UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
--------------
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 No X
--- ---
As of May 3, 2001, there were 1,332,835 shares outstanding of the issuer's
common stock, par value $1.25 per share.
1
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, March 31, 2001 and
December 31, 2000 3
Consolidated Statement of Income
Three months ended March 31, 2001 and 2000 4
Consolidated Statement of Changes in
Stockholders' Equity 5
Consolidated Statement of Cash Flows
Three months ended March 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 13
Part II Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Securities Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited - dollars in thousands)
March 31, December 31,
2001 2000
---------------- ----------------
ASSETS
Cash and due from banks $ 6,063 $ 6,770
Federal funds sold 8,210 1,740
Investment securities
Available for sale 27,016 26,469
Held to maturity (estimated market value
of $217 and $213) 217 219
Loans 151,427 151,792
Less allowance for loan losses 1,484 1,460
---------------- ----------------
Net loans 149,943 150,332
Premises and equipment 3,308 3,333
Accrued interest and other assets 5,255 5,302
---------------- ----------------
TOTAL ASSETS $200,012 $194,165
================ ================
LIABILITIES
Deposits
Noninterest bearing demand $ 28,284 $ 27,302
Interest bearing demand 20,549 21,692
Savings 20,823 21,189
Money market 23,473 19,472
Time 83,299 81,470
---------------- ----------------
Total deposits 176,428 171,125
Borrowed funds 2,000 2,000
Accrued interest and other liabilities 1,158 995
---------------- ----------------
TOTAL LIABILITIES 179,586 174,120
---------------- ----------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00; 3,000,000 shares authorized;
none issued - -
Common stock, par value $1.25; 12,000,000 shares authorized;
1,395,852 shares issued 1,745 1,745
Additional paid-in capital 10,871 10,871
Retained earnings 8,485 8,320
Accumulated other comprehensive income 296 80
Treasury stock at cost (63,017 shares) (971) (971)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 20,426 20,045
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $200,012 $194,165
================ ================
See accompanying notes to the consolidated financial statements.
3
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited - dollars in thousands, except per share amounts)
Three Months Ended March 31,
2001 2000
----------------- -----------------
INTEREST INCOME
Loans, including fees $ 3,174 $ 2,919
Interest bearing deposits in other banks 1 4
Federal funds sold 82 8
Investment securities:
Taxable 309 460
Exempt from federal income tax 82 84
----------------- -----------------
Total interest income 3,648 3,475
----------------- -----------------
INTEREST EXPENSE
Deposits 1,561 1,327
Borrowed funds 29 40
----------------- -----------------
Total interest expense 1,590 1,367
----------------- -----------------
NET INTEREST INCOME 2,058 2,108
Provision for loan losses 46 46
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,012 2,062
----------------- -----------------
OTHER OPERATING INCOME
Service fees on deposit accounts 213 143
Other 96 60
----------------- -----------------
Total other operating income 309 203
----------------- -----------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 928 886
Occupancy, furniture and equipment 283 244
Other 552 581
----------------- -----------------
Total other operating expense 1,763 1,711
----------------- -----------------
Income before income taxes 558 554
Income taxes 167 163
----------------- -----------------
NET INCOME $ 391 $ 391
================= =================
EARNINGS PER SHARE $ 0.29 $ 0.29
DIVIDENDS PER SHARE $ 0.17 $ 0.15
AVERAGE SHARES OUTSTANDING 1,332,835 1,365,079
See accompanying notes to the consolidated financial statements.
4
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited - dollars in thousands, except per share data)
Accumulated
Additional Other
Common Paid in Retained Comprehensive Treasury
Stock Capital Earnings Income Stock Total
------------- --------------- -------------- ---------------- -------------- -----------
Balance, December 31, 2000 $ 1,745 $ 10,871 $ 8,320 $ 80 $ (971) $ 20,045
Comprehensive income:
Net income 391 391
Other comprehensive income, net
unrealized gains on securities
net of tax of $111 216 216
-----------
Total comprehensive income 607
Dividends declared ($.17 per share) (226) (226)
------------- --------------- -------------- ---------------- -------------- -----------
Balance March 31, 2001 $ 1,745 $ 10,871 $ 8,485 $296 $ (971) $ 20,426
============= =============== ============== ================ ============== ===========
See accompanying notes to the consolidated financial statements.
