EMCLAIRE FINANCIAL CORP (Form: 10-K, Received: 03/20/2020 09:04:03)

1.	Summary of Significant Accounting Policies

Basis of Presentation and Consolidation. The consolidated financial statements include the accounts of Emclaire Financial Corp (the Corporation) and its wholly owned subsidiaries, The Farmers National Bank of Emlenton (the Bank) and Emclaire Settlement Services, LLC (the Title Company). During 2019, the Title Company ceased operations and was dissolved. All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations. The Corporation provides a variety of financial services to individuals and businesses through its offices in Pennsylvania and West Virginia. Its primary deposit products are checking, savings and term certificate accounts and its primary lending products are residential and commercial mortgages, commercial business loans and consumer loans.

Use of Estimates and Classifications. In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts previously reported may have been reclassified to conform to the current year financial statement presentation. Such reclassifications did not affect net income or stockholders’ equity.

Significant Group Concentrations of Credit Risk. Most of the Corporation’s activities are with customers located within the Western Pennsylvania region of the country. Note 2 discusses the type of securities that the Corporation invests in. Note 3 discusses the types of lending the Corporation engages in. The Corporation does not have any significant concentrations to any one industry or customer.

Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, cash items, interest-earning deposits with other financial institutions and federal funds sold and due from correspondent banks. Interest-earning deposits are generally short-term in nature and are carried at cost. Federal funds are generally sold or purchased for one day periods. Net cash flows are reported for loan and deposit transactions, short term borrowings and purchases and redemptions of federal bank stocks.

Dividend Restrictions. Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Corporation or by the Corporation to stockholders.

Securities Available for Sale. Debt securities are classified as available for sale when they might be sold before maturity. Debt securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income from securities includes amortization of purchase premium or discount. Discounts on securities are accreted using the level yield method through the maturity date. Premiums are amortized using the level yield method through the first call date. In the absence of a call date, the premium is amortized through the maturity date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates debt securities for other-than-temporary impairment (OTTI) 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, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the Corporation has the intent to sell the security or more likely than not will be required to sell the security before the recovery of its amortized cost basis. If the Corporation intends to sell an impaired security, or if it is more likely than not the Corporation will be required to sell the security before its anticipated recovery, the Corporation records an other-than-temporary loss in an amount equal to the entire difference between fair value and amortized cost through earnings. Otherwise, only the credit portion of the estimated loss on debt securities is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

Equity Securities. Equity securities are carried at fair value. The holding gains or losses are reported in net income.

Loans Receivable. The Corporation grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by loans collateralized by real estate primarily located throughout Western Pennsylvania. The ability of the Corporation’s debtors to honor their contracts is dependent upon real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans or premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, and premiums and discounts are deferred and recognized in interest income as an adjustment of the related loan yield using the interest method.

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Table of Contents

Notes to Consolidated Financial Statements

1.	Summary of Significant Accounting Policies (continued)

The accrual of interest on all classes of loans is typically discontinued at the time the loan is 90 days past due unless the credit is well secured and in the process of collection. At 120 days past due, all loans are considered nonaccrual. Loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified as impaired loans. All interest accrued but not collected for loans that are placed on nonaccrual status or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for a return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses. The allowance for loan losses is established for probable incurred credit losses through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are typically credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of loans in light of historic experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other factors. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDR) and classified as impaired.

Factors considered by management in determining impairment on all loan classes include demonstrated ability to repay, payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of small balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of collateral. For TDRs that subsequently default, the Corporation determines the amount of reserves in accordance with accounting policies for the allowance for loan losses.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation over the prior 12 quarters. Qualitative factors considered by management include national and local economic and business conditions, changes in the nature and volume of the loan portfolio, quality of loan review systems, and changes in trends, volume and severity of past due, nonaccrual and classified loans, and loss and recovery trends. The Corporation’s portfolio segments are as follows:

Residential mortgages: Residential mortgage loans are loans to consumers utilized for the purchase, refinance or construction of a residence. Changes in interest rates or market conditions may impact a borrower’s ability to meet contractual principal and interest payments.

Home equity loans and lines of credit: Home equity loans and lines of credit are credit facilities extended to homeowners who wish to utilize the equity in their property in order to borrow funds for almost any consumer purpose. Property values may fluctuate due to economic and other factors.

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Table of Contents

Notes to Consolidated Financial Statements

1.	Summary of Significant Accounting Policies (continued)

Commercial real estate: Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to real estate markets such as geographic location and property type.

Commercial business: Commercial credit is extended to business customers for use in normal operations to finance working capital needs, equipment purchases or other projects. The majority of these borrowers are customers doing business within our geographic region. These loans are generally underwritten individually and secured with the assets of the company and the personal guarantee of the business owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors.

Consumer: Consumer loans are loans to an individual for non-business purposes such as automobile purchases or debt consolidation. These loans are originated based primarily on credit scores and debt-to-income ratios which may be adversely affected by economic or individual performance factors.

Loans Held for Sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Mortgage loans held for sale are generally sold with servicing retained. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of mortgages are based on the difference between the selling price and the carrying value of the related loan sold.

Federal Bank Stocks. The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB) and the Federal Reserve Bank of Cleveland (FRB). As a member of these federal banking systems, the Bank maintains an investment in the capital stock of the respective regional banks. These stocks are held at cost and classified as restricted stock. These stocks are purchased and redeemed at par as directed by the federal banks and levels maintained are based primarily on borrowing and other correspondent relationships. These stocks are periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Bank-Owned Life Insurance (BOLI). The Bank purchased life insurance policies on certain key officers and employees. BOLI is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Premises and Equipment. Land is carried at cost. Premises, furniture and equipment, and leasehold improvements are carried at cost less accumulated depreciation or amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets, which are twenty-five years to forty years for buildings and three to ten years for furniture and equipment. Amortization of leasehold improvements is computed using the straight-line method over the shorter of their estimated useful life or the expected term of the leases. Expected terms include lease option periods to the extent that the exercise of such option is reasonably assured. Premises and equipment are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, assets are recorded at fair value.

Goodwill and Intangible Assets. Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired assets and liabilities. Core deposit intangible assets arise from whole bank or branch acquisitions and are measured at fair value and then are amortized over their estimated useful lives. Customer relationship intangible assets arise from the purchase of a customer list from another company or individual and then are amortized on a straight-line basis over two years. Goodwill is not amortized but is assessed at least annually for impairment. Any such impairment will be recognized in the period identified. The Corporation has selected November 30 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on the Corporation’s balance sheet.

Servicing Assets. Servicing assets represent the allocated value of retained servicing rights on loans sold. Servicing assets are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the assets, using groupings of the underlying loans as to interest rates. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance, to the extent that fair value is less than the capitalized amount for a grouping.

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Table of Contents

Notes to Consolidated Financial Statements

1.	Summary of Significant Accounting Policies (continued)

Other Real Estate Acquired Through Foreclosure (OREO). Real estate properties acquired through foreclosure are initially recorded at fair value less cost to sell when acquired, thereby establishing a new cost basis for the asset. These assets are subsequently accounted for at the lower of carrying amount or fair value less cost to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Revenue and expenses from operations of the properties, gains and losses on sales and additions to the valuation allowance are included in operating results. Real estate acquired through foreclosure is classified in prepaid expenses and other assets and totaled $249,000 and $701,000 at December 31, 2019 and 2018, respectively. Loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $545,000 and $811,000 at December 31, 2019 and 2018, respectively.

Treasury Stock. Common stock purchased for treasury is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the first-in, first-out basis.

Income Taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Corporation recognizes interest and/or penalties related to income tax matters in income tax expense.

Earnings Per Common Share (EPS). Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of additional potential common shares issuable under stock options and restricted stock awards.

Comprehensive Income. Comprehensive income includes net income and other comprehensive income. Other comprehensive income (loss) is comprised of unrealized holding gains and losses on securities available for sale and changes in the funded status of pension which are also recognized as separate components of equity.

Operating Segments. Operations are managed and financial performance is evaluated on a corporate-wide basis. Accordingly, all financial services operations are considered by management to be aggregated in one reportable operating segment.

Retirement Plans. The Corporation maintains a noncontributory defined benefit plan covering eligible employees and officers. Effective January 1, 2009 the plan was closed to new participants. The Corporation provided the requisite notice to plan participants on March 12, 2013 of the determination to freeze the plan (curtailment). While the freeze was not effective until April 30, 2013, the Corporation determined that participants would not satisfy, within the provisions of the plan, 2013 eligibility requirements based on minimum hours worked for 2013. Therefore, employees ceased to earn benefits as of January 1, 2013. This amendment to the plan did not affect benefits earned by the participant prior to the date of the freeze. The Corporation also maintains a 401(k) plan, which covers substantially all employees, and a supplemental executive retirement plan for key executive officers.

Stock Compensation Plans. Compensation expense is recognized for stock options and restricted stock awards issued based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation expense is recognized over the required service period, generally defined as the vesting period. It is the Corporation’s policy to issue shares on the vesting date for restricted stock awards. Unvested restricted stock awards do not receive dividends declared by the Corporation.

Transfers of Financial Assets. Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Off-Balance Sheet Financial Instruments. In the ordinary course of business, the Corporation has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commitments under line of credit lending arrangements and letters of credit. Such financial instruments are recorded in the financial statements when they are funded.

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Table of Contents

Notes to Consolidated Financial Statements

1.	Summary of Significant Accounting Policies (continued)

Fair Value of Financial Instruments. Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

Loss Contingencies. Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there currently are such matters that will have a material effect on the financial statements.

Newly Issued Not Yet Effective Accounting Standards. In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 significantly changes the way impairment of financial instruments is recognized by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of the financial instruments. The main provisions of the guidance include (1) replacing the “incurred loss” approach under current GAAP with an “expected loss” model for instruments measured at amortized cost, (2) requiring entities to record an allowance for available-for-sale debt securities rather than reduce the carrying amount of the investments, as is required by the other-than-temporary impairment model under current GAAP, and (3) a simplified accounting model for purchased credit-impaired debt securities and loans. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. However, on October 16, 2019, FASB announced a delay for the effective date of this ASU for smaller reporting companies until fiscal years beginning after December 15, 2022. As the Corporation is a smaller reporting company, the delay would be applicable.

