GlobeNewswire Inc | Oct 23, 2020 04:30PM EDT

October 23, 2020

EMLENTON, Pa., Oct. 23, 2020 (GLOBE NEWSWIRE) -- Emclaire Financial Corp (NASDAQ:EMCF), the parent holding company of The Farmers National Bank of Emlenton, reported consolidated net income available to common stockholders of $1.8million, or $0.66per diluted common share, for the three months ended September 30, 2020, adecrease of $370,000, or 17.1%, from $2.2million, or $0.80per diluted common share, reported for the comparable period in 2019.Net income available to common stockholders for the nine-month period ended September 30, 2020 was $4.2million, or $1.54 per diluted common share, a decrease of $2.1million, or 33.5%, from $6.3million, or $2.32per diluted common share, for the same period in 2019. The decrease in net income for both periodscompared to the same periods in 2019 was largely driven by an increase in the provision for loan losses resulting from record loan growth and current economic uncertainties related to the COVID-19 pandemic.

William C. Marsh, Chairman, President and Chief Executive Officer of the Corporation and the Bank, noted, We are extremely pleased with the solid financial results for the quarter despite the challenges of operating in the current environment. As we continue to navigate through the COVID-19 pandemic and the resulting economic conditions, the well-being of our shareholders, customers, employees and communities remains at the forefront. We have and will continue to meet our customerneeds and support our communities by operating our banking offices in a safe and socially responsible manner, strengthening our product offerings and delivery channels and providing loan payment relief assistance. We are confident that with our dedicated board of directors, management team and staff, diversified loan portfolioand strong capital position, we willsuccessfully endure these uncertain times.

QUARTERLY OPERATING RESULTS OVERVIEW

Net income available to common stockholders decreased $370,000, or 17.1%,to $1.8million, or $0.66per diluted common share, for the three months ended September 30, 2020, compared to net income of $2.2million, or $0.80per diluted common shareforsame period in 2019. The decrease resulted from an $895,000 increasein the provision for loan losses and a decrease in noninterest income of $69,000, partially offset by an increase in net interest income of $221,000 and decreases in noninterest expense and the provision for income taxes of $313,000 and $60,000, respectively.

Net interest income increased $221,000, or 3.2%, to $7.2million for the three months ended September 30, 2020from $7.0million for the same period in 2019. The increase in net interest income resulted from adecrease in interest expense of $236,000, or 10.9%, partially offset by adecrease in interest income of $15,000. The decrease in interest expense occurred as the average rate on interest-bearing deposits decreased 21basis points to 1.00% for the three months ended September 30, 2020 from 1.21% for the same period in 2019 causing a $359,000 decrease in interest expense, which was partially offset by an increase in the Corporation's average balance of interest-bearing deposits of$60.5million, or 9.5%, causing a $174,000 increase in interest expense. The decrease in interest income was driven by decreases of $17.0 million and $10.7 million, respectively, in the average balances of interest-earning deposits with banks and securities, resultingin a decrease in interest income of $64,000 and $67,000, respectively. In addition, a 150 basis point decrease in the yield on interest-earning deposits with banks resulted in a $148,000 decrease in interest income. Thesedecreases werepartially offset by a $314,000increase in interest income on loans, driven by an $129.1 million increase in the average balance of loans outstanding as a result of record loan production during the first nine months of 2020 and the addition of $54.9 million of Paycheck Protection Program (PPP) loans in the second and third quarters of 2020. ThePPP loans are earning an annual interest rate of 1.00% and resulted in$2.0 million of SBAfees which will be accreted into interest income over the life of the loans. During the quarter ended September30, 2020, the Corporation recognized $389,000 of interest income related to the PPP loans. The Corporation experienced a 45basis point decrease in the yield on earning assets to 3.83% for the three months ended September30, 2020 from 4.28% for the same period in 2019. This was primarily driven by lower loan yields resulting froma highly competitive environment,market interest rates decreasingduring the second half of 2019 and through the first half of 2020 andthe addition of the lower yielding PPP loans. Without the addition of thePPP loans, the Corporation would have experienced a 38 basis point decrease in the yield on earning assets to 3.90% for the three months ended September30, 2020.

