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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2004
Commission File Number: 000-18464
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 Identification No.)
incorporation or organization)
612 MAIN STREET, EMLENTON, PENNSYLVANIA 16373
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(Address of principal executive offices) (Zip Code)
(724) 867-2311
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(Registrant's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares outstanding of the Registrant's common stock was
1,267,835 at August 12, 2004.
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EMCLAIRE FINANCIAL CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements (Unaudited)
Consolidated Balance Sheets as of
June 30, 2004 and December 31, 2003...............................1
Consolidated Income Statements for the three and six
months ended June 30, 2004 and 2003...............................2
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2004 and 2003...............................3
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 2004 and 2003............4
Notes to Consolidated Financial Statements........................5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......17
Item 4. Controls and Procedures..........................................17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................18
Item 2. Changes in Securities and Use of Proceeds........................18
Item 3. Defaults Upon Senior Securities..................................18
Item 4. Submission of Matters to a Vote of Security Holders..............18
Item 5. Other Information................................................18
Item 6. Exhibits and Reports on Form 8-K.................................18
Signatures .................................................................19
21
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
EMCLAIRE FINANCIAL CORP. AND SUBSIDIARY
Consolidated Balance Sheets
As of June 30, 2004 (Unaudited) and December 31, 2003
(Dollar amounts in thousands, except share data)
JUNE 30, DECEMBER 31,
2004 2003
--------- ---------
ASSETS
Cash and due from banks $ 6,908 $ 6,776
Interest-earning deposits in banks 5,294 927
--------- ---------
Cash and cash equivalents 12,202 7,703
Securities available for sale 54,871 49,145
Securities held to maturity; fair value of $16 and $17 16 17
Loans receivable, held for sale 174 --
Loans receivable, net of allowance for loan losses
of $1,809 and $1,777 184,124 190,482
Federal bank stocks, at cost 1,684 1,982
Bank-owned life insurance 4,376 4,272
Accrued interest receivable 1,201 1,270
Premises and equipment 5,560 5,223
Goodwill 1,422 1,422
Core deposit intangibles 38 54
Prepaid expenses and other assets 1,566 942
--------- ---------
Total assets $ 267,234 $ 262,512
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest bearing $ 38,733 $ 36,332
Interest bearing 188,871 180,778
--------- ---------
Total deposits 227,604 217,110
Borrowed funds 15,000 20,700
Accrued interest payable 493 477
Accrued expenses and other liabilities 1,578 1,570
--------- ---------
Total liabilities 244,675 239,857
--------- ---------
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; 1,267,835 shares outstanding 1,745 1,745
Additional paid-in capital 10,871 10,871
Treasury stock, at cost; 128,017 shares (2,653) (2,653)
Retained earnings 11,536 11,033
Accumulated other comprehensive income 1,060 1,659
--------- ---------
Total stockholders' equity 22,559 22,655
--------- ---------
Total liabilities and stockholders' equity $ 267,234 $ 262,512
========= =========
See accompanying notes to consolidated financial statements.
1
EMCLAIRE FINANCIAL CORP. AND SUBSIDIARY
Consolidated Income
Statements For the three and six months ended
June 30, 2004 and 2003 (Unaudited)
(Dollar amounts in thousands, except share data)
Three months ended Six months ended
June 30, June 30,
------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 2,882 $ 2,973 $ 5,866 $ 5,954
Securities:
Taxable 341 361 630 703
Exempt from federal income tax 174 186 348 379
Federal bank stocks 11 11 22 26
Deposits with banks and federal funds sold 10 8 15 22
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 3,418 3,539 6,881 7,084
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 1,103 1,103 2,194 2,213
Borrowed funds 156 104 317 211
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 1,259 1,207 2,511 2,424
----------- ----------- ----------- -----------
NET INTEREST INCOME 2,159 2,332 4,370 4,660
Provision for loan losses 20 75 75 150
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,139 2,257 4,295 4,510
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Service fees 290 267 554 510
Gain on sale of securities available for sale 86 42 169 55
Gain (Loss) on sale of loans held for sale -- 18 (2) 18
Earnings on bank-owned life insurance 56 58 112 117
Other 89 84 169 152
----------- ----------- ----------- -----------
TOTAL NONINTEREST INCOME 521 469 1,002 852
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Compensation and employee benefits 1,086 1,084 2,172 2,176
Premises and equipment, net 302 254 604 542
Intangible amortization expense 8 36 16 73
Other 612 524 1,166 1,026
----------- ----------- ----------- -----------
TOTAL NONINTEREST EXPENSE 2,008 1,898 3,958 3,817
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 652 828 1,339 1,545
Provision for income taxes 129 203 252 377
----------- ----------- ----------- -----------
NET INCOME $ 523 $ 625 $ 1,087 $ 1,168
=========== =========== =========== ===========
Basic Earnings per Share $ 0.41 $ 0.47 $ 0.86 $ 0.88
Weighted average common shares outstanding 1,267,835 1,326,581 1,267,835 1,329,691
See accompanying notes to consolidated financial statements.
