UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter Ended: March 31, 2002
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission File Number: 000-18464
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EMCLAIRE FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1606091
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
612 Main Street, Emlenton, PA 16373
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(Address of principal executive offices)
(724) 867-2311
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(Issuer's telephone number)
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(Former name, former address and former fiscal
year, if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by the court.
Yes No
------ -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares of issuer's common stock outstanding as of May 6, 2002:
Common Stock, $1.25 par value 1,332,835
----------------------------- ---------
(Class) (Outstanding)
EMCLAIRE FINANCIAL CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2002 (Unaudited) and December 31, 2001 1
Consolidated Income Statements for the three months
ended March 31, 2002 and 2001 (Unaudited) 2
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended March 31, 2002 (Unaudited) 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 and 2001 (Unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
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 Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Emclaire Financial Corp. and Subsidiary
Consolidated Balance Sheets
As of March 31, 2002 (Unaudited) and December 31, 2001
(Dollar amounts in thousands, except share data)
March 31, December 31,
2002 2001
(unaudited)
Assets --------- ----------
Cash and due from banks $ 5,938 $ 7,127
Interest-earning deposits in banks 3,993 620
Federal funds sold - 1,410
Securities available for sale; cost of $37,387 and $38,132 37,847 38,695
Securities held to maturity; fair value of $60 and $61 60 60
Loans receivable, net of allowance for loan losses of
$1,402 and $1,464 164,399 160,540
Federal bank stocks, at cost 1,261 1,261
Accrued interest receivable 1,305 1,251
Premises and equipment 3,418 3,388
Intangible assets 1,688 1,737
Prepaid expenses and other assets 633 628
--------- ---------
Total assets $ 220,542 $ 216,717
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 192,944 $ 189,470
Borrowed funds 5,000 5,000
Accrued interest payable 462 480
Accrued expenses and other liabilities 864 656
--------- ---------
Total liabilities 199,270 195,606
--------- ---------
Stockholders' Equity:
Preferred stock, $1.00 par value, 3,000,000 shares authorized;
none issued - -
Common stock, $1.25 par value, 12,000,000 shares authorized;
1,395,852 shares issued; 1,332,835 shares outstanding 1,745 1,745
Additional paid-in capital 10,871 10,871
Treasury stock, at cost; 63,017 shares (971) (971)
Retained earnings 9,324 9,094
Accumulated other comprehensive income 303 372
--------- ---------
Total stockholders' equity 21,272 21,111
Total liabilities and stockholders' equity $ 220,542 $ 216,717
========= =========
See accompanying notes to consolidated financial statements.
1
Emclaire Financial Corp. and Subsidiary
Consolidated Income Statements
For the three months ended March 31, 2002 and 2001 (Unaudited)
(Dollar amounts in thousands, except share data)
Three Months Ended
March 31,
--------------------
2002 2001
-------- -------
Interest and
dividend income:
Loans receivable $ 3,143 $ 3,174
Securities:
Taxable 369 292
Exempt from federal income tax 141 82
Federal bank stocks 15 17
Deposits with banks and federal funds sold 13 83
-------- --------
Total interest income 3,681 3,648
-------- --------
Interest expense:
Deposits 1,228 1,561
Borrowed funds 60 29
-------- --------
Total interest expense 1,288 1,590
-------- --------
Net interest income 2,393 2,058
Provision for loan losses 111 46
-------- --------
Net interest income after provision
for loan losses 2,282 2,012
-------- --------
Noninterest income:
Service fees 230 213
Other 67 96
-------- --------
Total noninterest income 297 309
-------- --------
Noninterest expense:
Compensation and employee benefits 1,014 946
Premises and equipment, net 289 283
Intangible amortization expense 49 69
Other 563 465
-------- --------
Total noninterest expense 1,915 1,763
-------- --------
Net income before provision for income taxes 664 558
Provision for income taxes 181 167
-------- --------
Net income $ 483 $ 391
======== ========
Net income per share $ 0.36 $ 0.29
Dividends per share $ 0.19 $ 0.17
Average common shares outstanding 1,332,835 1,332,835
See accompanying notes to consolidated financial statements.
