--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 000-18464
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EMCLAIRE FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1606091
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(State or other (IRS Employer
jurisdiction of incorporation Identification No.)
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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller reporting company as
defined in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_|
Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (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
1,431,404 at November 14, 2008.
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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
September 30, 2008 and December 31, 2007........................................1
Consolidated Statements of Income for the three and nine
months ended September 30, 2008 and 2007........................................2
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2008 and 2007........................................3
Consolidated Statements of Changes in Stockholders'
Equity for the three and nine months ended September 30, 2008 and 2007..........4
Notes to Consolidated Financial Statements......................................5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations...............................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................23
Item 4T. Controls and Procedures........................................................24
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings..............................................................25
Item 1A. Risk Factors...................................................................25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....................25
Item 3. Defaults Upon Senior Securities................................................25
Item 4. Submission of Matters to a Vote of Security Holders............................25
Item 5. Other Information..............................................................25
Item 6. Exhibits.......................................................................25
Signatures ...............................................................................26
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Interim Financial Statements
-------------------------------------
Emclaire Financial Corp. and Subsidiary
Consolidated Balance Sheets
As of September 30, 2008 (Unaudited) and December 31, 2007
(Dollar amounts in thousands, except share data)
September 30, December 31,
2008 2007
------------- -------------
Assets
------
Cash and due from banks $ 5,916 $ 10,288
Interest earning deposits with banks 21,637 195
------------- -------------
Cash and cash equivalents 27,553 10,483
Securities available for sale, at fair value 57,798 51,919
Loans receivable, net of allowance for loan losses of $2,363 and $2,157 251,043 229,819
Federal bank stocks, at cost 2,890 2,662
Bank-owned life insurance 5,137 4,987
Accrued interest receivable 1,373 1,365
Premises and equipment, net 8,157 7,904
Goodwill 1,422 1,422
Prepaid expenses and other assets 1,535 1,159
------------- -------------
Total Assets $ 356,908 $ 311,720
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 48,316 $ 47,111
Interest bearing 230,035 197,151
------------- -------------
Total deposits 278,351 244,262
Short-term borrowed funds 13,260 5,400
Long-term borrowed funds 35,000 35,000
Accrued interest payable 841 771
Common stock subscriptions payable 3,114 --
Accrued expenses and other liabilities 963 1,584
------------- -------------
Total Liabilities 331,529 287,017
------------- -------------
Commitments and Contingencies -- --
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 10,984 10,902
Treasury stock, at cost; 128,017 shares (2,653) (2,653)
Retained earnings 15,713 15,114
Accumulated other comprehensive loss (410) (405)
------------- -------------
Total Stockholders' Equity 25,379 24,703
------------- -------------
Total Liabilities and Stockholders' Equity $ 356,908 $ 311,720
============= =============
See accompanying notes to consolidated financial statements.
1
Emclaire Financial Corp. and Subsidiary
Consolidated Statements of Income
For the three and nine months ended September 30, 2008 and 2007 (Unaudited)
(Dollar amounts in thousands, except per share data)
For the three months ended For the nine months ended
September 30, September 30,
------------------------------ ------------------------------
2008 2007 2008 2007
------------- ------------- ------------- -------------
Interest and dividend income:
Loans receivable, including fees $ 4,059 $ 3,937 $ 11,916 $ 11,329
Securities:
Taxable 550 388 1,339 1,171
Exempt from federal income tax 159 169 482 514
Federal bank stocks 26 35 82 106
Deposits with banks 53 6 112 143
------------- ------------- ------------- -------------
Total interest and dividend income 4,847 4,535 13,931 13,263
------------- ------------- ------------- -------------
Interest expense:
Deposits 1,650 1,578 4,776 4,813
Borrowed funds 467 361 1,318 1,047
------------- ------------- ------------- -------------
Total interest expense 2,117 1,939 6,094 5,860
------------- ------------- ------------- -------------
Net interest income 2,730 2,596 7,837 7,403
Provision for loan losses 140 45 285 120
------------- ------------- ------------- -------------
Net interest income after provision for loan losses 2,590 2,551 7,552 7,283
------------- ------------- ------------- -------------
Noninterest income:
Fees and service charges 446 412 1,211 1,128
Commissions on financial services 108 83 354 325
Net gain (loss) on available for sale securities (116) 18 (391) 194
Net gain on sales of loans -- 15 8 22
Earnings on bank-owned life insurance 58 55 171 163
Other 124 113 424 366
------------- ------------- ------------- -------------
Total noninterest income 620 696 1,777 2,198
------------- ------------- ------------- -------------
Noninterest expense:
Compensation and employee benefits 1,261 1,241 3,961 3,791
Premises and equipment 409 404 1,247 1,205
Other 626 610 1,795 1,904
------------- ------------- ------------- -------------
Total noninterest expense 2,296 2,255 7,003 6,900
------------- ------------- ------------- -------------
Income before provision for income taxes 914 992 2,326 2,581
Provision for income taxes 198 238 510 569
------------- ------------- ------------- -------------
Net income $ 716 $ 754 $ 1,816 $ 2,012
============= ============= ============= =============
Basic and diluted earnings per share $ 0.56 $ 0.59 $ 1.43 $ 1.59
Average common shares outstanding 1,267,835 1,267,835 1,267,835 1,267,835
Dilutive Shares -- -- -- --
See accompanying notes to consolidated financial statements.
2
Emclaire Financial Corp. and Subsidiary
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2008 and 2007 (Unaudited)
(Dollar amounts in thousands)
For the nine months ended
September 30,
2008 2007
------------- -------------
Cash flows from operating activities
Net income $ 1,816 $ 2,012
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of premises and equipment 518 497
Provision for loan losses 285 120
Amortization of premiums and accretion of discounts, net (124) 9
Amortization of intangible assets and mortgage servicing rights 13 12
Amortization of deferred loan costs 209 197
Realized (gains) losses on sales of available for sale securities, net 391 (194)
Net gains on sales of loans (8) (22)
Originations of loans sold (1,263) (1,617)
Proceeds from the sale of loans 1,261 1,615
Stock compensation expense 83 16
Earnings on bank owned life insurance, net (150) (144)
Increase in accrued interest receivable (8) (107)
Increase in prepaid expenses and other assets (387) (225)
Increase (decrease) in accrued interest payable 70 (93)
Increase in accrued expenses and other liabilities 2,493 324
------------- -------------
Net cash provided by operating activities 5,199 2,400
------------- -------------
Cash flows from investing activities
Loan originations and principal collections, net (21,716) (13,155)
Available for sale securities:
Sales -- 1,275
Maturities, repayments and calls 61,518 13,869
Purchases (67,664) (12,136)
Purchase of federal bank stocks (228) (391)
Purchases of premises and equipment (771) (324)
------------- -------------
Net cash used in investing activities (28,861) (10,862)
------------- -------------
Cash flows from financing activities
Net increase (decrease) in deposits 34,089 (8,345)
Net increase in short-term borrowed funds 7,860 7,600
Dividends paid on common stock (1,217) (1,103)
------------- -------------
Net cash provided by (used in) financing activities 40,732 (1,848)
------------- -------------
Net increase (decrease) in cash and cash equivalents 17,070 (10,310)
Cash and cash equivalents at beginning of period 10,483 16,717
------------- -------------
Cash and cash equivalents at end of period $ 27,553 $ 6,407
============= =============
Supplemental information:
Interest paid $ 6,024 $ 5,953
Income taxes paid 270 366
Supplemental noncash disclosure:
Transfers from loans to foreclosed real estate 130 --
See accompanying notes to consolidated financial statements.
