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
EXCHANGE ACT OF 1934
For Quarter Ended: March 31, 2003
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission File Number: 000-18464
EMCLAIRE FINANCIAL CORP.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 25-1606091
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 April 30, 2003:
Common Stock, $1.25 par value 1,332,835
----------------------------- ---------
(Class) (Outstanding)
------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes X No
---- ----
EMCLAIRE FINANCIAL CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 2003 and December 31, 2002............................................1
Consolidated Income Statements for the three months
ended March 31, 2003 and 2002...................................................2
Consolidated Statement of Changes in Stockholders'
Equity for the three months ended March 31, 2003................................3
Consolidated Statements of Cash Flows for the three
months ended March 31, 2003 and 2002............................................4
Notes to Consolidated Financial Statements......................................5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations................................8
Item 3. Controls and Procedures........................................................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 Security Holders............................14
Item 5. Other Information..............................................................14
Item 6. Exhibits and Reports on Form 8-K...............................................14
Signatures.....................................................................15
Controls and Procedures Certifications.........................................16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
Emclaire Financial Corp. and Subsidiary
Consolidated Balance Sheets
As of March 31, 2003 and December 31, 2002
(Dollar amounts in thousands, except share data)
March 31, December 31,
2003 2002
(unaudited)
----------- ------------
Assets
------
Cash and due from banks $ 8,101 $ 5,495
Interest-earning deposits in banks 6,921 2,221
Federal funds sold - -
--------- ---------
Cash and cash equivalents 15,022 7,716
Securities available for sale 47,955 48,719
Securities held to maturity; fair value of $18 and $29 18 29
Loans receivable held for sale 402 -
Loans receivable, net of allowance for loan losses of $1,620 and $1,587 169,229 169,557
Federal bank stocks, at cost 1,525 1,298
Bank-owned life insurance 4,109 4,054
Accrued interest receivable 1,270 1,325
Premises and equipment 3,983 3,678
Goodwill 1,422 1,422
Core deposit intangibles 133 169
Prepaid expenses and other assets 944 610
--------- ---------
Total assets $ 246,012 $ 238,577
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest bearing $ 36,245 $ 32,762
Interest bearing 175,005 171,663
--------- ---------
Total deposits 211,250 204,425
Borrowed funds 10,000 10,000
Accrued interest payable 454 467
Accrued expenses and other liabilities 1,284 1,005
--------- ---------
Total liabilities 222,988 215,897
--------- ---------
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 and 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 10,238 9,978
Accumulated other comprehensive income 1,141 1,057
--------- ---------
Total stockholders' equity 23,024 22,680
--------- ---------
Total liabilities and stockholders' equity $ 246,012 $ 238,577
========= =========
See accompanying notes to consolidated financial statements.
1
Emclaire Financial Corp. and Subsidiary
Consolidated Income Statements
For the three months ended March 31, 2003 and 2002
(Dollar amounts in thousands, except share data)
Three months ended
March 31,
---------------------
2003 2002
---------- ----------
Interest and dividend income:
Loans receivable $2,981 $3,143
Securities:
Taxable 342 369
Exempt from federal income tax 193 141
Federal bank stocks 15 15
Deposits with banks and federal funds sold 13 13
---------- ----------
Total interest income 3,544 3,681
---------- ----------
Interest expense:
Deposits 1,110 1,228
Borrowed funds 107 60
---------- ----------
Total interest expense 1,217 1,288
---------- ----------
Net interest income 2,327 2,393
Provision for loan losses 75 111
---------- ----------
Net interest income after provision for loan
losses 2,252 2,282
---------- ----------
Noninterest income:
Service fees 243 230
Gain on sale of securities held for sale 14 -
Earnings on bank-owned life insurance 58 -
Other 68 67
---------- ----------
Total noninterest income 383 297
---------- ----------
Noninterest expense:
Compensation and employee benefits 1,093 1,014
Premises and equipment, net 289 289
Intangible amortization expense 36 49
Other 502 563
---------- ----------
Total noninterest expense 1,920 1,915
---------- ----------
Net income before provision for income taxes 715 664
Provision for income taxes 175 181
---------- ----------
Net income $540 $483
========== ==========
Net income per share $0.41 $0.36
Dividends per share $0.21 $0.19
Weighted 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 Stockholder's Equity
