10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

(Mark One)

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

For the quarterly period ended September 30, 2019

or

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

For the transition period from _____________ to _____________

Commission File Number: 001-34527

EMCLAIRE FINANCIAL CORP

(Exact name of registrant as specified in its charter)

Pennsylvania	25-1606091
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
612 Main Street, Emlenton, Pennsylvania	16373
(Address of principal executive offices)	(Zip Code)

(844) 767-2311

(Registrant’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐                Accelerated filer ☐                      Non-accelerated filer ☐

Smaller reporting company ☒        Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ☐ No ☒

The number of shares outstanding of the Registrant’s common stock was 2,698,712 at November 8, 2019.

EMCLAIRE FINANCIAL CORP

INDEX TO QUARTERLY REPORT ON FORM 10-Q

PART I – FINANCIAL INFORMATION
Item 1.	Interim Financial Statements (Unaudited)
	Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	1
	Consolidated Statements of Net Income for the three and nine months ended September 30, 2019 and 2018	2
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	4
	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
Signatures		41

PART I - FINANCIAL INFORMATION

Item 1. Interim Financial Statements

Emclaire Financial Corp

Consolidated Balance Sheets (Unaudited)

As of September 30, 2019 and December 31, 2018

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

	September 30, 2019			December 31, 2018
Assets
Cash and due from banks	$	3,742		$	3,623
Interest earning deposits with banks		45,560			7,332
Cash and cash equivalents		49,302			10,955
Interest earning time deposits		10,198			6,738
Securities - available-for-sale		117,899			97,718
Securities - equity investments		23			7
Loans held for sale		154			—
Loans receivable, net of allowance for loan losses of $6,509 and $6,508		688,357			708,664
Federal bank stocks, at cost		5,856			6,351
Bank-owned life insurance		15,194			14,881
Accrued interest receivable		2,754			2,570
Premises and equipment, net		20,685			18,911
Goodwill		19,460			19,448
Core deposit intangible, net		1,289			1,423
Prepaid expenses and other assets		10,259			11,209
Total Assets	$	941,430		$	898,875
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing	$	155,923		$	148,893
Interest bearing		652,102			612,653
Total deposits		808,025			761,546
Short-term borrowed funds		2,050			12,850
Long-term borrowed funds		31,750			32,500
Accrued interest payable		652			495
Accrued expenses and other liabilities		13,022			11,476
Total Liabilities		855,499			818,867
Commitments and Contingent Liabilities		—			—
Stockholders' Equity:
Preferred stock, $1.00 par value, 3,000,000 shares authorized; Series C, non-cumulative preferred stock, $2.9 million liquidation value, 286,888 shares issued and outstanding; Series D, non-cumulative preferred stock, $1.3 million liquidation value, 133,705 shares issued and outstanding		4,206			4,206
Common stock, $1.25 par value, 12,000,000 shares authorized; 2,800,729 shares issued; 2,698,712 shares outstanding		3,501			3,501
Additional paid-in capital		46,672			46,401
Treasury stock, at cost; 102,017 shares		(2,114	)		(2,114	)
Retained earnings		38,142			34,371
Accumulated other comprehensive loss		(4,476	)		(6,357	)
Total Stockholders' Equity		85,931			80,008
Total Liabilities and Stockholders' Equity	$	941,430		$	898,875

See accompanying notes to consolidated financial statements.

1

Emclaire Financial Corp

Consolidated Statements of Net Income (Unaudited)

For the three and nine months ended September 30, 2019 and 2018

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019		2018
Interest and dividend income:
Loans receivable, including fees	$	8,170		$	6,688		$	24,514	$	19,703
Securities:
Taxable		583			464			1,606		1,312
Exempt from federal income tax		79			137			301		430
Federal bank stocks		104			65			316		221
Interest earning deposits with banks		251			112			397		228
Total interest and dividend income		9,187			7,466			27,134		21,894
Interest expense:
Deposits		1,938			1,183			5,045		3,277
Borrowed funds		233			142			769		440
Total interest expense		2,171			1,325			5,814		3,717
Net interest income		7,016			6,141			21,320		18,177
Provision for (recovery of) loan losses		(145	)		300			305		980
Net interest income after provision for loan losses		7,161			5,841			21,015		17,197
Noninterest income:
Fees and service charges		531			528			1,622		1,428
Net realized gain (loss) on sales of securities		42			(2	)		43		(9	)
Net gain on sales of loans		77			35			129		60
Earnings on bank-owned life insurance		96			105			313		311
Other		463			396			1,289		1,219
Total noninterest income		1,209			1,062			3,396		3,009
Noninterest expense:
Compensation and employee benefits		3,187			2,519			8,892		7,493
Premises and equipment		810			736			2,536		2,264
Intangible asset amortization		44			67			134		203
Professional fees		278			243			664		712
Federal deposit insurance		—			103			267		391
Acquisition costs		—			677			—		1,036
Other		1,439			1,210			4,155		3,437
Total noninterest expense		5,758			5,555			16,648		15,536
Income before provision for income taxes		2,612			1,348			7,763		4,670
Provision for income taxes		444			187			1,372		735
Net income		2,168			1,161			6,391		3,935
Preferred stock dividends		—			—			91		—
Net income available to common stockholders	$	2,168		$	1,161		$	6,300	$	3,935
Basic earnings per common share	$	0.80		$	0.51		$	2.33	$	1.73
Diluted earnings per common share		0.80			0.51			2.32		1.72
Average common shares outstanding - basic		2,698,712			2,271,139			2,698,712		2,271,139
Average common shares outstanding - diluted		2,719,528			2,291,286			2,715,957		2,288,723

See accompanying notes to consolidated financial statements.

2

Emclaire Financial Corp

Consolidated Statements of Comprehensive Income (Unaudited)

For the three and nine months ended September 30, 2019 and 2018

(Dollar amounts in thousands)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	2,168		$	1,161		$	6,391		$	3,935
Other comprehensive income (loss)
Unrealized gains/(losses) on securities available-for-sale:
Unrealized holding gain (loss) arising during the period		165			(564	)		2,424			(2,155	)
Reclassification adjustment for (gains) losses included in net income		(42	)		2			(43	)		9
Net period change		123			(562	)		2,381			(2,146	)
Tax effect		(26	)		118			(500	)		451
Net of tax		97			(444	)		1,881			(1,695	)
Comprehensive income	$	2,265		$	717		$	8,272		$	2,240

See accompanying notes to consolidated financial statements.

3

Emclaire Financial Corp

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the nine months ended September 30, 2019 and 2018

(Dollar amounts in thousands)

	For the Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities
Net income	$	6,391		$	3,935
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		1,022			862
Provision for loan losses		305			980
Amortization/accretion of premiums, discounts and deferred costs and fees, net		235			309
Amortization of operating lease right-of-use assets		98			—
Amortization of intangible assets and mortgage servicing rights		182			244
Realized (gains) losses on sales of debt securities, net		(43	)		9
Change in fair value of equity securities, including realized gains		(16	)		(36	)
Net gains on sales of loans		(129	)		(60	)
Net loss on foreclosed real estate		32			40
Net gain on sale of premises and equipment		(11	)		(25	)
Loans originated for sale		(5,173	)		(4,241	)
Proceeds from the sale of loans originated for sale		5,148			4,685
Write-down of foreclosed real estate		35			11
Stock compensation expense		271			187
Increase in bank-owned life insurance, net		(313	)		(250	)
Increase in accrued interest receivable		(184	)		(85	)
(Increase) decrease in prepaid expenses and other assets		154			(2,898	)
Increase in accrued interest payable		157			47
Increase (decrease) in accrued expenses and other liabilities		(277	)		636
Net cash provided by operating activities		7,884			4,350
Cash flows from investing activities
Loan originations and principal collections, net		19,327			(16,679	)
Available-for-sale securities:
Sales		21,035			12,683
Maturities, repayments and calls		12,946			6,822
Purchases		(51,871	)		(18,645	)
Net change in federal bank stocks		495			196
Net increase in interest earning time deposits		(3,460	)		(2,540	)
Proceeds from the sale of bank premises and equipment		251			155
Purchases of premises and equipment		(1,492	)		(574	)
Proceeds from the sale of foreclosed real estate		742			388
Net cash used in investing activities		(2,027	)		(18,194	)
Cash flows from financing activities
Net increase in deposits		46,479			27,718
Repayments on long-term debt		(750	)		(5,750	)
Net change in short-term borrowings		(10,800	)		(450	)
Dividends paid		(2,439	)		(1,908	)
Net cash provided by financing activities		32,490			19,610
Net increase in cash and cash equivalents		38,347			5,766
Cash and cash equivalents at beginning of period		10,955			10,176
Cash and cash equivalents at end of period	$	49,302		$	15,942
Supplemental information:
Interest paid	$	5,657		$	3,670
Income taxes paid		910			560
Supplemental noncash disclosure:
Transfers from loans to foreclosed real estate		324			526
Initial recognition of operating lease right-of-use assets		1,642			—
Initial recognition of operating lease liabilities		1,858			—

See accompanying notes to consolidated financial statements.

4

Emclaire Financial Corp

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the three and nine months ended September 30, 2019 and 2018

(Dollar amounts in thousands, except per share data)

	Preferred Stock		Additional Paid-in Capital - Preferred		Common Stock		Additional Paid-in Capital - Common		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance at January 1, 2018, as previously presented	$	—	$	—	$	2,966	$	31,031	$	(2,114	)	$	32,726		$	(5,518	)	$	59,091
Cumulative effect of change in accounting principle for marketable equity securities, net of tax		—		—		—		—		—			187			(187	)		—
Balance at January 1, 2018, as adjusted	$	—	$	—	$	2,966	$	31,031	$	(2,114	)	$	32,913		$	(5,705	)	$	59,091
Net income		—		—		—		—		—			1,362			—			1,362
Other comprehensive loss		—		—		—		—		—			—			(1,015	)		(1,015	)
Stock compensation expense		—		—		—		75		—			—			—			75
Cash dividends declared on common stock ($0.28 per share)		—		—		—		—		—			(636	)		—			(636	)
Balance at March 31, 2018		—		—		2,966		31,106		(2,114	)		33,639			(6,720	)		58,877
Net income		—		—		—		—		—			1,413			—			1,413
Other comprehensive loss		—		—		—		—		—			—			(236	)		(236	)
Stock compensation expense		—		—		—		75		—			—			—			75
Cash dividends declared on common stock ($0.28 per share)		—		—		—		—		—			(636	)		—			(636	)
Balance at June 30, 2018		—		—		2,966		31,181		(2,114	)		34,416			(6,956	)		59,493
Net income		—		—		—		—		—			1,161			—			1,161
Other comprehensive loss		—		—		—		—		—			—			(444	)		(444	)
Stock compensation expense		—		—		—		37		—			—			—			37
Cash dividends declared on common stock ($0.28 per share)		—		—		—		—		—			(637	)		—			(637	)
Balance at September 30, 2018	$	—	$	—	$	2,966	$	31,218	$	(2,114	)	$	34,940		$	(7,400	)	$	59,610
Balance at January 1, 2019, as previously presented	$	421	$	3,785	$	3,501	$	46,401	$	(2,114	)	$	34,371		$	(6,357	)	$	80,008
Cumulative effect of change in accounting principle for leases and security premiums, net of tax		—		—		—		—		—			(181	)		—			(181	)
Balance at January 1, 2019, as adjusted	$	421	$	3,785	$	3,501	$	46,401	$	(2,114	)	$	34,190		$	(6,357	)	$	79,827
Net income		—		—		—		—		—			2,082			—			2,082
Other comprehensive income		—		—		—		—		—			—			873			873
Stock compensation expense		—		—		—		90		—			—			—			90
Cash dividends declared on common stock ($0.29 per share)		—		—		—		—		—			(783	)		—			(783	)
Balance at March 31, 2019		421		3,785		3,501		46,491		(2,114	)		35,489			(5,484	)		82,089
Net income		—		—		—		—		—			2,140			—			2,140
Other comprehensive income		—		—		—		—		—			—			911			911
Cash dividends declared on preferred stock		—		—		—		—		—			(91	)		—			(91	)
Stock compensation expense		—		—		—		90		—			—			—			90
Cash dividends declared on common stock ($0.29 per share)		—		—		—		—		—			(782	)		—			(782	)
Balance at June 30, 2019		421		3,785		3,501		46,581		(2,114	)		36,756			(4,573	)		84,357
Net income		—		—		—		—		—			2,168			—			2,168
Other comprehensive income		—		—		—		—		—			—			97			97
Stock compensation expense		—		—		—		91		—			—			—			91
Cash dividends declared on common stock ($0.29 per share)		—		—		—		—		—			(782	)		—			(782	)
Balance at September 30, 2019	$	421	$	3,785	$	3,501	$	46,672	$	(2,114	)	$	38,142		$	(4,476	)	$	85,931

See accompanying notes to consolidated financial statements.

5

Emclaire Financial Corp

Notes to Consolidated Financial Statements (Unaudited)

1. Nature of Operations and Basis of Presentation

Emclaire Financial Corp (the Corporation) is a Pennsylvania corporation and the holding company of The Farmers National Bank of Emlenton (the Bank) and Emclaire Settlement Services, LLC (the Title Company). The Corporation provides a variety of financial services to individuals and businesses through its offices in western Pennsylvania and northern West Virginia. Its primary deposit products are checking, savings and term certificate accounts and its primary lending products are residential and commercial mortgages, commercial business loans and consumer loans.

The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries, the Bank and the Title Company. All significant intercompany transactions and balances have been eliminated in preparing the consolidated financial statements.

The accompanying unaudited consolidated financial statements for the interim periods include all adjustments, consisting of normal recurring accruals, which are necessary, in the opinion of management, to fairly reflect the Corporation’s consolidated financial position and results of operations. Additionally, these consolidated financial statements for the interim periods have been prepared in accordance with instructions for the Securities and Exchange Commission’s (SEC’s) Form 10-Q and Article 10 of Regulation S-X and therefore do not include all information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (GAAP). For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2018, as contained in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.

The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements.

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim quarterly or year-to-date periods are not necessarily indicative of the results that may be expected for the entire year or any other period. Certain amounts previously reported may have been reclassified to conform to the current year’s financial statement presentation.

6

2. Earnings per Common Share

Basic earnings per common share (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 for assumed issuance of restricted stock.

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

(Dollar amounts in thousands, except for per share amounts)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
Earnings per common share
Net income	$	2,168	$	1,161	$	6,391	$	3,935
Less: Preferred stock dividends		—		—		91		—
Net income available to common stockholders	$	2,168	$	1,161	$	6,300	$	3,935
Average common shares outstanding		2,698,712		2,271,139		2,698,712		2,271,139
Add: Dilutive effects of restricted stock awards		20,816		20,147		17,245		17,584
Average shares and dilutive potential common shares		2,719,528		2,291,286		2,715,957		2,288,723
Basic earnings per common share	$	0.80	$	0.51	$	2.33	$	1.73
Diluted earnings per common share	$	0.80	$	0.51	$	2.32	$	1.72
Restricted stock awards not considered in computing earnings per share because they were antidulitive		—		—		—		—

7

3. Securities

Equity Securities

The Corporation held equity securities with fair values of $23,000 and $7,000 at September 30, 2019 and December 31, 2018, respectively. Beginning January 1, 2018, with the adoption of ASU 2016-01, changes in the fair value of these securities are included in other income on the consolidated statements of net income as opposed to accumulated other comprehensive loss on the consolidated balance sheets. During the three and nine months ended September 30, 2019, the Corporation recognized a gain of $6,000 and $16,000, respectively, on equity securities held at September 30, 2019, compared to a net loss of $1,000 and $7,000, respectively, for the same periods in 2018. During the three and nine months ended September 30, 2019, the Corporation did not sell any equity securities.  During the nine months ended September 30, 2018, the Corporation sold $1.2 million of equity securities with a realized net gain of $43,000.

Debt Securities - Available-for-Sale

The following table summarizes the Corporation’s debt securities as of September 30, 2019 and December 31, 2018:

(Dollar amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2019:
U.S. Treasury	$	4,024	$	7	$	(5	)	$	4,026
U.S. government sponsored entities and agencies		8,085		18		(23	)		8,080
U.S. agency mortgage-backed securities: residential		44,200		378		(40	)		44,538
U.S. agency collateralized mortgage obligations: residential		30,714		105		(262	)		30,557
State and political subdivisions		20,703		241		(34	)		20,910
Corporate debt securities		9,713		97		(22	)		9,788
Total securities available-for-sale	$	117,439	$	846	$	(386	)	$	117,899
December 31, 2018:
U.S. Treasury	$	4,532	$	—	$	(87	)	$	4,445
U.S. government sponsored entities and agencies		17,052		30		(299	)		16,783
U.S. agency mortgage-backed securities: residential		27,666		—		(490	)		27,176
U.S. agency collateralized mortgage obligations: residential		19,440		34		(810	)		18,664
State and political subdivisions		22,943		13		(224	)		22,732
Corporate debt securities		8,006		9		(97	)		7,918
Total securities available-for-sale	$	99,639	$	86	$	(2,007	)	$	97,718

The following table summarizes scheduled maturities of the Corporation’s debt securities as of September 30, 2019. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities and collateralized mortgage obligations are not due at a single maturity and are shown separately.

(Dollar amounts in thousands)	Available-for-sale
	Amortized Cost		Fair Value
Due in one year or less	$	1,264	$	1,261
Due after one year through five years		14,452		14,489
Due after five through ten years		12,109		12,283
Due after ten years		14,700		14,771
Mortgage-backed securities: residential		44,200		44,538
Collateralized mortgage obligations: residential		30,714		30,557
Total securities available-for-sale	$	117,439	$	117,899

8

3. Securities (continued)

Information pertaining to debt securities with gross unrealized losses at September 30, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position are included in the table below:

(Dollar amounts in thousands)	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
September 30, 2019:
U.S. Treasury	$	—	$	—		$	2,001	$	(5	)	$	2,001	$	(5	)
U.S. government sponsored entities and agencies		—		—			6,062		(23	)		6,062		(23	)
U.S. agency mortgage-backed securities: residential		10,940		(34	)		3,557		(6	)		14,497		(40	)
U.S. agency collateralized mortgage obligations: residential		6,773		(58	)		12,485		(204	)		19,258		(262	)
State and political subdivisions		4,642		(34	)		—		—			4,642		(34	)
Corporate debt securities		2,702		(11	)		488		(11	)		3,190		(22	)
Total	$	25,057	$	(137	)	$	24,593	$	(249	)	$	49,650	$	(386	)
December 31, 2018:
U.S. Treasury	$	—	$	—		$	4,445	$	(87	)	$	4,445	$	(87	)
U.S. government sponsored entities and agencies		2,472		(30	)		10,337		(269	)		12,809		(299	)
U.S. agency mortgage-backed securities: residential		19,483		(297	)		7,693		(193	)		27,176		(490	)
U.S. agency collateralized mortgage obligations: residential		1,443		(5	)		15,388		(805	)		16,831		(810	)
State and political subdivisions		7,061		(67	)		10,083		(157	)		17,144		(224	)
Corporate debt securities		962		(38	)		2,448		(59	)		3,410		(97	)
Total	$	31,421	$	(437	)	$	50,394	$	(1,570	)	$	81,815	$	(2,007	)

Gains and losses on sales of securities for the three and nine months ended September 30, were as follows:

(Dollar amounts in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Proceeds	$	8,153		$	5,888		$	21,035		$	12,683
Gains		45			3			80			17
Losses		(3	)		(5	)		(37	)		(26	)
Tax provision related to gains (losses)		9			(1	)		9			(2	)

Management evaluates debt securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic, market or other conditions warrant such evaluation. Consideration is given to: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the Corporation has the intent to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If the Corporation intends to sell an impaired security, or if it is more likely than not the Corporation will be required to sell the security before its anticipated recovery, the Corporation records an other-than-temporary loss in an amount equal to the entire difference between fair value and amortized cost. Otherwise, only the credit portion of the estimated loss on debt securities is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

There were 52 debt securities in an unrealized loss position as of September 30, 2019, 35 of which were in an unrealized loss position for more than 12 months. Of these 35 securities, 23 were collateralized mortgage obligations (issued by U.S. government sponsored entities), five were U.S. government sponsored entities and agency securities, four were mortgage-backed securities, two were U.S. Treasury securities and one was a corporate security. The unrealized losses associated with these securities were not due to the deterioration in the credit quality of the issuer that would likely 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 their amortized cost basis, the Corporation does not consider these debt securities with unrealized losses as of September 30, 2019 to be other-than-temporarily impaired.

9

4. Loans Receivable and Related Allowance for Loan Losses

The Corporation’s loans receivable as of the respective dates are summarized as follows:

(Dollar amounts in thousands)	September 30, 2019		December 31, 2018
Mortgage loans on real estate:
Residential first mortgages	$	287,437	$	295,405
Home equity loans and lines of credit		98,628		103,752
Commercial real estate		227,569		238,734
Total real estate loans		613,634		637,891
Other loans:
Commercial business		69,834		66,009
Consumer		11,398		11,272
Total other loans		81,232		77,281
Total loans, gross		694,866		715,172
Less allowance for loan losses		6,509		6,508
Total loans, net	$	688,357	$	708,664

Included in total loans above are net deferred costs of $2.3 million and $2.2 million at September 30, 2019 and December 31, 2018, respectively.

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

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

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

At September 30, 2019, there was no allowance for loan losses allocated to loans acquired from United American Savings Bank (2016), Northern Hancock Bank and Trust Co. (2017) or Community First Bancorp, Inc (2018).

10

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

The following table details activity in the ALL and the recorded investment by portfolio segment based on impairment method:

(Dollar amounts in thousands)	Residential Mortgages			Home Equity & Lines of Credit			Commercial Real Estate			Commercial Business			Consumer			Total
Three months ended September 30, 2019:
Allowance for loan losses:
Beginning Balance	$	2,225		$	642		$	3,043		$	615		$	55		$	6,580
Charge-offs		—			(22	)		(8	)		—			(39	)		(69	)
Recoveries		—			4			104			—			35			143
Provision		16			11			(185	)		5			8			(145	)
Ending Balance	$	2,241		$	635		$	2,954		$	620		$	59		$	6,509
Nine months ended September 30, 2019:
Allowance for loan losses:
Beginning Balance	$	2,198		$	648		$	3,106		$	500		$	56		$	6,508
Charge-offs		(204	)		(56	)		(36	)		(134	)		(114	)		(544	)
Recoveries		40			5			132			—			63			240
Provision		207			38			(248	)		254			54			305
Ending Balance	$	2,241		$	635		$	2,954		$	620		$	59		$	6,509
At September 30, 2019:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	4		$	—		$	—		$	—		$	—		$	4
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,237			635			2,954			620			59			6,505
Total	$	2,241		$	635		$	2,954		$	620		$	59		$	6,509
Total loans:
Individually evaluated for impairment	$	366		$	4		$	2,471		$	40		$	—		$	2,881
Acquired loans collectively evaluated for impairment		64,037			11,432			45,619			9,425			2,227			132,740
Originated loans collectively evaluated for impairment		223,034			87,192			179,479			60,369			9,171			559,245
Total	$	287,437		$	98,628		$	227,569		$	69,834		$	11,398		$	694,866
At December 31, 2018:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	12		$	—		$	—		$	—		$	—		$	12
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,186			648			3,106			500			56			6,496
Total	$	2,198		$	648		$	3,106		$	500		$	56		$	6,508
Total loans:
Individually evaluated for impairment	$	389		$	6		$	34		$	39		$	—		$	468
Acquired loans collectively evaluated for impairment		72,654			13,750			56,690			12,974			3,306			159,374
Originated loans collectively evaluated for impairment		222,362			89,996			182,010			52,996			7,966			555,330
Total	$	295,405		$	103,752		$	238,734		$	66,009		$	11,272		$	715,172
Three months ended September 30, 2018:
Allowance for loan losses:
Beginning Balance	$	2,033		$	650		$	2,882		$	499		$	54		$	6,118
Charge-offs		—			(26	)		(6	)		—			(44	)		(76	)
Recoveries		—			1			13			—			4			18
Provision		128			34			81			11			46			300
Ending Balance	$	2,161		$	659		$	2,970		$	510		$	60		$	6,360
Nine months ended September 30, 2018:
Allowance for loan losses:
Beginning Balance	$	2,090		$	646		$	2,753		$	585		$	53		$	6,127
Charge-offs		(61	)		(109	)		(424	)		—			(213	)		(807	)
Recoveries		3			12			32			1			12			60
Provision		129			110			609			(76	)		208			980
Ending Balance	$	2,161		$	659		$	2,970		$	510		$	60		$	6,360

11

4. 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 September 30, 2019:

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of September 30, 2019						For three months ended September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	72	$	72	$	4	$	72	$	1	$	1
Home equity and lines of credit		4		4		—		5		—		—
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	76	$	76	$	4	$	77	$	1	$	1

	For the nine months ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	73	$	3	$	3
Home equity and lines of credit		5		—		—
Commercial real estate		—		—		—
Commercial business		16		—		—
Consumer		—		—		—
Total	$	94	$	3	$	3

	Impaired Loans with No Specific Allowance
	As of September 30, 2019				For three months ended September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	369	$	294	$	298	$	2	$	2
Home equity and lines of credit		—		—		—		—		—
Commercial real estate		2,471		2,471		2,475		34		33
Commercial business		40		40		139		—		—
Consumer		—		—		—		—		—
Total	$	2,880	$	2,805	$	2,912	$	36	$	35

	For the nine months ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	305	$	3	$	3
Home equity and lines of credit		—		—		—
Commercial real estate		1,254		87		34
Commercial business		89		7		2
Consumer		—		—		—
Total	$	1,648	$	97	$	39

12

4. 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, 2018:

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

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

13

4. 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 September 30, 2018:

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of September 30, 2018						For the three months ended September 30, 2018
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	74	$	74	$	7	$	74	$	1	$	1
Home equity and lines of credit		6		6		—		7		—		—
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	80	$	80	$	7	$	81	$	1	$	1

	For the nine months ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	75	$	2	$	2
Home equity and lines of credit		7		—		—
Commercial real estate		—		—		—
Commercial business		—		—		—
Consumer		—		—		—
Total	$	82	$	2	$	2

	Impaired Loans with No Specific Allowance
	As of September 30, 2018				For the three months ended September 30, 2018
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	438	$	327	$	330	$	2	$	2
Home equity and lines of credit		—		—		—		—		—
Commercial real estate		2,512		2,512		1,278		83		2
Commercial business		39		39		39		1		1
Consumer		—		—		—		—		—
Total	$	2,989	$	2,878	$	1,647	$	86	$	5

	For the nine months ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	338	$	3	$	3
Home equity and lines of credit		—		—		—
Commercial real estate		952		125		42
Commercial business		300		74		74
Consumer		—		—		—
Total	$	1,590	$	202	$	119

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

14

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

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 September 30, 2019 and December 31, 2018, the Corporation had $433,000 and $394,000, respectively, of loans classified as TDRs, which are included in impaired loans above. The Corporation had allocated $4,000 and $12,000 of specific allowance for these loans at September 30, 2019 and December 31, 2018, respectively.