Management has selected a software vendor and is currently working through the implementation process. The Corporation is reviewing available historical information in order to assess the expected credit losses and determine the impact the adoption of ASU 2016-13 will have on the financial statements.

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment". This ASU simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under this amendment, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Corporation has goodwill from prior and current year business combinations and performs an annual impairment test or more frequently if changes or circumstances occur that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Corporation's most recent annual impairment assessment determined that the Corporation's goodwill was not impaired. Although the Corporation cannot anticipate future goodwill impairment assessments, based on the most recent assessment it is unlikely that an impairment amount would need to be calculated and, therefore, does not anticipate a material impact from these amendments to the Corporation's financial position and results of operations. The current accounting policies and processes are not anticipated to change, except for the elimination of the Step 2 analysis.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement". ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements. Disclosures for transfers between Level 1 and Level 2, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurement will be removed. Additional disclosures will be required relating to (a) changes in unrealized gains/losses in OCI for Level 3 fair value measurements for assets held at the end of the reporting period, and (b) the process of calculating weighted average for significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. Early adoption is permitted. The Corporation does not expect ASU 2018-13 to have a material impact on its financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans". ASU 2018-14 removes disclosures pertaining to (a) the amounts of AOCI expected to be recognized as pension costs over the next fiscal year, (b) the amount and timing of plan assets expected to be returned to the employer, and (c) the effect of one-percentage-point change in the assumed health care trends on (i) service and interest costs and (ii) post-retirement health care benefit obligation. A disclosure will be added requiring an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments in this update are effective retrospectively for annual periods and interim periods within those annual periods beginning after December 15, 2020. Early adoption is permitted. The Corporation does not expect ASU 2018-14 to have a material impact on its financial statements and disclosures.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes". ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Certain provisions under ASU 2019-12 require prospective application, some require modified retrospective adoption, while other provisions require retrospective application to all periods presented in the consolidated financial statements upon adoption. The Corporation is currently evaluating the effect that this ASU will have on its financial statements and disclosures.

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Table of Contents

Notes to Consolidated Financial Statements

1.	Summary of Significant Accounting Policies (continued)

Adoption of New Accounting Policies. In February 2016, the FASB issued ASU 2016-02 "Leases". This ASU required lessees to record most leases on their balance sheet but recognize expenses in the income statement in a manner similar to prior accounting treatment. This ASU changed the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modified the classification criteria and the accounting for sales-type and direct financing leases. ASU 2016-02 was effective for annual periods beginning after December 15, 2018, and interim periods therein. In January 2018, the FASB issued ASU 2018-01, which allowed entities the option to apply the provisions of the new lease guidance at the effective date without adjusting the comparative periods presented. Adoption of this guidance as of January 1, 2019 resulted in the recording of initial lease right-of-use assets of $1.6 million and operating lease liabilities of $1.8 million. The Corporation recorded a cumulative adjustment to retained earnings for prior period of $171,000, net of deferred taxes of $45,000. See Note 5 - Premises, Equipment and Leases for more information on page F-21.

In March 2017, the FASB issued ASU 2017-08, "Receivable - Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization on Purchased Callable Debt Securities." ASU 2017-08 amended guidance on the amortizaton period of premiums on certain purchased callable debt securities to shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendments were effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods therein. The adoption of this guidance on January 1, 2019 resulted in a cumulative adjustment to retained earnings of $10,000, net of deferred taxes of $3,000, for prior periods. At the time of adoption, the remaining securities subject to this guidance have a call date one month prior to maturity, therefore the impact to the statement of income in subsequent periods is immaterial. As of December 31, 2019, the Corporation held only one remaining callable security which has a maturity date of September 15, 2020.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The amendments in this Update are to better reflect the economic results of hedging in the financial statements along with simplification of certain hedge accounting requirements. Specifically, the entire change in the fair value of the hedging instrument is required to be presented in the same income statement line as and in the same period that the earnings effect of the hedged item is recognized. Therefore, hedge ineffectiveness will not be reported separately or in a different period. In addition, hedge effectiveness can be determined qualitatively in periods following inception. The amendments permitted an entity to measure the change in fair value of the hedged item on the basis of the benchmark rate component. They also permitted an entity to measure the hedged item in a partial-term fair value hedge of interest rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged. For a closed portfolio of prepayable financial assets, an entity is permitted to designate the amount that is not expected to be affected by prepayments or defaults as the hedged item. For public business entities, the new guidance was effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption was permitted. The Corporation currently does not have derivative or hedging instruments so this guidance had no impact on consolidated financial statements.

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Table of Contents

Notes to Consolidated Financial Statements

2.	Securities

Equity Securities. The Corporation held equity securities with fair values of $19,000 and $7,000 as of December 31, 2019 and 2018, respectively. Beginning January 1, 2018, with the adoption of ASU 2016-01, changes in the fair value of these securities are included in other income on the consolidated statements of net income as opposed to accumulated other comprehensive loss on the consolidated balance sheets. The Corporation recognized a gain of $12,000 and a loss of $10,000 on the equity securities held at December 31, 2019 and 2018, respectively. During 2018, the Corporation sold $1.3 million of equity securities with a realized net loss of $43,000. On October 1, 2018 the Corporation acquired Community First Bancorp, Inc. (CFB). At the time of the acquisition, the Corporation held 18,000 shares of CFB's common stock which were retired resulting in a realized gain of $690,000.

Debt Securities - Available for Sale. The following table summarizes the Corporation’s securities as of December 31:

(Dollar amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2019:
U.S. government sponsored entities and agencies	$	7,069	$	14	$	(6	)	$	7,077
U.S. agency mortgage-backed securities: residential		40,868		291		(84	)		41,075
U.S. agency collateralized mortgage obligations: residential		33,001		71		(235	)		32,837
State and political subdivisions		27,848		217		(269	)		27,796
Corporate debt securities		11,459		93		(230	)		11,322
Total securities available-for-sale	$	120,245	$	686	$	(824	)	$	120,107

December 31, 2018:
U.S. Treasury	$	4,532	$	—	$	(87	)	$	4,445
U.S. government sponsored entities and agencies		17,052		30		(299	)		16,783
U.S. agency mortgage-backed securities: residential		27,666		—		(490	)		27,176
U.S. agency collateralized mortgage obligations: residential		19,440		34		(810	)		18,664
State and political subdivisions		22,943		13		(224	)		22,732
Corporate debt securities		8,006		9		(97	)		7,918
Total securities available-for-sale	$	99,639	$	86	$	(2,007	)	$	97,718

Securities with carrying values of $22.1 million and $20.6 million as of December 31, 2019 and 2018, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Gains on sales of available for sale debt securities for the years ended December 31 were as follows:

	2019			2018
Proceeds	$	36,370		$	11,482
Gains		135			17
Losses		(57	)		(26	)
Tax provision related to gains (losses)		16			(2	)

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Notes to Consolidated Financial Statements

2.	Securities (continued)

The following table summarizes scheduled maturities of the Corporation’s debt securities as of December 31, 2019. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities and collateralized mortgage obligations are not due at a single maturity and are shown separately.

(Dollar amounts in thousands)	Available-for-sale
	Amortized Cost		Fair Value
Due in one year or less	$	265	$	265
Due after one year through five years		10,072		10,122
Due after five through ten years		13,883		13,848
Due after ten years		22,155		21,960
Mortgage-backed securities: residential		40,868		41,075
Collateralized mortgage obligations: residential		33,001		32,837
Total securities available-for-sale	$	120,245	$	120,107

Information pertaining to securities with gross unrealized losses at December 31, 2019 and 2018 aggregated by investment category and length of time that individual securities have been in a continuous loss position are included in the table below:

(Dollar amounts in thousands)	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2019:
U.S. government sponsored entities and agencies		—		—			2,032		(6	)		2,032		(6	)
U.S. agency mortgage-backed securities: residential		14,578		(76	)		2,325		(8	)		16,903		(84	)
U.S. agency collateralized mortgage obligations: residential		12,319		(32	)		11,621		(203	)		23,940		(235	)
State and political subdivisions		15,636		(269	)		—		—			15,636		(269	)
Corporate debt securities		4,031		(229	)		499		(1	)		4,530		(230	)
Total	$	46,564	$	(606	)	$	16,477	$	(218	)	$	63,041	$	(824	)

December 31, 2018:
U.S. Treasury	$	—	$	—		$	4,445	$	(87	)	$	4,445	$	(87	)
U.S. government sponsored entities and agencies		2,472		(30	)		10,337		(269	)		12,809		(299	)
U.S. agency mortgage-backed securities: residential		19,483		(297	)		7,693		(193	)		27,176		(490	)
U.S. agency collateralized mortgage obligations: residential		1,443		(5	)		15,388		(805	)		16,831		(810	)
State and political subdivisions		7,061		(67	)		10,083		(157	)		17,144		(224	)
Corporate debt securities		962		(38	)		2,448		(59	)		3,410		(97	)
Total	$	31,421	$	(437	)	$	50,394	$	(1,570	)	$	81,815	$	(2,007	)

Management evaluates debt securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic, market or other conditions 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, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the Corporation has the intent to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If the Corporation intends to sell an impaired security, or if it is more likely than not the Corporation will be required to sell the security before its anticipated recovery, the Corporation records an other-than-temporary loss in an amount equal to the entire difference between fair value and amortized cost. Otherwise, only the credit portion of the estimated loss on debt securities is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

F-15

Table of Contents

Notes to Consolidated Financial Statements

2.	Securities (continued)

There were 78 debt securities in an unrealized loss position as of December 31, 2019, of which 29 were in an unrealized loss position for more than 12 months. Of these 78 securities, 30 were collateralized mortgage obligations (issued by U.S. government sponsored entities), 23 were state and political subdivisions securities, 13 were mortgage-backed securities, 10 were corporate securities and 2 were U.S. government sponsored entities and agencies securities. The unrealized losses associated with these securities were not due to the deterioration in the credit quality of the issuer that is likely to result in the non-collection of contractual principal and interest, but rather have been caused by a rise in interest rates from the time the securities were purchased. Based on that evaluation and other general considerations, and given that the Corporation’s current intention is not to sell any impaired securities and it is more likely than not it will not be required to sell these securities before the recovery of its amortized cost basis, the Corporation does not consider the debt securities with unrealized losses as of December 31, 2019 to be other-than-temporarily impaired.

