allow shareholders to approve a merger with
Emclaire Financial Corp.
The terms of the merger and the actions required to be taken by
shareholders are described in detail in the enclosed Prospectus and Joint Proxy
Statement. Please read that document carefully so that you understand the
proposals and can make an informed choice.
Our Board of Directors unanimously approved the merger and recommends
that you vote in favor of it. If the merger occurs, you will receive either
$26.00 in cash or Common Stock of Emclaire Financial Corp. with a value of
approximately $26.00 in exchange for each share of our stock that you own. The
exact amount of cash versus stock that you will receive depends upon the
preferences of all of our shareholders as a group. In total, the amount payable
in the merger is divided 55% in stock and 45% in cash.
We must obtain the approval of 80% of our outstanding shares to amend
our Articles of Incorporation so the merger can proceed. If you want to receive
cash or stock of Emclaire Financial Corporation, it is very important that you
vote in favor of all the proposals to be considered at our Special Meeting.
Please mark your proxy card in favor and send it to us as soon as possible, even
if you want to come to the meeting in person. You will still have the right to
attend and vote in person even if you submit a proxy card. If you do not send in
your proxy card and do not vote at the meeting, your action will be the same as
voting against the merger. Therefore, we urge you to act promptly and return
your proxy card now.
Sincerely,
Norbert J. Pontzer,
President
<PAGE>
Emclaire Financial Corp.
612 Main Street
Emlenton, Pennsylvania 16373
(724) 867-2311
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 27, 1998
To the Holders of Common Stock of Emclaire Financial Corp.:
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders (the "Special
Meeting") of Emclaire Financial Corp. ("Emclaire") will be held on Thursday,
August 27, 1998, at ^ 4:00 p.m., local time at the main office of The Farmers
National Bank, 612 Main Street, Emlenton, Pennsylvania. The Special Meeting is
for the purpose of considering and voting upon the following matters, all of
which are set forth more completely in the accompanying Prospectus/Proxy
Statement:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Reorganization, dated April 7, 1998 (the "Reorganization Agreement") by and
between Emclaire, The Farmers National Bank of Emlenton ("Farmers
National"), and Peoples Savings Financial Corporation ("PSFC"), a
Pennsylvania corporation and the holding company for Peoples Savings Bank,
a Pennsylvania stock savings bank ("Peoples Bank") and Peoples Bank.
Pursuant to the Reorganization Agreement, PSFC will be merged with and into
Emclaire, and as soon as practicable thereafter, Peoples Bank will be
merged with and into Farmers National (together, the "Merger"). According
to the terms of the Reorganization Agreement, shareholders of PSFC may
elect, subject to certain election and allocation procedures, to exchange
their shares of PSFC common stock for $26.00, payable, in the aggregate, in
the form of 45% cash and 55% Emclaire common stock.
To transact such other business as may properly come before the Special Meeting
or any adjournment or postponement thereof.
Only shareholders of record at the close of business on the record
date, July 27, 1998, are entitled to notice of and to vote at the Special
Meeting and any adjournments thereof. The affirmative vote of not less than a
majority of the votes cast is necessary to approve the Merger. We urge you to
execute and return the enclosed proxy as soon as possible to ensure that your
shares will be represented at the Special Meeting. Your proxy may be revoked in
the manner described in the accompanying Prospectus/Proxy Statement at any time
before it has been voted at the Special Meeting.
By Order of the Board of Directors
David L. Cox
President and Chief Executive Officer
Emlenton, Pennsylvania
July 30, 1998
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
PROPOSAL STATED ABOVE. PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON. YOU
MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.
<PAGE>
Peoples Savings Financial Corporation
173 Main Street
Ridgway, Pennsylvania 15801
(814) 773-3195
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 27, 1998
To the Holders of Common Stock of Peoples Savings Financial Corporation:
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders (the "Special
Meeting") of Peoples Savings Financial Corporation ("PSFC") will be held on
Thursday, August 27, 1998, at ^ 10:00 a.m., local time at the main office of
Peoples Savings Bank, 173 Main Street, Ridgway, Pennsylvania. The Special
Meeting is for the purpose of considering and voting upon the following matters,
all of which are set forth more completely in the accompanying Prospectus/Proxy
Statement:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Reorganization, dated April 7, 1998 (the "Reorganization Agreement") by and
between PSFC, Peoples Savings Bank ("Peoples Bank"), and Emclaire Financial
Corp. ("Emclaire"), a Pennsylvania corporation and the holding company for
The Farmers National Bank of Emlenton, a national association ("Farmers
National") and Farmers National. Pursuant to the Reorganization Agreement,
PSFC will be merged with and into Emclaire, and as soon as practicable
thereafter, Peoples Bank will be merged with and into Farmers National
(together, the "Merger"). According to the terms of the Reorganization
Agreement, shareholders of PSFC will receive, at their election and subject
to certain allocation procedures, for each share of PSFC, $26.00 in cash,
$26.00 of stock of Emclaire, or a combination thereof, provided that in the
aggregate the shareholders of PSFC will receive 45% cash and 55% Emclaire
common stock.
2. To consider and vote upon a proposal to approve an amendment to PSFC's
Articles of Incorporation in connection with the Reorganization Agreement
(the "Articles Amendment"). The Articles Amendment would repeal the five
year prohibition against acquisition of more than 10% of PSFC's Common
Stock contained in Article 12 of the PSFC Articles. The Merger will not be
consummated without approval of the Articles Amendment.
3. To consider and vote upon a proposal to adjourn the Meeting to permit
further solicitation in the event that an insufficient number of shares is
present in person or by proxy to approve the Merger and the Reorganization
Agreement or the Articles Amendment.
To transact such other business as may properly come before the Special Meeting
or any adjournment or postponement thereof.
Only shareholders of record at the close of business on the record
date, July 27, 1998, are entitled to notice of and to vote at the Special
Meeting and any adjournments thereof. The affirmative vote of not less than a
majority of outstanding PSFC common stock entitled to vote is necessary to
approve the Merger. The affirmative vote of not less than eighty percent (80%)
of outstanding PSFC Common Stock entitled to vote is necessary to approve the
Articles Amendment. Accordingly, failure to vote either by failing to return
your proxy or failing to vote in person at the Special Meeting will have the
same effect as a vote against the Merger or the Articles Amendment. We urge you
to execute and return the enclosed proxy as soon as possible to ensure that your
shares will be represented at the Special Meeting. Your proxy may be revoked in
the manner described in the accompanying Prospectus/Proxy Statement at any time
before it has been voted at the Special Meeting.
By Order of the Board of Directors
Glenn R. Pentz, Jr.
Secretary
Ridgway, Pennsylvania
July 30, 1998
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
PROPOSALS STATED ABOVE. PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON. YOU
MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN CERTIFICATES FOR YOUR SHARES OF PSFC COMMON STOCK
WITH YOUR PROXY CARD; PLEASE CAREFULLY READ AND FOLLOW THE INSTRUCTIONS SET
FORTH IN THE ELECTION FORM AND LETTER OF TRANSMITTAL REGARDING THE MAKING OF
YOUR ELECTION AND THE SURRENDER OF YOUR PSFC STOCK CERTIFICATES.
<PAGE>
Prospectus/Joint Proxy Statement
EMCLAIRE FINANCIAL CORP.
Prospectus
Up to ^ 338,000 Shares of Common Stock, $1.25 Par Value Per Share
(subject to adjustment)
EMCLAIRE FINANCIAL CORP.
PEOPLES SAVINGS FINANCIAL CORPORATION
Joint Proxy Statement
For a Special Meetings of Shareholders
To Be Held on August 27, 1998
This Prospectus/Joint Proxy Statement ("Prospectus/Joint Proxy
Statement") relates to approximately ^ 338,000 shares of common stock, $1.25 par
value per share ("Emclaire Common Stock") of Emclaire Financial Corp.
("Emclaire") which are issuable to shareholders of Peoples Savings Financial
Corporation ("PSFC") upon consummation of the proposed merger of PSFC with and
into Emclaire, with Emclaire as the surviving corporation, in accordance with an
Agreement and Plan of Reorganization, dated April 7, 1998 (the "Reorganization
Agreement") by and among Emclaire, a Pennsylvania corporation and the holding
company for The Farmers National Bank of Emlenton, a national association
("Farmers National"), Farmers National, PSFC, a Pennsylvania corporation and
holding company of Peoples Savings Bank, a Pennsylvania stock savings bank
("Peoples Bank"), and Peoples Bank. Pursuant to the Reorganization Agreement,
PSFC will be merged with and into Emclaire, and as soon as practicable
thereafter, Peoples Bank will be merged with and into Farmers National
(together, the "Merger"). According to the terms of the Reorganization
Agreement, shareholders of PSFC may elect, subject to certain election and
allocation procedures, to exchange their shares of PSFC common stock for $26.00,
payable in the aggregate form of 45% cash and 55% Emclaire common stock. PSFC
shareholders have the right to elect payment in the form of cash or stock,
subject to proration to assure aggregate consideration of 55% Emclaire common
stock. The Merger must qualify as a tax-free reorganization. Thus, no guarantee
can be given that an election by any given shareholder will be honored, or that
PSFC shareholders will receive their elected form of consideration. For a more
detailed description of the terms of the Merger, see "The Merger."
This Prospectus also serves as a Joint Proxy Statement of Emclaire and
PSFC and is being furnished to the shareholders of Emclaire and PSFC in
connection with the solicitation of proxies by the Boards of Directors of
Emclaire and PSFC for use at their respective special meetings of shareholders
(including any adjournments or postponements thereof), each to be held on August
27, 1998 (collectively, the "Special Meetings"), to consider and vote upon the
Reorganization Agreement and, in the case of PSFC to approve and adopt an
amendment to PSFC's Articles of Incorporation (the "PSFC Articles") that would
repeal the five year prohibition against acquisition of more than 10% of PSFC
Common Stock that is contained in Article 12 of the PSFC Articles (the "Articles
Amendment"); and to consider and vote upon adjournment of the Meeting if
necessary to permit further solicitation of proxies in the event that there are
not sufficient votes at the time of the Meeting to approve the Merger and the
Reorganization Agreement or the Articles Amendment.
THE SHARES OF EMCLAIRE COMMON STOCK TO BE ISSUED PURSUANT TO THE
REORGANIZATION AGREEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS/JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF EMCLAIRE COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
<PAGE>
This Prospectus/Joint Proxy Statement does not cover any resale of the
securities to be received by shareholders of PSFC upon consummation of the
proposed transaction, and no person is authorized to make any use of this
Prospectus/Joint Proxy Statement in connection with any such resale.
No persons have been authorized to give any information or to make any
representations other than those contained in this Prospectus/Joint Proxy
Statement or incorporated by reference herein in connection with the
solicitation of proxies or the offering of securities made hereby and, if given
or made, such information or representations must not be relied upon as having
been authorized by Emclaire or PSFC. This Prospectus/Joint Proxy Statement does
not constitute an offer to sell, or a solicitation of an offer to buy, any
securities, or the solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus/Joint Proxy Statement nor
any distribution of securities made hereunder shall, under any circumstances,
create an implication that there has been no change in the affairs of Emclaire
or PSFC since the date of this Prospectus/Joint Proxy Statement or that the
information set forth herein or in the documents or reports incorporated herein
by reference since the date of this Prospectus/Joint Proxy Statement; however,
if any material change occurs in such affairs or information during the period
that this Proxy Statement is required to be delivered, this Prospectus/Joint
Proxy Statement will be amended and supplemented accordingly. All information
contained in this Prospectus/Joint Proxy Statement relating to PSFC and its
subsidiary has been supplied by PSFC and all information contained in this
Prospectus/Joint Proxy Statement relating to Emclaire and its subsidiaries has
been supplied by Emclaire.
All information and statements contained herein with respect PSFC were
supplied by PSFC and all information and statements contained or incorporated by
reference herein with respect to Emclaire were supplied by Emclaire.
THE DATE OF THIS PROSPECTUS/JOINT PROXY STATEMENT IS ^ JULY 28, 1998.
<PAGE>
AVAILABLE INFORMATION
Emclaire has filed with the Commission a registration statement on Form
S-4 under the Securities Act of 1933, as amended ("Securities Act"), in respect
to the Emclaire Common Stock to be issued in the Merger ("Registration
Statement"). As permitted by the rules and regulations of the Commission, this
Prospectus/Joint Proxy Statement omits certain information, exhibits and
undertakings contained in the Registration Statement. For such information,
reference is made to the Registration Statement and the exhibits filed as a part
thereof or incorporated by reference therein.
Emclaire and PSFC are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, information statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements, information statements and other
information, when filed, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the Commission's Regional offices in New York (7
World Trade Center, Suite 1300, New York, New York 10048) and Chicago (Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661). The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission and the address of such site is http://www.sec.gov.
ACCOMPANYING DOCUMENTS
This Prospectus/Joint Proxy Statement includes copies of Emclaire's and
PSFC's Annual Report to Shareholders for the fiscal years ended December 31,
1997 and June 30, 1997, respectively, and Emclaire's and PSFC's Quarterly Report
on Form 10-QSB for the quarter ended March 31, 1998. See Appendices ^ F, G, H
and ^ I.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents or portions of documents filed by Emclaire
(File No. 000-18464) and PSFC (File No. 0-22812) with the Commission are hereby
incorporated by reference into and made a part of this Prospectus/Joint Proxy
Statement.
1. Emclaire's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997.
2. Emclaire's Current Reports on Form 8-K filed March 23, 1998 and
April 13, 1998.
3. PSFC's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997.
4. PSFC's Current Report on Form 8-K filed April 14, 1998.
All documents filed by Emclaire and PSFC pursuant to Section 13(a), 14
or 15(d) of the Exchange Act after the date of this Prospectus/Joint Proxy
Statement and prior to the date of the PSFC Special Meeting shall be deemed to
be incorporated by reference into this Prospectus/Joint Proxy Statement and to
be a part hereof from the respective dates of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus/Joint Proxy Statement to the extent that a statement contained
herein, or in any other subsequently filed document that is also incorporated or
<PAGE>
deemed incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus/Joint Proxy
Statement.
THIS PROSPECTUS/JOINT PROXY STATEMENT INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE EMCLAIRE
DOCUMENTS ARE AVAILABLE (WITHOUT CHARGE) UPON WRITTEN REQUEST TO JOHN J. BOCZAR,
EMCLAIRE FINANCIAL CORP., P.O. DRAWER D, EMLENTON, PENNSYLVANIA 16373. THE PSFC
DOCUMENTS ARE AVAILABLE (WITHOUT CHARGE) UPON WRITTEN REQUEST TO GLENN R. PENTZ,
PEOPLES SAVINGS FINANCIAL CORPORATION, 173 MAIN STREET, RIDGWAY, PENNSYLVANIA,
15801. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST MUST BE
RECEIVED BY AUGUST 20, 1998.
CONTAINED WITHIN AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS/JOINT
PROXY STATEMENT ARE CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO THE
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF EMCLAIRE AND PSFC.
SUCH STATEMENTS ARE NOT HISTORICAL FACTS AND INCLUDE EXPRESSIONS ABOUT EMCLAIRE
AND/OR PSFC'S CONFIDENCE, STRATEGIES AND EXPRESSIONS ABOUT EARNINGS, NEW AND
EXISTING PROGRAMS AND PRODUCTS, RELATIONSHIPS, OPPORTUNITIES, TECHNOLOGY AND
MARKET CONDITIONS. THESE STATEMENTS MAY BE IDENTIFIED BY FORWARD- LOOKING
TERMINOLOGY, SUCH AS "EXPECT", "BELIEVE" OR "ANTICIPATE", OR EXPRESSIONS OF
CONFIDENCE LIKE "STRONG OR "ON-GOING", OR SIMILAR STATEMENTS OR VARIATIONS OF
SUCH TERMS. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS OR REVENUE ENHANCEMENTS FROM
THE MERGER CANNOT BY REALIZED AS ANTICIPATED; (2) DEPOSIT ATTRITION, CUSTOMER
LOSS OR REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN EXPECTED; (3)
COMPETITIVE PRESSURE IN THE BANKING AND FINANCIAL SERVICES INDUSTRY INCREASES
SIGNIFICANTLY; (4) CHANGES IN THE INTEREST RATE ENVIRONMENT; AND (5) GENERAL
ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN THE COMMONWEALTH OF PENNSYLVANIA,
ARE LESS FAVORABLE THAN EXPECTED.
<PAGE>
TABLE OF CONTENTS
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SUMMARY........................................................................................................ (i)
The Companies......................................................................................... (i)
The Special Meetings............................................................................... (ii) ^
The Merger.......................................................................................... (iii)
Comparative Market and Stock Price Information...................................................... (vii)
Comparative Per Share Information.................................................................... (ix)
Selected Historical Consolidated Financial Information................................................ (x)
UNAUDITED PRO FORMA ^ CONDENSED COMBINED FINANCIAL STATEMENTS............................................... (xiv)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME.................................................. (xvii)
INTRODUCTION.................................................................................................. 1 ^
THE SPECIAL MEETINGS............................................................................................ 1
Emclaire Financial Corp. Special Meeting............................................................... 1
Date, Time and Place................................................................................ 1
Matters to be Considered............................................................................ 1
Record Date; Vote Required.......................................................................... 1
Proxies; Revocation; Solicitation................................................................... 2
Principal Holders of Emclaire Common Stock.......................................................... 3
Beneficial Ownership by Officers and Directors - Emclaire........................................... 4
Peoples Savings Financial Corporation Special Meeting.................................................. 5
Date, Time and Place................................................................................ 5
Matters to be Considered............................................................................ 5
Record Date; Vote Required.......................................................................... 5
Proxies, Revocation, Solicitation................................................................... 6
Principal Holders of PSFC Common Stock.............................................................. 7
Beneficial Ownership by Officers and Directors - PSFC............................................... 8
EMCLAIRE FINANCIAL CORP. AND THE FARMERS NATIONAL BANK OF EMLENTON.............................................. 9
PEOPLES SAVINGS FINANCIAL CORPORATION AND PEOPLES SAVINGS BANK.................................................. 10
PROPOSAL I -- THE MERGER........................................................................................ 10
The Merger - General................................................................................... 10
Effect of the Merger................................................................................... 10
Closing and Effective Time............................................................................. 11
Merger Consideration................................................................................... 11
Background of the Merger............................................................................... 16
Reasons for the Merger -- Emclaire..................................................................... 17
Reasons for the Merger -- PSFC......................................................................... 17
Opinion of PSFC's Financial Advisor.................................................................... 19
Opinion of Emclaire's Financial Adviser................................................................ 23
Recommendation of the Boards of Directors.............................................................. 26
Conditions to the Merger............................................................................... 26
Termination............................................................................................ 27
Termination Fee........................................................................................ 28
Business Pending Consummation.......................................................................... 28
PSFC Stock Option ^ Plan............................................................................... 28
Federal Income Tax Consequences........................................................................ 28
Dissenters' Rights..................................................................................... 31
Accounting Treatment................................................................................... 31
Interests of Certain Persons in the Merger............................................................. 32
Resales by Affiliates.................................................................................. 32
Regulatory Approvals................................................................................... 33
</TABLE>
<PAGE>
<TABLE>
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EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS.................................................................... 33
General................................................................................................ 33
Board of Directors..................................................................................... 33
Meetings of Shareholders; Cumulative Voting; Proxies................................................... 35
Nominations to the Board of Directors, Shareholder Proposals, and Conduct of Meetings.................. 36
Authorized Shares.......................................................................................37
Limitations on ^ Voting/Business Combinations.......................................................... 37
Indemnification; Limitation of Liability............................................................... 38
Amendment of Bylaws.................................................................................... 39
Amendment of Articles of Incorporation................................................................. 39
DESCRIPTION OF EMCLAIRE CAPITAL STOCK........................................................................... 40
PROPOSAL II -- ARTICLES AMENDMENT............................................................................... 41
PROPOSAL III -- ADJOURNMENT OF THE MEETING...................................................................... 42
EXPERTS......................................................................................................... 42
LEGAL MATTERS................................................................................................... 42
OTHER MATTERS................................................................................................... 42
AGREEMENT AND PLAN OF REORGANIZATION DATED APRIL 7, 1998..............................................APPENDIX ^ A
SECTION OF THE PENNSYLVANIA BUSINESS CORPORATION ACT
REGARDING DISSENTERS' RIGHTS OF APPRAISAL............................................................APPENDIX ^ B
ARTICLES AMENDMENT.....................................................................................APPENDIX ^ C
FAIRNESS OPINION OF HOPPER SOLIDAY & CO., INC..........................................................APPENDIX ^ D
FAIRNESS ^ OPINIONS OF CAPITAL RESOURCES GROUP, INC....................................................APPENDIX ^ E
EXCERPTS FROM EMCLAIRE'S ANNUAL REPORT TO SHAREHOLDERS
^ FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997..........................................................APPENDIX F
EMCLAIRE'S QUARTERLY REPORT ON FORM 10-QSB FOR
THE QUARTER ENDED ^ MARCH 31, 1998...................................................................APPENDIX ^ G
EXCERPTS FROM PSFC's ANNUAL REPORT TO SHAREHOLDERS
FOR THE^ FISCAL YEAR ENDED JUNE 30, 1997.............................................................APPENDIX ^ H
PSFC's QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1998.................................................................APPENDIX ^ I
</TABLE>
<PAGE>
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SUMMARY
The following is a brief summary of the matters to be considered at the
Special Meeting. This summary is not intended to be complete and is qualified in
its entirety by reference to, and should be read in conjunction with, the
detailed information, including the Appendices hereto, contained or incorporated
by reference herein. A copy of the Reorganization Agreement is attached as
Appendix ^ A to this Prospectus/Joint Proxy Statement. Shareholders are urged to
read carefully the entire Prospectus/Joint Proxy Statement. As used in this
Prospectus/Joint Proxy Statement, the terms "Emclaire," and "PSFC" refer to such
corporations, respectively, and where the context requires such corporations and
their subsidiaries on a consolidated basis.
The Companies
Emclaire and Farmers National
Emclaire was incorporated in Pennsylvania in 1989 to own and control
all of the capital stock of Farmers National, a national banking association.
Emclaire is a registered bank holding company pursuant to the Bank Holding
Company Act of 1956, as amended ("BHCA"). Emclaire's primary federal regulator
is the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Emclaire has no employees other than executive officers who do not
receive compensation for serving in such capacity. As of March 31, 1998,
Emclaire had consolidated assets, liabilities, and shareholders' equity of
$136.1 million, $122.4 million, and $13.7 million, respectively.
Emclaire's principal executive office is located at the main office of
Farmers National at 612 Main Street, Emlenton, Pennsylvania 16373 and its
telephone number is (724) 867-2311.
Farmers National was organized on May 16, 1900 as a national banking
association. Farmers National's deposits are insured up to the legal maximum by
the Bank Insurance Fund ("BIF") as administered by the Federal Deposit Insurance
Corporation ("FDIC"). Farmers National operates under the supervision of the
Office of the Comptroller of the Currency (the "OCC"), however, as a BIF insured
institution, Farmers National is also subject to regulation by the FDIC.
Farmers National operates as a full-service community bank, offering a
variety of financial services to meet the needs of the markets served. Those
services include, accepting time and demand deposits from the general public and
together with other funds, using the proceeds to originate secured and unsecured
commercial and consumer loans, finance commercial transactions and provide
construction and mortgage loans, as well as home equity and personal lines of
credit. In addition, funds are also used to purchase investment and
mortgage-backed securities. Farmers National operates eight banking offices
located in Venango, Butler and Clarion Counties, Pennsylvania.
PSFC and Peoples Bank
PSFC is the parent company for Peoples Bank. PSFC is a bank holding
company which, under existing laws, is restricted to activities generally
related to banking. At the present time, PSFC does not conduct any active
business. At March 31, 1998, PSFC had consolidated assets, liabilities, and
shareholders' equity of ^ $45.1 million, $35.8 million and $9.3 million,
respectively. PSFC's principal office is located at 173 Main Street, Ridgway,
Pennsylvania and its telephone number is (814) 773-3195.
Peoples Bank is a Pennsylvania-chartered stock savings bank
headquartered in Ridgway, Pennsylvania, which was originally chartered in 1891
under the name "Peoples Bank Building and Loan
- --------------------------------------------------------------------------------
(i)
<PAGE>
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Association." Peoples Bank is a community oriented savings institution and
conducts its business from
its main office in Ridgway, Pennsylvania and two full service branch offices
located in Jefferson and Clearfield Counties, Pennsylvania.
Peoples Bank attracts deposits from the general public and uses such
deposits, together with borrowings and other funds, primarily to invest in
mortgage-backed and investment securities and to originate loans secured by
first mortgages on owner-occupied, one-to-four family residences in its market
area. Peoples Bank also makes home equity loans, loans secured by deposits,
automobile loans and personal loans and invests in mortgage-backed securities,
and other investment securities.
The Special Meetings
Emclaire
Time, Date, Place and Purpose. The Emclaire Special Meeting will be
held on Thursday, August 27, 1998 at ^ 4:00 p.m. local time at ^ the main office
of Farmers National, Emlenton, Pennsylvania, to consider and vote upon a
proposal to approve the Reorganization Agreement and the transactions
contemplated thereby. A copy of the Reorganization Agreement (without exhibits)
is attached hereto as Appendix ^ A.
Record Date; Vote Required. The record date ("Emclaire Record Date")
for determining Emclaire shareholders entitled to notice of and to vote at the
Special Meeting is July 27, 1998. The presence, in person or by proxy, of
holders of shares entitled to cast at least a majority of the votes at the
Special Meeting is necessary to constitute a quorum at the Special Meeting.
Assuming a quorum is present, an affirmative vote of at least a majority of the
votes cast and entitled to vote at the Special Meeting is necessary to approve
the Reorganization Agreement. In the event a quorum is not present or there are
insufficient votes to approve any proposal, the Special Meeting may be adjourned
from time to time by a majority of those present in person or by proxy in order
to permit, as appropriate, further solicitation of proxies by the Emclaire
Board.
Stock Held By Emclaire Affiliates. The directors and executive officers
of Emclaire and their affiliates beneficially owned, as of the Emclaire Record
Date, ^ 258,900 shares of "Emclaire Common Stock," representing ^ 23.94% of the
issued and outstanding shares of Emclaire Common Stock. The directors and
executive officers of Emclaire have all indicated that they will vote their
shares of Emclaire Common Stock in favor of the proposal to approve the
Reorganization Agreement.
PSFC
Time, Date, Place and Purpose. The PSFC Special Meeting will be held on
Thursday, August 27, 1998 at ^ 10:00 a.m. local time at ^ the main office of
Peoples Bank, 173 Main Street, Ridgway, Pennsylvania, to consider and vote upon
(1) a proposal to approve the Reorganization Agreement and the transactions
contemplated thereby; (2) the Articles Amendment; (3) a proposal to adjourn the
Meeting if necessary to permit further solicitation of proxies in the event that
there are not sufficient votes at the time of the Meeting to approve the
Reorganization Agreement or the Articles Amendment. A copy of the Reorganization
Agreement (without exhibits) is attached hereto as Appendix ^ A.
Record Date; Vote Required. The record date ("PSFC Record Date") for
determining PSFC shareholders entitled to notice of and to vote at the Special
Meeting is July 27, 1998. The presence, in person or by proxy, of holders of
shares entitled to cast at least a majority of the votes at the Special Meeting
is necessary to constitute a quorum at the Special Meeting. Assuming a quorum is
present, an
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(ii)
<PAGE>
- --------------------------------------------------------------------------------
affirmative vote of at least a majority of the votes ^ entitled to ^ be cast at
the Special Meeting is necessary to approve the Reorganization Agreement. The
affirmative vote of at least 80% of the votes entitled to be cast at the Special
Meeting is necessary to approve the Articles Amendment. In the event a quorum is
not present or there are insufficient votes to approve any proposal, the Special
Meeting may be adjourned from time to time by a majority of those present in
person or by proxy in order to permit, as appropriate, further solicitation of
proxies by the PSFC Board.
Stock Held By PSFC Affiliates. The directors and executive officers of
PSFC and their affiliates beneficially owned, as of the PSFC Record Date,
105,537 shares of PSFC Common Stock, (excluding 45,297 shares subject to
unexercised options held by such persons which cannot be voted at the Special
Meeting if not exercised) representing 23.85% of the issued and outstanding
shares of PSFC Common Stock. The directors and executive officers of PSFC have
all indicated that they will vote their shares of PSFC Common Stock in favor of
the proposal to approve the Reorganization Agreement.
Emclaire ^ and its directors and executive officers, as of the PSFC
Voting Record Date, beneficially own 12,223 shares of PSFC Common Stock.
Adjournment of Annual Meeting. In the event that there are not
sufficient votes to approve the Reorganization Agreement or the Articles
Amendment at the time of the Meeting, shareholders of PSFC will consider and
vote upon a proposal to adjourn the Meeting for the solicitation of additional
votes in favor of such proposals. A majority of the shares of PSFC Common Stock
represented and voting at the Meeting is required in order to approve any such
adjournment.
PSFC Board Recommendation. PSFC's Board of Directors unanimously
recommends that shareholders vote FOR the Reorganization Agreement, FOR the
Articles Amendment, and FOR the proposal to adjourn the Meeting if necessary to
permit further solicitation of proxies.
The Merger
General. The Reorganization Agreement provides for the acquisition of
PSFC by Emclaire, and the subsequent merger of Peoples Bank into Farmers
National, as follows: (i) PSFC will merge into Emclaire (the "Holding Company
Merger"), with Emclaire as the surviving corporation, and the outstanding shares
of PSFC Common Stock will be converted into cash or Emclaire Common Stock as set
forth below under "--Merger Consideration "and" --Election by PSFC
Shareholders;" and (ii) Peoples Bank will, following the Holding Company Merger,
merge into Farmers National, with Farmers National as the surviving savings
institution ("Bank Merger"). When the two mergers are consummated, Emclaire will
be the resulting bank holding company, and Farmers National will be the
resulting subsidiary national association.
Merger Consideration. The Reorganization Agreement provides that,
subject to the election and allocation procedures described below, each issued
and outstanding share of PSFC Common Stock will be converted into the right to
receive, at the election of each holder thereof, either (a) cash equal to $26.00
(the "Cash Merger Consideration"), or (b) a number of shares of Emclaire Common
Stock equal to $26.00 divided by the Final Market Price. The Final Market Price
will be the average closing price per share of the "last" real time trades
(i.e., closing price) of the Emclaire Common Stock as reported on the OTC
Bulletin Board for each of the 30 OTC Bulletin Board general market trading days
preceding one week prior to the Closing Date on which the OTC Bulletin Board was
open for business. No trade date will be included if Emclaire Common Stock did
not trade on such day. Under certain circumstances, additional general market
trading days will be considered if Emclaire Common Stock trades on less than 10
out of those 30 trading days.
- --------------------------------------------------------------------------------
(iii)
<PAGE>
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Fractional shares of Emclaire Common Stock will not be issued in the
Merger. PSFC shareholders otherwise entitled to a fractional share will be paid
the value of such fraction in cash determined as described herein under "The
Merger-Effect of the Merger."
On July ^ 17, 1998, the most recent date for which it was practicable
to obtain market price data prior to the printing of this Prospectus/Joint Proxy
Statement, the closing sales price per share of Emclaire Common Stock was ^
$22.75.
As of the close of business on July 17, 1998, the Final Market Price
was $22.06. If the Final Market Price continues to be above $21.00, holders of
PSFC Common Stock choosing Emclaire Common Stock instead of the Cash Merger
Consideration ($26.00 per share of PSFC Common Stock) may receive Emclaire
Common Stock with a market value greater than $26.00 for their shares of PSFC
Common Stock exchanged. For example, based on the assumptions set forth in this
paragraph, a person exchanging 100 shares of PSFC Common Stock for the Cash
Merger Consideration would receive $2,600 in cash. A person electing to receive
Emclaire Common Stock, based on the Final Market Price of $22.06 at July 17,
1998, would receive 124 shares of Emclaire Common Stock or $2,821 of Emclaire
Common Stock, based on the last sales price of Emclaire Common Stock on July 10,
1998. This assumes there is no pro rata distribution, the shareholder is
allocated all the stock requested, and there is no further change in the market
price of Emclaire Common Stock. If the Final Market Price is at or below $21.00,
persons exchanging PSFC Common Stock for Emclaire Common Stock will receive an
amount of Emclaire Common Stock equal to $26.00 on the Effective Date (as
defined herein) (assuming the sales price of Emclaire Common Stock remains below
$21.00 per share). In any event, the aggregate consideration will be 45% cash
and 55% Emclaire Common Stock. Therefore, it is possible that those choosing all
Emclaire Common Stock in the Merger could be adjusted pro rata to receive some
cash in order to maintain the final distribution of 45% cash and 55% Emclaire
Common Stock. The above discussion is for illustrative purposes only and in no
way should be construed as a representation of what will actually happen, nor
should it be construed as a recommendation as to the distribution.
Because the Merger must qualify as a tax-free reorganization, no
guarantee can be given that an election by any given shareholder will be
honored. Rather, the election by each holder will be subject to the proration
and allocation procedures described herein and in the Reorganization Agreement.
Thus, holders may not receive their chosen form of consideration. See "Proposal
I -- The Merger-Election and Allocation Procedures."
Election by PSFC Shareholders. Each shareholder of PSFC will have the
opportunity to submit an election form and letter of transmittal ("Election
Form") specifying the kind of consideration sought to be received in exchange
for his or her shares of PSFC Common Stock. The Election Form will be mailed ^
under separate cover to each holder of record of PSFC Common Stock as of the
Record Date. An Election Form and a copy of this Prospectus/Joint Proxy
Statement also will be mailed to persons who become shareholders of record of
PSFC after the Record Date up to five days prior to the Election Deadline (as
defined below). Election Forms also will be available at PSFC's main office,
Emclaire's main office and from the Exchange Agent at all times through the
Election Deadline.
The Election Form will permit PSFC shareholders (i) to indicate that
they elect to receive in exchange for their PSFC shares (a) Emclaire Common
Stock ("Stock Election Shares"), (b) cash ("Cash Election Shares"), or (c) a
combination thereof, or (ii) to make no election ("Non-Electing Shares"). The
Non-Electing Shares will be converted into Emclaire Common Stock, cash or a
combination thereof as necessary to ensure that (i) the aggregate amount of
consideration payable in cash is equal to 45.0% of
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(iv)
<PAGE>
- --------------------------------------------------------------------------------
the aggregate value of all of the consideration issued or paid in connection
with the Merger, and the total number of shares of Emclaire Common Stock to be
issued in connection with the Merger shall be that number of whole shares of
Emclaire Common Stock that is equal to 55.0% of the aggregate value of all of
the consideration issued or paid in connection with the Merger, and (ii) the
Merger will qualify as a tax-free reorganization. The Election Form together
with stock certificates representing all shares of PSFC Common Stock covered
thereby (or customary affidavits and indemnification regarding the loss or
destruction of such certificates or the guaranteed delivery of such
certificates), must be returned to ^ Emclaire as exchange agent (the "Exchange
Agent"), no later than the close of business on August ^ 27, 1998 (the "Election
Deadline"). Shares of PSFC Common Stock for which a properly completed Election
Form has not been received by the Exchange Agent by the Election Deadline will
be deemed Non- Electing Shares. Accordingly, persons who become shareholders of
PSFC after the Election Deadline will be deemed to hold Non-Electing Shares,
because they could not have made an effective election with respect to such
shares. See "The Merger-Election and Allocation Procedures."
Because the Merger must qualify as a tax-free reorganization, the
extent to which individual elections will be accommodated will depend upon the
respective number of PSFC shareholders who elect cash and stock and who fail to
make an election. Accordingly, a PSFC shareholder who elects to receive cash may
instead receive a combination of cash and shares of Emclaire Common Stock, a
PSFC shareholder who elects to receive shares of Emclaire Common Stock (plus
cash in lieu of fractional shares) may instead receive a combination of cash and
shares of Emclaire Common Stock, and a PSFC shareholder who elects to receive a
combination of cash and shares of Emclaire Common Stock may instead receive a
different combination of cash and shares of Emclaire Common Stock.
Because the tax consequences of receiving cash or Emclaire Common Stock
will differ, shareholders of PSFC are urged to read carefully the information
under the caption "The Merger-Federal Income Tax Consequences" and consult their
own tax advisor to determine the particular tax consequences to them of the
Merger.
Allocation Procedures. The aggregate amount of consideration to be
received by PSFC shareholders in exchange for their shares of PSFC Common Stock
shall consist of cash or Emclaire Common Stock, in such proportion as follows:
(i) the aggregate amount of consideration payable in cash ("Cash Amount") shall
be 45.0% of the aggregate value of all of the consideration issued or paid in
connection with the Merger; and (ii) the total number of shares of Emclaire
Common Stock to be issued in connection with the Merger ("Stock Amount") shall
be that number of whole shares of Emclaire Common Stock that has an aggregate
value, based on the Final Market Price, of 55.0% of the aggregate value of all
of the consideration issued or paid in connection with the Merger. The
Reorganization Agreement provides that the value of the aggregate number of
shares of Emclaire Common Stock to be issued in the Merger shall not exceed
55.0% of the aggregate value of all of the consideration to be paid in
connection with the Merger. In order for Malizia, Spidi, Sloane & Fisch, P.C. to
render its opinion that the Merger qualifies as a tax-free reorganization, the
value of the aggregate number of shares of Emclaire Common Stock to be issued in
the Merger must be at least 50.1% of the aggregate value of all of the
consideration to be paid in connection with the Merger. To the greatest extent
possible, Emclaire will allocate cash and stock in accordance with each PSFC
shareholder's election. However, if either the cash portion or the stock portion
is oversubscribed, or if the initial allocation based on PSFC shareholder
elections would threaten satisfaction of the conditions to the consummation of
the Merger, PSFC shareholder elections will be adjusted in accordance with the
election and allocation procedures, as described herein. See "The
Merger-Election and Allocation Procedures."
Exchange of Certificates; Delivery of Emclaire Common Stock and Cash.
No holder of certificates formerly representing shares of PSFC Common Stock will
be entitled to receive either cash
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(v)
<PAGE>
- --------------------------------------------------------------------------------
or shares of Emclaire Common Stock until the certificates are properly
surrendered to the Exchange Agent and no interest will accrue in respect
thereof. Each share of Emclaire Common Stock for which shares of PSFC Common
Stock are exchanged in the Merger will be deemed to have been issued on the
Effective Date. Accordingly, PSFC shareholders who receive Emclaire Common Stock
in the Merger will be entitled to vote their shares and to receive any dividends
or other distributions, without interest, that may be payable to holders of
record of Emclaire Common Stock after the Effective Date, except that no such
dividend will be remitted until the certificate representing PSFC Common Stock
has been properly surrendered to the Exchange Agent. Within five business days
after the allocation described above under "--Allocation Procedures," the
Exchange Agent will distribute Emclaire Common Stock and cash with respect to
shares of PSFC Common Stock which have been properly surrendered to the Common
Stock for Emclaire. Each holder of shares of PSFC Common Stock who would
otherwise be entitled to a fractional share of Emclaire Common Stock will
receive in lieu thereof a check in an amount equal to the value of such
fractional share based upon the Final Market Price.
Effective Time. The merger of PSFC with and into Emclaire (the "Holding
Company Merger") will become effective at the hour and on the date ("Effective
Time") specified in the Articles of Merger to be filed pursuant to the
Pennsylvania Business Corporation Act with the Secretary of State of the
Commonwealth of Pennsylvania immediately following the closing of the Holding
Company Merger. If the Holding Company Merger is approved by Emclaire and PSFC
shareholders, subject to the satisfaction or waiver of certain other conditions
set forth in the Reorganization Agreement, it is currently contemplated that the
Effective Time will occur during the third calendar quarter of 1998. At the
Effective Time, PSFC will be merged with and into Emclaire. See "The
Merger-Closing and Effective Time."
Opinion of Emclaire's Financial Advisor. Emclaire engaged Hopper
Soliday & Co., Inc. ("Hopper Soliday") to render financial advisory and
investment banking services in connection with Emclaire management's decision to
explore various methods to explore possible merger partners. Pursuant to such
engagement, Hopper Soliday has evaluated the fairness of the consideration to be
received by PSFC's shareholders to the shareholders of Emclaire. Hopper Soliday
has delivered to Emclaire an opinion dated April 7, 1998 and updated as of July
^ 20, 1998, stating that, as of such date, based on the review and assumptions
and subject to the limitations described therein, the merger consideration was ^
fair, from a financial point of view, to the shareholders of Emclaire. A copy of
Hopper Soliday's opinion is attached as Appendix ^ C to this Prospectus/Joint
Proxy Statement and should be read in its entirety. See "The Merger-Opinion of
Emclaire's Financial Advisor."
Opinion of PSFC's Financial Advisor. PSFC engaged Capital Resources
Group, Inc. ("Capital Resources Group") to render financial advisory and
investment banking services in connection with PSFC management's decision to
explore various methods to enhance PSFC shareholder value. Pursuant to such
engagement, Capital Resources Group has evaluated the fairness of the
consideration to be received by PSFC's shareholders. Capital Resources Group has
delivered to PSFC an opinion dated April 7, 1998 and updated as of July ^ 27,
1998, stating that, as of such date, based on the review and assumptions and
subject to the limitations described therein, the merger consideration was fair,
from a financial point of view, to PSFC's shareholders. A copy of Capital
Resources Group's opinion is attached as Appendix ^ E to this Prospectus/Joint
Proxy Statement and should be read in its entirety. See "The Merger-Opinion of
PSFC's Financial Advisor."
Federal Income Tax Consequences. The Merger is intended to be a
reorganization within the meaning of Section 368 of the Code; accordingly, a
gain or loss generally will not be recognized by PSFC shareholders who receive
solely Emclaire Common Stock in exchange for their PSFC Common Stock. Receipt of
cash in the Merger will be a taxable event. The Reorganization Agreement
provides
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(vi)
<PAGE>
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that consummation of the Merger is conditioned upon receipt by Emclaire and PSFC
of an opinion of Malizia, Spidi, Sloane & Fisch, P.C., legal counsel to
Emclaire, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code. For a further discussion of the federal
income tax consequences of the Merger, see "The Merger-Federal Income Tax
Consequences".
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER FACTORS, EACH HOLDER
OF PSFC COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER
(INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX
LAWS).
Accounting Treatment. It is anticipated that the Merger, when
consummated, will be accounted for as a purchase. See "The Merger-Accounting
Treatment".
Conditions of the Merger. Consummation of the Merger is subject, among
other things, to the approval of the Reorganization Agreement by the requisite
vote of PSFC and Emclaire shareholders and the receipt of all requisite
regulatory approvals and satisfaction of other conditions contained in the
Reorganization Agreement. See "The Merger-Conditions to the Merger."
Comparison of Shareholders' Rights. Because Emclaire and PSFC are both
Pennsylvania corporations, any differences in the rights of holders of their
respective common stock are due to differences in the articles of incorporation
and bylaws of the two corporations. At the Effective Time, holders of PSFC
Common Stock who become shareholders of Emclaire will have their rights as
shareholders of Emclaire determined by Emclaire's Articles of Incorporation and
Bylaws. See "Effect of the Merger on Shareholders' Rights."
Dissenters' Rights. In connection with the Merger, under the
Pennsylvania Business Corporation Law ("PBCL"), holders of PSFC Common Stock
shall have a right to dissent and obtain fair value of their shares by complying
with the terms of Subchapter D of the PBCL. See "The Merger-Dissenters Rights."
Interests of Certain Persons in the Merger. Certain members of PSFC's
management and Board of Directors have interests in the Merger in addition to
their interests as PSFC shareholders. These include provisions in the
Reorganization Agreement relating to continued employment, indemnification,
severance payments, stock options and restricted stock payments. See "Proposal I
- -- The Merger-Interests of Certain Persons in the Merger."
Comparative Market and Stock Price Information
Emclaire Common Stock is quoted on the OTC Electronic Bulletin Board
under the symbol "EMCF". PSFC Common Stock is quoted on the OTC Electronic
Bulletin Board under the symbol "PSVF." The table below sets forth, for the
fiscal quarter indicated, the high and low sales prices for Emclaire Common
Stock and PSFC Common Stock and the dividends per share declared on Emclaire
Common Stock and PSFC Common Stock in each quarter. No assurance can be given as
to the market price of Emclaire Common Stock or PSFC Common Stock at, or in the
case of Emclaire Common Stock, after, the Effective Date.
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(vii)
<PAGE>
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<TABLE>
<CAPTION>
Emclaire(1) PSFC
------------------------------------- ----------------------------------------
Sales Price Cash Sales Price Cash
----------- Dividends ----------- Dividends
High Low Paid High Low Paid
---- --- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
1996
- ----
Quarter Ended March 31................ $ -- $ -- $.095 $23.00 $21.00 --
Quarter Ended June 30................. 11.25 11.25 .105 28.00 21.00 --
Quarter Ended September 30............ -- -- .105 25.25 24.25 --
Quarter Ended December 31............. 13.50 13.00 .105 23.00 21.25 --
1997
Quarter Ended March 31................ 14.75 13.25 .105 23.50 20.25 .20
Quarter Ended June 30................. 15.00 13.25 .105 23.50 21.50 .20
Quarter Ended September 30............ 16.67 14.28 .114 24.25 21.75 .20
Quarter Ended December 31............. 17.00 16.25 .114 24.50 23.00 .25
1998
- ----
Quarter Ended March 31................ 22.00 17.00 .12 25.00 23.00 .25
Quarter Ended June 30................. 24.00 21.00 ^.12 26.00 23.75 .25
Quarter Ended September 30
(through July ^ 17, 1998)........... 22.75 22.25 -- 24.19 24.00 --
</TABLE>
(1) Per share data and historical stock prices have been adjusted for a
4-for-1 stock split June 20, 1996 and a 5% stock dividend paid in
December 1997.
On April 6, 1998, the last trading day before the public announcement
of the Reorganization Agreement, the reported closing sale prices of Emclaire
Common Stock and PSFC Common Stock were $22.00 and $24.25, respectively. On
March 20, 1998, the last trading day before the public announcement of the
execution of a Letter of Intent (reflecting the parties intent to engage in the
Merger), the last reported closing sale prices of Emclaire Common Stock and PSFC
Common Stock were $17.50 and $25.00, respectively. ^ As of the close of business
on July 17, 1998, the most recent date for which it was practicable to obtain
market price data prior to the printing of this Prospectus/Joint Proxy
Statement, the last reported sale prices per share of Emclaire Common Stock and
PSFC Common Stock were ^ $22.75 and ^ $24.00, respectively. The exchange ratio
will be determined based on a formula set forth in the Reorganization Agreement
that takes into consideration the average closing price per share of the "last"
real time trades (i.e. closing price) of Emclaire common stock as reported on
the OTC Bulletin Board for each of the thirty OTC Bulletin Board general market
trading days preceding the week prior to the Closing Date on which the OTC
Bulletin Board was open for business (the "Pricing Period")^.
No assurance can be given as to what ^ the average stock price of
Emclaire Common Stock will be during the period in which the exchange ratio is
determined or as to what the market price of the shares of Emclaire Common Stock
will be at the time the Merger is consummated. PSFC shareholders are encouraged
to obtain current market quotations for Emclaire Common Stock and PSFC Common
Stock. No assurance can be given as to the market price of Emclaire Common Stock
or PSFC Common Stock at, or in the case of Emclaire Common Stock, after, the
Effective Date. See, however, Note (1)
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(viii)
<PAGE>
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"- Comparative Per Share Information" for a discussion regarding the current
effect of the Final Market Price exceeding $21.00.
Comparative Per Share Information
The following table sets forth unaudited comparative per share data of
Emclaire on both a historical and pro forma combined basis and per share data of
PSFC on both a historical and pro forma equivalent combined basis. These tables
should be read in conjunction with the consolidated financial statements and
notes thereto of Emclaire contained in the Emclaire 1997 Annual Report, the
consolidated financial statements and notes thereto of PSFC contained in the
PSFC 1997 Annual Report and the Emclaire and PSFC Forms 10-QSB for the three and
nine months ended March 31, 1998 accompanying this Prospectus/Joint Proxy
Statement, and the pro forma combined financial statements and notes thereto
appearing elsewhere in this Prospectus/Joint Proxy Statement. See ^ Appendices
F, G, H, and I and "Pro Forma Consolidated Financial Information." Pro forma
combined and pro forma equivalent per share data have been prepared giving
effect to the Merger under the purchase method of accounting. The following
information is not necessarily indicative of the results of operations or
combined financial position that would have resulted had the Merger been
consummated at the beginning of the periods indicated, nor is it necessarily
indicative of the results of operations of future periods or future combined
financial position. As discussed under "Proposal I - The Merger--Merger
Consideration," the conversion ratio is subject to adjustment as a result of
changes in the market price of shares of Emclaire Common Stock.
At or For the At or For the
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
-------------- -----------------
Book Value Per Share
Historical:
Emclaire........................ 12.67 12 .48
PSFC............................ 21.05 20.95
Pro Forma:
Emclaire and PSFC combined...... ^ 14.87 14.73
PSFC equivalent(1).............. ^ 18.44 18.27
Cash Dividends Per Share
Historical:
Emclaire........................ .12 .44
PSFC............................ .25 .85
Pro Forma:
Emclaire and PSFC combined(2)... .12 .44
PSFC equivalent(1).............. .15 .55
Net Income Per Share
Historical:
Emclaire........................ .31 1.15
PSFC............................ .24 .89
Pro Forma:
Emclaire and PSFC combined...... .23 ^.81
PSFC equivalent(1).............. .29 ^ 1.00
(footnotes on following page)
- --------------------------------------------------------------------------------
(ix)
<PAGE>
- --------------------------------------------------------------------------------
- ------------------
(1) The pro forma equivalent per share data for PSFC has been computed by
multiplying the pro forma combined amount (giving effect to the Merger)
by the ratio of 1.24 based on the consideration of $26.00 divided by
$22.36, the average of the last 10 sales of Emclaire Common Stock.
As of the close of business on July 17, 1998, the Final Market Price
was $22.06. If the Final Market Price continues to be above $21.00,
holders of PSFC Common Stock choosing Emclaire Common Stock instead of
the Cash Merger Consideration ($26.00 per share of PSFC Common Stock)
may receive Emclaire Common Stock with a market value greater than
$26.00 for their shares of PSFC Common Stock exchanged. For example,
based on the assumptions set forth in this paragraph, a person
exchanging 100 shares of PSFC Common Stock for the Cash Merger
Consideration would receive $2,600 in cash. A person electing to
receive Emclaire Common Stock, based on the Final Market Price of
$22.06 at July 17, 1998, would receive 124 shares of Emclaire Common
Stock or $2,821 of Emclaire Common Stock, based on the last sales price
of Emclaire Common Stock on July 10, 1998. This assumes there is no pro
rata distribution, the shareholder is allocated all the stock
requested, and there is no further change in the market price of
Emclaire Common Stock. If the Final Market Price is at or below $21.00,
persons exchanging PSFC Common Stock for Emclaire Common Stock will
receive an amount of Emclaire Common Stock equal to $26.00 on the
Effective Date (as defined herein) (assuming the sales price of
Emclaire Common Stock remains below $21.00 per share). In any event,
the aggregate consideration will be 45% cash and 55% Emclaire Common
Stock. Therefore, it is possible that those choosing all Emclaire
Common Stock in the Merger could be adjusted pro rata to receive some
cash in order to maintain the final distribution of 45% cash and 55%
Emclaire Common Stock. The above discussion is for illustrative
purposes only and in no way should be construed as a representation of
what will actually happen, nor should it be construed as a
recommendation as to the distribution.
(2) Based on historical dividends of Emclaire.
Selected Historical Consolidated Financial Information
The following tables set forth, for the periods indicated, certain
selected historical financial information for Emclaire and PSFC. This
information should be read in conjunction with the consolidated financial
statements of Emclaire and PSFC, and the related notes thereto, included as
Appendices to this Prospectus/Joint Proxy Statement and incorporated herein by
reference.
The historical balance sheet and income statement information included
in the selected financial information for Emclaire for the five years ended
December 31, 1997, and for PSFC for the five years ended June 30, 1997, are
derived from audited financial statements as of, and for, such years. The
historical balance sheet and income statement information for Emclaire for the
three months ended March 31, 1997 and for PSFC for the nine months ended March
31, 1998 and 1997 are derived from unaudited financial statements as of, and
for, such period. These unaudited financial statements include all adjustments
which are, in the opinions of Emclaire management and PSFC management, necessary
for a fair statement of the results of these periods and are of a normal
recurring nature.
- --------------------------------------------------------------------------------
(x)
<PAGE>
- --------------------------------------------------------------------------------
Selected Historical Financial Information of Emclaire Financial Corp.
<TABLE>
<CAPTION>
At or For the
Three Months Ended
March 31, Year Ended December 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Interest income ........... $ 2,503 $ 2,234 $ 9,523 $ 8,098 $ 7,437 $ 6,751 $ 6,772
Interest expense .......... 988 903 3,727 3,352 2,986 2,573 2,651
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income ....... 1,515 1,331 5,796 4,746 4,451 4,178 4,121
Provision for loan losses . 45 45 220 120 143 132 180
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,470 1,286 5,576 4,626 4,308 4,046 3,941
Other income .............. 159 107 596 427 389 384 301
Other expense ............. 1,141 1,069 4,382 3,636 3,005 2,899 2,780
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes and cumulative
effect adjustment ....... 488 324 1,790 1,417 1,692 1,531 1,462
Applicable income tax
expense ................. 149 95 546 436 520 454 450
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before
cumulative effect
adjustment .............. 339 229 1,244 981 1,172 1,077 1,012
Cumulative effect
adjustment .............. -- -- -- -- -- -- 31
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCOME .................. $ 339 $ 229 $ 1,244 $ 981 $ 1,172 $ 1,077 $ 1,043
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA(1)
Earnings per share:
Prior to cumulative
effect adjustment ....... $ 0.31 $ 0.21 $ 1.15 $ 1.15 $ 1.40 $ 1.28 $ 1.20
Cumulative effect
adjustment .............. -- -- -- -- -- -- .04
========== ========== ========== ========== ========== ========== ==========
Earnings per share ........ $ 0.31 $ 0.21 $ 1.15 $ 1.15 $ 1.40 $ 1.28 $ 1.24
========== ========== ========== ========== ========== ========== ==========
Dividends paid(1) ......... $ .12 $ .105 $ .44 $ .41 $ .43 $ $ .36
.38
Book value per share at
period end(1) ........... $ 12.67 $ 11.52 $ 12.48 $ 11.68 $ 10.76 $ 9.72 $ 8.81
Average number of shares
outstanding(1) ......... 1,081,453 1,081,453 1,081,453 852,403 839,160 839,160 839,160
STATEMENT OF CONDITION
STATISTICS
(At end of period)
Assets .................... $ 136,074 $ 126,658 $ 133,956 $ 128,002 $ 98,599 $ 96,714 $ 94,774
Deposits .................. 119,672 113,459 117,655 114,725 88,944 87,986 86,996
Loans ..................... 89,222 73,924 86,144 68,428 64,322 64,086 61,378
Allowance for loan losses . 888 768 874 733 687 688 639
Federal funds sold ........ 2,200 400 -- 3,500 2,500 900 3,350
Investment securities ..... 35,503 42,695 38,034 46,483 26,361 25,436 23,180
Stockholders' equity ...... 13,700 12,459 13,498 12,631 9,032 8,155 7,397
</TABLE>
- --------------------------------------------------------------------------------
(xi)
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At or For the
Three Months Ended
March 31, Year Ended December 31,
------------------- ---------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SIGNIFICANT RATIOS
Return on average equity ............... 10.01% 7.31% 9.57% 10.33% 13.56% 13.80% 14.69%
Return on average assets ............... 1.02 .73 .96 .89 1.20 1.12 1.11
Net yield on earning assets ............ 5.04 4.70 4.87 4.68 4.97 4.81 4.80
Net loans as a percent of deposits ..... 73.81 64.48 72.47 59.01 71.55 72.05 69.82
Equity to assets at period end ......... 10.07 9.84 10 .08 9.87 9.16 8.43 7.80
Earning average assets to total assets . 93.25 92.85 93.10 93.63 94.11 92.84 92.62
Average interest bearing liabilities
to assets ............................ 74.44 75.73 74.71 77.02 77.26 78.36 79.84
Dividends as a percent of net income ... 38.28 49.59 38.26 35.65 30.71 29.69 29 .03
Allowance for loan losses to total
loans ................................ 1.00 1.04 1.01 1.07 1.07 1.07 1.04
Full time equivalent employees ......... 75 74 75 74 52 47 47
Banking offices ........................ 8 7 7 7 4 4 4
</TABLE>
- -------------------
(1) Adjusted for a 5% stock dividend in 1997 and a 4-for-1 stock split in 1996.
- --------------------------------------------------------------------------------
(xii)
<PAGE>
- --------------------------------------------------------------------------------
Selected Historical Financial Information of
Peoples Savings Financial Corporation
<TABLE>
<CAPTION>
At or For the Nine
Months Ended At or For the
March 31, Year Ended June 30,
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- -------- -------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Interest Income ...................... $ 2,554 $ 2,593 $ 3,430 $ 3,430 $ 3,254 $ 3,092 $ 3,261
Interest Expense ..................... 1,263 1,276 1,694 1,778 1,600 1,627 1,839
Net Interest Income .................. 1,291 1,317 1,736 1,652 1,654 1,465 1,422
Provision for Loan Losses ............ 27 18 24 24 24 24 18
Net Income ........................... 326 211 301 446 458 426 427
PER SHARE DATA
Earnings per share - Basic ......... $ .77 $ .50 $ .72 $ 1.07 $ 1.10 $ 1.02 N/A
Earnings per share - Diluted ....... .74 .48 .69 1.03 1.06 1.00 N/A
Dividends paid ..................... .70 .20 .40 -- -- -- N/A
Book value per share at
period end ....................... 21.05 20.69 20.75 20.14 18.86 17.59 N/A
Average number of shares outstanding
Basic ............................ 422,600 418,276 419,304 415,468 416,804 419,985 N/A
Diluted .......................... 440,252 435,690 436,505 432,147 431,937 N/A
427,181
STATEMENT OF CONDITION
STATISTICS
Total assets ......................... $ 45,080 $ 44,516 $ 44,835 $ 44,852 $ 43,624 $ 45,050 $ 43,015
Loans receivable, net ............... 32,450 31,516 31,948 32,127 29,374 25,879 23,428
Mortgage-backed securities .......... 5,328 6,415 6,123 7,466 9,634 10,949 14,354
Investments (1) ..................... 2,436 4,435 3,186 4,053 3,645 5,892 2,807
Cash and cash equivalents ............ 4,437 1,469 3,021 742 515 1,864 2,035
Deposits ............................. 35,626 34,849 34,976 35,865 35,171 37,035 39,079
Other borrowings .................... -- 500 500 -- -- -- --
Shareholders' equity/retained earnings 9,313 9,155 9,184 8,912 8,345 7,966 3,875
SELECTED RATIOS
Return on average equity ............. 4.70% 3.13% 3.33% 5.17% 5.62% 7.86% 11.65%
Return on average assets ............ .97 .63 0.67 1.00 1.04 0.95 0.99
Net yield on average interest
earning assets ..................... 3.90 3.93 3.89 3.79 3.79 3.35 3.34
Equity to assets at period end ....... 20.66 20.57 20.49 19.87 19.13 17.68 9.01
Net interest rate spread ............. 2.91 3.03 2.96 2.83 3.01 2.80 2.97
Dividends as a percent of
net income ......................... 88.07 39.80 55.74 -- -- -- N/A
Allowance for loan losses to
total loans ........................ .81 .77 .78 .70 .70 .70 .79
Allowance for loan losses to
non-performing assets .............. 35.39 22.85 29.70 52.30 144.52 48.94 62.27
</TABLE>
- ---------------------
(1) Includes Federal Home Loan Bank ("FHLB") stock.
- --------------------------------------------------------------------------------
(xiii)
<PAGE>
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements
give effect to the Merger as if it had been consummated on December 31, 1997 for
balance sheet purposes, and December 31, 1997 or December 31, 1996 for statement
of income purposes, as the case may be. Pro forma adjustments are based on the
purchase method of accounting and a preliminary allocation of the purchase price
based on the estimated fair value of the net assets acquired as of December 31,
1997. The actual purchase accounting adjustments and goodwill will be based on
the facts and circumstances on the date the transaction closes. The transaction
is structured such that Emclaire will pay 55% in Emclaire Common Stock and 45%
cash for the estimated fair market value of net assets acquired of PSFC. See
"Proposal I - The Merger." Accordingly, the pro forma combined consolidated
financial statements are intended for informational purposes and is not
necessarily indicative of the future financial position or future results of
operations of the combined company or of the financial position or the results
of operations of the combined company that would have actually occurred had the
Merger been in effect as of the date or for the periods presented. See "Proposal
I - The Merger" for a discussion of the determination of the aggregate value of
all consideration paid in connection with the Merger.
The following unaudited pro forma consolidated financial statements
assume the following with respect to the allocation of the purchase price and
determination of goodwill (In thousands):
Purchase price:
Stock portion ^(308,739 shares of Emclaire Common Stock
issued at a value of ^ $22.75 per share)..................... ^ $6,973(1)
Cash portion ^($5.746 million borrowed from a
third party financial institution)........................... ^ 5,746
Estimated direct costs......................................... 117
---------
^ 12,836
Estimated fair market value of assets acquired:
PSFC book value at December 31, 1997........................... 9,270
Estimated mark-to-market adjustments, net...................... 1,090
---------
Estimated fair market value of net assets acquired............. 10,360
---------
Estimated goodwill.............................................$ ^ 2,476
===========
- -----------------
(1) Net of $51,000 in issuance costs.
The following information should be read in conjunction with the
consolidated financial statements of Emclaire and PSFC, and the related notes
thereto, attached hereto. As a result of the different fiscal year-ends between
Emclaire and PSFC, the historical statements of income of PSFC included in the
pro forma consolidated financial statements of income have been updated to
conform with the reporting requirements of Article 11 of Securities and Exchange
Commission Regulation S-X. Accordingly, for the year ended December 31, 1997 the
results of operations of PSFC include the twelve months ended December 31, 1997
by combining the last two quarters of PSFC's 1997 fiscal year-end with the first
two quarters of PSFC's 1998 fiscal year end. Furthermore, PSFC's results of
operations for the three months ended March 31, 1998 have been separated from
results of operations for the remainder of fiscal 1998 in order to allow PSFC's
results to be combined with Emclaire's results for the three months ended March
31, 1998.
- --------------------------------------------------------------------------------
(xiv)
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical
------------------------------------
December 31, 1997 December 31, 1997
Emclaire PSFC Debit Credit Consolidated
-------- ---- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 4,975 $ 1,935 $ 6,910
Investment securities available for 31,977 361 32,338
sale
Investment securities held to 6,057 9,146 153 (c) 15,050
maturity
Loans 86,144 32,797 ^ 955 (c) 119,896
Allowance for loan losses 874 256 1,130
------- ------- -------
Loans, net 85,270 32,541 ^ 118,766
Bank premises and equipment 2,619 57 150 (c) ^ 2,826
Intangible assets 1,347 ^ 2,476 (e) ^ 4,523
700 (c)
Accrued interest and other assets 1,711 450 562 (d) 1,599
------- ------- -------
Total assets $133,956 $44,490 ^ $182,012
======= ====== =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities
- -----------
Deposits:
Deposits $117,655 $35,089 $152,744
Other borrowed funds 2,263 ^ 5,863 (b) ^ 8,126
Accrued interest payable and
other liabilities 540 131 671
------- ------- -------
Total liabilities 120,458 35,220 ^ 161,541
------- ------ ---------
Shareholders' Equity
- --------------------
Capital stock 1,352 45 45 (f) ^ 386 (a) ^ 1,738
Surplus 4,432 4,309 4,309 (f) ^ 6,587 (a) ^ 11,019
Undivided profits 7,492 5,346 5,346 (f) 7,492
Unrealized gain on securities 222 -- 222
------- --------- ------
13,498 9,700 ^ 20,471
Treasury stock (194) 194 (g) --
Unallocated ESOP shares (191) 191 (g) --
Unallocated MSBP shares (45) 45 (g) --
13,498 9,270 ^ 20,471
------- ------- -------- -------- ---------
Total liabilities and
shareholders' equity $133,956 $44,490 ^ $13,981 ^ $13,981 ^ $182,012
======= ====== ====== ====== =======
Book value per share $12.48 $20.95 $14.73
===== ===== =====
</TABLE>
(Footnotes on following page)
- --------------------------------------------------------------------------------
(xv)
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical
--------------------------------------
March 31, 1998 March 31, 1998 Adjustments Pro Forma
Emclaire PSFC Debit Credit Consolidated
-------- ---- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 4,110 $ 4,437 ^ $ 8,547
Federal funds sold 2,200 - 2,200
Investment securities available for 30,946 361 31,307
sale
Investment securities held to 4,557 7,403 43 (c) 12,003
maturity
Loans 89,222 32,701 ^ 950 (c) 122,873
Allowance for loan losses 888 251 ^ 1,139
------- ------- ----------
Loans, net 88,334 32,450 ^ 121,734
Bank premises and equipment 2,930 57 ^ 150 (c) 3,137
Intangible assets 1,285 - 2,310 (e) ^ 4,295
700 (c)
Accrued interest and other assets 1,712 371 627 ^(d) 1,456
------- ------- -------
Total assets ^ $136,074 $ 45,079 ^ $184,679
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities
- -----------
Deposits:
Deposits ^ $119,672 $ 35,626 $ 155,298
Other borrowed funds 2,052 - ^ 5,863(b) 7,915
Accrued interest payable and -
other liabilities 650 140 790
------- --- -------
Total liabilities 122,374 35,766 ^ 164,003
------- ------ ---------
Shareholders' Equity
Capital stock 1,352 45 45(f) ^ 386(a) 1,738
Surplus 4,432 4,326 4,326(f) ^ 6,590(a) 11,022
Undivided profits 7,701 5,349 5,349(f) 7,701
Unrealized gain on securities 215 - 215
------- ------- -------
13,700 9,720 ^ 20,676
Treasury stock (194) 194(g) -
Unallocated ESOP shares (179) 179(g) -
Unallocated MSBP shares (34) 34(g) -
------- ------- -------
13,700 9,313 ^ 20,676
------- ------- --------- -------- ---------
Total liabilities and
shareholders' equity $136,074 $ 45,079 ^ $13,873 ^ $13,873 ^ $184,679
======= ======= ====== ====== =======
Book value per share $12.67 $21.05 $14.87
===== ===== =====
</TABLE>
a) Common shares issued; ^ 308,739 shares at ^ $22.75 per share exchange
price. ^ The exchange ratio is based on the most recent 10 closing prices
for Emclaire ^ Common Stock, as of July ^ 17, 1998.
b) Estimated cash proceeds, including capitalized costs, issued in the
transaction. It is assumed cash proceeds will be financed through an
advance from the Federal Home Loan Bank, at an initial estimated rate of
6.16% (based on information available as of July 2, 1998).
c) Adjustments to fair value.
d) Deferred tax adjustment related to fair value adjustments e) Resulting
goodwill and capitalized costs.
f) Elimination of PSFC's capital.
g) Dissolution of ESOP and MSBP plans and retirement of treasury shares.
- --------------------------------------------------------------------------------
(xvi)
<PAGE>
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
The following unaudited historical pro forma condensed combined
statements of income of Emclaire have been prepared based upon the historical
results of operations of Emclaire and PSFC for the three months ended March 31,
1998 and for the fiscal years ended December 31, 1997 giving effect to the
Merger accounted for as a purchase. Pro forma adjustments, and the assumptions
on which they are based, are described in the accompanying notes to the
unaudited historical pro forma condensed combined statements of operations. The
unaudited historical pro forma condensed combined statements present the
combined revenues and expenses, and pro forma adjustments, of Emclaire and PSFC
as if those companies had been merged as of the beginning of the December 31,
1997 fiscal year. The unaudited historical pro forma condensed combined
statements of operations and diluted earnings per share for the three months
ended March 31, 1998 and for the fiscal year ended December 31, 1997 presented
on the following pages do not included any expected cost savings or the benefits
of related synergies as a result of the Merger, do not reflect any nonrecurring
merger transaction costs, nor do they reflect any purchase accounting
adjustments other than those described in the accompanying notes, and are not
necessarily indicative of the results that would have occurred if the Merger had
occurred as of the beginning of the fiscal year ended December 31, 1997, or
which may be obtained in the future. The unaudited historical pro forma
condensed combined statements of income do not take into account the expected
exercise of options to purchase 6,567 shares of PSFC Common Stock by PSFC's
managing officer. See "The Special Meetings - Beneficial Ownership by Officers
and Directors - PSFC."
The unaudited historical pro forma condensed combined statements of
income for the three months ended March 31, 1998 and for the fiscal year ended
December 31, 1997 should be read in conjunction with the historical consolidated
financial statements and notes thereto of Emclaire and PSFC attached hereto.
- --------------------------------------------------------------------------------
(xvii)
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical
December 31, 1997 December 31, 1997 Adjustments Pro Forma
Emclaire PSFC Debit Credit Consolidated
-------- ---- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
INCOME
Interest and fees on loans $6,969 $2,624 119 (i) $9,474
Interest on deposits with other banks 1 100 101
Interest on federal funds 89 89
Interest on investment securities
Taxable 2,279 633 51 (i) 2,963
Non taxable 185 21 206
------ ----- ------
9,523 3,378 12,833
INTEREST EXPENSE
Interest paid on deposits 3,655 1,646 5,301
Borrowed funds 72 33 ^ 361(h) ^ 466
------ ------ --------
Total interest expense 3,727 1,679 ^ 5,767
----- ----- -------
Net interest income 5,796 1,699 ^ 7,066
PROVISION FOR LOAN LOSSES 220 30 250
------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,576 1,669 ^ 6,816
OTHER INCOME
Service charge income 476 25 501
Other income 120 16 136
------ ------ -------
TOTAL OTHER INCOME 596 41 637
OTHER EXPENSES
Salaries and employee benefits 2,240 497 2,737
Occupancy expense 688 46 5 (i) 739
Amortization of intangible assets 243 ^ 253 (i) ^ 496
Other operating expense 1,211 469 1,680
----- ---- -----
TOTAL OTHER EXPENSES 4382 1,012 ^ 5,652
---- ----- -------
Net income before applicable
income taxes 1,790 698 ^ 1,801
-------
Applicable income taxes 546 305 ^ 177 (j) ^ 674
----- ----- ---- ----- -------
NET INCOME (LOSS) $1,244 $ 393 ^ $738 $ 228 $1,127
===== ===== ==== ===== ======
Earnings per common share:
Basic $1.15 $ .93 $ ^.81
Diluted ^ N/A $ .89 -----
</TABLE>
(Footnotes on following page)
- --------------------------------------------------------------------------------
(xviii)
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Historical
Three Months Ended Three Months Ended Pro Forma
March 31, 1998 March 31, 1998 Adjustments Pro Forma
Emclaire PSFC Debit Credit Consolidated
-------- ---- ----- ------ ------------
INCOME
<S> <C> <C> <C> <C> <C>
Interest and fees on loans ^ $1,926 $ 681 30 (i) $2,577
Interest on deposits with other banks 34
Interest on federal funds 12 34 12
Interest on investment securities
Taxable 513 138 4 (i) 647
Non taxable 52 5 57
----- ----- -----
2,503 858 3,327
INTEREST EXPENSE
Interest paid on deposits 958 418 1,376
Borrowed funds 30 - ^ 89 (h) ^ 119
----- ----- -------
Total interest expense 988 418 ^ 1,495
----- ----- -------
Net interest income 1,515 440 ^ 1,832
PROVISION FOR LOAN LOSSES 45 9 54
----- ----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,470 431 ^ 1,778
OTHER INCOME
Service charge income 122 5 127
Other income 37 4 41
----- ----- -----
TOTAL OTHER INCOME 159 9 168
OTHER EXPENSES
Salaries and wages 584 188 702
Occupancy expense 183 10 1 (i) 194
Amortization of intangible assets 62 ^ 60 (i) 122
Other operating expense 312 146 458
----- ----- -----
TOTAL OTHER EXPENSES 1,141 274 ^ 1,476
----- ----- -------
NET INCOME BEFORE APPLICABLE
INCOME TAXES 488 166 ^ 470
----- ----- -------
Applicable income taxes 149 58 ^ 55 (j) 152
----- ----- ----- ---- -----
NET INCOME (LOSS) $ 339 $ 108 ^$ 184 $ 55 $ 318
===== ===== ===== ---- =====
Earnings per common share - Basic .31 .25 .23
Diluted N/A .24 --
</TABLE>
- --------------
h) Interest expense on borrowed funds.
i) Amortization of goodwill and adjustments to fair value. (Amortization
periods range from 3 to 30 years for fair value adjustments and 15 years
for goodwill).
j) Applicable income tax benefit at 34%.