During the three months ended September 30, 2019, the Corporation did not modify any loans as TDRs.  During the nine months ended September 30, 2019, the Corporation modified the interest rate and extended the payment amortization on one commercial real estate loan with a recorded investment of $72,000. At September 30, 2019, the Corporation did not have any specific allowance for loan losses allocated to this specific loan. During the three and nine months ended September 30, 2018, the Corporation did not modify any loans as TDRs.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. During the three and nine months ended September 30, 2019 and 2018, the Corporation did not have any loans which were modified as TDRs for which there was a payment default within twelve months following the modification.

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

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

The reserve allocation for risk rated loan pools is developed by applying the following factors:

Historic: Management utilizes a computer model to develop the historical net charge-off experience which is used to formulate the assumptions employed in the migration analysis applied to estimate losses in the portfolio. Outstanding balance and charge-off information are input into the model and historical loss migration rate assumptions are developed to apply to pass, special mention, substandard and doubtful risk rated loans. A twelve-quarter rolling weighted-average is utilized to estimate probable incurred losses in the portfolios.

Qualitative: Qualitative adjustment factors for pass, special mention, substandard and doubtful ratings are developed and applied to risk rated loans to allow for: quality of lending policies and procedures; national and local economic and business conditions; changes in the nature and volume of the portfolio; experiences, ability and depth of lending management; changes in trends, volume and severity of past due, nonaccrual and classified loans and loss and recovery trends; quality of loan review systems; concentrations of credit and other external factors.

15

4. 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 September 30, 2019 and December 31, 2018:

(Dollar amounts in thousands)
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2019:
Residential first mortgages	$	286,353	$	—	$	—	$	1,084	$	—	$	287,437
Home equity and lines of credit		97,956		—		—		672		—		98,628
Commercial real estate		—		211,535		3,381		12,653		—		227,569
Commercial business		—		66,935		204		2,695		—		69,834
Consumer		11,317		—		—		81		—		11,398
Total loans	$	395,626	$	278,470	$	3,585	$	17,185	$	—	$	694,866
December 31, 2018:
Residential first mortgages	$	293,919	$	—	$	—	$	1,486	$	—	$	295,405
Home equity and lines of credit		102,869		—		—		883		—		103,752
Commercial real estate		—		222,335		5,942		10,457		—		238,734
Commercial business		—		62,022		542		3,445		—		66,009
Consumer		11,157		—		—		115		—		11,272
Total loans	$	407,945	$	284,357	$	6,484	$	16,386	$	—	$	715,172

16

4. 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 September 30, 2019 and December 31, 2018:

(Dollar amounts in thousands)
	Performing						Nonperforming
	Accruing Loans Not Past Due		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccrual		Total
September 30, 2019:
Residential first mortgages	$	282,766	$	2,626	$	1,024	$	197	$	824	$	287,437
Home equity and lines of credit		97,361		438		187		110		532		98,628
Commercial real estate		222,078		2,172		126		—		3,193		227,569
Commercial business		69,653		76		65		—		40		69,834
Consumer		11,240		75		2		—		81		11,398
Total loans	$	683,098	$	5,387	$	1,404	$	307	$	4,670	$	694,866
December 31, 2018:
Residential first mortgages	$	289,732	$	3,586	$	747	$	485	$	855	$	295,405
Home equity and lines of credit		101,920		707		351		287		487		103,752
Commercial real estate		232,865		5,013		231		19		606		238,734
Commercial business		65,538		50		247		—		174		66,009
Consumer		10,961		160		36		—		115		11,272
Total loans	$	701,016	$	9,516	$	1,612	$	791	$	2,237	$	715,172

The following table presents the Corporation’s nonaccrual loans by aging category as of September 30, 2019 and December 31, 2018:

(Dollar amounts in thousands)
	Not Past Due		30-59 Days Past Due		60-89 Days Past Due		90 Days + Past Due		Total
September 30, 2019:
Residential first mortgages	$	315	$	72	$	—	$	437	$	824
Home equity and lines of credit		4		—		—		528		532
Commercial real estate		135		454		45		2,559		3,193
Commercial business		40		—		—		—		40
Consumer		—		—		—		81		81
Total loans	$	494	$	526	$	45	$	3,605	$	4,670
December 31, 2018:
Residential first mortgages	$	335	$	—	$	74	$	446	$	855
Home equity and lines of credit		6		—		—		481		487
Commercial real estate		111		265		—		230		606
Commercial business		—		—		39		135		174
Consumer		—		—		—		115		115
Total loans	$	452	$	265	$	113	$	1,407	$	2,237

17

5. Goodwill and Intangible Assets

The following table summarizes the Corporation’s acquired goodwill and intangible assets as of September 30, 2019 and December 31, 2018: 

(Dollar amounts in thousands)	September 30, 2019				December 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill	$	19,460	$	—	$	19,448	$	—
Core deposit intangibles		5,634		4,345		5,634		4,211
Total	$	25,094	$	4,345	$	25,082	$	4,211

Goodwill resulted from five acquisitions. Goodwill represents the excess of the total purchase price paid for the acquisitions over the fair value of the identifiable 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. The Corporation has selected November 30 as the date to perform the annual impairment test. No goodwill impairment charges were recorded during 2018 or in the first nine months of 2019.

The core deposit intangible asset, resulting from three acquisitions, is amortized over a weighted average estimated life of the related deposits and is not estimated to have a significant residual value. During the three and nine months ended September 30, 2019, the Corporation recorded intangible amortization expense totaling $44,000 and $134,000, respectively, compared to $67,000 and $203,000, respectively, for the same periods in 2018.

6. Stock Compensation Plan

In April 2014, the Corporation adopted the 2014 Stock Incentive Plan (the Plan), which was approved by shareholders and permits the grant of restricted stock awards and options to its directors, officers and employees for up to 176,866 shares of common stock. As of September 30, 2019, 37,783 shares of restricted stock and 88,433 stock options remain available for issuance under the Plan.

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.

At September 30, 2019, there were no options that were granted or outstanding under the Plan.

A summary of the status of the Corporation’s nonvested restricted stock awards as of September 30, 2019, and changes during the period then ended is presented below:

	Shares		Weighted-Average Grant-date Fair Value
Nonvested at January 1, 2019		37,250	$	29.94
Granted		—		—
Vested		—		—
Forfeited		—		—
Nonvested as of September 30, 2019		37,250	$	29.94

For the three and nine months ended September 30, 2019, the Corporation recognized stock compensation expense of $90,000 and $271,000, respectively, compared to $37,000 and $187,000, respectively for the same periods in 2018. As of September 30, 2019, there was $513,000 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. 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.

18

7. Fair Value

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.

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

Debt securities available-for-sale, equity securities – The fair value of all investment securities are based upon the assumptions market participants would use in pricing the security. If available, investment securities are determined by quoted market prices (Level 1). Level 1 includes U.S. Treasury, federal agency securities and certain equity securities. For investment securities where quoted market prices are not available, fair values are calculated based on market prices on similar securities (Level 2). Level 2 includes U.S. Government sponsored entities and agencies, mortgage-backed securities, collateralized mortgage obligations, state and political subdivision securities and certain corporate debt securities. For investment securities where quoted prices or market prices of similar securities are not available, fair values are calculated by using unobservable inputs (Level 3) and may include certain corporate debt and equity securities held by the Corporation.

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

(Dollar amounts in thousands)			(Level 1)		(Level 2)		(Level 3)
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
September 30, 2019:
Securities available-for-sale
U.S. Treasury	$	4,026	$	4,026	$	—	$	—
U.S. government sponsored entities and agencies		8,080		—		8,080		—
U.S. agency mortgage-backed securities: residential		44,538		—		44,538		—
U.S. agency collateralized mortgage obligations: residential		30,557		—		30,557		—
State and political subdivision		20,910		—		20,910		—
Corporate debt securities		9,788		—		6,288		3,500
Total available-for-sale securities	$	117,899	$	4,026	$	110,373	$	3,500
Equity securities	$	23	$	23	$	—	$	—
December 31, 2018:
Securities available-for-sale
U.S. Treasury	$	4,445	$	4,445	$	—	$	—
U.S. government sponsored entities and agencies		16,783		—		16,783		—
U.S. agency mortgage-backed securities: residential		27,176		—		27,176		—
U.S. agency collateralized mortgage obligations: residential		18,664		—		18,664		—
State and political subdivisions		22,732		—		22,732		—
Corporate debt securities		7,918		—		4,418		3,500
Total available-for-sale securities	$	97,718	$	4,445	$	89,773	$	3,500
Equity securities	$	7	$	7	$	—	$	—

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 the nine months ended September 30, 2019, the Corporation reclassified one corporate security from Level 3 to Level 2. For the same period in 2018, the Corporation reclassified a restricted bank stock from the equity security portfolio to other assets and certain corporate securities from Level 3 to Level 2.  Also during 2018, the Corporation sold $25,000 in equity securities from Level 3.

19

7. Fair Value (continued)

The following table presents changes in Level 3 assets measured on a recurring basis for the three and nine month periods ended September 30, 2019 and 2018:

(Dollar amounts in thousands)	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019			2018
Balance at the beginning of the period	$	3,000	$	3,500	$	3,500		$	8,132
Total gains or losses (realized/unrealized):
Included in earnings		—		—		—			1
Included in other comprehensive income		—		—		—			—
Purchased into Level 3		500		—		500			—
Sold out of Level 3		—		—		—			(25	)
Transfers in and/or out of Level 3		—		—		(500	)		(4,608	)
Balance at the end of the period	$	3,500	$	3,500	$	3,500		$	3,500

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

Impaired loans – At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive a specific allowance for loan losses. For collateral dependent loans, fair value is commonly based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. As of September 30, 2019 and December 31, 2018, the Corporation did not have any impaired loans carried at fair value measured using the fair value of collateral. During the three month period ended September 30, 2019 there was no additional provision for loan losses recorded for impaired loans.  There was additional provision for loan losses recorded for impaired loans of $63,000 during the nine month period ended September 30, 2019, however, the loan was charged-off prior to the end of the second quarter.  There were no additional provisions recorded for impaired loans during the same periods in 2018.

Other real estate owned(OREO) – Assets acquired through or instead of foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. Management’s ongoing review of appraisal information may result in additional discounts or adjustments to the valuation based upon more recent market sales activity or more current appraisal information derived from properties of similar type and/or locale. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. As of September 30, 2019 and 2018, respectively, the Corporation had no OREO measured at fair value. During the three month periods ended September 30, 2019 and 2018, there was no expense recorded associated with the write-down of OREO.  During the nine month periods ended September 30, 2019 and 2018, there was expense recorded of $35,000 and $11,000, respectively.  The related properties were sold prior to the end of the respective reporting periods.  As of December 31, 2018, OREO measured at fair value less costs to sell had a net carrying amount of $160,000, which consisted of the outstanding balance of $415,000 less write-downs of $255,000.

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

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)		(Level 3)
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2018:
Other real estate owned	$	160	$	—	$	—	$	160
Total	$	160	$	—	$	—	$	160

20

7. Fair Value (continued)

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

(Dollar amounts in thousands)			Valuation	Unobservable	Weighted
			Techniques(s)	Input (s)	Average
December 31, 2018:
Other real estate owned	$	160	Sales comparison approach	Adjustment for differences between comparable sales		10	%

At September 30, 2019 and December 31, 2018 was an impaired residential mortgage loan totaling $68,000 and $61,000, respectively, and an impaired home equity loan totaling $4,000 and $6,000, respectively, which were classified as TDRs and measured using a discounted cash flow methodology.

The following table sets forth the carrying amount and fair value of the Corporation’s financial instruments included in the consolidated balance sheet: 

(Dollar amounts in thousands)
	Carrying		Fair Value Measurements using:
Description	Amount		Total		Level 1		Level 2		Level 3
September 30, 2019:
Financial Assets:
Cash and cash equivalents	$	49,302	$	49,302	$	49,302	$	—	$	—
Interest earning time deposits		10,198		10,198		—		10,198		—
Securities - available-for-sale		117,899		117,899		4,026		110,373		3,500
Securities - equities		23		23		23		—		—
Loans held for sale		154		154		—		154		—
Loans, net		688,357		682,392		—		—		682,392
Federal bank stock		5,856		N/A		N/A		N/A		N/A
Accrued interest receivable		2,754		2,754		122		442		2,190
Total	$	874,542	$	862,722	$	53,473	$	121,167	$	688,082
Financial Liabilities:
Deposits		808,025		814,778		580,820		233,958		—
Borrowed funds		33,800		34,417		—		34,417		—
Accrued interest payable		652		652		50		602		—
Total	$	842,477	$	849,847	$	580,870	$	268,977	$	—

	Carrying		Fair Value Measurements using:
	Amount		Total		Level 1		Level 2		Level 3
December 31, 2018:
Financial Assets:
Cash and cash equivalents	$	10,955	$	10,955	$	10,955	$	—	$	—
Interest earning time deposits		6,738		6,738		—		6,738		—
Securities - available-for-sale		97,718		97,718		4,445		89,773		3,500
Securities - equities		7		7		7		—		—
Loans held for sale		—		—		—		—		—
Loans, net		708,664		702,747		—		—		702,747
Federal bank stock		6,351		N/A		N/A		N/A		N/A
Accrued interest receivable		2,570		2,570		63		351		2,156
Total	$	833,003	$	820,735	$	15,470	$	96,862	$	708,403
Financial Liabilities:
Deposits		761,546		767,009		539,946		227,063		—
Borrowed funds		45,350		44,869		—		44,869		—
Accrued interest payable		495		495		30		465		—
Total	$	807,391	$	812,373	$	539,976	$	272,397	$	—

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

21

8. Regulatory Matters

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

In 2018 the Board of Governors of the Federal Reserve System amended its Small Bank Holding Company Policy Statement by increasing the policy’s consolidated assets threshold from $1 billion to $3 billion. The primary benefit of being deemed a "small bank holding company" is the exemption from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level.

The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (BASEL III rules) became effective for the Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in on January 1, 2019. Under the BASEL III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was phased in from 0.0% for 2015 to 2.50% in 2019. The capital conservation buffer for 2019 is 2.50% and for 2018 was 1.875%. Amounts recorded to accumulated other comprehensive income are not included in computing regulatory capital. Management believes as of September 30, 2019, the Bank met all capital adequacy requirements to which it was subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.

The following table sets forth certain information concerning the Bank’s regulatory capital as of the dates presented. The capital adequacy ratios disclosed below are exclusive of the capital conservation buffer. 

(Dollar amounts in thousands)	September 30, 2019					December 31, 2018
	Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	79,681		13.78	%	$	76,344		12.93	%
For capital adequacy purposes		46,243		8.00	%		47,252		8.00	%
To be well capitalized		57,804		10.00	%		59,065		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	73,172		12.66	%	$	69,836		11.82	%
For capital adequacy purposes		34,682		6.00	%		35,439		6.00	%
To be well capitalized		46,243		8.00	%		47,252		8.00	%
Common Equity Tier 1 capital to risk-weighted assets:
Actual	$	73,172		12.66	%	$	69,836		11.82	%
For capital adequacy purposes		26,012		4.50	%		26,579		4.50	%
To be well capitalized		37,573		6.50	%		38,393		6.50	%
Tier 1 capital to average assets:
Actual	$	73,172		8.13	%	$	69,836		7.95	%
For capital adequacy purposes		35,990		4.00	%		35,126		4.00	%
To be well capitalized		44,987		5.00	%		43,908		5.00	%

22

9. Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss), net of tax, for the three months ended September 30, 2019 and 2018 and summarizes the significant amounts reclassified out of each component of accumulated other comprehensive income:

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2019	$	267		$	(4,840	)	$	(4,573	)
Other comprehensive income before reclassification		130			—			130
Amounts reclassified from accumulated other comprehensive income (loss)		(33	)		—			(33	)
Net current period other comprehensive income (loss)		97			—			97
Accumulated Other Comprehensive Income (Loss) at September 30, 2019	$	364		$	(4,840	)	$	(4,476	)

(Dollar amounts in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Loss Components	from Accumulated Other Comprehensive Income For the three months ended September 30, 2019			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(42	)	Net gain on sale of available-for-sale securities
Tax effect		9		Provision for income taxes
Total reclassifications for the period	$	(33	)	Net of tax

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2018	$	(2,117	)	$	(4,839	)	$	(6,956	)
Other comprehensive income before reclassification		(446	)		—			(446	)
Amounts reclassified from accumulated other comprehensive income (loss)		2			—			2
Net current period other comprehensive income (loss)		(444	)		—			(444	)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561	)	$	(4,839	)	$	(7,400	)

(Dollar amounts in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Loss Components	from Accumulated Other Comprehensive Income For the three months ended September 30, 2018		Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	2	Net loss on sale of available-for-sale securities
Tax effect		—	Provision for income taxes
Total reclassifications for the period	$	2	Net of tax

23

9. Accumulated Other Comprehensive Income (Loss) (continued)

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss), net of tax, for the nine months ended September 30, 2019 and 2018 and summarizes the significant amounts reclassified out of each component of accumulated other comprehensive income:

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2019	$	(1,517	)	$	(4,840	)	$	(6,357	)
Other comprehensive income before reclassification		1,915			—			1,915
Amounts reclassified from accumulated other comprehensive income (loss)		(34	)		—			(34	)
Net current period other comprehensive income		1,881			—			1,881
Accumulated Other Comprehensive Income (Loss) at September 30, 2019	$	364		$	(4,840	)	$	(4,476	)

(Dollar amount in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Income Components	from Accumulated Other Comprehensive Income For the Nine Months Ended September 30, 2019			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(43	)	Net gain on sale of available-for-sale securities
Tax effect		9		Provision for income taxes
Total reclassifications for the period	$	(34	)	Net of tax

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2018	$	(679	)	$	(4,839	)	$	(5,518	)
Cumulative effect of change in accounting principle for marketable equity securities, net of tax		(187	)		—			(187	)
Accumulated Other Comprehensive Income (Loss) at January 1, 2018, as adjusted	$	(866	)	$	(4,839	)	$	(5,705	)
Other comprehensive income before reclassification		(1,702	)		—			(1,702	)
Amounts reclassified from accumulated other comprehensive income (loss)		7			—			7
Net current period other comprehensive income		(1,695	)		—			(1,695	)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561	)	$	(4,839	)	$	(7,400	)

(Dollar amount in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Income Components	from Accumulated Other Comprehensive Income For the Nine Months Ended September 30, 2018			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	9		Net loss on sale of available-for-sale securities
Tax effect		(2	)	Provision for income taxes
Total reclassifications for the period	$	7		Net of tax

24

10. Revenue Recognition

On January 1, 2018, the Corporation adopted ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) and all subsequent ASUs that modified Topic 606. Interest income, net securities gains (losses) and bank-owned life insurance are not included within the scope of Topic 606. For the revenue streams in the scope of Topic 606, service charges on deposits and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All of the Corporation's revenue from contracts with customers is recognized within noninterest income.

Service charges on deposits: The Corporation earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such stop payment charges, statement rendering and other fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Electronic banking fees: The Corporation earns interchange and other ATM related fees from cardholder transactions conducted through the various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The gross amount of these fees are processed through noninterest income. Other fees, such a transaction surcharges and card replacement fees are withdrawn from the customer's account balance at the time of service.

The following table presents the Corporation's sources of noninterest income for the three and nine months ended September 30, 2019 and 2018.

(Dollar amounts in thousands)	For the three months ended September 30,				For the nine months ended September 30,
	2019		2018		2019		2018
Noninterest income
In-scope of Topic 606:
Service charges on deposits
Maintenance fees	$	51	$	38	$	134	$	114
Overdraft fees		403		417		1,253		1,100
Other fees		76		73		235		214
Electronic banking fees		384		327		1,079		971
Noninterest income (in-scope of Topic 606)		914		855		2,701		2,399
Noninterest income (out-of-scope of Topic 606)(1)		295		207		695		610
Total noninterest income	$	1,209	$	1,062	$	3,396	$	3,009

⁽¹⁾ Noninterest income items that are out-of-scope include net realized gains (losses) on sales of securities, net gains (losses) on sales of loans, earnings on bank-owned life insurance and certain other noninterest income items.

25

11. Leases

Effective January 1, 2019, the Corporation adopted ASU 2016-02, Leases (Topic 842).  As of September 30, 2019, the Corporation leases real estate for five branch offices under various operating lease agreements. The lease agreements have maturity dates ranging from August 2025 to December 2056, including all extension periods. The Corporation has assumed that there are currently no circumstances in which the leases would be terminated before exhausting all options for extensions.  The weighted average remaining life of the lease term for these leases was 13.14 years as of September 30, 2019.

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption.  This methodology will be continued for the commencement of any subsequent lease agreements.  The weighted average discount rate for the leases was 3.48% as of September 30, 2019.

The total operating lease costs were $48,000 and $145,000, respectively, for the three and nine months ended September 30, 2019.  The right-of-use asset, included in premises and equipment, and lease liability, included in other liabilities, was $1.5 million and $1.7 million, respectively, as of September 30, 2019.  Rental expense for operating leases classified under ASC 840 for the three and nine months ended September 30, 2018 was $50,000 and $150,000, respectively.

Total estimated rental commitments for the operating leases were as follows as of September 30, 2019:

(Dollar amounts in thousands)
Year ending December 31:
2019 (excluding nine months)	$	53
2020		212
2021		217
2022		222
2023		222
Thereafter		1,289
Total minimum lease payments		2,215
Discount effect of cash flows		(470	)
Present value of lease liabilities	$	1,745

26

12. Recent Accounting Pronouncements (continued)

Newly Issued Not Yet Effective Accounting Standards

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 significantly changes the way impairment of financial instruments is recognized by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of the financial instruments. The main provisions of the guidance include (1) replacing the “incurred loss” approach under current GAAP with an “expected loss” model for instruments measured at amortized cost, (2) requiring entities to record an allowance for available-for-sale debt securities rather than reduce the carrying amount of the investments, as is required by the other-than-temporary impairment model under current GAAP, and (3) a simplified accounting model for purchased credit-impaired debt securities and loans. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. Management has selected a software vendor and is currently working through the implementation process.  The Corporation is reviewing available historical information in order to assess the expected credit losses and determine the impact of the adoption of ASU 2016-13 on the Corporation's financial statements.  On October 16, 2019, FASB announced a delay for effective date of this ASU for smaller reporting companies until fiscal years beginning after December 15, 2022. The guidance is required to be applied using the modified retrospective approach.  As the Corporation is a smaller reporting company, the delay would be applicable.

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

Adoption of New Accounting Policies

In February 2016, the FASB issued ASU 2016-02 "Leases". This ASU requires lessees to record most leases on their balance sheet but recognize expenses in the income statement in a manner similar to current accounting treatment. This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases. ASU 2016-02 was effective for annual periods beginning after December 15, 2018, and interim periods therein. In January 2018, the FASB issued ASU 2018-01, which allows entities the option to apply the provisions of the new lease guidance at the effective date without adjusting the comparative periods presented. Adoption of this guidance as of January 1, 2019 resulted in the recording of operating lease right-of-use assets of $1.6 million and operating lease liabilities of $1.8 million.  The Corporation recorded a cumulative adjustment to retained earning for prior periods of $170,000, net of deferred taxes of $45,000.  See Note 11-Leases for more information.

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

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

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section discusses the consolidated financial condition and results of operations of Emclaire Financial Corp and its wholly owned subsidiaries for the three and nine months ended September 30, 2019, compared to the same periods in 2018 and should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC and with the accompanying consolidated financial statements and notes presented in this Form 10-Q.

This Form 10-Q, including the financial statements and related notes, contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” or words or phrases of similar meaning. We caution that the forward looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performances or achievements could differ materially from those contemplated, expressed or implied by the forward looking statements. Therefore, we caution you not to place undue reliance on our forward looking information and statements. Except as required by applicable law or regulation, we will not update the forward looking statements to reflect actual results or changes in factors affecting the forward looking statements.

CHANGES IN FINANCIAL CONDITION

Total assets increased $42.6 million, or 4.7%, to $941.4 million at September 30, 2019 from $898.9 million at December 31, 2018. The change in assets was driven primarily by an increase in cash and cash equivalents, securities and interest earning time deposits of $38.3 million, $20.2 million and $3.5 million, respectively, partially offset by a decrease in net loans of $20.3 million. Total liabilities increased $36.6 million, or 4.5%, to $855.5 million at September 30, 2019 from $818.9 million at December 31, 2018 primarily due to an increase in customer deposits of $46.5 million, partially offset by a decrease in borrowed funds of $11.6 million.

Stockholders’ equity increased $5.9 million, or 7.4%, to $85.9 million at September 30, 2019 from $80.0 million at December 31, 2018 primarily due to a $3.8 million increase in retained earnings as a result of $6.3 million of net income, partially offset by $2.4 million of dividends paid.  Additionally, the accumulated other comprehensive loss declined by $1.9 million as a result of improvement in the Corporation unrealized gains on securities.  The Corporation remains well capitalized and is positioned for continued growth with total stockholders’ equity at 9.1% of total assets.  Book value per common share was $30.28 at September 30, 2019, compared to $28.09 at December 31, 2018. 