3.	Loans Receivable and Related Allowance for Loan Losses

The following table summarizes the Corporation’s loans receivable as of December 31:

(Dollar amounts in thousands)	December 31, 2019		December 31, 2018
Mortgage loans on real estate:
Residential first mortgages	$	293,170	$	295,405
Home equity loans and lines of credit		97,541		103,752
Commercial real estate		229,951		238,734
Total real estate loans		620,662		637,891
Other loans:
Commercial business		66,603		66,009
Consumer		14,639		11,272
Total other loans		81,242		77,281
Total loans, gross		701,904		715,172
Less allowance for loan losses		6,556		6,508
Total loans, net	$	695,348	$	708,664

Included in total loans above are net deferred costs of $2.6 million and $2.2 million at December 31, 2019 and 2018, respectively.

An allowance for loan losses (ALL) is maintained to absorb probable incurred losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience and the amount of nonperforming loans.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

Following is an analysis of the changes in the ALL for the years ended December 31:

(Dollar amounts in thousands)	2019			2018
Balance at the beginning of the year	$	6,508		$	6,127
Provision for loan losses		715			1,280
Charge-offs		(913	)		(989	)
Recoveries		246			90
Balance at the end of the year	$	6,556		$	6,508

F-16

Table of Contents

Notes to Consolidated Financial Statements

3.	Loans Receivable and Related Allowance for Loan Losses (continued)

The following table details activity in the ALL and the recorded investment by portfolio segment based on impairment method at December 31, 2019 and 2018:

				Home Equity
	Residential			& Lines			Commercial			Commercial
(Dollar amounts in thousands)	Mortgages			of Credit			Real Estate			Business			Consumer			Total
December 31, 2019:
Beginning Balance	$	2,198		$	648		$	3,106		$	500		$	56		$	6,508
Charge-offs		(227	)		(61	)		(242	)		(250	)		(133	)		(913	)
Recoveries		40			6			134			—			66			246
Provision		298			33			(100	)		386			98			715
Ending Balance	$	2,309		$	626		$	2,898		$	636		$	87		$	6,556

Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	5		$	—		$	—		$	—		$	—		$	5
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,304			626			2,898			636			87			6,551
Total	$	2,309		$	626		$	2,898		$	636		$	87		$	6,556

Total loans:
Individually evaluated for impairment	$	358		$	4		$	81		$	40		$	—		$	483
Acquired loans collectively evaluated for impairment		60,523			10,901			41,993			7,930			1,982			123,329
Originated loans collectively evaluated for impairment		232,289			86,636			187,877			58,633			12,657			578,092
Total	$	293,170		$	97,541		$	229,951		$	66,603		$	14,639		$	701,904

At December 31, 2018:
Beginning Balance	$	2,090		$	646		$	2,753		$	585		$	53		$	6,127
Charge-offs		(71	)		(155	)		(484	)		—			(279	)		(989	)
Recoveries		3			14			48			1			24			90
Provision		176			143			789			(86	)		258			1,280
Ending Balance	$	2,198		$	648		$	3,106		$	500		$	56		$	6,508

Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	12		$	—		$	—		$	—		$	—		$	12
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,186			648			3,106			500			56			6,496
Total	$	2,198		$	648		$	3,106		$	500		$	56		$	6,508

Total loans:
Individually evaluated for impairment	$	389		$	6		$	34		$	39		$	—		$	468
Acquired loans collectively evaluated for impairment		72,654			13,750			56,690			12,974			3,306			159,374
Originated loans collectively evaluated for impairment		222,362			89,996			182,010			52,996			7,966			555,330
Total	$	295,405		$	103,752		$	238,734		$	66,009		$	11,272		$	715,172

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

At December 31, 2019 and 2018, there was no allowance for loan losses allocated to loans acquired from United American Savings Bank (2016), Northern Hancock Bank and Trust Co. (2017) or Community First Bancorp, Inc (2018).

F-17

Table of Contents

Notes to Consolidated Financial Statements

3.	Loans Receivable and Related Allowance for Loan Losses (continued)

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31:

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of December 31, 2019						For the year ended December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	72	$	72	$	5	$	72	$	3	$	3
Home equity and lines of credit		4		4		—		5		—		—
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	76	$	76	$	5	$	77	$	3	$	3

	Impaired Loans with No Specific Allowance
	As of December 31, 2019				For the year ended December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	398	$	286	$	301	$	4	$	4
Home equity and lines of credit		—		—		—		—		—
Commercial real estate		81		81		1,019		88		35
Commercial business		40		40		79		7		2
Consumer		—		—		—		—		—
Total	$	519	$	407	$	1,399	$	99	$	41

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of December 31, 2018						For the year ended December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	74	$	74	$	12	$	74	$	2	$	2
Home equity and lines of credit		6		6		—		7		—		—
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	80	$	80	$	12	$	81	$	2	$	2

	Impaired Loans with No Specific Allowance
	As of December 31, 2018				For the year ended December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	427	$	315	$	334	$	5	$	5
Home equity and lines of credit		—		—		—		—		—
Commercial real estate		34		34		768		156		73
Commercial business		39		39		248		74		74
Consumer		—		—		—		—		—
Total	$	500	$	388	$	1,350	$	235	$	152

F-18

Table of Contents

Notes to Consolidated Financial Statements

3.	Loans Receivable and Related Allowance for Loan Losses (continued)

Unpaid principal balance includes any loans that have been partially charged off but not forgiven. Accrued interest is not included in the recorded investment in loans presented above or in the tables that follow based on the amounts not being material.

Troubled debt restructurings (TDR). The Corporation has certain loans that have been modified in order to maximize collection of loan balances. If, for economic or legal reasons related to the customer’s financial difficulties, management grants a concession compared to the original terms and conditions of the loan that it would not have otherwise considered, the modified loan is classified as a TDR. Concessions related to TDRs generally do not include forgiveness of principal balances. The Corporation has no legal obligation to extend additional credit to borrowers with loans classified as TDRs.

At December 31, 2019 and 2018, the Corporation had $409,000 and $394,000, respectively, of loans classified as TDRs, which are included in impaired loans above. At December 31, 2019 and 2018, the Corporation had $5,000 and $12,000, respectively, of the allowance for loan losses allocated to these specific loans.

During the year ended December 31, 2019, the Corporation modified one commercial mortgage loans with a recorded investment of $67,000. In order to cure the delinquency on the loan, all interest and fees receivable were capitalized to the loan principal which was re-amortized through the original maturity date at the original interest rate on the loan. The modification did not have a material impact on the Corporation’s income statement during the period. At December 31, 2019, the Corporation did not have any allowance for loan losses allocated to this specific loan. During the year ended December 31, 2018, the Corporation did not modify any loans as TDRs.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. During the year ended December 31, 2019 and 2018, there were no loans classified as TDRs which defaulted within twelve months of their modification.

Credit Quality Indicators. Management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.

Commercial real estate and commercial business loans not identified as impaired are evaluated as risk rated pools of loans utilizing a risk rating practice that is supported by a quarterly special asset review. In this review process, strengths and weaknesses are identified, evaluated and documented for each criticized and classified loan and borrower, strategic action plans are developed, risk ratings are confirmed and the loan’s performance status reviewed.

Management has determined certain portions of the loan portfolio to be homogeneous in nature and assigns like reserve factors for the following loan pool types: residential real estate, home equity loans and lines of credit, and consumer installment and personal lines of credit. These homogeneous loans are not rated unless identified as impaired.

Management uses the following definitions for risk ratings:

Pass: Loans classified as pass typically exhibit good payment performance and have underlying borrowers with acceptable financial trends where repayment capacity is evident. These borrowers typically would have sufficient cash flow that would allow them to weather an economic downturn and the value of any underlying collateral could withstand a moderate degree of depreciation due to economic conditions.

Special Mention: Loans classified as special mention are characterized by potential weaknesses that could jeopardize repayment as contractually agreed. These loans may exhibit adverse trends such as increasing leverage, shrinking profit margins and/or deteriorating cash flows. These borrowers would inherently be more vulnerable to the application of economic pressures.

Substandard: Loans classified as substandard exhibit weaknesses that are well-defined to the point that repayment is jeopardized. Typically, the Corporation is no longer adequately protected by both the apparent net worth and repayment capacity of the borrower.

Doubtful: Loans classified as doubtful have advanced to the point that collection or liquidation in full, on the basis of currently ascertainable facts, conditions and value, is highly questionable or improbable.