2
EMCLAIRE FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2004 (Unaudited)
(Dollar amounts in thousands)
For the six months ended
June 30,
--------------------
2004 2003
-------- --------
OPERATING ACTIVITIES:
Net income $ 1,087 $ 1,168
Adjustments to reconcile net income to net cash provided
by operating activities 1,258 614
-------- --------
NET CASH FROM OPERATING ACTIVITIES 2,345 1,782
-------- --------
INVESTING ACTIVITIES:
Loan originations, net of principal collections 6,090 (7,471)
Purchases of securities available for sale (14,763) (30,725)
Redemption (Purchases) of Federal bank stocks 298 (431)
Repayments, maturities and calls of securities available for sale 6,664 23,870
Principal repayments of securities held to maturity 1 12
Proceeds from the sale of securities available for sale 251 330
Purchases of premises and equipment (597) (1,201)
-------- --------
NET CASH FROM INVESTING ACTIVITIES (2,056) (15,616)
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits 10,494 9,802
Increase (Decrease) in overnight borrowed funds (5,700) 225
Proceeds from long term advances -- 5,000
Dividends paid on common stock (584) (559)
Payments to acquire treasury stock -- (1,301)
-------- --------
NET CASH FROM FINANCING ACTIVITIES 4,210 13,167
-------- --------
Net (decrease) increase in cash equivalents 4,499 (667)
Cash equivalents at beginning of period 7,703 7,716
-------- --------
Cash equivalents at end of period $ 12,202 $ 7,049
======== ========
SUPPLEMENTAL INFORMATION:
Interest paid $ 2,495 $ 2,423
Income taxes paid 120 441
See accompanying notes to consolidated financial statements.
3
EMCLAIRE FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
For the six months ended June 30, 2004 and 2003 (Unaudited)
(Dollar amounts in thousands)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
2004 2003 2004 2003
------------ ----------- ------------ ------------
BALANCE AT BEGINNING OF PERIOD $ 23,204 $ 23,024 $ 22,655 $ 22,680
Net income 523 625 1,087 1,168
Change in net unrealized gain on available for sale
securities, net of taxes (817) 793 (487) 883
Less reclassification adjustment for gains included
in net income, net of taxes (59) (27) (112) (36)
------------ ----------- -------- ------------
Other comprehensive income (876) 766 (599) 847
Total comprehensive income (353) 1,391 488 2,015
Dividends paid (292) (279) (584) (559)
Purchase of treasury stock (65,000 shares) -- (1,301) -- (1,301)
------------ ----------- -------- ------------
BALANCE AT END OF PERIOD $ 22,559 $ 22,835 $ 22,559 $ 22,835
============ =========== ======== ============
Common cash dividend per share $ 0.23 $ 0.21 $ 0.46 $ 0.42
============ =========== ======== ============
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-Q 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, 2003, as contained in the Corporation's 2003
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. BASIC EARNINGS PER SHARE
The Corporation maintains a simple capital structure with no
potentially dilutive instruments. Earnings per share computations are
based on the weighted average number of common shares outstanding for
the respective reporting periods.
3. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN.
The Corporation maintains a defined contribution 401(k) Plan. Employees
are eligible to participate by providing tax-deferred contributions up
to 20% of qualified compensation. Employee contributions are vested at
all times. The Corporation makes matching contributions as approved by
the Board of Directors. Matching contributions for the three and six
months ended June 30, 2004 was $17,000 and $33,000, respectively.
DEFINED BENEFIT PLAN.
The Corporation provides pension benefits for eligible employees
through a defined benefit pension plan. Substantially all employees
participate in the retirement plan on a non-contributing basis and are
fully vested after five years of service.
5
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
DEFINED BENEFIT PLAN (CONTINUED).
The Corporation uses a December 31 measurement date for its plans.
Information pertaining to the components of the periodic pension cost
is as follows:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30, DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS) 2004 2003 2004 2003 2003
- ---------------------------------------------------------------------------------------------------------
Service cost $ 41 $ 37 $ 82 $ 74 $ 147
Interest cost 46 41 92 82 164
Expected return on plan assets (53) (44) (106) (88) (176)
Transition asset (2) (2) (4) (4) (8)
Prior service costs (8) (8) (16) (16) (31)
Recognized net actuarial (gain) loss 8 12 16 23 47
--------------------------------------------------------------
Net periodic pension cost $ 32 $ 36 $ 64 $ 71 $ 143
=========================================================================================================
The expected rate of return on plan assets 8.50% for the periods ended
June 30, 2004 and December 31, 2003. The Corporation expects to
contribute $209,000 to its pension plan in 2004.
6
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
and six month periods ended June 30, 2004 and should be read in conjunction with
the accompanying consolidated financial statements and notes presented on pages
1 through 6.
The Private Securities Litigation Act of 1995 contains safe harbor provisions
regarding forward-looking statements. When used in this discussion, the words
"believes," "anticipates," "contemplates" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Those risks and uncertainties include changes in interest
rates, the ability to control costs and expenses and general economic
conditions. 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
Total assets increased $4.7 million or 1.8% to $267.2 million at June 30, 2004
from $262.5 million at December 31, 2003. This increase was primarily due to
increases in cash and cash equivalents and securities of $4.5 million and $5.7
million, respectively, partially offset by a decrease in loans receivable of
$6.2 million.
