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 June 30, 1999
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
(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 August 12, 1999, there were 1,395,852 shares outstanding of the issuer's
common stock, par value $1.25 per share.
1
<PAGE>
Emclaire Financial Corp.
INDEX TO QUARTERLY REPORT OF FORM 10-QSB
<TABLE>
<CAPTION>
Page
----
<S> <C>
- ---
Part I Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet, June 30, 1999 and
December 31, 1998 3
Consolidated Statement of Income
Three months ended June 30, 1999 and 1998 and
Six months ended June 30, 1999 and 1998 4
Consolidated Statement of Changes in
Stockholders' Equity 5
Consolidated Statement of Cash Flows
Three months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 15
Part II Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Securities Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited - dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,562 $ 8,989
Time deposits with others - 100
Federal funds sold 9,550 9,700
Investment securities:
Available for sale 31,578 28,929
Held to maturity (estimated market value
of $3,329 and $3,419) 3,324 3,392
Loans 132,622 134,249
Less allowance for loan losses 1,361 1,336
----------------- -----------------
Net loans 131,261 132,913
Premises and equipment 3,490 3,625
Accrued interest and other assets 5,960 6,484
----------------- -----------------
TOTAL ASSETS $ 192,725 $ 194,132
================= =================
LIABILITIES
Deposits
Non-interest bearing demand $ 25,519 $ 24,746
Interest bearing demand 21,259 22,026
Savings 22,929 22,527
Money market 21,354 21,381
Time 77,822 79,190
----------------- -----------------
Total deposits 168,883 169,870
Obligation under capital lease - 19
Borrowed funds 2,000 2,000
Accrued interest and other liabilities 772 1,142
----------------- -----------------
TOTAL LIABILITIES 171,655 173,031
----------------- -----------------
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, 1,395,852 shares issued and outstanding 1,745 1,745
Additional paid in capital 10,871 10,871
Retained earnings 8,624 8,192
Net unrealized gain on securities (170) 293
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 21,070 21,101
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 192,725 $ 194,132
================= =================
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited - dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 2,718 $ 1,972 $ 5,420 $ 3,898
Interest bearing deposits in other banks 69 1 94
Federal funds sold 129 53 248 65
Investment securities:
Taxable 420 484 849 997
Exempt from federal income tax 55 44 101 96
---------------- ---------------- ---------------- ----------------
Total interest income 3,391 2,554 6,712 5,057
---------------- ---------------- ---------------- ----------------
INTEREST EXPENSE
Deposits 1,388 974 2,817 1,932
Borrowed funds 28 31 56 60
Lease obligation - 1 - 2
---------------- ---------------- ---------------- ----------------
Total interest expense 1,416 1,006 2,873 1,994
---------------- ---------------- ---------------- ----------------
NET INTEREST INCOME 1,975 1,548 3,839 3,063
Provision for loan losses 36 55 80 100
---------------- ---------------- ---------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,939 1,493 3,759 2,963
---------------- ---------------- ---------------- ----------------
OTHER OPERATING INCOME
Service fees on deposit accounts 150 134 288 256
Other 59 46 105 83
---------------- ---------------- ---------------- ----------------
Total other operating income 209 180 393 339
---------------- ---------------- ---------------- ----------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 744 618 1,433 1,202
Occupancy, furniture and equipment 224 201 483 384
Other 545 418 1,032 792
---------------- ---------------- ---------------- ----------------
Total other operating expense 1,513 1,237 2,948 2,378
---------------- ---------------- ---------------- ----------------
Income before income taxes 635 436 1,204 924
Income taxes 200 134 381 283
---------------- ---------------- ---------------- ----------------
NET INCOME $ 435 $ 302 $ 823 $ 641
================ ================ ================ ================
EARNINGS PER SHARE $ 0.31 $ 0.28 $ 0.59 $ 0.59
DIVIDENDS PER SHARE 0.14 0.12 0.28 0.24
AVERAGE SHARES OUTSTANDING 1,395,852 1,081,453 1,395,852 1,081,453
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited - dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid in Retained Gain (Loss) on
Stock Capital Earnings Securities Total
--------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1998 $ 1,745 $ 10,871 $ 8,192 $ 293 $ 21,101
Comprehensive income:
Net income 823 823
Other comprehensive income, net
