<PAGE>
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, 2000
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 9, 2000, there were 1,344,883 shares outstanding of the issuer's
common stock, par value $1.25 per share.
1
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Emclaire Financial Corp.
INDEX TO QUARTERLY REPORT OF FORM 10-QSB
Part I Financial Information Page
----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet, June 30, 2000 and
December 31, 1999 3
Consolidated Statement of Income Three and
Six months ended June 30, 2000 and 1999 4
Consolidated Statement of Changes in
Stockholders' Equity 5
Consolidated Statement of Cash Flows
Six months ended June 30, 2000 and 1999 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 17
Signatures 18
2
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EMCLAIRE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,231 $ 8,595
Investment securities:
Available for sale 29,180 33,499
Held to maturity (estimated market value
of $763 and $2,269) 768 2,278
Loans 150,070 139,462
Less allowance for loan losses 1,391 1,373
--------- ---------
Net loans 148,679 138,089
Premises and equipment 3,259 3,369
Accrued interest and other assets 5,978 6,174
--------- ---------
TOTAL ASSETS $ 195,095 $ 192,004
========= =========
LIABILITIES
Deposits
Non-interest bearing demand $ 28,034 $ 27,871
Interest bearing demand 20,811 21,628
Savings 21,231 23,021
Money market 22,200 22,254
Time 77,092 73,651
--------- ---------
Total deposits 169,368 168,425
Borrowed funds 4,170 2,000
Accrued interest and other liabilities 877 775
--------- ---------
TOTAL LIABILITIES 174,415 171,200
--------- ---------
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 9,596 9,151
Accumulated other comprehensive loss (746) (663)
Treasury stock at cost (50,969 and 19,242 shares) (786) (300)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 20,680 20,804
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 195,095 $ 192,004
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
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EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited - dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 3,097 $ 2,718 $ 6,016 $ 5,420
Interest bearing deposits in other banks 3 69 7 94
Federal funds sold 3 129 11 248
Investment securities:
Taxable 411 420 871 849
Exempt from federal income tax 83 55 167 101
---------- ---------- ---------- ----------
Total interest income 3,597 3,391 7,072 6,712
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 1,375 1,388 2,702 2,817
Borrowed funds 54 28 94 56
---------- ---------- ---------- ----------
Total interest expense 1,429 1,416 2,796 2,873
---------- ---------- ---------- ----------
NET INTEREST INCOME 2,168 1,975 4,276 3,839
Provision for loan losses 51 36 97 80
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,117 1,939 4,179 3,759
---------- ---------- ---------- ----------
OTHER OPERATING INCOME
Service fees on deposit accounts 223 150 366 288
Other 75 59 138 105
---------- ---------- ---------- ----------
Total other operating income 298 209 504 393
---------- ---------- ---------- ----------
OTHER OPERATING EXPENSE
Salaries and employee benefits 867 744 1,753 1,433
Occupancy, furniture and equipment 268 224 512 483
Other 621 545 1,205 1,032
---------- ---------- ---------- ----------
Total other operating expense 1,756 1,513 3,470 2,948
---------- ---------- ---------- ----------
Income before income taxes 659 635 1,213 1,204
Income taxes 199 200 362 381
---------- ---------- ---------- ----------
NET INCOME $ 460 $ 435 $ 851 $ 823
========== ========== ========== ==========
EARNINGS PER SHARE $ 0.34 $ 0.31 $ 0.63 $ 0.59
DIVIDENDS PER SHARE 0.15 0.14 0.30 0.28
AVERAGE SHARES OUTSTANDING 1,348,245 1,395,852 1,356,662 1,395,852
</TABLE>
See accompanying notes to the consolidated financial statements.