- --------------------------------------------------------------------------------
(xix)
<PAGE>
INTRODUCTION
This Prospectus/Joint Proxy Statement is being furnished to Emclaire
and PSFC shareholders in connection with the solicitation of proxies by the
Emclaire and PSFC Boards for use at the Emclaire and PSFC Special Meetings
("Special Meetings") to be held on Thursday, August 27, 1998. The purpose of the
Special Meetings is to consider and vote upon a proposal to approve the
Reorganization Agreement and the transactions contemplated thereby, as more
fully set forth in the Notices of Special Meeting accompanying this
Prospectus/Joint Proxy Statement. In addition, PSFC shareholders shall consider
and vote upon a proposal to amend the Articles of Incorporation to repeal a
provision prohibiting the acquisition of more than 10% of PSFC Common Stock.
THE BOARDS OF DIRECTORS OF EMCLAIRE AND PSFC UNANIMOUSLY APPROVED THE
REORGANIZATION AGREEMENT AND RECOMMEND THAT THEIR RESPECTIVE SHAREHOLDERS VOTE
FOR ITS APPROVAL. IN ADDITION, THE PSFC BOARD RECOMMENDS THAT ITS SHAREHOLDERS
ALSO APPROVE THE ARTICLES AMENDMENT AND THE PROPOSAL TO ADJOURN THE MEETING TO
SOLICIT ADDITIONAL VOTES, IF NEEDED.
THE SPECIAL MEETINGS
Emclaire Financial Corp. Special Meeting
Date, Time and Place. This Prospectus/Joint Proxy Statement is being
furnished to the shareholders of Emclaire as part of the solicitation of proxies
by its Board of Directors from holders of the outstanding shares of Emclaire
Common Stock for use at the Emclaire Special Meeting to be held on August 27,
1998 at ^ the main office of Farmers National, 612 Main Street, Emlenton,
Pennsylvania, and any adjournments thereof. This Prospectus/Joint Proxy
Statement, and the accompanying proxy card, are first being mailed to
shareholders of Emclaire on or about July 30, 1998.
Matters to be Considered. The principal purposes of the Special Meeting
are to consider and vote upon the Merger, pursuant to which PSFC will merge into
Emclaire, and the Reorganization Agreement among Emclaire, Farmers National,
PSFC and Peoples Bank, which sets forth the terms and conditions of the Merger
and also provides for the Bank Merger.
Record Date; Vote Required. The securities to be voted at the Emclaire
Special Meeting consist of shares of Emclaire Common Stock, with each share
entitling its owner to one vote on the proposal brought before the Emclaire
Special Meeting. Emclaire had no other class of securities entitled to vote on
the Reorganization Agreement outstanding at the close of business on the
Emclaire Record Date. There were ^ approximately 575 holders of record of
Emclaire Common Stock and 1,081,453 shares of Emclaire Common Stock outstanding
and eligible to be voted at the Emclaire Special Meeting as of the Emclaire
Record Date.
The presence at the Emclaire Special Meeting, in person or by proxy, of
the holders of a majority of the outstanding shares of Emclaire Common will
constitute a quorum for the transaction of business. Under the Pennsylvania
Business Corporation Law ("PBCL") and Emclaire's Articles of Incorporation, the
approval of the Reorganization Agreement requires the affirmative vote of a
majority of the votes cast by the holders of shares entitled to vote. The
approval of the Reorganization Agreement by Emclaire Shareholders is a condition
to the consummation of the Merger. Unless otherwise required by law, all
1
<PAGE>
other matters shall be determined by a majority of votes cast affirmatively or
negatively without regard to (a) broker non-votes or (b) proxies marked
"ABSTAIN" as to that matter. See "The Merger- Conditions to the Merger."
For purposes of determining the number of votes cast with respect to a
matter, only those votes cast "for" and "against" a proposal are counted. There
will be no "broker non-votes" (i.e., shares held by brokers or nominees as to
which instructions have not been received from the beneficial owners or the
persons entitled to vote such shares and the broker or nominee does not have
discretionary voting power under the applicable NASD rules). Consequently,
broker non-votes will have no impact on the votes counted as "for" or "against"
for purposes of determining the number of votes cast but will be treated as
present for quorum purposes. Abstentions will be treated as shares that are
present for purposes of determining the presence of a quorum but will not be
counted "for" or "against" the proposal.
Proxies; Revocation; Solicitation. If the form of Emclaire proxy is
properly executed and returned to Emclaire in time to be voted at the Emclaire
Special Meeting, the shares represented thereby will be voted in accordance with
the instructions marked thereon. Emclaire proxies that are executed, but as to
which no instructions have been marked, will be voted FOR the approval of the
Reorganization Agreement. Should any other matter properly come before the
Emclaire Special Meeting, the persons named as proxies in the Emclaire proxy,
acting by a majority of those proxies present, will have discretionary authority
to vote on such matters in accordance with their judgment. However, no proxy
which is voted "against" the proposal to approve and adopt the Reorganization
Agreement will be voted in favor of any such adjournment or postponement. As of
the time of the preparation of this Prospectus/Joint Proxy Statement, the
Emclaire Board does not know of any matter, other than those matters referred to
in the Emclaire Notice of Special Meeting of Shareholders, to be presented for
action at the Emclaire Special Meeting.
The cost of soliciting proxies will be borne by Emclaire. In addition
to use of the mails, proxies may be solicited personally or by telephone,
telecopier or telegraph by officers, directors or employees of Emclaire, who
will not be specially compensated for such solicitation activities. Arrangements
will also be made by Emclaire to reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses incurred in
forwarding solicitation materials to the beneficial owners of shares held of
record by such persons.
A proxy may be revoked by the person giving the proxy at any time prior
to the close of voting. Prior to the Emclaire Special Meeting a proxy may be
revoked by filing with the Secretary of Emclaire at Emclaire Financial Corp.,
612 Main Street, Emlenton, Pennsylvania 16373, a written revocation or a duly
executed proxy bearing a later date. During the Emclaire Special Meeting a proxy
may be revoked by filing a written revocation or a duly executed proxy bearing a
later date with the secretary of the Emclaire Special Meeting prior to the close
of voting or by attending the Emclaire Special Meeting and voting in person. Any
shareholder of record may attend the Emclaire Special Meeting and vote in
person, whether or not a proxy has previously been given.
If a person holding Emclaire Common in street name wishes to vote such
Emclaire Common at the Emclaire Special Meeting, the person must obtain from the
nominee holding the Emclaire Common in street name a properly executed "legal
proxy" identifying the individual as a Emclaire Shareholder, authorizing the
Emclaire Shareholder to act on behalf of the nominee at the Special Meeting and
identifying the number of shares with respect to which the authorization is
granted.
2
<PAGE>
Principal Holders of Emclaire Common Stock.^ Person and groups owning
in excess of 5% of the common Stock are required to file certain reports
regarding such ownership pursuant to the Securities Exchange Act of 1934, as
amended (the "1934 Act"). The following table sets forth, as of the Voting
Record Date, persons or groups who own more that 5% of Emclaire Common Stock and
the ownership of all executive officers, and directors of Emclaire as a group.
Other than as noted below, management know of no person or group that owns more
than 5% of the outstanding shares of Emclaire Common Stock at the Voting Record
Date:
Percent of Outstanding
Shares Beneficially Shares
Name and Address Owned(1) Beneficially Owned
Barbara C. McElhattan
P. O. Box 515
Emlenton, PA 16373 66,297(2) 6.13%
Bernadette H. Crooks
RR 1, Box 368
Clarion, PA 16214 86,982(3) 8.04%
Mary E. Dascombe
6906 Buckhead Drive
Raleigh, NC 27609 90,574(4) 8.38%
George W. Freeman
P. O. Box 667
Knox, PA 16232 80,640(5) 7.46%
FINABA Co
4140 East State Street
Hermitage, PA 16148 94,668 8.75%
- --------------------
(1) See footnote (1) under "-- Beneficial Ownership by Officers, Directors and
Nominees" for the definition of "beneficial ownership."
(2) Of the 66,297 Shares beneficially owned by Mrs. McElhattan, 33,579 shares
are owned individually, 27,972 shares are owned jointly with her spouse,
and 4,746 shares are owned individually by her spouse.
(3) Of the 86,982 shares beneficially owned by Mrs. Crooks, 76,902 shares are
owned individually and 10,080 shares are owned individually by her spouse.
(4) Of the 90,574 shares beneficially owned by Mrs. Dascombe, 64,386 shares are
owned individually, 2,677 shares are owned jointly with her spouse, and
23,511 shares are owned individually by her spouse.
(5) Of the 80,640 shares beneficially owned by Mr. Freeman, 78,435 shares are
owned individually and 2,205 shares are owned individually by his spouse.
3
<PAGE>
Beneficial Ownership by Officers and Directors - Emclaire. The
following table sets forth as of the Voting Record Date, the amount and
percentage of Emclaire Common Stock beneficially owned by each director and all
officers and directors of Emclaire as a group.
Amount and Nature of Percent
Name and Individual or Group Beneficial Ownership (1)(2) of Class
- ---------------------------- --------------------------- ------------
George W. Freeman (5) 80,640 7.46%
Ronald L. Ashbaugh (4) 10,500 (3)
Elizabeth C. Smith (6) 39,459 3.65%
Brian C. McCarrier (11) 315 (3)
Robert L. Hunter (7) 8,977 (3)
John B. Mason (8) 4,525 (3)
Bernadette H. Crooks (9) 86,982 8.04%
J. Michael King (4) 5,250 (3)
Rodney C. Heeter (10) 5,250 (3)
David L. Cox (4) 10,080 (3)
All ^ Officers and Directors
as a Group (12 persons) 258,900 23.94%
- -------------------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the SEC and may include securities owned
by or for the individual's spouse and minor children and any other relative
who has the same home, as well as securities to which the individual has or
shares voting or investment power or has the right to acquire beneficial
ownership within 60 days after the Voting Record Date. Beneficial ownership
may be disclaimed as to certain of the securities.
(2) Information furnished by the Directors and Emclaire.
(3) Less than one percent (1%).
(4) All Shares are owned individually.
(5) See footnote (5) above under "-- Principal Beneficial Owners of Emclaire
Common Stock."
(6) Of the 39,459 shares beneficially owned by Mrs. Smith, 29,179 are owned
individually and 10,280 are held as custodian for her grandchildren.
(7) Of the 8,977 shares beneficially owned by Mr. Hunter, 5,040 shares are
owned individually and 3,937 shares are owned individually by his spouse.
(8) Of the 4,525 shares beneficially owned by Mr. Mason, 4,315 shares are owned
individually and 210 shares are held as custodian for his daughter.
(9) See footnote (3) above under "-- Principal Beneficial Owners of Emclaire
Common Stock."
(10) Of the 5,250 shares beneficially owned by Mr. Heeter, 2,625 shares are
owned individually and 2,625 shares are owned individually by his spouse.
(11) All shares owned jointly with spouse
4
<PAGE>
Peoples Savings Financial Corporation Special Meeting
Date, Time and Place. This Prospectus/Joint Proxy Statement is being
furnished to the shareholders of PSFC as part of the solicitation of proxies by
its Board of Directors from holders of the outstanding shares of PSFC Common
Stock for use at the PSFC Special Meeting to be held on August 27, 1998 ^, at
the main office of the Bank, 173 Main Street, Ridgway, Pennsylvania, and any
adjournments thereof. This Prospectus/Joint Proxy Statement, and the
accompanying proxy card, are first being mailed to shareholders of PSFC on or
about July 30, 1998.
Matters to be Considered. The principal purposes of the PSFC Special
Meeting are (i) to consider and vote upon the approval of the Merger, pursuant
to which PSFC will merge into Emclaire, and the Reorganization Agreement among
Emclaire, Farmers National Bank, PSFC and Peoples Bank, which sets forth the
terms and conditions of the Merger and also provides for the Bank Merger and
(ii) consider and vote upon the Articles Amendment. In addition to approval of
the Articles Amendment and the Reorganization Agreement, the shareholders of
PSFC may be asked to adjourn the Special Meeting if necessary to permit further
solicitation of proxies if there are not enough votes at that time to approve
the Articles Amendment and the Reorganization Agreement.
Record Date; Vote Required. The securities to be voted at the PSFC
Special Meeting consist of shares of PSFC Common Stock, with each share
entitling its owner to one vote on the proposals brought before the PSFC Special
Meeting. PSFC had no other class of securities outstanding at the close of
business on the PSFC Record Date. There were ^ approximately 250 holders of
record of PSFC Common Stock and ^ 442,516 shares of PSFC Common Stock
outstanding and eligible to be voted at the PSFC Special Meeting as of the PSFC
Record Date.
The Articles of Incorporation of PSFC provide that in no event shall
any record owner of any outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the then outstanding shares of Common Stock (the "Limit") be entitled or
permitted to any vote with respect to the shares held in excess of the Limit.
Beneficial ownership is determined pursuant to Rule 13d-3 of the General Rules
and Regulations promulgated pursuant to the Securities Exchange Act of 1934
("1934 Act"), and includes shares beneficially owned by such person or any of
his or her affiliates (as defined in the Articles of Incorporation) and shares
which such person or his or her affiliates have the right to acquire upon the
exercise of conversion rights or options and shares as to which such person and
his or her affiliates have or share investment or voting power, but shall not
include shares beneficially owned by Peoples Bank's Employee Stock Ownership
Plan ("ESOP") or directors, officers and employees of PSFC or its subsidiaries,
or shares that are subject to a revocable proxy and that are not otherwise
beneficially owned, or deemed by PSFC to be beneficially owned, by such person
or his or her affiliates.
The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote (after subtracting any
shares held in excess of the Limit) is necessary to constitute a quorum at the
Meeting.
As to the approval of the Reorganization Agreement, by checking the
appropriate box, a shareholder may: (i) vote "FOR" approval of the
Reorganization Agreement, (ii) vote "AGAINST" approval of the Reorganization
Agreement, or (iii) "ABSTAIN." Because the affirmative vote of the holders of a
majority of the outstanding shares of PSFC Common Stock entitled to vote on the
5
<PAGE>
Reorganization Agreement is required to approve the Reorganization Agreement and
the transactions contemplated thereby, abstentions will have the effect of a
vote against the Reorganization Agreement.
As to the proposal to approve the Articles Amendment, a shareholder
may: (i) vote "FOR" the Articles Amendment, (ii) vote "AGAINST" the Articles
Amendment or (iii) "ABSTAIN." Because the affirmative vote of the holders of
eighty percent (80%) of the outstanding shares of PSFC Common Stock entitled to
vote is required to approve the Articles Amendment, abstentions will have the
effect of a vote against the Articles Amendment. Furthermore, the Merger will
not be consummated unless the Articles Amendment is approved.
Brokers who hold shares in street name for beneficial owners of such
shares may not vote those shares without specific instructions from such
individuals. The failure of such beneficial owners to instruct their brokers how
to vote their shares of PSFC Common Stock will have the effect of a vote against
the Reorganization Agreement and the Articles Amendment.
As to the proposal to adjourn the PSFC Special Meeting in the event
that there are insufficient votes to approve the Reorganization Agreement or the
Articles Amendment, a shareholder may: (i) vote "FOR" the adjournment, (ii) vote
"AGAINST" the adjournment or (iii) "ABSTAIN." Approval of the adjournment
requires the affirmative vote of the holders of a majority of PSFC Common Stock
present in person or by proxy at the PSFC Special Meeting, without regard to
broker non-votes (shares for which a broker indicates on the proxy that it does
not have discretionary authority as to such shares to vote on such matter).
Proxies; Revocation; Solicitation. If the form of PSFC proxy is
properly executed and returned to PSFC in time to be voted at the PSFC Special
Meeting, the shares represented thereby will be voted in accordance with the
instructions marked thereon. PSFC proxies that are executed, but as to which no
instructions have been marked, will be voted FOR the approval of the
Reorganization Agreement, the Articles Amendment, and, if necessary, the
proposal to adjourn the PSFC Special Meeting to solicit additional proxies.
Should any other matter properly come before the PSFC Special Meeting, the
persons named as proxies in the PSFC proxy, acting by a majority of those
proxies present, will have discretionary authority to vote on such matters in
accordance with their judgment. However, no proxy which is voted "against" the
proposal to approve and adopt the Reorganization Agreement or the Articles
Amendment will be voted in favor of any such adjournment or postponement. As of
the time of the preparation of this Prospectus/Joint Proxy Statement, the PSFC
Board does not know of any matter, other than those matters referred to in the
PSFC Notice of Special Meeting of Shareholders, to be presented for action at
the PSFC Special Meeting.
The solicitation is being made by PSFC. Directors, officers and
employees of PSFC may solicit proxies from PSFC shareholders, either personally
or by telephone, telegraph or other form of communication. Such persons will
receive no additional compensation for such services. All expenses associated
with the solicitation of proxies will be paid by PSFC including the charges and
expenses of brokerage houses and other custodians, nominees, and fiduciaries for
forwarding solicitation material to beneficial owners of PSFC Common Stock held
of record by such persons. ^ Regan & Associates, Inc. will assist in the
solicitation of proxies by PSFC for a fee of ^ $3,250 plus reasonable expenses
associated with such solicitation not to exceed $1,500.
A proxy may be revoked by the person giving the proxy at any time prior
to the close of voting. Prior to the PSFC Special Meeting a proxy may be revoked
by filing with the Secretary of PSFC at
6
<PAGE>
Peoples Savings Financial Corporation, 173 Main Street, Ridgway, Pennsylvania
15801, a written revocation or a duly executed proxy bearing a later date.
During the PSFC Special Meeting a proxy may be revoked by filing a written
revocation or a duly executed proxy bearing a later date with the secretary of
the PSFC Special Meeting prior to the close of voting or by attending the PSFC
Special Meeting and voting in person. Any shareholder of record may attend the
PSFC Special Meeting and vote in person, whether or not a proxy has previously
been given.
If a person holding PSFC Common Stock in street name wishes to vote
such PSFC Common Stock at the PSFC Special Meeting, the person must obtain from
the nominee holding the PSFC Common Stock in street name a properly executed
"legal proxy" identifying the individual as a PSFC shareholder, authorizing the
PSFC shareholder to act on behalf of the nominee at the Special Meeting and
identifying the number of shares with respect to which the authorization is
granted.
Principal Holders of PSFC Common Stock.^ Persons and groups owning in
excess of 5% of the PSFC Common Stock are required to file certain reports with
the SEC regarding such ownership pursuant to the 1934 Act. PSFC knows of no
person or entity, including any "group" as that term is used in Section 13(d)(3)
of the 1934 Act, other than those set forth below, who or which was known to
PSFC to be the beneficial owner of more than 5% of the issued and outstanding
PSFC Common Stock on the Voting Record Date.
<TABLE>
<CAPTION>
Percent of Shares of
Amount and Nature of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership(1) Outstanding
- ------------------------------------ ----------------------- -----------
<S> <C> <C>
Peoples Savings Bank Employee 33,972(2) 7.67%
Stock Ownership Plan
173 Main Street
Ridgway, Pennsylvania 15853
Norbert J. Pontzer ^ 29,512(3)(4)(5) 6.57%
526 Hyde Avenue
Ridgway, Pennsylvania 15853
Roger M. Hasselman ^ 32,160(3)(4)(5) 7.16%
Forest View Heights
Ridgway, Pennsylvania 15853
Paul A. Brazinski ^ 32,160(3)(4)(5) 7.16%
522 Hyde Avenue
Ridgway, Pennsylvania 15853
</TABLE>
- ---------------------------
(1) Based on filings made pursuant to the 1934 Act and information provided by
PSFC.
(2) The ESOP purchased such shares for the exclusive benefit of Peoples Bank
employees with borrowed funds. These shares are held in a suspense account
and will be allocated among ESOP participants annually on the basis of
compensation as the ESOP debt is repaid. The Board of Directors has
appointed Peoples Bank's Board of Trustees to serve as the ESOP
administrative committee ("ESOP Committee") and the same body to serve as
the initial ESOP trustees ("ESOP Trustees"). The ESOP Committee or the
7
<PAGE>
Board instructs the ESOP Trustees regarding investment of ESOP plan assets.
The ESOP Trustees must vote all shares allocated to participant accounts
under the ESOP as directed by participants. Unallocated shares and shares
for which no timely voting direction is received will be voted by the ESOP
Trustees as directed by the ESOP Committee. As of the Voting Record Date,
10,849 shares have been allocated under the ESOP to participant accounts.
(3) Excludes shares for which individual disclaims beneficial ownership as an
ESOP Trustee.
(4) Includes stock options to purchase ^ 6,455 shares of PSFC Common Stock
which are exercisable within 60 days of the Voting Record Date (thereby
increasing the number of shares outstanding by an equal amount).
Beneficial Ownership by Officers and Directors - PSFC. Set forth below
is information regarding the beneficial ownership of PSFC Common Stock by the
directors and executive officers of PSFC.
<TABLE>
<CAPTION>
Percent
Shares Beneficially of
Name Owned(1)(2)(3) Class
- ---- -------------- -----
Directors
<S> <C> <C>
Norbert J. Pontzer ^ 26,512(4) 6.57%
William L. Murnaghan ^ 12,762(4)(7) 2.84%
Carl W. Gamarino ^ 17,012(4) 3.79%
Paul A. Brazinski ^ 32,160(4)(5) 7.16%
Jane P. Weilacher ^ 13,690(4)(6) 3.05%
Roger M. Hasselman ^ 32,160(4) 7.16%
Executive ^ Officer Not Serving as Director
Glenn R. Pentz, Jr. ^ 13,538(8) 3.01%
All executive officers and
directors as a group
(seven persons) ^ 150,834(9) ^ 30.92%
</TABLE>
- -------------------
(1) Beneficial ownership as of the Voting Record Date.
(2) Pursuant to rules promulgated under the 1934 Act, a person or entity is
considered to beneficially own shares of PSFC Common Stock if he or she
directly or indirectly has or shares (1) voting power, which includes the
power to vote or to direct the voting of the shares; or (2) investment
power, which includes the power to dispose or direct the disposition of the
shares. Unless otherwise indicated, includes all shares held directly by
the named individuals as well as by spouses, minor children in trust and
other indirect ownership, over which shares the named individual
effectively exercises sole voting and investment power.
(3) Excludes 33,972 shares of PSFC Common Stock (7.67%) of the issued and
outstanding shares held by the ESOP of Peoples Bank for which the entire
Board of Directors serve as plan trustee and exercise shared voting and
investment power. Shares which are unallocated to participating employees
(presently 23,123 shares) and shares for which no voting directions are
received are voted by the plan trustee. Once allocated to participant
accounts, such PSFC Common Stock will
8
<PAGE>
be voted by the plan trustee as directed by the plan participant as the
beneficial owner of such PSFC Common Stock. The plan trustee acts as a
fiduciary within the meaning of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). The individuals serving as plan trustee
disclaim beneficial ownership of stock held under the ESOP for which they
serve as plan trustee.
(4) Includes 6,455 ^ shares which may be acquired pursuant to the exercise of
stock options which are exercisable within 60 days of the Voting Record
Date (thereby increasing the number of shares outstanding by an equal
amount). Such options will be cashed out at the consummation of the Merger.
See "Proposal I - The Merger - PSFC Stock Option Plan."
(5)^ Includes 2,900 shares held by Mr. Brazinski's wife in an IRA, which Mr.
Brazinski may be deemed to beneficially own.
^(6) Includes 400 shares held by Ms. Weilacher under the Uniform Gifts to Minors
Act ("UMGA") in trust for her minor grandchildren, which Ms. Weilacher may
be deemed to beneficially own.
^(7) Includes 150 shares held in trust by Mr. Murnaghan under the UMGA.
^(8) Includes 2,941 shares which may be acquired pursuant to the exercise of
stock options which are exercisable within 60 days of the Voting Record
Date and 1,996 shares held in the ESOP allocated to Mr. Pentz's account.
Mr. Pentz is expected to exercise his options to purchase 6,567 shares of
PSFC Common Stock prior to the consummation of the Merger.
(9)^ Includes stock options to purchase ^ 45,298 shares of PSFC Common Stock
which are exercisable within 60 days of the Voting Record Date (thereby
increasing the number of shares outstanding by an equal amount).
EMCLAIRE FINANCIAL CORP. AND THE
FARMERS NATIONAL BANK OF EMLENTON
Emclaire was incorporated in Pennsylvania in 1989 to own and control
all of the capital stock of Farmers National, a national banking association.
Emclaire is a registered bank holding company pursuant to the BHCA. Emclaire's
primary federal regulator is the Federal Reserve System. Emclaire has no
employees other than executive officers who do not receive compensation for
serving in such capacity. As of March 31, 1998, Emclaire had consolidated
assets, liabilities, and shareholders' equity of $136.1 million, $122.4 million,
and $13.7 million, respectively.
Emclaire's principal executive office is located at the main office of
Farmers National at 612 Main Street, Emlenton, Pennsylvania 16373 and its
telephone number is (724) 867-2311.
Farmers National was organized on May 16, 1900 as a national banking
association. Farmers National's deposits are insured up to the legal maximum by
the BIF as administered by the FDIC. Farmers National operates under the
supervision of the OCC, however, as a BIF insured institution, Farmers National
is also subject to regulation by the FDIC.
Farmers National operates as a full-service community bank, offering a
variety of financial services to meet the needs of the markets served. Those
services include, accepting time and demand deposits from the general public and
together with other funds, using the proceeds to originate secured and unsecured
commercial and consumer loans, finance commercial transactions and provide
construction and mortgage loans, as well as home equity and personal lines of
credit. In addition, funds are also used to purchase investment and
mortgage-backed securities. Farmers National operates eight banking offices
located in Venango, Butler and Clarion Counties, Pennsylvania.
9
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
AND PEOPLES SAVINGS BANK
PSFC is the parent company for Peoples Bank. PSFC is a bank holding
company which, under existing laws, is restricted to activities generally
related to banking. At the present time, PSFC does not conduct any active
business. At March 31, 1998, PSFC had consolidated assets, liabilities and
stockholders' equity of $45.1 million, ^ $35.8 million and $9.3 million,
respectively. ^ PSFC's principal office is located at 173 Main Street, Ridgway,
Pennsylvania and its telephone number is (814) 773-3195.
Peoples Bank is a Pennsylvania-chartered stock savings bank
headquartered in Ridgway, Pennsylvania, which was originally chartered in 1891
under the name "Peoples Building and Loan Association." Peoples Bank is a
community oriented savings institution and conducts its business from its main
office in Ridgway, Pennsylvania and two full service branch offices located in
Jefferson and Clearfield Counties, Pennsylvania.
Peoples Bank attracts deposits from the general public and uses such
deposits, together with borrowings and other funds, primarily to invest in
mortgage-backed and investment securities and to originate loans secured by
first mortgages on owner-occupied, one-to-four family residences in its market
area. Peoples Bank also makes home equity loans, loans secured by deposits,
automobile loans and personal loans and invests in mortgage-backed securities,
and other investment securities.
PROPOSAL I - THE MERGER
(Proposal I - Approval of the Merger and Reorganization Agreement)
The following information concerning the Merger, insofar as it relates
to matters contained in the Reorganization Agreement, is qualified in its
entirety by reference to the full text of the Reorganization Agreement which is
attached as Appendix ^ A to this Prospectus/Joint Proxy Statement and is
incorporated by reference.
The Merger - General
The Reorganization Agreement provides that Emclaire will acquire PSFC
through a merger of PSFC into Emclaire with Emclaire being the surviving entity
("Holding Company Merger"). Upon consummation of the Holding Company Merger, all
shares of PSFC Common Stock will no longer be outstanding and will automatically
be canceled and retired and will cease to exist. Each holder of a certificate
representing any shares of PSFC Common Stock will then cease to have any rights
with respect to such shares, except the right to receive cash and/or shares of
Emclaire Common Stock to be paid or issued upon the surrender of such
certificate, without interest, as described below. Emclaire also plans to merge
Peoples Bank into Farmers Bank on, or as soon as practicable after, the
Effective Date (the "Bank Merger"), and Emclaire and PSFC have agreed to take
all action necessary and appropriate to effectuate the Bank Merger. The Holding
Company Merger and the Bank Merger are collectively referred to herein as the
"Merger."
Effect of The Merger
On the Effective Date, as defined below, PSFC will merge with and into
Emclaire. The PSFC Common Stock will be exchanged for shares of Emclaire Common
Stock or cash as described under "-- Merger Consideration." Each share of
Emclaire Common Stock outstanding immediately prior to the Effective Date will
remain outstanding and unchanged as a result of the Merger.
10
<PAGE>
No fractional shares of Emclaire Common Stock will be issued in
connection with the Merger. In lieu of issuing fractional shares, Emclaire will
make a cash payment equal to the fractional interest which a PSFC shareholder
would otherwise receive multiplied by the Final Market Price (described below).
Closing and Effective Time
The Reorganization Agreement provides that the closing of the Merger
(the "Closing") will be held as soon as practicable after satisfaction of the
conditions or waiver of the Holding Company Merger, unless another date, time or
place is agreed to in writing by the parties hereto.
The Holding Company Merger shall become effective on the date and at
the time of filing of the Articles of Merger with the Secretary of State of the
State of Pennsylvania or at such later date and/or time as may be agreed upon by
the Parties and set forth in the Articles of Merger so filed (the "Effective
Date").
Merger Consideration
Conversion of Stock. At the Effective ^ Date, each outstanding share of
PSFC Common Stock shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and represent the right to receive
the Per Share Merger Consideration (as defined below). As of the Effective Time
of the Merger, each share of the PSFC Common Stock held directly or indirectly
by Emclaire, excluding shares held in a fiduciary capacity or in satisfaction of
a debt previously contracted, shall be canceled, retired and cease to exist, and
no exchange or payment shall be made with respect thereto.
As used herein, the term "Per Share Merger Consideration" shall mean
either the amount of cash set forth in clause (i) below (the "Cash Merger
Consideration") or that number of shares of common stock of Emclaire, par value
$1.25 per share ("Emclaire Common Stock") as set forth in clause (ii) below (the
"Stock Merger Consideration"), at the election of the holder of each share of
PSFC Common Stock, subject however to proration as set forth below.
(i) If Cash Merger Consideration is to be paid with
respect to a share of PSFC Common Stock, the Per
Share Merger Consideration with respect to such share
shall be $26.00.
(ii) If Stock Merger Consideration is to be paid with
respect to a share of PSFC Common Stock, the Per
Share Merger Consideration with respect to such share
shall be that number of shares (and fractions of
shares) of Emclaire Stock (the "Conversion Number")
equal to:
(A) If the Final Market Price (as defined below)
is equal to or less than $21.00, then the
Stock Merger Consideration shall equal that
number of shares of Emclaire Common Stock
equal to $26.00 divided by the Final Market
Price.
(B) If the Final Market Price (as defined below)
is greater than $21.00, then the Stock
Merger Consideration shall be 1.24 shares of
Emclaire Common Stock. Note: as of July 17,
1998 the Final Market Price was ^ $22.06.
See discussion below.
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If the Final Market Price (as defined below) shall be less than $15.00,
either Emclaire or Peoples can terminate this Agreement.
The "Final Market Price" shall be the average closing price per share
of the "last" real time trades (i.e., closing price) of the Emclaire Common
Stock as reported on the OTC Bulletin Board for each of the thirty (30) OTC
Bulletin Board general market trading days (the "Pricing Period") preceding one
week prior to the date on which the Merger closes (the "Closing Date"),
provided, however, that if there are less than 10 business days during such
period when Emclaire Common Stock trades and on which there is a closing price,
then the Pricing Period shall be extended backwards for such period as is
necessary until there are ten days on which Emclaire Common Stock trades and on
which there is a closing price if such extension backwards will result in a
lower calculated Final Market Price. Days on which Emclaire Common Stock does
not trade during the Pricing Period (a "No Trade Date") shall be disregarded in
computing the Final Market Price and the average shall be based upon the "last"
real time trades and number of days on which the Emclaire Common Stock actually
traded during the Pricing Period.
Shareholders may express a desire to receive the Cash Merger
Consideration or the Stock Merger Consideration, or a combination of both by
submitting an Election Form as described below. However, shareholder elections
may not be honored in full as described below. Therefore, no shareholder of PSFC
can be assured, until all Election Forms are received and allocations are
calculated, as to the relative proportion of cash versus Emclaire Common Stock
that such shareholder will receive.
Fractional shares of Emclaire Common Stock shall not be issued. Each
holder of PSFC Common Stock who would otherwise be entitled to receive a
fractional share (taking into account all share amounts to which such holder is
otherwise entitled hereunder) shall instead receive cash (without interest)
equal to such fraction of a share multiplied by the Final Market Price. No such
holder will be entitled to dividends, voting rights or any other rights of a
shareholder of Emclaire or PSFC in respect of any such fractional share.
As of the close of business on July 17, 1998, the Final Market Price
was $22.06. If the Final Market Price continues to be above $21.00, holders of
PSFC Common Stock choosing Emclaire Common Stock instead of the Cash Merger
Consideration ($26.00 per share of PSFC Common Stock) may receive Emclaire
Common Stock with a market value greater than $26.00 for their shares of PSFC
Common Stock exchanged. For example, based on the assumptions set forth in this
paragraph, a person exchanging 100 shares of PSFC Common Stock for the Cash
Merger Consideration would receive $2,600 in cash. A person electing to receive
Emclaire Common Stock, based on the Final Market Price of $22.06 at July 17,
1998, would receive 124 shares of Emclaire Common Stock or $2,821 of Emclaire
Common Stock, based on the last sales price of Emclaire Common Stock on July 10,
1998. This assumes there is no pro rata distribution, the shareholder is
allocated all the stock requested, and there is no further change in the market
price of Emclaire Common Stock. If the Final Market Price is at or below $21.00,
persons exchanging PSFC Common Stock for Emclaire Common Stock will receive an
amount of Emclaire Common Stock equal to $26.00 on the Effective Date (as
defined herein) (assuming the sales price of Emclaire Common Stock remains below
$21.00 per share). In any event, the aggregate consideration will be 45% cash
and 55% Emclaire Common Stock. Therefore, it is possible that those choosing all
Emclaire Common Stock in the Merger could be adjusted pro rata to receive some
cash in order to maintain the final distribution of 45% cash and 55% Emclaire
Common Stock. The above discussion is for illustrative purposes only and in no
way should be construed as a representation of what will actually happen, nor
should it be construed as a recommendation as to the distribution.
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<PAGE>
The relative amounts of cash and Emclaire Common Stock payable and
issuable pursuant to the terms of this Reorganization Agreement shall be jointly
calculated by Emclaire and PSFC and set forth in a schedule delivered to the
Exchange Agent prior to the Closing Date.
Election and Allocation Procedures. Subject to the allocation and
election procedures set forth below, each record holder of a share of PSFC
Common Stock (the "PSFC Shareholders") shall, prior to the Election Deadline (as
hereinafter defined) specify the number of whole shares of PSFC Common Stock
held by such shareholder as to which such shareholder prefers to receive (i) the
Cash Merger Consideration, and/or (ii) the Stock Merger Consideration. An
expression of preference described in clause (i) is referred to as a "Cash
Election," and the related shares of PSFC Common Stock are referred to as "Cash
Election Shares." An expression of preference described in clause (ii) is
referred to as a "Stock Election," and the related shares are referred to as
"Stock Election Shares." If a PSFC Shareholder fails to properly indicate a
preference, the same shall be referred to as a "Non-Election," and the related
shares are referred to as "Non-Electing Shares."
Notwithstanding the expressed preferences of PSFC Shareholders, 55% of
the shares of PSFC Common Stock outstanding (referred to as the "Aggregate
Shares") shall be converted into the right to receive the Stock Merger
Consideration and 45% of the Aggregate Shares shall be converted into the right
to receive the Cash Merger Consideration. Therefore, elections by PSFC
Shareholders shall only constitute indications of their preferences and shall
not be binding upon Emclaire. The actual treatment of the shares owned by each
PSFC Shareholder shall be determined as follows.
(1) If the number of Cash Election Shares is more than 45.0% of the
Aggregate Shares, then:
(a) Non-Electing Shares shall be deemed to be Stock
Election Shares;
(b) All Cash Election Shares represented by outstanding
options under the Option Plan and all Dissenting
Shares shall be treated as Cash Election Shares
without adjustment;
(c) All other Cash Election Shares shall be allocated so
that each PSFC Shareholder making a Cash Election
shall be allocated Cash Election Shares equal to the
number of Cash Election Shares requested by such
shareholder multiplied by a fraction, the numerator
of which is the Aggregate Shares multiplied by 45%,
minus the Cash Election Shares under (b) above, and
the denominator of which is the aggregate Cash
Election Shares requested by all PSFC Shareholders;
and
(d) All shares for which a PSFC Shareholder made a Cash
Election which are not treated allocated as Cash
Election Shares pursuant to (c) shall be converted
into and be deemed to be Stock Election Shares.
(2) If the number of Stock Election Shares is more than 55.0% of
the Aggregate Shares, then:
(a) Non-Electing Shares shall be treated as Cash Election
Shares;
(b) All Stock Election Shares shall allocated so that
each PSFC Shareholder making a Stock Election shall
be allocated Stock Election Shares equal to the
number of Stock Election Shares requested by such
shareholder multiplied by a fraction, the numerator
of which is the Aggregate Shares multiplied by 55%
and the denominator of which is the aggregate Stock
Election Shares requested by all PSFC Shareholders;
and
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<PAGE>
(c) All shares for which a PSFC Shareholder made a Stock
Election which are not treated allocated as Stock
Election Shares pursuant to (b) shall be converted
into and be deemed to be Cash Election Shares.
(3) If the number of Stock Election Shares is less than or equal
to 55.0% of the Aggregate Shares and the number of Cash
Election Shares is less than or equal to 45.0% of the
Aggregate Shares, then:
(a) all Election Forms duly submitted by the deadline
shall be honored; and
(b) Non-Electing Shares shall be allocated between Stock
Election Shares and Cash Election Shares in equal
proportions on a shareholder by shareholder basis
until Stock Election Shares equal 55.0% of the
Aggregate Shares and Cash Election Shares equal 45.0%
of the Aggregate Shares.
After such allocations, each Cash Election Share (other than those
representing shares subject to unexercised options) shall receive in the Merger
the Cash Merger Consideration and each Stock Election Share shall receive in the
Merger the Stock Merger Consideration (and cash in lieu of fractional shares).
Each unexercised option under the Option Plan shall be deemed canceled upon
consummation of the Merger and shall be converted into the right to receive
$16.00 for each share subject to the option, representing $26.00 per share minus
the exercise price of the option, which in all cases is $10.00 per share.
If the application of the allocation provisions described above would
not result in 55% of the shares of PSFC Common Stock outstanding, plus shares
not outstanding but subject to outstanding options under the Option Plan, ^
being converted into the right to receive the Stock Merger Consideration and 45%
^ being converted into the right to receive the Cash Merger Consideration, or
otherwise prevent the satisfaction of any of the conditions set forth in the
Reorganization Agreement, then the number of shares deemed to be Cash Election
Shares and Stock Election Shares shall be adjusted in an equitable manner as
shall be necessary to enable the satisfaction of all such conditions.
Election Procedures. Shareholders of record of PSFC may request that
their shares be treated as Cash Election Shares or Stock Election Shares by
mailing to the Exchange Agent a completed Election Form. To be effective, an
Election Form must be properly completed, signed and received by the Exchange
Agent accompanied by certificates representing the shares of PSFC Common Stock
as to which the request is being made (or by an appropriate guaranty of delivery
by a commercial bank or trust company in the United States or a member of a
registered national security exchange or the National Association of Security
Dealers, Inc.), or by evidence that such certificates have been lost, stolen or
destroyed accompanied by such security or indemnity as shall be reasonably
requested by Emclaire.
A properly completed Election Form and accompanying share certificates
must be received by the Exchange Agent by the close of business on ^ August 27,
1998, for an election to be effective, provided, however, that if the Closing
Date does not occur within 10 business days after the PSFC Special Meeting (as
it may be adjourned), new Election Forms shall be sent via first class mail to
PSFC Shareholders providing such shareholders an opportunity to change their
election by a specific date no less than ten business days before the Closing
Date. An election may be changed or revoked but only by written notice received
by the Exchange Agent prior to the Election Deadline including, in the case of a
change, a properly completed revised Election Form.
Emclaire will have the discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether the Election Forms have been
properly completed, signed and submitted or changed or revoked and to disregard
immaterial defects in Election Forms. The decision of Emclaire (or
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<PAGE>
the Exchange Agent) in such matters shall be conclusive and binding. Neither
Emclaire nor the Exchange Agent will be under any obligation to notify any
person of any defect in an Election Form submitted to the Exchange Agent.
For the purposes hereof, a Holder who does not submit an effective
Election Form to the Exchange Agent prior to the Election Deadline shall be
deemed to have made a Non-Election.
To make an effective election, a PSFC Holder will be required to return
a properly completed Election Form sufficiently in advance of the Election
Deadline so that it is actually received by the Exchange Agent at or prior to
the Election Deadline. An Election Form will not be considered properly
completed if it is not accompanied by certificates representing all shares of
PSFC Common Stock covered thereby (or customary affidavits and indemnification
regarding the loss or destruction of such certificates or the guaranteed
delivery of such certificates). The Election Deadline is the close of business
of the Exchange Agent on August ^ 27, 1998.
If the Reorganization Agreement is terminated for any reason, Emclaire
and PSFC shall cause the Exchange Agent to promptly return any shares or options
which have been sent to the Exchange Agent.
Mechanics of Payment of Consideration. The conversion of shares of
PSFC's Common Stock into the right to receive the Cash Merger Consideration or
the Stock Merger Consideration will occur at the Effective Time of the Merger.
As soon as practicable after the Effective Time of the Merger, the
Exchange Agent will send a letter of transmittal to each PSFC Shareholder who
has not properly submitted an Election Form and certificates of PSFC Common
Stock. The letter of transmittal will contain instructions with respect to the
surrender of the Holder's share certificates in order for the Holder to receive
the consideration to be paid in the Merger.
PSFC SHAREHOLDERS SHOULD NOT SUBMIT THEIR SHARE CERTIFICATES TO THE
EXCHANGE AGENT EXCEPT WITH AN ELECTION FORM AS DESCRIBED ABOVE OR WITH A LETTER
OF TRANSMITTAL RECEIVED FROM THE EXCHANGE AGENT.
After the Merger is completed, each certificate for PSFC Common Stock
shall be deemed for all purposes to represent and evidence only the right to
receive the consideration into which that certificate was converted. Unless and
until the outstanding share certificates shall have been properly surrendered as
provided above, the consideration issued or payable to the Holder of the
canceled share certificates as of any time after the Effective Date of the
Merger shall not be paid to the Holder of the share certificates until the share
certificates shall have been surrendered in the manner required. Each Holder
will be responsible for all federal, state and local taxes which may be incurred
by him on account of his receipt of the consideration to be paid in the Merger.
The Holder of any share certificates which shall have been lost or
destroyed may nevertheless, subject to the provisions of the Reorganization
Agreement, receive the consideration to which the Holder is entitled, provided
that the Holder shall deliver to Emclaire and to the Exchange Agent: (i) a sworn
statement certifying the loss or destruction and specifying the circumstances
thereof and (ii) a lost instrument bond in form satisfactory to Emclaire and the
Exchange Agent which has been duly executed by a corporate surety satisfactory
to Emclaire and the Exchange Agent, indemnifying Emclaire and the Exchange Agent
(and their respective successors) to their satisfaction against any loss or
expense which any of them may incur as a result of the lost or destroyed share
certificates being thereafter presented. Any costs or expenses which may arise
from such replacement procedure, including the premium on the lost instrument
bond, shall be paid by the Holder.
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<PAGE>
Background of the Merger
Following the mutual-to-stock conversion of Peoples Bank in January
1994 and consistent with its business plan, management of PSFC focused on
enhancing the business operations of Peoples Bank. During the period following
conversion, management considered PSFC's strategic options to maximize
shareholder value. In connection with this planning process, senior management
and the Board of Directors of PSFC met on a frequent basis to review capital
management alternatives as well as ways to profitably expand Peoples Bank.
During 1995, certain officers and directors of PSFC were approached by
other financial institutions indicating a potential interest to merge with PSFC.
However, no formal written indications of interest were submitted. Then, during
June and August 1996, PSFC received written indications of interest from two
potential merger partners suggesting offer prices, based on an exchange of
common stock, for PSFC in the range of $23.00 to $25.00 per share. However, no
binding commitments were entered into in response to these two letters.
In December 1996, one of the two parties which had submitted a written
indication of interest in August 1996 reaffirmed its interest to possibly
acquire PSFC. As a result of this renewed interest, in January 1997 the Board
and management of PSFC determined that it was appropriate to retain Capital
Resources to review and analyze PSFC's strategic options. During January and
February 1997, Capital Resources contacted approximately eight prospective
merger partners to determine their potential interest in acquiring PSFC. Only
two of the parties contacted, those which had previously submitted indications
of interest in 1996, expressed a serious interest in a potential merger with
PSFC. These two parties were asked to resubmit written indications of interest
to acquire PSFC. The indications of interest submitted by these two parties
provided for offering prices of $23.27 and $25.00 per share, respectively, both
based on an exchange of common stock.
On September 22, 1997, in connection with its quarterly earnings
release, PSFC announced that its Board of Directors, among other things, was
evaluating strategic alternatives in order to maximize shareholder value.
Included in PSFC's strategic alternatives was a possible sale of PSFC.
In response to the above indications of interest, the Board of PSFC
elected to enter into further negotiations with the party which submitted the
$25.00 per share offer price, with the objective of entering into a definitive
merger agreement. As a result of further negotiations, and in consideration of
certain pending regulatory issues and uncertainties, the party was unable to
commit to the issuance of stock as the form of consideration to PSFC
shareholders. The party proposed that any merger agreement also allow for the
payment of the offer price in cash as a possible alternative to stock. Also,
despite the request of PSFC and Capital Resources, the party was not willing to
increase the offer price per share to above $25.00. As a result, and based on
further discussions with Capital Resources, PSFC's Board of Directors concluded
that the $25.00 per share offer price was insufficient to justify further
negotiations.
In November 1997, shortly after the above noted negotiations concluded,
Capital Resources and senior officers of PSFC contacted approximately eleven
other potential merger partners to determine their interest in acquiring PSFC.
Of the companies contacted only one, Emclaire, expressed a willingness to submit
a written indication of interest. After receiving such letter on February 3,
1998, as amended on February 10, 1998, PSFC and its representatives engaged in
extensive negotiations with Emclaire and its representatives. During February
and March of 1998, PSFC's management met with the management of Emclaire to
discuss each company's business philosophy and method of operations. As a result
of these negotiations and discussions, and based on discussions with Capital
Resources, the Board of PSFC agreed to enter into a formal letter of intent with
Emclaire on March 20, 1998. The letter of intent
16
<PAGE>
reflected a price of $26.00 per share for each outstanding share of PSFC common
stock, payable in cash or stock, with an aggregate mix of 45% cash and 55%
stock.
Additional discussions and final negotiations occurred subsequent to
March 20, during which period PSFC conducted a due diligence review of Emclaire
and Farmers National. During the same period, management and the PSFC Board
worked with Capital Resources to analyze Emclaire's proposal and reviewed with
legal counsel the draft of a definitive merger agreement and the legal
ramifications of a business combination.
At its April 7, 1998 meeting, PSFC's Board of Directors considered at
length the financial and legal terms of the proposed Reorganization Agreement,
comparative financial and acquisition pricing data for other similar merger
transactions and other information prepared by Capital Resources. In particular,
the board reviewed with Capital Resources the financial and valuation impacts of
remaining independent versus merging with Emclaire. The Board asked questions of
Capital Resources and of special legal counsel. Capital Resources presented its
written opinion that the proposed transaction was fair to PSFC's shareholders
from a financial point of view (see -- "Opinion of PSFC's Financial Adviser").
After concluding that the Reorganization Agreement was in the best interest of
PSFC and its shareholders, PSFC's Board of Directors voted to approve and adopt
the Reorganization Agreement.
Reasons for the Merger - Emclaire
Emclaire entered into the Reorganization Agreement because the markets
served by Peoples Bank adjoin or overlap markets served by Farmers National. The
Merger will provide Emclaire the opportunity to expand such markets, and to
expand the products and services currently offered by Peoples Bank.
Reasons for the Merger -- PSFC
In evaluating the Reorganization Agreement, the Board of Directors of
PSFC, with the assistance of ^ special legal counsel and its financial advisor,
considered a variety of factors primarily: (i) the consideration offered in
relation to historical trading pries of PSFC common stock; (ii) the results of
operations and financial condition of the PSFC; and (iii) the advice of Capital
Resources as to the fairness from a financial point of view of the terms of the
Merger to holders of PSFC Common Stock. In this regard, the Board of Directors
has received from Capital Resources a written opinion dated April 7, 1998, that
the Merger consideration to be received by holders of common stock is fair to
them from a financial point of view. Other factors considered by the Board of
Directors, both from a short and long-term perspective, include the following.
1. The value being offered to the PSFC shareholders in relation to
the estimated market value, book value and earnings per share of
PSFC's common stock. As noted under the caption "Opinion of
PSFC's Financial Advisor", the value offered to PSFC's
shareholders represents a significant premium to the book value
and a significant multiple to PSFC's most recent earnings stream.
Further, as noted by Capital Resources, the resulting key
acquisition pricing ratios (price/book value, price/earnings and
price/assets) are reasonable when compared to a comparative group
of thrift institutions which have also been the subject of a
proposed or completed acquisition.
2. The Board's familiarity with and review of PSFC's business,
financial condition, results of operations, management and
prospects, including, but not limited to, its potential growth,
development, productivity and profitability. PSFC has not
experienced any asset growth since Peoples Bank's conversion to
the stock form of ownership in 1994 and PSFC has generated a
positive, but somewhat variable, earnings stream since that time.
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<PAGE>
The Board believes this variability in earnings is attributable
to PSFC's traditional thrift operating strategy, which emphasizes
the origination of residential mortgage loans and its somewhat
limited sources of non-interest income. The Board believes that
PSFC's current and future earnings, and its ability to generate
satisfactory returns for its shareholders, are highly dependent
upon PSFC's ability to maintain satisfactory net interest margins
in a changing interest rate environment, diversify PSFC's
earnings stream and effectively control overhead costs. This may
be more difficult in the future as other banks, thrift and
financial service providers in and around PSFC's market area,
compete for loan originations and deposits.
3. The current and prospective environment in which PSFC operates,
including national and local economic conditions, the competitive
environment and the trend toward consolidation in the financial
services industry. PSFC's market area has not experienced
favorable economic growth or diversity in recent years.
4. The compatibility of the respective business management
philosophies of PSFC and Emclaire. Like PSFC, Emclaire has a long
history of serving the communities in which it operates and has
followed a conservative strategy of focusing investments on the
origination of one-to-four family residential mortgage loans and
other consumer oriented loans. Emclaire, like Peoples Bank,
operates in relatively small towns in western Pennsylvania. This
type of geographic emphasis plus a conservative lending strategy
for a commercial bank, suggests a good fit for PSFC, its
shareholders and customers.
5. The ability of Emclaire and its subsidiary bank to provide
comprehensive financial services in relevant markets. PSFC offers
a somewhat limited range of loan and deposit products and has
pursued the additional activities allowed by financial services
deregulation only on a limited basis. Emclaire is a larger
financial institution than PSFC, with a broader range of loan and
deposit products. Also, Emclaire benefits from a larger mortgage
loan origination operation which covers a wider geographic base.
The Board believes PSFC will be able to offer customers a broader
array of products and services as part of Emclaire than it could
as an independent company.
6. The financial terms of recent business combinations in the
financial services industry. As noted under the caption "Opinion
of PSFC's Financial Advisor", Capital Resources compared the
terms of the offer to those of a select group of comparable
thrift institutions and advised the Board that the merger
consideration to be received by PSFC's shareholders was fair from
a financial point of view.
7. The fact that the consideration to be received in the Merger by
PSFC's shareholders reflects a premium for PSFC's common stock
over the value at which it has traded in the market during the
last year and in previous years since converting to stock form in
1994. There is no active market in which the shares of PSFC's
common stock is regularly traded (the stock trades on the OTC
Bulletin Board), nor are there any uniformly quoted prices for
such shares. Management is aware of a limited number of trades in
PSFC's common stock during the past year, ranging in price from
$21.25 to $24.00 per share. When PSFC converted from mutual to
stock form in 1994, the conversion price was $10.00 per share.
The Board believes the consideration to be received in the Merger
by PSFC's shareholders reflects a substantial premium over both
the historical trading prices and the conversion price.
8. The fact that Emclaire, as a larger financial institution
company, has the financial resources to serve the lending and
deposit needs of the local communities served by
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<PAGE>
PSFC. As noted above, Emclaire has a broader range of loan and
deposit products than PSFC. In addition, the Board believes that
Emclaire, given its larger size and greater exposure in the
marketplace, particularly after its merger with PSFC, will have
greater access to capital markets than PSFC for possible future
growth and expansion.
9. Finally, Emclaire's business plan calls for further expansion
into contiguous counties to better broaden its customer base.
Further growth of Emclaire, after its combination with PSFC,
should further serve to enhance Emclaire's franchise value. While
Emclaire's stock is also traded on the OTC Bulletin Board and
experiences limited liquidity, similar to that of PSFC, the Board
believes that Emclaire's stock will have stronger price growth
potential than PSFC's stock as well as enhanced liquidity
potential after the Merger.
Opinion of PSFC's Financial Advisor
PSFC retained Capital Resources as its financial advisor in connection
with the Merger and requested that Capital Resources render its opinion with
respect to the fairness, from a financial point of view, of the Per Share Merger
Consideration, to the holders of PSFC shares. Capital Resources rendered its
written opinion to PSFC's Board of Directors on April 7, 1998, that, as of the
date of such opinion, the Per Share Merger Consideration was fair, from a
financial point of view, to the holders of PSFC shares. Capital Resources has
provided PSFC with an update of that opinion as of ^ July 27, 1998. Capital
Resources has consented to the inclusion of these opinions and the related
disclosure in the Prospectus/Joint Proxy Statement.
THE FULL TEXT OF THE OPINIONS OF CAPITAL RESOURCES, WHICH SET FORTH
CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS
UNDERTAKEN, ARE ATTACHED AS APPENDIX ^ E TO THIS PROSPECTUS/JOINT PROXY
STATEMENT, AND SHOULD BE READ IN THEIR ENTIRETY. THE SUMMARY OF THE OPINION OF
CAPITAL RESOURCES AS OF APRIL 7, 1998, SET FORTH IN THIS PROSPECTUS/JOINT PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THAT OPINION AND THE
UPDATED OPINION. CAPITAL RESOURCES' OPINIONS SHOULD NOT BE CONSTRUED BY HOLDERS
OF PSFC'S SHARES AS A RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE AT THE
PSFC SPECIAL MEETING.
Capital Resources is an investment banking and financial consulting
firm which, as part of its specialization in financial institutions, is
regularly engaged in providing financial valuations and analyses of business
enterprises and securities in connection with mergers, acquisitions,
mutual-to-stock conversions, initial and secondary stock offerings and other
corporate transactions. PSFC has utilized the services of Capital Resources in
the past. PSFC's Board of Directors chose Capital Resources because of its
expertise, experience and familiarity with PSFC and the financial institution
industry. Capital Resources reviewed the terms of the Agreement and the related
financial data and reviewed these issues with PSFC's Board and executive
management of PSFC. No limitations were imposed on Capital Resources by PSFC's
Board with respect to the investigation made or procedures followed by it in
rendering its opinion. Capital Resources participated in the negotiations
between PSFC and Emclaire in which the amount of consideration for PSFC's shares
was agreed upon.
In the course of rendering its fairness ^ opinions, the following
factors were considered by Capital Resources:
1. The proposed terms of the Reorganization Agreement;
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<PAGE>
2. The audited consolidated financial statements of PSFC for the
fiscal years ended June 30, 1993 through 1997, the unaudited
consolidated financial statements of PSFC for the six months
ended December 31, 1997 as well as nine months ended March 31,
1998, as reported in its ^ Reports on Form 10-QSB, certain
regulatory reports including the ^ reports for the ^ quarters
ended December 31, 1997 and March 31, 1998, the latest available
asset/liability reports, operating budget, and other
miscellaneous internally- generated management information
reports and business plan, as well as other publicly- available
information;
3. Annual Report to Shareholders for 1997, which provides a
discussion of PSFC's business and operations and a review of
various financial data and trends;
4. Discussions with executive management of PSFC regarding the
business, operations, recent financial condition and operating
results and future prospects of PSFC;
5. Comparisons of PSFC's financial condition and operating results
with those of similarly sized thrift institutions operating in
Pennsylvania and the United States;
6. Comparisons of PSFC's financial condition and operating
performance with the published financial statements and market
price data of publicly traded thrift institutions in general and
publicly traded thrift institutions in PSFC's region of the
United States specifically;
7. The relevant market information regarding PSFC shares including
trading activity and information on options to purchase PSFC
shares;
8. Other financial and pricing analyses and investigations as deemed
necessary, including a comparative financial analysis and review
of the financial terms of other pending and completed
acquisitions of companies considered to be generally similar to
PSFC;
9. Examination of PSFC's economic operating environment and the
competitive environment of PSFC's market area;
10. Available financial reports and financial data for Emclaire,
including annual reports to shareholders and Form 10-KSB reports
covering the fiscal years ended through ^ December 31, ^ 1997,
quarterly reports, Form 10-QSB reports, other internal and
regulatory financial reports provided by management of Emclaire
and other published financial data; Emclaire's banking office
network; and the pricing trends of Emclaire's shares, as reported
on the OTC Bulletin Board, and dividend payment history; and
11. A visit to Emclaire's administrative and executive offices and
interviews with senior management of Emclaire, including a
discussion of Emclaire's business and prospects.
12. The pro forma financial impact of the Merger of PSFC and
Emclaire.
The fairness opinions state that Capital Resources has relied on the
accuracy and completeness of the information provided by the parties to the
Agreement and the representations and warranties in the Agreement, without
independent verification. Capital Resources did not make an independent
evaluation or appraisal of the assets of PSFC or Emclaire.
The summary set forth below describes the approaches utilized by
Capital Resources in support of its ^ April 7, 1998 fairness opinion. It does
not purport to be a complete description of the analyses performed by Capital
Resources in this regard.
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Overview of Valuation Methodology. In preparing its fairness opinion,
Capital Resources evaluated whether the consideration payable upon consummation
of the Merger is fair from a financial point of view to the shareholders of
PSFC. The fairness of the consideration was determined by comparing it to
acquisition offers received by other comparable companies over a time-frame that
reflects a similar economic environment. The comparison included an examination
of key financial characteristics of the comparative acquisition companies,
including balance sheet, earnings and credit risk characteristics.
PSFC's key operating statistics and ratios through December 31, 1997,
were compared to a select group of thrift institutions that have also been the
subject of a proposed or completed acquisition. It is important to note that the
comparative group utilized in the fairness opinion was comprised only of thrift
institutions (rather than commercial banks), given the distinctive financial,
operating and regulatory characteristics of the thrift industry. Capital
Resources reviewed relevant acquisition pricing ratios, notably offer
price-to-book value (and offer price-to-tangible book value), offer
price-to-earnings, offer price-to-deposits, and offer price-to-assets of the
comparative group and compared these ratios to those of PSFC. The analysis
included a review of and comparison of the mean and median pricing ratios
represented by a sample of 12 comparative group thrifts concentrated in the
mid-Atlantic and midwestern United States.
Pricing Comparison. Based on an assumed consideration of $26.00 for
each outstanding PSFC share, there resulted the following acquisition pricing
ratios for PSFC relative to those of the comparative group:
o PSFC's ^ price/fully-diluted tangible book value ratio of 130.5%
exceeded the mean and median price/fully-diluted tangible book
value ratios of 124.0% and 124.1%, respectively, of the
comparative group;
o PSFC's price/earnings multiple of 29.2x based on trailing 12
months reported net income (or 26.5x based on the calculation of
a normalized earnings stream of $0.98 per share) compared to the
mean and median price/earnings multiples of the comparative group
of ^ 30.1x and 30.1x, respectively;
o PSFC's price/assets ratio of 25.9% compared to the mean and
median price/assets ratios of 29.0% and 30.2%, respectively, of
the comparative group;
o PSFC's price/deposits ratio of 32.8% compared to the mean and
median price/deposits ratios of 40.8% and 44.4%, respectively, of
the comparative group; and
o PSFC's tangible book premium (offer price minus tangible book
value)/core deposits ratio of 8.9% compared to the mean and
median ratios of 9.2% and 7.5%, respectively, of the comparative
group.
As part of its pricing analysis, Capital Resources noted that PSFC had
a particularly high level of capital (consolidated net worth equaled almost
21%). Acquirors are usually willing to pay a premium for a normal level of
capital and only dollar-for-dollar for excess capital. Therefore, this generally
results in below average price/tangible book value ratios for highly capitalized
companies such as PSFC and the comparative group members.
In analyzing the reasonableness of PSFC's acquisition pricing ratios
relative to those of the comparative group, Capital Resources considered the
following factors:
o ^ Both PSFC and the comparative group^ reported the same return
on assets ("ROA") of 88 basis points. However, Capital Resources
also calculated an adjusted ROA of 97 basis points for PSFC
(adjusted to reflect a normal effective tax rate) ^.
o PSFC's higher level of profitability was attributable to a
moderately higher net interest margin and lower operating expense
ratio, partially offset by a lower level of non-interest income
relative to the comparative group;
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o PSFC's ^ similar reported ROA ^ but slightly lower
equity-to-assets ratio translated into a higher return on equity
("ROE"). PSFC's ROE of ^ 4.30% compared to a mean and median ROE
for the peer group of ^ 4.01% and 3.93%, respectively. Based on a
normalized net income, PSFC had an ROE of 4.72%; and
o A review of other important financial ratios indicated that
PSFC's non-performing assets ("NPA") level compared unfavorably
to that of the peer group. PSFC's NPA/Assets ratio of 1.78%
compared to mean and median ratios of 0.35% and 0.17%,
respectively, for the comparative group.
Therefore, based on the above financial comparisons, Capital Resources
believed that, on balance, PSFC's acquisition pricing ratios were reasonable
when compared to the comparative group's acquisition pricing ratios.
Also, Capital Resources noted that at the time of its initial public
offering in January 1994, PSFC's conversion price was $10.00 per share. In the
recent months prior to the public announcement of PSFC's agreement to be
acquired by Emclaire, PSFC's stock was mostly trading in a price range of ^
$22.00 to $24.00 per share. Thus, the acquisition price of $26.00 per share was
well above PSFC's recent historical trading prices and represented a significant
return on the $10.00 per share price at which PSFC stock was initially issued.
Discounted Dividend Stream and Terminal Value Analysis. Capital
Resources also performed an analysis of potential returns to shareholders of
PSFC, which was based on an estimate of PSFC's future cash dividend streams to
shareholders and PSFC's future stock price and sell-out price (terminal value).
This analysis assumed PSFC was not acquired but remained independent for at
least three to five years. The analysis utilized certain key assumptions for
PSFC, including the most likely asset growth and earnings level scenario. The
analysis also incorporated a stock repurchase by PSFC of up to 20 percent of
outstanding stock, the leveraging of PSFC equity base through $5 million of
wholesale borrowings, and assumed regular, periodic dividend payments.
To approximate the range of terminal values of PSFC common stock at the
end of a three-year and five-year period, Capital Resources applied a
price-to-earnings multiple of 30x, and a price/tangible book value ratio of
125%. The resulting terminal values and dividend streams were then discounted to
present values using different discount rates (ranging from 10% to 15%) chosen
to reflect different assumptions regarding required rates of return of holders
or prospective buyers of PSFC common stock.
The analysis indicated a present value for PSFC shares and future
dividend payments ranging from $20.39 per share (based on a 15% discount rate)
to $23.17 per share (based on a 10% discount rate) assuming PSFC is acquired
after three years, and a present value ranging from $17.95 per share (based on a
15% discount rate) to $22.00 per share (based on a 10% discount rate) assuming
PSFC is acquired after five years.
The results of the above described analysis confirmed that the Per
Share Merger Consideration being offered by Emclaire to PSFC shareholders was
fair from a financial point of view.
PSFC has agreed to pay Capital Resources professional fees on an hourly
rate basis for acting as financial advisor in connection with the Merger plus
$35,000 for issuing its opinions. PSFC also has agreed to reimburse Capital
Resources for reasonable out-of-pocket expenses and to indemnify Capital
Resources and certain related persons against certain liabilities relating to or
arising out of its engagement.
Capital Resources has in the past provided and may in the future
provide other financial advisory services to PSFC and has received and will
receive its customary compensation for such services. In the
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ordinary course of its business, Capital Resources may actively trade the equity
securities of Emclaire and PSFC and their respective affiliates for its own
account and for the accounts of customers and, may at any time hold a long or
short position in such securities.
Opinion of Emclaire's Financial Adviser
General. Pursuant to the engagement letter dated January 15, 1998 (the
"Hopper Soliday Engagement Letter"), Emclaire retained Hopper Soliday to render
financial advisory and investment banking services to Emclaire in connection
with the possible sale of PSFC to Emclaire (the "Merger"). Hopper Soliday has no
other material relationship with Emclaire or PSFC.
Hopper Soliday is a regional investment banking firm and as a customary
part of its investment banking business is engaged in the valuation of bank and
bank holding company securities in connection with mergers, acquisitions,
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for various other purposes. As a specialist in
the securities of financial institutions, Hopper Soliday has extensive
experience in, and knowledge of the valuation of banking enterprises. The
Emclaire Board selected Hopper Soliday on the basis of Hopper Soliday's ability
to evaluate the fairness of the Merger from a financial point of view, its
qualifications, its previous experience and its reputation in the banking and
investment communities. Hopper Soliday has acted exclusively for the Emclaire
Board in rendering its fairness opinion and will receive a fee from Emclaire for
its services. Hopper Soliday served as financial advisor to Emclaire in
connection with an offering of common stock by Emclaire in 1996 and received
customary fees for its services.
^ HOPPER SOLIDAY HAS RENDERED A WRITTEN OPINION TO THE EMCLAIRE BOARD,
DATED AS OF JULY 20, 1998, TO THE EFFECT THAT, AS OF SUCH DATE, THE MERGER
CONSIDERATION IS FAIR, FROM A FINANCIAL POINT OF VIEW, TO THE SHAREHOLDERS OF
EMCLAIRE. THE FULL TEXT OF THE HOPPER SOLIDAY OPINION IS ATTACHED AS APPENDIX F
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. EMCLAIRE SHAREHOLDERS ARE URGED TO READ THE HOPPER SOLIDAY OPINION IN
ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN
BY HOPPER SOLIDAY IN CONNECTION THEREWITH. THE FOLLOWING SUMMARY OF THE HOPPER
SOLIDAY OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE HOPPER SOLIDAY OPINION. THE MERGER CONSIDERATION WAS DETERMINED BY
NEGOTIATION BETWEEN EMCLAIRE AND PSFC AND WAS NOT DETERMINED BY HOPPER SOLIDAY.
SEE "THE MERGER--BACKGROUND OF THE MERGER."
The Hopper Soliday Opinion is directed only to the Merger Consideration
and does not constitute a recommendation to any Emclaire shareholder as to how
such shareholder should vote at the Special Meeting.
In rendering its Opinion, Hopper Soliday reviewed, among other
documents: (i) People's Annual Reports on Form 10-KSB and related financial
information for the fiscal years ended June 30, 1995 through June 30, 1997 and
People's Quarterly Reports on Form 10-QSB and related unaudited financial
information for the periods ending September 30, 1997, December 31, 1997 and
March 31, 1998; (ii) Emclaire's Annual Reports on Form 10-KSB and related
financial information for the years ended December 31, 1996 and December 31,
1997 and Emclaire's Quarterly Report on Form 10-QSB for the period ended March
31, 1998; (iii) certain information concerning the respective businesses,
operations, regulatory condition and prospects of Emclaire and PSFC, including
financial forecasts, relating to the business, earnings, assets and prospects of
Emclaire and PSFC, furnished to Hopper Soliday by Emclaire
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and PSFC, which Hopper Soliday discussed with members of senior management of
Emclaire and PSFC; (iv) historical market prices and trading activity for the
Emclaire Common Stock and PSFC Common Stock and similar data for certain
publicly traded companies which Hopper Soliday deemed to be relevant; (v) the
results of operations of Emclaire and PSFC and similar data for certain
companies which Hopper Soliday deemed to be relevant; (vi) the financial terms
of the Merger contemplated by the Agreement and the financial terms of certain
other mergers and acquisitions which Hopper Soliday deemed to be relevant; (vii)
the pro forma impact of the Merger on the earnings and book value per share,
consolidated capitalization and certain balance sheet and profitability ratios
of Emclaire; (viii) the Agreement; (ix) such other matters as Hopper Soliday
deemed necessary.
Hopper Soliday also met with certain members of senior management and
other representatives of Emclaire and PSFC to discuss the foregoing as well as
other matters Hopper Soliday deemed relevant. Hopper Soliday also considered
such financial and other factors as it deemed appropriate under the
circumstances and took into account its assessment of general economic, market
and financial conditions, and its experience in similar transactions, as well as
its experience in securities valuation and its knowledge of the banking industry
generally. Hopper Soliday's opinion is necessarily based upon conditions as they
existed and could be evaluated on the respective dates thereof and the
information made available to Hopper Soliday through the respective dates
thereof.
Hopper Soliday relied without independent verification upon the
accuracy and completeness of all of the financial and other information reviewed
by and discussed with it for purposes of its Opinion. With respect to the
financial forecasts reviewed by Hopper Soliday in rendering its Opinion, Hopper
Soliday assumed that such financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Emclaire and PSFC as to the future financial performance of
Emclaire and PSFC. Hopper Soliday did not make any independent evaluation or
appraisals of the assets or liabilities of PSFC nor was it furnished with any
such appraisals.