Cash and cash equivalents increased $4.5 million or 58.4% to $12.2 million at
June 30, 2004 from $7.7 million at December 31, 2003 primarily as a result of
the increase in deposits of $10.5 million, decrease of loans receivable of $6.2
million and the maturities of securities of $6.7 million, offset by the purchase
of $14.8 million of securities and the repayment of $5.7 million of overnight
borrowings.
Securities increased $5.7 million or 11.7% to $54.9 million at June 30, 2004
from $49.2 million at December 31, 2003 as a result of investing deployable
funds in US government agencies and mortgage backed securities. These types of
investments are considered safe and sound and complement the overall
asset/liability and liquidity objectives of the Corporation.
Loans receivable decreased $6.2 million or 3.3% to $184.3 million at June 30,
2004 from $190.5 million at December 31, 2003. During the six months ended June
30, 2004, the refinancing activity experienced in 2003 has decreased as rates
continue to remain low. Also contributing to the change in loan volume was the
pay-off of two short-term commercial loans financed in the fourth quarter 2003.
Although there can be no assurances, management believes that lending activities
will increase in the third quarter based on the trends experienced in prior
years and the outlook on the economy as key economic data indicates growth.
Deposits increased $10.5 million or 4.8% to $227.6 million at June 30, 2004 from
$217.1 million at December 31, 2003. The increase in deposits during the period
can be attributed to the introduction of a new Certificate of Deposit product
which steps up to a higher rate at each year anniversary date over the next four
years, the marketing efforts put forth in our Clarion market and the transfer of
two large sweep accounts into other demand deposit accounts.
Borrowed funds decreased $5.7 million or 27.5% to $15.0 million at June 30, 2004
from $20.7 million at December 31, 2003. This was the direct result of the
decrease in FHLB overnight borrowings of $5.7 million which was due to the
decrease in loan demand and the increase in deposits.
Stockholders' equity decreased $96,000 to $22.6 million at June 30, 2004 from
$22.7 million at December 31, 2003. This decrease was the result of increases in
retained earnings of $503,000; comprised of net income of $1.1 million offset by
dividends paid of $584,000, and a decrease in accumulated other comprehensive
income of $599,000.
7
RESULTS OF OPERATIONS
COMPARISON OF RESULTS FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
GENERAL. Net income for the three months ended June 30, 2004 decreased $102,000
or 16.3% to $523,000 from $625,000 for the three months ended June 30, 2003.
This decrease was a result of a decrease in net interest income of $173,000 and
an increase in noninterest expense of $110,000. Offsetting this unfavorable
variance was an increase in noninterest income of $52,000 and decreases in the
provision for loan losses and income taxes of $55,000 and $74,000, respectively.
NET INTEREST INCOME. Net interest income on a tax equivalent basis decreased
$169,000 or 6.9% to $2.3 million for the three months ended June 30, 2004 from
$2.4 million for the same period in 2003. This net decrease can be attributed to
a decrease in interest income of $117,000 coupled with an increase in interest
expense of $52,000.
INTEREST INCOME. Interest income on a tax equivalent basis decreased $117,000 or
3.2% to $3.5 million for the three months ended June 30, 2004, compared to $3.6
million for the same period in the prior year. This decrease in interest income
can be attributed to a 50 basis point decline in the interest rate on average
interest-earning assets to 5.76% during the three months ended June 30, 2004,
compared to 6.26% for the same period in the prior year. The yield on average
loans, securities and interest-bearing cash equivalents decreased to 6.28%,
4.36% and 1.65%, respectively, during the three months ended June 30, 2004,
compared to 6.86%, 4.61% and 2.19%, respectively, for the same period in the
prior year. The decrease in interest income due to rate was offset by an
increase in the average balance of interest-earning assets, as average loans
receivable and interest-bearing cash equivalents increased to $186.7 million and
$5.1 million, respectively, during the three months ended June 30, 2004,
compared to $175.5 million and $3.5 million, respectively, during the same
period in the prior year. Increases in average loans and interest-bearing cash
equivalents between quarterly periods were funded by deposit growth. See
comments in the "Changes in Financial Condition" section above for discussion of
security and deposit growth factors.
INTEREST EXPENSE. Interest expense increased $52,000 or 4.3% to $1.26 million
for the three months ended June 30, 2004, compared to $1.21 million for the same
period in the prior year. This increase in interest expense can be attributed to
an increase in the average balance of interest-bearing liabilities, as average
interest-bearing deposits and borrowed funds increased to $186.9 million and
$15.0 million, respectively, during the three months ended June 30, 2004,
compared to $177.1 million and $11.4 million, respectively, during the same
period in the prior year. The increase in interest expense due to volume was
partially offset by a 6 basis point decline in the interest rate on average
interest-bearing liabilities to 2.51% during the three months ended June 30,
2004, compared to 2.57% for the same period in the prior year. The average cost
of deposits decreased to 2.37% during the three months ended June 30, 2004,
compared to 2.50% for the same period in the prior year.