4
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EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited - dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid in Retained Comprehensive Treasury
Stock Capital Earnings Loss Stock Total
-------------- ------------- -------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 1,745 $ 10,871 $ 9,151 $ (663) $ (300) $ 20,804
Comprehensive income:
Net income 851 851
Other comprehensive loss, net
unrealized loss on securities
net of tax benefit of $43 (83) (83)
--------
Total comprehensive income 768
Dividends declared ($.30 per share) (406) (406)
Treasury stock acquired (486) (486)
------- -------- ------- ------ ------ --------
Balance, June 30, 2000 $ 1,745 $ 10,871 $ 9,596 $ (746) $ (786) $ 20,680
======= ======== ======= ====== ====== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
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EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 851 $ 823
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 452 489
Net amortization of investment security
discounts and premiums 29 69
Provision for loan losses 97 80
(Increase) decrease in accrued interest receivable (9) 21
Increase in accrued interest payable 38 1
Other, net 24 59
-------- --------
Net cash provided by operating activities 1,482 1,542
-------- --------
INVESTING ACTIVITIES
Proceeds from maturities and repayments of investment securities:
Available for sale 4,491 4,252
Held to maturity 1,502 50
Purchases of investment securities available for sale (319) (7,654)
Net loan (originations) repayments (10,704) 1,506
Purchases of premises and equipment (98) (70)
Other 61 194
-------- --------
Net cash used for investing activities (5,067) (1,722)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 943 (987)
Increase in short-term borrowings 2,170 --
Payments for obligation under capital lease -- (19)
Purchase of treasury stock (486) --
Cash dividends paid (406) (391)
-------- --------
Net cash provided by (used for) financing activities 2,221 (1,397)
-------- --------
Decrease in cash and cash equivalents (1,364) (1,577)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,595 18,689
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,231 $ 17,112
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
6
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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 1,348,245,
1,395,852 and 1,356,662, 1,395,852, and for the three and six month periods in
2000 and 1999, respectively.
3. COMPREHENSIVE INCOME
The components of comprehensive income consist exclusively of unrealized gains
and losses on securities available for sale. For the six months ended June 30,
2000, this activity is shown under the heading Accumulated Other Comprehensive
Loss as presented in the Consolidated Statement of Changes in Stockholders'
Equity. For the six months ended June 30, 1999 the accumulated other
comprehensive income had a beginning balance of $293,000, a net unrealized loss
of $463,000 and an ending balance of $(170,000). This net unrealized loss on
securities resulted in total comprehensive net income of $360,000, for the six
months ended June 30, 1999.
4. LOANS
Major classifications of loans are summarized as follows (in thousands):
June 30, December 31,
2000 1999
-------- ------------
Commercial and industrial 19,356 $ 14,660
Real estate mortgages
Residential 92,413 90,232
Commercial and other 23,506 20,360
Consumer 14,795 14,210
-------- --------
150,070 139,462
Less allowance for loan losses 1,391 1,373
-------- --------
$148,679 $138,089
======== ========
7
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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, 2000 and December 31, 1999, loans
outstanding to individuals and businesses are dependent upon the local economic
conditions within the immediate trade area.
5. COMMON STOCK
On May 8, 2000 the Company announced it was extending the completion date of its
stock repurchase plan until November 6, 2000. Under the terms of the plan dated
October 20, 1999, the Company is authorized to repurchase up to 69,792 shares of
common stock. As of June 30, 2000, 50,969 shares have been acquired at a total
cost of $786,000.
8
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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. The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
Comparison of the Three Months Ended June 30, 2000 and 1999
Net Income - Net income for the three months ended June 30, 2000 totaled
$460,000 or $.34 per share, as compared to $435,000 or $.31 per share recorded
during the same period in 1999. The 2000 quarterly earnings represented an
increase of $25,000 or 6% from the same period in 1999. A rise in net interest
income of $193,000 combined with improved fee income, which increased $92,000,
offset increased operating costs, which rose $246,000, resulting in the net
earnings increase. On a per share basis, net income rose 10% to $.34 due to the
improved net earnings combined with the impact of the stock repurchase program.
The reported net income resulted in annualized returns on average assets and
average equity of .95% and 8.96% for the quarter ended June 30, 2000, as
compared to returns of .90% and 8.20% for the same period in 1999.
Net Interest Income - Tax-equivalent net interest income increased $207,000 or
10% during the second quarter of 2000 as compared to the same period in 1999.
This increase resulted primarily from the loan portfolio, which showed increases
in both volume and yield. The increase in tax-equivalent interest income offset
the slight rise of $13,000 in interest expense. The resulting net tax-equivalent
yield on earning assets for the quarter was 4.90%, a 41 basis point improvement
from the 4.49% yield earned during the same period in 1999.