2
Emclaire Financial Corp. and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31, 2002 (Unaudited)
(Dollar amounts in thousands)
Accumulated
Additional Other Total
Common Paid-in Treasury Retained Comprehensive Stockholders'
Stock Capital Stock Earnings Income (Loss) Equity
-------- -------- -------- --------- -------------- ------------
Balance at December 31, 2001 $ 1,745 $10,871 $ (971) $ 9,094 $ 372 $ 21,111
Comprehensive income:
Net income - - - 483 - 483
Change in net unrealized
gain on securities
available for sale, net of
taxes of $37 - - - - (69) (69)
------- ------- ------- ------- ------ --------
Comprehensive income - - - 483 (69) 414
--------
Dividends paid - - - (253) - (253)
------- ------- ------- ------- ------ --------
Balance at March 31, 2002 $ 1,745 $10,871 $ (971) $ 9,324 $ 303 $ 21,272
======= ======= ======= ======= ====== ========
See accompanying notes to consolidated financial statements.
3
Emclaire Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows
For the three months ended March 31, 2002 and 2001 (Unaudited)
(Dollar amounts in thousands)
For the Three Months Ended
March 31,
-------------------------------
2002 2001
-------------- --------------
Operating activities:
Net income $ 483 $ 391
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization for premises and equipment 119 220
Provision for loan losses 111 46
Amortization of premiums and accretion of discounts, net 18 3
Amortization of intangible assets 49 69
Decrease (increase) in accrued interest receivable (54) (140)
Decrease (increase) in prepaid expenses and other assets (5) 237
Increase (decrease) in accrued interest payable (18) 85
Increase (decrease) in accrued expenses and other liabilities 208 (211)
Other 25 -
-------------- --------------
Net cash provided by operating activities 936 700
-------------- --------------
Lending and Investing Activities:
Loan originations (18,547) (15,458)
Purchases of securities available for sale (3,239) (2,474)
Principal repayments of loans receivable 14,577 15,729
Repayments, maturities and calls of securities available for sale 3,975 2,251
Principal repayments of securities held to maturity - 2
Purchases of premises and equipment (149) (64)
-------------- --------------
Net cash used in lending and investing activities (3,383) (14)
-------------- --------------
Deposit and Financing Activities:
Net increase in deposits 3,474 5,303
Dividends paid (253) (226)
-------------- --------------
Net cash provided by deposit and financing activities 3,221 5,077
-------------- --------------
Net increase (decrease) in cash equivalents 774 5,763
Cash equivalents at beginning of period 9,157 8,510
-------------- --------------
Cash equivalents at end of period $ 9,931 $ 14,273
============== ==============
Supplemental information:
Interest paid $ 1,306 $ 1,617
Income taxes paid 50 40
See accompanying notes to consolidated financial statements.
4
1. Basis of Presentation
Emclaire Financial Corp. (the Corporation) is a Pennsylvania corporation and
bank holding company that provides a full range of retail and commercial
financial products and services to customers in western Pennsylvania through its
wholly owned subsidiary bank, the Farmers National Bank of Emlenton (the Bank),
a national banking association. The consolidated financial statements contained
herein include the accounts of the Corporation and the Bank. All inter-company
transactions and balances have been eliminated.
The accompanying unaudited consolidated financial statements for the interim
periods include all adjustments, consisting of normal recurring accruals, which
are necessary, in the opinion of management, to fairly reflect the Corporation's
financial position and results of operations. Additionally, these consolidated
financial statements for the interim periods have been prepared in accordance
with instructions for the Securities and Exchange Commission's Form 10-QSB and
therefore do not include all information or footnotes necessary for a complete
presentation of financial condition, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of
America. For further information, refer to the audited consolidated financial
statements and footnotes thereto for the year ended December 31, 2001, as
contained in the Corporation's 2001 Annual Report to Stockholders.
The results of operations for interim quarterly or year to date periods are not
necessarily indicative of the results that may be expected for the entire year
or any other period. Certain amounts previously reported may have been
reclassified to conform to the current year's financial statement presentation.
