SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 NO FEE REQUIRED For the fiscal year ended December 31, 2000.
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period
from __________________ to ______________.
Commission File No. 000-18464
EMCLAIRE FINANCIAL CORP.
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(Name of Small Business Issuer in Its Charter)
Pennsylvania 25-1606091
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(State or Other Jurisdiction of Incorporation I.R.S. Employer or
Organization) Identification No.
612 Main Street, Box D, Emlenton, Pennsylvania 16373
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (724) 867-2311
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.25 per share
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ] NO [X].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $15,141,000
As of April 6, 2001, there were issued and outstanding 1,332,835 shares
of the registrant's Common Stock.
The Registrant's Common Stock trades on the OTC Electronic Bulletin
Board under the symbol "EMCF." The aggregate market value of the Common Stock
held by non-affiliates of the registrant, based on the last price the
registrant's Common Stock was sold on April 6, 2001, was $15,349,956 ($14.13 per
share average bid/ask price, based on 1,086,338 shares of Common Stock
outstanding).
Transition Small Business Disclosure Format (check one)
YES [ ] NO [X]
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year
ended December 31, 2000. (Parts I, II, and IV)
2. Portions of the Proxy Statement for the Annual Meeting of
Stockholders. (Part III)
PART I
Item 1. Description of Business
General
Emclaire Financial Corp. ("Emclaire" or "Company") was incorporated in
Pennsylvania in 1989 to own and control all of the capital stock of The Farmers
National Bank of Emlenton ("Bank"). Emclaire is a registered bank holding
company pursuant to the Bank Holding Company Act of 1956 ("BHCA"), as amended.
Emclaire has no employees other than executive officers whom do not receive
compensation for serving in such capacity. Because Emclaire has not engaged in
any significant business to date, almost entirely all of the business conducted
by the Company on a consolidated basis is conducted through the Bank, its wholly
owned subsidiary.
At December 31, 2000, Emclaire had $194.2 million in total assets, $20.0 million
in stockholders' equity, and $171.1 million in deposits. The Federal Insurance
Deposit Corporation to the full extent provided by law insures deposits.
The Bank was organized in 1900 as a national banking association, and operates
under the supervision of the Office of the Comptroller of the Currency ("OCC").
The Bank operates a network of eleven offices located in Venango, Butler,
Clarion, Clearfield, Elk and Jefferson counties.
The Bank operates as a full-service community bank, offering a variety of
financial services to meet the needs of its 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 securities.
Lending Activities
General. The principal lending activities of the Bank are the origination of
residential mortgage loans, home equity loans, commercial and commercial real
estate loans, and installment loans. Generally, loans are originated in the
Bank's primary market area. For a description of the Bank's loan portfolio, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Emclaire's Annual Report to Stockholders ("Annual Report")
included as Exhibit 13 and incorporated herein by reference.
One-to-Four Family Mortgage Loans. The Bank offers first mortgage loans secured
by one-to-four family residences located in the Bank's primary lending area.
Typically such residences are single family owner occupied units. The Bank is an
approved, qualified lender for the Federal Home Loan Mortgage Corporation
("FHLMC"). As a result, the Bank may sell loans to and service loans for the
FHLMC. While the Bank has made no such sales to date, it anticipates the ability
to sell loans to the FHLMC will allow it to minimize the interest rate risk
associated with longer term fixed rate mortgages.
Home Equity Loans. The Bank originates home equity loans secured by
single-family residences. These loans may be either a single advance fixed rate
loan with a term of up to 15 years, or a variable rate revolving line of credit.
These loans are made only on owner-occupied single-family residences.
Commercial and Commercial Real Estate Loans. Commercial lending constitutes a
significant portion of the Bank's lending activities comprising a combined total
of 29.5% of the total loan portfolio at December 31, 2000. Commercial real
estate loans generally consist of loans granted for commercial purposes secured
by commercial or other nonresidential real estate. Commercial loans consist of
secured and unsecured loans for such items as capital assets, inventory,
operating funds, and other commercial purposes.
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Consumer Loans. Consumer loans generally consist of fixed rate term loans for
automobile purchases, home improvements not secured by real estate, capital, and
other personal expenditures. In addition, the Bank funds education loans, under
various government guaranteed student loan programs, that are serviced for the
Bank by a third party. The Bank also offers unsecured revolving personal lines
of credit and overdraft protection.