Average earning assets totaled $182.4 million for the second quarter of 2000
representing 93.4% of total average assets. For the same period in 1999, average
earning assets totaled $180.2 million and represented 92.7% of total average
assets. Average loans increased $16.0 million or 12.1% to $148.6 million for the
second quarter of 2000 as compared to same period in 1999. Average investment
securities rose $1.8 million during the same period, as available funds were
transferred from interest-bearing bank deposits and federal funds sold,
resulting in decreases in the average balances of $4.7 and $10.8 million,
respectively.
9
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Tax equivalent interest income rose $220,000 or 6.4% during the second quarter
of 2000, as compared to the same period in 1999, due to the increased loan
volume combined with generally higher interest rates. The tax-equivalent yield
on the loan portfolio for the period rose 15 basis points to 8.42%, reflecting
the effects of increases in the prime interest rate along with an increase in
commercial and commercial real estate loans. Due to the effect of securities
purchased during the second and third quarters of 1999, the tax-equivalent yield
on tax-exempt investment securities was 7.01% for the second quarter of 2000, an
increase of 20 basis points from 1999. The slight increase in average volume,
combined with the shift in average earning assets from short-term bank deposits
and federal funds to loans and investment securities; along with the rise in
interest rates resulted in a tax-equivalent yield of 8.05% for the second
quarter of 2000, as compared to 7.64% during the same period in 1999.
Interest expense rose $13,000 or .9% to $1.4 million during the second quarter
of 2000, as compared to the same period in 1999. The increase in the average
cost of interest bearing funds rose 10 basis points to 3.99% for the quarter
offsetting a decline in the volume of average interest-bearing liabilities,
which fell $1.7 million or 1.2% to $144.2 million. A decline in the average
volume of time deposits of $4.9 million or 6.2 % offset increases in money
market and savings deposits and borrowed funds.
The decline in time deposits results mainly from certificate of deposit runoff
at the branches acquired in 1998. In the twelve-month period ending June 30,
2000 certificates of deposit at these offices have declined approximately $4.0
million. This decline is due to the volume of customers whose only deposit
relationship was a certificate of deposit that was opened due to the rate being
the highest offered in the market. Since acquiring these offices, an attempt has
been made to expand relationships with deposit customers. This includes offering
competitive deposit rates, periodic special deposit rates, and providing
expanded product offerings. In addition, management changes have been made at
these offices, bringing in personnel with previous commercial bank experience.
However, it appears a large portion of these time deposit customers routinely
shop for the highest available rate and regularly transfer funds between
financial institutions to obtain the highest rate. As result it appears that any
future deposit growth at these offices will be the result of developing banking
relationships with new retail customers and businesses in the local communities.
Combined with the issues faced at the purchased offices, a continuing, general
upward pressure on interest rates, along with an ongoing need to attract and
retain funds to support loan demand, it is expected the cost of funds,
specifically time deposits will increase. In addition, approximately $34.6
million of time deposits will mature within the next 12 months, while $39.7
million of investment securities and loans are scheduled to mature or reprice
during the same period. Depending on the mix of future deposit and loan growth,
it is likely that the net yield on earning assets will decline in the near-term.
As examples of the increasing pressure on interest rates, several promotional
certificate of deposit programs have been offered since the beginning of the
year. These programs have resulted in approximately $5.0 million in new deposit
money, but carry a weighted-rate of approximately 6.4%. In addition, since June
30, 2000 a term borrowing converted to a variable rate product with the rate
increasing approximately 120 basis points.
During May, the Company introduced several bundled account products. These
products allow consumer deposit customers who meet certain combined deposit
limits to take advantage of specific products and services at reduced or no
charge. In addition, checking accounts designated
10
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by customers participating in these new products will earn interest. Previously,
these funds would most likely have been held in regular noninterest-bearing
checking accounts. In addition, participants will be eligible for certain
interest rate preferences on selected time deposit and loan products. The
introduction of these products is not expected to have a significant impact on
the overall cost of funds, however, it could contribute an increase in the
volume of interest-bearing liabilities and the related cost of those funds.