3
Emclaire Financial Corp. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
For the three and nine months ended September 30, 2008 and 2007 (Unaudited)
(Dollar amounts in thousands, except per share data)
For the three months ended For the nine months ended
September 30, September 30,
------------------------------ ------------------------------
2008 2007 2008 2007
------------- ------------- ------------- -------------
Balance at beginning of period $ 25,005 $ 23,990 $ 24,703 $ 23,917
Net income 716 754 1,816 2,012
Other comprehensive income (loss):
Change in net unrealized gains (losses) on available
for sale securities, net of taxes (43) 381 (263) 47
Less reclassification adjustment for (gains) losses
included in net income, net of taxes 76 (12) 257 (128)
------------- ------------- ------------- -------------
Other comprehensive income (loss) 33 369 (6) (81)
------------- ------------- ------------- -------------
Total comprehensive income 749 1,123 1,810 1,930
Stock compensation expense 31 15 83 16
Dividends declared (406) (368) (1,217) (1,103)
------------- -----------------------------------------------
Balance at end of period $ 25,379 $ 24,760 $ 25,379 $ 24,760
============= ============= ============= =============
Common cash dividend per share $ 0.32 $ 0.29 $ 0.96 $ 0.87
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
4
Emclaire Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
1. Nature of Operations and Basis of Presentation.
Emclaire Financial Corp. (the "Corporation") is a Pennsylvania company
organized as the holding company of Farmers National Bank of Emlenton
(the "Bank"). The Corporation provides a variety of financial services
to individuals and businesses through its offices in western
Pennsylvania. Its primary deposit products are checking, savings and
certificate of deposit accounts and its primary lending products are
residential and commercial mortgages, commercial business and consumer
loans.
The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiary, the Bank. All intercompany
transactions and balances have been eliminated in preparing the
consolidated financial statements.
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 consolidated 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, 2007, as contained in the Corporation's 2007
Annual Report of Form 10-K filed with the Securities and Exchange
Commission.
The balance sheet at December 31, 2007 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
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. 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. Earnings per Common Share.
Basic earnings per common share (EPS) excludes dilution and is computed
by dividing net income by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if securities or contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
Corporation. Options on 85,000 shares of common stock were not included
in computing diluted earnings per share because their effects were not
dilutive for the three and nine months periods ended September 30, 2008
and 2007.
5
3. Securities.
The Corporation's securities as of the respective dates are summarized
as follows:
-----------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) Amortized Unrealized Unrealized Fair
cost gains losses value
-----------------------------------------------------------------------------------------------------------------
Available for sale:
-------------------
September 30, 2008:
U.S. Government agencies and related entities $ 17,988 $ 42 $ (113) $ 17,917
Mortgage-backed securities 19,801 124 (70) 19,855
Municipal securities 13,297 366 -- 13,663
Corporate securities 2,994 -- -- 2,994
Equity securities 3,874 -- (505) 3,369
------------ ------------ ------------ ------------
$ 57,954 $ 531 $ (687) $ 57,798
============ ============ ============ ============
December 31, 2007:
U.S. Government agencies and related entities $ 29,356 $ 37 $ (59) $ 29,334
Mortgage-backed securities 1,932 -- (48) 1,884
Municipal securities 13,685 566 -- 14,251
Corporate securities 2,939 -- -- 2,939
Equity securities 4,156 -- (645) 3,511
------------ ------------ ------------ ------------
$ 52,068 $ 603 $ (752) $ 51,919
============ ============ ============ ============
-----------------------------------------------------------------------------------------------------------------
Management evaluates securities for other than temporary impairment at
least on a quarterly basis, and more frequently when economic, market
or other concerns warrant such evaluation. Consideration is given to
(1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of
the issuer and (3) the intent and ability of the Corporation to retain
its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.
Effective September 30, 2008, management evaluated the Corporation's
investment portfolio and determined that a $51,322 other than temporary
impairment existed on Fannie Mae stock and a $65,047 other than
temporary impairment existed on Freddie Mac stock. The impairment of
these securities was considered to be other than temporary due to
continued concerns related to the financial condition and near-term
prospects of the issuers, economic conditions of the financial services
industry and deteriorating market values. These securities were written
down to their fair market value as of September 30, 2008 and the
resulting impairment losses were recognized in earnings during the
third quarter of 2008. This impairment charge was in addition to a
$275,000 other than temporary impairment charge recorded at the end of
the second quarter of 2008.
There were no other unrealized losses that were considered other than
temporary at September 30, 2008.
6
4. Loans Receivable.
The Corporation's loans receivable as of the respective dates are
summarized as follows:
------------------------------------------------------------------------------
(Dollar amounts in thousands) September 30, December 31,
2008 2007
------------------------------------------------------------------------------
Mortgage loans on real estate:
Residential first mortgages $ 67,529 $ 65,706
Home equity loans and lines of credit 56,859 49,426
Commercial real estate 79,684 71,599
------------- -------------
204,072 186,731
Other loans:
Commercial business 40,171 35,566
Consumer 9,163 9,679
------------- -------------
49,334 45,245
------------- -------------
Total loans, gross 253,406 231,976
Less allowance for loan losses 2,363 2,157
------------- -------------
Total loans, net $ 251,043 $ 229,819
============= =============
------------------------------------------------------------------------------
5. Deposits.
The Corporation's deposits as of the respective dates are summarized as
follows:
--------------------------------------------------------------------------------
(Dollar amounts in thousands) September 30, 2008 December 31, 2007
--------------------------------------------------------------------------------
Type of accounts Amount % Amount %
--------------------------------------------------------------------------------
Non-interest bearing deposits $ 48,316 17.3% $ 47,111 19.3%
Interest bearing demand deposits 103,487 37.2% 77,614 31.8%
Time deposits 126,548 45.5% 119,537 48.9%
-------- -------- -------- --------
$278,351 100.0% $244,262 100.0%
======== ======== ======== ========
--------------------------------------------------------------------------------
6. Guarantees.
The Corporation does not issue any guarantees that would require
liability recognition or disclosure, other than its standby letters of
credit. Standby letters of credit are conditional commitments issued by
the Corporation to guarantee the performance of a customer to a third
party. Of these letters of credit at September 30, 2008, $81,000 will
expire within the next seven months, $684,000 will automatically renew
within the next twelve months and $305,000 will automatically renew
within thirteen to seventeen months. The Corporation, generally, holds
collateral and/or personal guarantees supporting these commitments.
Management believes that the proceeds obtained through a liquidation of
collateral and the enforcement of guarantees would be sufficient to
cover the potential amount of future payments required under the
corresponding guarantees. The credit risk involved in issuing letters
of credit is essentially the same as those that are involved in
extending loan facilities to customers. The current amount of the
liability as of September 30, 2008 for guarantees under standby letters
of credit issued is not material.
7
7. Employee Benefit Plans.
The Corporation maintains a defined contribution 401(k) Plan. Eligible
employees participate by providing tax-deferred contributions up to 20%
of qualified compensation. Employee contributions are vested at all
times. The Corporation provides a matching contribution of up to 4% of
the participant's salary. Matching contributions for the nine months
ended September 30, 2008 and 2007 amounted to $113,000 and $100,000,
respectively.
The Corporation provides pension benefits for eligible employees
through a defined benefit pension plan. Substantially all full-time
employees participate in the retirement plan on a non-contributing
basis and are fully vested after three years of service.
The Corporation uses December 31 as the measurement date for its plans.