The provision for loan losses increased to $750,000 for the three months ended September 30, 2020from a recovery of $145,000 for the same period in 2019.The increase in the provision for loan losses was due to growth in the residential real estate, commercial real estate and consumer loan portfolios, an increase in the specific pandemic qualitative allowance factorand risk rating changes for loans which were granted payment deferrals.Criticized and classified loans decreased $2.0 million during the quarter ended September 30, 2020 to $20.2 million, or 2.0%, of total assetsfrom $22.2 million, or2.2%, of total assets at June 30, 2020. This decrease was driven by a$933,000 payoff of one commercial relationship, the upgrade from special mention to pass of one commercial relationship totaling $278,000 and a $346,000 decrease in consumer loans past due 90+ days.

Noninterest income decreased $69,000, or 5.7%, to $1.1million for the three months ended September 30, 2020from $1.2million for the same period in 2019due to decreases in fees and service charges and gains on the sale of securities of $169,000 and $42,000, respectively, partially offset by increases in gains on the sale of loans and other noninterest income of $104,000 and $38,000, respectively.The decrease in fees and service charges was primarily due to a decline in overdraft charges as the COVID-19 pandemic resulted in widespread government mandated stay-at-home and business shut down orders which dramatically impacted consumer spending. The increase in other noninterest expense resulted from increases in ATM surcharge and interchange fees and gains on the sale of foreclosed assets.

Noninterest expense decreased $313,000, or 5.44%, to $5.4million for the three months ended September30, 2020from $5.8 million for the same period in 2019. The decrease was primarily attributable to decreases in compensation and benefits expense and professional feesof $437,000 and $67,000, respectively, partially offset by increases inFDIC insurance expense, premises and equipment expense and other noninterest expenseof $144,000, $27,000 and $23,000, respectively. The increase in FDIC insurance expense is primarily related to the Small Bank Assessment credit utilized during the period in 2019, which eliminated the expense for the quarter.

The provision for income taxes decreased $60,000, or 13.5%, to$384,000 for the three months ended September 30, 2020from $444,000 for the same period in 2019as a result of the decrease in net income before provision for income taxes.

YEAR-TO-DATE OPERATING RESULTS OVERVIEW

Net income available to common stockholders decreased $2.1million, or 33.5%,to $4.2million, or $1.54per diluted common share, for the nine months ended September 30, 2020, compared to net income of $6.3million, or $2.32per diluted common shareforsame period in 2019. The decrease resulted from a decreasein net interest income of $472,000 and an increasein the provision for loan losses of $2.3million, partially offset by an increase in noninterest income of $147,000 anddecreases in noninterest expense and the provision for income taxes of$73,000 and $480,000, respectively.

Net interest income decreased $472,000, or 2.2%, to $20.8million for the nine months ended September 30, 2020from $21.3million for the same period in 2019. The decrease in net interest income resulted from an increase in interest expense of $494,000, or 8.5%, while interest income increased a modest $22,000.The increase in interest expense occurred as the Corporation's average balance of interest-bearing deposits increased $44.4million, or 7.2%, causing a $370,000 increase in interest expense. Additionally,the average rate on interest-bearing deposits increased 4basis points to 1.13% for the nine months ended September 30, 2020 from 1.09% for the same period in 2019 causing a $179,000 increase in interest expense. The increase in interest income was driven by a$74.5million increase in the average balance of loans outstanding as a result of record loan production during the first nine months of 2020 and the addition of $54.9 million of PPP loans in the second and third quarters of 2020. The PPP loans are earning an annual interest rate of 1.00% and resulted in $2.0 million of SBA fees which will be accreted into interest income over the life of the loans. During the nine months ended September 30, 2020, the Corporation recognized $654,000 of interest income related to the PPP loans. Partially offsetting the increase in income from the additional loan volume, the Corporation experienced a 37basis point decrease in the yield on earning assets to 3.99% for the nine months ended September 30, 2020 from 4.36% for the same period in 2019. This was primarily driven by lower loan yields resulting from a highly competitive environment, market interest rates decreasesduring the second half of 2019 and through the first half of 2020 and the addition of the lower yielding PPP loans. Without the addition of thePPP loans, the Corporation would have experienced a 32 basis point decrease in the yield on earning assets to 4.04% for the nine months ended September 30, 2020.