unrealized losses on securities
of $701 (463) (463)
----------------
Total comprehensive income 360
Dividends declared
($.28 per share) (391) (391)
--------------- -------------- --------------- -------------- ----------------
Balance June 30, 1999 $ 1,745 $ 10,871 $ 8,624 $ (170) $ 21,070
=============== ============== =============== ============== ================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 823 $ 641
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 489 303
Net amortization of investment security
discounts and premiums 69 71
Provision for loan losses 80 100
(Increase) decrease in accrued interest receivable (673) 32
Increase in accrued interest payable 1 46
Other, net 753 (44)
----------------- -----------------
Net cash provided by operating activities 1,542 1,149
----------------- -----------------
INVESTING ACTIVITIES
Proceeds from maturities and repayments of investment securities:
Available for sale 4,252 2,000
Held to maturity 50 1,720
Purchases of investment securities available for sale (7,654) (295)
Net loan (originations) repayments 1,506 (6,215)
Purchases of premises and equipment (70) (641)
Other 194 -
----------------- -----------------
Net cash used for investing activities (1,722) (3,431)
----------------- -----------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (987) 5,429
Decrease in short-term borrowings - (200)
Payments for obligation under capital lease (19) (22)
Cash dividends paid (391) (260)
----------------- -----------------
Net cash provided by financing activities (1,397) 4,947
----------------- -----------------
Increase in cash and cash equivalents (1,577) 2,665
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,689 4,975
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,112 $ 7,640
================= =================
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
EMCLAIRE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The accounting and financial reporting 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. EARNINGS PER SHARE
The Company maintains a simple capital structure; therefore there are no
dilutive effects on earnings per share. As such earnings per share computations
are based on the weighted average number of shares outstanding of 1,395,852 and
1,081,453 for 1999 and 1998, respectively.
3. COMPREHENSIVE INCOME
The components of accumulated other comprehensive income for the six months
ended June 30, 1999, 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 six months ended June 30, 1998 the net
unrealized gain on securities had a beginning balance of $222,000, a net
unrealized gain of $2,000, and an ending balance of $224,000. This net
unrealized loss on securities resulted from total comprehensive net income of
$4,000, for the six months ended June 30, 1998.
4. LOANS
Major classifications of loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Commercial and industrial $ 14,923 $ 14,223
Real estate mortgages
Residential 84,471 87,137
Commercial and other 18,874 18,381
Consumer 14,354 14,508
----------------- -----------------
132,622 134,249
Less allowance for loan losses 1,361 1,336
----------------- -----------------
$ 131,261 $ 132,913
================= =================
</TABLE>
7
<PAGE>
The Bank's primary business activity is with customers located within Venango,
Clarion, Butler, Elk, Clearfield and Jefferson Counties. Commercial,
residential, personal, and agricultural loans are granted. Although the Bank has
a diversified loan portfolio at June 30, 1999 and December 31, 1998, loans
outstanding to individuals and businesses are dependent upon the local economic
conditions within the immediate trade area.
8
<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 quarterly report.
Certain information presented in this report 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.
Comparison of the Three Months Ended June 30, 1999 and 1998
- -----------------------------------------------------------
Net Income - Net income for the three months ended June 30, 1999 totaled
$435,000 or $.31 per share, as compared to $302,000 or $.28 per share recorded
during the same period in 1998. The 1999 quarterly earnings represent a 44%
increase from those reported in 1998, due to the rise in net interest income
related to the increase in the volume of net earning assets due principally to
the acquisition of Peoples Savings Bank ("Peoples Savings") in August 1998. The
increase in net interest income offset the rise in overhead associated with the
additional branch operations.
The net income reported resulted in annualized returns on average assets and
average equity of .90% and 8.20% for the quarter ended June 30, 1999, as
compared to returns of .87% and 8.72% for the same period in 1998.