Provision for Loan Losses - Based upon management's ongoing assessment of the
quality of the loan portfolio, and considering the growth experienced by the
loan portfolio, combined with the continuing moderation of non-performing loans,
the provision for loan losses for the second quarter of 2000 totaled $51,000, as
compared to $36,000 provided during the same period in 1999.
Other operating income - Other operating income increased $89,000 or 43% during
the second quarter of 2000 as compared to the same period in 1999. Combined with
the introduction of bundled deposit products, was a restructuring of service
fees in an attempt to offset the ever rising cost of servicing customer deposit
accounts. Customers who do not wish to participate in the bundled products, but
who wish to take advantage of products and services offered by the Company will
be subject to minimum balance and usage charges for certain account products and
services. The new and revised fee schedule took effect in June 2000, resulting
in the improvement in other operating income. As compared to the second quarter
of 1999, service charges during the second quarter of 2000 increased $73,000 or
49%. In addition, ATM convenience fees and fees generated from the
MasterMoney(TM) debit card increased due to increased customer usage, along with
a slight increase in the ATM convenience fee. Combined, these fees accounted for
$15,000 of the total increase in other operating income.
While the bundled account products and a newly created basic checking account
product will allow most customers to continue to bank at little or no monthly
charge; the implementation of these fees has the potential to significantly
impact other operating income. The final result of these changes will be based
on a number of factors such as the level of acceptance of the bundled and basic
checking products, combined with the volume of usage of products and services by
customers who chose to pay for such services. It is expected to take several
months for customers to adjust to these changes. As a result the pro rated
improvement in overall fee income during the second quarter, while expected to
continue, may not be as significant in future periods.
Other Operating Expense - Other operating expense for the second quarter of 2000
totaled $1.8 million an increase of $243,000 or 16% from the same period in
1999. As discussed in the annual report to shareholders the Company increased
staffing during the third and fourth quarters of 1999. These additional
employees are the largest reason for the increase in other operating expense.
Salaries and employee benefits increased $123,000 or 17% to $867,000 for the
second quarter of 2000. As discussed above, the employees added during the third
and fourth quarters of 1999, coupled with normal annual salary adjustments, and
the related taxes are the principal reason for the increase representing
approximately $132,000. As a result of converting the Company's health care
coverage to a health maintenance organization sponsored by the same provider,
group insurance premiums decreased approximately $14,000 as compared to the
second quarter of 1999.
11
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Occupancy and equipment costs increased approximately $44,000 or 20% to $268,000
during the second quarter of 2000, as compared to the same period in 1999. An
increase in costs associated with equipment and software maintenance contracts
represented approximately $18,000 of the increase. In addition, building and
equipment repair costs increased $12,000. As discussed during the first quarter,
pending renewals of certain maintenance contracts and expected increases
resulting from these renewals, continue to be expected to increase occupancy and
equipment costs for future periods.
Other operating expense increased $76,000 or 14% during the three months ended
June 30, 2000, as compared to the same period in 1999 and totaled $621,000.
Recurring costs increased during the comparative quarter due to items such as:
Pennsylvania shares tax expense increased approximately $6,000, due to prior
increases in Bank capital. As a result of the strategic planning process
undertaken in 1999, additional resources were dedicated to training, advertising
and promotion, and customer development. Due to these strategic initiatives,
advertising, promotion and customer development costs increased $38,000.
Additional postage costs of $6,000 were incurred in a direct mailing of
promotional material for the bundled accounts product. Printing and office
supplies increased $23,000 due partly to costs related to providing necessary
disclosures to customers related to the bundled accounts products and the
related fees, and costs related to developing internal training documents.
Losses resulting from teller shortages and other miscellaneous losses increased
$7,000. Accounting services increased approximately $6,000 due to normal fee
adjustments and expanded services. Fees for correspondent bank and courier
services increased approximately $3,000, due principally to fuel surcharges
added for delivery and transportation services.
Effective July 2000 the board of directors approved the adoption of an employee
incentive program. This program allows for the payment of a percentage of an
employee's salary as defined based upon the Bank achieving certain goals that
relate to financial performance and growth. Based upon the attainment of the
corporate goals an employee may be eligible to receive an incentive payment
ranging from .67% to 8% of salary. Any payment made in 2000 will be prorated
from the commencement date of the program. Had the program been in effect at
June 30, 2000, no amount would have been payable. It is believed that a
well-designed and effectively managed incentive program will improve the overall
financial performance of the Company and at the same time reward employees for
contributing to that success.