Loans to One Borrower. National banks are subject to limits on the amount of
credit that they can extend to one borrower. Under current law, loans to one
borrower are limited to an amount equal to 15% of unimpaired capital and surplus
on an unsecured basis, and an additional amount equal to 10% of unimpaired
capital and surplus if the loan is secured by readily marketable collateral. At
December 31, 2000, the Bank's loans-to-one borrower limit based upon 15% of
unimpaired capital was $2.7 million. At December 31, 2000, the Bank's largest
aggregation of loans to one borrower was approximately $2.5 million of loans
secured by equipment and commercial real estate. At December 31, 2000, all of
these loans were performing in accordance with their terms.
Investment Portfolio
General. The Bank maintains an investment portfolio of securities such as U.S.
government and agency securities, state and municipal debt obligations,
corporate notes and bonds, and to a lesser extent, mortgage-backed securities.
Management generally maintains an investment portfolio with relatively short
maturities to minimize overall interest rate risk. However, at December 31, 2000
approximately $3.2 million was invested in longer-term callable municipal
securities, as part of strategy to moderate federal income taxes.
Investment decisions are made within policy guidelines established by the Board
of Directors. This policy is aimed at maintaining a diversified investment
portfolio, which complements the overall asset/liability and liquidity
objectives of the Bank, while limiting the related credit risk to an acceptable
level. For a description of the Company's investment portfolio see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report incorporated herein by reference.
Sources of Funds
General. Deposits are the primary source of the Bank's funds for lending and
investing activities. Secondary sources of funds are derived from loan
repayments and investment maturities. Loan repayments can be considered a
relatively stable funding source, while deposit activity is greatly influenced
by interest rates and general market conditions. The Bank also has access to
funds through credit facilities available from the Federal Home Loan Bank
("FHLB"). In addition, the Bank can obtain advances from the Federal Reserve
Bank discount window. For a description of the Bank's sources of funds see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report incorporated herein by reference.
Deposits. The Bank offers a wide variety of retail deposit account products to
both consumer and commercial deposit customers, including time deposits,
non-interest bearing and interest bearing demand deposit accounts, savings
deposits, and money market accounts.
Deposit products are promoted in periodic newspaper and radio advertisements,
along with notices provided in customer account statements. The Bank's market
strategy is based on its reputation as a community bank that provides quality
products and personal customer service.
3
The Bank pays interest rates on its interest bearing deposit products that are
competitive with rates offered by other financial institutions in its market
area. Interest rates on deposits are reviewed weekly by management, who
considers a number of factors including (1) the Bank's internal cost of funds;
(2) rates offered by competing financial institutions; (3) investing and lending
opportunities; and (4) the Bank's liquidity position.
Subsidiary Activity
Emclaire has one wholly-owned subsidiary, the Bank, a national association. As
of December 31, 2000, the Bank had no subsidiaries.
Personnel
At December 31, 2000, the Bank had 112 full time equivalent employees. A
collective bargaining unit represents none of its employees. The Bank believes
its relationship with its employees to be satisfactory.
Competition
The banking and financial services industry in Pennsylvania generally, and in
the Bank's market areas specifically, is highly competitive. The increasingly
competitive environment is a result primarily of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of
consolidation among financial services providers. The Bank competes for loans,
deposits, and customers with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies, insurance
companies, finance companies, money market funds, credit unions, and other
nonbank financial service providers. Many of these competitors are much larger
in total assets and capitalization, have greater access to capital markets and
offer a broader range of financial services than the Bank. In addition, recent
federal legislation may have the effect of further increasing the pace of
consolidation within the financial services industry. See "Item 1. Business -
Supervision and Regulation - Financial Services Modernization Legislation."
Economic Conditions, Government Policies, Legislation, and Regulation
The Company's profitability, like most financial institutions, is primarily
dependent on interest rate differentials. In general, the difference between the
interest rates paid by the Bank on interest-bearing liabilities, such as
deposits and other borrowings, and the interest rates received by the Bank on
its interest-earning assets, such as loans extended to its clients and
securities held in its investment portfolio, comprise the major portion of the
Company's earnings. These rates are highly sensitive to many factors that are
beyond the control of the Company and the Bank, such as inflation, recession and
unemployment, and the impact which future changes in domestic and foreign
economic conditions might have on the Company and the Bank cannot be predicted.
The business of the Company is also influenced by the monetary and fiscal
policies of the federal government and the policies of regulatory agencies,
particularly the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). The Federal Reserve Board implements national monetary policies
(with objectives such as curbing inflation and combating recession) through its
open-market operations in U.S. Government securities by adjusting the required
level of reserves for depository institutions subject to its reserve
requirements, and by varying the target federal funds and discount rates
applicable to borrowings by depository institutions. The actions of the Federal
Reserve Board in these areas influence the growth of bank loans, investments,
and deposits and also affect interest rates earned on interest-earning assets
and paid on interest-bearing liabilities. The nature and impact on the Company
and the Bank of any future changes in monetary and fiscal policies cannot be
predicted.