The summary set forth below does not purport to be a complete
description of the analyses performed by Hopper Soliday in this regard. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, notwithstanding the
separate factors discussed below, Hopper Soliday believes that its analyses must
be considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. No
one of the analyses performed by Hopper Soliday was assigned a greater
significance with respect to industry performance, business and economic
conditions and other matters, many of which are beyond Emclaire's or People's
control. The analyses performed by Hopper Soliday are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Transaction Summary. Hopper Soliday reviewed with the Emclaire Board
the key financial terms of the proposed merger, including the expected method of
accounting, the Exchange Ratio, the share price of Emclaire as of March 19,
1998, the resulting indicated value per share of PSFC Common Stock of the Merger
and the resulting indicated aggregate consideration to be paid in the Merger. It
is anticipated that the merger will be accounted for as a purchase for financial
accounting purposes. Pursuant to the Reorganization Agreement, each share of
PSFC Common Stock outstanding at the Effective Time of Merger will be converted
into either (i) cash in the amount of $26.00 (the "Cash Merger Consideration"),
or ii) shares of Emclaire Common Stock having a Final Market Price equal to
$26.00 (the "Stock Merger Consideration"). Shareholders of PSFC Common Stock
will be entitled to elect their preference with respect to each share of PSFC
Common Stock held by them, subject to
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pro-rata allocation, such that an aggregate of 45.0% will be converted into the
Cash Merger Consideration, and 55.0% will be converted into the Stock Merger
Consideration. The indicated aggregate consideration to be paid in the merger is
approximately $12.2 million based on 442,516 shares of PSFC Common Stock
outstanding and 45,297 stock options, the holders of which shall receive $16.00
per option in cash. Hopper Soliday noted that the value of the Merger
Consideration represented a 4% premium to PSFC's market price of $25.00 per
share on March 19, 1998. Hopper Soliday also noted that the $26.00 per share
value represented 124.1% of PSFC's book value per share as of December 31, 1997
and a multiple of 29.2 times PSFC's net income for the twelve months ended
December 31, 1997.
Contribution Analysis. Hopper Soliday reviewed the contribution made by
each of Emclaire and PSFC to various balance sheet items and net income of the
combined company at the proposed Exchange Ratio based on balance sheet data at
December 31, 1997 and trailing twelve months earnings as of December 31, 1997.
This analysis showed that PSFC shareholders would own approximately 21.8% of the
aggregate shares outstanding of the combined company and that PSFC was
contributing 25.1% of total assets, 27.6% of total loans, 23.0% of total
deposits and 24.0% of net income, respectively, of the pro forma combined
company as of December 31, 1997.
Summary Comparison of Selected Institutions - Emclaire. Hopper Soliday
compared selected balance sheet data, asset quality, capitalization and
profitability ratios and market statistics using financial data at or for the
twelve months ended December 31, 1997 and market data as of April 4, 1997 for
Emclaire to a group of Pennsylvania banks and bank holding companies consisting
of nine institutions with total assets between $111 million and $208 million
(the "Emclaire Peer Group"). The analysis included, but was not limited to, the
following ratios: equity/assets, non-performing assets/total assets, allowance
for loan losses/non-current loans, return on average assets, return on average
equity, net interest margin, price/earnings and price/book. The analysis showed
that: i) Emclaire's equity/assets ratio was 10.08% versus an Emclaire Peer Group
mean of 11.09%; ii) Emclaire's ratio of non-performing assets to total assets
was 0.74% versus an Emclaire Peer Group mean of 0.38%; iii) Emclaire's allowance
for loan losses/non-current loans ratio was 88.2% versus an Emclaire Peer Group
mean of 270.0%; iv) Emclaire's return on average assets and return on average
equity were 0.96% and 9.57%, respectively, versus Emclaire Peer Group means of
1.19% and 11.02%, respectively; v)Emclaire's net interest margin was 4.85%
versus a Peer Group mean of 4.41%; and vi)Emclaire's price/earnings and
price/book ratios were 18.3x and 168.3%, respectively, versus Emclaire Peer
Group means of 17.6x and 182.6%, respectively.
Summary Comparison of Selected Institutions - PSFC. Hopper Soliday also
compared selected balance sheet data, asset quality, capitalization and
profitability ratios and market statistics using financial data at or for the
twelve months ended December 31, 1997 and market data as of April 4, 1998 for
PSFC to a group of Pennsylvania thrifts and thrift holding companies consisting
of six institutions with total assets between $24 million and $162 million (the
"PSFC Peer Group"). The analysis included, but was not limited to, the following
ratios: equity/assets, non-performing assets/total assets, allowance for loan
losses/non-current loans, return on average assets, return on average equity,
net interest margin, price/earnings and price/book. The analysis showed that:
(i) PSFC's equity/assets ratio was 20.84% versus a PSFC Peer Group mean of
10.81%; (ii) PSFC's ratio of non-performing assets to total assets was 1.77%
versus a PSFC Peer Group mean of 1.09%; (iii) PSFC's allowance for loan
losses/non-current loans ratio was 34.8% versus a PSFC Peer Group mean of 44.9%;
(iv) PSFC's return on average assets and return on average equity were 0.84% and
4.51%, respectively, versus PSFC Peer Group means of 0.74% and 9.38%,
respectively; (v) PSFC's net interest margin was 3.87% versus a Peer Group mean
of 3.36%; and (vi) PSFC's price/earnings and price/book ratios were 28.2x and
114.26%, respectively, versus PSFC Peer Group means of 21.1x and 215.0%,
respectively.
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Summary of Selected Bank Merger and Acquisition Transactions. Hopper
Soliday compared the ratios of price/book, price/trailing 12 months earnings,
price/assets and price/deposits for the proposed merger to the maximum, mean,
median and minimum ratios for a group of ten transactions announced since
January 1, 1995. The selected transactions (the "Selected Transactions")
involved the acquisition of thrifts and thrift holding companies headquartered
in Pennsylvania, Maryland, Ohio and West Virginia with total assets between $20
million and $75 million and announced transaction values between $5 million and
$20 million. All target institutions were profitable and had equity/assets
ratios in excess of 9.00%. This analysis showed that: (i) the Merger
Consideration represented 124.1% of PSFC's fully-diluted book value versus a
mean of 144.0% for the Selected Transactions; (ii) the Merger Consideration
represented a price/trailing 12 months earnings ratio of 29.2x compared to a
mean of 32.9x for the Selected Transactions; (iii) the Merger Consideration
represented a price/assets ratio of 27.4% compared to a mean of 23.5% for the
Selected Transactions; and (iv) the Merger Consideration represented a
price/deposits ratio of 35.7% compared to a mean of 31.3% for the Selected
Transactions.
No company or transaction used in the above analysis as a comparison is
identical to Emclaire, PSFC or the contemplated transaction. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex consideration and judgments concerning differences in financial
and operating characteristics of the companies and other factors that could
affect the public trading value of the companies to which they are being
compared. The ranges of valuations resulting from any particular analysis
described above should not be taken to be Hopper Soliday's view of the actual
value of Emclaire or PSFC. The fact that any specific analysis has been referred
to in the summary above is not meant to indicate that such analysis was given
more weight than any other analyses.
In performing its analyses, Hopper Soliday made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Emclaire or PSFC. The
analyses performed by Hopper Soliday are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at the present time or at any time
in the future. In addition, as described above, Hopper Soliday's opinion and
presentation to the Emclaire Board is just one of many factors taken into
consideration by the Emclaire Board.
Hopper Soliday has in the past provided and may in the future provide
other financial advisory services to Emclaire and has received and will receive
its customary compensation for such services. In the ordinary course of its
business, Hopper Soliday may actively trade the equity securities of Emclaire
and PSFC and their respective affiliates for its own account and for the
accounts of customers and, may at any time hold a long or short position in such
securities.
Recommendation of the Boards of Directors
THE REORGANIZATION AGREEMENT HAS BEEN APPROVED BY THE EMCLAIRE AND PSFC
BOARDS AND THE BOARDS BELIEVE THAT THE MERGER IS IN THE BEST INTERESTS OF
EMCLAIRE AND PSFC SHAREHOLDERS. THE EMCLAIRE AND PSFC BOARDS UNANIMOUSLY
RECOMMEND THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
REORGANIZATION AGREEMENT AND THE MERGER.
Conditions to the Merger
The obligation of each party to consummate the Merger is subject to
satisfaction or waiver of certain conditions, including, but not limited to (i)
approval of the Reorganization Agreement and the transactions contemplated
thereby by the requisite vote of the holders of Emclaire Common Stock and PSFC
Common Stock; (ii) the receipt of all consents, approvals and authorizations of
all necessary federal
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and state government authorities and expiration of all required waiting periods,
necessary for the consummation of the Merger (see "-- Regulatory Approvals");
(iii) the effectiveness of the registration statement covering the shares of
Emclaire Common Stock to be issued to PSFC shareholders, and the qualification
of the issuance of Emclaire Common Stock in every state where such qualification
is required under applicable state securities laws; (iv) the absence of any
litigation that would restrain or prohibit the consummation of the Merger; and
(v) receipt by the parties of an opinion of Malizia, Spidi, Sloane & Fisch, P.C.
to the effect that the exchange of PSFC Common Stock for Emclaire Common Stock
is a tax-free reorganization within the meaning of Section 368 of the Code. See
"-- Certain Federal Income Tax Consequences".
The obligation of Emclaire to consummate the Merger is also conditioned
on, among other things, (i) the continued accuracy in all material respects of
the representations and warranties of PSFC contained in the Reorganization
Agreement; (ii) the performance by PSFC, in all material respects, of all its
obligations under the Reorganization Agreement; and (iii) the receipt of an
opinion by Hopper Soliday & Co., Inc. regarding the fairness from a financial
point of view of the consideration to Emclaire Shareholders.
The obligation of PSFC to consummate the Merger is also conditioned on,
among other things, (i) the continued accuracy in all material respects of the
representations and warranties of Emclaire contained in the Reorganization
Agreement; and (ii) the performance by Emclaire, in all material respects, of
all its obligations under the Reorganization Agreement; (iii) the receipt of an
opinion by Capital Resources Group, Inc. regarding the fairness from a financial
point of view of the consideration to be received by the PSFC shareholders in
the Merger.
Termination
The Reorganization Agreement may be terminated at any time prior to the
closing: (i) by mutual consent in writing of the parties; (ii) by Emclaire or
PSFC in the event the closing shall not have occurred by December 31, 1998,
unless the failure of the closing to occur shall be due to the failure of the
party seeking to terminate the Reorganization Agreement to perform its
obligations hereunder in a timely manner; (iii) by either Emclaire or PSFC upon
written notice to the other party, upon (i) denial of any governmental approval
necessary for the consummation of the Merger (or should such approval be
conditioned upon a substantial deviation from the transactions contemplated);
provided, however, that either Emclaire or PSFC may, upon written notice to the
other, extend the term of the Reorganization Agreement for only one or more
sixty (60) day periods to prosecute diligently and overturn such denial,
provided that such denial has been appealed within twenty (20) business days of
the receipt thereof or (ii) upon the failure to obtain the approval of the PSFC
shareholders at the PSFC shareholders meeting; (iv) by Emclaire or PSFC in the
event that there shall have been a material breach of any obligations or
covenant of the other party hereunder and such breach shall not have been
remedied within sixty (60) days after receipt by the breaching party of written
notice from the other party specifying the nature of such breach and requesting
that it be remedied; (v) by Emclaire or PSFC should PSFC or any PSFC subsidiary
enter into any letter of intent or agreement with a view of being acquired by or
effecting a business combination with any other person; or any agreement to
merge, to consolidate, to combine or to sell a material portion of its assets or
to be acquired in any other manner by any other person or to acquire a material
amount of assets or a material equity position in any other person, whether
financial or otherwise; (vi) by Emclaire should either PSFC or Peoples Bank
enter into any formal agreement, letter of understanding, memorandum or other
similar arrangement with any bank regulatory authority establishing a formal
capital plan requiring PSFC or Peoples Bank to raise additional capital or to
sell a substantial portion of its assets and (vii) by PSFC should either
Emclaire or Farmers National enter into any formal agreement, letter of
understanding, memorandum or other similar arrangement with any bank regulatory
authority establishing a formal capital plan requiring Emclaire or Farmers
National to raise additional capital or to sell a substantial portion of its
assets.
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Termination Fee
Pursuant to the Reorganization Agreement, PSFC has agreed to pay
Emclaire a fee of $600,000 following the occurrence of a "Purchase Event." The
term "Purchase Event" means any of the following events, or PSFC agreeing to
enter into an agreement relating to any of the following events, occurring
before the Effective Date or within nine months of the date of termination of
the Reorganization Agreement: (i) the acquisition by any person, other than
Emclaire, of beneficial ownership of 25% or more of PSFC Common Stock; (ii) a
merger, consolidation, share exchange, business combination or any similar
transaction involving PSFC or Peoples Bank; (iii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 50% or more of the assets of
PSFC or Peoples Bank, in single transaction or series of transactions; or (iv)
the PSFC Board does not recommend approval of the Merger to the PSFC
shareholders. The fee will not be paid to Emclaire if the Reorganization
Agreement is terminated (i) by mutual consent of PSFC and Emclaire; (ii) by
Emclaire or PSFC if the closing of this transaction does not occur by December
31, 1998, (iii) by either Emclaire or PSFC upon written notice to the other
party, upon denial of any government approval; (iv) in the event terminated by
PSFC due to a material breach by Emclaire, or (v) prior to the occurrence of a
Purchase Event.
Business Pending Consummation
PSFC has agreed in the Reorganization Agreement not to take certain
actions relating to the operation of PSFC pending consummation of the Merger
without the prior written consent of Emclaire except as otherwise permitted in
the Reorganization Agreement. See Sections 5.2, 5.3 and 5.4 of the
Reorganization Agreement attached hereto as Appendix I.
PSFC Stock Option Plans
Pursuant to PSFC's stock option plans, options to acquire an aggregate
of 45,297 shares of PSFC Common Stock have been granted to officers, directors
and employees of PSFC and Peoples Bank, all of which options have an exercise
price of $10.00 per share. Pursuant to the Reorganization Agreement, on the
Effective Date of the Merger, each option granted under PSFC Stock Option Plan
which is outstanding and unexercised will be converted, at the election of the
holder, into the right to receive cash equal to the excess of $26.00 over the
exercise price per share of PSFC Common Stock.
The managing and chief financial officer of PSFC will exercise his
options to purchase 6,567 shares of PSFC Common Stock prior to the consummation
of the Merger. The remaining 38,730 options will be cashed out for an aggregate
price of $619,680.
Federal Income Tax Consequences
The following is a summary description of the material federal income
tax consequences of the Merger. This summary is not a complete description of
all of the consequences of the Merger and, in particular, may not address
federal income tax consequences which may be applicable to particular categories
of taxpayers, such as broker-dealers, or to any shareholder who acquired his or
her PSFC Common Stock through the exercise of an employee stock option including
a plan under Section 422 of the Code, or otherwise as compensation. This
discussion does not address the effect of any applicable foreign, state, local
or other tax laws. SHAREHOLDERS OF PSFC ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABILITY OF AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
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Tax Treatment to Emclaire, PSFC, and Peoples Bank. No gain or loss will
be recognized by Emclaire, PSFC and Peoples Bank solely as a result of the
Merger.
Receipt of Emclaire Common Stock for PSFC Common Stock. No gain or loss
will be recognized by a holder who receives solely shares of Emclaire Common
Stock (except for cash received in lieu of fractional shares, as discussed
below) in exchange for all of his or her shares of PSFC Common Stock. The tax
basis of the shares of Emclaire Common Stock received by a holder in such
exchange will be equal (except for the basis attributable to any fractional
shares of Emclaire Common Stock, as discussed below) to the basis of the PSFC
Common Stock surrendered in exchange therefor. The holding period of the
Emclaire Common Stock received will include the holding period of shares of PSFC
Common Stock surrendered in exchange therefor, provided that such shares were
held as capital assets on the Effective Date of the Merger.
Receipt of Emclaire Common Stock and Cash in Exchange for PSFC Common
Stock. A holder who receives a combination of Emclaire Common Stock and cash in
exchange for his or her PSFC Common Stock will not be permitted to recognize any
loss for federal income tax purposes. Such a holder will recognize gain, if any,
equal to the lesser of (i) the amount of cash received, or (ii) the amount of
gain "realized" in the transaction. The amount of gain a holder "realizes" will
equal the amount by which (i) the cash plus the fair market value on the
Effective Date of the Merger of the Emclaire Common Stock received exceeds (ii)
the holders' basis in the PSFC Common Stock to be surrendered in the exchange
therefor. Any recognized gain could be taxed as a capital gain or a dividend, as
described below. The aggregate tax basis of the shares of Emclaire Common Stock
received by such holder will be the same as the aggregate basis of the shares of
PSFC Common Stock surrendered in exchange therefor, adjusted as provided in
Section 358(a) of the Code for the cash received in exchange for such shares of
PSFC Common Stock. The holding period for shares of Emclaire Common Stock
received in the Merger will be the same as the holding period for PSFC Common
Stock surrendered in exchange therefor, provided that such shares were held as
capital assets of the holder on the Effective Date of the Merger.
A holder's federal income tax consequences also will depend on whether
his or her shares of PSFC Common Stock were purchased at different times at
different prices. If they were, the holder could realize gain with respect to
some of the shares of PSFC Common Stock and loss with respect to other shares.
Such holder would have to recognize such gain to the extent such holder receives
cash with respect to those shares in which the holder's adjusted tax basis is
less than the amount of cash plus the fair market value on the Effective Date of
the Merger of the Emclaire Common Stock received, but could not recognize loss
with respect to those shares in which the holder's adjusted tax basis is greater
than the amount of cash plus the fair market value on the Effective Date of the
Merger of the Emclaire Common Stock received. Any disallowed loss would be
included in the adjusted basis of the Emclaire Common Stock. Such a holder is
urged to consult his or her own tax advisor regarding the tax consequences of
the Merger on that holder.
Possible Dividend Treatment. In certain circumstances, cash or a
combination of cash and Emclaire Common Stock received in the Merger may be
treated as a dividend, rather than a capital gain, for all or a portion of the
gain recognized. The determination of whether a cash payment is considered a
dividend distribution is made by treating a PSFC shareholder as if such holder
had received solely Emclaire Common Stock in the Merger, and Emclaire
immediately thereafter redeemed a number of shares of Emclaire Common Stock
equal in value to the cash consideration received. This hypothetical redemption
is then tested under the provisions and limitations of Section 302 of the Code
to determine whether the holder's change in ownership in Emclaire results in a
dividend distribution. For purposes of this hypothetical Section 302 redemption
analysis, shares of Emclaire Common Stock held by certain members of the
holder's family or certain entities in which the holder has an ownership or
beneficial interest and certain stock options may be aggregated with the
holder's shares of Emclaire Common Stock.
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The amount of the cash payment that may be treated as a dividend is limited to
the holder's ratable share of the accumulated earnings and profits of PSFC (or
possibly of the total earnings and profits of PSFC and Emclaire) on the
Effective Date of the Merger. Any gain that is not treated as a dividend will be
taxed as a capital gain, provided that the holder's shares were held as capital
assets on the Effective Date of the Merger. Because the determination of whether
a cash payment will be treated as having the effect of a dividend will depend in
part upon the facts and circumstances of each holder, holders are advised to
consult their own tax advisors regarding the tax treatment of cash received in
the Merger.
Receipt of Cash in Exchange for PSFC Common Stock. A holder who
receives solely cash in exchange for all of his or her shares of PSFC Common
Stock, and owns no Emclaire Common Stock actually or constructively, will
recognize gain or loss for federal income tax purposes equal to the difference
between the cash received and such holder's tax basis in the PSFC Common Stock
surrendered in exchange therefor. Such gain or loss will be a capital gain or
loss, provided that such shares were held as capital assets of the holder on the
Effective Date of the Merger. Such gain or loss will be long-term capital gain
or loss if the holder's holding period is more than eighteen months on the
Effective Date of the Merger. The Code contains limitations on the extent to
which a holder may deduct capital losses from ordinary income. It is not clear
whether the above treatment would apply to a holder who receives solely cash for
his or her shares but who owns constructively shares of Emclaire Common Stock,
or owns constructively shares of PSFC Common Stock which are not exchanged
solely for cash, or whether instead the treatment referred to above under
"--Certain Federal Income Tax Consequences -- Possible Dividend Treatment" would
apply. A holder in this situation is advised to consult his or her own tax
advisor regarding the tax consequences to the holder.
Cash in Lieu of Fractional Shares. A holder who holds PSFC Common Stock
as a capital asset and who receives in the Merger, in exchange for such stock,
solely Emclaire Common Stock and cash in lieu of a fractional share interest in
Emclaire Common Stock will be treated as having received such fraction of a
shares of Emclaire Common Stock and then as having received cash in redemption
by Emclaire of the fractional share interest.
Backup Withholding; Information Reporting. The cash payments due a
holder upon the exchange of such PSFC Common Stock pursuant to the Merger (other
than certain exempt persons or entities) will be subject to "backup withholding"
for federal income tax purposes unless certain requirements are met. Emclaire or
a third party paying agent, as the case may be, must withhold 31% of the cash
payments to a holder, unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(ii) provides Emclaire or a third party paying agent, as the case may be, with
his or her taxpayer identification number and completes a form in which he or
she certifies that he or she has not been notified by the IRS that he or she is
subject to backup withholding as a result of a failure to report interest and
dividends. The taxpayer identification number of an individual is his or her
Social Security number. Any amount paid as backup withholding will be credited
against the holder's federal income tax liability. Holders who receive Emclaire
Common Stock also must comply with the information reporting requirements of the
Treasury regulations under Section 368 of the Code. Appropriate documentation
for the foregoing purposes will be provided to holders with the Election Forms
that will be sent to them by the Exchange Agent.
Tax Treatment of Merger. Pursuant to the terms of the Reorganization
Agreement, Emclaire and PSFC shall receive an opinion from Malizia, Spidi,
Sloane & Fisch, P.C. to the effect that the Merger will constitute a tax free
reorganization within the meaning of Section 368 of the Code and that no gain or
loss will be recognized by PSFC shareholders who receive solely shares of
Emclaire Common Stock in exchange for their shares of PSFC Common Stock. No
ruling has been or will be sought from the Internal Revenue Service as to the
federal income tax consequences of the Merger, and the opinions of Malizia,
Spidi, Sloane & Fisch, P.C. are not binding on the Internal Revenue Service or
any court.
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Dissenters' Rights
Under Pennsylvania Law, PSFC shareholders have a right to dissent and
obtain the fair value of their shares by complying with the terms of Subchapter
D of the PBCL. The full text of Subchapter D of the PBCL can be found at
Appendix ^ B to this Prospectus/Joint Proxy Statement.
The PBCL generally provides that a shareholder of a Pennsylvania
corporation that engages in a merger transaction shall have the right to demand
from the corporation the payment of the fair or appraised value of his stock in
the corporation, subject to the satisfaction of specified procedural
requirements. There are certain exceptions to dissenter's rights under the PBCL,
however, none are applicable in the Merger, therefore PSFC shareholders have
dissenters' rights of appraisal in connection with the Merger.
Holders of PSFC's stock are entitled to dissenter rights under
Subchapter D of the PBCL as a result of the Merger. A holder of shares of PSFC
wishing to exercise his dissenter rights must deliver to the Secretary of PSFC,
before the vote on the Plan of Reorganization at the PSFC Special Meeting, a
writing which identifies such shareholder and which states his intention to
demand that he be paid the fair value for his shares if the proposed Merger is
effectuated. Furthermore, the shareholder must effect no change in the
beneficial ownership of his shares from the date of such filing continuously
through the effective date of the proposed action (the Merger) and must refrain
from voting his shares in approval of such action. A dissenter who fails to
satisfy the statutory requirements in any respect shall not acquire any right to
payment of the fair value of his shares under Subchapter D of the PBCL. A vote
against the Plan of Reorganization or the Articles Amendment shall not
constitute the written notice require by the PBCL. Any such shareholder who
wishes to exercise such dissenter rights should review carefully the discussion
of such rights in this Prospectus/Joint Proxy Statement, including Appendix ^ B
hereto, because failure to timely and properly comply with the procedures
specified will result in the loss of dissenter rights under the PBCL. All
written demands for appraisal should be sent or delivered to the attention of
the Secretary of Peoples Savings Financial Corporation, 173 Main Street,
Ridgway, Pennsylvania 15801 so as to be received prior to the vote at the PSFC
Special Meeting with respect to the Reorganization Agreement, the Articles
Amendment, and the proposal to adjourn the PSFC Special Meeting to solicit
additional proxies.
If the Reorganization Agreement is approved by the required vote at the
PSFC Special Meeting, PSFC shall mail a further notice to all dissenters who
gave due notice of intention to demand payment of the fair value of their shares
and who refrained from voting in favor of the proposed action setting forth the
following: (i) state where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment; (ii) supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares;
and (iv) be accompanied by a copy of Subchapter D of the PBCL. The time set for
receipt of the demand and deposit of certificated shares shall be not less than
30 days from the mailing of the notice.
In determining whether or not to exercise dissenter rights, current
shareholders should review the comparison of their rights as a PSFC shareholder
with their right as shareholders of Emclaire following consummation of the
Merger and/or the proposed cash payment. See "EFFECT OF THE MERGER ON
SHAREHOLDERS' RIGHTS."
Accounting Treatment
Under generally accepted accounting principles, it is anticipated that
the Merger will be accounted for under the purchase method of accounting. The
assets and liabilities of PSFC will be reflected in the consolidated financial
statements of Emclaire based upon their fair values as of the effective date of
the
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Merger. Results of operations of PSFC will be reflected in the consolidated
financial statements of Emclaire for all periods subsequent to the effective
date of the Merger. Under the purchase method of accounting, the excess purchase
price paid over the fair market value of net assets is amortized as an expense
over the period estimated to be benefitted.
Interests of Certain Persons in the Merger
Certain members of PSFC's management and its Board may be deemed to
have interests in the Merger in addition to their interests, if any, as
shareholders of PSFC. These interests are described in more detail below.
Employment and Severance Agreements. Glenn R. Pentz, Managing Officer,
Chief Financial Officer and Secretary of PSFC will receive severance benefits
pursuant to the terms of his employment agreement with PSFC. Total severance
benefits will aggregate ^ approximately $140,000.
Stock Options. Certain directors and officers of PSFC have been granted
options under the Stock Option Plan to purchase, in the aggregate, 45,297 shares
of PSFC Common Stock. As of the Effective Date of the Merger, such options will
be converted into $16.00 per optioned share, representing $26.00 minus the
$10.00 option exercise price. ^ It is expected that Mr. Pentz will exercise his
6,567 options prior to the date of this Prospectus/Joint Proxy Statement. The
remaining directors and officers will receive cash payments aggregating $619,680
(38,730 options). ^
Continued Indemnification and Insurance Coverage. After the Merger is
consummated, Emclaire will continue to indemnify officers and directors of PSFC
and Peoples Bank for prior acts in accordance with the provisions of Emclaire's
Articles of Incorporation. Emclaire will also cover officers and directors of
PSFC and Peoples Bank with directors and officers liability insurance for a six
year period after the Merger is consummated.
Advisory Board. Pursuant to the Reorganization Agreement, Emclaire will
create an advisory board to assist and advise the Emclaire's Board of Directors
with respect to, the operations of Peoples Bank and the maintenance of building
existing relationships within the Peoples Bank's business community. Certain
qualifying directors of PSFC will be offered positions on the advisory board and
will meet on a quarterly basis for at least two years. Each advisory board
member will receive fees of not less than $100 per meeting attended.
Resales by Affiliates
The shares of Emclaire Common Stock issued to PSFC shareholders upon
consummation of the Merger have been registered under the Securities Act, but
such registration does not cover resales by affiliates of PSFC ("Affiliates").
Emclaire Common Stock received and beneficially owned by those PSFC shareholders
who are deemed to be Affiliates may be resold without registration as provided
for by Rule 145 under the Securities Act, or as otherwise permitted. The term
"Affiliate" is defined to include any person who, directly or indirectly,
controls, or is controlled by, or is under common control with PSFC at the time
the Reorganization Agreement is submitted for approval by a vote of the holders
of PSFC Common Stock. Generally, this definition includes executive officers,
directors and 10% or more shareholders of PSFC. Each Affiliate who desires to
resell Emclaire Common Stock received in the Merger must sell such Emclaire
Common Stock either (i) pursuant to an effective registration statement under
the Securities Act, (ii) in accordance with the applicable provisions of Rule
145 under the Securities Act or (iii) in a transaction which, in the opinion of
counsel for such Affiliate or as described in a "no-action" or interpretive
letter from the staff of the Securities and Exchange Commission, in each case
reasonably satisfactory in form and substance to Emclaire, to the effect that
such resale is exempt from the registration requirements of the Securities Act.
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Rule 145(d) requires that persons deemed to be Affiliates resell their
Emclaire Common Stock pursuant to certain of the requirements of Rule 144 under
the Securities Act if such Emclaire Common Stock is sold within the first year
after the receipt thereof. After one year, if such person is not an affiliate of
Emclaire and Emclaire is current in the filing of its periodic securities law
reports, a former Affiliate of PSFC may freely resell the Emclaire Common Stock
received in the Merger without limitation. After two years from the issuance of
the Emclaire Common Stock, if such person is not an affiliate of Emclaire at the
time of sale or for at least three months prior to such sale, such person may
freely resell such Emclaire Common Stock, without limitation, regardless of the
status of Emclaire's periodic securities law reports.
Regulatory Approvals
Consummation of the Merger is subject, among other things, to prior
receipt of all necessary regulatory approvals. Consummation of the Merger
requires approval of the Merger by the Pennsylvania Department of Banking
("Department"), the FDIC under the Bank Merger Act (the "Bank Merger Act"), and
the Office of the Comptroller of the Currency ("OCC"), and the approval of the
Merger or waiver of the need for such approval by the FRB. Approval by the
Department^ or the OCC does not constitute an endorsement of the Merger or a
determination by any such regulator that the terms of the Merger are fair to the
shareholders of PSFC. Emclaire and PSFC have received conditional approval from
the OCC and the FRB has indicated that it will not object to the merger. While
Emclaire and PSFC anticipate receiving all ^ remaining approvals, there can be
no assurance that they will be granted, or that they will be granted on a timely
basis or that they will be granted without conditions unacceptable to Emclaire
or PSFC.
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS
General
Because PSFC and Emclaire are both Pennsylvania business corporations,
any differences in rights of holders of their respective stocks are due to the
differences in the articles of incorporation and bylaws of the two companies.
The following is a summary explanation of the material differences between the
rights of PSFC shareholders and the rights of Emclaire shareholders. This
summary is qualified in its entirety by reference to the governing documents of
PSFC and Emclaire referred to above.
Board of Directors
PSFC. The number of directors of PSFC will not be less than five nor
more than 15, as provided from time to time in or in accordance with the Bylaws
of PSFC, provided that no decrease in the number of directors will have the
effect of shortening the term of any incumbent director, and provided further
that no action will be taken to decrease or increase the number of directors
from time to time unless at least 60% of the directors then in office concur in
said action. Vacancies in the board of directors of PSFC, however caused, and
newly created directorships are filled by a vote of a majority of the directors
then in office, whether or not a quorum, and any director so chosen will hold
office for a term expiring at the annual meeting of shareholders' or by a sole
remaining director.
Directors are not required to own any shares of PSFC's common stock and
need not be residents of any particular state, country or other jurisdiction.
The board of directors of PSFC is divided into three classes of
directors which are designated Class I, Class II and Class III. The members of
each class are elected for a term of three years and until their successors are
elected and qualified. Such classes are as nearly equal in number as the then
total number of directors constituting the entire board of directors shall
permit, with the terms of office of all
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members of one class expiring each year. A director whose term expires at any
annual meeting will continue to serve until such time as his successor is duly
elected and qualified unless his position on the board of directors is abolished
by action taken to reduce the size of the board of directors prior to said
meeting.
Should the number of directors of PSFC be reduced, the directorship(s)
eliminated will be allocated among classes as appropriate so that the number of
directors in each class is as specified in the immediately preceding paragraph.
The board of directors will designate, by the name of the incumbent(s), the
position(s) to be abolished. Notwithstanding the foregoing, no decrease in the
number of directors will have the effect of shortening the term of any incumbent
director. Should the number of directors of PSFC be increased, the additional
directorships will be allocated among classes as appropriate so that the number
of directors in each class is as specified in the immediately preceding
paragraph.
Whenever the holders of any one or more series of preferred stock of
PSFC shall have the right, voting separately as a class, to elect one or more
directors of PSFC, the board of directors will consist of said directors so
elected in addition to the number of directors fixed as provided by PSFC's
Articles of Incorporation. Notwithstanding the foregoing, and except as
otherwise may be required by law, whenever the holders of any one or more series
of preferred stock of PSFC shall have the right, voting separately as a class,
to elect one or more directors of PSFC, the terms of the director or directors
elected by such holders shall expire at the next succeeding annual meeting of
shareholders.
Any director (including persons elected by directors to fill vacancies
in the Board of Directors) may be removed from office only with cause by an
affirmative vote of not less than a majority of the total votes eligible to be
cast by shareholders. Cause for removal shall exist only if the director whose
removal is proposed has been either declared of unsound mind by an order of a
court of competent jurisdiction, convicted of a felony or of an offense
punishable by imprisonment for a term of more than one year by a court of
competent jurisdiction, or deemed liable by a court of competent jurisdiction
for gross negligence or misconduct in the performance of such director's duties
to PSFC. At least 30 days prior to such meeting of shareholders, written notice
shall be sent to the director whose removal will be considered at the meeting.
Directors may also be removed from office in the manner provided in the PBCL.
Emclaire. The number of directors of Emclaire will not be less than
three, as determined by the Board of Directors from time to time in or in
accordance with the Bylaws of Emclaire. Vacancies in the board of directors of
Emclaire, however caused, and newly created directorships are filled by a vote
of a majority of the directors then in office, whether or not a quorum, and any
director so chosen will hold office for a term expiring at the same time as
those directors in his or her class.
Directors are not required to own any shares of Emclaire's common stock
and need not be residents of any particular state, country or other
jurisdiction.
The board of directors of Emclaire is divided into three classes of
directors which are designated Class A, Class B and Class C. The members of each
class are elected for a term of three years and until their successors are
elected and qualified, with the terms of office of all members of one class
expiring each year. A director whose term expires at any annual meeting will
continue to serve until such time as his successor is duly elected and qualified
unless his position on the board of directors is abolished by action taken to
reduce the size of the board of directors prior to said meeting.
The Board of Directors may declare vacant the office of a director who
has been judicially declared of unsound mind or who has been convicted of an
offense punishable by imprisonment for a term of more than one year or for any
other proper cause which the Bylaws may specify or if, within
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sixty (60) days or such other time as the Bylaws may specify after notice of his
selection, he does not accept the office either in writing or by attending a
meeting of the Board of Directors and fulfill such other requirements of
qualification as these Bylaws may specify.
Upon application of any shareholder or director, and in accordance with
the PBCL, the court may remove from office any director in case of fraudulent or
dishonest acts, or gross abuse of authority or discretion with reference to
Emclaire, or for any other proper cause, and may bar from office any director so
removed for a period prescribed by the court.
Meetings of Shareholders; Cumulative Voting; Proxies
PSFC. An action required to be taken or which may be taken at any
annual or special meeting of shareholders of PSFC may not be taken without a
meeting. The power of shareholders to take action by written consent is
specifically denied.
Special meetings of the shareholders of PSFC for any purpose or
purposes may be called at any time by the chairman of the board, a majority of
the board of directors of PSFC, or the president.
Each shareholder entitled to vote at a meeting of shareholders may
authorize another person or persons to act for him by proxy, but no such proxy
will be voted or acted upon after 11 months from its date, unless the proxy
provides for a longer period. Without limiting the manner in which a shareholder
may authorize another person or persons to act for him as proxy, the following
constitutes a valid means by which a shareholder may grant such authority.
There is no cumulative voting by shareholders of any class or series in
the election of directors of PSFC.
Meetings of shareholders may be held within or without the State of
Pennsylvania, as the Board of Directors of PSFC may provide.
Emclaire. An action required to be taken or which may be taken at any
annual or special meeting of shareholders of Emclaire may be taken without a
meeting if all shareholders entitled to vote thereon consent to such action in
writing. In the case of a merger, consolidation, acquisition of all capital
shares of Emclaire or sale of assets, such action may be taken without a meeting
only if all shareholders consent in writing, or if all shareholder entitled to
vote consent in writing and all other shareholders are provided the advance
notification required by Pennsylvania law.
Special meetings of the shareholders of Emclaire for any purpose or
purposes may be called at any time by the president, a majority of the board of
directors of Emclaire, or by the executive committee of the board of directors.
Each shareholder entitled to vote at a meeting of shareholders may
authorize another person or persons to act for him by proxy, but no such proxy
will be voted or acted upon after 11 months from its date, unless the proxy
provides for a longer period. Without limiting the manner in which a shareholder
may authorize another person or persons to act for him as proxy, the following
constitutes a valid means by which a shareholder may grant such authority.
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There is no cumulative voting by shareholders of any class or series in
the election of directors of Emclaire.
Meetings of shareholders may be held at such time and place as
determined by the Board of Directors.
Nominations to the Board of Directors, Shareholder Proposals, and Conduct of
Meetings
PSFC. Nominations of candidates for election as directors at any annual
meeting of shareholders may be made (a) by or at the direction of, a majority of
the board of directors or (b) by any shareholder entitled to vote at such annual
meeting. Only persons nominated in accordance with certain procedures described
in PSFC's Articles (which are summarized below) will be eligible for election as
directors at an annual meeting. Ballots bearing the names of all the persons who
have been nominated for election as directors at an annual meeting will be
provided for use at the annual meeting.
Nominations, other than those made by or at the direction of the board
of directors, must be made pursuant to timely notice in writing to PSFC's
Secretary. To be timely, a shareholder's notice shall be delivered to, or mailed
and received at, PSFC's principal office not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of shareholders.
Proposals, other than those made by or at the direction of the board of
directors, must be made pursuant to timely notice in writing to PSFC's
Secretary. ^ With respect to shareholder proposals to be considered at the
annual meeting of shareholders ^, the shareholder's notice must be delivered to,
or mailed and received at, the principal office of PSFC not less than 60 days
prior to the anniversary date of the immediately preceding annual meeting of
shareholders of PSFC.
The board of directors may reject any nomination by a shareholder or
shareholder proposal not timely made. If the board of directors, or a designated
committee thereof, determines that the information provided in a shareholder's
notice does not satisfy the informational requirements in any material respect,
the Secretary of PSFC will notify such shareholder of the deficiency in the
notice. The shareholder will have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five days from the date such deficiency notice is given to the
shareholder, as the board of directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the board of
directors or such committee reasonably determines that the additional
information provided by the shareholder, together with information previously
provided, does not satisfy the specified requirements in any material respect,
then the board of directors may reject such shareholder's nomination or
proposal. The Secretary of PSFC will notify a shareholder in writing whether his
nomination or proposal has been made in accordance with the time and
informational requirements. Notwithstanding the procedures set forth in this
paragraph, if neither the board of directors nor such committee makes a
determination as to the validity of any nominations or proposals by a
shareholder, the presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the nomination or proposal was made in
accordance with the terms of PSFC's Bylaws.
Emclaire. Nominations of candidates for election as directors at any
annual meeting of shareholders may be made (a) by or at the direction of, a
majority of the board of directors or (b) by any shareholder entitled to vote at
such annual meeting. Only persons nominated in accordance with certain
procedures described in Emclaire's Bylaws (which are summarized below) will be
eligible for election as directors at an annual meeting. Ballots bearing the
names of all the persons who have been nominated for election as directors at an
annual meeting will be provided for use at the annual meeting.
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Nominations, other than those made by or at the direction of the board
of directors, must be made pursuant to timely notice in writing to Emclaire's
Secretary. To be timely, a shareholder's notice shall be delivered to, or mailed
and received at, Emclaire's principal office not less than 60 days prior to the
date of any meeting of shareholders called for the election of directors.
Proposals, other than those made by or at the direction of the board of
directors, must be made pursuant to timely notice in writing to Emclaire's
Secretary. For shareholder nominations to be timely, the shareholder
notification must set forth specific information as provided by the Bylaws. The
presiding officer of the annual meeting shall determine and declare at the
annual meeting whether the nomination or proposal was made in accordance with
the terms of Emclaire's Bylaws.
Authorized Shares
PSFC. The aggregate number of shares of all classes of capital stock
which PSFC has authority to issue is 3,000,000 of which 2,000,000 are to be
shares of common stock, $0.10 par value per share, and of which 1,000,000 are to
be shares of serial preferred stock, no par value per share. The shares may be
issued by PSFC without the approval of shareholders except as otherwise provided
in its Articles of Incorporation or the rules of a national securities exchange,
if applicable. The consideration for the issuance of the shares will be paid to
or received by PSFC in full before their issuance and will not be less than the
par value per share. The consideration for the issuance of the shares will be
cash, services rendered, personal property (tangible or intangible), real
property, leases of real property or any combination of the foregoing. In the
absence of actual fraud in the transaction, the judgment of PSFC's board of
directors as to the value of such consideration will be conclusive. Upon payment
of such consideration such shares will be deemed to be fully paid and
nonassessable. In the case of a stock dividend, the part of the surplus of PSFC
which is transferred to stated capital upon the issuance of shares as a stock
dividend will be deemed to be the consideration for their issuance.
Emclaire. The aggregate number of shares of all classes of capital
stock which Emclaire has authority to issue is 12,000,000 shares of common
stock, $1.25 par value per share and 3,000,000 shares of serial preferred stock.
The shares may be issued by Emclaire without the approval of shareholders except
as otherwise provided in its Articles of Incorporation or the rules of a
national securities exchange, if applicable. The consideration for the issuance
of the shares will be paid to or received by Emclaire in full before their
issuance and will not be less than the par value per share. The consideration
for the issuance of the shares will be cash, services rendered, personal
property (tangible or intangible), real property, leases of real property or any
combination of the foregoing. In the absence of actual fraud in the transaction,
the judgment of Emclaire's board of directors as to the value of such
consideration will be conclusive. Upon payment of such consideration such shares
will be deemed to be fully paid and nonassessable. In the case of a stock
dividend, the part of the surplus of Emclaire which is transferred to stated
capital upon the issuance of shares as a stock dividend will be deemed to be the
consideration for their issuance.
Limitations on Voting/Business Combinations
PSFC. In no event may any record owner of any outstanding PSFC Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of shareholders entitled to vote on any
matter, beneficially owns in excess of 10% of the then-outstanding shares of
PSFC Common Stock (the "Limit"), be entitled, or permitted to any vote in
respect of the shares held in excess of the Limit. The number of votes which may
be cast by any record owner by virtue of such provisions in respect of PSFC
Common Stock beneficially owned by such person owning shares in excess of the
Limit shall be a number equal to the total number of votes which a single record
owner of all PSFC Common Stock owned by such person would be entitled to cast,
multiplied by a fraction, the numerator of which is the number of shares of such
class or series which are both
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beneficially owned by such person and owned of record by such record owner and
the denominator of which is the total number of shares of PSFC Common Stock
beneficially owned by such person owning shares in excess of the Limit.
Further, until January 4, 1999, no person may directly or indirectly
offer to acquire or acquire the beneficial ownership of more than 10% of any
class of any equity security of PSFC. See "PROPOSAL II - ARTICLES AMENDMENT."
The Articles of Incorporation of PSFC require the approval of the
holders of at least 80% of PSFC's outstanding shares of voting stock to approve
certain "Business Combinations," as defined therein, and related transactions.
Under the Articles of Incorporation, at least 80% approval of shareholders is
required in connection with any business combination transaction involving an
Interested Shareholder (as defined below) except (i) in cases where the proposed
transaction has been approved in advance by two-thirds of those members of
PSFC's Board of Directors who are unaffiliated with the Interested Shareholder
and were directors prior to the time when the Interested Shareholder became an
Interested Shareholder or (ii) if the proposed transaction met certain
conditions set forth therein which are designed to afford the shareholders a
fair price in consideration for their shares including: (a) the consideration
given to acquire shares of PSFC Common Stock or any class or series of shares
other than PSFC Common Stock (together "PSFC Stock") to affect a Business
Combination must be in the same form and kind previously paid by the acquiror;
(b) the amount of cash and fair market value of consideration to be received for
the PSFC Stock must be not less than the highest price per share previously paid
by the acquiror, and (c) certain price formulae for the PSFC Stock. The term
"Interested Shareholder" is defined to include any individual, corporation,
partnership or other entity (other than PSFC or its subsidiary) which owns
beneficially or controls, directly or indirectly, 20% or more of the outstanding
shares of voting stock of PSFC.
Emclaire. Emclaire's Articles of Incorporation provide that any merger,
consolidation, or action that would result in the sale or other disposition of
all or substantially all of the assets of Emclaire must be approved by at least
80% of the outstanding shares of Emclaire Common Stock.
Indemnification; Limitation of Liability
PSFC. The Articles of Incorporation of PSFC provide that Directors of
PSFC shall have no liability to PSFC or its shareholders for monetary damages
for breach of fiduciary duty as a director, provided that liability of a
director is not limited (i) for any breach of the director's duty of loyalty to
PSFC or its shareholders if such acts or omissions are not made in good faith or
involve intentional misconduct or a knowing violation of law, or (ii) under
Section 1713(b) of the PBCL.
PSFC's Articles of Incorporation provide, in accordance with the PBCL,
that PSFC shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, including actions by or in the right of PSFC, whether civil,
criminal, administrative, arbitrative or investigative, by reason of the fact
that such person is or was a director, officer, employee or agent of PSFC, or is
or was serving at the request of PSFC as a director, officer, employee or agent
of another company, partnership, joint venture, sole proprietorship, trust or
other enterprise, against expenses (including attorneys' fees), judgements,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding to the full extent
permissible under PBCL.
PSFC may pay in advance any expenses (including attorneys' fees) which
may become subject to indemnification if the person receiving the payment
undertakes in writing to repay the same if it is ultimately determined that he
or she is not entitled to indemnification by PSFC under Pennsylvania law. PSFC
may purchase and maintain insurance on behalf of any person who is eligible for
indemnification
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against any liability incurred by him or her in any such position, or arising
out of his or her status as such, whether or not PSFC would have power to
indemnify him or her against such liability under the Articles of Incorporation
and Pennsylvania law.
Emclaire. Emclaire's Bylaws provide that directors shall not be
personally liable for monetary damage for any action taken or any failure to
take any action unless (i) the director has breached or failed to perform the
duties of his office under Article 12 of the Bylaws; and (ii) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
Emclaire's Bylaws provide, in accordance with the PBCL, that Emclaire
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
including actions by or in the right of Emclaire, whether civil, criminal,
administrative, arbitrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of Emclaire or of any
constituent corporation absorbed by Emclaire in a consolidation or merger, or is
or was serving at the request of Emclaire as a director, officer, employee or
agent of another company, partnership, joint venture, sole proprietorship, trust
or other enterprise, against expenses (including attorneys' fees), ^ judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding to the full extent
permissible under PBCL.
Emclaire may pay in advance any expenses (including attorneys' fees)
which may become subject to indemnification if the person receiving the payment
undertakes in writing to repay the same if it is ultimately determined that he
or she is not entitled to indemnification by Emclaire under Pennsylvania law.
Emclaire may purchase and maintain insurance on behalf of any person who is
eligible for indemnification, against any liability incurred by him or her in
any such position, or arising out of his or her status as such, whether or not
Emclaire would have power to indemnify him or her against such liability under
Pennsylvania law.
Amendment of Bylaws
PSFC. The Board of Directors of PSFC may adopt, alter, amend, or repeal
the Bylaws by a majority vote of directors present at a regular or special
meeting. Shareholders may also adopt, alter, amend or repeal the Bylaws by
affirmative vote of holders of eighty percent (80%) of shares entitled to vote
generally in the election of directors.
Emclaire. The Board of Directors of Emclaire are authorized to make,
repeal, alter, amend or rescind any or all of the Bylaws of the corporation.
Shareholders may make, repeal, alter, amend or rescind the Bylaws only upon a
two-thirds or more of the total voting power of outstanding shares of each class
of capital stock entitled to vote.
^ Amendment of Articles of Incorporation
PSFC. In the PSFC Articles of Incorporation, PSFC reserves the right to
repeal, alter, amend or rescind any provision contained in the Articles in the
manner prescribed under Pennsylvania law, subject to the reservation set forth
in the Articles of Incorporation. Under the Pennsylvania Business Corporation
Act, the PSFC Board of Directors or the holders of shares representing at least
ten percent (10%) of votes entitled to be cast on an amendment, may propose to
amend the PSFC Articles of Incorporation for submission to the shareholders.
Approval of such an amendment to the PSFC Articles of Incorporation requires a
majority vote of shares outstanding, except where the amendment, alteration,
change or act to repeal the PSFC Articles of Incorporation is inconsistent with
7 (dealing with qualifications and removal of directors), 8 (dealing with
preemptive rights), 9 (dealing with elimination or limitation of officers' and
directors' liability), 10 (dealing with indemnification), 11 (dealing with
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nominations and shareholder proposals), 12 (dealing with restrictions on voting
rights), 13 (dealing with approvals of business combinations), 14 (dealing with
fair price provisions), and 15 (dealing with amendments to the bylaws and
articles), then the shareholder approval must be at least eighty percent (80%)
of the shares entitled to vote at the election of directors.
Emclaire. Emclaire reserves the right to amend, alter change or repeal
any provision contained in its Articles of Incorporation in the manner
prescribed under the Pennsylvania Business Corporation Law, except that Article
VIII (dealing with merger, consolidation, liquidation or dissolution) may not be
repealed or amended in any respect, unless such repeal or amendment is approved
by the affirmative vote of the holders of not less than 80% of all outstanding
shares of Emclaire Common Stock entitled to vote generally, other than in the
election of directors.
DESCRIPTION OF EMCLAIRE CAPITAL STOCK
The aggregate number of shares of all classes of capital stock which
the Emclaire has authority to issue is 12,000,000 shares of common stock, $1.25
par value per share and 3,000,000 shares of serial preferred stock. The shares
may be issued by the Emclaire from time to time as approved by the board of
directors of the Emclaire without the approval of the shareholders except as
otherwise provided in this Certificate or the rules of a national securities
exchange if applicable. The consideration for the issuance of the shares shall
be paid to or received by the Emclaire in full before their issuance and shall
not be less than the par value per share. The consideration for the issuance of
the shares may be paid in whole or in part, in cash, real property, in tangible
or intangible personal property, including stock of another corporation, in
labor or services actually performed for the corporation or in its formation, or
as otherwise permitted by Pennsylvania law. In the absence of actual fraud in
the transaction, the judgment of the board of directors or the shareholders as
the case may be as to the value of such consideration shall be conclusive. Upon
payment of such consideration such shares shall be deemed to be fully paid and
nonassessable. In the case of a stock dividend, the part of the surplus of the
Emclaire which is transferred to stated capital upon the issuance of shares as a
stock dividend shall be deemed to be the consideration for their issuance.
The holders of the common stock shall exclusively possess all voting
power. Each holder of shares of common stock shall be entitled to one vote for
each share held by such holders.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and sinking fund or retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock, and on any class
or series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when as declared
by the board of directors of Emclaire.
In the event of any liquidation, dissolution or winding up of Emclaire,
after there shall have been paid, or declared and set aside for payment, to the
holders of the outstanding shares of any class having preference over the common
stock in any such event, the full preferential amounts to which they are
respectively entitled, the holders of the common stock and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of Emclaire, including the payment of all fees,
taxes and other expenses incidental thereto, to receive the remaining assets of
Emclaire available for distribution, in cash or in kind.
Each share of common stock shall have the same relative rights,
preferences and limitations as, and shall be identical in all respects with, all
the other shares of common stock of Emclaire.
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PROPOSAL II -- ARTICLES AMENDMENT
(PSFC Meeting Only - Amendment of the PSFC Articles of Incorporation)
General
No amendment, addition, alteration, change or repeal of the PSFC
Articles may be made, unless first proposed by the Board of Directors of PSFC
pursuant to a resolution adopted by the affirmative vote of a majority of the
directors then in office, and thereafter is approved by the holders of a
majority (except as provided below) of the shares of PSFC Common Stock entitled
to vote generally in an election of directors, voting together as a single
class. However, the affirmative vote of the holders of at least eighty percent
(80%) of the shares of PSFC Common Stock entitled to vote generally in an
election of directors, voting together as a single class, is required to amend,
adopt, alter, change or repeal certain other provisions of PSFC Articles,
including Article 12 of the PSFC Articles.
Amendment of Article 12
Currently, Article 12 of the PSFC Articles provides that no person
shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than ten percent of an equity security of PSFC (the
"Beneficial Ownership Limitation") prior to January 4, 1999. All shares
beneficially owned by any person in excess of ten percent are considered shares
owned in excess of the limit (the "Limit"). Persons owning shares in excess of
the Limit are not entitled or permitted to vote such shares and may have their
voting rights reduced below the Limit pursuant to Article 12.
The Merger cannot occur until January 4, 1999 unless Article 12 of the
PSFC Articles is amended. The Reorganization Agreement, which PSFC's Board of
Directors has unanimously approved, provides that PSFC shall amend the PSFC
Articles in accordance with applicable law to remove the prohibition in Article
12. ^ A copy of Article 12 of the PSFC Articles incorporating the proposed
Articles Amendment is attached as Appendix ^ C to this Prospectus/Joint Proxy
Statement.
The Articles Amendment would remove the prohibitive language and
thereby allow a person to directly or indirectly offer to acquire or acquire the
beneficial ownership of more than ten percent of any class of equity security of
PSFC prior to January 1999. The Articles Amendment would not, however, eliminate
the reduction in voting that may result from ownership of shares in excess of
the Limit and all other provisions of Article 12 would remain intact after the
Articles Amendment.
Approval of the proposed Articles Amendment by PSFC's shareholders is a
condition to consummating the Merger, and failure to approve the Articles
Amendment would prevent consummation of the Merger regardless of whether the
Merger receives shareholders approval. If the Articles Amendment is approved by
PSFC shareholders, it is expected to become effective immediately prior to
consummation of the Merger. In the event the Merger is not approved by the
shareholders of PSFC or the Merger is not consummated for any other reason, the
Articles Amendment would not become effective, and Article 12 would continue in
effect as it currently exists.
THE BOARD OF DIRECTORS OF PSFC RECOMMENDS THAT SHAREHOLDERS OF PSFC
VOTE FOR THE ARTICLES AMENDMENT. APPROVAL OF THE ARTICLES AMENDMENT REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF EIGHTY PERCENT (80%) OF THE OUTSTANDING
SHARES OF PSFC COMMON STOCK.
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PROPOSAL III -- ADJOURNMENT OF MEETING
(PSFC Meeting Only)
In the event there is an insufficient number of shares present in
person or by proxy at the PSFC Special Meeting to approve the Reorganization
Agreement or the Articles Amendment, or both, the PSFC Board of Directors
intends to submit for shareholder approval at the PSFC Special Meeting a
proposal to adjourn the PSFC Special Meeting to a later date. The place and date
to which the PSFC Special Meeting would be adjourned would be announced at the
Special Meeting.
The adjournment would permit PSFC to solicit additional proxies for
approval of the Reorganization Agreement and the Articles Amendment. While such
an adjournment would not invalidate any proxies previously filed, including
those voting against the Reorganization Agreement or the Articles Amendment, it
would give PSFC the opportunity to solicit additional proxies in favor of the
Reorganization Agreement and the Articles Amendment if necessary.
PSFC'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ADJOURNMENT
UNDER THE CIRCUMSTANCES DESCRIBED HEREIN. APPROVAL OF THE ADJOURNMENT REQUIRES
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF PSFC COMMON
STOCK PRESENT IN PERSON OR BY PROXY AT THE MEETING.
EXPERTS
The consolidated financial statements of Emclaire as of December 31,
1997 and 1996, and for each of the years in the two-year period ended December
31, 1997, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of S.R. Snodgrass, A.C., independent
certified public accountants, incorporated by reference herein and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of PSFC as of June 30, 1997 and
1996, and for each of the years in the two-year period ended June 30, 1997 have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of S.R. Snodgrass, A.C., independent certified public
accountants, incorporated by reference herein and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of Emclaire Common Stock to be issued to PSFC Shareholders
pursuant to the Merger and certain other legal matters in connection with the
Merger will be passed upon for Emclaire by Malizia, Spidi, Sloane & Fisch, P.C.,
Washington, D.C.
OTHER MATTERS
As of the date of this Proxy Statement, management of Emclaire and PSFC
know of no other business that will come before the Special Meetings. Should any
other matters properly come before the Special Meetings, the proxy in the
enclosed form confers upon the person or persons designated to vote the shares
discretionary authority to vote the same with respect to any other matter in
accordance with the direction of the Emclaire and PSFC Boards.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Reorganization
Agreement"), dated as of April 7, 1998, is entered into by and between Emclaire
Financial Corp. ("Emclaire" or the "Surviving Corporation" as the context may
require), a corporation incorporated and existing under the laws of the
Commonwealth of Pennsylvania, which is registered as a bank holding company and
whose executive offices are located at 612 Main Street, Emlenton, Pennsylvania
16373; The Farmers National Bank of Emlenton ("Farmers National"), a national
association, chartered and existing under the laws of the United States, which
has its main office at 612 Main Street, Emlenton, Pennsylvania 16373, and is a
wholly-owned subsidiary of Emclaire; Peoples Savings Financial Corporation
("PSFC"), a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania, which is a registered bank holding company and
whose principal offices are located at 173 Main Street, Ridgway, Pennsylvania
15853; and Peoples Savings Bank ("Peoples Bank"), a state savings bank,
chartered and existing under the laws of Pennsylvania, which has its main office
at 173 Main Street, Ridgway, Pennsylvania 15853 and is a wholly-owned subsidiary
of PSFC.
Emclaire, Farmers National, PSFC and Peoples Bank are sometimes
referred to herein as the "Parties."
RECITALS
A. PSFC is the beneficial owner and holder of record of 100,000 shares
of the common stock, $0.10 par value per share, of Peoples Bank, which
constitute all of the shares of common stock of Peoples issued and outstanding
(the "Peoples Common Stock").
B. The Boards of Directors of PSFC and Peoples Bank deem it desirable
and in the best interests of PSFC and Peoples Bank and the shareholders of PSFC
(the "PSFC Shareholders") that PSFC be merged (the "Merger") with and into
Emclaire (which would survive the merger as the Surviving Corporation, as
defined herein) on the terms and subject to the conditions set forth in this
Reorganization Agreement and in the manner provided in this Reorganization
Agreement and the Plan of Merger (the "Plan of Merger") attached hereto as
Exhibit A.
C. The Board of Directors of Emclaire deems it desirable and in the
best interests of Emclaire and the shareholders of Emclaire that PSFC be merged
with and into Emclaire on the terms and subject to the conditions set forth in
this Reorganization Agreement and in the manner provided in this Reorganization
Agreement and the Plan of Merger.
D. The Parties to this Reorganization Agreement further deem it
desirable and in the best interests of the respective corporations and their
shareholders that Peoples Bank be merged with and into Farmers National (the
"Subsidiary Merger") concurrently with or as soon as reasonably practicable
after the Merger pursuant to the Merger Agreement attached hereto as Exhibit B
(the "Subsidiary Merger Agreement").
E. Pursuant to this Reorganization Agreement, each share of Peoples
Common Stock outstanding at the Effective Time of the Merger will be converted
into either (i) cash in the amount of $26.00 (the "Cash Merger Consideration,"
as defined herein), or (ii) shares of Emclaire Common Stock having a Final
Market Price (as defined herein) equal to $26.00 (the "Stock Merger
Consideration as defined herein). Shareholders of Peoples Common Stock will be
entitled to elect their preference with respect to each share of Peoples Common
Stock held by them, subject to pro-rata allocation, such that an aggregate of
45.0% will be converted into the Cash Merger Consideration, and 55.0% will be
converted into the Stock Merger Consideration.
F. It is agreed that the number of outstanding shares of Peoples Common
Stock (including shares issued under any restricted or management stock bonus
plan) outstanding, including 45,297 stock options, is 487,813, resulting in
total aggregate consideration of at least $12,230,168, 55% of which will be paid
in the form of Emclaire Common Stock.
NOW THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Parties agree as follows:
AGREEMENT
ARTICLE 1
TERMS OF THE REORGANIZATION
1.1 The Merger. Subject to the satisfaction (or
lawful waiver) of each of the conditions to the obligations of each of the
Parties to this Reorganization Agreement, at the Effective Time of the Merger
(as defined in Section 2.1(b) herein), PSFC shall be merged with and into
Emclaire, which latter corporation shall survive the Merger and is referred to
herein in such capacity as the "Surviving Corporation." The Merger shall have
the effects set forth in the Pennsylvania Business Corporation Act ("PBCA"),
with respect to mergers of corporate entities.
(a) Effects of the Merger. At the Effective Time
of the Merger, the separate existence of PSFC shall cease, and PSFC shall be
merged with and into Emclaire which, as the Surviving Corporation, shall
thereupon and thereafter possess all of the assets, rights, privileges,
appointments, powers, licenses, permits and franchises of the two merged
corporations, whether of a public or a private nature,
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and shall be subject to all of the liabilities, restrictions, disabilities and
duties of PSFC. The Merger is intended to be treated by the parties as a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended, (the "Code").
(b) Transfer of Assets. At the Effective Time of the
Merger, all rights, assets, licenses, permits, franchises and
interests of PSFC in and to every type of property, whether real, personal, or
mixed, whether tangible or intangible, and choses in action shall be deemed to
be vested in Emclaire as the Surviving Corporation by virtue of the Merger
becoming effective and without any deed or other instrument or act of transfer
whatsoever.
(c) Assumption of Liabilities. At the Effective Time
of the Merger, the Surviving Corporation shall become and be liable for all
debts, liabilities, obligations and contracts of PSFC whether the same shall be
matured or unmatured; whether accrued, absolute, contingent or otherwise; and
whether or not reflected or reserved against in the balance sheets, other
financial statements, books of account or records of PSFC.
1.2 Articles of Incorporation, Bylaws, Directors, Officers
and Name of the Surviving Corporation.
(a) Articles of Incorporation. At and after the
Effective Time of the Merger, the Articles of Incorporation of Emclaire, as in
effect immediately prior to the Effective Time of the Merger, shall continue to
be the Articles of Incorporation of Emclaire as the Surviving Corporation,
unless and until amended thereafter as provided by law and the terms of such
Articles of Incorporation.
(b) Bylaws. At and after the Effective Time of the
Merger, the Bylaws of Emclaire, as in effect immediately
prior to the Effective Time of the Merger, shall continue to be the Bylaws of
Emclaire as the Surviving Corporation, unless and until amended or repealed as
provided by law, the Articles of Incorporation of Emclaire and such Bylaws.
(c) Directors and Officers. The directors of Emclaire
in office immediately prior to the Effective Time of the Merger shall continue
to be the directors and officers of the Surviving Corporation, to hold office as
provided in the Articles of Incorporation and Bylaws of the Surviving
Corporation, unless and until their successors shall have been elected or
appointed and shall have qualified or until they shall have been removed in the
manner provided in said Articles of Incorporation and Bylaws.
(d) Advisory Board. The Surviving Corporation
shall offer some of the current directors of Peoples a seat on a to-be-formed
Advisory Board of the Surviving Corporation for a period of at least two years.
Emclaire's mandatory retirement age for directors will apply to this Advisory
Board. Such Advisory Board shall meet at least once per quarter and board
members will receive board fees not less than current fees paid for attendance
at committee meetings of the Board of Emclaire for participation thereon.
(e) Name. The name of the Surviving Corporation
following the Merger shall be: Emclaire Financial Corp.
1.3 Availability of Information. Promptly after the execution
by the Parties of this Reorganization Agreement, each Party shall provide to the
other Party, its officers, employees, agents, and representatives access, on
reasonable notice and during customary business hours, to the books, records,
properties and facilities of the Party and shall use its best efforts to cause
its officers, employees, agents and representatives to cooperate with any of the
reviewing Party's reasonable requests for information.
1.4 Subsidiary Merger and Emclaire's Right to Revise the
Structure of the Transaction. The Parties to this Reorganization Agreement shall
take all such action as shall be necessary or appropriate to effect the
Subsidiary Merger pursuant to the terms, subject to the conditions and with the
effects set forth in the Subsidiary Merger Agreement, at or as soon after the
Effective Time of the Merger as is reasonably practicable. With the written
consent of PSFC, which will not unreasonably be withheld, Emclaire shall have
the right to revise the structure of the corporate Reorganization contemplated
by this Reorganization Agreement in order to achieve tax benefits or for
regulatory reasons which Emclaire may deem advisable; Emclaire may exercise this
right of revision by giving written notice to PSFC and Peoples Bank in the
manner provided in this Reorganization Agreement which notice shall be in the
form of an amendment to this Reorganization Agreement or in the form of an
Amended and Restated Agreement and Plan of Reorganization provided, however,
that such restructuring may not have a material adverse effect on the benefits
of the Merger to PSFC shareholders.
1.5 PSFC Stock Options. As of the date of this Reorganization
Agreement, there are 45,297 validly issued, outstanding and currently
exercisable options to purchase shares of PSFC Common Stock (the "PSFC Stock
Options"), and no other options, rights, warrants, scrip or similar rights to
purchase shares of PSFC Common Stock are issued and outstanding. Upon
consummation of the Merger and the payment of the amount set forth in Section
2.2(f), there will be no issued and outstanding PSFC Stock Options.
1.6 Employment Agreements. It is acknowledged that PSFC
currently has outstanding, valid and enforceable employment agreement
("Employment Agreement") with Glenn R. Pentz, Jr. Immediately prior to the
Closing as defined in Section 2.1(a), PSFC will pay out the "Change of Control"
provision of the Agreement in a lump sum payment provided for in Section 11 of
the Employment Agreement estimated in accordance with Schedule 1.6, subject to
final adjustment, as of the Closing Date. At the closing of the acquisition, the
Surviving Corporation will offer Mr. Pentz a position at Farmers without a
written contract that allows Mr. Pentz to maximize his abilities.
1.7 Employees. Except as provided in Section 1.6 of this
Reorganization Agreement, the Surviving Corporation shall retain all employees
of PSFC and Peoples Bank subject to the needs of Emclaire's business. Except as
to Mr. Pentz, who is covered by Section 1.6,
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Emclaire will guarantee such employees employment at their current compensation
level for a period of at least three months after the Effective Time of the
Merger.
1.8 Anti-dilution Provisions. In the event Emclaire changes
the number of shares of Emclaire Common Stock issued and outstanding prior to
the Effective Time of the Merger as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding Emclaire
Common stock and the record date therefor shall be after the first date of the
Pricing Period (as defined below) and prior to the Effective Time of the Merger,
the Per Share Stock Consideration (as defined below) shall be proportionately
adjusted.
ARTICLE 2
DESCRIPTION OF TRANSACTION
2.1 Terms of the Merger.
(a) Satisfaction of Conditions to Closing. After the
transactions contemplated herein have been approved by the shareholders of PSFC
and each other condition to the obligations of the Parties hereto, other than
those conditions which are to be satisfied by delivery of documents by any Party
to any other Party, has been satisfied or, if lawfully permitted, waived by the
Party or Parties entitled to the benefits thereof, a closing (the "Closing")
will be held on the date and at the time of day and place referred to in this
Reorganization Agreement. At the Closing the Parties shall use their respective
best efforts to deliver the certificates, letters and opinions which constitute
conditions to effecting the Merger and the Subsidiary Merger and each Party will
provide the other Parties with such proof or indication of satisfaction of the
conditions to the obligations of such other Parties to consummate the Merger as
such other Parties may reasonably require. If all conditions to the obligations
of each of the Parties shall have been satisfied or lawfully waived by the Party
entitled to the benefits thereof, the Parties shall, at the Closing, duly
execute Articles of Merger for filing with the Secretary of State of the
Commonwealth of Pennsylvania and promptly thereafter PSFC and Emclaire shall
take all steps necessary or desirable to consummate the Merger in accordance
with all applicable laws, rules and regulations and the Plan of Merger. The
Parties shall thereupon take such other and further actions as Emclaire shall
reasonably direct or as may be required by law or this Reorganization Agreement
to consummate the transactions contemplated herein.
(b) Effective Time of the Merger. Upon the
satisfaction of all conditions to Closing, the Merger shall become effective on
the date and at the time of filing of the Articles of Merger with the Secretary
of State of the Commonwealth of Pennsylvania or at such later date and/or time
as may be agreed upon by the Parties and set forth in the Articles of Merger so
filed (the "Effective Time of the Merger").
2.2 Conversion of Stock.
(a) Consideration. At the Effective Time of the
Merger, each share of common stock of PSFC, par value $0.10 per share (the "PSFC
Common Stock") then issued and outstanding (other than shares held directly or
indirectly by Emclaire, excluding shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
represent the right to receive the cash and/or shares of stock of Emclaire
constituting the Per Share Merger Consideration (as defined in paragraph (b)
below). As of the Effective Time of the Merger, each share of the PSFC Common
Stock held directly or indirectly by Emclaire, excluding shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted, shall be
canceled, retired and cease to exist, and no exchange or payment shall be made
with respect thereto.
(b) Cash or Stock Merger Consideration. As used
herein, the term "Per Share Merger Consideration" shall mean either the amount
of cash set forth in clause (i) below (the "Cash Merger Consideration") or that
number of shares of common stock of Emclaire, par value $1.25 per share
("Emclaire Common Stock") as set forth in clause (ii) below (the "Stock Merger
Consideration"), at the election of the holder of each share of PSFC Common
Stock, subject however to proration as set forth below.
(i) If Cash Merger Consideration is to be paid
with respect to a share of PSFC Common
Stock, the Per Share Merger Consideration
with respect to such share of PSFC Common
Stock shall be in the amount of Twenty- six
dollars ($26.00).
(ii) If Stock Merger Consideration is to be paid
with respect to a share of PSFC Common
Stock, the Per Share Merger Consideration
with respect to such share of PSFC Common
Stock shall be that number of shares of
Emclaire Stock (the "Conversion Number")
equal to:
(A) If the Final Market Price (as
defined below) shall be equal or
greater than $15.00 but equal to or
less than $21.00, then the Stock
Merger Consideration shall be
Twenty-six dollars ($26.00) divided
by the Final Market Price.
(B) If the Final Market Price (as
defined below) shall be greater than
$21.00, then the Stock Merger
Consideration shall be 1.24 shares
of Emclaire Common Stock.
(C) If the Final Market Price (as
defined below) shall be less than
$15.00, either Emclaire or Peoples
can terminate this Agreement.
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(c) Final Market Price. The "Final Market Price"
shall be the average closing price per share of the "last" real time trades
(i.e., closing price) of the Emclaire Common Stock as reported on the OTC
Bulletin Board for each of the thirty (30) OTC Bulletin Board general market
trading days preceding one week prior to the Closing Date on which the OTC
Bulletin Board was open for business (the "Pricing Period"), provided, however,
that if there are less than 10 business days during such period when Emclaire
Common Stock trades and on which there is a closing price, then the Pricing
Period shall be extended backwards for such period as is necessary until there
are ten days on which Emclaire Common Stock trades and on which there is a
closing price if such extension backwards will result in a lower calculated
Final Market Price. In the event the Emclaire Common Stock does not trade on one
or more of the trading days during the Pricing Period (a "No Trade Date"), any
such No Trade Date shall be disregarded in computing the average closing price
per share of Emclaire Common Stock and the average shall be based upon the
"last" real time trades and number of days on which the Emclaire Common Stock
actually traded during the Pricing Period.
(d) Fractional Shares. Fractional shares of
Emclaire Common Stock shall not be issued and each holder of PSFC Common Stock
who would otherwise be entitled to receive any such fractional shares (taking
into account all share amounts to which such holder is otherwise entitled
hereunder) shall receive cash (without interest) in lieu thereof in an amount
equal to the fraction of the share of Emclaire Common Stock to which such holder
would otherwise be entitled multiplied by the Final Market Price. No such holder
will be entitled to dividends, voting rights or any other rights of a
stockholder of Emclaire or PSFC in respect of any such fractional share.