At September 30, 2019, the Bank was considered “well-capitalized” with a Tier 1 leverage ratio, Common Equity Tier 1 ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio of 8.13%, 12.66%, 12.66% and 13.78%, respectively. The Bank was also considered “well-capitalized” at December 31, 2018 with a Tier 1 leverage ratio, Common Equity Tier 1 ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio of 7.95%, 11.82%, 11.82% and 12.93%, respectively.

RESULTS OF OPERATIONS

Comparison of Results for the Three Months Ended September 30, 2019 and 2018

General. Net income available to common stockholders increased $1.0 million, or 86.7%, to $2.2 million for the three months ended September 30, 2019 from $1.2 million for the same period in 2018. This increase was the result of increases in net interest income and noninterest income of $875,000 and $147,000, respectively, and a decrease of $445,000 in the provision for loan losses, partially offset by increases in the provision for income taxes and noninterest expense of $257,000 and $203,000, respectively.

Net interest income. Tax equivalent net interest income increased $872,000, or 14.1%, to $7.1 million for the three months ended September 30, 2019 from $6.2 million for the three months ended September 30, 2018. This increase was attributed to an increase in tax equivalent interest income of $1.7 million, partially offset by an increase in interest expense of $846,000.

Interest income. Tax equivalent interest income increased $1.7 million, or 22.9%, to $9.2 million for the three months ended September 30, 2019 from $7.5 million for the same period in 2018. This increase was attributed to increases in interest earned on loans, interest-earning deposits with banks and securities and dividends on federal bank stocks of $1.5 million, $139,000, $52,000 and $39,000, respectively.

Tax equivalent interest earned on loans receivable increased $1.5 million, or 22.2%, to $8.2 million for the three months ended September 30, 2019 compared to $6.7 million for the same period in 2018. This increase resulted from a $100.9 million, or 17.0%, increase in average loans, accounting for a $1.2 million increase in interest income. The increase in loans receivable was related to the acquisition of Community First Bancorp, Inc. in October 2018. Adding to this favorable volume variance, the average yield on loans increased 20 basis points to 4.68% for the three months ended September 30, 2019, versus 4.48% for the same period in 2018. This favorable yield variance accounted for a $307,000 increase in interest income. Accretion of purchase accounting adjustments on acquired loans accounted for approximately 5 basis points of the yield increase.

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Interest earned on deposits with banks increased $139,000 to $251,000 for the three months ended September 30, 2019 compared to $112,000 for the same period in 2018. This increase resulted from a $25.2 million, or 98.2%, increase in average cash balances, accounting for a $123,000 increase in interest income.  Adding to this favorable volume variance, the average yield on cash and cash equivalent balances increased 23 basis points to 1.96% for the three months ended September 30, 2019, versus 1.73% for the same period in 2018, accounting for a $16,000 increase in interest income.

Tax equivalent interest earned on securities increased $52,000, or 8.4%, to $674,000 for the three months ended September 30, 2019 compared to $622,000 for the same period in 2018. The average balance of securities increased $4.3 million, or 4.3%, accounting for a $27,000 increase in interest income.  Additionally, the average yield on securities increased by 10 basis points to 2.58% for the three months ended September 30, 2019 versus 2.48% for the same period in 2018. This favorable yield variance accounted for a $25,000 increase in interest income.

Dividends on federal bank stocks increased $39,000, or 60.0%, to $104,000 for the three months ended September 30, 2019 from $65,000 for the same period in 2018. This increase was primarily due to a $1.4 million, or 30.5%, increase in the average balance of federal bank stocks, accounting for a $22,000 increase in interest income.  Additionally, an increase of 131 basis points in the average yield on federal bank stocks to 7.10% for the three months ended September 30, 2019, versus 5.79% for the same period in 2018, accounted for an $17,000 increase in interest income.

Interest expense. Interest expense increased $846,000, or 63.8%, to $2.2 million for the three months ended September 30, 2019 from $1.3 million for the same period in 2018. This increase in interest expense can be attributed to increases in interest incurred on deposits and borrowed funds of $755,000 and $91,000, respectively.

Interest expense incurred on deposits increased $755,000, or 63.8%, to $1.9 million for the three months ended September 30, 2019 compared to $1.2 million for the same period in 2018. The average cost of interest-bearing deposits increased 35 basis points to 1.21% for the three months ended September 30, 2019, versus 0.86% for the same period in 2018, accounting for a $550,000 increase in interest expense. Additionally, the average balance of interest-bearing deposits increased $85.4 million, or 15.6%, to $633.9 million for the three months ended September 30, 2019, compared to $548.5 million for the same period in 2018 causing a $205,000 increase in interest expense. This increase was primarily due to the acquisition of Community First in October 2018.

Interest expense incurred on borrowed funds increased $91,000, or 64.1%, to $233,000 for the three months ended September 30, 2019, compared to $142,000 for the same period in the prior year. The average balance of borrowed funds increased $14.0 million, or 70.7%, to $33.8 million for the three months ended September 30, 2019, compared to $19.8 million for the same period in 2018 causing an $90,000 increase in interest expense. The increase in the outstanding balance of borrowed funds primarily resulted from three additional $5.0 million FHLB long-term notes taken in December 2018. The average cost of long-term borrowed funds increased 12 basis points to 2.54% for the three months ended September 30, 2019 compared to 2.42% for the same period in 2018 causing a $5,000 increase in interest expense.  Partially offsetting the cost of long-term borrowings, the average cost of short-term borrowed funds decreased 60 basis points to 5.71% for the three months ended September 30, 2019 compared to 6.31% for the same period in 2018 causing a $4,000 decrease in interest expense.

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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)	Three Months Ended September 30,
	2019							2018
	Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate
Interest-earning assets:
Loans, taxable	$	673,970	$	7,994		4.71	%	$	574,904	$	6,536		4.51	%
Loans, tax exempt		21,163		210		3.93	%		19,294		180		3.70	%
Total loans receivable		695,133		8,204		4.68	%		594,198		6,716		4.48	%
Securities, taxable		90,247		583		2.56	%		75,759		464		2.43	%
Securities, tax exempt		13,511		91		2.68	%		23,733		158		2.65	%
Total securities		103,758		674		2.58	%		99,492		622		2.48	%
Interest-earning deposits with banks		50,881		251		1.96	%		25,670		112		1.73	%
Federal bank stocks		5,813		104		7.10	%		4,453		65		5.79	%
Total interest-earning cash equivalents		56,694		355		2.48	%		30,123		177		2.33	%
Total interest-earning assets		855,585		9,233		4.28	%		723,813		7,515		4.12	%
Cash and due from banks		3,515							2,940
Other noninterest-earning assets		62,389							46,375
Total Assets	$	921,489						$	773,128
Interest-bearing liabilities:
Interest-bearing demand deposits	$	405,051	$	712		0.70	%	$	379,544	$	502		0.52	%
Time deposits		228,869		1,226		2.12	%		168,933		681		1.60	%
Total interest-bearing deposits		633,920		1,938		1.21	%		548,477		1,183		0.86	%
Borrowed funds, short-term		2,050		29		5.71	%		2,050		33		6.31	%
Borrowed funds, long-term		31,750		204		2.54	%		17,753		109		2.42	%
Total borrowed funds		33,800		233		2.74	%		19,803		142		2.84	%
Total interest-bearing liabilities		667,720		2,171		1.29	%		568,280		1,325		0.93	%
Noninterest-bearing demand deposits		154,837		—		—			134,183		—		—
Funding and cost of funds		822,557		2,171		1.05	%		702,463		1,325		0.75	%
Other noninterest-bearing liabilities		13,826							10,733
Total Liabilities		836,383							713,196
Stockholders' Equity		85,106							59,932
Total Liabilities and Stockholders' Equity	$	921,489						$	773,128
Net interest income			$	7,062						$	6,190
Interest rate spread (difference between weighted average rate on interest-earning assets and interest-bearing liabilities)						2.99	%						3.19	%
Net interest margin (net interest income as a percentage of average interest-earning assets)						3.27	%						3.39	%

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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 volume (changes in volume multiplied by prior year rate), rate (change in rate multiplied by prior year volume) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on loans and securities reflect the changes in interest income on a fully tax equivalent basis.

(Dollar amounts in thousands)	Three Months Ended September 30,
	2019 versus 2018
	Increase (Decrease) due to
	Volume		Rate			Total
Interest income:
Loans	$	1,181	$	307		$	1,488
Securities		27		25			52
Interest-earning deposits with banks		123		16			139
Federal bank stocks		22		17			39
Total interest-earning assets		1,353		365			1,718
Interest expense:
Interest-bearing deposits		205		550			755
Borrowed funds, short-term		—		(4	)		(4	)
Borrowed funds, long-term		90		5			95
Total interest-bearing liabilities		295		551			846
Net interest income	$	1,058	$	(186	)	$	872

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.

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Information pertaining to the allowance for loan losses and nonperforming assets for the three months ended September 30, 2019 and 2018 is as follows:

(Dollar amounts in thousands)	As of or for the three months ended
	September 30,
	2019			2018
Balance at the beginning of the period	$	6,580		$	6,118
Provision for (recovery of) loan losses		(145	)		300
Charge-offs		(69	)		(76	)
Recoveries		143			18
Balance at the end of the period	$	6,509		$	6,360
Nonperforming loans	$	4,977		$	5,488
Nonperforming assets		5,458			6,088
Nonperforming loans to total loans		0.72	%		0.92	%
Nonperforming assets to total assets		0.58	%		0.79	%
Allowance for loan losses to total loans		0.94	%		1.06	%
Allowance for loan losses to nonperforming loans		130.78	%		115.89	%

Nonperforming loans decreased $1.0 million, or 17.0% to $5.0 million at September 30, 2019 from $6.0 million at  June 30, 2019. This was primarily due to changes in the non-accrual status of five loans.  Three loans totaling $525,000 were removed from non-accrual status after the application of payments to past due balances brought the loans current.  Additionally, one $423,000 residential real estate loan previously on non-accrual was paid in full and one $91,000 non-accrual residential real estate loan was transferred to OREO.

As of September 30, 2019, the Corporation’s classified and criticized assets amounted to $20.8 million, or 2.2% of total assets, with $17.2 million classified as substandard and $3.6 million identified as special mention. This compares to classified and criticized assets of $25.5 million, or 2.8% of total assets, with $19.8 million classified as substandard and $5.7 million identified as special mention at June 30, 2019. This $4.7 million decrease was primarily related to a $2.5 million payoff of a commercial relationship previously identified as substandard and the upgrade of a $2.1 million commercial relationship from special mention to pass during the third quarter of 2019.

The provision for loan losses decreased $445,000 to a recovery of $145,000 for the three months ended September 30, 2019 from a provision of $300,000 for the same period in 2018. This recovery was primarily due to the aforementioned improvement in the criticized and classified loan balances during the three months ended September 30, 2019.

Noninterest income.  Noninterest income increased $147,000, or 13.8%, to $1.2 million for the three months ended September 30, 2019, compared to $1.1 million for the same period in 2018 due to increases in gains of the sale of securities, gains on the sale of loans and other income of $44,000, $42,000 and $67,000 respectively.  The increase in other income was primarily driven by increases in ATM fees.

Noninterest expense.  Noninterest expense increased $203,000, or 3.4%, to $5.8 million for the three months ended September 30, 2019 from $5.6 million for the same period in 2018.  The increase primarily related to increases in compensation and benefits expense and other noninterest expense of $668,000 and $229,000, respectively, partially offset by a reduction in acquistion costs and FDIC insurance expense of $677,000 and $103,000, respectively.   The increases primarily related to costs associated with the new banking offices acquired in the Community First acquisition and normal salary and benefit and operating expense increases.  The decrease in FDIC insurance expense was a result of utilizing Small Bank assessment credits of $112,000 during the period.

Provision for income taxes. The provision for income taxes increased $257,000 to $444,000 for the three months ended September 30, 2019 compared to $187,000 for the same period in the prior year as a result of the increase in net income before provision for income taxes.

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Comparison of Results for the Nine Months Ended September 30, 2019 and 2018

General. Net income available to common stockholders increased $2.4 million, or 60.1%, to $6.3 million for the nine months ended September 30, 2019 from $3.9 million for the same period in 2018. This increase was the result of increases in net interest income and noninterest income of $3.1 million and $388,000, respectively, and a decrease of $675,000 in the provision for loan losses, partially offset by increases in noninterest expense, provision for income taxes and preferred stock dividends of $1.1 million, $637,000 and $91,000, respectively.

Net interest income. Tax equivalent net interest income increased $3.1 million, or 17.1%, to $21.5 million for the nine months ended September 30, 2019 from $18.3 million for the nine months ended September 30, 2018. This increase was attributed to an increase in tax equivalent interest income of $5.2 million, partially offset by an increase in interest expense of $2.1 million.

Interest income. Tax equivalent interest income increased $5.2 million, or 23.7%, to $27.3 million for the nine months ended September 30, 2019 from $22.0 million for the same period in 2018. This increase was attributed to increases in interest earned on loans, interest on deposits with banks, and securities and dividends on federal bank stocks of $4.8 million, $169,000, $145,000 and $95,000, respectively.

Tax equivalent interest earned on loans receivable increased $4.8 million, or 24.4%, to $24.6 million for the nine months ended September 30, 2019 compared to $19.8 million for the same period in 2018. This increase resulted from a $111.6 million, or 18.9%, increase in average loans, accounting for an increase of $3.9 million in interest income. The increase in loans receivable was related to the acquisition of Community First Bancorp, Inc. in October 2018. Adding to this favorable volume variance, the average yield on loans increased 21 basis points to 4.69% for the nine months ended September 30, 2019, versus 4.48% for the same period in 2018. This favorable yield variance accounted for a $941,000 increase in interest income. Accretion of purchase accounting adjustments on acquired loans accounted for approximately 5 basis points of the yield increase.

Interest earned on deposits with banks increased $169,000, or 74.1%, to $397,000 for the nine months ended September 30, 2019 compared to $228,000 for the nine months ended September 30, 2018. This increase resulted from an $8.5 million increase in the average balance of interest-earning deposits accounting for an increase of $108,000 in interest income. Additionally, a 34 basis point increase in the average yield on these accounts to 1.81% for the nine months ended September 30, 2019, versus 1.47% for the same period in 2018, accounting for a $61,000 increase in interest income.

Tax equivalent interest earned on securities increased $145,000, or 8.0%, to $2.0 million for the nine months ended September 30, 2019 compared to $1.8 million for the nine months ended September 30, 2018. This increase resulted from a 18 basis point increase in the average yield on securities to 2.62% for the nine months ended September 30, 2019 versus 2.44% for the same period in 2018. This favorable yield variance accounted for a $129,000 increase in interest income. Additionally, the average balance of securities increased $841,000 accounting for a $16,000 increase in interest income.

Dividends on federal bank stocks increased $95,000, or 43.0%, to $316,000 for the nine months ended September 30, 2019 from $221,000 for the same period in 2018. This increase was primarily due to a $1.4 million, or 31.3%, increase in the average balance of federal bank stocks, accounting for a $74,000 increase in interest income.  Furthermore, an increase of 56 basis points in the average yield on federal bank stocks to 7.20% for the nine months ended September 30, 2019, versus 6.64% for the same period in 2018, accounted for a $21,000 increase in interest income.

Interest expense. Interest expense increased $2.1 million, or 56.4%, to $5.8 million for the nine months ended September 30, 2019 from $3.7 million for the same period in 2018. This increase in interest expense can be attributed to a $1.8 million increase in interest incurred on deposits and an increase of $329,000 in interest incurred on borrowed funds.

Interest expense incurred on deposits increased $1.8 million, or 54.0%, to $5.0 million for the nine months ended September 30, 2019 compared to $3.3 million for the same period in 2018. The average cost of interest-bearing deposits increased 28 basis points to 1.09% for the nine months ended September 30, 2019, versus 0.81% for the same period in 2018, accounting for a $1.3 million increase in interest expense. Additionally, the average balance of interest-bearing deposits increased $75.1 million, or 13.8%, to $618.8 million for the nine months ended September 30, 2019, compared to $543.7 million for the same period in 2018 causing a $498,000 increase in interest expense. This increase was primarily due to the acquisition of Community First in October 2018.

Interest expense incurred on borrowed funds increased $329,000, or 74.8%, to $769,000 for the nine months ended September 30, 2019, compared to $440,000 for the same period in the prior year. The average balance of borrowed funds increased $16.1 million, or 74.8%, to $37.5 million for the nine months ended September 30, 2019, compared to $21.5 million for the same period in 2018 causing a $335,000 increase in interest expense. The increase in the outstanding balance of borrowed funds primarily resulted from three additional $5.0 million FHLB long-term notes taken in December 2018. Additionally, the average cost of long-term borrowed funds increased 11 basis points to 2.56% for the nine months ended September 30, 2019 compared to 2.45% for the same period in 2018 causing a $16,000 increase in interest expense.  Partially offsetting these increases, the average cost of short-term borrowed funds decreased 86 basis points to 3.78% for the nine months ended September 30, 2019  compared to 4.64% for the same period in 2018 causing a $22,000 decrease in interest expense.

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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)	Nine Months Ended September 30,
	2019							2018
	Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets:
Loans, taxable	$	681,235	$	24,002		4.71	%	$	569,745	$	19,223		4.51	%
Loans, tax exempt		20,770		609		3.92	%		20,661		568		3.68	%
Total loans receivable		702,005		24,611		4.69	%		590,406		19,791		4.48	%
Securities, taxable		82,335		1,606		2.61	%		73,705		1,312		2.38	%
Securities, tax exempt		17,450		348		2.67	%		25,239		497		2.63	%
Total securities		99,785		1,954		2.62	%		98,944		1,809		2.44	%
Interest-earning deposits with banks		29,294		397		1.81	%		20,763		228		1.47	%
Federal bank stocks		5,860		316		7.20	%		4,461		221		6.64	%
Total interest-earning cash equivalents		35,154		713		2.71	%		25,224		449		2.38	%
Total interest-earning assets		836,944		27,278		4.36	%		714,574		22,049		4.13	%
Cash and due from banks		3,336							2,812
Other noninterest-earning assets		62,702							46,172
Total Assets	$	902,982						$	763,558
Interest-bearing liabilities:
Interest-bearing demand deposits	$	395,464	$	1,827		0.62	%	$	373,534	$	1,375		0.49	%
Time deposits		223,349		3,218		1.93	%		170,151		1,902		1.49	%
Total interest-bearing deposits		618,813		5,045		1.09	%		543,685		3,277		0.81	%
Borrowed funds, short-term		5,536		156		3.78	%		2,817		98		4.64	%
Borrowed funds, long-term		31,998		613		2.56	%		18,661		342		2.45	%
Total borrowed funds		37,534		769		2.74	%		21,478		440		2.74	%
Total interest-bearing liabilities		656,347		5,814		1.18	%		565,163		3,717		0.88	%
Noninterest-bearing demand deposits		150,096		—		—			128,590		—		—
Funding and cost of funds		806,443		5,814		0.96	%		693,753		3,717		0.72	%
Other noninterest-bearing liabilities		13,667							10,494
Total Liabilities		820,110							704,247
Stockholders' Equity		82,872							59,311
Total Liabilities and Stockholders' Equity	$	902,982						$	763,558
Net interest income			$	21,464						$	18,332
Interest rate spread (difference between weighted average rate on interest-earning assets and interest-bearing liabilities)						3.17	%						3.25	%
Net interest margin (net interest income as a percentage of average interest-earning assets)						3.43	%						3.43	%

34

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 volume (changes in volume multiplied by prior year rate), rate (change in rate multiplied by prior year volume) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on loans and securities reflect the changes in interest income on a fully tax equivalent basis.

(Dollar amounts in thousands)	Nine Months Ended September 30,
	2019 versus 2018
	Increase (Decrease) due to
	Volume		Rate			Total
Interest income:
Loans	$	3,879	$	941		$	4,820
Securities		16		129			145
Interest-earning deposits with banks		108		61			169
Federal bank stocks		74		21			95
Total interest-earning assets		4,077		1,152			5,229
Interest expense:
Interest-bearing deposits		498		1,270			1,768
Borrowed funds, short-term		80		(22	)		58
Borrowed funds, long-term		255		16			271
Total interest-bearing liabilities		833		1,264			2,097
Net interest income	$	3,244	$	(112	)	$	3,132

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.

35

Information pertaining to the allowance for loan losses and nonperforming assets for the nine months ended September 30, 2019 and 2018 is as follows:

(Dollar amounts in thousands)	As of or for the nine months ended
	September 30,
	2019			2018
Balance at the beginning of the period	$	6,508		$	6,127
Provision for loan losses		305			980
Charge-offs		(544	)		(807	)
Recoveries		240			60
Balance at the end of the period	$	6,509		$	6,360
Nonperforming loans	$	4,977		$	5,488
Nonperforming assets		5,458			6,088
Nonperforming loans to total loans		0.72	%		0.92	%
Nonperforming assets to total assets		0.58	%		0.79	%
Allowance for loan losses to total loans		0.94	%		1.06	%
Allowance for loan losses to nonperforming loans		130.78	%		115.89	%

Nonperforming loans increased $1.9 million, or 98.1%, to $5.0 million at September 30, 2019 from $3.0 million at December 31, 2018. This was primarily due to one commercial relationships totaling $2.4 million being placed on non-accrual status partially offset by the payoff of one residential real estate loan totaling $423,000 during the nine months ended September 30, 2019.

As of September 30, 2019, the Corporation’s classified and criticized assets amounted to $20.8 million, or 2.2% of total assets, with $17.2 million classified as substandard and $3.6 million identified as special mention. This compares to classified and criticized assets of $22.9 million, or 2.5% of total assets, with $16.4 million classified as substandard and $6.5 million identified as special mention at December 31, 2018. This decrease was primarily related to the rating upgrades of two commercial relationships totaling $2.4 million, the payoffs of five commercial relationships totaling $1.9 million, the $423,000 payoff of a residential real estate loan and the transfer to OREO of one commercial relationship totaling $232,000,  partially offset by the rating downgrades of five commercial relationships totaling $3.4 million.

The provision for loan losses decreased $675,000, or 68.9%, to $305,000 for the nine months ended September 30, 2019 from $980,000 for the same period in 2018 as criticized and classified loans improved by $2.1 million and portfolio net charge-offs were lower compared to the same period in 2018.

Noninterest income.  Noninterest income increased $388,000, or 12.9%, to $3.4 million for the nine months ended September 30, 2019, compared to $3.0 million for the same period in 2018. Fees and service charges increased $194,000, primarily associated with the operation of the three new full-service banking offices which were acquired from Community First and general increases in overdraft fee income. Additionally, net gains on the sale of loans and net gains on the sale of securities increased $69,000 and $52,000, respectively.

Noninterest expense.  Noninterest expense increased $1.1 million, or 7.2%, to $16.6 million for the nine months ended September 30, 2019 from $15.5 million for the same period in 2018.  The increase primarily related to increases in compensation and benefits expense, other noninterest expense and occupancy and equipment expense of $1.4 million, $718,000 and $272,000, respectively.  The increases primarily related to costs associated with the aforementioned new banking offices and normal salary and benefit and operating expense increases.  These increases in noninterest expense were partially offset by a decreases of $1.0 million in acquisition costs and $124,000 in FDIC insurance expense.  The decrease in FDIC insurance expense was a result of utilizing Small Bank assessment credits of $112,000 during the period.

Provision for income taxes. The provision for income taxes increased $637,000, or 86.7%, to $1.4 million for the nine months ended September 30, 2019 compared to $735,000 for the same period in the prior year as a result of the increase in net income before provision for income taxes.

36

LIQUIDITY

The Corporation’s primary sources of funds generally have been deposits obtained through the offices of the Bank, borrowings from the FHLB, Federal Reserve and other correspondent banks, and amortization and prepayments of outstanding loans and maturing securities. During the nine months ended September 30, 2019, the Corporation used its sources of funds primarily to reduce short-term borrowed funds and increase interest earning time deposits and investment balances. As of September 30, 2019, the Corporation had outstanding loan commitments, including undisbursed loans and amounts available under credit lines, totaling $107.4 million, and standby letters of credit totaling $979,000, net of collateral maintained by the Bank.

At September 30, 2019, time deposits amounted to $227.2 million, or 28.1% of the Corporation’s total consolidated deposits, including approximately $64.2 million of which are scheduled to mature within the next year. Management of the Corporation believes (i) it has adequate resources to fund all of its commitments, (ii) all of its commitments will be funded as required by related maturity dates and (iii) based upon past experience and current pricing policies, it can adjust the rates of time deposits to retain a substantial portion of maturing liabilities if necessary.

Aside from liquidity available from customer deposits or through sales and maturities of securities, the Corporation and the Bank have alternative sources of funds. These sources include a line of credit for the Corporation with a correspondent bank, the Bank's line of credit and term borrowing capacity from the FHLB and the Federal Reserve’s discount window and, to a more limited extent, through the sale of loans. At September 30, 2019, the Corporation had borrowed funds of $33.8 million consisting of $30.0 million of long-term FHLB advances, a $1.7 million long-term advance with a correspondent bank and $2.1 million outstanding on a line of credit with a correspondent bank. At September 30, 2019, the Corporation’s borrowing capacity with the FHLB, net of funds borrowed and irrevocable standby letters of credit issue to secure certain deposit accounts, was $250.1 million.

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

RECENT REGULATORY DEVELOPMENTS

The final rules implementing the Basel Committee on Banking Supervision’s (BCBS) capital guidelines for U.S. banks were approved by the FRB and FDIC. Under the final rules, minimum requirements increased for both the quantity and quality of capital. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total Capital to risk-weighted assets of 8.0% and require a minimum Tier 1 leverage ratio of 4.0%. A new capital conservation buffer comprised of common equity Tier 1 capital was also established above the regulatory minimum capital requirements. This capital conservation buffer was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and has increased each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revised the definition and calculation of Tier 1 capital, Total Capital and risk-weighted assets. The phase-in period for the final rules became effective on January 1, 2015 with full compliance with all of the final rules’ requirements phased in over a multi-year schedule which was fully phased-in on January 1, 2019.