The components of the periodic pension cost are as follows:
------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) For the three months ended For the nine months ended Year ended
September 30, September 30, December 31,
------------------------------ ------------------------------ -------------
2008 2007 2008 2007 2007
---------------------------------------------------- ------------- ------------- ------------- -------------
Service cost $ 73 $ 66 $ 199 $ 180 $ 238
Interest cost 71 68 213 198 262
Expected return on plan assets (79) (74) (237) (228) (303)
Transition asset -- 4 -- -- --
Prior service costs (8) (8) (24) (24) (31)
Recognized net actuarial (gain) loss 4 10 12 24 31
------------- ------------- ------------- ------------- -------------
Net periodic pension cost $ 61 $ 66 $ 163 $ 150 $ 197
============= ============= ============= ============= =============
------------------------------------------------------------------------------------------------------------------------
The expected rate of return on plan assets was 8.50% for the periods
ended September 30, 2008 and 2007. The Corporation contributed $335,000
to its pension plan for the 2008 plan year during the quarter ended
September 30, 2008.
8. Stock Compensation Plans.
In May 2007, the Corporation adopted the 2007 Stock Incentive Plan and
Trust. Under the Plan, the Corporation may grant options to its
directors, officers and employees for up to 177,496 shares of common
stock. Incentive stock options, non-incentive or compensatory stock
options and share awards may be granted under the Plan. The exercise
price of each option shall at least equal the market price of a share
of common stock on the date of grant and have a contractual term of ten
years. Options shall vest and become exercisable at the rate, to the
extent and subject to such limitations as may be specified by the
Corporation. Effective May 2007, the Corporation adopted SFAS No.
123(R), Share-Based Payment, which requires that compensation cost
related to share-based payment transactions be recognized in the
financial statements with measurement based upon the fair value of the
equity or liability instruments issued. For the nine-month periods
ended September 30, 2008 and 2007, the Corporation recognized $83,000
and $16,000, respectively, in compensation expense for stock options.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions:
--------------------------------------------------------------
For the nine months ended
September 30, 2008
--------------------------------------------------------------
Dividend yield 4.46%
Expected life 10 years
Expected volatility 14.09%
Risk-free interest rate 5.10%
--------------------------------------------------------------
8
8. Stock Compensation Plans (continued).
The expected volatility is based on historical stock price
fluctuations. The risk-free interest rates for periods within the
contractual life of the awards are based on the U.S. Treasury yield
curve in effect at the time of the grant. The expected life is based on
the maximum term of the options. The dividend yield assumption is based
on the Corporation's history and expectation of dividend payouts.
A summary of option activity under the Plan as of September 30, 2008,
and changes during the period then ended is presented below:
----------------------------------------------------------------------------------------------------------------------
Weighted-Average
Weighted-Average Aggregate Remaining Term
Options Exercise Price Intrinsic Value (in years)
---------------- ---------------- ---------------- ----------------
Outstanding at the beginning of the year 84,000 $ 26.00 8.7
Granted 5,500 25.90 9.6
Exercised -- -- --
Forfeited 4,500 26.00 --
---------------- ---------------- ---------------- ----------------
Outstanding as of September 30, 2008 85,000 $ 25.99 $ -- 8.8
================ ================ ================ ================
Exercisable as of Septemer 30, 2008 -- $ -- $ -- --
================ ================ ================ ================
----------------------------------------------------------------------------------------------------------------------
A summary of the status of the Corporation's nonvested shares as of
September 30, 2008, and changes during the period then ended is
presented below:
-----------------------------------------------------------------------------------------------------
Weighted-Average
Options Grant-date Fair Value
--------------------- ---------------------
Nonvested at the beginning of the year 84,000 $ 3.39
Granted 5,500 2.90
Vested -- --
Forfeited 4,500 --
--------------------- ---------------------
Nonvested as of September 30, 2008 85,000 $ 3.36
===================== =====================
-----------------------------------------------------------------------------------------------------
As of September 30, 2008, there was $172,000 of total unrecognized
compensation cost related to nonvested share-based compensation
arrangements granted under the Plan. That cost is expected to be
recognized over an average period of 1.8 years.
9. Fair Values of Financial Instruments.
In September 2006, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair
Value Measurements (SFAS 157), which defines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. SFAS 157 applies to other accounting pronouncements that
require or permit fair value measurements. The new guidance is
effective for financial statements issued for fiscal years beginning
after November 15, 2007, and for interim periods within those fiscal
years. The Corporation adopted SFAS 157 effective January 1, 2008 for
financial assets and liabilities that are measured and reported at fair
value. There was no impact from the adoption of SFAS 157 on the amounts
reported in the consolidated financial statements. The primary effect
of SFAS 157 on the Corporation was to expand the required disclosures
pertaining to the methods used to determine fair values.
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs
to valuation methods used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy under SFAS 157 are as follows:
9
9. Fair Values of Financial Instruments (continued).
Level 1: Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted
assets or liabilities.
Level 2: Quoted prices in markets that are not active, or
inputs that are observable either directly or indirectly, for
substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs
that are both significant to the fair value measurement and
unobservable (i.e. supported with little or no market
activity).
An asset or liability's level within the fair value hierarchy is based
on the lowest level of input that is significant to the fair value
measurement.
For assets measured at fair value on a recurring basis, the fair value
measurements by level within the fair value hierarchy used at September
30, 2008 are as follows:
------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) (Level 1) (Level 2)
Quoted Prices in Significant (Level 3)
Active Markets Other Significant
for Identical Observable Unobservable
Description September 30, 2008 Assets Inputs Inputs
------------------ ------------------ ------------------ ------------------
Securities available for sale $ 57,798 $ 3,369 $ 54,428 $ --
------------------ ------------------ ------------------ ------------------
$ 57,798 $ 3,369 $ 54,428 $ --
================== ================== ================== ==================
------------------------------------------------------------------------------------------------------------------------
The Corporation's adoption of SFAS 157 applies only to its financial
instruments required to be reported at fair value. The adoption does
not apply to non-financial assets and non-financial liabilities until
January 1, 2009 in accordance with FSP FAS 157-2. The following
valuation technique was used to measure fair value of assets in the
table above on a recurring basis as of September 30, 2008:
Available for sale securities - Fair value on available for sale
securities were based upon a market approach. Prices for securities
that are fixed income instruments that are not quoted on an exchange,
but are traded in active markets, are obtained through third party data
service providers or dealer market participants which the Corporation
has historically transacted both purchases and sales of investment
securities. As of September 30, 2008, all fair values on available for
sale securities were based on prices obtained from these sources and
were based on actual market quotations for each specific security.
10. Adoption of New Accounting Standards.
The Corporation adopted the Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157) effective January 1, 2008 for financial assets
and liabilities that are measured and reported at fair value. There was
no impact from the adoption of SFAS 157 on the amounts reported in the
consolidated financial statements. The primary effect of SFAS 157 on
the Corporation was to expand required disclosures pertaining to the
methods used to determine fair values. See note 9 for further detail.
11. Merger Conversion.
On October 17, 2008, the Corporation completed a merger conversion with
Elk County Savings and Loan Association (ECSLA) in Ridgway,
Pennsylvania. ECSLA merged with and into the Bank, with the Bank as the
surviving institution. As a result of the merger, the Corporation added
approximately $7.4 million, $6.2 million, and $4.5 million,
respectively, in loans, deposits and equity. In connection with this
transaction, the Corporation offered between a minimum of 92,435 and
maximum of 200,000 shares of its common stock to eligible depositors
and borrowers of ECSLA and to the general public. Orders for a total of
163,569 shares of the Corporation's common stock at a price of $21.15
were accepted in the offering, resulting in gross proceeds of
$3,459,484. Proceeds received prior to the merger date were classified
as a liability on the Corporation's consolidated balance sheet as of
September 30, 2008. These funds were reclassified to equity upon the
issuance of common shares on October 17, 2008. The Corporation intends
to use the proceeds to support future loan and asset growth, to expand
its business operations and for general corporate purposes.
