10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One):

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: ___________ to ___________

Commission File Number: 000-18464

EMCLAIRE FINANCIAL CORP

(Exact name of registrant as specified in its charter)

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)

Registrant’s telephone number: (724) 867-2311

Securities registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES ¨ NO x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES ¨ NO x.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 month (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x.

As of June 30, 2012, the aggregate value of the 1,488,295 shares of Common Stock of the Registrant issued and outstanding on such date, which excludes 263,613 shares held by the directors and officers of the Registrant as a group, was approximately $29.7 million. This figure is based on the last sales price of $19.95 per share of the Registrant’s Common Stock on June 30, 2012. The number of outstanding shares of common stock as of March 22, 2013, was 1,762,158.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2013 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

EMCLAIRE FINANCIAL CORP

TABLE OF CONTENTS

PART I
Item 1.	Business	K-3
Item 1A.	Risk Factors	K-20
Item 1B.	Unresolved Staff Comments	K-20
Item 2.	Properties	K-20
Item 3.	Legal Proceedings	K-20
Item 4.	Mine Safety Disclosures	K-20
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	K-21
Item 6.	Selected Financial Data	K-21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	K-22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	K-34
Item 8.	Financial Statements and Supplementary Data	K-34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	K-34
Item 9A.	Controls and Procedures	K-34
Item 9B.	Other Information	K-35
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	K-35
Item 11.	Executive Compensation	K-35
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	K-35
Item 13.	Certain Relationships and Related Transactions, and Director Independence	K-36
Item 14.	Principal Accountant Fees and Services	K-36
PART IV
Item 15.	Exhibits and Financial Statement Schedules	K-37
SIGNATURES AND CERTIFICATIONS		K-39

K-2

Discussions of certain matters in this Form 10-K and other related year end documents may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and as such, may involve risks and uncertainties. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations, are generally identifiable by the use of words or phrases such as “believe”, “plan”, “expect”, “intend”, “anticipate”, “estimate”, “project”, “forecast”, “may increase”, “may fluctuate”, “may improve” and similar expressions of future or conditional verbs such as “will”, “should”, “would”, and “could”. These forward-looking statements relate to, among other things, expectations of the business environment in which the Corporation operates, projections of future performance, potential future credit experience, perceived opportunities in the market and statements regarding the Corporation’s mission and vision. The Corporation’s actual results, performance and achievements may differ materially from the results, performance, and achievements expressed or implied in such forward-looking statements due to a wide range of factors. These factors include, but are not limited to, changes in interest rates, general economic conditions, the local economy, the demand for the Corporation’s products and services, accounting principles or guidelines, legislative and regulatory changes, monetary and fiscal policies of the U.S. Government, U.S. Treasury, and Federal Reserve, real estate markets, competition in the financial services industry, attracting and retaining key personnel, performance of new employees, regulatory actions, changes in and utilization of new technologies and other risks detailed in the Corporation’s reports filed with the Securities and Exchange Commission (SEC) from time to time. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. The Corporation does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

PART I

Item 1. Business

General

Emclaire Financial Corp (the Corporation) is a Pennsylvania corporation and financial holding company that provides a full range of retail and commercial financial products and services to customers in western Pennsylvania through its wholly owned subsidiary bank, The Farmers National Bank of Emlenton (the Bank). The Corporation also provides real estate settlement services through its subsidiary, Emclaire Settlement Services, LLC (the Title Company). In addition, the Bank provides investment advisory services through its Farmers National Financial Services division.

The Bank was organized in 1900 as a national banking association and is a financial intermediary whose principal business consists of attracting deposits from the general public and investing such funds in real estate loans secured by liens on residential and commercial property, consumer loans, commercial business loans, marketable securities and interest-earning deposits. The Bank operates through a network of thirteen retail branch offices in Venango, Butler, Clarion, Clearfield, Crawford, Elk, Jefferson and Mercer counties, Pennsylvania. The Corporation and the Bank are headquartered in Emlenton, Pennsylvania.

The Bank is subject to examination and comprehensive regulation by the Office of the Comptroller of the Currency (OCC), which is the Bank’s chartering authority, and the Federal Deposit Insurance Corporation (FDIC), which insures customer deposits held by the Bank to the full extent provided by law. The Bank is a member of the Federal Reserve Bank of Cleveland (FRB) and the Federal Home Loan Bank of Pittsburgh (FHLB). The Corporation is a registered bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (BHCA), and a financial holding company under the Gramm-Leach Bliley Act of 1999 (GLBA).

At December 31, 2012, the Corporation had $509.0 million in total assets, $51.7 million in stockholders’ equity, $333.8 million in net loans and $432.5 million in total deposits.

K-3

Lending Activities

General. The principal lending activities of the Bank are the origination of residential mortgage, commercial mortgage, commercial business and consumer loans. Nearly all of the Bank’s loans are originated in and secured by property within the Bank’s primary market area.

One-to-Four Family Mortgage Loans. The Bank offers first mortgage loans secured by one-to-four family residences located mainly in the Bank’s primary lending area. One-to-four family mortgage loans amounted to 28.7% of the total loan portfolio at December 31, 2012. Typically such residences are single-family owner occupied units. The Bank is an approved, qualified lender for the Federal Home Loan Mortgage Corporation (FHLMC). As a result, the Bank may sell loans to and service loans for the FHLMC in market conditions and circumstances where this is advantageous in managing interest rate risk.

Home Equity Loans. The Bank originates home equity loans secured by single-family residences. Home equity loans amounted to 25.2% of the total loan portfolio at December 31, 2012. These loans may be either a single advance fixed-rate loan with a term of up to 20 years or a variable rate revolving line of credit. These loans are made only on owner-occupied single-family residences.

Commercial Business and Commercial Real Estate Loans. Commercial lending constitutes a significant portion of the Bank’s lending activities. Commercial business and commercial real estate loans amounted to 42.6% of the total loan portfolio at December 31, 2012. Commercial real estate loans generally consist of loans granted for commercial purposes secured by commercial or other nonresidential real estate. Commercial loans consist of secured and unsecured loans for such items as capital assets, inventory, operations and other commercial purposes.

Consumer Loans. Consumer loans generally consist of fixed-rate term loans for automobile purchases, home improvements not secured by real estate, capital and other personal expenditures. The Bank also offers unsecured revolving personal lines of credit and overdraft protection. Consumer loans amounted to 3.5% of the total loan portfolio at December 31, 2012.

Loans to One Borrower. National banks are subject to limits on the amount of credit that they can extend to one borrower. Under current law, loans to one borrower are limited to an amount equal to 15% of unimpaired capital and surplus on an unsecured basis, and an additional amount equal to 10% of unimpaired capital and surplus if the loan is secured by readily marketable collateral. At December 31, 2012, the Bank’s loans to one borrower limit based upon 15% of unimpaired capital was $7.5 million. The Bank may grant credit to borrowers in excess of the legal lending limit as part of the Legal Lending Limit Pilot Program approved by the OCC which allows the Bank to exceed its legal lending limit within certain parameters. At December 31, 2012, the Bank’s largest single lending relationship had an outstanding balance of $6.9 million.

K-4

Loan Portfolio. The following table sets forth the composition and percentage of the Corporation’s loans receivable in dollar amounts and in percentages of the portfolio as of December 31:

(Dollar amounts in thousands)	2012					2011					2010					2009					2008
	Dollar					Dollar					Dollar					Dollar					Dollar
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
Mortgage loans on real estate:
Residential first mortgages	$	97,246		28.7	%	$	93,610		29.6	%	$	84,575		27.3	%	$	74,099		25.0	%	$	74,130		27.7	%
Home equity loans and lines of credit		85,615		25.2	%		71,238		22.5	%		75,458		24.3	%		77,284		26.1	%		57,454		21.5	%
Commercial		98,823		29.2	%		94,765		30.0	%		93,028		30.0	%		89,952		30.4	%		85,689		32.1	%
Total real estate loans		281,684		83.2	%		259,613		82.1	%		253,061		81.6	%		241,335		81.5	%		217,273		81.3	%
Other loans:
Commercial business		45,581		13.4	%		43,826		13.9	%		43,780		14.1	%		41,588		14.1	%		40,787		15.2	%
Consumer		11,886		3.5	%		12,642		4.0	%		13,443		4.3	%		12,894		4.4	%		9,429		3.5	%
Total other loans		57,467		16.9	%		56,468		17.9	%		57,223		18.4	%		54,482		18.5	%		50,216		18.7	%
Total loans receivable		339,151		100.0	%		316,081		100.0	%		310,284		100.0	%		295,817		100.0	%		267,489		100.0	%
Less:
Allowance for loan losses		5,350					3,536					4,132					3,202					2,651
Net loans receivable	$	333,801				$	312,545				$	306,152				$	292,615				$	264,838

The following table sets forth the final maturity of loans in the Corporation’s portfolio as of December 31, 2012. Demand loans having no stated schedule of repayment and no stated maturity are reported as due within one year.

(Dollar amounts in thousands)	Due in one		Due from one		Due from five		Due after
	year or less		to five years		to ten years		ten years		Total
Residential mortgages	$	1,677	$	2,227	$	7,888	$	85,454	$	97,246
Home equity loans and lines of credit		203		9,069		26,007		50,336		85,615
Commercial mortgages		920		5,475		25,400		67,028		98,823
Commercial business		2,705		7,631		5,204		30,041		45,581
Consumer		253		5,900		1,313		4,420		11,886
	$	5,758	$	30,302	$	65,812	$	237,279	$	339,151

The following table sets forth the dollar amount of the Corporation’s fixed and adjustable rate loans with maturities greater than one year as of December 31, 2012:

(Dollar amounts in thousands)	Fixed		Adjustable
	rates		rates
Residential mortgage	$	81,204	$	14,365
Home equity loans and lines of credit		71,865		13,547
Commercial mortgage		19,589		78,314
Commercial business		18,392		24,484
Consumer		6,969		4,664
	$	198,019	$	135,374

Contractual maturities of loans do not reflect the actual term of the Corporation’s loan portfolio. The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and enforcement of due-on-sale clauses, which give the Corporation the right to declare a loan immediately payable in the event, among other things, that the borrower sells the real property subject to the mortgage. Scheduled principal amortization also reduces the average life of the loan portfolio. The average life of mortgage loans tends to increase when current market mortgage rates substantially exceed rates on existing mortgages and conversely, decrease when rates on existing mortgages substantially exceed current market interest rates.

K-5

Delinquencies and Classified Assets

Delinquent Loans and Other Real Estate Acquired Through Foreclosure (OREO). Typically, a loan is considered past due and a late charge is assessed when the borrower has not made a payment within fifteen days from the payment due date. When a borrower fails to make a required payment on a loan, the Corporation attempts to cure the deficiency by contacting the borrower. The initial contact with the borrower is made shortly after the seventeenth day following the due date for which a payment was not received. In most cases, delinquencies are cured promptly.

If the delinquency exceeds 60 days, the Corporation works with the borrower to set up a satisfactory repayment schedule. Typically, loans are considered nonaccruing upon reaching 90 days delinquent, although the Corporation may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed in nonaccrual status, previously accrued but unpaid interest is deducted from interest income. The Corporation institutes foreclosure action on secured loans only if all other remedies have been exhausted. If an action to foreclose is instituted and the loan is not reinstated or paid in full, the property is sold at a judicial or trustee’s sale at which the Corporation may be the buyer.

Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure less costs to sell, thereby establishing a new cost basis. After foreclosure, management periodically performs valuations and the real estate is carried at the lower of carrying amount or fair value less the cost to sell the property. Revenue and expenses from operations and changes in the valuation allowance are included in loss on foreclosed real estate. The Corporation generally attempts to sell its OREO properties as soon as practical upon receipt of clear title.

As of December 31, 2012, the Corporation’s nonperforming assets were $7.2 million, or 1.41% of the Corporation’s total assets compared to $5.9 million, or 1.19% of the Corporation’s total assets at December 31, 2011. Nonperforming assets at December 31, 2012 included nonaccrual loans, loans past due 90 days and still on accrual status and OREO of $7.0 million, $21,000 and $180,000, respectively. Included in nonaccrual loans at December 31, 2012 were five loans totaling $2.0 million considered to be troubled debt restructurings. Interest income of $513,000 would have been recorded in 2012 if the nonaccrual loans had been current and performing during the entire period. Interest of $234,000 on these loans was included in income during 2012.

Classified Assets. Regulations applicable to insured institutions require the classification of problem assets as “substandard,” “doubtful,” or “loss” depending upon the existence of certain characteristics as discussed below. A category designated “special mention” must also be maintained for assets currently not requiring the above classifications but having potential weakness or risk characteristics that could result in future problems. An asset is classified as substandard if not adequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. A substandard asset is characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified as substandard. In addition, these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable. Assets classified as loss are considered uncollectible and of such little value that their continuance as assets is not warranted.

The Corporation’s classification of assets policy requires the establishment of valuation allowances for loan losses in an amount deemed prudent by management. Valuation allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities. When the Corporation classifies a problem asset as a loss, the portion of the asset deemed uncollectible is charged off immediately.

K-6

The Corporation regularly reviews the problem loans and other assets in its portfolio to determine whether any require classification in accordance with the Corporation’s policy and applicable regulations. As of December 31, 2012, the Corporation’s classified and criticized assets amounted to $15.4 million or 3.0% of total assets, with $3.8 million identified as special mention, $10.2 million classified as substandard and $1.4 million classified as doubtful.

Included in classified and criticized assets at December 31, 2012 are three large loan relationships exhibiting credit deterioration impacting the ability of the borrowers to comply with their present loan repayment terms on a timely basis.

The first relationship, with an outstanding balance of $3.4 million, consists of two commercial real estate mortgage loans originated for the purchase and renovation of a commercial office building. The loans are secured by senior lien positions on the office building and the assignment of lease income. Due to the inability to fully rent the building, cash flows are insufficient to meet the debt service requirements, operating expenses and real estate taxes. Given this deficiency, the loans have been determined to be impaired. At December 31, 2012, the loans were 30-59 delinquent, were nonperforming and indentified as substandard with the amount of the collateral deficiency rated as doubtful. At December 31, 2012, the specific reserve allocated to these loans was $1.4 million.

The second, with an outstanding balance of $2.8 million at December 31, 2012, was originated for the construction of a hotel, restaurant and retail plaza secured by such property and the borrower’s personal residence. The hotel, restaurant and retail plaza are complete and operational. However, cash flows from operations have not been consistent and are impacted by the seasonal nature of the hotel. In addition, the borrower has limited liquid sources of repayment. As a result, the borrower has listed substantial real estate holdings for sale. At December 31, 2012, the loan was performing and classified as substandard. Ultimately, due to the estimated value of the borrower’s significant real estate holdings, the Corporation does not currently expect to incur a loss on this loan.

The third, with an outstanding balance of $1.6 million at December 31, 2012, is a consumer installment loan for the purpose of consolidating various personal debts. This loan is secured by a lien on the primary residence of the borrower discussed in the second loan above. The original debtor has been discharged in bankruptcy and the debt is currently being repaid by the collateral owner securing the loan. At December 31, 2012, the loan was nonperforming and classified as substandard. As a result of the estimated value of the collateral, the Corporation does not currently expect to incur a loss on this loan.

The following table sets forth information regarding the Corporation’s nonperforming assets as of December 31:

(Dollar amounts in thousands)	2012			2011			2010			2009			2008
Nonperforming loans	$	6,988		$	5,565		$	6,611		$	2,418		$	1,011
Total as a percentage of gross loans		2.06	%		1.76	%		2.13	%		0.82	%		0.38	%
Repossessions		-			-			-			40			-
Real estate acquired through foreclosure		180			307			373			173			50
Total as a percentage of total assets		0.04	%		0.06	%		0.08	%		0.05	%		0.01	%
Total nonperforming assets	$	7,168		$	5,872		$	6,984		$	2,631		$	1,061
Total nonperforming assets as a percentage of total assets		1.41	%		1.19	%		1.45	%		0.56	%		0.28	%
Allowance for loan losses as a percentage of nonperforming loans		76.56	%		63.54	%		62.50	%		132.42	%		262.22	%

K-7

Allowance for Loan Losses. Management establishes allowances for estimated losses on loans based upon its evaluation of the pertinent factors underlying the types and quality of loans; historical loss experience based on volume and types of loans; trend in portfolio volume and composition; level and trend on nonperforming assets; detailed analysis of individual loans for which full collectability may not be assured; determination of the existence and realizable value of the collateral and guarantees securing such loans and the current economic conditions affecting the collectability of loans in the portfolio. The Corporation analyzes its loan portfolio at least quarterly for valuation purposes and to determine the adequacy of its allowance for losses. Based upon the factors discussed above, management believes that the Corporation’s allowance for losses as of December 31, 2012 of $5.4 million was adequate to cover probable incurred losses in the portfolio at such time.

The following table sets forth an analysis of the allowance for losses on loans receivable for the years ended December 31:

(Dollar amounts in thousands)	2012			2011			2010			2009			2008
Balance at beginning of period	$	3,536		$	4,132		$	3,202		$	2,651		$	2,157
Provision for loan losses		2,154			420			1,306			1,367			500
Allowance for loan losses of  ECSLA		-			-			-			-			206
Charge-offs:
Residential mortgage loans		(90	)		(224	)		(40	)		(35	)		(10	)
Home equity loans and lines of credit		(222	)		(188	)		(45	)		-			-
Commercial mortgage loans		(35	)		(200	)		(61	)		(477	)		(82	)
Commercial business loans		(50	)		(415	)		(216	)		(264	)		-
Consumer loans		(101	)		(67	)		(190	)		(83	)		(160	)
		(498	)		(1,094	)		(552	)		(859	)		(252	)
Recoveries:
Residential mortgage loans		84			3			2			-			-
Home equity loans and lines of credit		27			1			2			-			-
Commercial mortgage loans		8			-			147			-			-
Commercial business loans		15			63			5			7			15
Consumer loans		24			11			20			36			25
		158			78			176			43			40
Net charge-offs		(340	)		(1,016	)		(376	)		(816	)		(212	)
Balance at end of period	$	5,350		$	3,536		$	4,132		$	3,202		$	2,651
Ratio of net charge-offs to average loans outstanding		0.10	%		0.31	%		0.12	%		0.29	%		0.08	%
Ratio of allowance to total loans at end of period		1.58	%		1.04	%		1.33	%		1.08	%		0.99	%

The following table provides a breakdown of the allowance for loan losses by major loan category for the years ended December 31:

(Dollar amounts in thousands)	2012					2011					2010					2009					2008
			Percent of					Percent of					Percent of					Percent of						Percent of
			loans in each					loans in each					loans in each					loans in each						loans in each
	Dollar		category to			Dollar		category to			Dollar		category to			Dollar		category to			Dollar			category to
Loan Categories:	Amount		total loans			Amount		total loans			Amount		total loans			Amount		total loans			Amount			total loans
Commercial, financial and agricultural	$	636		13.4	%	$	590		13.9	%	$	1,323		14.1	%	$	448		14.1	%	$	431			15.2	%
Commercial mortgages		3,090		29.2	%		1,737		30.0	%		1,707		30.0	%		1,891		30.4	%		1,369			32.1	%
Residential mortgages		828		28.7	%		832		29.6	%		398		27.3	%		356		25.0	%		363			27.7	%
Home equity loans		730		25.2	%		320		22.5	%		572		24.3	%		452		26.1	%		467			21.5	%
Consumer loans		66		3.5	%		57		4.0	%		132		4.3	%		51		4.4	%		73			3.5	%
Unallocated		-		-			-		-			-		-			4		-			(52	)		-
	$	5,350		100	%	$	3,536		100	%	$	4,132		100	%	$	3,202		100	%	$	2,651			100	%

K-8

Investment Activities

General. The Corporation maintains an investment portfolio of securities such as U.S. government agencies, mortgage-backed securities, municipal and equity securities.

Investment decisions are made within policy guidelines as established by the Board of Directors. This policy is aimed at maintaining a diversified investment portfolio, which complements the overall asset/liability and liquidity objectives of the Bank, while limiting the related credit risk to an acceptable level.

The following table sets forth certain information regarding the fair value, weighted average yields and contractual maturities of the Corporation’s securities as of December 31, 2012:

(Dollar amounts in thousands)	Due in 1			Due from 1			Due from 3			Due from 5			Due after			No scheduled
	year or less			to 3 years			to 5 years			to 10 years			10 years			maturity			Total
U.S. Treasury and federal agency	$	-		$	1,997		$	497		$	990		$	483		$	-		$	3,967
U.S. government sponsored entities and agencies		-			-			19,470			8,692			-			-			28,162
Mortgage-backed securities: residential		-			-			-			-			22,724			-			22,724
Collateralized mortgage obligations: residential		-			-			-			-			22,475			-			22,475
Corporate debt		504			2,510			747			-			-			-			3,761
State and political subdivision		-			2,435			6,494			25,644			2,192			-			36,765
Equity securities		-			-			-			-			-			2,352			2,352
Estimated fair value	$	504		$	6,942		$	27,208		$	35,326		$	47,874		$	2,352		$	120,206
Weighted average yield (1)		1.49	%		2.01	%		2.00	%		3.77	%		2.76	%		3.61	%		2.85	%

(1) Taxable equivalent adjustments have been made in calculating yields on state and political subdivision securities. 

The following table sets forth the fair value of the Corporation’s investment securities as of December 31:

(Dollar amounts in thousands)	2012		2011		2010
U.S. Treasury and federal agency	$	3,967	$	4,460	$	6,729
U.S. government sponsored entities and agencies		28,162		41,520		62,362
Mortgage-backed securities: residential		22,724		37,478		19,380
Collateralized mortgage obligations: residential		22,475		-		922
Corporate debt		3,761		-		-
State and political subdivision		36,765		37,000		33,902
Equity securities		2,352		2,696		2,525
	$	120,206	$	123,154	$	125,820

For additional information regarding the Corporation’s investment portfolio see “Note 4 – Securities” on page F-16 to the consolidated financial statements.

Sources of Funds

General. Deposits are the primary source of the Bank’s funds for lending and investing activities. Secondary sources of funds are derived from loan repayments, investment maturities and borrowed funds. Loan repayments can be considered a relatively stable funding source, while deposit activity is greatly influenced by interest rates and general market conditions. The Bank also has access to funds through other various sources. For additional information about the Bank’s sources of funds, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity” in item 7.

Deposits. The Bank offers a wide variety of retail deposit account products to both consumer and commercial deposit customers, including time deposits, noninterest bearing and interest bearing demand deposit accounts, savings deposits and money market accounts.

K-9

Deposit products are promoted in periodic newspaper and radio advertisements, along with notices provided in customer account statements. The Bank’s marketing strategy is based on its reputation as a community bank that provides quality products and personalized customer service.

The Bank pays interest rates on its interest bearing deposit products that are competitive with rates offered by other financial institutions in its market area. Management reviews interest rates on deposits weekly and considers a number of factors, including: (1) the Bank’s internal cost of funds; (2) rates offered by competing financial institutions; (3) investing and lending opportunities; and (4) the Bank’s liquidity position.

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

(Dollar amounts in thousands)	2012								2011
	Weighted								Weighted
Type of accounts	average rate			Amount		%			average rate			Amount		%
Non-interest bearing deposits		-		$	98,559		22.8	%		-		$	84,871		20.4	%
Interest bearing demand deposits		0.15	%		201,919		46.7	%		0.19	%		186,107		44.7	%
Time deposits		2.63	%		131,981		30.5	%		2.98	%		145,490		34.9	%
		0.87	%	$	432,459		100.0	%		1.13	%	$	416,468		100.0	%

The following table sets forth maturities of the Corporation’s certificates of deposit of $100,000 or more at December 31, 2012 by time remaining to maturity:

(Dollar amounts in thousands)	Amount
Less than three months	$	5,467
Over three months to six months		4,101
Over six months to twelve months		12,046
Over twelve months		29,905
	$	51,519

Borrowings. Borrowings may be used to compensate for reductions in deposit inflows or net deposit outflows, or to support lending and investment activities. These borrowings include FHLB advances, federal funds, repurchase agreements, advances from the Federal Reserve Discount Window and lines of credit at the Bank and the Corporation with other correspondent banks. The following table summarizes information with respect to borrowings at or for the years ending December 31:

(Dollar amounts in thousands)	2012			2011
Ending balance	$	20,000		$	20,000
Average balance		20,027			25,482
Maximum balance		24,000			30,000
Average rate		4.65	%		4.65	%

For additional information regarding the Corporation’s deposit base and borrowed funds, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Deposits and Borrowed Funds” in item 7 and “Note 10 – Deposits” on page F-27 and “Note 11 – Borrowed Funds” on page F-28 to the consolidated financial statements.

K-10

Subsidiary Activity

The Corporation has two wholly owned subsidiaries, the Bank and the Title Company. As of December 31, 2012, the Bank and the Title Company had no subsidiaries.

Personnel

At December 31, 2012, the Bank had 115 full time equivalent employees. There is no collective bargaining agreement between the Bank and its employees, and the Bank believes its relationship with its employees to be satisfactory.

Competition

The Bank competes for loans, deposits and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions and other nonbank financial service providers.

Supervision and Regulation

General. Bank holding companies and banks are extensively regulated under both federal and state law. Set forth below is a summary description of certain provisions of certain laws that relate to the regulation of the Corporation and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

The Corporation. The Corporation is a registered bank holding company, and subject to regulation and examination by the FRB under the BHCA and a financial holding company under the GLBA. The Corporation is required to file with the FRB periodic reports and such additional information as the FRB may require. Recent changes to the Bank Holding Company rating system emphasize risk management and evaluation of the potential impact of non-depository entities on safety and soundness.

The FRB may require the Corporation to terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments when the FRB believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The FRB also has the authority to regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, the Corporation must file written notice and obtain FRB approval prior to purchasing or redeeming its equity securities.

Further, the Corporation is required by the FRB to maintain certain levels of capital. See “Capital Standards.”

The Corporation is required to obtain prior FRB approval for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Prior FRB approval is also required for the merger or consolidation of the Corporation and another bank holding company.

The BHCA generally prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or furnishing services to its subsidiaries. However, subject to the prior FRB approval, a bank holding company may engage in any, or acquire shares of companies engaged in, activities that the FRB deems to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

K-11

The GLBA amended portions of the BHCA to authorize bank holding companies to engage in securities, insurance and other activities that are financial in nature or incidental to a financial activity. In order to undertake these activities, a bank holding company must become a financial holding company by submitting to the appropriate FRB a declaration that the company elects to be a financial holding company and a certification that all of the depository institutions controlled by the company are well capitalized and well managed. The Corporation submitted the declaration of election to become a financial holding company with the FRB of Cleveland in February 2007, and the election became effective in March 2007. Recent federal legislation also directed federal regulators to require depository institution holding companies to serve as a source of strength for their depository institution subsidiaries.

Under FRB regulations, the Corporation is required to serve as a source of financial and managerial strength to the Bank and may not conduct operations in an unsafe or unsound manner. In addition, it is the FRB’s policy that a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of FRB regulations or both.

The Corporation is also a bank holding company within the meaning of the Pennsylvania Banking Code. As such, the Corporation and its subsidiaries are subject to examination by, and may be required to file reports with, the Pennsylvania Department of Banking.

The Corporation’s securities are registered with the SEC under the Exchange Act. As such, the Corporation is subject to the information, proxy solicitation, insider trading, corporate governance, and other requirements and restrictions of the Exchange Act. The public may obtain all forms and information filed with the SEC through their website http://www.sec.gov.

The Bank. As a national banking association, the Bank is subject to primary supervision, examination and regulation by the OCC. The Bank is also subject to regulations of the FDIC as administrator of the Deposit Insurance Fund (DIF) and the FRB. If, as a result of an examination of the Bank, the OCC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the Bank’s operations are unsatisfactory or that the Bank is violating or has violated any law or regulation, various remedies are available to the OCC. Such remedies include the power to enjoin “unsafe or unsound practices,” to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the Bank’s growth, to assess civil monetary penalties, and to remove officers and directors. The FDIC has similar enforcement authority, in addition to its authority to terminate the Bank’s deposit insurance in the absence of action by the OCC and upon a finding that the Bank is operating in an unsafe or unsound condition, is engaging in unsafe or unsound activities, or that the Bank’s conduct poses a risk to the deposit insurance fund or may prejudice the interest of its depositors.

A national bank may have a financial subsidiary engaged in any activity authorized for national banks directly or certain permissible activities. Generally, a financial subsidiary is permitted to engage in activities that are “financial in nature” or incidental thereto, even though they are not permissible for the national bank itself. The definition of “financial in nature” includes, among other items, underwriting, dealing in or making a market in securities, including, for example, distributing shares of mutual funds. The subsidiary may not, however, engage as principal in underwriting insurance, issue annuities or engage in real estate development or investment or merchant banking.

The Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 established a comprehensive framework to modernize and reform the oversight of public company auditing, improve the quality and transparency of financial reporting by those companies and strengthen the independence of auditors. Among other things, the legislation (i) created a public company accounting oversight board that is empowered to set auditing, quality control and ethics standards, to inspect registered public accounting firms, to conduct investigations and to take disciplinary actions, subject to SEC oversight and review; (ii) strengthened auditor independence from corporate management by limiting the scope of consulting services that auditors can offer their public company audit clients; (iii) heightened the responsibility of public company directors and senior managers for the quality of the financial reporting and disclosure made by their companies; (iv) adopted a number of provisions to deter wrongdoing by corporate management; (v) imposed a number of new corporate disclosure requirements; (vi) adopted provisions which generally seek to limit and expose to public view possible conflicts of interest affecting securities analysis; and (vii) imposed a range of new criminal penalties for fraud and other wrongful acts and extended the period during which certain types of lawsuits can be brought against a company or its insiders.

K-12

The Dodd-Frank Wall Street Reform and Consumer Protection Act. On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act imposes new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions, and changes the jurisdictions of existing bank regulatory agencies. The new law also establishes an independent federal consumer protection bureau within the FRB.

The following discussion summarizes significant aspects of the new law. Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized, many of the new requirements called for have yet to be implemented. Implementation of the regulations is expected to take place over the course of the next several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies, the full extent of the impact such requirements will have on the operations of financial institutions is unclear.

The following aspects of the Dodd-Frank Act are related to the operations of the Bank: (i) a new independent consumer financial protection bureau has been established within the FRB, empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. Smaller financial institutions like the Bank are subject to the supervision and enforcement of their primary federal banking regulator with respect to the federal consumer financial protection laws; (ii) the Federal Deposit Insurance Act was amended to direct federal regulators to require depository institution holding companies to serve as a source of strength for their depository institution subsidiaries; (iii) Tier 1 capital treatment for “hybrid” capital items like trust preferred securities has been eliminated subject to various grandfathering and transition rules; (iv) the prohibition on payment of interest on demand deposits was repealed, effective July 21, 2011, thereby permitting depository institutions to pay interest on business transaction and other accounts; (v) state law is preempted only if it would have a discriminatory effect on a federal savings association or is preempted by any other federal law. The OCC must make a preemption determination on a case-by-case basis with respect to a particular state law or other state law with substantively equivalent terms; (vi) deposit insurance was permanently increased to $250,000 and unlimited deposit insurance for noninterest-bearing transaction accounts was extended through the end of 2012; (vii) deposit insurance assessment base calculation now equals the depository institution’s total assets minus the sum of its average tangible equity during the assessment period; and (viii) the minimum reserve ratio of the DIF increased to 1.35% of estimated annual insured deposits or assessment base; however, the FDIC is directed to “offset the effect” of the increased reserve ratio for insured depository institutions with total consolidated assets of less than $10 billion.

The following aspects of the Dodd-Frank Act are related to the operations of the Corporation: (i) the SEC is authorized to adopt rules requiring public companies to make their proxy materials available to shareholders for nomination of their own candidates for election to the board of directors; (ii) public companies are required to provide their shareholders with a non-binding vote: (a) at least once every three years on the compensation paid to executive officers, and (b) at least once every six years on whether they should have a “say on pay” vote every one, two or three years; (iii) a separate, non-binding shareholder vote is required regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments; (iv) securities exchanges are now required to prohibit brokers from using their own discretion to vote shares not beneficially owned by them for certain “significant” matters, which include votes on the election of directors, executive compensation matters, and any other matter determined to be significant; (v) stock exchanges will be prohibited from listing the securities of any issuer that does not have a policy providing for (a) disclosure of its policy on incentive compensation payable on the basis of financial information reportable under the securities laws, and (b) the recovery from current or former executive officers, following an accounting restatement triggered by material noncompliance with securities law reporting requirements, of any incentive compensation paid erroneously during the three-year period preceding the date on which the restatement was required that exceeds the amount that would have been paid on the basis of the restated financial information; (vi) disclosure in annual proxy materials will be required concerning the relationship between the executive compensation paid and the financial performance of the issuer; (vii) Item 402 of Regulation S-K will be amended to require companies to disclose the ratio of the Chief Executive Officer's annual total compensation to the median annual total compensation of all other employees; and (viii) smaller reporting companies are exempt from complying with the internal control over financial reporting auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

K-13

Anti-Money Laundering. All financial institutions, including national banks, are subject to federal laws that are designed to prevent the use of the U.S. financial system to fund terrorist activities. Financial institutions operating in the United States must develop anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such compliance programs are intended to supplement compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations. The Bank has established policies and procedures to ensure compliance with these provisions.

Privacy. Federal banking rules limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. Pursuant to these rules, financial institutions must provide (i) initial notices to customers about their privacy policies, describing conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates; (ii) annual notices of their privacy policies to current customers and (iii) a reasonable method for customers to “opt out” of disclosures to nonaffiliated third parties. These privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. The Corporation’s privacy policies have been implemented in accordance with the law.

Dividends and Other Transfers of Funds. Dividends from the Bank constitute the principal source of income to the Corporation. The Corporation is a legal entity separate and distinct from the Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends to the Corporation. In addition, the Bank’s regulators have the authority to prohibit the Bank from paying dividends, depending upon the Bank’s financial condition, if such payment is deemed to constitute an unsafe or unsound practice.

Limitations on Transactions with Affiliates. Transactions between national banks and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a national bank includes any company or entity which controls the national bank or that is controlled by a company that controls the national bank. In a holding company context, the holding company of a national bank (such as the Corporation) and any companies which are controlled by such holding company are affiliates of the national bank. Generally, Section 23A limits the extent to which the national bank of its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions” as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least favorable, to the national bank as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from and issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also include the provision of services and the sale of assets by a national bank to an affiliate.

K-14

In addition, Sections 22(g) and (h) of the Federal Reserve Act place restrictions on loans to executive officers, directors and principal shareholders of the national bank and its affiliates. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% shareholder of a national bank, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the national bank’s loans to one borrower limit (generally equal to 15% of the bank’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal shareholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the bank and (ii) does not give preference to any director, executive officer or principal shareholder, or certain affiliated interests of either, over other employees of the national bank. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a national bank to all insiders cannot exceed the bank’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. The Bank currently is subject to Sections 22(g) and (h) of the Federal Reserve Act and at December 31, 2012, was in compliance with the above restrictions.

Loans to One Borrower Limitations. With certain limited exceptions, the maximum amount that a national bank may lend to any borrower (including certain related entities of the borrower) at one time may not exceed 15% of the unimpaired capital and surplus of the institution, plus an additional 10% of unimpaired capital and surplus for loans fully secured by readily marketable collateral. At December 31, 2012, the Bank’s loans-to-one-borrower limit was $7.5 million based upon the 15% of unimpaired capital and surplus measurement. The Bank may grant credit to borrowers in excess of the legal lending limit as part of the Legal Lending Limit Pilot Program approved by the OCC which allows the Bank to exceed its legal lending limit within certain parameters. At December 31, 2012, the Bank’s largest single lending relationship had an outstanding balance of $6.9 million.

Capital Standards. The federal banking agencies have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions which are recorded as off-balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off-balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as federal banking agencies, to 100% for assets with relatively high credit risk.

The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risk. Under the capital guidelines, a banking organization’s total capital is divided into tiers. “Tier I capital” consists of (1) common equity, (2) qualifying noncumulative perpetual preferred stock, (3) a limited amount of qualifying cumulative perpetual preferred stock and (4) minority interests in the equity accounts of consolidated subsidiaries (including trust-preferred securities), less goodwill and certain other intangible assets. Not more than 25% of qualifying Tier I capital may consist of trust-preferred securities. “Tier II capital” consists of hybrid capital instruments, perpetual debt, mandatory convertible debt securities, a limited amount of subordinated debt, preferred stock that does not qualify as Tier I capital, a limited amount of the allowance for loan and lease losses and a limited amount of unrealized holding gains on equity securities. “Tier III capital” consists of qualifying unsecured subordinated debt. The sum of Tier II and Tier III capital may not exceed the amount of Tier I capital. The guidelines require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%.

In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to adjusted average assets, referred to as the leverage ratio. For a banking organization rated in the highest of the six categories used by regulators to rate banking organizations (CAMELS), the minimum leverage ratio of Tier 1 capital to total assets must be 3%. All other institutions are required to maintain a minimum leverage ratio of 4%.

In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. Federal banking regulators may also set capital requirements higher than the minimums described above for financial institutions whose circumstances warrant it. For example, a financial institution experiencing or anticipating significant growth may be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets.

K-15

The FRB and the OCC were part of a joint proposal in June 2012 seeking comment on three notices of proposed rulemaking (NPR) that would revise and replace the agencies’ current capital rules in connection with the Basel accords. The two NPRs discussed below concern capital issues of significant importance to the Bank and the Corporation. The third NPR, which relates to advanced approaches and market risk capital rules, is not applicable to the organization’s current operations.

The first NPR relates to Basel III and proposes to revise risk-based and leverage capital requirements, including the implementation of new common equity Tier 1 capital requirements and a higher Tier 1 capital requirement. Also included in the NPR are proposed limitations on capital distributions and certain discretionary bonus payments for any banking organization not holding a specified buffer of common equity Tier 1 capital in excess of its minimum risk-based capital requirement. Revisions to the prompt corrective action framework and the tangible common equity definition are also included in the NPR. The other NPR applicable to the organization’s operations proposes a standardized approach for risk-weighted assets to enhance risk sensitivity and to address certain weaknesses identified over recent years, including methods for determining risk-weighted assets for residential mortgages, securitization exposures and counterparty credit risk. The proposed changes in the two NPRs would be applicable to the Bank and the Corporation.