2. Securities
The following table summarizes the Corporation's securities as of the respective
dates:
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(In thousands) Amortized Unrealized Unrealized Fair
cost gains losses value
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Available for sale:
March 31, 2002:
U.S. Government securities $ 12,979 $ 310 $ (21) $ 13,268
Municipal securities 11,205 42 (277) 10,970
Corporate securities 12,232 120 (102) 12,250
Equity securities 971 388 - 1,359
--------- --------- ------ --------
$ 37,387 $ 860 $ (400) $ 37,847
========= ========= ====== ========
December 31, 2001:
U.S. Government securities $ 12,978 $ 441 $ (14) $ 13,405
Municipal securities 11,919 24 (176) 11,767
Corporate securities 12,264 157 (115) 12,306
Equity securities 971 246 - 1,217
--------- --------- ------ --------
$ 38,132 $ 868 $ (305) $ 38,695
========= ========= ====== ========
Held to maturity:
March 31, 2002:
Mortgage-backed securities $ 60 $ - $ - $ 60
--------- --------- ------ --------
$ 60 $ - $ - $ 60
========= ========= ====== ========
December 31, 2001:
Mortgage-backed securities $ 60 $ 1 $ - $ 61
--------- --------- ------ --------
$ 60 $ 1 $ - $ 61
========= ========= ====== ========
5
3. Loans Receivable
The Corporation's loans receivable as of the respective dates are summarized as
follows:
March 31, December 31,
(In thousands) 2002 2001
-----------------------------------------------------------------------------
Mortgage loans:
Residential first mortgage $ 84,456 $ 84,974
Home equity 16,122 15,445
Commercial real estate 29,965 26,470
---------- ----------
130,543 126,889
Other loans:
Consumer 13,358 16,141
Commercial business 21,900 18,974
---------- ----------
35,258 35,115
---------- ----------
Total gross loans 165,801 162,004
Less allowance for loan losses 1,402 1,464
---------- ----------
$ 164,399 $ 160,540
========== ==========
4. Deposits
The Corporation's deposits as of the respective dates are summarized as follows:
(Dollar amounts in thousands) March 31, 2002 December 31, 2001
------------------------ ------------------------
Weighted Weighted
average average
Type of accounts rate Amount % rate Amount %
---------------------------------------------------------------------------------------
Noninterest-bearing deposits - $ 31,226 16.2% - $ 29,237 15.4%
Interest-bearing demand deposits 1.09% 70,994 36.8% 1.32% 69,665 36.8%
Time deposits 4.57% 90,724 47.0% 4.83% 90,568 47.8%
-------- -------- -------- -----
2.55% $192,944 100.0% 2.79% $189,470 100.0%
======== ======== ======== =====
5. Net Income Per Share
The Corporation maintains a simple capital structure with no common stock
equivalents. As such earnings per share computations are based on the weighted
average number of common shares outstanding for the respective reporting
periods.
6
6. Comprehensive Income
Total comprehensive income was comprised of the following for the three-month
periods ended March 31:
Three Months Ended
March 31,
----------------------
In thousands 2002 2001
-------------------------------------------------------------------------------
Net income $ 483 $ 391
Change in net unrealized gain on securities available
for sale, net of taxes of $37 and $111 (69) (137)
---------- -----------
Comprehensive income $ 414 $ 254
========== ===========
7. Goodwill
On January 1, 2002, the Corporation adopted the Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets." This statement changed the accounting
for goodwill from an amortization method to an impairment-only approach. Thus
amortization of goodwill, including goodwill recorded in past business
combinations, ceased upon adoption of this statement. However, this statement
did not amend SFAS No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions," which requires recognition and amortization of
unidentified assets relating to the acquisitions of certain financial
institutions or branches thereof. The FASB has undertaken a limited scope
project to reconsider the provisions of SFAS No. 72 and a final determination as
to the treatment of goodwill associated with SFAS No. 72 acquisitions should be
derived by the end of 2002.