8
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 resulting 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)
2004 2003
------------------------------ -------------------------------
YIELD / AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
- --------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
- ------------------------
Loans, taxable $ 179,327 $ 2,800 6.28% $ 170,019 $ 2,910 6.87%
Loans, tax exempt 7,366 116 6.34% 5,467 89 6.55%
----------- ------- ----- --------- --------- --------
Total Loans Receivable 186,693 2,916 6.28% 175,486 2,999 6.86%
----------- ------- ----- --------- --------- --------
Securities, taxable 39,206 341 3.50% 37,793 361 3.83%
Securities, tax exempt 15,048 247 6.59% 16,469 263 6.41%
------------ ------- ----- --------- --------- --------
Total Securities 54,254 588 4.36% 54,262 624 4.61%
------------ ------- ----- --------- --------- --------
Interest-earning cash equivalents 3,421 10 1.18% 1,913 8 1.68%
Federal bank stocks 1,690 11 2.62% 1,559 11 2.83%
----------- ------- ----- --------- --------- --------
Total Interest-Bearing Cash Equivalents 5,111 21 1.65% 3,472 19 2.19%
----------- ------- ----- --------- --------- --------
TOTAL INTEREST-EARNING ASSETS 246,058 3,525 5.76% 233,220 3,642 6.26%
Cash and due from banks 6,927 6,421
Other noninterest-earning assets 12,043 10,348
----------- ---------
Total assets $ 265,028 $ 249,989
=========== =========
INTEREST-BEARING LIABILITIES:
- ------------------------------
Interest-bearing demand deposits $ 74,783 $ 98 0.53% $ 77,287 $ 158 0.82%
Time deposits 112,073 1,005 3.61% 99,853 945 3.80%
----------- ------- ----- --------- --------- --------
Total Interest-Bearing Deposits 186,856 1,103 2.37% 177,140 1,103 2.50%
----------- ------- ----- --------- --------- --------
Borrowed funds, term 15,000 156 4.18% 10,833 102 3.78%
Borrowed funds, overnight -- -- 0.00% 544 2 1.47%
----------- ------- ----- --------- --------- --------
Total Borrowed Funds 15,000 156 4.18% 11,377 104 3.67%
----------- ------- ----- --------- --------- --------
TOTAL INTEREST-BEARING LIABILITIES 201,856 1,259 2.51% 188,517 1,207 2.57%
Noninterest-bearing demand deposits 38,482 -- -- 36,159 --
----------- ------- ----- --------- --------- --------
FUNDING AND COST OF FUNDS 240,338 1,259 2.11% 224,676 1,207 2.15%
Other noninterest-bearing liabilities 2,067 1,868
----------- ---------
Total liabilities 242,405 226,544
Stockholders' equity 22,623 23,445
----------- ---------
Total liabilities and stockholders' equity $ 265,028 $ 249,989
=========== ------- ========= ---------
NET INTEREST INCOME $ 2,266 $ 2,435
======= =========
INTEREST RATE SPREAD (difference between 3.25% 3.70%
===== ========
weighted average rate on interest-earning
assets and interest-bearing liabilities)
NET INTEREST MARGIN (net interest 3.70% 4.19%
===== ========
income as a percentage of average
interest-earning assets)
- --------------------------------------------------------------------------------------------------------------------
9
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 JUNE 30,
2004 VERSUS 2003
INCREASE (DECREASE) DUE TO
---------------------------------------
VOLUME RATE TOTAL
- --------------------------------------------------------------------------------
INTEREST INCOME:
Loans $185 $(268) $ (83)
Securities -- (36) (36)
Interest-earning cash equivalents 5 (3) 2
Federal bank stocks 1 (1) --
---- ----- -----
Total interest-earning assets 191 (308) (117)
---- ----- -----
INTEREST EXPENSE:
Deposits 59 (59) --
Borrowed funds 36 16 52
---- ----- -----
Total interest-bearing liabilities 95 (43) 52
---- ----- -----
NET INTEREST INCOME $ 96 $(265) $(169)
==== ===== =====
- --------------------------------------------------------------------------------
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 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.
Information pertaining to the allowance for loan losses and non-performing
assets for the second quarter of 2004 and 2003 is as follows:
- ------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED,
JUNE 30, JUNE 30,
2004 2003
- ------------------------------------------------------------------------------------
Beginning Balance - March 31 $ 1,827 $ 1,620
Provision for Loan Losses 20 75
Charge-Offs (47) (7)
Recoveries 9 10
------- -------
Ending Balance - June 30 $ 1,809 $ 1,698
======= =======
Non-performing assets $ 1,190 $ 1,572
Non-performing loans to total loans 0.64% 0.88%
Non-performing assets to total assets 0.45% 0.63%
Allowance for loan losses to total loans 0.97% 0.95%
Allowance for loan losses to non-performing loans 152.02% 108.02%
- ----------------------------------------------------------------------------------
10
The provision for loan losses decreased $55,000 or 73.3% to $20,000 for the
three month period ending June 30, 2004 from $75,000 for the same period in the
prior year. During the second quarter 2004, the actual allowance level decreased
$18,000 or 1.0% as a result of the decrease in loans receivable of $2.5 million.