4
From time to time, legislation, as well as regulations, are enacted which have
the effect of increasing the cost of doing business, limiting or expanding
permissible activities, or affecting the competitive balance between banks and
other financial services providers. Proposals to change the laws and regulations
governing the operations and taxation of banks, bank holding companies, and
other financial institutions and financial services providers are frequently
made in the U.S. Congress, in the state legislatures, and before various
regulatory agencies. This legislation may change banking statutes and the
operating environment of the Company and its subsidiaries in substantial and
unpredictable ways. If enacted, such legislation could increase or decrease the
cost of doing business, limit or expand permissible activities or affect the
Competitive balance among banks, savings associations, credit unions, and other
financial institutions. The Company cannot predict whether any of this potential
legislation will be enacted, and if enacted, the effect that it, or any
implementing regulations, would have on the financial condition or results of
operations of the Company or any of its subsidiaries. See "Item 1. Business -
Supervision and Regulation."
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal
and state law. Set forth below is a summary description of certain provisions of
certain laws that relate to the regulation of the Company and the Bank. The
description does not purport to be complete and is qualified in its entirety by
reference to the applicable laws and regulations.
Regulation - The Company
Emclaire, as a registered bank holding company, is subject to regulation under
the BHCA. The Company is required to file quarterly reports and annual reports
with the Federal Reserve Board and such additional information as the FRB may
require pursuant to the BHCA. The FRB may conduct examinations of Emclaire and
its subsidiaries.
The Federal Reserve Board may require that the Company terminate an activity or
terminate control of or liquidate or divest certain subsidiaries or affiliates
when the Federal Reserve Board believes the activity or the control of the
subsidiary or affiliate constitutes a significant risk to the financial safety,
soundness or stability of any of its banking subsidiaries. The Federal Reserve
Board also has the authority to regulate provisions of certain bank holding
company debt, including the authority to impose interest ceilings and reserve
requirements on such debt. Under certain circumstances, the Company must file
written notice and obtain approval from the Federal Reserve Board prior to
purchasing or redeeming its equity securities.
Further, the Company is required by the Federal Reserve Board to maintain
certain levels of capital. See "--Capital Standards."
The Company is required to obtain the prior approval of the Federal Reserve
Board for the acquisition of more than 5% of the outstanding shares of any class
of voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve Board is also required
for the merger or consolidation of the Company and another bank holding company.
The Company is prohibited by the BHCA, except in certain statutorily prescribed
instances, from acquiring direct or indirect ownership or control of more than
5% of the outstanding voting shares of any company that is not a bank or bank
holding company and from engaging directly or indirectly in activities other
than those of banking, managing or controlling banks, or furnishing services to
its subsidiaries. However, the Company, subject to the prior approval of the
Federal Reserve Board, may engage in any, or acquire shares of companies engaged
in, activities that are deemed by the Federal Reserve Board to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
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Under Federal Reserve Board regulations, a bank holding company is required to
serve as a source of financial and managerial strength to its subsidiary banks
and may not conduct its operations in an unsafe or unsound manner. In addition,
it is the Federal Reserve Board's policy that a bank holding company should
stand ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both.
The Company's securities are registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As such, the Company is subject to the information, proxy solicitation,
insider trading, and other requirements and restrictions of the Exchange Act.
Regulation - The Bank
The Bank is subject to supervision and examination by the OCC and to certain
regulations of the FDIC, and the FHLB. The Bank is also subject to various
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types,
amount and terms and conditions of loans that may be granted and limitations on
the types of investments that may be made and the types of services that may be
offered. Various consumer laws and regulations also affect the operations of the
Bank.
Financial Services Modernization Legislation
General. On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The
Financial Services Modernization Act repeals the two affiliation provisions of
the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal
Reserve Member Banks with firms "engaged principally" in specified securities
activities; and Section 32, which restricts officer, director, or employee
interlocks between a member bank and any company or person "primarily engaged"
in specified securities activities. In addition, the Financial Services
Modernization Act also contains provisions that expressly preempt any state law
restricting the establishment of financial affiliations, primarily related to
insurance. The general effect of the law is to establish a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers by revising and
expanding the BHCA framework to permit a holding company system to engage in a
full range of financial activities through a new entity known as a Financial
Holding Company
The law also:
o Broadens the activities that may be conducted by national banks,
banking subsidiaries of bank holding companies, and their
financial subsidiaries;
o Provides an enhanced framework for protecting the privacy of
consumer information;
o Adopts a number of provisions related to the capitalization,
membership, corporate governance, and other measures designed to
modernize the Federal Home Loan Bank system;
o Modifies the laws governing the implementation of the Community
Reinvestment Act; and
6
o Addresses a variety of other legal and regulatory issues affecting
both day-to-day operations and long-term activities of financial
institutions.