(e) Dissenting Shares. Notwithstanding anything
in this Agreement to the contrary, shares of PSFC Common Stock which are issued
and outstanding immediately prior to the Effective Time of the Merger and which
are held by a shareholder who has the right (to the extent such right is
available by law) to demand and receive payment of the fair value of his shares
of PSFC Common Stock (the "Dissenting Shares") pursuant to Section 1571 of the
PBCA, shall not be converted into or be exchangeable for the right to receive
the consideration provided in this Section 2.2 unless and until such holder
shall fail to perfect his or her right to an appraisal or shall have effectively
withdrawn or lost such right under the PBCA, as the case may be. If such holder
shall have so failed to perfect his right to dissent or shall have effectively
withdrawn or lost such right, each of his shares of PSFC Common Stock shall
thereupon be deemed to be Cash Election Shares as defined in Section 2.3 of this
Agreement.
(f) Treatment of Options. At the Effective Time of
the Merger, each unexercised PSFC Stock Option shall be deemed canceled and as
consideration therefor each holder of a PSFC Stock Option (the "Option Holders")
shall have the right to receive a cash payment amount (the "Cash Out") equal to
the excess of (A) $26.00 over the exercise price per share of PSFC Common Stock
covered by that Option Holder's PSFC Stock Option(s), multiplied by (B) the
total number of shares of PSFC Common Stock covered by such PSFC Stock
Option(s).
(g) Calculation Schedule. The calculations of
the respective amounts of cash and Emclaire Common Stock payable and issuable
pursuant to the terms of this Reorganization Agreement shall be jointly prepared
and agreed to by Emclaire and PSFC and set forth in reasonable detail in a
schedule that shall be delivered to Farmers National (the "Exchange Agent") no
later than two business days after the end of the Election Period.
2.3 Election and Allocation Procedures.
(a) Subject to and in accordance with the allocation
and election procedures set forth herein, each record holder of a share of PSFC
Common Stock (the "PSFC Shareholders") shall, prior to the Election Deadline (as
hereinafter defined) specify (i) the number of whole shares of PSFC Common Stock
held by such Shareholder as to which such Shareholder shall desire to receive
the Cash Merger Consideration, and (ii) the number of whole shares of PSFC
Common Stock held by such Shareholder as to which such Shareholder shall desire
to receive the Stock Merger Consideration..
(b) An election as described in clause (i) of
Paragraph (a) of this Section and all Dissenting Shares are herein referred to
as a "Cash Election," and shares of PSFC Common Stock as to which a Cash
Election has been made are herein referred to as "Cash Election Shares." An
election as described in clause (ii) of Paragraph (a) is herein referred to as a
"Stock Election," and shares as to which a Stock Election has been made are
herein referred to as "Stock Election Shares." A failure to indicate a
preference in accordance herewith is herein referred to as a "Non-Election," and
shares as to which there is a Non-Election are herein referred to as
"Non-Electing Shares."
(c) Notwithstanding anything herein to the contrary,
and after taking into consideration Dissenting Shares and the Cash Out, 55.0% of
the outstanding PSFC Common Stock shall be exchanged for Emclaire Common Stock.
Payment of cash pursuant to the Cash Merger Consideration, the Cash Out and
Dissenting Shares, if any, and issuance of Emclaire Common Stock pursuant to the
Stock Merger Consideration, shall be allocated to holders of PSFC Stock such
that the number of shares of PSFC Common Stock as to which cash is paid shall
equal 45.0% of the aggregate number of shares of PSFC Common Stock outstanding
plus those subject to PSFC Stock Options (the "Aggregate Shares"), and the
number of shares of PSFC Common Stock (outstanding or subject to PSFC Stock
Options) as to which PSFC Stock are issued shall equal 55.0% of the Aggregate
Shares, as follows:
(1) If the number of Cash Election
Shares is in excess of 45.0% of the
Aggregate Shares, then (i) Non-
Electing Shares shall be deemed to
be Stock Election Shares, (ii)
Option Holders shall be treated as
Cash Election Shares without
adjustment, (iii) Dissenting Shares
shall be treated as Cash Election
Shares without adjustment, and
(iv)(A) Cash Election Shares of each
Shareholder who made the Cash
Election shall be reduced pro rata
by multiplying the number of Cash
Election
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Shares of such Shareholder by a
fraction, the numerator of which is
the number of shares of PSFC Common
Stock equal to 45.0% of the
Aggregate Shares minus the Cash Out
and Dissenting Shares and the
denominator of which is the
aggregate number of Cash Election
Shares of all Shareholders, and (B)
the shares of such Shareholder
representing the difference between
such Shareholder's initial Cash
Election and such Shareholder's
reduced Cash Election pursuant to
clause (A) shall be converted into
and be deemed to be Stock Election
Shares.
(2) If the number of Stock Election
Shares is in excess of 55.0% of the
Aggregate Shares, then (i)
Non-Electing Shares shall be deemed
to be Cash Election Shares and (ii)
(A) Stock Election Shares of each
Holder shall be reduced pro rata by
multiplying the number of Stock
Election Shares of such Holder by a
fraction, the numerator of which is
the number of shares of PSFC Common
Stock equal to 55.0% of the
Aggregate Shares and the denominator
of which is the aggregate number of
Stock Election Shares of all
Holders, and (B) the shares of such
Holder representing the difference
between such Holder's initial Stock
Election and such Holder's reduced
Stock Election pursuant to clause
(A) shall be converted into to and
be deemed to be Cash Election
Shares.
(3) If the number of Cash Election
Shares is less than 45.0% of the
Aggregate Shares and the number of
Stock Election Shares is less than
55.0% of the Aggregate Shares, then
(i) there shall be no adjustment to
the elections made by electing
Holders, (ii) there shall be no
adjustment to the Cash Out or
Dissenting Shares, if any, and (iii)
Non-Electing Shares of each Holder
shall be treated as Stock Elections
Shares and/or as Cash Election
Shares in proportion to the
respective amounts by which the Cash
Election Shares and the Stock
Election Shares are less than the
45.0% and 55.0% limits,
respectively.
(d) After taking into account the foregoing
adjustment provisions, each Cash Election Share (including those
deemed to be Cash Election Shares) shall receive in the Merger the Cash Merger
Consideration pursuant to Section 2.2(b) and each Stock Election Share
(including those deemed to be Stock Election Shares) shall receive in the Merger
the Stock Merger Consideration (and cash in lieu of fractional shares) pursuant
to Section 2.2(b).
(e) Satisfaction of Conditions to Closing. Not-
withstanding any other provision of this Agreement, if the application of the
provisions of this Section would result in Holders receiving a number of shares
of Emclaire Common Stock that would prevent the Per Share Merger Consideration
from consisting in the aggregate of 45.0% Cash Merger Consideration and 55.0%
Stock Merger Consideration or otherwise prevent the satisfaction of any of the
conditions set forth in Article 7 hereof, the number of shares otherwise
allocable to Holders pursuant to this section shall be adjusted in an equitable
manner as shall be necessary to enable the satisfaction of all conditions.
2.4 Election Procedures.
(a) PSFC and Emclaire shall prepare a form for
purposes of making elections and containing instructions with respect thereto
(the "Election Form"). The Election Form shall be distributed to each Holder at
such time as PSFC and Emclaire shall determine and shall specify the date by
which all such elections must be made (the "Election Deadline") which date shall
be the date of the meeting of PSFC Shareholders to approve the Merger or such
other date determined by PSFC and Emclaire. In the event the Closing does not
take place within ten (10) business days after the meeting of PSFC Shareholders
to approve the Merger, new Election Forms shall be sent via first class mail to
PSFC Shareholders providing such shareholders an opportunity to change their
election by a specific time period ("New Election Deadline"). Such new Election
Deadline be no less than ten (10) business days from the Closing.
(b) Elections shall be made by Holders by mailing to
the Exchange Agent a completed Election Form. To be effective, an Election Form
must be properly completed, signed and submitted to the Exchange Agent
accompanied by certificates representing the shares of PSFC Common Stock as to
which the election is being made (or by an appropriate guaranty of delivery by a
commercial bank or trust company in the United States or a member of a
registered national security exchange or the National Association of Security
Dealers, Inc.), or by evidence that such certificates have been lost, stolen or
destroyed accompanied by such security or indemnity as shall be reasonably
requested by Emclaire. An Election Form and accompanying share certificates must
be received by the Exchange Agent by the close of business on the Election
Deadline. An election may be changed or revoked but only by written notice
received by the Exchange Agent prior to the Election Deadline including, in the
case of a change, a properly completed revised Election Form.
(c) Emclaire will have the discretion, which it may
delegate in whole or in part to the Exchange Agent, to determine whether the
Election Forms have been properly completed, signed and submitted or changed or
revoked and to disregard immaterial defects in Election Forms. The decision of
Emclaire (or the Exchange Agent) in such matters shall be conclusive and
binding. Neither Emclaire nor the Exchange Agent will be under any obligation to
notify any person of any defect in an Election Form submitted to the Exchange
Agent.
(d) For the purposes hereof, a Holder who does not
submit an effective Election Form to the Exchange Agent prior to the Election
Deadline shall be deemed to have made a Non-Election.
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(e) In the event that this Agreement is terminated
pursuant to the provisions hereof and any shares or PSFC Stock Options have been
transmitted to the Exchange Agent pursuant to the provisions hereof, Emclaire
and PSFC shall cause the Exchange Agent to promptly return such shares to the
person submitting the same.
2.5 Mechanics of Payment of Consideration.
(a) Surrender of Certificates Pursuant to Section
2.2(b). Within five business days after the Effective Time of the Merger, the
Exchange Agent shall deliver to each of the PSFC Record Holders who have not
previously submitted properly completed Election Forms, accompanied by all
certificates (or other appropriate documentation) in respect of all shares of
PSFC Common Stock held of record by such PSFC Record Holders, such materials and
information deemed necessary by the Exchange Agent to advise the PSFC Record
Holders of the procedures required for proper surrender of their certificates
evidencing and representing shares of the PSFC Common Stock in order for the
PSFC Record Holders to receive the Consideration to which they are entitled as
provided herein. Such materials shall include, without limitation, a Letter of
Transmittal, an Instruction Sheet, and a return mailing envelope addressed to
the Exchange Agent (collectively the "Shareholder Materials"). All Shareholder
Materials shall be sent by United States mail to the PSFC Record Holders at the
addresses set forth on a certified shareholder list to be delivered by PSFC to
Emclaire at the Closing (the "Shareholder List"). Emclaire shall deposit with
the Exchange Agent sufficient certificates representing Emclaire Common Stock
and cash to enable the Exchange Agent to distribute the Merger Consideration as
determined pursuant to this Reorganization Agreement. Emclaire shall also make
appropriate provisions with the Exchange Agent to enable PSFC Record Holders to
obtain the Shareholder Materials from, and to deliver the certificates formerly
representing shares of PSFC Common Stock to, the Exchange Agent in person,
commencing on or not later than the second business day following the Closing
Date. Upon receipt of the appropriate Shareholder Materials, together with the
certificates formerly evidencing and representing all of the shares of PSFC
Common Stock which were validly held of record by such holder, the Exchange
Agent shall take prompt action to process such certificates formerly evidencing
and representing shares of PSFC Common Stock received by it (including the
prompt return of any defective submissions with instructions as to those actions
which may be necessary to remedy any defects) and to mail to the former PSFC
Record Holders in exchange for the certificate(s) surrendered by them, the
Consideration to be issued or paid for each such PSFC Record Holder's shares
pursuant to the terms hereof. After the Effective Time of the Merger and until
properly surrendered to the Exchange Agent, each outstanding certificate or
certificates which formerly evidenced and represented the shares of PSFC Common
Stock of a PSFC Record Holder, subject to the provisions of this Section, shall
be deemed for all corporate purposes to represent and evidence only the right to
receive the Consideration into which such PSFC Record Holder's shares of PSFC
Common Stock were converted and aggregated at the Effective Time of the Merger.
Unless and until the outstanding certificate or certificates, which immediately
prior to the Effective Time of the Merger evidenced and represented the PSFC
Record Holder's PSFC Common Stock shall have been properly surrendered as
provided above, the Consideration issued or payable to the PSFC Record Holder(s)
of the canceled shares as of any time after the Effective Date of the Merger
shall not be paid to the PSFC Record Holder(s) of such certificate(s) until such
certificates shall have been surrendered in the manner required. Each PSFC
Record Holder will be responsible for all federal, state and local taxes which
may be incurred by him on account of his receipt of the Consideration to be paid
in the Merger. The PSFC Record Holder(s) of any certificate(s) which shall have
been lost or destroyed may nevertheless, subject to the provisions of this
Article, receive the Consideration to which each such PSFC Record Holder is
entitled, provided that each such PSFC Record Holder shall deliver to Emclaire
and to the Exchange Agent: (i) a sworn statement certifying such loss or
destruction and specifying the circumstances thereof and (ii) a lost instrument
bond in form satisfactory to Emclaire and the Exchange Agent which has been duly
executed by a corporate surety satisfactory to Emclaire and the Exchange Agent,
indemnifying the Surviving Corporation, Emclaire, the Exchange Agent (and their
respective successors) to their satisfaction against any loss or expense which
any of them may incur as a result of such lost or destroyed certificates being
thereafter presented. Any costs or expenses which may arise from such
replacement procedure, including the premium on the lost instrument bond, shall
be paid by the PSFC Record Holder.
(b) Stock Transfer Books. At the Effective Time
of the Merger, the stock transfer books of PSFC shall be closed and no transfer
of shares of PSFC Common Stock shall be made thereafter.
(c) Reservation, Registration and Listing of Shares
of Emclaire Common Stock. Emclaire shall reserve for issuance, register under
the Securities Laws and apply for listing for trading on the OTC Bulletin Board
a sufficient number of shares of Emclaire Common Stock for the purpose of
issuing shares of Emclaire Common Stock to the PSFC Record Holders in accordance
with the terms and conditions of this Article.
2.6 Time and Place of Closing. Unless this Reorganization
Agreement shall have been herein terminated and the transactions herein
contemplated shall have been abandoned pursuant to Section 8.01 and subject to
the satisfaction or waiver of the conditions set forth in Article 7, the closing
of the Merger (the "Closing") will take place at 10:00 a.m. on the second
business day after satisfaction of the conditions set forth in Section 7.03 (or
as soon as practicable thereafter following satisfaction or waiver of the
conditions set forth in Sections 7.01 and 7.02) (the "Closing Date"), at the
offices of Malizia, Spidi, Sloane & Fisch, P.C., 1301 K Street, N.W., Suite 700
East, Washington, D.C.
20005, unless another date, time or place is agreed to in writing by the parties
hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PSFC AND PEOPLES BANK
Except as otherwise disclosed in one or more schedules (the "PSFC
Schedule(s)") dated as of the date hereof and delivered concurrently with this
Reorganization Agreement, both as of the date hereof and as of the Effective
Time of the Merger, each of PSFC and Peoples Bank represents and warrants to
Emclaire and Farmers National as follows:
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3.1 Organization and Qualification of PSFC and Subsidiaries.
PSFC is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania and (i) has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as it is currently being conducted; (ii) is in good
standing and is duly qualified to do business in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
business is such that a failure to be so qualified would have a material adverse
effect on PSFC and Peoples Bank taken as a whole; and (iii) is registered as a
bank holding company with the Board of Governors of the Federal Reserve System
("Federal Reserve System"). Peoples Bank is a state chartered stock savings
bank, duly organized, validly existing and in good standing under the laws of
the Commonwealth of Pennsylvania and engages only in activities (and holds
properties only of the types) permitted by the Commonwealth of Pennsylvania and
the rules and regulations promulgated by the Pennsylvania Department of Banking
("PADB") thereunder and the FDIC for insured depository institutions. Peoples
Bank's deposit accounts are insured by the Savings Association Insurance Fund
(the "SAIF") as administered by the FDIC to the fullest extent permitted under
applicable law.
3.2 Authorization, Execution and Delivery; Reorganization
Agreement Not in Breach.
(a) PSFC and Peoples Bank have all requisite
corporate power and authority to execute and deliver this Reorganization
Agreement and the Plan of Merger and to consummate the transactions contemplated
hereby. The execution and delivery of this Reorganization Agreement and the Plan
of Merger and the consummation of the proposed transactions have been duly
authorized by at least a majority of the entire Boards of Directors of both PSFC
and Peoples Bank and no other corporate proceedings on the part of PSFC and
Peoples Bank are necessary to authorize the execution and delivery of this
Reorganization Agreement and the Plan of Merger and the consummation of the
transactions contemplated hereby and thereby, except for the approval of their
respective shareholders. This Reorganization Agreement and all other agreements
and instruments herein contemplated to be executed by PSFC and Peoples Bank have
been (or upon execution will have been) duly executed and delivered by PSFC and
Peoples Bank and constitute (or upon execution will constitute) legal, valid and
enforceable obligations of PSFC and Peoples Bank, subject, as to enforceability,
to applicable bankruptcy, insolvency, receivership, conservatorship,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and to the application of equitable principles and
judicial discretion.
(b) The execution and delivery of this Reorganization
Agreement and the Plan of Merger, the consummation of the transactions
contemplated hereby and thereby, and the fulfillment of the terms hereof and
thereof will not result in a material violation or breach of any of the terms or
provisions of, or constitute a material default under (or an event which, with
the passage of time or the giving of notice, or both, would constitute such a
default under), or conflict with, or permit the acceleration of, any material
obligation under, any material mortgage, lease, covenant, agreement, indenture
or other instrument to which PSFC or any PSFC Subsidiary is a party or by which
PSFC or any PSFC Subsidiary is bound, the Articles of Incorporation and Bylaws
of PSFC or the Articles of Incorporation and bylaws of Peoples Bank; or any
material judgment, decree, order, regulatory letter of understanding or award of
any court, governmental body, authority or arbitrator by which PSFC or any PSFC
Subsidiary is bound, or any material permit, concession, grant, franchise,
license, law, statute, ordinance, rule or regulation applicable to PSFC or any
PSFC Subsidiary or the properties of any of them; or result in the creation of
any material lien, claim, security interest, encumbrance, charge, restriction or
right of any third party of any kind whatsoever upon the properties or assets of
PSFC or any PSFC Subsidiary, except the Government approvals shall be required
for PSFC and Peoples Bank to consummate the Merger and Subsidiary Merger.
3.3 No Legal Bar. Neither PSFC nor Peoples Bank is a party to,
or subject to or bound by, any material agreement, judgment, order, letter of
understanding, writ, prohibition, injunction or decree of any court or other
governmental authority or body of competent jurisdiction, or any law which would
prevent the execution of this Reorganization Agreement or the Plan of Merger by
PSFC or Peoples Bank, the delivery thereof to Emclaire and Farmers National or
the consummation of the transactions contemplated hereby and thereby, and no
action or proceeding is pending against PSFC or Peoples Bank in which the
validity of this Reorganization Agreement, any of the transactions contemplated
hereby or any action which has been taken by any of the Parties in connection
herewith, or, in connection with any of the transactions contemplated hereby, is
at issue.
3.4 Government and Other Approvals. Except for the Government
Approvals described in Section 4.4, no consent, approval, order or authorization
of, or registration, declaration or filing with, any federal, state or local
governmental authority is required to be made or obtained by PSFC or Peoples
Bank in connection with the execution and delivery of this Reorganization
Agreement or the consummation of the transactions contemplated by this
Reorganization Agreement nor is any consent or approval required from any
landlord, licensor or other non-governmental party which has granted rights to
PSFC or Peoples Bank in order to avoid forfeiture or impairment of such rights.
Neither PSFC nor Peoples Bank is aware of any facts, circumstances or reasons
why such Government Approvals should not be forthcoming or which would prevent
or hinder such approvals from being obtained.
3.5 Licenses, Franchises and Permits. PSFC and all PSFC
Subsidiaries hold all licenses, franchises, permits and authorizations necessary
for the lawful conduct of their respective businesses. Except as disclosed in
Schedule 3.5, the benefits of all of such licenses, franchises, permits and
authorizations are in full force and effect and may continue to be enjoyed by a
successor to PSFC and Peoples Bank subsequent to the Closing of the transactions
contemplated herein without any consent or approval, subject to the legal right
and authority of such successor to engage in the activities licensed,
franchised, permitted or authorized thereby. Neither PSFC nor any PSFC
Subsidiary has received notice of any proceeding for the suspension or
revocation of any such license, franchise, permit, or authorization and no such
proceeding is pending or, to the best knowledge of PSFC and the PSFC
Subsidiaries, has been threatened by any governmental authority.
3.6 Charter Documents. Included in Schedule 3.6 hereto
are true and correct copies of the Articles of Incorporation and Bylaws of PSFC
and Peoples Bank.
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3.7 PSFC Financial Statements. PSFC has delivered or will
deliver to Emclaire copies of the consolidated statements of financial condition
of PSFC as of June 30, for the fiscal years 1996 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the fiscal years 1995 through 1997, inclusive, as incorporated by
reference in PSFC's Annual Report to Stockholders in each case accompanied by
the audit report of S.R. Snodgrass, A.C., independent public accountants with
respect to PSFC (the "Audited Financial Statements"), and the unaudited
consolidated statements of financial condition of PSFC as of December 31, 1997
and the related unaudited consolidated statements of operations, changes in
stockholders' equity and cash flows for the six month periods then ended as
reported in PSFC's quarterly report to shareholders. The consolidated statements
of financial condition of PSFC referred to herein (including the related notes,
where applicable) fairly present the consolidated financial condition of PSFC as
of the respective dates set forth therein, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows
(including the related notes, where applicable) fairly present the results of
the consolidated operations, changes in stockholders' equity and cash flows
(including the related notes, where applicable) fairly present the results of
the consolidated operations, changes in stockholders' equity and cash flows of
PSFC for the respective periods or as of the respective dates set forth therein,
in each case in conformity with GAAP consistently applied, it being understood
that PSFC's interim financial statements are not audited, not prepared with
related notes and are subject to normal year-end adjustments.
3.8 Absence of Certain Changes. Except as disclosed in
Schedule 3.8 or as provided for or contemplated in this Reorganization
Agreement, since June 30, 1997 (the "Balance Sheet Date") there has not been:
(a) any material transaction by PSFC or Peoples
Bank not in the ordinary course of business and in conformity with past
practice;
(b) any material adverse change in the business,
property, assets (including loan portfolios), liabilities (whether absolute,
accrued, contingent or otherwise), operations, liquidity, income, condition or
net worth of PSFC and Peoples Bank taken as a whole;
(c) any damage, destruction or loss, whether or not
covered by insurance, which has had or may have a material adverse effect on any
of the properties or business prospects of PSFC and Peoples Bank taken as a
whole or their future use and operation by PSFC and Peoples Bank taken as a
whole;
(d) any acquisition or disposition by PSFC or Peoples
Bank of any property or asset of PSFC or Peoples Bank, whether real or personal,
having a fair market value, singularly or in the aggregate, in an amount greater
than Ten Thousand Dollars ($10,000) other than acquisitions or dispositions made
in the ordinary course of business;
(e) any mortgage, pledge or subjection to lien,
charge or encumbrance of any kind on any of the respective properties or assets
of PSFC or Peoples Bank, except to secure extensions of credit in the ordinary
course of business and in conformity with past practice (pledges of and liens on
assets to secure Federal Home Loan Bank advances being deemed both in the
ordinary course of business and consistent with past practice);
(f) any amendment, modification or termination of
any contract or agreement in excess of $10,000, relating to PSFC or Peoples
Bank, to which PSFC or Peoples Bank is a party which would have a material
adverse effect upon the financial condition or operations of PSFC and Peoples
Bank taken as a whole;
(g) any increase in, or commitment to increase,
the compensation payable or to become payable to any officer, director, employee
or agent of PSFC or Peoples Bank, or any bonus payment or similar arrangement
made to or with any of such officers, directors, employees or agents, other than
routine increases made in the ordinary course of business and consistent with
past practice not exceeding the lesser of five percent (5%) per annum or $2,500
for any of them individually;
(h) any incurring of, assumption of, or taking of, by
PSFC or Peoples Bank, any property subject to, any liability in excess of
$10,000, except for liabilities incurred or assumed or property taken subsequent
to the Balance Sheet Date in the ordinary course of business and in conformity
with past practice; or
(i) any material alteration in the manner of keeping
the books, accounts or Records of PSFC or Peoples Bank, or in the accounting
policies or practices therein reflected, except as required by GAAP and
requirements of Regulatory Authorities.
3.9 Deposits. Except as set forth in Schedule 3.9, none of the
Peoples Bank deposits (consisting of certificate of deposit, savings accounts,
NOW accounts and checking account), is a brokered deposit.
3.10 Properties. Except as described in Schedule 3.10 hereto
or adequately reserved against in the Audited Financial Statements of PSFC or
disposed of since the Balance Sheet Date, PSFC and each PSFC Subsidiary has good
and, as to real property, marketable title free and clear of all material liens,
encumbrances, charges, defaults, or equities of whatever character to all of the
material properties and assets, reflected in the Audited Financial Statements of
PSFC as being owned by PSFC or any PSFC Subsidiary as of the dates thereof. All
buildings, and all fixtures, equipment, and other property and assets that are
material to the business of PSFC and the PSFC Subsidiaries on a consolidated
basis, held under leases or subleases by PSFC or any PSFC Subsidiary, are held
under valid instruments enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws affecting the enforcement of
creditors' rights generally, or by equitable principles).
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3.11 Condition of Fixed Assets and Equipment. Except as
disclosed in Schedule 3.11 hereto, each item of PSFC's or Peoples Bank's fixed
assets and equipment having a net book value in excess of Ten Thousand Dollars
($10,000) included in the Fixed Assets is in good operating condition and
repair, normal wear and tear excepted.
3.12 Tax Matters. Except as described in Schedule 3.12
hereto:
(a) All federal, state and local tax returns
required to be filed by or on behalf of PSFC and Peoples Bank have been timely
filed or requests for extensions have been timely filed, granted and have not
expired for periods ended on or before the date of this Reorganization
Agreement, and all returns filed are, and the information contained therein is,
complete and accurate. All tax obligations reflected in such returns have been
paid. As of the date of this Reorganization Agreement, there is no audit
examination, deficiency, or refund litigation or matter in controversy with
respect to any taxes that might reasonably be expected to result in a
determination materially adverse to PSFC and Peoples Bank taken as a whole
except as fully reserved for in the Audited Financial Statements of PSFC. All
taxes, interest, additions, and penalties due with respect to completed and
settled examinations or concluded litigation have been paid;
(b) Neither PSFC nor Peoples Bank has executed an
extension or waiver of any statute of limitations on the assessment or
collection of any tax due that is currently in effect;
(c) Adequate provision for any federal, state or
local taxes due or to become due for PSFC and Peoples Bank for all periods
through and including June 30, 1997, has been made and is reflected on the June
30, 1997 financial statements included in the Audited Financial Statements of
PSFC, and have been and will continue to be made with respect to periods ending
after June 30, 1997;
(d) Deferred taxes of PSFC and Peoples Bank have been
and will be provided for in accordance with GAAP;
and
(e) To the best knowledge of PSFC and Peoples Bank,
neither the Internal Revenue Service nor any state, local or other taxing
authority is now asserting or threatening to assert against PSFC or Peoples Bank
any deficiency or claim for additional taxes, or interest thereon or penalties
in connection therewith. All material income, payroll, withholding, property,
excise, sales, use, franchise and transfer taxes, and all other taxes, charges,
fees, levies or other assessments, imposed upon PSFC by the United States or by
any state, municipality, subdivision or instrumentality of the United States or
by any other taxing authority, including all interest, penalties or additions
attributable thereto, which are due and payable by PSFC or Peoples Bank, either
have been paid in full or have been properly accrued and reflected in the
Audited Financial Statements of PSFC.
3.13 Litigation. Except as set forth in Schedule 3.13 hereto,
there is no action, suit or proceeding pending against PSFC or Peoples Bank, or
to the best knowledge of PSFC or Peoples Bank, threatened against or affecting
PSFC, Peoples Bank or any of their assets, before any court or arbitrator or any
governmental body, agency or official that may, if decided against PSFC or
Peoples Bank, have a material adverse effect on the business, properties,
assets, liabilities, or condition (financial or other) of PSFC and Peoples Bank
taken as a whole and that are not reflected in the Audited Financial Statements
of PSFC.
3.14 Environmental Materials. Except as set forth in Schedule
3.14 to the knowledge of PSFC and Peoples Bank, the real property owned by PSFC
associated with its two offices as well as other real property held as an asset
and real property held as real estate owned ("Real Properties") are in material
compliance with all Environmental Laws, as hereinafter defined, and there are no
conditions existing currently which would subject PSFC to damages, penalties,
injunctive relief or cleanup costs under any Environmental Laws or assertions
thereof, or which require cleanup, removal, remedial action or other response
pursuant to Environmental Laws by PSFC. Copies of all environmental studies,
reports, notices and the like known to exist with regard to the Real Properties
is contained at Schedule 3.14. PSFC is not a party to any litigation or
administrative proceeding, nor has PSFC (either in its own capacity or as
trustee or fiduciary), materially violated Environmental Laws nor, to its
knowledge and except as set forth in Schedule 3.14, is PSFC (either in its own
capacity or as trustee or fiduciary) required to clean up, remove or take
remedial or other responsive action due to the disposal, depositing, discharge,
leaking or other release of any hazardous substances or materials. To the
knowledge of PSFC, none of the Real Properties are, nor is PSFC, subject to any
judgment, decree, order or citation related to or arising out of any
Environmental Laws. To the knowledge of PSFC, no material permits, licenses or
approvals are required under Environmental Laws relative to the Real Properties;
and, except as disclosed in Schedule 3.14, PSFC has not stored, deposited,
treated, recycled, used or disposed of any materials (including, without
limitation, asbestos) on, under or at the Real Properties (or tanks or other
facilities thereon containing such materials), which materials if known to be
present on the Real Properties or present in soils or ground water, would
require cleanup, removal or some other remedial action under the Environmental
Laws. The term "Environmental Laws" shall mean all federal, state and local
laws, including statutes, regulations, ordinances, codes, rules and other
governmental restrictions, standards and requirements relating to the discharge
of air pollutants, water pollutants or process waste water or substances, as now
or at any time hereafter in effect, including, but not limited to, the Federal
Solid Waste Disposal Act, the Federal Hazardous Materials Transportation Act,
the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental
Responsibility Cleanup and Liability Act of 1980, as amended ("CERCLA"),
regulations of the Environmental Protection Agency, regulations of the Nuclear
Regulatory Agency, regulations of the Occupational Safety and Health
Administration, and any so-called "Superfund" or "Superlien" Laws.
3.15 Insurance. PSFC and Peoples Bank have paid all amounts
due and payable under any insurance policies and guaranties applicable to PSFC
and Peoples Bank and PSFC's or Peoples Bank's assets and operations; all such
insurance policies and guaranties are in full force and effect; and PSFC and
Peoples Bank and all of PSFC's and Peoples Bank's Realty and other material
properties are insured against fire,
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casualty, theft, loss, and such other events against which it is customary to
insure, all such insurance policies being in amounts that are adequate and are
consistent with past practices and experience.
3.16 Books and Records. The minute books of PSFC and Peoples
Bank contain, in all material respects, accurate records of and fairly reflect
all actions taken at all meetings and accurately reflect all other corporate
action of the shareholders and the boards of directors and each committee
thereof. The books and records of PSFC and Peoples Bank fairly and accurately
reflect the transactions to which PSFC and Peoples Bank is or has been a party
or by which their properties are subject or bound, and such books and records
have been properly kept and maintained.
3.17 Capitalization of PSFC. The authorized capital stock of
PSFC consists of 2,000,000 shares of Common Stock having a par value of $.10 per
share, 1,000,000 shares of preferred stock, no par value per share, the "PSFC
Preferred Stock" and no other class of equity security. As of the date of this
Reorganization Agreement, 452,966 shares of PSFC Common Stock were issued, of
which 442,516 were outstanding and 10,450 were held in treasury, and no shares
of PSFC Preferred Stock were issued and outstanding. All of the outstanding PSFC
Common Stock is validly issued, fully-paid and nonassessable and has not been
issued in violation of any preemptive rights of any PSFC Shareholder. Except as
described in Section 1.5 of this Reorganization Agreement as of the date hereof,
there are no outstanding securities or other obligations which are convertible
into PSFC Common Stock or into any other equity or debt security of PSFC, and
there are no outstanding options, warrants, rights, scrip, rights to subscribe
to, calls or other commitments of any nature which would entitle the holder,
upon exercise thereof, to be issued PSFC Common Stock or any other equity or
debt security of PSFC. Accordingly, immediately prior to the Effective Time of
the Merger, there will be not more than 487,813 shares of PSFC Common Stock
issued and outstanding (442,516) shares currently outstanding plus 45,297
unexercised options). PSFC owns and is the beneficial record holder of, and has
good and freely transferable title to, all of the 100,000 shares of Peoples Bank
Common Stock issued and outstanding, and recorded on the books and Records of
Peoples Bank as being held in its name, free and clear of all liens, charges or
encumbrances, and such stock is not subject to any voting trusts, agreements or
similar arrangements or other claims which could affect the ability of PSFC to
freely vote such stock in support of the transactions contemplated herein.
3.18 Sole Agreement. With the exception of this Reorganization
Agreement, neither PSFC, nor Peoples Bank, nor any Subsidiary of either has been
or is a party to: any letter of intent or agreement to merge, to consolidate, to
sell or purchase assets (other than in the normal course of its business) or to
any other agreement which contemplates the involvement of PSFC or Peoples Bank
or any Subsidiary of either (or any of their assets) in any business combination
of any kind; or any agreement obligating PSFC or Peoples Bank to issue or sell
or authorize the sale or transfer of PSFC Common Stock or the capital stock of
Peoples Bank. Except as set forth in Schedule 3.18 hereto, there are no (nor
will there be at the Effective Time of the Merger any) shares of capital stock
or other equity securities of PSFC outstanding, except for shares of PSFC Common
Stock presently issued and outstanding (or issuable upon the exercise of
outstanding stock options), and there are no (nor will there be at the Effective
Time of the Merger any) outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the capital
stock of PSFC or Peoples Bank, or contracts, commitments, understandings, or
arrangements by which PSFC or Peoples Bank is or may be bound to issue
additional shares of their capital stock or options, warrants, or rights to
purchase or acquire any additional shares of their capital stock. There are no
(nor will there be at the Effective Time of the Merger any) contracts,
commitments, understandings, or arrangements by which PSFC or Peoples Bank is or
may be bound to transfer or issue to any third party any shares of the capital
stock of Peoples Bank, and there are no (nor will there be at the Effective Time
of the Merger any) contracts, agreements, understandings or commitments relating
to the right of PSFC to vote or to dispose of any such shares.
3.19 Disclosure. The information concerning, and
representations and warranties made by, PSFC and Peoples Bank set forth in this
Reorganization Agreement, or in the Schedule of PSFC hereto, or in any document,
statement, certificate or other writing furnished or to be furnished by PSFC or
Peoples Bank to Emclaire and Farmers National, pursuant hereto, do not and will
not contain any untrue statement of a material fact or omit and will not omit to
state a material fact required to be stated herein or therein which is necessary
to make the statements and facts contained herein or therein, in light of the
circumstances in which they were or are made, not false or misleading. Without
limiting the foregoing, at the time the prospectus included in the registration
statement of Emclaire to be filed with the SEC as provided herein is mailed to
PSFC Record Holders and stockholders of Emclaire ("Emclaire Stockholders") and
at all times subsequent to such mailing, up to and including the Effective Time
of the Merger, such registration statement (including any amendments and
supplements thereto), with respect to all information relating to PSFC, Peoples
Bank and this Reorganization Agreement as it relates to PSFC, (i) will comply in
all material respects with the applicable provisions of the Securities Laws and
(ii) will not contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact or omit to state any material fact necessary in order to make the
statements made therein not false or misleading, or required to be stated
therein or necessary to correct any statement made in an earlier communication
with respect to such matters which have become false or misleading. Copies of
all documents heretofore or hereafter delivered or made available to Emclaire by
PSFC or Peoples Bank pursuant hereto were or will be complete and accurate
copies of such documents.
3.20 Absence of Undisclosed Liabilities. Except as described
in Schedule 3.22 hereto, to their knowledge neither PSFC nor Peoples Bank has
any obligation or liability that is material to the financial condition or
operations of PSFC or Peoples Bank, or that, when combined with all similar
obligations or liabilities, would be material to the financial condition or
operations of PSFC or Peoples Bank (i) except as disclosed in the Audited
Financial Statements of PSFC delivered to Emclaire prior to the date of this
Reorganization Agreement, (ii) except obligations or liabilities incurred in the
ordinary course of its business consistent with past practices or (iii) except
as contemplated under this Reorganization Agreement. Since June 30, 1997,
neither PSFC nor Peoples Bank has incurred or paid any obligation or liability
which would be material to the financial condition or operations of PSFC or
Peoples Bank, except for obligations paid in connection with transactions made
by it in the ordinary course of its business consistent with past practices,
laws and regulations applicable to PSFC or Peoples Bank.
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3.21 Allowance for Possible Loan or REO Losses. The allowance
for possible loan losses shown on the Audited Financial Statements of PSFC is in
the opinion of management of PSFC adequate in all material respects to provide
for anticipated losses inherent in loans outstanding. Except as disclosed in
Schedule 3.21 hereto, as of the date thereof, neither PSFC nor Peoples Bank has
any loan which has been criticized, designated or classified by management of
PSFC, or by regulatory examiners representing any Regulatory Authority or by
PSFC's independent auditors as "Special Mention," "Substandard," "Doubtful",
"Loss" or as a "Potential Problem Loan."
The allowance for possible losses in real estate
owned, if any, shown on the Audited Financial Statements of PSFC in the opinion
of management is or will be adequate in all respects to provide for anticipated
losses inherent in REO owned or held by PSFC or Peoples Bank and the net book
value of real estate owned on the Balance Sheet of the Audited Financial
Statements of PSFC is the fair value of the real estate owned in accordance with
Statement of Position 92-3.
3.22 Loan Portfolio. To the best knowledge of PSFC and Peoples
Bank, with respect to each mortgage loan owned by PSFC or Peoples Bank in whole
or in part (each, a "Mortgage Loan"):
(a) Enforceability. The mortgage note and th
related mortgage are each legal, valid and binding obligations of the maker or
obligor thereof, enforceable against such maker or obligor in accordance with
their terms.
(b) No Modification. Neither PSFC nor Peoples
Bank nor any prior holder of a Mortgage Loan has modified the related documents
in any material respect or satisfied, canceled or subordinated such mortgage or
mortgage note except as otherwise disclosed by documents in the applicable
mortgage file.
(c) Owner. PSFC or Peoples Bank is the sole holder of
legal and beneficial title to each Mortgage Loan (or Peoples Bank's applicable
participation interest), as applicable and there has not been any assignment or
pledge of any Mortgage Loan (other than as security for Federal Home Loan Bank
advances).
(d) Collateral Documents. The mortgage note,
mortgage and any other collateral documents, copies of which are included in the
Mortgage Loan files, are true and correct copies of the documents they purport
to be and have not been superseded, amended, modified, canceled or otherwise
changed except as otherwise disclosed by documents in the applicable mortgage
file.
(e) Litigation. There is no litigation or proceeding
pending or threatened, relating to the mortgaged property which would have a
material adverse effect upon the related Mortgage Loan.
(f) Participation. With respect to each Mortgage Loan
held in the form of a participation, the participation documentation is legal,
valid, binding and enforceable and the interest in such Mortgage Loan of PSFC or
Peoples Bank created by such participation would not be a part of the insolvency
estate of the Mortgage Loan originator or other third party upon the insolvency
thereof.
3.23 Compliance with Laws.
(a) PSFC and Peoples Bank are in compliance with
all laws, rules, regulations, reporting and licensing requirements, and orders
applicable to its business or employees conducting its business (including, but
not limited to, those relating to consumer disclosure and currency transaction
reporting) the breach or violation of which would or could reasonably be
expected to have a material adverse effect on the financial condition or
operations of PSFC and Peoples Bank taken as a whole, or which would or could
reasonably be expected to subject PSFC or Peoples Bank or any of its directors
or officers to civil money penalties; and
(b) Neither PSFC nor Peoples Bank has received
notification or communication from any agency or department of federal, state,
or local government or any of the Regulatory Authorities, or the staff thereof
(i) asserting that PSFC or Peoples Bank is not in compliance with any of the
statutes, rules, regulations, or ordinances which such governmental authority or
Regulatory Authority enforces, and which, as a result of such noncompliance,
would or could reasonably be expected to have a material adverse effect on PSFC
and Peoples Bank taken as a whole, (ii) threatening to revoke any license,
franchise, permit, or governmental authorization which is material to the
financial condition or operations of PSFC and the Peoples Bank, taken as a
whole, or (iii) requiring PSFC or Peoples Bank to enter into a cease and desist
order, consent, agreement or memorandum of understanding.
3.24 Employee Benefit Plans. Schedule 3.24 to the PSFC
Disclosure Schedule lists (i) each pension, profit sharing, stock bonus, thrift,
savings, employee stock ownership or other plan, program or arrangement, which
constitutes an "employee pension benefit plan" within the meaning of Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is maintained by PSFC and/or Peoples Bank or to which PSFC
and/or Peoples Bank contribute for the benefit of any current or former
employee, officer, director, consultant or agent; (ii) each plan, program or
arrangement for the provision of medical, surgical, or hospital care or
benefits, benefits in the event of sickness, accident, disability, death,
unemployment, severance, vacation, apprenticeship, day care, scholarship,
prepaid legal services or other benefits which constitute an "employee welfare
benefit plan" within the meaning of Section 3(1) of ERISA, which is maintained
by PSFC and/or Peoples Bank or to which PSFC and/or Peoples Bank contribute for
the benefit of any current or former employee, officer, director, consultant or
agent; and (iii) every other retirement or deferred compensation plan, bonus or
incentive compensation plan or arrangement, stock option plan, stock purchase
plan, severance or vacation pay arrangement, or other fringe benefit plan,
program or arrangement through which PSFC and/or Peoples Bank provide benefits
for or on behalf of any current or former employee, officer, director,
consultant or agent.
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(b) All of the plans, programs and arrangements described in
Schedule 3.24 (hereinafter referred to as the "PSFC Benefit Plans") that are
subject to ERISA are in material compliance with all applicable requirements of
ERISA and all other applicable federal and state laws, including the reporting
and disclosure requirements of Part I of Title I of ERISA. Each of the PSFC
Benefit Plans that is intended to be a pension, profit sharing, stock bonus,
thrift, savings or employee stock ownership plan that is qualified under Section
401(a) of the Code satisfies the applicable requirements of such provision and
there exist no circumstances that would adversely affect the qualified status of
any such Plan under that section, except with respect to any required
retroactive amendment for which the remedial amendment period has not yet
expired. Except as set forth in Schedule 3.24, there is no pending or, to the
best knowledge of PSFC, threatened litigation, governmental proceeding or
investigation against or relating to any PSFC Benefit Plan and there is no
reasonable basis for any material proceedings, claims, actions or proceedings
against any such PSFC Benefit Plan. To the best of PSFC's knowledge, no PSFC
Benefit Plan (or PSFC Benefit Plan fiduciary, in his capacity as such) has
engaged in a non-exempt "Prohibited Transaction" (as defined in Section 406 of
ERISA and Section 4975(c) of the Code) since the date on which said sections
became applicable to such Plan. There have been no acts or omissions by PSFC
that have given rise to any fines, penalties, taxes or related charges under
Sections 502(c), 502(i) or 4071 of ERISA or Chapter 43 of the Code, or that may
give rise to any material fines, penalties, taxes or related damages under such
laws for which PSFC may be liable. All group health plans of PSFC, including any
plans of current and former Affiliates of PSFC that must be taken into account
under Section 4980B of the Code or Section 601 of ERISA or the requirements of
any similar state law regarding insurance continuation, have been operated in
material compliance with the group health plan continuation coverage
requirements of Section 4980B of the Code and Section 601 of ERISA to the extent
such requirements are applicable. All payments due from any PSFC Benefit Plan
(or from PSFC with respect to any PSFC Benefit Plan) have been made, and all
amounts properly accrued to date as liabilities of PSFC that have not yet been
paid have been properly recorded on the books of PSFC.
(c) The Peoples Savings Bank Employee Stock Ownership Plan
("ESOP") shall be terminated, in accordance with its terms, as of the closing of
the Merger contemplated by the Reorganization Agreement; and Peoples Bank shall
continue to repay the ESOP note on a pro rated basis for the period from January
1, 1998 through the Closing in accordance with past contribution rates by
Peoples Bank, and further that the Closing shall be treated as the end of the
plan year for purposes of permitting an allocation of benefits based on such
repayments.
3.25 Material Contracts. Except as described in Schedule 3.25
hereto, neither PSFC nor Peoples Bank, nor any of their respective assets,
businesses, or operations, is as of the date of this Reorganization Agreement a
party to, or bound or affected by, or receives benefits under, any contract or
agreement or amendment thereto that require annual payments of over $10,000 per
year, other than loans or commitments to lend in the ordinary course of business
pursuant to which Peoples Bank is a lender.
3.26 Material Contract Defaults. Neither PSFC nor Peoples Bank
is in default in any respect under any material contract, agreement, commitment,
arrangement, lease, insurance policy, or other instrument to which it is a party
or by which its respective assets, business, or operations may be bound or
affected or under which it or its respective assets, business, or operations
receives benefits, and which default would reasonably be expected to have either
individually or in the aggregate a material adverse effect on PSFC and Peoples
Bank taken as a whole, and there has not occurred any event that, with the lapse
of time or the giving of notice or both, would constitute such a default.
3.27 Reports. Since January 14, 1994, PSFC and Peoples Bank
have filed all reports and statements, together with any amendments required to
be made with respect thereto, that it was required to file with (i) the PADB;
(ii) the FDIC, (iii) the SEC, including, but not limited to, Annual Reports on
Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and
proxy statements; and (iv) any other applicable federal or state securities or
banking authorities (except, in the case of federal or state securities
authorities, filings that are not material). As of their respective dates, each
of such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all of the
requirements of their respective forms and all of the statutes, rules, and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed. All such reports were true and complete in all material respects and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.28 1934 Act and OTC Bulletin Board
(a) The PSFC Common Stock is registered with the
SEC pursuant to the 1934 Act and PSFC has filed with the SEC all material forms
and reports required by law to be filed by PSFC with the SEC, which forms and
reports, taken as a whole, are true and correct in all material respects, and do
not misstate a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
(b) The outstanding shares of PSFC Common Stock are
quoted for trading on the OTC Bulletin Board (under the symbol "PSVF") pursuant
to the listing rules of the OTC Bulletin Board and PSFC has filed with the OTC
Bulletin Board all material forms and reports required by law to be filed by
PSFC, which forms and reports, taken as a whole, are true and correct in all
material respects, and do not misstate a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.
3.29 Statements True and Correct. None of the information
prepared by, or on behalf of, PSFC or any PSFC Subsidiary regarding PSFC,
Peoples Bank or any other PSFC Subsidiary included or to be included in the
Prospectus/Proxy Statement to be mailed to PSFC's Shareholders in connection
with the PSFC Shareholders' Meeting, and any other documents to be filed with
the SEC, or any other Regulatory Authority in connection with the transactions
contemplated herein, will, at the respective times such documents are filed,
and, with respect to the Prospectus/Proxy Statement, when first mailed to the of
PSFC Shareholders, be false or misleading with respect to any material fact, or
omit to
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state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Prospectus/Proxy Statement or any amendment thereof or supplement thereto,
at the time of the PSFC Shareholders' Meeting, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the PSFC Shareholders' Meeting. All documents
which PSFC or any PSFC Subsidiary is responsible for filing with the SEC or any
other Regulatory Authority in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable law, including applicable provisions of the Securities Laws and the
rules and regulations promulgated thereunder.
3.30 Investment Securities. Section 1 of Schedule 3.30 sets
forth the book and market value as of June 30, 1997 of the investment
securities, mortgage-backed securities and securities held for sale of PSFC and
Peoples Bank as of such date. Section 2 of Schedule 3.30 sets forth an
investment securities report which includes (to the extent known or reasonably
obtainable) security descriptions, CUSIP or Agency Pool numbers, current pool
face values, book values, coupon rates, market values and book yields in each
case as of June 30, 1997.
3.31 Certain Regulatory Matters.
(a) Peoples Bank is a qualified thrift lender under
Section 10(m) of the Home Owners' Loan Act of 1933, as amended and recodified,
and is a member of the Federal Home Loan Bank of Pittsburgh.
(b) Peoples Bank has not paid any dividends to PSFC
or any affiliate thereof that (i) caused the regulatory capital of Peoples Bank
to be less than the amount then required by applicable law or (ii) exceeded any
other limitation on the payment of dividends imposed by law, agreement or
regulatory policy. Other than as reflected on Schedule 3.31 and as required by
applicable law, there are no restrictions on the payment of dividends by PSFC or
Peoples Bank.
(c) PSFC and Peoples Bank have adopted policies and
procedures designed to promote overall compliance with the Bank Secrecy Act (31
U.S.C. Section 5301), the Truth-in-Lending Act (15 U.S.C. Section 1601 et seq.),
the Expedited Funds Availability Act (12 U.S.C. Section 4001) and the
regulations adopted under each such act and have materially complied with the
reporting requirements under the Bank Secrecy Act and the regulations
thereunder.
3.32 Corporate Approval.
(a) The affirmative vote of a majority of the votes
cast by shareholders of PSFC entitled to vote at a meeting is required to adopt
this Reorganization Agreement and approve the Merger and the other transactions
contemplated hereby. No other vote of the stockholders of PSFC is required by
law, the Articles of Incorporation or Bylaws of PSFC or otherwise to adopt this
Reorganization Agreement and approve the Merger and the other transactions
contemplated hereby.
(b) At a duly constituted meeting of the Board of
Directors of PSFC directors constituting at least a majority of the Directors
granted their prior approval to the Merger and, accordingly, the provisions of
Articles 12 and 13 of PSFC's Articles of Incorporation do not and will not apply
to this Reorganization Agreement or the consummation of any of the transactions
contemplated hereby or thereby.
(c) The provisions of Subchapters E, F, G and H of
the PBCA will not apply to this Reorganization Agreement, the Merger or the
transactions contemplated hereby and thereby.
3.33 Broker's and Finder's Fees. Except for payments to
Capital Resources Group, Inc. ("Capital Resources Group") as described in
Schedule 3.33, neither PSFC nor any of its subsidiaries has any liability to any
broker, finder, or similar agent, nor have any of them agreed to pay any
broker's fee, finder's fee or commission, with respect hereto or to the
transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF EMCLAIRE AND FARMERS NATIONAL
Except as otherwise disclosed in one or more schedules
(collectively the "Emclaire Schedule") dated as of the date hereof and delivered
concurrently with this Reorganization Agreement, both as of the date hereof and
as of the Effective Time of the Merger, each of Emclaire and Farmers National
represents and warrants to PSFC and Peoples Bank as follows:
4.1 Organization and Corporate Authority. Emclaire is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania and Farmers National is duly organized,
validly existing and in good standing under the laws of the United States.
Emclaire and Farmers National (i) have all requisite corporate power and
authority to own, operate and lease their material properties and carry on their
businesses as is currently being conducted; (ii) are in good standing and are
duly qualified to do business in each jurisdiction where the character of their
properties owned or held under lease or the nature of their business is such
that failure to be so qualified would have a material adverse effect on Emclaire
and Farmers National taken as a whole; and (iii) have in effect all federal,
state, local and foreign governmental authorizations, permits and licenses
necessary for them to own or lease their properties and assets and to carry on
their businesses
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as they are currently being conducted. The Articles of Incorporation and Bylaws
of Emclaire and the Articles of Association and Bylaws of Farmers National, each
as amended to date, are in full force and effect.
4.2 Authorization, Execution and Delivery; Reorganization
Agreement Not in Breach.
(a) Emclaire and Farmers National have all requisite
corporate power and authority to execute and deliver this Reorganization
Agreement and the Plan of Merger and to consummate the transactions contemplated
hereby. The execution and delivery of this Reorganization Agreement and the Plan
of Merger and the consummation of the proposed transactions have been duly
authorized by at least a majority of the entire Boards of Directors of both
Emclaire and Farmers National and no other corporate proceedings on the part of
Emclaire or Farmers National are necessary to authorize the execution and
delivery of this Reorganization Agreement and the Plan of Merger and the
consummation of the transactions contemplated hereby and thereby. This
Reorganization Agreement and all other agreements and instruments herein
contemplated to be executed by Emclaire and Farmers National have been (or upon
execution will have been) duly executed and delivered by Emclaire and Farmers
National and constitute (or upon execution will constitute) legal, valid and
enforceable obligations of Emclaire and Farmers National, subject, as to
enforceability, to applicable bankruptcy, insolvency, receivership,
conservatorship, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and to the application of equitable
principles and judicial discretion.
(b) The execution and delivery of this Reorganization
Agreement and the Plan of Merger, the consummation of the transactions
contemplated hereby and thereby and the fulfillment of the terms hereof and
thereof will not result in a material violation or breach of any of the terms or
provisions of, or constitute a material default under (or an event which, with
the passage of time or the giving of notice or both, would constitute such a
material default under), or conflict with, or permit the acceleration of any
material obligation under, any material mortgage, lease, covenant, agreement,
indenture or other instrument to which Emclaire or Farmers National is a party
or by which it or its property or any of its assets are bound, the Articles of
Incorporation and Bylaws of Emclaire or the articles of association or bylaws of
Farmers National, or any material judgment, decree, order, regulatory letter of
understanding or award of any court, governmental body or arbitrator by which
Emclaire or Farmers National is bound; or any material permit, concession,
grant, franchise, license, law, statute, ordinance, rule or regulation
applicable to Emclaire or Farmers National or their properties, or result in the
creation of any material lien, claim, security interest, encumbrance, charge,
restriction or right of any third party of any kind whatsoever upon the property
or assets of Emclaire or Farmers National, except that the Government Approvals,
as defined below, shall be required in order for Emclaire or Farmers National to
consummate the Merger.
4.3 No Legal Bar. Neither Emclaire nor Farmers National is a
party to, subject to or bound by any material agreement, judgment, order,
regulatory letter of understanding, writ, prohibition, injunction or decree of
any court or other governmental authority or body of competent jurisdiction or
any law which would prevent the execution of this Reorganization Agreement or
the Plan of Merger by Emclaire and Farmers National, the delivery thereof to
PSFC and Peoples Bank or the consummation of the transactions contemplated
hereby and thereby and no action or proceeding is pending against Emclaire or
Farmers National in which the validity of this Reorganization Agreement, any of
the transactions contemplated hereby or any action which has been taken by any
of the Parties in connection herewith or in connection with any of the
transactions contemplated hereby, is at issue.
4.4 Government Approvals. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by
Emclaire in connection with the execution and delivery of this Reorganization
Agreement or the consummation of the transactions contemplated hereby by
Emclaire except for the prior approval of the Office of the Comptroller of the
Currency ("OCC") under the National Bank Act, as amended and recodified ("NBA"),
the Federal Deposit Insurance Corporation ("FDIC"), the PADB, and any other
government approvals that may be necessary (the "Government Approvals"). Neither
Emclaire nor Farmers National is aware of any facts, circumstances or reasons
why such Government Approvals should not be forthcoming or which would prevent
or hinder such approvals from being obtained.
4.5 Capitalization. The authorized capital stock of Emclaire
consists of 12,000,000 shares of common stock having a par value of $1.25 per
share (the "Emclaire Common Stock") and 3,000,000 shares of serial preferred
stock ("Emclaire Preferred Stock"). As of December 31, 1997, 1,081,453 shares of
Emclaire Common Stock were validly issued and outstanding and no shares of
Emclaire Preferred Stock were outstanding. As of the date hereof, Emclaire is
the holder, directly or indirectly, of all of the outstanding capital stock of
its subsidiaries including Farmers National (collectively, the "Emclaire
Subsidiaries"), as reflected on Schedule 4.5.
4.6 Emclaire Financial Statements. Emclaire has delivered or
will deliver to PSFC copies of the consolidated statements of financial
condition of Emclaire as of December 31, for the fiscal years 1996 and 1997, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the fiscal years 1995 through 1997, inclusive, as
incorporated by reference in Emclaire's Annual Report to Stockholders in each
case accompanied by the audit report of S.R. Snodgrass, A.C., independent public
accountants with respect to Emclaire. The consolidated statements of financial
condition of Emclaire referred to herein (including the related notes, where
applicable) fairly present the consolidated financial condition of Emclaire as
of the respective dates set forth therein, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows
(including the related notes, where applicable) fairly present the results of
the consolidated operations, changes in stockholders' equity and cash flows of
Emclaire for the respective periods or as of the respective dates set forth
therein, in each case in conformity with generally accepted accounting
principles ("GAAP") consistently applied, it being understood that Emclaire's
interim financial statements are not audited, not prepared with related notes
and are subject to normal year-end adjustments.
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4.7 1934 Act and OTC Bulletin Board Filings.
(a) The Emclaire Common Stock is registered with
the SEC pursuant to the Securities Exchange Act of 1934, as amended, (the "1934
Act") and Emclaire has filed with the SEC all material forms and reports
required by law to be filed by Emclaire with the SEC, which forms and reports,
taken as a whole, are true and correct in all material respects, and do not
misstate a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
(b) The Emclaire Common Stock is quoted for trading
on the OTC Bulletin Board (under the symbol "EMCF") pursuant to the listing
rules of the OTC Bulletin Board and Emclaire has filed with the OTC Bulletin
Board all material forms and reports required by law to be filed by Emclaire
with the OTC Bulletin Board, which forms and reports, taken as a whole, are true
and correct in all material respects, and do not misstate a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading.
4.8 The Emclaire Common Stock. All shares of Emclaire Common
Stock to be issued by Emclaire and delivered to the holders of record of all
issued and outstanding shares of PSFC Common Stock immediately prior to the
Effective Time of the Merger (the "PSFC Record Holders") in exchange for all of
the PSFC Common Stock will be duly authorized, validly issued, fully paid and
non-assessable. Such shares of Emclaire Common Stock are not subject to any
preemptive rights of any Emclaire shareholders.
4.9 Licenses, Franchises and Permits. Emclaire and all
Emclaire Subsidiaries hold all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses.
All of such licenses, franchises, permits and authorizations are in full force
and effect. Neither Emclaire nor any Emclaire Subsidiary has received notice of
any proceeding for the suspension or revocation of any such license, franchise,
permit, or authorization and no such proceeding is pending or to the best
knowledge of Emclaire and the Emclaire Subsidiaries has been threatened by any
governmental authority.
4.10 Absence of Certain Changes. Except as disclosed in
Schedule 4.10 or as provided for or contemplated in this Reorganization
Agreement, since December 31, 1997 (the "Balance Sheet Date") there has not been
any material adverse change in the business, property, assets (including loan
portfolios), liabilities (whether absolute, accrued, contingent or otherwise),
operations, liquidity, income, financial condition or net worth of Emclaire on a
consolidated basis. Emclaire will make no special distribution to its
shareholders (other than the payment of cash or stock dividends in the ordinary
course of business) that will result in a material reduction in stockholders'
equity.
4.11 Tax Matters. Except as described in Schedule 4.11
hereto:
(a) All federal, state and local tax returns required
to be filed by or on behalf of Emclaire and each Emclaire Subsidiary have been
timely filed or requests for extensions have been timely filed, granted, and
have not expired for periods ended on or before the date of this Reorganization
Agreement, and all returns filed are, and the information contained therein is,
complete and accurate. All tax obligations reflected in such returns have been
paid. As of the date of this Reorganization Agreement, there is no audit
examination, deficiency, or refund litigation or matter in controversy with
respect to any taxes that might reasonably be expected to result in a
determination materially adverse to Emclaire and Emclaire Subsidiaries, taken as
a whole, except as fully reserved for in the Emclaire Financial Statements. All
taxes, interest, additions, and penalties due with respect to completed and
settled examinations or concluded litigation have been paid;
(b) Neither Emclaire nor any Emclaire Subsidiary has
executed an extension or waiver of any statute of limitations on the assessment
or collection of any tax due that is currently in effect;
(c) Adequate provision for any federal, state or
local taxes due or to become due for Emclaire and all Emclaire Subsidiaries for
all periods through and including December 31, 1997, has been made and is
reflected on the December 31, 1997 financial statements included in the Emclaire
Financial Statements, and have been and will continue to be made with respect to
periods ending after December 31, 1997;
(d) Deferred taxes of Emclaire and each Emclaire
Subsidiary have been and will be provided for in accordance with GAAP; and
(e) To the best knowledge of Emclaire, neither the
Internal Revenue Service nor any state, local or other taxing authority is now
asserting or threatening to assert against Emclaire or any Emclaire Subsidiary
any deficiency or claim for additional taxes, or interest thereon or penalties
in connection therewith. All material income, payroll, withholding, property,
excise, sales, use, franchise and transfer taxes, and all other taxes, charges,
fees, levies or other assessments, imposed upon Emclaire by the United States or
by any state, municipality, subdivision or instrumentality of the United States
or by any other taxing authority, including all interest, penalties or additions
attributable thereto, which are due and payable by Emclaire or any Emclaire
Subsidiary, either have been paid in full or have been properly accrued and
reflected in the Emclaire Financial Statements.
4.12 Litigation. Except as set forth in Schedule 4.12 hereto,
there is no action, suit or proceeding pending against Emclaire or any Emclaire
Subsidiary, or to the best knowledge of Emclaire, threatened against or
affecting Emclaire, any Emclaire Subsidiary or any of their assets, before any
court or arbitrator or any governmental body, agency or official that would, if
decided against Emclaire or the Emclaire
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Subsidiary, have a material adverse impact on the business, properties, assets,
liabilities or condition (financial or other) of Emclaire and that are not
reflected in the Emclaire Financial Statements.
4.13 Absence of Undisclosed Liabilities. Except as described
in Schedule 4.13 hereto, to their knowledge neither Emclaire nor any Emclaire
Subsidiary has any obligation or liability that is material to the financial
condition or operations of Emclaire or any Emclaire Subsidiary, or that, when
combined with all similar obligations or liabilities, would be material to the
financial condition or operations of Emclaire or any Emclaire Subsidiary (i)
except as disclosed in the Emclaire Financial Statements delivered to PSFC prior
to the date of this Reorganization Agreement, (ii) except obligations or
liabilities incurred in the ordinary course of its business consistent with past
practices or (iii) except as contemplated under this Reorganization Agreement.
Except as disclosed in Schedule 4.13 hereto, since December 31, 1997, neither
Emclaire nor any Emclaire Subsidiary has incurred or paid any obligation or
liability which would be material to the financial condition or operations of
Emclaire or such Emclaire Subsidiary, except for obligations paid in connection
with transactions made by it in the ordinary course of its business consistent
with past practices and the laws and regulations applicable to Emclaire or any
Emclaire Subsidiary.
4.14 Books and Records. The minute books of Emclaire and
Farmers National contain, in all material respects, accurate records of and
fairly reflect all actions taken at all meetings and accurately reflect all
other corporate action of the shareholders and the boards of directors and each
committee thereof. The books and records of Emclaire and Farmers National fairly
and accurately reflect the transactions to which Emclaire and Farmers National
is or has been a party or by which their properties are subject or bound, and
such books and records have been properly kept and maintained.
4.15 Compliance with Laws.
(a) Emclaire and each Emclaire Subsidiary is in
compliance with all laws, rules, regulations, reporting and licensing
requirements, and orders applicable to its business or employees conducting its
business (including, but not limited to, those relating to consumer disclosure
and currency transaction reporting) the breach or violation of which would
reasonably be expected to have a material adverse effect on the financial
condition or operations of Emclaire and the Emclaire Subsidiaries, taken as
whole, or which would reasonably be expected to subject Emclaire or any Emclaire
Subsidiary or any of its directors or officers to civil money penalties; and
(b) Neither Emclaire nor Farmers National is a party
to any cease and desist order, written agreement or memorandum of understanding
with, or a party to any commitment letter or similar undertaking to, or is
subject to any order to directive by, or is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions at the request of,
federal or state governmental authorities (the "Regulatory Authorities") charged
with the supervision or regulation of the operations of any of them not has it
been advised by any such government authority that it is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, directive, written agreement, memorandum or understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking.
4.16 Material Contract Defaults. Neither Emclaire nor any
Emclaire Subsidiary is in default in any respect under any material contract,
agreement, commitment, arrangement, lease, insurance policy, or other instrument
to which it is a party or by which its respective assets, business, or
operations may be bound or affected or under which it or its respective assets,
business, or operations receives benefits, and which default would reasonably be
expected to have either individually or in the aggregate a material adverse
effect on Emclaire and the Emclaire Subsidiaries, taken as a whole, and there
has not occurred any event that, with the lapse of time or the giving of notice
or both, would constitute such a default.
4.17 Disclosure. The information concerning, and the
representations or warranties made by, Emclaire and Farmers National, as set
forth in this Reorganization Agreement, or in any document, statement,
certificate or other writing furnished or to be furnished by Emclaire or Farmers
National to PSFC and Peoples Bank pursuant hereto, do not and will not contain
any untrue statement of a material fact or omit and will not omit to state a
material fact required to be stated herein or therein which is necessary to make
the statements and facts contained herein or therein, in light of the
circumstances under which they were or are made, not false or misleading.
Without limiting the foregoing, at the time the prospectus included in the
registration statement of Emclaire to be filed with the SEC as provided herein
is mailed to the holders of PSFC Common Stock and Emclaire Stockholders and at
all times subsequent to such mailing, up to and including the Effective Time of
the Merger, such registration statement (including any amendments and
supplements thereto), with respect to all information relating to Emclaire,
Farmers National and this Reorganization Agreement as it relates to Emclaire (i)
will comply in all material respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act") and the 1934 Act
(collectively, the "Securities Laws") and (ii) will not contain any statement
which, at the time and in the light of the circumstances under which it is made,
is false or misleading with respect to any material fact or omit to state any
material fact necessary in order to make the statements made therein not false
or misleading or required to be stated therein or necessary to correct any
statement made in an earlier communication with respect to such matters which
have become false or misleading. Copies of all documents heretofore or hereafter
delivered or made available to PSFC and Peoples Bank by Emclaire and Farmers
National pursuant hereto were or will be complete and accurate copies of such
documents.
4.18 Certain Regulatory Matters.
(a) Farmers National is member of the Federal Home
Loan Bank of Pittsburgh and a member of the Federal Reserve System.
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(b) Farmers National has not paid any dividends to
Emclaire or any affiliate thereof that (i) caused the regulatory capital of
Farmers National to be less than the amount then required by applicable law or
(ii) exceeded any other limitation on the payment of dividends imposed by law,
agreement or regulatory policy. Other than as required by applicable law, there
are no restrictions on the payment of dividends by Emclaire or Farmers National.
4.19 Delays. Neither Emclaire nor Farmers National is aware of
any matter that could cause a delay in receiving the approval required by this
Agreement.
4.20 Corporate Approval. At a duly constituted meeting of the
Board of Directors of Emclaire directors constituting at least a majority of the
Directors granted their prior approval to the Merger and, accordingly, the
provisions of Article XV of Emclaire's Articles of Incorporation do not and will
not apply to this Reorganization Agreement or the consummation of any of the
transactions contemplated hereby or thereby.
4.21 Charter Documents. Included in Schedule 4.21 hereto
are true and correct copies of the Articles of Incorporation and Bylaws of
Emclaire and Farmers National.
ARTICLE 5
COVENANTS OF PSFC AND PEOPLES BANK
5.1 Preparation of Registration Statement and Applications for
Required Consents. PSFC will cooperate with Emclaire in the preparation of a
Registration Statement to be filed with the SEC under the Securities Act for the
registration of the offering of Emclaire Stock to be issued in connection with
the Merger and the Prospectus/Proxy Statement constituting part of the
Registration Statement that will be used by PSFC to solicit shareholders of PSFC
for approval of the Merger. In connection therewith, PSFC will furnish all
financial or other information, including using best efforts to obtain customary
consents, certificates, opinions of counsel and other items concerning PSFC
reasonably deemed necessary by counsel to Emclaire for the filing or preparation
for filing under the Securities Act and the Exchange Act of the Registration
Statement (including the proxy statement portion thereof). PSFC will cooperate
with Emclaire and provide such information as may be advisable in obtaining an
order of effectiveness for the Registration Statement, appropriate permits or
approvals under state securities and "blue sky" law, the required approval under
the PADB, the required approval under NBA of the OCC, the listing of the Shares
on the OTC Bulletin Board (subject to official notice of issuance, if necessary)
and any other governmental or regulatory consents or approvals or the taking of
any other governmental or regulatory action necessary to consummate the Merger
without a material adverse effect on the business, results of operations, assets
or financial condition of the Surviving Corporation and its subsidiaries, taken
as a whole (the "Required Consents"). PSFC covenants and agrees that all
information furnished by PSFC for inclusion in the Registration Statement, the
Prospectus/Proxy Statement, all applications to appropriate regulatory agencies
for approval of the Merger, and all information furnished by PSFC to Emclaire
pursuant to this Agreement or in connection with obtaining Required Consents,
will comply in all material respects with the provisions of applicable law,
including the Securities Act and the rules and regulations of the SEC
thereunder, and will not contain any untrue statement of a material fact and
will not omit to state any material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. PSFC will furnish to
Capital Resources Group and Hopper Soliday such information as Capital Resources
Group and Hopper Soliday may reasonably request for purposes of the opinions
referred to in Sections 7.1 and 7.2, respectively.
5.2 Conduct of Business -- Affirmative Covenants. Unless the
prior written consent of Emclaire shall have been obtained, which consent shall
not be unreasonably withheld:
(a) PSFC and Peoples Bank shall:
(i) Operate its business only in the usual,
regular, and ordinary course;
(ii) Preserve intact its business
organizations and assets and to maintain its rights and franchises;
(iii) Take no action, unless otherwise
required by law, rules or regulation, that would reasonably be considered to (A)
adversely affect the ability of any of them or Emclaire to obtain any necessary
approvals of Regulatory Authorities required to consummate the transactions
contemplated by this Reorganization Agreement, or (B) adversely affect the
ability of such Party to perform its covenants and agreements under this
Reorganization Agreement;
(iv) Except as they may terminate in
accordance with their terms or as may be terminated by PSFC or Peoples Bank as a
result of a material default by a party other than PSFC or Peoples Bank, keep in
full force and effect, and not default in any of their obligations under, all
material contracts;
(v) Keep in full force and effect insurance
coverage with responsible insurance carriers which is reasonably adequate in
coverage and amount for companies the size of PSFC or such PSFC Subsidiary and
for the businesses and properties owned by each and in which each is engaged, to
the extent that such insurance is reasonably available;
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(vi) Use its best efforts to retain Peoples
Bank's present customer base and to facilitate the retention of such customers
by Peoples Bank and its branches after the Effective Time of the Merger; and
(vii) Maintain, renew, keep in full force
and effect, and preserve its business organization and material rights and
franchises, permits and licenses, and to use its best efforts to maintain
positive relations with its present employees so that such employees will
continue to perform effectively and will be available to PSFC, Peoples Bank or
Emclaire and Emclaire's Subsidiaries at and after the Effective Time of the
Merger, and to use its best efforts to maintain its existing, or substantially
equivalent, credit arrangements with banks and other financial institutions and
to assure the continuance of Peoples Bank's customer relationships.