F-19

Table of Contents

Notes to Consolidated Financial Statements

3.	Loans Receivable and Related Allowance for Loan Losses (continued)

The following table presents the classes of the loan portfolio summarized by the aggregate pass and the criticized categories of special mention, substandard and doubtful within the Corporation’s internal risk rating system as of December 31, 2019 and 2018:

(Dollar amounts in thousands)
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2019:
Residential first mortgages	$	291,843	$	—	$	—	$	1,327	$	—	$	293,170
Home equity and lines of credit		97,087		—		—		454		—		97,541
Commercial real estate		—		216,744		5,370		7,837		—		229,951
Commercial business		—		64,636		204		1,763		—		66,603
Consumer		14,557		—		—		82		—		14,639
Total loans	$	403,487	$	281,380	$	5,574	$	11,463	$	—	$	701,904

December 31, 2018:
Residential first mortgages	$	293,919	$	—	$	—	$	1,486	$	—	$	295,405
Home equity and lines of credit		102,869		—		—		883		—		103,752
Commercial real estate		—		222,335		5,942		10,457		—		238,734
Commercial business		—		62,022		542		3,445		—		66,009
Consumer		11,157		—		—		115		—		11,272
Total loans	$	407,945	$	284,357	$	6,484	$	16,386	$	—	$	715,172

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a required payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonperforming loans as of December 31, 2019 and 2018:

(Dollar amounts in thousands)
	Performing						Nonperforming
	Accruing Loans Not Past Due		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccrual		Total
December 31, 2019:
Residential first mortgages	$	288,462	$	2,405	$	1,039	$	309	$	955	$	293,170
Home equity and lines of credit		95,923		626		553		11		428		97,541
Commercial real estate		226,360		2,141		543		—		907		229,951
Commercial business		66,091		225		72		—		215		66,603
Consumer		14,458		84		15		—		82		14,639
Total loans	$	691,294	$	5,481	$	2,222	$	320	$	2,587	$	701,904

December 31, 2018:
Residential first mortgages	$	289,732	$	3,586	$	747	$	485	$	855	$	295,405
Home equity and lines of credit		101,920		707		351		287		487		103,752
Commercial real estate		232,865		5,013		231		19		606		238,734
Commercial business		65,538		50		247		—		174		66,009
Consumer		10,961		160		36		—		115		11,272
Total loans	$	701,016	$	9,516	$	1,612	$	791	$	2,237	$	715,172

F-20

Table of Contents

Notes to Consolidated Financial Statements

3.	Loans Receivable and Related Allowance for Loan Losses (continued)

The following table presents the Corporation’s nonaccrual loans by aging category as of December 31, 2019 and 2018:

(Dollar amounts in thousands)
	Not Past Due		30-59 Days Past Due		60-89 Days Past Due		90 Days + Past Due		Total
December 31, 2019:
Residential first mortgages	$	245	$	—	$	72	$	638	$	955
Home equity and lines of credit		4		—		—		424		428
Commercial real estate		28		309		31		539		907
Commercial business		—		—		175		40		215
Consumer		—		—		—		82		82
Total loans	$	277	$	309	$	278	$	1,723	$	2,587

December 31, 2018:
Residential first mortgages	$	335	$	—	$	74	$	446	$	855
Home equity and lines of credit		6		—		—		481		487
Commercial real estate		111		265		—		230		606
Commercial business		—		—		39		135		174
Consumer		—		—		—		115		115
Total loans	$	452	$	265	$	113	$	1,407	$	2,237

13.

Employee Benefit Plans

Defined Benefit Plan

The Corporation provides pension benefits for eligible employees through a defined benefit pension plan. Substantially all employees participate in the retirement plan on a non-contributing basis, and are fully vested after three years of service. Effective January 1, 2009, the plan was closed to new participants. The Corporation provided the requisite notice to plan participants on March 12, 2013 of the determination to freeze the plan (curtailment). While the freeze was not effective until April 30, 2013, management determined that participants would not satisfy, within the provisions of the plan, 2013 eligibility requirements based on minimum hours worked for 2013. Therefore, employees ceased to earn benefits as of January 1, 2013. This amendment to the plan did not affect benefits earned by the participant prior to the date of the freeze. The Corporation measures the funded status of the plan as of December 31.

Information pertaining to changes in obligations and funded status of the defined benefit pension plan for the years ended December 31 is as follows:

(Dollar amounts in thousands)	2019			2018
Change in plan assets:
Fair value of plan assets at beginning of year	$	9,482		$	10,159
Actual return on plan assets		1,534			(479	)
Employer contribution		—			500
Benefits paid		(417	)		(698	)
Fair value of plan assets at end of year		10,599			9,482
Change in benefit obligation:
Benefit obligation at beginning of year		10,628			11,801
Interest cost		443			423
Actuarial (gain) loss		(22	)		85
Effect of change in assumptions		1,672			(983	)
Benefits paid		(417	)		(698	)
Benefit obligation at end of year		12,304			10,628
Funded status (plan assets less benefit obligation)	$	(1,705	)	$	(1,146	)
Amounts recognized in accumulated other comprehensive loss consists of:
Accumulated net actuarial loss	$	6,616		$	6,126
Accumulated prior service benefit		—			—
Amount recognized, end of year	$	6,616		$	6,126

F-28

Table of Contents

Notes to Consolidated Financial Statements

13.

Employee Benefit Plans (continued)

The following table presents the Corporation’s pension plan assets measured and recorded at estimated fair value on a recurring basis and their level within the estimated fair value hierarchy as described in Note 15:

(Dollar amounts in thousands)			(Level 1)		(Level 2)		(Level 3)
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
Description	Total		Assets		Inputs
December 31, 2019:
Money markets	$	385	$	385	$	—	$	—
Mutual funds - debt		4,322		4,322		—		—
Mutual funds - equity		4,981		4,981		—		—
Emclaire stock		911		911		—		—
	$	10,599	$	10,599	$	—	$	—
December 31, 2018:
Money markets	$	77	$	77	$	—	$	—
Mutual funds - debt		4,183		4,183		—		—
Mutual funds - equity		4,373		4,373		—		—
Emclaire stock		849		849		—		—
	$	9,482	$	9,482	$	—	$	—

There were no transfers between Level 1 and Level 2 during 2019.

The accumulated benefit obligation for the defined benefit pension plan was $12.3 million and $10.6 million at December 31, 2019 and 2018, respectively.

The components of the periodic pension costs and other amounts recognized in other comprehensive income for the years ended December 31 are as follows:

(Dollar amounts in thousands)	2019			2018
Interest cost	$	443		$	423
Expected return on plan assets		(626	)		(672	)
Amortization of prior service beneft and net loss		252			251
Net periodic pension cost		69			2
Amortization of prior service benefit and net loss		(252	)		(251	)
Net loss		742			253
Total recognized in other comprehensive loss		490			2
Total recognized in net periodic benefit and other comprehensive loss	$	559		$	4

The estimated net loss and prior service benefit for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $269,000 as of December 31, 2019.

Weighted-average actuarial assumptions for the years ended December 31 include the following:

	2019			2018
Discount rate for net periodic benefit cost		4.26	%		3.62	%
Discount rate for benefit obligations		3.28	%		4.26	%
Expected rate of return on plan assets		6.75	%		6.75	%

F-29

Table of Contents

Notes to Consolidated Financial Statements

13.

Employee Benefit Plans (continued)

The Corporation’s pension plan asset allocation at December 31, 2019 and 2018, target allocation for 2020, and expected long-term rate of return by asset category are as follows:

Asset Category	Target Allocation		Percentage of Plan Assets at Year End				Weighted-Average Expected Long-Term Rate of Return
	2020		2019		2018		2019
Equity securities		55%		56%		55%		5.02%
Debt securities		37%		41%		44%		1.70%
Money markets		8%		3%		1%		0.03%
		100%		100%		100%		6.75%

Investment Strategy

The intent of the pension plan is to provide a range of investment options for building a diversified asset allocation strategy that will provide the highest likelihood of meeting the aggregate actuarial projections. In selecting the options and asset allocation strategy, the Corporation has determined that the benefits of reduced portfolio risk are best achieved through diversification. The following asset classes or investment categories are utilized to meet the Pension plan’s objectives: Small company stock, International stock, Mid-cap stock, Large company stock, Diversified bond, Money Market/Stable Value and Cash. The pension plan does not prohibit any certain investments.

The Corporation does currently not expect to make a contribution to its pension plan in 2020.

Estimated future benefit payments are as follows:

(Dollar amounts in thousands)	Pension
For year ended December 31,	Benefits
2020	$	450
2021		451
2022		491
2023		492
2024		500
2025-2029		2,715

Defined Contribution Plan

The Corporation maintains a defined contribution 401(k) Plan. Employees are eligible to participate by providing tax-deferred contributions up to 20% of qualified compensation. Employee contributions are vested at all times. The Corporation provides a matching contribution of up to 4% of the participant’s salary. For the years ended 2019 and 2018, matching contributions were $266,000 and $235,000, respectively. The Corporation may also make, at the sole discretion of its Board of Directors, a profit sharing contribution. For the years ended 2019 and 2018, the Corporation made profit sharing contributions of $140,000 and $124,000, respectively.

Supplemental Executive Retirement Plan

The Corporation maintains a Supplemental Executive Retirement Plan (SERP) to provide certain additional retirement benefits to participating officers. The SERP is subject to certain vesting provisions and provides that the officers shall receive a supplemental retirement benefit if the officer’s employment is terminated after reaching the normal retirement age of 65, with benefits also payable upon death, disability, a change of control or a termination of employment prior to normal retirement age. As of December 31, 2019 and 2018, the Corporation’s SERP liability was $1.9 million and $1.8 million, respectively. For the years ended December 31, 2019 and 2018, the Corporation recognized expense of $224,000 and $156,000, respectively, related to the SERP.

F-30

Table of Contents

Notes to Consolidated Financial Statements

15.

Fair Values of Financial Instruments

The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability's level is based on the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value.

	Level 1:	Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Corporation has the ability to access at the measurement date.

	Level 2:	Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

	Level 3:	Significant unobservable inputs that reflect the Corporation’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

F-31

Table of Contents

Notes to Consolidated Financial Statements

15.

Fair Values of Financial Instruments (continued)

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sale transaction or exit price on the date indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at year-end.