The comment period on these proposed rules ended on October 22, 2012. Since Basel III was to be implemented beginning January 1, 2013, the regulators intended to finalize the rules by that date. However, on November 9, 2012, the federal agencies, including the Federal Reserve Board and FDIC, announced they do not expect that any of the proposed rules would become effective on January 1, 2013. In addition, the announcement did not indicate a new effective date.

The following table sets forth certain information concerning regulatory capital ratios of the consolidated Corporation and the Bank as of the dates presented:

(Dollar amounts in thousands)	December 31, 2012										December 31, 2011
	Consolidated					Bank					Consolidated					Bank
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	50,035		16.62	%	$	48,585		16.21	%	$	50,512		17.85	%	$	45,550		16.25	%
For capital adequacy purposes		24,083		8.00	%		23,971		8.00	%		22,636		8.00	%		22,422		8.00	%
To be well capitalized		N/A		N/A			29,964		10.00	%		N/A		N/A			28,027		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	46,252		15.36	%	$	44,820		14.96	%	$	47,008		16.61	%	$	42,046		15.00	%
For capital adequacy purposes		12,042		4.00	%		11,985		4.00	%		11,318		4.00	%		11,211		4.00	%
To be well capitalized		N/A		N/A			17,978		6.00	%		N/A		N/A			16,816		6.00	%
Tier 1 capital to average assets:
Actual	$	46,252		9.18	%	$	44,820		8.92	%	$	47,008		9.71	%	$	42,046		8.69	%
For capital adequacy purposes		20,148		4.00	%		20,101		4.00	%		19,362		4.00	%		19,347		4.00	%
To be well capitalized		N/A		N/A			25,126		5.00	%		N/A		N/A			24,183		5.00	%

Prompt Corrective Action and Other Enforcement Mechanisms. Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including but not limited to those institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2012, the Bank exceeded the required ratios for classification as “well capitalized.”

An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized.

K-16

In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency. Finally, pursuant to an interagency agreement, the FDIC can examine any institution that has a substandard regulatory examination score or is considered undercapitalized – without the express permission of the institution’s primary regulator.

Safety and Soundness Standards. The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation, fees and benefits. In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets, (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses, (iii) compare problem asset totals to capital, (iv) take appropriate corrective action to resolve problem assets, (v) consider the size and potential risks of material asset concentrations, and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

Insurance of Accounts. Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned. The initial base assessment rate ranges from five to thirty-five basis points. The rate schedules will automatically adjust in the future when the Deposit Insurance Fund reaches certain milestones. No institution may pay a dividend if in default of the federal deposit insurance assessment.

In February 2011, the FDIC adopted new rules that amend its current deposit insurance assessment regulations. The new rules implement a provision in the Dodd-Frank Act that changed the assessment base for deposit insurance premiums from one based on domestic deposits to one based on average consolidated total assets minus average tangible equity.

The FDIC imposed on all insured institutions a special emergency assessment of five basis points of total assets minus Tier 1 capital, as of June 30, 2009, in order to cover losses to the DIF. This special assessment was capped at ten basis points of an institution’s deposit assessment base. The special assessment was collected on September 30, 2009. The FDIC provided for similar assessments during the final two quarters of 2009 if deemed necessary; however, in lieu of further special assessments, the FDIC required insured institutions to prepay estimated quarterly risk-based assessments for the fourth quarter of 2009 through the fourth quarter of 2012. The estimated assessments, which include an assumed annual assessment base increase of 5%, were recorded as a prepaid expense asset as of December 31, 2009. As of December 31, 2009 and each quarter thereafter, a charge to earnings was recorded for each regular assessment with an offsetting credit to the prepaid asset.

Due to the recent difficult economic conditions, deposit insurance per account owner has been raised to $250,000 for all types of accounts. That coverage was made permanent by the Dodd-Frank Act. In addition, the FDIC adopted an optional Temporary Liquidity Guarantee Program by which, for a fee, noninterest bearing transaction accounts would receive unlimited insurance coverage until December 31, 2010, and certain senior unsecured debt issued by institutions and their holding companies between October 13, 2008 and December 31, 2009 would be guaranteed by the FDIC through June 30, 2012 or in some cases December 31, 2012. The Dodd-Frank Act extended the unlimited coverage for certain noninterest bearing transaction accounts through December 31, 2012.

K-17

The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio and instead left it to the discretion of the FDIC.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule order or condition imposed by the FDIC or the OCC.

Interstate Banking and Branching. Banks have the ability, subject to certain State restrictions, to acquire, by acquisition or merger, branches outside its home state. In addition, recent federal legislation permits a bank headquartered in Pennsylvania to enter another state through de novo branching (as compared to an acquisition) if under the state law in the state which the proposed branch is to be located a state-chartered institution would be permitted to establish the branch. Interstate branches are subject to certain laws of the states in which they are located. Competition may increase further as banks branch across state lines and enter new markets.

Consumer Protection Laws and Regulations. The bank regulatory agencies are focusing greater attention on compliance with consumer protection laws and their implementing regulations. Examination and enforcement have become more intense in nature, and insured institutions have been advised to monitor carefully compliance with such laws and regulations. The Bank is subject to many federal consumer protection statutes and regulations, some of which are discussed below.

The Community Reinvestment Act (CRA) is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities. The CRA specifically directs the federal regulatory agencies, in examining insured depository institutions, to assess a bank’s record of helping meet the credit needs of its entire community, including low- and moderate-income neighborhoods, in a manner consistent with safe and sound banking practices. On September 1, 2005, the federal banking agencies amended the CRA regulations to (i) establish the definition of “Intermediate Small Bank” as an institution with total assets of $250 million to $1 billion, without regard to any holding company; and (ii) take into account abusive lending practices by a bank or its affiliates in determining a bank’s CRA rating. The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or holding company formations. The agencies use the CRA assessment factors in order to provide a rating to the financial institution. The ratings range from a high of “outstanding” to a low of “substantial noncompliance.” In its last examination for CRA compliance, as of July 16, 2012, the Bank was rated “satisfactory.”

The Fair Credit Reporting Act (FCRA), as amended by the Fair and Accurate Credit Transactions Act of 2003 (FACTA), requires financial firms to help deter identity theft, including developing appropriate fraud response programs, and give consumers more control of their credit data. It also reauthorizes a federal ban on state laws that interfere with corporate credit granting and marketing practices. In connection with the FACTA, financial institution regulatory agencies proposed rules that would prohibit an institution from using certain information about a consumer it received from an affiliate to make a solicitation to the consumer, unless the consumer has been notified and given a chance to opt out of such solicitations. A consumer’s election to opt out would be applicable for at least five years.

The Federal Trade Commission (FTC), the federal bank regulatory agencies and the National Credit Union Administration (NCUA) have issued regulations (the Red Flag Rules) requiring financial institutions and creditors to develop and implement written identity theft prevention programs as part of the FACTA. The programs were required to be in place by May 1, 2009 and must provide for the identification, detection and response to patterns, practices or specific activities – known as red flags – that could indicate identity theft. These red flags may include unusual account activity, fraud alerts on a consumer report or attempted use of suspicious account application documents. The program must also describe appropriate responses that would prevent and mitigate the crime and detail a plan to update the program. The program must be managed by the Board of Directors or senior employees of the institution or creditor, include appropriate staff training and provide oversight of any service providers.

K-18

The Check Clearing for the 21^st Century Act (Check 21) facilitates check truncation and electronic check exchange by authorizing a new negotiable instrument called a “substitute check,” which is the legal equivalent of an original check. Check 21, effective October 28, 2004, does not require banks to create substitute checks or accept checks electronically; however, it does require banks to accept a legally equivalent substitute check in place of an original.

The Equal Credit Opportunity Act (ECOA) generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.

The Truth in Lending Act (TILA) is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a result of the TILA, all creditors must use the same credit terminology to express rates and payments, including the annual percentage rate, the finance charge, the amount financed, the total of payments and the payment schedule, among other things.

The Fair Housing Act (FHA) regulates many practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap or familial status. A number of lending practices have been found by the courts to be, or may be considered, illegal under the FHA, including some that are not specifically mentioned in the FHA itself.

The Home Mortgage Disclosure Act (HMDA) grew out of public concern over credit shortages in certain urban neighborhoods and provides public information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. The HMDA also includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.

The term “predatory lending,” much like the terms “safety and soundness” and “unfair and deceptive practices,” is far-reaching and covers a potentially broad range of behavior. As such, it does not lend itself to a concise or a comprehensive definition. Generally speaking, predatory lending involves at least one, and perhaps all three, of the following elements (i) making unaffordable loans based on the assets of the borrower rather than on the borrower’s ability to repay an obligation (“asset-based lending”); (ii) inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced (“loan flipping”) ; and (iii) engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.

FRB regulations aimed at curbing such lending significantly widened the pool of high-cost home-secured loans covered by the Home Ownership and Equity Protection Act of 1994, a federal law that requires extra disclosures and consumer protections to borrowers. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid.

Effective April 8, 2005, OCC guidelines require national banks and their operating subsidiaries to comply with certain standards when making or purchasing loans to avoid predatory or abusive residential mortgage lending practices. Failure to comply with the guidelines could be deemed an unsafe and unsound or unfair or deceptive practice, subjecting the bank to supervisory enforcement actions.

K-19

Finally, the Real Estate Settlement Procedures Act (RESPA) requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements. Also, RESPA prohibits certain abusive practices, such as kickbacks, and places limitations on the amount of escrow accounts. Penalties under the above laws may include fines, reimbursements and other penalties. Due to heightened regulatory concern related to compliance with the CRA, FACTA, TILA, FHA, ECOA, HMDA and RESPA generally, the Bank may incur additional compliance costs or be required to expend additional funds for investments in its local community.

Federal Home Loan Bank System. The Bank is a member of the FHLB. Among other benefits, each FHLB serves as a reserve or central bank for its members within its assigned region. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system. Each FHLB makes available loans or advances to its members in compliance with the policies and procedures established by the Board of Directors of the individual FHLB. As an FHLB member, the Bank is required to own a certain amount of capital stock in the FHLB. At December 31, 2012, the Bank was in compliance with the stock requirements.

Federal Reserve System. The FRB requires all depository institutions to maintain noninterest bearing reserves at specified levels against their transaction accounts (primarily checking) and non-personal time deposits. At December 31, 2012, the Bank was in compliance with these requirements.

Item 1A. Risk Factors

Not required as the Corporation is a smaller reporting company.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Corporation owns no real property but utilizes the main office of the Bank, which is owned by the Bank. The Corporation’s and the Bank’s executive offices are located at 612 Main Street, Emlenton, Pennsylvania. The Corporation pays no rent or other form of consideration for the use of this facility.

The Bank owns and leases numerous other premises for use in conducting business activities. The Bank considers these facilities owned or occupied under lease to be adequate. For additional information regarding the Bank’s properties, see “Note 7 - Premises and Equipment” on page F-25 to the consolidated financial statements.

Item 3. Legal Proceedings

Neither the Bank nor the Corporation is involved in any material legal proceedings. The Bank, from time to time, is party to litigation that arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank. In the opinion of management, the resolution of any such issues would not have a material adverse impact on the financial position, results of operation, or liquidity of the Bank or the Corporation.

Item 4. Mine Safety Disclosures

Not applicable.

K-20

PART II

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

Market, Holder and Dividend Information

Emclaire Financial Corp common stock is traded on NASDAQ Capital Market (NASDAQ) under the symbol “EMCF”. The listed market makers for the Corporation’s common stock include:

Boenning and Scattergood, Inc.	Janney Montgomery Scott LLC	Monroe Securities, Inc.
4 Tower Bridge, Suite 300	1801 Market Street	100 North Riverside Plaza
200 Bar Harbor Drive	Philadelphia, PA  19103-1675	Suite 1620
West Conshohocken, PA  19428	Telephone:  (215) 665-6000	Chicago, IL  60606
Telephone:  (800) 889-6440		Telephone:  (312) 327-2530

The Corporation has traditionally paid regular quarterly cash dividends. Future dividends will be determined by the Board of Directors after giving consideration to the Corporation’s financial condition, results of operations, tax status, industry standards, economic conditions, regulatory requirements and other factors.

The following table sets forth the high and low sale and quarter-end closing market prices of our common stock for the last two years as reported by the Nasdaq Capital Market as well as cash dividends paid for the quarterly periods presented.

	Market Price						Cash
	High		Low		Close		Dividend
2012:
Fourth quarter	$	24.46	$	19.84	$	20.85	$	0.28
Third quarter		25.00		18.60		22.45		0.18
Second quarter		20.58		18.01		19.95		0.18
First quarter		18.59		15.23		18.59		0.18
2011:
Fourth quarter	$	16.35	$	14.80	$	15.95	$	0.16
Third quarter		18.05		15.00		16.35		0.16
Second quarter		18.50		15.69		16.62		0.16
First quarter		18.99		16.37		17.25		0.16

As of March 1, 2013, there were approximately 778 stockholders of record and 1,762,158 shares of common stock entitled to vote, receive dividends and considered outstanding for financial reporting purposes. The number of stockholders of record does not include the number of persons or entities who hold their stock in nominee or “street” name.

Common stockholders may have Corporation dividends reinvested to purchase additional shares. Participants may also make optional cash purchases of common stock through this plan and pay no brokerage commissions or fees. To obtain a plan document and authorization card to participate in the plan, please call 800-757-5755.

Purchases of Equity Securities

The Corporation did not repurchase any of its equity securities in the year ended December 31, 2012.

Item 6. Selected Financial Data

Not required as the Corporation is a smaller reporting company.

K-21

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

The following discussion and analysis represents a review of the Corporation’s consolidated financial condition and results of operations for the years ended December 31, 2012 and 2011. This review should be read in conjunction with the consolidated financial statements beginning on page F-3.

Overview

The Corporation reported a decrease in net income available to common stockholders of $155,000 or 4.7% for 2012 as consolidated net income available to common stockholders amounted to $3.2 million or $1.80 per common share for 2012, compared to $3.3 million or $1.98 per common share for 2011. Net income available to common stockholders was impacted by the following:

· Net interest income increased $379,000, or 2.5% in 2012. This increase primarily related to a decrease in interest expense of $896,000 or 15.3% as the Corporation’s cost of funds decreased 25 basis points to 1.08% for 2012 from 1.33% for 2011.

· Noninterest income increased $1.1 million, or 27.4% to $4.9 million for the year ended December 31, 2012 from $3.8 million for 2011. This increase primarily related to an $878,000 increase in nonrecurring securities gains, which was partially offset by other than temporary impairment charges recorded in 2012 totaling $103,000. Also contributing to the increase, customer service fees and other noninterest income increased $118,000 and $173,000, respectively.

· Provision for loan losses increased $1.7 million to $2.2 million for the year ended December 31, 2012 from $420,000 for 2011. This increase was primarily the result of the deterioration of a $3.4 million commercial real estate credit relationship.

· Noninterest expense decreased $108,000 primarily due to decreases in premises and equipment expense, intangible asset amortization, professional fees and FDIC expense of $183,000, $96,000, $34,000 and $23,000, respectively, which were partially offset by increases in compensation and benefits and other noninterest expense of $56,000 and $172,000, respectively.

Changes in Financial Condition

Total assets increased $17.1 million or 3.5% to $509.0 million at December 31, 2012 from $491.9 million at December 31, 2011. This increase primarily related to an increase in net loans receivable, bank owned life insurance and other assets of $21.3 million, $4.3 million and $2.3 million, respectively. Partially offsetting these increases, cash equivalents and investment securities decreased $7.8 million and $2.9 million, respectively.

The Corporation’s asset growth was primarily funded by increases in customer deposits of $16.0 million and stockholders’ equity of $1.0 million.

Cash and cash equivalents. Cash and cash equivalents decreased $7.8 million, or 27.6%, to $20.4 million at December 31, 2012 from $28.2 million at December 31, 2011. This decrease primarily resulted from the funding of loans. Typically, cash accounts are increased by net operating results, deposits by customers into savings and checking accounts, loan and security repayments and proceeds from borrowed funds. Decreases result from customer deposit withdrawals, new loan originations or other loan fundings, security purchases, repayments of borrowed funds and cash dividends to stockholders.

K-22

Securities. Securities decreased $3.0 million, or 2.4%, to $120.2 million at December 31, 2012 from $123.2 million at December 31, 2011. This decrease was partly related to the utilization of cash received from investment security calls and sales to fund loan originations.

Loans receivable. Net loans receivable increased $21.3 million, or 6.8%, to $333.8 million at December 31, 2012 from $312.5 million at December 31, 2011. The increase was primarily driven by growth in the Corporation’s home equity, commercial real estate, residential mortgage and commercial business loan portfolios of $14.4 million, $4.1 million, $3.6 million and $1.8 million, respectively. This growth was partially offset by a $756,000 decrease in consumer loans and a $1.8 million increase in the allowance for loan losses.

Nonperforming assets. Nonperforming assets include nonaccrual loans, loans 90 days past due and still accruing, repossessions and real estate owned. Nonperforming assets were $7.2 million, or 1.41%, of total assets at December 31, 2012 compared to $5.9 million, or 1.19%, of total assets at December 31, 2011. Nonperforming assets consisted of nonperforming loans and real estate owned of $7.0 million and $180,000, respectively, at December 31, 2012 and $5.6 million and $307,000, respectively, at December 31, 2011. This increase in nonperforming loans was primarily due to the deterioration of a $3.4 million commercial real estate credit relationship. At December 31, 2012, nonperforming loans consisted primarily of consumer, commercial mortgage and residential mortgage loans.

Federal bank stocks. Federal bank stocks were comprised of FHLB stock and FRB stock of $1.9 million and $984,000, respectively, at December 31, 2012. 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 between the Corporation and the banks. The FHLB repurchased $779,000 of the Bank’s excess capital stock during 2012.

Bank-owned life insurance (BOLI). The Corporation maintains single premium life insurance policies on certain current and former officers and employees of the Bank. During 2012, the Corporation purchased additional policies on current employees amounting to $4.0 million. In addition to providing life insurance coverage, whereby the Bank as well as the officers and employees receive life insurance benefits, the appreciation of the cash surrender value of the BOLI will serve to offset and finance existing and future employee benefit costs. Increases in this account are typically associated with an increase in the cash surrender value of the policies, partially offset by certain administrative expenses.

Premises and equipment. Premises and equipment increased $154,000, or 1.7%, to $9.2 million at December 31, 2012 from $9.0 million at December 31, 2011. The overall increase in premises and equipment during the year was due to capital expenditures of $831,000, partially offset by normal depreciation and amortization of $677,000.

Goodwill. Goodwill was $3.7 million at December 31, 2012 and 2011. Goodwill is evaluated for impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired. Management evaluated goodwill and concluded that no impairment existed at December 31, 2012.

K-23

Core deposit intangible. The core deposit intangible was $1.2 million at December 31, 2012. In connection with the assumption of deposits in the 2009 Titusville branch acquisition, the Bank recorded a core deposit intangible of $2.8 million. This asset represents the long-term value of the core deposits acquired. Fair value was determined using a third-party valuation expert specializing in estimating fair values of core deposit intangibles. The fair value was derived using an industry standard financial instrument present value methodology. All-in costs and runoff balances by year were discounted by comparable term FHLB advance rates, used as an alternative cost of funds measure. This intangible asset amortizes utilizing the double declining balance method of amortization over a weighted average estimated life of nine years. The core deposit intangible asset is not estimated to have a significant residual value. The Corporation recorded $345,000 and $441,000 of intangible amortization in 2012 and 2011, respectively.

Deposits. Total deposits increased $16.0 million, or 3.8%, to $432.5 million at December 31, 2012 from $416.5 million at December 31, 2011. Noninterest bearing deposits increased $13.7 million, or 16.1%, during the year while interest bearing deposits decreased $2.3 million.

Borrowed funds. Borrowed funds were unchanged at $20.0 million at December 31, 2012 and 2011. During 2012, $15.0 million of the $20.0 million in outstanding FHLB long-term advances were exchanged and modified.

Stockholders’ equity. Stockholders’ equity increased $1.0 million or 2.0% to $51.7 million at December 31, 2012 from $50.7 million at December 31, 2011. The increase primarily related to an increase in retained earnings of $1.7 million and a decrease in accumulated other comprehensive income of $854,000. The decrease in accumulated other comprehensive income resulted from a change in the net unrealized losses on securities available for sale and to a lesser extent the change in the funded status of the Corporation’s defined benefit plan.

K-24

Changes in Results of Operations

The Corporation reported net income before accumulated preferred stock dividends and discount accretion of $3.7 million and $3.8 million in 2012 and 2011, respectively. The following “Average Balance Sheet and Yield/Rate Analysis” and “Analysis of Changes in Net Interest Income” tables should be utilized in conjunction with the discussion of the interest income and interest expense components of net interest income.

Average Balance Sheet and Yield/Rate Analysis. The following table sets forth, for the periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resulting average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resulting average costs, net interest income, interest rate spread and the net interest margin earned on average interest-earning assets. For purposes of this table, average loan balances include nonaccrual loans and exclude the allowance for loan losses and interest income includes accretion of net deferred loan fees. Interest and yields on tax-exempt loans and securities (tax-exempt for federal income tax purposes) are shown on a fully tax equivalent basis. The information is based on average daily balances during the periods presented.

(Dollar amounts in thousands)	Year ended December 31,
	2012							2011
	Average				Yield /			Average				Yield /
	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets:
Loans, taxable	$	309,559	$	16,594		5.36	%	$	296,551	$	16,935		5.71	%
Loans, tax-exempt		19,331		879		4.55	%		12,521		650		5.19	%
Total loans receivable		328,890		17,473		5.31	%		309,072		17,585		5.69	%
Securities, taxable		102,135		2,246		2.20	%		91,306		2,370		2.59	%
Securities, tax-exempt		36,834		1,635		4.44	%		36,213		1,848		5.10	%
Total securities		138,969		3,881		2.79	%		127,519		4,218		3.31	%
Interest-earning deposits with banks		23,233		85		0.37	%		24,679		173		0.70	%
Federal bank stocks		3,320		65		1.96	%		3,873		55		1.42	%
Total interest-earning cash equivalents		26,553		150		0.56	%		28,552		228		0.80	%
Total interest-earning assets		494,412		21,504		4.35	%		465,143		22,031		4.73	%
Cash and due from banks		2,376							2,534
Other noninterest-earning assets		22,761							21,628
Total Assets	$	519,549						$	489,305
Interest-bearing liabilities:
Interest-bearing demand deposits	$	207,689		440		0.21	%	$	182,038		492		0.27	%
Time deposits		139,092		3,605		2.59	%		149,794		4,196		2.80	%
Total interest-bearing deposits		346,781		4,045		1.17	%		331,832		4,688		1.41	%
Borrowed funds, short-term		27		-		0.00	%		3,414		159		4.66	%
Borrowed funds, long-term		20,000		931		4.66	%		22,068		1,025		4.64	%
Total borrowed funds		20,027		931		4.65	%		25,482		1,184		4.65	%
Total interest-bearing liabilities		366,808		4,976		1.36	%		357,314		5,872		1.64	%
Noninterest-bearing demand deposits		96,048		-		-			82,697		-		-
Funding and cost of funds		462,856		4,976		1.08	%		440,011		5,872		1.33	%
Other noninterest-bearing liabilities		4,870							3,879
Total Liabilities		467,726							443,890
Stockholders' Equity		51,823							45,415
Total Liabilities and Stockholders' Equity	$	519,549						$	489,305
Net interest income			$	16,528						$	16,159
Interest rate spread (difference between weighted average rate on interest-earning assets and interest-bearing liabilities)						2.99	%						3.09	%
Net interest margin (net interest income as a percentage of average interest-earning assets)						3.34	%						3.47	%

K-25

Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Corporation’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior year volume), changes in volume (changes in volume multiplied by prior year rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on loans and securities reflect the changes in interest income on a fully tax equivalent basis.

(Dollar amounts in thousands)	2012 versus 2011
	Increase (decrease) due to
	Volume			Rate			Total
Interest income:
Loans	$	1,091		$	(1,203	)	$	(112	)
Securities		357			(694	)		(337	)
Interest-earning deposits with banks		(10	)		(78	)		(88	)
Federal bank stocks		(9	)		19			10
Total interest-earning assets		1,429			(1,956	)		(527	)
Interest expense:
Deposits		204			(847	)		(643	)
Borrowed funds		(253	)		-			(253	)
Total interest-bearing liabilities		(49	)		(847	)		(896	)
Net interest income	$	1,478		$	(1,109	)	$	369

2012 Results Compared to 2011 Results

The Corporation reported net income before accumulated preferred stock dividends and discount accretion of $3.7 million and $3.8 million for 2012 and 2011, respectively. The $179,000, or 4.7%, decrease in net income was attributed to an increase in provision for loan losses of $1.7 million and a decrease in provision for income taxes of $16,000, partially offset by an increase in net interest income and noninterest income of $379,000 and $1.1 million, respectively, and a decrease in noninterest expense of $108,000.

Net interest income. The primary source of the Corporation’s revenue is net interest income. Net interest income is the difference between interest income on earning assets such as loans and securities, and interest expense on liabilities, such as deposits and borrowed funds, used to fund the earning assets. Net interest income is impacted by the volume and composition of interest-earning assets and interest-bearing liabilities, and changes in the level of interest rates. Tax equivalent net interest income increased $369,000 or 2.3% to $16.5 million for 2012, compared to $16.2 million for 2011. This increase in net interest income can be attributed to a decrease in interest expense of $896,000, partially offset by a decrease in tax equivalent interest income of $527,000.

Interest income. Tax equivalent interest income decreased $527,000, or 2.4%, to $21.5 million for 2012, compared to $22.0 million for 2011. This decrease can be attributed to decreases in interest earned on loans, securities and interest earning deposits of $112,000, $337,000 and $88,000, respectively, partially offset by an increase in interest earned on federal bank stocks of $10,000.

Tax equivalent interest earned on loans receivable decreased $112,000 to $17.5 million for 2012, compared to $17.6 million for 2011. The average yield on loans decreased 38 basis points to 5.31% for 2012, versus 5.69% for 2011 causing a $1.2 million decrease in interest income. Offsetting this unfavorable yield decline, the average balance of loans increased $19.8 million, or 6.4%, generating $1.1 million of additional interest income on loans.

K-26

Tax equivalent interest earned on securities decreased $337,000, or 8.0%, to $3.9 million for 2012 compared to $4.2 million for 2011. The average yield on securities decreased 52 basis points to 2.79% for 2012 versus 3.31% for 2011 causing a $694,000 decrease in interest income. Offsetting this unfavorable yield decline, the average balance of securities increased $11.5 million, or 9.0%, generating $357,000 in additional interest income on securities.

Interest earned on interest-earning deposit accounts decreased $88,000, or 50.9%, to $85,000 for 2012 compared to $173,000 for 2011. The average yield on these accounts decreased 33 basis points to 37 basis points for 2012 versus 70 basis points for 2011 causing a $78,000 decrease in interest income. Additionally, the average balance of interest-earning deposits decreased $1.4 million, or 5.9%, causing a $10,000 decrease in interest income.

Interest earned on federal bank stocks increased $10,000, or 18.2%, to $65,000 for 2012 compared to $55,000 for 2011. The average yield on these accounts increased 54 basis points to 1.96% for 2012 versus 1.42% for 2011 generating a $19,000 increase in interest income. Offsetting this favorable yield variance, average federal bank stocks decreased $553,000, or 14.3%, causing a $9,000 decrease in interest income.

Interest expense. Interest expense decreased $896,000, or 15.3%, to $5.0 million for 2012 compared to $5.9 million for 2011. This decrease can be attributed to decreases in interest incurred on interest-bearing deposits and borrowed funds of $643,000 and $253,000, respectively.

Deposit interest expense decreased $643,000, or 13.7%, to $4.0 million for 2012 compared to $4.7 million for 2011. The rate on interest-bearing deposits decreased by 24 basis points to 1.17% for 2012 versus 1.41% for 2011 causing an $847,000 decrease in interest expense. Offsetting this favorable cost variance, the average balance of interest-bearing deposits increased $14.9 million, or 4.5%, accounting for $204,000 in additional interest expense.

Interest expense on borrowed funds decreased $253,000, or 21.4%, to $931,000 for 2012 compared to $1.2 million for 2011. Average borrowed funds decreased $5.5 million, or 21.4%, causing a decrease in interest expense of $253,000. The average rate on borrowed funds remained constant at 4.65% for 2012 and 2011.

Provision for loan losses. The Corporation records provisions for loan losses to maintain a level of total allowance for loan losses that management believes, to the best of its knowledge, covers all probable incurred losses estimable at each reporting date. Management considers historical loss experience, the present and prospective financial condition of borrowers, current conditions (particularly as they relate to markets where the Corporation originates loans), the status of nonperforming assets, the estimated underlying value of the collateral and other factors related to the collectability of the loan portfolio.

Nonperforming loans increased $1.4 million, or 25.6%, to $7.0 million at December 31, 2012 from $5.6 million at December 31, 2011. This increase was primarily due to the deterioration of a $3.4 million commercial real estate credit relationship.

The provision for loan losses increased $1.7 million to $2.2 million for 2012 compared to $420,000 for 2011. This increase was primarily due to the aforementioned deterioration of a $3.4 million commercial real estate credit relationship which required a specific reserve of $1.4 million at December 31, 2012. The Corporation’s allowance for loan losses amounted to $5.4 million, or 1.58% of the Corporation’s total loan portfolio at December 31, 2012 compared to $3.5 million or 1.12% of total loans at December 31, 2011. The allowance for loan losses as a percentage of nonperforming loans at December 31, 2012 and 2011 was 76.6% and 63.5%, respectively.

K-27

Noninterest income. Noninterest income includes revenue that is not related to interest rates, but rather to services rendered and activities conducted in the financial services industry, including fees on depository accounts, general transaction and service fees, commissions on financial services, title premiums, security and loan gains and losses, and earnings on BOLI. Noninterest income increased $1.1 million, or 27.4%, to $4.9 million for 2012 compared to $3.8 million for 2011. This increase was primarily due to an $878,000 increase in net gains on securities available for sale to $1.4 million in 2012 from $482,000 in 2011. Included in the 2012 gains, $424,000 was related to a gain realized on the sale of a marketable equity security obtained during 2012 through the election of stock associated with an acquisition of an equity security held by the Corporation. Partially offsetting these gains, the Corporation recorded $103,000 in other than temporary impairment charges during 2012 on two marketable equity securities. Included in the 2011 gains, $355,000 was related to a balance sheet management strategy whereby securities were sold to prepay long term FHLB advances and associated security gains were used to offset the prepayment penalties related to the early retirement of the advances. Also contributing to the increase, earnings on bank owned life insurance, interchange fee income and customer service fees increased $61,000, $137,000 and $118,000, respectively. Partially offsetting these increases, commissions on financial services decreased $54,000.

Noninterest expense. Noninterest expense decreased $108,000 to $13.9 million for 2012, compared to $14.0 million for 2011. This decrease was primarily related to decreases in premises and equipment expense, intangible asset amortization, professional fees and FDIC insurance expense, partially offset by increases in compensation and employee benefits and other noninterest expense.

The largest component of noninterest expense, compensation and employee benefits, increased $56,000 to $7.2 million for 2012 compared to $7.1 million for 2011. This increase primarily related to normal compensation increases, an increase in employee health insurance costs and higher deferred loan costs. Partially offsetting these increases, there was no expense recognized for incentive programs in 2012 as compared to $228,000 of incentive compensation expense recognized during 2011.

Premises and equipment expense decreased $183,000, or 8.3%, to $2.0 million for 2012 compared to $2.2 million for 2011. This decrease primarily related to a decrease in fixed asset depreciation and lower building repair and maintenance costs.

The Corporation recognized $345,000 of intangible amortization in 2012 compared to $441,000 in 2011 associated with a core deposit intangible asset of $2.8 million that was recorded in connection with the 2009 Titusville branch acquisition.

Professional fees decreased $34,000, or 4.8%, to $672,000 for 2012 compared to $706,000 for 2011. This decrease primarily related to a decrease in legal and accounting fees, partially offset by an increase in consulting fees.

FDIC expense decreased $23,000, or 5.6%, to $387,000 for 2012 compared to $410,000 for 2011. This decrease primarily related to 2011 legislative changes that adjusted the assessment base, which reduced the assessment rate for the Bank and favorably impacted premium expense.

Other noninterest expense increased $172,000, or 5.4%, to $3.3 million for 2012 compared to $3.2 million for 2011. Contributing to this increase, check card reward expense, MAC processing, debit card losses and shares tax increased $244,000, $99,000, $55,000 and $51,000, respectively. Included in this category in 2011 was $334,000 related to prepayment penalties assessed on the early retirement of FHLB advances.

The provision for income taxes decreased $16,000, or 1.7%, to $934,000 for 2012 compared to $950,000 for 2011 primarily due to higher pre-tax income in 2011.

K-28

Market Risk Management

Market risk for the Corporation consists primarily of interest rate risk exposure and liquidity risk. The Corporation is not subject to currency exchange risk or commodity price risk, and has no trading portfolio, and therefore, is not subject to any trading risk. In addition, the Corporation does not participate in hedging transactions such as interest rate swaps and caps. Changes in interest rates will impact both income and expense recorded and also the market value of long-term interest-earning assets.

The primary objective of the Corporation’s asset liability management function is to maximize the Corporation’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Corporation’s operating environment, capital and liquidity requirements, balance sheet mix, performance objectives and overall business focus. One of the primary measures of the exposure of the Corporation’s earnings to interest rate risk is the timing difference between the repricing or maturity of interest-earning assets and the repricing or maturity of its interest-bearing liabilities.

The Corporation’s Board of Directors has established a Finance Committee, consisting of four outside directors, the President and Chief Executive Officer (CEO), Treasurer and Chief Financial Officer (CFO) and Principal Accounting Officer (PAO), to monitor market risk, including primarily interest rate risk. This committee, which meets at least quarterly, generally establishes and monitors the investment, interest rate risk and asset liability management policies of the Corporation.

In order to minimize the potential for adverse affects of material and prolonged changes in interest rates on the Corporation’s results of operations, the Corporation’s management team has implemented and continues to monitor asset liability management policies to better match the maturities and repricing terms of the Corporation’s interest-earning assets and interest-bearing liabilities. Such policies have consisted primarily of (i) originating adjustable-rate mortgage loans; (ii) originating short-term secured commercial loans with the rate on the loan tied to the prime rate or reset features in which the rate changes at determined intervals; (iii) emphasizing investment in shorter-term (15 years or less) investment securities; (iv) selling longer-term (30-year) fixed-rate residential mortgage loans in the secondary market; (v) maintaining a high level of liquid assets (including securities classified as available for sale) that can be readily reinvested in higher yielding investments should interest rates rise; (vi) emphasizing the retention of lower-costing savings accounts and other core deposits; and (vii) lengthening liabilities and locking in lower borrowing rates with longer terms whenever possible.

Interest Rate Sensitivity Gap Analysis

The implementation of asset and liability initiatives and strategies and compliance with related policies, combined with other external factors such as demand for the Corporation’s products and economic and interest rate environments in general, has resulted in the Corporation maintaining a one-year cumulative interest rate sensitivity gap within internal policy limits of between a positive and negative 15% of total assets. The one-year interest rate sensitivity gap is identified as the difference between the Corporation’s interest-earning assets that are scheduled to mature or reprice within one year and its interest-bearing liabilities that are scheduled to mature or reprice within one year.

The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities, and is considered negative when the amount of interest rate-sensitive liabilities exceeds the amount of interest rate-sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income while a positive gap would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income and a positive gap would adversely affect net interest income. The closer to zero, or more neutral, that gap is maintained, generally, the lesser the impact of market interest rate changes on net interest income.

K-29

Based on certain assumptions provided by a federal regulatory agency, at December 31, 2012, the Corporation’s interest-earning assets maturing or repricing within one year totaled $174.5 million while the Corporation’s interest-bearing liabilities maturing or repricing within one year totaled $151.7 million, providing an excess of interest-earning assets over interest-bearing liabilities of $22.8 million or 4.5% of total assets. At December 31, 2012, the percentage of the Corporation’s assets to liabilities maturing or repricing within one year was 115.0%.

The following table presents the amounts of interest-earning assets and interest-bearing liabilities outstanding as of December 31, 2012 which are expected to mature, prepay or reprice in each of the future time periods presented:

(Dollar amounts in thousands)	Due in			Due within			Due within			Due within			Due in
	six months			six months			one to			three to			over
	or less			to one year			three years			four years			four years			Total
Total interest-earning assets	$	129,789		$	44,706		$	128,380		$	30,350		$	135,408		$	468,633
Total interest-bearing liabilities		77,783			73,952			103,860			48,824			49,481			353,900
Interest rate sensitivity gap	$	52,006		$	(29,246	)	$	24,520		$	(18,474	)	$	85,927		$	114,733
Cumulative rate sensitivity gap	$	52,006		$	22,760		$	47,280		$	28,806		$	114,733
Ratio of gap during the period to total interest earning assets		11.10	%		(6.24	)%		5.23	%		(3.94	)%		18.34	%
Ratio of cumulative gap to total interest earning assets		11.10	%		4.86	%		10.09	%		6.15	%		24.48	%

Although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. The ability of many borrowers to service their debt may decrease in the event of an interest rate increase.

Interest Rate Sensitivity Simulation Analysis

The Corporation also utilizes income simulation modeling in measuring its interest rate risk and managing its interest rate sensitivity. The Finance Committee of the Board of Directors believes that simulation modeling enables the Corporation to more accurately evaluate and manage the possible effects on net interest income due to the exposure to changing market interest rates and different loan and security prepayment and deposit decay assumptions under various interest rate scenarios.

As with gap analysis and earnings simulation modeling, assumptions about the timing and variability of cash flows are critical in net portfolio equity valuation analysis. Particularly important are the assumptions driving mortgage prepayments and the assumptions about expected attrition of the core deposit portfolios. These assumptions are based on the Corporation’s historical experience.

The Corporation has established the following guidelines for assessing interest rate risk:

Net interest income simulation. Given a 200 basis point immediate increase or decrease in market interest rates, net interest income may not change by more than 15% for a one-year period.

Portfolio equity simulation. Portfolio equity is the present value of the Corporation’s existing assets less the present value of the Corporation’s existing liabilities. Given a 200 basis point immediate and permanent increase or decrease in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 20% of stockholders’ equity.