5
EMCLAIRE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - dollars in thousands)
Three Months Ended March 31,
2001 2000
----------------- -----------------
OPERATING ACTIVITIES
Net income $ 391 $ 391
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 220 225
Net amortization of investment security
discounts and premiums 3 19
Provision for loan losses 46 46
Decrease (increase) in accrued interest receivable 140 (154)
Increase in accrued interest payable 85 16
Other, net (185) 22
----------------- -----------------
Net cash provided by operating activities 700 565
----------------- -----------------
INVESTING ACTIVITIES
Proceeds from maturities and repayments of investment securities:
Available for sale 2,251 2,000
Held to maturity 2 -
Purchases of investment securities:
Available for sale (2,474) (10)
Net loan repayments (originations) 271 (6,824)
Purchases of premises and equipment (84) (45)
Proceeds from sales of premises and equipment 2 -
Proceeds from sale of foreclosed assets 18 -
----------------- -----------------
Net cash used for investing activities (14) (4,879)
----------------- -----------------
FINANCING ACTIVITIES
Net increase in deposits 5,303 470
Increase in short-term borrowings - 2,420
Acquisition of treasury stock - (355)
Cash dividends paid, including fractional shares (226) (203)
----------------- -----------------
Net cash provided by provided by financing activities 5,077 2,332
----------------- -----------------
Increase (decrease) in cash and cash equivalents 5,763 (1,982)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,510 8,595
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,273 $ 6,613
================= =================
See accompanying notes to the consolidated financial statements.
6
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 1,332,835 and
1,365,079, and for the three month periods in 2001 and 2000, respectively.
3. RECLASSIFICATION
Common stocks of the Federal Home Loan Bank and the Federal Reserve Bank have
been classified as other assets to conform to the current period presentation.
In prior periods these items had been presented as investment securities
available for sale.
4. COMPREHENSIVE INCOME
The components of comprehensive income consist exclusively of unrealized gains
and losses on securities available for sale. For the three months ended
March 31, 2001, this activity is shown under the heading Accumulated Other
Comprehensive Loss as presented in the Consolidated Statement of Changes in
Stockholders' Equity. For the three months ended March 31, 2000 the accumulated
other comprehensive loss had a beginning balance of $663,000, a net unrealized
loss of $137,000 and an ending balance of $800,000. This net unrealized loss on
securities resulted in total comprehensive net income of $254,000, for the three
months ended March 31, 2000.
7
5. LOANS
Major classifications of loans are summarized as follows (in thousands):
March 31, December 31,
2001 2000
----------------- -----------------
Commercial, industrial and other $ 21,062 $ 20,084
Real estate mortgages
Residential 91,688 92,429
Commercial and other 24,008 24,661
Consumer 14,669 14,618
----------------- -----------------
151,427 151,792
Less allowance for loan losses 1,484 1,460
----------------- -----------------
$149,943 $150,332
================= =================
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 March 31, 2001 and December 31, 2000, loans
outstanding to individuals and businesses are dependent upon the local economic
conditions within the immediate trade area.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Emclaire Financial Corp. ("Emclaire" or the "Company") is the parent holding
company 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 March 31, 2001 and 2000
Net Income - Net income for the three months ended March 31, 2001 totaled
$391,000 or $.29 per share, equaling the dollar and per share performance during
the same period in 2000. The current period quarterly earnings equaled those
reported in 2000, as the decline in net interest income and the increase in
overhead costs was offset by the rise in other income.
The net income reported resulted in annualized returns on average assets and
average equity of .80% and 7.80% for the quarter ended March 31, 2001, as
compared to returns of .82% and 7.58% for the same period in 2000.
Net Interest Income - Tax-equivalent net interest income decreased $57,000 or 3%
during the first quarter of 2001 as compared to the same period in 2000. The
increase in the volume and rate paid on interest bearing liabilities,
particularly certificates of deposit caused interest expense to increase
$223,000 or 16% during the first quarter of 2001 as compared to the same period
in 2000, as the average cost of funds increased 50 basis points to 4.36%. The
increased interest cost exceeded the $166,000 or 5% increase in tax equivalent
interest income. Tax equivalent interest income on loans increased $249,000 due
largely to the $10.3 million increase in average loan volume, as the average
balance on loans totaled $152.0 for the first quarter of 2001. Deposit growth
and maturities of investment securities funded this growth in loan volume. The
investment maturities caused tax equivalent investment interest income to fall
$154,000 or 26%. Additional liquidity that was provided by the growth in
deposits, caused the volume of federal funds to rise $5.6 million, as interest
income on federal funds increased $74,000 to $82,000. The net tax-equivalent
yield on earning assets for the quarter was 4.62%, a 23 basis point decline from
the 4.85% yield earned during the same period in 2000.
9
Average earning assets totaled $185.0 for the first three months of 2001
representing 93.8% of total average assets. For the same period in 2000, average
earning assets totaled $179.3 million or 93.3% of total average assets.