Had SFAS No. 142 been in effect for all periods presented, previously
reported net income and net income per share would have been as follows:
Three Months Ended
March 31,
----------------------
In thousands, except per share data 2002 2001
------------------------------------------------------------------------
Net income:
Reported net income $ 483 $ 391
Add back goodwill amortization - 20
---------- -----------
Adjusted net income $ 483 $ 411
========== ===========
Net income per share:
Reported net income per share $ 0.36 $ 0.29
Add back goodwill amortization - 0.02
---------- -----------
Adjusted net income per share $ 0.36 $ 0.31
========== ===========
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This section discusses the consolidated financial condition and results of
operations of Emclaire Financial Corp. (the Corporation) and its wholly owned
subsidiary bank, the Farmers National Bank of Emlenton (the Bank), for the three
month period ended March 31, 2002 and should be read in conjunction with the
accompanying consolidated financial statements and notes presented on pages 1
through 7.
Discussions of certain matters in this Report on Form 10-QSB may constitute
forward-looking statements within the meaning of the Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve
risks and uncertainties. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies, and expectations, are
generally identifiable by the use of words or phrases such as "believe", "plan",
"expect", "intend", "anticipate", "estimate", "project", " forecast", "may
increase", "may fluctuate", "may improve" and similar expressions of future or
conditional verbs such as "will", "should", "would", and "could". These
forward-looking statements relate to, among other things, expectations of the
business environment in which the Corporation operates, projections of future
performance, potential future credit experience, perceived opportunities in the
market, and statements regarding the Corporation's mission and vision. The
Corporation's actual results, performance, and achievements may differ
materially from the results, performance, and achievements expressed or implied
in such forward-looking statements due to a wide range of factors. These factors
include, but are not limited to, changes in interest rates, general economic
conditions, the demand for the Corporation's products and services, accounting
principles or guidelines, legislative and regulatory changes, monetary and
fiscal policies of the US Government, US Treasury, and Federal Reserve, real
estate markets, competition in the financial services industry, attracting and
retaining key personnel, performance of new employees, regulatory actions,
changes in and utilization of new technologies, and other risks detailed in the
Corporation's reports filed with the Securities and Exchange Commission (SEC)
from time to time, including the Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2001. These factors should be considered in evaluating
the forward-looking statements, and undue reliance should not be placed on such
statements. The Corporation 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.
CHANGES IN FINANCIAL CONDITION
General. The Corporation's total assets increased by $3.8 million or 1.8% to
$220.5 million at March 31, 2002 from $216.7 million at December 31, 2001. This
net increase was primarily the result of increases in cash equivalents and loans
receivable of $774,000 and $3.9 million, respectively, partially offset by a
decrease in securities of $848,000. The increase in total assets reflects a
corresponding increase in total liabilities and total stockholders' equity of
$3.7 million or 1.9% and $161,000 or 1.0%, respectively. The increase in total
liabilities was primarily the result of an increase in deposits of $3.5 million
or 1.8%. The increase in stockholders' equity was primarily the result of an
increase in retained earnings of $230,000; partially offset by a decrease in
accumulated other comprehensive income of $69,000.
Cash equivalents. Cash on hand, interest-earning deposits and federal funds sold
represent cash equivalents and increased a combined $774,000 or 8.5% to $9.9
million at March 31, 2002 from $9.2 million at December 31, 2001. The net
increase between March 31, 2002 and December 31, 2001 can be attributed
primarily to the increase in the Corporation's deposits and maturities of
securities, partially offset by net loan originations.
Securities. The Corporation's securities portfolio decreased $848,000 or 2.2% to
$37.9 million at March 31, 2002 from $38.7 million at December 31, 2001. This
net decrease was primarily the result of security maturities of $4.0 million,
during the three months ended March 31, 2002. Partially offsetting these
maturities were security purchases of $3.2 million, during the period.
8
Loans receivable. Net loans receivable increased $3.9 million or 2.4% to $164.4
million at March 31, 2002 from $160.5 million at December 31, 2001. This
increase was comprised of an increase in mortgage loans of $3.7 million or 2.9%
and other loans of $143,000 during the three months ended March 31, 2002. This
overall increase in loans receivable can be attributed primarily to higher
customer demand for loans in the current lower interest rate environment as well
as the introduction of new consumer mortgage loan products.