Assets measured at fair value on a recurring basis. The Corporation used the following methods and significant assumptions to estimate the fair value of the following assets:

Debt securities available for sale, equity securities – The fair value of all investment securities are based upon the assumptions market participants would use in pricing the security. If available, investment securities are determined by quoted market prices (Level 1). Level 1 includes U.S. Treasury, federal agency securities and certain equity securities. For investment securities where quoted market prices are not available, fair values are calculated based on market prices on similar securities (Level 2). Level 2 includes U.S. Government sponsored entities and agencies, mortgage-backed securities, collateralized mortgage obligations, state and political subdivision securities and certain corporate debt securities. For investment securities where quoted prices or market prices of similar securities are not available, fair values are calculated by using unobservable inputs (Level 3) and may include certain corporate debt securities held by the Corporation. The Level 3 corporate debt securities valuations were supported by inputs such as the security issuer’s publicly attainable financial information, multiples derived from prices in observed transactions involving comparable businesses and other market, financial and nonfinancial factors.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy are as follows:

(Dollar amounts in thousands)			(Level 1)		(Level 2)		(Level 3)
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2019:
Securities available-for-sale
U.S. government sponsored entities and agencies	$	7,077	$	—	$	7,077	$	—
U.S. agency mortgage-backed securities: residential		41,075		—		41,075		—
U.S. agency collateralized mortgage obligations: residential		32,837		—		32,837		—
State and political subdivision		27,796		—		27,796		—
Corporate debt securities		11,322		—		7,072		4,250
Total available-for-sale securities	$	120,107	$	—	$	115,857	$	4,250

Equity securities	$	19	$	19	$	—	$	—

December 31, 2018:
Securities available-for-sale
U.S. Treasury	$	4,445	$	4,445	$	—	$	—
U.S. government sponsored entities and agencies		16,783		—		16,783		—
U.S. agency mortgage-backed securities: residential		27,176		—		27,176		—
U.S. agency collateralized mortgage obligations: residential		18,664		—		18,664		—
State and political subdivisions		22,732		—		22,732		—
Corporate debt securities		7,918		—		4,418		3,500
Total available-for-sale securities	$	97,718	$	4,445	$	89,773	$	3,500

Equity securities	$	7	$	7	$	—	$	—

F-32

Table of Contents

Notes to Consolidated Financial Statements

15.

Fair Values of Financial Instruments (continued)

The Corporation’s policy is to transfer assets or liabilities from one level to another when the methodology to obtain the fair value changes such that there are more or fewer unobservable inputs as of the end of the reporting period. During 2019, certain corporate debt securities were purchased and placed into Level 3 because of a lack of observable market data. During 2018, the Corporation reclassified a restricted bank stock from the equity security portfolio to other assets and certain corporate securities from Level 3 to Level 2. Also during 2018, $25,000 in Level 3 equity securities were sold from the portfolio. The following table presents changes in Level 3 assets measured on a recurring basis for the years ended December 31, 2019 and 2018:

(Dollar amounts in thousands)	2019		2018
Balance at the beginning of the period	$	3,500	$	8,132
Total gains or losses (realized/unrealized):
Included in earnings		—		1
Purchased into Level 3		750		—
Sold out of Level 3		—		(25	)
Transfers in and/or out of Level 3		—		(4,608	)
Balance at the end of the period	$	4,250	$	3,500

Assets measured at fair value on a non-recurring basis. The Corporation used the following methods and significant assumptions to estimate the fair value of the following assets:

Impaired loans – At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive a specific allowance for loan losses. For collateral dependent loans, fair value is commonly based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. As of December 31, 2019 and 2018, the Corporation did not have any impaired loans carried at fair value measured using the fair value of collateral. There was no additional provision for loan losses recorded for impaired loans during 2019 or 2018.

Other real estate owned (OREO) – Assets acquired through or instead of foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. Management’s ongoing review of appraisal information may result in additional discounts or adjustments to the valuation based upon more recent market sales activity or more current appraisal information derived from properties of similar type and/or locale. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. As of December 31, 2019, OREO measured at fair value less costs to sell had a net carrying amount of $88,000, which consisted of the outstanding balance of $91,000 less write-downs of $3,000. As of December 31, 2018, OREO measured at fair value less costs to sell had a net carrying amount of $160,000, which consisted of the outstanding balance of $415,000 less write-downs of $255,000.

Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed by the Corporation. Once received, management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Corporation compares the actual selling price of OREO that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value. The most recent analysis performed indicated that a discount of 10% should be applied.

F-33

Table of Contents

Notes to Consolidated Financial Statements

15.

Fair Values of Financial Instruments (continued)

For assets measured at fair value on a non-recurring basis at December 31, 2019 and 2018, the fair value measurements by level within the fair value hierarchy are as follows:

(Dollar amounts in thousands)			(Level 1)		(Level 2)		(Level 3)
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2019:
Other real estate owned	$	88	$	—	$	—	$	88
Total	$	88	$	—	$	—	$	88

December 31, 2018:
Other real estate owned	$	160	$	—	$	—	$	160
Total	$	160	$	—	$	—	$	160

The following table presents quantitative information about Level 3 fair value measurements for assets measured at fair value on a non-recurring basis:

(Dollar amounts in thousands)			Valuation	Unobservable	Weighted
			Techniques(s)	Input(s)	Average
December 31, 2019:
Other real estate owned	$	88	Sales comparison approach	Adjustment for differences between comparable sales		10%

December 31, 2018:
Other real estate owned	$	160	Sales comparison approach	Adjustment for differences between comparable sales		10%

Excluded from the tables above at December 31, 2019 and 2018 was an impaired residential mortgage loan totaling $67,000 and $61,000, respectively, and an impaired home equity loan totaling $4,000 and $6,000, respectively, which were classified as TDRs and measured using a discounted cash flow methodology.

F-34

Table of Contents

Notes to Consolidated Financial Statements

15.

Fair Values of Financial Instruments (continued)

During the first quarter of 2018, the Corporation adopted ASU 2016-01 that requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The following table sets forth the carrying amount and fair value of the Corporation’s financial instruments included in the consolidated balance sheet as of December 31:

(Dollar amounts in thousands)
	Carrying		Fair Value Measurements using:
Description	Amount		Total		Level 1		Level 2		Level 3
December 31, 2019:
Financial Assets:
Cash and cash equivalents	$	14,986	$	14,986	$	14,986	$	—	$	—
Interest earning time deposits		9,698		9,698		—		9,698		—
Securities - available-for-sale		120,107		120,107		—		115,857		4,250
Securities - equities		19		19		19		—		—
Loans, net		695,348		697,990		—		—		697,990
Federal bank stock		5,790		N/A		N/A		N/A		N/A
Accrued interest receivable		2,600		2,600		78		419		2,103
Total	$	848,548	$	845,400	$	15,083	$	125,974	$	704,343
Financial Liabilities:
Deposits		787,124		793,999		569,357		224,642		—
Borrowed funds		28,550		29,133		—		29,133		—
Accrued interest payable		616		616		51		565		—
Total	$	816,290	$	823,748	$	569,408	$	254,340	$	—

December 31, 2018:
Financial Assets:
Cash and cash equivalents	$	10,955	$	10,955	$	10,955	$	—	$	—
Interest earning time deposits		6,738		6,738		—		6,738		—
Securities - available-for-sale		97,718		97,718		4,445		89,773		3,500
Securities - equities		7		7		7		—		—
Loans, net		708,664		702,747		—		—		702,747
Federal bank stock		6,351		N/A		N/A		N/A		N/A
Accrued interest receivable		2,570		2,570		63		351		2,156
Total	$	833,003	$	820,735	$	15,470	$	96,862	$	708,403
Financial Liabilities:
Deposits		761,546		767,009		539,946		227,063		—
Borrowed funds		45,350		44,869		—		44,869		—
Accrued interest payable		495		495		30		465		—
Total	$	807,391	$	812,373	$	539,976	$	272,397	$	—

This information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful.

Off-Balance Sheet Financial Instruments

The Corporation is party to credit related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and commercial letters of credit. Commitments to extend credit involve, to a varying degree, elements of credit and interest rate risk in excess of amounts recognized in the consolidated balance sheets. The Corporation’s exposure to credit loss in the event of non-performance by the other party for commitments to extend credit is represented by the contractual amount of these commitments, less any collateral value obtained. The Corporation uses the same credit policies in making commitments as for on-balance sheet instruments. The Corporation’s distribution of commitments to extend credit approximates the distribution of loans receivable outstanding.

F-35

Table of Contents

Notes to Consolidated Financial Statements

15.

Fair Values of Financial Instruments (continued)

The following table presents the notional amount of the Corporation’s off-balance sheet commitment financial instruments as of December 31:

(Dollar amounts in thousands)	2019				2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	1,646	$	10,840	$	684	$	7,450
Unused lines of credit		21,928		88,071		16,287		81,261
Total	$	23,574	$	98,911	$	16,971	$	88,711

Commitments to make loans are generally made for periods of 30 days or less. Commitments to extend credit include agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments to extend credit also include unfunded commitments under commercial and consumer lines of credit, revolving credit lines and overdraft protection agreements. These lines of credit may be collateralized and usually do not contain a specified maturity date and may be drawn upon to the total extent to which the Corporation is committed.

Standby letters of credit are conditional commitments issued by the Corporation usually for commercial customers to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Corporation generally holds collateral supporting those commitments if deemed necessary. Standby letters of credit, net of collateral maintained by the Bank, were $548,000 and $1.0 million at December 31, 2019 and 2018, respectively. The current amount of the liability as of December 31, 2019 and 2018 for guarantees under standby letters of credit issued is not material.

19.