Interest Income - Interest income for the three months ended June 30, 1999
increased approximately $837,000 or 33% from the same period in 1998, due to the
increase in average earning assets, specifically the loan portfolio. The average
balance of the loan portfolio for the quarter ended increased $42.0 million from
the same period in 1998 to $132.5 million. The acquisition of Peoples
represented approximately $35.5 million of the total average loan growth. The
remainder of the increase is attributed largely, to the increase in the
origination of residential mortgage loans experienced during 1998. The tax
equivalent yield on the loan portfolio for the quarter decreased 53 basis points
to 8.31% from the same period in 1998, due to the impact of generally lower
interest rates. The prime interest rate was reduced three times, totaling 75
basis points during 1998, with the first reduction occurring in September 1998.
The lower interest rate environment affected existing variable rate loans, and
reduced the rates of return on new loan originations and refinancings. Effective
July 1, 1999, the prime interest rate increased 25 basis points, which should
result in a slightly higher return on variable rate commercial loans based on
the prime interest rate.
Average investment securities for the second quarter of 1999 were $31.7 million
resulting in a tax-equivalent yield of 6.37% for the quarter, compared to $34.6
million and 6.39% during the same period in 1998. As a result of the slowing of
loan growth over the past several months, management began to place excess
liquidity back into the investment portfolio, purchasing $7.7 million of
securities during the second quarter. These purchases were principally U. S.
government agency and bank qualified tax-free municipal securities.
9
<PAGE>
As noted during the first quarter of 1999, despite the growth in the volume of
average earning assets, which increased $51.2 million for the second quarter of
1999 as compared to 1998, the tax equivalent yield on earning assets continues
to fall. During the second quarter of 1999, the tax equivalent yield slipped to
7.67% as compared to 8.08% during the same period in 1998, due to the general
decline in interest rates, previously discussed.
Interest expense - Interest expense increased $410,000 or 41% during the second
quarter of 1999, as compared to the same period in 1998. The average volume of
interest bearing liabilities during the quarter increased $43.8 million or 43%
during the comparative periods. Approximately $35.0 million of this increase is
attributable to the acquisition of Peoples Savings. During the comparative
quarters the overall rate paid on these liabilities fell to 3.89% from 3.95%.
This lower cost of funds is due principally to the generally lower interest rate
environment.
Despite the generally low interest rate environment, the ongoing competition for
deposit customers by traditional and non-traditional financial services
providers, continues to affect the overall cost of funds. Furthermore, any
increase in market rates of interest can raise the cost of such funds.
Net Interest Income - As a result of the increase in interest income due to the
increased volume of earning assets which more than offset the increase in
interest expense, net interest income rose $427,000 or 28% for the second
quarter of 1999, as compared to the same period in 1998. The net tax equivalent
yield on earning assets for the quarter was 4.52%, a 43 basis point decline from
the 4.95% yield earned during the same period in 1998.
Provision for Loan Losses - Based upon management's ongoing assessment of the
quality of the loan portfolio, and considering the slowing of loan demand during
the quarter, the provision for loan losses for the first quarter of 1999 totaled
$36,000, as compared to $55,000 provided during the same period in 1998.
Other operating income - Other operating income increased $29,000 or 16% for the
second quarter of 1999, due principally to the impact of fees on deposit
accounts, particularly overdraft fees, related to the increase in the number of
deposit accounts. In addition, ATM convenience fees and fees generated from the
MasterMoney(TM) debit card increased due to increased customer usage.
Combined, these fees accounted for $27,000 of the total increase in other
operating income.
Other Operating Expense - During the first quarter of 1999, total other
operating expenses increased $276,000 or 22% to $1.5 million from the same
period in 1998. The rise in other operating expenses is due principally to the
additional overhead associated with the branch office operations added through
the Peoples Savings acquisition, the opening of a de novo branch office during
the first quarter of 1998, and the overhead associated with the operation of the
data center which was occupied in August 1998.