10
12. Effect of Recently Issued Accounting Standards.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities - Including an amendment
of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to
choose to measure many financial instruments and certain other items at
fair value. Unrealized gains and losses on items for which the fair
value option has been elected will be recognized in earnings at each
subsequent reporting date. SFAS 159 is effective for the Corporation
January 1, 2008. This new accounting pronouncement had no effect on the
Corporation's consolidated financial statements as the Corporation
elected not to adopt SFAS 159.
In December 2007, the FASB issued SFAS No. 141(R), Business
Combinations (SFAS 141R). SFAS 141R establishes principles and
requirements for how the acquirer of a business recognizes and measures
in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree.
SFAS 141R also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
The guidance will become effective for fiscal years beginning after
December 15, 2008. This new pronouncement will impact the Corporation's
accounting for business combinations completed beginning January 1,
2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest
in Consolidated Financial Statements - An Amendment of ARB No. 51 (SFAS
160). SFAS 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. The guidance will become effective for fiscal years
beginning after December 15, 2008, which for the Corporation will be
January 1, 2009. The Corporation believes that this new pronouncement
will have an immaterial impact on its consolidated financial
statements.
In April 2008, the FASB issued FASB Staff Position (FSP) SFAS 142-3,
Determination of the Useful Life of Intangible Assets. This FSP amends
the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS 142, Goodwill and Other Intangible Assets.
The intent of this FSP is to improve the consistency between the useful
life of a recognized intangible asset under SFAS 142 and the period of
expected cash flows used to measure the fair value of the asset under
SFAS 141R and other GAAP. This FSP is effective for financial
statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is
prohibited. The Corporation is currently evaluating the potential
impact the new pronouncement will have on its consolidated financial
statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements. This
Statement is effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles. The Corporation is currently evaluating the
potential impact the new pronouncement will have on its consolidated
financial statements.
In June 2008, the FASB ratified EITF Issue No. 07-5, Determining
Whether an Instrument (or an Embedded Feature) is Indexed to an
Entity's Own Stock (EITF 07-5). EITF 07-5 provides that an entity
should use a two step approach to evaluate whether an equity-linked
financial instrument (or embedded feature) is indexed to its own stock,
including evaluating the instrument's contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF is effective for fiscal
years beginning after December 15, 2008. The Corporation is currently
evaluating the potential impact the new pronouncement will have on its
consolidated financial statements.
11
12. Effect of Recently Issued Accounting Standards (continued).
In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not
Active (FSP 157-3). This FSP clarifies the application of the
provisions of SFAS 157 in an inactive market and how an entity would
determine fair value in an inactive market. FSP 157-3 is effective
immediately and applies to the Corporation's September 30, 2008
financial statements. The application of the provisions of FSP157-3 did
not materially affect the Corporation's consolidated financial
statements.
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 nine months ended September 30, 2008 compared to the same periods in
2007 and should be read in conjunction with the Corporation's December 31, 2007
Annual Report on Form 10-K filed with the Securities and Exchange Commission and
with the accompanying consolidated financial statements and notes presented on
pages 1 through 11 of this Form 10-Q.
The Private Securities Litigation Reform 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 $45.2 million to $356.9 million at September 30, 2008
from $311.7 million at December 31, 2007. This 14.5% increase resulted from
increases in cash and cash equivalents, securities and loans receivable, net of
allowance for loan losses, of $17.1 million, $5.9 million and $21.2 million,
respectively. The increase in the Corporation's assets was primarily funded by
increases in customer deposits and borrowed funds.
Non-performing assets to total assets decreased to 0.22% at September 30, 2008
compared to 0.33% at December 31, 2007. The Bank has a $2.3 million personal
loan that was not included as a non-performing asset for purposes of the
September 30, 2008 calculation that has exhibited credit weaknesses and has been
classified as substandard. This loan is secured by local real property pledged
by an associate of the borrower as well as proceeds from a life insurance
policy. The Bank is in negotiations with the borrower, who has continued to make
scheduled payments. Due to the low loan to value ratio at the time of the loan
origination in March 2006, the Bank does not believe it will incur any material
losses on this loan.
Total liabilities increased $44.5 million to $331.5 million at September 30,
2008 from $287.0 million at December 31, 2007, while total stockholders' equity
increased $676,000 to $25.4 million at September 30, 2008 from $24.7 million at
December 31, 2007. This 15.5% increase in total liabilities resulted primarily
from increases in customer deposits and borrowed funds of $34.1 million and $7.9
million, respectively.
RESULTS OF OPERATIONS
Comparison of Results for the Three Month Periods Ended September 30, 2008 and
2007
General. Net income decreased $38,000 or 5.1% to $716,000 for the three months
ended September 30, 2008 from $754,000 for the same period in 2007. This
decrease was the result of increases in the provision for loan losses and
noninterest expense of $95,000 and $41,000, respectively, and a decrease in
noninterest income of $76,000, partially offset by an increase in net interest
income of $134,000 and a decrease in the provision for income taxes of $40,000.
12
The decrease in noninterest income resulted as the Corporation realized security
losses of $116,000 for the three months ended September 30, 2008 related to two
marketable equity securities that were determined to be impaired.
Net interest income. Net interest income on a tax equivalent basis increased
$125,000 or 4.6% to $2.8 million for the three months ended September 30, 2008
from $2.7 million for the same period in 2007. This net increase can be
attributed to an increase in tax equivalent interest income of $303,000,
partially offset by an increase in interest expense of $178,000.
Interest income. Interest income on a tax equivalent basis increased $303,000 or
6.5% to $4.9 million for the three months ended September 30, 2008, compared to
$4.6 million for the same period in the prior year. This increase can be
attributed to increases in interest on loans, securities and interest-earning
deposits with banks of $122,000, $152,000 and $47,000, respectively, partially
offset by a decrease in interest on federal bank stocks of $9,000.
Tax equivalent interest earned on loans receivable increased $119,000 or 3.0% to
$4.1 million for the three months ended September 30, 2008, compared to $3.9
million for the same period in 2007. This increase resulted primarily from
average loans increasing $23.2 million or 10.3%, accounting for $394,000 in
additional loan interest income. This increase can be primarily attributed to
growth in the Corporation's commercial loan portfolios. Offsetting this volume
increase, the yield on loans receivable decreased 45 basis points to 6.56% for
the three months ended September 30, 2008, versus 7.01% for the same period in
2007, accounting for a $275,000 decrease in interest income. Contributing to
this decrease in the average yield on loans receivable were the recent decreases
in short-term market interest rates.
In addition, the Corporation collected $60,000 of interest due associated with
the payoff of a commercial loan in August 2007 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
interest collected was recorded as loan interest income during the three months
ended September 30, 2007.
Tax equivalent interest earned on securities increased $147,000 or 23.2% to
$780,000 for the three months ended September 30, 2008, compared to $633,000 for
the same period in 2007. The average volume of securities increased $14.2
million, accounting for a $173,000 increase in interest income. Offsetting this
volume increase, the average yield on securities decreased 19 basis points to
4.84% for the three months ended September 30, 2008, versus 5.03% for the same
period in 2007, as a result of certain higher yielding securities maturing. This
unfavorable yield variance accounted for a $26,000 decrease in interest income.