The Company and the Bank do not believe that the Financial Services
Modernization Act will have a material adverse effect on operations in the
near-term. However, to the extent that it permits banks, securities firms, and
insurance companies to affiliate, the financial services industry may experience
further consolidation. The Financial Services Modernization Act is intended to
grant to community banks certain powers as a matter of right that larger
institutions have accumulated on an ad hoc basis. Nevertheless, this act may
have the result of increasing the amount of competition that the Company and the
Bank face from larger institutions and other types of companies offering
financial products, many of which may have substantially more financial
resources than the Company and the Bank.
Financial Holding Companies. Bank holding companies that elect to become a
financial holding company may affiliate with securities firms and insurance
companies and engage in other activities that are financial in nature or are
incidental or complementary to activities that are financial in nature.
"Financial in nature" activities include:
o securities underwriting,
o dealing and market making,
o sponsoring mutual funds and investment companies,
o insurance underwriting and agency,
o merchant banking, and
o activities that the Federal Reserve Board, in consultation with
the Secretary of the Treasury, determines from time to time to be
so closely related to banking or managing or controlling banks as
to be a proper incident thereto.
A bank holding company must meet the following requirements before becoming a
financial holding company:
o all of the bank holding company's depository institution
subsidiaries must be well capitalized, well managed, and, except
in limited circumstances, in compliance with the Community
Reinvestment Act; and
o the bank holding company must file with the Federal Reserve a
declaration of its election to become a financial holding company,
including a certification that its depository institution
subsidiaries meet the above criteria.
Failure to comply with the financial holding company requirements could lead to
divestiture of subsidiary banks or require all activities of such company to
conform to those permissible for a bank holding company. No Federal Reserve
Board approval is required for a financial holding company to acquire a company
(other than a bank holding company, bank or savings association) engaged in
activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve Board.
A bank holding company that is not also a financial holding company can only
engage in banking and such other activities determined by the Federal Reserve
Board to be so closely related to banking or managing or controlling banks as to
be a proper incident thereto.
The Company is not currently a Financial Holding Company. Management has not
determined at this time whether it will seek an election to become a Financial
Holding Company.
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Expanded Bank Activities. The Financial Services Modernization Act also permits
national banks to engage in expanded activities through the formation of
financial subsidiaries. A national bank may have a subsidiary engaged in any
activity authorized for national banks directly or any financial activity,
except for insurance underwriting, insurance investments, real estate investment
or development, or merchant banking, which may only be conducted through a
subsidiary of a financial holding company. Financial activities include all
activities permitted under new sections of the BHCA or permitted by regulation.
A national bank seeking to have a financial subsidiary, and each of its
depository institution affiliates, must be "well-capitalized," "well-managed"
and in compliance with the Community Reinvestment Act. The total assets of all
financial subsidiaries may not exceed the lesser of 45% of a bank's total
assets, or $50 billion. A national bank must exclude from its assets and equity
all equity investments, including retained earnings, in a financial subsidiary.
The assets of the subsidiary may not be consolidated with the bank's assets. The
bank must also have policies and procedures to assess financial subsidiary risk
and protect the bank from such risks and potential liabilities.
Privacy. Under the Financial Services Modernization Act, federal banking
regulators are required to adopt rules that will limit the ability of banks and
other financial institutions to disclose non-public information about consumers
to nonaffiliated third parties. These limitations will require disclosure of
privacy policies to consumers and, in some circumstances, will allow consumers
to prevent disclosure of certain personal information to a nonaffiliated third
party. Federal banking regulators issued final rules on May 10, 2000. Pursuant
to these rules, financial institutions must provide:
o initial notices to customers about their privacy policies,
describing the conditions under which they may disclose nonpublic
personal information to nonaffiliated third parties and
affiliates;
o annual notices of their privacy policies to current customers; and
o a reasonable method for customers to "opt out" of disclosures to
nonaffiliated third parties.
The rules were effective November 13, 2000, but compliance is optional until
July 1, 2001. These privacy provisions will affect how consumer information is
transmitted through diversified financial companies and conveyed to outside
vendors. It is not possible at this time to assess the impact of the privacy
provisions on the Company's financial condition or results of operations.