Due primarily to the expansion of the branch office network, salary and employee
benefit costs increased $126,000 or 20% to $744,000 for the second quarter of
1999 as compared to $618,000 during the same period in 1998. In addition, no
accrual was made for employee profit sharing during the second quarter of 1999,
while $30,000 was provided for during the same period in 1998. The Company
continues to use temporary employees to provide support in the data center
10
<PAGE>
and in providing certain administrative functions related to human resources and
employee training. The total cost for temporary employees amounted to $39,000
during the three months ended June 30, 1999. Management intends to continue to
use temporary employees to supplement certain staff and administrative
functions. The balance of the increase in employee related costs is related to
periodic salary adjustments and scheduled employee health insurance premium
adjustments. During the third quarter of 1999, the Company expects to fill
several management positions as a result of the ongoing organization assessment.
It is expected these new employees will result in additional salaries and
benefits of approximately $160,000 annually.
Occupancy and equipment costs increased approximately $23,000 or 11% to $224,000
during the second quarter of 1999, as compared to the same period in 1998. The
acquisition of the three Peoples Savings branches and the operation of the data
center account for the increase. These costs are considered to be recurring, and
can be expected to be subject to periodic increases for such items as annual
maintenance contract adjustments, office rent escalation and other costs
normally subject to inflationary or pricing increases.
Other operating expense increased $127,000 or 30% during the three months ended
June 30, 1999, as compared to the same period in 1998 and totaled $545,000. The
increase in the branch network accounted for approximately $85,000 of the
increase, of which approximately $46,000 resulted from amortization of
intangible assets. Recurring costs increased during the comparative quarter due
to items such as: increased ATM and debit card processing fees which increased
$16,000 or 43% to $52,000; Pennsylvania shares tax expense increased
approximately $8,000, due to the increased Bank capital resulting from the
Peoples Savings acquisition; while correspondent bank fees and courier costs
increased approximately $16,000 due to the expanded branch network. The
remaining increase in this cost is related to the costs of the data processing
center and the costs of maintaining the frame relay network established during
the fourth quarter of 1998.
Income Taxes - The provision for income taxes of $200,000 for the three months
ended June 30, 1999, represented a $66,000 or 49% increase from the $134,000
recorded during the same period of 1998. Income taxes as a percentage of pre-tax
earnings were approximately 31.5% for the three months ended June 30, 1999, as
compared to 30.7% during the same period in 1998. The slight increase in the tax
rate is attributable to effect of nondeductible expenses related to the
amortization of intangible assets resulting from the Peoples Savings
acquisition.
Six Months Ended June 30, 1999
- ------------------------------
Net income for the first six months of 1999 totaled $823,000 an increase of
$182,000 or 28% from 1998. On a per share basis, earnings of $.59 for the first
half of 1999, equaled that reported in 1998.
Net interest income increased $776,000 or 25% for the comparative six month
periods due to the increase in the volume of earning assets and interest bearing
liabilities previously discussed. For the six months ended June 30, 1999,
average earning assets increased $51.7 million or 41% and average interest
bearing liabilities rose $44.9 million or 44%. The net tax equivalent yield
totaled 4.41% for the first half of 1999, as compared to 4.93% during the same
period in 1998.
11
<PAGE>
As detailed during the discussion of the quarterly earnings, other income
increased due to the increase in fees related to the increase in the number of
accounts. For the six months ended, other income increased $54,000 or 16% to
$393,000.
Employee expenses reflect the addition of the employees added from the Peoples
Savings acquisition and the impact of temporary employees. Through June 30,
1999, these costs have risen $231,000 or 19% to $1.4 million. These costs are
expected to increase further when the management positions discussed earlier are
filled.
Other operating expenses for the first six months of 1999 totaled $1.0 million,
an increase of $240,000 or 30% from the same period in 1998. Amortization of
intangible assets related to the Peoples Savings acquisition accounted for
$91,000 of the total increase. In addition costs discussed earlier, related to
telephone and data services, and ATM network costs, as well as additional
overhead costs related to servicing the Peoples Savings offices accounted for
the increase.