For the three months ended March 31, 2003
(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, 2002 $1,745 $10,871 $(971) $9,978 $1,057 $22,680
Comprehensive income:
Net income - - - 540 - 540
Change in net unrealized gain on
securities available for sale, net of
taxes of $45 - - - - 84 84
-------------
Comprehensive income 624
-------------
Dividends paid - - - (280) - (280)
----------- ---------- ---------- ----------- ------------- -------------
Balance at March 31, 2003 $1,745 $10,871 $(971) $10,238 $1,141 $23,024
=========== ========== ========== =========== ============= =============
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, 2003 and 2002
(Dollar amounts in thousands)
Operating activities:
Net income $540 $483
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization for premises and equipment 98 119
Provision for loan losses 75 111
Amortization of premiums and accretion of discounts, net 45 18
Gain on sale of securities available for sale 14 -
Earnings on bank-owned life insurance, net (55) -
Amortization of intangible assets 36 49
Decrease (increase) in accrued interest receivable 55 (54)
Decrease (increase) in prepaid expenses and other assets (334) (5)
Increase (decrease) in accrued interest payable (13) (18)
Increase (decrease) in accrued expenses and other liabilities 279 208
Other (49) 25
---------- ----------
Net cash from operating activities 691 936
---------- ----------
Lending and Investing Activities:
Loan originations, net of principal collections (173) (3,970)
Purchases of securities available for sale (13,023) (3,239)
Purchases of Federal bank stocks (227) -
Repayments, maturities and calls of securities available for sale 13,640 3,975
Principal repayments of securities held to maturity 11 -
Proceeds from the sale of securities available for sale 245 -
Purchases of premises and equipment (403) (149)
---------- ----------
Net cash from lending and investing activities 70 (3,383)
---------- ----------
Deposit and Financing Activities:
Net increase in deposits 6,825 3,474
Dividends paid on common stock (280) (253)
---------- ----------
Net cash from deposit and financing activities 6,545 3,221
---------- ----------
Net increase in cash equivalents 7,306 774
Cash equivalents at beginning of period 7,716 9,157
---------- ----------
Cash equivalents at end of period $15,022 $9,931
========== ==========
Supplemental information:
Interest paid $1,230 $1,306
Income taxes paid 48 50
See accompanying notes to consolidated financial statements.
4
Emclaire Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
1. Business and 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, which operate as
one operating segment. All inter-company amounts 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, 2002, as contained in the Corporation's 2002
Annual Report to Stockholders.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan
losses and deferred tax assets. 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. Net Income Per Share
The Corporation maintains a simple capital structure with no common
stock equivalents. Earnings per share computations are based on the
weighted average number of common shares outstanding for the respective
reporting periods.
3. Comprehensive Income
Total comprehensive income was comprised of the following for the three
month period ended March 31:
Three Months Ended
March 31,
------------------
In thousands 2003 2002
--------------------------------------------------------------------------
Net income $540 $483
Change in net unrealized gain on securities available
for sale, net of taxes 84 (69)
-------- ---------
Comprehensive income $624 $414
======== =========
5
4. Securities
The following table summarizes the Corporation's securities as of the
respective dates:
(In thousands) Amortized Unrealized Unrealized Fair
cost gains losses value
----------------------------------------------------------------------------------------------
Available for sale:
-------------------
March 31, 2003:
U.S. Government securities $13,678 $270 $- $13,948
Municipal securities 16,017 420 (74) 16,363
Corporate securities 15,199 437 (21) 15,615
Equity securities 1,333 696 - 2,029
------------- ------------ ----------- -----------
$46,227 $1,823 $(95) $47,955
============= ============ =========== ===========
December 31, 2002:
U.S. Government securities $17,486 $350 $- $17,836
Municipal securities 16,515 391 (99) 16,807
Corporate securities 12,146 421 (5) 12,562
Equity securities 971 543 - 1,514
------------- ------------ ----------- -----------
$47,118 $1,705 $(104) $48,719
============= ============ =========== ===========
Held to maturity:
-----------------
March 31, 2003:
Mortgage-backed securities $18 $- $- $18
------------- ------------ ----------- -----------
$18 $- $- $18
============= ============ =========== ===========
December 31, 2002:
Mortgage-backed securities $29 $- $- $29
------------- ------------ ----------- -----------
$29 $- $- $29
============= ============ =========== ===========
5. Loans Receivable
The Corporation's loans receivable as of the respective dates are