Consumer Protection Rules - Sale of Insurance Products. In December 2000
pursuant to the requirements of the Financial Services Modernization Act, the
federal bank and thrift regulatory agencies adopted consumer protection rules
for the sale of insurance products by depository institutions. The rule is
effective on April 1, 2001. The final rule applies to any depository institution
or any person selling, soliciting, advertising, or offering insurance products
or annuities to a consumer at an office of the institution or on behalf of the
institution. Before an institution can complete the sale of an insurance product
or annuity, the regulation requires oral and written disclosure that such
product:
o is not a deposit or other obligation of, or guaranteed by, the
depository institution or its affiliate;
o is not insured by the FDIC or any other agency of the United
States, the depository institution or its affiliate; and
o has certain risks in investment, including the possible loss of
value.
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Finally, the depository institution may not condition an extension of
credit:
o on the consumer's purchase of an insurance product or annuity from
the depository institution or from any of its affiliates, or
o on the consumer's agreement not to obtain, or a prohibition on the
consumer from obtaining, an insurance product or annuity from an
unaffiliated entity.
The rule also requires formal acknowledgement from the consumer that disclosures
were received.
In addition, to the extent practicable, a depository institution must keep
insurance and annuity sales activities physically segregated from the areas
where retail deposits are routinely accepted from the general public.
Safeguarding Confidential Customer Information. In January 2000, the banking
agencies adopted guidelines requiring financial institutions to establish an
information security program to:
o identify and assess the risks that may threaten customer
information;
o develop a written plan containing policies and procedures to manage
and control these risks;
o implement and test the plan; and
o adjust the plan on a continuing basis to account for changes in
technology, the sensitivity of customer information, and internal
or external threats to information security.
Each institution may implement a security program appropriate to its size and
complexity and the nature and scope of its operations.
The guidelines outline specific security measures that institutions should
consider in implementing a security program. A financial institution must adopt
those security measures determined to be appropriate. The guidelines require the
board of directors to oversee an institution's efforts to develop, implement,
and maintain an effective information security program and approve written
information security policies and programs. The guidelines are effective July 1,
2001.
Dividends and Other Transfers of Funds
Dividends from the Bank constitute the principal source of income to the
Company. The Company is a legal entity separate and distinct from the Bank. The
Bank is subject to various statutory and regulatory restrictions on its ability
to pay dividends to the Company. Under such restrictions, the amount available
for payment of dividends to the Company by the Bank totaled $464,000 at December
31, 2000.
The FDIC and the Comptroller also have authority to prohibit the Bank from
engaging in activities that, in the FDIC's or the Comptroller's opinion,
constitute unsafe or unsound practices in conducting its business. It is
possible, depending upon the financial condition of the bank in question and
other factors, that the FDIC and the Comptroller could assert that the payment
of dividends or other payments might, under some circumstances, be such an
unsafe or unsound practice. Further, the Comptroller and the Federal Reserve
Board have established guidelines with respect to the maintenance of appropriate
levels of capital by banks or bank holding companies under their jurisdiction.
Compliance with the standards set forth in such guidelines and the restrictions
that are or may be imposed under the prompt corrective action provisions of
federal law could limit the amount of dividends which the Bank or the Company
may pay. An insured depository institution is prohibited from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions if after such transaction the institution would be
undercapitalized. See "- Prompt Corrective Regulatory Action and Other
Enforcement Mechanisms" and "- Capital Standards" for a discussion of these
additional restrictions on capital distributions.
9
Capital Standards
The federal banking agencies have adopted risk-based minimum capital guidelines
intended to provide a measure of capital that reflects the degree of risk
associated with a banking organization's operations for both transactions
reported on the balance sheet as assets and transactions which are recorded as
off balance sheet items. Under these guidelines, nominal dollar amounts of
assets and credit equivalent amounts of off balance sheet items are multiplied
by one of several risk adjustment percentages, which range from 0% for assets
with low credit risk federal banking agencies, to 100% for assets with
relatively high credit risk.
The guidelines require a minimum ratio of qualifying total capital to
risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal
banking regulators require banking organizations to maintain a minimum amount of
Tier 1 capital to total assets, referred to as the leverage ratio. For a banking
organization rated in the highest of the five categories used by regulators to
rate banking organizations, the minimum leverage ratio of Tier 1 capital to
total assets must be 3%. In addition to these uniform risk-based capital
guidelines and leverage ratios that apply across the industry, the regulators
have the discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
At December 31, 2000, the Bank's respective total and Tier 1 risk-based capital
ratios and leverage ratios exceeded the minimum regulatory requirements. See
Note 14 in the audited consolidated financial statements included in the Annual
Report and incorporated herein by reference.