Non-performing assets. Non-performing assets include non-accrual loans and real
estate acquired through foreclosure. Non-performing assets amounted to $1.0
million or 0.50% and $1.3 million or 0.59% of total assets at March 31, 2002 and
December 31, 2001, respectively.
Deposits. Total deposits increased $3.5 million or 1.8% to $192.9 million at
March 31, 2002 from $189.5 million at December 31, 2001. This increase was
comprised of increases in noninterest bearing, interest bearing and time
deposits of $2.0 million, $1.3 million and $156,000, respectively. The general
increase in deposits during the period can be attributed primarily to: (1) an
overall movement of funds in the marketplace by customers from mutual fund and
stock investments into FDIC insured bank deposits as a result of recent national
economic instability, and (2) the Corporation's development and promotion of new
depository products including money market accounts and special certificate of
deposit programs, among other initiatives.
Stockholders' equity. Stockholders' equity increased $161,000 or 1.0% to $21.3
million at March 31, 2002 from $21.1 million at December 31, 2001. This increase
was principally the result of an increase in retained earnings of $230,000,
comprised of net income of $483,000 offset by dividends paid of $253,000, and a
decrease in accumulated other comprehensive income of $69,000.
RESULTS OF OPERATIONS
Comparison of Results for the Three-Month Periods Ended March 31, 2002 and 2001
General. The Corporation reported net income of $483,000 and $391,000 for the
three months ended March 31, 2002 and 2001, respectively. The $92,000 or 23.5%
increase in net income for the three months ended March 31, 2002, as compared to
the three months ended March 31, 2002, was attributable to an increase in net
interest income of $335,000, partially offset by a decrease in noninterest
income of $12,000 and increases in the provision for loan losses, noninterest
expense and the provision for income taxes of $65,000, $152,000 and $14,000,
respectively.
During 2001, the Corporation and the nation experienced a historically dramatic
drop in national market interest rates with the federal funds discount rate
decreasing 375 basis points to 1.75% in December 2001 from 5.50% in January
2001. Over the same period, the national prime-lending rate has declined
similarly from 9.50% to 4.75%. The prime rate and short-term interest rates have
remained relatively consistent during the three months ended March 31, 2002.
As outlined in detail below, this declining rate environment has resulted in a
significant repricing of the Corporation's loan products, reducing the yield of
the Corporation's interest-earning assets as new loan production and refinancing
of existing loans during 2001 and early 2002 has resulted in lower yielding
assets. Because the Corporation's time deposit products don't afford a call
feature, the cost of funds during 2001, did not decrease as quickly as the yield
on interest-earning assets, however, such repricing of deposits is expected to
approach that of interest-earning assets, particularly as the current lower
interest rate environment continues. The Corporation continues to evaluate the
pricing of interest-bearing demand deposits (checking, savings and money market
products) in light of the current rate environment and will adjust pricing to
reflect current market conditions. Specifically, the Corporation has seen in
recent months and expects to see a decrease in the cost of time deposits as
approximately $39.1 million of these deposits are expected to mature and reprice
within the next year. The Corporation does not expect a significant decrease in
deposit balances as this repricing occurs. And the repricing of these time
deposits could result in a lower cost of funds and a more stabilized or higher
interest rate spread especially if the current lower rate environment persists.
9
Average Balance Sheet and Yield/Rate Analysis. The following table sets forth,
for periods indicated, information concerning the total dollar amounts of
interest income from interest-earning assets and the resultant average yields,
the total dollar amounts of interest expense on interest-bearing liabilities and
the resulting average costs, net interest income, interest rate spread and the
net interest margin earned on average interest-earning assets. For purposes of
this table, average loan balances include non-accrual loans and exclude the
allowance for loan losses, and interest income includes accretion of net
deferred loan fees. Interest and yields on tax-exempt loans and securities
(tax-exempt for federal income tax purposes) are shown on a fully tax equivalent
basis.