Accumulated Other Comprehensive Income (Loss)

The following is changes in Accumulated Other Comprehensive Income (Loss) by component, net of tax for the year ending December 31, 2019:

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2019	$	(1,517	)	$	(4,840	)	$	(6,357	)
Other comprehensive income before reclassification		1,471			(586	)		885
Amounts reclassified from accumulated other comprehensive income (loss)		(62	)		199			137
Net current period other comprehensive income (loss)		1,409			(387	)		1,022
Accumulated Other Comprehensive Income (Loss) at December 31, 2019	$	(108	)	$	(5,227	)	$	(5,335	)

The following is significant amounts reclassified out of each component of Accumulated Other Comprehensive Income (Loss) for the year ending December 31, 2019:

(Dollar amount in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Income Components	from Accumulated Other Comprehensive Income For the year ended December 31, 2019			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(78	)	Net gain on sale of available-for-sale securities
Tax effect		16		Provision for income taxes
Total security reclassifications for the period		(62	)

Amortization of defined benefit pension items
Prior service costs		—		Other noninterest income
Actuarial gains		252		Compensation and employee benefits
Total before tax		252
Tax effect		(53	)	Provision for income taxes
Total defined benefit pension reclassifications for the period		199
Total reclassifications for the period	$	137		Net of tax

The following is changes in Accumulated Other Comprehensive Income (Loss) by component, net of tax for the year ending December 31, 2018:

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2018	$	(679	)	$	(4,839	)	$	(5,518	)
Cumulative effect of change in accounting principle for marketable equity securities, net of tax		(187	)		—			(187	)
Accumulated Other Comprehensive Income (Loss) at January 1, 2018, as adjusted	$	(866	)	$	(4,839	)	$	(5,705	)

Other comprehensive income before reclassification		(658	)		(200	)		(858	)
Amounts reclassified from accumulated other comprehensive income (loss)		7			199			206
Net current period other comprehensive income (loss)		(651	)		(1	)		(652	)

Accumulated Other Comprehensive Income (Loss) at December 31, 2018	$	(1,517	)	$	(4,840	)	$	(6,357	)

F-39

Table of Contents

Notes to Consolidated Financial Statements

19.

Accumulated Other Comprehensive Income (Loss) (continued)

The following is significant amounts reclassified out of each component of Accumulated Other Comprehensive Income (Loss) for the year ending December 31, 2018:

(Dollar amount in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Income Components	from Accumulated Other Comprehensive Income For the year ended December 31, 2018			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	9		Net loss on sale of available-for-sale securities
Tax effect		(2	)	Provision for income taxes
Total security reclassifications for the period		7

Amortization of defined benefit pension items
Prior service costs		—		Other noninterest income
Actuarial gains		252		Compensation and employee benefits
Total before tax		252
Tax effect		(53	)	Provision for income taxes
Total defined benefit pension reclassifications for the period		199
Total reclassifications for the period	$	206		Net of tax

Pennsylvania	25-1606091
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


612 Main Street, Emlenton, PA	16373
(Address of principal executive office)	(Zip Code)

Common Stock, par value $1.25 per share	EMCF	NASDAQ Capital Market (NASDAQ)
(Title of Class)	(Trading Symbol)	(Name of exchange on which registered)

PART I

Item 1.	Business	K-3

Item 1A.	Risk Factors	K-18

Item 1B.	Unresolved Staff Comments	K-18

Item 2.	Properties	K-18

Item 3.	Legal Proceedings	K-18

Item 4.	Mine Safety Disclosures	K-18

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	K-19

Item 6.	Selected Financial Data	K-19

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	K-19

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	K-29

Item 8.	Financial Statements and Supplementary Data	K-29

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	K-29

Item 9A.	Controls and Procedures	K-29

Item 9B.	Other Information	K-29

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	K-30

Item 11.	Executive Compensation	K-30

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	K-30

Item 13.	Certain Relationships and Related Transactions, and Director Independence	K-30

Item 14.	Principal Accountant Fees and Services	K-30

PART IV

Item 15.	Exhibits and Financial Statement Schedules	K-30

SIGNATURES AND CERTIFICATIONS		K-32

	2019					2018					2017					2016					2015
	Dollar					Dollar					Dollar					Dollar					Dollar
(Dollar amounts in thousands)	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
Mortgage loans on real estate:
Residential mortgages	$	293,170		41.8	%	$	295,405		41.3	%	$	221,823		38.1	%	$	198,167		38.0	%	$	139,305		32.0	%
Home equity loans and lines of credit		97,541		13.9	%		103,752		14.5	%		99,940		17.1	%		91,359		17.5	%		87,410		20.1	%
Commercial real estate		229,951		32.7	%		238,734		33.4	%		193,068		33.1	%		166,994		32.1	%		129,691		29.8	%

Total real estate loans		620,662		88.4	%		637,891		89.2	%		514,831		88.3	%		456,520		87.6	%		356,406		81.9	%

Other loans:
Commercial business		66,603		9.5	%		66,009		9.2	%		58,941		10.1	%		57,788		11.1	%		71,948		16.5	%
Consumer		14,639		2.1	%		11,272		1.6	%		9,589		1.6	%		6,672		1.3	%		6,742		1.6	%

Total other loans		81,242		11.6	%		77,281		10.8	%		68,530		11.7	%		64,460		12.4	%		78,690		18.1	%

Total loans receivable		701,904		100.0	%		715,172		100.0	%		583,361		100.0	%		520,980		100.0	%		435,096		100.0	%
Less:
Allowance for loan losses		6,556					6,508					6,127					5,545					5,205

Net loans receivable	$	695,348				$	708,664				$	577,234				$	515,435				$	429,891

(Dollar amounts in thousands)	Due in one year or less		Due from one to five years		Due from five to ten years		Due after ten years		Total
Residential mortgages	$	441	$	3,741	$	30,232	$	258,756	$	293,170
Home equity loans and lines of credit		749		10,042		18,940		67,810		97,541
Commercial real estate		826		34,327		64,432		130,366		229,951
Commercial business		2,935		20,698		8,823		34,147		66,603
Consumer		230		7,815		4,592		2,002		14,639

	$	5,181	$	76,623	$	127,019	$	493,081	$	701,904

	Fixed		Adjustable
(Dollar amounts in thousands)	rates		rates
Residential mortgages	$	280,567	$	12,162
Home equity loans and lines of credit		83,684		13,108
Commercial real estate		46,862		182,263
Commercial business		20,526		43,142
Consumer		12,629		1,780

	$	444,268	$	252,455

(Dollar amounts in thousands)	Due in 1 year or less			Due from 1 to 3 years			Due from 3 to 5 years			Due from 5 to 10 years			Due after 10 years			No scheduled maturity			Total
U.S. government sponsored entities and agencies	$	—		$	5,063		$	2,014		$	—		$	—		$	—		$	7,077
U.S. agency mortgage-backed securities: residential		—			—			—			2,821			38,254			—			41,075
U.S. agency collateralized mortgage obligations: residential		—			—			—			3,221			29,616			—			32,837
Corporate securities		—			—			—			9,153			2,169			—			11,322
State and political subdivision		265			849			2,196			4,695			19,791			—			27,796
Equity securities		—			—			—			—			—			19			19

Estimated fair value	$	265		$	5,912		$	4,210		$	19,890		$	89,830		$	19		$	120,126

Weighted average yield (1)		2.43	%		1.67	%		2.73	%		3.74	%		2.73	%		0.00	%		2.84	%

(Dollar amounts in thousands)	Amount
Three months or less	$	10,082
Over three months to six months		15,230
Over six months to twelve months		14,805
Over twelve months		89,113
	$	129,230

Boenning and Scattergood, Inc.	Janney Montgomery Scott LLC	Raymond James & Associates, Inc.
4 Tower Bridge	1717 Arch Street	550 West Washington Boulevard
200 Barr Harbor Drive, Suite 300	Philadelphia, PA 19103	Suite 1050
West Conshohocken, PA 19428-2979	Telephone: (215) 665-6000	Chicago, IL 60661
Telephone: (800) 883-1212		Telephone: (312) 869-3800

	Market Price						Cash
	High		Low		Close		Dividend
2019:
Fourth quarter	$	34.00	$	29.92	$	32.53	$	0.29
Third quarter		37.00		30.42		32.90		0.29
Second quarter		34.50		29.83		34.50		0.29
First quarter		32.35		29.34		30.80		0.29

2018:
Fourth quarter	$	36.70	$	29.90	$	30.34	$	0.28
Third quarter		38.60		34.07		37.30		0.28
Second quarter		35.06		31.05		34.30		0.28
First quarter		33.60		29.72		33.41		0.28

(Dollar amounts in thousands)	Year ended December 31,
	2019							2018
	Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets:
Loans, taxable	$	679,607	$	31,824		4.68	%	$	601,188	$	27,393		4.56	%
Loans, tax exempt		20,736		812		3.92	%		20,281		752		3.71	%
Total loans receivable		700,343		32,636		4.66	%		621,469		28,145		4.53	%
Securities, taxable		87,544		2,258		2.58	%		73,872		1,792		2.43	%
Securities, tax exempt		16,995		457		2.69	%		24,485		647		2.64	%
Total securities		104,539		2,715		2.60	%		98,357		2,439		2.48	%
Interest-earning deposits with banks		31,905		566		1.77	%		19,220		284		1.48	%
Federal bank stocks		5,858		419		7.15	%		4,633		298		6.43	%
Total interest-earning cash equivalents		37,763		985		2.61	%		23,853		582		2.44	%
Total interest-earning assets		842,645		36,336		4.31	%		743,679		31,166		4.19	%
Cash and due from banks		3,333							2,968
Other noninterest-earning assets		62,572							50,316
Total Assets	$	908,550						$	796,963
Interest-bearing liabilities:
Interest-bearing demand deposits	$	401,564	$	2,630		0.65	%	$	380,753	$	1,901		0.50	%
Time deposits		223,222		4,457		2.00	%		182,931		2,823		1.54	%
Total interest-bearing deposits		624,786		7,087		1.13	%		563,684		4,724		0.84	%
Borrowed funds, short-term		4,663		183		3.93	%		5,660		209		3.70	%
Borrowed funds, long-term		31,845		813		2.55	%		18,590		453		2.43	%
Total borrowed funds		36,508		996		2.73	%		24,250		662		2.73	%
Total interest-bearing liabilities		661,294		8,083		1.22	%		587,934		5,386		0.92	%
Noninterest-bearing demand deposits		149,744		—		—			133,936		—		—
Funding and cost of funds		811,038		8,083		1.00	%		721,870		5,386		0.75	%
Other noninterest-bearing liabilities		13,761							10,889
Total Liabilities		824,799							732,759
Stockholders' Equity		83,751							64,204
Total Liabilities and Stockholders' Equity	$	908,550						$	796,963
Net interest income			$	28,253						$	25,780

Interest rate spread (difference between weighted average rate on interest-earning assets and interest-bearing liabilities)						3.09	%						3.27	%