Interest earned on interest-earning deposit accounts increased $47,000 or 783.3%
to $53,000 for the three months ended September 30, 2008 from $6,000 for the
same period in 2007. The average volume of these assets increased $8.2 million
or 180.4%, primarily as a result of an increase in customer deposits, increasing
interest income by $52,000. Offsetting this volume increase, the average yield
on interest-earning deposit accounts decreased 314 basis points to 2.44% for the
three months ended September 30, 2008, compared to 5.58% for the same period in
the prior year, accounting for a $6,000 decrease in interest income. The
decrease in the average yield reflects the recent decreases in short-term market
interest rates. Dividends on federal bank stocks decreased $9,000 or 25.7% to
$26,000 for the three month period ended September 30, 2008 from $35,000 for the
same period in 2007. The average yield on these assets decreased 250 basis
points to 3.58% for the three months ended September 30, 2008, compared to 6.08%
for the same period the prior year, accounting for a $17,000 decrease in
interest income. Offsetting this rate decrease, the average volume of dividends
on bank stock increased $609,000 or 26.7% to $2.9 million for the three months
ended September 30, 2008, compared to $2.3 million for the same period the prior
year, accounting for an $8,000 increase in interest income.
Interest expense. Interest expense increased $178,000 or 9.2% to $2.1 million
for the three months ended September 30, 2008, compared to $1.9 million for the
same period in 2007. This increase in interest expense can be attributed to an
increase in interest incurred on deposits and borrowed funds of $72,000 and
$106,000, respectively.
13
Interest expense incurred on borrowed funds increased $106,000 or 29.4% to
$467,000 for the three months ended September 30, 2008, compared to $361,000 for
the same period in the prior year. This increase in interest expense can be
attributed to the increase in the average balance of borrowed funds of $13.8
million or 43.0% to $45.9 million for the three months ended September 30, 2008,
compared to $32.1 million for the same period in the prior year contributing
$143,000 in additional expense. This volume increase was the result of $5.0
million of FHLB long-term borrowings placed in the fourth quarter of 2007 used
primarily to fund loan growth and a $8.8 million increase in short-term
borrowings used to fund security purchases. Partially offsetting this volume
increase, the cost of borrowed funds decreased 41 basis points to 4.05% for the
three months ended September 30, 2008, compared to 4.46% for the same period in
2007 causing a $37,000 decrease in interest expense.
Interest expense incurred on deposits increased $72,000 or 4.6% to $1.7 million
for the three months ended September 30, 2008 compared $1.6 million for the same
period in 2007. The average volume of interest-bearing deposits increased $28.5
million to $220.8 million for the three months ended September 30, 2008,
compared to $192.3 million for the same period in 2007 causing a $221,000
increase in interest expense. Partially offsetting this favorable volume
variance, the cost of interest-bearing deposits decreased 29 basis points to
2.97% for the three months ended September 30, 2008, compared to 3.26% for the
same period in 2007 causing a $149,000 decrease in interest expense.
14
Average Balance Sheet and Yield/Rate Analysis. The following table sets forth,
for the 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 fees. Interest and yields on tax-exempt loans and securities (tax-exempt
for federal income tax purposes) are shown on a fully tax equivalent basis. The
information is based on average daily balances during the periods presented.
-----------------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) Three months ended September 30,
------------------------------------------------------------------------------
2008 2007
-------------------------------------- --------------------------------------
Average Yield / Average Yield /
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
------------------------
Loans, taxable $ 241,985 $ 3,995 6.57% $ 218,421 $ 3,867 7.02%
Loans, tax exempt 5,919 92 6.15% 6,255 102 6.46%
------------- ------------- ------------- -------------
Total loans receivable 247,904 4,087 6.56% 224,676 3,969 7.01%
------------- ------------- ------------- -------------
Securities, taxable 50,196 550 4.36% 35,401 388 4.35%
Securities, tax exempt 13,914 230 6.58% 14,543 245 6.68%
------------- ------------- ------------- -------------
Total securities 64,110 780 4.84% 49,944 633 5.03%
------------- ------------- ------------- -------------
Interest-earning deposits with banks 8,644 53 2.44% 454 6 5.58%
Federal bank stocks 2,892 26 3.58% 2,283 35 6.08%
------------- ------------- ------------- -------------
Total interest-earning cash equivalents 11,536 79 2.72% 2,737 41 6.00%
------------- ------------- ------------- -------------
Total interest-earning assets 323,550 4,946 6.08% 277,357 4,643 6.64%
Cash and due from banks 5,935 5,770
Other noninterest-earning assets 15,082 14,774
------------- -------------
Total Assets $ 344,567 $ 297,901
============= =============
Interest-bearing liabilities:
-----------------------------
Interest-bearing demand deposits $ 95,121 355 1.48% $ 73,740 240 1.29%
Time deposits 125,711 1,295 4.10% 118,585 1,338 4.48%
------------- ------------- ------------- -------------
Total interest-bearing deposits 220,832 1,650 2.97% 192,325 1,578 3.26%
------------- ------------- ------------- -------------
Borrowed funds, short-term 10,894 72 2.63% 2,086 21 3.99%
Borrowed funds, long-term 35,000 395 4.49% 30,000 340 4.50%
------------- ------------- ------------- -------------
Total borrowed funds 45,894 467 4.05% 32,086 361 4.46%
------------- ------------- ------------- -------------
Total interest-bearing liabilities 266,726 2,117 3.16% 224,411 1,939 3.43%
------------- ------------- ------------- -------------
Noninterest-bearing demand deposits 50,064 -- -- 46,334 -- --
------------- ------------- ------------- -------------
Funding and cost of funds 316,790 2,117 2.66% 270,745 1,939 2.84%
Other noninterest-bearing liabilities 2,723 2,930
------------- -------------
Total Liabilities 319,513 273,675
Stockholders' Equity 25,054 24,226
------------- -------------
Total Liabilities and Stockholders' Equity $ 344,567 $ 297,901
============= ------------- ============= -------------
Net interest income $ 2,829 $ 2,704
============= =============
Interest rate spread (difference between 2.92% 3.21%
========== ==========
weighted average rate on interest-earning
assets and interest-bearing liabilities)
Net interest margin (net interest 3.48% 3.87%
========== ==========
income as a percentage of average
interest-earning assets)
-----------------------------------------------------------------------------------------------------------------------------------
15
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.
----------------------------------------------------------------------------------------------
(Dollar amounts in thousands) Three months ended September 30,
2008 versus 2007
Increase (Decrease) due to
-------------------------------------------
Volume Rate Total
----------------------------------------------------------------------------------------------
Interest income:
Loans $ 394 $ (275) $ 119
Securities 173 (26) 147
Interest-earning deposits with banks 52 (6) 46
Federal bank stocks 8 (17) (9)
------------ ------------ ------------
Total interest-earning assets 627 (324) 303
------------ ------------ ------------
Interest expense:
Deposits 221 (149) 72
Borrowed funds 143 (37) 106
------------ ------------ ------------
Total interest-bearing liabilities 364 (186) 178
------------ ------------ ------------
Net interest income $ 263 $ (138) $ 125
============ ============ ============
----------------------------------------------------------------------------------------------
Provision for loan losses. The Corporation records provisions for loan losses to
maintain a level of total allowance for loan losses that management believes, to
the best of its knowledge, covers all known and inherent losses that are both
probable and reasonably estimable at each reporting date. 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 quarters ended September 30, 2008 and 2007 is as follows:
--------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) At or for the three months ended
September 30,
-----------------------------------------
2008 2007
--------------------------------------------------------------------------------------------------
Balance at the beginning of the period $ 2,301 $ 2,086
Provision for loan losses 140 45
Charge-offs (86) (16)
Recoveries 8 3
------------------ ------------------
Balance at the end of the period $ 2,363 $ 2,118
================== ==================
Non-performing loans $ 783 $ 931
Non-performing assets 797 1,015
Non-performing loans to total loans 0.31% 0.41%
Non-performing assets to total assets 0.22% 0.34%
Allowance for loan losses to total loans 0.93% 0.93%
Allowance for loan losses to non-performing loans 301.79% 227.48%
--------------------------------------------------------------------------------------------------
16
The provision for loan losses increased $95,000 or 211.1% to $140,000 for the
three month period ended September 30, 2008 from $45,000 for the same period in
the prior year. Management's evaluation of the loan portfolio, including the
changing composition of the portfolio as well as economic trends, regulatory
considerations and other factors contributed to the recognition of $140,000 in
the provision for loan losses during the three months ended September 30, 2008.