Emclaire Financial Corp. and Subsidiary
Consolidated Statements of Financial Condition - Average Balance and Interest Rate Analysis
-------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) Three months ended March 31,
2002 2001
---------------------------------------- ------------------------------------
Average Yield / Average Yield /
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans $ 163,944 $ 3,143 7.77% $ 152,048 $ 3,174 8.47%
Securities, taxable 27,882 369 5.37% 18,557 292 6.38%
Securities, tax exempt 11,685 205 7.11% 6,994 119 6.90%
--------- ------------ ------------- ----------- ------------- ----------
39,567 574 5.88% 25,551 411 6.52%
--------- ------------ ------------- ----------- ------------- ----------
Interest-earning cash equivalents 3,281 13 1.61% 6,188 83 5.44%
Federal bank stocks 1,261 15 4.82% 1,239 17 5.56%
--------- ------------ ------------- ----------- ------------- ----------
4,542 28 2.50% 7,427 100 5.46%
--------- ------------ ------------- ----------- ------------- ----------
Total interest-earning assets 208,053 3,745 7.30% 185,026 3,685 8.08%
Cash and due from banks 4,536 6,125
Other noninterest-earning assets 5,504 6,006
--------- ------------ ------------- ----------- ------------- ----------
Total assets $ 218,093 $ 3,745 6.96% $ 197,157 $ 3,685 7.58%
========= ============ ============= =========== ============= ==========
Interest-bearing liabilities:
Interest-bearing demand deposits $ 70,220 $ 203 1.17% $ 63,163 $ 392 2.52%
Time deposits 90,169 1,025 4.61% 82,769 1,169 5.73%
--------- ------------ ------------- ----------- ------------- ----------
160,389 1,228 3.11% 145,932 1,561 4.34%
--------- ------------ ------------- ----------- ------------- ----------
Borrowed funds, term 5,000 59 4.79% 2,000 29 5.88%
Borrowed funds, overnight 145 1 2.80% - - 0.00%
--------- ------------ ------------- ----------- ------------- ----------
5,145 60 4.73% 2,000 29 5.88%
--------- ------------ ------------- ----------- ------------- ----------
Total interest-bearing liabilities 165,534 1,288 3.16% 147,932 1,590 4.36%
Noninterest-bearing demand deposits 29,050 - - 27,755 -
--------- ------------ ------------- ----------- ------------- ----------
Funding and cost of funds 194,584 1,288 2.68% 175,687 1,590 3.67%
Other noninterest-bearing liabilities 2,091 1,134
--------- -----------
Total liabilities 196,675 176,821
Stockholders' equity 21,418 20,336
--------- ------------ ------------- ----------- ------------- ----------
Total liabilities and stockholders'
equity $ 218,093 $ 1,288 2.40% $ 197,157 $ 1,590 3.27%
========= ============ ============= =========== ============= ==========
Net interest income $ 2,457 $ 2,095
============ =============
Interest rate spread (difference between 4.14% 3.72%
============= ==========
weighted average rate on interest-earning
assets and interest-bearing liabilities)
Net interest margin (net interest 4.79% 4.59%
============= ==========
income as a percentage of average
interest-earning assets)
10
Analysis of Changes in Net Interest Income. The following table analyzes the
changes in interest income and interest expense in terms of: (1) changes in
volume of interest-earning assets and interest-bearing liabilities and (2)
changes in yields and rates. The table reflects the extent to which changes in
the Corporation's interest income and interest expense are attributable to
changes in rate (change in rate multiplied by prior year volume), changes in
volume (changes in volume multiplied by prior year rate) and changes
attributable to the combined impact of volume/rate (change in rate multiplied by
change in volume). The changes attributable to the combined impact of
volume/rate are allocated on a consistent basis between the volume and rate
variances. Changes in interest income on loans and securities reflect the
changes in interest income on a fully tax equivalent basis.