Net interest margin (net interest income as a percentage of average interest-earning assets)						3.35	%						3.47	%

(Dollar amounts in thousands)	Year ended December 31,
	2019 versus 2018
	Increase (Decrease) due to
	Volume			Rate			Total
Interest income:
Loans	$	3,656		$	835		$	4,491
Securities		157			119			276
Interest-earning deposits with banks		216			66			282
Federal bank stocks		85			36			121
Total interest-earning assets		4,114			1,056			5,170

Interest expense:
Interest-bearing deposits		555			1,808			2,363
Borrowed funds, short-term		(39	)		13			(26	)
Borrowed funds, long-term		338			22			360
Total interest-bearing liabilities		854			1,843			2,697
Net interest income	$	3,260		$	(787	)	$	2,473

(Dollar amounts in thousands)	Six months or less			Six months to one year			One to three years			Three to four years			Over four years			Total
Total interest-earning assets	$	188,771		$	91,433		$	254,854		$	68,860		$	238,772		$	842,690

Total interest-bearing liabilities		101,559			92,013			290,598			75,817			105,344			665,331

Interest rate sensitivity gap	$	87,212		$	(580	)	$	(35,744	)	$	(6,957	)	$	133,428		$	177,359

Cumulative rate sensitivity gap	$	87,212		$	86,632		$	50,888		$	43,931		$	177,359

Ratio of gap during the period to total interest earning assets		10.35	%		(0.07	%)		(4.24	%)		(0.83	%)		15.83	%

Ratio of cumulative gap to total interest earning assets		10.35	%		10.28	%		6.04	%		5.21	%		21.05	%

	Increase						Decrease
	+100 BP			+200 BP			-100 BP			-200 BP
2019 Net interest income - increase (decrease)		1.87	%		2.06	%		(1.83	%)		(5.28	%)

2018 Net interest income - increase (decrease)		0.26	%		0.30	%		(0.15	%)		(3.98	%)

(Dollar amounts in thousands)	December 31, 2019					December 31, 2018
	Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	80,418		13.74	%	$	76,344		12.93	%
For capital adequacy purposes		46,836		8.00	%		47,252		8.00	%
To be well capitalized		58,544		10.00	%		59,065		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	73,862		12.62	%	$	69,836		11.82	%
For capital adequacy purposes		35,127		6.00	%		35,439		6.00	%
To be well capitalized		46,836		8.00	%		47,252		8.00	%
Common Equity Tier 1 capital to risk-weighted assets:
Actual	$	73,862		12.62	%	$	69,836		11.82	%
For capital adequacy purposes		26,345		4.50	%		26,579		4.50	%
To be well capitalized		38,054		6.50	%		38,393		6.50	%
Tier 1 capital to average assets:
Actual	$	73,862		8.17	%	$	69,836		7.95	%
For capital adequacy purposes		36,146		4.00	%		35,126		4.00	%
To be well capitalized		45,182		5.00	%		43,908		5.00	%

Plan Category	Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options		Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in the first column) (1)
Equity compensation plans approved by security holders		—	$	—		108,266

Equity compensation plans not approved by security holders		—		—		—

Total		—	$	—		108,266

3.1		Amended and Restated Articles of Incorporation of Emclaire Financial Corp (1)
3.2		Bylaws of Emclaire Financial Corp (2)
4.1		Specimen Common Stock Certificate of Emclaire Financial Corp (3)
4.2		Description of Emclaire Common Stock
10.1		Amended and Restated Employment Agreement between Emclaire Financial Corp, The Farmers National Bank of Emlenton and William C. Marsh, dated as of November 18, 2015 (4)*
10.2		Amended and Restated Change in Control Agreement between Emclaire Financial Corp, The Farmers National Bank of Emlenton and Jennifer A. Roxbury, dated as of November 18, 2015*
10.3		Amended and Restated Change in Control Agreement between Emclaire Financial Corp, The Farmers National Bank of Emlenton and Amanda L. Engles, dated as of November 15, 2017 (5)*
10.4		Amended and Restated Change in Control Agreement between Emclaire Financial Corp, The Farmers National Bank of Emlenton and Robert A. Vernick dated November 18, 2015*
10.5		Amended and Restated Supplemental Executive Retirement Plan Agreement between The Farmers National Bank of Emlenton and William C. Marsh, dated as of November 18, 2015 (4)*
10.6		Amended and Restated Supplemental Executive Retirement Plan Agreement between The Farmers National Bank of Emlenton and Jennifer A. Roxbury, dated as of November 18, 2015 (6)*
10.7		Supplemental Executive Retirement Plan Agreement between the Farmers National Bank of Emlenton and Amanda L. Engles, dated as of November 15, 2017 (5)*
10.8		Supplemental Executive Retirement Plan Agreement between The Farmers National Bank of Emlenton and Robert A. Vernick dated November 18, 2015*
10.9		First Amendment dated as of February 8, 2019 to the Amended and Restated Supplemental Executive Retirement Plan Agreement between The Farmers National Bank of Emlenton and William C. Marsh, dated as of November 18, 2015 (6)*
10.10		First Amendment dated as of February 8, 2019 to the Amended and Restated Supplemental Executive Retirement Plan Agreement between The Farmers National Bank of Emlenton and Jennifer A Roxbury, dated as of November 18, 2015 (6)*
10.11		First Amendment dated as of February 8, 2019 to the Amended and Restated Supplemental Executive Retirement Plan Agreement between The Farmers National Bank of Emlenton and Amanda L. Engles, dated as of November 15, 2017 (6)*
10.12		Group Term Carve-Out Plan between the Farmers National Bank of Emlenton and Officers and Employees (7)*
10.13		Farmers National Bank Deferred Compensation Plan (8)*
10.14		Emclaire Financial Corp 2014 Stock Incentive Plan (9)*
11.1		Statement regarding computation of earnings per share (see Note 1 of the Notes to Consolidated Financial Statements in the Annual Report).
14.0		Code of Personal and Business Conduct and Ethics. (10)
20.0		Emclaire Financial Corp Dividend Reinvestment and Stock Purchase Plan. (11)
21.0		Subsidiaries of the Registrant (see information contained herein under “Item 1. Description of Business - Subsidiary Activity”).
31.1		Principal Executive Officer Section 302 Certification.
31.2		Principal Financial Officer Section 302 Certification.
32.1		Principal Executive Officer Section 906 Certification.
32.2		Principal Financial Officer Section 906 Certification.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

(9)	Incorporated by reference to the Registrant’s Definitive Proxy Statement dated March 24, 2016.
(10)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.
(11)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

EMCLAIRE FINANCIAL CORP

Dated: March 20, 2020	By:	/s/ William C. Marsh
		William C. Marsh
		Chairman, Chief Executive Officer, President and Director
		(Duly Authorized Representative)

By:	/s/ William C. Marsh	By:	/s/ Amanda L. Engles
	William C. Marsh		Amanda L. Engles
	Chairman of the Board		Treasurer and Chief Financial Officer
	Chief Executive Officer		(Principal Financial Officer)
	President	Date:	March 20, 2020
	Director
	(Principal Executive Officer)
Date:	March 20, 2020

By:	/s/ Milissa S. Bauer	By:	/s/ David L. Cox
	Milissa S. Bauer		David L. Cox
	Director		Director
Date:	March 20, 2020	Date:	March 20, 2020


By:	/s/ James M. Crooks	By:	/s/ Henry H. Deible
	James M. Crooks		Henry H. Deible
	Director		Director
Date:	March 20, 2020	Date:	March 20, 2020

By:	/s/ Henry H. Deible II	By:	/s/ Robert W. Freeman
	Henry H. Deible II		Robert W. Freeman
	Director		Director
Date:	March 20, 2020	Date:	March 20, 2020

By:	/s/ Mark A. Freemer	By:	/s/ Robert L. Hunter
	Mark A. Freemer		Robert L. Hunter
	Director		Director
Date:	March 20, 2020	Date:	March 20, 2020


	/s/ John B. Mason	By:	/s/ Deanna K. McCarrier
	John B. Mason		Deanna K. McCarrier
	Director		Director
Date:	March 20, 2020	Date:	March 20, 2020

By:	/s/ Nicholas D. Varischetti
	Nicholas D. Varischetti
	Director
Date:	March 20, 2020

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Net Income	F-4
Consolidated Statements of Comprehensive Income	F-5
Consolidated Statements of Changes in Stockholders’ Equity	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-8

	/s/ Crowe LLP

We have served as the Corporation's auditor since 2010.

	December 31, 2019			December 31, 2018
Assets
Cash and due from banks	$	3,750		$	3,623
Interest earning deposits with banks		11,236			7,332
Total cash and cash equivalents		14,986			10,955
Interest earning time deposits		9,698			6,738
Securities - available-for-sale		120,107			97,718
Securities - equity investments		19			7
Loans receivable, net of allowance for loan losses of $6,556 and $6,508		695,348			708,664
Federal bank stocks, at cost		5,790			6,351
Bank-owned life insurance		15,287			14,881
Accrued interest receivable		2,600			2,570
Premises and equipment, net		19,041			18,911
Goodwill		19,460			19,448
Core deposit intangible, net		1,247			1,423
Prepaid expenses and other assets		11,713			11,209
Total Assets	$	915,296		$	898,875
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing	$	148,842		$	148,893
Interest bearing		638,282			612,653
Total deposits		787,124			761,546
Short-term borrowed funds		2,050			12,850
Long-term borrowed funds		26,500			32,500
Accrued interest payable		616			495
Accrued expenses and other liabilities		13,148			11,476
Total Liabilities		829,438			818,867
Commitments and Contingent Liabilities (Note 11)		—			—
Stockholders' Equity
Preferred stock, $1.00 par value, 3,000,000 shares authorized; Series C, non-cumulative preferred stock, $2.9 million liquidation value, 286,888 shares issued and outstanding; Series D, non-cumulative preferred stock, $1.3 million liquidation value, 133,705 shares issued and outstanding		4,206			4,206
Common stock, $1.25 par value, 12,000,000 shares authorized; 2,810,729 and 2,800,729 shares issued; 2,708,712 and 2,698,712 shares outstanding		3,513			3,501
Additional paid-in capital		46,757			46,401
Treasury stock, at cost; 102,017 shares		(2,114	)		(2,114	)
Retained earnings		38,831			34,371
Accumulated other comprehensive loss		(5,335	)		(6,357	)
Total Stockholders' Equity		85,858			80,008
Total Liabilities and Stockholders' Equity	$	915,296		$	898,875