Proposed Capital Requirements for Community Institutions
In November 2000 the federal bank and thrift regulatory agencies requested
public comment on an advance notice of proposed rulemaking that considers the
establishment of a simplified regulatory capital framework for non-complex
institutions.
In the proposal, the agencies suggested criteria that could be used to determine
eligibility for a simplified capital framework, such as the nature of a bank's
activities, its asset size and its risk profile. In the advance notice, the
agencies seek comment on possible minimum regulatory capital requirements for
non-complex institutions, including a simplified risk-based ratio, a simple
leverage ratio, or a leverage ratio modified to incorporate certain off-balance
sheet exposures.
The advance notice solicits public comment on the agencies' preliminary views.
Comments were due on the proposal on February 1, 2001. Given the preliminary
nature of the proposal, it is not possible to predict its impact on the Bank at
this time.
Prompt Corrective Action and Other Enforcement Mechanisms
Federal banking agencies possess broad powers to take corrective and other
supervisory action to resolve the problems of insured depository institutions,
including but not limited to those institutions that fall below one or more
prescribed minimum capital ratios. Each federal banking agency has promulgated
regulations defining the following five categories in which an insured
depository institution will be placed, based on its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. At December 31, 2000, the
Bank and the Company exceeded the required ratios for classification as "well
capitalized."
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An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat a significantly undercapitalized institution as
critically undercapitalized unless its capital ratio actually warrants such
treatment.
In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement actions
by the federal regulators for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation, or any condition
imposed in writing by the agency or any written agreement with the agency.
Safety and Soundness Standards
The federal banking agencies have adopted guidelines designed to assist the
federal banking agencies in identifying and addressing potential safety and
soundness concerns before capital becomes impaired. The guidelines set forth
operational and managerial standards relating to: (i) internal controls,
information systems and internal audit systems, (ii) loan documentation, (iii)
credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation,
fees and benefits. In addition, the federal banking agencies have also adopted
safety and soundness guidelines with respect to asset quality and earnings
standards. These guidelines provide six standards for establishing and
maintaining a system to identify problem assets and prevent those assets from
deteriorating. Under these standards, an insured depository institution should:
(i) conduct periodic asset quality reviews to identify problem assets, (ii)
estimate the inherent losses in problem assets and establish reserves that are
sufficient to absorb estimated losses, (iii) compare problem asset totals to
capital, (iv) take appropriate corrective action to resolve problem assets, (v)
consider the size and potential risks of material asset concentrations, and (vi)
provide periodic asset quality reports with adequate information for management
and the board of directors to assess the level of asset risk. These new
guidelines also set forth standards for evaluating and monitoring earnings and
for ensuring that earnings are sufficient for the maintenance of adequate
capital and reserves.
Premiums for Deposit Insurance
Through the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund
("SAIF"), the FDIC insures the deposits of the Bank up to prescribed limits for
each depositor. The amount of FDIC assessments paid by each BIF/SAIF member
institution is based on its relative risk of default as measured by regulatory
capital ratios and other factors. Specifically, the assessment rate is based on
the institution's capitalization risk category and supervisory subgroup
category. An institution's capitalization risk category is based on the FDIC's
determination of whether the institution is well capitalized, adequately
capitalized or less than adequately capitalized. An institution's supervisory
subgroup category is based on the FDIC's assessment of the financial condition
of the institution and the probability that FDIC intervention or other
corrective action will be required.
FDIC-insured depository institutions pay an assessment rate equal to the rate
assessed on deposits insured by the insurance fund.
The assessment rate currently ranges from zero to 27 cents per $100 of domestic
deposits. The FDIC may increase or decrease the assessment rate schedule on a
semi-annual basis. An increase in the assessment rate could have a material
adverse effect on the Company's earnings, depending on the amount of the
increase. The FDIC is authorized to terminate a depository institution's deposit
insurance upon a finding by the FDIC that the institution's financial condition
11
is unsafe or unsound or that the institution has engaged in unsafe or unsound
practices or has violated any applicable rule, regulation, order or condition
enacted or imposed by the institution's regulatory agency. The termination of
deposit insurance for the Bank could have a material adverse effect on the
Company's earnings, depending on the collective size of the particular
institutions involved.