Management's evaluation of the loan portfolio, including economic trends,
regulatory considerations, the increase in charged-off loans and other factors
contributed to the recognition of $20,000 in the provision for loan losses.
NONINTEREST INCOME. Noninterest income increased $52,000 or 11.1% to $521,000
during the three months ended June 30, 2004, compared to $469,000 during the
same period in the prior year. This increase can be attributed to the increase
in customer service fees, gains on the sale of marketable equity securities and
other noninterest income of $23,000, $44,000 and $5,000, respectively. The
increase in customer service fees was a result of the increase in the overdraft
fees and also the increase in the number of accounts. Offsetting this favorable
variance was a decrease in the gains on loans sold and earnings on bank-owned
life insurance of $18,000 and $2,000, respectively.
NONINTEREST EXPENSE. Noninterest expense increased $110,000 or 5.8% to $2.0
million during the three months ended June 30, 2004, compared to $1.9 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 expense and other noninterest expense of $2,000, $48,000 and
$88,000, respectively. This increase was offset by a decrease in intangible
amortization expense of $28,000.
Compensation and employee benefits expense increased $2,000 to $1.086 million
during the three months ended June 30, 2004, compared to $1.084 million for the
same period in the prior year. Contributing to this variance was the increase in
employee and officer salaries and employee insurance expense offset by the
decrease in employee incentive costs and deferred loan costs associated with
salaries.
Premises and equipment expense increased $48,000 or 18.9% to $302,000 during the
three months ended June 30, 2004, compared to $254,000 for the same period in
the prior year. This increase can be primarily attributed to increased building
and equipment depreciation expenses and equipment service contracts of $8,000,
$30,000 and $9,000, respectively. Contributing to the increases in depreciation
expenses between the two periods was the completion of the construction on the
main office building during the fourth quarter of 2003 and the addition of a new
mainframe and imaging system in January 2004.
Intangible amortization expense decreased $28,000 or 77.8% to $8,000 during the
three months ended June 30, 2004, compared to $36,000 for the same period in the
prior year. This variance was a result of the cessation of amortization expense
on three branches previously acquired which were fully amortized in the fourth
quarter of 2003.
Other noninterest expense increased $88,000 or 16.8% to $612,000 during the
three months ended June 30, 2004, compared to $524,000 for the same period in
the prior year. This increase can be attributed primarily to increases in
telephone and communication expenses, Pennsylvania use tax expense, software
depreciation and marketing expenses. Partially offsetting this unfavorable
variance were decreases in professional fees, Pennsylvania shares taxes, and
travel and entertainment expenses between the two periods.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased $74,000 or
36.5% to $129,000 for the three months ended June 30, 2004, compared to $203,000
for the same period in the prior year. Contributing to this favorable variance
was the decrease in the Corporation's effective tax rate resulting from the
investment in bank-owned life insurance and tax-free municipal securities and
loans, as well as historic tax credits attributable to the remodeling of the
Corporation's headquarters. Also contributing was a decrease in the
Corporation's pre-tax earnings base between the second quarter 2004 and 2003.
11
COMPARISON OF RESULTS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
GENERAL. Net income for the six months ended June 30, 2004 decreased $81,000 or
6.9% to $1.1 million from $1.2 million for the six months ended June 30, 2003.
This decrease was a result of a decrease in net interest income of $290,000 and
an increase in noninterest expense of $141,000. Offsetting these unfavorable
variances were decreases in the provision for loan losses and income taxes of
$75,000 and $125,000, respectively, and an increase in noninterest income of
$150,000.
NET INTEREST INCOME. Net interest income on a tax equivalent basis decreased
$279,000 or 5.7% to $4.6 million for the six months ended June 30, 2004 from
$4.9 million for the same period in 2003. This net decrease can be attributed to
a decrease in interest income of $192,000 coupled with an increase in interest
expense of $87,000.
INTEREST INCOME. Interest income on a tax equivalent basis decreased $192,000 or
2.6% to $7.1 million for the six months ended June 30, 2004, compared to $7.3
million for the same period in the prior year. This decrease in interest income
can be attributed to a 60 basis point decline in the interest rate on average
interest-earning assets to 5.83% during the six months ended June 30, 2004,
compared to 6.43% for the same period in the prior year. The yield on average
loans, securities and cash equivalents decreased to 6.34%, 4.34% and 1.69%,
respectively, during the six months ended June 30, 2004, compared to 6.98%,
4.93% and 2.08%, respectively, for the same period in the prior year. The
decrease in interest income due to rate was offset by an increase in the average
balance of interest-earning assets, as average loans receivable and securities
increased to $188.2 million and $52.0 million, respectively, during the six
months ended June 30, 2004, compared to $173.3 million and $50.7 million,
respectively, during the same period in the prior year. Offsetting the increase
in average loans receivable and securities was a slight decrease in the average
balance of cash equivalents to $4.4 million during the six months ended June 30,
2004, compared to $4.7 million during the same period in the prior year.