	Preferred Stock		Additional Paid-in Capital - Preferred		Common Stock		Additional Paid-in Capital - Common			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance at January 1, 2018, as previously presented	$	—	$	—	$	2,966	$	31,031		$	(2,114	)	$	32,726		$	(5,518	)	$	59,091
Cumulative effect of change in accounting principle for marketable equity securities, net of tax		—		—		—		—			—			187			(187	)		—
Balance at January 1, 2018, as adjusted	$	—	$	—	$	2,966	$	31,031		$	(2,114	)	$	32,913		$	(5,705	)	$	59,091
Net income		—		—		—		—			—			4,211			—			4,211
Other comprehensive loss		—		—		—		—			—			—			(652	)		(652	)
Issuance of preferred stock (Series C - 286,888 shares, Series D - 133,705 shares)		421		3,785		—		—			—			—			—			4,206
Cash dividends declared on preferred stock (Series C - $0.225 per share)		—		—		—		—			—			(64	)		—			(64	)
Cash dividends declared on preferred stock (Series D - $0.20 per share)		—		—		—		—			—			(27	)		—			(27	)
Issuance of common stock (419,173 shares)		—		—		524		15,112			—			—			—			15,636
Issuance of common stock for restricted stock awards (8,400 shares)		—		—		11		(11	)		—			—			—			—
Stock compensation expense		—		—		—		269			—			—			—			269
Cash dividends declared on common stock ($1.12 per share)		—		—		—		—			—			(2,662	)		—			(2,662	)
Balance at December 31, 2018	$	421	$	3,785	$	3,501	$	46,401		$	(2,114	)	$	34,371		$	(6,357	)	$	80,008

Balance at January 1, 2019, as previously presented	$	421	$	3,785	$	3,501	$	46,401		$	(2,114	)	$	34,371		$	(6,357	)	$	80,008
Cumulative effect of change in accounting principle for leases and security premiums, net of tax		—		—		—		—			—			(181	)		—			(181	)
Balance at January 1, 2019, as adjusted	$	421	$	3,785	$	3,501	$	46,401		$	(2,114	)	$	34,190		$	(6,357	)	$	79,827
Net income		—		—		—		—			—			7,954			—			7,954
Other comprehensive income		—		—		—		—			—			—			1,022			1,022
Cash dividends declared on preferred stock (Series C - $0.45 per share)		—		—		—		—			—			(129	)		—			(129	)
Cash dividends declared on preferred stock (Series D - $0.40 per share)		—		—		—		—			—			(53	)		—			(53	)
Issuance of common stock for restricted stock awards (10,000 shares)		—		—		12		(12	)		—			—			—			—
Stock compensation expense		—		—		—		368			—			—			—			368
Cash dividends declared on common stock ($1.16 per share)		—		—		—		—			—			(3,131	)		—			(3,131	)
Balance at December 31, 2019	$	421	$	3,785	$	3,513	$	46,757		$	(2,114	)	$	38,831		$	(5,335	)	$	85,858

	For the year ended December 31,
	2019			2018
Cash flows from operating activities
Net income	$	7,954		$	4,211
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		1,388			1,172
Provision for loan losses		715			1,280
Amortization/accretion of premiums, discounts and deferred costs and fees, net		406			63
Amortization of operating lease right-of-use assets		132			—
Amortization of intangible assets and mortgage servicing rights		249			321
Realized (gain) loss on sales of debt securities, net		(78	)		9
Change in fair value of equity securities, including realized gain		(12	)		(500	)
Net gain on sales of loans		(114	)		(19	)
Net (gain) loss on foreclosed real estate		(49	)		34
Net loss on sale of premises and equipment		279			108
Loans originated for sale		(6,027	)		(5,329	)
Proceeds from the sale of loans originated for sale		6,178			5,906
Write-down of foreclosed real estate		37			266
Stock compensation expense		368			269
Increase in bank-owned life insurance, net		(406	)		(340	)
Proceeds from bank-owned life insurance claim		(160	)		—
Decrease in deferred taxes		122			234
Increase in accrued interest receivable		(30	)		(65	)
Increase in prepaid expenses and other assets		(107	)		(1,187	)
Increase in accrued interest payable		121			21
Increase (decrease) in accrued expenses and other liabilities		(538	)		158
Net cash provided by operating activities		10,428			6,612
Cash flows from investing activities
Loan originations and principal collections, net		10,791			(24,474	)
Proceeds from sales of loans held for sale previously classified as portfolio loans		967			2,355
Available-for-sale securities:
Sales		36,370			11,482
Maturities, repayments and calls		19,007			10,615
Purchases		(76,149	)		(19,145	)
Net cash received for acquisition		—			1,557
Net change in federal bank stocks		561			(1,499	)
Net change in interest earning time deposits		(2,960	)		(2,540	)
Proceeds from the sale of bank premises and equipment		251			155
Purchases of premises and equipment		(1,809	)		(885	)
Proceeds from the sale of foreclosed real estate		1,109			395
Net cash used in investing activities		(11,862	)		(21,984	)
Cash flows from financing activities
Net increase in deposits		25,578			754
Proceeds from long-term debt		—			15,000
Repayments on long-term debt		(6,000	)		(6,000	)
Net change in short-term borrowings		(10,800	)		9,150
Dividends paid		(3,313	)		(2,753	)
Net cash provided by financing activities		5,465			16,151
Net increase in cash and cash equivalents		4,031			779
Cash and cash equivalents at beginning of period		10,955			10,176
Cash and cash equivalents at end of period	$	14,986		$	10,955
Supplemental information:
Interest paid	$	7,962		$	5,304
Income taxes paid		1,410			830
Supplemental noncash disclosure:
Transfers from loans to foreclosed real estate		645			904
Initial recognition of operating lease right-of-use assets		1,642			—
Initial recognition of operating lease liabilities		1,858			—
Transfers from portfolio loans to loans held for sale		1,004			2,409
Equity securities retired as a result of business combination		—			931

(Dollar amounts in thousands)
Year ending December 31:
2020	$	212
2021		217
2022		222
2023		222
2024		227
Thereafter		1,063
Total minimum lease payments		2,163
Discount effect of cash flows		(456	)
Present value of lease liabilities	$	1,707

(Dollar amounts in thousands)	Amortization
	Expense
2020	$	164
2021		154
2022		149
2023		149
2024		149
Thereafter		482
Total	$	1,247

(Dollar amounts in thousands)	Amount		Percent
2020	$	66,039		30.3	%
2021		54,923		25.2	%
2022		17,110		7.9	%
2023		39,096		17.9	%
2024		34,382		15.8	%
Thereafter		6,217		2.9	%
Total	$	217,767		100.0	%

	Shares			Weighted-Average Grant-date Fair Value
Nonvested at January 1, 2019		37,250		$	29.94
Granted		17,950			31.10
Vested		(10,000	)		26.74
Forfeited		(750	)		30.90
Nonvested as of December 31, 2019		44,450		$	31.11

Condensed Balance Sheets
(Dollar amounts in thousands)	2019		2018
Assets:
Cash and cash equivalents	$	40	$	18
Equity in net assets of subsidiaries		84,065		79,302
Goodwill		5,190		5,190
Other assets		171		113
Total Assets	$	89,466	$	84,623
Liabilities and Stockholders' Equity:
Other short-term borrowed funds	$	2,050	$	2,050
Long-term borrowed funds		1,500		2,500
Accrued expenses and other liabilities		58		65
Stockholders' equity		85,858		80,008
Total Liabilities and Stockholders' Equity	$	89,466	$	84,623

Condensed Statements of Income
(Dollar amounts in thousands)	2019		2018
Income:
Dividends from subsidiaries	$	4,688	$	3,316
Investment income		—		10
Net gains on equity securities		—		510
Total income		4,688		3,836
Expense:
Interest expense		205		272
Noninterest expense		634		539
Total expense		839		811
Income before income taxes and undistributed subsidiary income		3,849		3,025
Undistributed equity in net income of subsidiary		3,922		1,125
Net income before income taxes		7,771		4,150
Income tax benefit		183		61
Net income	$	7,954	$	4,211
Comprehensive income	$	8,976	$	3,559

Condensed Statements of Cash Flows
(Dollar amounts in thousands)	2019			2018
Operating activities:
Net income	$	7,954		$	4,211
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed equity in net income of subsidiary		(3,922	)		(1,125	)
Change in fair value of equity securities		—			(510	)
Other, net		303			1,323
Net cash provided by operating activities		4,335			3,899

Investing activities:
Sales of investment securities		—			1,269
Net cash provided by investing activities		—			1,269

Financing activities:
Net change in borrowings		(1,000	)		(2,450	)
Dividends paid		(3,313	)		(2,753	)
Net cash used in financing activities		(4,313	)		(5,203	)
Increase (decrease) in cash and cash equivalents		22			(35	)
Cash and cash equivalents at beginning of period		18			53
Cash and cash equivalents at end of period	$	40		$	18

(Dollar amounts in thousands, except for per share amounts)	For the year ended December 31,
	2019		2018
Net income	$	7,954	$	4,211
Less: Preferred stock dividends		182		91
Net income available to common stockholders	$	7,772	$	4,120
Average common shares outstanding		2,699,397		2,377,277
Add: Dilutive effects of restricted stock awards		19,349		18,400
Average shares and dilutive potential common shares		2,718,746		2,395,677
Basic earnings per common share	$	2.88	$	1.73
Diluted earnings per common share	$	2.86	$	1.72
Restricted stock awards not considered in computing earnings per share because they were antidulitive		—		—