Noninterest income. Noninterest income decreased $76,000 or 10.9% to $620,000
during the three months ended September 30, 2008, compared to $696,000 during
the same period in the prior year. This decrease can be attributed to the
decreases in gains and losses on securities and gains on the sale of loans of
$134,000 and $15,000, respectively. Partially offsetting this decrease in
noninterest income were increases in fees and service charges, commissions on
financial services, earnings on bank-owned life insurance and other noninterest
income of $34,000, $25,000, $3,000 and $11,000, respectively.
The Corporation realized security losses of $116,000 in the third quarter of
2008 compared to gains of $18,000 for the same period in 2007. Management
determined that two marketable equity securities were impaired. The impairment
of these financial industry securities were considered to be other than
temporary due to recent developments in the financial condition and near-term
prospects of the issuers, a downturn in the economic conditions affecting the
industry and declining book values of the securities. At September 30, 2008,
these securities were written down to their current fair value.
Noninterest expense. Noninterest expense increased $41,000 or 1.8% to $2.3
million during the three months ended September 30, 2008 compared to the same
period in 2007. This increase in noninterest expense can be attributed to
increases in compensation and employee benefits, premises and equipment and
other noninterest expense of $20,000, $5,000 and $16,000, respectively.
Compensation and employee benefits increased $20,000 or 1.6% to $1.3 million for
the three months ended September 30, 2008. This increase can be attributed
primarily to normal salary and wage increases, partially offset by a decrease in
incentive expense.
Premises and equipment increased $5,000 or 1.2% to $409,000 for the three months
ended September 30, 2008, compared to $404,000 for the same period in the prior
year. This increase can be attributed primarily to costs associated with an
additional branch office which was opened in Grove City, Pennsylvania during
April 2008.
Other noninterest expense increased $16,000 or 2.6% to $626,000 during the three
months ended September 30, 2008, compared to $610,000 for the same period in the
prior year. This increase can be attributed primarily to increases in FDIC
insurance and internet banking expense, partially offset by decreases in
marketing and professional fees.
The Corporation anticipates a significant increase in the cost of federal
deposit insurance from current levels of five to seven basis points. The FDIC
has recently proposed to increase the assessment rate for the most highly rated
institutions to between 12 and 14 basis points for the first quarter of 2009 and
to between 10 and 14 basis points thereafter. Assessment rates could be further
increased if an institution's FHLB advances exceed 15% of deposits. The FDIC has
also established a program under which it fully guarantees all non-interest
bearing transaction accounts and senior unsecured debt of a bank or its holding
company. Institutions that do not opt out of the program by December 5, 2008
will be assessed ten basis points for non-interest bearing transaction account
balances in excess of $250,000 and 75 basis points of the amount of debt issued.
Provision for income taxes. The provision for income taxes decreased $40,000 or
16.8% to $198,000 for the three months ended September 30, 2008, compared to
$238,000 for the same period in the prior year. This was due to a decrease in
pre-tax earnings of $79,000 or 7.9% to $914,000 for the three months ended
September 30, 2008, compared to $992,000 for the same period in the prior year
and a decrease in the effective tax rate to 21.7% for the three months ended
September 30, 2008, compared to 24.0% for the same period in 2007. The
difference between the statutory rate of 34% and the Corporation's effective tax
rate is due to tax-exempt income earned on certain tax-free loans and securities
and bank-owned life insurance.
17
Comparison of Results for the Nine Month Periods Ended September 30, 2008 and
2007
General. Net income decreased $196,000 or 9.7% to $1.8 million for the nine
months ended September 30, 2008 from $2.0 million for the same period in 2007.
This decrease was a result of increases in the provision for loans losses and
noninterest expense of $165,000 and $103,000, respectively, and a decrease in
noninterest income of $421,000. Partially offsetting this decrease was an
increase in net interest income of $434,000 and a decrease in the provision for
income taxes of $59,000.
Net interest income. Net interest income on a tax equivalent basis increased
$411,000 or 5.3% to $8.1 million for the nine months ended September 30, 2008
from $7.7 million for the same period in 2007. This net increase can be
attributed to an increase in tax equivalent interest income of $645,000,
partially offset by a $234,000 increase in interest expense.
Interest income. Interest income on a tax equivalent basis increased $645,000 or
4.7% to $14.2 million for the nine months ended September 30, 2008, compared to
$13.6 million for the same period in the prior year. This increase can be
attributed to an increase in interest earned on loans and securities of $579,000
and $121,000, respectively, partially offset by decreases in interest earned on
federal bank stocks, and interest-earning deposits with banks of $24,000 and
$31,000, respectively.
Tax equivalent interest earned on loans receivable increased $579,000 or 5.1% to
$12.0 million for the nine months ended September 30, 2008, compared to $11.4
million for the same period in 2007. During that time, average loans increased
$20.8 million or 9.5%, accounting for $1.1 million in additional loan interest
income. This increase can be primarily attributed to growth in the Corporation's
commercial loan portfolios. Partially offsetting this volume increase, the yield
on loans decreased 29 basis points to 6.66% for the nine months ended September
30, 2008, versus 6.95% for the same period in 2007, accounting for a $473,000
decrease in interest income. Contributing to this unfavorable yield variance
were the recent decreases in short-term market interest rates. In addition, the
Corporation collected $120,000 of interest due as a result of the payoff of a
commercial loan in April and August 2007 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 interest
collected was recorded as loan interest income during the nine months ended
September 30, 2007.
Tax equivalent interest earned on securities increased $121,000 or 6.4% to $2.0
million for the nine months ended September 30, 2008, compared to $1.9 million
for the same period in 2007. The average volume of securities increased $3.1
million to $55.2 million for the nine months ended September 30, 2008, compared
to $52.1 million for the nine months ended September 30, 2007. This resulted in
a $113,000 increase in interest income. In addition to this favorable volume
variance, the average yield on securities increased one basis point to 4.93% for
the nine months ended September 30, 2008, versus 4.92% for the same period in
2007, accounting for an additional $8,000 in interest income.
Interest earned on interest-earning deposit accounts decreased $31,000 or 21.7%
to $112,000 for the nine months ended September 30, 2008 from $143,000 for the
same period in 2007. The average yield on interest-earning deposit accounts
decreased 291 basis points to 2.35% for the nine months ended September 30,
2008, compared to 5.26% for the same period in the prior year, accounting for
the decline in interest income. The decrease in the average yield reflects the
recent decreases in short-term market interest rates. Interest earned on federal
bank stocks decreased $24,000 to $82,000 for the nine month period ended
September 30, 2008 from $106,000 for the same period in the prior year as a
result of a lower yield. The lower yield resulted from the recognition of a
special dividend on FHLB capital stock during the nine months ended September
30, 2007.