Tax equivalent interest income rose $166,000 or 4.7% during the first three
months of 2001, as compared to the same period in 2000, due to the increased
loan volume and slightly higher interest rates. The tax-equivalent yield on the
loan portfolio for the first quarter of 2001 rose 16 basis points to 8.48%, as
compared to the first quarter of 2000. This increase was due to the trend of
rising interest rates during 1999 and the first half of 2000. This trend ended
in 2001 as the Federal Reserve Board has adopted a policy of aggressive interest
rate reduction, lowering the federal funds rate 200 basis points since the
beginning of 2001. It is reasonable to expect this trend to continue for at
least the short-term. This shift in interest rates is expected to have an
adverse impact on the yield on earning assets in relation to prior comparative
periods during the remainder of 2001.
Interest expense increased $223,000 or 16.3% to $1.59 million during the first
quarter of 2001, as compared to the same period in 2000. The increase in the
rates related to the cost of funds accounted for $126,000 as the cost of these
funds rose to 3.86%. The remainder of the increase resulted from the increase in
the volume of average interest-bearing liabilities, which rose $5.6 million to
$147.9 million due largely to the increase in time certificates of deposit as
deposits were attracted during 2000 through the use of promotional certificates
of deposits. The impact of these fixed rate certificates of deposit will remain,
in varying degrees, for the next seven quarters. During the first quarter of
2001 a premium money market deposit account was introduced, offering a market
based interest rate on balances over a specified amount. This product will allow
for the downward adjustment of interest rates during periods of declining
interest rates.
Provision for Loan Losses - Based upon management's ongoing assessment of the
quality of the loan portfolio, the provision for loan losses for the first
quarter of 2001 totaled $46,000, equal to that provided during the same period
in 2000.
Other operating income - Other operating income increased $106,000 or 52% for
the first quarter of 2001, due to an increase of approximately $69,000 in
overdraft and service fees due to the restructuring of service charges in the
second half of 2000. 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 $17,000 of the total increase in other
operating income. The cumulative effect of increases in other fees, commissions
on accident health and life insurance and other income accounted for the
remainder of the increase.
Other Operating Expense - Total other operating expense for the first quarter of
2001 increased $52,000 or 3.0% as compared to the same period in 2000. Increases
in employee and occupancy costs offset a decrease in other operating expense.
Due to the impact of normal, recurring annual salary adjustments, and several
staff additions, salaries and employee benefits increased $42,000 or 5% for the
first three months of 2001 as compared to the same period in 2000. For the
remainder of 2001 in comparison to 2000 the increase in salaries and benefits is
expected to rise due to
10
converting the Company's health care coverage to a health maintenance
organization during the second quarter of 2000.
Occupancy and equipment costs rose $39,000 or 16% for the comparative quarter
ended March 31, 2001 due to increased costs associated with operating two branch
facilities relocated or renovated late in 2000. Combined these offices added
approximately $18,000 in additional depreciation, amortization and other
occupancy related costs during the first three months of 2001. During the first
quarter of 2001 utility costs, particularly the cost of natural gas increased
$14,000 or 59% over the same period in 2000. While the rise in utility costs may
mitigate somewhat due the end of the winter heating season, this general
increase in costs will continue, and may accelerate if the effect of electric
supply concerns experienced in western regions of the country make their way
east as the summer cooling season gets underway.
Other operating expense totaled $552,000 for the first quarter of 2001, a
decrease of $29,000 or 5%, as compared to the first three months of 2000.
Intangible asset amortization declined $12,000 in the comparative quarters due
to the revaluation of intangible assets during the fourth quarter of 2000, and
the resulting reduction in monthly amortization. Combined with this reduction
was a savings of $17,000 related to customer check losses incurred in 2000 that
were not repeated in the current quarter.
Income Taxes - Applicable income taxes for the first quarter of 2001 totaled
$167,000 and represented 29.9% of pre-tax earnings. This comparable to the
$163,000 recorded during the same period in 2000.
Financial Condition
At March 31, 2001 consolidated assets totaled $200.0 million an increase of $5.9
million or 3% from December 31, 2000. Deposits increased $5.3 million or 3%
during the first quarter of 2001. This increase, which is similar to that
experienced throughout the industry, provided funds, which increased liquidity
as federal funds sold $6.5 million.