Increases in average loans and securities between quarterly periods were funded
by deposit growth and borrowed funds. See comments in the "Changes in Financial
Condition" section above for discussion of security and deposit growth factors.
INTEREST EXPENSE. Interest expense increased $87,000 or 3.6% to $2.5 million for
the six months ended June 30, 2004, compared to $2.4 million for the same period
in the prior year. This increase in interest expense can be attributed to an
increase in the average balance of interest-bearing liabilities, as average
interest-bearing deposits and borrowed funds increased to $184.6 million and
$16.0 million, respectively, during the six months ended June 30, 2004, compared
to $174.9 million and $10.7 million, respectively, during the same period in the
prior year. The increase in interest expense due to volume was partially offset
by an 11 basis point decline in the interest rate on average interest-bearing
liabilities to 2.52% during the six months ended June 30, 2004, compared to
2.63% for the same period in the prior year. The average cost of deposits
decreased to 2.39% during the six months ended June 30, 2004, compared to 2.55%
for the same period in the prior year.
12
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 resulting 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) SIX MONTHS ENDED JUNE 30,
2004 2003
----------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
- -----------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
- ------------------------
Loans, taxable $ 180,742 $ 5,700 6.34% $ 168,474 $ 5,847 7.00%
Loans, tax exempt 7,445 234 6.33% 4,802 151 6.35%
--------- ------- ------ --------- ------- ------
Total Loans Receivable $ 188,187 $ 5,935 6.34% $ 173,276 $ 5,998 6.98%
--------- ------- ------ --------- ------- ------
Securities, taxable 36,611 630 3.46% 34,075 703 4.16%
Securities, tax exempt 15,350 493 6.45% 16,615 537 6.52%
--------- ------- ------ --------- ------- ------
Total Securities 51,961 1,123 4.34% 50,690 1,240 4.93%
--------- ------- ------ --------- ------- ------
Interest-earning cash equivalents 2,600 15 1.16% 3,128 22 1.42%
Federal bank stocks 1,800 22 2.46% 1,523 26 3.44%
--------- ------- ------ --------- ------- ------
Total Interest-Bearing Cash Equivalents 4,400 37 1.69% 4,651 48 2.08%
--------- ------- ------ --------- ------- ------
TOTAL INTEREST-EARNING ASSETS 244,548 7,094 5.83% 228,617 7,286 6.43%
Cash and due from banks 6,638 6,250
Other noninterest-earning assets 11,724 10,100
--------- ------- ------ --------- ------- ------
Total assets $ 262,910 $ 7,094 5.43% $ 244,967 $ 7,286 6.00%
========= ======= ========= =======
INTEREST-BEARING LIABILITIES:
- ------------------------------
Interest-bearing demand deposits $ 75,645 $ 212 0.56% $ 75,336 $ 315 0.84%
Time deposits 108,992 1,982 3.66% 99,546 1,898 3.84%
--------- ------- ------ --------- ------- ------
Total Interest-Bearing Deposits 184,637 2,194 2.39% 174,882 2,213 2.55%
--------- ------- ------ --------- ------- ------
Borrowed funds, term 15,000 311 4.17% 10,417 209 4.05%
Borrowed funds, overnight 1,008 6 1.20% 272 2 1.48%
--------- ------- ------ --------- ------- ------
Total Borrowed Funds 16,008 317 3.98% 10,689 211 3.98%
--------- ------- ------ --------- ------- ------
TOTAL INTEREST-BEARING LIABILITIES 200,645 2,511 2.52% 185,571 2,424 2.63%
Noninterest-bearing demand deposits 37,405 - - 34,549 -
--------- ------- ------ --------- ------- ------
FUNDING AND COST OF FUNDS 238,050 2,511 2.12% 220,120 2,424 2.22%
Other noninterest-bearing liabilities 2,022 1,658
--------- ---------
Total liabilities 240,072 221,778
Stockholders' equity 22,838 23,189
--------- ------- ------ --------- ------- ------
Total liabilities and stockholders' equity $ 262,910 $ 2,511 2.12% $ 244,967 $ 2,424 2.22%
========= ======= ========= =======
NET INTEREST INCOME $ 4,583 $ 4,862
======= ========
INTEREST RATE SPREAD (difference between 3.32% 3.79%
===== ======
weighted average rate on interest-earning
assets and interest-bearing liabilities)
NET INTEREST MARGIN (net interest 3.77% 4.29%
===== =====
income as a percentage of average
interest-earning assets)
- -----------------------------------------------------------------------------------------------------------------
13
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) SIX MONTHS ENDED JUNE 30,
2004 VERSUS 2003
INCREASE (DECREASE) DUE TO
-------------------------------------
VOLUME RATE TOTAL
- --------------------------------------------------------------------------------
INTEREST INCOME:
Loans $ 494 $(557) $ (63)
Securities 30 (148) (118)
Interest-earning cash equivalents (3) (4) (7)
Federal bank stocks 4 (8) (4)
----- ----- -----
Total interest-earning assets 525 (717) (192)
----- ----- -----
Interest expense:
Deposits 120 (139) (19)
Borrowed funds 105 1 106
----- ----- -----
Total interest-bearing liabilities 225 (138) 87
----- ----- -----
Net interest income $ 300 $(579) $(279)
===== ===== =====
- -------------------------------------------------------------------------------
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 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.