(b) PSFC and Peoples Bank agree to use their best
efforts to assist Emclaire in obtaining the Government Approvals necessary to
complete the transactions contemplated hereby and do not know of any reason that
such Government Approvals can not be obtained, and PSFC and Peoples Bank shall
provide to Emclaire or to the appropriate governmental authorities all
information reasonably required to be submitted in connection with obtaining
such approvals.
(c) PSFC and Peoples Bank, at their own cost and
expense, shall use their best efforts to secure all necessary consents and all
consents and releases, if any, required of PSFC, Peoples Bank or third parties
and shall comply with all applicable laws, regulations and rulings in connection
with this Reorganization Agreement and the consummation of the transactions
contemplated hereby.
(d) At all times to and including, and as of, the
Closing, PSFC and Peoples Bank shall inform Emclaire of any and all facts
necessary to amend or supplement the representations and warranties made herein
and the PSFC Schedules attached hereto as necessary so that the information
contained herein and therein will accurately reflect the current status of PSFC
and Peoples Bank; provided, however, that any such updates to the PSFC Schedules
shall be required prior to the Closing only with respect to matters which
represent material changes to the PSFC Schedules and the information contained
therein.
(e) Subject to the terms and conditions of this
Reorganization Agreement, PSFC and Peoples Bank agree to use all reasonable
efforts and to take, or to cause to be taken, all actions, and to do, or to
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate and make effective, with reasonable
promptness after the date of this Reorganization Agreement, the transactions
contemplated by this Reorganization Agreement, including, without limitation,
using reasonable efforts to lift or rescind any injunction or restraining or
other order adversely affecting the ability of the Parties to consummate the
transaction contemplated by this Reorganization Agreement. PSFC shall use, and
shall cause each of its Subsidiaries to use, its best efforts to obtain consents
of all third parties and Regulatory Authorities necessary or desirable for the
consummation of each of the transactions contemplated by this Reorganization
Agreement.
(f) PSFC shall notify Emclaire promptly after
becoming aware of the occurrence of, or the impending or threatened occurrence
of, any event that would constitute a material breach on its part of any
obligation under this Agreement or the occurrence of any event that would cause
any representation or warranty made by it herein to be false or misleading in
any material respect, or if it becomes a party or is threatened with becoming a
party to any legal or equitable proceeding or governmental investigation or upon
the occurrence of any event that would result in a material change in the
circumstances described in the representations and warranties contained herein.
(g) On the business day immediately prior to the
Effective Time of the Merger or on such other day after the satisfaction of all
conditions precedent to the Merger as Emclaire may require PSFC shall, at the
request of Emclaire, take all legally permissible action necessary to convert to
the accounting policies and practices of Emclaire, such actions to include,
without limitation, at Emclaire's option, adjustments to loan loss reserves,
reserves for federal income taxes, accounting for post-retirement medical
benefits, and accruals for severance and related costs and accrued vacation and
disability leave. PSFC's and Peoples Bank's representations, warranties and
covenants contained in this Reorganization Agreement shall not be deemed to be
untrue or breached in any respect for any purpose as a consequence of any
modifications or changes undertaken solely on account of this Section 5.2(g).
5.3 Conduct of Business -- Negative Covenants. From the date
of this Reorganization Agreement until the earlier of the Effective Time of the
Merger or the termination of this Reorganization Agreement, except as set forth
in Schedule 5.3, PSFC and Peoples Bank covenant and agree that they will neither
do, nor agree or commit to do, nor permit any PSFC Subsidiary to do or commit or
agree to do, any of the following without requesting Emclaire's approval and
receiving the prior written consent of the president of Emclaire, which consent
will not be unreasonably withheld and shall be deemed given unless Emclaire
disapproves the same within five (5) business days of having received PSFC's
written request for such approval:
(a) Except as expressly contemplated by this
Reorganization Agreement or the Plan of Merger, amend its Articles of
Incorporation or Bylaws; or
(b) Impose on any share of capital stock held by
it or by any of its Subsidiaries of any lien, charge, or encumbrance, or permit
any such lien, charge, or encumbrance to exist; or
(c) (i) Repurchase, redeem, or otherwise acquire or
exchange, directly or indirectly, any shares of its capital stock or other
equity securities or any securities or instruments convertible into any shares
of its capital stock, or any rights or options to acquire any shares of its
capital stock or other equity securities except as expressly permitted by this
Reorganization Agreement or the Plan of Merger; or (ii) split or otherwise
subdivide its capital stock; or (iii) recapitalize in any way; or (iv) declare a
stock dividend on the PSFC Common Stock; or
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(v) pay or declare a cash dividend or make or declare any other type of
distribution on the PSFC Common Stock except for any cash dividend already
declared prior to this Reorganization Agreement or regular quarterly cash
dividends payable in the same amount and during the same time periods as past
quarterly dividends; or
(d) Except as expressly permitted by this
Reorganization Agreement, acquire direct or indirect control over any
corporation, association, firm, organization or other entity, other than in
connection with (i) mergers, acquisitions, or other transactions approved in
writing by Emclaire, (ii) internal reorganizations or consolidations involving
existing Subsidiaries, (iii) acquisitions of control in its fiduciary capacity,
or (iv) the creation of new subsidiaries organized to conduct or continue
activities otherwise permitted by this Reorganization Agreement;
(e) Except as expressly permitted by this
Reorganization Agreement or the Plan of Merger, to (i) issue, sell, agree to
sell, or otherwise dispose of or otherwise permit to become outstanding any
additional shares of PSFC Common Stock (not including shares issuable upon the
exercise of validly issued and PSFC Stock Options outstanding as of the date of
this Reorganization Agreement), or any other capital stock of PSFC or of any
PSFC Subsidiary, or any stock appreciation rights, or any option, warrant,
conversion, call, scrip, or other right to acquire any such stock, or any
security convertible into any such stock, unless any such shares of such stock
are directly sold or otherwise directly transferred to PSFC or any PSFC
Subsidiary, (ii) sell, agree to sell, or otherwise dispose of any substantial
part of the assets or earning power of PSFC or of any PSFC Subsidiary; (iii)
sell, agree to sell, or otherwise dispose of any asset of PSFC or any PSFC
Subsidiary other than in the ordinary course of business for reasonable and
adequate consideration or (iv) buy, agree to buy or otherwise acquire a
substantial part of the assets or earning power of any other Person or entity
except in the ordinary course of business to realize upon a debt owed to it.
(f) Incur, or permit any PSFC Subsidiary to incur,
any additional debt obligation or other obligation for borrowed money other than
(i) in replacement of existing short-term debt with other short-term debt of an
equal or lesser amount, (ii) financing of banking related activities, or (iii)
indebtedness of PSFC or any PSFC Subsidiary to Peoples Bank or another PSFC
Subsidiary in excess of an aggregate of $10,000 (for PSFC and its Subsidiaries
on a consolidated basis) except in the ordinary course of the business of PSFC
or such PSFC Subsidiary (and such ordinary course of business shall include, but
shall not be limited to, creation of deposit liabilities, entry into repurchase
agreements or reverse repurchase agreements, purchases or sales of federal
funds, Federal Home Loan Bank advances, and sales of certificates of deposit);
(g) Grant any increase in compensation or benefits
to any of its employees or officers in excess of the lesser of five percent (5%)
per annum or $2,500 for any of them individually, except in accordance with past
practices or as required by law; pay any bonus except in accordance with past
practices or any plan or arrangement; enter into any severance agreements with
any of its officers or employees; grant any material increase in fees or other
increases in new compensation or other benefits to any director of PSFC or of
any PSFC Subsidiary; or effect any change in retirement benefits for any class
of its employees or officers, unless such change is required by applicable law;
(h) Amend any existing employment contract between it
and any person to increase the compensation or benefits payable thereunder; or
enter into any new employment contract with any person that PSFC or Peoples Bank
do not have the unconditional right to terminate without liability (other than
liability for services already rendered), at any time on or after the Effective
Time of the Merger;
(i) Adopt any new employee benefit plan or terminate
or make any material change in or to any existing employee benefit plan other
than any change that is required by law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax-qualified status of any such plan;
(j) Enter into any new service contracts, purchase
or sale agreements or lease agreements in excess of $5,000 that are material to
PSFC or any PSFC Subsidiary;
(k) Make any capital expenditure exceeding $10,000;
(l) Knowingly take any action that is intended or
may reasonably be expected to result in any of its representations and
warranties set forth in this Reorganization Agreement being or becoming untrue
in any material respect, or in any of the conditions to the Merger set forth in
Article 7 not being satisfied, or in violation of any provision of this
Reorganization Agreement, except, in every case, as may be required by
applicable law;
(m) Change its methods of accounting in effect at
June 30, 1997, except as required by changes in generally accepted accounting
principles as concurred in, in writing, by PSFC's independent auditors (a copy
of which shall be provided to Emclaire) or regulatory accounting principles;
(n) Except as required by applicable law, knowingly
take or cause to be taken any action that could reasonably be expected to
jeopardize or delay the receipt of any of the required regulatory approvals or
which would reasonably be expected to result in any such required regulatory
approval containing a condition that is determined by Emclaire to be unduly
burdensome;
(o) Fail to use its best efforts to keep in full
force and effect its insurance and bonds in such amounts as are reasonable to
cover such risks customary in relation to the character and location of its
properties and the nature of its business and in any event at least equal in
scope and amount of coverage of insurance and bonds now carried;
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(p) Fail to notify Emclaire promptly of its receipt
of any letter, notice or other communication, whether written or oral, from any
governmental entity advising PSFC that it is contemplating issuing, requiring,
or requesting any agreement, memorandum of understanding, or similar
undertaking, order or directive;
(q) Fail promptly to notify Emclaire of (i) the
commencement or threat of any audit, action, or proceeding involving any
material amount of taxes against either PSFC or any PSFC Subsidiary or (ii) the
receipt by PSFC or any PSFC Subsidiary of any deficiency or audit notices or
reports in respect of any material deficiencies asserted by any federal, state,
local or other tax authorities;
(r) Fail to maintain and keep its properties in good
repair and condition, except for depreciation due to ordinary wear and tear;
(s) Engage in any off-balance sheet hedge
transactions.
5.4 Conduct of Business -- Certain Actions.
Except to the extent necessary to consummate the
transactions specifically contemplated by this Reorganization Agreement, PSFC
and Peoples Bank shall not, and shall use their respective best efforts to
ensure that their respective directors, officers, employees, and advisors do
not, directly or indirectly, institute, solicit, or knowingly encourage
(including by way of furnishing any information not legally required to be
furnished) any inquiry, discussion, or proposal, or participate in any
discussions or negotiations with, or provide any confidential or non-public
information to, any corporation, partnership, person or other entity or group
(other than to Emclaire or any Emclaire Subsidiary) concerning any "Acquisition
Proposal" (as defined below), except for actions reasonably considered by the
Board of Directors of PSFC, based upon the advice of outside legal counsel, to
be required in order to fulfill its fiduciary obligations. PSFC shall notify
Emclaire immediately if any Acquisition Proposal has been or should hereafter be
received by PSFC or Peoples Bank, such notice to contain, at a minimum, the
identity of such persons, and, subject to disclosure being consistent with the
fiduciary obligations of PSFC's Board of Directors, a copy of any written
inquiry, the terms of any proposal or inquiry, any information requested or
discussions sought to be initiated, and the status of any reports, negotiations
or expressions of interest. For purposes of this Section, "Acquisition Proposal"
means any tender offer, agreement, understanding or other proposal of any nature
pursuant to which any corporation, partnership, person or other entity or group,
other than Emclaire or any Emclaire Subsidiary, would directly or indirectly (i)
acquire or participate in a merger, share exchange, consolidation or any other
business combination involving PSFC or Peoples Bank; (ii) acquire the right to
vote ten percent (10%) or more of the PSFC Common Stock or Peoples Bank Common
Stock; (iii) acquire a significant portion of the assets or earning power of
PSFC or of Peoples Bank; or (iv) acquire in excess of ten percent (10%) of the
outstanding PSFC Common Stock or Peoples Bank common stock.
ARTICLE 6
COVENANTS OF EMCLAIRE
6.1 Regulatory and Other Approvals. Within a reasonable time
after execution of this Reorganization Agreement, Emclaire shall file any and
all applications with the appropriate government Regulatory Authorities in order
to obtain the Government Approvals and shall take such other actions as may be
reasonably required to consummate the transactions contemplated in this
Reorganization Agreement and the Plan of Merger with reasonable promptness.
Emclaire shall pay all fees and expenses arising in connection with such
applications for regulatory approval. Emclaire agrees to use its best efforts to
provide the appropriate Regulatory Authorities with the information required by
such authorities in connection with Emclaire's applications for regulatory
approval and to use its best efforts to obtain such regulatory approvals, and
any other approvals and consents as may be required for the Closing, as promptly
as practicable; provided, however, that nothing in this Section shall be
construed to obligate Emclaire to take any action to meet any condition required
to obtain prior regulatory approval if such condition would have a material
adverse effect on the ability of Emclaire to carry on its business, branching or
acquisition programs. Emclaire shall provide PSFC the opportunity to review and
comment on all required applications within a reasonable period prior to the
filing thereof and provide PSFC with copies of all written communications with
Regulatory Authorities regarding the transactions provided for herein and
related applications and proceedings. Subject to the terms and conditions of
this Reorganization Agreement, Emclaire and Farmers National agree to use all
reasonable efforts and to take, or to cause to be taken, all actions, and to do,
or to cause to be done, all things necessary, proper, or advisable under
applicable laws and regulations to consummate and make effective, with
reasonable promptness after the date of this Reorganization Agreement, the
transactions contemplated by this Reorganization Agreement, including, without
limitation, using reasonable efforts to lift or rescind any injunction or
restraining or other order adversely affecting the ability of the Parties to
consummate the transaction contemplated by this Reorganization Agreement.
Subject to the provisions of this Section, Emclaire shall use, and shall cause
each of its Subsidiaries to use, its best efforts to obtain consents of all
third parties and Regulatory Authorities necessary or desirable for the
consummation of each of the transactions contemplated by this Reorganization
Agreement.
6.2 Approvals and Registrations. Emclaire will use its best
efforts to prepare and file (a) with the SEC, the Registration Statement on Form
S-4 (the "Registration Statement"), (b) with the FDIC, an application for
approval of the Merger, if applicable, (c) with the PADB, an application for
approval of the Merger, (d) with the OCC, an application for approval of the
Merger, and (e) with the OTC Bulletin Board, if necessary, an application for
the listing of the Shares of Emclaire Stock issuable upon the Merger, subject to
official notice of issuance, except that Emclaire shall have no obligations to
file a new registration statement or a post-effective amendment to the
Registration Statement covering any reoffering of Emclaire Stock by PSFC
Affiliates. Emclaire, reasonably in advance of making such filings, will provide
PSFC and its counsel a reasonable opportunity to comment on such filings and
regulatory applications and will give due consideration to any comments of
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PSFC and its counsel before making any such filing or application; and Emclaire
will provide PSFC and its counsel with copies of all such filings and
applications at the time filed if such filings and applications are made at any
time before the Effective Time of the Merger. Emclaire covenants and agrees that
all information furnished by Emclaire for inclusion in the Registration
Statement, the Prospectus/Proxy Statement, and all applications and submissions
for the Required Consents (as defined in Section 6.1 herein) will comply in all
material respects with the provisions of applicable law, including the
Securities Act and the Exchange Act and the rules and regulations of the SEC,
the FDIC, the PADB, and OCC, and will not contain any untrue statement of a
material fact and will not omit to state any material fact required to be stated
therein or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading, Emclaire will furnish
to Capital Resources and Hopper Soliday, Inc., investment bankers advising PSFC
and Emclaire, respectively, such information as they may reasonably request for
purposes of the opinions referred to in Sections 7.2(h) and 7.1(j),
respectively.
6.3 Employee Benefits. Following the consummation of the
transactions contemplated herein, Emclaire shall not be obligated to make
further contributions to any of the Employee Plans or Benefit Arrangements of
PSFC or Peoples Bank and all employees of PSFC and Peoples Bank immediately
prior to the Effective Time of the Merger who shall continue as employees of
Emclaire as the Surviving Corporation or as employees of any other Emclaire
Subsidiary will be afforded the opportunity to participate in any employee
benefit plans maintained by Emclaire or Emclaire's Subsidiaries, including but
not limited to any "employee benefit plan," as that term is defined in ERISA, on
an equal basis with employees of Emclaire or any Emclaire Subsidiary with
comparable positions, compensation, and tenure, subject to the provisions of
this Section. Service with PSFC or with any PSFC Subsidiary prior to the
Effective Time of the Merger by such former PSFC employees will be deemed
service with Emclaire for purposes of determining eligibility for participation
and for crediting of service for vesting purposes in such employee benefit plans
of Emclaire and Emclaire's Subsidiaries; provided, however, that in no event
shall any former PSFC or Peoples employee be entitled to or be given credit for
past service with such former PSFC for purposes of the accrual, calculation, or
determination of benefit amounts under any pension plan maintained by Emclaire
or any Emclaire subsidiaries. Peoples shall take all steps necessary to cause
the 401(k) plan maintained by PSFC to be terminated, and distributions made
thereunder in accordance with the provisions of Code Section 401(k)(10)(A)(i),
as soon as practicable after the Effective Time of the Merger. Following the
transfer of the former PSFC employees to Emclaire's health plan, there shall be
no exclusion from coverage for any pre-existing medical condition of any such
employee to the extent such condition was covered under a health plan of
Peoples.
6.4 Notification. Emclaire shall notify PSFC promptly after
becoming aware of the occurrence of, or the impending or threatened occurrence
of, any event that would constitute a breach on its part of any obligation under
this Reorganization Agreement or the occurrence of any event that would cause
any representation or warranty made by it herein to be false or misleading, or
if it becomes a party or is threatened with becoming a party to any legal or
equitable proceeding or governmental investigation or upon the occurrence of any
event that would result in a change in the circumstances described in the
representations and warranties contained herein. At all times up to and
including, and as of, the Closing, Emclaire and Farmers National shall inform
PSFC in writing of any and all facts necessary to amend or supplement the
representations and warranties made herein and the Emclaire Schedules attached
hereto as necessary so that the information contained herein and therein will
accurately reflect the current status of Emclaire and Farmers National;
provided, however, that any such updates to the Emclaire Schedules shall be
required prior to the Closing only with respect to matters which represent
material changes to the Emclaire Schedules and the information contained
therein.
6.5 Tax Representations. Neither Emclaire nor any of its
Subsidiaries has taken, agreed to take, or will take any action or has any
knowledge of any fact or circumstance that would prevent the transactions
contemplated hereby, including the Merger, from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
6.6 Directors and Officers Indemnification and Insurance
Coverage.
(a) Emclaire will continue to indemnify officers,
directors, and employees of PSFC and Peoples Bank to the full extent required
under the provisions of Article 24 of Emclaire's Bylaws from the Effective Time
of the Merger.
(b) For a period of six (6) years after the
Effective Time, Emclaire will provide to the persons who served as directors or
officers of PSFC or any subsidiary of PSFC on or before the Effective Time of
the Merger insurance against liabilities and claims (and related expenses) made
against them resulting from their service as such prior to the Effective Time
substantially similar in all material respects to the insurance coverage
provided to them in such capacities at the date hereof; provided, however, that
if Emclaire is unable to maintain or obtain the insurance called for by this
Section on commercially reasonable terms, Emclaire shall use its best efforts to
obtain as much comparable insurance as available. In no event shall the cost of
such coverage exceed 175% of the amount of the current premiums being paid by
PSFC. In lieu of the foregoing, PSFC shall renew any existing insurance or
purchase any "discovery period" insurance provided for thereunder at Emclaire's
request and expense.
6.7 Conduct of Emclaire and Farmers National Prior to the
Effective Time. Except as expressly provided in this Agreement, as agreed to by
PSFC or as required by applicable law, rules or regulations, during the period
from the date of this Agreement to the Effective Time, Emclaire and Farmers
National shall, and shall cause its subsidiaries to, (i) take no action which
would adversely affect or delay the ability of PSFC, Emclaire or Farmers
National to obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions contemplated hereby or to
perform its covenants and agreements on a timely basis under this Agreement,
(ii) take no action that could reasonably be expected to have a material adverse
effect on Emclaire and Farmers National; (iii) continue to conduct its business
consistent with past practices; and (iv) take no action during or before the
Pricing Period that wold materially alter Emclaire's or Farmers National's
historic practices regarding cash dividends or stock repurchases.
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ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to the Obligations of Emclaire. Unless waived
in writing by Emclaire, the obligation of Emclaire to consummate the
transactions contemplated by this Reorganization Agreement is subject to the
satisfaction at or prior to the Closing Date of the following conditions:
(a) Performance. Each of the material acts and
undertakings of PSFC and Peoples Bank to be performed at or before the Closing
Date pursuant to this Reorganization Agreement shall have been duly performed;
(b) Representations and Warranties. The
representations and warranties of PSFC and Peoples Bank contained in this
Reorganization Agreement shall be true and correct, in all material respects, on
and as of the Closing Date with the same effect as though made on and as of the
Closing Date;
(c) Documents. In addition to the documents described
elsewhere in this Reorganization Agreement, Emclaire shall have received the
following documents and instruments:
(i) a certificate signed by the Secretary
or an assistant secretary of PSFC and Peoples Bank dated as of the Closing Date
certifying that:
(A) PSFC's and Peoples Bank's
respective Boards of Directors and shareholders have duly
adopted resolutions (copies of which shall be attached to such
certificate) approving the substantive terms of this
Reorganization Agreement (including the Plan of Merger) and
authorizing the consummation of the transactions contemplated
by this Reorganization Agreement and certifying that such
resolutions have not been amended or modified and remain in
full force and effect;
(B) each person executing this
Reorganization Agreement on behalf of PSFC and Peoples Bank
is an officer of PSFC or Peoples Bank, as the case may be,
holding the office or offices specified therein, with full
power and authority to execute this Reorganization Agreement
and any and all other documents in connection with the Merger,
and that the signature of each person set forth on such
certificate is his or her genuine signature;
(C) the charter documents of PSFC
and Peoples Bank attached to such certificate remain in full
force and effect; and
(ii) a certificate signed by the respective
Chairman of the Board, President and Chief Financial Officer
of each of PSFC and Peoples Bank stating that the conditions
set forth in Sections 7.1(a), 7.1(b) and 7.1(e) this
Reorganization Agreement have been satisfied.
(d) Inspections Permitted. Between the date of
this Reorganization Agreement and the Closing Date, PSFC and Peoples Bank shall
have afforded Emclaire and its authorized agents and representatives reasonable
access during normal business hours to the properties, operations, books,
records, contracts, documents, loan files and other information of or relating
to PSFC and Peoples Bank. Emclaire will provide PSFC and Peoples Bank at least
48 hours notice of any inspection and conduct any inspection in a reasonable
manner that will not interfere with business operations. PSFC and Peoples Bank
shall have caused all PSFC or Peoples Bank personnel to provide reasonable
assistance to Emclaire in its investigation of matters relating to PSFC and
Peoples Bank.
(e) No Material Adverse Change. No material
adverse change in the business, property, assets (including loan portfolios),
liabilities (whether absolute, contingent or otherwise), operations, liquidity,
income, or financial condition of PSFC and Peoples Bank taken as a whole shall
have occurred since the date of this Reorganization Agreement.
(f) Opinion of PSFC's Counsel. Emclaire shall have
been furnished with an opinion of legal counsel to PSFC and Peoples Bank, dated
the Closing Date, addressed to Emclaire, substantially to the effect that:
(i) PSFC is a corporation validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania;
(ii) Peoples Bank is a state stock savings
bank, validly existing, and in good standing under the laws of the
Commonwealth of Pennsylvania;
(iii) PSFC and Peoples Bank have full
corporate power and authority to enter into the Reorganization Agreement; the
Reorganization Agreement has been duly and validly authorized by all necessary
corporate action by PSFC and Peoples Bank and has been duly and validly executed
and delivered by and on behalf of PSFC and Peoples Bank; and no approval,
authorization, order, consent,
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registration, filing, qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is required under any
federal or Pennsylvania statute or regulation for the execution and delivery of
the Reorganization Agreement by PSFC and Peoples Bank or the consummation of the
transactions contemplated by the Reorganization Agreement, except such as have
been obtained and are in full force and effect; and
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of PSFC or Peoples Bank or appropriate
government officials; (ii) in the case of matters of law governed by the laws of
the states in which they are not licensed, reasonably rely upon the opinions of
legal counsel duly licensed in such states and may be limited, in any event, to
federal law and the PBCA and (iii) incorporate, be guided by, and be interpreted
in accordance with, the Legal Opinion Accord of the ABA Section of Business Law
(1991);
(g) Other Business Combinations, Etc. Neither
PSFC nor Peoples Bank shall have entered into any agreement, letter of intent,
understanding or other arrangement pursuant to which PSFC or Peoples Bank would
merge, consolidate with; effect a business combination with, sell any
substantial part of PSFC's or Peoples Bank's assets to, or; acquire a
significant part of the shares or assets of, any other Person or entity
(financial or otherwise); adopt any "poison pill" or other type of anti-takeover
arrangement, any shareholder rights provision, any "golden parachute" or similar
program which would have the effect of materially decreasing the value of PSFC
or Peoples Bank or the benefits of acquiring the PSFC Common Stock;
(h) Regulatory Approvals. Except for the filing
of the Certificate of Merger with the Secretary of State of the Commonwealth of
Pennsylvania, all Regulatory Approvals for the transactions contemplated by this
Reorganization Agreement shall have been obtained without the imposition of any
conditions not typically imposed in similar transactions which Emclaire
determines in its sole judgment to be materially burdensome upon the conduct of
the business of Emclaire or which would so adversely impact the economic and
business benefits of the Merger to Emclaire as to render it inadvisable in the
sole judgment of Emclaire to proceed with the Merger; such approvals shall be in
effect and no proceedings shall have been instituted or threatened with respect
thereto; all applicable waiting periods with respect to such approvals shall
have expired; and all conditions and requirements prescribed by law or otherwise
imposed in connection with the Regulatory Approvals shall have been satisfied;
(i) PSFC Stockholder Approval. PSFC shall have
furnished Emclaire with a certified copy of resolutions duly adopted by the
holders of a vote of the outstanding shares of PSFC Common Stock entitled to
vote thereon approving this Reorganization Agreement, the Merger, and the
transactions contemplated hereby; such resolutions shall be in full force and
effect and shall not have been modified, rescinded or annulled; and
(j) Fairness Opinion. Emclaire shall have received
a "fairness opinion" letter from its independent financial adviser, Hopper
Soliday, dated the date hereof and to the effect that, in the opinion of such
adviser the Consideration to be received by the PSFC Record Holders is fair to
the stockholders of Emclaire from a financial point of view, and Emclaire shall
have received an updated "fairness opinion" letter from such advisers at the
time of the mailing of the proxy statement for the Emclaire Shareholders'
Meeting and at the Closing Date confirming the opinions provided in the initial
"fairness opinion" letter.
7.2 Conditions to the Obligations of PSFC. Unless waived in
writing by PSFC, the obligation of PSFC to consummate the transaction
contemplated by this Reorganization Agreement is subject to the satisfaction at
or prior to the Closing Date of the following conditions:
(a) Performance. Each of the material acts and
undertakings of Emclaire to be performed at or prior to the Closing Date
pursuant to this Reorganization Agreement shall have been duly performed in all
material respects;
(b) No Material Adverse Change. No material
adverse change in the business, property, assets (including loan portfolios),
liabilities (whether absolute, contingent or otherwise), operations, liquidity,
income, or financial condition of Emclaire and Farmers National taken as a whole
shall have occurred since the date of this Reorganization Agreement;
(c) Representations and Warranties. The represen-
tations and warranties of Emclaire and Farmers National contained in this
Reorganization Agreement shall be true and correct, in all material respects, on
and as of the Closing Date with the same effect as though made on and as of the
Effective Time of the Merger;
(d) Documents. In addition to the other deliveries of
Emclaire described elsewhere in this Reorganization Agreement, PSFC shall have
received the following documents and instruments:
(i) a certificate signed by the Secretary
or an assistant secretary of Emclaire and Farmers National dated as of the
Closing Date certifying that:
(A) Emclaire's and Farmers National's
respective Boards of Directors have duly adopted resolutions
(copies of which shall be attached to such certificate)
approving the substantive terms of this Reorganization
Agreement (including the Plan of Merger) and authorizing the
consummation of the transactions contemplated by this
Reorganization Agreement and certifying that such resolutions
have not been amended or modified and remain in full force
and effect;
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(B) the persons executing this
Reorganization Agreement on behalf of Emclaire and Farmers
National are officers of Emclaire and Farmers National,
respectively, holding the offices so specified with full power
and authority to execute this Reorganization Agreement and any
and all other documents in connection with the Merger, and
that the signature of such person set forth on such
certificate is his genuine signature;
(C) the organization documents of
Emclaire and Farmers National attached to such certificate
remain in full force and effect; and
(ii) a certificate signed respectively by
duly authorized officers of Emclaire and Farmers National stating
that the conditions set forth in Sections 7.2(a), 7.2(b) and 7.2(c) of
this Reorganization Agreement have been satisfied;
(e) Consideration. PSFC shall have received a
certificate executed by an authorized officer of the Exchange Agent to the
effect that the Exchange Agent has received and holds in its possession proper
authorization to issue certificates evidencing shares of Emclaire Common Stock
and cash or other good funds sufficient to meet the obligations of Emclaire to
the PSFC Record Holders to deliver the Consideration under this Reorganization
Agreement and the Plan of Merger; and
(f) Opinion of Emclaire's Counsel. PSFC shall
have been furnished with an opinion of counsel to Emclaire, dated as of the
Closing Date, addressed to PSFC, substantially to the effect that:
(i) Emclaire is incorporated and validly
existing as a corporation in good standing under the laws of the Commonwealth of
Pennsylvania; Farmers National is a wholly-owned subsidiary of Emclaire
organized and validly existing and in good standing as a state stock savings
bank chartered under the laws of the Commonwealth of Pennsylvania;
(ii) The authorized capital stock of
Emclaire consists of 12,000,000 shares of Emclaire Common Stock, par value $1.25
per share, of which 1,081,453 shares of Emclaire Common Stock are validly issued
and outstanding; all necessary corporate proceedings have been taken in order to
validly authorize such Emclaire Common Stock; and to the best of their
knowledge, all outstanding shares of Emclaire Common Stock have been duly and
validly issued, are fully paid and nonassessable, were not issued in violation
of or subject to any statutory preemptive rights;
(iii) The certificates evidencing the
Emclaire Common Stock to be delivered pursuant to the Reorganization Agreement
are in all material respects in due and proper form under Pennsylvania Law, and
when fully countersigned by Emclaire's transfer agent and register and issued in
accordance with the provisions of the Reorganization Agreement, the Emclaire
Common Stock represented thereby will be duly authorized and validly issued,
fully paid and nonassessable, and will not have been issued in violation of or
subject to any statutory preemptive rights;
(iv) Emclaire and Farmers National have full
corporate power and authority to enter into the Reorganization Agreement and
Emclaire has full corporate power and authority to issue the Emclaire Common
Stock pursuant to the Reorganization Agreement, the Reorganization Agreement has
been duly and validly authorized by all necessary corporate action by Emclaire
and Farmers National and has been duly and validly executed and delivered by and
on behalf of Emclaire and Farmers National and no approval, authorization, order
consent, registration, filing, qualification, license or permit of or with any
court, regulatory, administrative or other governmental body is required under
any federal or Pennsylvania statute or regulation for the execution and delivery
of the Reorganization Agreement by Emclaire and Farmers National or the
consummation of the transactions contemplated by the Reorganization Agreement,
except such as have been obtained and are in full force and effect;
(v) Neither the execution and delivery
by Emclaire of this Reorganization Agreement nor any of the documents to be
executed and delivered by Emclaire in connection herewith violates or conflicts
with Emclaire's Articles of Incorporation or Bylaws.
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of Emclaire or appropriate government
officials; (ii) in the case of matters of law governed by the laws of the states
in which they are not licensed, reasonably rely upon the opinions of legal
counsel duly licensed in such states and may be limited, in any event, to
Federal Law and the Commonwealth of Pennsylvania; and (iii) incorporate, be
guided by, and be interpreted in accordance with, the Legal Opinion Accord of
the ABA Section of Business Law (1991);
(g) Emclaire Stockholder Approval. Emclaire shall
have furnished PSFC with a certified copy of resolutions duly adopted by the
holders of a vote of the outstanding shares of Emclaire Common Stock entitled to
vote thereon approving this Reorganization Agreement, the Merger, and the
transactions contemplated hereby; such resolutions shall be in full force and
effect and shall not have been modified, rescinded or annulled; and
(h) Fairness Opinion. PSFC shall have received
a "fairness opinion" letter from its independent financial adviser, Capital
Resources, or such other qualified third party, dated the date hereof and to the
effect that, in the opinion of such adviser the Consideration to be received by
the PSFC Record Holders is fair to the PSFC Record Holders from a financial
point of view, and PSFC shall have received an updated "fairness opinion" letter
from such advisers at the time of the mailing of the proxy statement for the
PSFC Shareholders' Meeting Date confirming the opinions provided in the initial
"fairness opinion" letter.
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7.3 Conditions to Obligations of All Parties. The obligations
of each party to effect the transactions contemplated hereby shall be subject to
the fulfillment, at or prior to the Closing, of the following conditions:
(a) No Pending or Threatened Claims. No claim,
action, suit, investigation or other proceeding shall be pending or threatened
before any court or governmental agency which presents a substantial risk of the
restraint or prohibition of the transactions contemplated by this Reorganization
Agreement or the obtaining of material damages or other relief in connection
therewith;
(b) Governmental Approvals and Acquiescence Obtained.
The Parties hereto shall have received all applicable Governmental Approvals for
the consummation of the transactions contemplated herein and all waiting periods
incidental to such approvals or notices given shall have expired; and
(c) Approval of Stockholders. Approval of this
Agreement and the transactions contemplated hereby by the stockholders of PSFC
and Emclaire, as required by applicable law, the rules of the OTC Bulletin Board
or applicable provisions of PSFC's or Emclaire's Articles of Incorporated and
Bylaws.
(d) Effectiveness of Registration Statement. The
Registration Statement has become effective under the 1933 Act, and no stop
order suspending the effectiveness of the Registration Statement or preventing
the use of the Proxy Statement has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated by the SEC or any
state securities or other regulatory authority.
(e) Tax Opinion. Emclaire and PSFC shall receive
an opinion of Emclaire's counsel to the effect that the transaction will
constitute a tax free reorganization within the meaning of Section 368 of the
Internal Revenue Code and that no gain or loss will be recognized by PSFC
shareholders who receive solely shares of Emclaire Common Stock in exchange for
their shares of PSFC Common Stock.
ARTICLE 8
TERMINATION
8.1 Termination. This Reorganization Agreement and the Plan of
Merger may be terminated at any time prior to the Closing, as follows:
(a) By mutual consent in writing of the Parties;
(b) By Emclaire or PSFC in the event the Closing
shall not have occurred by December 31, 1998 (the "Target Date"), unless the
failure of the Closing to occur shall be due to the failure of the Party seeking
to terminate this Agreement to perform its obligations hereunder in a timely
manner;
(c) By either Emclaire or PSFC upon written
notice to the other Party, upon (i) denial of any Governmental Approval
necessary for the consummation of the Merger (or should such approval be
conditioned upon a substantial deviation from the transactions contemplated);
provided, however, that either Emclaire or PSFC may, upon written notice to the
other, extend the term of this Reorganization Agreement for only one or more
sixty (60) day periods to prosecute diligently and overturn such denial,
provided that such denial has been appealed within twenty (20) business days of
the receipt thereof or (ii) upon the failure to obtain the approval of the PSFC
shareholders at the PSFC shareholders meeting;
(d) By Emclaire or PSFC in the event that there shall
have been a material breach of any obligation or covenant of the other Party
hereunder and such breach shall not have been remedied within sixty (60) days
after receipt by the breaching Party of written notice from the other Party
specifying the nature of such breach and requesting that it be remedied;
(e) By Emclaire or PSFC should PSFC or any PSFC
Subsidiary enter into any letter of intent or agreement with a view to being
acquired by or effecting a business combination with any other Person; or any
agreement to merge, to consolidate, to combine or to sell a material portion of
its assets or to be acquired in any other manner by any other Person or to
acquire a material amount of assets or a material equity position in any other
Person, whether financial or otherwise;
(f) By Emclaire should either PSFC or Peoples Bank
enter into any formal agreement, letter of understanding, memorandum or other
similar arrangement with any bank regulatory authority establishing a formal
capital plan requiring PSFC or Peoples Bank to raise additional capital or to
sell a substantial portion of its assets.
(g) By PSFC should either Emclaire or Farmers
National enter into any formal agreement, letter of understanding, memorandum or
other similar arrangement with any bank regulatory authority establishing a
formal capital plan requiring Emclaire or Framers National to raise additional
capital or to sell a substantial portion of its assets.
If a Party should elect to terminate this Reorganization Agreement pursuant to
subsections (b), (c), (d), (e), (f) or (g) of this Section, it shall give notice
to the other Party, in writing, of its election in the manner prescribed in
Section 9 ("Notices") of this Reorganization Agreement.
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8.2 Effect of Termination. In the event that this
Reorganization Agreement should be terminated pursuant to this Section, all
further obligations of the Parties under this Reorganization Agreement shall
terminate without further liability of any Party to another; provided, however,
that a termination under this Section shall not relieve any Party of any
liability for breach of this Reorganization Agreement or for any misstatement or
misrepresentation made hereunder prior to such termination, or be deemed to
constitute a waiver of any available remedy for any such breach, misstatement or
misrepresentation.
8.3 Fees.
(a) Notwithstanding anything to the contrary herein,
PSFC hereby agrees to pay Emclaire and Emclaire shall be entitled to receipt of
a fee (the "Fee") of $600,000 following the occurrence of a Purchase Event (as
defined below). Such payment shall be made immediately available funds within
five business days after delivery of notice of entitlement by Emclaire.
Notwithstanding the foregoing, payments pursuant to this Section shall not be
required in the event of termination of this Reorganization Agreement pursuant
to Section 8.1(a), (b), (c)(i), (d) (in the event terminated by PSFC due to a
material breach by Emclaire) or (f) prior to the occurrence of a Purchase Event.
(b) The term "Purchase Event" shall mean any of the
following events, or the PSFC or its Subsidiary agreeing to, orally or in
writing, to enter into an agreement relating to any of the following events,
occurring after the date hereof and before the Effective Time or occurring
within nine months of the date of termination of this Agreement pursuant to this
Article:
(i) the acquisition by any person, other
than Emclaire or any of its
subsidiaries, alone or together with
such person's affiliates and
associates or any group, of
beneficial ownership of 25% or more
of the PSFC Common Stock (for
purposes of this Subsection (b)(i),
the terms "group" and "beneficial
ownership" shall be as defined in
Section 13(d) of the Exchange Act
and regulations promulgated
thereunder and as interpreted
thereunder);
(ii) a merger, consolidation, share
exchange, business combination or
any other similar transaction
involving PSFC or Peoples Bank;
(iii) any sale, lease, exchange, mortgage,
pledge, transfer or other
disposition of 50% or more of the
assets of the PSFC or Peoples Bank,
in a single transaction or series of
transactions; or
(iv) the Board of Directors of PSFC does
not recommend approval of the
Reorganization to their shareholders
and the transaction contemplated
thereby unless PSFC has not received
a fairness opinion from an
investment banker similar to the one
described in Section 7.2(g) of this
Agreement.
(c) PSFC shall notify Emclaire promptly in writing of
its knowledge of the occurrence of any Purchase Event; provided, however, that
the giving of such notice by PSFC shall not be a condition to the right of
Emclaire to the Fee.
8.4 Expenses.
(a) PSFC hereby agrees that if this Agreement or
the transactions contemplated hereby are terminated pursuant to Sections 8.1(b)
or 8.1(d) as a result of a willful breach by PSFC, PSFC shall promptly (and in
any event within ten (10) business days after such termination) pay all Expenses
of Emclaire. "Expenses of Emclaire" as used in this Section 8.4(a) shall include
all reasonable in amount and reasonably incurred out-of-pocket expenses of
Emclaire (including all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to Emclaire and its Affiliates) incurred by it
or on its behalf in connection with the consummation of the transactions
contemplated by this Agreement.
(b) Emclaire hereby agrees that if this Agreement or
the transactions contemplated hereby are terminated pursuant to Sections 8.1(b)
or 8.1(d) as a result of a willful breach by Emclaire, Emclaire shall promptly
(and in any event within ten (10) business days after such termination) pay all
Expenses of PSFC. "Expenses of PSFC" as used in this Section 8.4(b) shall
include all reasonable in amount and reasonably incurred out-of-pocket expenses
of PSFC (including all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to PSFC and its Affiliates) incurred by it or
on its behalf in connection with the consummation of the transactions
contemplated by this Agreement.
ARTICLE 9
GENERAL PROVISIONS
9.1 Notices. Any notice, request, demand and other
communication which either Party hereto may desire or may be required hereunder
to give shall be in writing and shall be deemed to be duly given if delivered
personally or mailed by certified or registered mail (postage prepaid, return
receipt requested), air courier or facsimile transmission, addressed or
transmitted to such other Party as follows:
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If to Emclaire: Emclaire Financial Corp.
612 Main Street
Emlenton, Pennsylvania 16373
Fax: (724) 867-1614
Attn: David L. Cox
President and Chief Executive Officer
With a copy to: Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Fax: (202) 434-4661
Attn: Gregory A. Gehlmann, Esq.
If to PSFC: Peoples Savings Financial Corporation
173 Main Street
Ridgway, Pennsylvania 15853
Fax: (814) 772-9000
Attn: Glenn R. Pentz
Chief Financial Officer, Treasurer and Secretary
With a copy to: Serchuk & Zelermyer, LLP
81 Main Street
White Plains, NY 10601
Fax: (914) 761-2299
Attn: Ivan Serchuk, Esq.
or to such other address as any Party hereto may hereafter designate to the
other Parties in writing. Notice shall be deemed to have been given on the date
reflected in the proof or evidence of delivery, or if none, on the date actually
received.
9.2 Governing Law. This Reorganization Agreement shall be
governed by, and construed and enforced in accordance with, the internal laws,
and not the laws pertaining to choice or conflicts of laws, of the Commonwealth
of Pennsylvania, unless and to the extent that federal law controls. Any dispute
arising between the Parties in connection with the transactions which are the
subject of this Reorganization Agreement shall be heard in a court of competent
jurisdiction located in Pennsylvania.
9.3 Counterparts. This Reorganization Agreement may be
executed simultaneously in one or more counterparts, each of which shall be
deemed an original, but all of which shall constitute but one and the same
instrument.
9.4 Publicity. The Parties hereto will consult with each other
with regard to the terms and substance of any press releases, announcements or
other public statements with respect to the transactions contemplated hereby. To
the extent practicable, each Party shall provide the proposed text of any such
press release, announcement or public statement to the other Party prior to its
publication and shall permit such other Party a reasonable period to provide
comments thereon.
9.5 Entire Agreement. This Reorganization Agreement, together
with the Plan of Merger which is Exhibit A hereto, the Schedules, Annexes,
Exhibits and certificates required to be delivered hereunder and any amendments
or addenda hereafter executed and delivered in accordance with this Section
constitute the entire agreement of the Parties hereto pertaining to the
transactions contemplated hereby and supersede all prior written and oral (and
all contemporaneous oral) agreements and understandings of the Parties hereto
concerning the subject matter hereof. The Schedules, Annexes, Exhibits and
certificates attached hereto or furnished pursuant to this Reorganization
Agreement are hereby incorporated as integral parts of this Reorganization
Agreement. Except to the extent otherwise, provided herein, by specific language
and not by mere implication, this Reorganization Agreement is not intended to
confer upon any other person not a Party to this Reorganization Agreement any
rights or remedies hereunder.
9.6 Severability. If any portion or provision of this
Reorganization Agreement should be determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any jurisdiction, such
portion or provision shall be ineffective as to that jurisdiction to the extent
of such invalidity, illegality or unenforceability, without affecting in any way
the validity or enforceability of the remaining portions or provisions hereof in
such jurisdiction or rendering that or any other portions or provisions of this
Reorganization Agreement invalid, illegal or unenforceable in any other
jurisdiction.
9.7 Modifications, Amendments and Waivers. At any time prior
to the Closing or termination of this Reorganization Agreement, the Parties may,
solely by written agreement executed by their duly authorized officers:
(a) extend the time for the performance of any
of the obligations or other acts of the other Party hereto;
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(b) waive any inaccuracies in the representations and
warranties made by the other Party contained in this Reorganization Agreement or
in the Schedules or Exhibits hereto or any other document delivered pursuant to
this Reorganization Agreement;
(c) waive compliance with any of the covenants or
agreements of the other Party contained in this Reorganization Agreement to the
extent permitted by applicable law; and
(d) amend or add to any provision of this
Reorganization Agreement or the Plan of Merger; provided, however, that no
provision of this Reorganization Agreement may be amended or added to except by
an agreement in writing signed by the Parties hereto or their respective
successors in interest and expressly stating that it is an amendment to this
Reorganization Agreement.
9.8 Interpretation. The headings contained in this
Reorganization Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Reorganization Agreement.
9.9 Payment of Expenses. Except as set forth herein, Emclaire
and PSFC shall each pay its own fees and expenses (including, without
limitation, legal fees and expenses) incurred by it in connection with the
transactions contemplated hereunder.
9.10 Attorneys' Fees. If any Party hereto shall bring an
action at law or in equity to enforce its rights under this Reorganization
Agreement (including an action based upon a misrepresentation or the breach of
any warranty, covenant, agreement or obligation contained herein), the
prevailing Party in such action shall be entitled to recover from the other
Party its reasonable costs and expenses necessarily incurred in connection with
such action (including fees, disbursements and expenses of attorneys and costs
of investigation).
9.11 No Survival of Representations and Warranties. Except for
the agreements of the parties in Sections 1.2(d), 1.6, 1.7, 2.5, 6.3, 6.6, 8.3,
8.4 and 9.14, which shall survive the Closing, none of the representations,
warranties and conditions of the Parties contained in this Reorganization
Agreement or in any instrument of transfer or other document delivered in
connection with the transactions contemplated by this Reorganization Agreement
shall survive the Closing or other termination of this Reorganization Agreement.
The agreements of the parties in Sections 1.2(d), 1.6, 1.7, 2.5, 6.3 and 6.6
shall be enforceable directly by each person benefitted or intended to be
benefitted by such sections.
9.12 No Waiver. No failure, delay or omission of or by any
Party in exercising any right, power or remedy upon any breach or default of any
other Party shall impair any such rights, powers or remedies of the Party not in
breach or default, nor shall it be construed to be a waiver of any such right,
power or remedy, or an acquiescence in any similar breach or default; nor shall
any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Reorganization Agreement must be in writing and must be
executed by the Parties to this Reorganization Agreement and shall be effective
only to the extent specifically set forth in such writing.
9.13 Remedies Cumulative. All remedies provided in this
Reorganization Agreement, by law or equity, shall be cumulative and not
alternative.
9.14 Confidentiality. Any non-public or confidential
information disclosed by either PSFC (including any PSFC Subsidiaries) or
Emclaire (including any Emclaire Subsidiary) to the other Parties pursuant to
this Agreement or as a result of the discussions and negotiations leading to
this Agreement, or otherwise disclosed, or to which any other party has acquired
or may acquire access, and indicated (either expressly, in writing or orally, or
by the context of the disclosure or access) by the disclosing Party to be
non-public or confidential, or which by the content thereof reasonably appears
to be non-public or confidential, shall be kept strictly confidential and shall
not be used in any manner by the recipient except in connection with the
transactions contemplated by this Reorganization Agreement. To that end, the
Parties hereto will each, to the maximum extent practicable, restrict knowledge
of and access to non-public or confidential information of the other Party to
its officers, directors, employees and professional advisors who are directly
involved in the transactions contemplated hereby and reasonably need to know
such information. Further to that end, all non-public or confidential documents
(including all copies thereof) obtained hereunder by any Party shall be returned
as soon as practicable after any termination of this Reorganization Agreement.
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IN WITNESS WHEREOF, each of the Parties hereto has duly executed and
delivered this Reorganization Agreement or has caused this Reorganization
Agreement to be executed and delivered in its name and on its behalf by its
representative thereunto duly authorized, all as of the date first written
above.
PEOPLES SAVINGS FINANCIAL CORPORATION
By: /s/Norbert J. Pontzer
--------------------------------------
Norbert J. Pontzer
Chairman of the Board and President
ATTEST:
/s/Glenn R. Pentz, Jr.
- ----------------------------------
Glenn R. Pentz, Jr., Secretary
PEOPLES SAVINGS BANK
By: /s/Norbert J. Pontzer
--------------------------------------
Norbert J. Pontzer
Chairman of the Board and President
ATTEST:
/s/Glenn R. Pentz, Jr.
- ----------------------------------
Glenn R. Pentz, Jr., Secretary
EMCLAIRE FINANCIAL CORP.
By: /s/David L. Cox
--------------------------------------
David L. Cox
President and Chief Executive Officer
ATTEST:
/s/John J. Boczar
- ----------------------------------
John J. Boczar, Treasurer
THE FARMERS NATIONAL BANK OF EMLENTON
By: /s/David L. Cox
--------------------------------------
David L. Cox
President Chief Executive Officer
ATTEST:
/s/John J. Boczar
- ----------------------------------
John J. Boczar, Vice President and
Chief Financial Officer
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<PAGE>
EXHIBIT A
PLAN OF MERGER
Setting Forth the Plan of Merger
of
PEOPLES SAVINGS FINANCIAL CORPORATION
(a Pennsylvania corporation)
with and into
EMCLAIRE FINANCIAL CORP.
(a Pennsylvania Corporation)
THIS PLAN OF MERGER ("Plan of Merger") is made and entered into as of
the ____ day of August, 1998, by and between PEOPLES SAVINGS FINANCIAL
CORPORATION ("PSFC"), a corporation chartered and existing under the laws of the
Commonwealth of Pennsylvania which is a registered bank holding company and
whose principal offices are located at 612 Main Street, Ridgway, Pennsylvania
15853; and EMCLAIRE FINANCIAL CORP. ("Emclaire" or "Surviving Corporation"), a
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania having its executive office at 612 Main Street, Emlenton,
Pennsylvania 16373 and which is registered as a bank holding company.
PREAMBLE
WHEREAS, Emclaire and PSFC have entered into an Agreement and Plan of
Reorganization dated as of the ____ day of April, 1998 ("Reorganization
Agreement") to which this Plan of Merger is Exhibit A and is incorporated by
reference as an integral part thereof providing for the merger of PSFC with and
into Emclaire (which would be the Surviving Corporation) and the acquisition of
all of the PSFC Common Stock outstanding immediately prior to the Effective Time
of the Merger by Emclaire for the Consideration set forth in the Reorganization
Agreement and this Plan of Merger; and
WHEREAS, The Boards of Directors of Emclaire and PSFC are each of the
opinion that the interests of their respective corporations and their
corporations' respective shareholders would best be served if PSFC were to be
merged with and into Emclaire, which would survive the Merger, on the terms and
conditions provided in the Reorganization Agreement and in this Plan of Merger,
and as a result of such Merger becoming effective, the Surviving Corporation
would be Emclaire.
NOW, THEREFORE, in consideration of the covenants and agreements of the
Parties contained herein, PSFC and Emclaire hereby make, adopt and approve this
Plan of Merger in order to set forth the terms and conditions for the merger of
PSFC with and into Emclaire (the "Merger").
ARTICLE 1
DEFINITIONS
1.1 As used in this Plan of Merger and in any amendments hereto, all
capitalized terms herein shall have the meanings assigned to such terms in the
Reorganization Agreement unless otherwise defined herein.
ARTICLE 2
CAPITALIZATION
2.1 PEOPLES SAVINGS FINANCIAL CORPORATION The authorized capital stock
of PSFC consists of 2,000,000 shares of common stock having a par value of $.10
per share (the "PSFC Common Stock") and 1,000,000 shares of Serial Preferred
Stock having no par value (the "PSFC Preferred Stock). As of the date hereof,
442,516 shares of PSFC Common Stock were issued and outstanding, and no shares
of PSFC Preferred Stock were issued and outstanding.
ARTICLE 3
PLAN OF MERGER
3.1 Constituent Corporations. The name of each constituent corporation
to the Merger is:
PEOPLES SAVINGS FINANCIAL CORPORATION
and
EMCLAIRE FINANCIAL CORP.
3.2 Surviving Corporation. The Surviving Corporation shall be:
EMCLAIRE FINANCIAL CORP.
which as of the Effective Time of the Merger shall continue to be named:
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EMCLAIRE FINANCIAL CORP.
3.3 Terms and Conditions of Merger. The Merger shall be consummated
only pursuant to, and in accordance with this Plan of Merger and the
Reorganization Agreement. Conditioned upon the satisfaction or lawful waiver (by
the Party or Parties entitled to the benefit thereof) of all conditions
precedent to consummation of the Merger, the Merger will become effective on the
date and at the time (the "Effective Time of the Merger") of the filing of a
Articles of Merger with the Secretary of State of the Commonwealth of
Pennsylvania, or at such later time and/or date as may be agreed upon by the
parties and set forth in the Articles of Merger. At the Effective Time of the
Merger, PSFC shall be merged with and into Emclaire, which will survive the
Merger, and the separate existence of PSFC shall cease thereupon, and without
further action, Emclaire shall thereafter possess all of the assets, rights,
privileges, appointments, powers, licenses, permits and franchises of both
Emclaire and PSFC, whether of a public or private nature, and shall be subject
to all of the liabilities, restrictions, disabilities, and duties of both PSFC
and Emclaire.
3.4 Articles of Incorporation. At the Effective Time of the Merger, the
Articles of Incorporation of Emclaire, as in effect immediately prior to the
Effective Time of the Merger, shall constitute the Articles of Incorporation of
Emclaire as the Surviving Corporation, unless and until the same shall be
amended as provided by law and the terms of such Articles of Incorporation.
3.5 Bylaws. At the Effective Time of the Merger, the Bylaws of
Emclaire, as in effect immediately prior to the Effective Time of the Merger,
shall continue to be its Bylaws as the Surviving Corporation, unless and until
amended or repealed as provided by law, its Articles of Incorporation and such
Bylaws.
3.6 Directors and Officers. The directors and officers of Emclaire in
office immediately prior to the Effective Time of the Merger shall continue to
be the directors and officers of the Surviving Corporation, to hold office as
provided in the Articles of Incorporation and Bylaws of the Surviving
Corporation, unless and until their successors shall have been elected or
appointed and shall have qualified or they shall be removed as provided therein.
3.7 Name. The name of Emclaire as the Surviving Corporation following
the Merger, shall remain:
EMCLAIRE FINANCIAL CORP.
ARTICLE 4
DESCRIPTION OF THE TRANSACTION
4.1 Terms of the Merger.
(a) Satisfaction of Conditions to Closing. After the
transactions contemplated herein have been approved by the shareholders of PSFC
and each other condition to the obligations of the Parties hereto, other than
those conditions which are to be satisfied by delivery of documents by any Party
to any other Party, has been satisfied or, if lawfully permitted, waived by the
Party or Parties entitled to the benefits thereof, a closing (the "Closing")
will be held on the date and at the time of day and place referred to in this
Reorganization Agreement. At the Closing the Parties shall use their respective
best efforts to deliver the certificates, letters and opinions which constitute
conditions to effecting the Merger and the Subsidiary Merger and each Party will
provide the other Parties with such proof or indication of satisfaction of the
conditions to the obligations of such other Parties to consummate the Merger as
such other Parties may reasonably require. If all conditions to the obligations
of each of the Parties shall have been satisfied or lawfully waived by the Party
entitled to the benefits thereof, the Parties shall, at the Closing, duly
execute Articles of Merger for filing with the Secretary of State of the
Commonwealth of Pennsylvania and promptly thereafter PSFC and Emclaire shall
take all steps necessary or desirable to consummate the Merger in accordance
with all applicable laws, rules and regulations and the Plan of Merger. The
Parties shall thereupon take such other and further actions as Emclaire shall
direct or as may be required by law or this Reorganization Agreement to
consummate the transactions contemplated herein.
(b) Effective Time of the Merger. Upon the
satisfaction of all conditions to Closing, the Merger shall become effective on
the date and at the time of filing of the Articles of Merger with the Secretary
of State of the Commonwealth of Pennsylvania or at such later date and/or time
as may be agreed upon by the Parties and set forth in the Articles of Merger so
filed (the "Effective Time of the Merger").
4.2 Conversion of Stock.
(a) Consideration. At the Effective Time of the
Merger, each share of common stock of PSFC, par value $0.10 per share (the "PSFC
Common Stock") then issued and outstanding (other than shares held directly or
indirectly by Emclaire, excluding shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
represent the right to receive the cash and/or shares of stock of Emclaire
constituting the Per Share Merger Consideration (as defined in paragraph (b)
below). As of the Effective Time of the Merger, each share of the PSFC Common
Stock held directly or indirectly by Emclaire, excluding shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted, shall be
canceled, retired and cease to exist, and no exchange or payment shall be made
with respect thereto.
(b) Cash or Stock Merger Consideration. As used
herein, the term "Per Share Merger Consideration" shall mean either the amount
of cash set forth in clause (i) below (the "Cash Merger Consideration") or that
number of shares of common stock of Emclaire,
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par value $1.25 per share ("Emclaire Common Stock") as set forth in clause (ii)
below (the "Stock Merger Consideration"), at the election of the holder of each
share of PSFC Common Stock, subject however to proration as set forth below.
(i) If Cash Merger Consideration is to be paid
with respect to a share of PSFC Common
Stock, the Per Share Merger Consideration
with respect to such share of PSFC Common
Stock shall be in the amount of Twenty- six
dollars ($26.00).
(ii) If Stock Merger Consideration is to be paid
with respect to a share of PSFC Common
Stock, the Per Share Merger Consideration
with respect to such share of PSFC Common
Stock shall be that number of shares of
Emclaire Stock (the "Conversion Number")
equal to:
(A) If the Final Market Price (as
defined below) shall be equal or
greater than $15.00 but equal to or
less than $21.00, then the Stock
Merger Consideration shall be
Twenty-six dollars ($26.00) divided
by the Final Market Price.
(B) If the Final Market Price (as
defined below) shall be greater than
$21.00, then the Stock Merger
Consideration shall be 1.24 shares
of Emclaire Common Stock.
(C) If the Final Market Price (as
defined below) shall be less than
$15.00, either Emclaire or Peoples
can terminate this Agreement.
(c) Final Market Price. The "Final Market Price"
shall be the average closing price per share of the "last" real time trades
(i.e., closing price) of the Emclaire Common Stock as reported on the OTC
Bulletin Board for each of the thirty (30) OTC Bulletin Board general market
trading days preceding one week prior to the Closing Date on which the OTC
Bulletin Board was open for business (the "Pricing Period"), provided, however,
that if there are less than 10 business days during such period when Emclaire
Common Stock trades and on which there is a closing price, then the Pricing
Period shall be extended backwards for such period as is necessary until there
are ten days on which Emclaire Common Stock trades and on which there is a
closing price if such extension backwards will result in a lower calculated
Final Market Price. In the event the Emclaire Common Stock does not trade on one
or more of the trading days during the Pricing Period (a "No Trade Date"), any
such No Trade Date shall be disregarded in computing the average closing price
per share of Emclaire Common Stock and the average shall be based upon the
"last" real time trades and number of days on which the Emclaire Common Stock
actually traded during the Pricing Period.
(d) Fractional Shares. Fractional shares of
Emclaire Common Stock shall not be issued and each holder of PSFC Common Stock
who would otherwise be entitled to receive any such fractional shares (taking
into account all share amounts to which such holder is otherwise entitled
hereunder) shall receive cash (without interest) in lieu thereof in an amount
equal to the fraction of the share of Emclaire Common Stock to which such holder
would otherwise be entitled multiplied by the Final Market Price. No such holder
will be entitled to dividends, voting rights or any other rights of a
stockholder of Emclaire or PSFC in respect of any such fractional share.
(e) Dissenting Shares. Notwithstanding anything
in this Agreement to the contrary, shares of PSFC Common Stock which are issued
and outstanding immediately prior to the Effective Time of the Merger and which
are held by a shareholder who has the right (to the extent such right is
available by law) to demand and receive payment of the fair value of his shares
of PSFC Common Stock (the "Dissenting Shares") pursuant to Section 1571 of the
PBCA, shall not be converted into or be exchangeable for the right to receive
the consideration provided in this Section 2.2 unless and until such holder
shall fail to perfect his or her right to an appraisal or shall have effectively
withdrawn or lost such right under the PBCA, as the case may be. If such holder
shall have so failed to perfect his right to dissent or shall have effectively
withdrawn or lost such right, each of his shares of PSFC Common Stock shall
thereupon be deemed to be Cash Election Shares as defined in Section 2.3 of this
Agreement.
(f) Treatment of Options. At the Effective Time of
the Merger, each unexercised PSFC Stock Option shall be deemed canceled and as
consideration therefor each holder of a PSFC Stock Option (the "Option Holders")
shall have the right to receive a cash payment amount (the "Cash Out") equal to
the excess of (A) $26.00 over the exercise price per share of PSFC Common Stock
covered by that Option Holder's PSFC Stock Option(s), multiplied by (B) the
total number of shares of PSFC Common Stock covered by such PSFC Stock
Option(s).
(g) Calculation Schedule. The calculations of the
respective amounts of cash and Emclaire Common Stock payable and issuable
pursuant to the terms of this Reorganization Agreement shall be jointly prepared
and agreed to by Emclaire and PSFC and set forth in reasonable detail in a
schedule that shall be delivered to Farmers National (the "Exchange Agent") no
later than two business days after the end of the Election Period.
4.3 Election and Allocation Procedures.
(a) Subject to and in accordance with the allocation
and election procedures set forth herein, each record holder of a share of PSFC
Common Stock (the "PSFC Shareholders") shall, prior to the Election Deadline (as
hereinafter defined) specify (i) the number of whole shares of PSFC Common Stock
held by such Shareholder as to which such Shareholder shall desire to receive
the Cash Merger
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Consideration, and (ii) the number of whole shares of PSFC Common Stock held by
such Shareholder as to which such Shareholder shall desire to receive the Stock
Merger Consideration..
(b) An election as described in clause (i) of
Paragraph (a) of this Section and all Dissenting Shares are herein referred to
as a "Cash Election," and shares of PSFC Common Stock as to which a Cash
Election has been made are herein referred to as "Cash Election Shares." An
election as described in clause (ii) of Paragraph (a) is herein referred to as a
"Stock Election," and shares as to which a Stock Election has been made are
herein referred to as "Stock Election Shares." A failure to indicate a
preference in accordance herewith is herein referred to as a "Non-Election," and
shares as to which there is a Non-Election are herein referred to as
"Non-Electing Shares."
(c) Notwithstanding anything herein to the contrary,
and after taking into consideration Dissenting Shares and the Cash Out, 55.0% of
the outstanding PSFC Common Stock shall be exchanged for Emclaire Common Stock.
Payment of cash pursuant to the Cash Merger Consideration, the Cash Out and
Dissenting Shares, if any, and issuance of Emclaire Common Stock pursuant to the
Stock Merger Consideration, shall be allocated to holders of PSFC Stock such
that the number of shares of PSFC Common Stock as to which cash is paid shall
equal 45.0% of the aggregate number of shares of PSFC Common Stock outstanding
plus those subject to PSFC Stock Options (the "Aggregate Shares"), and the
number of shares of PSFC Common Stock (outstanding or subject to PSFC Stock
Options) as to which PSFC Stock are issued shall equal 55.0% of the Aggregate
Shares, as follows:
(1) If the number of Cash Election
Shares is in excess of 45.0% of the
Aggregate Shares, then (i) Non-
Electing Shares shall be deemed to
be Stock Election Shares, (ii)
Option Holders shall be treated as
Cash Election Shares without
adjustment, (iii) Dissenting Shares
shall be treated as Cash Election
Shares without adjustment, and
(iv)(A) Cash Election Shares of each
Shareholder who made the Cash
Election shall be reduced pro rata
by multiplying the number of Cash
Election Shares of such Shareholder
by a fraction, the numerator of
which is the number of shares of
PSFC Common Stock equal to 45.0% of
the Aggregate Shares minus the Cash
Out and Dissenting Shares and the
denominator of which is the
aggregate number of Cash Election
Shares of all Shareholders, and (B)
the shares of such Shareholder
representing the difference between
such Shareholder's initial Cash
Election and such Shareholder's
reduced Cash Election pursuant to
clause (A) shall be converted into
and be deemed to be Stock Election
Shares.
(2) If the number of Stock Election
Shares is in excess of 55.0% of the
Aggregate Shares, then (i)
Non-Electing Shares shall be deemed
to be Cash Election Shares and (ii)
(A) Stock Election Shares of each
Holder shall be reduced pro rata by
multiplying the number of Stock
Election Shares of such Holder by a
fraction, the numerator of which is
the number of shares of PSFC Common
Stock equal to 55.0% of the
Aggregate Shares and the denominator
of which is the aggregate number of
Stock Election Shares of all
Holders, and (B) the shares of such
Holder representing the difference
between such Holder's initial Stock
Election and such Holder's reduced
Stock Election pursuant to clause
(A) shall be converted into to and
be deemed to be Cash Election
Shares.
(3) If the number of Cash Election
Shares is less than 45.0% of the
Aggregate Shares and the number of
Stock Election Shares is less than
55.0% of the Aggregate Shares, then
(i) there shall be no adjustment to
the elections made by electing
Holders, (ii) there shall be no
adjustment to the Cash Out or
Dissenting Shares, if any, and (iii)
Non-Electing Shares of each Holder
shall be treated as Stock Elections
Shares and/or as Cash Election
Shares in proportion to the
respective amounts by which the Cash
Election Shares and the Stock
Election Shares are less than the
45.0% and 55.0% limits,
respectively.
(d) After taking into account the foregoing
adjustment provisions, each Cash Election Share (including those deemed to be
Cash Election Shares) shall receive in the Merger the Cash Merger Consideration
pursuant to Section 4.2(b) and each Stock Election Share (including those deemed
to be Stock Election Shares) shall receive in the Merger the Stock Merger
Consideration (and cash in lieu of fractional shares) pursuant to Section
4.2(b).
(e) Satisfaction of Conditions to Closing.
Notwithstanding any other provision of this Agreement, if the application of the
provisions of this Section would result in Holders receiving a number of shares
of Emclaire Common Stock that would prevent the Per Share Merger Consideration
from consisting in the aggregate of 45.0% Cash Merger Consideration and 55.0%
Stock Merger Consideration or otherwise prevent the satisfaction of any of the
conditions set forth in Article 7 hereof, the number of shares otherwise
allocable to Holders pursuant to this section shall be adjusted in an equitable
manner as shall be necessary to enable the satisfaction of all conditions.
4.4 Election Procedures.
(a) PSFC and Emclaire shall prepare a form for
purposes of making elections and containing instructions with respect thereto
(the "Election Form"). The Election Form shall be distributed to each Holder at
such time as PSFC and Emclaire shall determine
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and shall specify the date by which all such elections must be made (the
"Election Deadline") which date shall be the date of the meeting of PSFC
Stockholders to approve the Merger or such other date determined by PSFC and
Emclaire.
(b) Elections shall be made by Holders by mailing to
the Exchange Agent, a duly completed Election Form. To be effective, an Election
Form must be properly completed, signed and submitted to the Exchange Agent
accompanied by certificates representing the shares of PSFC Common Stock or by
the Outstanding Option as to which the election is being made (or by an
appropriate guaranty of delivery by a commercial bank or trust company in the
United States or a member of a registered national security exchange or the
National Association of Security Dealers, Inc.), or by evidence that such
certificates have been lost, stolen or destroyed accompanied by such security or
indemnity as shall be reasonably requested by Emclaire. An Election Form and
accompanying share certificates or Outstanding Options, as the case may be, must
be received by the Exchange Agent by the close of business on the Election
Deadline. An election may be changed or revoked but only by written notice
received by the Exchange Agent prior to the Election Deadline including, in the
case of a change, a properly completed revised Election Form.
(c) Emclaire will have the discretion, which it may
delegate in whole or in part to the Exchange Agent, to determine whether the
Election Forms have been properly completed, signed and submitted or changed or
revoked and to disregard immaterial defects in Election Forms. The decision of
Emclaire (or the Exchange Agent) in such matters shall be conclusive and
binding. Neither Emclaire nor the Exchange Agent will be under any obligation to
notify any person of any defect in an Election Form submitted to the Exchange
Agent.
(d) For the purposes hereof, a Holder who does not
submit an effective Election Form to the Exchange Agent prior to the Election
Deadline shall be deemed to have made a Non-Election.
(e) In the event that this Agreement is terminated
pursuant to the provisions hereof and any shares or Outstanding Options have
been transmitted to the Exchange Agent pursuant to the provisions hereof,
Emclaire and PSFC shall cause the Exchange Agent to promptly return such shares
to the person submitting the same.
4.5 Mechanics of Payment of Consideration.
(a) Surrender of Certificates pursuant to Section
4.2(b). Within five business days after the Effective Time of the Merger, the
Exchange Agent shall deliver to each of the PSFC Record Holders who have not
previously submitted properly completed Election Forms, accompanied by all
certificates (or other appropriate documentation) in respect of all shares of
PSFC Common Stock held of record by such PSFC Record Holders, such materials and
information deemed necessary by the Exchange Agent to advise the PSFC Record
Holders of the procedures required for proper surrender of their certificates
evidencing and representing shares of the PSFC Common Stock in order for the
PSFC Record Holders to receive the Consideration to which they are entitled as
provided herein. Such materials shall include, without limitation, a Letter of
Transmittal, an Instruction Sheet, and a return mailing envelope addressed to
the Exchange Agent (collectively the "Shareholder Materials"). All Shareholder
Materials shall be sent by United States mail to the PSFC Record Holders at the
addresses set forth on a certified shareholder list to be delivered by PSFC to
Emclaire at the Closing (the "Shareholder List"). Emclaire shall also make
appropriate provisions with the Exchange Agent to enable PSFC Record Holders to
obtain the Shareholder Materials from, and to deliver the certificates formerly
representing shares of PSFC Common Stock to, the Exchange Agent in person,
commencing on or not later than the second business day following the Closing
Date. Upon receipt of the appropriate Shareholder Materials, together with the
certificates formerly evidencing and representing all of the shares of PSFC
Common Stock which were validly held of record by such holder, the Exchange
Agent shall take prompt action to process such certificates formerly evidencing
and representing shares of PSFC Common Stock received by it (including the
prompt return of any defective submissions with instructions as to those actions
which may be necessary to remedy any defects) and to mail to the former PSFC
Record Holders in exchange for the certificate(s) surrendered by them, the
Consideration to be issued or paid for each such PSFC Record Holder's shares
pursuant to the terms hereof. After the Effective Time of the Merger and until
properly surrendered to the Exchange Agent, each outstanding certificate or
certificates which formerly evidenced and represented the shares of PSFC Common
Stock of a PSFC Record Holder, subject to the provisions of this Section, shall
be deemed for all corporate purposes to represent and evidence only the right to
receive the Consideration into which such PSFC Record Holder's shares of PSFC
Common Stock were converted and aggregated at the Effective Time of the Merger.