At September 30, 2019, the Bank exceeded all minimum capital requirements under these capital guidelines.

37

CRITICAL ACCOUNTING POLICIES

The Corporation’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America 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 included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018. 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 its 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 debt 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.

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. Impairment exists when a reporting unit’s carrying amount exceeds its fair value. At November 30, 2018, the required annual impairment test of goodwill was performed and no impairment existed as of the valuation date. If for any future period it is determined that there has been impairment in the carrying value of our goodwill balances, the Corporation will record a charge to earnings, which could have a material adverse effect on net income, but not risk based capital ratios.

38

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk for the Corporation consists primarily of interest rate risk exposure and liquidity risk. Since virtually all of the interest-earning assets and interest-bearing liabilities are at the Bank, virtually all of the interest rate risk and liquidity risk lies at the Bank level. The Bank is not subject to currency exchange risk or commodity price risk, and has no trading portfolio, and therefore, is not subject to any trading risk. In addition, the Bank does not participate in hedging transactions such as interest rate swaps and caps. Changes in interest rates will impact both income and expense recorded and also the market value of long-term interest-earning assets and interest-bearing liabilities. Interest rate risk and liquidity risk management is performed at the Bank level. Although the Bank has a diversified loan portfolio, loans outstanding to individuals and businesses depend upon the local economic conditions in the immediate trade area.

One of the primary functions of the Corporation’s asset/liability management committee is to monitor the level to which the balance sheet is subject to interest rate risk. The goal of the asset/liability committee is to manage the relationship between interest rate sensitive assets and liabilities, thereby minimizing the fluctuations in the net interest margin, which achieves consistent growth of net interest income during periods of changing interest rates.

Interest rate sensitivity is the result of differences in the amounts and repricing dates of the Bank’s rate sensitive assets and rate sensitive liabilities. These differences, or interest rate repricing “gap”, provide an indication of the extent that the Corporation’s net interest income is affected by future changes in interest rates. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities and is considered negative when the amount of interest rate-sensitive liabilities exceeds the amount of interest rate-sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income while a positive gap would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income and a positive gap would adversely affect net interest income. The closer to zero that gap is maintained, generally, the lesser the impact of market interest rate changes on net interest income.

Assumptions about the timing and variability of cash flows are critical in gap analysis. Particularly important are the assumptions driving mortgage prepayments and the expected attrition of the core deposits portfolios. These assumptions are based on the Corporation’s historical experience, industry standards and assumptions provided by a federal regulatory agency, which management believes most accurately represents the sensitivity of the Corporation’s assets and liabilities to interest rate changes. As of September 30, 2019, the Corporation’s interest-earning assets maturing or repricing within one year totaled $270.6 million while the Corporation’s interest-bearing liabilities maturing or repricing within one-year totaled $196.0 million, providing an excess of interest-earning assets over interest-bearing liabilities of $74.6 million. At September 30, 2019, the percentage of the Corporation’s assets to liabilities maturing or repricing within one year was 138.1%.

For more information, see “Market Risk Management” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.

Item 4. Controls and Procedures

The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Corporation’s management, including its Chief Executive Officer (CEO) and Chief Financial Officer (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 September 30, 2019, 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. There have been no significant changes in the Corporation’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Corporation completed its evaluation.

There has been no change made in the Corporation’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

39

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Corporation is involved in various legal proceedings occurring in the ordinary course of business. It is the opinion of management, after consultation with legal counsel, that these matters will not materially affect the Corporation’s consolidated financial position or results of operations.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a) Not applicable.

(b) Not applicable.

Item 6. Exhibits

Exhibit 31.1	Rule 13a-14(a) Certification of Principal Executive Officer
Exhibit 31.2	Rule 13a-14(a) Certification of Principal Financial Officer
Exhibit 32.1	CEO Certification Pursuant to 18 U.S.C. Section 1350
Exhibit 32.2	CFO Certification Pursuant to 18 U.S.C. Section 1350
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

40

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	EMCLAIRE FINANCIAL CORP
Date: November 8, 2019	By:	/s/ William C. Marsh
	William C. Marsh
	Chairman of the Board,
	President and Chief Executive Officer
Date: November 8, 2019	By:	/s/ Amanda L. Engles
	Amanda L. Engles
	Chief Financial Officer
	Treasurer

41

EX-31.1

Exhibit 31.1

Certification of the Principal Executive Officer

(Pursuant to Rule 13a-14(a))

I, William C. Marsh, Chairman of the Board, President and Chief Executive Officer, certify that:

1. I have reviewed this Form 10-Q of Emclaire Financial Corp;

2. Based on my knowledge, this 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 report;

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

4. The registrant’s other certifying officer(s) 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 subsidiary, 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: November 8, 2019	By:	/s/ William C. Marsh
	William C. Marsh
	Chairman of the Board,
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of the Principal Financial Officer

(Pursuant to Rule 13a-14(a))

I, Amanda L. Engles, Chief Financial Officer and Treasurer, certify that:

1. I have reviewed this Form 10-Q of Emclaire Financial Corp;

2. Based on my knowledge, this 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 report;

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

4. The registrant’s other certifying officer(s) 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 subsidiary, 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: November 8, 2019	By:	/s/ Amanda L. Engles
	Amanda L. Engles
	Chief Financial Officer
	Treasurer

EX-32.1

Exhibit 32.1

CEO CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Emclaire Financial Corp (the Corporation) on Form 10-Q for the period ended September 30, 2019 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 consolidated financial condition and results of operations of the Corporation.

/s/ William C. Marsh

William C. Marsh

Chairman of the Board,

President and Chief Executive Officer

November 8, 2019

Note: A signed original of this written statement has been provided to Emclaire Financial Corp and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CFO CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Emclaire Financial Corp (the Corporation) on Form 10-Q for the period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Amanda L. Engles, 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 consolidated financial condition and results of operations of the Corporation.

/s/ Amanda L. Engles

Amanda L. Engles

Chief Financial Officer

November 8, 2019

Note: A signed original of this written statement has been provided to Emclaire Financial Corp and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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Note 11 - Leases - Estimated Rental Commitments for Operating Leases (Details) $ in Thousands	Sep. 30, 2019 USD ($)
2019 (excluding nine months)	$ 53
2020	212
2021	217
2022	222
2023	222
Thereafter	1,289
Total minimum lease payments	2,215
Discount effect of cash flows	(470)
Present value of lease liabilities	$ 1,745

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Note 6 - Stock Compensation Plan - Summary of Nonvested Restricted Stock Awards (Details) - Restricted Stock [Member]	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Nonvested (in shares) | shares	37,250
Granted (in shares) | shares
Vested (in shares) | shares
Forfeited (in shares) | shares
Nonvested (in shares) | shares	37,250
Nonvested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 29.94
Granted, weighted average grant date fair value (in dollars per share) | $ / shares
Vested, weighted average grant date fair value (in dollars per share) | $ / shares
Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares
Nonvested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 29.94

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Note 4 - Loans Receivable and Related Allowance for Loan Losses - Nonaccrual Loans by Aging Category (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018
Nonaccrual	$ 4,670	$ 4,670	$ 2,237
Residential Portfolio Segment [Member]
Nonaccrual	824	824	855
Home Equity Loans and Lines of Credit [Member]
Nonaccrual	532	532	487
Commercial Real Estate Portfolio Segment [Member]
Nonaccrual	3,193	3,193	606
Commercial Portfolio Segment [Member]
Nonaccrual	40	40	174
Consumer Portfolio Segment [Member]
Nonaccrual	$ 81	81	115
Not Past Due [Member]
Nonaccrual		494	452
Not Past Due [Member] | Residential Portfolio Segment [Member]
Nonaccrual		315	335
Not Past Due [Member] | Home Equity Loans and Lines of Credit [Member]
Nonaccrual		4	6
Not Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Nonaccrual		135	111
Not Past Due [Member] | Commercial Portfolio Segment [Member]
Nonaccrual		40
Not Past Due [Member] | Consumer Portfolio Segment [Member]
Nonaccrual
Financial Asset, 30 to 59 Days Past Due [Member]
Nonaccrual		526	265
Financial Asset, 30 to 59 Days Past Due [Member] | Residential Portfolio Segment [Member]
Nonaccrual		72
Financial Asset, 30 to 59 Days Past Due [Member] | Home Equity Loans and Lines of Credit [Member]
Nonaccrual
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Nonaccrual		454	265
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Nonaccrual
Financial Asset, 30 to 59 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Nonaccrual
Financial Asset, 60 to 89 Days Past Due [Member]
Nonaccrual		45	113
Financial Asset, 60 to 89 Days Past Due [Member] | Residential Portfolio Segment [Member]
Nonaccrual			74
Financial Asset, 60 to 89 Days Past Due [Member] | Home Equity Loans and Lines of Credit [Member]
Nonaccrual
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Nonaccrual		45
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Nonaccrual			39
Financial Asset, 60 to 89 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Nonaccrual
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Nonaccrual		3,605	1,407
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Residential Portfolio Segment [Member]
Nonaccrual		437	446
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Home Equity Loans and Lines of Credit [Member]
Nonaccrual		528	481
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Nonaccrual		2,559	230
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Nonaccrual			135
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Nonaccrual		$ 81	$ 115

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Note 3 - Securities (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

(Dollar amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2019:
U.S. Treasury	$	4,024	$	7	$	(5	)	$	4,026
U.S. government sponsored entities and agencies		8,085		18		(23	)		8,080
U.S. agency mortgage-backed securities: residential		44,200		378		(40	)		44,538
U.S. agency collateralized mortgage obligations: residential		30,714		105		(262	)		30,557
State and political subdivisions		20,703		241		(34	)		20,910
Corporate debt securities		9,713		97		(22	)		9,788
Total securities available-for-sale	$	117,439	$	846	$	(386	)	$	117,899
December 31, 2018:
U.S. Treasury	$	4,532	$	—	$	(87	)	$	4,445
U.S. government sponsored entities and agencies		17,052		30		(299	)		16,783
U.S. agency mortgage-backed securities: residential		27,666		—		(490	)		27,176
U.S. agency collateralized mortgage obligations: residential		19,440		34		(810	)		18,664
State and political subdivisions		22,943		13		(224	)		22,732
Corporate debt securities		8,006		9		(97	)		7,918
Total securities available-for-sale	$	99,639	$	86	$	(2,007	)	$	97,718

Investments Classified by Contractual Maturity Date [Table Text Block]

(Dollar amounts in thousands)	Available-for-sale
	Amortized Cost		Fair Value
Due in one year or less	$	1,264	$	1,261
Due after one year through five years		14,452		14,489
Due after five through ten years		12,109		12,283
Due after ten years		14,700		14,771
Mortgage-backed securities: residential		44,200		44,538
Collateralized mortgage obligations: residential		30,714		30,557
Total securities available-for-sale	$	117,439	$	117,899

Schedule of Unrealized Loss on Investments [Table Text Block]

(Dollar amounts in thousands)	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
September 30, 2019:
U.S. Treasury	$	—	$	—		$	2,001	$	(5	)	$	2,001	$	(5	)
U.S. government sponsored entities and agencies		—		—			6,062		(23	)		6,062		(23	)
U.S. agency mortgage-backed securities: residential		10,940		(34	)		3,557		(6	)		14,497		(40	)
U.S. agency collateralized mortgage obligations: residential		6,773		(58	)		12,485		(204	)		19,258		(262	)
State and political subdivisions		4,642		(34	)		—		—			4,642		(34	)
Corporate debt securities		2,702		(11	)		488		(11	)		3,190		(22	)
Total	$	25,057	$	(137	)	$	24,593	$	(249	)	$	49,650	$	(386	)
December 31, 2018:
U.S. Treasury	$	—	$	—		$	4,445	$	(87	)	$	4,445	$	(87	)
U.S. government sponsored entities and agencies		2,472		(30	)		10,337		(269	)		12,809		(299	)
U.S. agency mortgage-backed securities: residential		19,483		(297	)		7,693		(193	)		27,176		(490	)
U.S. agency collateralized mortgage obligations: residential		1,443		(5	)		15,388		(805	)		16,831		(810	)
State and political subdivisions		7,061		(67	)		10,083		(157	)		17,144		(224	)
Corporate debt securities		962		(38	)		2,448		(59	)		3,410		(97	)
Total	$	31,421	$	(437	)	$	50,394	$	(1,570	)	$	81,815	$	(2,007	)

Schedule of Realized Gain (Loss) [Table Text Block]

(Dollar amounts in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Proceeds	$	8,153		$	5,888		$	21,035		$	12,683
Gains		45			3			80			17
Losses		(3	)		(5	)		(37	)		(26	)
Tax provision related to gains (losses)		9			(1	)		9			(2	)

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Note 7 - Fair Value (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

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

(Dollar amounts in thousands)			(Level 1)		(Level 2)		(Level 3)
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
September 30, 2019:
Securities available-for-sale
U.S. Treasury	$	4,026	$	4,026	$	—	$	—
U.S. government sponsored entities and agencies		8,080		—		8,080		—
U.S. agency mortgage-backed securities: residential		44,538		—		44,538		—
U.S. agency collateralized mortgage obligations: residential		30,557		—		30,557		—
State and political subdivision		20,910		—		20,910		—
Corporate debt securities		9,788		—		6,288		3,500
Total available-for-sale securities	$	117,899	$	4,026	$	110,373	$	3,500
Equity securities	$	23	$	23	$	—	$	—
December 31, 2018:
Securities available-for-sale
U.S. Treasury	$	4,445	$	4,445	$	—	$	—
U.S. government sponsored entities and agencies		16,783		—		16,783		—
U.S. agency mortgage-backed securities: residential		27,176		—		27,176		—
U.S. agency collateralized mortgage obligations: residential		18,664		—		18,664		—
State and political subdivisions		22,732		—		22,732		—
Corporate debt securities		7,918		—		4,418		3,500
Total available-for-sale securities	$	97,718	$	4,445	$	89,773	$	3,500
Equity securities	$	7	$	7	$	—	$	—

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

(Dollar amounts in thousands)	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019			2018
Balance at the beginning of the period	$	3,000	$	3,500	$	3,500		$	8,132
Total gains or losses (realized/unrealized):
Included in earnings		—		—		—			1
Included in other comprehensive income		—		—		—			—
Purchased into Level 3		500		—		500			—
Sold out of Level 3		—		—		—			(25	)
Transfers in and/or out of Level 3		—		—		(500	)		(4,608	)
Balance at the end of the period	$	3,500	$	3,500	$	3,500		$	3,500

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

(Dollar amounts in thousands)			(Level 1)		(Level 2)		(Level 3)
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2018:
Other real estate owned	$	160	$	—	$	—	$	160
Total	$	160	$	—	$	—	$	160

Fair Value Measurement Inputs and Valuation Techniques [Table Text Block]

(Dollar amounts in thousands)			Valuation	Unobservable	Weighted
			Techniques(s)	Input (s)	Average
December 31, 2018:
Other real estate owned	$	160	Sales comparison approach	Adjustment for differences between comparable sales		10	%

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

(Dollar amounts in thousands)
	Carrying		Fair Value Measurements using:
Description	Amount		Total		Level 1		Level 2		Level 3
September 30, 2019:
Financial Assets:
Cash and cash equivalents	$	49,302	$	49,302	$	49,302	$	—	$	—
Interest earning time deposits		10,198		10,198		—		10,198		—
Securities - available-for-sale		117,899		117,899		4,026		110,373		3,500
Securities - equities		23		23		23		—		—
Loans held for sale		154		154		—		154		—
Loans, net		688,357		682,392		—		—		682,392
Federal bank stock		5,856		N/A		N/A		N/A		N/A
Accrued interest receivable		2,754		2,754		122		442		2,190
Total	$	874,542	$	862,722	$	53,473	$	121,167	$	688,082
Financial Liabilities:
Deposits		808,025		814,778		580,820		233,958		—
Borrowed funds		33,800		34,417		—		34,417		—
Accrued interest payable		652		652		50		602		—
Total	$	842,477	$	849,847	$	580,870	$	268,977	$	—

	Carrying		Fair Value Measurements using:
	Amount		Total		Level 1		Level 2		Level 3
December 31, 2018:
Financial Assets:
Cash and cash equivalents	$	10,955	$	10,955	$	10,955	$	—	$	—
Interest earning time deposits		6,738		6,738		—		6,738		—
Securities - available-for-sale		97,718		97,718		4,445		89,773		3,500
Securities - equities		7		7		7		—		—
Loans held for sale		—		—		—		—		—
Loans, net		708,664		702,747		—		—		702,747
Federal bank stock		6,351		N/A		N/A		N/A		N/A
Accrued interest receivable		2,570		2,570		63		351		2,156
Total	$	833,003	$	820,735	$	15,470	$	96,862	$	708,403
Financial Liabilities:
Deposits		761,546		767,009		539,946		227,063		—
Borrowed funds		45,350		44,869		—		44,869		—
Accrued interest payable		495		495		30		465		—
Total	$	807,391	$	812,373	$	539,976	$	272,397	$	—

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Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Preferred Stock [Member]	Additional Paid-in Capital, Preferred [Member]	Common Stock [Member]	Additional Paid-in Capital, Common [Member]	Treasury Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance at Dec. 31, 2017			$ 2,966	$ 31,031	$ (2,114)	$ 32,726	$ (5,518)	$ 59,091
Cumulative effect of change in accounting principle, net of tax at Dec. 31, 2017						187	(187)
Balance, as adjusted at Dec. 31, 2017			2,966	31,031	(2,114)	32,913	(5,705)	59,091
Net income						1,362		1,362
Other comprehensive income (loss)							(1,015)	(1,015)
Stock compensation expense				75				75
Cash dividends declared on common stock						(636)		(636)
Balance at Mar. 31, 2018			2,966	31,106	(2,114)	33,639	(6,720)	58,877
Balance at Dec. 31, 2017			2,966	31,031	(2,114)	32,726	(5,518)	59,091
Cumulative effect of change in accounting principle, net of tax at Dec. 31, 2017						187	(187)
Balance, as adjusted at Dec. 31, 2017			2,966	31,031	(2,114)	32,913	(5,705)	59,091
Net income								3,935
Other comprehensive income (loss)							(1,695)
Balance at Sep. 30, 2018			2,966	31,218	(2,114)	34,940	(7,400)	59,610
Balance at Mar. 31, 2018			2,966	31,106	(2,114)	33,639	(6,720)	58,877
Net income						1,413		1,413
Other comprehensive income (loss)							(236)	(236)
Stock compensation expense				75				75
Cash dividends declared on common stock						(636)		(636)
Balance at Jun. 30, 2018			2,966	31,181	(2,114)	34,416	(6,956)	59,493
Net income						1,161		1,161
Other comprehensive income (loss)							(444)	(444)
Stock compensation expense				37				37
Cash dividends declared on common stock						(637)		(637)
Balance at Sep. 30, 2018			2,966	31,218	(2,114)	34,940	(7,400)	59,610
Balance at Dec. 31, 2018	421	3,785	3,501	46,401	(2,114)	34,371	(6,357)	80,008
Cumulative effect of change in accounting principle, net of tax at Dec. 31, 2018						(181)		(181)
Balance, as adjusted at Dec. 31, 2018	421	3,785	3,501	46,401	(2,114)	34,190	(6,357)	79,827
Net income						2,082		2,082
Other comprehensive income (loss)							873	873
Stock compensation expense				90				90
Cash dividends declared on common stock						(783)		(783)
Balance at Mar. 31, 2019	421	3,785	3,501	46,491	(2,114)	35,489	(5,484)	82,089
Balance at Dec. 31, 2018	421	3,785	3,501	46,401	(2,114)	34,371	(6,357)	80,008
Cumulative effect of change in accounting principle, net of tax at Dec. 31, 2018						(181)		(181)
Balance, as adjusted at Dec. 31, 2018	421	3,785	3,501	46,401	(2,114)	34,190	(6,357)	79,827
Net income								6,391
Other comprehensive income (loss)							1,881
Balance at Sep. 30, 2019	421	3,785	3,501	46,672	(2,114)	38,142	(4,476)	85,931
Balance at Mar. 31, 2019	421	3,785	3,501	46,491	(2,114)	35,489	(5,484)	82,089
Net income						2,140		2,140
Other comprehensive income (loss)							911	911
Stock compensation expense				90				90
Cash dividends declared on common stock						(782)		(782)
Cash dividends declared on preferred stock						(91)		(91)
Balance at Jun. 30, 2019	421	3,785	3,501	46,581	(2,114)	36,756	(4,573)	84,357
Net income						2,168		2,168
Other comprehensive income (loss)							97	97
Stock compensation expense				91				91
Cash dividends declared on common stock						(782)		(782)
Balance at Sep. 30, 2019	$ 421	$ 3,785	$ 3,501	$ 46,672	$ (2,114)	$ 38,142	$ (4,476)	$ 85,931

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Allowance for loan losses	$ 6,509	$ 6,508
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Preferred stock, authorized (in shares)	3,000,000	3,000,000
Common stock, par value (in dollars per share)	$ 1.25	$ 1.25
Common stock, authorized (in shares)	12,000,000	12,000,000
Common stock, issued (in shares)	2,800,729	2,800,729
Common stock, outstanding (in shares)	2,698,712	2,698,712
Treasury stock (in shares)	102,017	102,017
Series C Preferred Stock [Member]
Preferred stock, issued (in shares)	268,888	268,888
Preferred stock, outstanding (in shares)	268,888	268,888
Preferred stock, liquidation value	$ 2,900	$ 2,900
Series D Preferred Stock [Member]
Preferred stock, issued (in shares)	133,705	133,705
Preferred stock, outstanding (in shares)	133,705	133,705
Preferred stock, liquidation value	$ 1,300	$ 1,300

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Note 4 - Loans Receivable and Related Allowance for Loan Losses (Details Textual)	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Loans and Leases Receivable, Deferred Income, Total	$ 2,300,000		$ 2,300,000			$ 2,200,000
Loans and Leases Receivable, Allowance, Ending Balance	6,509,000	$ 6,360,000	6,509,000	$ 6,360,000	$ 6,580,000	6,508,000	$ 6,118,000	$ 6,127,000
Financing Receivable, Troubled Debt Restructuring	433,000		433,000			394,000
Allowance for Losses Allocated to Loans Classified as TDRS	$ 4,000		$ 4,000			12,000
Financing Receivable, Modifications, Number of Contracts	0	0		0
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts	0	0	0	0
Residential Portfolio Segment [Member]
Loans and Leases Receivable, Allowance, Ending Balance	$ 2,241,000	$ 2,161,000	$ 2,241,000	$ 2,161,000	$ 2,225,000	$ 2,198,000	$ 2,033,000	$ 2,090,000
Financing Receivable, Troubled Debt Restructuring	72,000		72,000
Allowance for Losses Allocated to Loans Classified as TDRS	0		$ 0
Financing Receivable, Modifications, Number of Contracts			1
United American Savings Bank [Member]
Loans and Leases Receivable, Allowance, Ending Balance	0		$ 0
Community First [Member]
Loans and Leases Receivable, Allowance, Ending Balance	0		0
Northern Hancock Bank & Trust Co. [Member]
Loans and Leases Receivable, Allowance, Ending Balance	$ 0		$ 0

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Note 3 - Securities - Summary of Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
U.S. Debt securities, fair value	$ 117,439	$ 99,639
Debt securities, fair value	846	86
U.S. Treasury	(386)	(2,007)
Debt securities, fair value	117,899	97,718
US Treasury and Government [Member]
U.S. Debt securities, fair value	4,024	4,532
Debt securities, fair value	7
U.S. Treasury	(5)	(87)
Debt securities, fair value	4,026	4,445
US Government-sponsored Enterprises Debt Securities [Member]
U.S. Debt securities, fair value	8,085	17,052
Debt securities, fair value	18	30
U.S. Treasury	(23)	(299)
Debt securities, fair value	8,080	16,783
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
U.S. Debt securities, fair value	44,200	27,666
Debt securities, fair value	378
U.S. Treasury	(40)	(490)
Debt securities, fair value	44,538	27,176
Collateralized Mortgage Obligations [Member]
U.S. Debt securities, fair value	30,714	19,440
Debt securities, fair value	105	34
U.S. Treasury	(262)	(810)
Debt securities, fair value	30,557	18,664
US States and Political Subdivisions Debt Securities [Member]
U.S. Debt securities, fair value	20,703	22,943
Debt securities, fair value	241	13
U.S. Treasury	(34)	(224)
Debt securities, fair value	20,910	22,732
Corporate Debt Securities [Member]
U.S. Debt securities, fair value	9,713	8,006
Debt securities, fair value	97	9
U.S. Treasury	(22)	(97)
Debt securities, fair value	$ 9,788	$ 7,918

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Note 2 - Earnings Per Common Share

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

2. Earnings per Common Share

Basic earnings per common share (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 for assumed issuance of restricted stock.

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

(Dollar amounts in thousands, except for per share amounts)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
Earnings per common share
Net income	$	2,168	$	1,161	$	6,391	$	3,935
Less: Preferred stock dividends		—		—		91		—
Net income available to common stockholders	$	2,168	$	1,161	$	6,300	$	3,935
Average common shares outstanding		2,698,712		2,271,139		2,698,712		2,271,139
Add: Dilutive effects of restricted stock awards		20,816		20,147		17,245		17,584
Average shares and dilutive potential common shares		2,719,528		2,291,286		2,715,957		2,288,723
Basic earnings per common share	$	0.80	$	0.51	$	2.33	$	1.73
Diluted earnings per common share	$	0.80	$	0.51	$	2.32	$	1.72
Restricted stock awards not considered in computing earnings per share because they were antidulitive		—		—		—		—

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Note 6 - Stock Compensation Plan

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

6. Stock Compensation Plan

In

April 2014,

the Corporation adopted the

2014

Stock Incentive Plan (the Plan), which was approved by shareholders and permits the grant of restricted stock awards and options to its directors, officers and employees for up to

176,866

shares of common stock. As of

September 30, 2019

,

37,783

 shares of restricted stock and

88,433

stock options remain available for issuance under the Plan.

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.

At

September 30, 2019

, there were 

no

options that were granted or outstanding under the Plan.