(In thousands) Three months ended March 31,
2002 versus 2001
Increase (decrease) due to
----------------------------
Volume Rate Total
-----------------------------------------------------------------------
Interest income:
Loans $ 238 $ (269) $ (31)
Securities 207 (44) 163
Federal bank stocks - (2) (2)
Deposits with banks and federal funds sold (28) (42) (70)
----- ----- -----
Total interest-earning assets 417 (357) 60
----- ----- -----
Interest expense:
Deposits 143 (476) (333)
Borrowed funds 37 (6) 31
----- ----- -----
Total interest-bearing liabilities 180 (482) (302)
----- ----- -----
Net interest income $ 237 $ 125 $ 362
===== ===== =====
Net interest income. Net interest income on a tax equivalent basis increased
$362,000 or 17.3% to $2.5 million for the three months ended March 31, 2002,
compared to $2.1 million for the same period in the prior year. This increase
can be attributed to an increase in interest income of $60,000 and a decrease in
interest expense of $302,000.
Aside from changes in the volume and rates of interest-earning assets and
interest-bearing liabilities discussed herein, $93,000 of the increase in net
interest income between the periods can be attributed to the payoff of a
previously non-performing commercial real estate loan in March 2002 that had
been on non-accrual status. In connection with the loan payoff, the Corporation
received all principal and interest due under the contractual terms of the loan
agreement and therefore interest collected was appropriately recorded as loan
interest income during the current period.
Interest income. Interest income on a tax equivalent basis increased $60,000 to
$3.75 million for the three months ended March 31, 2002, compared to $3.69
million for the same period in the prior year. This net increase in interest
income can be attributed to the aforementioned $93,000 collection and
recognition of interest on a non-performing commercial real estate loan.
Also contributing to the increase in net interest income was an increase in
average interest-earning assets of $23.0 million or 12.4% to $208.1 million for
the three months ended March 31, 2002, compared to $185.0 million for the same
period in the prior year. The increase in average interest-earning assets can be
attributed to increases in average loans receivable and average securities of
$11.9 million and $14.1 million, respectively, partially offset by a decrease in
interest-earning cash equivalents of $2.9 million. Average loans receivable
increased to $163.9 million and average securities increased to $39.6 million
during the three months ended March 31, 2002, compared to $152.0 million and
$25.6 million, respectively, during the same period in the prior year. Partially
offsetting the increase in interest income due to the increase in volume of
interest-earning assets was a decrease in the yield on interest earning assets
of 78 basis points to 7.30% for the three months ended March 31, 2002, compared
to 8.08% for the same period in the prior year. The yield on average loans,
securities and interest-earning deposits decreased to 7.77%, 5.88% and 1.61%,
respectively, during the three months ended March 31, 2002, compared to 8.47%,
6.52%, and 5.44%, respectively, for the same period in the prior year.
11
Interest expense. Interest expense decreased $302,000 or 19.0% to $1.3 million
for the three months ended March 31, 2002, compared to $1.6 million for the same
period in the prior year. This decrease in interest expense can be attributed to
a 120 basis point decline in the interest rate on average interest-bearing
liabilities to 3.16% during the three months ended March 31, 2002, compared to
4.36% for the same period in the prior year. The average cost of deposits and
borrowed funds decreased to 3.11% and 4.73%, respectively, during the three
months ended March 31, 2002, compared to 4.34% and 5.88%, respectively, for the
same period in the prior year.
The decrease in interest expense due to rate was partially offset by an increase
in the average balance of interest-bearing liabilities as average
interest-bearing deposits and borrowed funds increased to $160.4 million and
$5.0 million, respectively, during the three months ended March 31, 2002,
compared to $145.9 million and $2.0 million, respectively, during the same
period in the prior year.
Provision for loan losses. The Corporation records provisions for loan losses to
bring the total allowance for loan losses to a level deemed adequate to cover
probable losses inherent in the loan portfolio. In determining the appropriate
level of allowance for loan losses, management considers historical loss
experience, the present and prospective financial condition of borrowers,
current and prospective economic conditions (particularly as they relate to
markets where the Corporation originates loans), the status of non-performing
assets, the estimated underlying value of the collateral and other factors
related to the collectibility of the loan portfolio.
The $65,000 increase in the Corporation's provision for loans losses between the
three-month periods ended March 31, 2002 and 2001 was primarily the result of
continued loan portfolio growth.
Noninterest income. Noninterest income, comprised primarily of fees on
depository accounts, general transactional income, certain loan transaction
costs and other miscellaneous income, remained relatively stable between the
three months ended March 31, 2002 and the same period in the prior year.