The provision for loan losses increased $2.3millionto $2.6 million for the nine months ended September 30, 2020from $305,000 for the same period in 2019.Criticized and classified loans increased $3.2 million during the nine months ended September 30, 2020 to $20.2 million, or 2.0%, of total assetsfrom $17.0 million, or1.9%, of total assets at December 31, 2019. This increase resulted from the downgrade offive commercial relationships totaling $5.1 million after receipt of current financial information, partially offset by the full repayment of a $933,000 commercial relationship. The increase is not viewed to be indicative of the entire loan portfolio performance and did not result directly from COVID-19 related issues.

Noninterest income increased $147,000, or 4.3%, to $3.5million for the nine months ended September30, 2020from $3.4million for the same period in 2019due to increases in gains on the sale of securities and loans of $593,000 and $52,000, respectively, partially offset by a $522,000 decrease in fees and service charges.During the nine months ended September30, 2020, the Corporation sold a total of $39.4 million of primarily low-yielding mortgage-backed and collateralized mortgage obligation securities and realized a net gain of $635,000. The sale proceeds were utilized to repay $15.0 million of FHLB term advances and purchase primarily higher yielding municipal securities. The decrease in fees and service charges was primarily due to a decline in overdraft charges as a result of theCOVID-19 pandemic.

Noninterest expense decreased $73,000 to $16.6million for the nine months ended September30, 2020from $16.6 million for the same period in 2019. The decrease was primarily attributable to decreases in compensation and benefits expense, premises and equipment expenseand professional feesof $389,000, $103,000 and $48,000, respectively, partially offset by increases in other noninterest expense and FDIC insurance expense of $416,000 and $61,000, respectively. The increase in noninterest expense primarily related to prepayment penalties of $238,000 incurred as a result of the aforementioned early repayment of FHLB debt.

The provision for income taxes decreased $480,000, or 35.0%, to$892,000 for the ninemonths ended September30, 2020from $1.4 million for the same period in 2019as a result of the decrease in net income before provision for income taxes.

CONSOLIDATED BALANCE SHEET & ASSET QUALITY OVERVIEW

Total assets increased $120.2 million, or 13.1%,to $1.0 billion at September 30, 2020from $915.3 million at December 31, 2019. The increasein assetswas driven primarily by a $136.4million increase in net loans receivable, partially offset by a decreasein securitiesof $20.5 million. Loan balances at September 30, 2020 includes $54.9 million of PPP loans which were funded during the second and third quarters of 2020. In addition, the Bank's commercial mortgage, consumer loan and residential mortgage portfolios grew by $54.5 million, $23.1 million and $12.9 million, respectively, since year-end. Liabilities increased $116.4 million, or 14.0%, to $945.8 million at September 30, 2020from$829.4 million at December 31, 2019due toincreasesin customer deposits and borrowed funds of $112.4 million and$3.5 million, respectively.The increase in customer deposits was primarily associated with the retention of PPP loan proceeds, consumer economic stimulus payments and a decrease in overall consumer spending resulting from the COVID-19 pandemic.

Nonperforming assets increased to $4.2million, or 0.40% of total assets at September 30, 2020, compared to $3.2million, or 0.34% of total assets at December 31, 2019.Classified and criticized assets increased $3.2 million to $20.2 million or 2.0% of total assetsat September 30, 2020, compared to$17.0 million or 1.9% of total assets at December 31, 2019. The COVID-19 pandemic has impactedthe global and local economiesand some customers' ability to continue making timely loan payments. The Bank addressed thechallenges of those facing hardship due to the pandemic by grantingpayment deferrals of up to six months on 420 loans which totaled $110.9 million.At October 21, 2020, 53 loans totaling $54.6 million remained on deferral while367loans totaling $56.3 millionhave resumed normal repayment. The Bank continues to carefully monitor these loans and the entireloan portfolio and is well-positioned to weather a potential weakening of asset quality that may occur related to current circumstances.