A summary of the status of the Corporation’s nonvested restricted stock awards as of

September 30, 2019

, and changes during the period then ended is presented below:

	Shares		Weighted-Average Grant-date Fair Value
Nonvested at January 1, 2019		37,250	$	29.94
Granted		—		—
Vested		—		—
Forfeited		—		—
Nonvested as of September 30, 2019		37,250	$	29.94

For the

three

and

nine

months ended

September 30, 2019

, the Corporation recognized stock compensation expense of

$90,000

 and

$271,000,

respectively, compared to

$37,000

and

$187,000,

respectively for the same periods in

2018

. As of

September 30, 2019

, there was

$513,000

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. 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.

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Note 10 - Revenue Recognition

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

10. Revenue Recognition

On

January 1, 2018,

the Corporation adopted ASU

2014

-

09

"Revenue from Contracts with Customers" (Topic

606

) and all subsequent ASUs that modified Topic

606.

Interest income, net securities gains (losses) and bank-owned life insurance are

not

included within the scope of Topic

606.

For the revenue streams in the scope of Topic

606,

service charges on deposits and electronic banking fees, there are

no

significant judgments related to the amount and timing of revenue recognition. All of the Corporation's revenue from contracts with customers is recognized within noninterest income.

Service charges on deposits:

The Corporation earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such stop payment charges, statement rendering and other fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Electronic banking fees:

The Corporation earns interchange and other ATM related fees from cardholder transactions conducted through the various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The gross amount of these fees are processed through noninterest income. Other fees, such a transaction surcharges and card replacement fees are withdrawn from the customer's account balance at the time of service.

The following table presents the Corporation's sources of noninterest income for the

three

and

nine

months ended

September 30, 2019

and

2018

.

(Dollar amounts in thousands)	For the three months ended September 30,				For the nine months ended September 30,
	2019		2018		2019		2018
Noninterest income
In-scope of Topic 606:
Service charges on deposits
Maintenance fees	$	51	$	38	$	134	$	114
Overdraft fees		403		417		1,253		1,100
Other fees		76		73		235		214
Electronic banking fees		384		327		1,079		971
Noninterest income (in-scope of Topic 606)		914		855		2,701		2,399
Noninterest income (out-of-scope of Topic 606)(1)		295		207		695		610
Total noninterest income	$	1,209	$	1,062	$	3,396	$	3,009

( 1 ) Noninterest income items that are out-of-scope include net realized gains (losses) on sales of securities, net gains (losses) on sales of loans, earnings on bank-owned life insurance and certain other noninterest income items.

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Note 7 - Fair Value - Schedule of Quantitative Information About Level 3 Fair Value Measurements (Details) - Fair Value, Nonrecurring [Member]	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)	Sep. 30, 2018 USD ($)
Other real estate owned	$ 0	$ 160,000	$ 0
Fair Value, Inputs, Level 3 [Member]
Other real estate owned		$ 160,000
Fair Value, Inputs, Level 3 [Member] | Measurement Input, Comparability Adjustment [Member] | Weighted Average [Member]
Other real estate owned, measurement input		0.1

XML

Note 9 - Accumulated Other Comprehensive Income (Loss) - Changes in Accumulated Other Comprehensive Income (Loss) by Component, Net of Tax (Details) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Balance	$ 84,357	$ 82,089	$ 80,008	$ 59,493	$ 58,877	$ 59,091	$ 80,008	$ 59,091
Net current period other comprehensive income (loss)	97	911	873	(444)	(236)	(1,015)
Cumulative effect of change in accounting principle, net of tax			(181)				(181)
Balance, as adjusted			79,827			59,091	79,827	59,091
Balance	85,931	84,357	82,089	59,610	59,493	58,877	85,931	59,610
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]
Balance	267		(1,517)	(2,117)		(679)	(1,517)	(679)
Other comprehensive income before reclassification	130			(446)			1,915	(1,702)
Amounts reclassified from accumulated other comprehensive income (loss)	(33)			2			(34)	7
Net current period other comprehensive income (loss)	97			(444)			1,881	(1,695)
Cumulative effect of change in accounting principle, net of tax						(187)		(187)
Balance, as adjusted						(866)		(866)
Balance	364	267		(2,561)	(2,117)		364	(2,561)
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Balance	(4,840)		(4,840)	(4,839)		(4,839)	(4,840)	(4,839)
Other comprehensive income before reclassification
Amounts reclassified from accumulated other comprehensive income (loss)
Net current period other comprehensive income (loss)
Cumulative effect of change in accounting principle, net of tax
Balance, as adjusted						(4,839)		(4,839)
Balance	(4,840)	(4,840)		(4,839)	(4,839)		(4,840)	(4,839)
AOCI Attributable to Parent [Member]
Balance	(4,573)	(5,484)	(6,357)	(6,956)	(6,720)	(5,518)	(6,357)	(5,518)
Other comprehensive income before reclassification	130			(446)			1,915	(1,702)
Amounts reclassified from accumulated other comprehensive income (loss)	(33)			2			(34)	7
Net current period other comprehensive income (loss)	97	911	873	(444)	(236)	(1,015)	1,881	(1,695)
Cumulative effect of change in accounting principle, net of tax						(187)		(187)
Balance, as adjusted			(6,357)			(5,705)	(6,357)	(5,705)
Balance	$ (4,476)	$ (4,573)	$ (5,484)	$ (7,400)	$ (6,956)	$ (6,720)	$ (4,476)	$ (7,400)

XML

Note 3 - Securities - Gains on Sales of Available for Sale Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Proceeds	$ 8,153	$ 5,888	$ 21,035	$ 12,683
Gains	45	3	80	17
Losses	(3)	(5)	(37)	(26)
Tax provision related to gains (losses)	$ 9	$ (1)	$ 9	$ (2)

XML

Note 3 - Securities (Details Textual)	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Equity Securities, FV-NI	$ 23,000		$ 23,000		$ 7,000
Equity Securities, FV-NI, Unrealized Gain (Loss), Total	6,000	$ (1,000)	16,000	$ (7,000)
Equity Securities Sold, Amount	$ 0		$ 0	1,200,000
Equity Securities, FV-NI, Realized Gain (Loss), Total				$ 43,000
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	52		52
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	35		35
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total			$ 0
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	23		23
US Government-sponsored Enterprises Debt Securities [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	5		5
Collateralized Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	4		4
US Treasury and Government [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	2		2
US States and Political Subdivisions Debt Securities [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	1		1

XML

Note 11 - Leases

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

11. Leases

Effective

January 1, 2019,

the Corporation adopted ASU

2016

-

02,

Leases (Topic

842

).  As of

September 30, 2019

, the Corporation leases real estate for

five

 branch offices under various operating lease agreements. The lease agreements have maturity dates ranging from

August 2025

to

December 2056,

including all extension periods. The Corporation has assumed that there are currently

no

circumstances in which the leases would be terminated before exhausting all options for extensions.  The weighted average remaining life of the lease term for these leases was

13.14

 years as of

September 30, 2019

.

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of

January 1, 2019

for leases that existed at adoption.  This methodology will be continued for the commencement of any subsequent lease agreements.  The weighted average discount rate for the leases was

3.48%

as of

September 30, 2019

.

The total operating lease costs were

$48,000

and

$145,000,

respectively, for the

three

and

nine

months ended

September 30, 2019

.  The right-of-use asset, included in premises and equipment, and lease liability, included in other liabilities, was 

$1.5

 million and

$1.7

 million, respectively, as of

September 30, 2019

.  Rental expense for operating leases classified under ASC

840

for the 

three

and

nine

months ended

September 30, 2018

was

$50,000

and

$150,000,

respectively.

Total estimated rental commitments for the operating leases were as follows as of

September 30, 2019

:

(Dollar amounts in thousands)
Year ending December 31:
2019 (excluding nine months)	$	53
2020		212
2021		217
2022		222
2023		222
Thereafter		1,289
Total minimum lease payments		2,215
Discount effect of cash flows		(470	)
Present value of lease liabilities	$	1,745

XML

Note 3 - Securities

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

3. Securities

Equity Securities

The Corporation held equity securities with fair values of

$23,000

and

$7,000

 at

September 30, 2019

and

December 31, 2018

, respectively. Beginning

January 1, 2018,

with the adoption of ASU

2016

-

01,

changes in the fair value of these securities are included in other income on the consolidated statements of net income as opposed to accumulated other comprehensive loss on the consolidated balance sheets. During the

three

and

nine

months ended

September 30, 2019

, the Corporation recognized a gain 

of

$6,000

 and

$16,000,

respectivel

y, on equity securities held at

September 30, 2019,

compared to

a net loss of

$1,000

and

$7,000,

respectively, for the same periods in

2018

. During the

three

and

nine

months ended

September 30, 2019

, the Corporation did

not

sell any equity securities.  During the

nine

months ended

September 30, 2018

, the Corporation sold

$1.2

million o

f equity securities with a realized

net gain of

$43,000.

Debt Securities - Available-for-Sale

The following table summarizes the Corporation’s debt securities as of

September 30, 2019

and

December 31, 2018

:

(Dollar amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2019:
U.S. Treasury	$	4,024	$	7	$	(5	)	$	4,026
U.S. government sponsored entities and agencies		8,085		18		(23	)		8,080
U.S. agency mortgage-backed securities: residential		44,200		378		(40	)		44,538
U.S. agency collateralized mortgage obligations: residential		30,714		105		(262	)		30,557
State and political subdivisions		20,703		241		(34	)		20,910
Corporate debt securities		9,713		97		(22	)		9,788
Total securities available-for-sale	$	117,439	$	846	$	(386	)	$	117,899
December 31, 2018:
U.S. Treasury	$	4,532	$	—	$	(87	)	$	4,445
U.S. government sponsored entities and agencies		17,052		30		(299	)		16,783
U.S. agency mortgage-backed securities: residential		27,666		—		(490	)		27,176
U.S. agency collateralized mortgage obligations: residential		19,440		34		(810	)		18,664
State and political subdivisions		22,943		13		(224	)		22,732
Corporate debt securities		8,006		9		(97	)		7,918
Total securities available-for-sale	$	99,639	$	86	$	(2,007	)	$	97,718

The following table summarizes scheduled maturities of the Corporation’s debt securities as of

September 30, 2019

. Expected maturities

may

differ from contractual maturities because issuers

may

have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities and collateralized mortgage obligations are

not

due at a single maturity and are shown separately.

(Dollar amounts in thousands)	Available-for-sale
	Amortized Cost		Fair Value
Due in one year or less	$	1,264	$	1,261
Due after one year through five years		14,452		14,489
Due after five through ten years		12,109		12,283
Due after ten years		14,700		14,771
Mortgage-backed securities: residential		44,200		44,538
Collateralized mortgage obligations: residential		30,714		30,557
Total securities available-for-sale	$	117,439	$	117,899

Information pertaining to debt securities with gross unrealized losses at

September 30, 2019

and

December 31, 2018

, aggregated by investment category and length of time that individual securities have been in a continuous loss position are included in the table below:

(Dollar amounts in thousands)	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
September 30, 2019:
U.S. Treasury	$	—	$	—		$	2,001	$	(5	)	$	2,001	$	(5	)
U.S. government sponsored entities and agencies		—		—			6,062		(23	)		6,062		(23	)
U.S. agency mortgage-backed securities: residential		10,940		(34	)		3,557		(6	)		14,497		(40	)
U.S. agency collateralized mortgage obligations: residential		6,773		(58	)		12,485		(204	)		19,258		(262	)
State and political subdivisions		4,642		(34	)		—		—			4,642		(34	)
Corporate debt securities		2,702		(11	)		488		(11	)		3,190		(22	)
Total	$	25,057	$	(137	)	$	24,593	$	(249	)	$	49,650	$	(386	)
December 31, 2018:
U.S. Treasury	$	—	$	—		$	4,445	$	(87	)	$	4,445	$	(87	)
U.S. government sponsored entities and agencies		2,472		(30	)		10,337		(269	)		12,809		(299	)
U.S. agency mortgage-backed securities: residential		19,483		(297	)		7,693		(193	)		27,176		(490	)
U.S. agency collateralized mortgage obligations: residential		1,443		(5	)		15,388		(805	)		16,831		(810	)
State and political subdivisions		7,061		(67	)		10,083		(157	)		17,144		(224	)
Corporate debt securities		962		(38	)		2,448		(59	)		3,410		(97	)
Total	$	31,421	$	(437	)	$	50,394	$	(1,570	)	$	81,815	$	(2,007	)

Gains and losses on sales of securities for the

three

and 

nine

months ended 

September 30,

were as follows:

(Dollar amounts in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Proceeds	$	8,153		$	5,888		$	21,035		$	12,683
Gains		45			3			80			17
Losses		(3	)		(5	)		(37	)		(26	)
Tax provision related to gains (losses)		9			(1	)		9			(2	)

Management evaluates debt securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic, market or other conditions warrant such evaluation. Consideration is given to: (

1

) the length of time and the extent to which the fair value has been less than cost, (

2

) the financial condition and near-term prospects of the issuer, (

3

) whether the market decline was affected by macroeconomic conditions and (

4

) whether the Corporation has the intent to sell the security or more likely than

not

will be required to sell the security before recovery of its amortized cost basis. If the Corporation intends to sell an impaired security, or if it is more likely than

not

the Corporation will be required to sell the security before its anticipated recovery, the Corporation records an other-than-temporary loss in an amount equal to the entire difference between fair value and amortized cost. Otherwise, only the credit portion of the estimated loss on debt securities is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

There were

52

 debt securities in an unrealized loss position as of 

September 30, 2019

,

35

 of which were in an unrealized loss position for more than

12

months. Of these

35

 securities,

23

 were collateralized mortgage obligations (issued by U.S. government sponsored entities),

five

 were U.S. government sponsored entities and agency securities,

four

 were mortgage-backed securities,

two

 were U.S. Treasury securities and 

one

was a corporate security. The unrealized losses associated with these securities were

not

due to the deterioration in the credit quality of the issuer that would likely 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 their amortized cost basis, the Corporation does

not

consider these debt securities with unrealized losses as of 

September 30, 2019

 to be other-than-temporarily impaired.

XML

Note 7 - Fair Value

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

7. Fair Value

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.

Assets measured at fair value on a recurring basis. 

The Corporation used the following methods and significant assumptions to estimate the fair value of the following assets:

Debt securities available-for-sale, equity securities

– The fair value of all investment securities are based upon the assumptions market participants would use in pricing the security. If available, investment securities are determined by quoted market prices (Level

1

). Level

1

includes U.S. Treasury, federal agency securities and certain equity securities. For investment securities where quoted market prices are

not

available, fair values are calculated based on market prices on similar securities (Level

2

). Level

2

includes U.S. Government sponsored entities and agencies, mortgage-backed securities, collateralized mortgage obligations, state and political subdivision securities and certain corporate debt securities. For investment securities where quoted prices or market prices of similar securities are

not

available, fair values are calculated by using unobservable inputs (Level

3

) and

may

include certain corporate debt and equity securities held by the Corporation.

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

(Dollar amounts in thousands)			(Level 1)		(Level 2)		(Level 3)
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
September 30, 2019:
Securities available-for-sale
U.S. Treasury	$	4,026	$	4,026	$	—	$	—
U.S. government sponsored entities and agencies		8,080		—		8,080		—
U.S. agency mortgage-backed securities: residential		44,538		—		44,538		—
U.S. agency collateralized mortgage obligations: residential		30,557		—		30,557		—
State and political subdivision		20,910		—		20,910		—
Corporate debt securities		9,788		—		6,288		3,500
Total available-for-sale securities	$	117,899	$	4,026	$	110,373	$	3,500
Equity securities	$	23	$	23	$	—	$	—
December 31, 2018:
Securities available-for-sale
U.S. Treasury	$	4,445	$	4,445	$	—	$	—
U.S. government sponsored entities and agencies		16,783		—		16,783		—
U.S. agency mortgage-backed securities: residential		27,176		—		27,176		—
U.S. agency collateralized mortgage obligations: residential		18,664		—		18,664		—
State and political subdivisions		22,732		—		22,732		—
Corporate debt securities		7,918		—		4,418		3,500
Total available-for-sale securities	$	97,718	$	4,445	$	89,773	$	3,500
Equity securities	$	7	$	7	$	—	$	—

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 the

nine

months ended

September 30, 2019

, the Corporation reclassified

one

corporate security from Level

3

to Level

2.

 For the same period in

2018

, the Corporation reclassified a restricted bank stock from the equity security portfolio to other assets and certain corporate securities from Level

3

to Level

2.

  Also during

2018,

the Corporation sold

$25,000

in equity securities from Level

3.

The following table presents changes in Level

3

assets measured on a recurring basis for the

three

and 

nine

month periods ended

September 30, 2019

and

2018

:

(Dollar amounts in thousands)	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019			2018
Balance at the beginning of the period	$	3,000	$	3,500	$	3,500		$	8,132
Total gains or losses (realized/unrealized):
Included in earnings		—		—		—			1
Included in other comprehensive income		—		—		—			—
Purchased into Level 3		500		—		500			—
Sold out of Level 3		—		—		—			(25	)
Transfers in and/or out of Level 3		—		—		(500	)		(4,608	)
Balance at the end of the period	$	3,500	$	3,500	$	3,500		$	3,500

Assets measured at fair value on a non-recurring basis. 

The Corporation used the following methods and significant assumptions to estimate the fair value of the following assets:

Impaired loans –

At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive a specific allowance for loan losses. For collateral dependent loans, fair value is commonly based on real estate appraisals. These appraisals

may

utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level

3

classification of the inputs for determining fair value. Non-real estate collateral

may

be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level

3

classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. As of

September 30, 2019

 and

December 31, 2018

, the Corporation did

not

have any impaired loans carried at fair value measured using the fair value of collateral. During the

three

month period ended

September 30, 2019

 there was

no

additional provision for loan losses recorded for impaired loans.  There was additional provision for loan losses recorded for impaired loans of

$63,000

during the 

nine

month period ended

September 30, 2019

, however, the loan was charged-off prior to the end of the

second

quarter.  There were

no

additional provisions recorded for impaired loans during the same periods in

2018

.

Other real estate owned

(OREO)

– Assets acquired through or instead of foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. Management’s ongoing review of appraisal information

may

result in additional discounts or adjustments to the valuation based upon more recent market sales activity or more current appraisal information derived from properties of similar type and/or locale. Such adjustments are usually significant and typically result in a Level

3

classification of the inputs for determining fair value. As of

September 30, 2019

 and

2018

, respectively, the Corporation had

no

OREO measured at fair value. During the

three

month periods ended

September 30, 2019

 and

2018

, there was

no

 expense recorded associated with the write-down of OREO.  During the 

nine

month periods ended

September 30, 2019

 and

2018

, there was expense recorded of

$35,000

and

$11,000,

respectively.  The related properties were sold prior to the end of the respective reporting periods.  As of

December 31, 2018

, OREO measured at fair value less costs to sell had a net carrying amount of

$160,000,

which consisted of the outstanding balance of

$415,000

less write-downs of

$255,000

.

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

10%

should be applied.

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)		(Level 3)
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2018:
Other real estate owned	$	160	$	—	$	—	$	160
Total	$	160	$	—	$	—	$	160

The following table presents quantitative information about Level

3

fair value measurements for assets measured at fair value on a non-recurring basis:

(Dollar amounts in thousands)			Valuation	Unobservable	Weighted
			Techniques(s)	Input (s)	Average
December 31, 2018:
Other real estate owned	$	160	Sales comparison approach	Adjustment for differences between comparable sales		10	%

At 

September 30, 2019

and 

December 31, 2018

was an impaired residential mortgage loan totaling

$68,000

and

$61,000,

respectively, and an impaired home equity loan totaling

$4,000

and

$6,000,

respectively, which were classified as TDRs and measured using a discounted cash flow methodology.

The following table sets forth the carrying amount and fair value of the Corporation’s financial instruments included in the consolidated balance sheet: 

(Dollar amounts in thousands)
	Carrying		Fair Value Measurements using:
Description	Amount		Total		Level 1		Level 2		Level 3
September 30, 2019:
Financial Assets:
Cash and cash equivalents	$	49,302	$	49,302	$	49,302	$	—	$	—
Interest earning time deposits		10,198		10,198		—		10,198		—
Securities - available-for-sale		117,899		117,899		4,026		110,373		3,500
Securities - equities		23		23		23		—		—
Loans held for sale		154		154		—		154		—
Loans, net		688,357		682,392		—		—		682,392
Federal bank stock		5,856		N/A		N/A		N/A		N/A
Accrued interest receivable		2,754		2,754		122		442		2,190
Total	$	874,542	$	862,722	$	53,473	$	121,167	$	688,082
Financial Liabilities:
Deposits		808,025		814,778		580,820		233,958		—
Borrowed funds		33,800		34,417		—		34,417		—
Accrued interest payable		652		652		50		602		—
Total	$	842,477	$	849,847	$	580,870	$	268,977	$	—

	Carrying		Fair Value Measurements using:
	Amount		Total		Level 1		Level 2		Level 3
December 31, 2018:
Financial Assets:
Cash and cash equivalents	$	10,955	$	10,955	$	10,955	$	—	$	—
Interest earning time deposits		6,738		6,738		—		6,738		—
Securities - available-for-sale		97,718		97,718		4,445		89,773		3,500
Securities - equities		7		7		7		—		—
Loans held for sale		—		—		—		—		—
Loans, net		708,664		702,747		—		—		702,747
Federal bank stock		6,351		N/A		N/A		N/A		N/A
Accrued interest receivable		2,570		2,570		63		351		2,156
Total	$	833,003	$	820,735	$	15,470	$	96,862	$	708,403
Financial Liabilities:
Deposits		761,546		767,009		539,946		227,063		—
Borrowed funds		45,350		44,869		—		44,869		—
Accrued interest payable		495		495		30		465		—
Total	$	807,391	$	812,373	$	539,976	$	272,397	$	—

This information should

not

be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation's assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation's disclosures and those of other companies

may

not

be meaningful.

XML

Note 7 - Fair Value - Carrying Amount and Fair Value of Financial Instruments Included in the Consolidated Balance Sheet (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Securities available-for-sale, fair value	$ 117,899,000	$ 97,718,000
Securities - equities	23,000	7,000
Fair Value, Inputs, Level 1 [Member]
Securities available-for-sale, fair value	4,026,000	4,445,000
Securities - equities	23,000	7,000
Fair Value, Inputs, Level 2 [Member]
Securities available-for-sale, fair value	110,373,000	89,773,000
Securities - equities
Fair Value, Inputs, Level 3 [Member]
Securities available-for-sale, fair value	3,500,000	3,500,000
Securities - equities
Reported Value Measurement [Member]
Cash and cash equivalents	49,302,000	10,955,000
Interest earning time deposits	10,198,000	6,738,000
Securities available-for-sale, fair value	117,899,000	97,718,000
Securities - equities	23,000	7,000
Loans held for sale	154,000
Loans, net	688,357,000	708,664,000
Federal bank stock	5,856,000	6,351,000
Accrued interest receivable	2,754,000	2,570,000
Total	874,542,000	833,003,000
Deposits	808,025,000	761,546,000
Borrowed funds	33,800,000	45,350,000
Accrued interest payable	652,000	495,000
Total	842,477,000	807,391,000
Estimate of Fair Value Measurement [Member]
Cash and cash equivalents	49,302,000	10,955,000
Interest earning time deposits	10,198,000	6,738,000
Securities available-for-sale, fair value	117,899,000	97,718,000
Securities - equities	23,000	7,000
Loans held for sale	154,000
Loans, net	682,392,000	702,747,000
Federal bank stock
Accrued interest receivable	2,754,000	2,570,000
Total	862,722,000	820,735,000
Deposits	814,778,000	767,009,000
Borrowed funds	34,417,000	44,869,000
Accrued interest payable	652,000	495,000
Total	849,847,000	812,373,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	49,302,000	10,955,000
Interest earning time deposits
Securities available-for-sale, fair value	4,026,000	4,445,000
Securities - equities	23,000	7,000
Loans held for sale
Loans, net
Federal bank stock
Accrued interest receivable	122,000	63,000
Total	53,473,000	15,470,000
Deposits	580,820,000	539,946,000
Borrowed funds
Accrued interest payable	50,000	30,000
Total	580,870,000	539,976,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and cash equivalents
Interest earning time deposits	10,198,000	6,738,000
Securities available-for-sale, fair value	110,373,000	89,773,000
Securities - equities
Loans held for sale	154,000
Loans, net
Federal bank stock
Accrued interest receivable	442,000	351,000
Total	121,167,000	96,862,000
Deposits	233,958,000	227,063,000
Borrowed funds	34,417,000	44,869,000
Accrued interest payable	602,000	465,000
Total	268,977,000	272,397,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and cash equivalents
Interest earning time deposits
Securities available-for-sale, fair value	3,500,000	3,500,000
Securities - equities
Loans held for sale
Loans, net	682,392,000	702,747,000
Federal bank stock
Accrued interest receivable	2,190,000	2,156,000
Total	688,082,000	708,403,000
Deposits
Borrowed funds
Accrued interest payable
Total

XML

Note 9 - Accumulated Other Comprehensive Income (Loss) - Significant Amounts Reclassified Out of Each Component of Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Provision for income taxes	$ 444			$ 187			$ 1,372	$ 735
Total reclassifications for the period	2,168	$ 2,140	$ 2,082	1,161	$ 1,413	$ 1,362	6,391	3,935
Reclassification out of Accumulated Other Comprehensive Income [Member]
Provision for income taxes	9						9	(2)
Total reclassifications for the period	(33)			2			(34)	7
Reclassification out of Accumulated Other Comprehensive Income [Member] | AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]
Unrealized gains and losses on available-for-sale securities	$ (42)			$ 2			$ (43)	$ 9

XML

Note 12 - Recent Accounting Pronouncements (Continued) (Details Textual) - USD ($)	Jan. 01, 2019	Sep. 30, 2019
Operating Lease, Liability, Total		$ 1,745,000
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset	$ 1,600,000
Operating Lease, Liability, Total	1,800,000
Cumulative Effect on Retained Earnings, Net of Tax, Total	170,000
Cumulative Effect on Retained Earnings, Tax	45,000
Accounting Standards Update 2017-08 [Member]
Cumulative Effect on Retained Earnings, Net of Tax, Total	10,000
Cumulative Effect on Retained Earnings, Tax	$ 3,000