summarized as follows:
March 31, December 31,
(In thousands) 2003 2002
--------------------------------------------------------------------------------
Mortgage loans:
Residential first mortgage $80,766 $82,449
Home equity 20,001 19,136
Commercial real estate 36,291 34,986
--------------- ---------------
137,058 136,571
Other loans:
Consumer 12,424 12,660
Commercial business 21,367 21,913
--------------- ---------------
33,791 34,573
--------------- ---------------
Total gross loans 170,849 171,144
Less allowance for loan losses 1,620 1,587
--------------- ---------------
$169,229 $169,557
=============== ===============
6
6. Deposits
The Corporation's deposits as of the respective dates are summarized as
follows:
(Dollar amounts in thousands) March 31, 2003 December 31, 2002
------------------------------ -------------------------------
Weighted Weighted
average average
Type of accounts rate Amount % rate Amount %
----------------------------------------------------------------------------------------------------
Noninterest-bearing deposits - $36,245 17.2% - $32,762 16.0%
Interest-bearing demand deposits 0.84% 76,014 36.0% 0.88% 72,637 35.5%
Time deposits 3.85% 98,991 46.9% 3.97% 99,026 48.4%
--------- ---------- ------------ ---------
2.11% $211,250 100.0% 2.24% $204,425 100.0%
========= ========== ============ =========
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, 2003 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 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, 2002. 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 $7.4 million or 3.1% to $246.0
million at March 31, 2003 from $238.6 million at December 31, 2002. This net
increase was comprised of an increase in cash and cash equivalents of $7.3
million. Loans and securities remained stable at $169.6 million and $48.0
million, respectively. The increase in total assets reflects a corresponding
increase in total liabilities and total stockholders' equity of $7.1 million or
3.3% and $344,000 or 1.5%, respectively. The increase in total liabilities was
primarily the result of an increase in deposits of $6.8 million. This increase
in deposits funded the Corporation's asset growth for the period. The increase
in stockholders' equity was primarily the result of increases in retained
earnings and accumulated other comprehensive income of $260,000 and $84,000,
respectively.
Cash and cash equivalents. Cash and cash equivalents increased $7.3 million or
94.7% to $15.0 million at March 31, 2003 from $7.7 million at December 31, 2002.
The net increase between March 31, 2003 and December 31, 2002 was primarily the
result of the aforementioned increase in customer deposits. Management intends
to deploy these funds in loans and securities during the second quarter of 2003.
Securities. The Corporation's securities portfolio decreased $775,000 or 1.6% to
$48.0 million at March 31, 2003 from $48.7 million at December 31, 2002. This
net decrease was primarily the result of security maturities and calls of $13.9
million, during the three months ended March 31, 2003. Partially offsetting the
decrease in the portfolio resulting from maturities and calls were security
purchases of $13.1 million, during the period.
8
Security purchases were comprised of U.S. government agency, corporate and
marketable equity securities of $7.2 million, $5.3 million and $593,000,
respectively. Security maturities and calls were comprised of U.S. government
agency, tax-free municipal, corporate and marketable equity securities of $11.0
million, $500,000, $2.3 million and $135,000, respectively. Corporate securities
that were purchased and that matured during the period included primarily
short-term commercial paper utilized to manage interest-earned on funds
maintained for liquidity purposes. At March 31, 2003, the Corporation maintained
$3.7 million in commercial paper that is scheduled to mature within three
months.
Loans receivable. Net loans receivable remained stable at $169.6 million,
including $402,000 of loans held for sale, at March 31, 2003. The composition of
the Corporation's loan portfolio shifted slightly from residential mortgages to
commercial mortgages and home equity loan products as consumers have continued
to refinance their first mortgage loans in this low interest rate environment.
For the most part, the Bank has been able to stem residential mortgages exiting
the institution, but during the first quarter of 2003, amortization and
refinancing activity slightly outpaced new production. Also contributing to the
reduction in residential mortgages was the identification of certain loans to be
sold as discussed below. The commercial real estate loan portfolio has grown
during the first three months of 2003 due to the retention of several large
commercial customers as efforts continue to expand commercial lending activities
in the Bank's existing markets. The increase in home equity loans outstanding is
the direct result of specific home equity loan product development and related
marketing campaigns put forth through the Bank' s retail branch network.