Stockholders equity increased $3.8million, or 4.5%,to $89.7 million at September 30, 2020from $85.9million at December 31, 2019primarily due to a $1.7million increase in accumulated other comprehensive income and a $1.8million increase inretained earnings as a result of $4.2million of net income available to common stockholders, partially offset by $2.4million of common dividends paid. The Corporation remains well capitalized and is wellpositioned for continued growth with total stockholders equity at 8.7% of total assets. Book value per common share was $31.56at September 30, 2020, compared to $30.14 at December 31, 2019.

This news release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may contain words such as believe, expect, anticipate, estimate, should, may, can, will, outlook, project, appears or similar expressions. Such forward-looking statements are subject to risk and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors. Such factors include, but are not limited to, changes in interest rates which could affect net interest margins and net interest income, the possibility that increased demand or prices for the Corporation's financial services and products may not occur, changing economic and competitive conditions, technological and regulatory developments, and other risks and uncertainties, including those detailed in the Corporation's filings with the Securities and Exchange Commission. 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.

INVESTOR RELATIONS CONTACT:William C. MarshChairman, President andChief Executive OfficerPhone: (844) 800-2193Email: investor.relations@farmersnb.com

EMCLAIRE FINANCIAL CORPConsolidated Financial Highlights(Unaudited - Dollar amounts in thousands, except share data)

CONSOLIDATEDOPERATING RESULTS Three month period Six month period DATA: ended September 30, ended September 30, 2020 2019 2020 2019 Interest income $ 9,172 $ 9,187 $ 27,156 $ 27,134 Interest expense 1,935 2,171 6,308 5,814 Net interest 7,237 7,016 20,848 21,320 incomeProvision for 750 (145 ) 2,642 305 loan lossesNoninterest 1,140 1,209 3,543 3,396 incomeNoninterest 5,445 5,758 16,575 16,648 expenseIncome beforeprovision for 2,182 2,612 5,174 7,763 income taxesProvision for 384 444 892 1,372 income taxesNet income 1,798 2,168 4,282 6,391 Preferred stock - - 91 91 dividendsNet incomeavailable to $ 1,798 $ 2,168 $ 4,191 $ 6,300 commonstockholders Basic earnings $ 0.66 $ 0.80 $ 1.55 $ 2.33 per common shareDiluted earnings $ 0.66 $ 0.80 $ 1.54 $ 2.32 per common shareDividends per $ 0.30 $ 0.29 $ 0.90 $ 0.87 common share Return on average 0.70 % 0.93 % 0.58 % 0.95 %assets (1)Return on average 8.01 % 10.11 % 6.49 % 10.31 %equity (1)Return on average 8.41 % 10.63 % 6.67 % 10.71 %common equity (1)Yield on averageinterest-earning 3.83 % 4.28 % 3.99 % 4.36 %assetsCost of averageinterest-bearing 1.06 % 1.29 % 1.19 % 1.18 %liabilitiesCost of funds 0.84 % 1.05 % 0.96 % 0.96 %Net interest 3.03 % 3.27 % 3.07 % 3.43 %marginEfficiency ratio 64.13 % 69.44 % 68.85 % 66.54 % (1)Returns areannualized for the periodsreported.

CONSOLIDATED BALANCE SHEET DATA: As of As of 9/30/2020 12/31/2019 Total assets $ 1,035,499 $ 915,296 Cash and equivalents 21,903 14,986 Securities 99,664 120,126 Loans, net 831,700 695,348 Intangible assets 20,583 20,707 Deposits 899,516 787,124 Borrowed funds 32,050 28,550 Common stockholders' equity 85,489 81,652 Stockholders' equity 89,695 85,858 Book value per common share $ 31.56 $ 30.14 Net loans to deposits 92.46 % 88.34 %Allowance for loan losses to total loans 1.06 % 0.93 %Nonperforming assets to total assets 0.40 % 0.34 %Stockholders' equity to total assets 8.66 % 9.38 %Shares of common stock outstanding 2,708,712 2,708,712