Information pertaining to the allowance for loan losses and non-performing
assets is as follows:
- ----------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED,
JUNE 30, JUNE 30, DECEMBER 31,
- ----------------------------------------------------------------------------------------------------
2004 2003 2003
------- ------- -------
Beginning Balance - December 31 $ 1,777 $ 1,587 1,587
Provision for Loan Losses 75 150 330
Charge-Offs (77) (68) (205)
Recoveries 34 29 65
Ending Balance - June 30 $ 1,809 $ 1,698 $ 1,777
======= ======= ======
Non-performing assets $ 1,190 $ 1,572 1,329
Non-performing loans to total loans 0.64% 0.88% 0.69%
Non-performing assets to total assets 0.45% 0.63% 0.52%
Allowance for loan losses to total loans 0.97% 0.95% 0.92%
Allowance for loan losses to non-performing loans 152.02% 108.02% 133.71
- ----------------------------------------------------------------------------------------------------
14
The provision for loan losses decreased $75,000 or 50.0% to $75,000 for the six
month period ending June 30, 2004 from $150,000 for the same period in the prior
year. Although the loan balances decreased in the first six months of 2004, the
actual allowance level reflected an increase of $32,000 or 1.8% to $1.81 million
at June 30, 2004 from $1.78 million at December 31, 2003. This increase was a
result of an increase in charged-off loans combined with management's evaluation
of the loan portfolio, including economic trends, regulatory considerations and
other factors. Nonperforming loans also decreased $139,000 or 10.5% to $1.2
million at June 30, 2004 from $1.3 million at December 31, 2003. This was
primarily a result of the change in the status of two commercial mortgages from
nonperforming to performing.
NONINTEREST INCOME. Noninterest income increased $150,000 or 17.6% to $1.0
million during the six months ended June 30, 2004, compared to $852,000 during
the same period in the prior year. This increase can be attributed to the
increase in customer service fees, gains on the sale of marketable equity
securities and other noninterest income of $44,000, $114,000 and $17,000,
respectively. The increase in customer service fees was a result of the increase
in the overdraft fees and also the increase in the number of accounts.
Offsetting this favorable variance was a decrease in the gains on loans sold and
earnings on bank-owned life insurance of $20,000 and $5,000, respectively.
NONINTEREST EXPENSE. Noninterest expense increased $141,000 or 3.7% to $4.0
million during the six months ended June 30, 2004, compared to $3.8 million
during the same period in the prior year. This increase in noninterest expense
can be attributed to increases in premises and equipment expense and other
noninterest expense of $62,000 and $140,000, respectively. This unfavorable
variance was offset by decreases in compensation and employee benefits and
intangible amortization expense of $4,000 and $57,000, respectively.
Compensation and employee benefits expense decreased $4,000 to $2.172 million
during the six months ended June 30, 2004, compared to $2.176 million for the
same period in the prior year. Contributing to this variance was the decrease in
employee retirement costs, training expenses, employee incentive costs and
deferred loan fees associated with salaries offset by increases in employee and
officer salaries, employee insurance costs and director fees.
Premises and equipment expense increased $62,000 or 11.4% to $604,000 during the
six months ended June 30, 2004, compared to $542,000 for the same period in the
prior year. This increase can be primarily attributed to increased building and
equipment depreciation expenses and other equipment expenses of $13,000, $48,000
and $14,000, respectively. Contributing to the increases in depreciation
expenses between the two periods was the completion of the construction on the
main office building during the fourth quarter of 2003 and the addition of a new
mainframe and imaging system in January 2004. Partially offsetting this increase
between the two periods was the decrease in office rent of $17,000, as a direct
result of the closing of our Clarion Mall office in March 2003.
Intangible amortization expense decreased $57,000 or 78.1% to $16,000 during the
six months ended June 30, 2004, compared to $73,000 for the same period in the
prior year. This variance was a result of the cessation of amortization expense
on three branches previously acquired which were fully amortized in the fourth
quarter of 2003.
Other noninterest expense increased $140,000 or 13.7% to $1.2 million during the
six months ended June 30, 2004, compared to $1.0 million for the same period in
the prior year. This increase can be attributed primarily to increases in
telephone and communication expenses, Pennsylvania use tax expense, software
depreciation and marketing expenses. Partially offsetting this unfavorable
variance were decreases in professional fees, Pennsylvania shares taxes, travel
and entertainment expenses and postage expenses between the two periods.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased $125,000 or
33.2% to $252,000 for the six months ended June 30, 2004, compared to $377,000
for the same period in the prior year. Contributing to this favorable variance
was the decrease in the Corporation's effective tax rate resulting from the
investment in bank-owned life insurance and tax-free municipal securities and
loans, as well as historic tax credits attributable to the remodeling of the
Corporation's headquarters. Also contributing was a decrease in the
Corporation's pre-tax earnings base between the six month period ending June
2004 and 2003.