Income Taxes - Income tax expense for the second quarter of 2000 totaled
$199,000 or 30.2% of pre-tax income, as compared to $200,000 or 31.5% for the
same period in 1999. The tax-exempt income from securities purchased during the
second and third quarters of 1999 helped to reduce the effective tax rate.
Comparison of the Six Months Ended June 30, 2000 and 1999
Net income for the six months ended June 30, 2000 totaled $851,000, an increase
of $28,000 or 3% as compared to the first six months of 1999. On a per share
basis earnings were $.34 per share, a 10% increase from the $.31 reported in
1999. As discussed earlier, the per share performance was favorably affected by
the stock repurchase program.
12
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Net Interest Income - Net interest income on a tax equivalent basis increased
$469,000 or 12% for the comparative six month periods due to the increase in
loan volume and general rise in interest rates discussed in the quarterly
earnings section of this report. For the six months ended June 30, 2000 average
loan volume was $145.2 million, an increase of $12.0 million or 9% from 1999.
During the same period the volume of interest-bearing liabilities fell $2.8
million or 2% to $143.3 million. As discussed earlier, the runoff of time
deposits was responsible for the overall volume reduction, offsetting increases
in the volume of money market and savings accounts. The net tax equivalent yield
for the first six months of 2000 was 4.88% as compared to 4.41% for the same
period in 1999.
Other operating income - As previously discussed the implementation of the
bundled account product and the restructuring of the service fee schedule
enhanced other operating income. For the first half of 2000, other operating
income rose $108,000 or 27% to $501,000.
Other Operating Expense - Other operating expense for the first half of 2000
totaled $3.5 million, an increase of $519,000 or 18%. The added salaries and
related payroll taxes discussed earlier accounted for $253,000 of the increase.
Costs for temporary employees represented another $50,000. Occupancy and
equipment, and other operating expenses increased $29,000 or 6%, and $170,000 or
16% for reasons previously discussed.
Financial Condition
At June 30, 2000 the Company reported total consolidated assets of $195.1
million, an increase of 1.6% from the $192.0 million reported at December 31,
1999. This modest increase was due largely to the increase in loan demand
particularly commercial loans, which was primarily funded by investment
maturities combined with deposit growth and short-term borrowings.
Total loans increased $10.6 million or 7.6%, to $150.1 million, as commercial
loans rose $5.0 million or 32%, and commercial and other real estate loans
increased $3.1 million or 16% from December 31, 1999. The increase in commercial
and commercial and other real estate loans can be attributed to several factors.
The hiring of experienced branch managers at several offices offered access to
several new customers, the customer call program resulted in several new or
additional credits, and the addition of the vice president of credit
administration has improved the effectiveness and efficiency of the underwriting
process.
Loan growth during the second quarter of 2000 totaled $3.9 million. While this
performance represents annualized growth of 11%, it is not as robust as the $6.7
million in net loan growth recorded during the first three months of 2000. It
appears that economic factors, especially the rising interest rate environment,
may continue to slow overall loan growth from that experienced during the first
six months of 2000.
Total deposits showed a slight increase of $943,000 or .6% during the first half
of 2000. Increases in time deposits totaling $1.5 million offset declines in NOW
accounts, which amounted to $817,000. Regular checking, savings and money market
deposit accounts remained relatively unchanged. As discussed earlier, the
increase in time deposits was influenced by several promotional certificate
rates offered during the first half of the year. Based on current market
conditions, it is probable that similar promotional certificate rates or
products will be offered during the remainder of the year.
13
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Stockholders' equity declined $124,000 or .6% from December 31, 1999, and
totaled $20.7 million at June 30, 2000. The decline is due principally to the
repurchase of approximately 51,000 shares of common stock at a total cost of
$786,000. The stock repurchase plan approved by the board of directors in
October 1999 was until November 6, 2000. The plan allows for the repurchase of
up to 69,792 shares of common stock.
14
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Liquidity
For the first half of 2000 operating activities as presented in the statement of
cash flows provided $1.5 million in cash equaling that reported in 1999. These
funds were generated principally from net income, depreciation and amortization.