Unless and until the outstanding certificate or certificates, which immediately
prior to the Effective Time of the Merger evidenced and represented the PSFC
Record Holder's PSFC Common Stock shall have been properly surrendered as
provided above, the Consideration issued or payable to the PSFC Record Holder(s)
of the canceled shares as of any time after the Effective Date of the Merger
shall not be paid to the PSFC Record Holder(s) of such certificate(s) until such
certificates shall have been surrendered in the manner required. Each PSFC
Record Holder will be responsible for all federal, state and local taxes which
may be incurred by him on account of his receipt of the Consideration to be paid
in the Merger. The PSFC Record Holder(s) of any certificate(s) which shall have
been lost or destroyed may nevertheless, subject to the provisions of this
Article, receive the Consideration to which each such PSFC Record Holder is
entitled, provided that each such PSFC Record Holder shall deliver to Emclaire
and to the Exchange Agent: (i) a sworn statement certifying such loss or
destruction and specifying the circumstances thereof and (ii) a lost instrument
bond in form satisfactory to Emclaire and the Exchange Agent which has been duly
executed by a corporate surety satisfactory to Emclaire and the Exchange Agent,
indemnifying the Surviving Corporation, Emclaire, the Exchange Agent (and their
respective successors) to their satisfaction against any loss or expense which
any of them may incur as a result of such lost or destroyed certificates being
thereafter presented. Any costs or expenses which may arise from such
replacement procedure, including the premium on the lost instrument bond, shall
be paid by the PSFC Record Holder.
4.6 Stock Transfer Books. At the Effective Time of the Merger, the
stock transfer books of PSFC shall be closed and no transfer of shares of PSFC
Common Stock shall be made thereafter.
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4.7 Effects of the Merger. At the Effective Time of the Merger, the
separate existence of PSFC shall cease, and PSFC shall be merged with and into
Emclaire which, as the Surviving Corporation, shall thereupon and thereafter
possess all of the assets, rights, privileges, appointments, powers, licenses,
permits and franchises of the two merged corporations, whether of a public or a
private nature, and shall be subject to all of the liabilities, restrictions,
disabilities and duties of PSFC and Emclaire.
4.8 Transfer of Assets. At the Effective Time of the Merger, all
rights, assets, licenses, permits, franchises and interests of PSFC and Emclaire
in and to every type of property, whether real, personal, or mixed, whether
tangible or intangible, and to chose in action shall be deemed to be vested in
Emclaire as the Surviving Corporation by virtue of the Merger and without any
deed or other instrument or act of transfer whatsoever.
4.9 Assumption of Liabilities. At the Effective Time of the Merger, the
Surviving Corporation shall become and be liable for all debts, liabilities,
obligations and contracts of PSFC as well as those of the Surviving Corporation,
whether the same shall be matured or unmatured; whether accrued, absolute,
contingent or otherwise; and whether or not reflected or reserved against in the
balance sheets, other financial statements, books of account or records of PSFC
or the Surviving Corporation.
4.10 Appraisal Rights of PSFC Shareholders. Pursuant to the provisions
of the PBCA, PSFC Shareholders shall be entitled to assert appraisal rights in
connection with the Merger.
4.11 Approvals of Shareholders of PSFC and Emclaire. In order to become
effective, the Merger must be approved by the shareholders of PSFC and Emclaire
at meetings to be called for that purpose by the respective Boards of Directors
and PSFC and Emclaire, or by their unanimous action by written consent complying
fully with the laws of Pennsylvania.
PSFC shall be liable for and, prior to Closing, shall pay all
taxes on PSFC Stock Options, including, but not limited to, payroll and
withholding taxes.
ARTICLE 5
AMENDMENTS AND WAIVERS
5.1 Amendments. To the extent permitted by law, this Plan of Merger may
be amended unilaterally by Emclaire and PSFC as set forth in Article 5 of this
Reorganization Agreement; provided, however, that the provisions of Section 4.2
herein relating to the manner or basis upon which shares of PSFC Common Stock
will be converted into the exclusive right to receive the Consideration from
Emclaire shall not be amended in such a manner as to reduce the amount of the
Consideration payable to the PSFC Record Holders determined as provided herein
of this Plan of Merger nor shall this Plan of Merger be amended to permit
Emclaire to utilize assets other than cash or good funds to make payment of the
Consideration as provided in the Reorganization Agreement at any time after the
Shareholders' Meeting without the requisite approval (except as provided for in
the Reorganization Agreement) of the PSFC Record Holders of the shares of PSFC
Common Stock outstanding, and that no amendment to this Plan of Merger shall
modify the requirements of regulatory approval as set forth in this
Reorganization Agreement.
5.2 Authority for Amendments and Waivers. Prior to the Effective Time
of the Merger, Emclaire, acting through its Board of Directors or chief
executive officers and presidents or other authorized officers, shall have the
right to amend this Plan of Merger to postpone the Effective Time of the Merger
to a date and time subsequent to the time of filing of the Plan of Merger with
the Pennsylvania Secretary of State, to waive any default in the performance of
any term of this Plan of Merger by PSFC, to waive or extend the time for the
compliance or fulfillment by PSFC of any and all of its obligations under this
Plan of Merger, and to waive any or all of the conditions precedent to the
obligations of Emclaire and PSFC under this Plan of Merger, except any condition
that, if not satisfied, would result in the violation of any law or applicable
governmental regulation. Prior to the Effective Time of the Merger, PSFC, acting
through its Board of Directors or chief executive officer or president or other
authorized officer, shall have the right to amend this Plan of Merger to
postpone the Effective Time of the Merger to a date and time subsequent to the
time of filing of the Plan of Merger with the Pennsylvania Secretary of State,
to waive any default in the performance of any term of this Plan of Merger by
Emclaire or PSFC, to waive or extend the time for the compliance or fulfillment
by Emclaire or PSFC of any and all of their obligations under this Plan of
Merger, and to waive any or all of the conditions precedent to the obligations
of PSFC under this Plan of Merger except any condition that, if not satisfied,
would result in the violation of any law or applicable governmental regulation.
ARTICLE 6
MISCELLANEOUS
6.1 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, or by registered or certified mail, postage pre-paid to
the persons at the addresses set forth below (or at such other addresses or
facsimile numbers as may hereafter be designated as provided below), and shall
be deemed to have been delivered as of the date received by the Party to which,
or to whom it is addressed:
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If to Emclaire: Emclaire Financial Corp.
612 Main Street
Emlenton, Pennsylvania 16373
Fax: (724) 867-1614
Attn: David L. Cox
President and Chief Executive Officer
With a copy to: Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Fax: (202) 434-4661
Attn: Gregory A. Gehlmann, Esq.
If to PSFC: Peoples Savings Financial Corporation
173 Main Street
Ridgway, Pennsylvania 15853
Fax: (814) 772-9000
Attn: Glenn R. Pentz
Chief Financial Officer, Treasurer
and Secretary
With a copy to: Serchuk & Zelermyer, LLP
81 Main Street
White Plains, NY 10601
Fax: (914) 761-2299
Attn: Ivan Serchuk, Esq.
or at such other address as shall be furnished in writing by any of the Parties
to the others by notice given as provided in this section 6.1.
6.2 Governing Law. Except to the extent federal law shall be
controlling, this Plan of Merger shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania with respect to
those provisions of this Plan of Merger expressly required by Pennsylvania law
to be included in this Plan of Merger, disregarding, however, the Pennsylvania
conflicts of laws rules. In all other instances, this Plan of Merger shall be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania disregarding, however, the Pennsylvania conflicts
of laws rules.
6.3 Captions. The Captions heading the Sections in this Plan of Merger
are for convenience only and shall not affect the construction or interpretation
of this Plan of Merger.
6.4 Counterparts. This Plan of Merger may be executed in two or more
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute one and the same instrument.
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EXHIBIT B
MERGER AGREEMENT
(The Farmers National Bank of Emlenton and Peoples Savings Bank)
This Plan of Merger is made this __ day of August by and between The
Farmers National Bank of Emlenton, a national association ("Farmers National")
and Peoples Savings Bank, a state stock savings bank ("Peoples Bank") in
connection with the transactions described in an Agreement and Plan of
Reorganization dated April 7, 1998 (the "Reorganization Agreement") among
Emclaire Financial Corp. ("Emclaire"), Farmers National, Peoples Savings
Financial Corporation ("PSFC") and Peoples Bank. Terms not otherwise defined
herein shall have the meaning given them in the Reorganization Agreement.
As of the date hereof, Peoples Bank has authorized capital stock of
2,000 shares of common stock, par value $0.10 per share (the "Peoples Bank
Common Stock"). As of the date hereof, 1,000 shares of Peoples Bank Common Stock
are issued and outstanding and no shares of preferred stock are issued and
outstanding. As of the date hereof, Farmers National has authorized capital
stock of 3,000,000 shares of common stock, par value $1.25 per share (the
"Farmers National Common Stock"), of which 200,000 shares of Farmers National
Common Stock are issued and outstanding. After the Merger, Farmers National will
have authorized capital stock of 3,000,000 shares of common stock, par value
$5.00 per share, of which approximately 200,000 shares of Farmers National
Common Stock will be issued and outstanding. The regulatory capital of Farmers
National after the Merger will exceed all regulatory requirements.
As of the date hereof, PSFC owns all of the issued and outstanding
stock of Peoples Bank, and Emclaire owns all of the issued and outstanding stock
of Farmers National. Immediately prior to the Effective Time of this Merger,
PSFC shall be merged with and into Emclaire, with Emclaire being the resulting
corporation, so that as of the Effective Time of this Merger, Emclaire shall own
all of the outstanding stock of both Peoples Bank and Farmers National.
Farmers National and Peoples Bank hereby agree as follows:
1. Merger. At and on the Effective Time of the Merger, Peoples Bank
shall be merged with and into Farmers National in accordance with the terms
hereof. Farmers National shall be the resulting association.
2. Effective Time. The effective time ("Effective Time") of this Merger
shall be the date the articles of combination are endorsed by the Pennsylvania
Department of Banking and the Office of the Comptroller of the Company or such
later date specified in such articles.
3. Name. The name of the resulting association shall continue to be
"The Farmers National Bank of Emlenton".
4. Directors and Principal Officers. The directors and the principal
officers of Farmers National immediately prior to the Effective Time shall
continue to serve as directors and principal executive officers of Farmers
National after the Effective Time. Farmers National, as the resulting
institution, shall also have ten directors. The name each director is as
follows: George W. Freeman, Ronald L. Ashbaugh, Elizabeth C. Smith, Brian C.
McCarrier, Robert L. Hunter, John B. Mason, Bernadette H. Crooks, J. Michael
King, Rodney C. Heeter, and David L. Cox.
5. (a) Offices. Peoples Bank operates three offices. The main office is
located at 173 Main Street, Ridgway, Pennsylvania and its branch offices are
located at 263 Main Street, Brookville, Pennsylvania and 17 West Long Avenue,
DuBois, Pennsylvania.
(b) Farmers National operates eight offices. The main office is located
at 612 Main Street, Emlenton, Pennsylvania. The seven branch offices are located
in Pennsylvania at 207 S. Washington Street, Eau Claire, Pennsylvania, Sixth &
Wood Streets, Clarion, Pennsylvania, Route 338 South, Knox, Pennsylvania, 323
Broad Street, East Brady, Pennsylvania, 1101 North Main Street, Butler,
Pennsylvania, I-80 and Route 68, Clarion, Pennsylvania, and Main & State
Streets, Knox, Pennsylvania.
(c) The location of the main office of the resulting institution shall
continue to be 612 Main Street, Emlenton, Pennsylvania. The branches of the
resulting institution shall be as set forth in Sections 5(a) and 5(b) above be,
subject to any regulatory conditions, at the addresses described above.
6. Terms and Conditions of Merger.
At the Effective Time of the Merger:
(a) Each share of Peoples Bank Common Stock immediately prior
to the Effective Time shall at the Effective Time be converted into the right to
receive one share of Farmers National Common Stock and Farmers National shall
deliver to Emclaire a stock certificate evidencing such shares.
(b) Each share of Farmers National Common Stock issued and
outstanding immediately prior to the Effective Time shall remain outstanding and
unchanged and shall continue to be owned by Emclaire.
At and after the Effective Time, Emclaire shall be the owner of all of
the issued and outstanding shares of Farmers National.
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7. Articles of Incorporation and Bylaws.
At and after the Effective Time, the Articles of Incorporation and
Bylaws of Farmers National as in effect immediately prior to the Effective Time
shall continue to be the Articles of Incorporation and Bylaws of the resulting
association until amended in accordance with law.
8. Rights and Duties of the Resulting Association.
At the Effective Time, Peoples Bank shall be merged with and into
Farmers National, which, as the resulting association, shall be the same
association as Farmers National. The business of the resulting association shall
be that of a state stock savings bank chartered under the laws of the
Commonwealth of Pennsylvania and as provided for in the Articles of
Incorporation of Farmers National as now existing, the business of which shall
be continued at its head office and at its legally established branches and
other offices. All assets, rights, privileges, powers, franchises and property
(real, personal and mixed) shall be automatically transferred to and vested in
the resulting association by virtue of the Merger without any deed or other
document of transfer. The resulting association, without any order or action on
the part of any court or otherwise and without any documents of assumption or
assignment, shall hold and enjoy all of the properties, franchises and
interests, including appointments, powers, designations, nominations and all
other rights and interest as agent or other fiduciary in the same manner and to
the same extent as such rights, franchises and interest and powers were held or
enjoyed by Farmers National and Peoples Bank, respectively. The resulting
association shall be responsible for all the liabilities of every kind and
description of both Farmers National and Peoples Bank immediately prior to the
Effective Time, including liabilities for all debts, savings accounts, deposits,
obligations and contracts of Farmers National and Peoples Bank, respectively,
matured or unmatured, whether accrued, absolute, contingent or otherwise and
whether or not reflected or reserved against on balance sheets, books or
accounts or records of either Farmers National or Peoples Bank. All rights of
creditors and other obligees and all liens on property of either Farmers
National or Peoples Bank shall be preserved and shall not be released or
impaired.
9. Execution This Plan of Merger may be executed in any number of counterparts
each of which shall be deemed an original and all of such counterparts shall
constitute one and the same instrument.
AB-2
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APPENDIX ^ B
PENNSYLVANIA Business Corporation Law
Subchapter D, Dissenters Rights
1571 APPLICATION AND EFFECT OF SUBCHAPTER.--(a) General rule.--Except as
otherwise provided in
subsection (b), any shareholder of a business corporation shall have the right
to dissent from, and to obtain payment of the fair value of his shares in the
event of, any corporate action, or to otherwise obtain fair value for his
shares, where this part expressly provides that a shareholder shall have the
rights and remedies provided in this subchapter.
See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at the record date
fixed to determine the shareholders entitled to notice of and to vote at the
meeting at which a plan specified in any of section 1930, 193 1 (d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or (ii) held of record by
more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter. (2) Paragraph (1) shall not apply to and
dissenters rights shall be available without regard to the exception
provided in that paragraph in the case of.
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or solely into
such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles, the
plan or the terms of the transaction entitle all shareholders of the class to
vote thereon and require for the adoption of the plan or the effectuation of the
transaction the affirmative vote of a majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation and
with or without the intervention of another corporation or other person, shall
not be entitled to the rights and remedies of dissenting shareholders provided
in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholder to dissenters
rights.
(d) Notice of dissenters rights.--Unless otherwise provided by statute,
if a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) A statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and
(2) A copy of this subchapter.
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(e) Other statutes.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective.--This subchapter may
not be relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
1572 DEFINITIONS.--The following words and phrases when used in this
subchapter shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS.--(a) Record holders of
shares--A record holder of shares of a business corporation may assert
dissenters rights as to fewer than all of the shares registered in his name only
if he dissents with respect to all the shares of the same class or series
beneficial owned by any one person and discloses the name and address of the
person. or persons on whose behalf he dissents. In that event, his rights shall
be determined as if the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some I
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
1574 NOTICE OF INTENTION TO DISSENT.--If the proposed corporate action
is submitted to a vote at a meeting of shareholders of a business corporation,
any person who wishes to dissent and obtain payment of the fair value of his
shares must file with the corporation, prior to the vote, a written notice of
intention to demand that he be paid the fair value for his shares if the
proposed action is effectuated, must effect no change in the beneficial
ownership of his shares from the date of such filing continuously through the
effective date of the proposed action and must refrain from voting his shares in
approval of such action. A dissenter who fails in any respect shall not acquire
any right to payment of the fair value of his shares under this subchapter.
Neither a proxy nor a vote against the proposed corporate action shall
constitute the written notice required by this section.
1575 NOTICE OF DEMAND PAYMENT.--(a) General rule.--If the proposed
corporate action is approved by the required vote at a meeting of shareholders
of a business corporation, the corporation shall mail a further notice to all
dissenters who gave due notice of intention to demand payment of the fair value
of their shares and who refrained from voting in favor of the proposed action.
If the proposed corporate action is to be taken without a vote of shareholders,
the corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of the
plan or other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
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(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is received.
(3) Supply a form for demand payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for receipt
of the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.--(a) Effect
of failure of shareholder to act.--A shareholder who fails to timely deposit
certificates, as required by a notice pursuant to section 1575 (relating to
notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation of
the proposed corporate action.
1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.--(a) Failure to
effectuate corporate action. Within 6O days after the date set for demanding
payment and depositing certificates, if the business corporation has not
effectuated the proposed corporate action, it shall return any certificates that
have been deposited and release uncertificated shares from any transfer
restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.--When uncertificated shares
have been have been released from transfer restrictions and deposited
certificates have been returned, the corporation may at any later time send a
new notice conforming to the requirements of section 1575 (relating to notice to
demand payment), with like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of
the proposed corporate action, or upon timely receipt of demand for payment if
the corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more than
16 months before the date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment.--If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by subsection
(c), it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
1578 ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.--(a) General
rule.--If the business corporation gives notice of its estimate of the fair
value of the shares, without remitting such amount, or remits payment of its
estimate of the fair value of a dissenter's shares as permitted by section
1577(c) (relating to payment of fair value of shares and the dissenter believes
that the amount stated or remitted is less than the fair value of his shares, he
may send to the corporation his own estimate of the fair value of the shares,
which shall be deemed a demand for payment of the amount or the deficiency.
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(b) Effect of failure to file estimate.--Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.
1579 VALUATION PROCEEDINGS GENERALLY.--(a) General rule.--Within 60
days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578 (relating
to estimate by dissenter of fair value of shares); If any demands for payment
remain unsettled, the business corporation may file in court an application for
relief requesting that the fair value of the shares be determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever
residing, whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the application shall
be served on each such dissenter. If a dissenter is a nonresident, the copy may
be served on him in the manner provided or prescribed by or pursuant to 42
Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
1580 COSTS AND EXPENSES OF VALUATION PROCEEDINGS.--(a) General
rule.--The costs and expenses of any proceeding under section 1579 (relating to
valuation proceedings generally), including the reasonable compensation and
expenses of the appraiser appointed by the court, shall be determined by the
court and assessed against the business corporation except that any part of the
costs and expenses may be apportioned and assessed as the court deems
appropriate against all or some of the dissenters who are parties and whose
action in demanding supplemental payment under section 1578 (relating to
estimate by dissenter of fair value of shares) the court finds to be dilatory,
obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
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APPENDIX ^ C
TEXT OF ARTICLE 12 OF ARTICLES OF INCORPORATION OF
PEOPLES SAVINGS FINANCIAL CORPORATION, AS PROPOSED TO BE AMENDED
[BOLD AND BRACKETED LANGUAGE TO BE DELETED IN THE AMENDMENT]
Article 12. Restriction on Voting the Corporation's Common Stock.
A. Voting Restriction. Unless otherwise indicated in this Article 12,
the definitions and other provisions set forth in Articles 11.A, 11.B and 11.C
are also applicable to this Article 12. Notwithstanding any other provision of
these Articles of Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a Person who, as of any record date for the determination of stockholders
entitled to vote on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of Common Stock (the "Limit"), be entitled, or permitted
to any vote in respect of the shares held in excess of the Limit. The number of
votes which may be cast by any record owner by virtue of the provisions hereof
in respect of Common Stock beneficially owned by such person owning shares in
excess of the Limit shall be a number equal to the total number of votes which a
single record owner of all Common Stock owned by such person would be entitled
to cast, multiplied by a fraction, the numerator of which is the number of
shares of such class or series which are both beneficially owned by such person
and owned of record by such record owner and the denominator of which is the
total number of shares of Common Stock beneficially owned by such person owning
shares in excess of the Limit. [For a period of five years from the completion
of the conversion of Peoples Savings Bank, Ridgway, Pennsylvania (the "Savings
Bank"), from mutual to stock form, no Person shall directly or indirectly Offer
to Acquire or Acquire the Beneficial Ownership of more than 10% of any class of
an equity security of the Corporation].
B. Exclusions. The foregoing restrictions shall not apply to (i) the
purchase of shares by underwriters in connection with a public offering, or (ii)
the purchase of shares by a tax-qualified employee stock benefit plan.
C. Board Determinations. The Board of Directors shall have the power to
construe and apply the provisions of this Article and to make all determinations
necessary or desirable to implement such provisions, including but not limited
to matters with respect to (i) the number of shares of Common Stock beneficially
owned by any person, (ii) whether a person is an Affiliate of another, (iii)
whether a person has an agreement, arrangement, or understanding with another as
to the matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of the Article to the
given facts, or (v) any other matter relating to the applicability or effect of
this Article. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in excess of
the Limit (or holds of record Common Stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, (ii) any other factual
matter relating to the applicability or effect of this Article as may reasonably
be requested of such person. Any constructions, applications, or determinations
made by the Board of Directors, pursuant to this Article in good faith and on
the basis of such information and assistance as was then reasonably available
for such purpose shall be conclusive and binding upon the Corporation and its
stockholders.
D. Enforceability. In the event any provision (or portion thereof) of
this Article shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions (or portions thereof) of this Article shall
remain in full force and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken here from or otherwise
rendered inapplicable, it being the intent of this Corporation and its
stockholders that each such remaining provision (or portion thereof) of this
Article remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including stockholders owning an amount of
stock over the Limit, notwithstanding any such finding.
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APPENDIX D
<TABLE>
<CAPTION>
ESTABLISHED 1872
HOPPER SOLIDAY & CO., INC.
-----------------------
<S> <C> <C>
MEMBER 1703 OREGON PIKE, LANCASTER, PA 17601-4201 OFFICES LOCATED IN:
PHILADELPHIA STOCK EXCHANGE P.O. BOX 4548, LANCASTER, PA 17604-4548 PENNSYLVANIA
SECURITIES INVESTOR PROTECTION CORPORATION TELEPHONE (717) 560-3006 FAX (7170 560-3063 NEW YORK
NEW JERSEY
</TABLE>
July 20, 1998
Board of Directors
Emclaire Financial Corp.
612 Main Street
Emlenton, PA 16373
Ladies and Gentlemen:
You have requested our opinion, as investment bankers, as to the
fairness, from a financial point of view, of the terms of the proposed merger
(the "Merger") of Peoples Savings Financial Corporation ("Peoples") with and
into Emclaire Financial Corp. ("Emclaire"). Pursuant to the Agreement and Plan
of Reorganization dated April 7, 1998 between Emclaire and Peoples, each share
of Peoples Common Stock outstanding at the Effective Time of Merger will be
converted into either i) cash in the amount of $26.00 (the "Cash Merger
Consideration"), or ii) shares of Emclaire Common Stock having a Final Market
Price equal to $26.00 (the "Stock Merger Consideration"). Shareholders of
Peoples Common Stock will be entitled to elect their preference with respect to
each share of Peoples Common Stock held by them, subject to pro-rata allocation,
such that an aggregate of 45.0% will be converted into the Cash Merger
Consideration, and 55.0% will be converted into the Stock Merger Consideration.
Hopper Soliday & Co., Inc. ("Hopper Soliday"), as a customary part of
its investment banking business, is engaged in valuing businesses and their
securities in connection with mergers and acquisitions, stock purchase offers,
negotiated underwritings, secondary distributions of securities, private
placements and for estate, corporate reorganization and other purposes.
Hopper Soliday reviewed, among other things: i) People's Annual Reports on Form
10-KSB and related financial information for the fiscal years ended June 30,
1995 through June 30, 1997 and People's Quarterly Reports on Form 10-QSB and
related unaudited financial information for the periods ending September 30,
1997, December 31, 1997, and March 31, 1998; ii) Emclaires Annual Reports on
Form 10-KSB and related financial information for the years ended December 31,
1996 and December 31, 1997 and Form 10-QSB for the quarter ended March 31, 1998;
iii) certain information concerning the respective businesses, operations,
regulatory condition and prospects of Emclaire and Peoples, including financial
forecasts, relating to the business, earnings, assets and prospects of Emclaire
and Peoples, furnished to Hopper Soliday by Emclaire and Peoples, which Hopper
Soliday discussed with members of senior management of Emclaire and Peoples; iv)
historical market prices and trading activity for the Emclaire Common Stock and
Peoples Common Stock and similar data for certain publicly traded companies
which Hopper Soliday deemed to be relevant; v) the results of operations of
Emclaire and Peoples and similar data for certain companies which Hopper Soliday
deemed to be relevant; vi) the financial
D-1
<PAGE>
terms of the Merger contemplated by the Agreement and the financial terms of
certain other mergers and acquisitions which Hopper Soliday deemed to be
relevant; vii) the pro forma impact of the Merger on the earnings and book value
per share, consolidated capitalization and certain balance sheet and
profitability ratios of Emclaire; viii) the Agreement; ix) such other matters as
Hopper Soliday deemed necessary. Hopper Soliday also met with certain members of
senior management and other representatives of Emclaire and Peoples to discuss
the foregoing as well as other matters Hopper Soliday deemed relevant.
In conducting our review and in arriving at our opinion, we relied upon
and assumed the accuracy and completeness of the financial and other information
provided to us or that which was publicly available and did not attempt
independently to verify such information. We relied upon the managements of
Emclaire and Peoples as to the reasonableness and achievability of the financial
and operating forecasts and projections (and the assumptions and bases thereof)
provided to us and assumed that such forecasts and projections reflected the
best currently available estimates and judgements of such managements and that
such forecasts and projections would be realized in the amounts and in the time
periods estimated by such managements. We also assumed, without independent
verification, that the aggregate allowances for loan losses for Emclaire and
Peoples were adequate to cover such losses. We did not make or obtain any
evaluations or appraisals of the assets of Emclaire and Peoples, nor did we
examine any individual loan credit files. Our opinion is limited to the
fairness, from a financial point of view, to the shareholders of Emclaire of the
Merger Consideration.
In rendering our opinion we have assumed that in the course of
obtaining the necessary regulatory approvals for the Merger, no conditions will
be imposed that will have a material adverse effect on the contemplated benefits
of the Merger to either Emclaire or, on a pro forma basis, the resulting company
following the Merger. Our opinion necessarily is based upon conditions as they
exist on, and can be evaluated as of, the date of this letter.
On the basis of the aforementioned analysis, and subject to the
qualifications described above, as of the date hereof, we are of the opinion
that the Merger Consideration provided for by the Merger Agreement is fair to
the shareholders of Emclaire from a financial point of view.
Sincerely,
/s/Hopper Soliday & Co., Inc.
- -----------------------------
Hopper Soliday & Co., Inc.
<PAGE>
APPENDIX E
CAPITAL RESOURCES GROUP, INC.
1211 Connecticut Avenue, NW Suite 200 Washington, D.C. 20036
April 7, 1998
Board of Directors
Peoples Savings Financial Corporation
173 Main Street
Ridgway, Pennsylvania 15853
Dear Board Members:
You have requested our opinion as to the fairness from a financial point
of view to the holders of shares of common stock of Peoples Savings Financial
Corporation (the "Company") of the proposed consideration to be paid to the
shareholders of the Company by Emclaire Financial Corp.
("Emclaire").
Capital Resources Group, Inc. ("Capital Resources") is a financial
consulting and an investment banking firm that, as part of our specialization in
financial institutions, is regularly engaged in the financial valuations and
analyses of business enterprises and securities in connection with mergers and
acquisitions, valuations for mutual-to-stock conversions of thrifts, initial and
secondary offerings, divestiture and other corporate purposes. Senior members of
Capital Resources have extensive experience in such matters. We believe that,
except for the fee we will receive for our opinion and other financial advisory
fees to be received in connection with the transaction discussed below, we are
independent of the Company.
Financial Terms of the Offer
- ----------------------------
We understand that, pursuant to an Agreement and Plan of Reorganization
("Agreement"), among Emclaire, the Company and Peoples Savings Bank (the
"Bank"), a wholly owned subsidiary of the Company, Emclaire has agreed to
acquire all of the issued and outstanding common stock of the Company pursuant
to which each share of the Company's common stock will be converted into and
represent the right to receive cash equal to $26.00 or shares of common stock of
Emclaire ("Per Share Merger Consideration"), subject, however, to proration as
set forth below. In this connection, it should be noted that the total cash
consideration and total stock consideration may not exceed 45 percent and 55
percent, respectively, of the aggregate consideration.
If Emclaire common stock is to be paid with respect to a share of Company
common stock, the Per Share Merger Consideration to be paid will be based on
that number of shares of Emclaire common stock equal to:
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CAPITAL RESOURCES GROUP, INC.
Board of Directors
April 7, 1998
Page 2
(A) If the "Final Market Price" (as defined below) shall be equal or
greater than $15.00 but equal to or less than $21.00, the "Stock
Merger Consideration" shall be $26.00 divided by the Final Market
Price.
(B) If the Final Market Price shall be greater than $21.00, then the
Stock Merger Consideration shall be 1.24 shares of Emclaire Common
Stock.
(C) If the Final Market Price shall be less than $15.00 either Emclaire
or the Company can terminate this Agreement.
Therefore, if the Final Market Price exceeds $21.00, then the Per Share Merger
Consideration will exceed $26.00.
The "Final Market Price" shall be the average closing price per share of
the "last" real time trades (i.e., closing price) of the Emclaire Common Stock
as reported on the OTC Bulletin Board for each of the thirty (30) OTC Bulletin
Board general market trading days preceding one week prior to the Closing Date
on which the OTC Bulletin Board was open for business (the "Pricing Period"),
provided, however, that if there are less than 10 business days during such
period when Emclaire Common Stock trades and on which there is a closing price,
then the Pricing Period shall be extended backwards for such period as is
necessary until there are ten days on which Emclaire Common Stock trades and on
which there is a closing price if such extension backwards will result in a
lower calculated Final Market Price. In the event Emclaire Common Stock does not
trade on one or more of the trading days during the Pricing Period (a "No Trade
Date"), any such No Trade Date shall be disregarded in computing the average
closing price per share of Emclaire Common Stock and the average shall be based
upon the "last" real time trades and number of days on which Emclaire Common
Stock actually traded during the Pricing Period.
At the Effective Time of the Merger, each unexercised Company Stock Option
will be deemed canceled and as consideration therefor each holder of a Company
Stock Option (the "Option Holders") will have the right to receive a cash
payment amount ("Cash Out") equal to the excess of (a) $26.00 over the exercise
price per share of Company Common Stock covered by that Option Holders's Company
Stock Option(s), multiplied by (b) the total number of shares of Company Common
Stock covered by such Company Stock Options(s).
If based on the election of Company shareholders, there would result in
more than 55 percent of the outstanding Company common stock plus stock subject
to stock options ("Aggregate Shares") being exchanged for Emclaire common stock
or more than 45 percent of the Aggregate Shares being converted into cash, then
election shares will be reduced pro rata to achieve a 55 percent stock
allocation and 45 percent cash allocation.
E-2
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
April 7, 1998
Page 3
Pursuant to the merger transaction, the Company will be merged into
Emclaire and the separate existence of the Company will cease. The Bank will be
merged into The Farmers National Bank of Emlenton, a wholly owned subsidiary of
Emclaire.
Materials Reviewed
- ------------------
In the course of rendering our opinion we have, among other things:
(1) Reviewed the terms of the Agreement and discussed the Agreement with
management and the Board of Directors of the Company, and the
Company's legal counsel, Serchuk & Zelermyer, L.L.P.;
(2) Reviewed the following financial data of the Company:
o the audited financial statements of the Company for the fiscal
years ended June 30, 1993 through June 30, 1997 and the unaudited
financial statements for the six months ended December 31, 1997
as reported in its Report on Form 10-QSB,
o the Bank's regulatory financial reports covering the period
through December 31, 1997, the latest available period,
o the Company's latest available asset/liability reports,
o other miscellaneous internally-generated management information
reports for recent periods, as well as other publicly available
information,
o the Company's most recent business plan and budget report;
(3) Reviewed the Company's Annual Report to shareholders and Form 10-KSB
Report for fiscal 1997 which provides a discussion of the Company's
business and operations and reviews various financial data and
trends;
(4) Discussed with executive management of the Company, the business,
operations, recent financial condition and operating results and
future prospects of the Company;
(5) Compared the Company's financial condition and operating results to
those of similarly- sized thrift companies operating in Pennsylvania
and the U.S.;
E-3
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
April 7, 1998
Page 4
(6) Compared the Company's financial condition and operating performance
to the published financial statements and market price data of
publicly-traded thrifts in general, and publicly-traded thrifts in
the Company's region of the U.S. specifically;
(7) Reviewed the relevant market information regarding the shares of
common stock of the Company including trading activity and volume and
information on options to purchase shares of common stock;
(8) Performed such other financial and pricing analyses and
investigations as we deemed necessary, including a comparative
financial analysis and review of the financial terms of other pending
and completed acquisitions of companies we consider to be generally
similar to the Company;
(9) Examined the Company's economic operating environment and the
competitive environment of the Company's market area;
(10) Reviewed available financial reports and financial data for Emclaire,
including Annual Reports to shareholders and Form 10-K Reports
covering the fiscal years ended through December 31, 1997, quarterly
reports, Form 10-Q reports, other published financial data and other
internal and regulatory financial reports provided by management of
Emclaire; reviewed Emclaire's banking office network; and reviewed
the pricing trends of Emclaire's common stock and dividend payment
history;
(11) Visited Emclaire's administrative and executive offices and conducted
interviews with management.
In arriving at our opinion, we have relied upon the accuracy and
completeness of the information provided to us by the various parties mentioned
above, upon public information and upon representations and warranties in the
Agreement, and have not conducted any independent investigations to verify any
such information or performed any independent appraisal of the Company's or
Emclaire's assets.
This fairness opinion is supported by the detailed information and
analysis contained in the Evaluation and Analysis Report dated April 7, 1998
("Report"), which has been produced by Capital Resources and will be delivered
to the Company. We have relied on the Report for purposes of rendering this
current fairness opinion. The Report contains a business description and
financial analysis of the Company, an analysis of current economic conditions in
the Company's primary market area, and a financial and market pricing comparison
with a selected group of thrift institutions which completed merger and
acquisition transactions or are currently subject to pending transactions. In
addition, the Report contains a discounted dividend stream and terminal value
analysis.
E-4
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
April 7, 1998
Page 5
Opinion
Based on the foregoing and on our general knowledge of and experience in
the valuation of businesses and securities, we are of the opinion that, as of
April 7, 1998, the consideration proposed by Emclaire for shares of common stock
of the Company is fair to the shareholders of the Company from a financial point
of view.
Respectfully submitted,
CAPITAL RESOURCES GROUP, INC.
/s/CAPITAL RESOURCES GROUP, INC.
E-5
<PAGE>
Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. Suite 200 Washington, DC 20036
Tel (202) 466-5685 Fax (202) 466-5695
July 27, 1998
Board of Directors
Peoples Savings Financial Corporation
173 Main Street
Ridgway, Pennsylvania 15853
Dear Board Members:
You have requested our opinion as to the fairness from a financial point
of view to the holders of shares of common stock of Peoples Savings Financial
Corporation (the "Company") of the proposed consideration to be paid to the
shareholders of the Company by Emclaire Financial Corp. ("Emclaire"). This
current opinion serves as an update of our original Fairness Opinion dated April
7, 1998.
Capital Resources Group, Inc. ("Capital Resources") is a financial
consulting and an investment banking firm that, as part of our specialization in
financial institutions, is regularly engaged in the financial valuations and
analyses of business enterprises and securities in connection with mergers and
acquisitions, valuations for mutual-to-stock conversions of thrifts, initial and
secondary offerings, divestiture and other corporate purposes. Senior members of
Capital Resources have extensive experience in such matters. We believe that,
except for the fee we will receive for our opinion and other financial advisory
fees to be received in connection with the transaction discussed below, we are
independent of the Company.
Financial Terms of the Offer
- ----------------------------
We understand that, pursuant to an Agreement and Plan of Reorganization
("Agreement"), among Emclaire, the Company and Peoples Savings Bank (the
"Bank"), a wholly owned subsidiary of the Company, Emclaire has agreed to
acquire all of the issued and outstanding common stock of the Company pursuant
to which each share of the Company's common stock will be converted into and
represent the right to receive cash equal to $26.00 or shares of common stock of
Emclaire ("Per Share Merger Consideration"), subject, however, to proration as
set forth below. In this connection, it should be noted that the total cash
consideration and total stock consideration may not exceed 45 percent and 55
percent, respectively, of the aggregate consideration.
If Emclaire common stock is to be paid with respect to a share of Company
common stock, the Per Share Merger Consideration to be paid will be based on
that number of shares of Emclaire common stock equal to:
E-6
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
July 27, 1998
Page 2
(A) If the "Final Market Price" (as defined below) shall be equal or
greater than $15.00 but equal to or less than $21.00, the "Stock
Merger Consideration" shall be $26.00 divided by the Final Market
Price.
(B) If the Final Market Price shall be greater than $21.00, then the
Stock Merger Consideration shall be 1.24 shares of Emclaire Common
Stock.
(C) If the Final Market Price shall be less than $15.00 either Emclaire
or the Company can terminate this Agreement.
Therefore, if the Final Market Price exceeds $21.00, then the Per Share Merger
Consideration could exceed $26.00. It is noted that the latest available
reported closing price of the Emclaire common stock was $22.75 per share.
The "Final Market Price" shall be the average closing price per share of
the "last" real time trades (i.e., closing price) of the Emclaire common stock
as reported on the OTC Bulletin Board for each of the thirty (30) OTC Bulletin
Board general market trading days preceding one week prior to the Closing Date
on which the OTC Bulletin Board was open for business (the "Pricing Period"),
provided, however, that if there are less than 10 business days during such
period when Emclaire common stock trades and on which there is a closing price,
then the Pricing Period shall be extended backwards for such period as is
necessary until there are ten days on which Emclaire common stock trades and on
which there is a closing price if such extension backwards will result in a
lower calculated Final Market Price. In the event Emclaire common stock does not
trade on one or more of the trading days during the Pricing Period (a "No Trade
Date"), any such No Trade Date shall be disregarded in computing the average
closing price per share of Emclaire common stock and the average shall be based
upon the "last" real time trades and number of days on which Emclaire common
stock actually traded during the Pricing Period.
At the Effective Time of the Merger, each unexercised Company Stock Option
will be deemed canceled and as consideration therefor each holder of a Company
Stock Option (the "Option Holders") will have the right to receive a cash
payment amount ("Cash Out") equal to the excess of (a) $26.00 over the exercise
price per share of Company Common Stock covered by that Option Holders's Company
Stock Option(s), multiplied by (b) the total number of shares of Company Common
Stock covered by such Company Stock Options(s).
If based on the election of Company shareholders, there would result in
more than 55 percent of the outstanding Company common stock plus stock subject
to stock options ("Aggregate Shares") being exchanged for Emclaire common stock
or more than 45 percent of the Aggregate Shares being converted into cash, then
election shares will be reduced pro rata to achieve a 55 percent stock
allocation and 45 percent cash allocation.
E-7
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
July 27, 1998
Page 3
Pursuant to the merger transaction, the Company will be merged into
Emclaire and the separate existence of the Company will cease. The Bank will be
merged into The Farmers National Bank of Emlenton, a wholly owned subsidiary of
Emclaire.
Materials Reviewed
- ------------------
In the course of rendering our opinion we have, among other things:
(1) Reviewed the terms of the Agreement and discussed the Agreement with
management and the Board of Directors of the Company, and the
Company's legal counsel, Serchuk & Zelermyer, L.L.P.;
(2) Reviewed the following financial data of the Company:
o the audited financial statements of the Company for the fiscal
years ended June 30, 1993 through June 30, 1997 and the unaudited
financial statements for the six months ended December 31, 1997
and for the nine months ended March 31, 1998 as reported in its
Report on Form 10-QSB,
o the Bank's regulatory financial reports covering the period
through March 31, 1998, the latest available period,
o the Company's latest available asset/liability reports,
o other miscellaneous internally-generated management information
reports for recent periods, as well as other publicly available
information,
o the Company's most recent business plan and budget report;
(3) Reviewed the Company's Annual Report to shareholders and Form 10-KSB
Report for fiscal 1997 which provides a discussion of the Company's
business and operations and reviews various financial data and
trends;
(4) Discussed with executive management of the Company, the business,
operations, recent financial condition and operating results and
future prospects of the Company;
(5) Compared the Company's financial condition and operating results to
those of similarly-sized thrift companies operating in Pennsylvania
and the U.S.;
E-8
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
July 27, 1998
Page 4
(6) Compared the Company's financial condition and operating performance
to the published financial statements and market price data of
publicly-traded thrifts in general, and publicly-traded thrifts in
the Company's region of the U.S. specifically;
(7) Reviewed the relevant market information regarding the shares of
common stock of the Company including trading activity and volume and
information on options to purchase shares of common stock;
(8) Performed such other financial and pricing analyses and
investigations as we deemed necessary, including a comparative
financial analysis and review of the financial terms of other pending
and completed acquisitions of companies we consider to be generally
similar to the Company;
(9) Examined the Company's economic operating environment and the
competitive environment of the Company's market area;
(10) Reviewed available financial reports and financial data for Emclaire,
including Annual Reports to shareholders and Form 10-K Reports
covering the fiscal years ended through December 31, 1997, quarterly
reports, Form 10-Q reports, other published financial data and other
internal and regulatory financial reports provided by management of
Emclaire; reviewed Emclaire's banking office network; and reviewed
the pricing trends of Emclaire's common stock and dividend payment
history;
(11) Visited Emclaire's administrative and executive offices and conducted
interviews with management.
(12) Analyzed the pro forma financial impact of the Merger of the Company
and Emclaire
In arriving at our opinion, we have relied upon the accuracy and
completeness of the information provided to us by the various parties mentioned
above, upon public information and upon representations and warranties in the
Agreement, and have not conducted any independent investigations to verify any
such information or performed any independent appraisal of the Company's or
Emclaire's assets.
This fairness opinion is supported by the detailed information and
analysis contained in the Evaluation and Analysis Report dated April 7, 1998
("Report"), which has been produced by Capital Resources and has been delivered
to the Company. We have relied on the Report as well as an updated financial and
market price review and analysis for purposes of rendering this current fairness
opinion. The Report contains a business description and financial analysis of
the Company, an analysis of current economic conditions in the Company's primary
market area, and a financial and market pricing comparison with a selected group
of thrift institutions which completed merger and
E-9
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
July 27, 1998
Page 5
acquisition transactions or are currently subject to pending transactions. In
addition, the Report contains a discounted dividend stream and terminal value
analysis. This analysis compares the value of the consideration proposed by
Emclaire with the potential present value returns to the Company's shareholders
if the Company remains independent for at least three to five years.
Opinion
Based on the foregoing and on our general knowledge of and experience in
the valuation of businesses and securities, we continue to be of the opinion
that, as of July 27, 1998, the consideration proposed by Emclaire for shares of
common stock of the Company is fair to the shareholders of the Company from a
financial point of view.
Respectfully submitted,
CAPITAL RESOURCES GROUP, INC.
/s/CAPITAL RESOURCES GROUP, INC.
E-10
<PAGE>
APPENDIX F
EMCLAIRE FINANCIAL CORP.
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Interest income $ 9,523 $ 8,098 $ 7,437 $ 6,751 $ 6,772
Interest expense 3,727 3,352 2,986 2,573 2,651
------------- ------------- -------------- ------------- -------------
Net interest income 5,796 4,746 4,451 4,178 4,121
Provision for loan losses 220 120 143 132 180
------------- ------------- -------------- ------------- -------------
Net interest income after
provision for loan losses 5,576 4,626 4,308 4,046 3,941
Other income 596 427 389 384 301
Other expense 4,382 3,636 3,005 2,899 2,780
------------- ------------- -------------- ------------- -------------
Income before income taxes and
cumulative effect adjustment 1,790 1,417 1,692 1,531 1,462
Applicable income tax expense 546 436 520 454 450
------------- ------------- -------------- ------------- -------------
Net income before cumulative effect adjustment 1,244 981 1,172 1,077 1,012
Cumulative effect adjustment - - - - 31
------------- ------------- -------------- ------------- -------------
NET INCOME $ 1,244 $ 981 $ 1,172 $ 1,077 $ 1,043
============= ============= ============== ============= =============
PER SHARE DATA (1) Earnings per share:
Prior to cumulative effect adjustment $ 1.15 $ 1.15 $ 1.40 $ 1.28 $ 1.20
Cumulative effect adjustment
- - - - .04
============= ============= ============== ============= =============
Earnings per share $ 1.15 $ 1.15 $ 1.40 $ 1.28 $ 1.24
============= ============= ============== ============= =============
Dividends paid (1) $ .44 $ .41 $ .43 $ .38 $ .36
Book value per share at period end (1) $ 12.48 $ 11.68 $ 10.76 $ 9.72 $ 8.81
Average number of shares outstanding (1) 1,081,453 852,403 839,160 839,160 839,160
STATEMENT OF CONDITION STATISTICS
(At end of period)
Assets $ 133,956 $ 128,002 $ 98,599 $ 96,714 $ 94,774
Deposits 117,655 114,725 88,944 87,986 86,996
Loans 86,144 68,428 64,322 64,086 61,378
Allowance for loan losses 874 733 687 688 639
Federal funds sold
- 3,500 2,500 900 3,350
Investment securities
38,034 46,483 26,361 25,436 23,180
Stockholders' equity 13,498 12,631 9,032 8,155 7,397
SIGNIFICANT RATIOS
Return on average equity 9.57 % 10.33 % 13.56 % 13.80 % 14.69 %
Return on average assets .96 .89 1.20 1.12 1.11
Net yield on earning assets 4.87 4.68 4.97 4.81 4.80
Net loans as a percent of deposits 72.47 59.01 71.55 72.05 69.82
Equity to assets at period end 10.08 9.87 9.16 8.43 7.80
Earning average assets to total assets 93.10 93.63 94.11 92.84 92.62
Average interest bearing liabilities to assets 74.71 77.02 77.26 78.36 79.84
Dividends as a percent of net income 38.26 35.65 30.71 29.69 29.03
Allowance for loan losses to total loans 1.01 1.07 1.07 1.07 1.04
Full time equivalent employees 75 74 52 47 47
Banking offices 7 7 4 4 4
</TABLE>
(1) - Adjusted for a 5% stock dividend in 1997 and a 4-for1 stock split in 1996.
F-1
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,975 $ 4,742
Federal funds sold -- 3,500
Investment securities (Note 4):
Available for sale 31,977 36,208
Held to maturity (estimated market value
of $6,053 and $10,246) 6,057 10,275
Loans (Note 5) 86,144 68,428
Less allowance for loan losses (Note 6) 874 733
----------- -----------
Net loans 85,270 67,695
Premises and equipment (Note 7) 2,619 2,308
Accrued interest and other assets 3,058 3,274
----------- -----------
TOTAL ASSETS $ 133,956 $ 128,002
=========== ===========
LIABILITIES
Deposits
Non-interest bearing demand $ 19,765 $ 17,650
Interest bearing demand 17,276 15,784
Savings 16,261 15,347
Money market 18,077 19,059
Time (Note 8) 46,276 46,885
----------- -----------
Total deposits 117,655 114,725
Obligation under capital lease 63 104
Borrowed funds (Note 12) 2,200 --
Accrued interest and other liabilities 540 542
----------- -----------
TOTAL LIABILITIES 120,458 115,371
----------- -----------
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 1,081,453 and 1,030,000 shares
isssued in 1997 and 1996 (Note 15) 1,352 1,288
Additional paid in capital 4,432 3,622
Retained earnings 7,492 7,597
Net unrealized gain on securities 222 124
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,498 12,631
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 133,956 $ 128,002
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
------------ --------------
INTEREST INCOME
<S> <C> <C>
Loans, including fees $ 6,969 $ 5,839
Interest bearing deposits in other banks 1 2
Federal funds sold 89 236
Investment securities:
Taxable
2,279 1,879
Exempt from federal income tax 185 141
---------- ----------
Total interest income 9,523 8,097
---------- ----------
INTEREST EXPENSE
Deposits 3,655 3,282
Borrowed funds 67 63
Lease obligation 5 7
---------- ----------
Total interest expense 3,727 3,352
---------- ----------
NET INTEREST INCOME 5,796 4,745
Provision for loan losses 220 120
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,576 4,625
---------- ----------
OTHER OPERATING INCOME
Service fees on deposit accounts 476 344
Other 120 84
---------- ----------
Total other operating income 596 428
---------- ----------
OTHER OPERATING EXPENSE
Salaries and employee benefits 2,240 1,903
Occupancy, furniture and equipment 688 524
Other (Note 9) 1,454 1,209
---------- ----------
Total other operating expense 4,382 3,636
---------- ----------
Income before income taxes 1,790 1,417
Income taxes (Note 10) 546 436
---------- ----------
NET INCOME $ 1,244 $ 981
========== ==========
EARNINGS PER SHARE $ 1.15 $ 1.15
AVERAGE SHARES OUTSTANDING 1,081,453 852,403
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid in Retained Gain on Treasury
Stock Capital Earnings Securities Stock Total
-------------- -------------- -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 $ 1,000 $ 1,013 $ 6,960 $ 66 $ (6) $ 9,033
Net income 981 981
Dividends declared
($.41 per share) (344) (344)
Net proceeds from sale of
230,800 shares of common
stock (Note 15) 288 2,609 6 2,903
Net unrealized gain on securities 58 58
-------------- -------------- -------------- -------------- ------------- -----------------
Balance December 31, 1996 1,288 3,622 7,597 124 - 12,631
Net income 1,244 1,244
Dividends declared
($.44 per share) (474) (474)
Five percent stock dividend
including fractional shares
cash paid (Note 15) 64 810 (875) (1)
Net unrealized gain on securities 98 98
-------------- -------------- -------------- -------------- ------------- ----------------
Balance December 31, 1997 $ 1,352 $ 4,432 $ 7,492 $ 222 $ - $ 13,498
============== ============== ============== ============== ============= ================
</TABLE>
F-4
See accompanying notes to the consolidated financial statements.
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,244 $ 981
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 598 365
Net amortization of investment security
discounts and premiums 198 220
Provision for loan losses 220 120
Deferred income taxes (3) (60)
(Increase) decrease in accrued interest receivable 102 (358)
Increase in accrued interest payable 2 61
Other, net (250) (370)
-------- --------
Net cash provided by operating activities 2,111 959
-------- --------
INVESTING ACTIVITIES
Proceeds from maturities and repayments of investment securities:
Available for sale 5,000 --
Held to maturity 4,157 8,961
Proceeds from sales of investment securities:
Available for sale 1,990 90
Purchases of investment securities:
Available for sale (2,748) (26,168)
Held to maturity -- (3,136)
Net loan originations (17,813) (4,218)
Purchases of premises and equipment (588) (779)
Proceeds from sales of foreclosed or other bank property 10 50
Net proceeds from branch acquisition (Note 2) -- 12,683
-------- --------
Net cash used for investing activities (9,992) (12,517)
-------- --------
FINANCING ACTIVITIES
Net increase in deposits 2,930 11,605
Net increase in short-term borrowings 200 --
Proceeds from Federal Home Loan Bank advance 2,000 --
Payments for obligation under capital lease (41) (39)
Proceeds from sale of common stock, net of cost -- 2,903
Cash dividends paid (475) (344)
-------- --------
Net cash provided by financing activities 4,614 14,125
-------- --------
Increase (decrease) in cash and cash equivalents (3,267) 2,567
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,242 5,675
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,975 $ 8,242
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
EMCLAIRE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
Emclaire Financial Corp. (Company) is a Pennsylvania corporation organized as
the holding company of The Farmers National Bank of Emlenton (Bank). The Bank is
a national association headquartered in Emlenton, Pennsylvania. The Company's
principal sources of revenue emanate from its investment securities portfolio,
its portfolio of residential real estate, commercial mortgage, commercial and
consumer loans, as well as a variety of deposit services offered to its
customers through seven offices. The Company is supervised by the Board of
Governors of the Federal Reserve System, while the Bank is subject to regulation
and supervision by the Office of the Comptroller of the Currency.
Basis of Presentation
- ---------------------
The consolidated financial statements of the Company include its wholly-owned
subsidiary, the Bank. All intercompany transactions have been eliminated in
consolidation. The investment in subsidiary, on the parent company financial
statements, is carried at the parent company's equity position in the underlying
net assets.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Investment Securities
- ---------------------
Investment securities have been classified into two categories: Held to Maturity
and Available for Sale. Debt securities acquired with the ability and intent to
hold to maturity are stated at cost adjusted for amortization of premium and
accretion of discount which are computed using the interest method and
recognized as adjustments of interest income. All other debt securities have
been classified as available for sale to serve principally for liquidity
purposes. Unrealized holding gains and losses for available for sale securities
are reported as a separate component of stockholders' equity, net of tax, until
realized. Realized securities gains and losses are computed using the specific
identification method. Interest and dividends on securities are recognized as
income when earned.
Common stock of the Federal Home Loan Bank and Federal Reserve Bank represents
ownership in institutions which are wholly-owned by other financial
institutions. These equity securities are accounted for at cost and classified
as available for sale.
Loans
- -----
Loans are reported at their principal amount net of the allowance for loan
losses. Interest on all loans is recognized as income when earned on the accrual
method. The accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions, that the
borrower's financial condition is such that collection of interest is doubtful.
Interest payments received on nonaccrual loans are recorded as income or applied
against principal according to management's judgment as to the collectibility of
such principal.
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of the related loan
yield. The Company is amortizing these amounts over the contractual lives of the
related loans.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential losses in its loan portfolio. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance, and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses which is
charged to operations. The provision is based upon management's periodic
evaluation of individual loans, the overall risk characteristics of the various
portfolio segments, past experience with losses, the impact of economic
conditions on borrowers, and other relevant factors. The estimates used in
determining the adequacy of the allowance for loan losses are particularly
susceptible to significant change in the near term.
The Company considers a commercial or commercial real estate loan to be impaired
when, based on current information and events, it is probable that the Company
will be unable to collect principal or interest due according to the contractual
terms of the loan. Loan impairment is measured based on the present value of
expected cash flows discounted at the loan's effective
F-6
<PAGE>
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
Payments received on impaired loans are applied against the recorded investment
in the loan. For loans other than those that the Company expects repayment
through liquidation of the collateral, when the remaining recorded investment in
the impaired loans is less than or equal to the present value of the expected
cash flows, income is recorded on a cash basis.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are charged
against income as incurred. Costs of major additions and improvements are
capitalized.
Other Real Estate
- -----------------
Other real estate owned acquired in settlement of foreclosed loans is carried as
a component of other assets at the lower of cost or fair value minus the cost to
sell. Valuation allowances for estimated losses are provided when the carrying
value of the real estate acquired exceeds the fair value. Direct costs incurred
in the foreclosure process and subsequent holding costs incurred on such
properties are recorded as expenses of current operations.
Intangible Assets
- -----------------
The excess cost over net tangible assets and identified intangible assets of
acquired branch offices is amortized using the straight-line method over a
period not to exceed fifteen years. Core deposit intangible premiums are
amortized on a straight-line basis over the average remaining lives of the
acquired deposits, not to exceed ten years. Other identified intangible assets
are amortized over the estimated benefited period, not to exceed ten years.
Pension Plan
- ------------
The Bank maintains a non-contributory defined benefit pension plan covering
substantially all employees and officers. The plan calls for benefits to be paid
to eligible employees at retirement based primarily upon years of service with
the Bank and compensation rates near retirement.
Income Taxes
- ------------
The Company and the Bank file a consolidated federal income tax return. Deferred
tax assets and liabilities are reflected at currently enacted income tax rates
applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
Earnings Per Share
- ------------------
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to fully diluted earnings per share. The
Company maintains a simple capital structure therefore, there are no dilutive
effects on earnings per share.
Cash Flow Information
- ---------------------
The Company has defined cash equivalents as those amounts included in due from
banks and federal funds sold.
Cash payments for interest in 1997 and 1996 were $3,725,000 and $3,292,000,
respectively. Cash payments for income taxes in 1997 and 1996 were $625,000 and
$501,000, respectively.
Reclassification
- ----------------
Certain comparative amounts for 1996 have been reclassified to conform to the
current year presentation. Such reclassification had no effect on net income.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
- --------------------------------------------------------------------------------
of Liabilities
- --------------
In June 1996, the Financial Accounting Standards board issued Statement No. 125,
"Accounting for Transfers of Financial Assets and Extinguishments of
Liabilities." This statement, which became effective January 1, 1997, provides
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. This statement also extends the treatment
of mortgage servicing rights to all servicing assets.
F-7
<PAGE>
Certain provisions of Statement 125, were deferred for one year by Statement
127. The deferral affected repurchase agreements, securities lending, and
pledged collateral. The adoption of these statements did not have a material
impact on the Company's financial position or results of operations.
Reporting Comprehensive Income
- ------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement No. 130
"Reporting Comprehensive Income." This standard which is effective for years
beginning after December 15, 1997, establishes standards for reporting the
components of comprehensive income 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 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. This disclosure
will have no impact on the Company's financial position or results of
operations.
Disclosures About Segments of an Enterprise and Related Information
- -------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way public 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. The statement defines an operating segment as a component of an
enterprise that generates revenue and incurs expense, whose operating results
are reviewed by the chief operating decision maker in the determination of
resource allocation and performance, and for which discrete financial
information is available. This Statement is effective for fiscal years beginning
after December 15, 1997, however, it does not require disclosure in interim
reporting in the year of initial application.
3. BRANCH ACQUISITION
On September 20, 1996, the Bank acquired certain deposit liabilities of the
Knox, Pennsylvania office of Mellon Bank, N.A. in a transaction recorded as a
branch purchase. The Bank assumed deposit liabilities of approximately $14.1
million and acquired the land, building and equipment. The difference between
the liabilities assumed and the assets acquired was received in cash totaling
approximately $12.6 million. The amount by which the acquisition cost exceeded
the value of the assets purchased, totaling approximately $1.4 million, was
recorded as an intangible asset.
4. INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities are
summarized as follows (in thousands):
F-8
<PAGE>
<TABLE>
<CAPTION>
Available for Sale 1997
----
Gross Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U. S. Treasury securities and
obligations of U. S. Government
corporations and agencies $17,510 $ 163 $ (1) $17,672
Obligations of states and political
subdivisions 3,617 43 -- 3,660
Corporate notes 10,067 134 (3) 10,198
------- ------- ------- -------
Total debt securities 31,194 340 (4) 31,530
Equity investment in Federal Reserve
and Federal Home Loan Banks 447 -- -- 447
------- ------- ------- -------
Total $31,641 $ 340 $ (4) $31,977
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity 1997
----
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U. S. Treasury securities and
obligations of U. S. Government
corporations and agencies $1,006 $ 7 $ -- $1,013
Obligations of states and political
subdivisions 1,390 1 -- 1,391
Corporate notes 2,978 10 (3) 2,985
Mortgage-backed securities 683 -- (19) 664
------ ------ ------ ------
Total $6,057 $ 18 $ (22) $6,053
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Available for Sale 1996
----
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U. S. Treasury securities and
obligations of U. S. Government
corporations and agencies $23,539 $ 166 $ (43) $23,662
Obligations of states and political
subdivisions 1,920 1 (3) 1,918
Corporate notes 10,157 94 (27) 10,224
------- ------- ------- -------
Total debt securities 35,616 261 (73) 35,804
Equity investment in Federal Reserve
and Federal Home Loan Banks 404 -- -- 404
------- ------- ------- -------
Total $36,020 $ 261 $ (73) $36,208
======= ======= ======= =======
</TABLE>
F-9
<PAGE>
Held to Maturity 1996
----
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
U. S. Treasury securities and
obligations of U. S. Government
corporations and agencies $ 2,012 $ -- $ (1) $ 2,011
Obligations of states and political
subdivisions 3,130 5 (1) 3,134
Corporate notes 3,528 9 (6) 3,531
Mortgage-backed securities 1,605 -- (35) 1,570
------- ------- ------- -------
Total $10,275 $ 14 $ (43) $10,246
======= ======= ======= =======
Proceeds from the sale of investment securities classified as available for sale
totaled $1,990,000 and $90,000 for 1997 and 1996, respectively. No gains or
losses resulted from these sales.
Investment securities with a carrying value of approximately $5,738,000 and
$5,363,000 at December 31, 1997 and 1996, respectively, were pledged to secure
deposits and for other purposes as required by law. The carrying value
approximated the estimated market value of the investment securities for both
years.
The amortized cost and estimated market value of debt securities at December 31,
1997, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
Available for Sale Held to Maturity
------------------ ----------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less $ 5,502 $ 5,513 $ 2,566 $ 2,563
Due after 1 year through 5 years
23,995 24,299 3,080 3,093
Due after 5 years through 10 years
1,697 1,718 -- --
After 10 years
-- -- 411 397
------- ------- ------- -------
Total $31,194 $31,530 $ 6,057 $ 6,053
======= ======= ======= =======
F-10
<PAGE>
5. LOANS
Major classifications of loans are summarized as follows (in thousands):
1997 1996
---- ----
Commercial and industrial $11,147 $10,390
Real estate mortgages
Residential 45,709 34,251
Commercial and other 15,188 11,400
Consumer 14,100 12,387
------- -------
86,144 68,428
Less allowance for loan losses 874 733
------- -------
Total $85,270 $67,695
======= =======
In the normal course of business, loans are extended to directors, executive
officers, and their associates. In management's opinion, all of these loans are
on substantially the same terms and conditions as loans to other individuals and
businesses of comparable creditworthiness, with the exception of consumer and
residential mortgage loans granted to executive officers which carry an interest
rate one percent below that quoted non-employees. Such loans, which are included
in the following schedule, totaled $197,000 and $ - at December 31, 1997 and
1996, respectively. A summary of loan activity for those directors, executive
officers, and their associates with aggregate loan balances in excess of $60,000
for the year ended December 31, 1997, is as follows (in thousands):
Balance Balance
December 31, December 31,
1996 New Loans Repayments 1997
---- ---------- ----------- ----
$1,253 664 749 $1,168
The Bank's primary business activity is with customers located within Venango,
Clarion, and Butler Counties. Commercial, residential, personal, and
agricultural loans are granted. Although the Bank has a diversified loan
portfolio at December 31, 1997 and 1996, loans outstanding to individuals and
businesses are dependent upon the local economic conditions within the immediate
trade area.
F-11
<PAGE>
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are summarized as follows (in
thousands):
1997 1996
---- ----
Balance, January 1 $733 $687
Provision charged to operations 220 120
Recoveries 29 47
Less loans charged off 108 121
---- ----
Balance, December 31 $ 874 $ 733
==== ====
At December 31, 1997 and 1996, the recorded investment in loans which are
considered to be impaired was $685,000 and $743,000, respectively, all of which
was placed in nonaccrual status. In addition, $70,000 and $80,000 of the related
allowance for loan losses has been allocated for these impaired loans at
December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996, There
were commitments for unfunded letters of credit totaling $7,500, to a borrower
with outstanding loans considered to be impaired.
The average recorded investment in impaired loans during the years ended
December 31, 1997 and 1996, was approximately $719,000 and $820,000,
respectively. Interest income totaling $14,000 and $13,000 was recognized on
impaired loans in 1997 and 1996, respectively, all of which was recognized using
the cash basis method of income recognition.
7. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows (in
thousands):
1997 1996
---- ----
Land and improvements $ 256 $ 221
Buildings 1,431 1,430
Construction in process 489 --
Leasehold improvements 148 129
Furniture and fixtures 1,695 1,656
------ ------
4,019 3,436
Less accumulated depreciation
1,400 1,128
------ ------
Total $2,619 $2,308
====== ======
Depreciation and amortization charged to operations was $272,000 in 1997 and
$201,000 in 1996.
Included in construction in process are the costs associated with the
construction of a data processing center by the Bank. Construction, equipment
and furnishing costs are estimated to total $1.2 million. Construction is
expected to be completed during the second quarter of 1998.
F-12
<PAGE>
8. TIME DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000 or
more. Such deposits aggregated $4,328,000 and $4,583,000 at December 31, 1997
and 1996, respectively. The following schedule presents the contractual
maturities for time deposits in excess of $100,000 at December 31, 1997 (in
thousands):
Within three months $ 548
After three months through six months 362
After six months through one year 986
After one year 2,432
Total $4,328
9. OTHER EXPENSES
The following is an analysis of other expense (in thousands:
1997 1996
---- ----
Telephone $ 105 $ 91
Printing forms and supplies
138 183
Postage
140 97
Amortization of intangible assets
243 129
Other
828 709
---- ----
$1,454 $1,209
====== =====
10. INCOME TAXES
The provision for income taxes is summarized as follows:
1997 1996
----- -----
Currently payable $ 549 $ 496
Deferred (3) (60)
----- -----
546 $ 436
===== =====
The reconciliation between the federal statutory rate and the Company's
effective income tax rate is as follows (dollars in thousands):
F-13
<PAGE>
1997 1996
---- ----
% of Pre-Tax % of Pre-Tax
Amount Income Amount Income
------ ------ ------ ------
Provision at statutory rate $ 609 34.0% $ 482 34.0%
Effect of tax exempt income (76) (4.2) (57) (4.0
Other 13 0.7 11 0.8
----- ---- ----- -----
Total $ 546 30.5% $ 436 30.8%
===== ==== ===== ====
The tax effects of deductible and taxable temporary differences that give rise
to significant portions of the deferred tax assets and deferred tax liabilities,
respectively, at December 31 are as follows (in thousands):
1997 1996
---- ----
Deferred tax assets
Provision for loan losses $244 $196
Intangible asset amortization 83 51
Capital lease obligation 21 35
Pension expense 35 16
---- ----
Gross deferred tax assets 383 298
---- ----
Deferred tax liabilities
Net unrealized gain on securities 114 64
Depreciation 215 143
Net loan origination costs 17 7
---- ----
Gross deferred tax liabilities 346 214
---- ----
Net deferred tax asset $ 37 $ 84
==== ====
No valuation allowance was established, for the net deferred tax asset, at
December 31, 1997 and 1996, in view of the Company's ability to carry-back to
taxes paid in previous years and future anticipated taxable income which is
evidenced by the Company's earnings potential.
11. PENSION PLAN
The following presents the components of the pension expense for each year (in
thousands):
1997 1996
----- -----
Service cost of benefits earned during the period $ 95 $ 66
Interest cost on projected benefit obligation 99 75
Return on plan assets (128) (177)
Net amortization and deferral (8) 50
----- -----
Net periodic pension cost $ 58 $ 14
===== =====
F-14
<PAGE>
The actuarial present value of accumulated benefit obligations at December 31,
1997 and 1996, was $997,000 and $738,000 including vested benefit obligations of
$964,000 and $715,000. The following table sets forth the funded status and
amounts recognized in the balance sheets at December 31, (in thousands):
1997 1996
------- -------
Plan assets at fair value $ 1,802 $ 1,510
Projected benefit obligation 1,586 1,319
------- -------
Funded status 216 191
Unrecognized net gain from past experience
different from assumed (208) (117)
Unamortized prior service cost 1 1
Unrecognized net transition asset (113) (121)
------- -------
Accrued pension cost $ (104 $ (46)
======= =======
Plan assets are primarily comprised of debt and equity mutual funds at December
31, 1997 and 1996.
In preparing the above information the following actuarially assumed rates were
used.
1997 1996
---- ----
Discount rate 7.25% 7.50%
Rate of increase in future compensatin levels 5.00 5.00
Rate of return on plan assets 8.50 8.50
12. BORROWED FUNDS
Short-term Borrowings and Available Lines of Credit
The Bank maintains two credit arrangements as sources of additional liquidity.
One of these arrangements, with a borrowing limit at December 31, 1997, of
approximately $3.4 million, is with the Federal Home Loan Bank of Pittsburgh
(FHLB). This credit line is subject to annual renewal, incurs no service
charges, and is secured by a blanket security agreement on outstanding
residential mortgage loans and the FHLB stock owned by the Bank.
The second arrangement is an unsecured federal funds line of credit, subject to
annual renewal, with a borrowing limit at December 31, 1997 of $3.1 million,
maintained with a correspondent bank.
The following table presents information related to short- term borrowings
during 1997 and 1996 (dollars in thousands):
1997 1996
--------- ---------
Outstanding balance at December 31, $ 200 $ --
Average balance outstanding
117 1,128
Maximum month-end balance
1,250 5,000
Weighted average interest rate for the year 5.71% 5.60%
Weighted average interest rate at year-end 6.75 N/A
Long-term borrowings
Included in borrowed funds is an advance from the FHLB totaling $2,000,000 at
December 31, 1997, maturing July 11, 2002, with a current interest rate of
5.60%. This borrowing has a fixed interest rate for the first six months, at
which time it may convert to a variable rate instrument should the benchmark
interest rate reach 6.50%. The
F-15
<PAGE>
Bank as the option to repay the borrowing without penalty at the conversion
date, or at any subsequent repricing date. This borrowing is secured by a
blanket security agreement on outstanding residential mortgage loans and the
FHLB stock owned by the Bank
13. COMMITMENTS AND CONTINGENT LIABILITIES
Loans and Letters of Credit
- ---------------------------
In the normal course of business, the Bank makes various commitments which are
not reflected in the accompanying financial statements. The Bank offers such
products to enable its customers to meet their financing objectives. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheet. The Bank's
exposure to credit loss in the event of nonperformance by the other parties to
the financial instruments is represented by the contractual amounts as
disclosed. Losses, if any, are charged to the allowance for loan losses. The
Bank minimizes its exposure to credit loss under these commitments by subjecting
them to credit approval and review procedures and collateral requirements as
deemed necessary.
The off-balance sheet commitments were comprised of the following at December
31, (in thousands):
1997 1996
---- ----
Commitments to extend credit $8,122 $6,810
Standby letters of credit
1,225 1,112
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of available commercial and personal lines
of credit and loans approved but not yet funded. The Bank uses the same credit
policies in making loan commitments and conditional obligations as it does for
on-balance sheet instruments. Since many of the credit line commitments are
expected to expire without being fully drawn upon, the total contractual amounts
do not necessarily represent future funding requirements.
Standby letters of credit obligate the Bank to disburse funds to a third party
if the Bank's customer fails to perform under the terms of the agreement with
the beneficiary. These instruments are issued primarily to support bid or
performance-related contracts. The coverage period for these instruments is
typically a one year period with an annual renewal option subject to prior
approval by management. The Bank generally holds collateral for these
instruments, as deemed necessary.
Operating Leases
- ----------------
Certain office facilities are leased under various operating leases. Rental
expense was $45,000 and $23,000 in 1997 and 1996, respectively. Future minimum
rental commitments under noncancellable leases are (in thousands):
Future Minimum
Lease Payments
1998 $45
1999 48
2000 48
2001 10
2002 -
F-16
<PAGE>
14. REGULATORY MATTERS
Cash and Due from Banks
- -----------------------
The district Federal Reserve Bank requires the Bank to maintain certain reserve
balances. As of December 31, 1997 and 1996, the Bank had required reserves of
$899,000 and $880,000 comprised of vault cash, and a depository amount held with
the Federal Reserve Bank.