XML

Note 6 - Stock Compensation Plan (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Apr. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					176,866
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	0		0
Share-based Payment Arrangement, Expense	$ 90,000	$ 37,000	$ 271,000	$ 187,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 513,000		$ 513,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition			3 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			0
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	37,783		37,783
Share-based Payment Arrangement, Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	88,433		88,433
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term			10 years

XML

Note 4 - Loans Receivable and Related Allowance for Loan Losses - Classes of Loan Portfolio by Aging Categories (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018
Accruing loans not past due	$ 683,098		$ 701,016
Nonaccrual	4,670	$ 4,670	2,237
Loans	694,866		715,172
Financial Asset, 30 to 59 Days Past Due [Member]
Accruing loans past due	5,387		9,516
Nonaccrual		526	265
Financial Asset, 60 to 89 Days Past Due [Member]
Accruing loans past due	1,404		1,612
Nonaccrual		45	113
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Accruing loans past due	307		791
Nonaccrual		3,605	1,407
Residential Portfolio Segment [Member]
Accruing loans not past due	282,766		289,732
Nonaccrual	824	824	855
Loans	287,437		295,405
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Accruing loans past due	2,626		3,586
Nonaccrual		72
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Accruing loans past due	1,024		747
Nonaccrual			74
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Accruing loans past due	197		485
Nonaccrual		437	446
Home Equity Loans and Lines of Credit [Member]
Accruing loans not past due	97,361		101,920
Nonaccrual	532	532	487
Loans	98,628		103,752
Home Equity Loans and Lines of Credit [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Accruing loans past due	438		707
Nonaccrual
Home Equity Loans and Lines of Credit [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Accruing loans past due	187		351
Nonaccrual
Home Equity Loans and Lines of Credit [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Accruing loans past due	110		287
Nonaccrual		528	481
Commercial Real Estate Portfolio Segment [Member]
Accruing loans not past due	222,078		232,865
Nonaccrual	3,193	3,193	606
Loans	227,569		238,734
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Accruing loans past due	2,172		5,013
Nonaccrual		454	265
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Accruing loans past due	126		231
Nonaccrual		45
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Accruing loans past due			19
Nonaccrual		2,559	230
Commercial Portfolio Segment [Member]
Accruing loans not past due	69,653		65,538
Nonaccrual	40	40	174
Loans	69,834		66,009
Commercial Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Accruing loans past due	76		50
Nonaccrual
Commercial Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Accruing loans past due	65		247
Nonaccrual			39
Commercial Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Accruing loans past due
Nonaccrual			135
Consumer Portfolio Segment [Member]
Accruing loans not past due	11,240		10,961
Nonaccrual	81	81	115
Loans	11,398		11,272
Consumer Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Accruing loans past due	75		160
Nonaccrual
Consumer Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Accruing loans past due	2		36
Nonaccrual
Consumer Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Accruing loans past due
Nonaccrual		$ 81	$ 115

XML

Note 4 - Loans Receivable and Related Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

(Dollar amounts in thousands)	September 30, 2019		December 31, 2018
Mortgage loans on real estate:
Residential first mortgages	$	287,437	$	295,405
Home equity loans and lines of credit		98,628		103,752
Commercial real estate		227,569		238,734
Total real estate loans		613,634		637,891
Other loans:
Commercial business		69,834		66,009
Consumer		11,398		11,272
Total other loans		81,232		77,281
Total loans, gross		694,866		715,172
Less allowance for loan losses		6,509		6,508
Total loans, net	$	688,357	$	708,664

Financing Receivable, Allowance for Credit Loss [Table Text Block]

(Dollar amounts in thousands)	Residential Mortgages			Home Equity & Lines of Credit			Commercial Real Estate			Commercial Business			Consumer			Total
Three months ended September 30, 2019:
Allowance for loan losses:
Beginning Balance	$	2,225		$	642		$	3,043		$	615		$	55		$	6,580
Charge-offs		—			(22	)		(8	)		—			(39	)		(69	)
Recoveries		—			4			104			—			35			143
Provision		16			11			(185	)		5			8			(145	)
Ending Balance	$	2,241		$	635		$	2,954		$	620		$	59		$	6,509
Nine months ended September 30, 2019:
Allowance for loan losses:
Beginning Balance	$	2,198		$	648		$	3,106		$	500		$	56		$	6,508
Charge-offs		(204	)		(56	)		(36	)		(134	)		(114	)		(544	)
Recoveries		40			5			132			—			63			240
Provision		207			38			(248	)		254			54			305
Ending Balance	$	2,241		$	635		$	2,954		$	620		$	59		$	6,509
At September 30, 2019:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	4		$	—		$	—		$	—		$	—		$	4
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,237			635			2,954			620			59			6,505
Total	$	2,241		$	635		$	2,954		$	620		$	59		$	6,509
Total loans:
Individually evaluated for impairment	$	366		$	4		$	2,471		$	40		$	—		$	2,881
Acquired loans collectively evaluated for impairment		64,037			11,432			45,619			9,425			2,227			132,740
Originated loans collectively evaluated for impairment		223,034			87,192			179,479			60,369			9,171			559,245
Total	$	287,437		$	98,628		$	227,569		$	69,834		$	11,398		$	694,866
At December 31, 2018:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	12		$	—		$	—		$	—		$	—		$	12
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,186			648			3,106			500			56			6,496
Total	$	2,198		$	648		$	3,106		$	500		$	56		$	6,508
Total loans:
Individually evaluated for impairment	$	389		$	6		$	34		$	39		$	—		$	468
Acquired loans collectively evaluated for impairment		72,654			13,750			56,690			12,974			3,306			159,374
Originated loans collectively evaluated for impairment		222,362			89,996			182,010			52,996			7,966			555,330
Total	$	295,405		$	103,752		$	238,734		$	66,009		$	11,272		$	715,172
Three months ended September 30, 2018:
Allowance for loan losses:
Beginning Balance	$	2,033		$	650		$	2,882		$	499		$	54		$	6,118
Charge-offs		—			(26	)		(6	)		—			(44	)		(76	)
Recoveries		—			1			13			—			4			18
Provision		128			34			81			11			46			300
Ending Balance	$	2,161		$	659		$	2,970		$	510		$	60		$	6,360
Nine months ended September 30, 2018:
Allowance for loan losses:
Beginning Balance	$	2,090		$	646		$	2,753		$	585		$	53		$	6,127
Charge-offs		(61	)		(109	)		(424	)		—			(213	)		(807	)
Recoveries		3			12			32			1			12			60
Provision		129			110			609			(76	)		208			980
Ending Balance	$	2,161		$	659		$	2,970		$	510		$	60		$	6,360

Impaired Financing Receivables [Table Text Block]

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of September 30, 2019						For three months ended September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	72	$	72	$	4	$	72	$	1	$	1
Home equity and lines of credit		4		4		—		5		—		—
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	76	$	76	$	4	$	77	$	1	$	1

	For the nine months ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	73	$	3	$	3
Home equity and lines of credit		5		—		—
Commercial real estate		—		—		—
Commercial business		16		—		—
Consumer		—		—		—
Total	$	94	$	3	$	3

	Impaired Loans with No Specific Allowance
	As of September 30, 2019				For three months ended September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	369	$	294	$	298	$	2	$	2
Home equity and lines of credit		—		—		—		—		—
Commercial real estate		2,471		2,471		2,475		34		33
Commercial business		40		40		139		—		—
Consumer		—		—		—		—		—
Total	$	2,880	$	2,805	$	2,912	$	36	$	35

	For the nine months ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	305	$	3	$	3
Home equity and lines of credit		—		—		—
Commercial real estate		1,254		87		34
Commercial business		89		7		2
Consumer		—		—		—
Total	$	1,648	$	97	$	39

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

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

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of September 30, 2018						For the three months ended September 30, 2018
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	74	$	74	$	7	$	74	$	1	$	1
Home equity and lines of credit		6		6		—		7		—		—
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	80	$	80	$	7	$	81	$	1	$	1

	For the nine months ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	75	$	2	$	2
Home equity and lines of credit		7		—		—
Commercial real estate		—		—		—
Commercial business		—		—		—
Consumer		—		—		—
Total	$	82	$	2	$	2

	Impaired Loans with No Specific Allowance
	As of September 30, 2018				For the three months ended September 30, 2018
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	438	$	327	$	330	$	2	$	2
Home equity and lines of credit		—		—		—		—		—
Commercial real estate		2,512		2,512		1,278		83		2
Commercial business		39		39		39		1		1
Consumer		—		—		—		—		—
Total	$	2,989	$	2,878	$	1,647	$	86	$	5

	For the nine months ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	338	$	3	$	3
Home equity and lines of credit		—		—		—
Commercial real estate		952		125		42
Commercial business		300		74		74
Consumer		—		—		—
Total	$	1,590	$	202	$	119

Financing Receivable Credit Quality Indicators [Table Text Block]

(Dollar amounts in thousands)
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2019:
Residential first mortgages	$	286,353	$	—	$	—	$	1,084	$	—	$	287,437
Home equity and lines of credit		97,956		—		—		672		—		98,628
Commercial real estate		—		211,535		3,381		12,653		—		227,569
Commercial business		—		66,935		204		2,695		—		69,834
Consumer		11,317		—		—		81		—		11,398
Total loans	$	395,626	$	278,470	$	3,585	$	17,185	$	—	$	694,866
December 31, 2018:
Residential first mortgages	$	293,919	$	—	$	—	$	1,486	$	—	$	295,405
Home equity and lines of credit		102,869		—		—		883		—		103,752
Commercial real estate		—		222,335		5,942		10,457		—		238,734
Commercial business		—		62,022		542		3,445		—		66,009
Consumer		11,157		—		—		115		—		11,272
Total loans	$	407,945	$	284,357	$	6,484	$	16,386	$	—	$	715,172

Financing Receivable, Past Due [Table Text Block]

(Dollar amounts in thousands)
	Performing						Nonperforming
	Accruing Loans Not Past Due		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccrual		Total
September 30, 2019:
Residential first mortgages	$	282,766	$	2,626	$	1,024	$	197	$	824	$	287,437
Home equity and lines of credit		97,361		438		187		110		532		98,628
Commercial real estate		222,078		2,172		126		—		3,193		227,569
Commercial business		69,653		76		65		—		40		69,834
Consumer		11,240		75		2		—		81		11,398
Total loans	$	683,098	$	5,387	$	1,404	$	307	$	4,670	$	694,866
December 31, 2018:
Residential first mortgages	$	289,732	$	3,586	$	747	$	485	$	855	$	295,405
Home equity and lines of credit		101,920		707		351		287		487		103,752
Commercial real estate		232,865		5,013		231		19		606		238,734
Commercial business		65,538		50		247		—		174		66,009
Consumer		10,961		160		36		—		115		11,272
Total loans	$	701,016	$	9,516	$	1,612	$	791	$	2,237	$	715,172

Financing Receivable, Nonaccrual [Table Text Block]

(Dollar amounts in thousands)
	Not Past Due		30-59 Days Past Due		60-89 Days Past Due		90 Days + Past Due		Total
September 30, 2019:
Residential first mortgages	$	315	$	72	$	—	$	437	$	824
Home equity and lines of credit		4		—		—		528		532
Commercial real estate		135		454		45		2,559		3,193
Commercial business		40		—		—		—		40
Consumer		—		—		—		81		81
Total loans	$	494	$	526	$	45	$	3,605	$	4,670
December 31, 2018:
Residential first mortgages	$	335	$	—	$	74	$	446	$	855
Home equity and lines of credit		6		—		—		481		487
Commercial real estate		111		265		—		230		606
Commercial business		—		—		39		135		174
Consumer		—		—		—		115		115
Total loans	$	452	$	265	$	113	$	1,407	$	2,237

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Note 8 - Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

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

(Dollar amounts in thousands)	September 30, 2019					December 31, 2018
	Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	79,681		13.78	%	$	76,344		12.93	%
For capital adequacy purposes		46,243		8.00	%		47,252		8.00	%
To be well capitalized		57,804		10.00	%		59,065		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	73,172		12.66	%	$	69,836		11.82	%
For capital adequacy purposes		34,682		6.00	%		35,439		6.00	%
To be well capitalized		46,243		8.00	%		47,252		8.00	%
Common Equity Tier 1 capital to risk-weighted assets:
Actual	$	73,172		12.66	%	$	69,836		11.82	%
For capital adequacy purposes		26,012		4.50	%		26,579		4.50	%
To be well capitalized		37,573		6.50	%		38,393		6.50	%
Tier 1 capital to average assets:
Actual	$	73,172		8.13	%	$	69,836		7.95	%
For capital adequacy purposes		35,990		4.00	%		35,126		4.00	%
To be well capitalized		44,987		5.00	%		43,908		5.00	%

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities
Net income	$ 6,391	$ 3,935
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment	1,022	862
Provision for loan losses	305	980
Amortization/accretion of premiums, discounts and deferred costs and fees, net	235	309
Amortization of operating lease right-of-use assets	98
Amortization of intangible assets and mortgage servicing rights	182	244
Realized (gains) losses on sales of debt securities, net	(43)	9
Change in fair value of equity securities, including realized gains	(16)	(36)
Net gains on sales of loans	(129)	(60)
Net loss on foreclosed real estate	32	40
Net gain on sale of premises and equipment	(11)	(25)
Loans originated for sale	(5,173)	(4,241)
Proceeds from the sale of loans originated for sale	5,148	4,685
Write-down of foreclosed real estate	35	11
Stock compensation expense	271	187
Increase in bank-owned life insurance, net	(313)	(250)
Increase in accrued interest receivable	(184)	(85)
(Increase) decrease in prepaid expenses and other assets	154	(2,898)
Increase in accrued interest payable	157	47
Increase (decrease) in accrued expenses and other liabilities	(277)	636
Net cash provided by operating activities	7,884	4,350
Cash flows from investing activities
Loan originations and principal collections, net	19,327	(16,679)
Available-for-sale securities:
Sales	21,035	12,683
Maturities, repayments and calls	12,946	6,822
Purchases	(51,871)	(18,645)
Net change in federal bank stocks	495	196
Net increase in interest earning time deposits	(3,460)	(2,540)
Proceeds from the sale of bank premises and equipment	251	155
Purchases of premises and equipment	(1,492)	(574)
Proceeds from the sale of foreclosed real estate	742	388
Net cash used in investing activities	(2,027)	(18,194)
Cash flows from financing activities
Net increase in deposits	46,479	27,718
Repayments on long-term debt	(750)	(5,750)
Net change in short-term borrowings	(10,800)	(450)
Dividends paid	(2,439)	(1,908)
Net cash provided by financing activities	32,490	19,610
Net increase in cash and cash equivalents	38,347	5,766
Cash and cash equivalents at beginning of period	10,955	10,176
Cash and cash equivalents at end of period	49,302	15,942
Supplemental information:
Interest paid	5,657	3,670
Income taxes paid	910	560
Supplemental noncash disclosure:
Transfers from loans to foreclosed real estate	324	526
Initial recognition of operating lease right-of-use assets	1,642
Initial recognition of operating lease liabilities	$ 1,858

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Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 3,742,000	$ 3,623,000
Interest earning deposits with banks	45,560,000	7,332,000
Cash and cash equivalents	49,302,000	10,955,000
Interest earning time deposits	10,198,000	6,738,000
Securities - available-for-sale	117,899,000	97,718,000
Securities - equity investments	23,000	7,000
Loans held for sale	154,000
Loans receivable, net of allowance for loan losses of $6,509 and $6,508	688,357,000	708,664,000
Federal bank stocks, at cost	5,856,000	6,351,000
Bank-owned life insurance	15,194,000	14,881,000
Accrued interest receivable	2,754,000	2,570,000
Premises and equipment, net	20,685,000	18,911,000
Goodwill	19,460,000	19,448,000
Core deposit intangible, net	1,289,000	1,423,000
Prepaid expenses and other assets	10,259,000	11,209,000
Total Assets	941,430,000	898,875,000
Liabilities and Stockholders' Equity
Non-interest bearing	155,923,000	148,893,000
Interest bearing	652,102,000	612,653,000
Total deposits	808,025,000	761,546,000
Short-term borrowed funds	2,050,000	12,850,000
Long-term borrowed funds	31,750,000	32,500,000
Accrued interest payable	652,000	495,000
Accrued expenses and other liabilities	13,022,000	11,476,000
Total Liabilities	855,499,000	818,867,000
Commitments and Contingent Liabilities
Stockholders' Equity:
Preferred stock, $1.00 par value, 3,000,000 shares authorized; Series C, non-cumulative preferred stock, $2.9 million liquidation value, 286,888 shares issued and outstanding; Series D, non-cumulative preferred stock, $1.3 million liquidation value, 133,705 shares issued and outstanding	4,206,000	4,206,000
Common stock, $1.25 par value, 12,000,000 shares authorized; 2,800,729 shares issued; 2,698,712 shares outstanding	3,501,000	3,501,000
Additional paid-in capital	46,672,000	46,401,000
Treasury stock, at cost; 102,017 shares	(2,114,000)	(2,114,000)
Retained earnings	38,142,000	34,371,000
Accumulated other comprehensive loss	(4,476,000)	(6,357,000)
Total Stockholders' Equity	85,931,000	80,008,000
Total Liabilities and Stockholders' Equity	$ 941,430,000	$ 898,875,000

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Note 5 - Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

5. Goodwill and Intangible Assets

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

September 30, 2019

and

December 31, 2018

: 

(Dollar amounts in thousands)	September 30, 2019				December 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill	$	19,460	$	—	$	19,448	$	—
Core deposit intangibles		5,634		4,345		5,634		4,211
Total	$	25,094	$	4,345	$	25,082	$	4,211

Goodwill resulted from

five

 acquisitions. Goodwill represents the excess of the total purchase price paid for the acquisitions over the fair value of the identifiable 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. The Corporation has selected

November 30

as the date to perform the annual impairment test.

No

goodwill impairment charges were recorded during 

2018

or in the

first

 

nine

months of

2019

.

The core deposit intangible asset, resulting from

three

acquisitions, is amortized over a weighted average estimated life of the related deposits and is

not

estimated to have a significant residual value. During the

three

and

nine

months ended

September 30, 2019

, the Corporation recorded intangible amortization expense totaling

$44,000

and

$134,000,

respectively, compared to

$67,000

and

$203,000,

respectively, for the same periods in

2018

.

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Note 9 - Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

9. Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss), net of tax, for the 

three

months ended

September 30, 2019

and

2018

and summarizes the significant amounts reclassified out of each component of accumulated other comprehensive income:

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2019	$	267		$	(4,840	)	$	(4,573	)
Other comprehensive income before reclassification		130			—			130
Amounts reclassified from accumulated other comprehensive income (loss)		(33	)		—			(33	)
Net current period other comprehensive income (loss)		97			—			97
Accumulated Other Comprehensive Income (Loss) at September 30, 2019	$	364		$	(4,840	)	$	(4,476	)

(Dollar amounts in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Loss Components	from Accumulated Other Comprehensive Income For the three months ended September 30, 2019			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(42	)	Net gain on sale of available-for-sale securities
Tax effect		9		Provision for income taxes
Total reclassifications for the period	$	(33	)	Net of tax

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2018	$	(2,117	)	$	(4,839	)	$	(6,956	)
Other comprehensive income before reclassification		(446	)		—			(446	)
Amounts reclassified from accumulated other comprehensive income (loss)		2			—			2
Net current period other comprehensive income (loss)		(444	)		—			(444	)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561	)	$	(4,839	)	$	(7,400	)

(Dollar amounts in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Loss Components	from Accumulated Other Comprehensive Income For the three months ended September 30, 2018		Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	2	Net loss on sale of available-for-sale securities
Tax effect		—	Provision for income taxes
Total reclassifications for the period	$	2	Net of tax

The following tables summarize the changes within each classification of accumulated other comprehensive income (loss), net of tax, for the 

nine

months ended

September 30, 2019

and

2018

and summarizes the significant amounts reclassified out of each component of accumulated other comprehensive income:

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2019	$	(1,517	)	$	(4,840	)	$	(6,357	)
Other comprehensive income before reclassification		1,915			—			1,915
Amounts reclassified from accumulated other comprehensive income (loss)		(34	)		—			(34	)
Net current period other comprehensive income		1,881			—			1,881
Accumulated Other Comprehensive Income (Loss) at September 30, 2019	$	364		$	(4,840	)	$	(4,476	)

(Dollar amount in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Income Components	from Accumulated Other Comprehensive Income For the Nine Months Ended September 30, 2019			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(43	)	Net gain on sale of available-for-sale securities
Tax effect		9		Provision for income taxes
Total reclassifications for the period	$	(34	)	Net of tax

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2018	$	(679	)	$	(4,839	)	$	(5,518	)
Cumulative effect of change in accounting principle for marketable equity securities, net of tax		(187	)		—			(187	)
Accumulated Other Comprehensive Income (Loss) at January 1, 2018, as adjusted	$	(866	)	$	(4,839	)	$	(5,705	)
Other comprehensive income before reclassification		(1,702	)		—			(1,702	)
Amounts reclassified from accumulated other comprehensive income (loss)		7			—			7
Net current period other comprehensive income		(1,695	)		—			(1,695	)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561	)	$	(4,839	)	$	(7,400	)

(Dollar amount in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Income Components	from Accumulated Other Comprehensive Income For the Nine Months Ended September 30, 2018			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	9		Net loss on sale of available-for-sale securities
Tax effect		(2	)	Provision for income taxes
Total reclassifications for the period	$	7		Net of tax

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Note 4 - Loans Receivable and Related Allowance for Loan Losses - Summary of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Loans, gross	$ 694,866		$ 715,172
Loans and Leases Receivable, Allowance, Ending Balance	6,509	$ 6,580	6,508	$ 6,360	$ 6,118	$ 6,127
Total loans, net	688,357		708,664
Mortgage Receivable [Member]
Loans, gross	613,634		637,891
Other Loans [Member]
Loans, gross	81,232		77,281
Residential Portfolio Segment [Member]
Loans, gross	287,437		295,405
Loans and Leases Receivable, Allowance, Ending Balance	2,241	2,225	2,198	2,161	2,033	2,090
Residential Portfolio Segment [Member] | Mortgage Receivable [Member]
Loans, gross	287,437		295,405
Home Equity Loans and Lines of Credit [Member]
Loans, gross	98,628		103,752
Loans and Leases Receivable, Allowance, Ending Balance	635	642	648	659	650	646
Home Equity Loans and Lines of Credit [Member] | Mortgage Receivable [Member]
Loans, gross	98,628		103,752
Commercial Real Estate Portfolio Segment [Member]
Loans, gross	227,569		238,734
Loans and Leases Receivable, Allowance, Ending Balance	2,954	3,043	3,106	2,970	2,882	2,753
Commercial Real Estate Portfolio Segment [Member] | Mortgage Receivable [Member]
Loans, gross	227,569		238,734
Commercial Portfolio Segment [Member]
Loans, gross	69,834		66,009
Loans and Leases Receivable, Allowance, Ending Balance	620	615	500	510	499	585
Commercial Portfolio Segment [Member] | Other Loans [Member]
Loans, gross	69,834		66,009
Consumer Portfolio Segment [Member]
Loans, gross	11,398		11,272
Loans and Leases Receivable, Allowance, Ending Balance	59	$ 55	56	$ 60	$ 54	$ 53
Consumer Portfolio Segment [Member] | Other Loans [Member]
Loans, gross	$ 11,398		$ 11,272

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Note 3 - Securities - Maturity of Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Due in one year or less, amortized cost	$ 1,264
Due after one year through five years, amortized cost	14,452
Due after five through ten years, amortized cost	12,109
Due after ten years, amortized cost	14,700
U.S. Debt securities, fair value	117,439	$ 99,639
Due in one year or less, fair value	1,261
Due after one year through five years, fair value	14,489
Due after five through ten years, fair value	12,283
Due after ten years, fair value	14,771
Securities available-for-sale, fair value	117,899	97,718
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities without maturity date, amortized cost	44,200
U.S. Debt securities, fair value	44,200	27,666
Securities without maturity date, fair value	44,538
Securities available-for-sale, fair value	44,538	27,176
Collateralized Mortgage Obligations [Member]
Securities without maturity date, amortized cost	30,714
U.S. Debt securities, fair value	30,714	19,440
Securities without maturity date, fair value	30,557
Securities available-for-sale, fair value	$ 30,557	$ 18,664

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Note 11 - Leases (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

(Dollar amounts in thousands)
Year ending December 31:
2019 (excluding nine months)	$	53
2020		212
2021		217
2022		222
2023		222
Thereafter		1,289
Total minimum lease payments		2,215
Discount effect of cash flows		(470	)
Present value of lease liabilities	$	1,745

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Note 7 - Fair Value - Assets Measured at Fair Value on a Non-recurring Basis (Details) - Fair Value, Nonrecurring [Member] - USD ($)	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018
Other real estate owned	$ 0	$ 160,000	$ 0
Total		160,000
Fair Value, Inputs, Level 1 [Member]
Other real estate owned
Total
Fair Value, Inputs, Level 2 [Member]
Other real estate owned
Total
Fair Value, Inputs, Level 3 [Member]
Other real estate owned		160,000
Total		$ 160,000