Noninterest income was $297,000 during the first quarter of this year as
financial services, transactional deposit and loan activity remained relatively
consistent between the two quarterly periods.
Noninterest expense. Noninterest expense increased $152,000 or 8.6% to $1.9
million during the three months ended March 31, 2002, compared to $1.8 million
during the same period in the prior year. This increase in noninterest expense
can be attributed to increases in compensation and employee benefits, premises
and equipment and other expenses of $68,000, $6,000 and $98,000, respectively,
partially offset by a decrease in intangible amortization expense of $20,000.
Compensation and employee benefits expense increased $68,000 or 7.2% to $1.0
million during the three months ended March 31, 2002, compared to $946,000 for
the same period in the prior year. This increase can be attributed primarily to
normal and expected salary and benefit cost increases and increased management
and employee incentive costs between the two periods.
Other noninterest expense increased $98,000 or 21.0% to $563,000 during the
three months ended March 31, 2002, compared to $465,000 for the same period in
the prior year. This increase can primarily be attributed to increased
professional fee and telephone cost expenses between the two periods.
Provision for income taxes. The provision for income taxes increased $14,000 or
8.4% to $181,000 for the three months ended March 31, 2002, compared to $167,000
for the same period in the prior year. This increase is a direct result of the
increase in net income before taxes between the two periods, partially offset by
a decrease in the Corporation's effective tax rate as a result of increased
investment in tax-free municipal securities.
12
LIQUIDITY
The Corporation's primary sources of funds generally have been deposits obtained
through the offices of the Bank, borrowings from the Federal Home Loan Bank of
Pittsburgh (FHLB), and amortization and prepayments of outstanding loans and
maturing securities. During the three months ended March 31, 2002, the
Corporation used its sources of funds primarily to fund loan commitments and, to
a lesser extent, purchase securities. As of such date, the Corporation had
outstanding loan commitments, including undisbursed loans and amounts available
under credit lines, totaling $14.7 million, and standby letters of credit
totaling $732,000.
At March 31, 2002, time deposits amounted to $90.7 million or 47.0% of the
Corporation's total consolidated deposits, including approximately $39.1
million, which were scheduled to mature within the next year. Management of the
Corporation believes that it has adequate resources to fund all of its
commitments, that all of its commitments will be funded as required by related
maturity dates and that, based upon past experience and current pricing
policies, it can adjust the rates of time deposits to retain a substantial
portion of maturing liabilities.
Aside from liquidity available from customer deposits or through sales and
maturities of securities, the Corporation has alternative sources of funds such
as a line of credit and term borrowing capacity from the FHLB and, to a limited
and rare extent, the sale of loans. At March 31, 2002, the Corporation's
borrowing capacity with the FHLB, net of funds borrowed, was $93.0 million.
Management is not aware of any conditions, including any regulatory
recommendations or requirements, which would adversely impact its liquidity or
its ability to meet funding needs in the ordinary course of business.
13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation is involved in various legal proceedings occurring in the
ordinary course of business. It is the opinion of management, after consultation
with legal counsel, that these matters will not materially effect the
Corporation's consolidated financial position or results of operations.
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
On March 21, 2002, the Corporation filed a Current Report on Form 8-K
disclosing that it had terminated its engagement with S.R. Snodgrass,
A.C. as its independent auditors and that Crowe, Chizek and Company
LLP had been retained as independent auditors for the fiscal year
ended December 31, 2002.
On April 2, 2002 and April 3, 2002, the Corporation filed Current
Reports on Form 8-K/A to amend the Form 8-K filed on March 21, 2002,
to include Exhibit 16.1, Letter of S.R. Snodgrass, A.C. re: Change in
Certified Public Accountants, and to clarify certain other matters.
14
Signatures
Pursuant to the requirements 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.
Date: May 10, 2002 By: /s/ David L. Cox
-------------------------------------
David L. Cox
Chairman of the Board,
President and Chief Executive Officer
Date: May 10, 2002 By: /s/ William C. Marsh
-------------------------------------
William C. Marsh
Treasurer/Secretary
(Principal Financial and
Accounting Officer)
15