Loans
- -----
The Federal Reserve Act limits extensions of credit by the Bank to the Company
and requires such credits to be collateralized. Further such secured loans are
limited in amount to 10% of the Bank's capital and surplus. There were no loans
between the Bank and the Company during 1997 and 1996.
Dividends
- ---------
The Bank is subject to a dividend restriction which generally limits the amount
of dividends that can be paid by a national bank. Prior approval of the
Comptroller of the Currency is required if the total of all dividends declared
by a national bank in any calendar year exceeds net profits as defined for the
year combined with its retained net profits for the two preceding calendar years
less any required transfer to surplus. Using this formula, the amount available
for payment of dividends by the Bank to the Company in 1998, without approval of
the comptroller, will be limited to $1,514,000 plus net profits retained up to
the date of the dividend declaration.
Regulatory Capital Requirements
- -------------------------------
The Company is subject to various capital requirements administered by the
federal banking agencies. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific
guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Company's capital amounts and classification are also
subject to qualitative judgments by regulators about components, risk
weightings, and other factors. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial position and results of operations.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios, as set forth in the
table below, of total capital and Tier 1 capital to risk-weighted assets, and of
Tier 1 capital to average assets. Management believes that as of December 31,
1997. the Company meets all capital adequacy requirements to which it is
subject.
As of December 31, 1997 and 1996, the Company has been categorized as "Well
Capitalized" under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Company must maintain minimum total
risk-based, Tier 1, and Tier 1 leverage ratios as set forth in the following
table. There are no conditions or events since that notification that management
believes have changed the Company's classification category.
<TABLE>
<CAPTION>
Regulatory Capitalization Requirement
-------------------------------------
Actual Adequate Well
------ -------- ----
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Total capital to risk weighted assets $ 12,795 15.0% $ 6,824 8.0% $ 8,530 10.0%
Tier 1 capital to risk weighted assets 11,921 14.0 3,412 4.0 5,118 6.0
Tier 1 capital to average assets 11,921 9.1 5,260 4.0 6,576 5.0
December 31, 1996
Total capital to risk weighted assets $ 11,558 15.7% $ 5,896 8.0% $ 7,371 10.0%
Tier 1 capital to risk weighted assets 10,824 14.7 2,948 4.0 4,422 6.0
Tier 1 capital to average assets 10,824 8.7 4,990 4.0 6,238 5.0
</TABLE>
F-17
<PAGE>
15. COMMON STOCK
Stock Dividend
- --------------
On December 18, 1997, the Company distributed 51,453 shares of common stock in
connection with a 5% stock dividend. As a result of the stock dividend, common
stock was increased by $64,000, additional paid-in capital was increased by
$810,000, and retained earnings was decreased by $875,000. Fractional shares
were paid in cash. All references to per share amounts in the accompanying
financial statements for 1996 have been restated to reflect the stock dividend.
Stock Sale
- ----------
On December 12, 1996, the Company completed the sale of 230,800 shares of common
stock, par value $1.25. These shares were sold at a price of $13.50 per share,
resulting in net proceeds to the Company of $2,903,000. Included in the shares
offered were 800 shares of stock which had been previously held as treasury
shares. Upon completion of the stock sale the Company directly contributed
$2,800,000 to the Bank in the form of additional paid-in capital.
16. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Financial instruments are defined as cash, evidence of an ownership interest in
an entity, or a contract which creates an obligation or right to receive or
deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms. Fair value is defined as the amount
at which a financial instrument could be exchanged in a current transaction
between willing parties other than in a forced or liquidation sale. If a quoted
market price is available for a financial instrument, the estimated fair value
would be calculated based upon the market price per trading unit of the
instrument.
If no readily available market exists, the fair value estimates for financial
instruments would be based upon management's judgment regarding current economic
conditions, interest rate risk, expected cash flows, future estimated losses,
and other factors as determined through various option pricing formulas or
simulation modeling. As many of these assumptions result from judgments made by
management based upon estimates which are inherently uncertain, the resulting
estimated fair values
may not be indicative of the amount realizable in the sale of a particular
financial instrument. In addition, changes in the assumptions on which the
estimated fair values are based may have a significant impact on the resulting
estimated fair values.
As certain assets and liabilities, such as deferred tax assets and premises and
equipment, are not considered financial instruments, the estimated fair value of
financial instruments would not represent the full value of the Company.
The estimated fair values at December 31, 1997 and 1996, of the Company's
financial instruments are as follows (in thousands):
F-18
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Carrying Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks and federal
funds sold $ 4,975 $ 4,975 $ 8,242 $ 8,242
Investment securities:
Available for sale 31,977 31,977 36,208 36,208
Held to maturity 6,057 6,053 10,275 10,246
Net loans 85,270 86,811 67,695 68,583
Accrued interest receivable 1,009 1,009 1,111 1,111
-------- -------- -------- --------
$129,288 $130,825 $123,531 $124,390
======== ======== ======== ========
Financial liabilities
Deposits $117,655 $117,986 $114,725 $114,423
Borrowed funds
2,200 2,200 -- --
Accrued interest payable
322 322 320 320
-------- -------- -------- --------
$120,177 $120,508 $115,045 $114,743
======== ======== ======== ========
</TABLE>
The Company employed simulation modeling in determining the estimated fair value
of financial instruments for which quoted market prices were not available based
upon the following assumptions:
Cash and Due From Banks, Federal Funds Sold, Accrued Interest Receivable, and
Accrued Interest Payable
- --------------------------------------------------------------------------------
The fair value is equal to the current carrying value.
Investment Securities
- ---------------------
The fair value of securities held to maturity is equal to the available quoted
market price. If no quoted market price is available, fair values are estimated
using the quoted market price for similar securities.
The fair value of securities available for sale is equal to the current carrying
value.
Loans Deposits and Borrowed Funds
- ----------------------------------
The fair value of loans is estimated by discounting the future cash flows using
a simulation model which estimates future cash flows and constructs discount
rates that consider reinvestment opportunities, operating expenses, non-interest
income, credit quality, and prepayment risk. Demand, savings, and money market
deposit accounts are valued at the amount payable on demand as of year end. Fair
value for time deposits and borrowed funds are estimated using a discounted cash
flow calculation that applies contractual costs currently being offered in the
existing portfolio to current market rates being offered for deposits and
borrowed funds of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
- ----------------------------------------------------------
These financial instruments are generally not subject to sale and estimated fair
values are not readily available. The carrying value, represented by the net
deferred fee arising from the unrecognized commitment or letter of credit, and
the fair value, determined by discounting the remaining contractual fee over the
term of the commitment using fees currently charged to enter into similar
agreements with similar credit risk, are not considered material for disclosure.
The contractual amounts of unfunded commitments and letters of credit are
presented in Note 13.
F-19
<PAGE>
16. PARENT COMPANY
CONDENSED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Cash on deposit in subsidiary bank $ 6 $ 166
Investment in bank subsidiary 13,490 12,539
Other assets 8 3
------- -------
TOTAL ASSETS $13,504 $12,708
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 6 $ 77
Stockholders' equity 13,498 12,631
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,504 $12,708
======= =======
</TABLE>
CONDENSED STATEMENT OF INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---- ----
<S> <C> <C>
NCOME
Dividends from subsidiary $ 403 $ 325
EXPENSES 18 8
------- -------
Income before income taxes and equity in undistributed
earnings of subsidiary 385 317
Income tax benefit (6) (3)
------- -------
Income before equity in undistributed earnings in subsidiary 391 320
Equity in undistributed earnings in subsidiary 853 661
------- -------
NET INCOME $ 1,244 $ 981
======= =======
</TABLE>
F-20
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,244 $ 981
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiary (853) (661)
Other, net (76) 77
------- -------
Net cash provided by operating activities 315 397
------- -------
INVESTING ACTIVITIES
Investment in subsidiary -- (2,800)
------- -------
Net cash used for investing activities -- (2,800)
------- -------
FINANCING ACTIVITIES
Proceeds from sale of common stock, net of cost -- 2,903
Cash dividends paid (475) (344)
------- -------
Net cash provided by (used for) financing activities (475) 2,559
------- -------
Increase (decrease) in cash (160) 156
CASH AT BEGINNING OF YEAR 166 10
------- -------
CASH AT END OF YEAR $ 6 $ 166
======= =======
</TABLE>
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
Board of Directors and Stockholders
Emclaire Financial Corp.
We have audited the consolidated balance sheet of Emclaire Financial Corp. and
Subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Emclaire Financial
Corp. and Subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/S.R. Snodgrass
- -----------------
S. R. Snodgrass, A.C.
Wexford, PA
February 6, 1998
F-22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Emclaire Financial Corp. ("Emclaire or the "Company") is the parent holding
company for the Farmers National Bank of Emlenton ("Farmers" or the "Bank"). The
following discussion and analysis is intended to provide information about the
financial condition and results of operation of the Company and should be read
in conjunction with the Consolidated Financial Statements and the related notes
thereto appearing elsewhere in this annual report.
Certain information presented in this discussion and analysis and other
statements concerning future performance, developments or events, and
expectations for growth and market forecasts constitute forward-looking
statements which are subject to a number of risks and uncertainties, including
interest rate fluctuations, changes in local or national economic conditions,
and government and regulatory actions which might cause actual results to differ
materially from stated expectations or estimates.
- --------------------------------------------------------------------------------
Graphic Omitted
- --------------------------------------------------------------------------------
OVERVIEW
During 1997 Emlcaire Financial Corp. focused on maximizing the returns resulting
from the growth and expansion undertaken in 1996. The Company sought to take
advantage of its new and expanded markets to establish or expand banking
relationships with new and existing customers. This resulted in total loans
increasing 26% to $86.1 million and total deposits rising 3% to $117.7 million.
Due largely to the increase in the loan portfolio, net interest income, on a tax
equivalent basis, increased 22%, resulting in an increase in net income of 27%.
Due to the effect of the issuance of 230,800 additional shares in December 1996,
earnings per share for 1997 of $1.15, remained unchanged from 1996.
In August 1997, ground was broken for the Bank's new data center. When completed
this facility, located in downtown Emlenton, will house the data processing and
bookkeeping operations. Construction is scheduled to be completed in April 1998.
As 1998 began, the Bank made plans to open its eighth office at Clarion Mall.
The full service office will be located in a site previously occupied by another
financial institution. This new location will allow us to better serve our
existing Clarion customers, by providing them an alternate site to conduct their
banking business, while allowing Emclaire the opportunity to attract new
customers from the western side of Clarion. This office is scheduled to open
late in March.
RESULTS OF OPERATIONS
Summary
For 1997, Emclaire posted net income of $1.2 million, an increase of $263,000 or
27% from 1996. This increase was largely due to the 22% increase in net interest
income, on a tax equivalent basis, which rose $1.1 million, to $5.9 million. The
$14.2 million or 22% increase in loan volume was the principal factor for the
increase in net interest income.
Other operating income of $596,000 rose $168,000 or 39% from 1996, due to the
restructuring of fees for overdrafts and returned items, as well as fee income
associated with ATM convenience charges and debit card transactions.
Total other operating expenses for the Company increased 21% to $4.4 million in
1997 as compared to $3.6 million in 1996. This increase in other operating costs
was due principally to the overhead associated with a full year of operating the
branch locations opened or purchased in 1996.
Earnings per share for 1997 equaled the $1.15 earned in 1996, due to the
additional weighted shares outstanding resulting from the sale of 230,800 shares
of common stock in December 1996, combined with the effect of the 5% stock
dividend paid in December 1997.
- --------------------------------------------------------------------------------
Graphic Omitted
- --------------------------------------------------------------------------------
F-23
<PAGE>
Net interest income
The Company's net interest income on a tax equivalent basis increased $1.1
million or 22% to $5.9 million in 1997, due to an increase of $1.45 million or
18% in interest income on a tax equivalent basis, which totaled $9.6 million for
1997 as compared to $8.2 million in 1996. This increase in interest income more
than offset the $375,000 or 11% increase in interest expense.
The increase in interest income in 1997, resulted primarily from an increase of
$1.1 million or 19% in interest income on loans, due to an increase in the
average outstanding balance of the portfolio, which rose $14.2 million to $78.6
million for the year. The 22% increase in loan volume served to offset the
reduction in the overall yield on the portfolio which declined 20 basis points
to 8.89%. The decline in yield is due to a general decline in long-term interest
rates during the second half of 1997, combined with increased competition for
loan customers. Should the current interest rate environment prevail and the
level of competition continue, it is likely the overall return on the loan
portfolio will decline further.
Interest income on investment securities increased $466,000, on a tax equivalent
basis, to $2.6 million. This improvement was the result of the increase in the
average volume of investment securities which rose $5.7 million or 19% for
taxable securities, and $851,000 or 23% for tax-exempt investments. In addition,
the yields on the investment portfolio increased to 6.24% from 6.10% for taxable
securities, and to 6.23% from 5.87%, on a tax equivalent basis, for tax-exempt
investments. The improved yield on the taxable securities portfolio was due to
having the full year effect in 1997, of purchases made during the second and
third quarters of 1996.
For 1997 the yield on earning assets, on a tax equivalent basis, increased 2
basis points to 7.95%. This very modest improvement was the result of the
significant increase in loan volume combined with the increase in volume and
yield on the investment portfolio.
Interest expense increased $375,000 or 11% to $3.7 million for 1997, from $3.4
million in 1996, due to the increase in the average volume of interest-bearing
liabilities which rose $12.3 million during 1997, to $97.3 million. The average
volume of time deposits increased $6.3 million or 16% during 1997, resulting in
an increase in the related interest expense of $294,000 or 14%. In addition, in
July 1997, the Company obtained a $2.0 million five year advance from the
Federal Home Loan Bank.
Due the general decline in interest rates, the cost of interest bearing
liabilities decreased to 3.83% for 1997 as compared to 3.95% for 1996. Despite
the reduction in the cost of funds during 1997, continuing competition for
deposits and a flattening of the yield curve, as the spread between short- and
long-term interest rates narrows, caused interest rates to either increase or
not fall in proportion to the reduction in longer term rates. As a result, the
Company's cost of funds rose during the fourth quarter of 1997 rose to 3.94%.
As a result of the slight improvement in the yield on total earning assets,
combined with the decline in the cost of interest-bearing liabilities, the net
yield on earning assets increased to 4.87% for 1997 as compared to 4.68% in
1996.
The following tables set forth for the periods indicated information regarding
the total dollar amounts of interest income from interest-earning assets and the
resulting average yields, the total dollar amount of interest expense on
interest-bearing liabilities and the resulting average rate paid, net interest
income and the net yield on interest-earning assets (dollars in thousands):
F-24
<PAGE>
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
1997 1996
---- ----
Average Yield/ Average Yield/
Volume Interest (2) Rate (2) Volume Interest (2) Rate (2)
------ ------------ -------- ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Investment securities
Taxable $ 36,525 $ 2,279 6.24% $ 30,810 $ 1,879 6.10%
Exempt from federal income
tax 4,495 280 6.23 3,644 214 5.87
Interest bearing deposits 24 1 4.17 37 2 5.41
in other banks 37 2
Loans (1) (3) 78,610 6,989 8.89 64,414 5,853 9.09
Federal funds sold 1,610 89 5.53 4,348 236 5.43
--------- -------- ---------
Total interest-earning 121,264 9,638 7.95 103,253 8,184 7.93
-------- ----------
assets
Noninterest-earning assets
Cash and due from banks 4,281 3,638
Allowance for loan losses (795 (714)
Other assets 5,501 4,101
-------- --------
Total assets $ 130,251 $110,278
========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities
NOW accounts $ 16,481 295 1.79% $ 12,966 267 2.06%
Money market accounts 18,134 579 3.19 16,921 544 3.21
Savings deposits 15,903 443 2.79 14,558 427 2.93
Time deposits 45,515 2,338 5.14 39,251 2,044 5.21
Obligation under capital lease 85 5 5.88 124 7 5.65
Borrowed funds 1,196 67 5.60 1,128 63 5.59
--------- --------- -------- ---------
Total interest-bearing 97,314 3,727 3.83 84,948 3,352 3.95
-------- ---------
liabilities
Noninterest-bearing liabilities
Demand deposits 19,417 15,257
Other liabilities 517 584
Capital 13,003 9,499
--------- --------
Total liabilities and $ 130,251 $110,288
========= ========
stockholders' equity
Net interest income
and net yield on
interest-earning assets $ 5,911 4.87% $ 4,832 4.68%
========= ====== ======== =======
</TABLE>
(1) - Interest on loans includes fee income
(2) - Tax exempt income on loans and investment securities and the related
yields are computed on a tax equivalent basis computed using the federal
statutory rate of 34%.
(3) - Nonaccrual loans included.
F-25
<PAGE>
Changes in net interest income are attributable to three factors: 1) a change in
the volume of an interest-earning asset or interest-bearing liability, 2) a
change in interest rates, or 3) a change attributable to a combination of
changes in volume and rate. The following table sets forth certain information
regarding changes in interest income, on a tax-equivalent basis, and interest
expense of the Company for the periods indicated. For each category of
interest-earning asset and interest-bearing liability, information is provided
on changes attributable to 1) changes in volume (changes in volume multiplied by
the old interest rate); and 2) changes in rates (changes in interest rates
multiplied by the old average volume). Changes attributable to a combination of
changes in volume and rate are proportionately allocated to changes in volume
and changes in rate. (dollars in thousands)
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1997 Change From 1996 1996 Change From 1995
Total Change Due To Total Change Due To
Change Volume Rate Change Volume Rate
------ ------ ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON:
Taxable investment securities $ 400 $ 356 $ 44 $ 845 $ 712 $ 133
44
Non-taxable investments 66 52 14 (41) (54) 13
Interest bearing deposits in other
banks (1) (1) -- -- -- --
Loans 1,136 1,268 (132) (198) (31) (167)
Federal funds sold (147) (151) 4 38 52 (14)
------- ------- ------- ------- ------- -------
Total interest income 1,454 1,524 (70) 644 679 (35)
------- ------- ------- ------- ------- -------
INTEREST EXPENSE ON:
NOW accounts 28 66 (38) (5) 17 (22)
Money market accounts 35 38 (3) (10) 5 (15)
Savings deposits 16 37 (21) 1 38 (37)
Time deposits 294 321 (27) 320 336 (16)
Obligation under capital lease (2) (2) -- (3) (2) (1)
Borrowed funds 4 4 -- 63 63 --
------- ------- ------- ------- ------- -------
Total interest expense 375 464 (89) 366 457 (91)
------- ------- ------- ------- ------- -------
NET INTEREST INCOME $ 1,079 $ 1,060 $ 19 $ 278 $ 222 $ 56
======= ======= ======= ======= ======= =======
</TABLE>
Provision for loan losses
The provision for loan losses of $220,000 for the year ended December 31, 1997
represented an 83% increase from the $120,000 provided in 1996. Management makes
periodic provisions to the allowance for loan losses to maintain the allowance
at an acceptable level commensurate with the credit risk inherent in the loan
portfolio. See "Loan Quality" for additional discussion of the allowance for
loan losses. The level at which funds were provided to the allowance during
1997, is a reflection of the overall growth of the loan portfolio during the
year, and is not an indication of any overall decline in the quality of the loan
portfolio. The following table presents a summary of loan losses by loan type
and changes in the allowance for loan losses for the two years ended December
31, 1997 (dollars in thousands):
F-26
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---- ----
<S> <C> <C>
Total loans outstanding $86,144 $68,428
======= =======
Average loans outstanding 78,610 64,414
======= =======
Allowance for loan losses at beginning of year $ 733 $ 687
Provision charged to expense 220 120
Charge-offs:
Commercial and industrial 1 11
Real estate 33 1
Consumer 74 109
Total 108 121
------- -------
Recoveries:
Commercial and industrial 2 1
Real estate 19 1
Consumer 8 45
------- -------
Total 29 47
------- -------
Net charge-offs 79 74
------- -------
Allowance for loan losses at end of period $ 874 $ 733
======= =======
Allowance for loan losses as a percent of total loans 1.01% 1.07%
Net charge-offs as a percent of average loans .10 .11
</TABLE>
Other operating income
Other operating income which is comprised principally of fees and charges on
customer deposit accounts increased $168,000 or 39% to $596,000 in 1997 from
$428,000 in 1996. Service charges on customer accounts increased $132,000 or
38%, due to the restructuring of overdraft charges, combined with the increase
in volume resulting from the additional branch operations, and the
implementation of a charge on returned deposit items. Other income increased
$36,000 or 43% during the same period due primarily to fees from the
MasterMoney(TM) debit card product introduced in August, and the imposition of
an ATM convenience charge for non-customers using a Farmers ATM.
Other operating expense
Other operating expense increased $746,000 or 21% to $4.4 million in 1997 as
compared to $3.6 million in 1996. This increase is largely attributed to the
overhead costs associated with the impact of the full year of operations of the
branch offices established in 1996. The new branch operations generated
approximately $690,000 in additional overhead expenses during 1997, in
comparison to the expenses related to part-year operation of these offices in
1996.
Salaries and employee benefits for 1997 totaled $2.2 million, an increase of
$337,000 or 18% from $1.9 million reported in 1996. Of this total increase,
approximately $175,000 represents the effect of a full year's expense associated
with new employees added during 1996, including those at the new branch offices.
Normal recurring employee cost increases for such things as salaries and
hospitalization insurance and pension benefits represents approximately $150,000
of the increase. For 1998, in addition to normal recurring salary adjustments,
it is expected certain employee benefit costs will increase, such as medical
benefits which will rise approximately 14% or $36,000.
Occupancy and equipment expense increased $164,000 or 31% in 1997. Of this
increase, $90,000 is due to additional costs related to the operation of the new
branch offices. Depreciation costs associated with capital expenditures made
during the fourth quarter of 1996, for a wide area network and teller terminal
platform accounted for approximately $68,000 of the increase.
F-27
<PAGE>
Other expenses for 1997 totaled $1.5 million, a $245,000 or 20% increase from
the $1.2 million reported in 1996. Costs associated with the additional branch
offices primarily accounted for this increase. Specifically, amortization of
intangible assets increased approximately $114,000 due to the purchase of the
Knox branch office in 1996. The remaining increase is principally attributed to
the full year of operations of the branch offices.
In 1997, management began an assessment of the current data processing
operation, including the space occupied by the data processing and bookkeeping
departments located at the Emlenton office, and the impact of the branch
expansion in 1996 on the available data processing capacity. This project
resulted in the construction of the previously mentioned data processing center.
While this facility will improve the efficiency with which daily transactions
are processed, as well as, increasing the capacity to process transactions, the
overhead associated with this facility will increase operating expenses
approximately $65,000, annually.
In addition to the construction of the data center, the assessment of the
Company's data processing system, indicated that based on growth projections, an
upgrade or replacement of the existing equipment was needed. The assessment of
hardware and software vendors began during the fourth quarter of 1997 and is
expected to be completed early in the second quarter of 1998. Based on
preliminary cost estimates, a complete upgrade of the data processing equipment
and software could require a capital investment ranging from $250,000 to
$500,000. The time frame for having this upgrade completed is the first quarter
of 1999, so as to allow sufficient time to perform testing for year 2000
compliance.
Income Tax Expense
Income tax expense increased $110,000 or 25% during 1997 when compared to 1996,
due to the 26% increase in income before income taxes.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Total assets at December 31, 1997, amounted to $133.9 million, an increase of
$5.9 million or 5%, over total assets at December 31, 1996. The increase was
funded by a $2.9 million or 3% increase in deposits, and a $2 million Federal
Home Loan Bank Advance.
Investment Securities
Total investment securities decreased $8.5 million during 1997, to $38.0
million, as the proceeds from investment security sales and maturities were used
to fund loan demand.
Information detailing the book value of the investment portfolio by security
type and classification is presented in Note 4 to the consolidated financial
statements.
- --------------------------------------------------------------------------------
Graphic Omitted
- --------------------------------------------------------------------------------
Loans
Loans receivable at December 31, 1997 totaled $86.1 million, an increase of
$17.7 million or 26% from 1996. The establishment of the three additional
offices during 1996, expanded Emclaire's market area and served to increase loan
demand. The two newest markets accounted for approximately 53% of the total
increase in loans.
- --------------------------------------------------------------------------------
Graphic Omitted
- --------------------------------------------------------------------------------
The loan growth generated during 1997, was largely from increases in loans
secured by residential or commercial real estate. These segments of the
portfolio increased $11.5 million or 33%, and $3.8 million or 33%, respectively.
Of the residential mortgage loan increase, $2.5 million consisted of
construction and purchase money mortgages originated with the assistance of a
mortgage broker. Commercial loans grew $757,000 or 7%, while consumer loans
increased $1.7 million or 14% during 1997. The increase in consumer loans is
attributed to two direct mail solicitations during the year that generated
approximately $1.2 million in new loans.
F-28
<PAGE>
The following table presents the composition of the loan portfolio and the
percentage of loans by type at December 31, 1997 an d1996 (dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
% of loans % of loans
to to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Commercial and industrial $11,147 12.9% $10,390 15.2%
Commercial and multi-family real estate 15,188 17.6 11,400 16.6
1 - 4 Family real estate 45,709 53.1 34,251 50.1
Consumer 14,100 16.4 12,387 18.1
------- ----- ------- -----
Total loans 86,144 100.0% 68,428 100.0%
===== =====
Less: allowance for loan losses 874 733
------- -------
Net loans $85,270 $67,695
======= =======
</TABLE>
Loan Quality
Loans are subject to ongoing periodic monitoring by management and the Board of
Directors. Loans are placed on nonaccrual status when, in the opinion of
management, the collection of additional interest is doubtful; but not longer
than 90 days past due for non-real estate loans and 120 days past due for loans
secured by real estate. Interest accrued and unpaid at the time the account is
placed on nonaccrual status is generally charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income based upon management's assessment of the
collectibility of the account.
At December 31, 1997, the Bank had $171,000 in loans greater than 90 days past
due and still accruing interest, and $820,000 in loans on nonaccrual status.
Of the total non-performing loans, $685,000 in principal amounts of loans to a
single customer were classified as impaired loans. A loan is considered to be
impaired when, based on current information, it is probable the Company will be
unable to collect all principal and interest due in accordance with the
contractual terms of the loan agreement. These impaired loans consist of four
commercial real estate loans to one borrower. The loans are secured by real
estate. During 1996, the borrower sought bankruptcy protection under Chapter 11,
and continues to operate. During 1997, $82,000 in payments were received on this
account, resulting from the liquidation of collateral. Of the funds received,
$68,000 was applied to principal and $14,000 was recognized as interest income.
As part of management's ongoing assessment of its loan portfolio, $70,000 of the
allowance for loan losses at December 31, 1997, has been allocated for these
loans. Management believes the Company is adequately secured by the underlying
collateral.
The following table sets forth non-performing loans at December 31, 1997 and
1996, along with nonaccrual loan interest data for 1997 (dollars in thousands):
F-29
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Loans past due 90 days or more and
accruing $ 171 111
Nonaccrual loans 820 778
---- --------
Non performing loans $991 $ 889
==== ========
Non-performing loans to total loans 1.15% 1.30%
Allowance for loan losses to non-
performing loans 88.19 82.45
Non-performing loans to total assets .74 .69
Nonaccrual loan interest data:
Interest computed on original $ 81
=======
terms
Interest recognized in income $ 15
=======
</TABLE>
At December 31, 1997, no real estate or other assets were held as foreclosed or
repossessed property. In addition, based upon the ongoing quarterly review and
assessment of credit quality management is not aware of any trends or
uncertainties related to any accounts which might have a material adverse effect
on future earnings, liquidity, or capital resources.
Based upon the results of the quarterly internal loan review process, and
considering the trend of past loan losses and recoveries, as well as, the
current risk elements in the loan portfolio, management believes the allowance
for loan losses at December 31, 1997 is adequate. The following table presents
management's estimate of the allocation of the allowance for loan losses among
the loan categories, along with the percentage of loans in each category to
total loans (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---- ----
% of Loans % of Loans
to to
Amount Total Loans Amount Total Loans
---- ------ ----- ------
<S> <C> <C> <C> <C>
Commercial and industrial $ 49 12.9% $106 15.2%
Commercial & multi-family real estate 205 17.6 158 16.6
1-4 family real estate 19 53.1 13 50.1
Consumer 101 16.4 106 18.1
Unallocated 500 -- 350 --
---- ----- ---- ------
$874 100.0% $733 100.0%
==== ===== ==== =====
</TABLE>
F-30
<PAGE>
Deposits
Total deposits of $117.7 million at December 31, 1997, represented an increase
of $3.0 million or 3% from December 31, 1996. The increase in deposits is
princiaplly attributed to growth at the newest office locations.
See also, "Average Balance Sheets and Net Interest Analysis" for information
related to the average amount and average interest rate paid on deposit accounts
during 1997 and 1996. Information related to the maturity of time deposits of
$100,000 and over at December 31, 1997 is presented in Note 8 of the
accompanying consolidated financial statements.
- --------------------------------------------------------------------------------
Graph Omitted
- --------------------------------------------------------------------------------
Stockholders' Equity
Stockholders' equity increased $867,000 or 7% during 1997 to $13.5 million. This
increase was the result of $769,000 of net retained earnings during the year.
In December 1997, the Company paid a 5% stock dividend resulting in the issuance
of 51,453 shares of common stock.
- --------------------------------------------------------------------------------
Graph Omitted
- --------------------------------------------------------------------------------
Market Risk Management
Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to changes in interest rates, exchange rates and
equity prices. The Company's market risk is comprised principally of interest
rate risk. The Company's Asset/Liability committee is responsible for reviewing
the interest rate sensitivity position of the Company and establishing policies
to monitor and limit exposure to interest rate risk. The guidelines established
by the Asset/Liability committee are subject to review by the Company's Board of
Directors.
Asset/Liability Management
One of the principal functions of the Company's asset/liability management
program is to monitor the level to which the balance sheet is subject to
interest rate risk. The goal of this program is to manage the relationship
between interest-earning assets and interest-bearing liabilities to minimize the
fluctuations in the net interest spread and achieve consistent growth in net
interest income during periods of changing interest rates.
Interest rate sensitivity is the relationship of differences in the amounts and
repricing dates of interest-earning assets and interest-bearing liabilities. In
order to measure the impact on net interest income and pre-tax income, and to
limit the adverse effect on earnings due to interest rate changes, Emclaire
monitors interest rate sensitivity through gap and simulation analyses. The
Company's gap model includes certain assumptions based on past experience and
expected customer behavior during periods of rising or falling interest rates.
These assumptions deal primarily with the interest rate changes for deposit
accounts with no fixed maturity, such as savings, NOW and money market accounts.
These assumptions have been developed through consideration of past events
combined with estimates of future pricing practices.
The Company's policy is to limit the adverse change in annual pre-tax income to
5% based on an immediate change in interest rates of 200 basis points. At
December 31, 1997, pre-tax income would be impacted by such a change in interest
rates as follows:
Cuumulative gap at 1 year (7.4%)
Impact on pre-tax earnings
+ 200 basis points (1.4 )
- - 200 basis points
10.9
Liquidity
Liquidity represents the Company's ability to meet normal cash flow requirements
of its customers for the funding of loans and repayment of deposits. Liquidity
is generally derived from the repayments and maturities of loans and investment
securities, and the receipt of deposits. Management monitors liquidity daily,
and on a monthly basis incorporates liquidity management into its
asset/liability program.
F-31
<PAGE>
Operating activities, as presented in the statement of cash flows in the
accompanying consolidated financial statements, provided $2.1 million in cash
during 1997, generated principally from net income, and depreciation and
amortization, as compared to the $959,000 provided during 1996. The primary
reasons for the increase during 1997 was the increase in net income and the
increased depreciation associated with capital expenditures made by the Company
during the fourth quarter of 1996.
Investing activities consist primarily of loan originations and repayments, and
investment purchases and maturities. These activities used $10.0 million in
funds during 1997, principally for the net funding of loans which totaled $17.8
million for the year. This cash outlay exceeded funds received from investment
repayments and maturities, totaling $9.2 million, and $2.0 million from
securities sales. For 1996, investing activities used $12.5 million, resulting
from $26.2 million in investment securities purchases, which were principally
funded by $12.7 million received in the purchase of the Knox branch office
operation.
Financing activities consisted of the solicitation and repayment of customer
deposits, borrowings and repayments and the payment of dividends. For 1997,
financing activities provided $4.6 million comprised on net deposit increases of
$2.9 million and borrowings of $2.2 million. For 1996, the sale of common stock
provided $2.9 million, while net deposits increased $11.6 million, exclusive of
the funds acquired in the branch purchase.
In addition to using the loan, investment and deposit portfolios as sources of
liquidity, the Company has access to funds from other sources if a need for
additional funds would arise. There are available lines of credit through the
FHLB, along with a federal funds line of credit available through the Bank's
primary correspondent bank. In addition, the Bank has access to funds through
the discount window at the Federal Reserve Bank. The Company also has a ready
source of funds through the available-for-sale component of the investment
securities portfolio. The following table presents the amortized cost of the
investment portfolio, the weighted average, tax equvalent yield and maturities
at December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Available for Sale After 1 Year After 5 Years
Within Within Within After
1 Year 5 Years 10 Years 10 Years Total
------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
U. S. Treasury $ 4,503 $ 6,998 $ -- $ -- $11,501
U. S. Government Agency 999 5,010 -- -- 6,009
Obligations of states and
polictical subdivisions -- 1,920 1,697 -- 3,617
Corporate -- 10,067 -- -- 10,067
------- ------- --------- ------- -------
Total $ 5,502 $23,995 $ 1,697 $ -- $31,194
======= ======= ========= ======= =======
Yield 6.08% 6.55% 6.86% - % 6.48%
Held to Maturity
U. S. Treasury $ -- $ 1,006 $ -- $ -- $ 1,006
Obligations of states and polictical
subdivisions 1,390 -- -- -- 1,390
Corporate 904 2,074 -- -- 2,978
Mortgage-backed securities 272 -- -- 411 683
------- ------- --------- ------- -------
Total $ 2,566 $ 3,080 $ -- $ 411 $ 6,057
======= ======= ========= ======= =======
Yield 5.99% 6.19% -- % 6.46% 6.12%
</TABLE>
The following table presents the maturity distribution and interest rate
sensitivity of commercial and industrial loans, and commercial and multi-family
real estate loans at December 31, 1997 (dollars in thousands):
F-32
<PAGE>
<TABLE>
<CAPTION>
After 1 Year
Within Within
1 Year 5 Years After 5 Years Total
------ ------- ------------- -----
<S> <C> <C> <C> <C>
Commercial and industrial $ 6,316 $ 4,414 $ 417 $11,147
Commercial and multi-family real estate 3,002 5,346 6,840 15,188
------- ------- ------- -------
$ 9,318 $ 9,760 $ 7,257 $26,335
======= ======= ======= =======
Predetermined interest rates $ 3,189 $ 6,654 $ 4,237 $14,080
Floating interest rates 6,129 3,106 3,020 12,255
------- ------- ------- -------
$ 9,318 $ 9,760 $ 7,257 $26,335
======= ======= ======= =======
</TABLE>
Generally, commercial loans with maturities of one year or less consist of funds
drawn on commercial lines of credit, short-term notes written with maturities of
ninety days to six months, and demand notes written without alternative maturity
schedules. All lines of credit and demand loans are subject to annual review
where the account may be approved for up to one year. Short-term notes are
generally permitted two renewals, prior to being placed on a fixed repayment
schedule.
The Company anticipates it will have sufficient funds available to meet the
needs of its customers for deposit repayments and loan fundings. At December 31,
1997, loan and letter of credit commitments totaled $9.3 million. Many of these
commitments are in the form of lines of credit and letters of credit which are
available for use by the borrower, but are generally not drawn on. Certificates
of deposit scheduled to mature in one year or less totaled $25.6 million at
December 31, 1997.
Capital Resources
Capital adequacy is the ability of the Company to support growth while
protecting the interests of shareholders and depositors. Bank regulatory
agencies have developed certain capital ratio requirements, which are used to
assist them in monitoring the safety and soundness of financial institutions.
Management continually monitors these capital requirements and believes the
Company to be in compliance with these regulations at December 31, 1997.
The Bank's regulatory capital position at December 31, 1997, as compared to the
minimum regulatory capital requirements imposed on the Bank by banking
regulators at that date is presented in Note 14 of the accompanying financial
statements. Management is not aware of any actions contemplated by banking
regulators which would result in the Bank being in non-compliance with any of
the above requirements.
Impact of Inflation and Changing Prices
The financial statements of the Company and the notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting standards, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Company's operations.
Unlike most industrial companies, nearly all of the Company's assets and
liabilities are monetary. As a result, interest rates have a greater impact on
the Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
YEAR 2000
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.
This process involves identifying all equipment, software and third party
providers, deemed to be critical to the Company's daily operations, and
ascertaining if these products or product providers are Year 2000 compliant.
For items or vendors that are not compliant and have not achieved significant
progress toward compliance by October 1, 1998, the committee will implement
contingency plans to either replace the product or vendor, or implement an
alternative procedure to mitigate the affected area.
F-33
<PAGE>
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 total cost of this project has not yet been determined, but it is not
expected to have a material impact on the financial condition or results of
operations of the Company. Personnel and other costs resulting from this project
will be expensed as incurred. Expenditures for hardware and software purchases
will be capitalized in accordance with policy.
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.
COMMON STOCK INFORMATION
Prior to December 1996, there was no established public trading market for the
Company's common stock. In December 1996, the Company began trading its stock in
the local over-the-counter market through the National Association of Securities
Dealers OTC Electronic Bulletin Board. Price quotations from the fourth quarter
of 1996 forward, reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions. The following table
summarizes the high and low prices and dividend information since January 1,
1996, after adjustment for a 5% stock dividend paid in December 1997, and a
4-for-1 stock split effected June 20, 1996. Prices are based upon information
made available to the Company. Cash dividends are declared on a quarterly basis.
<TABLE>
<CAPTION>
1997 1996
---- ----
Dividend Dividend
High Low Declared High Low Declared
<S> <C> <C> <C> <C> <C> <C>
First Quarter $14.75 $13.25 $.105 $ -- $ -- $.095
Second Quarter 15.00 13.25 .105 11.25 11.25 .105
Third Quarter 16.67 14.28 .114 -- - .105
Fourth Quarter 17.00 16.25 .114 13.50 13.00 .105
</TABLE>
At December 31, 1997, the Company had approximately 590 shareholders of record.
F-34
<PAGE>
APPENDIX G
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
---------
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.
G-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>
G-2
<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.
G-3
<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.
G-4
<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.
G-5
<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.
G-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.
G-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:
G-8
<PAGE>
<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.
G-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.
G-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
G-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.
G-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
G-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.
G-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.
G-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
G-16
<PAGE>
APPENDIX H
PEOPLES SAVINGS FINANCIAL CORPORATION
Corporate Profile
Peoples Savings Financial Corporation (the "Company") is the parent company for
Peoples Savings Bank ("Peoples" or the "Bank"). The Company is a bank holding
company which, under existing laws, is restricted to activities generally
related to banking. At the present time, the Company does not conduct any active
business,
Peoples is a Pennsylvania-chartered stock savings bank headquartered in Ridgway,
Pennsylvania, which was originally chartered in 1891 under the name "Peoples
Building and Loan Association." The Bank is a community oriented savings
institution and conducts its business from its main office in Ridgway,
Pennsylvania and two full service branch offices located in Jefferson and
Clearfield Counties, Pennsylvania.
Peoples attracts deposits from the general public and uses such deposits,
together with borrowings and other funds, primarily to invest in mortgage-backed
and investment securities and to originate loans secured by first mortgages on
owner-occupied, one-to-four family residences in its market area. The Bank also
makes home equity loans, loans secured by deposits, automobile loans and
personal loans and invests in municipal obligations, mortgages-backed
securities, and other investments.
Stock Market Information
Since its issuance in January 1994, the Company's common stock has been traded
on an over the counter basis through brokers participating in the National Daily
Quotation Service ("pink sheets"). The following table reflects the stock price
as published by the National Daily Quotation Service.
HIGH LOW
---- ---
July 1, 1997 - August 31, 1997 ....... $ 24.25 $ 21.75
April 1, 1997 - June 30, 1997 ........ 23.50 21.50
January 1, 1997 - March 31, 1997 ..... 23.50 20.25
October 1, 1996 - December 31, 1997 .. 23.00 21.25
July 1, 1996 - September 30, 1996 .... 25.25 24.25
April 1, 1996 - June 30, 1996 ........ 28.00 21.00
January 1, 1996 - March 31, 1996 ..... 23.00 21.00
September 30, 1995 - December 31, 1996 22.50 22.50
July 1, 1995 - September 30, 1995 .... 26.25 19.00
Quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission, and may not represent actual transactions. Trades in the Common
Stock have occurred infrequently and generally involve a relatively small number
of shares. Because of the limited market activity in the Common Stock, such
transactions may not be representative of the actual fair market value of the
Common Stock at the time of such transaction due to the infrequency of trades
and the limited market for the Common Stock. The number of shareholders of
record of common stock as of the record date of September 10, 1997, was
approximately 244. This does not reflect the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms. At
September 10, 1997, there were 442,516 shares outstanding. Dividends of $.40 per
share were paid during fiscal 1997. For a discussion of the limitations on the
Company's ability to pay dividends, see "Management's Discussion and Analysis of
Financial Condition and Results of Operation-Liquidity and Capital
Requirements."
H-1
<PAGE>
Financial Highlights
The following tables set forth certain information concerning the
consolidated financial position and certain performance ratios of the Company at
the dates indicated:
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Assets.............................................. $44,835 $44,852 $43,624 $45,050 $43,015
Loans receivable.................................... 31,948 32,127 29,374 25,879 23,428
Mortgage-backed securities.......................... 6,123 7,466 9,634 10,949 14,354
Investments (1).................................... 2,825 4,053 3,645 5,892 2,807
Cash and cash equivalents........................... 117 742 515 1,864 2,035
Savings deposits.................................... 34,976 35,865 35,171 37,035 39,079
Other borrowings.................................... 500 - - - -
Total stockholders' equity/retained earnings........ 9,184 8,912 8,345 7,966 3,875
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Interest Income..................................... $3,430 $3,430 $3,254 $3,092 $3,261
Interest Expense.................................... 1,694 1,778 1,600 1,627 1,839
Net Interest Income................................. 1,736 1,652 1,654 1,465 1,422
Provision for Loan Losses........................... 24 24 24 24 18
Net Income.......................................... 301 446 458 426 427
</TABLE>
The table below sets forth certain performance ratios of the Company
for the periods indicated:
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets (net income divided
by average total assets) ......................... 0.67% 1.00% 1.04% 0.95% 0.99%
Return on average equity (net income divided
by average equity)................................ 3.33 5.17 5.62 7.86 11.65
Average equity to average assets ratio (average
equity divided by average total assets)........... 20.09 19.30 18.47 12.05 8.49
Equity to assets at period end...................... 20.49 19.87 19.13 17.68 9.01
Net interest rate spread............................ 2.96 2.83 3.01 2.80 2.97
Net yield on average interest earning assets........ 3.89 3.79 3.79 3.35 3.34
Non-performing assets to total assets............... 1.95 0.97 0.33 0.83 0.65
Non-performing loans to total loans................. 2.64 1.34 0.49 1.45 1.19
Allowance for loan losses to non-performing assets.. 29.70 52.30 144.52 48.94 62.27
Average interest earning assets to average
interest-bearing liabilities...................... 124.38 123.66 121.43 114.68 108.42
Net interest income after provision for possible
loan losses, to total other expenses.............. 135.82 161.27 156.64 156.84 146.38
</TABLE>
- --------------
(1) Includes Federal Home Loan Bank ("FHLB") stock.
H-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The earnings of the Company depend primarily on its net interest income. Net
interest income is affected by the interest rates that the Bank receives from
its loans and investments and by the interest rates that the bank must pay for
its sources of funds. The difference between average rates of interest earned on
interest earning assets and the average rates paid on interest bearing
liabilities is the "interest rate spread". When interest earning assets equal or
exceed interest bearing liabilities, any positive interest rate spread will
produce net interest income.
To a lesser extent, the Bank receives income from service charges and other fees
and occasionally from sales of real estate owned. The Bank incurs expenses in
addition to interest expense in the form of salaries and benefits, deposit
insurance, property operations and maintenance, advertising and other related
business expenses.
The operations of the Bank are influenced significantly by local economic
conditions and by policies of financial institution regulatory agencies,
including the Pennsylvania Department of Banking ("Department") and the Federal
Deposit Insurance Corporation ("FDIC"). The Bank's cost of funds and return on
loans and investments are influenced by interest rates on comparing investments
and general market interest rates. Lending activities are affected by the demand
for financing of real estate and other types of loans, which in turn is affected
by market interest rates and general economic conditions.
Management Strategy
The Bank's management strategy has been to maintain profitability and a strong
capital position through growth at a rate that does not exceed its ability to
generate earnings. The Bank's lending strategy has historically focused on the
origination for retention in its portfolio of traditional one- to four-family
mortgage loans and, to a lesser extent, consumer loans, including home equity
loans, share loans, automobile loans and personal loans. This focus, and the
application of prudent underwriting standards, is designed to reduce the risk of
loss on the Bank's loan portfolio. The Bank's lending activities have been
supplemented by the purchase of mortgage-backed securities.
Management has increased the interest rate sensitivity of the Bank's assets and
decreased the interest rate sensitivity of its liabilities, while maintaining
asset quality. This strategy has been accomplished by (i) originating
adjustable-rate mortgage loans and shorter-term consumer loans, (ii) emphasizing
the solicitation and retention of core deposits, (iii) purchasing for its own
portfolio adjustable-rate mortgage-backed securities, (iv) investing in short-
and intermediate-term investment and mortgage-backed securities, (v) adhering to
prudent underwriting and investment standards and (vi) managing deposit interest
rates.
The current strategy of management has been to purchase for its own portfolio
five- to seven-year Federal Home Loan Bank ("FHLB") notes and seven and 15-year
Federal Home Loan Mortgage Corporation ("FHLMC") mortgage-backed securities and
one-year adjustable rate FHLMC, Federal National Mortgage Association ("FNMA")
and Government National Mortgage Association ("GNMA") mortgage-backed
securities. To the extent the Bank is unable to invest its funds in these
securities, it will invest in shorter term high quality investment securities or
overnight funds.
H-3
<PAGE>
Since the mid-1980s, the Bank has purchased AA and AAA tax-exempt municipal
bonds, with the intent to hold until maturity or until called. At June 30, 1997,
the Bank had $527,000 of obligations of states and political subdivisions, most
of which are rated AAA.
The Bank attempts to manage the interest rates it pays on deposits, while
maintaining a stable deposit base and providing convenient and quality services
to its customers. Historically, the Bank has limited its borrowings and has
relied primarily upon savings deposits as its primary source of funds.
Changes in Financial Condition
Total assets at June 30, 1997 amounted to $44,835,000, a decrease of $18,000,
compared to $44,852,000 at June 30, 1996. Total cash and cash equivalents
increased by $2,278,000 to $3,021,000 at June 30, 1997 from $742,000 at June 30,
1996. This increase was funded by maturity of investment securities, principal
repayments on mortgage-backed securities and loans. Management is presently
developing an investment strategy in coordination with its liquidity
requirements for these funds. Investment securities decreased $870,000, from
$3,694,000 at June 30, 1996 to $2,824,000 at June 30, 1997, due to maturities.
Mortgage-backed securities principal repayments of $1,343,000 resulted in an
18.0% decrease, from $7,466,000 at June 30, 1996 to $6,123,000 at June 30, 1997.
Net loans receivable decreased from $32,127,000 at June 30, 1996 to $31,948,000
at June 30, 1997, or approximately $179,000. The net decrease was primarily
attributable to a decrease in commercial real estate of $555,000 due to the
early payoff of a participation loan, and a decrease of $192,000 in consumer
loans and consumer lines of credit, offset somewhat by an increase of
one-to-four family mortgages of $521,000.
Deposits decreased $889,000 or 2.5%, to $34,976,000 at June 30, 1997 from
35,865,000 at June 30, 1996. Certificates of deposit and savings accounts
declined $1,178,000 and $652,000, respectively, which was offset somewhat by an
increase in NOW accounts and money market accounts of $940,000. Advances from
the FHLB increased by $500,000 as a result of the decline in deposits.
Stockholders' equity increased $272,000 or 3.0%, to $9,184,000 at June 30, 1997.
The increase was the result of net retained income of $133,000 and recognition
of shares in the Management Stock Bonus Plan and the Employee Stock Ownership
Plan amounting to $139,000. Through June 30, 1997, the Company initiated the
payment of dividends of $.40 per share, while maintaining capital ratios well in
excess of regulatory guidelines. Future dividend policies will be determined by
the Board of Directors in light of the earnings and financial condition of the
Company, including applicable governmental regulations and policies.
Non-performing Assets
Nonperforming loans increased by $410,000 in fiscal 1997. At June 30, 1997,
$449,000 of the $845,000 of non-accrual loans at the Company consisted of a
single lending relationship involving six loans secured by residential real
estate, a constructed single-family home, and two automobiles. The borrowers
filed for bankruptcy in fiscal 1997. Although there can be no assurances, the
Company does not expect any material losses regarding such loans. The remaining
increase in nonperforming loans during 1997 was due an increase in delinquencies
of loans secured by single family residential properties. The delinquencies were
due to the individual borrowers' economic circumstances. See "--Comparison of
Operating Results for the Years Ended June 30, 1997 and 1996 -- Provision for
Possible Loan Losses."
H-4
<PAGE>
Average Balances
The following tables set forth for the periods indicated, information regarding
the average balances of interest-earning assets and interest-bearing
liabilities, the dollar amount of interest income earned on such assets and the
resultant yields, the dollar amount of interest expense paid on such liabilities
and the resultant rates. The tables also reflect the interest rate spread for
such periods, the net yield on interest-earning assets (i.e., net interest
income as a percentage of average interest-earning assets) and the ratio of
average interest-earning assets to average interest-bearing liabilities. Average
balances are based on month end balances. Management does not believe that the
use of month-end balances instead of daily average balances has caused any
material difference in the information presented.
<TABLE>
<CAPTION>
Year Ended June 30, At June 30,
------------------------------------------------------------------ --------------------
1997 1996 1997
----------------------------------- ------------------------------ --------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Yield/Cost
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)..................... $32,294 $2,630 8.14% $31,026 $2,585 8.33% $32,199 8.02%
Mortgage-backed securities.............. 6,737 456 6.77 8,421 578 6.86 6,123 7.09
Investment securities(2)................ 5,561 344 6.19 4,085 267 6.54 6,090 5.87
------ ------ ------ ----- ------
Total interest-earning assets.......... 44,592 3,430 7.69 43,532 3,430 7.88 44,412 7.60
----- -----
Non-interest-earning assets.............. 386 574 423
------- ------ -------
Total assets........................... $44,978 $44,106 $44,835
====== ====== ======
Interest-bearing liabilities:
Interest-bearing demand deposits........ $ 4,451 113 2.54 $3,624 97 2.68 $ 4,984 2.44
Certificates of deposit................. 25,062 1,392 5.55 25,515 1,495 5.86 24,760 5.63
Savings deposits........................ 5,407 137 2.53 5,814 169 2.91 5,232 2.50
Short-term borrowings................... 931 52 5.59 250 17 6.80 500 5.75
------- ------ ------ ----- -------
Total interest-bearing liabilities..... 35,851 1,694 4.73 35,203 1,778 5.05 35,476 4.72
Non-interest bearing liabilities......... 89 77 174
------- ------ -------
Total liabilities....................... 35,940 35,280 35,650
Stockholders equity...................... 9,038 8,826 9,185
------ ------ ------
Total liabilities and stockholders' equity $44,978 $44,106 $44,835
====== ====== ======
Net interest income...................... $1,736 $1,652
===== =====
Interest rate spread(3).................. 2.96 2.83 2.88
==== ==== ====
Net yield on interest-earning assets(4).. 3.89 3.79 3.67
==== ==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities... 124.38 123.66 125.19
====== ====== ======
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions and FHLB
stock.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
H-5
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume). Changes which are not solely
attributable to rate or volume are allocated to changes in rate due to rate
sensitivity of interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
----------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------------- ----------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable..................... $ 106 $ (61) $ 45 $ 223 $ 46 $ 269
Mortgage-backed securities........... (116) (6) (122) (115) 22 (93)
Investment securities................ 96 (19) 77 (55) 55 --
----- ----- ---- ---- ----- -----
Total interest-earning assets....... 86 (86) - 53 123 176
----- ----- ---- ---- ----- -----
Interest expense:
Interest-bearing demand deposits.... 22 (6) 16 (5) 4 (1)
Certificates of deposit............. (27) (76) (103) (18) 206 188
Savings deposits.................... (12) (20) (32) (8) (8) (16)
Short-term borrowings............... 46 (11) 35 7 -- 7
----- ----- ---- ---- ----- ----
Total interest-bearing
liabilities....................... 29 (113) (84) (24) 202 178
----- ----- ---- ---- ----- -----
Net change in interest income......... $ 57 $ 27 $ 84 $ 77 $ (79) $ (2)
===== ====== ==== ==== ===== =====
</TABLE>
H-6
<PAGE>
Comparison of Operating Results for the Years Ended June 30, 1997 and 1996.
Net Income. Primarily as a result of a one time charge to SAIF-insured
institutions, net income for the year ended June 30, 1997 declined 32.5%, to
$301,000 or $.68 per share, from $446,000 or $1.01 per share for the same period
ended 1996.
Net Interest Income. Net interest income increased $84,000 or 5.1%, to
$1,736,000 for the year ended June 30, 1997 compared to $1,652,000 for the year
ended June 30, 1996 primarily due to a decrease in interest expense. In
addition, during these periods, the Company's average interest rate spread (the
difference between the weighted average yield on interest-earning assets and the
weighted average rate on interest-bearing liabilities) increased from 2.83% for
the year ended June 30, 1996 to 2.96% for the same period ended June 30, 1997.
At June 30, 1997, the Company's interest rate spread was a positive 2.88%.
Interest Income. Interest income remained relatively stable during fiscal years
1996 and 1997, totalling $3,430,000 for both years. Increases to interest income
were primarily concentrated in loans of $45,000 or 1.7% and investment
securities of $87,000 or 53.5%. These increases, which were due to an increase
in the average principal balances of $1,268,000 or 4.1%, and $612,000 or 18.7%,
respectively, were funded by a decrease in the average principal balance of
mortgage-backed securities of $1,684,000 or 20.0% and an increase in average
interest-bearing liabilities of $648,000 or 1.8%. In addition, the yield on
interest-earning assets decreased from 7.9% for the year ended June 30, 1996 to
7.7% for the same period ended June 30, 1997. This decrease was the result of
the maturity of higher yielding securities and a slight decline in rates.
Interest Expense. Interest expense decreased from $1,777,000 for the year ended
June 30, 1996 to $1,694,000 for the same period ended June 30, 1997. Interest on
deposits declined by $119,000 or 6.8%. Such decrease was offset somewhat by an
increase of $36,000 or $212.5% in other interest expense. The overall decline is
primarily due to the decreasing principal average balances of certificates of
deposit, $453,000 or 1.8%, and savings deposits, $407,000 or 7.0%. Counteracting
this decline was an increase in the average principal balance of
interest-bearing demand deposits of $827,000 or 22.8%. Furthermore, the yields
on certificates of deposit and savings deposits decreased by 31 and 38 basis
points, respectively. There was an increase in interest expense on advances from
FHLB of $36,000 or 212.5% which is the result of an increase in the average
principal balance of $681,000 offset by a decrease in the cost of borrowed
funds. The cost to borrow funds declined from 5.0% as of June 30, 1996 compared
to 4.7% as of June 30, 1997, or 6.4%.
Provision for Loan Losses. Based upon management's continuing evaluation of the
adequacy of the allowance for loan losses which encompasses the overall risk
characteristics of the various portfolio segments, past experience with losses,
the impact of economic conditions on borrowers, and other relevant factors, the
provision for loan losses was $24,000 for the years ended June 30, 1997 and
1996. While asset quality has slightly declined during this period, management
believes that the underlying collateral supporting such loans provides adequate
coverage. The Company maintains a desirable level in it loan loss provisions
based upon the Company's review of the market, loan portfolio, and overall
assessment of the adequacy of the valuation allowance. There can be no
assurances, however, that additional provisions will not be required in future
periods.
Noninterest Income. Noninterest income which is comprised principally of service
charges on deposit accounts and loan service fees decreased $17,000 or 28.1% to
$44,000 for the year ended June 30, 1997 from $61,000 for the same period ended
1996. Other income declined $20,000 or 57.0% due to a
H-7
<PAGE>
decline in commissions from consumer lending for accidental death and life
insurance from the Company's carrier coupled with other smaller dollar decreases
in other income accounts.
Noninterest Expense. Noninterest expense increased $251,000 or 24.9% to
$1,261,000 for the year ended June 30, 1997 from $1,010,000 as of June 30, 1996.
This increase is largely attributed to a one time charge of $235,000 in federal
insurance premiums. On September 30, 1996, the President signed into law
legislation which included the recapitalization of the Savings Association
Insurance Fund ("SAIF") of the FDIC by a one time charge to SAIF-insured
institutions of 65.7 basis points per one hundred dollars of insurable deposits.
Compensation and benefits increased $33,000 or 7.1%, primarily due to an
increase in employee stock ownership plan expenses from the distribution of
additional shares. Other noninterest expense increased by $16,000 or 7.2%
through the year ended June 30, 1997 as compared to the same period ended June
30, 1996. For fiscal year ended 1996, other interest expense included $13,000 in
principal payments on mortgage-backed securities which had been previously
written-off due to the inability to collect payments from the instrument's
trustee, coupled with a $12,000 credit to the Bank's checking account as
resolution for prior years' erroneous charges.
Income Taxes. Income tax expense decreased $39,000 or 16.8% for the year ended
June 30, 1997 to $195,000 from $234,000 for the same period ended June 30, 1996.
The decrease was the result of a decline in pretax earnings during the period.
Possible Year 2000 Computer Program Problems
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operation of the Bank. Data
processing is also essential to most other financial institutions and many other
companies.
All of the material data processing of the Bank that could be affected by
this problem is provided by a third party service bureau. The service bureau of
the Bank has advised the Bank that it expects to resolve this potential problem
before the year 2000. However, if the service bureau is unable to resolve this
potential problem in time, the Bank would likely experience significant data
processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on the financial condition and results
of operation of the Bank.
Liquidity and Capital Requirements
General. Liquidity refers to the Bank's ability to generate sufficient cash to
meet the funding needs of current loan demand, savings deposit withdrawals, and
to pay operating expenses. The Bank has historically maintained a level of
liquid assets in excess of regulatory requirements. Maintaining a high level of
liquid assets tends to decrease earnings, as liquid assets tend to have a lower
yield than other assets with longer terms (e.g. loans). The Bank adjusts
liquidity as appropriate to meet its asset/liability objectives.
The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed securities, maturities of investment securities and
funds provided from operations. While scheduled loan and mortgage-backed
securities repayments are a relatively predictable source of funds, deposit
flows and loan and mortgage-backed securities prepayments are greatly influenced
by general
H-8
<PAGE>
interest rates, economic conditions and competition. In addition, the Bank
invests excess funds in overnight deposits which provide liquidity to meet
lending requirements.
The primary activity of the Bank is originating mortgage loans and purchasing
mortgage-backed securities. During the years ended June 30, 1997 and 1996, the
Bank originated loans in the amounts of $7.0 and $10.6 million, respectively.
The Bank also purchases mortgage-backed securities and FHLB notes to invest
excess liquidity and to supplement local loan demand. The Bank did not purchase
any mortgage-backed securities during fiscal 1997 or 1996. Other investment
activities include investment in tax-exempt municipal bonds and FHLB of
Pittsburgh stock.
The Bank has other sources of liquidity if a need for additional funds arises,
such as FHLB of Pittsburgh advances. Additional sources of liquidity can be
found in the Bank's balance sheet, such as investment securities and
unencumbered mortgage-backed securities that are readily marketable. Management
believes that the Bank has adequate resources to fund all of its commitments.
The Company's ability to pay dividends to stockholders is primarily dependent
upon the dividends it receives from the Bank. The Bank may not declare or pay a
cash dividend on any of its stock if the effect thereof would cause the Bank's
regulatory capital to be reduced below (1) the amount required for the
liquidation account established in connection with the Bank's conversion from
mutual to stock form, or (2) the regulatory capital requirements imposed by the
Department and the FDIC.
Regulatory Capital Requirements. As a condition of deposit insurance, current
FDIC regulations require that the Bank calculate and maintain a minimum
regulatory capital level on a quarterly basis and satisfy such requirement at
the calculation date and throughout the ensuing quarter.
At June 30, 1997, the Bank's Tier I risk-based and total risk-based capital
ratios were 43.3% and 44.5%, respectively. Current regulations require Tier I
risk-based capital of 4% and total risk-based capital of 8% risk-based assets.
The Bank's leverage ratio was 20.5% at the end of fiscal 1997.
Impact of Inflation and Changing Prices
The financial statements and related data have been prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars, without
consideration for changes in the relative purchasing power of money over time
caused by inflation.
Unlike industrial companies, nearly all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the price of goods and services, since
such goods and services are affected by inflation. In the current interest rate
environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of acceptable performance levels.
H-9
<PAGE>
[SNODGRASS LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors and Stockholders
Peoples Savings Financial Corporation
We have audited the accompanying consolidated balance sheet of Peoples Savings
Financial Corporation and Subsidiary as of June 30, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as, evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peoples Savings
Financial Corporation and Subsidiary as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As explained in the notes to the consolidated financial statements, effective
July 1, 1995, the Company changed its method of accounting for the impairment of
loans and the related allowance for loan losses.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
July 25, 1997
S.R. Snodgrass, A.C.
101 Bradford Road Wexford, PA 15090-6909 Phone: 412-934-0344 Facsimile:
412-934-0345
H-10
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 116,612 $ 115,026
Interest-bearing deposits with other institutions 2,904,240 627,318
Investment securities (market value of $2,811,553
and $3,648,567) 2,824,595 3,694,375
Mortgage-backed securities (market value of $6,104,940
and $7,415,043) 6,123,442 7,466,452
Loans receivable (net of allowance for loan losses
of $250,865 and $227,171) 31,947,791 32,126,518
Accrued interest receivable 290,147 278,533
Premises and equipment 60,407 64,001
Federal Home Loan Bank stock 361,100 358,900
Other assets 206,248 121,346
------------ ------------
TOTAL ASSETS $ 44,834,582 $ 44,852,469
============ ============
LIABILITIES
Deposits $ 34,975,539 $ 35,864,622
Advance from Federal Home Loan Bank 500,000 --
Accrued interest payable and other liabilities 174,869 75,766
------------ ------------
TOTAL LIABILITIES 35,650,408 35,940,388
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized; none issued -- --
Common stock, $.10 par value; 2,000,000 shares authorized,
452,966 issued 45,297 45,297
Additional paid-in capital 4,275,914 4,222,897
Retained earnings - substantially restricted 5,338,997 5,205,770
Unallocated shares held by Employee Stock Ownership Plan (ESOP) (214,241) (254,790)
Unallocated shares held by Management Stock Bonus Plan (MSBP) (67,930) (113,230)
Treasury stock (10,450 shares, at cost) (193,863) (193,863)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,184,174 8,912,081
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 44,834,582 $ 44,852,469
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
H-11
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996
---------- ----------
INTEREST INCOME
<S> <C> <C>
Loans receivable $2,629,735 $2,584,661
Mortgage-backed securities 456,571 578,468
Investment securities:
Taxable 249,433 162,478
Exempt from federal income tax 26,547 56,119
Interest-bearing deposits with other institutions 67,986 47,932
---------- ----------
Total interest income 3,430,272 3,429,658
---------- ----------
INTEREST EXPENSE
Deposits 1,641,614 1,760,789
Advance from Federal Home Loan Bank 52,390 16,763
Total interest expense 1,694,004 1,777,552
---------- ----------
NET INTEREST INCOME 1,736,268 1,652,106
Provision for loan losses 24,000 24,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,712,268 1,628,106
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 29,317 26,897
Other income 14,866 34,580
---------- ----------
Total noninterest income 44,183 61,477
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 491,463 458,826
Occupancy and equipment 45,543 59,673
Deposit insurance premiums 272,034 82,954
Professional fees 110,704 84,955
Data processing charges 103,913 102,083
Other expenses 237,054 221,036
---------- ----------
Total noninterest expense 1,260,711 1,009,527
---------- ----------
Income before income taxes 495,740 680,056
Income taxes 194,718 234,189
---------- ----------
NET INCOME $ 301,022 $ 445,867
========== ==========
EARNINGS PER SHARE
Primary $ 0.68 $ 1.01
Fully Diluted $ 0.68 $ 1.01
</TABLE>
See accompanying notes to the consolidated financial statements.
H-12
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained Unallocated Unallocated
Additional Earnings - Shares Shares
Common Paid-In Substantially Held by Held by Treasury
Stock Capital Restricted ESOP MSBP Stock Total
-------- ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 $ 45,297 $4,180,857 $4,759,903 $ (288,762) $ (158,530) $ (193,863) $ 8,344,902
Release of earned
ESOP shares 42,040 33,972 76,012
Accrued
compensation
expense for MSBP 45,300 45,300
Net income 445,867 445,867
-------- ---------- ---------- ---------- ---------- ---------- -----------
Balance, June 30, 1996 45,297 4,222,897 5,205,770 (254,790) (113,230) (193,863) 8,912,081
Release of earned
ESOP shares 53,017 40,549 93,566
Accrued
compensation
expense for MSBP 45,300 45,300
Cash dividends declared
($.40 per share) (167,795) (167,795)
Net income 301,022 301,022
-------- ---------- ---------- ---------- ---------- ---------- -----------
Balance, June 30, 1997 $ 45,297 $4,275,914 $5,338,997 $ (214,241) $ (67,930) $ (193,863) $ 9,184,174
======== ========== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
H-13
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 301,022 $ 445,867
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 24,000 24,000
Provision for depreciation 7,257 12,839
Amortization of discounts and premiums 1,966 52,742
Decrease (increase) in accrued interest receivable (11,614) 2,221
Increase (decrease) in accrued interest payable 23,358 (4,156)
Amortization of ESOP and MSBP unearned compensation 138,866 121,312
Other, net (93,375) (38,369)
----------- -----------
Net cash provided by operating activities 391,480 616,456
----------- -----------
INVESTING ACTIVITIES
Proceeds from the maturities of investment securities 1,620,000 2,650,000
Purchases of investment securities (749,750) (3,047,047)
Principal repayments on mortgage-backed securities 1,320,674 2,142,943
Decrease (increase) in loans receivable, net 174,627 (2,803,206)
Increase in Federal Home Loan Bank stock (2,200) (12,500)
Purchases of premises and equipment (3,663) (12,938)
----------- -----------
Net cash provided by (used for) investing activities 2,359,688 (1,082,748)
----------- -----------
FINANCING ACTIVITIES
Increase (decrease) in deposits, net (889,083) 693,299
Increase in advance from Federal Home Loan Bank 500,000 --
Cash dividends paid (83,577) --
----------- -----------
Net cash provided by (used for) financing activities (472,660) 693,299
----------- -----------
Increase in cash and cash equivalents 2,278,508 227,007
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 742,344 515,337
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,020,852 $ 742,344
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 1,670,646 $ 1,781,708
Income taxes 250,512 237,925
</TABLE>
See accompanying notes to the consolidated financial statements.
H-14
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Peoples Savings Financial Corporation (the "Company") is a Pennsylvania
corporation organized as the holding company of Peoples Savings Bank (the
"Bank"). The Bank is a state-chartered bank located in Pennsylvania. The
Company and its subsidiary derive substantially all their income from banking
and bank-related services which include interest earnings on its portfolio of
residential real estate and consumer loans, as well as, interest earnings on
investment and mortgage-backed securities and a variety of deposit services
provided to its customers through three locations. The Company is supervised
by the Board of Governors of the Federal Reserve System, while the Bank is
subject to regulation and supervision by the FDIC and the Pennsylvania
Department of Banking.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, the Bank. All intercompany transactions have
been eliminated in consolidation. The investment in subsidiary on the parent
company financial statements is carried at the parent company's equity in the
underlying net assets.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. The major accounting policies and
practices are summarized below.
Investment Securities and Mortgage-Backed Securities
----------------------------------------------------
Debt securities, including mortgage-backed securities acquired with the
intent and ability to hold to maturity are stated at cost adjusted for
amortization of premium and accretion of discount, which are computed using a
level yield method and recognized as adjustments of interest income. Interest
on securities is recognized as income when earned.
Common stock of the Federal Home Loan Bank (FHLB) represents an ownership in
an institution which is wholly-owned by other financial institutions. This
equity security is accounted for at cost and reported separately on the
accompanying balance sheet.
Loans Receivable
----------------
Loans are stated at the principal amount outstanding net of deferred loan
fees and the allowance for loan losses. Interest income on mortgage and
consumer loans is recognized on the accrual method. Loan fees which represent
an adjustment to interest yield are deferred and amortized over the life of
the loan.
Loans on which accrued interest has been discontinued are designated as
nonaccrual loans. Accrual of interest on loans is generally discontinued when
it is determined that a reasonable doubt exists as to the collectibility of
additional interest. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current period
income. Loans are returned to accrual status when past due interest is
collected and the collection of principal is probable.
H-15
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses
-------------------------
Effective July 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by Statement No. 118. Under this Standard, the Company estimates
credit losses on impaired loans based on the present value of expected cash
flows or fair value of the underlying collateral if the loan repayment is
expected to come from the sale or operation of such collateral. Prior to
1995, the credit losses related to these loans were estimated based on
undiscounted cash flows or the fair value of the underlying collateral.
Statement No. 118 amends Statement No. 114 to permit a creditor to use
existing methods for recognizing interest income on impaired loans
eliminating the income recognition provisions of Statement No. 114. The
adoption of these statement did not have a material effect on the Company's
financial position or results of operations.
Impaired loans are commercial and commercial real estate loans for which it
is probable that the Company will not be able to collect all amounts due
according to the contractual terms of the loan agreement. The Company
individually evaluates such loans for impairment and does not aggregate by
loans by major risk classifications. The definition of "impaired loans" is
not the same as the definition of "nonaccrual loans," although the two
categories overlap. The Company may choose to place a loan on nonaccrual
status due to payment delinquency or uncertain collectibility, while not
classifying the loan as impaired if the loan is not a commercial or
commercial real estate loan. Factors considered by management in determining
impairment include payment status and collateral value. The amount of
impairment for these types of impaired loans is determined by the difference
between the present value of the expected cash flows related to the loan,
using the original interest rate, and its recorded value, or as a practical
expedient in the case of collateralized loans the difference between the fair
value of the collateral and the recorded amount of the loans. When
foreclosure is probable, impairment is measured based on the fair value of
the collateral.
Mortgage loans on one-to-four family properties and all consumer loans are
large groups of smaller balance homogeneous loans and are measured for
impairment collectively. Loans that experience insignificant payment delays,
which are defined as 90 days or less, generally are not classified as
impaired. Management determines the significance of payment delays on a
case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
borrower's prior payment record, and the amount of shortfall in relation to
the principal and interest owed.
The allowance for loan losses represents the amount which management
estimates is adequate to provide for potential losses in its loan portfolio.
The allowance method is used in providing for loan losses. Accordingly, all
loan losses are charged to the allowance and all recoveries are credited to
it. The allowance for loan losses is established through a provision for loan
losses charged to operations. The provision for loan losses is based on
management's periodic evaluation of individual loans, economic factors, past
loan loss experience, changes in the composition and volume of the portfolio,
and other relevant factors. The estimates used in determining the adequacy of
the allowance for loan losses, including the amounts and timing of future
cash flows expected on impaired loans, are particularly susceptible to
changes in the near term.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using an accelerated method over the useful lives
of the related assets. Expenditures for maintenance and repairs are charged
to operations as incurred. Costs of major additions and improvements are
capitalized.