K-30

These guidelines take into consideration the current interest rate environment, the Corporation’s financial asset and financial liability product mix and characteristics and liquidity sources among other factors. Given the current rate environment, a drop in short-term market interest rates of 200 basis points immediately or over a one-year horizon would seem unlikely. This should be considered in evaluating modeling results outlined in the table below.

The following table presents the simulated impact of a 100 basis point or 200 basis point upward or downward shift of market interest rates on net interest income for the years ended December 31, 2012 and 2011, respectively. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at December 31, 2012 remained constant. The impact of the market rate movements on net interest income was developed by simulating the effects of rates changing immediately for a one-year period from the December 31, 2012 levels for net interest income.

	Increase						Decrease
	+100			+200			-100			-200
	BP			BP			BP			BP
2012 Net interest income - increase (decrease)		1.92	%		2.57	%		(2.73	)%		(4.42	)%
2011 Net interest income - increase (decrease)		2.72	%		4.15	%		(3.17	)%		(7.63	)%

Impact of Inflation and Changing Prices

The consolidated financial statements of the Corporation and related notes presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) which require the measurement of financial condition and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services since such prices are affected by inflation to a larger degree than interest rates. In the current interest rate environment, liquidity and the maturity structure of the Corporation’s assets and liabilities are critical to the maintenance of acceptable performance levels.

Capital Resources 

Total stockholders’ equity increased $1.0 million, or 2.0%, to $51.7 million at December 31, 2012 from $50.7 million at December 31, 2011. Net income of $3.7 million in 2012 represented a decrease in earnings of $179,000, or 4.7%, compared to 2011. Returns on average equity and assets were 7.05% and 0.70%, respectively, for 2012.

The Corporation’s capital to assets ratio decreased to 10.2% at December 31, 2012 from 10.3% at December 31, 2011. In 2011, the Corporation raised $4.6 million in capital, net of expenses through the issuance of 290,004 shares of common stock in a private placement to accredited investors. Also during 2011, the Corporation received a $10.0 million investment from the U.S. Treasury Department under the Small Business Lending Fund, a portion of which was used to fully redeem the $7.5 million of preferred stock issued to the U.S. Treasury under the Capital Purchase Program of the Troubled Asset Relief Program. In addition, stockholders have taken part in the Corporation’s dividend reinvestment plan introduced during 2003 with 41% of registered shareholder accounts active in the plan at December 31, 2012.

K-31

Capital adequacy is intended to enhance the Corporation’s ability to support growth while protecting the interest of shareholders and depositors and to ensure that capital ratios are in compliance with regulatory minimum requirements. Regulatory agencies have developed certain capital ratio requirements that are used to assist them in monitoring the safety and soundness of financial institutions. At December 31, 2012, the Corporation and the Bank were in excess of all regulatory capital requirements.

Liquidity

The Corporation’s primary sources of funds generally have been deposits obtained through the offices of the Bank, borrowings from the FHLB, and amortization and prepayments of outstanding loans and maturing securities. During 2012, the Corporation used its sources of funds primarily to fund loan commitments. As of December 31, 2012, the Corporation had outstanding loan commitments, including undisbursed loans and amounts available under credit lines, totaling $46.6 million, and standby letters of credit totaling $189,000. The Bank is required by the OCC to establish policies to monitor and manage liquidity levels to ensure the Bank’s ability to meet demands for customer withdrawals and the repayment of short-term borrowings, and the Bank is currently in compliance with all liquidity policy limits.

At December 31, 2012, time deposits amounted to $132.0 million, or 30.5%, of the Corporation’s total consolidated deposits, including approximately $57.3 million scheduled to mature within the next year. Management believes that the Corporation has adequate resources to fund all of its commitments, that all of its commitments will be funded as required by related maturity dates and that, based upon past experience and current pricing policies, it can adjust the rates of time deposits to retain a substantial portion of maturing liabilities.

Aside from liquidity available from customer deposits or through sales and maturities of securities, the Corporation has alternative sources of funds. These sources include a $5.0 million line of credit with a correspondent bank of which $0 was outstanding, a line of credit and term borrowing capacity from the FHLB and, to a more limited extent, through the sale of loans. At December 31, 2012, the Corporation’s borrowing capacity with the FHLB, net of funds borrowed, was $154.7 million.

The Corporation paid quarterly cash dividends over the past two years. The Corporation paid dividends of $0.18 and $0.16 per common share for the four quarters of 2012 and 2011, respectively. In addition, the Corporation declared and paid a special cash dividend of $0.10 per common share in December 2012. On February 20, 2013, the Corporation declared a quarterly dividend of $0.20 per common share payable on March 22, 2013 to shareholders of record on March 1, 2013. The determination of future dividends on the Corporation’s common stock will depend on conditions existing at that time with consideration given to the Corporation’s earnings, capital and liquidity needs, among other factors.

Management is not aware of any conditions, including any regulatory recommendations or requirements, which would adversely impact its liquidity or its ability to meet funding needs in the ordinary course of business.

K-32

Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared in accordance with GAAP and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Certain policies inherently have a greater reliance on the use of estimates, and as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates or judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily though the use of internal cash flow modeling techniques.

The most significant accounting policies followed by the Corporation are presented in Note 1 to the consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management has identified the following as critical accounting policies:

Allowance for loan losses. The Corporation considers that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than other significant accounting policies. The balance in the allowance for loan losses is determined based on management’s review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions and other pertinent factors, including management’s assumptions as to future delinquencies, recoveries and losses. All of these factors may be susceptible to significant change. Among the many factors affecting the allowance for loan losses, some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all of the potential factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact the Corporation’s financial condition or earnings in future periods.

Other-than-temporary impairment. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic, market or other concerns warrant such evaluation. Consideration is given to: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the Corporation has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.

K-33

Goodwill and intangible assets. Goodwill represents the excess cost over fair value of assets acquired in a business combination. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values. Goodwill is subject to ongoing periodic impairment tests based on the fair value of the reporting unit compared to its carrying amount, including goodwill. In 2012, we performed a qualitative goodwill impairment assessment to determine whether it is more likely than not that the fair value of our reporting unit was less than the carrying amount. In our qualitative assessment we considered several factors including macroeconomic conditions, industry and market considerations, or financial performance and changes in the composition or carrying amount of our reporting unit. As of November 30, 2012, no impairment existed. If for any future period we determine that there has been impairment in the carrying value of our goodwill balances, we will record a charge to our earnings, which could have a material adverse effect on net income, but not risk based capital ratios.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Information required by this item is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in item 7.

Item 8. Financial Statements and Supplementary Data

Information required by this item is included herein beginning on page F-1.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Corporation’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Rule 13a-15(e).

As of December 31, 2012, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s CEO and CFO, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on the foregoing, the Corporation’s CEO and CFO concluded that the Corporation’s disclosure controls and procedures were effective.

During the fourth quarter of fiscal year 2012, there has been no change made in the Corporation’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

There have been no significant changes in the Corporation’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Corporation completed its valuation.

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Corporation. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

K-34

Management’s Report on Internal Control Over Financial Reporting

Management completed an assessment of the Corporation’s internal control over financial reporting as of December 31, 2012. This assessment was based on criteria for evaluating internal control over financial reporting established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Corporation’s internal control over financial reporting was effective as of December 31, 2012.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated herein by reference to the sections captioned “Principal Beneficial Owners of the Corporation’s Common Stock”, “Section 16(a) Beneficial Ownership Reporting Compliance” and “Information With Respect to Nominees For Director, Continuing Director and Executive Officers” in the Corporation’s definitive proxy statement for the Corporation’s Annual Meeting of Stockholders to be held on April 24, 2013 (the Proxy Statement) which will be filed no later than 120 days following the Corporation’s fiscal year end.

The Corporation maintains a Code of Personal and Business Conduct and Ethics (the Code) that applies to all employees, including the CEO and the CFO. A copy of the Code has previously been filed with the SEC and is posted on our website at www.farmersnb.com. Any waiver of the Code with respect to the CEO and the CFO will be publicly disclosed in accordance with applicable regulations.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the section captioned “Executive Compensation” in the Proxy Statement.

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

The information required by this item is incorporated herein by reference to the section captioned “Principal Beneficial Owners of the Corporation’s Common Stock” in the Proxy Statement.

K-35

Equity Compensation Plan Information. The following table provides certain information as of December 31, 2012 with respect to shares of common stock that may be issued under our equity compensation plans, which consists of the 2007 Stock Incentive Plan and Trust, which was approved by shareholders in April 2007.

Plan Category	Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options (1)		Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders		86,250	$	24.79		54,346
Equity compensation plans not approved by security holders		0		—		0
Total		86,250	$	24.79		54,346

(1) Options outstanding have been granted pursuant to the 2007 Stock Incentive Plan and Trust (Plan). The Plan provides for the grant of options to purchase up to 126,783 shares of common stock of which options to purchase 86,250 shares were outstanding at December 31, 2012. In addition, 750 shares of common stock have been issued upon exercise of options. The Plan also provides for grants of up to 50,713 shares of restricted common stock of which 36,900 shares have been granted.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference to the sections captioned “Information With Respect to Nominees For Director, Continuing Directors and Executive Officers” and “Executive Compensation” in the Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated herein by reference to the section captioned “Relationship With Independent Registered Public Accounting Firm” in the Proxy Statement.

K-36

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1)-(2) Financial Statements and Schedules:

(i) The financial statements required in response to this item are incorporated by reference from Item 8 of this report.

(3) Management Contracts or Compensatory Plans:

(i) Exhibits 10.1-10.7 listed below in (b) identify management contracts or compensatory plans or arrangements required to be filed as exhibits to this report, and such listing is incorporated herein by reference.

(b) Exhibits are either attached as part of this Report or incorporated herein by reference.

3.1	Articles of Incorporation of Emclaire Financial Corp (1)
3.2	Bylaws of Emclaire Financial Corp (1)
3.3	Statement with respect to shares for Series B Preferred Stock. (2)
4.0	Specimen Common Stock Certificate of Emclaire Financial Corp (3)
4.1	Form of certificate for Series B Preferred Stock. (2)
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 16, 2011. (4)*
10.2	Change in Control Agreement between Emclaire Financial Corp, the Farmers National Bank of Emlenton and certain executive officers, dated as of July 1, 2007. (4)*
10.3	Change in Control Agreement between Emclaire Financial Corp, the Farmers National Bank of Emlenton and certain executive officer, dated as of May 12, 2008. (5)*
10.4	Change in Control Agreement between Emclaire Financial Corp, the Farmers National Bank of Emlenton and certain executive officer, dated as of August 2, 2010. (6)*
10.5	Group Term Carve-Out Plan between the Farmers National Bank of Emlenton and
	20 Officers and Employees. (7)*
10.6	Supplemental Executive Retirement Plan Agreement between the Farmers National Bank of Emlenton and Six Officers. (7)*
10.7	Farmers National Bank of Emlenton Deferred Compensation Plan. (8)*
10.8	Emclaire Financial Corp 2007 Stock Incentive Plan and Trust. (9)*
10.9	Securities Purchase Agreement, dated August 18, 2011 between the Corporation and the U.S. Department of the Treasury with respect to the Series B Preferred Stock. (2)
11.0	Statement regarding computation of earnings per share (see Note 1 of the Notes to Consolidated Financial Statements in the Annual Report).

K-37

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**

* Compensatory plan or arrangement.

** These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

(1) Incorporated by reference to the Registrant’s Registration Statement on Form SB-2, as amended, (File No. 333-11773) declared effective by the SEC on October 25, 1996.

(2) Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 18, 2011.

(3) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997.

(4) Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 16, 2011.

(5) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009.

(6) Incorporated by reference to the Registrant’s Current Report on Form 10-Q for the quarter ended June 30, 2010.

(7) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002.

(8) Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 15, 2008.

(9) Incorporated by reference to the Registrant’s Current Report on Form DEF 14A dated March 23, 2007.

(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.

K-38

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	EMCLAIRE FINANCIAL CORP
Dated:  March 22, 2013	By:	/s/ William C. Marsh
		William C. Marsh
		Chairman, Chief Executive Officer, President and Director
		(Duly Authorized Representative)

Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By:	/s/ William C. Marsh	By:	/s/ Matthew J. Lucco
	William C. Marsh		Matthew J. Lucco
	Chairman of the Board		Treasurer and Chief Financial Officer
	Chief Executive Officer		(Principal Financial Officer)
	President
	Director	Date:	March 22, 2013
	(Principal Executive Officer)
		By:	/s/ Amanda L. Engles
Date:	March 22, 2013		Amanda L. Engles
			Secretary
			(Principal Accounting Officer)
		Date:	March 22, 2013
By:	/s/ Ronald L. Ashbaugh	By:	/s/ David L. Cox
	Ronald L. Ashbaugh		David L. Cox
	Director		Director
Date:	March 22, 2013	Date:	March 22, 2013
By:	/s/ James M. Crooks	By:	/s/ George W. Freeman
	James M. Crooks		George W. Freeman
	Director		Director
Date:	March 22, 2013	Date:	March 22, 2013
By:	/s/ Mark A. Freemer	By:	/s/ Robert L. Hunter
	Mark A. Freemer		Robert L. Hunter
	Director		Director
Date:	March 22, 2013	Date:	March 22, 2013
By:	/s/ John B. Mason	By:	/s/ Brian C. McCarrier
	John B. Mason		Brian C. McCarrier
	Director		Director
Date:	March 22, 2013	Date:	March 22, 2013

K-39

Financial Statements

Table of Contents

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

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Emclaire Financial Corp

Emlenton, Pennsylvania

We have audited the accompanying consolidated balance sheets of Emclaire Financial Corp as of December 31, 2012 and 2011, and the related consolidated statements of net income, comprehensive income, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Emclaire Financial Corp as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Crowe Horwath LLP

Cleveland, Ohio

March 22, 2013

F-2

Consolidated Balance Sheets

(Dollar amounts in thousands, except share and per share data)

	December 31,
	2012			2011
Assets
Cash and due from banks	$	2,468		$	2,516
Interest earning deposits with banks		17,956			25,677
Total cash and cash equivalents		20,424			28,193
Securities available for sale		120,206			123,154
Loans receivable, net of allowance for loan losses of $5,350 and $3,536		333,801			312,545
Federal bank stocks, at cost		2,885			3,664
Bank-owned life insurance		10,072			5,809
Accrued interest receivable		1,533			1,630
Premises and equipment, net		9,180			9,026
Goodwill		3,664			3,664
Core deposit intangible, net		1,235			1,580
Prepaid expenses and other assets		6,014			2,617
Total Assets	$	509,014		$	491,882
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing	$	98,559		$	84,871
Interest bearing		333,900			331,597
Total deposits		432,459			416,468
Borrowed funds		20,000			20,000
Accrued interest payable		442			541
Accrued expenses and other liabilities		4,388			4,143
Total Liabilities		457,289			441,152
Commitments and Contingent Liabilities		-			-
Stockholders' Equity
Preferred stock, $1.00 par value, 3,000,000 shares authorized;
Series B, non-cumulative preferred stock, $10,000 liquidation value,
10,000 shares issued and outstanding		10,000			10,000
Common stock, $1.25 par value, 12,000,000 shares authorized; 1,861,425 and
1,853,925 shares issued; 1,759,408 and 1,751,908 shares outstanding		2,327			2,317
Additional paid-in capital		19,270			19,155
Treasury stock, at cost; 102,017 shares		(2,114	)		(2,114	)
Retained earnings		21,672			19,948
Accumulated other comprehensive income		570			1,424
Total Stockholders' Equity		51,725			50,730
Total Liabilities and Stockholders' Equity	$	509,014		$	491,882

See accompanying notes to consolidated financial statements.

F-3

Consolidated Statements of Net Income

(Dollar amounts in thousands, except share and per share data)

	Year ended December 31,
	2012			2011
Interest and dividend income
Loans receivable, including fees	$	17,213		$	17,389
Securities:
Taxable		2,246			2,370
Exempt from federal income tax		1,153			1,292
Federal bank stocks		65			55
Deposits with banks		85			173
Total interest and dividend income		20,762			21,279
Interest expense
Deposits		4,045			4,688
Short-term borrowed funds		-			159
Long-term borrowed funds		931			1,025
Total interest expense		4,976			5,872
Net interest income		15,786			15,407
Provision for loan losses		2,154			420
Net interest income after provision for loan losses		13,632			14,987
Noninterest income
Fees and service charges		1,608			1,490
Commissions on financial services		466			520
Title premiums		67			88
Other-than-temporary impairment losses on equity securities		(103	)		-
Net gain on sales of available for sale securities		1,360			482
Earnings on bank-owned life insurance		307			246
Other		1,188			1,015
Total noninterest income		4,893			3,841
Noninterest expense
Compensation and employee benefits		7,174			7,118
Premises and equipment		2,011			2,194
Intangible asset amortization		345			441
Professional fees		672			706
Federal deposit insurance		387			410
Other		3,348			3,176
Total noninterest expense		13,937			14,045
Income before provision for income taxes		4,588			4,783
Provision for income taxes		934			950
Net income		3,654			3,833
Preferred stock dividends and discount accretion		493			517
Net income available to common stockholders	$	3,161		$	3,316
Earnings per common share
Basic	$	1.80		$	1.98
Diluted	$	1.80		$	1.98

See accompanying notes to consolidated financial statements.

F-4

Consolidated Statements of Comprehensive Income

(Dollar amounts in thousands)

	Year ended December 31,
	2012			2011
Net income	$	3,654		$	3,833
Other comprehensive income (loss)
Unrealized gains/(losses) on securities:
Unrealized holding gain arising during the period		375			4,688
Reclassification adjustment for other than temporary
impairment losses on equity securities		103			-
Reclassification adjustment for gains included in net income		(1,360	)		(482	)
		(882	)		4,206
Tax effect		300			(1,430	)
Net of tax		(582	)		2,776
Defined benefit pension plans:
Net loss arising during the period		(381	)		(852	)
Reclassification adjustment for amortization of prior service cost
and net loss included in net periodic pension cost		(31	)		(31	)
		(412	)		(883	)
Tax effect		140			300
Net of tax		(272	)		(583	)
Total other comprehensive income (loss)		(854	)		2,193
Comprehensive income	$	2,800		$	6,026

See accompanying notes to consolidated financial statements.

F-5

Consolidated Statements of Changes in Stockholders’ Equity

(Dollar amounts in thousands, except share and per share data)

																		Accumulated
									Additional									Other			Total
	Preferred						Common		Paid-in			Treasury			Retained			Comprehensive			Stockholders'
	Stock			Warrants			Stock		Capital			Stock			Earnings			Income (Loss)			Equity
Balance at January 1, 2011	$	7,447		$	88		$	1,949	$	14,812		$	(2,114	)	$	17,705		$	(769	)	$	39,118
Net income																3,833						3,833
Other comprehensive income																			2,193			2,193
Stock compensation expense										98												98
Issuance of common stock (290,004 shares)					362			4,214											4,576
Issuance of common stock for restricted stock awards (4,500 shares)								6		(6	)											-
Redemption of preferred stock, Series A		(7,500	)																			(7,500	)
Issuance of preferred stock, Series B		10,000																				10,000
Warrant repurchase					(88	)				37												(51	)
Preferred dividends and accretion of discount		53														(517	)					(464	)
Cash dividends declared on common stock ($0.64 per share)																(1,073	)					(1,073	)
Balance at December 31, 2011		10,000			-			2,317		19,155			(2,114	)		19,948			1,424			50,730
Net income																3,654						3,654
Other comprehensive loss																			(854	)		(854	)
Stock compensation expense										113												113
Exercise of stock options, including tax benefit					1			11											12
Issuance of common stock for restricted stock awards (6,750 shares)								9		(9	)											-
Preferred dividends		-														(493	)					(493	)
Cash dividends declared on common stock ($0.82 per share)																(1,437	)					(1,437	)
Balance at December 31, 2012	$	10,000		$	-		$	2,327	$	19,270		$	(2,114	)	$	21,672		$	570		$	51,725

See accompanying notes to consolidated financial statements.

F-6

Consolidated Statements of Cash Flows

(Dollar amounts in thousands, except share and per share data)

	Year ended December 31,
	2012			2011
Cash flows from operating activities
Net income	$	3,654		$	3,833
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		677			798
Provision for loan losses		2,154			420
Amortization of premiums and (accretion of discounts), net		136			219
Amortization of intangible assets and mortgage servicing rights		352			457
Securities impairment loss recognized in earnings		103			-
Realized gains on sales of available for sale securities, net		(1,360	)		(482	)
Net losses on foreclosed real estate		15			9
Restricted stock and stock option compensation		113			98
Increase in bank-owned life insurance, net		(263	)		(213	)
Decrease in accrued interest receivable		97			133
(Increase) decrease in deferred taxes		(501	)		112
(Increase) decrease in prepaid expenses and other assets		(2,864	)		1,712
Decrease in accrued interest payable		(99	)		(108	)
Increase (decrease) in accrued expenses and other liabilities		108			(381	)
Net cash provided by operating activities		2,322			6,607
Cash flows from investing activities
Loan originations and principal collections, net		(24,058	)		(7,627	)
Available for sale securities:
Sales		17,139			28,978
Maturities, repayments and calls		95,748			73,780
Purchases		(109,408	)		(95,318	)
Redemption of federal bank stocks		779			465
Purchases of premises and equipment		(831	)		(583	)
Proceeds from the sale of foreclosed real estate		426			556
Purchase of bank-owned life insurance		(4,000	)		-
Write-down of foreclosed real estate		41			10
Net cash provided by (used in) investing activities		(24,164	)		261
Cash flows from financing activities
Net increase in deposits		15,991			6,810
Proceeds from Federal Home Loan Bank advances		15,000			-
Repayments on Federal Home Loan Bank advances		(15,000	)		(5,000	)
Net change in short-term borrowings		-			(5,000	)
Proceeds from issuance of common stock		-			4,576
Proceeds from issuance of preferred stock (Series B)		-			10,000
Redemption of preferred stock (Series A)		-			(7,500	)
Warrant repurchase		-			(51	)
Proceeds from exercise of stock options, including tax benefit		12			-
Dividends paid		(1,930	)		(1,537	)
Net cash provided by financing activities		14,073			2,298
Net increase (decrease) in cash and cash equivalents		(7,769	)		9,166
Cash and cash equivalents at beginning of period		28,193			19,027
Cash and cash equivalents at end of period	$	20,424		$	28,193
Supplemental information:
Interest paid	$	5,075		$	5,980
Income taxes paid		2,005			340
Supplemental noncash disclosures:
Transfers from loans to foreclosed real estate		355			509

See accompanying notes to consolidated financial statements.

F-7

Notes to Consolidated Financial Statements

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). 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 Western Pennsylvania. 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. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, goodwill, the valuation of deferred tax assets and other than temporary impairment charges. 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 4 discusses the type of securities that the Corporation invests in. Note 5 discusses the types of lending the Corporation engages in. The Corporation does not have any significant concentrations to any one industry or customer.

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 generally mature within 90 days 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.

Restrictions on Cash. Cash on hand or on deposit with the Federal Reserve Bank of Cleveland (FRB) of approximately $0 and $60,000, respectively, was required to meet regulatory reserve and clearing requirements at December 31, 2012 and 2011. Both required and excess reserves earn interest.

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 shareholders.

Securities. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. 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. Premiums and discounts on securities are amortized using the level yield method over the term of the securities. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

F-8

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Securities (continued). Management evaluates 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 debt 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. 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. For equity securities determined to be other-than-temporarily impaired, the entire amount of impairment is recognized through earnings.

Loans Receivable. The Corporation grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans 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.

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. 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 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.

F-9

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Allowance for Loan Losses (continued). 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.

TDR’s 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 TDR’s 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, general and unallocated 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. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable incurred losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. The Corporation’s portfolio segments are as follows:

F-10

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

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 in value due to economic and other factors.

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 market 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.

Federal Bank Stocks. The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB) and the FRB. As a member of these federal banking systems, the Bank maintains an investment in the capital stock of the respective regional banks, 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 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.

F-11

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

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 and 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.

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 $180,000 and $307,000 at December 31, 2012 and 2011, 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.

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 and other postretirement benefit plans 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.

F-12

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Retirement Plans. The Corporation maintains a noncontributory defined benefit plan covering substantially all employees and officers. Effective January 1, 2009 the plan was closed to new participants. The plan calls for benefits to be paid to eligible employees at retirement based primarily on years of service and compensation rates near retirement. 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 cost 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 cost 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.

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.

F-13

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Recently Adopted Accounting Standards. In May 2011, the Financial Accounting Standards Board (FASB) issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International account principles. Overall the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for the interim and annual reporting periods beginning after December 15, 2011. This guidance did not have a material impact on the Corporation’s consolidated financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of comprehensive income for the Corporation.

2. Issuance of Common Stock

On March 31, 2011, the Corporation sold 290,004 shares of common stock, par value $1.25 per share, in a private offering to accredited individual and institutional investors at $15.95 per share. The Corporation realized $4.6 million in proceeds from the offering net of $48,000 of direct costs relating to the offering.

3. Participation in the Small Business Lending Fund (SBLF) of the U.S. Treasury Department (U.S. Treasury) and Repurchase of Shares Issued Under the Troubled Asset Relief Program (TARP)

On August 18, 2011, the Corporation entered into a Securities Purchase Agreement (the Agreement) with the Secretary of the U.S. Treasury, pursuant to which the Corporation issued and sold to the U.S. Treasury 10,000 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series B (Series B Preferred Stock), having a liquidation preference of $1,000 per share, for aggregate proceeds of $10.0 million. The issuance was pursuant to the U.S. Treasury’s SBLF program, a $30.0 billion fund established under the Small Business Jobs Act of 2010, which encourages lending to small businesses by providing capital to qualified community banks with assets less than $10.0 billion. The Series B Preferred Stock is entitled to receive non-cumulative dividends payable quarterly on each January 1, April 1, July 1 and October 1, beginning October 1, 2011. The dividend rate, which is calculated on the aggregate liquidation amount, has been initially set at 5% per annum based upon the current level of Qualified Small Business Lending (QSBL) by the Bank. The dividend rate for future periods will be set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the time the Agreement was entered into. Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods, and will be fixed at a rate of 1% per annum to 7% per annum for the eleventh through the eighteenth dividend periods. If the Series B Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%. Prior to that time, in general, the dividend rate decreases as the level of the Bank’s QSBL increases. Such dividends are not cumulative, but the Corporation may only declare and pay dividends on its common stock (or any other equity securities junior to the Series B Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series B Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem other securities.

F-14

Notes to Consolidated Financial Statements (continued)

3. Participation in the Small Business Lending Fund (SBLF) of the U.S. Treasury Department (U.S. Treasury) and Repurchase of Shares Issued Under the Troubled Asset Relief Program (TARP) (continued)

As more completely described in the Certificate of Designation, holders of the Series B Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of Series B Preferred Stock and on certain corporate transactions. Except with respect to such matters, the Series B Preferred Stock does not have voting rights.

The Corporation may redeem the shares of Series B Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the liquidation amount and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Corporation’s primary federal banking regulator. If paid in part, payments are required to be at least 25% of the original proceeds.

Under the Agreement, the Corporation also repurchased 7,500 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (Series A Preferred Stock), issued on December 23, 2008 to the U.S. Treasury in association with participation in the TARP Capital Purchase Plan (TARP/CPP) of the Emergency Economic Stabilization Act of 2008 (EESA). The Series A Preferred Stock was fully repurchased for the sum of the liquidation amount of $1,000 per share and all accrued and unpaid dividends then due, for a total repurchase amount of $7.5 million.

As part of the 2008 TARP transaction, the Corporation issued a warrant to the U.S. Treasury to purchase 50,111 shares of the Corporation’s common stock, par value $1.25 per share, for $22.45 per share over a 10-year term. On December 7, 2011, the Corporation repurchased the warrant from the U.S. Treasury for a purchase price of $51,000.

F-15

Notes to Consolidated Financial Statements (continued)

4. Securities

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

(Dollar amounts in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale:
December 31, 2012:
U.S. Treasury and federal agency	$	3,959	$	8	$	-		$	3,967
U.S. government sponsored entities and agencies		28,030		132		-			28,162
Mortgage-backed securities: residential		21,137		1,587		-			22,724
Collateralized mortgage obligations: residential		22,508		47		(80	)		22,475
State and political subdivision		34,904		1,862		(1	)		36,765
Corporate debt		3,728		34		(1	)		3,761
Equity securities		2,356		4		(8	)		2,352
	$	116,622	$	3,674	$	(90	)	$	120,206
December 31, 2011:
U.S. Treasury and federal agency	$	3,944	$	516	$	-		$	4,460
U.S. government sponsored entities and agencies		41,425		102		(7	)		41,520
Mortgage-backed securities: residential		35,651		1,827		-			37,478
State and political subdivision		35,073		1,928		(1	)		37,000
Equity securities		2,595		308		(207	)		2,696
	$	118,688	$	4,681	$	(215	)	$	123,154

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

(Dollar amounts in thousands)	2012		2011
Proceeds	$	17,139	$	28,978
Gains		1,360		523
Losses		-		(41	)
Tax provision related to gains		462		178

F-16

Notes to Consolidated Financial Statements (continued)

4. Securities (continued)

The following table summarizes scheduled maturities of the Corporation’s debt securities as of December 31, 2012. 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		Fair
	Cost		Value
Due in one year or less	$	502	$	504
Due after one year through five years		33,690		34,150
Due after five through ten years		33,948		35,326
Due after ten years		2,481		2,675
Mortgage-backed securities: residential		21,137		22,724
Collateralized mortgage obligations: residential		22,508		22,475
	$	114,266	$	117,854

Securities with carrying values of $63.6 million and $62.2 million as of December 31, 2012 and 2011, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Information pertaining to securities with gross unrealized losses at December 31, 2012 and 2011 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		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
December 31, 2012:
Collateralized mortgage obligations: residential	$	10,698	$	(80	)	$	-	$	-		$	10,698	$	(80	)
State and political subdivision		521		(1	)		-		-			521		(1	)
Corporate debt		500		(1	)		-		-			500		(1	)
Equity securities		493		(8	)		-		-			493		(8	)
	$	12,212	$	(90	)	$	-	$	-		$	12,212	$	(90	)
December 31, 2011:
U.S. government sponsored entities and agencies	$	4,490	$	(7	)	$	-	$	-			4,490		(7	)
State and political subdivision		99		(1	)		-		-			99		(1	)
Equity securities		881		(185	)		187		(22	)		1,068		(207	)
	$	5,470	$	(193	)	$	187	$	(22	)	$	5,657	$	(215	)

F-17

Notes to Consolidated Financial Statements (continued)

4. Securities (continued)

Management evaluates 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 debt 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. For equity securities determined to be other-than-temporarily impaired, the entire amount of impairment is recognized through earnings.

During 2012, after evaluation of the securities portfolio, management determined that OTTI existed on two financial institution equity securities. The impairment of these securities was considered to be other-than-temporary due to continued concerns related to the financial condition and near-term prospects of the issuers, economic conditions of the financial services industry and deteriorating market values. These securities were written down to their fair market values as of December 31, 2012 and the resulting impairment losses of $103,000 were recognized in earnings during the fourth quarter of 2012.

After recognizing the aforementioned OTTI, there were four equity securities in an unrealized loss position as of December 31, 2012, all of which were in an unrealized loss position for less than 12 months. Equity securities owned by the Corporation consist of common stock of various financial service providers. These investment securities are in an unrealized loss position as a result of recent market volatility and depressed pricing of the financial services sector. The Corporation does not invest in these securities with the intent to sell them for a profit in the near term. For investments in equity securities, in addition to the general factors mentioned above for determining whether the decline in market value is other-than-temporary, the analysis of whether an equity security is other-than-temporarily impaired includes a review of the profitability, capital adequacy and all other information available to determine the financial position and near term prospects of each issuer. The results of analyzing the aforementioned metrics and financial fundamentals suggest recovery of amortized cost as the sector improves. Based on that evaluation, 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 equity securities with unrealized losses as of December 31, 2012 to be other-than-temporarily impaired.

There were 10 debt securities in an unrealized loss position as of December 31, 2012, all of which were in an unrealized loss position for less than 12 months. Of these securities, five were collateralized mortgage obligations, three were state and political subdivisions securities and two were corporate debt 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, 2012 to be other-than-temporarily impaired.

F-18

Notes to Consolidated Financial Statements (continued)

4. Securities (continued)

The following table presents information related to the Corporation’s gains and losses on the sales of equity and debt securities, and losses recognized for the OTTI of investments:

(Dollar amounts in thousands)	Gross Realized		Gross Realized			Other-than-temporary			Net Gains
	Gains		Losses			Impairment Losses			(Losses)
Year ended December 31, 2012:
Debt securities	$	936	$	-		$	-		$	936
Equity securities		424		-			(103	)		321
	$	1,360	$	-		$	(103	)	$	1,257
Year ended December 31, 2011:
Debt securities	$	523	$	(41	)	$	-		$	482

5. 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)	2012		2011
Mortgage loans on real estate:
Residential first mortgages	$	97,246	$	93,610
Home equity loans and lines of credit		85,615		71,238
Commercial real estate		98,823		94,765
		281,684		259,613
Other loans:
Commercial business		45,581		43,826
Consumer		11,886		12,642
		57,467		56,468
Total loans, gross		339,151		316,081
Less allowance for loan losses		5,350		3,536
Total loans, net	$	333,801	$	312,545

F-19

Notes to Consolidated Financial Statements (continued)

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

The following table presents 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
							For the year ended
	As of December 31, 2012						December 31, 2012
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-		-
Commercial real estate		4,242		4,068		1,448		2,075		186		16
Commercial business		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	4,242	$	4,068	$	1,448	$	2,075	$	186	$	16

	Impaired Loans with
	No Specific Allowance
					For the year ended
	As of December 31, 2012				December 31, 2012
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		730		505		690		12		12
Commercial business		394		369		368		5		5
Consumer		1,650		1,650		1,774		-		-
Total	$	2,774	$	2,524	$	2,832	$	17	$	17

	Impaired Loans with
	Specific Allowance
							For the year ended
	As of December 31, 2011						December 31, 2011
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-		-
Commercial real estate		524		524		142		616		39		26
Commercial business		128		128		22		771		7		2
Consumer		-		-		-		-		-		-
Total	$	652	$	652	$	164	$	1,387	$	46	$	28

	Impaired Loans with
	No Specific Allowance
					For the year ended
	As of December 31, 2011				December 31, 2011
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		1,518		1,154		862		81		81
Commercial business		357		332		122		27		6
Consumer		1,905		1,905		2,018		138		138
Total	$	3,780	$	3,391	$	3,002	$	246	$	225

F-20

Notes to Consolidated Financial Statements (continued)

5. 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 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 generally does not extend additional credit to borrowers with loans classified as TDRs.

At December 31, 2012 and 2011, the Corporation had $2.3 million and $794,000, respectively, of loans classified as TDR’s, which are included in impaired loans above. At December 31, 2012 and 2011, the Corporation had $36,000 and $35,000, respectively, of the allowance for loan losses allocated to these specific loans.

During the year ended December 31, 2012, the Corporation recognized a consumer installment loan to one borrower with a pre- and post-modification recorded investment of $1.6 million as a TDR due to the discharge of the debtor in bankruptcy. The loan is secured by a lien on the primary residence of a separate borrower. Due to the estimated value of the lien on the property, at December 31, 2012, the Corporation did not have any of the allowance for loan losses allocated to this specific loan.

During the year ended December 31, 2011, the Corporation restructured two commercial real estate loans to one borrower with a pre- and post-modification recorded investment of $352,000. These loans were modified by forbearing the interest amounts then outstanding and establishing a new repayment date and amortization schedule. At December 31, 2012 and 2011, the Corporation had $36,000 and $35,000, respectively, of the allowance for loan losses allocated to these specific loans.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. There were no defaults on loans classified as TDRs during the years ended December 31, 2012 and 2011.

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.

F-21

Notes to Consolidated Financial Statements (continued)

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

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 a 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.