The increase in deposits was largely due to the addition of a tiered rate money
market account product introduced in February 2001. This account is designed to
provide depositors a return on their funds at a level approximating that
available from money market accounts offered by brokerages, plus the benefit of
applicable federal deposit insurance. During the first quarter of 2001 money
market deposits increased $4.0 million or 20% while regular checking and
certificates of deposit rose $982,000 or 4% and $1.8 million or 2.2%
respectively. These increases more than offset declines in NOW and savings
accounts which declined $1.1 million or 5% and $366,000 or 2% during the first
quarter of the year. A portion of the declines is due to funds migrating from
NOW and savings accounts to the new money market account product.
Total loans decreased $365,000 during the first quarter and totaled $151.4
million at March 31, 2001. The recent sharp decline in interest rates has
accentuated the cyclical downturn in loan demand that started in the latter half
of 2000. As a result, the origination of new loans has approximated the
scheduled payments and prepayments of existing loans during the first three
months of 2001. The impact of loan prepayments is most noticeable in the real
estate mortgage loans as residential, and commercial and other mortgages
decreased $741,000 or 1% and 653,000 or 3% during the quarter.
11
This decline was partially offset by commercial loans increasing $978,000 or 5%.
The cyclical downturn in loan demand is expected to continue until potential
borrowers sense a stabilization in the general interest rate environment.
Retained net earnings of $165,000 combined with a net increase in the unrealized
gain in investment securities resulted in a net increase in stockholders' equity
of $381,000 or 2% during the first quarter of 2001.
Liquidity
Cash and cash equivalents increased $5.8 million during the first quarter of
2001 and totaled $14.3 million at March 31, 2001. During the same period in 2000
cash and cash equivalents declined $2.0 million to $6.6 million.
Operating activities consisting principally of net income, depreciation and
amortization provided $700,000 during the first three months of 2001 as compared
to $565,000 during the first quarter of 2000.
Investing activities were largely self-funding during the first three months of
2001, resulting in a net use of $14,000. This flat trend in financing actively
was due largely to the downturn in net loan originations, previously discussed,
resulting in net loan repayments for the quarter of $271,000. During the same
period in 2000, investing activities used $4.9 million due largely to $6.8
million in net loan orginations.
The previously discussed increase in deposits resulted in $5.1 million provided
by financing activities during the first quarter of 2001. During the same period
in 2000, $2.3 million was provided principally by a $2.4 million increase in
borrowed funds.
Due to the increase in liquidity during the first quarter, a $2.0 million
Federal Home Loan Bank borrowing originally taken in 1997 was repaid in April
2001.
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 from the Federal Home Loan Bank. At
March 31, 2001, this short-term revolving credit facility totaling $10 million
was available.
Management is not aware of any conditions, including any regulatory
recommendations or requirements, which would adversely affect its liquidity or
its ability to meet funding needs in the ordinary course of business.
Risk Elements
At March 31, 2001, non-performing loans, including those past due ninety days or
more, and loans on non-accrual status totaled approximately $913,000.
Of the non-performing loan total, $500,000 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
operating 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 March 31, 2001, has been
12
allocated for these loans. During the first quarter of 2001, the borrower made
payments totaling $23,000, of which $10,000 was recorded against principal and
$13,000 was recorded as interest income. During April 2001, one of these loans
totaling $50,000 was repaid in full, including non-accrual interest of $16,000.
Management believes the underlying collateral, supporting the remaining loans,
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:
2001 2000
--------- ---------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
--------- ------------ ------------- -------- ---------
Non-performing loans
Loans past due 90 days or more $ 215 $ 158 $ 159 $ 115 $ 84
Non-accrual loans 698 742 909 656 609
------ ----- ------- ------ -----
Total non-performing loans 913 900 1,068 771 693
Other non-performing assets:
Real estate acquired through
foreclosure 65 33 40 45 113
------ ----- ------- ------ -----
Total other non-performing assets 65 33 40 45 113
------ ----- ------- ------ -----
Total non-performing assets $ 978 $ 933 $ 1,108 $ 816 $ 806
====== ===== ======= ====== =====
Non-performing loans as a percentage
of total loans .60% .59% .70% .51% .47%
Non-performing assets to assets .49 .48 .56 .42 .41
At March 31, 2001, 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 March 31, 2001 is adequate.
13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(None)
Item 2. Changes in Securities
(None)
Item 3. Defaults Upon Senior Securities
(None)
Item 4. Submission of Matters to a Vote of Security Holders
(None)
Item 5. Other Information
(None)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(None)
(b) Reports on Form 8-K
(None)
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Emclaire Financial Corp.
(Registrant)
Date: May 14, 2001 By: /s/ David L. Cox
--------------------- ------------------------
David L. Cox
President and CEO
Date: May 14, 2001 By: /s/ John J. Boczar
--------------------- ------------------------
John J. Boczar
Secretary/Treasurer
15