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Note 8 - Regulatory Matters - Schedule of Regulatory Capital (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Total capital to risk-weighted assets, actual, amount	$ 79,681	$ 76,344
Total capital to risk-weighted assets, actual, ratio	13.78%	12.93%
Total capital to risk-weighted assets, for capital adequacy purposes, amount	$ 46,243	$ 47,252
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, amount	$ 57,804	$ 59,065
Total capital to risk-weighted assets, to be well capitalized, ratio	10.00%	10.00%
Tier 1 capital to risk-weighted assets, actual, amount	$ 73,172	$ 69,836
Tier 1 capital to risk-weighted assets, actual, ratio	12.66%	11.82%
Tier 1 capital to risk-weighted assets, for capital adequacy purposes, amount	$ 34,682	$ 35,439
Tier 1 capital to risk-weighted assets, for capital adequacy purposes, ratio	6.00%	6.00%
Tier 1 capital to risk-weighted assets, to be well capitalized, amount	$ 46,243	$ 47,252
Tier 1 capital to risk-weighted assets, to be well capitalized, ratio	8.00%	8.00%
Common equity tier 1 capital to risk-weighted assets, actual, amount	$ 73,172	$ 69,836
Common equity tier 1 capital to risk weighted assets, actual, ratio	12.66%	11.82%
Common equity tier 1 capital to risk-weighted assets, for capital adequacy purposes, amount	$ 26,012	$ 26,579
Common equity tier 1 capital to risk weighted assets, for capital adequacy purposes, ratio	4.50%	4.50%
Common equity tier 1 capital to risk-weighted assets, to. be well capitalized, amount	$ 37,573	$ 38,393
Common equity tier 1 capital to risk weighted assets, to be well capitalized, ratio	6.50%	6.50%
Tier 1 capital to average assets, actual, amount	$ 73,172	$ 69,836
Tier 1 capital to average asset, actual, ratio	8.13%	7.95%
Tier 1 capital to average assets, for capital adequacy purposes, amount	$ 35,990	$ 35,126
Tier 1 capital to average asset, for capital adequacy purposes, ratio	4.00%	4.00%
Tier 1 capital to average assets, to be well capitalized, amount	$ 44,987	$ 43,908
Tier 1 capital to average asset, to be well capitalized, ratio	5.00%	5.00%

XML

Note 11 - Leases (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Operating Lease, Weighted Average Remaining Lease Term	13 years 51 days		13 years 51 days
Operating Lease, Weighted Average Discount Rate, Percent	3.48%		3.48%
Operating Lease, Cost	$ 48,000		$ 145,000
Operating Lease, Liability, Total	1,745,000		1,745,000
Operating Leases, Rent Expense, Total		$ 50,000		$ 150,000
Premises and Equipment [Member]
Operating Lease, Right-of-Use Asset	1,500,000		1,500,000
Other Liabilities [Member]
Operating Lease, Liability, Total	$ 1,700,000		$ 1,700,000

XML

Note 7 - Fair Value (Details Textual)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Sales				$ 25,000
Provision for Loan and Lease Losses, Total	$ (145,000)	300,000	$ 305,000	980,000
Measurement Input, Discount Rate [Member]
Other Real Estate Owned, Measurement Input	0.1		0.1
Fair Value, Nonrecurring [Member]
Other Real Estate, Ending Balance	$ 0	0	$ 0	0	$ 160,000
Other Real Estate, Disposals	255,000	$ 0	35,000	11,000	255,000
Other Real Estate, Gross Amount					415,000
Impaired Loans [Member]
Provision for Loan and Lease Losses, Total			63,000	$ 0
Real Estate Loan [Member]
Impaired Financing Receivable, Unpaid Principal Balance, Total	68,000		68,000		61,000
Home Equity Loan [Member]
Impaired Financing Receivable, Unpaid Principal Balance, Total	4,000		4,000		6,000
Market and Income Approach Valuation Technique [Member]
Impaired Financing Receivable, Recorded Investment, Total	$ 0		$ 0		$ 0

XML

Note 5 - Goodwill and Intangible Assets (Details Textual)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Business Acquisition Number of Acquisitions Resulting in Goodwill	5		5
Goodwill, Impairment Loss			$ 0		$ 0
Business Acquisition, Number of Acquisitions Resulting in Intangible Assets	3		3
Amortization of Intangible Assets, Total	$ 44,000	$ 67,000	$ 134,000	$ 203,000

XML

Note 4 - Loans Receivable and Related Allowance for Loan Losses - Impaired Loans by Class (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Impaired loans with specific allowance, unpaid principal balance	$ 76	$ 80	$ 76	$ 80	$ 80
Impaired loans with specific allowance, recorded investment	76	80	76	80	80
Related allowance	4	7	4	7	12
Impaired loans with specific allowance, average recorded investment	77	81	94	82	81
Impaired loans with specific allowance, interest income recognized in period	1	1	3	2	2
Impaired loans with specific allowance, cash basis interest recognized in period	1	1	3	2	2
Impaired loans with no specific allowance, unpaid principal balance	2,880	2,989	2,880	2,989	500
Impaired loans with no specific allowance, recorded investment	2,805	2,878	2,805	2,878	388
Impaired loans with no specific allowance, average recorded investment	2,912	1,647	1,648	1,590	1,350
Impaired loans with no specific allowance, interest income recognized in period	36	86	97	202	235
Impaired loans with no specific allowance, cash basis interest recognized in period	35	5	39	119	152
Residential Portfolio Segment [Member]
Impaired loans with specific allowance, unpaid principal balance	72	74	72	74	74
Impaired loans with specific allowance, recorded investment	72	74	72	74	74
Related allowance	4	7	4	7	12
Impaired loans with specific allowance, average recorded investment	72	74	73	75	74
Impaired loans with specific allowance, interest income recognized in period	1	1	3	2	2
Impaired loans with specific allowance, cash basis interest recognized in period	1	1	3	2	2
Impaired loans with no specific allowance, unpaid principal balance	369	438	369	438	427
Impaired loans with no specific allowance, recorded investment	294	327	294	327	315
Impaired loans with no specific allowance, average recorded investment	298	330	305	338	334
Impaired loans with no specific allowance, interest income recognized in period	2	2	3	3	5
Impaired loans with no specific allowance, cash basis interest recognized in period	2	2	3	3	5
Home Equity Loans and Lines of Credit [Member]
Impaired loans with specific allowance, unpaid principal balance	4	6	4	6	6
Impaired loans with specific allowance, recorded investment	4	6	4	6	6
Related allowance
Impaired loans with specific allowance, average recorded investment	5	7	5	7	7
Impaired loans with specific allowance, interest income recognized in period
Impaired loans with specific allowance, cash basis interest recognized in period
Impaired loans with no specific allowance, unpaid principal balance
Impaired loans with no specific allowance, recorded investment
Impaired loans with no specific allowance, average recorded investment
Impaired loans with no specific allowance, interest income recognized in period
Impaired loans with no specific allowance, cash basis interest recognized in period
Commercial Real Estate Portfolio Segment [Member]
Impaired loans with specific allowance, unpaid principal balance
Impaired loans with specific allowance, recorded investment
Related allowance
Impaired loans with specific allowance, average recorded investment
Impaired loans with specific allowance, interest income recognized in period
Impaired loans with specific allowance, cash basis interest recognized in period
Impaired loans with no specific allowance, unpaid principal balance	2,471	2,512	2,471	2,512	34
Impaired loans with no specific allowance, recorded investment	2,471	2,512	2,471	2,512	34
Impaired loans with no specific allowance, average recorded investment	2,475	1,278	1,254	952	768
Impaired loans with no specific allowance, interest income recognized in period	34	83	87	125	156
Impaired loans with no specific allowance, cash basis interest recognized in period	33	2	34	42	73
Commercial Portfolio Segment [Member]
Impaired loans with specific allowance, unpaid principal balance
Impaired loans with specific allowance, recorded investment
Related allowance
Impaired loans with specific allowance, average recorded investment			16
Impaired loans with specific allowance, interest income recognized in period
Impaired loans with specific allowance, cash basis interest recognized in period
Impaired loans with no specific allowance, unpaid principal balance	40	39	40	39	39
Impaired loans with no specific allowance, recorded investment	40	39	40	39	39
Impaired loans with no specific allowance, average recorded investment	139	39	89	300	248
Impaired loans with no specific allowance, interest income recognized in period		1	7	74	74
Impaired loans with no specific allowance, cash basis interest recognized in period		1	2	74	74
Consumer Portfolio Segment [Member]
Impaired loans with specific allowance, unpaid principal balance
Impaired loans with specific allowance, recorded investment
Related allowance
Impaired loans with specific allowance, average recorded investment
Impaired loans with specific allowance, interest income recognized in period
Impaired loans with specific allowance, cash basis interest recognized in period
Impaired loans with no specific allowance, unpaid principal balance
Impaired loans with no specific allowance, recorded investment
Impaired loans with no specific allowance, average recorded investment
Impaired loans with no specific allowance, interest income recognized in period
Impaired loans with no specific allowance, cash basis interest recognized in period

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Consolidated Statements of Net Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest and dividend income:
Loans receivable, including fees	$ 8,170,000	$ 6,688,000	$ 24,514,000	$ 19,703,000
Securities:
Taxable	583,000	464,000	1,606,000	1,312,000
Exempt from federal income tax	79,000	137,000	301,000	430,000
Federal bank stocks	104,000	65,000	316,000	221,000
Interest earning deposits with banks	251,000	112,000	397,000	228,000
Total interest and dividend income	9,187,000	7,466,000	27,134,000	21,894,000
Interest expense:
Deposits	1,938,000	1,183,000	5,045,000	3,277,000
Borrowed funds	233,000	142,000	769,000	440,000
Total interest expense	2,171,000	1,325,000	5,814,000	3,717,000
Net interest income	7,016,000	6,141,000	21,320,000	18,177,000
Provision for (recovery of) loan losses	(145,000)	300,000	305,000	980,000
Net interest income after provision for loan losses	7,161,000	5,841,000	21,015,000	17,197,000
Noninterest income:
Fees and service charges	531,000	528,000	1,622,000	1,428,000
Net realized gain (loss) on sales of securities	42,000	(2,000)	43,000	(9,000)
Net gain on sales of loans	77,000	35,000	129,000	60,000
Earnings on bank-owned life insurance	96,000	105,000	313,000	311,000
Other	463,000	396,000	1,289,000	1,219,000
Total noninterest income	1,209,000	1,062,000	3,396,000	3,009,000
Noninterest expense:
Compensation and employee benefits	3,187,000	2,519,000	8,892,000	7,493,000
Premises and equipment	810,000	736,000	2,536,000	2,264,000
Intangible asset amortization	44,000	67,000	134,000	203,000
Professional fees	278,000	243,000	664,000	712,000
Federal deposit insurance		103,000	267,000	391,000
Acquisition costs		677,000		1,036,000
Other	1,439,000	1,210,000	4,155,000	3,437,000
Total noninterest expense	5,758,000	5,555,000	16,648,000	15,536,000
Income before provision for income taxes	2,612,000	1,348,000	7,763,000	4,670,000
Provision for income taxes	444,000	187,000	1,372,000	735,000
Net income	2,168,000	1,161,000	6,391,000	3,935,000
Preferred stock dividends			91,000
Net income available to common stockholders	$ 2,168,000	$ 1,161,000	$ 6,300,000	$ 3,935,000
Basic earnings per common share (in dollars per share)	$ 0.80	$ 0.51	$ 2.33	$ 1.73
Diluted earnings per common share (in dollars per share)	$ 0.80	$ 0.51	$ 2.32	$ 1.72
Average common shares outstanding - basic (in shares)	2,698,712	2,271,139	2,698,712	2,271,139
Average common shares outstanding - diluted (in shares)	2,719,528	2,291,286	2,715,957	2,288,723

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018
Cash dividends declared on common stock (in dollars per share)	$ 0.29	$ 0.29	$ 0.29	$ 0.28	$ 0.28	$ 0.28

XML

Note 2 - Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

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

(Dollar amounts in thousands, except for per share amounts)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
Earnings per common share
Net income	$	2,168	$	1,161	$	6,391	$	3,935
Less: Preferred stock dividends		—		—		91		—
Net income available to common stockholders	$	2,168	$	1,161	$	6,300	$	3,935
Average common shares outstanding		2,698,712		2,271,139		2,698,712		2,271,139
Add: Dilutive effects of restricted stock awards		20,816		20,147		17,245		17,584
Average shares and dilutive potential common shares		2,719,528		2,291,286		2,715,957		2,288,723
Basic earnings per common share	$	0.80	$	0.51	$	2.33	$	1.73
Diluted earnings per common share	$	0.80	$	0.51	$	2.32	$	1.72
Restricted stock awards not considered in computing earnings per share because they were antidulitive		—		—		—		—

XML

Note 6 - Stock Compensation Plan (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

	Shares		Weighted-Average Grant-date Fair Value
Nonvested at January 1, 2019		37,250	$	29.94
Granted		—		—
Vested		—		—
Forfeited		—		—
Nonvested as of September 30, 2019		37,250	$	29.94

XML

Note 10 - Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

(Dollar amounts in thousands)	For the three months ended September 30,				For the nine months ended September 30,
	2019		2018		2019		2018
Noninterest income
In-scope of Topic 606:
Service charges on deposits
Maintenance fees	$	51	$	38	$	134	$	114
Overdraft fees		403		417		1,253		1,100
Other fees		76		73		235		214
Electronic banking fees		384		327		1,079		971
Noninterest income (in-scope of Topic 606)		914		855		2,701		2,399
Noninterest income (out-of-scope of Topic 606)(1)		295		207		695		610
Total noninterest income	$	1,209	$	1,062	$	3,396	$	3,009

XML

Note 5 - Goodwill and Intangible Assets - Acquired Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Goodwill	$ 19,460	$ 19,448
Core deposit intangibles, gross carring amount	5,634	5,634
Core deposit intangibles, accumulated amortization	4,345	4,211
Total, gross carring amount	$ 25,094	$ 25,082

XML

Note 4 - Loans Receivable and Related Allowance for Loan Losses - Loan Portfolio by Internal Risk Rating (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Loans	$ 694,866	$ 715,172
Residential Portfolio Segment [Member]
Loans	287,437	295,405
Home Equity Loans and Lines of Credit [Member]
Loans	98,628	103,752
Commercial Real Estate Portfolio Segment [Member]
Loans	227,569	238,734
Commercial Portfolio Segment [Member]
Loans	69,834	66,009
Consumer Portfolio Segment [Member]
Loans	11,398	11,272
Not Rated [Member]
Loans	395,626	407,945
Not Rated [Member] | Residential Portfolio Segment [Member]
Loans	286,353	293,919
Not Rated [Member] | Home Equity Loans and Lines of Credit [Member]
Loans	97,956	102,869
Not Rated [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans
Not Rated [Member] | Commercial Portfolio Segment [Member]
Loans
Not Rated [Member] | Consumer Portfolio Segment [Member]
Loans	11,317	11,157
Pass [Member]
Loans	278,470	284,357
Pass [Member] | Residential Portfolio Segment [Member]
Loans
Pass [Member] | Home Equity Loans and Lines of Credit [Member]
Loans
Pass [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans	211,535	222,335
Pass [Member] | Commercial Portfolio Segment [Member]
Loans	66,935	62,022
Pass [Member] | Consumer Portfolio Segment [Member]
Loans
Special Mention [Member]
Loans	3,585	6,484
Special Mention [Member] | Residential Portfolio Segment [Member]
Loans
Special Mention [Member] | Home Equity Loans and Lines of Credit [Member]
Loans
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans	3,381	5,942
Special Mention [Member] | Commercial Portfolio Segment [Member]
Loans	204	542
Special Mention [Member] | Consumer Portfolio Segment [Member]
Loans
Substandard [Member]
Loans	17,185	16,386
Substandard [Member] | Residential Portfolio Segment [Member]
Loans	1,084	1,486
Substandard [Member] | Home Equity Loans and Lines of Credit [Member]
Loans	672	883
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans	12,653	10,457
Substandard [Member] | Commercial Portfolio Segment [Member]
Loans	2,695	3,445
Substandard [Member] | Consumer Portfolio Segment [Member]
Loans	81	115
Doubtful [Member]
Loans
Doubtful [Member] | Residential Portfolio Segment [Member]
Loans
Doubtful [Member] | Home Equity Loans and Lines of Credit [Member]
Loans
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans
Doubtful [Member] | Commercial Portfolio Segment [Member]
Loans
Doubtful [Member] | Consumer Portfolio Segment [Member]
Loans

XML

Note 7 - Fair Value - Assets Measured at Fair Value on a Recurring Basis (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Securities - available-for-sale	$ 117,899,000	$ 97,718,000
Securities - equity investments	23,000	7,000
Fair Value, Inputs, Level 1 [Member]
Securities - available-for-sale	4,026,000	4,445,000
Securities - equity investments	23,000	7,000
Fair Value, Inputs, Level 2 [Member]
Securities - available-for-sale	110,373,000	89,773,000
Securities - equity investments
Fair Value, Inputs, Level 3 [Member]
Securities - available-for-sale	3,500,000	3,500,000
Securities - equity investments
US Treasury and Government [Member]
Securities - available-for-sale	4,026,000	4,445,000
US Treasury and Government [Member] | Fair Value, Inputs, Level 1 [Member]
Securities - available-for-sale	4,026,000	4,445,000
US Treasury and Government [Member] | Fair Value, Inputs, Level 2 [Member]
Securities - available-for-sale
US Treasury and Government [Member] | Fair Value, Inputs, Level 3 [Member]
Securities - available-for-sale
US Government-sponsored Enterprises Debt Securities [Member]
Securities - available-for-sale	8,080,000	16,783,000
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities - available-for-sale
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities - available-for-sale	8,080,000	16,783,000
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities - available-for-sale
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities - available-for-sale	44,538,000	27,176,000
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Securities - available-for-sale
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Securities - available-for-sale	44,538,000	27,176,000
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Securities - available-for-sale
Collateralized Mortgage Obligations [Member]
Securities - available-for-sale	30,557,000	18,664,000
Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 1 [Member]
Securities - available-for-sale
Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 2 [Member]
Securities - available-for-sale	30,557,000	18,664,000
Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 3 [Member]
Securities - available-for-sale
US States and Political Subdivisions Debt Securities [Member]
Securities - available-for-sale	20,910,000	22,732,000
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities - available-for-sale
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities - available-for-sale	20,910,000	22,732,000
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities - available-for-sale
Corporate Debt Securities [Member]
Securities - available-for-sale	9,788,000	7,918,000
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities - available-for-sale
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities - available-for-sale	6,288,000	4,418,000
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities - available-for-sale	$ 3,500,000	$ 3,500,000

XML

Note 1 - Nature of Operations and Basis of Presentation

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Nature of Operations and Basis of Presentation

Emclaire Financial Corp (the Corporation) is a Pennsylvania corporation and the holding company of The Farmers National Bank of Emlenton (the Bank) and Emclaire Settlement Services, LLC (the Title Company). The Corporation provides a variety of financial services to individuals and businesses through its offices in western Pennsylvania and northern West Virginia. Its primary deposit products are checking, savings and term certificate accounts and its primary lending products are residential and commercial mortgages, commercial business loans and consumer loans.

The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries, the Bank and the Title Company. All significant intercompany transactions and balances have been eliminated in preparing the consolidated financial statements.

The accompanying unaudited consolidated financial statements for the interim periods include all adjustments, consisting of normal recurring accruals, which are necessary, in the opinion of management, to fairly reflect the Corporation’s consolidated financial position and results of operations. Additionally, these consolidated financial statements for the interim periods have been prepared in accordance with instructions for the Securities and Exchange Commission’s (SEC’s) Form

10

-Q and Article

10

of Regulation S-

X

and therefore do

not

include all information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (GAAP). For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended

December 31, 2018

, as contained in the Corporation’s Annual Report on Form

10

-K for the year ended 

December 31, 2018

filed with the SEC.

The balance sheet at 

December 31, 2018

has been derived from the audited financial statements at that date but does

not

include all the information and footnotes required by GAAP for complete financial statements.

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim quarterly or year-to-date periods are

not

necessarily indicative of the results that

may

be expected for the entire year or any other period. Certain amounts previously reported

may

have been reclassified to conform to the current year’s financial statement presentation.

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net income	$ 2,168	$ 1,161	$ 6,391	$ 3,935
Unrealized gains/(losses) on securities available-for-sale:
Unrealized holding gain (loss) arising during the period	165	(564)	2,424	(2,155)
Reclassification adjustment for (gains) losses included in net income	(42)	2	(43)	9
Net period change	123	(562)	2,381	(2,146)
Tax effect	(26)	118	(500)	451
Net of tax	97	(444)	1,881	(1,695)
Comprehensive income	$ 2,265	$ 717	$ 8,272	$ 2,240

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 08, 2019
Document Information [Line Items]
Entity Registrant Name	EMCLAIRE FINANCIAL CORP
Entity Central Index Key	0000858800
Trading Symbol	emcf
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		2,698,712
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Title of 12(b) Security	Common Stock, par value $1.25 per share

XML

Note 9 - Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2019	$	267		$	(4,840	)	$	(4,573	)
Other comprehensive income before reclassification		130			—			130
Amounts reclassified from accumulated other comprehensive income (loss)		(33	)		—			(33	)
Net current period other comprehensive income (loss)		97			—			97
Accumulated Other Comprehensive Income (Loss) at September 30, 2019	$	364		$	(4,840	)	$	(4,476	)

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2018	$	(2,117	)	$	(4,839	)	$	(6,956	)
Other comprehensive income before reclassification		(446	)		—			(446	)
Amounts reclassified from accumulated other comprehensive income (loss)		2			—			2
Net current period other comprehensive income (loss)		(444	)		—			(444	)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561	)	$	(4,839	)	$	(7,400	)

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2019	$	(1,517	)	$	(4,840	)	$	(6,357	)
Other comprehensive income before reclassification		1,915			—			1,915
Amounts reclassified from accumulated other comprehensive income (loss)		(34	)		—			(34	)
Net current period other comprehensive income		1,881			—			1,881
Accumulated Other Comprehensive Income (Loss) at September 30, 2019	$	364		$	(4,840	)	$	(4,476	)

(Dollar amounts in thousands)	Unrealized Gains and Losses on Available-for-Sale Securities			Defined Benefit Pension Items			Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2018	$	(679	)	$	(4,839	)	$	(5,518	)
Cumulative effect of change in accounting principle for marketable equity securities, net of tax		(187	)		—			(187	)
Accumulated Other Comprehensive Income (Loss) at January 1, 2018, as adjusted	$	(866	)	$	(4,839	)	$	(5,705	)
Other comprehensive income before reclassification		(1,702	)		—			(1,702	)
Amounts reclassified from accumulated other comprehensive income (loss)		7			—			7
Net current period other comprehensive income		(1,695	)		—			(1,695	)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561	)	$	(4,839	)	$	(7,400	)

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

(Dollar amounts in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Loss Components	from Accumulated Other Comprehensive Income For the three months ended September 30, 2019			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(42	)	Net gain on sale of available-for-sale securities
Tax effect		9		Provision for income taxes
Total reclassifications for the period	$	(33	)	Net of tax

(Dollar amounts in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Loss Components	from Accumulated Other Comprehensive Income For the three months ended September 30, 2018		Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	2	Net loss on sale of available-for-sale securities
Tax effect		—	Provision for income taxes
Total reclassifications for the period	$	2	Net of tax

(Dollar amount in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Income Components	from Accumulated Other Comprehensive Income For the Nine Months Ended September 30, 2019			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(43	)	Net gain on sale of available-for-sale securities
Tax effect		9		Provision for income taxes
Total reclassifications for the period	$	(34	)	Net of tax

(Dollar amount in thousands)	Amount Reclassified
Details about Accumulated Other Comprehensive Income Components	from Accumulated Other Comprehensive Income For the Nine Months Ended September 30, 2018			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities	$	9		Net loss on sale of available-for-sale securities
Tax effect		(2	)	Provision for income taxes
Total reclassifications for the period	$	7		Net of tax

XML

Note 12 - Recent Accounting Pronouncements (Continued)

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

12. Recent Accounting Pronouncements (continued)

Newly Issued

Not

Yet Effective Accounting Standards

In

June 2016,

the FASB issued ASU

2016

-

13,

“Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments”. ASU

2016

-

13

significantly changes the way impairment of financial instruments is recognized by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of the financial instruments. The main provisions of the guidance include (

1

) replacing the “incurred loss” approach under current GAAP with an “expected loss” model for instruments measured at amortized cost, (

2

) requiring entities to record an allowance for available-for-sale debt securities rather than reduce the carrying amount of the investments, as is required by the other-than-temporary impairment model under current GAAP, and (

3

) a simplified accounting model for purchased credit-impaired debt securities and loans. The ASU is effective for interim and annual reporting periods beginning after

December 15, 2019,

although early adoption is permitted. Management has selected a software vendor and is currently working through the implementation process.  The Corporation is reviewing available historical information in order to assess the expected credit losses and determine the impact of the adoption of ASU

2016

-

13

on the Corporation's financial statements.  On

October 16, 2019,

FASB announced a delay for effective date of this ASU for smaller reporting companies until fiscal years beginning after

December 15, 2022.

The guidance is required to be applied using the modified retrospective approach.  As the Corporation is a smaller reporting company, the delay would be applicable.

In

January 2017,

FASB ASU

2017

-

04,

"Simplifying the Test for Goodwill Impairment". This ASU simplifies the measurement of goodwill by eliminating Step

2

from the goodwill impairment test. Instead, under this amendment, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss should

not

exceed the total amount of goodwill allocated to that reporting unit. The amendments are effective for public business entities for the

first

interim and annual reporting periods beginning after

December 15, 2019.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

The Corporation has goodwill from prior business combinations and performs an annual impairment test or more frequently if changes or circumstances occur that would more likely than

not

reduce the fair value of the reporting unit below its carrying value. The Corporation's most recent annual impairment assessment determined that the Corporation's goodwill was

not

impaired. Although the Corporation cannot anticipate future goodwill impairment assessments, based on the most recent assessment it is unlikely that an impairment amount would need to be calculated and, therefore, does

not

anticipate a material impact from these amendments to the Corporation's financial position and results of operations. The current accounting policies and processes are

not

anticipated to change, except for the elimination of the Step

2

analysis.

Adoption of New Accounting Policies

In

February 2016,

the FASB issued ASU

2016

-

02

"Leases". This ASU requires lessees to record most leases on their balance sheet but recognize expenses in the income statement in a manner similar to current accounting treatment. This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases. ASU

2016

-

02

was effective for annual periods beginning after

December 15, 2018,

and interim periods therein. In

January 2018,

the FASB issued ASU

2018

-

01,

which allows entities the option to apply the provisions of the new lease guidance at the effective date without adjusting the comparative periods presented. Adoption of this guidance as of

January 1, 2019

resulted in the recording of operating lease right-of-use assets of

$1.6

million and operating lease liabilities of

$1.8

million.  The Corporation recorded a cumulative adjustment to retained earning for prior periods of

$170,000,

net of deferred taxes of

$45,000.