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, 2012 and 2011:

(Dollar amounts in thousands)
					Special
	Not Rated		Pass		Mention		Substandard		Doubtful		Total
December 31, 2012:
Residential first mortgages	$	96,713	$	-	$	-	$	533	$	-	$	97,246
Home equity and lines of credit		85,443		-		-		172		-		85,615
Commercial real estate		-		88,944		1,658		6,870		1,351		98,823
Commercial business		-		42,417		2,157		1,007		-		45,581
Consumer		10,236		-		-		1,650		-		11,886
Total	$	192,392	$	131,361	$	3,815	$	10,232	$	1,351	$	339,151
December 31, 2011:
Residential first mortgages	$	92,612	$	-	$	-	$	998	$	-	$	93,610
Home equity and lines of credit		71,064		-		-		174		-		71,238
Commercial real estate		-		88,006		3,625		3,134		-		94,765
Commercial business		-		41,864		832		1,130		-		43,826
Consumer		10,737		-		-		1,905		-		12,642
Total	$	174,413	$	129,870	$	4,457	$	7,341	$	-	$	316,081

F-22

Notes to Consolidated Financial Statements (continued)

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

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 recorded 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, 2012 and 2011:

(Dollar amounts in thousands)
	Performing						Nonperforming
	Accruing		Accruing		Accruing		Acccruing
	Loans Not		30-59 Days		60-89 Days		90 Days +				Total
	Past Due		Past Due		Past Due		Past Due		Nonaccrual		Loans
December 31, 2012:
Residential first mortgages	$	95,001	$	1,272	$	440	$	-	$	533	$	97,246
Home equity and lines of credit		84,592		669		157		-		197		85,615
Commercial real estate		94,485		50		49		21		4,218		98,823
Commercial business		44,915		297		-		-		369		45,581
Consumer		10,172		41		23		-		1,650		11,886
Total loans	$	329,165	$	2,329	$	669	$	21	$	6,967	$	339,151
December 31, 2011:
Residential first mortgages	$	91,400	$	1,059	$	153	$	66	$	932	$	93,610
Home equity and lines of credit		70,506		431		127		-		174		71,238
Commercial real estate		92,632		302		-		-		1,831		94,765
Commercial business		43,338		7		10		-		471		43,826
Consumer		10,488		55		8		-		2,091		12,642
Total loans	$	308,364	$	1,854	$	298	$	66	$	5,499	$	316,081

The following table presents the Corporation’s nonaccrual loans by aging category as of December 31, 2012 and 2011:

(Dollar amounts in thousands)
	Not		30-59 Days		60-89 Days		90 Days +		Total
	Past Due		Past Due		Past Due		Past Due		Loans
December 31, 2012:
Residential first mortgages	$	-	$	-	$	-	$	533	$	533
Home equity and lines of credit		-		25		-		172		197
Commercial real estate		469		3,386		10		353		4,218
Commercial business		78		-		-		291		369
Consumer		1,650		-		-		-		1,650
Total loans	$	2,197	$	3,411	$	10	$	1,349	$	6,967
December 31, 2011:
Residential first mortgages	$	-	$	-	$	-	$	932	$	932
Home equity and lines of credit		-		-		-		174		174
Commercial real estate		1,087		92		-		652		1,831
Commercial business		471		-		-		-		471
Consumer		2,091		-		-		-		2,091
Total loans	$	3,649	$	92	$	-	$	1,758	$	5,499

F-23

Notes to Consolidated Financial Statements (continued)

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

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)	2012			2011
Balance at the beginning of the year	$	3,536		$	3,525
Provision for loan losses		2,154			100
Charge-offs		(498	)		(117	)
Recoveries		158			28
Balance at the end of the year	$	5,350		$	3,536

The following table details activity in the ALL and the recorded investment by portfolio segment based on impairment method at December 31, 2012 and 2011:

(Dollar amounts in thousands)
				Home Equity
	Residential			& Lines			Commercial			Commercial
	Mortgages			of Credit			Real Estate			Business			Consumer			Total
December 31, 2012:
Beginning Balance	$	832		$	320		$	1,737		$	590		$	57		$	3,536
Charge-offs		(90	)		(222	)		(35	)		(50	)		(101	)		(498	)
Recoveries		84			27			8			15			24			158
Provision		2			605			1,380			81			86			2,154
Ending Balance	$	828		$	730		$	3,090		$	636		$	66		$	5,350
Ending ALL balance attributable to loans:
Individually evaluated for impairment		-			-			1,448			-			-			1,448
Collectively evaluated for impairment		828			730			1,642			636			66			3,902
Total loans:
Individually evaluated for impairment		-			-			4,573			369			1,650			6,592
Collectively evaluated for impairment		97,246			85,615			94,250			45,212			10,236			332,559
December 31, 2011:
Beginning Balance	$	398		$	572		$	1,707		$	1,323		$	132		$	4,132
Charge-offs		(224	)		(188	)		(200	)		(415	)		(67	)		(1,094	)
Recoveries		3			1			-			63			11			78
Provision		655			(65	)		230			(381	)		(19	)		420
Ending Balance	$	832		$	320		$	1,737		$	590		$	57		$	3,536
Ending ALL balance attributable to loans:
Individually evaluated for impairment		-			-			22			142			-			164
Collectively evaluated for impairment		832			320			1,715			448			57			3,372
Total loans:
Individually evaluated for impairment		-			-			1,678			460			1,905			4,043
Collectively evaluated for impairment		93,610			71,238			93,087			43,366			10,737			312,038

F-24

Notes to Consolidated Financial Statements (continued)

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

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.

6. Federal Bank Stocks

The Bank is a member of the FHLB and the FRB. As a member of these federal banking systems, the Bank maintains an investment in the capital stock of the respective regional banks, which are carried at cost. 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. The Bank’s investment in FHLB and FRB stocks was $1.9 million and $984,000, respectively, at December 31, 2012, and $2.7 million and $984,000, respectively, at December 31, 2011. The FHLB repurchases a portion of the Bank’s excess capital stock each quarter. The repurchases totaled $779,000 and $611,000, respectively, for the years ended December 31, 2012 and 2011. Offsetting these repurchases, the Corporation purchased $146,000 of FRB capital stock during the year ended December 31, 2011.

7. Premises and Equipment

Premises and equipment at December 31 are summarized by major classification as follows:

(Dollar amounts in thousands)	2012		2011
Land	$	1,623	$	1,623
Buildings and improvements		8,331		8,215
Leasehold improvements		843		818
Furniture, fixtures and equipment		5,911		5,533
Software		2,664		2,491
Construction in progress		699		560
		20,071		19,240
Less: accumulated depreciation and amortization		10,891		10,214
	$	9,180	$	9,026

F-25

Notes to Consolidated Financial Statements (continued)

7. Premises and Equipment (continued)

Depreciation and amortization expense for the years ended December 31, 2012 and 2011 were $677,000 and $798,000, respectively.

Rent expense under non-cancelable operating lease agreements for the years ended December 31, 2012 and 2011 was $161,000 and $156,000, respectively. Rent commitments under non-cancelable long-term operating lease agreements for certain branch offices for the years ended December 31, are as follows, before considering renewal options that are generally present:

(Dollar amounts in thousands)	Amount
2013	$	170
2014		175
2015		168
2016		138
2017		127
Thereafter		680
	$	1,458

8. Goodwill and Intangible Assets

The following table summarizes the Corporation’s acquired goodwill and intangible assets as of December 31:

(Dollar amounts in thousands)	2012				2011
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill	$	3,664	$	-	$	3,664	$	-
Core deposit intangibles		4,027		2,792		4,027		2,447
Total	$	7,691	$	2,792	$	7,691	$	2,447

Goodwill resulted from three previous branch acquisitions. Goodwill represents the excess of the total purchase price paid for the branch acquisitions over the fair value of the assets acquired, net of the fair value of the liabilities assumed. Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At November 31, 2012, the Corporation elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment. No goodwill impairment charges were recorded in 2012 or 2011.

F-26

Notes to Consolidated Financial Statements (continued)

8. Goodwill and Intangible Assets (continued)

Also, in connection with the assumption of deposits related to the 2009 Titusville branch acquisition, the Bank recorded a core deposit intangible of $2.8 million during 2009. This intangible asset amortizes using the double declining balance method over a weighted average estimated life of nine years and is not estimated to have a significant residual value. The Corporation recorded intangible amortization expense totaling $345,000 and $441,000 in 2012 and 2011, respectively.

The estimated amortization expense of the core deposit intangible for the years ending December 31, are as follows:

(Dollar amounts in thousands)	Amortization
	Expense
2013	$	270
2014		216
2015		195
2016		195
2017		195
Thereafter		164
	$	1,235

9. Related Party Balances and Transactions

In the ordinary course of business, the Bank maintains loan and deposit relationships with employees, principal officers and directors. The Bank has granted loans to principal officers and directors and their affiliates amounting to $1.5 million and $1.3 million at December 31, 2012 and 2011, respectively. During 2012, total principal additions and total principal repayments associated with these loans were $440,000 and $193,000, respectively. Deposits from principal officers and directors held by the Bank at December 31, 2012 and 2011 totaled $3.8 million and $2.3 million, respectively.

In addition, directors and their affiliates may provide certain professional and other services to the Corporation and the Bank in the ordinary course of business. During 2012 and 2011, amounts paid to affiliates for such services totaled $56,000 and $202,000, respectively.

10. Deposits

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

(Dollar amounts in thousands)	2012								2011
	Weighted								Weighted
Type of accounts	average rate			Amount		%			average rate			Amount		%
Non-interest bearing deposits		-		$	98,559		22.8	%		-		$	84,871		20.4	%
Interest bearing demand deposits		0.15	%		201,919		46.7	%		0.19	%		186,107		44.7	%
Time deposits		2.63	%		131,981		30.5	%		2.98	%		145,490		34.9	%
		0.87	%	$	432,459		100.0	%		1.13	%	$	416,468		100.0	%

F-27

Notes to Consolidated Financial Statements (continued)

10. Deposits (continued)

Scheduled maturities of time deposits for the next five years are as follows:

(Dollar amounts in thousands)	Amount		%
2013	$	57,294		43.4	%
2014		23,018		17.4	%
2015		13,941		10.6	%
2016		15,172		11.5	%
2017		5,918		4.5	%
Thereafter		16,638		12.6	%
	$	131,981		100.0	%

The Corporation had a total of $51.5 million and $54.5 million in time deposits of $100,000 or more at December 31, 2012 and 2011, respectively. Scheduled maturities of time deposits of $100,000 or more at December 31, 2012 are as follows:

(Dollar amounts in thousands)	Amount
Less than three months	$	5,467
Over three months to six months		4,101
Over six months to twelve months		12,046
Over twelve months		29,905
	$	51,519

11. Borrowed Funds

The following table summarizes the Corporation’s borrowed funds as of and for the year ended December 31:

(Dollar amounts in thousands)	2012							2011
			Average		Average					Average		Average
	Balance		Balance		Rate			Balance		Balance		Rate
Due within 12 months	$	-	$	27		0.46	%	$	-	$	3,414		4.66	%
Due beyond 12 months but within 5 years		20,000		20,000		4.59	%		15,000		17,068		4.63	%
Due beyond 5 years but within 10 years		-		-		-			5,000		5,000		4.09	%
	$	20,000	$	20,027				$	20,000	$	25,482

F-28

Notes to Consolidated Financial Statements (continued)

11. Borrowed Funds (continued)

Long-term borrowed funds at December 31, 2012 consisted of four $5.0 million FHLB term advances totaling $20.0 million. The term advances mature in October and November 2017. All borrowings from the FHLB are secured by a blanket lien of qualified collateral. Qualified collateral at December 31, 2012 totaled $255.2 million.

During the fourth quarter of 2012, the Corporation exchanged and modified $15.0 million of the $20.0 million in outstanding FHLB advances. Two of the modified advances had ten year terms with initial fixed rates of 4.98% and 4.83%, respectively, for the first two years after which the rates may have been adjusted at the option of the FHLB to the then three month LIBOR rate plus 24 basis points. The other modified advance had a ten year term with an initial fixed rate of 4.68% for the first two years after which the rate may have been adjusted at the option of the FHLB to the then three month LIBOR rate plus 24 basis points, but only if the three month LIBOR rate exceeded 6.0%.

The three $5.0 million advances discussed above were exchanged for three $5.0 million five year fixed rate advances each with a rate of 0.93% and a term of five years. Prepayment penalties associated with the three modified advances totaled $2.3 million and were cash-settled with the FHLB at the time of modification. The Corporation will amortize this prepayment penalty over the life of the new advances.

The remaining $5.0 million advance has a term of ten years with an initial fixed rate of 4.09% for the first three years after which the rate may be adjusted at the option of the FHLB to the then three month LIBOR rate plus 13 basis points.

Before modification, the four advances totaling $20.0 million had a weighted average rate of 4.65%. After modification and including prepayment penalty amortization, the four advances had a weighted average rate of 4.01%.

Scheduled maturities of borrowed funds for the next five years are as follows:

(Dollar amounts in thousands)	Amount
2013	$	-
2014		-
2015		-
2016		-
2017		20,000
Thereafter		-
	$	20,000

The Bank maintains a credit arrangement with the FHLB as a source of additional liquidity. The total maximum borrowing capacity with the FHLB, excluding loans outstanding, at December 31, 2012 was $154.7 million. In addition, the Corporation has $5.0 million of funds available on an unused line of credit through another correspondent bank.

F-29

Notes to Consolidated Financial Statements (continued)

12. Regulatory Matters

Restrictions on Dividends, Loans and Advances

The Bank is subject to a regulatory dividend restriction that generally limits the amount of dividends that can be paid by the Bank to the Corporation. Prior regulatory approval is required if the total of all dividends declared in any calendar year exceeds net profits (as defined in the regulations) for the year combined with net retained earnings (as defined) for the two preceding calendar years. In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. As of December 31, 2012, $3.2 million of undistributed earnings of the Bank was available for distribution of dividends without prior regulatory approval.

Loans or advances from the Bank to the Corporation are limited to 10% of the Bank’s capital stock and surplus on a secured basis. Funds available for loans or advances by the Bank to the Corporation amounted to approximately $3.3 million. The Corporation has a $2.2 million commercial line of credit available at the Bank for the primary purpose of purchasing qualified equity investments. At December 31, 2012, the Corporation had an outstanding balance on this line of $1.4 million.

Minimum Regulatory Capital Requirements

The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

F-30

Notes to Consolidated Financial Statements (continued)

12. Regulatory Matters (continued)

As of December 31, 2012, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The following table sets forth certain information concerning the Bank’s regulatory capital as of the dates presented:

(Dollar amounts in thousands)	December 31, 2012										December 31, 2011
	Consolidated					Bank					Consolidated					Bank
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	50,035		16.62	%	$	48,585		16.21	%	$	50,512		17.85	%	$	45,550		16.25	%
For capital adequacy purposes		24,083		8.00	%		23,971		8.00	%		22,636		8.00	%		22,422		8.00	%
To be well capitalized		N/A		N/A			29,964		10.00	%		N/A		N/A			28,027		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	46,252		15.36	%	$	44,820		14.96	%	$	47,008		16.61	%	$	42,046		15.00	%
For capital adequacy purposes		12,042		4.00	%		11,985		4.00	%		11,318		4.00	%		11,211		4.00	%
To be well capitalized		N/A		N/A			17,978		6.00	%		N/A		N/A			16,816		6.00	%
Tier 1 capital to average assets:
Actual	$	46,252		9.18	%	$	44,820		8.92	%	$	47,008		9.71	%	$	42,046		8.69	%
For capital adequacy purposes		20,148		4.00	%		20,101		4.00	%		19,362		4.00	%		19,347		4.00	%
To be well capitalized		N/A		N/A			25,126		5.00	%		N/A		N/A			24,183		5.00	%

13. Commitments and Legal Contingencies

In the ordinary course of business, the Corporation has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Corporation is involved in certain claims and legal actions arising in the ordinary course of business. The outcome of these claims and actions are not presently determinable; however, in the opinion of the Corporation’s management, after consulting legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial statements.

14. Income Taxes

The Corporation and the Bank file a consolidated federal income tax return. The provision for income taxes for the years ended December 31 is comprised of the following:

(Dollar amounts in thousands)	2012			2011
Current	$	1,435		$	838
Deferred		(501	)		112
	$	934		$	950

F-31

Notes to Consolidated Financial Statements (continued)

14. Income Taxes (continued)

A reconciliation between the provision for income taxes and the amount computed by multiplying operating results before income taxes by the statutory federal income tax rate of 34% for the years ended December 31 is as follows:

(Dollar amounts in thousands)	2012						2011
				% Pre-tax						% Pre-tax
	Amount			Income			Amount			Income
Provision at statutory tax rate	$	1,560			34.0	%	$	1,626			34.0	%
Increase (decrease) resulting from:
Tax free interest, net of disallowance		(563	)		(12.3	)%		(552	)		(11.5	)%
Earnings on BOLI		(89	)		(1.9	)%		(72	)		(1.5	)%
Other, net		26			0.6	%		(52	)		(1.1	)%
Provision	$	934			20.4	%	$	950			19.9	%

The tax effects of temporary differences between the financial reporting basis and income tax basis of assets and liabilities that are included in the net deferred tax asset or liability as of December 31 relate to the following:

(Dollar amounts in thousands)	2012		2011
Deferred tax assets:
Allowance for loan losses	$	1,682	$	1,046
Funded status of pension plan		925		785
Deferred compensation		278		213
Nonaccrual loan interest income		154		122
Securities impairment		149		226
Stock compensation		139		132
Other		28		72
Gross deferred tax assets		3,355		2,596
Deferred tax liabilities:
Net unrealized gains on securities		1,219		1,518
Depreciation		593		618
Accrued pension liability		298		190
Intangible assets		247		204
Deferred loan fees		99		79
Other		49		77
Gross deferred tax liabilities		2,505		2,686
Net deferred tax asset (liability)	$	850	$	(90	)

F-32

Notes to Consolidated Financial Statements (continued)

14. Income Taxes (continued)

In accordance with relevant accounting guidance, the Corporation determined that it was not required to establish a valuation allowance for deferred tax assets since it is more likely than not that the deferred tax asset will be realized through carry-back to taxable income in prior years, future reversals of existing taxable temporary differences, tax strategies and, to a lesser extent, future taxable income. The Corporation’s net deferred tax asset or liability is recorded in the consolidated financial statements as a component of other assets or other liabilities.

At December 31, 2012 and December 31, 2011, the Corporation had no unrecognized tax benefits recorded. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. The Corporation recognizes interest and penalties on unrecognized tax benefits in income taxes expense in its Consolidated Statements of Income.

The Corporation and the Bank are subject to U.S. federal income tax as well as a capital-based franchise tax in the Commonwealth of Pennsylvania. The Corporation and the Bank are no longer subject to examination by taxing authorities for years before 2009.

F-33

Notes to Consolidated Financial Statements (continued)

15. 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. 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)	2012			2011
Change in plan assets:
Fair value of plan assets at beginning of year	$	4,892		$	4,497
Actual return on plan assets		529			192
Employer contribution		500			419
Benefits paid		(265	)		(216	)
Fair value of plan assets at end of year		5,656			4,892
Change in benefit obligation:
Benefit obligation at beginning of year		7,010			5,855
Service cost		272			295
Interest cost		331			327
Actuarial loss		145			-
Effect of change in assumptions		496			749
Benefits paid		(265	)		(216	)
Benefit obligation at end of year		7,989			7,010
Funded status (plan assets less benefit obligation)	$	(2,333	)	$	(2,118	)
Amounts recognized in accumulated other comprehensive loss, net of tax, consists of:
Accumulated net actuarial loss	$	1,872		$	1,620
Accumulated prior service benefit		(77	)		(97	)
Amount recognized, end of year	$	1,795		$	1,523

F-34

Notes to Consolidated Financial Statements (continued)

15. 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 17:

(Dollar amounts in thousands)			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
December 31, 2012:
Cash and cash equivalents	$	531	$	531	$	-	$	-
Fixed income		2,626		-		2,626		-
Equity mutual funds - domestic		2,203		2,203		-		-
Equity mutual funds - international		296		296		-		-
	$	5,656	$	3,030	$	2,626	$	-
December 31, 2011:
Cash and cash equivalents	$	454	$	454	$	-	$	-
Fixed income		2,471		-		2,471		-
Equity mutual funds - domestic		1,758		1,758		-		-
Equity mutual funds - international		209		209		-		-
	$	4,892	$	2,421	$	2,471	$	-

There were no significant transfers between Level 1 and Level 2 during 2012.

Amounts recognized in the balance sheet as of December 31 consist of:

(Dollar amounts in thousands)	Pension Benefits
	2012			2011
Prepaid benefit cost	$	386		$	190
Accumulated other comprehensive loss		(2,719	)		(2,308	)
Net amount recognized	$	(2,333	)	$	(2,118	)

The accumulated benefit obligation for the defined benefit pension plan was $8.0 million and $7.0 million at December 31, 2012 and 2011, respectively.

The components of the periodic pension costs for the years ended December 31 are as follows:

(Dollar amounts in thousands)	2012			2011
Service cost	$	272		$	295
Interest cost		331			327
Expected return on plan assets		(391	)		(357	)
Amortization of prior service cost and actuarial expense		92			30
Net periodic pension cost		304			295
Amortization of prior service cost		31			31
Amortization of net loss		381			852
Total recognized in other comprehensive (income) loss		412			883
Total recognized in net periodic benefit cost and other comprehensive income	$	716		$	1,178

F-35

Notes to Consolidated Financial Statements (continued)

15. Employee Benefit Plans (continued)

The estimated net loss and prior service costs 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 $111,000 as of December 31, 2012.

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

	2012			2011
Discount rate for net periodic benefit cost		4.70	%		5.70	%
Discount rate for benefit obligations		4.17	%		4.70	%
Rate of increase in future compensation levels		3.50	%		3.50	%
Expected rate of return on plan assets		7.75	%		7.75	%

The Corporation’s pension plan asset allocation at December 31, 2012 and 2011, target allocation for 2013, 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
	2012			2012			2011			2012
Equity Securities		40	%		41	%		40	%		5.5	%
Debt Securities		50	%		50	%		51	%		1.8	%
Other		10	%		9	%		9	%		0.5	%
		100	%		100	%		100	%		7.75	%

Investment Strategy

The intent of the 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 Plan’s objectives: Small company stock, International stock, Mid-cap stock, Large company stock, Diversified bond, Money Market/Stable Value and Cash. The Plan does not prohibit any certain investments.

The Corporation expects to contribute approximately $325,000 to its pension plan in 2013.

Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows:

(Dollar amounts in thousands)	Pension
For year ended December 31,	Benefits
2013	$	236
2014		233
2015		220
2016		258
2017		264
2018-2022		1,681
Thereafter		5,097
Benefit Obligation	$	7,989

F-36

Notes to Consolidated Financial Statements (continued)

15. Employee Benefit Plans (continued)

Certain accounting guidance requires an employer to recognize the funded status of its defined benefit pension plan as a net asset or liability in its consolidated balance sheet with an offsetting amount in accumulated other comprehensive income, and to recognize changes in that funded status in the year in which changes occur through comprehensive income. As of December 31, 2012, the Corporation’s liability under this guidance was $2.7 million and the charge to accumulated other comprehensive income was $1.8 million, net of taxes. Additionally, the guidance requires an employer to measure the funded status of its defined benefit pension plan as of the date of its year-end financial statements. The Corporation measures the funded status at December 31.

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 2012 and 2011, matching contributions were $179,000 and $176,000, respectively.

Supplemental Executive Retirement Plan

During 2003, the Corporation established a Supplemental Executive Retirement Plan (SERP) to provide certain additional retirement benefits to participating executive officers. The SERP was adopted in order to provide benefits to such executives whose benefits are reduced under the Corporation’s tax-qualified benefit plans pursuant to limitations under the Internal Revenue Code. The SERP is subject to certain vesting provisions and provides that the executives shall receive a supplemental retirement benefit if the executive’s employment is terminated after reaching the normal retirement age of 65. As of December 31, 2012 and 2011, the Corporation’s SERP liability was $736,000 and $627,000, respectively. For the years ended December 31, 2012 and 2011, the Corporation recognized expense of $120,000 and $124,000, respectively, related to the SERP.

16. Stock Compensation Plans

The Corporation’s 2007 Stock Incentive Plan and Trust (the Plan), which is shareholder-approved, permits the grant of restricted stock awards and options to its directors, officers and employees for up to 177,496 shares of common stock. Incentive stock options, non-incentive or compensatory stock options and share awards may be granted under the Plan. The exercise price of each option shall at least equal the market price of a share of common stock on the date of grant and have a contractual term of ten years. Options shall vest and become exercisable at the rate, to the extent and subject to such limitations as may be specified by the Corporation. Compensation cost related to share-based payment transactions must be recognized in the financial statements with measurement based upon the fair value of the equity instruments issued.

F-37

Notes to Consolidated Financial Statements (continued)

16. Stock Compensation Plans (continued)

During 2012 and 2011, the Corporation granted restricted stock awards of 9,900 and 8,000 shares, respectively, with a face value of $196,000 and $121,000, respectively, based on the weighted-average grant date stock prices of $19.79 and $15.17, respectively. In addition, during 2011, 500 options were granted under the plan. These options and restricted stock awards are 100% vested on the third anniversary of the date of grant. For the year ended December 31, 2012 and 2011, the Corporation recognized $113,000 and $98,000, respectively, in stock compensation expense.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Weighted-average for the year
ended December 31,	2012		2011
Dividend yield		-		4.25	%
Expected life		-		10 years
Expected volatility		-		18.14	%
Risk-free interest rate		-		1.99	%

The expected volatility is based on historical stock price fluctuations. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on the maximum term of the options. The dividend yield assumption is based on the Corporation’s history and expectation of dividend payouts.

A summary of option activity under the Plan as of December 31, 2012, and changes during the period then ended is presented below:

								Weighted-Average
				Weighted-Average		Aggregate		Remaining Term
	Options			Exercise Price		Intrinsic Value		(in years)
Outstanding as of January 1, 2012		94,000		$	24.51	$	-		6.0
Granted		-			-		-		-
Exercised		(750	)		13.50				-
Forfeited		(7,000	)		22.29		-		-
Outstanding as of December 31, 2012		86,250		$	24.79	$	-		4.9
Exercisable as of December 31, 2012		83,500		$	25.06	$	-		4.8

F-38

Notes to Consolidated Financial Statements (continued)

16. Stock Compensation Plans (continued)

A summary of the status of the Corporation’s nonvested restricted stock awards as of December 31, 2012, and changes during the period then ended is presented below:

				Weighted-Average
	Shares			Grant-date Fair Value
Nonvested at January 1, 2012		22,500		$	15.07
Granted		9,900			19.79
Vested		(6,750	)		13.50
Forfeited		-			-
Nonvested as of December 31, 2012		25,650		$	17.30

As of December 31, 2012, there was $298,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over the next three years.

17. Fair Values of Financial Instruments

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.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 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.

An asset or liability’s level is based on the lowest level of input that is significant to the fair value measurement.

The Corporation used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

F-39

Notes to Consolidated Financial Statements (continued)

17. Fair Values of Financial Instruments (continued)

Cash and cash equivalents – The carrying value of cash, due from banks and interest bearing deposits approximates fair value and are classified as Level 1.

Securities available for sale – 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 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 equity securities held by the Corporation. The Level 3 equity security valuations were supported by an analysis prepared by the Corporation which relies on 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.

Loans – The fair value of loans receivable was estimated based on the discounted value of the future cash flows using the current rates being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification.

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, 2012, the fair value of impaired loans consists of loan balances totaling $4.1 million, net of a valuation allowance of $1.4 million, compared to loan balances of $652,000, net of a valuation allowance of $164,000 at December 31, 2011. Additional provision for loan losses of $1.4 million and $143,000 was recorded during the years ended December 31, 2012 and 2011, respectively.

F-40

Notes to Consolidated Financial Statements (continued)

17. Fair Values of Financial Instruments (continued)

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, 2012, OREO measured at fair value less costs to sell had a net carrying amount of $45,000, which is made up of the outstanding balance of $50,000 and a write-down of $5,000.

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.

Federal bank stock – It is not practical to determine the fair value of federal bank stocks due to restrictions place on its transferability.

Deposits – The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, checking with interest, savings and money market accounts, is equal to the amount payable on demand resulting in either a Level 1 or Level 2 classification. The fair values of time deposits are based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities resulting in a Level 2 classification.

Borrowings – The fair value of borrowings with the FHLB is estimated using discounted cash flows based on current incremental borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued interest receivable and payable – The carrying value of accrued interest receivable and payable approximates fair value. The fair value classification is consistent with the related financial instrument.

Estimates of the fair value of off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties. Also, unfunded loan commitments relate principally to variable rate commercial loans.

F-41

Notes to Consolidated Financial Statements (continued)

17. Fair Values of Financial Instruments (continued)

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)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
December 31, 2012:
U.S. Treasury and federal agency	$	3,967	$	3,967	$	-	$	-
U.S. government sponsored entities and agencies		28,162		-		28,162		-
Mortgage-backed securities: residential		22,724		-		22,724		-
Collateralized mortgage obligations: residential		22,475		-		22,475		-
State and political subdivision		36,765		-		36,765		-
Corporate debt securities		3,761		-		3,761		-
Equity securities		2,352		1,699		-		653
	$	120,206	$	5,666	$	113,887	$	653
December 31, 2011:
U.S. Treasury and federal agency	$	4,460	$	4,460	$	-	$	-
U.S. government sponsored entities and agencies		41,520		-		41,520		-
Mortgage-backed securities: residential		37,478		-		37,478		-
State and political subdivision		37,000		-		37,000		-
Equity securities		2,696		1,052		1,644		-
	$	123,154	$	5,512	$	117,642	$	-

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 2012, the Corporation had no transfers between Level 1 and Level 2 and one transfer between Level 2 and Level 3. Transfers into Level 3 during the year reflected transfers from Level 2 of certain equity securities due to reduced transparency of market prices as a result of less market activity in these instruments. There has been no change in the value of these securities since the level classification change. The following table presents changes in Level 3 assets measured on a recurring basis for the years ended December 31, 2012 and 2011:

(Dollar amounts in thousands)	2012		2011
Balance at the beginning of the period	$	-	$	-
Total gains or losses (realized/unrealized):		-		-
Included in earnings		-		-
Included in other comprehensive income		-		-
Issuances		-		-
Transfers in and/or out of Level 3		653		-
Balance at the end of the period	$	653	$	-

F-42

Notes to Consolidated Financial Statements (continued)

17. Fair Values of Financial Instruments (continued)

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

(Dollar amounts in thousands)			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
December 31, 2012:
Impaired commerical real estate loans	$	2,620	$	-	$	-	$	2,620
Other residential real estate owned		45		-		-		45
	$	2,665	$	-	$	-	$	2,665
December 31, 2011:
Impaired commerical real estate loans	$	382	$	-	$	-	$	382
Impaired commercial business loans		106		-		-		106
Other residential real estate owned		45		-		-		45
	$	533	$	-	$	-	$	533

The following table presents quantitative information about Level 3 fair value measurements for assets measured at fair value on a non-recurring basis as of December 31, 2012:

(Dollar amounts in thousands)			Valuation	Unobservable
			Techniques(s)	Input (s)	Range
Impaired commercial real estate loans	$	2,620	Sales comparison approach/	Adjustment for differences		10% - 100%
			Contractual provision of USDA loan	between comparable sales
Other residential real estate owned		45	Sales comparison approach	Adjustment for differences		10%
				between comparable sales

Included in impaired commercial real estate loans is a $354,000 loan guaranteed by the United States Department of Agriculture (USDA). The guarantee covers 90% of the principal balance outstanding. In determining the fair value of this loan, the Corporation considered the contractual provisions of the loan and did not rely on the fair value of the underlying collateral. As such, the Corporation applied a 10% discount to the loan which represents the portion of the loan at risk. The weighted average discount on impaired commercial real estate loans as of December 31, 2012 was 11%.

F-43

Notes to Consolidated Financial Statements (continued)

17. Fair Values of Financial Instruments (continued)

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)			Fair Value Measurements at
	Carrying		December 31, 2012 using:
Description	Amount		Total		Level 1		Level 2		Level 3
December 31, 2012:
Financial Assets:
Cash and cash equivalents	$	20,424	$	20,424	$	20,424	$	-	$	-
Securities available for sale		120,206		120,206		5,666		113,887		653
Loans, net		333,801		340,840		-		-		340,840
Federal bank stock		2,885		N/A		-		-		-
Accrued interest receivable		1,533		1,533		23		383		1,127
		478,849		483,003		26,113		114,270		342,620
Financial Liabilities:
Deposits		432,459		436,279		300,805		135,474		-
FHLB advances		20,000		22,613		-		22,613		-
Accrued interest payable		442		442		55		387		-
		452,901		459,334		300,860		158,474		-

	Carrying		Fair
	Amount		Value
December 31, 2011:
Financial Assets:
Cash and cash equivalents		28,193		28,193
Securities available for sale		123,154		123,154
Loans, net		312,545		319,967
Federal bank stock		3,664		N/A
Accrued interest receivable		1,630		1,630
		469,186		472,944
Financial Liabilities:
Deposits		416,468		422,704
FHLB advances		20,000		23,362
Accrued interest payable		541		541
		437,009		446,607

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.

F-44

Notes to Consolidated Financial Statements (continued)

17. Fair Values of Financial Instruments (continued)

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.

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)	2012				2011
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	1,867	$	5,639	$	2,967	$	953
Unused lines of credit		502		38,565		3,703		36,166
	$	2,369	$	44,204	$	6,670	$	37,119

Commitments to make loans are generally made for periods of 30 days or less. The fixed rate loan commitments at December 31, 2012 have interest rates ranging from 3.25% to 5.25%. 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 were $189,000 and $245,000 at December 31, 2012 and 2011, respectively. The current amount of the liability as of December 31, 2012 and 2011 for guarantees under standby letters of credit issued is not material.

F-45

Notes to Consolidated Financial Statements (continued)

18. Emclaire Financial Corp – Condensed Financial Statements, Parent Corporation Only

Following are condensed financial statements for the parent company as of and for the years ended December 31:

Condensed Balance Sheets
(Dollar amounts in thousands)	2012		2011
Assets:
Cash and cash equivalents	$	38	$	87
Securities available for sale		2,301		2,644
Equity in net assets of subsidiaries		50,299		48,625
Other assets		500		515
Total Assets	$	53,138	$	51,871
Liabilities and Stockholders' Equity:
Short-term borrowed funds with affiliated subsidiary bank	$	1,375	$	1,100
Accrued expenses and other liabilities		38		41
Stockholders' equity		51,725		50,730
Total Liabilities and Stockholders' Equity	$	53,138	$	51,871

Condensed Statements of Income
(Dollar amounts in thousands)	2012		2011
Income:
Dividends from subsidiaries	$	1,207	$	5,287
Investment income		398		73
Total income		1,605		5,360
Expense:
Interest expense		38		194
Noninterest expense		321		342
Total expense		359		536
Income before income taxes and undistributed subsidiary income		1,246		4,824
Undistributed equity in (distribution in excess of) net income of subsidiary		2,458		(1,085	)
Net income before income taxes		3,704		3,739
Income tax expense (benefit)		50		(94	)
Net income	$	3,654	$	3,833
Comprehensive income	$	2,800	$	6,026

F-46

Notes to Consolidated Financial Statements (continued)

18. Emclaire Financial Corp – Condensed Financial Statements, Parent Corporation Only (continued)

Condensed Statements of Cash Flows
(Dollar amounts in thousands)	2012			2011
Operating activities:
Net income	$	3,654		$	3,833
Adjustments to reconcile net income to net cash provided by operating activities:
(Undistributed equity in) distributions in excess of net income of subsidiary		(2,458	)		652
Realized gains on sales of available for sale securities, net		(424	)		-
Securities impairment loss recognized in earnings		103			-
Other, net		161			(16	)
Net cash provided by operating activities		1,036			4,469
Investing activities:
Sales (purchases) of investment securities		558			(52	)
Investment in subsidiaries		-			(4,873	)
Net cash provided by (used in) investing activities		558			(4,925	)
Financing activities:
Net change in borrowings		275			(5,000	)
Proceeds from issuance of common stock		-			4,576
Proceeds from issuance of preferred stock (Series B)		-			10,000
Redemption of preferred stock (Series A)		-			(7,500	)
Warrant repurchase		-			(51	)
Proceeds from exercise of stock options, including tax benefit		12			-
Dividends paid		(1,930	)		(1,537	)
Net cash provided by (used in) financing activities		(1,643	)		488
Increase (decrease) in cash and cash equivalents		(49	)		32
Cash and cash equivalents at beginning of period		87			55
Cash and cash equivalents at end of period	$	38		$	87

F-47

Notes to Consolidated Financial Statements (continued)

19. Other Noninterest Income and Expense

Other noninterest income includes customer bank card processing fee income of $955,000 and $818,000 for 2012 and 2011, respectively.

The following summarizes the Corporation’s other noninterest expenses for the years ended December 31:

(Dollar amounts in thousands)	2012		2011
Customer bank card processing	$	464	$	365
Telephone and data communications		275		292
Debit card loyalty program		264		-
Internet banking and bill pay		260		234
Pennsylvania shares and use taxes		256		214
Travel, entertainment and conferences		255		215
Other		232		220
Printing and supplies		219		213
Marketing and advertising		196		171
Contributions		184		172
Subscriptions		175		151
Postage and freight		159		173
Correspondent bank and courier fees		149		160
Examinations		137		130
Collections		123		132
Penalties on prepayment of FHLB advances		-		334
Total other noninterest expenses	$	3,348	$	3,176

20. Earnings Per Share

The factors used in the Corporation’s earnings per share computation follow:

(Dollar amounts in thousands, except for per share amounts)	For the year ended
	December 31,
	2012		2011
Earnings per common share – basic
Net income	$	3,654	$	3,833
Less:  Preferred stock dividends and discount accretion		493		517
Net income available to common stockholders	$	3,161	$	3,316
Average common shares outstanding		1,752,324		1,677,225
Basic earnings per common share	$	1.80	$	1.98
Earnings per common share - diluted
Net income available to common stockholders	$	3,161	$	3,316
Average common shares outstanding		1,752,324		1,677,225
Add: Dilutive effects of assumed exercises of restricted stock and stock options		-		-
Average shares and dilutive potential common shares		1,752,324		1,677,225
Diluted earnings per common share	$	1.80	$	1.98
Stock options and restricted stock awards not considered in computing diluted earnings per share because they were antidilutive		86,950		116,500

F-48

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

Certification of the Principal Executive Officer

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, William C. Marsh, Chief Executive Officer and President, certify that:

1. I have reviewed this annual report on Form 10-K of Emclaire Financial Corp;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 22, 2013

By:	/s/ William C. Marsh
	William C. Marsh
	Chief Executive Officer and President

EX-31.2

EXHIBIT 31.2

Certification of the Principal Financial Officer

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Matthew J. Lucco, Principal Financial Officer and Treasurer, certify that:

1. I have reviewed this annual report on Form 10-K of Emclaire Financial Corp;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 22, 2013

By:	/s/ Matthew J. Lucco
	Matthew J. Lucco
	Principal Financial Officer Treasurer

EX-32.1

Exhibit 32.1

CEO CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Emclaire Financial Corp (the “Corporation”) on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William C. Marsh, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation.

/s/William C. Marsh

William C. Marsh

Chief Executive Officer

March 22, 2013

EX-32.2

Exhibit 32.2

CFO CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Emclaire Financial Corp (the “Corporation”) on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew J. Lucco, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation.