For the first six months of 1999, income taxes totaling $381,000 represented
31.6% of pretax income, as compared to $283,000, or 30.6% or pretax income in
1998.
Financial Condition
- -------------------
At June 30, 1999, the Company reported total consolidated assets of $192.7
million, a decrease of 1.2% from the $194.1 million reported at December 31,
1998. The slowing of loan demand is the primary cause for this decline
Total loans decreased $1.6 million or 1%, to $132.6 million. The decrease is
attributed to the lower interest rate environment during the first half of 1999,
and its impact on loan refinancings. The historically low interest rates have
caused customers to seek out the lowest rate available when obtaining or
refinancing mortgage loans. While the Company continues to offer competitive
interest rates, the interest rate risk associated with long-term fixed rate
mortgage loans has limited the Company's ability to match some of the lowest
rates offered by competing lenders. As a result, residential mortgage loans
declined $2.7 million or 3.1% during the first half of 1999, while consumer
loans fell $154,000 or 1.1% during the same period. Commercial and other
mortgage loans increased $493,000 or 2.7%, while commercial and other loans
increased $700,000 or 4.9% since the beginning of the year. The actions taken by
the Federal Reserve Board and other market factors have resulted in a recent
rise in interest rates. This increase should provide the Company opportunity to
recapture some of its loan market share.
Stockholders' equity of $21.1 million at June 30, 1999, equaled that reported at
December 31, 1998. At June 30, 1999, the Company had Tier 1 risk-based, total
risk-based and leverage capital ratios of 14.56%, 15.71% and 9.02%,
respectively. Each of these ratios exceeds the minimum ratios mandated by law
and banking regulations.
Liquidity
- ---------
Operating activities, particularly net income of $823,000, depreciation and
amortization of $243,000, and the provision for loan losses of $80,000, provided
cash totaling $1,542,000 which was used to fund financing activities and
contributed to the increase in cash and cash equivalents during the first six
months of 1999. During the same period in 1998, operating activities provided
$1.1 million.
12
<PAGE>
As a result of purchases of approxiately $7.7 million of investment securities
available for sale, financing activities used approximately $1.7 million in
funds during the six months ended June 30, 1999, as compared to $1.0 million
used during the same period in 1998. During the first six months of 1999, net
loan repayments of $1.5 million, along with investment security repayments of
$4.3 million, were used to fund the securities purchases. By comparison, during
the first six months of 1998, net loan originations totaled $6.2 million, which
was partially funded by net investment maturities and sales totaling $3.7
million.
Financing activities for the first half of 1999 used approximately $1.6 million,
due principally to a net reduction in deposits of $987,000 and the payment of
regular quarterly dividends. During the same period of 1998, financing
activities provided approximately $4.9 million of funds due to a $5.4 million
net increase in deposits.
Aside from liquidity available from customer deposits or through sales and
maturities of the investment portfolio, the Company has alternative sources of
funds such as a line of credit available with a correspondent bank. At June 30,
1999, a short-term revolving credit facility of $10 million was available
through the Federal Home Loan Bank.
Management is not aware of any conditions, including any regulatory
recommendations or requirements, which would adversely affect its liquidity or
its ability to meet funding needs in the ordinary course of business.
Risk Elements
- -------------
At June 30, 1999, non-performing loans, including those past due ninety days or
more, and loans on nonaccrual status totaled approximately $988,000.
Of the non-performing loan total, $515,000 is considered to be impaired for
financial reporting purposes. These impaired loans consist of four commercial
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, $40,000 of the allowance for loan losses at
June 30, 1999, has been allocated for these loans. During the second quarter of
1999, the borrower provided payments totaling $13,000, which were recorded as
interest income. Management believes the Company is adequately secured by the
underlying collateral.