All FDIC-insured depository institutions must pay an annual assessment to
provide funds for the payment of interest on bonds issued by the Financing
Corporation, a federal corporation chartered under the authority of the Federal
Housing Finance Board. The bonds, commonly referred to as FICO bonds, were
issued to capitalize the Federal Savings and Loan Insurance Corporation. The
FDIC established the FICO assessment rates effective for the third quarter of
2000 at approximately $.021 per $100 annually for assessable deposits. The FICO
assessments are adjusted quarterly to reflect changes in the assessment bases of
the FDIC's insurance funds and do not vary depending on a depository
institution's capitalization or supervisory evaluations.
Interstate Banking and Branching
The BHCA permits bank holding companies from any state to acquire banks and bank
holding companies located in any other state, subject to certain conditions,
including certain nationwide- and state-imposed concentration limits. The Bank
has the ability, subject to certain restrictions, to acquire by acquisition or
merger branches outside its home state. The establishment of new interstate
branches is also possible in those states with laws that expressly permit it.
Interstate branches are subject to certain laws of the states in which they are
located. Competition may increase further as banks branch across state lines and
enter new markets.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act activities. The CRA generally requires the federal banking
agencies to evaluate the record of a financial institution in meeting the credit
needs of its local communities, including low- and moderate-income
neighborhoods. A bank may be subject to substantial penalties and corrective
measures for a violation of certain fair lending laws. The federal banking
agencies may take compliance with such laws and CRA obligations into account
when regulating and supervising other activities. In December 2000, the federal
banking agencies established annual reporting and public disclosure requirements
for certain written agreements that are entered into between insured depository
institutions or their affiliates and nongovernmental entities or persons that
are made pursuant to, or in connection with, the fulfillment of the CRA.
A bank's compliance with its CRA obligations is based a performance-based
evaluation system which bases CRA ratings on an institution's lending service
and investment performance. When a bank holding company applies for approval to
acquire a bank or other bank holding company, the Federal Reserve Board will
review the assessment of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application. Based on
an examination conducted March 22, 1999, the Bank was rated satisfactory in
complying with its CRA obligations.
12
Item 2. Description of Property
(a) Properties.
Emclaire owns no real property but utilizes the main office of the Bank. The
Company's and the Bank's executive offices are located at 612 Main Street,
Emlenton, Pennsylvania. Emclaire pays no rent or other form of consideration for
the use of this facility. The Bank also owns a facility that houses its data
processing operations. The Bank has eleven offices located in Venango, Butler,
Clarion, Clearfield, Elk, and Jefferson counties, Pennsylvania. The Bank's total
investment in office property and equipment was $6.1 million with a net book
value of $3.3 million at December 31, 2000.
Main Office Eau Claire Office Clarion Office Data Center
----------- ----------------- -------------- -----------
612 Main Street 207 South Washington Street Sixth and Wood Streets 708 Main Street
Emlenton, Pennsylvania Eau Claire, Pennsylvania Clarion, Pennsylvania Emlenton, Pennsylvania
Venango County Butler County Clarion County Venango, County
East Brady Office Bon Aire Office Knox 338 Office Knox Main Street Office
----------------- --------------- --------------- -----------------------
Broad and Brady Streets 1101 North Main Street Rt. 338 South Main and State Streets
East Brady, Pennsylvania Butler, Pennsylvania Knox, Pennsylvania Knox, Pennsylvania
Clarion County Butler County Clarion County Clarion County
Clarion Mall Office Ridgway Office DuBois Office Brookville Office
------------------- -------------- ------------- -----------------
Clarion Mall, Room 400 173 Main Street 861 Beaver Drive 263 Main Street
Clarion, Pennsylvania Ridgway, Pennsylvania DuBois, Pennsylvania Brookville, Pennsylvania
Clarion County Elk County Clearfield County Jefferson County
All offices are owned by the Bank, except for the Bon Aire, Knox 338, Clarion
Mall and DuBois offices which are leased. The Bon Aire office is a unit in the
Bon Aire Plaza operated under a 5-year lease commencing in 1996 with an option
to renew. The Knox 338 office is located in a supermarket, and is operated under
a 5 year lease commencing in 1996 with three (3) options to renew. The Clarion
Mall office is leased for 5 years commencing in 1998 with two (2) options to
renew. The DuBois office is operated under a 5-year lease commencing in 2000,
with three (3) options to renew. The Bank also maintains a remote ATM facility
located in a supermarket in East Brady.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's investment
policies and any regulatory or Board of Directors' percentage of assets
limitations regarding certain investments. All of the Bank's investment policies
are reviewed and approved by the Board of Directors of the Bank, and such
policies, subject to regulatory restrictions (if any), can be changed without a
vote of stockholders. The Bank's investments are primarily acquired to produce
income, and to a lesser extent, possible capital gains.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Business - Lending Activities," "Item 1. Business - Regulation of the Bank,"
and "Item 2. Description of Property - (a) Properties" above.