/s/Matthew J. Lucco

Matthew J. Lucco

Chief Financial Officer

March 22, 2013

XML

Stock Compensation Plans (Tables)

12 Months Ended

Dec. 31, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Weighted-average for the year
ended December 31,	2012		2011
Dividend yield		-		4.25	%
Expected life		-		10 years
Expected volatility		-		18.14	%
Risk-free interest rate		-		1.99	%

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

A summary of option activity under the Plan as of December 31, 2012, and changes during the period then ended is presented below:

								Weighted-Average
				Weighted-Average		Aggregate		Remaining Term
	Options			Exercise Price		Intrinsic Value		(in years)
Outstanding as of January 1, 2012		94,000		$	24.51	$	-		6.0
Granted		-			-		-		-
Exercised		(750	)		13.50				-
Forfeited		(7,000	)		22.29		-		-
Outstanding as of December 31, 2012		86,250		$	24.79	$	-		4.9
Exercisable as of December 31, 2012		83,500		$	25.06	$	-		4.8

Schedule of Nonvested Share Activity [Table Text Block]

A summary of the status of the Corporation’s nonvested restricted stock awards as of December 31, 2012, and changes during the period then ended is presented below:

				Weighted-Average
	Shares			Grant-date Fair Value
Nonvested at January 1, 2012		22,500		$	15.07
Granted		9,900			19.79
Vested		(6,750	)		13.50
Forfeited		-			-
Nonvested as of December 31, 2012		25,650		$	17.30

XML

Loans Receivable and Related Allowance for Loan Losses (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Unpaid Principal Balance	$ 2,665	$ 533
Recorded Investment	4,100	652
Related Allowance	1,400	164
Loans Receivable With Specific Allowance [Member]
Unpaid Principal Balance	4,242	652
Recorded Investment	4,068	652
Related Allowance	1,448	164
Average Recorded Investment	2,075	1,387
Interest Income Recognized in Period	186	46
Cash Basis Interest Recognized in Period	16	28
Loans Receivable With No Specific Allowance [Member]
Unpaid Principal Balance	2,774	3,780
Recorded Investment	2,524	3,391
Average Recorded Investment	2,832	3,002
Interest Income Recognized in Period	17	246
Cash Basis Interest Recognized in Period	17	225
Residential First Mortgages [Member] | Loans Receivable With Specific Allowance [Member]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Interest Income Recognized in Period	0	0
Cash Basis Interest Recognized in Period	0	0
Residential First Mortgages [Member] | Loans Receivable With No Specific Allowance [Member]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Average Recorded Investment	0	0
Interest Income Recognized in Period	0	0
Cash Basis Interest Recognized in Period	0	0
Home Equity [Member] | Loans Receivable With Specific Allowance [Member]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Interest Income Recognized in Period	0	0
Cash Basis Interest Recognized in Period	0	0
Home Equity [Member] | Loans Receivable With No Specific Allowance [Member]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Average Recorded Investment	0	0
Interest Income Recognized in Period	0	0
Cash Basis Interest Recognized in Period	0	0
Commercial Real Estate [Member] | Loans Receivable With Specific Allowance [Member]
Unpaid Principal Balance	4,242	524
Recorded Investment	4,068	524
Related Allowance	1,448	142
Average Recorded Investment	2,075	616
Interest Income Recognized in Period	186	39
Cash Basis Interest Recognized in Period	16	26
Commercial Real Estate [Member] | Loans Receivable With No Specific Allowance [Member]
Unpaid Principal Balance	730	1,518
Recorded Investment	505	1,154
Average Recorded Investment	690	862
Interest Income Recognized in Period	12	81
Cash Basis Interest Recognized in Period	12	81
Commercial Loan [Member] | Loans Receivable With Specific Allowance [Member]
Unpaid Principal Balance	0	128
Recorded Investment	0	128
Related Allowance	0	22
Average Recorded Investment	0	771
Interest Income Recognized in Period	0	7
Cash Basis Interest Recognized in Period	0	2
Commercial Loan [Member] | Loans Receivable With No Specific Allowance [Member]
Unpaid Principal Balance	394	357
Recorded Investment	369	332
Average Recorded Investment	368	122
Interest Income Recognized in Period	5	27
Cash Basis Interest Recognized in Period	5	6
Consumer Loan [Member] | Loans Receivable With Specific Allowance [Member]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Interest Income Recognized in Period	0	0
Cash Basis Interest Recognized in Period	0	0
Consumer Loan [Member] | Loans Receivable With No Specific Allowance [Member]
Unpaid Principal Balance	1,650	1,905
Recorded Investment	1,650	1,905
Average Recorded Investment	1,774	2,018
Interest Income Recognized in Period	0	138
Cash Basis Interest Recognized in Period	$ 0	$ 138

XML

Securities (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Proceeds	$ 17,139	$ 28,978
Gains	1,360	523
Losses	0	(41)
Tax provision related to gains	$ 462	$ 178

XML

Deposits (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Time Deposit Amount 2013	$ 57,294
Time Deposit Amount 2014	23,018
Time Deposit Amount 2015	13,941
Time Deposit Amount 2016	15,172
Time Deposit Amount 2017	5,918
Time Deposit Amount Thereafter	16,638
Time Deposits	$ 131,981	$ 145,490
Time Deposit Percentage 2013	43.40%
Time Deposit Percentage 2014	17.40%
Time Deposit Percentage 2015	10.60%
Time Deposit Percentage 2016	11.50%
Time Deposit Percentage 2017	4.50%
Time Deposit Percentage Thereafter	12.60%
Time Deposits Weighted Average Interest Rate Maturities	100.00%

XML

Loans Receivable and Related Allowance for Loan Losses (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Total Loans	$ 339,151	$ 316,081
Not Rated [Member]
Total Loans	192,392	174,413
Pass [Member]
Total Loans	131,361	129,870
Special Mention [Member]
Total Loans	3,815	4,457
Substandard [Member]
Total Loans	10,232	7,341
Doubtful [Member]
Total Loans	1,351	0
Residential First Mortgages [Member]
Total Loans	97,246	93,610
Residential First Mortgages [Member] | Not Rated [Member]
Total Loans	96,713	92,612
Residential First Mortgages [Member] | Pass [Member]
Total Loans	0	0
Residential First Mortgages [Member] | Special Mention [Member]
Total Loans	0	0
Residential First Mortgages [Member] | Substandard [Member]
Total Loans	533	998
Residential First Mortgages [Member] | Doubtful [Member]
Total Loans	0	0
Home Equity [Member]
Total Loans	85,615	71,238
Home Equity [Member] | Not Rated [Member]
Total Loans	85,443	71,064
Home Equity [Member] | Pass [Member]
Total Loans	0	0
Home Equity [Member] | Special Mention [Member]
Total Loans	0	0
Home Equity [Member] | Substandard [Member]
Total Loans	172	174
Home Equity [Member] | Doubtful [Member]
Total Loans	0	0
Commercial Real Estate [Member]
Total Loans	98,823	94,765
Commercial Real Estate [Member] | Not Rated [Member]
Total Loans	0	0
Commercial Real Estate [Member] | Pass [Member]
Total Loans	88,944	88,006
Commercial Real Estate [Member] | Special Mention [Member]
Total Loans	1,658	3,625
Commercial Real Estate [Member] | Substandard [Member]
Total Loans	6,870	3,134
Commercial Real Estate [Member] | Doubtful [Member]
Total Loans	1,351	0
Commercial Loan [Member]
Total Loans	45,581	43,826
Commercial Loan [Member] | Not Rated [Member]
Total Loans	0	0
Commercial Loan [Member] | Pass [Member]
Total Loans	42,417	41,864
Commercial Loan [Member] | Special Mention [Member]
Total Loans	2,157	832
Commercial Loan [Member] | Substandard [Member]
Total Loans	1,007	1,130
Commercial Loan [Member] | Doubtful [Member]
Total Loans	0	0
Consumer Loan [Member]
Total Loans	11,886	12,642
Consumer Loan [Member] | Not Rated [Member]
Total Loans	10,236	10,737
Consumer Loan [Member] | Pass [Member]
Total Loans	0	0
Consumer Loan [Member] | Special Mention [Member]
Total Loans	0	0
Consumer Loan [Member] | Substandard [Member]
Total Loans	1,650	1,905
Consumer Loan [Member] | Doubtful [Member]
Total Loans	$ 0	$ 0

XML

Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Current	$ 1,435	$ 838
Deferred	(501)	112
Provision for income taxes	$ 934	$ 950

XML

Other Noninterest Income and Expense (Details Textual) (Customer Bank Card Processing [Member], USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Customer Bank Card Processing [Member]
Noninterest Income, Other Operating Income	$ 955,000	$ 818,000

XML

Participation in the Small Business Lending Fund (SBLF) of the U.S. Treasury Department (U.S. Treasury) and Repurchase of Shares Issued Under the Troubled Asset Relief Program (TARP) (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Non-Cumulative Perpetual Series B Preferred Stock Issued, Shares Pursuant To U.S. Treasury's Small Business Lending Fund Program (in shares)		10,000
Non-Cumulative Perpetual Series B Preferred Stock Issued Pursuant To U.S. Treasury's Small Business Lending Fund Program, Liquidation Preference (in dollars per share)		$ 1,000
Proceeds From Issuance Of Non-Cumulative Perpetual Preferred Series B Preferred Stock Pursuant To U.S. Treasury'S Small Business Lending Fund Program		$ 10,000,000
Preferred Stock Terms Of Issuance		The issuance was pursuant to the U.S. Treasury's SBLF program, a $30.0 billion fund established under the Small Business Jobs Act of 2010, which encourages lending to small businesses by providing capital to qualified community banks with assets less than $10.0 billion.
Preferred Stock, Dividend Payment Rate, Variable		The dividend rate, which is calculated on the aggregate liquidation amount, has been initially set at 5% per annum based upon the current level of Qualified Small Business Lending (QSBL) by the Bank. The dividend rate for future periods will be set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the time the Agreement was entered into. Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods, and from 1% per annum to 7% per annum for the eleventh through the eighteenth dividend periods. If the Series B Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%.
Preferred Stock, Redemption Terms		The Corporation may redeem the shares of Series B Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the liquidation amount and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Corporation's primary federal banking regulator. If paid in part, payments are required to be at least 25% of the original proceeds.
Repurchase Of Number Of Fixed Rate Cumulative Perpetual Preferred Stock, Series A Issued In Association With Participation In Tarp (in shares)		7,500
Liquidation Preference Value Of Fixed Rate Cumulative Perpetual Preferred Stock, Series A Issued In Association With Participation In TARP (in dollars per share)		$ 1,000
Repurchased Value Of Fixed Rate Cumulative Perpetual Preferred Stock, Series A Issued In Association With Participation In Tarp		7,500,000
Number Of Common Stock, Shares Issuable To U.S. Treasury Upon Conversion Of Warrants (in shares)		50,111
Par Value Of Common Stock Issuable To U.S. Treasury Upon Conversion Of Warrants (in dollars per share)		$ 1.25
Remaining Term Of Warrants Issued To U.S. Treasury To Purchase Common Stock		10 years
Exercise Price Of Warrants Issued To U.S. Treasury To Purchase Common Stock (in dollars per share)		$ 22.45
Payments for Repurchase of Warrants	$ 0	$ 51,000

XML

Goodwill and Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets and Goodwill [Table Text Block]

The following table summarizes the Corporation’s acquired goodwill and intangible assets as of December 31:

(Dollar amounts in thousands)	2012				2011
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill	$	3,664	$	-	$	3,664	$	-
Core deposit intangibles		4,027		2,792		4,027		2,447
Total	$	7,691	$	2,792	$	7,691	$	2,447

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

The estimated amortization expense of the core deposit intangible for the years ending December 31, are as follows:

	Amortization
(Dollar amounts in thousands)	Expense
2013	$	270
2014		216
2015		195
2016		195
2017		195
Thereafter		164
	$	1,235

XML

Income Taxes (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Provision at statutory tax rate, Amount	$ 1,560	$ 1,626
Increase (decrease) resulting from:
Tax free interest, net of disallowance, Amount	(563)	(552)
Earnings on BOLI, Amount	(89)	(72)
Other, net, Amount	26	(52)
Provision for income taxes	$ 934	$ 950
Provision at statutory tax rate, Percantage Pre-tax Income	34.00%	34.00%
Tax free interest, net of disallowance, Percantage Pre-tax Income	(12.30%)	(11.50%)
Earnings on BOLI, Percantage Pre-tax Income	(1.90%)	(1.50%)
Other, net, Percantage Pre-tax Income	0.60%	(1.10%)
Provision, Percantage Pre-tax Income	20.40%	19.90%

XML

Borrowed Funds (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Due within 12 months, Balance	$ 0	$ 0
Due beyond 12 months but within 5 years, Balance	20,000	15,000
Due beyond 5 years but within 10 years, Balance	0	5,000
Total borrowed funds	20,000	20,000
Due within 12 months, Average Balance	27	3,414
Due beyond 12 months but within 5 years, Average Balance	20,000	17,068
Due beyond 5 years but within 10 years, Average Balance	0	5,000
Borrowed Funds, Average Balance	$ 20,027	$ 25,482
Due within 12 months, Average Rate	0.46%	4.66%
Due beyond 12 months but within 5 years, Average Rate	4.59%	4.63%
Due beyond 5 years but within 10 years, Average Rate	0.00%	4.09%

XML

Stock Compensation Plans (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Dividend yield	0.00%	4.25%
Expected life	0 years	10 years
Expected volatility	0.00%	18.14%
Risk-free interest rate	0.00%	1.99%

XML

Loans Receivable and Related Allowance for Loan Losses (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Total Loans	$ 6,967	$ 5,499
Residential First Mortgages [Member]
Total Loans	533	932
Home Equity [Member]
Total Loans	197	174
Commercial Real Estate [Member]
Total Loans	4,218	1,831
Commercial Loan [Member]
Total Loans	369	471
Consumer Loan [Member]
Total Loans	1,650	2,091
Not Past Due [Member]
Total Loans	2,197	3,649
Not Past Due [Member] | Residential First Mortgages [Member]
Total Loans	0	0
Not Past Due [Member] | Home Equity [Member]
Total Loans	0	0
Not Past Due [Member] | Commercial Real Estate [Member]
Total Loans	469	1,087
Not Past Due [Member] | Commercial Loan [Member]
Total Loans	78	471
Not Past Due [Member] | Consumer Loan [Member]
Total Loans	1,650	2,091
Thirty To Fifty Nine Days Past Due [Member]
Total Loans	3,411	92
Thirty To Fifty Nine Days Past Due [Member] | Residential First Mortgages [Member]
Total Loans	0	0
Thirty To Fifty Nine Days Past Due [Member] | Home Equity [Member]
Total Loans	25	0
Thirty To Fifty Nine Days Past Due [Member] | Commercial Real Estate [Member]
Total Loans	3,386	92
Thirty To Fifty Nine Days Past Due [Member] | Commercial Loan [Member]
Total Loans	0	0
Thirty To Fifty Nine Days Past Due [Member] | Consumer Loan [Member]
Total Loans	0	0
Sixty To Eighty Nine Days Past Due [Member]
Total Loans	10	0
Sixty To Eighty Nine Days Past Due [Member] | Residential First Mortgages [Member]
Total Loans	0	0
Sixty To Eighty Nine Days Past Due [Member] | Home Equity [Member]
Total Loans	0	0
Sixty To Eighty Nine Days Past Due [Member] | Commercial Real Estate [Member]
Total Loans	10	0
Sixty To Eighty Nine Days Past Due [Member] | Commercial Loan [Member]
Total Loans	0	0
Sixty To Eighty Nine Days Past Due [Member] | Consumer Loan [Member]
Total Loans	0	0
Ninty Days Or More Past Due [Member]
Total Loans	1,349	1,758
Ninty Days Or More Past Due [Member] | Residential First Mortgages [Member]
Total Loans	533	932
Ninty Days Or More Past Due [Member] | Home Equity [Member]
Total Loans	172	174
Ninty Days Or More Past Due [Member] | Commercial Real Estate [Member]
Total Loans	353	652
Ninty Days Or More Past Due [Member] | Commercial Loan [Member]
Total Loans	291	0
Ninty Days Or More Past Due [Member] | Consumer Loan [Member]
Total Loans	$ 0	$ 0

XML

Regulatory Matters (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Consolidated Corporation [Member]
Total capital to risk-weighted assets Actual, Amount	$ 50,035	$ 50,512
Total capital to risk-weighted assets For capital adequacy purposes, Amount	24,083	22,636
Tier 1 capital to risk-weighted assets Actual, Amount	46,252	47,008
Tier 1 capital to risk-weighted assets For capital adequacy purposes, Amount	12,042	11,318
Tier 1 capital to average assets Actual	46,252	47,008
Tier 1 capital to average assets For capital adequacy purposes	20,148	19,362
Total capital to risk-weighted assets Actual Ratio	16.62%	17.85%
Total capital to risk-weighted assets For capital adequacy purposes Ratio	8.00%	8.00%
Tier 1 capital to risk-weighted assets Actual Ratio	15.36%	16.61%
Tier 1 capital to risk-weighted assets For capital adequacy purposes Ratio	4.00%	4.00%
Tier 1 capital to average assets Actual Ratio	9.18%	9.71%
Tier 1 capital to average assets For Capital Adequacy Ratio	4.00%	4.00%
Farmers National Bank Of Emlenton [Member]
Total capital to risk-weighted assets Actual, Amount	48,585	45,550
Total capital to risk-weighted assets For capital adequacy purposes, Amount	23,971	22,422
Total capital to risk-weighted assets To be well capitalized, Amount	29,964	28,027
Tier 1 capital to risk-weighted assets Actual, Amount	44,820	42,046
Tier 1 capital to risk-weighted assets For capital adequacy purposes, Amount	11,985	11,211
Tier 1 capital to risk-weighted assets To be well capitalized	17,978	16,816
Tier 1 capital to average assets Actual	44,820	42,046
Tier 1 capital to average assets For capital adequacy purposes	20,101	19,347
Tier 1 capital to average assets To be well capitalized	$ 25,126	$ 24,183
Total capital to risk-weighted assets Actual Ratio	16.21%	16.25%
Total capital to risk-weighted assets For capital adequacy purposes Ratio	8.00%	8.00%
Total capital to risk-weighted assets To be well capitalized Ratio	10.00%	10.00%
Tier 1 capital to risk-weighted assets Actual Ratio	14.96%	15.00%
Tier 1 capital to risk-weighted assets For capital adequacy purposes Ratio	4.00%	4.00%
Tier 1 capital to risk-weighted assets To be well capitalized Ratio	6.00%	6.00%
Tier 1 capital to average assets Actual Ratio	8.92%	8.69%
Tier 1 capital to average assets For Capital Adequacy Ratio	4.00%	4.00%
Tier 1 capital to average assets To Be Well Capitalized Ratio	5.00%	5.00%

XML

Employee Benefit Plans (Details 5)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Target Allocation	100.00%
Percentage of Plan Assets	100.00%	100.00%
Weighted-Average Expected Long-Term Rate of Return	7.75%	7.75%
Equity Securities [Member]
Target Allocation	40.00%
Percentage of Plan Assets	41.00%	40.00%
Weighted-Average Expected Long-Term Rate of Return	5.50%
Debt Securities [Member]
Target Allocation	50.00%
Percentage of Plan Assets	50.00%	51.00%
Weighted-Average Expected Long-Term Rate of Return	1.80%
Others [Member]
Target Allocation	10.00%
Percentage of Plan Assets	9.00%	9.00%
Weighted-Average Expected Long-Term Rate of Return	0.50%

XML

Employee Benefit Plans (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Change in plan assets:
Fair value of plan assets at beginning of year	$ 4,892	$ 4,497
Actual return on plan assets	529	192
Employer contribution	500	419
Benefits paid	(265)	(216)
Fair value of plan assets at end of year	5,656	4,892
Change in benefit obligation:
Benefit obligation at beginning of year	7,010	5,855
Service cost	272	295
Interest cost	331	327
Actuarial loss	145	0
Effect of change in assumptions	496	749
Benefits paid	(265)	(216)
Benefit obligation at end of year	(7,989)	(7,010)
Funded status (plan assets less benefit obligation)	(2,333)	(2,118)
Amounts recognized in accumulated other comprehensive loss, net of tax, consists of:
Accumulated net actuarial loss	1,872	1,620
Accumulated prior service benefit	(77)	(97)
Amount recognized, end of year	$ 1,795	$ 1,523

XML

Employee Benefit Plans (Details 6) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
2013	$ 236
2014	233
2015	220
2016	258
2017	264
2018-2022	1,681
Thereafter	5,097
Benefit Obligation	$ 7,989	$ 7,010	$ 5,855

XML

Regulatory Matters (Details Textual) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Undistributed Earnings Available For Dividends	$ 3.2
Percentage Of Maximum Limit For Loans and Advances	10.00%
Maximum Funds Available For Loans and Advances	3.3
Line of Credit Facility, Maximum Borrowing Capacity	2.2
Line of Credit Facility, Amount Outstanding	$ 1.4

XML

Deposits (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Less than three months	$ 5,467
Over three months to six months	4,101
Over six months to twelve months	12,046
Over twelve months	29,905
Time Deposits, $100,000 or More	$ 51,519	$ 54,500

XML

Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

17. Fair Values of Financial Instruments

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.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 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.

An asset or liability’s level is based on the lowest level of input that is significant to the fair value measurement.

The Corporation used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Cash and cash equivalents – The carrying value of cash, due from banks and interest bearing deposits approximates fair value and are classified as Level 1.

Securities available for sale – 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 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 equity securities held by the Corporation. The Level 3 equity security valuations were supported by an analysis prepared by the Corporation which relies on 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.

Loans – The fair value of loans receivable was estimated based on the discounted value of the future cash flows using the current rates being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification.

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, 2012, the fair value of impaired loans consists of loan balances totaling $4.1 million, net of a valuation allowance of $1.4 million, compared to loan balances of $652,000, net of a valuation allowance of $164,000 at December 31, 2011. Additional provision for loan losses of $1.4 million and $143,000 was recorded during the years ended December 31, 2012 and 2011, respectively.

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, 2012, OREO measured at fair value less costs to sell had a net carrying amount of $45,000, which is made up of the outstanding balance of $50,000 and a write-down of $5,000.

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.

Federal bank stock – It is not practical to determine the fair value of federal bank stocks due to restrictions place on its transferability.

Deposits – The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, checking with interest, savings and money market accounts, is equal to the amount payable on demand resulting in either a Level 1 or Level 2 classification. The fair values of time deposits are based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities resulting in a Level 2 classification.

Borrowings – The fair value of borrowings with the FHLB is estimated using discounted cash flows based on current incremental borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Accrued interest receivable and payable – The carrying value of accrued interest receivable and payable approximates fair value. The fair value classification is consistent with the related financial instrument.

Estimates of the fair value of off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties. Also, unfunded loan commitments relate principally to variable rate commercial loans.

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)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
December 31, 2012:
U.S. Treasury and federal agency	$	3,967	$	3,967	$	-	$	-
U.S. government sponsored entities and agencies		28,162		-		28,162		-
Mortgage-backed securities: residential		22,724		-		22,724		-
Collateralized mortgage obligations: residential		22,475		-		22,475		-
State and political subdivision		36,765		-		36,765		-
Corporate debt securities		3,761		-		3,761		-
Equity securities		2,352		1,699		-		653
	$	120,206	$	5,666	$	113,887	$	653
December 31, 2011:
U.S. Treasury and federal agency	$	4,460	$	4,460	$	-	$	-
U.S. government sponsored entities and agencies		41,520		-		41,520		-
Mortgage-backed securities: residential		37,478		-		37,478		-
State and political subdivision		37,000		-		37,000		-
Equity securities		2,696		1,052		1,644		-
	$	123,154	$	5,512	$	117,642	$	-

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 2012, the Corporation had no transfers between Level 1 and Level 2 and one transfer between Level 2 and Level 3. Transfers into Level 3 during the year reflected transfers from Level 2 of certain equity securities due to reduced transparency of market prices as a result of less market activity in these instruments. There has been no change in the value of these securities since the level classification change. The following table presents changes in Level 3 assets measured on a recurring basis for the years ended December 31, 2012 and 2011:

(Dollar amounts in thousands)	2012		2011
Balance at the beginning of the period	$	-	$	-
Total gains or losses (realized/unrealized):		-		-
Included in earnings		-		-
Included in other comprehensive income		-		-
Issuances		-		-
Transfers in and/or out of Level 3		653		-
Balance at the end of the period	$	653	$	-

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

(Dollar amounts in thousands)			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
December 31, 2012:
Impaired commerical real estate loans	$	2,620	$	-	$	-	$	2,620
Other residential real estate owned		45		-		-		45
	$	2,665	$	-	$	-	$	2,665
December 31, 2011:
Impaired commerical real estate loans	$	382	$	-	$	-	$	382
Impaired commercial business loans		106		-		-		106
Other residential real estate owned		45		-		-		45
	$	533	$	-	$	-	$	533

The following table presents quantitative information about Level 3 fair value measurements for assets measured at fair value on a non-recurring basis as of December 31, 2012:

(Dollar amounts in thousands)			Valuation	Unobservable
			Techniques(s)	Input (s)	Range
Impaired commercial real estate loans	$	2,620	Sales comparison approach/	Adjustment for differences		10% - 100%
			Contractual provision of USDA loan	between comparable sales
Other residential real estate owned		45	Sales comparison approach	Adjustment for differences		10%
				between comparable sales

Included in impaired commercial real estate loans is a $354,000 loan guaranteed by the United States Department of Agriculture (USDA). The guarantee covers 90% of the principal balance outstanding. In determining the fair value of this loan, the Corporation considered the contractual provisions of the loan and did not rely on the fair value of the underlying collateral. As such, the Corporation applied a 10% discount to the loan which represents the portion of the loan at risk. The weighted average discount on impaired commercial real estate loans as of December 31, 2012 was 11%.

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)			Fair Value Measurements at
	Carrying		December 31, 2012 using:
Description	Amount		Total		Level 1		Level 2		Level 3
December 31, 2012:
Financial Assets:
Cash and cash equivalents	$	20,424	$	20,424	$	20,424	$	-	$	-
Securities available for sale		120,206		120,206		5,666		113,887		653
Loans, net		333,801		340,840		-		-		340,840
Federal bank stock		2,885		N/A		-		-		-
Accrued interest receivable		1,533		1,533		23		383		1,127
		478,849		483,003		26,113		114,270		342,620
Financial Liabilities:
Deposits		432,459		436,279		300,805		135,474		-
FHLB advances		20,000		22,613		-		22,613		-
Accrued interest payable		442		442		55		387		-
		452,901		459,334		300,860		158,474		-

	Carrying		Fair
	Amount		Value
December 31, 2011:
Financial Assets:
Cash and cash equivalents		28,193		28,193
Securities available for sale		123,154		123,154
Loans, net		312,545		319,967
Federal bank stock		3,664		N/A
Accrued interest receivable		1,630		1,630
		469,186		472,944
Financial Liabilities:
Deposits		416,468		422,704
FHLB advances		20,000		23,362
Accrued interest payable		541		541
		437,009		446,607

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.

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)	2012				2011
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	1,867	$	5,639	$	2,967	$	953
Unused lines of credit		502		38,565		3,703		36,166
	$	2,369	$	44,204	$	6,670	$	37,119

Commitments to make loans are generally made for periods of 30 days or less. The fixed rate loan commitments at December 31, 2012 have interest rates ranging from 3.25% to 5.25%. 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 were $189,000 and $245,000 at December 31, 2012 and 2011, respectively. The current amount of the liability as of December 31, 2012 and 2011 for guarantees under standby letters of credit issued is not material.

XML

Securities (Details 3) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Less than 12 Months	$ 12,212	$ 5,470
Unrealized Loss, Less than 12 Months	(90)	(193)
Fair Value, 12 Months or More	0	187
Unrealized Loss, 12 Months or More	0	(22)
Fair Value, Total	12,212	5,657
Unrealized Loss, Total	(90)	(215)
U.S.government sponsored entities and agencies [Member]
Fair Value, Less than 12 Months		4,490
Unrealized Loss, Less than 12 Months		(7)
Fair Value, 12 Months or More		0
Unrealized Loss, 12 Months or More		0
Fair Value, Total		4,490
Unrealized Loss, Total		(7)
State and political subdivisions [Member]
Fair Value, Less than 12 Months	521	99
Unrealized Loss, Less than 12 Months	(1)	(1)
Fair Value, 12 Months or More	0	0
Unrealized Loss, 12 Months or More	0	0
Fair Value, Total	521	99
Unrealized Loss, Total	(1)	(1)
Corporate debt [Member]
Fair Value, Less than 12 Months	500
Unrealized Loss, Less than 12 Months	(1)
Fair Value, 12 Months or More	0
Unrealized Loss, 12 Months or More	0
Fair Value, Total	500
Unrealized Loss, Total	(1)
Equity Securities [Member]
Fair Value, Less than 12 Months	493	881
Unrealized Loss, Less than 12 Months	(8)	(185)
Fair Value, 12 Months or More	0	187
Unrealized Loss, 12 Months or More	0	(22)
Fair Value, Total	493	1,068
Unrealized Loss, Total	(8)	(207)
Collateralized Mortgage Obligations [Member]
Fair Value, Less than 12 Months	10,698
Unrealized Loss, Less than 12 Months	(80)
Fair Value, 12 Months or More	0
Unrealized Loss, 12 Months or More	0
Fair Value, Total	10,698
Unrealized Loss, Total	$ (80)

XML

Other Noninterest Income and Expense (Tables)

12 Months Ended

Dec. 31, 2012

Other Income and Expenses [Abstract]

Schedule of Other Nonoperating Expense, by Component [Table Text Block]

The following summarizes the Corporation’s other noninterest expenses for the years ended December 31:

(Dollar amounts in thousands)	2012		2011
Customer bank card processing	$	464	$	365
Telephone and data communications		275		292
Debit card loyalty program		264		-
Internet banking and bill pay		260		234
Pennsylvania shares and use taxes		256		214
Travel, entertainment and conferences		255		215
Other		232		220
Printing and supplies		219		213
Marketing and advertising		196		171
Contributions		184		172
Subscriptions		175		151
Postage and freight		159		173
Correspondent bank and courier fees		149		160
Examinations		137		130
Collections		123		132
Penalties on prepayment of FHLB advances		-		334
Total other noninterest expenses	$	3,348	$	3,176

XML

Borrowed Funds (Details Textual) (USD $)	3 Months Ended				3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Before Modification [Member]	Dec. 31, 2012 After Modification [Member]	Dec. 31, 2012 Modified Advances 1 [Member]	Dec. 31, 2012 Modified Advances 1 [Member]	Dec. 31, 2012 Modified Advances 2 [Member]	Dec. 31, 2012 Modified Advances 2 [Member]	Dec. 31, 2012 Modified Other Advances [Member]	Dec. 31, 2012 Modified Other Advances [Member]	Dec. 31, 2012 Federal Home Loan Bank Advances 2 [Member]	Dec. 31, 2012 Federal Home Loan Bank Advances [Member]	Dec. 31, 2012 Federal Home Loan Bank Advances [Member] Before Modification [Member]
FHLB Advances - Carrying Amount	$ 20,000,000	$ 20,000,000									$ 5,000,000	$ 5,000,000	$ 20,000,000
Loans Pledged as Collateral	255,200,000
Federal Home Loan Bank Modified	15,000,000
Federal Home Loan Bank, Advances	20,000,000
Federal Home Loan Bank Advances Maturities Summary By Interest Rate Type Fixed Rate One To Two Years						4.98%		4.83%		4.68%
Federal Home Loan Bank Advances Maturities Summary By Interest Rate Type Floating Rate Three To Ten Years Description					LIBOR rate plus 24 basis points		LIBOR rate plus 24 basis points		LIBOR rate plus 24 basis points
Federal Home Loan Bank Advances Maturities Summary By Interest Rate Type Floating Rate Condition									if the three month LIBOR rate exceeded 6.0%.
Federal Home Loan Bank Advances General Description Of Terms					10 Years		10 Years		10 Years
Converted Federal Home Loan Bank Advances Maturities Summary Due In Five Years	5,000,000
Converted Federal Home Loan Bank Advances Maturities Summary By Interest Rate Type Fixed Rate	0.93%
Federal Home Loan Bank Modified, Prepayment Penalties	2,300,000
Converted Federal Home Loan Bank General Description Terms	5 Years										10 Years
Federal Home Loan Bank Advances Maturities Summary By Interest Rate Type Fixed Rate One To Three Years											4.09%
Federal Home Loan Bank Advances Maturities Summary By Interest Rate Type Floating Rate Four To Ten Years Description											three month LIBOR rate plus 13 basis points.
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Weighted Average Interest Rate			4.65%	4.01%
Federal Home Loan Bank, Advances, General Debt Obligations, Maximum Amount Available	154,700,000
Federal Home Loan Bank, Advances, General Debt Obligations, Amount of Available, Unused Funds	$ 5,000,000

XML

Fair Values of Financial Instruments (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Financial assets:
Cash and cash equivalents - Carrying Amount	$ 20,424	$ 28,193	$ 19,027
Securities available for sale - Carrying Amount	120,206	123,154
Loans, net - Carrying Amount	333,801	312,545
Federal bank stocks - Carrying Amount	2,885	3,664
Accrued interest receivable - Carrying Amount	1,533	1,630
Financial Assets - Carrying Amount, Total	478,849	469,186
Financial liabilities:
Deposits - Carrying Amount	432,459	416,468
FHLB Advances - Carrying Amount	20,000	20,000
Accrued interest payable - Carrying Amount	442	541
Financial Liabilities - Carrying Amount, Total	452,901	437,009
Financial assets:
Cash and cash equivalents - Fair Value	20,424	28,193
Securities available for sale - Fair Value	120,206	123,154
Loans, net - Fair Value	340,840	319,967
Accrued interest receivable - Fair value	1,533	1,630
Financial Assets - Fair Value, Total	483,003	472,944
Financial liabilities:
Deposits - Fair Value	436,279	422,704
FHLB Advances - Fair Value	22,613	23,362
Accrued interest payable - Fair Value	442	541
Financial Liabilities - Fair Value, Total	459,334	446,607
Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents - Fair Value	20,424
Securities available for sale - Fair Value	5,666
Loans, net - Fair Value	0
Federal bank stock - Fair Value	0
Accrued interest receivable - Fair value	23
Financial Assets - Fair Value, Total	26,113
Financial liabilities:
Deposits - Fair Value	300,805
FHLB Advances - Fair Value	0
Accrued interest payable - Fair Value	55
Financial Liabilities - Fair Value, Total	300,860
Fair Value, Inputs, Level 2 [Member]
Financial assets:
Cash and cash equivalents - Fair Value	0
Securities available for sale - Fair Value	113,887
Loans, net - Fair Value	0
Federal bank stock - Fair Value	0
Accrued interest receivable - Fair value	383
Financial Assets - Fair Value, Total	114,270
Financial liabilities:
Deposits - Fair Value	135,474
FHLB Advances - Fair Value	22,613
Accrued interest payable - Fair Value	387
Financial Liabilities - Fair Value, Total	158,474
Fair Value, Inputs, Level 3 [Member]
Financial assets:
Cash and cash equivalents - Fair Value	0
Securities available for sale - Fair Value	653
Loans, net - Fair Value	340,840
Federal bank stock - Fair Value	0
Accrued interest receivable - Fair value	1,127
Financial Assets - Fair Value, Total	342,620
Financial liabilities:
Deposits - Fair Value	0
FHLB Advances - Fair Value	0
Accrued interest payable - Fair Value	0
Financial Liabilities - Fair Value, Total	$ 0

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Schedule Of Provisions For Income Tax [Table Text Block]

The Corporation and the Bank file a consolidated federal income tax return. The provision for income taxes for the years ended December 31 is comprised of the following:

(Dollar amounts in thousands)	2012			2011
Current	$	1,435		$	838
Deferred		(501	)		112
	$	934		$	950

Schedule Of Income Tax Reconciliation and Effective Income Tax Rate Reconciliation [Table Text Block]

A reconciliation between the provision for income taxes and the amount computed by multiplying operating results before income taxes by the statutory federal income tax rate of 34% for the years ended December 31 is as follows:

(Dollar amounts in thousands)	2012						2011
				% Pre-tax						% Pre-tax
	Amount			Income			Amount			Income
Provision at statutory tax rate	$	1,560			34.0	%	$	1,626			34.0	%
Increase (decrease) resulting from:
Tax free interest, net of disallowance		(563	)		(12.3	)%		(552	)		(11.5	)%
Earnings on BOLI		(89	)		(1.9	)%		(72	)		(1.5	)%
Other, net		26			0.6	%		(52	)		(1.1	)%
Provision	$	934			20.4	%	$	950			19.9	%

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

The tax effects of temporary differences between the financial reporting basis and income tax basis of assets and liabilities that are included in the net deferred tax asset or liability as of December 31 relate to the following:

(Dollar amounts in thousands)	2012		2011
Deferred tax assets:
Allowance for loan losses	$	1,682	$	1,046
Funded status of pension plan		925		785
Deferred compensation		278		213
Nonaccrual loan interest income		154		122
Securities impairment		149		226
Stock compensation		139		132
Other		28		72
Gross deferred tax assets		3,355		2,596
Deferred tax liabilities:
Net unrealized gains on securities		1,219		1,518
Depreciation		593		618
Accrued pension liability		298		190
Intangible assets		247		204
Deferred loan fees		99		79
Other		49		77
Gross deferred tax liabilities		2,505		2,686
Net deferred tax asset (liability)	$	850	$	(90	)

XML

Securities (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Available-for-sale Securities Pledged as Collateral	$ 63,600,000	$ 62,200,000
Securities impairment loss recognized in earnings	$ 103,000	$ 0

XML

Goodwill and Intangible Assets (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2009
Intangible asset amortization	$ 345,000	$ 441,000
Finite-Lived Core Deposits, Gross			$ 2,800,000

XML

Federal Bank Stocks (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Federal Home Loan Bank Stock	$ 1,900,000	$ 2,700,000
Federal Reserve Bank Stock	948,000	948,000
Repurchase Of Federal Reserve Bank Stock	779,000	611,000
Payments to Acquire Federal Reserve Stock		$ 146,000

XML

Securities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Amortized cost	$ 116,622	$ 118,688
Gross Unrealized gains	3,674	4,681
Gross Unrealized losses	(90)	(215)
Fair value	120,206	123,154
U.S.Treasury and federal agency [Member]
Amortized cost	3,959	3,944
Gross Unrealized gains	8	516
Gross Unrealized losses	0	0
Fair value	3,967	4,460
U.S.government sponsored entities and agencies [Member]
Amortized cost	28,030	41,425
Gross Unrealized gains	132	102
Gross Unrealized losses	0	(7)
Fair value	28,162	41,520
Residential Mortgage Backed Securities [Member]
Amortized cost	21,137	35,651
Gross Unrealized gains	1,587	1,827
Gross Unrealized losses	0	0
Fair value	22,724	37,478
Collateralized Mortgage Obligations [Member]
Amortized cost	22,508
Gross Unrealized gains	47
Gross Unrealized losses	(80)
Fair value	22,475
State and political subdivisions [Member]
Amortized cost	34,904	35,073
Gross Unrealized gains	1,862	1,928
Gross Unrealized losses	(1)	(1)
Fair value	36,765	37,000
Corporate debt [Member]
Amortized cost	3,728
Gross Unrealized gains	34
Gross Unrealized losses	(1)
Fair value	3,761
Equity Securities [Member]
Amortized cost	2,356	2,595
Gross Unrealized gains	4	308
Gross Unrealized losses	(8)	(207)
Fair value	$ 2,352	$ 2,696

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

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). 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 Western Pennsylvania. 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. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, goodwill, the valuation of deferred tax assets and other than temporary impairment charges. 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 4 discusses the type of securities that the Corporation invests in. Note 5 discusses the types of lending the Corporation engages in. The Corporation does not have any significant concentrations to any one industry or customer.