Interest expense. Interest expense increased $234,000 or 4.0% to $6.1 million
for the nine months ended September 30, 2008, compared to $5.9 million for the
same period in the prior year. This increase in interest expense can be
attributed to an increase in interest incurred on borrowed funds of $271,000,
partially offset by a decrease in interest incurred on deposits of $37,000.
18
Interest expense incurred on borrowed funds increased $271,000 or 25.9% to $1.3
million for the nine months ended September 30, 2008, compared to $1.0 million
for the same period in the prior year. This increase in interest expense can be
attributed to the increase in the average balance of borrowed funds of $11.4
million to $42.7 million for the nine months ended September 30, 2008, compared
to $31.3 million for the same period in the prior year. This volume increase was
the result of $5.0 million of FHLB long-term borrowings placed in the fourth
quarter of 2007 used primarily to fund loan growth and a $6.4 million increase
in average short-term borrowings used primarily to fund security purchases. This
volume variance contributed $358,000 in additional expense. Partially offsetting
this volume increase, the cost of borrowed funds decreased 35 basis points to
4.12% for the nine months ended September 30, 2008, compared to 4.47% for the
same period in 2007 causing a $87,000 decrease in interest expense.
Interest expense incurred on deposits decreased $37,000 or 1.0% at $4.8 million
for the nine months ended September 30, 2008 and 2007. This decrease can be
attributed to the cost of interest-bearing deposits decreasing 21 basis points
to 3.08% for the nine months ended September 30, 2008, compared to 3.29% for the
same period in 2007 accounting for a $317,000 decline in interest expense. The
decrease in the rate paid on deposits reflects the recent decreases in
short-term market interest rates. Partially offsetting this favorable yield
variance, the average volume of deposits increased $11.7 million or 6.0% to
$207.0 million for the nine months ended September 30, 2008, compared to $195.3
million for the same period in 2007 contributing $280,000 in additional expense.
19
Average Balance Sheet and Yield/Rate Analysis. The following table sets forth,
for the 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 fees. Interest and yields on tax-exempt loans and securities (tax-exempt
for federal income tax purposes) are shown on a fully tax equivalent basis. The
information is based on average daily balances during the periods presented.
-----------------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) Nine months ended September 30,
------------------------------------------------------------------------------
2008 2007
-------------------------------------- ---------------------------------------
Average Yield / Average Yield /
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
------------------------
Loans, taxable $ 234,642 $ 11,722 6.67% $ 213,477 $ 11,116 6.96%
Loans, tax exempt 6,024 281 6.24% 6,364 308 6.46%
------------- ------------- -------------- ------------
Total loans receivable 240,666 12,003 6.66% 219,841 11,424 6.95%
------------- ------------- -------------- ------------
Securities, taxable 40,970 1,339 4.37% 37,241 1,171 4.20%
Securities, tax exempt 14,201 698 6.57% 14,877 745 6.70%
------------- ------------- -------------- ------------
Total securities 55,171 2,037 4.93% 52,118 1,916 4.92%
------------- ------------- -------------- ------------
Interest-earning deposits with banks 6,374 112 2.35% 3,633 143 5.26%
Federal bank stocks 2,721 82 4.00% 2,271 106 6.24%
------------- ------------- -------------- ------------
Total interest-earning cash equivalents 9,095 194 2.84% 5,904 249 5.64%
------------- ------------- -------------- ------------
Total interest-earning assets 304,932 14,234 6.24% 277,863 13,589 6.54%
Cash and due from banks 5,578 5,865
Other noninterest-earning assets 14,762 14,659
------------- --------------
Total assets $ 325,272 $ 298,387
============= ==============
Interest-bearing liabilities:
-----------------------------
Interest-bearing demand deposits $ 87,077 949 1.46% $ 72,925 697 1.28%
Time deposits 119,933 3,827 4.26% 122,372 4,116 4.50%
------------- ------------- -------------- ------------
Total interest-bearing deposits 207,010 4,776 3.08% 195,297 4,813 3.29%
------------- ------------- -------------- ------------
Borrowed funds, long-term 35,000 1,177 4.49% 30,000 995 4.43%
Borrowed funds, short-term 7,728 141 2.44% 1,297 52 5.36%
------------- ------------- -------------- ------------
Total borrowed funds 42,728 1,318 4.12% 31,297 1,047 4.47%
------------- ------------- -------------- ------------
Total interest-bearing liabilities 249,738 6,094 3.26% 226,594 5,860 3.46%
Noninterest-bearing demand deposits 48,041 -- -- 44,939 -- --
------------- ------------- -------------- ------------
Funding and cost of funds 297,779 6,094 2.73% 271,533 5,860 2.89%
Other noninterest-bearing liabilities 2,525 2,785
------------- --------------
Total liabilities 300,304 274,318
Stockholders' equity 24,968 24,069
------------- --------------
Total liabilities and stockholders' equity $ 325,272 $ 298,387
============= ------------- ============== ------------
Net interest income $ 8,140 $ 7,729
============= ============
Interest rate spread (difference between 2.98% 3.08%
=========== ===========
weighted average rate on interest-earning
assets and interest-bearing liabilities)
Net interest margin (net interest 3.57% 3.72%
=========== ===========
income as a percentage of average
interest-earning assets)
-----------------------------------------------------------------------------------------------------------------------------------
20
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.
----------------------------------------------------------------------------------------
(Dollar amounts in thousands) Nine months ended September 30,
2008 versus 2007
Increase (Decrease) due to
----------------------------------------
Volume Rate Total
----------------------------------------------------------------------------------------
Interest income:
Loans $ 1,052 $ (473) $ 579
Securities 113 8 121
Interest-earning deposits with banks 73 (104) (31)
Federal bank stocks 18 (42) (24)
----------- ----------- -----------
Total interest-earning assets 1,256 (611) 645
----------- ----------- -----------
Interest expense:
Deposits 280 (317) (37)
Borrowed funds 358 (87) 271
----------- ----------- -----------
Total interest-bearing liabilities 638 (404) 234
----------- ----------- -----------
Net interest income $ 618 $ (207) $ 411
=========== =========== ===========
----------------------------------------------------------------------------------------
Provision for loan losses. The Corporation records provisions for loan losses to
maintain a level of total allowance for loan losses that management believes, to
the best of its knowledge, covers all known and inherent losses that are both
probable and reasonably estimable at each reporting date. 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 nine months ended September 30, 2008 and 2007, and the year ended
December 31, 2007 is as follows:
--------------------------------------------------------------------------------------------------------------------
At or for the
At or for the nine months ended year ended
September 30, December 31,
----------------------------------------- ------------------
2008 2007 2007
--------------------------------------------------------------------------------------------------------------------
Balance at the beginning of the period $ 2,157 $ 2,035 $ 2,035
Provision for loan losses 285 120 256
Charge-offs (113) (63) (164)
Recoveries 34 26 30
------------------ ------------------ ------------------
Balance at the end of the period $ 2,363 $ 2,118 $ 2,157
================== ================== ==================
Non-performing loans $ 783 $ 931 $ 931
Non-performing assets 797 1,015 1,015
Non-performing loans to total loans 0.31% 0.41% 0.41%
Non-performing assets to total assets 0.22% 0.34% 0.33%
Allowance for loan losses to total loans 0.93% 0.93% 0.93%
Allowance for loan losses to non-performing loans 301.79% 227.48% 231.69%
--------------------------------------------------------------------------------------------------------------------
21
The provision for loan losses increased $165,000 or 137.5% to $285,000 for the
nine month period ended September 30, 2008 from $120,000 for the same period in
the prior year. Management's evaluation of the loan portfolio, including the
changing composition of the portfolio as well as economic trends, regulatory
considerations and other factors contributed to the recognition of $285,000 in
the provision for loan losses during the nine months ended September 30, 2008.