(2) Investments in Real Estate Mortgages. See "Item 1. Business -
Lending Activities" and "Item 1. Business - Regulation of the Bank."
13
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities,"
"Item 1. Business - Regulation of the Bank," and "Item 1. Business - Subsidiary
Activity."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
Neither the Bank nor Emclaire is involved in any material legal proceedings. The
Bank, from time to time, is party to litigation which arises in the ordinary
course of business, such as claims to enforce liens, claims involving the
origination and servicing of loans, and other issues related to the business of
the Bank. In the opinion of management the resolution of any such issues would
not have a material adverse impact on the financial position, results of
operation, or liquidity of the Bank or the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to stockholders for a vote during the quarter ended
December 31, 2000.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information contained under the section captioned "Common Stock Information"
in Emclaire's Annual Report for the fiscal year ended December 31, 2000, is
incorporated herein by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The required information is contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report and is incorporated herein by reference.
Item 7. Financial Statements
Emclaire's consolidated financial statements required herein are contained in
the Annual Report and are incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable.
14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(b) of the Exchange Act
The information contained under the sections captioned "Principal Beneficial
Owners of the Corporation's Common Stock" and "Information as to Nominees,
Directors and Executive Officers" in the Company's definitive proxy statement
for the Company's Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated herein by reference.
Item 10. Executive Compensation
The information contained under the section captioned "Information as to
Nominees, Directors and Executive Officers" in the Proxy Statement is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Principal Beneficial
Owners of the Corporation's Common Stock" in the Proxy
Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Principal Beneficial
Owners of the Corporation's Common Stock" in the Proxy
Statement.
(c) Changes in Control
Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to the
section captioned "Information as to Nominees, Directors and Executive Officers"
in the Proxy Statement.
15
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits are either attached as part of this Report or incorporated
herein by reference.
3.1 Articles of Incorporation of Emclaire Financial Corp. *
3.2 Bylaws of Emclaire Financial Corp. *
4 Specimen Stock Certificate of Emclaire Financial
Corp. ***
10 Form of Change in Control Agreement between Registrant
and two (2) executive officers. **
11 Statement regarding computation of earnings per share
(see Note 1 to the Notes to Consolidated Financial
Statements in the Annual Report).
13 Annual Report to Stockholders for the fiscal year ended
December 31, 2000.
21 Subsidiaries of the Registrant (see information
contained herein under "Business - Subsidiary
Activity").
(b) Reports on Form 8-K.
None
------------
* Incorporated by reference to the Registrant's Registration Statement on Form
SB-2, as amended, (File No. 333-11773) declared effective by the SEC on
October 25, 1996
** Incorporated by reference to the Registrant's Annual Report on 10-KSB for
the year ended December 31, 1996.
*** Incorporated by reference to the Registrant's Annual Report on 10-KSB for
the year ended December 31, 1997.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EMCLAIRE FINANCIAL CORP.
Dated: March 21, 2001 By: /s/ David L. Cox
------------------------------------------------
David L. Cox
President, Chief Executive Officer, and Director
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ David L. Cox By: /s/ John J. Boczar
------------------------------------------ ------------------------------------------------
David L. Cox John J. Boczar
President, Chief Executive Officer, and Director Secretary/Treasurer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
Date: March 21, 2001 Date: March 21, 2001
By: /s/ Ronald L. Ashbaugh By: /s/ Brian C. McCarrier
------------------------------------------ --------------------------------------------------------
Ronald L. Ashbaugh Brian C. McCarrier
Director Director
Date: March 21, 2000 Date: March 21, 2001
By: /s/ Bernadette H. Crooks By: /s/ George W. Freeman
------------------------------------------ ------------------------------------------------
Bernadette H. Crooks George W. Freeman
Director Director
Date: March 21, 2001 Date: March 21, 2001
By: /s/ By: /s/ Robert L. Hunter
------------------------------------------ -----------------------------------------------
Rodney C. Heeter Robert L. Hunter
Director Director
Date: Date: March 21, 2001
By: /s/ J. Michael King By:
------------------------------------------ ------------------------------------------------
J. Michael King John B. Mason
Director Director
Date: March 21, 2001 Date:
By:
------------------------------------------
Elizabeth C. Smith
Director
Date:
17