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 generally mature within 90 days 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.

Restrictions on Cash. Cash on hand or on deposit with the Federal Reserve Bank of Cleveland (FRB) of approximately $0 and $60,000, respectively, was required to meet regulatory reserve and clearing requirements at December 31, 2012 and 2011. Both required and excess reserves earn interest.

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 shareholders.

Securities. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. 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. Premiums and discounts on securities are amortized using the level yield method over the term of the securities. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Securities (continued). Management evaluates 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 debt 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. 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. For equity securities determined to be other-than-temporarily impaired, the entire amount of impairment is recognized through earnings.

Loans Receivable. The Corporation grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans 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.

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. 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 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.

Allowance for Loan Losses (continued). 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.

TDR’s 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 TDR’s 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, general and unallocated 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. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable incurred losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. 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 in value due to economic and other factors.

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 market 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.

Federal Bank Stocks. The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB) and the FRB. As a member of these federal banking systems, the Bank maintains an investment in the capital stock of the respective regional banks, 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 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 and 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.

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 $180,000 and $307,000 at December 31, 2012 and 2011, 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.

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 and other postretirement benefit plans 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 substantially all employees and officers. Effective January 1, 2009 the plan was closed to new participants. The plan calls for benefits to be paid to eligible employees at retirement based primarily on years of service and compensation rates near retirement. 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 cost 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 cost 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.

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.

Recently Adopted Accounting Standards. In May 2011, the Financial Accounting Standards Board (FASB) issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International account principles. Overall the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for the interim and annual reporting periods beginning after December 15, 2011. This guidance did not have a material impact on the Corporation’s consolidated financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of comprehensive income for the Corporation.

XML

Premises and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Land	$ 1,623	$ 1,623
Buildings and improvements	8,331	8,215
Leasehold improvements	843	818
Furniture, fixtures and equipment	5,911	5,533
Software	2,664	2,491
Construction in progress	699	560
Property, Plant and Equipment, Gross	20,071	19,240
Less: accumulated depreciation and amortization	10,891	10,214
Property, Plant and Equipment, Net, Total	$ 9,180	$ 9,026

XML

Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2012

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The factors used in the Corporation’s earnings per share computation follow:

(Dollar amounts in thousands, except for per share amounts)	For the year ended
	December 31,
	2012		2011
Earnings per common share – basic
Net income	$	3,654	$	3,833
Less:  Preferred stock dividends and discount accretion		493		517
Net income available to common stockholders	$	3,161	$	3,316
Average common shares outstanding		1,752,324		1,677,225
Basic earnings per common share	$	1.80	$	1.98
Earnings per common share - diluted
Net income available to common stockholders	$	3,161	$	3,316
Average common shares outstanding		1,752,324		1,677,225
Add: Dilutive effects of assumed exercises of restricted stock and stock options		-		-
Average shares and dilutive potential common shares		1,752,324		1,677,225
Diluted earnings per common share	$	1.80	$	1.98
Stock options and restricted stock awards not considered in computing diluted earnings per share because they were antidilutive		86,950		116,500

XML

Summary of Significant Accounting Policies (Polices)

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

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). All significant intercompany balances and transactions have been eliminated in consolidation.

Nature Of Operations [Policy Text Block]

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

Use of Estimates, Policy [Policy Text Block]

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. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, goodwill, the valuation of deferred tax assets and other than temporary impairment charges. 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.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

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 4 discusses the type of securities that the Corporation invests in. Note 5 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, Policy [Policy Text Block]

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 generally mature within 90 days 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.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restrictions on Cash. Cash on hand or on deposit with the Federal Reserve Bank of Cleveland (FRB) of approximately $0 and $60,000, respectively, was required to meet regulatory reserve and clearing requirements at December 31, 2012 and 2011. Both required and excess reserves earn interest.

Dividend Restrictions [Policy Text Block]

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 shareholders.

Securities Borrowed and Loaned Policy [Policy Text Block]

Securities. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. 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. Premiums and discounts on securities are amortized using the level yield method over the term of the securities. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Securities (continued). Management evaluates 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 debt 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. 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. For equity securities determined to be other-than-temporarily impaired, the entire amount of impairment is recognized through earnings.

Loans Held For Sale [Policy Text Block]

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

Loans Receivable [Policy Text Block]

Loans Receivable. The Corporation grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans 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.

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. 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 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.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

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.

Allowance for Loan Losses (continued). 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.

TDR’s 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 TDR’s 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, general and unallocated 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. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable incurred losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. 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 in value due to economic and other factors.

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 market 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.

Federal Bank Stocks [Policy Text Block]

Federal Bank Stocks. The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB) and the FRB. As a member of these federal banking systems, the Bank maintains an investment in the capital stock of the respective regional banks, 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 [Policy Text Block]

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.

Property, Plant and Equipment, Policy [Policy Text Block]

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 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, Policy [Policy Text Block]

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 and 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.

Loans and Leases Receivable, Real Estate Acquired Through Foreclosure, Policy [Policy Text Block]

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 $180,000 and $307,000 at December 31, 2012 and 2011, respectively.

Treasury Stock [Policy Text Block]

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 Tax, Policy [Policy Text Block]

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 Share, Policy [Policy Text Block]

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.

Comprehensive Income, Policy [Policy Text Block]

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 and other postretirement benefit plans which are also recognized as separate components of equity.

Operating Segments [Policy Text Block]

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.

Plant Retirement and Abandonment, Policy [Policy Text Block]

Retirement Plans. The Corporation maintains a noncontributory defined benefit plan covering substantially all employees and officers. Effective January 1, 2009 the plan was closed to new participants. The plan calls for benefits to be paid to eligible employees at retirement based primarily on years of service and compensation rates near retirement. The Corporation also maintains a 401(k) plan, which covers substantially all employees, and a supplemental executive retirement plan for key executive officers.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock Compensation Plans. Compensation cost 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 cost 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 [Policy Text Block]

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 Credit Exposure, Policy [Policy Text Block]

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.

Fair Value of Financial Instruments, Policy [Policy Text Block]

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.

Malpractice Loss Contingency, Policy [Policy Text Block]

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.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Standards. In May 2011, the Financial Accounting Standards Board (FASB) issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International account principles. Overall the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for the interim and annual reporting periods beginning after December 15, 2011. This guidance did not have a material impact on the Corporation’s consolidated financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of comprehensive income for the Corporation.

XML

Earnings Per Share

12 Months Ended

Dec. 31, 2012

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

20. Earnings Per Share

The factors used in the Corporation’s earnings per share computation follow:

(Dollar amounts in thousands, except for per share amounts)	For the year ended
	December 31,
	2012		2011
Earnings per common share – basic
Net income	$	3,654	$	3,833
Less:  Preferred stock dividends and discount accretion		493		517
Net income available to common stockholders	$	3,161	$	3,316
Average common shares outstanding		1,752,324		1,677,225
Basic earnings per common share	$	1.80	$	1.98
Earnings per common share - diluted
Net income available to common stockholders	$	3,161	$	3,316
Average common shares outstanding		1,752,324		1,677,225
Add: Dilutive effects of assumed exercises of restricted stock and stock options		-		-
Average shares and dilutive potential common shares		1,752,324		1,677,225
Diluted earnings per common share	$	1.80	$	1.98
Stock options and restricted stock awards not considered in computing diluted earnings per share because they were antidilutive		86,950		116,500

XML

Emclaire Financial Corp. - Condensed Financial Statements, Parent Corporation Only (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 20,424		$ 28,193	$ 19,027
Securities available for sale	120,206		123,154
Total Assets	509,014		491,882
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities	4,388		4,143
Stockholders' Equity	51,725		50,730	39,118
Total Liabilities and Stockholders' Equity	509,014		491,882
Parent Company [Member]
Assets
Cash and cash equivalents	38	38	87	55
Securities available for sale	2,301		2,644
Equity in net assets of subsidiaries	50,299		48,625
Other assets	500		515
Total Assets	53,138		51,871
Liabilities and Stockholders' Equity
Short-term borrowed funds with affiliated subsidiary bank	1,375		1,100
Accrued expenses and other liabilities	38		41
Stockholders' Equity	51,725		50,730
Total Liabilities and Stockholders' Equity	$ 53,138		$ 51,871

XML

Loans Receivable and Related Allowance for Loan Losses (Details 3) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Performing, Accruing Loans Not Past Due	$ 329,165	$ 308,364
Performing, Accruing 30-59 Days Past Due	2,329	1,854
Performing, Accruing 60-89 Days Past Due	669	298
Nonperforming, Accruing 90 Days + Past Due	21	66
Nonperforming, Non Accrual	6,967	5,499
Total	339,151	316,081
Residential First Mortgages [Member]
Performing, Accruing Loans Not Past Due	95,001	91,400
Performing, Accruing 30-59 Days Past Due	1,272	1,059
Performing, Accruing 60-89 Days Past Due	440	153
Nonperforming, Accruing 90 Days + Past Due	0	66
Nonperforming, Non Accrual	533	932
Total	97,246	93,610
Home Equity [Member]
Performing, Accruing Loans Not Past Due	84,592	70,506
Performing, Accruing 30-59 Days Past Due	669	431
Performing, Accruing 60-89 Days Past Due	157	127
Nonperforming, Accruing 90 Days + Past Due	0	0
Nonperforming, Non Accrual	197	174
Total	85,615	71,238
Commercial Real Estate [Member]
Performing, Accruing Loans Not Past Due	94,485	92,632
Performing, Accruing 30-59 Days Past Due	50	302
Performing, Accruing 60-89 Days Past Due	49	0
Nonperforming, Accruing 90 Days + Past Due	21	0
Nonperforming, Non Accrual	4,218	1,831
Total	98,823	94,765
Commercial Loan [Member]
Performing, Accruing Loans Not Past Due	44,915	43,338
Performing, Accruing 30-59 Days Past Due	297	7
Performing, Accruing 60-89 Days Past Due	0	10
Nonperforming, Accruing 90 Days + Past Due	0	0
Nonperforming, Non Accrual	369	471
Total	45,581	43,826
Consumer Loan [Member]
Performing, Accruing Loans Not Past Due	10,172	10,488
Performing, Accruing 30-59 Days Past Due	41	55
Performing, Accruing 60-89 Days Past Due	23	8
Nonperforming, Accruing 90 Days + Past Due	0	0
Nonperforming, Non Accrual	1,650	2,091
Total	$ 11,886	$ 12,642

XML

Summary of Significant Accounting Policies (Details Textual) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Restricted Cash and Cash Equivalents	$ 0	$ 60,000
Real Estate Acquired Through Foreclosure	$ 180,000	$ 307,000

XML

Securities (Tables)

12 Months Ended

Dec. 31, 2012

Investments, Debt and Equity Securities [Abstract]

Schedule Of Classification Of Available For Sale Securities Investment [Table Text Block]

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

(Dollar amounts in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale:
December 31, 2012:
U.S. Treasury and federal agency	$	3,959	$	8	$	-		$	3,967
U.S. government sponsored entities and agencies		28,030		132		-			28,162
Mortgage-backed securities: residential		21,137		1,587		-			22,724
Collateralized mortgage obligations: residential		22,508		47		(80	)		22,475
State and political subdivision		34,904		1,862		(1	)		36,765
Corporate debt		3,728		34		(1	)		3,761
Equity securities		2,356		4		(8	)		2,352
	$	116,622	$	3,674	$	(90	)	$	120,206
December 31, 2011:
U.S. Treasury and federal agency	$	3,944	$	516	$	-		$	4,460
U.S. government sponsored entities and agencies		41,425		102		(7	)		41,520
Mortgage-backed securities: residential		35,651		1,827		-			37,478
State and political subdivision		35,073		1,928		(1	)		37,000
Equity securities		2,595		308		(207	)		2,696
	$	118,688	$	4,681	$	(215	)	$	123,154

Available-for-sale Securities [Table Text Block]

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

(Dollar amounts in thousands)	2012		2011
Proceeds	$	17,139	$	28,978
Gains		1,360		523
Losses		-		(41	)
Tax provision related to gains		462		178

Schedule Of Contractual Maturities Of Available For Sale Securities Debt Maturities [Table Text Block]

The following table summarizes scheduled maturities of the Corporation’s debt securities as of December 31, 2012. 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		Fair
	Cost		Value
Due in one year or less	$	502	$	504
Due after one year through five years		33,690		34,150
Due after five through ten years		33,948		35,326
Due after ten years		2,481		2,675
Mortgage-backed securities: residential		21,137		22,724
Collateralized mortgage obligations: residential		22,508		22,475
	$	114,266	$	117,854

Schedule of Unrealized Loss on Investments [Table Text Block]

Information pertaining to securities with gross unrealized losses at December 31, 2012 and 2011 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		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
December 31, 2012:
Collateralized mortgage obligations: residential	$	10,698	$	(80	)	$	-	$	-		$	10,698	$	(80	)
State and political subdivision		521		(1	)		-		-			521		(1	)
Corporate debt		500		(1	)		-		-			500		(1	)
Equity securities		493		(8	)		-		-			493		(8	)
	$	12,212	$	(90	)	$	-	$	-		$	12,212	$	(90	)
December 31, 2011:
U.S. government sponsored entities and agencies	$	4,490	$	(7	)	$	-	$	-			4,490		(7	)
State and political subdivision		99		(1	)		-		-			99		(1	)
Equity securities		881		(185	)		187		(22	)		1,068		(207	)
	$	5,470	$	(193	)	$	187	$	(22	)	$	5,657	$	(215	)

Schedule Of Gain and Losses On The Sale Of Debt and Equity Securities [Table Text Block]

The following table presents information related to the Corporation’s gains and losses on the sales of equity and debt securities, and losses recognized for the OTTI of investments:

(Dollar amounts in thousands)	Gross Realized		Gross Realized			Other-than-temporary			Net Gains
	Gains		Losses			Impairment Losses			(Losses)
Year ended December 31, 2012:
Debt securities	$	936	$	-		$	-		$	936
Equity securities		424		-			(103	)		321
	$	1,360	$	-		$	(103	)	$	1,257
Year ended December 31, 2011:
Debt securities	$	523	$	(41	)	$	-		$	482

XML

Loans Receivable and Related Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2012

Loans Notes Trade and Other Receivables Disclosure [Abstract]

Schedule Of Classification Of Loans Receivable [Table Text Block]

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

(Dollar amounts in thousands)	2012		2011
Mortgage loans on real estate:
Residential first mortgages	$	97,246	$	93,610
Home equity loans and lines of credit		85,615		71,238
Commercial real estate		98,823		94,765
		281,684		259,613
Other loans:
Commercial business		45,581		43,826
Consumer		11,886		12,642
		57,467		56,468
Total loans, gross		339,151		316,081
Less allowance for loan losses		5,350		3,536
Total loans, net	$	333,801	$	312,545

Schedule Of Impaired Loans Receivable, Additional Information [Table Text Block]

The following table presents 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
							For the year ended
	As of December 31, 2012						December 31, 2012
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-		-
Commercial real estate		4,242		4,068		1,448		2,075		186		16
Commercial business		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	4,242	$	4,068	$	1,448	$	2,075	$	186	$	16

	Impaired Loans with
	No Specific Allowance
					For the year ended
	As of December 31, 2012				December 31, 2012
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		730		505		690		12		12
Commercial business		394		369		368		5		5
Consumer		1,650		1,650		1,774		-		-
Total	$	2,774	$	2,524	$	2,832	$	17	$	17

	Impaired Loans with
	Specific Allowance
							For the year ended
	As of December 31, 2011						December 31, 2011
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-		-
Commercial real estate		524		524		142		616		39		26
Commercial business		128		128		22		771		7		2
Consumer		-		-		-		-		-		-
Total	$	652	$	652	$	164	$	1,387	$	46	$	28

	Impaired Loans with
	No Specific Allowance
					For the year ended
	As of December 31, 2011				December 31, 2011
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		1,518		1,154		862		81		81
Commercial business		357		332		122		27		6
Consumer		1,905		1,905		2,018		138		138
Total	$	3,780	$	3,391	$	3,002	$	246	$	225

Financing Receivable Credit Quality Indicators [Table Text Block]

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, 2012 and 2011:

(Dollar amounts in thousands)
					Special
	Not Rated		Pass		Mention		Substandard		Doubtful		Total
December 31, 2012:
Residential first mortgages	$	96,713	$	-	$	-	$	533	$	-	$	97,246
Home equity and lines of credit		85,443		-		-		172		-		85,615
Commercial real estate		-		88,944		1,658		6,870		1,351		98,823
Commercial business		-		42,417		2,157		1,007		-		45,581
Consumer		10,236		-		-		1,650		-		11,886
Total	$	192,392	$	131,361	$	3,815	$	10,232	$	1,351	$	339,151
December 31, 2011:
Residential first mortgages	$	92,612	$	-	$	-	$	998	$	-	$	93,610
Home equity and lines of credit		71,064		-		-		174		-		71,238
Commercial real estate		-		88,006		3,625		3,134		-		94,765
Commercial business		-		41,864		832		1,130		-		43,826
Consumer		10,737		-		-		1,905		-		12,642
Total	$	174,413	$	129,870	$	4,457	$	7,341	$	-	$	316,081

Past Due Financing Receivables [Table Text Block]

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 recorded 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, 2012 and 2011:

(Dollar amounts in thousands)
	Performing						Nonperforming
	Accruing		Accruing		Accruing		Acccruing
	Loans Not		30-59 Days		60-89 Days		90 Days +				Total
	Past Due		Past Due		Past Due		Past Due		Nonaccrual		Loans
December 31, 2012:
Residential first mortgages	$	95,001	$	1,272	$	440	$	-	$	533	$	97,246
Home equity and lines of credit		84,592		669		157		-		197		85,615
Commercial real estate		94,485		50		49		21		4,218		98,823
Commercial business		44,915		297		-		-		369		45,581
Consumer		10,172		41		23		-		1,650		11,886
Total loans	$	329,165	$	2,329	$	669	$	21	$	6,967	$	339,151
December 31, 2011:
Residential first mortgages	$	91,400	$	1,059	$	153	$	66	$	932	$	93,610
Home equity and lines of credit		70,506		431		127		-		174		71,238
Commercial real estate		92,632		302		-		-		1,831		94,765
Commercial business		43,338		7		10		-		471		43,826
Consumer		10,488		55		8		-		2,091		12,642
Total loans	$	308,364	$	1,854	$	298	$	66	$	5,499	$	316,081

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

The following table presents the Corporation’s nonaccrual loans by aging category as of December 31, 2012 and 2011:

(Dollar amounts in thousands)
	Not		30-59 Days		60-89 Days		90 Days +		Total
	Past Due		Past Due		Past Due		Past Due		Loans
December 31, 2012:
Residential first mortgages	$	-	$	-	$	-	$	533	$	533
Home equity and lines of credit		-		25		-		172		197
Commercial real estate		469		3,386		10		353		4,218
Commercial business		78		-		-		291		369
Consumer		1,650		-		-		-		1,650
Total loans	$	2,197	$	3,411	$	10	$	1,349	$	6,967
December 31, 2011:
Residential first mortgages	$	-	$	-	$	-	$	932	$	932
Home equity and lines of credit		-		-		-		174		174
Commercial real estate		1,087		92		-		652		1,831
Commercial business		471		-		-		-		471
Consumer		2,091		-		-		-		2,091
Total loans	$	3,649	$	92	$	-	$	1,758	$	5,499

Allowance for Credit Losses on Financing Receivables [Table Text Block]

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

(Dollar amounts in thousands)	2012			2011
Balance at the beginning of the year	$	3,536		$	3,525
Provision for loan losses		2,154			100
Charge-offs		(498	)		(117	)
Recoveries		158			28
Balance at the end of the year	$	5,350		$	3,536

Allowance For Credit Losses On Loans Receivables, Additional Information [Table Text Block]

The following table details activity in the ALL and the recorded investment by portfolio segment based on impairment method at December 31, 2012 and 2011:

(Dollar amounts in thousands)
				Home Equity
	Residential			& Lines			Commercial			Commercial
	Mortgages			of Credit			Real Estate			Business			Consumer			Total
December 31, 2012:
Beginning Balance	$	832		$	320		$	1,737		$	590		$	57		$	3,536
Charge-offs		(90	)		(222	)		(35	)		(50	)		(101	)		(498	)
Recoveries		84			27			8			15			24			158
Provision		2			605			1,380			81			86			2,154
Ending Balance	$	828		$	730		$	3,090		$	636		$	66		$	5,350
Ending ALL balance attributable to loans:
Individually evaluated for impairment		-			-			1,448			-			-			1,448
Collectively evaluated for impairment		828			730			1,642			636			66			3,902
Total loans:
Individually evaluated for impairment		-			-			4,573			369			1,650			6,592
Collectively evaluated for impairment		97,246			85,615			94,250			45,212			10,236			332,559
December 31, 2011:
Beginning Balance	$	398		$	572		$	1,707		$	1,323		$	132		$	4,132
Charge-offs		(224	)		(188	)		(200	)		(415	)		(67	)		(1,094	)
Recoveries		3			1			-			63			11			78
Provision		655			(65	)		230			(381	)		(19	)		420
Ending Balance	$	832		$	320		$	1,737		$	590		$	57		$	3,536
Ending ALL balance attributable to loans:
Individually evaluated for impairment		-			-			22			142			-			164
Collectively evaluated for impairment		832			320			1,715			448			57			3,372
Total loans:
Individually evaluated for impairment		-			-			1,678			460			1,905			4,043
Collectively evaluated for impairment		93,610			71,238			93,087			43,366			10,737			312,038

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities
Net income	$ 3,654	$ 3,833
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment	677	798
Provision for loan losses	2,154	420
Amortization of premiums and (accretion of discounts), net	136	219
Amortization of intangible assets and mortgage servicing rights	352	457
Securities impairment loss recognized in earnings	103	0
Realized gains on sales of available for sale securities, net	(1,360)	(482)
Net losses on foreclosed real estate	15	9
Restricted stock and stock option compensation	113	98
Increase in bank-owned life insurance, net	(263)	(213)
Decrease in accrued interest receivable	97	133
(Increase) decrease in deferred taxes	(501)	112
(Increase) decrease in prepaid expenses and other assets	(2,864)	1,712
Decrease in accrued interest payable	(99)	(108)
Increase (decrease) in accrued expenses and other liabilities	108	(381)
Net cash provided by operating activities	2,322	6,607
Cash flows from investing activities
Loan originations and principal collections, net	(24,058)	(7,627)
Available for sale securities:
Sales	17,139	28,978
Maturities, repayments and calls	95,748	73,780
Purchases	(109,408)	(95,318)
Redemption of federal bank stocks	779	465
Purchases of premises and equipment	(831)	(583)
Proceeds from the sale of foreclosed real estate	426	556
Purchase of bank-owned life insurance	(4,000)	0
Write-down of foreclosed real estate	41	10
Net cash provided by (used in) investing activities	(24,164)	261
Cash flows from financing activities
Net increase in deposits	15,991	6,810
Proceeds from Federal Home Loan Bank advances	15,000	0
Repayments on Federal Home Loan Bank advances	(15,000)	(5,000)
Net change in short-term borrowings	0	(5,000)
Proceeds from issuance of common stock	0	4,576
Proceeds from issuance of preferred stock (Series B)	0	10,000
Redemption of preferred stock (Series A)	0	(7,500)
Warrant repurchase	0	(51)
Proceeds from exercise of stock options, including tax benefit	12	0
Dividends paid	(1,930)	(1,537)
Net cash provided by financing activities	14,073	2,298
Net increase (decrease) in cash and cash equivalents	(7,769)	9,166
Cash and cash equivalents at beginning of period	28,193	19,027
Cash and cash equivalents at end of period	20,424	28,193
Supplemental information:
Interest paid	5,075	5,980
Income taxes paid	2,005	340
Supplemental noncash disclosures:
Transfers from loans to foreclosed real estate	$ 355	$ 509

XML

Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Premises and equipment at December 31 are summarized by major classification as follows:

(Dollar amounts in thousands)	2012		2011
Land	$	1,623	$	1,623
Buildings and improvements		8,331		8,215
Leasehold improvements		843		818
Furniture, fixtures and equipment		5,911		5,533
Software		2,664		2,491
Construction in progress		699		560
		20,071		19,240
Less: accumulated depreciation and amortization		10,891		10,214
	$	9,180	$	9,026

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Rent expense under non-cancelable operating lease agreements for the years ended December 31, 2012 and 2011 was $161,000 and $156,000, respectively. Rent commitments under non-cancelable long-term operating lease agreements for certain branch offices for the years ended December 31, are as follows, before considering renewal options that are generally present:

(Dollar amounts in thousands)	Amount
2013	$	170
2014		175
2015		168
2016		138
2017		127
Thereafter		680
	$	1,458

XML

Employee Benefit Plans (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Prepaid benefit cost	$ 386	$ 190
Accumulated other comprehensive loss	(2,719)	(2,308)
Net amount recognized	$ (2,333)	$ (2,118)

XML

Fair Values of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value, by Balance Sheet Grouping [Table Text Block]

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)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
December 31, 2012:
U.S. Treasury and federal agency	$	3,967	$	3,967	$	-	$	-
U.S. government sponsored entities and agencies		28,162		-		28,162		-
Mortgage-backed securities: residential		22,724		-		22,724		-
Collateralized mortgage obligations: residential		22,475		-		22,475		-
State and political subdivision		36,765		-		36,765		-
Corporate debt securities		3,761		-		3,761		-
Equity securities		2,352		1,699		-		653
	$	120,206	$	5,666	$	113,887	$	653
December 31, 2011:
U.S. Treasury and federal agency	$	4,460	$	4,460	$	-	$	-
U.S. government sponsored entities and agencies		41,520		-		41,520		-
Mortgage-backed securities: residential		37,478		-		37,478		-
State and political subdivision		37,000		-		37,000		-
Equity securities		2,696		1,052		1,644		-
	$	123,154	$	5,512	$	117,642	$	-

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

The following table presents changes in Level 3 assets measured on a recurring basis for the years ended December 31, 2012 and 2011:

(Dollar amounts in thousands)	2012		2011
Balance at the beginning of the period	$	-	$	-
Total gains or losses (realized/unrealized):		-		-
Included in earnings		-		-
Included in other comprehensive income		-		-
Issuances		-		-
Transfers in and/or out of Level 3		653		-
Balance at the end of the period	$	653	$	-

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Table Text Block]

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

(Dollar amounts in thousands)			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
December 31, 2012:
Impaired commerical real estate loans	$	2,620	$	-	$	-	$	2,620
Other residential real estate owned		45		-		-		45
	$	2,665	$	-	$	-	$	2,665
December 31, 2011:
Impaired commerical real estate loans	$	382	$	-	$	-	$	382
Impaired commercial business loans		106		-		-		106
Other residential real estate owned		45		-		-		45
	$	533	$	-	$	-	$	533

Fair Value Inputs, Assets, Quantitative Information [Table Text Block]

The following table presents quantitative information about Level 3 fair value measurements for assets measured at fair value on a non-recurring basis as of December 31, 2012:

(Dollar amounts in thousands)			Valuation	Unobservable
			Techniques(s)	Input (s)	Range
Impaired commercial real estate loans	$	2,620	Sales comparison approach/	Adjustment for differences		10% - 100%
			Contractual provision of USDA loan	between comparable sales
Other residential real estate owned		45	Sales comparison approach	Adjustment for differences		10%

Schedule Of Carrying Amount and Fair Values Of Financial Instruments [Table Text Block]

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)			Fair Value Measurements at
	Carrying		December 31, 2012 using:
Description	Amount		Total		Level 1		Level 2		Level 3
December 31, 2012:
Financial Assets:
Cash and cash equivalents	$	20,424	$	20,424	$	20,424	$	-	$	-
Securities available for sale		120,206		120,206		5,666		113,887		653
Loans, net		333,801		340,840		-		-		340,840
Federal bank stock		2,885		N/A		-		-		-
Accrued interest receivable		1,533		1,533		23		383		1,127
		478,849		483,003		26,113		114,270		342,620
Financial Liabilities:
Deposits		432,459		436,279		300,805		135,474		-
FHLB advances		20,000		22,613		-		22,613		-
Accrued interest payable		442		442		55		387		-
		452,901		459,334		300,860		158,474		-

	Carrying		Fair
	Amount		Value
December 31, 2011:
Financial Assets:
Cash and cash equivalents		28,193		28,193
Securities available for sale		123,154		123,154
Loans, net		312,545		319,967
Federal bank stock		3,664		N/A
Accrued interest receivable		1,630		1,630
		469,186		472,944
Financial Liabilities:
Deposits		416,468		422,704
FHLB advances		20,000		23,362
Accrued interest payable		541		541
		437,009		446,607

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

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)	2012				2011
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	1,867	$	5,639	$	2,967	$	953
Unused lines of credit		502		38,565		3,703		36,166
	$	2,369	$	44,204	$	6,670	$	37,119

XML

Loans Receivable and Related Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Mortgage loans on real estate:
Residential first mortgages	$ 97,246	$ 93,610
Home equity loans and lines of credit	85,615	71,238
Commercial real estate	98,823	94,765
Mortgage Loans on Real Estate	281,684	259,613
Other loans:
Commercial business	45,581	43,826
Consumer	11,886	12,642
Loans Receivable Commericial and Consumer	57,467	56,468
Total loans, gross	339,151	316,081
Less allowance for loan losses	5,350	3,536
Total loans, net	$ 333,801	$ 312,545

XML

Deposits (Details Textual) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Time Deposits, $100,000 or More	$ 51,519	$ 54,500

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets
Cash and due from banks	$ 2,468	$ 2,516
Interest earning deposits with banks	17,956	25,677
Total cash and cash equivalents	20,424	28,193
Securities available for sale	120,206	123,154
Loans receivable, net of allowance for loan losses of $5,350 and $3,536	333,801	312,545
Federal bank stocks, at cost	2,885	3,664
Bank-owned life insurance	10,072	5,809
Accrued interest receivable	1,533	1,630
Premises and equipment, net	9,180	9,026
Goodwill	3,664	3,664
Core deposit intangible, net	1,235	1,580
Prepaid expenses and other assets	6,014	2,617
Total Assets	509,014	491,882
Liabilities and Stockholders' Equity
Non-interest bearing	98,559	84,871
Interest bearing	333,900	331,597
Total deposits	432,459	416,468
Borrowed funds	20,000	20,000
Accrued interest payable	442	541
Accrued expenses and other liabilities	4,388	4,143
Total Liabilities	457,289	441,152
Commitments and Contingent Liabilities	0	0
Stockholders' Equity
Common stock, $1.25 par value, 12,000,000 shares authorized; 1,861,425 and 1,853,925 shares issued; 1,759,408 and 1,751,908 shares outstanding	2,327	2,317
Additional paid-in capital	19,270	19,155
Treasury stock, at cost; 102,017 shares	(2,114)	(2,114)
Retained earnings	21,672	19,948
Accumulated other comprehensive income	570	1,424
Total Stockholders' Equity	51,725	50,730
Total Liabilities and Stockholders' Equity	509,014	491,882
Series B Non Cumulative Preferred Stock [Member]
Stockholders' Equity
Preferred Stock	$ 10,000	$ 10,000

XML

Issuance of Common Stock (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2011
Proceeds from Issuance of Private Placement	$ 4,600,000
Private Placement [Member]
Issuance of common stock and preferred stock	290,004
Par Value Of Common Stock Issued (in dollars per share)	$ 1.25
Common Stock Issue Price Per Share (in dollars per share)	$ 15.95
Payments of Stock Issuance Costs	$ 48,000

XML

Fair Values of Financial Instruments (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Unpaid Principal Balance	$ 2,665	$ 533
Commercial Loan [Member]
Unpaid Principal Balance		106
Consumer Loan [Member]
Unpaid Principal Balance	45	45
Commercial Real Estate [Member]
Unpaid Principal Balance	2,620	382
Fair Value, Inputs, Level 3 [Member]
Unpaid Principal Balance	2,665	533
Fair Value, Inputs, Level 3 [Member] | Commercial Loan [Member]
Unpaid Principal Balance		106
Fair Value, Inputs, Level 3 [Member] | Consumer Loan [Member]
Unpaid Principal Balance	45	45
Fair Value Measurements, Valuation Techniques	Sales comparison approach
Fair Value Measurements Unobservable Inputs	Adjustment for differences between comparable sales
Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate [Member]
Unpaid Principal Balance	$ 2,620	$ 382
Fair Value Measurements, Valuation Techniques	Sales comparison approach/Contractual provision of USDA loan
Fair Value Measurements Unobservable Inputs	Adjustment for differences between comparable sales
Impaired Commercial Real Estate Loan Minimum Interest Rate In Range	10.00%
Impaired Commercial Real Estate Loan Maximum Interest Rate In Range	100.00%
Other Residential Real Estate Owned Loan Interest Rate	10.00%

XML

Consolidated Statements of Changes in Stockholders' Equity (USD $) In Thousands	Preferred Stock [Member]	Warrant [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2010	$ 7,447	$ 88	$ 1,949	$ 14,812	$ (2,114)	$ 17,705	$ (769)	$ 39,118
Net income						3,833		3,833
Other comprehensive income							2,193	2,193
Stock compensation expense				98				98
Issuance of common stock (290,004 shares)		362	4,214				4,576
Issuance of common stock for restricted stock awards			6	(6)				0
Redemption of preferred stock, Series A	(7,500)							(7,500)
Issuance of preferred stock, Series B	10,000							10,000
Warrant repurchase		(88)		37				(51)
Preferred dividends	53					(517)		(464)
Cash dividends declared on common stock						(1,073)		(1,437)
Balance at Dec. 31, 2011	10,000	0	2,317	19,155	(2,114)	19,948	1,424	50,730
Net income						3,654		3,654
Other comprehensive income							(854)	(854)
Stock compensation expense				113				113
Exercise of stock options, including tax benefit		1	11				12
Issuance of common stock for restricted stock awards			9	(9)				0
Preferred dividends	0					(493)		(493)
Cash dividends declared on common stock						(1,437)		(1,437)
Balance at Dec. 31, 2012	$ 10,000	$ 0	$ 2,327	$ 19,270	$ (2,114)	$ 21,672	$ 570	$ 51,725

XML

Fair Values of Financial Instruments (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Balance at the beginning of the period	$ 0	$ 0
Total gains or losses (realized/unrealized):
Included in earnings	0	0
Included in other comprehensive income	0	0
Issuances	0	0
Transfers in and/or out of Level 3	653	0
Balance at the end of the period	$ 653	$ 0

XML

Loans Receivable and Related Allowance for Loan Losses (Details 6) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Beginning Balance	$ 3,536	$ 4,132
Charge-offs	(498)	(1,094)
Recoveries	158	78
Provision for loan losses	2,154	420
Balance at the end of the year	5,350	3,536
Ending ALL balance attributable to loans:
Individually evaluated for impairment	1,448	164
Collectively evaluated for impairment	3,902	3,372
Total loans:
Individually evaluated for impairment	6,592	4,043
Collectively evaluated for impairment	332,559	312,038
Residential First Mortgages [Member]
Beginning Balance	832	398
Charge-offs	(90)	(224)
Recoveries	84	3
Provision for loan losses	2	655
Balance at the end of the year	828	832
Ending ALL balance attributable to loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	828	832
Total loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	97,246	93,610
Home Equity [Member]
Beginning Balance	320	572
Charge-offs	(222)	(188)
Recoveries	27	1
Provision for loan losses	605	(65)
Balance at the end of the year	730	320
Ending ALL balance attributable to loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	730	320
Total loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	85,615	71,238
Commercial Real Estate [Member]
Beginning Balance	1,737	1,707
Charge-offs	(35)	(200)
Recoveries	8	0
Provision for loan losses	1,380	230
Balance at the end of the year	3,090	1,737
Ending ALL balance attributable to loans:
Individually evaluated for impairment	1,448	22
Collectively evaluated for impairment	1,642	1,715
Total loans:
Individually evaluated for impairment	4,573	1,678
Collectively evaluated for impairment	94,250	93,087
Commercial Loan [Member]
Beginning Balance	590	1,323
Charge-offs	(50)	(415)
Recoveries	15	63
Provision for loan losses	81	(381)
Balance at the end of the year	636	590
Ending ALL balance attributable to loans:
Individually evaluated for impairment	0	142
Collectively evaluated for impairment	636	448
Total loans:
Individually evaluated for impairment	369	460
Collectively evaluated for impairment	45,212	43,366
Consumer Loan [Member]
Beginning Balance	57	132
Charge-offs	(101)	(67)
Recoveries	24	11
Provision for loan losses	86	(19)
Balance at the end of the year	66	57
Ending ALL balance attributable to loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	66	57
Total loans:
Individually evaluated for impairment	1,650	1,905
Collectively evaluated for impairment	$ 10,236	$ 10,737

XML

Fair Values of Financial Instruments (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Recorded Investment	$ 4,100,000	$ 652,000
Related Allowance	1,400,000	164,000
Other Real Estate and Foreclosed Assets	45,000
Real Estate, Gross	50,000
Write-down of foreclosed real estate	5,000
Commercial Real Estate Loan Discounting Rate	10.00%
Provision for loan losses	2,154,000	420,000
Unpaid Principal Balance	2,665,000	533,000
Percentage Of Weighted Average Discount On Impaired Commercial Real Estate Loans	11.00%
Loans Held-for-sale, Commercial, Real Estate	354,000
Standby Letters Of Credit	189,000	245,000
Impaired Loans [Member]
Provision for loan losses	$ 1,400,000	$ 143,000
United States Department Of Agriculture [Member]
Percentage Of Commercial Real Estate Loan Principal Balance Outstanding Guarantee By Third Party	90.00%
Maximum [Member]
Derivative, Fixed Interest Rate	5.25%
Minimum [Member]
Derivative, Fixed Interest Rate	3.25%

XML

Borrowed Funds (Tables)

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Schedule Of Borrowed Funds [Table Text Block]

The following table summarizes the Corporation’s borrowed funds as of and for the year ended December 31:

(Dollar amounts in thousands)	2012							2011
			Average		Average					Average		Average
	Balance		Balance		Rate			Balance		Balance		Rate
Due within 12 months	$	-	$	27		0.46	%	$	-	$	3,414		4.66	%
Due beyond 12 months but within 5 years		20,000		20,000		4.59	%		15,000		17,068		4.63	%
Due beyond 5 years but within 10 years		-		-		-			5,000		5,000		4.09	%
	$	20,000	$	20,027				$	20,000	$	25,482

Schedule Of Maturities Of Borrowed Funds [Table Text Block]

Scheduled maturities of borrowed funds for the next five years are as follows:

(Dollar amounts in thousands)	Amount
2013	$	-
2014		-
2015		-
2016		-
2017		20,000
Thereafter		-
	$	20,000

XML

Goodwill and Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Gross Carrying Amount	$ 7,691	$ 7,691
Accumulated Amortization	2,792	2,447
Goodwill [Member]
Gross Carrying Amount	3,664	3,664
Accumulated Amortization	0	0
Core Deposits [Member]
Gross Carrying Amount	4,027	4,027
Accumulated Amortization	$ 2,792	$ 2,447

XML

Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

14. Income Taxes

The Corporation and the Bank file a consolidated federal income tax return. The provision for income taxes for the years ended December 31 is comprised of the following:

(Dollar amounts in thousands)	2012			2011
Current	$	1,435		$	838
Deferred		(501	)		112
	$	934		$	950

A reconciliation between the provision for income taxes and the amount computed by multiplying operating results before income taxes by the statutory federal income tax rate of 34% for the years ended December 31 is as follows:

(Dollar amounts in thousands)	2012						2011
				% Pre-tax						% Pre-tax
	Amount			Income			Amount			Income
Provision at statutory tax rate	$	1,560			34.0	%	$	1,626			34.0	%
Increase (decrease) resulting from:
Tax free interest, net of disallowance		(563	)		(12.3	)%		(552	)		(11.5	)%
Earnings on BOLI		(89	)		(1.9	)%		(72	)		(1.5	)%
Other, net		26			0.6	%		(52	)		(1.1	)%
Provision	$	934			20.4	%	$	950			19.9	%

The tax effects of temporary differences between the financial reporting basis and income tax basis of assets and liabilities that are included in the net deferred tax asset or liability as of December 31 relate to the following:

(Dollar amounts in thousands)	2012		2011
Deferred tax assets:
Allowance for loan losses	$	1,682	$	1,046
Funded status of pension plan		925		785
Deferred compensation		278		213
Nonaccrual loan interest income		154		122
Securities impairment		149		226
Stock compensation		139		132
Other		28		72
Gross deferred tax assets		3,355		2,596
Deferred tax liabilities:
Net unrealized gains on securities		1,219		1,518
Depreciation		593		618
Accrued pension liability		298		190
Intangible assets		247		204
Deferred loan fees		99		79
Other		49		77
Gross deferred tax liabilities		2,505		2,686
Net deferred tax asset (liability)	$	850	$	(90	)

In accordance with relevant accounting guidance, the Corporation determined that it was not required to establish a valuation allowance for deferred tax assets since it is more likely than not that the deferred tax asset will be realized through carry-back to taxable income in prior years, future reversals of existing taxable temporary differences, tax strategies and, to a lesser extent, future taxable income. The Corporation’s net deferred tax asset or liability is recorded in the consolidated financial statements as a component of other assets or other liabilities.