During the first quarter of 2003, management identified and designated $402,000
of residential mortgage loans for sale in the secondary market. These loans were
originated for sale and met certain interest rate and term parameters
established by management in connection with managing the Corporation's asset
and liability mix and interest rate risk. The loans were originated during the
first quarter of 2003 and the sale of these loans is expected occur in April
2003.
Non-performing assets. Non-performing assets include non-accrual loans and real
estate acquired through foreclosure. Non-performing assets amounted to $1.3
million or 0.53% and $1.2 million or 0.49% of total assets at March 31, 2003 and
December 31, 2002, respectively.
Deposits. Total deposits increased $6.8 million or 3.3% to $211.3 million at
March 31, 2003 from $204.4 million at December 31, 2002. This increase was
comprised of increases in noninterest bearing and interest bearing deposits of
$3.5 million and $3.3 million, 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 opening of a new branch banking office in Butler
County, PA in late January 2003.
Stockholders' equity. Stockholders' equity increased $344,000 or 1.5% to $23.0
million at March 31, 2003 from $22.7 million at December 31, 2002. This increase
was principally the result of an increase in retained earnings of $260,000,
comprised of net income of $540,000 offset by dividends paid of $280,000, and an
increase in accumulated other comprehensive income of $84,000.
RESULTS OF OPERATIONS
Comparison of Results for the Three-Month Periods Ended March 31, 2003 and 2002
General. The Corporation reported net income of $540,000 and $483,000 for the
three months ended March 31, 2003 and 2002, respectively. The $57,000 or 11.8%
increase in net income for the three months ended March 31, 2003, as compared to
the three months ended March 31, 2002, was attributable to an increase in
noninterest income of $86,000 and a decrease in the provision for loan losses
and the provision for income taxes of $36,000 and $6,000, respectively.
Partially offsetting these favorable variances was an increase in noninterest
expense of $5,000 and a decrease in net interest income of $66,000.
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 costs. Interest and yields on tax-exempt loans and securities
(tax-exempt for federal income tax purposes) are shown on a fully tax equivalent
basis.
(Dollar amounts in thousands) Three months ended March 31,
2003 2002
-------------------------------- ----------------------------------
Average Yield / Average Yield /
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------------------------------------
Interest-earning assets:
------------------------
Loans, taxable $166,929 $2,937 7.14% $161,124 $3,113 7.84%
Loans, tax exempt 4,137 62 6.08% 2,820 44 6.32%
---------- ---------- ---------- ----------- ---------- -----------
171,066 2,999 7.11% 163,944 3,157 7.81%
---------- ---------- ---------- ----------- ---------- -----------
Securities, taxable 30,356 342 4.57% 27,882 369 5.37%
Securities, tax exempt 16,760 274 6.62% 11,685 205 7.11%
---------- ---------- ---------- ----------- ---------- -----------
47,116 616 5.30% 39,567 574 5.88%
---------- ---------- ---------- ----------- ---------- -----------
Interest-earning cash equivalents 5,076 13 1.04% 3,281 13 1.61%
Federal bank stocks 1,487 15 4.09% 1,261 15 4.82%
---------- ---------- ---------- ----------- ---------- -----------
6,563 28 1.73% 4,542 28 2.50%
---------- ---------- ---------- ----------- ---------- -----------
Total interest-earning assets 224,745 3,643 6.57% 208,053 3,759 7.33%
Cash and due from banks 5,347 4,536
Other noninterest-earning assets 9,854 5,504
---------- ---------- ---------- ----------- ---------- -----------
Total assets $239,946 $3,643 6.16% $218,093 $3,759 6.99%
========== ========== ========== =========== ========== ===========
Interest-bearing liabilities:
-----------------------------
Interest-bearing demand deposits $73,386 $157 0.87% $70,220 $203 1.17%
Time deposits 99,238 953 3.89% 90,169 1,025 4.61%
---------- ---------- ---------- ----------- ---------- -----------
172,624 1,110 2.61% 160,389 1,228 3.11%
---------- ---------- ---------- ----------- ---------- -----------
Borrowed funds, term 10,000 107 4.34% 5,000 59 4.79%
Borrowed funds, overnight 32 0 1.44% 145 1 2.80%
---------- ---------- ---------- ----------- ---------- -----------
10,032 107 4.33% 5,145 60 4.73%
---------- ---------- ---------- ----------- ---------- -----------
Total interest-bearing liabilities 182,656 1,217 2.70% 165,534 1,288 3.16%
Noninterest-bearing demand deposits 32,940 - - 29,050 -
---------- ---------- ---------- ----------- ---------- -----------
Funding and cost of funds 215,596 1,217 2.29% 194,584 1,288 2.68%