H-16
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
The Company and the Bank file a consolidated federal income tax return.
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.
Earnings Per Share
------------------
Earnings per share for the years ended June 30, 1997 and 1996 have been
calculated based upon the weighted average number of issued and outstanding
common shares, including common stock equivalents, if such items have a
dilutive effect. For purposes of primary computations, the number of shares
used were 445,364 and 440,740 for the years ended June 30, 1997 and 1996
respectively. For purposes of the fully diluted computations, the number of
shares used were 444,906 and 442,646 respectively.
Shares outstanding for 1997 and 1996 do not include ESOP shares that were
purchased and unallocated during 1997 and 1996.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash and due from banks and
interest-bearing deposits with other institutions.
Recent Accounting Pronouncements
--------------------------------
In June 1996, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. This statement applies
prospectively in fiscal years beginning after December 31, 1996, and
establishes new standards that focus on control, whereas, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished.
In December 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." Statement 127 defers for one
year the effective date of certain portions of Statement No. 125 that address
secured borrowings and collateral for all transactions. Additionally,
Statement No. 127 defers for one year the effective date of transfers of
financial assets that are part of repurchase agreements, securities lending,
and similar transactions. The Company does not expect the adoption of
Statements 125 and 127 to have a material impact on the Company's
consolidated financial condition or results of operations.
In February 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," effective for
financial statements issued for periods ending after December 15, 1997. The
new standard specifies the computation, presentation, and disclosure
requirements for earnings per share for entities with publicly held common
stock. The Company does not anticipate adoption to have a material impact on
presentation and disclosure for earnings per share.
H-17
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
--------------------------------------------
In July 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
Statement No. 130 is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. It requires
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 presented with the same prominence as other financial statements.
Statement No. 130 requires that companies (i) classify items of other
comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the stockholders' equity
section of the balance sheet. Reclassification of financial statements for
earlier periods provided for comprehensive purposes is required.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities are
as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----------- ----------- ------------
U. S. Government agency
<S> <C> <C> <C> <C>
securities $2,298,161 $ 3,572 $ (17,365) $2,284,368
Obligations of states and
political subdivisions 526,434 751 -- 527,185
---------- ---------- ---------- ----------
Total $2,824,595 $ 4,323 $ (17,365) $2,811,553
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----------- ---------- ------------
U. S. Government agency
<S> <C> <C> <C> <C>
securities $2,797,199 $ -- $ (42,872) $2,754,327
Obligations of states and
political subdivisions 897,176 772 (3,708) 894,240
---------- ---------- ---------- ----------
Total $3,694,375 $ 772 $ (46,580) $3,648,567
========== ========== ========== ==========
</TABLE>
H-18
<PAGE>
NOTE 2 - INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of debt securities at June 30,
1997, by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- ----------
<S> <C> <C>
Due in one year or less $ -- $ --
Due after one year through five years 2,574,595 2,566,683
Due after five years through ten years 250,000 244,870
---------- ----------
Total $2,824,595 $2,811,553
========== ==========
</TABLE>
As of June 30, 1997 and 1996, all of the Company's investments in obligations
of states and political subdivisions are within the Commonwealth of
Pennsylvania. Although the Company has a diversified investment portfolio,
there is one investment, amounting to $526,000 or 18.6% and $587,000 or 15.9%
at June 30, 1997 and 1996, respectively, of the investment portfolio which is
dependent upon tax revenues of an individual municipality.
NOTE 3 - MORTGAGE - BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed securities
are as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ----------- ----------
Federal National Mortgage
<S> <C> <C> <C> <C>
Association securities $2,268,550 $ 8,950 $ (19,117) $2,258,383
Government National Mortgage
Association securities 1,452,824 41,037 -- 1,493,861
Federal Home Loan Mortgage
Corporation securities 2,187,136 1,396 (50,581) 2,137,951
Collateralized mortgage
obligations 214,932 -- (187) 214,745
---------- ---------- ---------- ----------
Total $6,123,442 $ 51,383 $ (69,885) $6,104,940
========== ========== ========== ==========
</TABLE>
H-19
<PAGE>
NOTE 3 - MORTGAGE - BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
1996
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ----------- ----------
Federal National Mortgage
<S> <C> <C> <C> <C>
Association securities $2,635,786 $ 9,243 $ (30,198) $2,614,831
Government National Mortgage
Association securities 1,915,675 54,456 -- 1,970,131
Federal Home Loan Mortgage
Corporation securities 2,644,515 540 (86,324) 2,558,731
Collateralized mortgage
obligations 270,476 1,011 (137) 271,350
---------- ---------- ---------- ----------
Total $7,466,452 $ 65,250 $ (116,659) $7,415,043
========== ========== ========== ==========
</TABLE>
The amortized cost and estimated market value of mortgage-backed securities
at June 30, 1997, by contractual maturity are shown below. Mortgage-backed
securities provide for periodic, generally monthly payments of principal and
interest and have contractual maturities ranging from three to thirty-one
years. However, due to expected repayment terms being significantly less than
the underlying mortgage loan pool contractual maturities, the estimated lives
of these securities could be significantly shorter.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
---------- -----------
<S> <C> <C>
Due in one year or less $ -- $ --
Due after one year through five years 604,178 585,500
Due after five years through ten years -- --
Due after ten years 5,519,264 5,519,440
---------- ----------
Total $6,123,442 $6,104,940
========== ==========
</TABLE>
H-20
<PAGE>
NOTE 4 - LOANS RECEIVABLE
Loans receivable are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
Mortgage loans:
<S> <C> <C>
1 - 4 family dwellings $ 29,524,341 $ 29,002,826
Commercial 1,194,880 1,750,204
------------- -------------
30,719,221 30,753,030
------------- -------------
Consumer loans:
Home equity 1,358,869 1,523,071
Automobile 324,179 391,168
Share loans 489,415 480,636
Other 223,658 192,932
------------- -------------
2,396,121 2,587,807
------------- -------------
Less:
Loans in process 828,394 897,410
Net deferred loan fees 88,292 89,738
Allowance for loan losses 250,865 227,171
------------- -------------
1,167,551 1,214,319
------------- -------------
Total $ 31,947,791 $ 32,126,518
============= =============
</TABLE>
In the normal course of business, loans are extended to directors and
executive officers and their associates. In management's opinion, all of
these loans are on substantially the same terms and conditions as loans to
other individuals and businesses of comparable creditworthiness. A summary of
loan activity for those directors, executive officers, and their associates
with loan balances in excess of $60,000 for the year ended June 30, 1997 is
as follows:
<TABLE>
<CAPTION>
Balance Balance
June 30, Amounts June 30,
1996 Additions Collected 1997
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
$ 469,960 $ 49,148 $ 158,550 $ 360,558
</TABLE>
The Bank is a party to financial instruments with off-balance-sheet risk, in
the normal course of business, to meet the financing needs of its customers.
These financial instruments include commitments to extend credit amounting to
$2,347,000 and $1,375,000, at June 30, 1997 and 1996, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement.
These commitments are comprised of the undisbursed portion of construction
loans and residential loan originations. The Bank's exposure to credit loss
from nonperformance by the other party to these financial instruments is
represented by the contractual amount. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance-sheet instruments. Generally, collateral, usually in the form of
real estate, is required to support financial instruments with credit risk.
The Bank's loan portfolio is predominantly made up of one to four family unit
first mortgage loans in the Elk, Clearfield, and Jefferson County areas.
These loans are typically secured by first lien positions on the respective
real estate properties and are subject to the Bank's loan underwriting
policies. In general, the Bank's loan portfolio performance is dependent upon
the local economic conditions.
H-21
<PAGE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the years ended June 30, 1997
and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Balance, beginning of period $ 227,171 $ 207,815
Add:
Provisions charged to operations 24,000 24,000
Loan recoveries 541 1,226
------------- ------------
251,712 233,041
Less loans charged off 847 5,870
------------- ------------
Balance, end of period $ 250,865 $ 227,171
============= ============
</TABLE>
NOTE 6 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Investment securities $ 60,431 $ 41,123
Mortgage-backed securities 35,790 50,208
Loans receivable 193,926 187,202
------------- ------------
Total $ 290,147 $ 278,533
============= ============
</TABLE>
NOTE 7 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Land $ 29,500 $ 29,500
Building and improvements 217,620 217,620
Furniture and equipment 268,316 264,653
515,436 511,773
Less accumulated depreciation 455,029 447,772
------------- ------------
Total $ 60,407 $ 64,001
============= ============
</TABLE>
Depreciation expense for the years ended June 30, 1997 and 1996 was $7,257
and $12,839 respectively.
NOTE 8 - FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank System. As a member, the
Bank maintains an investment in the capital stock of the Federal Home Loan
Bank of Pittsburgh in an amount not less than 1% of its outstanding home
loans or 1/20 of its outstanding notes payable, if any, to the Federal Home
Loan Bank of Pittsburgh, whichever is greater, as calculated December 31 of
each year.
H-22
<PAGE>
NOTE 9 - DEPOSITS
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- --------------------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
------------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
NOW accounts $ 3,353,222 9.6 % $ 2,497,778 7.0 %
Savings accounts 5,232,215 15.0 5,883,799 16.4
Money market accounts 1,630,908 4.7 1,546,184 4.3
------------- ----- -------------- -----
10,216,345 29.3 9,927,761 27.7
------------- ----- -------------- -----
Savings certificates:
4.00% or less 86,348 0.2 209,688 0.6
4.01 - 6.00% 17,327,014 49.5 17,017,001 47.4
6.01 - 8.00% 7,345,832 21.0 8,710,172 24.3
------------- ----- -------------- -----
24,759,194 70.7 25,936,861 72.3
------------- ----- -------------- -----
Total $ 34,975,539 100.0 % $ 35,864,622 100.0 %
============= ===== ============== =====
</TABLE>
The maturities of savings certificates at June 30, 1997, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Within one year $ 14,309,261
Beyond one years but within three years 7,131,529
Beyond three years 3,318,404
------------
Total $ 24,759,194
============
</TABLE>
Savings certificates with balances of $100,000 or more amounted to $2,677,276
and $2,355,348 on June 30, 1997 and 1996, respectively. The Bank does not
have any brokered deposits.
Interest expense by deposit category for the years ended June 30, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- ------------
<S> <C> <C>
NOW and money market accounts $ 112,751 $ 96,970
Savings accounts 136,574 168,981
Savings certificates 1,392,289 1,494,838
-------------- ------------
Total $ 1,641,614 $ 1,760,789
============== ============
</TABLE>
NOTE 10 - SAVINGS ASSOCIATION INSURANCE FUNDS RECAPITALIZATION
On September 30, 1996, the President signed into law legislation which
included, among other things, recapitalization of the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation by a one
time charge to SAIF-insured institutions of 65.7 basis points per one hundred
dollars of insurable deposits. The gross effect to the Company amounted to
$234,747, which is reflected in the financial results of the Company for the
year ended June 30, 1997.
H-23
<PAGE>
NOTE 11 - ADVANCE FROM FEDERAL HOME LOAN BANK
The scheduled maturities of advances outstanding are as follows:
<TABLE>
<CAPTION>
Interest June 30,
Maturity Rate 1997 1996
------------------ -------- ---------- ---------
<S> <C> <C> <C>
September 22, 1997 5.75 % $ 500,000 $ -
</TABLE>
FHLB stock, mortgage-backed securities and certain first mortgage loans with
a value in excess of 120% of outstanding advances are pledged to secure such
borrowings under a blanket floating agreement.
The Bank has a line of credit, with a borrowing limit of approximately $3.4
million, with the Federal Home Loan Bank of Pittsburgh. This credit line is
subject to annual renewal and incurs no service charges. At June 30, 1997 and
1996, there were no outstanding borrowings on this line of credit.
NOTE 12 - INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
Currently payable:
<S> <C> <C>
Federal $ 157,964 $ 189,130
State 22,654 45,194
------------- ------------
180,618 234,324
Deferred 14,100 (135)
------------- ------------
Total $ 194,718 $ 234,189
============= ============
</TABLE>
The following temporary differences gave rise to the net deferred tax asset
at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses $ 85,294 $ 77,238
Deferred loan origination fees, net 2,345 6,503
Deferred compensation 7,701 43,652
Other, net 21,820 8,224
------------- ------------
Total gross deferred tax assets 117,160 135,617
------------- ------------
Deferred tax liabilities:
Tax reserve for loan losses 32,671 37,150
Premises and equipment 4,946 4,824
------------- ------------
Total gross deferred tax liabilities 37,617 41,974
------------- ------------
Net deferred tax asset $ 79,543 $ 93,643
============= ============
</TABLE>
H-24
<PAGE>
NOTE 12 - INCOME TAXES (Continued)
The reconciliation between the actual provision for income taxes and the
amount of income taxes which would have been provided at statutory rates for
the years ended June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
Amount Percent Amount Percent
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 168,552 34.0 % $ 231,219 34.0 %
State income tax expense, net of
federal tax benefit 14,951 2.9 29,828 4.4
Tax exempt interest (9,026) (1.8) (19,080) (2.8)
Other, net 20,241 2.7 (7,778) (1.2)
--------- ---- ---------- ----
Total $ 194,718 37.8 % $ 234,189 34.4 %
========= ==== ========== ====
</TABLE>
On August 20, 1996, the Small Business Job Protection Act (the "Act") was
signed into law. The Act eliminated the percentage of taxable income bad debt
deduction for thrift institutions for tax years beginning after December 31,
1995. The Act provides that bad debt reserves accumulated prior to 1988 be
exempt from recapture. Bad debt reserves accumulated after 1987 are subject
to recapture. The recapture tax will be paid in six equal installments
beginning after the 1998 tax year. At December 31, 1995, the Company had
$96,092 in bad debt reserves in excess of the base year. Subject to
prevailing corporate tax rates, the Company owes $32,671 in federal income
taxes which is reflected as a deferred tax liability.
No valuation allowance was established at June 30, 1997 and 1996, in view of
the Company's carryback to taxes paid in previous years, future anticipated
taxable income, which is evidenced by the Company's earning potential, and
deferred tax liabilities at June 30.
The Bank is subject to the Pennsylvania Mutual Thrift Institutions Tax which
is calculated at 11.5% of earnings based on generally accepted accounting
principles with certain adjustments.
NOTE 13 - RETAINED EARNINGS-SUBSTANTIALLY RESTRICTED
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
capital requirements can initiate certain mandatory, and possibly additional
discretionary actions by the regulators that, if undertaken, could have a
direct material effect on the financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the entity's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
The capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
H-25
<PAGE>
NOTE 13 - RETAINED EARNINGS-SUBSTANTIALLY RESTRICTED (Continued)
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of
Total and Tier I (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital to average assets (as defined). Management
believes, as of June 30, 1997, that the Company and the Bank meet all capital
adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the primary regulator
has categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, it must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios at least 100 to 200 basis points above those
ratios set forth in the table. There have been no conditions or events since
that notification that management believes have changed the Company's
category.
The following table reflects the Company's ratios at June 30 (the Bank's
ratios do not significantly differ from the Company).
<TABLE>
<CAPTION>
1997 1996
---------------------------- --------------------------
<S> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets)
Actual $ 9,435,039 44.5 % $ 9,139,252 43.8 %
For Capital Adequacy
Purposes 1,695,851 8.0 1,668,357 8.0
To Be Well Capitalized 2,119,814 10.0 2,085,446 10.0
Tier I Capital (to Risk
Weighted Assets)
Actual $ 9,184,174 43.3 % $ 8,912,081 42.7 %
For Capital Adequacy
Purposes 847,925 4.0 834,178 4.0
To Be Well Capitalized 1,271,888 6.0 1,251,267 6.0
Tier I Capital (to Average
Assets)
Actual $ 9,184,174 20.5 % $ 8,912,081 19.7 %
For Capital Adequacy
Purposes 1,791,920 4.0 1,806,556 4.0
To Be Well Capitalized 2,239,900 5.0 2,258,195 5.0
</TABLE>
Prior to the enactment of The Small Business Job Protection Act discussed in
Note 12, the Company accumulated approximately $103,800 of retained earnings
at June 30, 1997, which represents allocations of income to bad debt
deductions for tax purposes only. Since this amount represents the
accumulated bad debt reserves prior to 1988, no provision for federal income
tax has been made for such amount. If any portion of this amount is used
other than to absorb loan losses (which is not anticipated), the amount will
be subject to federal income tax at the current corporate rate.
H-26
<PAGE>
NOTE 14 - EMPLOYEE BENEFITS
Employee Savings Plan
---------------------
The Bank maintains a 401(k) Retirement Savings Plan for substantially all
employees. Employees are eligible for admittance to the plan after one year
of employment and full vesting occurs after five years of participation in
the Plan. For employees participating in the Plan, the Bank makes matching
contributions to the plan of up to 2% of the participant's eligible
compensation. The total 401(k) Retirement Savings Plan expense for the years
ending June 30, 1997 and 1996 was $5,531 and $5,808 respectively.
Management Stock Bonus Plan (MSBP)
----------------------------------
In 1994, the Board of Directors adopted a MSBP for certain officers,
directors, and employees which was approved by stockholders at a special
meeting held on March 31, 1994. The objective of this Plan is to enable the
Company and the Bank to retain its corporate officers, key employees, and
directors who have the experience and ability necessary to manage these
entities. Directors, officers, and key employees who are selected by members
of a Board appointed committee are eligible to receive benefits under the
MSBP. The non-employee directors of the Company and the Bank serve as
trustees for the MSBP, which has the responsibility to invest all funds
contributed by the Bank to the Trust created for the MSBP.
On January 14, 1994, the Trust purchased with funds contributed by the Bank,
22,648 shares of the common stock issued in the Company's conversion and
reorganization to stock form, of which 18,342 shares were issued to directors
and 4,306 shares were issued to officers. Directors, officers, and key
employees who terminate their association with the Company shall forfeit the
right to any shares which were awarded but not earned.
The Company granted a total of 22,648 shares of common stock on the
conversion date of which no shares became immediately vested under the plan.
These shares vest over a five year period beginning January 14, 1994. A total
of 4,530 shares were vested in both 1997 and 1996. The MSBP shares purchased
in the conversion initially will be excluded from stockholder's equity. The
Company recognizes compensation expense in the amount of fair value of the
common stock at the grant date, pro rata over the years during which the
shares are payable and recorded as an addition to stockholders' equity. Net
compensation expense attributable to the MSBPs amounted to $45,300 in 1997
and 1996.
Employee Stock Ownership Plan (ESOP)
------------------------------------
The Company has an ESOP for the benefit of employees who meet the eligibility
requirements which include having completed six months service with the
Company and having attained age twenty-one. The ESOP Trust purchased 33,972
shares of common stock in the initial public offering with proceeds from a
loan from the Company. The Bank makes cash contributions to the ESOP on an
annual basis sufficient to enable the ESOP to make the required loan payments
to the Company. The loan bears interest at the prime rate plus one percent,
adjustable quarterly. Interest payable quarterly and principal payable in
equal annual installments over ten years. The loan is secured by the shares
of the stock purchased.
As the debt is repaid, shares are released from collateral and allocated to
qualified employees based on the proportion of debt service paid in the year.
Accordingly, the shares pledged as collateral are reported as unallocated
ESOP shares in the consolidated balance sheet. As shares are released from
collateral, the Company reports compensation expense equal to the current
market price of the shares, and the shares become outstanding for earnings
per share computations. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt.
Compensation expense for the ESOP was $91,915 and $76,012 for the years ended
June 30, 1997 and 1996.
H-27
<PAGE>
NOTE 14 - EMPLOYEE BENEFITS (Continued)
Employee Stock Ownership Plan (ESOP) (Continued)
------------------------------------------------
The following table presents the components of the ESOP shares.
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
Allocated shares 10,849 6,794
Shares released for allocation 1,699 1,699
Shares distributed (1,295) (754)
Unreleased shares 21,424 25,479
-------------- --------------
Total ESOP shares 32,677 33,218
============== ==============
Fair value of unreleased shares $ 492,753 $ 560,538
============== ==============
</TABLE>
NOTE 15 - STOCK OPTION PLAN
The Company maintains a Stock Option Plan for the directors, officers, and
employees. An aggregate of 45,297 shares of authorized but unissued common
stock of the Company were reserved for future issuance under the plan. The
stock options typically have expiration terms ranging between one and ten
years subject to certain extensions and early terminations. The per share
exercise price of a stock option shall be, at a minimum, equal to the fair
value of a share of common stock on the date the option is granted. Proceeds
from the exercise of the stock options are credited to common stock for the
aggregate par value and the excess is credited to additional paid-in capital.
On January 14, 1994, upon conversion, qualified stock options were granted
for the purchase of 45,297 shares exercisable at the market price of $10 per
share at a rate of one fifth per year beginning January 14, 1995. All options
expire ten years from the date of grant. At June 30, 1997 and 1996, the
initial stock options granted remain outstanding with none being exercised.
H-28
<PAGE>
NOTE 16 - FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------ ------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ -------------- --------------- ---------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 116,612 $ 116,612 $ 115,026 $ 115,026
Interest-bearing deposits
with other institutions 2,904,240 2,904,240 627,318 627,318
Investment securities 2,824,595 2,811,553 3,694,375 3,648,567
Mortgage-backed securities 6,123,442 6,104,940 7,466,452 7,415,043
Loans receivable 31,947,791 32,912,000 32,126,518 32,682,000
Accrued interest receivable 290,147 290,147 278,533 278,533
Federal Home Loan Bank
stock 361,100 361,100 358,900 358,900
------------ -------------- ------------- --------------
$ 44,567,927 $ 45,500,592 $ 44,667,122 $ 45,125,387
============ ============== ============= ==============
Financial liabilities:
Deposits $ 34,975,539 $ 34,797,000 $ 35,864,622 $ 35,752,000
Advance from Federal Home
Loan Bank 500,000 500,000 - -
Accrued interest payable 56,261 56,261 32,903 32,903
------------ -------------- ------------- --------------
$ 35,531,800 $ 35,353,261 $ 35,897,525 $ 35,784,903
============ ============== ============= ==============
</TABLE>
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial
instruments would be based upon management's judgment regarding current
economic conditions, interest rate risk, expected cash flows, future
estimated losses, and other factors, as determined through various option
pricing formulas or simulation modeling. As many of these assumptions result
from judgments made by management based upon estimates which are inherently
uncertain, the resulting estimated fair values may not be indicative of the
amount realizable in the sale of a particular financial instrument. In
addition, changes in the assumptions on which the estimated fair values are
based may have a significant impact on the resulting estimated fair values.
As certain assets and liabilities such as deferred tax assets and premises
and equipment are not considered financial instruments, the estimated fair
value of financial instruments would not represent the full value of the
Company.
H-29
<PAGE>
NOTE 16 - FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (Continued)
The Company employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available, based upon the following assumptions:
Cash and Due From Banks, Interest-bearing Deposits with Other Institutions,
-----------------------------------------------------------------------------
Accrued Interest Receivable, Federal Home Loan Bank Stock, Advance from
-----------------------------------------------------------------------------
Federal Home Loan Bank, and Accrued Interest Payable
----------------------------------------------------
The fair value is equal to the current carrying value.
Investment and Mortgage-backed Securities
-----------------------------------------
The fair value of investment securities held to maturity and mortgage-backed
securities is equal to the available quoted market price. If no quoted market
price is available, fair value is estimated using the quoted market price for
similar securities.
Loans Receivable and Deposits
-----------------------------
The fair value of loans is estimated by discounting the future cash flows
using a simulation model which estimates future cash flows and constructs
discount rates that consider reinvestment opportunities, operating expenses,
non-interest income, credit quality, and prepayment risk. Demand, savings,
and money market deposit accounts are valued at the amount payable on demand
as of year end. Fair value for time deposits are estimated using a discounted
cash flow calculation that applies contractual costs currently being offered
in the existing portfolio to current market rates being offered for deposits
of similar remaining maturities.
Commitments to Extend Credit
----------------------------
These financial instruments are generally not subject to sale and estimated
fair values are not readily available. The carrying value, represented by the
net deferred fee arising from the unrecognized commitment, and the fair
value, determined by discounting the remaining contractual fee over the term
of the commitment using fees currently charged to enter into similar
agreements with similar credit risk, are not considered material for
disclosure. The contractual amounts of unfunded commitments are presented in
Note 4.
H-30
<PAGE>
NOTE 17 - PARENT COMPANY
The Company's balance sheet as of June 30, 1997 and 1996 and related
statements of income and cash flows for the years ended June 30, 1997 and
1996 are as follows:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash on deposit in subsidiary bank $ 967,196 $ 884,485
Investment in subsidiary 8,039,402 7,649,170
Loan receivable from ESOP 214,241 271,776
Other assets 47,553 124,515
----------- ------------
Total assets $ 9,268,392 $ 8,929,946
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 84,218 $ 17,865
Stockholders' equity 9,184,174 8,912,081
----------- ------------
Total liabilities and stockholders' equity $ 9,268,392 $ 8,929,946
=========== ============
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996
----------- ------------
<S> <C> <C>
Undistributed earnings of subsidiary $ 287,397 $ 441,991
Interest on loan to ESOP 20,182 24,757
----------- ------------
307,579 466,748
Expenses 9,690 14,483
----------- ------------
Income before income taxes 297,889 452,265
Income tax expense (3,133) 6,398
----------- ------------
Net income $ 301,022 $ 445,867
============ ============
</TABLE>
H-31
<PAGE>
NOTE 17 - PARENT COMPANY (Continued)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 301,022 $ 445,867
Adjustment to reconcile income to net cash used:
Undistributed earnings of subsidiary (287,397) (441,991)
Decrease (increase) in other assets 95,128 (2,310)
----------- ----------
Net cash provided by operating activities 108,753 1,566
----------- ----------
INVESTING ACTIVITIES:
Payments from ESOP 57,535 33,972
----------- ----------
Net cash provided by investing activities 57,535 33,972
----------- ----------
FINANCING ACTIVITIES:
Cash dividends paid (83,577) -
----------- ----------
Net cash used for financing activities (83,577) -
----------- ----------
Increase in cash and cash equivalents 82,711 35,538
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 884,485 848,947
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 967,196 $ 884,485
=========== ==========
</TABLE>
H-32
<PAGE>
APPENDIX I
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
------------ ------------
Commission File Number 0-22812
----------------------------
Peoples Savings Financial Corporation
-------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1720517
- ---------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
173 Main Street, Ridgway, PA 15853
----------------------------------
(Address of principal executive offices)
(814) 773-3195
--------------
(Registrant's telephone number, including area code)
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 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Class: Common Stock, par value $.10 per share
Outstanding at April 22, 1998: 442,516
I-1
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited)
as of March 31, 1998 and June 30, 1997 3
Consolidated Statement of Income (Unaudited)
for the Nine Months ended March 31, 1998 and 1997 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended March 31, 1998 and 1997 5
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months ended March 31, 1998 and 1997 6
Notes to Unaudited 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. Default Upon Senior Securities 15
Item 4. Submissions of Matters to a Vote of Security Holder 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
I-2
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 118,432 $ 116,612
Interest-bearing deposits with other
institutions 4,319,080 2,904,240
Investment securities (market value of $2,080,564
and $2,811,553) 2,075,323 2,824,595
Mortgage-backed securities (market value of
$5,365,238 and $6,104,940) 5,327,833 6,123,442
Loans receivable (net of allowance for loan
losses of $263,792 and $250,865) 32,449,684 31,947,791
Accrued interest receivable 222,972 290,147
Premises and equipment 56,544 60,407
Federal Home Loan Bank stock, at cost 361,100 361,100
Other assets 148,639 206,248
TOTAL ASSETS $ 45,079,607 $ 44,834,582
LIABILITIES
Deposits accounts $ 35,626,133 $ 34,975,539
Advances from Federal Home Loan Bank -- 500,000
Accrued interest payable and other liabilities 140,105 174,869
------------ ------------
TOTAL LIABILITIES 35,766,238 35,650,408
============ ============
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized; none outstanding -- --
Common stock, $.10 par value; 2,000,000 authorized,
452,966 issued 45,297 45,297
Additional paid-in capital 4,326,019 4,275,914
Retained earnings-substantially restricted 5,349,256 5,338,997
Unearned shares held by Employee Stock Ownership Plan (179,385) (214,241)
Unearned shares held by Management Stock Bonus Plan (33,955) (67,930)
Treasury stock (10,450 shares, at cost) (193,863) (193,863)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,313,369 9,184,174
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,079,607 $ 44,834,582
============ ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
I-3
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Nine Months Ended March 31,
1998 1997
---------- ----------
INTEREST INCOME
Loans $2,015,737 $1,994,670
Mortgage-backed securities 287,165 349,367
Investment securities:
Taxable 145,685 190,333
Exempt from federal income tax 16,151 21,203
Interest-bearing deposits with other
institutions 88,923 37,344
---------- ----------
Total interest income 2,553,661 2,592,917
---------- ----------
INTEREST EXPENSE
Deposits 1,255,907 1,230,489
Other 7,267 45,325
---------- ----------
Total interest expense 1,263,174 1,275,814
---------- ----------
NET INTEREST INCOME 1,290,487 1,317,103
Provision for loan losses 26,750 18,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,263,737 1,299,103
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 16,912 23,097
Other income 13,049 11,755
---------- ----------
Total noninterest income 29,961 34,852
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 368,182 368,896
Occupancy and equipment 40,282 37,369
Deposit insurance premiums 12,000 260,830
Professional fees 89,062 61,560
Data processing charges 79,680 77,664
Other expenses 204,224 193,586
---------- ----------
Total noninterest expense 793,430 999,905
---------- ----------
Income before income taxes 500,268 334,050
Income taxes 174,366 122,897
---------- ----------
NET INCOME $ 325,902 $ 211,153
========== ==========
EARNINGS PER SHARE
Basic $ 0.77 $ .50
Diluted 0.74 0.48
See accompanying notes to the unaudited consolidated financial statements.
I-4
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended March 31,
1998 1997
--------- ---------
INTEREST INCOME
Loans $ 680,983 $ 653,436
Mortgage-backed securities 91,204 107,018
Investment securities:
Taxable 47,356 65,035
Exempt from federal income tax 5,315 5,316
Interest-bearing deposits with other
institutions 33,913 14,781
--------- ---------
Total interest income 858,771 845,586
--------- ---------
INTEREST EXPENSE
Deposits 418,185 396,061
Other -- 19,335
--------- ---------
Total interest expense 418,185 415,396
--------- ---------
NET INTEREST INCOME 440,586 430,190
Provision for loan losses 8,750 6,000
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 431,836 424,190
--------- ---------
NONINTEREST INCOME
Service charges on deposit accounts 5,171 7,163
Other income 3,780 3,691
--------- ---------
Total noninterest income 8,951 10,854
--------- ---------
NONINTEREST EXPENSE
Compensation and employee benefits 113,823 120,970
Occupancy and equipment 14,643 11,130
Deposit insurance premiums 827 (15,917)
Professional fees 49,912 21,050
Data processing charges 27,175 26,762
Other expenses 68,608 69,082
--------- ---------
Total noninterest expense 274,988 233,077
--------- ---------
Income before income taxes 165,799 201,967
Income taxes 57,966 117,000
--------- ---------
NET INCOME $ 107,833 $ 84,967
========= =========
EARNINGS PER SHARE
Basic $ 0.25 $ 0.20
Diluted 0.24 0.19
See accompanying notes to the unaudited consolidated financial statements.
I-5
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 325,902 $ 211,153
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 26,750 18,000
Provision for depreciation 5,165 9,461
Amortization of discounts and premiums 7,277 14,086
Decrease (increase) in accrued interest
receivable 61,175 (8,221)
Increase (decrease) in accrued interest payable 21,425 (2,637)
Amortization of ESOP and MSBP unearned
compensation 111,342 115,825
Other, net (26,845) (139,284)
----------- -----------
Net cash provided by operating activities 549,031 218,383
----------- -----------
INVESTING ACTIVITIES
Proceeds from the maturities of investment
securities 2,520,486 370,000
Purchases of investment securities (1,769,744) (752,200)
Principal repayments on mortgage-backed
securities 782,509 1,034,676
Increase in loans receivable, net (524,290) 458,611
Increase in Federal Home Loan Bank stock -- (2,200)
Purchases of premises and equipment (4,915) (880)
----------- -----------
Net cash provided by
investing activities 1,004,046 1,108,007
----------- -----------
FINANCING ACTIVITIES
Increase (decrease) in deposits, net 650,594 (1,015,309)
Proceeds from advance from FHLB -- 500,000
Repayment of advance from FHLB (500,000) --
Cash dividends (287,011) (84,030)
----------- -----------
Net cash used for
financing activities (136,417) (599,339)
----------- -----------
Increase in cash and cash equivalents 1,416,660 727,051
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,020,852 742,344
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,437,512 $ 1,469,395
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period
for:
Interest on deposits and borrowings $ 1,284,599 $ 1,278,451
Income taxes 100,667 170,822
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
I-6
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Peoples Savings Financial Corporation
("Company") includes its wholly-owned subsidiary Peoples Bank ("Bank"). All
significant intercompany items have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB and, therefore, do not
necessarily include all information that would be included in audited financial
statements. The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results of
operations. All such adjustments are of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative of the
results to be expected for the full year.
These statements should be read in conjunction with the consolidated statements
as of and for the year ended June 30, 1997 and related notes which are included
on the Form 10-KSB (file no. 0-22812)
NOTE 2 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share." This statement
redefines the standards for computing earnings per share (EPS) previously found
in Accounting Principles Board opinion No. 15, Earnings Per Share. Statement 128
establishes new standards for computing and presenting EPS and requires dual
presentation of "basic" and "diluted" EPS on the face of income statement for
all entities with complex capital structures. Under Statement 128, basic EPS is
to be computed based upon income available to common shareholders and the
weighted average number of common shares outstanding for the period. Diluted EPS
is to reflect the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
Company. Statement 128 also requires the restatement of all prior-period EPS
data presented.
The following table sets forth the computation of basic and diluted earnings per
share. There were no convertible securities which would effect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the Consolidated Statement of Income (Unaudited) will be used as
the numerator. The following tables set forth a reconciliation of the
denominator of the basic and diluted earnings per share computation.
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Denominator
Denominator for basic earnings per share - weighted-average shares 422,600 418,276
Employee stock options 17,652 17,413
------- -------
Denominator for diluted earnings per share - adjusted weighted-average
average assumed conversions 440,252 435,690
======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Denominator
Denominator for basic earnings per share - weighted-average shares 424,190 419,652
Employee stock options 17,694 16,898
------- -------
Denominator for diluted earnings per share - adjusted weighted-average
average assumed conversions 441,884 436,550
======= =======
</TABLE>
I-7
<PAGE>
NOTE 3 - OTHER MATTERS
On April 7, 1998, the Board of Directors of the Company approved, and the
Company then signed, a merger agreement pursuant to which the Company will be
merged into Emclaire Financial Corporation. The merger is subject to the receipt
of approval of the stockholders of the Company and Emclaire and the receipt of
regulatory approval. Because provisions of the Company's Articles of
Incorporation impose restrictions on the ability of the Company to engage in the
merger, the Articles must also be amended in order for the merger to proceed.
The approval of the amendment of the Articles requires the affirmative vote of
80% of the issued and outstanding shares.
The agreement provides that the merger consideration of $26.00 per share shall
be paid either in stock of Emclaire or in cash. Shareholders of the company will
have the right to express a preference for cash or stock, but the overall
consideration payable, including amounts paid on account of outstanding options,
shall be 55% in stock and 45% in cash. The merger will be accounted for as a
purchase. Assuming the receipt of all required approvals, the merger is expected
to be consummated during the third quarter of calendar 1998.
NOTE 4 - PENDING ACCOUNTING PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Statement No. 130 is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. It requires 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
presented with the same prominence as other financial statements. Statement No.
130 requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
Reclassification of financial statements for earlier periods provided for
comprehensive purposes is required.
I-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Total assets at March 31, 1998 of $45,080,000, increased by approximately
$245,000, or .55%, from the $44,835,000 reported at June 30, 1997. There were
increases in interest bearing deposits of $1,415,000 and loans of $502,000,
while declines occurred in mortgage-backed securities of $796,000 and investment
securities of $749,000.
Interest-bearing deposits increased from $2,904,000 at June 30, 1997 to
$4,319,000 at March 31, 1998 primarily due to an increase in deposits of
$651,000, the maturity of investment securities near the period end, and the
repayment of mortgage-backed securities.
Investment securities declined $749,000, or 26.5% from $2,825,000 at June 30,
1997 to $2,075,000 at March 31, 1998. This decline was primarily due to
maturities of $2,025,000 of U.S. Government Agency securities while management
opted to replace only $1,275,000 of such securities with similar maturities and
yields. These funds were used to repay an advance from the Federal Home Loan
Bank for $500,000.
Mortgage-backed securities decreased from $6,123,000 at June 30, 1997 to
$5,328,000 at March 31, 1998. Principal repayments on mortgage-backed securities
amounted to $783,000 and are typically reinvested in like securities or used to
supplement loan demand in periods of loan growth, as well as meet operating
expenses. Currently, the Company has relatively significant commitments to fund
loans, therefore all of the mortgage-backed securities repayments have been used
to fund loan products.
Loans increased to $32,450,000 at March 31, 1998 from $31,948,000 at June 30,
1997 as the Company continued to experience moderate growth primarily in 1 to 4
family mortgages. The economy in the area has remained stable for several years
and the Company competitively prices its products to meet the demands of its
market. Management anticipates maintaining continued growth in the loan
portfolio in the foreseeable future.
Deposits increased by $651,000 or 1.86% from $34,976,000 at June 30, 1997 to
$35,626,000 at March 31, 1998. This resulted primarily from an increase in time
deposit accounts of $1,258,000 as 18 month time deposits grew by $1,606,000.
Offsetting this somewhat were smaller decreases in other deposit type accounts
which reflects the impact of promotional campaigns extended by competitors
within the Company's market areas
Equity capital increased by $129,000 from $9,184,000 at June 30, 1997 to
$9,313,000 at March 31, 1998 as a result of net income of $326,000 and
recognition of shares in the Management Stock Bonus Plan and the Employee Stock
Ownership Plan amounting to $119,000. Cash dividends declared of approximately
$308,000 lessened the impact of these other events. Future dividend policies
will be determined by the Board of Directors in light of the earnings and
financial condition of the Company, including applicable governmental
regulations and policies.
On April 7, 1998, the Board of Directors of the Company approved, and the
Company then signed, a merger agreement pursuant to which the Company will be
merged into Emclaire Financial Corporation. The merger is subject to the receipt
of approval of the stockholders of the Company and Emclaire and the receipt of
regulatory approval.
Management monitors risk-based capital and leverage capital ratios in order to
assess compliance with regulatory guidelines. At March 31, 1998, the Company and
the Bank exceeded the 8.00% minimum risk-based capital requirement and the
leveraged capital ratio of 3.00% of tangible assets.
I-9
<PAGE>
RESULTS OF OPERATION
--------------------
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
- -----------------------------------------------------------
Net income for the nine months ended March 31, 1998 increased by $115,000 or
54.3% to $326,000 from $211,000 compared to the same period in 1997. The
increase was primarily made up of a decrease in FDIC insurance of $249,000
offset by a decline in net interest income of $27,000 and an increase in income
tax expense of $51,000.
Net interest income for the nine months ended March 31, 1998 declined $27,000 or
2.0% to $1,290,000 as compared to $1,317,000 for the same period ended 1997.
This decline is primarily attributed to a decrease in the volume and rate on
earnings assets coupled with an increase in the rate on interest bearing
liabilities.
There was a decrease in interest income resulting primarily from a decrease in
earnings on mortgage-backed securities of $62,000 or 17.8% and investment
securities of $50,000 or 23.5%. The decrease in interest income was primarily
due to a decrease in the average principal balances of mortgage-backed
securities of $1,183,000 or 17.2% and investment securities of $2,025,000 or
46.4%. The overall decrease in interest income was offset partially by an
increase in interest income on interest-bearing deposits with other banks of
$52,000 and loans of $21,000. These increases were attributed to an increase in
the average principal balances of interest-bearing deposits of $1,335,000 or
132.5% and loans of $229,000 or .7%. Furthermore, the yield on investment
securities decreased 42 basis points from 6.17% for 1997 to 5.75% for 1998 due
to the maturity of higher yielding securities. The total yield on
interest-earning assets decreased slightly from 7.74% for the 1997 compared to
7.71% for 1998.
At the same time, gross interest expense decline by $13,000 from $1,276,000 for
the nine months ended March 31, 1997 compared to $1,263,000 for the same period
ended 1998. Interest expense on deposits remained relatively constant, only
increasing $25,000 or 2.1%. Although there were swings within the deposit mix
during the period, primarily from savings to NOW accounts, the overall average
principal balances only decreased $96,000. This decline in the interest-bearing
base was more than offset by a competitive certificate of deposit rate
environment which produced an increase in the yield of 15 basis points. In
addition, interest on FHLB advances declined by $38,000 due to the repayment of
those advances during the period.
Management's continuing evaluation of the loan portfolio, giving consideration
to historical experience, the volume and type of lending conducted, the volume
of nonperforming assets, the local economic conditions and standard practice
within the industry, indicates the allowance for loan losses is adequate. Total
loans increased by $514,000 during the nine months ended March 31, 1998. As a
result, the provision for loan losses increased by $9,000 to $27,000 for 1998
compared to $18,000 for 1997.
Noninterest income is typically made up of service fees on deposit accounts and
other fee income. These service charges on deposit accounts and other fee income
remained relatively constant during the period. Management believes its fees are
competitive with similar fees charged by other institutions in its market area.
Total noninterest expense decreased $237,000 to $763,000 for the nine months
ended March 31, 1998 as compared to $1,000,000 for the same period ended 1997.
This decline over the prior year emanates from a one-time charge of
approximately $235,000 to recapitalize the SAIF as required by federal law.
Also, the Company incurred an increase in professional fees of $28,000 or 44.7%
for merger related activities. Noninterest expense is primarily made up of
employee compensation and benefits, occupancy and furniture expense, data
processing charges, and other noninterest expenses. Absent this SAIF charge, in
total, noninterest expenses for 1998 remained relatively unchanged compared to
1997. This is the result of management's efforts to minimize increases in
overhead to maintain overall profitability.
There was a increase in income tax expense of $51,000 or 41.9% from $123,000 for
the nine months ended March 31, 1997 to $174,000 for the same period ended 1998.
This fluctuation is the result of an increase in pretax income of $166,000. The
income tax expense in 1997 was lower than normally would be reflected due to the
timing of the recognition of SAIF assessment, as well as other expenses during
the period.
I-10
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- ------------------------------------------------------------
Net income for the three months ended March 31, 1998 increased $23,000 or 26.9%
to $108,000 from $85,000 for the same period ended 1997.
Net interest income for the three months ended March 31, 1998 experienced an
increase of $10,000 or 2.4% compared to the same period ended 1997. As noted
above, changes within the Bank's asset mix have resulted in a 1.6% decrease in
gross interest income. Contributing to the increase in net interest income were
increases in interest income on loans of $28,000 and interest-bearing deposits
with other institutions of $19,000 coupled with a decrease in of $19,000 in
other interest expense. Theses were offset partially by decreases in interest on
investment and mortgage-backed securities of $18,000 and $16,000, respectively,
and an increase in interest on deposits of $28,000. These fluctuations have been
discussed in greater detail above.
Management's continuing evaluation of the loan portfolio, giving consideration
to historical experience, the volume and type of lending conducted, the volume
of nonperforming assets, the local economic conditions and standard practice
within the industry, indicates the allowance for loan losses is adequate. As a
result, the provision for loan losses increased by $3,000 to $9,000 for 1998
compared to $6,000 for 1997.
Noninterest income is typically made up of service fees on deposit accounts.
These service charges on deposit accounts remained relatively constant during
the period. Management believes its fees are competitive with similar fees
charged by other institutions in its market area.
Noninterest expense increased $42,000 or 18.0% from $233,000 for the three
months ended March 31, 1997 to $275,000 for the same period ended 1998. This was
primarily due to a decrease in deposit insurance premiums resulting from the
reduced SAIF rates and the recognition of a SAIF refund of $15,000 coupled with
an increase in professional fees of $29,000 for merger related expenses.
All other noninterest type accounts, as described above, remained relatively
constant.
There was a decrease in income tax expense of $59,000 for 1998 due in part to a
decline in pretax income of $36,000.
I-11
<PAGE>
LIQUIDITY AND CASH FLOWS
------------------------
To ensure that the Bank can satisfy customer credit needs for current and future
commitments and deposit withdrawal requirements, the Bank manages the liquidity
position by ensuring that there are adequate short-term funding sources
available for those needs. Liquid assets consists of cash and due from banks and
investment securities maturing in one year or less. The following table shows
these liquidity sources at March 31, 1998 and June 30, 1997:
March 31, June 30,
1998 1997
------ ------
(dollars in thousands)
Cash and due from banks $ 118 $ 117
Interest-bearing deposits with other institutions 4,319 2,904
Investment securities maturing in one year or less 135 2,825
------ ------
Total liquid assets $4,572 $5,846
====== ======
As a percent of total assets 10.1% 13.0%
The Bank's primary sources of funds are deposits, amortization and prepayment of
loans, maturities of investment securities, and funds provided from operations.
While scheduled loan repayments are a relatively predictable source of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions, and competition. In addition, the Bank invests
excess funds in overnight deposits which provide liquidity to meet lending
requirements.
The Bank has other sources of liquidity if a need for additional funds arises.
Additional sources of funds include Federal Home Loan Bank ("FHLB")of Pittsburgh
advances and the ability to borrow against mortgage-backed and other securities.
As of March 31, 1998, the Bank had $2.4 million in outstanding mortgage and
construction loan commitments. Management believes that it has adequate sources
to meet the actual funding requirements.
I-12
<PAGE>
RISK ELEMENT
------------
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days or more past due, other real
estate loans, and repossessed assets. A loan is classified as nonaccrual when,
in the opinion of management, there are serious doubts about collectibility of
interest and principal. At the time the accrual of interest is discontinued,
future income is recognized only when cash is received. Renegotiated loans are
those loans which terms have been renegotiated to provide a reduction or
deferral of principal or interest as a result of the deterioration of the
borrower.
March 31, June 30,
1998 1997
------- -------
(dollars in thousands)
Loans on nonaccrual basis $ 712 $ 846
Loans past due 90 days or more 5 --
Renegotiated loans -- --
------- -------
Total nonperforming loans 717 846
------- -------
Other real estate 29 29
Repossessed assets -- --
------- -------
Total nonperforming assets $ 746 $ 875
======= =======
Nonperforming loans as a percent of total loans 2.3% 2.6%
======= =======
Nonperforming assets as a percent of total assets 1.7% 2.0%
======= =======
During the nine month period ended March 31, 1998, loans increased $514,000 and
nonperforming loans decreased $110,000 while the allowance for loan losses
increased $9,000 for the same period. The percentage of the allowance for loan
losses to loans outstanding increased .1% to .8% during this time period. There
was a decrease in loans on a nonaccrual basis which consists primarily of one to
four family residential mortgages. The collateral requirements on such loans
reduce the risk of potential losses to an acceptable level in management's
opinion.
Management believes the level of the allowance for loan losses at March 31, 1998
is sufficient; however, there can be no assurance that the current allowance for
loan losses will be adequate to absorb all future loan losses. The relationship
between the allowance for loan losses and outstanding loans is a function of the
credit quality and known risk attributed to the loan portfolio. The on-going
loan review program and credit approval process is used to determine the
adequacy of the allowance for loan losses.
Other real estate owned remained constant over the nine month period. In
management's opinion, collateral exists with sufficient value to generate the
proceeds necessary to reduce the risk of potential loss on these properties to
an acceptable level.
I-13
<PAGE>
YEAR 2000
- ---------
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered ( common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest, or delinquency based on the wrong date
or are expected to unable the compute payment, interest, or delinquency. Rapid
and accurate data processing is essential to our operations. Data processing is
also essential to most other financial institutions and many other companies. As
a result of the merger with Emclaire Financial Corp. (Emclaire"), the Company
will convert its information processing system to that of Emclaire, which is
Year 2000 compliant.
All of our material data processing that is currently affected by this problem
is provided by a third party service bureau. However, as a result of the pending
merger, all of our data processing functions will be assumed by Emclaire's data
processing department.
I-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) Exhibits
The exhibits listed below are filed herewith or incorporated
herein by reference.
27 Financial Data Schedule (electronic filing only)
99 Press Release Concerning Letter of Intent dated March 20,
1998
(b) Reports on Form 8-K
5 Other Matters - Letter of Intent to be acquired by Emclaire
Financial Corp.
7 Financial Statements Pro Forma
Financial Information and Exhibits
I-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Peoples Savings Financial Corporation
Date: May 12, 1997 By: /s/Glenn R. Pentz, Jr.
--------------------------------------------
Glenn R. Pentz, Jr.
Chief Financial Officer, Treasurer and Secretary
(Principal Executive and Financial Officer)
I-16
<PAGE>
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
(i) Limitation of Liability of Directors and Officers. Section 1713 of
the Pennsylvania Business Corporation Act permits a corporation, unless
otherwise restricted by its bylaws to provide in its bylaws that a director or
officer shall not be personally liable to the corporation or its shareholders
for breach of any duty owed to the corporation or its shareholders, except that
such provision shall not relieve a director or officer from liability for any
breach of duty based upon an act or omission (a) the director has breached or
failed to perform the duties of his office under Pennsylvania law; and (b) the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness. Such shall not apply to (i) the responsibility or liability of a
director pursuant to a criminal statute or (ii) the liability of a director for
the payment of taxes pursuant to Federal, State or local law. Emclaire's Bylaws
provide that directors shall not be personally liable for monetary damage for
any actin take or any failure to take any action unless (i) the director has
breached or failed to perform the duties of his office under Article 12 of the
Bylaws; and (ii) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
(ii) Indemnification of Directors, Officers, Employees and Agents.
Emclaire's Bylaws provide, in accordance with the PBCL, that Emclaire shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, including
actions by or in the right of Emclaire, whether civil, criminal, administrative,
arbitrative or investigative, by reason of the fact that such person is or was a
director, officer, employee or agent of Emclaire or of any constituent
corporation absorbed by Emclaire in a consolidation or merger, or is or was
serving at the request of Emclaire as a director, officer, employee or agent of
another company, partnership, joint venture, sole proprietorship, trust or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding to the full extent permissible
under PBCL.
(iii) Insurance. Emclaire's directors and officers are insured against
losses arising from any claim against them such as wrongful acts or omissions,
subject to certain limitations.
Item 21. Exhibits
2.1 Agreement and Plan of Reorganization dated as of April 7, 1998, by and
between Emclaire Financial Corp., The Farmers National Bank of Emlenton,
Peoples Savings Financial Corporation and Peoples Savings Bank (attached as
Appendix ^ A to the Prospectus/Joint Proxy Statement filed as a part of
this Registration Statement).^
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. as to the legality of the
securities being registered and the Merger.^
8.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. concerning certain federal
tax consequences.^
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its Opinions
5.1 and 8.1).
23.1 Consent of S.R. Snodgrass, A.C.
23.2 Consent of Hopper Soliday & Co., Inc.^
23.3 Consent of Capital Resources Group, Inc.
^24.0 Power of Attorney (previously included in the Registrant's Form S-4
(File No. 333-52635) filed with the Commission on May 14, 1998).
99.1 Opinion of Hopper Soliday & Co., Inc. (attached as Appendix ^ D to the
Prospectus/Joint Proxy Statement filed as part of this Registration
Statement).
99.2 Opinion of Capital Resources Group, Inc. (attached as Appendix ^ E to the
Prospectus/Joint Proxy Statement filed as a part of this Registration
Statement).
99.3 Form of Proxy of Emclaire Financial Corp.
99.4 Form of Proxy of Peoples Savings Financial Corporation.
^
<PAGE>
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii)To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall
be deemed to be initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a
transaction, and the Company being acquired involved therein, that was
not the subject of and included in the registration statement when it
became effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission
<PAGE>
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed by the
undersigned, thereunto duly authorized in the City of Emlenton, Commonwealth of
Pennsylvania, on ^ July 27, 1998.
EMCLAIRE FINANCIAL ^ CORP.
By: /s/ David L. Cox*
--------------------------------
David L. Cox
President
(Duly Authorized Representative)
^
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on May 14, 1998.
/s/ David L. Cox* /s/ John J. Boczar
- ----------------------------- ----------------------------------------------
David L. Cox John J. Boczar
President Treasurer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
/s/ Brian C. McCarrier* /s/ Ronald L. Ashbaugh*
- ----------------------------- ----------------------------------------------
Brian C. McCarrier Ronald L. Ashbaugh
Director Vice President and Director
/s/ Bernadette H. Crooks* /s/ George W. ^ Freeman*
- ----------------------------- ----------------------------------------------
Bernadette H. Crooks George W. Freeman
Director Director
/s/ Rodney C. Heeter* /s/ Robert L. Hunter*
- ----------------------------- ----------------------------------------------
Rodney C. Heeter Robert L. Hunter
Director Director
^
/s/ J. Michael King* /s/ John B. Mason*
- ----------------------------- ----------------------------------------------
J. Michael King John B. Mason
Director Director
/s/ Elizabeth C. Smith*
- -----------------------------
Elizabeth C. Smith
Director
^* Signed pursuant to power of attorney. See Exhibit 24.
EXHIBIT 5.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITER'S DIRECT DIAL NUMBER
July 24, 1998
Board of Directors
Emclaire Financial Corp.
612 Main Street
Emlenton, Pennsylvania 16373
Ladies and Gentlemen:
Reference is made to the registration statement on Form S-4 (the
"Registration Statement") being filed by Emclaire Financial Corp., a
Pennsylvania corporation (the "Company") with the Securities and Exchange
Commission for the purpose of registering under the Securities Act of 1933, as
amended (the "Securities Act"), 338,000 shares of the Company's common stock,
$1.25 par value per share, to be issued or reserved for issuance in connection
with the merger (the "Merger") by and between the Company, The Farmers National
Bank of Emlenton, Peoples Savings Financial Corporation and Peoples Savings
Bank, as described in the Registration Statement.
In this regard, we have examined the Articles of Incorporation and Bylaws
of the Company, resolutions of the Board of Directors, the Agreement and Plan of
Reorganization and such other documents and matters of law as we deemed relevant
for the purpose of rendering this opinion. Based solely upon the foregoing and
relying upon the Company as to the accuracy of the facts and documents (without
independent verification), we are of the opinion that the Common Stock, when
issued in accordance with the terms of the Registration Statement, will be
legally issued, fully paid and non-assessable.
We consent to the filing of this opinion only as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus/Joint Proxy Statement forming a part of the
Registration Statement. This opinion may not be used for any other purposes
without our written permission. In giving this consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch, P.C.
---------------------------------------
Malizia, Spidi, Sloane & Fisch, P.C.
EXHIBIT 8.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITER'S DIRECT DIAL NUMBER
July 24, 1998
Board of Directors
Emclaire Financial Corp.
612 Main Street
Emlenton, Pennsylvania 16373
Dear Board Members:
In accordance with your request, set forth herein below is the opinion
of this firm regarding certain federal income tax consequences of the proposed
merger ("Merger") between Emclaire Financial Corp. ("Emclaire") and Peoples
Savings Financial Corporation ("PSFC"), with Emclaire as the surviving
corporation, pursuant to the Agreement and Plan of Reorganization by and between
Emclaire and The Farmers National Bank of Emlenton ("Farmers National"), and
PSFC and Peoples Home Savings Bank ("Peoples Bank") (the "Merger Agreement")
dated April 7, 1998. The Merger and its component and related transactions are
described in the Merger Agreement and Registration Statement on Form S-4 ("Form
S-4"), as filed with the Securities and Exchange Commission on May 14, 1998, and
thereafter subsequently amended. We are rendering this opinion pursuant to
Section 7.3(e) of the Merger Agreement. All capitalized terms used but not
defined in this letter have the meanings assigned to them in the Merger
Agreement.
The Merger Agreement provides that, subject to the election and
allocation procedures provided for therein, each issued and outstanding share of
PSFC Common Stock will be converted into the right to receive, at the election
of each holder thereof, a) cash equal to $26.00, b) a number of shares of
Emclaire Common Stock equal to $26.00 divided by the "Final Market Price," or c)
a combination thereof. Final Market Price will be the average closing price per
share of the last real time trades of the Emclaire Common Stock as reported on
the OTS Bulletin Board for each of the 30 OTS Bulletin Board general market
trading days preceding one week prior to the closing date on which the OTS
Bulletin Board was open for business provided, however, if there are less than
10 business days during such period when Emclaire Common Stock trades and on
which there is a closing price, then the pricing period shall be extended
pursuant to the Merger Agreement.
Fractional shares of Emclaire Common Stock will not be issued in the
Merger. PSFC shareholders otherwise entitled to a fractional share will be paid
the value of such fraction in cash as determined pursuant to the Merger
Agreement. Further, in accordance with the terms
<PAGE>
Board of Directors
Emclaire Financial Corp.
July 24, 1998
Page 2
of the Merger Agreement, not less than 55.0% of the outstanding shares of PSFC
Common Stock will be exchanged for Emclaire Common Stock.
The following representations have been made by Emclaire with respect
to the Merger:
1. To the best of Emclaire's and Farmers National's management's
knowledge and belief, the transaction will qualify as a statutory merger under
applicable State and/or federal laws.
2. The fair market value of the Emclaire Common Stock and other
consideration received by each PSFC Shareholder will be approximately equal to
the fair market value of the PSFC Common Stock surrendered in the exchange.
3. There is no plan or intention by the PSFC Shareholders who own five
percent (5%) or more of the PSFC Stock, and to the best of the knowledge of the
management of Emclaire or Farmers National, there is no plan or intention on the
part of the remaining PSFC Shareholders to sell, exchange, or otherwise dispose
of a number of shares of Emclaire Common Stock received in the transaction that
would reduce the PSFC Shareholders' ownership of Emclaire Common Stock to a
number of shares having a value, as of the date of the transaction, of less than
50 percent (50%) of the value of all of the formerly outstanding stock of PSFC
as of the same date. For purposes of this representation, shares of PSFC Common
Stock exchanged for cash or other property or exchanged for cash in lieu of
fractional shares of Emclaire Common Stock will be treated as outstanding PSFC
Common Stock on the date of the transaction. Moreover, shares of PSFC Common
Stock and shares of Emclaire Common Stock held by PSFC Shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the transaction
will be considered in making this representation.
4. Emclaire has no plan or intention to reacquire any of its stock
issued in the transaction.
5. Emclaire has no plan or intention to sell or otherwise dispose of
any of the assets of PSFC acquired in the transaction, except for dispositions
made in the ordinary course of business or transfers described in ss.
368(a)(2)(C) of the Internal Revenue Code of 1986, as amended ("Code").
6. The liabilities of PSFC assumed by Emclaire and the liabilities to
which the transferred assets of PSFC are subject were incurred by PSFC in the
ordinary course of its business.
7. Following the transaction, Emclaire will continue the historic
business of PSFC or use a significant portion of PSFC's historic business assets
in a business.
<PAGE>
Board of Directors
Emclaire Financial Corp.
July 24, 1998
Page 3
8. Emclaire, PSFC, and PSFC Shareholders will pay their respective
expenses, if any, incurred in connection with the transaction.
9. There is no intercorporate indebtedness existing between PSFC and
Emclaire that was issued, acquired, or will be settled at a discount.
10. No two parties to the transaction are investment companies as
defined in ss. 368(a)(2)(F)(iii) and (iv) of the Code.
11. PSFC is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of ss. 368(a)(3)(A) of the Code.
12. The fair market value of the assets of PSFC transferred to Emclaire
will equal or exceed the sum of the liabilities assumed by Emclaire plus the
amount of liabilities, if any, to which the transferred assets are subject.
The following representations have been made by PSFC with respect to
the Merger:
1. To the best of PSFC's and Peoples Bank's management's knowledge and
belief, the transaction will qualify as a statutory merger under applicable
State and or federal laws.
2. There is no plan or intention by the PSFC Shareholders who own five
percent (5%) or more of the PSFC Stock, and to the best of the knowledge of the
management of PSFC and Peoples Bank, there is no plan or intention on the part
of the remaining PSFC Shareholders to sell, exchange, or otherwise dispose of a
number of shares of Emclaire Common Stock received in the transaction that would
reduce the PSFC Shareholders' ownership of Emclaire Common Stock to a number of
shares having a value, as of the date of the transaction, of less than 50
percent (50%) of the value of all of the formerly outstanding stock of PSFC as
of the same date. For purposes of this representation, shares of PSFC Common
Stock exchanged for cash or other property or exchanged for cash in lieu of
fractional shares of Emclaire Common Stock will be treated as outstanding PSFC
Common Stock on the date of the transaction. Moreover, shares of PSFC Common
Stock and shares of Emclaire Common Stock held by PSFC Shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the transaction
will be considered in making this representation.
3. The liabilities of PSFC assumed by Emclaire and the liabilities to
which the transferred assets of PSFC are subject were incurred by PSFC in the
ordinary course of its business.
4. Emclaire, PSFC, and PSFC Shareholders will pay their respective
expenses, if any, incurred in connection with the transaction.
<PAGE>
Board of Directors
Emclaire Financial Corp.
July 24, 1998
Page 4
5. There is no intercorporate indebtedness existing between PSFC and
Emclaire that was issued, acquired, or will be settled at a discount.
6. No two parties to the transaction are investment companies as
defined in ss. 368(a)(2)(F)(iii) and (iv) of the Code.
7. PSFC is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of ss. 368(a)(3)(A) of the Code.
8. The fair market value of the assets of PSFC transferred to Emclaire
will equal or exceed the sum of the liabilities assumed by Emclaire plus the
amount of liabilities, if any, to which the transferred assets are subject.
In connection with the opinions expressed below, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Merger Agreement, Form S-4, and of such corporate records
of the parties to the Merger as we have deemed appropriate. We have also relied,
without independent verification, upon the representations of Emclaire and PSFC.
We have assumed that such representations are true and that the parties to the
Merger will act in accordance with the Merger Agreement. In addition, we have
made such investigations of law as we have deemed appropriate to form a basis
for the opinions expressed below.
Based on and subject to the foregoing, it is our opinion that for
federal income tax purposes, under current law:
1. The Merger will constitute a reorganization within the meaning of
ss. 368(a)(1)(A) of the Code.
2. No gain or loss will be recognized by PSFC shareholders who receive
solely shares of Emclaire Common Stock in exchange for their shares of PSFC
Common Stock.
This opinion is given solely for the benefit of the parties to the
Merger and may not be relied upon by any other party or entity or referred to in
any document without our express written consent. We consent to the filing of
this opinion as an exhibit to the Form S-4 filed with the Securities and
Exchange Commission and to the references to this firm in the Form S-4.
Very truly yours,
/s/MALIZIA, SPIDI, SLOANE & FISCH, P.C.
---------------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 23.1
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement of
Emclaire Financial Corp. on Form S-4 of our report dated February 6, 1998,
included and incorporated by reference in the Annual Report on Form 10-KSB of
Emclaire Financial Corp. for the year ended December 31, 1997.
Further, we consent to the incorporation by reference in this Registration
Statement of our report dated July 25, 1997, included and incorporated by
reference in the Annual Report on Form 10- KSB of Peoples Savings Financial
Corporation for the fiscal year ended June 30, 1997.
We also consent to the reference to us under the headings "Experts" in the
Prospectus/Joint Proxy Statement which is part of the Registration Statement.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
July 20 , 1998
EXHIBIT 23.2
<PAGE>
ESTABLISHED 1872
HOPPER SOLIDAY & CO., INC.
INVESTMENT BANKERS
<TABLE>
<CAPTION>
<S> <C> <C>
MEMBER
PHILADELPHIA STOCK EXCHANGE 1703 OREGON PIKE LANCASTER, PA 17601-4201 OFFICES LOCATED IN:
NATIONAL ASSOCIATION OF SECURITIES DEALERS P.O. BOX 4548, LANCASTER, PA 17604-4548 PENNSYLVANIA
SECURITIES INVESTOR PROTECTION CORPORATION TELEPHONE (717)560-3006 FAX(717)560-3063 NEW YORK
NEW JERSEY
</TABLE>
July 23, 1998
Boards of Directors
Emclaire Financial Corporation
612 Main Street, P.O. Box Drawer D
Emlenton, PA 16373-0046
Dear Sirs:
We hereby consent to the use in the Registration on Form S-4 of the
draft of our opinion relating to the fairness to the shareholders of Emclaire
Financial Corporation, from a financial point of view, of the terms of the
merger between Emclaire Financial Corporation, The Farmers National Bank of
Emlenton and People Savings Financial Corporation, Peoples Savings Bank and the
references to Hopper Soliday & Co., Inc. in the Joint Proxy Statement/Prospectus
constituting part of this registration statement. In giving such consent, we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
HOPPER SOLIDAY & CO., INC.
By: /s/ Robert E. Kafafian
Robert E. Kafafian
Executive Vice President
Lancaster, PA
Date: July 23, 1998
EXHIBIT 23.3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. o Suite 200 o Washington, D.C. 20036 o Tel(202) 466-5685 o Fax(202) 466-5695
</TABLE>
Consent of Capital Resources Group, Inc.
We hereby consent to the use of the form of our opinion letter to the Board of
Directors of Peoples Savings Financial Corporation, to the Prospectus/Joint
Proxy Statement relating to the proposed merger of Emclaire Financial Corp., The
Farmers National Bank of Emlenton and Peoples Savings Financial Corporation,
Peoples Savings Bank and to the references to our Firm and such opinion in such
Prospectus/Joint Proxy Statement. In giving such consent, we do not admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/Capital Resources Group, Inc.
--------------------------------
Capital Resources Group, Inc.
July 24, 1998
EXHIBIT 99.3
<PAGE>
PEOPLES SAVINGS FINANCIAL CORPORATION
173 MAIN STREET
RIDGWAY, PENNSYLVANIA
SPECIAL MEETING OF STOCKHOLDERS
July 30, 1998
The undersigned hereby appoints the Board of Directors of Peoples
Savings Financial Corporation ("PSFC"), or its designee, with full powers of
substitution, to act as attorneys and proxies for the undersigned, to vote all
shares of capital stock of PSFC which the undersigned is entitled to vote at the
Special Meeting of Stockholders ("Meeting"), to be held at 173 Main Street,
Ridgway, Pennsylvania 15801, on August 27, 1998 at 10:00 a.m. local time, and at
any and all adjournments thereof, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1. To consider and vote upon a proposal to approve an
Agreement and Plan of Reorganization, dated April 7,
1998 (the "Reorganization Agreement") by and
between PSFC, Peoples Savings Bank ("Peoples
Bank"), and Emclaire Financial Corp. ("Emclaire"), a
Pennsylvania corporation and the holding company for
The Farmers National Bank of Emlenton, a national
association ("Farmers National") and Farmers
National. Pursuant to the Reorganization Agreement,
PSFC will be merged with and into Emclaire, and as
soon as practicable thereafter, Peoples Bank will be
merged with and into Farmers National (together, the
"Merger"). According to the terms of the
Reorganization Agreement, shareholders of PSFC may
elect, subject to certain election and allocation
procedures, to exchange their shares of PSFC common
stock for $26.00, payable in the aggregate form of
45% cash and 55% Emclaire common stock. |_| |_| |_|
2. To consider and vote upon a proposal to approve an
amendment to PSFC's Articles of Incorporation in
connection with the Reorganization Agreement (the
"Articles Amendment"). The Articles Amendment
would repeal the five year prohibition against
acquisition of more than 10% of PSFC's Common
Stock contained in Article 12 of the PSFC Articles.
The Merger will not be consummated without approval
of the Articles Amendment. |_| |_| |_|
3. To consider and vote upon a proposal to adjourn the
Meeting to permit further solicitation in the event
that an insufficient number of shares is present in
person or by proxy to approve the Merger and the
Reorganization Agreement or the Articles of Amendment. |_| |_| |_|
The Board of Directors recommends a vote "FOR" the above listed proposition.
- --------------------------------------------------------------------------------
THIS SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY
OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS SIGNED PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting, or
at any adjournments thereof, and after notification to the Secretary of PSFC at
the Meeting of the stockholder's decision to terminate this proxy, the power of
said attorneys and proxies shall be deemed terminated and of no further force
and effect. The undersigned may also revoke this proxy by filing a subsequently
dated proxy or by notifying the Secretary of PSFC of his or her decision to
terminate this proxy.
The undersigned acknowledges receipt from PSFC prior to the execution
of this proxy of Notice of the Meeting, a Proxy Statement/Prospectus dated
July 30, 1998, and an Election Form/Letter of Transmittal.
Please check here if you
Dated: , 1998 plan to attend the Meeting |_|
-------------------
- -------------------------------- ----------------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- -------------------------------- ----------------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this Proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
- --------------------------------------------------------------------------------
EXHIBIT 99.4
<PAGE>
EMCLAIRE FINANCIAL CORP.
612 MAIN STREET
EMLENTON, PENNSYLVANIA
SPECIAL MEETING OF STOCKHOLDERS
July 30, 1998
The undersigned hereby appoints the Board of Directors of Emclaire
Financial Corp. ("Emclaire"), or its designee, with full powers of substitution,
to act as attorneys and proxies for the undersigned, to vote all shares of
capital stock of PSFC which the undersigned is entitled to vote at the Special
Meeting of Stockholders ("Meeting"), to be held at 612 Main Street, Emlenton,
Pennsylvania 16373, on August 27, 1998 at 4:00 p.m. local time, and at any and
all adjournments thereof, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1. To consider and vote upon a proposal to approve an
Agreement and Plan of Reorganization, dated April 7,
1998 (the "Reorganization Agreement") by and
between Emclaire and The Farmers National Bank of
Emlenton ("Farmers National"), and Peoples Savings
Financial Corporation ("PSFC"), a Pennsylvania
corporation and the holding company for Peoples
Savings Bank, a Pennsylvania chartered savings bank
("Peoples Bank") and Peoples. Pursuant to the
Reorganization Agreement, PSFC will be merged with
and into Emclaire, and as soon as practicable
thereafter, Peoples Bank will be merged with and into
Farmers National (together, the "Merger"). According
to the terms of the Reorganization Agreement,
shareholders of PSFC may elect, subject to certain
election and allocation procedures, to exchange their
shares of PSFC common stock for $26.00, payable in |_| |_| |_|
the aggregate form of 45% cash and 55% Emclaire
common stock.
The Board of Directors recommends a vote "FOR" the above listed proposition.
- --------------------------------------------------------------------------------
THIS SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY
OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS SIGNED PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting, or
at any adjournments thereof, and after notification to the Secretary of PSFC at
the Meeting of the stockholder's decision to terminate this proxy, the power of
said attorneys and proxies shall be deemed terminated and of no further force
and effect. The undersigned may also revoke this proxy by filing a subsequently
dated proxy or by notifying the Secretary of PSFC of his or her decision to
terminate this proxy.
The undersigned acknowledges receipt from PSFC prior to the execution
of this proxy of Notice of the Meeting, a Proxy Statement/Prospectus dated
July 30, 1998, and an Election Form/Letter of Transmittal.
Please check here if you
Dated: , 1998 plan to attend the Meeting |_|
-----------------
- -------------------------------- ----------------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- -------------------------------- ----------------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this Proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
- --------------------------------------------------------------------------------