At December 31, 2012 and December 31, 2011, the Corporation had no unrecognized tax benefits recorded. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. The Corporation recognizes interest and penalties on unrecognized tax benefits in income taxes expense in its Consolidated Statements of Income.

The Corporation and the Bank are subject to U.S. federal income tax as well as a capital-based franchise tax in the Commonwealth of Pennsylvania. The Corporation and the Bank are no longer subject to examination by taxing authorities for years before 2009.

XML

Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

The following table sets forth certain information concerning the Bank’s regulatory capital as of the dates presented:

(Dollar amounts in thousands)	December 31, 2012										December 31, 2011
	Consolidated					Bank					Consolidated					Bank
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	50,035		16.62	%	$	48,585		16.21	%	$	50,512		17.85	%	$	45,550		16.25	%
For capital adequacy purposes		24,083		8.00	%		23,971		8.00	%		22,636		8.00	%		22,422		8.00	%
To be well capitalized		N/A		N/A			29,964		10.00	%		N/A		N/A			28,027		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	46,252		15.36	%	$	44,820		14.96	%	$	47,008		16.61	%	$	42,046		15.00	%
For capital adequacy purposes		12,042		4.00	%		11,985		4.00	%		11,318		4.00	%		11,211		4.00	%
To be well capitalized		N/A		N/A			17,978		6.00	%		N/A		N/A			16,816		6.00	%
Tier 1 capital to average assets:
Actual	$	46,252		9.18	%	$	44,820		8.92	%	$	47,008		9.71	%	$	42,046		8.69	%
For capital adequacy purposes		20,148		4.00	%		20,101		4.00	%		19,362		4.00	%		19,347		4.00	%
To be well capitalized		N/A		N/A			25,126		5.00	%		N/A		N/A			24,183		5.00	%

XML

Fair Values of Financial Instruments (Details 5) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Loans and Leases Receivable, Commitments, Fixed Rates	$ 2,369	$ 6,670
Loans and Leases Receivable, Commitments, Variable Rates	44,204	37,119
Commitments To Make Loans [Member]
Loans and Leases Receivable, Commitments, Fixed Rates	1,867	2,967
Loans and Leases Receivable, Commitments, Variable Rates	5,639	953
Unused Lines Of Credit [Member]
Loans and Leases Receivable, Commitments, Fixed Rates	502	3,703
Loans and Leases Receivable, Commitments, Variable Rates	$ 38,565	$ 36,166

XML

Stock Compensation Plans

12 Months Ended

Dec. 31, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

16. Stock Compensation Plans

The Corporation’s 2007 Stock Incentive Plan and Trust (the Plan), which is shareholder-approved, permits the grant of restricted stock awards and options to its directors, officers and employees for up to 177,496 shares of common stock. Incentive stock options, non-incentive or compensatory stock options and share awards may be granted under the Plan. The exercise price of each option shall at least equal the market price of a share of common stock on the date of grant and have a contractual term of ten years. Options shall vest and become exercisable at the rate, to the extent and subject to such limitations as may be specified by the Corporation. Compensation cost related to share-based payment transactions must be recognized in the financial statements with measurement based upon the fair value of the equity instruments issued.

During 2012 and 2011, the Corporation granted restricted stock awards of 9,900 and 8,000 shares, respectively, with a face value of $196,000 and $121,000, respectively, based on the weighted-average grant date stock prices of $19.79 and $15.17, respectively. In addition, during 2011, 500 options were granted under the plan. These options and restricted stock awards are 100% vested on the third anniversary of the date of grant. For the year ended December 31, 2012 and 2011, the Corporation recognized $113,000 and $98,000, respectively, in stock compensation expense.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Weighted-average for the year
ended December 31,	2012		2011
Dividend yield		-		4.25	%
Expected life		-		10 years
Expected volatility		-		18.14	%
Risk-free interest rate		-		1.99	%

The expected volatility is based on historical stock price fluctuations. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on the maximum term of the options. The dividend yield assumption is based on the Corporation’s history and expectation of dividend payouts.

A summary of option activity under the Plan as of December 31, 2012, and changes during the period then ended is presented below:

								Weighted-Average
				Weighted-Average		Aggregate		Remaining Term
	Options			Exercise Price		Intrinsic Value		(in years)
Outstanding as of January 1, 2012		94,000		$	24.51	$	-		6.0
Granted		-			-		-		-
Exercised		(750	)		13.50				-
Forfeited		(7,000	)		22.29		-		-
Outstanding as of December 31, 2012		86,250		$	24.79	$	-		4.9
Exercisable as of December 31, 2012		83,500		$	25.06	$	-		4.8

A summary of the status of the Corporation’s nonvested restricted stock awards as of December 31, 2012, and changes during the period then ended is presented below:

				Weighted-Average
	Shares			Grant-date Fair Value
Nonvested at January 1, 2012		22,500		$	15.07
Granted		9,900			19.79
Vested		(6,750	)		13.50
Forfeited		-			-
Nonvested as of December 31, 2012		25,650		$	17.30

As of December 31, 2012, there was $298,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over the next three years.

XML

Related Party Balances and Transactions (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Loans and Leases Receivable, Related Parties	$ 1,500,000	$ 1,300,000
Loans and Leases Receivable, Related Parties, Additions	440,000	193,000
Due to Related Parties	3,800,000	2,300,000
Payments To Affiliates For Professional and Other Services	$ 56,000	$ 202,000

XML

Consolidated Statements of Changes in Stockholders' Equity [Parenthetical] (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures	6,750	4,500
Common Stock, Dividends, Per Share, Declared	$ 0.82	$ 0.64
Common Stock [Member]
Issuance of common stock and preferred stock		290,004

XML

Consolidated Balance Sheets [Parenthetical] (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Allowance for loan losses (in dollars)	$ 5,350	$ 3,536
Preferred stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred stock, shares authorized	3,000,000	3,000,000
Common stock, par value (in dollars per share)	$ 1.25	$ 1.25
Common stock, shares authorized	12,000,000	12,000,000
Common stock, shares issued	1,861,425	1,853,925
Common stock, shares outstanding	1,759,408	1,751,908
Treasury stock,shares	102,017	102,017
Series B Non Cumulative Preferred Stock [Member]
Preferred stock,liquidation value (in dollars)	$ 10,000	$ 10,000
Preferred stock, shares issued	10,000	10,000
Preferred stock, shares outstanding	10,000	10,000

XML

Related Party Balances and Transactions

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

9. Related Party Balances and Transactions

In the ordinary course of business, the Bank maintains loan and deposit relationships with employees, principal officers and directors. The Bank has granted loans to principal officers and directors and their affiliates amounting to $1.5 million and $1.3 million at December 31, 2012 and 2011, respectively. During 2012, total principal additions and total principal repayments associated with these loans were $440,000 and $193,000, respectively. Deposits from principal officers and directors held by the Bank at December 31, 2012 and 2011 totaled $3.8 million and $2.3 million, respectively.

In addition, directors and their affiliates may provide certain professional and other services to the Corporation and the Bank in the ordinary course of business. During 2012 and 2011, amounts paid to affiliates for such services totaled $56,000 and $202,000, respectively.

XML

Other Noninterest Income and Expense (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Other	$ 3,348	$ 3,176
Customer Bank Card Processing [Member]
Other	464	365
Telephone and Data Communications [Member]
Other	275	292
Debit Card Loyalty Program [Member]
Other	264	0
Internet Banking and Bill Pay [Member]
Other	260	234
Pennsylvania Shares and Use Taxes [Member]
Other	256	214
Travel Entertainment and Conferences [Member]
Other	255	215
Others [Member]
Other	232	220
Printing and Supplies [Member]
Other	219	213
Marketing and Advertising [Member]
Other	196	171
Contributions [Member]
Other	184	172
Subscriptions [Member]
Other	175	151
Postage and Freight [Member]
Other	159	173
Correspondent Bank and Courier Fees [Member]
Other	149	160
Examination [Member]
Other	137	130
Collections [Member]
Other	123	132
Penaties On Prepayment Of Fhlb Advances [Member]
Other	$ 0	$ 334

XML

Fair Values of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Securities available for sale	$ 120,206	$ 123,154
U.S.Treasury and federal agency [Member]
Securities available for sale	3,967	4,460
Us Government-Sponsored Enterprises Debt Securities [Member]
Securities available for sale	28,162	41,520
Residential Mortgage Backed Securities [Member]
Securities available for sale	22,724	37,478
Collateralized Mortgage Obligations [Member]
Securities available for sale	22,475
Us States and Political Subdivisions Debt Securities [Member]
Securities available for sale	36,765	37,000
Corporate Debt Securities [Member]
Securities available for sale	3,761
Equity Securities [Member]
Securities available for sale	2,352	2,696
Fair Value, Inputs, Level 1 [Member]
Securities available for sale	5,666	5,512
Fair Value, Inputs, Level 1 [Member] | U.S.Treasury and federal agency [Member]
Securities available for sale	120,206	4,460
Fair Value, Inputs, Level 1 [Member] | Us Government-Sponsored Enterprises Debt Securities [Member]
Securities available for sale	0	0
Fair Value, Inputs, Level 1 [Member] | Residential Mortgage Backed Securities [Member]
Securities available for sale	0	0
Fair Value, Inputs, Level 1 [Member] | Collateralized Mortgage Obligations [Member]
Securities available for sale	0
Fair Value, Inputs, Level 1 [Member] | Us States and Political Subdivisions Debt Securities [Member]
Securities available for sale	0	0
Fair Value, Inputs, Level 1 [Member] | Corporate Debt Securities [Member]
Securities available for sale	0
Fair Value, Inputs, Level 1 [Member] | Equity Securities [Member]
Securities available for sale	1,699	1,052
Fair Value, Inputs, Level 2 [Member]
Securities available for sale	113,887	117,642
Fair Value, Inputs, Level 2 [Member] | U.S.Treasury and federal agency [Member]
Securities available for sale	0	0
Fair Value, Inputs, Level 2 [Member] | Us Government-Sponsored Enterprises Debt Securities [Member]
Securities available for sale	28,162	41,520
Fair Value, Inputs, Level 2 [Member] | Residential Mortgage Backed Securities [Member]
Securities available for sale	22,724	37,478
Fair Value, Inputs, Level 2 [Member] | Collateralized Mortgage Obligations [Member]
Securities available for sale	22,475
Fair Value, Inputs, Level 2 [Member] | Us States and Political Subdivisions Debt Securities [Member]
Securities available for sale	36,765	37,000
Fair Value, Inputs, Level 2 [Member] | Corporate Debt Securities [Member]
Securities available for sale	3,761
Fair Value, Inputs, Level 2 [Member] | Equity Securities [Member]
Securities available for sale	0	1,644
Fair Value, Inputs, Level 3 [Member]
Securities available for sale	653	0
Fair Value, Inputs, Level 3 [Member] | U.S.Treasury and federal agency [Member]
Securities available for sale	0	0
Fair Value, Inputs, Level 3 [Member] | Us Government-Sponsored Enterprises Debt Securities [Member]
Securities available for sale	0	0
Fair Value, Inputs, Level 3 [Member] | Residential Mortgage Backed Securities [Member]
Securities available for sale	0	0
Fair Value, Inputs, Level 3 [Member] | Collateralized Mortgage Obligations [Member]
Securities available for sale	0
Fair Value, Inputs, Level 3 [Member] | Us States and Political Subdivisions Debt Securities [Member]
Securities available for sale	0	0
Fair Value, Inputs, Level 3 [Member] | Corporate Debt Securities [Member]
Securities available for sale	0
Fair Value, Inputs, Level 3 [Member] | Equity Securities [Member]
Securities available for sale	$ 653	$ 0

XML

Stock Compensation Plans (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Restricted stock - Nonvested (in shares)	22,500
Restricted stock - Granted (in shares)	9,900
Restricted stock - Vested (in shares)	(6,750)
Restricted stock - Forfeited (in shares)	0
Restricted stock - Nonvested (in shares)	25,650	22,500
Weighted-Average Grant-date Fair Value, Restricted Stock - Nonvested	$ 15.07
Weighted-Average Grant-date Fair Value, Restricted Stock - Granted	$ 19.79	$ 15.17
Weighted-Average Grant-date Fair Value, Restricted Stock - Vested	$ 13.5
Weighted-Average Grant-date Fair Value, Restricted Stock - Forfeited	$ 0
Weighted-Average Grant-date Fair Value, Restricted Stock - Nonvested	$ 17.3	$ 15.07

XML

Document and Entity Information (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Mar. 22, 2013	Jun. 30, 2012
Entity Registrant Name	EMCLAIRE FINANCIAL CORP
Entity Central Index Key	0000858800
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	emcf
Entity Common Stock, Shares Outstanding		1,762,158
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2012
Entity Well-Known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 29.7

XML

Deposits

12 Months Ended

Dec. 31, 2012

Deposits [Abstract]

Deposits Disclosures [Text Block]

10. Deposits

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

(Dollar amounts in thousands)	2012								2011
	Weighted								Weighted
Type of accounts	average rate			Amount		%			average rate			Amount		%
Non-interest bearing deposits		-		$	98,559		22.8	%		-		$	84,871		20.4	%
Interest bearing demand deposits		0.15	%		201,919		46.7	%		0.19	%		186,107		44.7	%
Time deposits		2.63	%		131,981		30.5	%		2.98	%		145,490		34.9	%
		0.87	%	$	432,459		100.0	%		1.13	%	$	416,468		100.0	%

Scheduled maturities of time deposits for the next five years are as follows:

(Dollar amounts in thousands)	Amount		%
2013	$	57,294		43.4	%
2014		23,018		17.4	%
2015		13,941		10.6	%
2016		15,172		11.5	%
2017		5,918		4.5	%
Thereafter		16,638		12.6	%
	$	131,981		100.0	%

The Corporation had a total of $51.5 million and $54.5 million in time deposits of $100,000 or more at December 31, 2012 and 2011, respectively. Scheduled maturities of time deposits of $100,000 or more at December 31, 2012 are as follows:

(Dollar amounts in thousands)	Amount
Less than three months	$	5,467
Over three months to six months		4,101
Over six months to twelve months		12,046
Over twelve months		29,905
	$	51,519

XML

Income Taxes (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deferred tax assets:
Allowance for loan losses	$ 1,682	$ 1,046
Funded status of pension plan	925	785
Deferred compensation	278	213
Nonaccrual loan interest income	154	122
Securities impairment	149	226
Stock compensation	139	132
Other	28	72
Gross deferred tax assets	3,355	2,596
Deferred tax liabilities:
Net unrealized gains on securities	1,219	1,518
Depreciation	593	618
Accrued pension liability	298	190
Intangible assets	247	204
Deferred loan fees	99	79
Other	49	77
Gross deferred tax liabilities	2,505	2,686
Net deferred tax asset (liability)	$ 850	$ (90)

XML

Stock Compensation Plans (Details 1) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Options (in shares) - Outstanding	94,000
Options (in shares) - Granted	0	500
Options (in shares) - Exercised	(750)
Options (in shares) - Forfeited	(7,000)
Options (in shares) - Outstanding	86,250	94,000
Options (in shares) - Exercisable	83,500
Weighted-Average Exercise Price - Outstanding (in dollars per share)	$ 24.51
Weighted-Average Exercise Price - Granted (in dollars per share)	$ 0
Weighted-Average Exercise Price - Exercised (in dollars per share)	$ 13.5
Weighted-Average Exercise Price - Forfeited (in dollars per share)	$ 22.29
Weighted-Average Exercise Price - Outstanding (in dollars per share)	$ 24.79	$ 24.51
Weighted-Average Exercise Price - Exercisable (in dollars per share)	$ 25.06
Aggregate Intrinsic Value - Outstanding	$ 0
Aggregate Intrinsic Value - Granted	$ 0
Aggregate Intrinsic Value - Forfeited	$ 0
Aggregate Intrinsic Value - Outstanding	0	0
Aggregate Intrinsic Value - Exercisable	$ 0
Weighted-Average Remaining Term (in years) - Outstanding	4 years 10 months 24 days	6 years
Weighted-Average Remaining Term (in years) - Granted	0 years
Weighted-Average Remaining Term (in years) - Exercised	0 years
Weighted-Average Remaining Term (in years) - Forfeited	0 years
Weighted-Average Remaining Term (in years) - Exercisable	4 years 9 months 18 days

XML

Consolidated Statements of Net Income (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Interest and dividend income
Loans receivable, including fees	$ 17,213	$ 17,389
Securities:
Taxable	2,246	2,370
Exempt from federal income tax	1,153	1,292
Federal bank stocks	65	55
Deposits with banks	85	173
Total interest and dividend income	20,762	21,279
Interest expense
Deposits	4,045	4,688
Short-term borrowed funds	0	159
Long-term borrowed funds	931	1,025
Total interest expense	4,976	5,872
Net interest income	15,786	15,407
Provision for loan losses	2,154	420
Net interest income after provision for loan losses	13,632	14,987
Noninterest income
Fees and service charges	1,608	1,490
Commissions on financial services	466	520
Title premiums	67	88
Other-than-temporary impairment losses on equity securities	(103)	0
Net gain on sales of available for sale securities	1,360	482
Earnings on bank-owned life insurance	307	246
Other	1,188	1,015
Total noninterest income	4,893	3,841
Noninterest expense
Compensation and employee benefits	7,174	7,118
Premises and equipment	2,011	2,194
Intangible asset amortization	345	441
Professional fees	672	706
Federal deposit insurance	387	410
Other	3,348	3,176
Total noninterest expense	13,937	14,045
Income before provision for income taxes	4,588	4,783
Provision for income taxes	934	950
Net income	3,654	3,833
Preferred stock dividends and discount accretion	493	517
Net income available to common stockholders	$ 3,161	$ 3,316
Earnings per common share
Basic (in dollars per share)	$ 1.80	$ 1.98
Diluted (in dollars per share)	$ 1.80	$ 1.98

XML

Securities

12 Months Ended

Dec. 31, 2012

Investments, Debt and Equity Securities [Abstract]

Marketable Securities [Text Block]

4. Securities

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

(Dollar amounts in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for sale:
December 31, 2012:
U.S. Treasury and federal agency	$	3,959	$	8	$	-		$	3,967
U.S. government sponsored entities and agencies		28,030		132		-			28,162
Mortgage-backed securities: residential		21,137		1,587		-			22,724
Collateralized mortgage obligations: residential		22,508		47		(80	)		22,475
State and political subdivision		34,904		1,862		(1	)		36,765
Corporate debt		3,728		34		(1	)		3,761
Equity securities		2,356		4		(8	)		2,352
	$	116,622	$	3,674	$	(90	)	$	120,206
December 31, 2011:
U.S. Treasury and federal agency	$	3,944	$	516	$	-		$	4,460
U.S. government sponsored entities and agencies		41,425		102		(7	)		41,520
Mortgage-backed securities: residential		35,651		1,827		-			37,478
State and political subdivision		35,073		1,928		(1	)		37,000
Equity securities		2,595		308		(207	)		2,696
	$	118,688	$	4,681	$	(215	)	$	123,154

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

(Dollar amounts in thousands)	2012		2011
Proceeds	$	17,139	$	28,978
Gains		1,360		523
Losses		-		(41	)
Tax provision related to gains		462		178

The following table summarizes scheduled maturities of the Corporation’s debt securities as of December 31, 2012. 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		Fair
	Cost		Value
Due in one year or less	$	502	$	504
Due after one year through five years		33,690		34,150
Due after five through ten years		33,948		35,326
Due after ten years		2,481		2,675
Mortgage-backed securities: residential		21,137		22,724
Collateralized mortgage obligations: residential		22,508		22,475
	$	114,266	$	117,854

Securities with carrying values of $63.6 million and $62.2 million as of December 31, 2012 and 2011, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Information pertaining to securities with gross unrealized losses at December 31, 2012 and 2011 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		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
December 31, 2012:
Collateralized mortgage obligations: residential	$	10,698	$	(80	)	$	-	$	-		$	10,698	$	(80	)
State and political subdivision		521		(1	)		-		-			521		(1	)
Corporate debt		500		(1	)		-		-			500		(1	)
Equity securities		493		(8	)		-		-			493		(8	)
	$	12,212	$	(90	)	$	-	$	-		$	12,212	$	(90	)
December 31, 2011:
U.S. government sponsored entities and agencies	$	4,490	$	(7	)	$	-	$	-			4,490		(7	)
State and political subdivision		99		(1	)		-		-			99		(1	)
Equity securities		881		(185	)		187		(22	)		1,068		(207	)
	$	5,470	$	(193	)	$	187	$	(22	)	$	5,657	$	(215	)

Management evaluates 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 debt 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. For equity securities determined to be other-than-temporarily impaired, the entire amount of impairment is recognized through earnings.

During 2012, after evaluation of the securities portfolio, management determined that OTTI existed on two financial institution equity securities. The impairment of these securities was considered to be other-than-temporary due to continued concerns related to the financial condition and near-term prospects of the issuers, economic conditions of the financial services industry and deteriorating market values. These securities were written down to their fair market values as of December 31, 2012 and the resulting impairment losses of $103,000 were recognized in earnings during the fourth quarter of 2012.

After recognizing the aforementioned OTTI, there were four equity securities in an unrealized loss position as of December 31, 2012, all of which were in an unrealized loss position for less than 12 months. Equity securities owned by the Corporation consist of common stock of various financial service providers. These investment securities are in an unrealized loss position as a result of recent market volatility and depressed pricing of the financial services sector. The Corporation does not invest in these securities with the intent to sell them for a profit in the near term. For investments in equity securities, in addition to the general factors mentioned above for determining whether the decline in market value is other-than-temporary, the analysis of whether an equity security is other-than-temporarily impaired includes a review of the profitability, capital adequacy and all other information available to determine the financial position and near term prospects of each issuer. The results of analyzing the aforementioned metrics and financial fundamentals suggest recovery of amortized cost as the sector improves. Based on that evaluation, 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 equity securities with unrealized losses as of December 31, 2012 to be other-than-temporarily impaired.

There were 10 debt securities in an unrealized loss position as of December 31, 2012, all of which were in an unrealized loss position for less than 12 months. Of these securities, five were collateralized mortgage obligations, three were state and political subdivisions securities and two were corporate debt 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, 2012 to be other-than-temporarily impaired.

The following table presents information related to the Corporation’s gains and losses on the sales of equity and debt securities, and losses recognized for the OTTI of investments:

(Dollar amounts in thousands)	Gross Realized		Gross Realized			Other-than-temporary			Net Gains
	Gains		Losses			Impairment Losses			(Losses)
Year ended December 31, 2012:
Debt securities	$	936	$	-		$	-		$	936
Equity securities		424		-			(103	)		321
	$	1,360	$	-		$	(103	)	$	1,257
Year ended December 31, 2011:
Debt securities	$	523	$	(41	)	$	-		$	482

XML

Participation in the Small Business Lending Fund (SBLF) of the U.S. Treasury Department (U.S. Treasury) and Repurchase of Shares Issued Under the Troubled Asset Relief Program (TARP)

12 Months Ended

Dec. 31, 2012

Participation In Small Business Lending Fund Self Of U S Treasury Department U S Treasury and Repurchase Of Shares Issued Under Troubled Asset Relief Program Tarp [Abstract]

Participation In Small Business Lending Fund and Repurchase Of Shares Issued Under Troubled Asset Relief Program [Text Block]

3. Participation in the Small Business Lending Fund (SBLF) of the U.S. Treasury Department (U.S. Treasury) and Repurchase of Shares Issued Under the Troubled Asset Relief Program (TARP)

On August 18, 2011, the Corporation entered into a Securities Purchase Agreement (the Agreement) with the Secretary of the U.S. Treasury, pursuant to which the Corporation issued and sold to the U.S. Treasury 10,000 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series B (Series B Preferred Stock), having a liquidation preference of $1,000 per share, for aggregate proceeds of $10.0 million. The issuance was pursuant to the U.S. Treasury’s SBLF program, a $30.0 billion fund established under the Small Business Jobs Act of 2010, which encourages lending to small businesses by providing capital to qualified community banks with assets less than $10.0 billion. The Series B Preferred Stock is entitled to receive non-cumulative dividends payable quarterly on each January 1, April 1, July 1 and October 1, beginning October 1, 2011. The dividend rate, which is calculated on the aggregate liquidation amount, has been initially set at 5% per annum based upon the current level of Qualified Small Business Lending (QSBL) by the Bank. The dividend rate for future periods will be set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the time the Agreement was entered into. Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods, and will be fixed at a rate of 1% per annum to 7% per annum for the eleventh through the eighteenth dividend periods. If the Series B Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%. Prior to that time, in general, the dividend rate decreases as the level of the Bank’s QSBL increases. Such dividends are not cumulative, but the Corporation may only declare and pay dividends on its common stock (or any other equity securities junior to the Series B Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series B Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem other securities.

As more completely described in the Certificate of Designation, holders of the Series B Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of Series B Preferred Stock and on certain corporate transactions. Except with respect to such matters, the Series B Preferred Stock does not have voting rights.

The Corporation may redeem the shares of Series B Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the liquidation amount and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Corporation’s primary federal banking regulator. If paid in part, payments are required to be at least 25% of the original proceeds.

Under the Agreement, the Corporation also repurchased 7,500 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (Series A Preferred Stock), issued on December 23, 2008 to the U.S. Treasury in association with participation in the TARP Capital Purchase Plan (TARP/CPP) of the Emergency Economic Stabilization Act of 2008 (EESA). The Series A Preferred Stock was fully repurchased for the sum of the liquidation amount of $1,000 per share and all accrued and unpaid dividends then due, for a total repurchase amount of $7.5 million.

As part of the 2008 TARP transaction, the Corporation issued a warrant to the U.S. Treasury to purchase 50,111 shares of the Corporation’s common stock, par value $1.25 per share, for $22.45 per share over a 10-year term. On December 7, 2011, the Corporation repurchased the warrant from the U.S. Treasury for a purchase price of $51,000.

XML

Employee Benefit Plans

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Compensation and Employee Benefit Plans [Text Block]

15. 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. 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)	2012			2011
Change in plan assets:
Fair value of plan assets at beginning of year	$	4,892		$	4,497
Actual return on plan assets		529			192
Employer contribution		500			419
Benefits paid		(265	)		(216	)
Fair value of plan assets at end of year		5,656			4,892
Change in benefit obligation:
Benefit obligation at beginning of year		7,010			5,855
Service cost		272			295
Interest cost		331			327
Actuarial loss		145			-
Effect of change in assumptions		496			749
Benefits paid		(265	)		(216	)
Benefit obligation at end of year		7,989			7,010
Funded status (plan assets less benefit obligation)	$	(2,333	)	$	(2,118	)
Amounts recognized in accumulated other comprehensive loss, net of tax, consists of:
Accumulated net actuarial loss	$	1,872		$	1,620
Accumulated prior service benefit		(77	)		(97	)
Amount recognized, end of year	$	1,795		$	1,523

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 17:

(Dollar amounts in thousands)			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
December 31, 2012:
Cash and cash equivalents	$	531	$	531	$	-	$	-
Fixed income		2,626		-		2,626		-
Equity mutual funds - domestic		2,203		2,203		-		-
Equity mutual funds - international		296		296		-		-
	$	5,656	$	3,030	$	2,626	$	-
December 31, 2011:
Cash and cash equivalents	$	454	$	454	$	-	$	-
Fixed income		2,471		-		2,471		-
Equity mutual funds - domestic		1,758		1,758		-		-
Equity mutual funds - international		209		209		-		-
	$	4,892	$	2,421	$	2,471	$	-

There were no significant transfers between Level 1 and Level 2 during 2012.

Amounts recognized in the balance sheet as of December 31 consist of:

(Dollar amounts in thousands)	Pension Benefits
	2012			2011
Prepaid benefit cost	$	386		$	190
Accumulated other comprehensive loss		(2,719	)		(2,308	)
Net amount recognized	$	(2,333	)	$	(2,118	)

The accumulated benefit obligation for the defined benefit pension plan was $8.0 million and $7.0 million at December 31, 2012 and 2011, respectively.

The components of the periodic pension costs for the years ended December 31 are as follows:

(Dollar amounts in thousands)	2012			2011
Service cost	$	272		$	295
Interest cost		331			327
Expected return on plan assets		(391	)		(357	)
Amortization of prior service cost and actuarial expense		92			30
Net periodic pension cost		304			295
Amortization of prior service cost		31			31
Amortization of net loss		381			852
Total recognized in other comprehensive (income) loss		412			883
Total recognized in net periodic benefit cost and other comprehensive income	$	716		$	1,178

The estimated net loss and prior service costs 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 $111,000 as of December 31, 2012.

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

	2012			2011
Discount rate for net periodic benefit cost		4.70	%		5.70	%
Discount rate for benefit obligations		4.17	%		4.70	%
Rate of increase in future compensation levels		3.50	%		3.50	%
Expected rate of return on plan assets		7.75	%		7.75	%

The Corporation’s pension plan asset allocation at December 31, 2012 and 2011, target allocation for 2013, 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
	2012			2012			2011			2012
Equity Securities		40	%		41	%		40	%		5.5	%
Debt Securities		50	%		50	%		51	%		1.8	%
Other		10	%		9	%		9	%		0.5	%
		100	%		100	%		100	%		7.75	%

Investment Strategy

The intent of the 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 Plan’s objectives: Small company stock, International stock, Mid-cap stock, Large company stock, Diversified bond, Money Market/Stable Value and Cash. The Plan does not prohibit any certain investments.

The Corporation expects to contribute approximately $325,000 to its pension plan in 2013.

Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows:

(Dollar amounts in thousands)	Pension
For year ended December 31,	Benefits
2013	$	236
2014		233
2015		220
2016		258
2017		264
2018-2022		1,681
Thereafter		5,097
Benefit Obligation	$	7,989

Certain accounting guidance requires an employer to recognize the funded status of its defined benefit pension plan as a net asset or liability in its consolidated balance sheet with an offsetting amount in accumulated other comprehensive income, and to recognize changes in that funded status in the year in which changes occur through comprehensive income. As of December 31, 2012, the Corporation’s liability under this guidance was $2.7 million and the charge to accumulated other comprehensive income was $1.8 million, net of taxes. Additionally, the guidance requires an employer to measure the funded status of its defined benefit pension plan as of the date of its year-end financial statements. The Corporation measures the funded status at December 31.

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 2012 and 2011, matching contributions were $179,000 and $176,000, respectively.

Supplemental Executive Retirement Plan

During 2003, the Corporation established a Supplemental Executive Retirement Plan (SERP) to provide certain additional retirement benefits to participating executive officers. The SERP was adopted in order to provide benefits to such executives whose benefits are reduced under the Corporation’s tax-qualified benefit plans pursuant to limitations under the Internal Revenue Code. The SERP is subject to certain vesting provisions and provides that the executives shall receive a supplemental retirement benefit if the executive’s employment is terminated after reaching the normal retirement age of 65. As of December 31, 2012 and 2011, the Corporation’s SERP liability was $736,000 and $627,000, respectively. For the years ended December 31, 2012 and 2011, the Corporation recognized expense of $120,000 and $124,000, respectively, related to the SERP.

XML

Borrowed Funds

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

11. Borrowed Funds

The following table summarizes the Corporation’s borrowed funds as of and for the year ended December 31:

(Dollar amounts in thousands)	2012							2011
			Average		Average					Average		Average
	Balance		Balance		Rate			Balance		Balance		Rate
Due within 12 months	$	-	$	27		0.46	%	$	-	$	3,414		4.66	%
Due beyond 12 months but within 5 years		20,000		20,000		4.59	%		15,000		17,068		4.63	%
Due beyond 5 years but within 10 years		-		-		-			5,000		5,000		4.09	%
	$	20,000	$	20,027				$	20,000	$	25,482

Long-term borrowed funds at December 31, 2012 consisted of four $5.0 million FHLB term advances totaling $20.0 million. The term advances mature in October and November 2017. All borrowings from the FHLB are secured by a blanket lien of qualified collateral. Qualified collateral at December 31, 2012 totaled $255.2 million.

During the fourth quarter of 2012, the Corporation exchanged and modified $15.0 million of the $20.0 million in outstanding FHLB advances. Two of the modified advances had ten year terms with initial fixed rates of 4.98% and 4.83%, respectively, for the first two years after which the rates may have been adjusted at the option of the FHLB to the then three month LIBOR rate plus 24 basis points. The other modified advance had a ten year term with an initial fixed rate of 4.68% for the first two years after which the rate may have been adjusted at the option of the FHLB to the then three month LIBOR rate plus 24 basis points, but only if the three month LIBOR rate exceeded 6.0%.

The three $5.0 million advances discussed above were exchanged for three $5.0 million five year fixed rate advances each with a rate of 0.93% and a term of five years. Prepayment penalties associated with the three modified advances totaled $2.3 million and were cash-settled with the FHLB at the time of modification. The Corporation will amortize this prepayment penalty over the life of the new advances.

The remaining $5.0 million advance has a term of ten years with an initial fixed rate of 4.09% for the first three years after which the rate may be adjusted at the option of the FHLB to the then three month LIBOR rate plus 13 basis points.

Before modification, the four advances totaling $20.0 million had a weighted average rate of 4.65%. After modification and including prepayment penalty amortization, the four advances had a weighted average rate of 4.01%.

Scheduled maturities of borrowed funds for the next five years are as follows:

(Dollar amounts in thousands)	Amount
2013	$	-
2014		-
2015		-
2016		-
2017		20,000
Thereafter		-
	$	20,000

The Bank maintains a credit arrangement with the FHLB as a source of additional liquidity. The total maximum borrowing capacity with the FHLB, excluding loans outstanding, at December 31, 2012 was $154.7 million. In addition, the Corporation has $5.0 million of funds available on an unused line of credit through another correspondent bank.

XML

Employee Benefit Plans (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Service cost	$ 272	$ 295
Interest cost	331	327
Expected return on plan assets	(391)	(357)
Amortization of prior service cost and actuarial expense	92	30
Net periodic pension cost	304	295
Amortization of prior service cost	31	31
Amortization of net loss	381	852
Total recognized in other comprehensive (income) loss	(412)	(883)
Total recognized in net periodic benefit cost and other comprehensive income	$ 716	$ 1,178

XML

Premises and Equipment

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

7. Premises and Equipment

Premises and equipment at December 31 are summarized by major classification as follows:

(Dollar amounts in thousands)	2012		2011
Land	$	1,623	$	1,623
Buildings and improvements		8,331		8,215
Leasehold improvements		843		818
Furniture, fixtures and equipment		5,911		5,533
Software		2,664		2,491
Construction in progress		699		560
		20,071		19,240
Less: accumulated depreciation and amortization		10,891		10,214
	$	9,180	$	9,026

Depreciation and amortization expense for the years ended December 31, 2012 and 2011 were $677,000 and $798,000, respectively.