Investing activities used $5.1 million during the first six months of 2000 as
compared to $1.7 used in 1999. During the first half of 2000, net investment
maturities of $5.7 million combined with borrowed funds and deposit growth were
used to fund net loan originations of $10.7 million. During the same period in
1999 investment maturities of $4.3 million, and net loan repayments of $1.5
million funded investment purchases of $7.7 million.
Due to construction delays encountered by the developer, the relocation of the
DuBois office, originally, scheduled to be completed during the second quarter
of 2000 has been postponed until September, at the earliest. The renovation of
the Brookville facility commenced in August and should be completed within 90
days. The total capital expenditures for these projects are estimated at
approximately $300,000.
Financing activities for the first six months of 2000 provided approximately
$2.2 million, due principally to short-term borrowings of $2.2 million.
Financing activities during the first half of 2000 used $486,000 for the
repurchase of common stock and $406,000 for dividend payments. During the same
period of 1999, financing activities used $1.4 million due to principally to the
decrease in deposits of $987,000.
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,
2000, a short-term revolving credit facility of $10 million was available
through the Federal Home Loan Bank of Pittsburgh.
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, 2000, non-performing loans, including those past due ninety days or
more, and loans on non-accrual status totaled approximately $771,000.
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, 2000, has been allocated for these loans. During the first half of
2000, the borrower made payments totaling $26,000, which were recorded as
interest income. Management believes the underlying collateral adequately
secures the Company.
The following table presents the components of non-performing loans and other
non-performing assets as of the five most recent quarters ended:
15
<PAGE>
<TABLE>
<CAPTION>
2000 1999
----------------------- --------------------------------------
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 $ 115 $ 84 $ 86 $ 95 $ 114
Non-accrual loans 656 609 617 739 874
------ ------ ------ ------ ------
Total non-performing loans 771 693 703 834 988
Other non-performing assets
Repossessed assets -- -- -- -- 3
Real estate acquired through
foreclosure 45 113 104 22 25
------ ------ ------ ------ ------
Total other non-performing assets 45 113 104 22 28
------ ------ ------ ------ ------
Total non-performing assets $ 816 $ 806 $ 807 $ 856 $1,016
====== ====== ====== ====== ======
Non-performing loans as a percentage
of total loans .51% .47% .50% .63% .74%
Non-performing assets to assets .42 .41 .42 .46 .53
</TABLE>
During the second quarter of 2000, two parcels of foreclosed real estate
totaling $58,000 were sold. The remaining parcels were written down $10,000
reflecting a decline in their realizable value. Subsequent to June 30, an offer
was received on a property that if completed will reduce foreclosed real estate
to $15,000, after an additional write-down of $8,000.
At June 30, 2000, based on 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 impact on future earnings,
liquidity or capital resources. Based on the results of the quarterly internal
loan review process, and considering the trend of past loan losses and
recoveries, and current risk elements in the loan portfolio, management believes
the allowance for loan losses at June 30, 2000 is adequate.
16
<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 16, 2000. Of 1,353,540
shares eligible to vote, 1,109,263 or 82.0% were voted in person or by
proxy.
(b) The following Class C directors were elected to a three year term expiring
in 2002:
Name Shares For Shares Withheld Broker No Votes
---- ---------- --------------- ---------------
Ronald L. Ashbaugh 1,051,416 25,203 32,644
George W. Freeman 1,054,016 24,063 31,184
Brian C. McCarrier 1,070,852 6,149 32,262
Elizabeth C. Smith 1,075,647 1,572 32,044
In addition, to the above listed individuals, the following persons continue to
serve as directors:
David L. Cox Robert L. Hunter
Bernadette H. Crooks J. Michael King
Rodney C. Heeter John B. Mason
(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 1,080,741
shares in favor, and 1,050 shares against, and 27,472 shares abstaining.
Item 5. Other Information
(None)
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (in electronic filing only)
(b) Reports on Form 8-K
(None)
18
<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 11, 2000 By: /s/ David L. Cox
----------------------------
David L. Cox
President and CEO
Date: August 11, 2000 By: /s/ John J. Boczar
----------------------------
John J. Boczar, CPA
Secretary/Treasurer
19