15
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 six months
ended June 30, 2004, the Corporation used its sources of funds primarily to
purchase securities and payoff overnight borrowings from the FHLB. As of such
date, the Corporation had outstanding loan commitments, including undisbursed
loans and amounts available under credit lines, totaling $15.6 million, and
standby letters of credit totaling $637,000.
At June 30, 2004, time deposits amounted to $112.0 million or 49.2% of the
Corporation's total consolidated deposits, including approximately $31.0
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 term borrowing capacity from the FHLB and, to a limited and rare extent,
the sale of loans. At June 30, 2004, the Corporation's borrowing capacity with
the FHLB, net of funds borrowed, was $94.1 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.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk for the Corporation is comprised primarily from interest rate risk
exposure and liquidity risk. Since virtually all of the interest-earning assets
and paying liabilities are at the Bank, virtually all of the interest rate risk
and liquidity risk lies at the Bank level. The Bank is not subject to currency
exchange risk or commodity price risk, and has no trading portfolio, and
therefore, is not subject to any trading risk. In addition, the Bank does not
participate in hedging transactions such as interest rate swaps and caps.
Changes in interest rates will impact both income and expense recorded and also
the market value of long-term interest-earning assets. Interest rate risk and
liquidity risk management is performed at the Bank level. Although the Bank has
a diversified loan portfolio, loans outstanding to individuals and businesses
depend upon the local economic conditions in the immediate trade area.
One of the primary functions of the Corporation's asset/liability management
committee is to monitor the level to which the balance sheet is subject to
interest rate risk. The goal of the asset/liability committee is to manage the
relationship between interest rate sensitive assets and liabilities, thereby
minimizing the fluctuations in the net interest margin, which achieves
consistent growth of net interest income during periods of changing interest
rates.
Interest rate sensitivity is the result of differences in the amounts and
repricing dates of the bank's rate sensitive assets and rate sensitive
liabilities. These differences, or interest rate repricing "gap", provide an
indication of the extent that the Corporation's net interest income is affected
by future changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest
rate-sensitive liabilities and is considered negative when the amount of
interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets. Generally, during a period of rising interest rates, a
negative gap would adversely affect net interest income while a positive gap
would result in an increase in net interest income. Conversely, during a period
of falling interest rates, a negative gap would result in an increase in net
interest income and a positive gap would adversely affect net interest income.
The closer to zero that gap is maintained, generally, the lesser the impact of
market interest rate changes on net interest income.
At June 30, 2004, the Corporation's interest-earning assets maturing or
repricing within one year totaled $92.6 million while the Corporation's
interest-bearing liabilities maturing or repricing within one-year totaled
$113.1 million, providing an excess of interest-bearing liabilities over
interest-earning assets of $20.5 million or a negative 7.7% of total assets. At
June 30, 2004, the percentage of the Corporation's assets to liabilities
maturing or repricing within one year was 81.9%.
Market risk information will be presented in more detail in the 2004 Annual
Report.
ITEM 4. CONTROLS AND PROCEDURES
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 Principal Financial and Accounting Officer, as
appropriate, to allow timely decisions regarding required disclosure based
closely on the definition of "disclosure controls and procedures" in Rule
13a-15(e).
As of the quarter ended June 30, 2004, 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 Principal Financial and Accounting 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 Principal
Financial and Accounting Officer concluded that the Corporation's disclosure
controls and procedures were effective.
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.
17
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 AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of the Corporation was held May 19,
2004. Of 1,267,835 common shares eligible to vote, 982,693 or 77.5% were
voted in person or by proxy.
(b) The following Class A directors were elected for a three year term expiring
in 2007:
NAME SHARES FOR SHARES WITHHELD
J. Michael King 946,228 36,465
David L. Cox 979,042 3,652
In addition to the above listed individuals, the following persons continue
to serve as directors: Ronald L. Ashbaugh, George W. Freeman, Brian C.
McCarrier, Bernadette H. Crooks, Robert L. Hunter and John B. Mason.
(c) The recommendation of the Board of Directors to ratify the appointment of
Crowe Chizek and Company LLC as the Corporation's independent auditors, as
described in the proxy statement for the annual meeting was approved with
980,629 shares in favor, 1,959 shares against and 105 shares abstained.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT 31.1 Rule 13a-14(a) Certification of Chief Executive Officer
EXHIBIT 31.2 Rule 13a-14(a) Certification of Principal Financial and
Accounting Officer
EXHIBIT 32.1 CEO Certification Pursuant to 18 U.S.C. Section 1350
EXHIBIT 32.2 PFO Certification Pursuant to 18 U.S.C. Section 1350
(B) REPORTS ON FORM 8-K
The Corporation filed a Form 8-K dated August 13, 2004 to announce
second quarter 2004 earnings.
18
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: August 13, 2004 By: /S/ David L. Cox
---------------------------------------------
David L. Cox
Chairman of the Board,
President and Chief Executive Officer
Date: August 13, 2004 By: /S/ Shelly L. Rhoades
--------------------------------------------------
Assistant Controller
(Principal Financial and Accounting Officer)
19