Rent expense under non-cancelable operating lease agreements for the years ended December 31, 2012 and 2011 was $161,000 and $156,000, respectively. Rent commitments under non-cancelable long-term operating lease agreements for certain branch offices for the years ended December 31, are as follows, before considering renewal options that are generally present:

(Dollar amounts in thousands)	Amount
2013	$	170
2014		175
2015		168
2016		138
2017		127
Thereafter		680
	$	1,458

XML

Loans Receivable and Related Allowance for Loan Losses (Details Textual) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Modifications, Recorded Investment	$ 2,300,000	$ 794,000
Allowance For Losses Allocated To Loans Classified As Tdrs	36,000	35,000
Consumer Loan [Member]
Financing Receivable, Modifications, Recorded Investment	1,600,000
Commercial Real Estate [Member]
Financing Receivable, Modifications, Recorded Investment		$ 352,000

XML

Loans Receivable and Related Allowance for Loan Losses

12 Months Ended

Dec. 31, 2012

Loans Notes Trade and Other Receivables Disclosure [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

5. 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)	2012		2011
Mortgage loans on real estate:
Residential first mortgages	$	97,246	$	93,610
Home equity loans and lines of credit		85,615		71,238
Commercial real estate		98,823		94,765
		281,684		259,613
Other loans:
Commercial business		45,581		43,826
Consumer		11,886		12,642
		57,467		56,468
Total loans, gross		339,151		316,081
Less allowance for loan losses		5,350		3,536
Total loans, net	$	333,801	$	312,545

The following table presents 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
							For the year ended
	As of December 31, 2012						December 31, 2012
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-		-
Commercial real estate		4,242		4,068		1,448		2,075		186		16
Commercial business		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	4,242	$	4,068	$	1,448	$	2,075	$	186	$	16

	Impaired Loans with
	No Specific Allowance
					For the year ended
	As of December 31, 2012				December 31, 2012
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		730		505		690		12		12
Commercial business		394		369		368		5		5
Consumer		1,650		1,650		1,774		-		-
Total	$	2,774	$	2,524	$	2,832	$	17	$	17

	Impaired Loans with
	Specific Allowance
							For the year ended
	As of December 31, 2011						December 31, 2011
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-		-
Commercial real estate		524		524		142		616		39		26
Commercial business		128		128		22		771		7		2
Consumer		-		-		-		-		-		-
Total	$	652	$	652	$	164	$	1,387	$	46	$	28

	Impaired Loans with
	No Specific Allowance
					For the year ended
	As of December 31, 2011				December 31, 2011
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	-	$	-	$	-	$	-	$	-
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		1,518		1,154		862		81		81
Commercial business		357		332		122		27		6
Consumer		1,905		1,905		2,018		138		138
Total	$	3,780	$	3,391	$	3,002	$	246	$	225

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 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 generally does not extend additional credit to borrowers with loans classified as TDRs.

At December 31, 2012 and 2011, the Corporation had $2.3 million and $794,000, respectively, of loans classified as TDR’s, which are included in impaired loans above. At December 31, 2012 and 2011, the Corporation had $36,000 and $35,000, respectively, of the allowance for loan losses allocated to these specific loans.

During the year ended December 31, 2012, the Corporation recognized a consumer installment loan to one borrower with a pre- and post-modification recorded investment of $1.6 million as a TDR due to the discharge of the debtor in bankruptcy. The loan is secured by a lien on the primary residence of a separate borrower. Due to the estimated value of the lien on the property, at December 31, 2012, the Corporation did not have any of the allowance for loan losses allocated to this specific loan.

During the year ended December 31, 2011, the Corporation restructured two commercial real estate loans to one borrower with a pre- and post-modification recorded investment of $352,000. These loans were modified by forbearing the interest amounts then outstanding and establishing a new repayment date and amortization schedule. At December 31, 2012 and 2011, the Corporation had $36,000 and $35,000, respectively, of the allowance for loan losses allocated to these specific loans.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. There were no defaults on loans classified as TDRs during the years ended December 31, 2012 and 2011.

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.

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 a 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.

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, 2012 and 2011:

(Dollar amounts in thousands)
					Special
	Not Rated		Pass		Mention		Substandard		Doubtful		Total
December 31, 2012:
Residential first mortgages	$	96,713	$	-	$	-	$	533	$	-	$	97,246
Home equity and lines of credit		85,443		-		-		172		-		85,615
Commercial real estate		-		88,944		1,658		6,870		1,351		98,823
Commercial business		-		42,417		2,157		1,007		-		45,581
Consumer		10,236		-		-		1,650		-		11,886
Total	$	192,392	$	131,361	$	3,815	$	10,232	$	1,351	$	339,151
December 31, 2011:
Residential first mortgages	$	92,612	$	-	$	-	$	998	$	-	$	93,610
Home equity and lines of credit		71,064		-		-		174		-		71,238
Commercial real estate		-		88,006		3,625		3,134		-		94,765
Commercial business		-		41,864		832		1,130		-		43,826
Consumer		10,737		-		-		1,905		-		12,642
Total	$	174,413	$	129,870	$	4,457	$	7,341	$	-	$	316,081

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 recorded 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, 2012 and 2011:

(Dollar amounts in thousands)
	Performing						Nonperforming
	Accruing		Accruing		Accruing		Acccruing
	Loans Not		30-59 Days		60-89 Days		90 Days +				Total
	Past Due		Past Due		Past Due		Past Due		Nonaccrual		Loans
December 31, 2012:
Residential first mortgages	$	95,001	$	1,272	$	440	$	-	$	533	$	97,246
Home equity and lines of credit		84,592		669		157		-		197		85,615
Commercial real estate		94,485		50		49		21		4,218		98,823
Commercial business		44,915		297		-		-		369		45,581
Consumer		10,172		41		23		-		1,650		11,886
Total loans	$	329,165	$	2,329	$	669	$	21	$	6,967	$	339,151
December 31, 2011:
Residential first mortgages	$	91,400	$	1,059	$	153	$	66	$	932	$	93,610
Home equity and lines of credit		70,506		431		127		-		174		71,238
Commercial real estate		92,632		302		-		-		1,831		94,765
Commercial business		43,338		7		10		-		471		43,826
Consumer		10,488		55		8		-		2,091		12,642
Total loans	$	308,364	$	1,854	$	298	$	66	$	5,499	$	316,081

The following table presents the Corporation’s nonaccrual loans by aging category as of December 31, 2012 and 2011:

(Dollar amounts in thousands)
	Not		30-59 Days		60-89 Days		90 Days +		Total
	Past Due		Past Due		Past Due		Past Due		Loans
December 31, 2012:
Residential first mortgages	$	-	$	-	$	-	$	533	$	533
Home equity and lines of credit		-		25		-		172		197
Commercial real estate		469		3,386		10		353		4,218
Commercial business		78		-		-		291		369
Consumer		1,650		-		-		-		1,650
Total loans	$	2,197	$	3,411	$	10	$	1,349	$	6,967
December 31, 2011:
Residential first mortgages	$	-	$	-	$	-	$	932	$	932
Home equity and lines of credit		-		-		-		174		174
Commercial real estate		1,087		92		-		652		1,831
Commercial business		471		-		-		-		471
Consumer		2,091		-		-		-		2,091
Total loans	$	3,649	$	92	$	-	$	1,758	$	5,499

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)	2012			2011
Balance at the beginning of the year	$	3,536		$	3,525
Provision for loan losses		2,154			100
Charge-offs		(498	)		(117	)
Recoveries		158			28
Balance at the end of the year	$	5,350		$	3,536

The following table details activity in the ALL and the recorded investment by portfolio segment based on impairment method at December 31, 2012 and 2011:

(Dollar amounts in thousands)
				Home Equity
	Residential			& Lines			Commercial			Commercial
	Mortgages			of Credit			Real Estate			Business			Consumer			Total
December 31, 2012:
Beginning Balance	$	832		$	320		$	1,737		$	590		$	57		$	3,536
Charge-offs		(90	)		(222	)		(35	)		(50	)		(101	)		(498	)
Recoveries		84			27			8			15			24			158
Provision		2			605			1,380			81			86			2,154
Ending Balance	$	828		$	730		$	3,090		$	636		$	66		$	5,350
Ending ALL balance attributable to loans:
Individually evaluated for impairment		-			-			1,448			-			-			1,448
Collectively evaluated for impairment		828			730			1,642			636			66			3,902
Total loans:
Individually evaluated for impairment		-			-			4,573			369			1,650			6,592
Collectively evaluated for impairment		97,246			85,615			94,250			45,212			10,236			332,559
December 31, 2011:
Beginning Balance	$	398		$	572		$	1,707		$	1,323		$	132		$	4,132
Charge-offs		(224	)		(188	)		(200	)		(415	)		(67	)		(1,094	)
Recoveries		3			1			-			63			11			78
Provision		655			(65	)		230			(381	)		(19	)		420
Ending Balance	$	832		$	320		$	1,737		$	590		$	57		$	3,536
Ending ALL balance attributable to loans:
Individually evaluated for impairment		-			-			22			142			-			164
Collectively evaluated for impairment		832			320			1,715			448			57			3,372
Total loans:
Individually evaluated for impairment		-			-			1,678			460			1,905			4,043
Collectively evaluated for impairment		93,610			71,238			93,087			43,366			10,737			312,038

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.

XML

Federal Bank Stocks

12 Months Ended

Dec. 31, 2012

Banking and Thrift [Abstract]

Federal Home Loan Bank Advances, Disclosure [Text Block]

6. Federal Bank Stocks

The Bank is a member of the FHLB and the FRB. As a member of these federal banking systems, the Bank maintains an investment in the capital stock of the respective regional banks, which are carried at cost. 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. The Bank’s investment in FHLB and FRB stocks was $1.9 million and $984,000, respectively, at December 31, 2012, and $2.7 million and $984,000, respectively, at December 31, 2011. The FHLB repurchases a portion of the Bank’s excess capital stock each quarter. The repurchases totaled $779,000 and $611,000, respectively, for the years ended December 31, 2012 and 2011. Offsetting these repurchases, the Corporation purchased $146,000 of FRB capital stock during the year ended December 31, 2011.

XML

Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

8. Goodwill and Intangible Assets

The following table summarizes the Corporation’s acquired goodwill and intangible assets as of December 31:

(Dollar amounts in thousands)	2012				2011
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill	$	3,664	$	-	$	3,664	$	-
Core deposit intangibles		4,027		2,792		4,027		2,447
Total	$	7,691	$	2,792	$	7,691	$	2,447

Goodwill resulted from three previous branch acquisitions. Goodwill represents the excess of the total purchase price paid for the branch acquisitions over the fair value of the assets acquired, net of the fair value of the liabilities assumed. Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At November 31, 2012, the Corporation elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment. No goodwill impairment charges were recorded in 2012 or 2011.

Also, in connection with the assumption of deposits related to the 2009 Titusville branch acquisition, the Bank recorded a core deposit intangible of $2.8 million during 2009. This intangible asset amortizes using the double declining balance method over a weighted average estimated life of nine years and is not estimated to have a significant residual value. The Corporation recorded intangible amortization expense totaling $345,000 and $441,000 in 2012 and 2011, respectively.

The estimated amortization expense of the core deposit intangible for the years ending December 31, are as follows:

(Dollar amounts in thousands)	Amortization
	Expense
2013	$	270
2014		216
2015		195
2016		195
2017		195
Thereafter		164
	$	1,235

XML

Premises and Equipment (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Depreciation, Depletion and Amortization	$ 677,000	$ 798,000
Operating Leases, Rent Expense	$ 161,000	$ 156,000

XML

Employee Benefit Plans (Details 4)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Discount rate for net periodic benefit cost	4.70%	5.70%
Discount rate for benefit obligations	4.17%	4.70%
Rate of increase in future compensation levels	3.50%	3.50%
Expected rate of return on plan assets	7.75%	7.75%

XML

Goodwill and Intangible Assets (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
2013	$ 270
2014	216
2015	195
2016	195
2017	195
Thereafter	164
Finite-Lived Intangible Assets, Net, Total	$ 1,235	$ 1,580

XML

Emclaire Financial Corp. - Condensed Financial Statements, Parent Corporation Only (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2012
Operating activities:
Net income	$ 3,654	$ 3,833
Adjustments to reconcile net income to net cash provided by operating activities:
Realized gains on sales of available for sale securities, net	(1,360)	(523)
Securities impairment loss recognized in earnings	(103)
Net cash provided by operating activities	2,322	6,607
Investing activities:
Net cash provided by (used in) investing activities	(24,164)	261
Financing activities:
Proceeds from issuance of common stock	0	4,576
Proceeds from issuance of preferred stock (Series B)	0	10,000
Redemption of preferred stock (Series A)	0	(7,500)
Warrant repurchase	0	(51)
Dividends paid	(1,930)	(1,537)
Net cash provided by financing activities	14,073	2,298
Increase (decrease) in cash and cash equivalents	(7,769)	9,166
Cash and cash equivalents at beginning of period	28,193	19,027
Cash and cash equivalents at end of period	20,424	28,193
Parent Company [Member]
Operating activities:
Net income	3,654	3,833
Adjustments to reconcile net income to net cash provided by operating activities:
(Undistributed equity in) distributions in excess of net income of subsidiary	(2,458)	652
Realized gains on sales of available for sale securities, net	(424)	0
Securities impairment loss recognized in earnings	103	0
Other, net	161	(16)
Net cash provided by operating activities	1,036	4,469
Investing activities:
Sales (purchases) of investment securities	558	(52)
Investment in subsidiaries	0	(4,873)
Net cash provided by (used in) investing activities	558	(4,925)
Financing activities:
Net change in borrowings	275	(5,000)
Proceeds from issuance of common stock	0	4,576
Proceeds from issuance of preferred stock (Series B)	0	10,000
Redemption of preferred stock (Series A)	0	(7,500)
Warrant repurchase	0	(51)
Proceeds from exercise of stock options, including tax benefit	12	0
Dividends paid	(1,930)	(1,537)
Net cash provided by financing activities	(1,643)	488
Increase (decrease) in cash and cash equivalents	(49)	32
Cash and cash equivalents at beginning of period	87	55	38
Cash and cash equivalents at end of period	$ 38	$ 87	$ 38

XML

Premises and Equipment (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
2013	$ 170
2014	175
2015	168
2016	138
2017	127
Thereafter	680
Operating Leases, Future Minimum Payments Due	$ 1,458

XML

Stock Compensation Plans (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2007
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			177,496
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	$ 298,000
Allocated Share-based Compensation Expense	113,000	98,000
Stock Issued During Period, Shares, Restricted Stock Award, Gross	9,900	8,000
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 196,000	$ 121,000
Weighted-Average Grant-date Fair Value, Restricted Stock - Granted	$ 19.79	$ 15.17
Options (in shares) - Granted	0	500
Share Based Compensation Arrangement By Share Based Payment Award Vested Percentage		100.00%

XML

Deposits (Tables)

12 Months Ended

Dec. 31, 2012

Deposits [Abstract]

Schedule Of Deposits [Table Text Block]

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

(Dollar amounts in thousands)	2012								2011
	Weighted								Weighted
Type of accounts	average rate			Amount		%			average rate			Amount		%
Non-interest bearing deposits		-		$	98,559		22.8	%		-		$	84,871		20.4	%
Interest bearing demand deposits		0.15	%		201,919		46.7	%		0.19	%		186,107		44.7	%
Time deposits		2.63	%		131,981		30.5	%		2.98	%		145,490		34.9	%
		0.87	%	$	432,459		100.0	%		1.13	%	$	416,468		100.0	%

Schedule Of Maturities Of Time Deposits [Table Text Block]

Scheduled maturities of time deposits for the next five years are as follows:

(Dollar amounts in thousands)	Amount		%
2013	$	57,294		43.4	%
2014		23,018		17.4	%
2015		13,941		10.6	%
2016		15,172		11.5	%
2017		5,918		4.5	%
Thereafter		16,638		12.6	%
	$	131,981		100.0	%

Schedule Of Maurities Of Time Deposits 100000 Or More [Table Text Block]

The Corporation had a total of $51.5 million and $54.5 million in time deposits of $100,000 or more at December 31, 2012 and 2011, respectively. Scheduled maturities of time deposits of $100,000 or more at December 31, 2012 are as follows:

(Dollar amounts in thousands)	Amount
Less than three months	$	5,467
Over three months to six months		4,101
Over six months to twelve months		12,046
Over twelve months		29,905
	$	51,519

XML

Securities (Details 4) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
GrossRealized Gains	$ 1,360	$ 523
GrossRealized Losses	0	(41)
Other-than-temporary ImpairmentLosses	(103)
NetGains (Losses)	1,257
Equity Securities [Member]
GrossRealized Gains	424
GrossRealized Losses	0
Other-than-temporary ImpairmentLosses	(103)
NetGains (Losses)	321
Debt Securities [Member]
GrossRealized Gains	936	523
GrossRealized Losses	0	(41)
Other-than-temporary ImpairmentLosses	0	0
NetGains (Losses)	$ 936	$ 482

XML

Commitments and Legal Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

13. Commitments and Legal Contingencies

In the ordinary course of business, the Corporation has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Corporation is involved in certain claims and legal actions arising in the ordinary course of business. The outcome of these claims and actions are not presently determinable; however, in the opinion of the Corporation’s management, after consulting legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial statements.

XML

Emclaire Financial Corp. - Condensed Financial Statements, Parent Corporation Only

12 Months Ended

Dec. 31, 2012

Condensed Financial Information Of Parent Company Only Disclosure [Abstract]

Condensed Financial Information of Parent Company Only Disclosure [Text Block]

18. Emclaire Financial Corp – Condensed Financial Statements, Parent Corporation Only

Following are condensed financial statements for the parent company as of and for the years ended December 31:

Condensed Balance Sheets
(Dollar amounts in thousands)	2012		2011
Assets:
Cash and cash equivalents	$	38	$	87
Securities available for sale		2,301		2,644
Equity in net assets of subsidiaries		50,299		48,625
Other assets		500		515
Total Assets	$	53,138	$	51,871
Liabilities and Stockholders' Equity:
Short-term borrowed funds with affiliated subsidiary bank	$	1,375	$	1,100
Accrued expenses and other liabilities		38		41
Stockholders' equity		51,725		50,730
Total Liabilities and Stockholders' Equity	$	53,138	$	51,871

Condensed Statements of Income
(Dollar amounts in thousands)	2012		2011
Income:
Dividends from subsidiaries	$	1,207	$	5,287
Investment income		398		73
Total income		1,605		5,360
Expense:
Interest expense		38		194
Noninterest expense		321		342
Total expense		359		536
Income before income taxes and undistributed subsidiary income		1,246		4,824
Undistributed equity in (distribution in excess of) net income of subsidiary		2,458		(1,085	)
Net income before income taxes		3,704		3,739
Income tax expense (benefit)		50		(94	)
Net income	$	3,654	$	3,833
Comprehensive income	$	2,800	$	6,026

Condensed Statements of Cash Flows
(Dollar amounts in thousands)	2012			2011
Operating activities:
Net income	$	3,654		$	3,833
Adjustments to reconcile net income to net cash provided by operating activities:
(Undistributed equity in) distributions in excess of net income of subsidiary		(2,458	)		652
Realized gains on sales of available for sale securities, net		(424	)		-
Securities impairment loss recognized in earnings		103			-
Other, net		161			(16	)
Net cash provided by operating activities		1,036			4,469
Investing activities:
Sales (purchases) of investment securities		558			(52	)
Investment in subsidiaries		-			(4,873	)
Net cash provided by (used in) investing activities		558			(4,925	)
Financing activities:
Net change in borrowings		275			(5,000	)
Proceeds from issuance of common stock		-			4,576
Proceeds from issuance of preferred stock (Series B)		-			10,000
Redemption of preferred stock (Series A)		-			(7,500	)
Warrant repurchase		-			(51	)
Proceeds from exercise of stock options, including tax benefit		12			-
Dividends paid		(1,930	)		(1,537	)
Net cash provided by (used in) financing activities		(1,643	)		488
Increase (decrease) in cash and cash equivalents		(49	)		32
Cash and cash equivalents at beginning of period		87			55
Cash and cash equivalents at end of period	$	38		$	87

XML

Fair Values of Financial Instruments (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Unpaid Principal Balance	$ 2,665	$ 533
Fair Value, Inputs, Level 1 [Member]
Unpaid Principal Balance	0	0
Fair Value, Inputs, Level 2 [Member]
Unpaid Principal Balance	0	0
Fair Value, Inputs, Level 3 [Member]
Unpaid Principal Balance	2,665	533
Commercial Real Estate [Member]
Unpaid Principal Balance	2,620	382
Commercial Real Estate [Member] | Fair Value, Inputs, Level 1 [Member]
Unpaid Principal Balance	0	0
Commercial Real Estate [Member] | Fair Value, Inputs, Level 2 [Member]
Unpaid Principal Balance	0	0
Commercial Real Estate [Member] | Fair Value, Inputs, Level 3 [Member]
Unpaid Principal Balance	2,620	382
Commercial Loan [Member]
Unpaid Principal Balance		106
Commercial Loan [Member] | Fair Value, Inputs, Level 1 [Member]
Unpaid Principal Balance		0
Commercial Loan [Member] | Fair Value, Inputs, Level 2 [Member]
Unpaid Principal Balance		0
Commercial Loan [Member] | Fair Value, Inputs, Level 3 [Member]
Unpaid Principal Balance		106
Consumer Loan [Member]
Unpaid Principal Balance	45	45
Consumer Loan [Member] | Fair Value, Inputs, Level 1 [Member]
Unpaid Principal Balance	0	0
Consumer Loan [Member] | Fair Value, Inputs, Level 2 [Member]
Unpaid Principal Balance	0	0
Consumer Loan [Member] | Fair Value, Inputs, Level 3 [Member]
Unpaid Principal Balance	$ 45	$ 45

XML

Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Due in one year or less, amortized cost	$ 502
Due after one year through five years, amortized cost	33,690
Due after five through ten years, amortized cost	33,948
Due after ten years, amortized cost	2,481
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	114,266
Due in one year or less, fair value	504
Due after one year through five years, fair value	34,150
Due after five through ten years, fair value	35,326
Due after ten years, fair value	2,675
Available-for-sale Securities, Debt Securities	117,854
Collateralized Mortgage Obligations [Member]
Amortized Cost	22,508
Fair value	22,475
Residential Mortgage Backed Securities [Member]
Amortized Cost	21,137
Fair value	$ 22,724

XML

Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Earnings per common share - basic
Net income	$ 3,654	$ 3,833
Less: Preferred stock dividends and discount accretion	493	464
Net income available to common stockholders	3,161	3,316
Average common shares outstanding (in shares)	1,752,324	1,677,225
Basic earnings per common share (in dollars per share)	$ 1.80	$ 1.98
Earnings per common share - diluted
Net income available to common stockholders	$ 3,161	$ 3,316
Average common shares outstanding (in shares)	1,752,324	1,677,225
Add: Dilutive effects of assumed exercises of stock options (in shares)	0	0
Average shares and dilutive potential common shares	1,752,324	1,677,225
Diluted earnings per common share (in dollars per share)	$ 1.80	$ 1.98
Stock options and restricted stock awards not considered in computing diluted earnings per share because they were antidilutive (in shares)	86,950	116,500

XML

Emclaire Financial Corp - Condensed Financial Statements, Parent Corporation Only (Tables)

12 Months Ended

Dec. 31, 2012

Condensed Financial Information Of Parent Company Only Disclosure [Abstract]

Schedule of Condensed Balance Sheet [Table Text Block]

Condensed Balance Sheets
(Dollar amounts in thousands)	2012		2011
Assets:
Cash and cash equivalents	$	38	$	87
Securities available for sale		2,301		2,644
Equity in net assets of subsidiaries		50,299		48,625
Other assets		500		515
Total Assets	$	53,138	$	51,871
Liabilities and Stockholders' Equity:
Short-term borrowed funds with affiliated subsidiary bank	$	1,375	$	1,100
Accrued expenses and other liabilities		38		41
Stockholders' equity		51,725		50,730
Total Liabilities and Stockholders' Equity	$	53,138	$	51,871

Schedule of Condensed Income Statement [Table Text Block]

Condensed Statements of Income
(Dollar amounts in thousands)	2012		2011
Income:
Dividends from subsidiaries	$	1,207	$	5,287
Investment income		398		73
Total income		1,605		5,360
Expense:
Interest expense		38		194
Noninterest expense		321		342
Total expense		359		536
Income before income taxes and undistributed subsidiary income		1,246		4,824
Undistributed equity in (distribution in excess of) net income of subsidiary		2,458		(1,085	)
Net income before income taxes		3,704		3,739
Income tax expense (benefit)		50		(94	)
Net income	$	3,654	$	3,833
Comprehensive income	$	2,800	$	6,026

Schedule of Condensed Cash Flow Statement [Table Text Block]

Condensed Statements of Cash Flows
(Dollar amounts in thousands)	2012			2011
Operating activities:
Net income	$	3,654		$	3,833
Adjustments to reconcile net income to net cash provided by operating activities:
(Undistributed equity in) distributions in excess of net income of subsidiary		(2,458	)		652
Realized gains on sales of available for sale securities, net		(424	)		-
Securities impairment loss recognized in earnings		103			-
Other, net		161			(16	)
Net cash provided by operating activities		1,036			4,469
Investing activities:
Sales (purchases) of investment securities		558			(52	)
Investment in subsidiaries		-			(4,873	)
Net cash provided by (used in) investing activities		558			(4,925	)
Financing activities:
Net change in borrowings		275			(5,000	)
Proceeds from issuance of common stock		-			4,576
Proceeds from issuance of preferred stock (Series B)		-			10,000
Redemption of preferred stock (Series A)		-			(7,500	)
Warrant repurchase		-			(51	)
Proceeds from exercise of stock options, including tax benefit		12			-
Dividends paid		(1,930	)		(1,537	)
Net cash provided by (used in) financing activities		(1,643	)		488
Increase (decrease) in cash and cash equivalents		(49	)		32
Cash and cash equivalents at beginning of period		87			55
Cash and cash equivalents at end of period	$	38		$	87

XML

Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Net income	$ 3,654	$ 3,833
Other comprehensive income (loss)
Unrealized holding gain arising during the period	375	4,688
Reclassification adjustment for other than temporary impairment losses on equity securities	103	0
Reclassification adjustment for gains included in net income	(1,360)	(482)
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, before Tax	(882)	4,206
Tax effect	300	(1,430)
Net of tax	(582)	2,776
Defined benefit pension plans:
Net loss arising during the period	(381)	(852)
Reclassification adjustment for amortization of prior service cost and net loss included in net periodic pension cost	(31)	(31)
Total recognized in other comprehensive (income) loss	(412)	(883)
Tax effect	140	300
Net of tax	(272)	(583)
Total other comprehensive income (loss)	(854)	2,193
Comprehensive income	$ 2,800	$ 6,026

XML

Employee Benefit Plans (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Plan, Accumulated Benefit Obligation	$ 8,000,000	$ 7,000,000
Defined Benefit Plan, Amortization of Net Prior Service Cost (Credit)	11,000
Defined Benefit Plan, Benefit Obligation	7,989,000	7,010,000	5,855,000
Accumulated other comprehensive loss	(2,719,000)	(2,308,000)
Defined Contribution Plan, Maximum Annual Contribution Per Employee, Percent	20.00%
Defined Contribution Plan, Employer Matching Contribution, Percent	4.00%
Defined Contribution Plan Employer Matching Contribution Amount	179,000	176,000
Subsequent Event [Member]
Defined Contribution Plan, Employer Discretionary Contribution Amount	325,000
Supplemental Employee Retirement Plans, Defined Benefit [Member]
Pension and Other Postretirement Defined Benefit Plans, Liabilities	736,000	627,000
Pension and Other Postretirement Benefit Expense	120,000	124,000
Employee Benefit Plans [Member]
Defined Benefit Plan, Benefit Obligation	2,700,000
Accumulated other comprehensive loss	$ 1,800,000

XML

Issuance of Common Stock

12 Months Ended

Dec. 31, 2012

Stockholders Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

2. Issuance of Common Stock

On March 31, 2011, the Corporation sold 290,004 shares of common stock, par value $1.25 per share, in a private offering to accredited individual and institutional investors at $15.95 per share. The Corporation realized $4.6 million in proceeds from the offering net of $48,000 of direct costs relating to the offering.

XML

Loans Receivable and Related Allowance for Loan Losses (Details 5) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Beginning Balance	$ 3,536	$ 4,132
Provision for loan losses	2,154	420
Charge-offs	(498)	(1,094)
Recoveries	158	78
Balance at the end of the year	$ 5,350	$ 3,536

XML

Employee Benefit Plans (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Plan, Fair Value of Plan Assets	$ 5,656	$ 4,892	$ 4,497
Fair Value, Inputs, Level 1 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	3,030	2,421
Fixed Income Funds [Member]
Defined Benefit Plan, Fair Value of Plan Assets	2,626	2,471
Fixed Income Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	0	0
Fixed Income Funds [Member] | Fair Value, Inputs, Level 2 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	2,626	2,471
Fixed Income Funds [Member] | Fair Value, Inputs, Level 3 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	0	0
Private Equity Funds, Domestic [Member]
Defined Benefit Plan, Fair Value of Plan Assets	2,203	1,758
Private Equity Funds, Domestic [Member] | Fair Value, Inputs, Level 1 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	2,203	1,758
Private Equity Funds, Domestic [Member] | Fair Value, Inputs, Level 2 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	0	0
Private Equity Funds, Domestic [Member] | Fair Value, Inputs, Level 3 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	0	0
Private Equity Funds, Foreign [Member]
Defined Benefit Plan, Fair Value of Plan Assets	296	209
Private Equity Funds, Foreign [Member] | Fair Value, Inputs, Level 1 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	296	209
Private Equity Funds, Foreign [Member] | Fair Value, Inputs, Level 2 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	0	0
Private Equity Funds, Foreign [Member] | Fair Value, Inputs, Level 3 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	0	0
Cash and Cash Equivalents [Member]
Defined Benefit Plan, Fair Value of Plan Assets	531	454
Cash and Cash Equivalents [Member] | Fair Value, Inputs, Level 1 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	531	454
Cash and Cash Equivalents [Member] | Fair Value, Inputs, Level 2 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	0	0
Cash and Cash Equivalents [Member] | Fair Value, Inputs, Level 3 [Member]
Defined Benefit Plan, Fair Value of Plan Assets	$ 0	$ 0

XML

Deposits (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Non-interest bearing deposits, Weighted average rate	0.00%	0.00%
Interest bearing demand deposits, Weighted average rate	0.15%	0.19%
Time deposits, Weighted average rate	2.63%	2.98%
Deposits, Weighted Average Rate	0.87%	1.13%
Non-interest bearing deposits, Amount	$ 98,559	$ 84,871
Interest bearing demand deposits, Amount	333,900	331,597
Time deposits, Amount	131,981	145,490
Deposits - Carrying Amount	$ 432,459	$ 416,468
Non-interest bearing deposits, Percentage	22.80%	20.40%
Interest bearing demand deposits, Percentage	46.70%	44.70%
Time deposits, Percentage	30.50%	34.90%
Deposits, Percentage	100.00%	100.00%

XML

Other Noninterest Income and Expense

12 Months Ended

Dec. 31, 2012

Other Income and Expenses [Abstract]

Other Income and Other Expense Disclosure [Text Block]

19. Other Noninterest Income and Expense

Other noninterest income includes customer bank card processing fee income of $955,000 and $818,000 for 2012 and 2011, respectively.

The following summarizes the Corporation’s other noninterest expenses for the years ended December 31:

(Dollar amounts in thousands)	2012		2011
Customer bank card processing	$	464	$	365
Telephone and data communications		275		292
Debit card loyalty program		264		-
Internet banking and bill pay		260		234
Pennsylvania shares and use taxes		256		214
Travel, entertainment and conferences		255		215
Other		232		220
Printing and supplies		219		213
Marketing and advertising		196		171
Contributions		184		172
Subscriptions		175		151
Postage and freight		159		173
Correspondent bank and courier fees		149		160
Examinations		137		130
Collections		123		132
Penalties on prepayment of FHLB advances		-		334
Total other noninterest expenses	$	3,348	$	3,176

XML

Borrowed Funds (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
2013	$ 0
2014	0
2015	0
2016	0
2017	20,000
Thereafter	0
Borrowed Funds Maturities	$ 20,000

XML

Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Schedule of Defined Benefit Plan Amounts Recognized in Other Comprehensive Income (Loss) [Table Text Block]

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. 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)	2012			2011
Change in plan assets:
Fair value of plan assets at beginning of year	$	4,892		$	4,497
Actual return on plan assets		529			192
Employer contribution		500			419
Benefits paid		(265	)		(216	)
Fair value of plan assets at end of year		5,656			4,892
Change in benefit obligation:
Benefit obligation at beginning of year		7,010			5,855
Service cost		272			295
Interest cost		331			327
Actuarial loss		145			-
Effect of change in assumptions		496			749
Benefits paid		(265	)		(216	)
Benefit obligation at end of year		7,989			7,010
Funded status (plan assets less benefit obligation)	$	(2,333	)	$	(2,118	)
Amounts recognized in accumulated other comprehensive loss, net of tax, consists of:
Accumulated net actuarial loss	$	1,872		$	1,620
Accumulated prior service benefit		(77	)		(97	)
Amount recognized, end of year	$	1,795		$	1,523

Schedule of Allocation of Plan Assets [Table Text Block]

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 17:

(Dollar amounts in thousands)			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
December 31, 2012:
Cash and cash equivalents	$	531	$	531	$	-	$	-
Fixed income		2,626		-		2,626		-
Equity mutual funds - domestic		2,203		2,203		-		-
Equity mutual funds - international		296		296		-		-
	$	5,656	$	3,030	$	2,626	$	-
December 31, 2011:
Cash and cash equivalents	$	454	$	454	$	-	$	-
Fixed income		2,471		-		2,471		-
Equity mutual funds - domestic		1,758		1,758		-		-
Equity mutual funds - international		209		209		-		-
	$	4,892	$	2,421	$	2,471	$	-

Schedule of Amounts Recognized in Balance Sheet [Table Text Block]

There were no significant transfers between Level 1 and Level 2 during 2012.

Amounts recognized in the balance sheet as of December 31 consist of:

(Dollar amounts in thousands)	Pension Benefits
	2012			2011
Prepaid benefit cost	$	386		$	190
Accumulated other comprehensive loss		(2,719	)		(2,308	)
Net amount recognized	$	(2,333	)	$	(2,118	)

Schedule of Net Benefit Costs [Table Text Block]

The components of the periodic pension costs for the years ended December 31 are as follows:

(Dollar amounts in thousands)	2012			2011
Service cost	$	272		$	295
Interest cost		331			327
Expected return on plan assets		(391	)		(357	)
Amortization of prior service cost and actuarial expense		92			30
Net periodic pension cost		304			295
Amortization of prior service cost		31			31
Amortization of net loss		381			852
Total recognized in other comprehensive (income) loss		412			883
Total recognized in net periodic benefit cost and other comprehensive income	$	716		$	1,178

Schedule of Defined Benefit Plans Disclosures [Table Text Block]

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

	2012			2011
Discount rate for net periodic benefit cost		4.70	%		5.70	%
Discount rate for benefit obligations		4.17	%		4.70	%
Rate of increase in future compensation levels		3.50	%		3.50	%
Expected rate of return on plan assets		7.75	%		7.75	%

Chedule Of Pension Plan Assets Allocation [Table Text Block]

The Corporation’s pension plan asset allocation at December 31, 2012 and 2011, target allocation for 2013, 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
	2012			2012			2011			2012
Equity Securities		40	%		41	%		40	%		5.5	%
Debt Securities		50	%		50	%		51	%		1.8	%
Other		10	%		9	%		9	%		0.5	%
		100	%		100	%		100	%		7.75	%

Schedule of Expected Benefit Payments [Table Text Block]

Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows:

(Dollar amounts in thousands)	Pension
For year ended December 31,	Benefits
2013	$	236
2014		233
2015		220
2016		258
2017		264
2018-2022		1,681
Thereafter		5,097
Benefit Obligation	$	7,989

XML

Regulatory Matters

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Legal Matters and Contingencies [Text Block]

12. Regulatory Matters

Restrictions on Dividends, Loans and Advances

The Bank is subject to a regulatory dividend restriction that generally limits the amount of dividends that can be paid by the Bank to the Corporation. Prior regulatory approval is required if the total of all dividends declared in any calendar year exceeds net profits (as defined in the regulations) for the year combined with net retained earnings (as defined) for the two preceding calendar years. In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. As of December 31, 2012, $3.2 million of undistributed earnings of the Bank was available for distribution of dividends without prior regulatory approval.

Loans or advances from the Bank to the Corporation are limited to 10% of the Bank’s capital stock and surplus on a secured basis. Funds available for loans or advances by the Bank to the Corporation amounted to approximately $3.3 million. The Corporation has a $2.2 million commercial line of credit available at the Bank for the primary purpose of purchasing qualified equity investments. At December 31, 2012, the Corporation had an outstanding balance on this line of $1.4 million.

Minimum Regulatory Capital Requirements

The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

As of December 31, 2012, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The following table sets forth certain information concerning the Bank’s regulatory capital as of the dates presented:

(Dollar amounts in thousands)	December 31, 2012										December 31, 2011
	Consolidated					Bank					Consolidated					Bank
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	50,035		16.62	%	$	48,585		16.21	%	$	50,512		17.85	%	$	45,550		16.25	%
For capital adequacy purposes		24,083		8.00	%		23,971		8.00	%		22,636		8.00	%		22,422		8.00	%
To be well capitalized		N/A		N/A			29,964		10.00	%		N/A		N/A			28,027		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	46,252		15.36	%	$	44,820		14.96	%	$	47,008		16.61	%	$	42,046		15.00	%
For capital adequacy purposes		12,042		4.00	%		11,985		4.00	%		11,318		4.00	%		11,211		4.00	%
To be well capitalized		N/A		N/A			17,978		6.00	%		N/A		N/A			16,816		6.00	%
Tier 1 capital to average assets:
Actual	$	46,252		9.18	%	$	44,820		8.92	%	$	47,008		9.71	%	$	42,046		8.69	%
For capital adequacy purposes		20,148		4.00	%		20,101		4.00	%		19,362		4.00	%		19,347		4.00	%
To be well capitalized		N/A		N/A			25,126		5.00	%		N/A		N/A			24,183		5.00	%

XML

Emclaire Financial Corp. - Condensed Financial Statements, Parent Corporation Only (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income:
Total interest and dividend income	$ 20,762	$ 21,279
Expense:
Interest expense	4,976	5,872
Noninterest expense	13,937	14,045
Net income before income taxes	4,588	4,783
Income tax benefit	934	950
Net income	3,654	3,833
Comprehensive income	2,800	6,026
Parent Company [Member]
Income:
Dividends from subsidiaries	1,207	5,287
Investment income	398	73
Total interest and dividend income	1,605	5,360
Expense:
Interest expense	38	194
Noninterest expense	321	342
Total expense	359	536
Income before income taxes and undistributed subsidiary income	1,246	4,824
(Undistributed equity in) distributions in excess of net income of subsidiary	2,458	(652)
Net income before income taxes	3,704	3,739
Income tax benefit	50	(94)
Net income	3,654	3,833
Comprehensive income	$ 2,800	$ 6,026