Other noninterest-bearing liabilities 1,416 2,091
---------- -----------
Total liabilities 217,012 196,675
Stockholders' equity 22,934 21,418
---------- ---------- ---------- ----------- ---------- -----------
Total liabilities and stockholders'
equity $239,946 $1,217 2.29% $218,093 $1,288 2.68%
========== ========== ========== =========== ========== ===========
Net interest income $2,426 $2,471
========== ==========
Interest rate spread (difference between 3.87% 4.17%
========== ===========
weighted average rate on interest-earning
assets and interest-bearing liabilities)
Net interest margin (net interest 4.38% 4.82%
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,
2003 versus 2002
Increase (decrease) due to
-------------------------------
Volume Rate Total
----------------------------------------------------------------------
Interest income:
Loans $133 $(291) $(158)
Securities 103 (61) 42
Interest-earning cash equivalents 6 (6) -
Federal bank stocks 2 (2) -
---------- ---------- ---------
Total interest-earning assets 244 (360) (116)
---------- ---------- ---------
Interest expense:
Deposits 89 (207) (118)
Borrowed funds 52 (5) 47
---------- ---------- ---------
Total interest-bearing liabilities 141 (212) (71)
---------- ---------- ---------
Net interest income $103 $(148) $(45)
========== ========== =========
Net interest income. Net interest income on a tax equivalent basis decreased
$45,000 or 1.8% to $2.426 million for the three months ended March 31, 2003,
compared to $2.471 million for the same period in the prior year. This net
decrease can be attributed to an decrease in interest income of $116,000
partially offset by a decrease in interest expense of $71,000.
Aside from changes in the volume and rates of interest-earning assets and
interest-bearing liabilities discussed herein, $93,000 of the decrease 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 quarter ended March 31, 2002.
Interest income. Interest income on a tax equivalent basis decreased $116,000 or
3.1% to $3.6 million for the three months ended March 31, 2003, compared to $3.7
million for the same period in the prior year. This net decrease in interest
income can be attributed to a decrease in interest earned on loans of $158,000
partially offset by an increase in interest earned on securities of $42,000.
During the three months ended March 31, 2003, average interest-earning assets
increased $16.7 million or 8.0% to $224.7 million, compared to $208.0 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, securities
and interest-earning cash equivalents of $7.1 million, $7.5 million and $2.0
million, respectively. Average loans receivable increased to $171.1 million and
average securities increased to $47.1 million during the three months ended
March 31, 2003, compared to $163.9 million and $39.6 million, respectively,
during the same period in the prior year. 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 76 basis points to 6.57% for the
three months ended March 31, 2003, compared to 7.33% for the same period in the
prior year. The yield on average loans, securities and interest-earning deposits
decreased to 7.11%, 5.30% and 1.73%, respectively, during the three months ended
March 31, 2003, compared to 7.81%, 5.88%, and 2.50%, respectively, for the same
period in the prior year.
11
Interest expense. Interest expense decreased $71,000 or 5.5% to $1.217 million
for the three months ended March 31, 2003, compared to $1.288 million for the
same period in the prior year. This decrease in interest expense can be
attributed to a 39 basis point decline in the interest rate on average
interest-bearing liabilities to 2.29% during the three months ended March 31,
2003, compared to 2.68% for the same period in the prior year. The average cost
of deposits decreased to 2.61% during the three months ended March 31, 2003,
compared to 3.11% 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 $172.6 million and
$10.0 million, respectively, during the three months ended March 31, 2003,
compared to $160.4 million and $5.1 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 $36,000 decrease in the
Corporation's provision for loans losses between the three-month periods ended
March 31, 2003 and 2002 can be attributed to the overall adequacy of the
Corporation's allowance for loan losses at March 31, 2003, as well as the lower
volume of loan charge-offs during the first quarter 2003 versus the same quarter
in 2002.
Noninterest income. Noninterest income increased $86,000 or 29.0% to $383,000
during the three months ended March 31, 2003, compared to $297,000 during the
same period in the prior year. This increase can principally be attributed to
the increase in service fees, gains on sales of marketable equity securities and
earnings on bank-owned life insurance of $13,000, $14,000 and $58,000,
respectively.