Noninterest income. Noninterest income decreased $421,000 to $1.8 million for
the nine months ended September 30, 2008, compared to $2.2 million for the same
period in the prior year. This decrease can be attributed to decreases in gains
on securities and loan sales of $585,000 and $14,000, respectively, partially
offset by increases in fees and service charges, commissions earned on financial
services, earnings on bank-owned life insurance and other noninterest income of
$83,000, $29,000, $8,000 and $59,000, respectively.
The Corporation realized security losses of $391,000 during the nine months
ended September 30, 2008 compared to gains of $194,000 for the same period in
2007. During the second and third quarters of 2008, management determined there
were other than temporary impairment losses related to Fannie Mae and Freddie
Mac stock due to financial and economic condition concerns and declining book
values of the securities. The gain during the nine month period ended September
30, 2007, was primarily due to gains from the sale of a community bank stock
investment as a result of that bank's merger with a larger financial
institution.
Noninterest expense. Noninterest expense increased $103,000 or 1.5% to $7.0
million during the nine months ended September 30, 2008, compared to $6.9
million during the same period in the prior year. This increase in noninterest
expense can be attributed to increases in compensation and benefits and premises
and equipment of $170,000 and $42,000, respectively, partially offset by a
decrease in other noninterest expense of $109,000.
Compensation and benefits increased $170,000 or 4.5% to $4.0 million during the
nine months ended September 30, 2008, compared to $3.8 million for the same
period in the prior year. This increase can be attributed primarily to normal
salary and wage increases and the addition of staff associated with the opening
of the Grove City office in April 2008.
Premises and equipment increased $42,000 or 3.5% to $1.2 million during the nine
months ended September 30, 2008.. This increase is primarily related to
increased building and equipment depreciation, utilities, and general building
expense associated with the additional branch office which was opened in April
2008.
Other noninterest expense decreased $109,000 or 5.7% to $1.8 million during the
nine months ended September 30, 2008, compared to $1.9 million for the same
period in the prior year. This decrease can be attributed to decreases in
professional fees relating to Sarbanes-Oxley Section 404 compliance and
marketing and courier expense decreases. Partially offsetting these decreases
were increases in FDIC insurance, membership and subscription, postage, and
printing and office supplies.
Provision for income taxes. The provision for income taxes decreased $59,000 or
10.4% to $510,000 for the nine months ended September 30, 2008, compared to
$569,000 for the same period in the prior year due primarily to the decrease in
pre-tax earnings of $255,000 or 9.9% to $2.3 million for the nine months ended
September 30, 2008, compared to $2.6 million for the same period in the prior
year. In addition, the effective tax rate was 21.9% for the nine months ended
September 30, 2008, compared to 22.0% for the same period in 2007. The
difference between the statutory rate of 34% and the Corporation's effective tax
rate is due to tax-exempt income earned on loans, securities and bank-owned life
insurance.
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 nine months
ended September 30, 2008, the Corporation used its sources of funds primarily to
fund loan originations and security purchases. As of such date, the Corporation
had outstanding loan commitments, including undisbursed loans and amounts
available under credit lines, totaling $27.3 million, and standby letters of
credit totaling $1.1 million.
22
At September 30, 2008, time deposits amounted to $126.5 million or 45.5% of the
Corporation's total consolidated deposits, including approximately $51.9 million
of which are 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 September 30, 2008, the Corporation's borrowing capacity
with the FHLB, net of funds borrowed, was $122.8 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.
CRITICAL ACCOUNTING POLICIES
Management views critical accounting policies to be those which are highly
dependent on subjective or complex judgments, estimates and assumptions and
where changes in those estimates and assumptions could have a significant impact
on the financial statements. Management currently views the determination of the
allowance for loan losses and the evaluation of securities for other than
temporary impairment as critical accounting policies.
The allowance for loan losses provides for an estimate of probable losses in the
loan portfolio. In determining the appropriate level of the allowance for loan
losses, the loan portfolio is separated into risk-rated and homogeneous pools.
Migration analysis/historical loss rates, adjusted for relevant trends, have
been applied to these pools. Qualitative adjustments are then applied to the
portfolio to allow for quality of lending policies and procedures, national and
local economic and business conditions, changes in the nature and volume of the
portfolio, experience, ability and depth of lending management, changes in the
trends, volumes and severity of past due, non-accrual and classified loans and
loss and recovery trends, quality of the Corporation's loan review system,
concentrations of credit, and external factors. The methodology used to
determine the adequacy of the Corporation's allowance for loan losses is
comprehensive and meets regulatory and accounting industry standards for
assessing the allowance, however, it is still an estimate. Loan losses are
charged against the allowance while recoveries of amounts previously charged-off
are credited to the allowance. Loan loss provisions are charged against current
earnings based on management's periodic evaluation and review of the factors
indicated above.
Management evaluates securities for other than temporary impairment at least on
a quarterly basis, and more frequently when economic, market or other concerns
warrant such evaluation. Consideration is given to (1) the length of time and
the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer and (3) the intent and ability
of the Corporation to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
Market risk for the Corporation consists primarily of interest rate risk
exposure and liquidity risk. Since virtually all of the interest-earning assets
and interest-bearing 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 and interest-bearing
liabilities. 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.
23
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.
Based on certain assumptions provided by a federal regulatory agency, which
management believes most accurately represents the sensitivity of the
Corporation's assets and liabilities to interest rate changes, at September 30,
2008, the Corporation's interest-earning assets maturing or repricing within one
year totaled $112.2 million while the Corporation's interest-bearing liabilities
maturing or repricing within one-year totaled $111.8 million, providing an
excess of interest-earning assets over interest-bearing liabilities of $400,000.
At September 30, 2008, the percentage of the Corporation's assets to liabilities
maturing or repricing within one year was 100.4%.
For more information, see "Market Risk Management" in Exhibit 13 to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2007.
Item 4T. 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 Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure based on the definition of
"disclosure controls and procedures" in Rule 13a-15(e).
There has been no change made in the Corporation's internal control over
financial reporting during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the Corporation's
internal control over financial reporting.
As of September 30, 2008, 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 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. 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.
24
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 1A. Risk Factors
----------------------
There have been no material changes in the Corporation's risk factors from those
previously disclosed in the 2007 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
--------------------------------------------------------------------
None.
Item 3. Defaults Upon Senior Securities
----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
None.
Item 5. Other Information
--------------------------
(a) Not applicable.
(b) Not applicable.
Item 6. Exhibits
-----------------
Exhibit 31.1 Rule 13a-14(a) Certification of Chief Executive Officer
Exhibit 31.2 Rule 13a-14(a) Certification of Chief Financial Officer
Exhibit 32.1 CEO Certification Pursuant to 18 U.S.C. Section 1350
Exhibit 32.2 CFO Certification Pursuant to 18 U.S.C. Section 1350
25
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. AND SUBSIDIARY
Date: November 14, 2008 By: /s/ David L. Cox
-------------------------------------
David L. Cox
Chairman of the Board,
President and Chief Executive Officer
Date: November 14, 2008 By: /s/ William C. Marsh
-------------------------------------
William C. Marsh
Treasurer and Chief Financial Officer
26