13
<PAGE>
The following table presents the components of non-performing loans and other
non-performing assets as of the five most recent quarters ended:
<TABLE>
<CAPTION>
1999 1998
---- ----
June 30, March 31, December 31, September 30, June 30,
<S> <C> <C> <C> <C> <C>
Non-performing loans
Loans past due 90 days or more $ 114 $ 238 $ 287 $ 204 $ 55
Non-accrual loans 874 1,032 1,022 941 667
----- ----- ----- ----- ----
Total non-performing loans 988 1,270 1,309 1,145 722
Other non-performing assets
Repossessed assets 3 - - - -
Real estate acquired through
foreclosure 25 56 80 337 -
----- ----- ----- ----- ----
Total other non-performing assets 28 56 80 337 -
----- ----- ----- ----- ----
Total non-performing assets $1,016 $1,326 $1,389 $1,482 $ 722
===== ===== ===== ===== ====
Non-performing loans as a percentage
of total loans .74% .96% .98% .87% .78%
Non-performing assets to assets .53 .68 .72 .79 .52
</TABLE>
Year 2000
- ---------
The following discussion of the implications of the Year 2000 ("Y2K") compliance
issue for the Company contains numerous forward-looking statements based on
inherently uncertain information. The cost of the project and the date on which
the Company plans to complete various aspects of the project are based on
management's best estimates, which were derived utilizing a number of
assumptions of future events including the continued availability of internal
and external resources, third party modifications and other factors.
Management continues to work toward attaining Year 2000 ("Y2K") compliance.
During the first quarter of 1999, testing, and validation of the test results
were completed on the core software applications. In addition, the Company's
independent accountants reviewed the results of the Company's testing program.
The contingency plan developed by the Company was also updated.
During the second quarter of 1999, the Company focused on maintaining Y2K
compliance by testing any equipment or software upgrades, continuing its
customer communication program, and refining and testing its contingency plans.
These procedures will continue throughout the balance of the year. During the
second quarter costs of approximately $4,000 were incurred for the production of
several customer Y2K communications.
Direct costs incurred in achieving and maintaining Y2K compliance have not been
significant. However, the time devoted by employees to this project has been
significant. During the first week of August 1999, the installation and testing
of a back-up generator at the data processing center was successfully completed.
The total capitalized cost for this equipment was $32,000.
14
<PAGE>
Despite the best efforts of management in addressing 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
or maintain compliance by one or more of these entities would not have a
material adverse impact on the operations of the Company.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(None)
Item 2. Changes in Securities
(None)
Item 3. Defaults Upon Senior Securities
(None)
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders was held May 10, 1999. Of 1,395,852
shares eligible to vote, 1,127,216 or 80.8% were voted in person or by
proxy.
(b) The following Class B directors were elected to a three year term expiring
in 2002:
Name Shares For Shares Withheld Abstained
---- ---------- --------------- ---------
Bernadette H. Crooks 1,077,739 22,544 26,933
Robert L. Hunter 1,094,055 6,228 26,933
John B. Mason 1,006,540 93,743 26,933
In addition, to the above listed individuals, the following persons continue to
serve as directors:
Ronald L. Ashbaugh J. Michael King
David L. Cox Brian C. McCarrier
George W. Freeman Elizabeth C. Smith
Rodney C. Hunter
(c) The recommendation of the Board of Directors to ratify the appointment of
S. R. Snodgrass, A.C. as the Company's independent auditors, as described
in the Proxy Statement for the Annual Meeting, was approved with 1,117,483
shares in favor, and 9,733 shares against.
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
(None)
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Emclaire Financial Corp.
- ------------------------
(Registrant)
Date: August 13, 1999 By: /s/ David L. Cox
--------------- -----------------------
David L. Cox
President and CEO
Date: August 13, 1999 By: /s/ John J. Boczar
--------------- -----------------------
John J. Boczar, CPA
Treasurer
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
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<INT-BEARING-DEPOSITS> 421
<FED-FUNDS-SOLD> 0
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<INVESTMENTS-HELD-FOR-SALE> 31,578
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<LOANS> 132,622
<ALLOWANCE> 1,361
<TOTAL-ASSETS> 192,725
<DEPOSITS> 168,883
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0
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<COMMON> 1,745
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