Noninterest expense. Noninterest expense increased $5,000 to $1.920 million
during the three months ended March 31, 2003, compared to $1.915 million during
the same period in the prior year. This increase in noninterest expense can be
attributed to an increase in compensation and employee benefits expense of
$79,000, partially offset by a decrease in intangible amortization expense and
other noninterest expenses of $13,000 and $61,000, respectively.
Compensation and employee benefits expense increased $79,000 or 7.8% to $1.093
million during the three months ended March 31, 2003, compared to $1.014 million
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, partially
offset by lower levels of full-time equivalent employees.
Other noninterest expense decreased $61,000 or 10.8% to $502,000 during the
three months ended March 31, 2003, compared to $563,000 for the same period in
the prior year. This decrease can primarily be attributed to decreased telephone
cost expenses, software depreciation, travel and entertainment expenses, and
insurance cost expenses between the two periods. Partially offsetting this
favorable variance was an increase in printing and office supplies and marketing
expenses associated with the introduction of the Bank's internet banking
product.
12
Provision for income taxes. The provision for income taxes decreased $6,000 or
3.3% to $175,000 for the three months ended March 31, 2003, compared to $181,000
for the same period in the prior year. This decrease is a direct result of the
decrease in the Corporation's effective tax rate as a result of increased
investment in tax-free municipal securities.
LIQUIDITY
The Corporation's primary sources of funds generally have been deposits obtained
through the offices of the Bank, borrowings from the FHLB, and amortization and
prepayments of outstanding loans and maturing securities. During the three
months ended March 31, 2003, 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 $13.2
million, and standby letters of credit totaling $545,000.
At March 31, 2003, time deposits amounted to $99.0 million or 46.9% of the
Corporation's total consolidated deposits, including approximately $31.3
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, 2003, the Corporation's
borrowing capacity with the FHLB, net of funds borrowed, was $102.8 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.
Item 3. Controls and Procedures
(a) The Corporation maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Corporation's Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms,
and that such information is accumulated and communicated to the
Corporation's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c).
Within 90 days prior to the date of this report, the Corporation carried
out an evaluation, under the supervision and with the participation of the
Corporation's management, including the Corporation's Chief Executive
Officer and the Corporation's Chief Financial Officer, of the
effectiveness of the design and operation of the Corporation's disclosure
controls and procedures. Based on the foregoing, the Corporation's Chief
Executive Officer and Chief Financial Officer concluded that the
Corporation's disclosure controls and procedures were effective.
(b) There have been no significant changes in the Corporation's internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date the Corporation completed its evaluation
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
Exhibit 99.1 CEO Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.2 CFO Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None.
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 13, 2003 By: /s/ David L. Cox
--------------------------------------------
David L. Cox
Chairman of the Board,
President and Chief Executive Officer
Date: May 13, 2003 By: /s/ William C. Marsh
--------------------------------------------
William C. Marsh
Treasurer/Secretary
(Principal Financial and Accounting Officer)
15
Certification of the Principal Executive Officer
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, David L. Cox, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Emclaire
Financial Corp. (the Corporation);
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Corporation as of, and for, the periods presented in
this quarterly report;
4. The Corporation's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Corporation
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Corporation, including its
consolidated subsidiary, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Corporation's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Corporation's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Corporation's auditors and the
audit committee of Corporation's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Corporation's
ability to record, process, summarize and report financial data
and have identified for the Corporation's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Corporation's
internal controls; and
6. The Corporation's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 13, 2003 By: /s/ David L. Cox
---------------------------------------
David L. Cox
Chairman of the Board,
President and Chief Executive Officer
16
Certification of the Principal Financial Officer
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, William C. Marsh, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Emclaire
Financial Corp. (the Corporation);
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Corporation as of, and for, the periods presented in
this quarterly report;
4. The Corporation's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Corporation
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Corporation, including its
consolidated subsidiary, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Corporation's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Corporation's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Corporation's auditors and the
audit committee of Corporation's board of directors (or persons
performing the equivalent function):
d) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Corporation's
ability to record, process, summarize and report financial data
and have identified for the Corporation's auditors any material
weaknesses in internal controls; and
e) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Corporation's
internal controls; and
6. The Corporation's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 13, 2003 By: /s/ William C. Marsh
--------------------------------------------
William C. Marsh
Treasurer/Secretary
(Principal Financial and Accounting Officer)
17