  See Note

11

-Leases for more information.

In

March 2017,

the FASB issued ASU

2017

-

08,

“Receivable - Nonrefundable Fees and Other Costs (Subtopic

310

-

20

) Premium Amortization on Purchased Callable Debt Securities.” ASU

2017

-

08

amends guidance on the amortization period of premiums on certain purchased callable debt securities to shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendments are effective for public business entities for fiscal years beginning after

December 15, 2018,

and interim periods therein.  The adoption of this guidance on

January 1, 2019

resulted in a cumulative adjustment to retained earnings of

$10,000,

net of deferred taxes of

$3,000,

for the prior periods. The remaining securities subject to this guidance have a call date

one

month prior to maturity, therefore the impact to the statement of income in subsequent periods is immaterial.

In

August 2017,

the FASB issued ASU

2017

-

12,

"Derivatives and Hedging (Topic

815

): Targeted Improvements to Accounting for Hedging Activities." The amendments in this Update are to better reflect the economic results of hedging in the financial statements along with simplification of certain hedge accounting requirements. Specifically, the entire change in the fair value of the hedging instrument is required to be presented in the same income statement line as and in the same period that the earnings effect of the hedged item is recognized. Therefore, hedge ineffectiveness will

not

be reported separately or in a different period. In addition, hedge effectiveness can be determined qualitatively in periods following inception. The amendments permit an entity to measure the change in fair value of the hedged item on the basis of the benchmark rate component. They also permit an entity to measure the hedged item in a partial-term fair value hedge of interest rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged. For a closed portfolio of prepayable financial assets, an entity is permitted to designate the amount that is

not

expected to be affected by prepayments or defaults as the hedged item. For public business entities, the new guidance was effective for fiscal years beginning after

December 15, 2018,

and interim periods therein. The Corporation currently does

not

have derivative or hedging instruments so this guidance had

no

impact on consolidated financial statements.

XML

Note 5 - Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

(Dollar amounts in thousands)	September 30, 2019				December 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill	$	19,460	$	—	$	19,448	$	—
Core deposit intangibles		5,634		4,345		5,634		4,211
Total	$	25,094	$	4,345	$	25,082	$	4,211

XML

Note 4 - Loans Receivable and Related Allowance for Loan Losses

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

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

4. Loans Receivable and Related Allowance for Loan Losses

The Corporation’s loans receivable as of the respective dates are summarized as follows:

(Dollar amounts in thousands)	September 30, 2019		December 31, 2018
Mortgage loans on real estate:
Residential first mortgages	$	287,437	$	295,405
Home equity loans and lines of credit		98,628		103,752
Commercial real estate		227,569		238,734
Total real estate loans		613,634		637,891
Other loans:
Commercial business		69,834		66,009
Consumer		11,398		11,272
Total other loans		81,232		77,281
Total loans, gross		694,866		715,172
Less allowance for loan losses		6,509		6,508
Total loans, net	$	688,357	$	708,664

Included in total loans above are net deferred costs of

$2.3

 million and

$2.2

 million at

September 30, 2019

and

December 31, 2018

, respectively.

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

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

The allowance for loan losses is based on estimates and actual losses

may

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

At

September 30, 2019

, there was

no

allowance for loan losses allocated to loans acquired from United American Savings Bank (

2016

), Northern Hancock Bank and Trust Co. (

2017

) or Community First Bancorp, Inc (

2018

).

The following table details activity in the ALL and the recorded investment by portfolio segment based on impairment method:

(Dollar amounts in thousands)	Residential Mortgages			Home Equity & Lines of Credit			Commercial Real Estate			Commercial Business			Consumer			Total
Three months ended September 30, 2019:
Allowance for loan losses:
Beginning Balance	$	2,225		$	642		$	3,043		$	615		$	55		$	6,580
Charge-offs		—			(22	)		(8	)		—			(39	)		(69	)
Recoveries		—			4			104			—			35			143
Provision		16			11			(185	)		5			8			(145	)
Ending Balance	$	2,241		$	635		$	2,954		$	620		$	59		$	6,509
Nine months ended September 30, 2019:
Allowance for loan losses:
Beginning Balance	$	2,198		$	648		$	3,106		$	500		$	56		$	6,508
Charge-offs		(204	)		(56	)		(36	)		(134	)		(114	)		(544	)
Recoveries		40			5			132			—			63			240
Provision		207			38			(248	)		254			54			305
Ending Balance	$	2,241		$	635		$	2,954		$	620		$	59		$	6,509
At September 30, 2019:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	4		$	—		$	—		$	—		$	—		$	4
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,237			635			2,954			620			59			6,505
Total	$	2,241		$	635		$	2,954		$	620		$	59		$	6,509
Total loans:
Individually evaluated for impairment	$	366		$	4		$	2,471		$	40		$	—		$	2,881
Acquired loans collectively evaluated for impairment		64,037			11,432			45,619			9,425			2,227			132,740
Originated loans collectively evaluated for impairment		223,034			87,192			179,479			60,369			9,171			559,245
Total	$	287,437		$	98,628		$	227,569		$	69,834		$	11,398		$	694,866
At December 31, 2018:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	12		$	—		$	—		$	—		$	—		$	12
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,186			648			3,106			500			56			6,496
Total	$	2,198		$	648		$	3,106		$	500		$	56		$	6,508
Total loans:
Individually evaluated for impairment	$	389		$	6		$	34		$	39		$	—		$	468
Acquired loans collectively evaluated for impairment		72,654			13,750			56,690			12,974			3,306			159,374
Originated loans collectively evaluated for impairment		222,362			89,996			182,010			52,996			7,966			555,330
Total	$	295,405		$	103,752		$	238,734		$	66,009		$	11,272		$	715,172
Three months ended September 30, 2018:
Allowance for loan losses:
Beginning Balance	$	2,033		$	650		$	2,882		$	499		$	54		$	6,118
Charge-offs		—			(26	)		(6	)		—			(44	)		(76	)
Recoveries		—			1			13			—			4			18
Provision		128			34			81			11			46			300
Ending Balance	$	2,161		$	659		$	2,970		$	510		$	60		$	6,360
Nine months ended September 30, 2018:
Allowance for loan losses:
Beginning Balance	$	2,090		$	646		$	2,753		$	585		$	53		$	6,127
Charge-offs		(61	)		(109	)		(424	)		—			(213	)		(807	)
Recoveries		3			12			32			1			12			60
Provision		129			110			609			(76	)		208			980
Ending Balance	$	2,161		$	659		$	2,970		$	510		$	60		$	6,360

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

September 30, 2019

:

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of September 30, 2019						For three months ended September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	72	$	72	$	4	$	72	$	1	$	1
Home equity and lines of credit		4		4		—		5		—		—
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	76	$	76	$	4	$	77	$	1	$	1

	For the nine months ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	73	$	3	$	3
Home equity and lines of credit		5		—		—
Commercial real estate		—		—		—
Commercial business		16		—		—
Consumer		—		—		—
Total	$	94	$	3	$	3

	Impaired Loans with No Specific Allowance
	As of September 30, 2019				For three months ended September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	369	$	294	$	298	$	2	$	2
Home equity and lines of credit		—		—		—		—		—
Commercial real estate		2,471		2,471		2,475		34		33
Commercial business		40		40		139		—		—
Consumer		—		—		—		—		—
Total	$	2,880	$	2,805	$	2,912	$	36	$	35

	For the nine months ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	305	$	3	$	3
Home equity and lines of credit		—		—		—
Commercial real estate		1,254		87		34
Commercial business		89		7		2
Consumer		—		—		—
Total	$	1,648	$	97	$	39

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, 2018

:

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

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

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

September 30, 2018

:

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of September 30, 2018						For the three months ended September 30, 2018
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	74	$	74	$	7	$	74	$	1	$	1
Home equity and lines of credit		6		6		—		7		—		—
Commercial real estate		—		—		—		—		—		—
Commercial business		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total	$	80	$	80	$	7	$	81	$	1	$	1

	For the nine months ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	75	$	2	$	2
Home equity and lines of credit		7		—		—
Commercial real estate		—		—		—
Commercial business		—		—		—
Consumer		—		—		—
Total	$	82	$	2	$	2

	Impaired Loans with No Specific Allowance
	As of September 30, 2018				For the three months ended September 30, 2018
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	438	$	327	$	330	$	2	$	2
Home equity and lines of credit		—		—		—		—		—
Commercial real estate		2,512		2,512		1,278		83		2
Commercial business		39		39		39		1		1
Consumer		—		—		—		—		—
Total	$	2,989	$	2,878	$	1,647	$	86	$	5

	For the nine months ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	338	$	3	$	3
Home equity and lines of credit		—		—		—
Commercial real estate		952		125		42
Commercial business		300		74		74
Consumer		—		—		—
Total	$	1,590	$	202	$	119

Unpaid principal balance includes any loans that have been partially charged off but

not

forgiven. Accrued interest is

not

included in the recorded investment in loans presented above or in the tables that follow based on the amounts

not

being material.

Troubled debt restructurings (TDR).

The Corporation has certain loans that have been modified in order to maximize collection of loan balances. If, for economic or legal reasons related to the customer’s financial difficulties, management grants a concession compared to the original terms and conditions of the loan that it would

not

have otherwise considered, the modified loan is classified as a TDR. Concessions related to TDRs generally do

not

include forgiveness of principal balances. The Corporation generally does

not

extend additional credit to borrowers with loans classified as TDRs.

At

September 30, 2019

and

December 31, 2018

, the Corporation had

$433,000

and

$394,000,

respectively, of loans classified as TDRs, which are included in impaired loans above. The Corporation had allocated

$4,000

and

$12,000

of specific allowance for these loans at

September 30, 2019

and

December 31, 2018

, respectively.

During the 

three

months ended

September 30, 2019

, the Corporation did

not

modify any loans as TDRs.  During the

nine

months ended

September 30, 2019

, the Corporation modified the interest rate and extended the payment amortization on

one

commercial real estate loan with a recorded investment of

$72,000.

 At

September 30, 2019

, the Corporation did

not

have any specific allowance for loan losses allocated to this specific loan. During the

three

and

nine

months ended

September 30, 2018

, the Corporation did

not

modify any loans as TDRs.

A loan is considered to be in payment default once it is

30

days contractually past due under the modified terms. During the

three

and

nine

months ended

September 30, 2019

and

2018

, the Corporation did

not

have any loans which were modified

as TDRs for which there was a payment default within

twelve

months following the modification.

Credit Quality Indicators.

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

Commercial real estate and commercial business loans

not

identified as impaired are evaluated as risk rated pools of loans utilizing a risk rating practice that is supported by a quarterly special asset review. In this review process, strengths and weaknesses are identified, evaluated and documented for each criticized and classified loan and borrower, strategic action plans are developed, risk ratings are confirmed and the loan’s performance status is 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.

The reserve allocation for risk rated loan pools is developed by applying the following factors:

Historic

: Management utilizes a computer model to develop the historical net charge-off experience which is used to formulate the assumptions employed in the migration analysis applied to estimate losses in the portfolio. Outstanding balance and charge-off information are input into the model and historical loss migration rate assumptions are developed to apply to pass, special mention, substandard and doubtful risk rated loans. A

twelve

-quarter rolling weighted-average is utilized to estimate probable incurred losses in the portfolios.

Qualitative

: Qualitative adjustment factors for pass, special mention, substandard and doubtful ratings are developed and applied to risk rated loans to allow for: quality of lending policies and procedures; national and local economic and business conditions; changes in the nature and volume of the portfolio; experiences, ability and depth of lending management; changes in trends, volume and severity of past due, nonaccrual and classified loans and loss and recovery trends; quality of loan review systems; concentrations of credit and other external factors.

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

September 30, 2019

and

December 31, 2018

:

(Dollar amounts in thousands)
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2019:
Residential first mortgages	$	286,353	$	—	$	—	$	1,084	$	—	$	287,437
Home equity and lines of credit		97,956		—		—		672		—		98,628
Commercial real estate		—		211,535		3,381		12,653		—		227,569
Commercial business		—		66,935		204		2,695		—		69,834
Consumer		11,317		—		—		81		—		11,398
Total loans	$	395,626	$	278,470	$	3,585	$	17,185	$	—	$	694,866
December 31, 2018:
Residential first mortgages	$	293,919	$	—	$	—	$	1,486	$	—	$	295,405
Home equity and lines of credit		102,869		—		—		883		—		103,752
Commercial real estate		—		222,335		5,942		10,457		—		238,734
Commercial business		—		62,022		542		3,445		—		66,009
Consumer		11,157		—		—		115		—		11,272
Total loans	$	407,945	$	284,357	$	6,484	$	16,386	$	—	$	715,172

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a 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

September 30, 2019

and

December 31, 2018

:

(Dollar amounts in thousands)
	Performing						Nonperforming
	Accruing Loans Not Past Due		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccrual		Total
September 30, 2019:
Residential first mortgages	$	282,766	$	2,626	$	1,024	$	197	$	824	$	287,437
Home equity and lines of credit		97,361		438		187		110		532		98,628
Commercial real estate		222,078		2,172		126		—		3,193		227,569
Commercial business		69,653		76		65		—		40		69,834
Consumer		11,240		75		2		—		81		11,398
Total loans	$	683,098	$	5,387	$	1,404	$	307	$	4,670	$	694,866
December 31, 2018:
Residential first mortgages	$	289,732	$	3,586	$	747	$	485	$	855	$	295,405
Home equity and lines of credit		101,920		707		351		287		487		103,752
Commercial real estate		232,865		5,013		231		19		606		238,734
Commercial business		65,538		50		247		—		174		66,009
Consumer		10,961		160		36		—		115		11,272
Total loans	$	701,016	$	9,516	$	1,612	$	791	$	2,237	$	715,172

The following table presents the Corporation’s nonaccrual loans by aging category as of

September 30, 2019

and

December 31, 2018

:

(Dollar amounts in thousands)
	Not Past Due		30-59 Days Past Due		60-89 Days Past Due		90 Days + Past Due		Total
September 30, 2019:
Residential first mortgages	$	315	$	72	$	—	$	437	$	824
Home equity and lines of credit		4		—		—		528		532
Commercial real estate		135		454		45		2,559		3,193
Commercial business		40		—		—		—		40
Consumer		—		—		—		81		81
Total loans	$	494	$	526	$	45	$	3,605	$	4,670
December 31, 2018:
Residential first mortgages	$	335	$	—	$	74	$	446	$	855
Home equity and lines of credit		6		—		—		481		487
Commercial real estate		111		265		—		230		606
Commercial business		—		—		39		135		174
Consumer		—		—		—		115		115
Total loans	$	452	$	265	$	113	$	1,407	$	2,237

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Note 8 - Regulatory Matters

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

8. Regulatory Matters

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

In

2018

 the Board of Governors of the Federal Reserve System amended its Small Bank Holding Company Policy Statement by increasing the policy’s consolidated assets threshold from

$1

 billion to

$3

 billion. The primary benefit of being deemed a "small bank holding company" is the exemption from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level.

The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (BASEL III rules) became effective for the Bank on

January 1, 2015

with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in on 

January 1, 2019.

Under the BASEL III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was phased in from

0.0%

for

2015

to

2.50%

in 

2019.

The capital conservation buffer for

2019

is

2.50%

and for

2018

was 

1.875%.

Amounts recorded to accumulated other comprehensive income are 

not

included in computing regulatory capital. Management believes as of

September 30, 2019

, the Bank met all capital adequacy requirements to which it was subject.

Prompt corrective action regulations provide

five

classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are

not

used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At

September 30, 2019

, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are

no

conditions or events since that notification that management believes have changed the institution's category.

The following table sets forth certain information concerning the Bank’s regulatory capital as of the dates presented. The capital adequacy ratios disclosed below are exclusive of the capital conservation buffer. 

(Dollar amounts in thousands)	September 30, 2019					December 31, 2018
	Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	79,681		13.78	%	$	76,344		12.93	%
For capital adequacy purposes		46,243		8.00	%		47,252		8.00	%
To be well capitalized		57,804		10.00	%		59,065		10.00	%
Tier 1 capital to risk-weighted assets:
Actual	$	73,172		12.66	%	$	69,836		11.82	%
For capital adequacy purposes		34,682		6.00	%		35,439		6.00	%
To be well capitalized		46,243		8.00	%		47,252		8.00	%
Common Equity Tier 1 capital to risk-weighted assets:
Actual	$	73,172		12.66	%	$	69,836		11.82	%
For capital adequacy purposes		26,012		4.50	%		26,579		4.50	%
To be well capitalized		37,573		6.50	%		38,393		6.50	%
Tier 1 capital to average assets:
Actual	$	73,172		8.13	%	$	69,836		7.95	%
For capital adequacy purposes		35,990		4.00	%		35,126		4.00	%
To be well capitalized		44,987		5.00	%		43,908		5.00	%

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Note 3 - Securities - Securities in a Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Less than 12 months, fair value	$ 25,057	$ 31,421
Less than 12 months, unrealized loss	(137)	(437)
12 months or more, fair value	24,593	50,394
12 months or more, unrealized loss	(249)	(1,570)
Total, fair value	49,650	81,815
Total, unrealized loss	(386)	(2,007)
US Treasury and Government [Member]
Less than 12 months, fair value
Less than 12 months, unrealized loss
12 months or more, fair value	2,001	4,445
12 months or more, unrealized loss	(5)	(87)
Total, fair value	2,001	4,445
Total, unrealized loss	(5)	(87)
US Government Agencies Debt Securities [Member]
Less than 12 months, fair value		2,472
Less than 12 months, unrealized loss		(30)
12 months or more, fair value	6,062	10,337
12 months or more, unrealized loss	(23)	(269)
Total, fair value	6,062	12,809
Total, unrealized loss	(23)	(299)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Less than 12 months, fair value	10,940	19,483
Less than 12 months, unrealized loss	(34)	(297)
12 months or more, fair value	3,557	7,693
12 months or more, unrealized loss	(6)	(193)
Total, fair value	14,497	27,176
Total, unrealized loss	(40)	(490)
Collateralized Mortgage Obligations [Member]
Less than 12 months, fair value	6,773	1,443
Less than 12 months, unrealized loss	(58)	(5)
12 months or more, fair value	12,485	15,388
12 months or more, unrealized loss	(204)	(805)
Total, fair value	19,258	16,831
Total, unrealized loss	(262)	(810)
US States and Political Subdivisions Debt Securities [Member]
Less than 12 months, fair value	4,642	7,061
Less than 12 months, unrealized loss	(34)	(67)
12 months or more, fair value		10,083
12 months or more, unrealized loss		(157)
Total, fair value	4,642	17,144
Total, unrealized loss	(34)	(224)
Corporate Debt Securities [Member]
Less than 12 months, fair value	2,702	962
Less than 12 months, unrealized loss	(11)	(38)
12 months or more, fair value	488	2,448
12 months or more, unrealized loss	(11)	(59)
Total, fair value	3,190	3,410
Total, unrealized loss	$ (22)	$ (97)

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Note 2 - Earnings Per Share - Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Net income	$ 2,168	$ 2,140	$ 2,082	$ 1,161	$ 1,413	$ 1,362	$ 6,391	$ 3,935
Preferred stock dividends							91
Net income available to common stockholders	$ 2,168			$ 1,161			$ 6,300	$ 3,935
Average common shares outstanding - basic (in shares)	2,698,712			2,271,139			2,698,712	2,271,139
Add: Dilutive effects of restricted stock awards (in shares)	20,816			20,147			17,245	17,584
Average shares and dilutive potential common shares (in shares)	2,719,528			2,291,286			2,715,957	2,288,723
Basic earnings per common share (in dollars per share)	$ 0.80			$ 0.51			$ 2.33	$ 1.73
Diluted earnings per common share (in dollars per share)	$ 0.80			$ 0.51			$ 2.32	$ 1.72
Restricted stock awards not considered in computing earnings per share because they were antidulitive (in shares)

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Note 4 - Loans Receivable and Related Allowance for Loan Losses - Activity in Allowance for Loan Losses by Portfolio (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Dec. 31, 2018
Beginning Balance	$ 6,580	$ 6,118	$ 6,508	$ 6,127
Charge-offs	(69)	(76)	(544)	(807)
Recoveries	143	18	240	60
Provision	(145)	300	305	980
Ending Balance	6,509	6,360	6,509	6,360
Individually evaluated for impairment					$ 4	$ 12
Total	6,509	6,118	6,509	6,360	6,509	6,508
Individually evaluated for impairment					2,881	468
Loans, gross					694,866	715,172
Financial Asset Acquired and No Credit Deterioration [Member]
Loans collectively evaluated for impairment
Loans collectively evaluated for impairment					132,740	159,374
Financial Asset Originated [Member]
Loans collectively evaluated for impairment					6,505	6,496
Loans collectively evaluated for impairment					559,245	555,330
Residential Portfolio Segment [Member]
Beginning Balance	2,225	2,033	2,198	2,090
Charge-offs			(204)	(61)
Recoveries			40	3
Provision	16	128	207	129
Ending Balance	2,241	2,161	2,241	2,161
Individually evaluated for impairment					4	12
Total	2,225	2,033	2,241	2,161	2,241	2,198
Individually evaluated for impairment					366	389
Loans, gross					287,437	295,405
Residential Portfolio Segment [Member] | Financial Asset Acquired and No Credit Deterioration [Member]
Loans collectively evaluated for impairment
Loans collectively evaluated for impairment					64,037	72,654
Residential Portfolio Segment [Member] | Financial Asset Originated [Member]
Loans collectively evaluated for impairment					2,237	2,186
Loans collectively evaluated for impairment					223,034	222,362
Home Equity Loans and Lines of Credit [Member]
Beginning Balance	642	650	648	646
Charge-offs	(22)	(26)	(56)	(109)
Recoveries	4	1	5	12
Provision	11	34	38	110
Ending Balance	635	659	635	659
Individually evaluated for impairment
Total	642	650	635	659	635	648
Individually evaluated for impairment					4	6
Loans, gross					98,628	103,752
Home Equity Loans and Lines of Credit [Member] | Financial Asset Acquired and No Credit Deterioration [Member]
Loans collectively evaluated for impairment
Loans collectively evaluated for impairment					11,432	13,750
Home Equity Loans and Lines of Credit [Member] | Financial Asset Originated [Member]
Loans collectively evaluated for impairment					635	648
Loans collectively evaluated for impairment					87,192	89,996
Commercial Real Estate Portfolio Segment [Member]
Beginning Balance	3,043	2,882	3,106	2,753
Charge-offs	(8)	(6)	(36)	(424)
Recoveries	104	13	132	32
Provision	(185)	81	(248)	609
Ending Balance	2,954	2,970	2,954	2,970
Individually evaluated for impairment
Total	3,043	2,882	2,954	2,970	2,954	3,106
Individually evaluated for impairment					2,471	34
Loans, gross					227,569	238,734
Commercial Real Estate Portfolio Segment [Member] | Financial Asset Acquired and No Credit Deterioration [Member]
Loans collectively evaluated for impairment
Loans collectively evaluated for impairment					45,619	56,690
Commercial Real Estate Portfolio Segment [Member] | Financial Asset Originated [Member]
Loans collectively evaluated for impairment					2,954	3,106
Loans collectively evaluated for impairment					179,479	182,010
Commercial Portfolio Segment [Member]
Beginning Balance	615	499	500	585
Charge-offs			(134)
Recoveries				1
Provision	5	11	254	(76)
Ending Balance	620	510	620	510
Individually evaluated for impairment
Total	615	499	620	510	620	500
Individually evaluated for impairment					40	39
Loans, gross					69,834	66,009
Commercial Portfolio Segment [Member] | Financial Asset Acquired and No Credit Deterioration [Member]
Loans collectively evaluated for impairment
Loans collectively evaluated for impairment					9,425	12,974
Commercial Portfolio Segment [Member] | Financial Asset Originated [Member]
Loans collectively evaluated for impairment					620	500
Loans collectively evaluated for impairment					60,369	52,996
Consumer Portfolio Segment [Member]
Beginning Balance	55	54	56	53
Charge-offs	(39)	(44)	(114)	(213)
Recoveries	35	4	63	12
Provision	8	46	54	208
Ending Balance	59	60	59	60
Individually evaluated for impairment
Total	$ 55	$ 54	$ 59	$ 60	59	56
Individually evaluated for impairment
Loans, gross					11,398	11,272
Consumer Portfolio Segment [Member] | Financial Asset Acquired and No Credit Deterioration [Member]
Loans collectively evaluated for impairment
Loans collectively evaluated for impairment					2,227	3,306
Consumer Portfolio Segment [Member] | Financial Asset Originated [Member]
Loans collectively evaluated for impairment					59	56
Loans collectively evaluated for impairment					$ 9,171	$ 7,966

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Note 10 - Revenue Recognition - Noninterest Income (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Noninterest income (in-scope of Topic 606)		$ 914	$ 855	$ 2,701	$ 2,399
Noninterest income (out-of-scope of Topic 606)(1)	[1]	295	207	695	610
Total noninterest income		1,209	1,062	3,396	3,009
Maintenance Fees [Member]
Noninterest income (in-scope of Topic 606)		51	38	134	114
Overdraft Fees [Member]
Noninterest income (in-scope of Topic 606)		403	417	1,253	1,100
Other Fees [Member]
Noninterest income (in-scope of Topic 606)		76	73	235	214
Electronic Banking Fees [Member]
Noninterest income (in-scope of Topic 606)		$ 384	$ 327	$ 1,079	$ 971

[1] Noninterest income items that are out-of-scope include net realized gains (losses) on sales of securities, net gains (losses) on sales of loans, earnings on bank-owned life insurance and certain other noninterest income items.

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Note 7 - Fair Value - Changes in Level 3 Assets Measured on a Recurring Basis (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Balance at the beginning of the period	$ 3,000,000	$ 3,500,000	$ 3,500,000	$ 8,132,000
Included in earnings				1,000
Included in other comprehensive income
Purchased into Level 3	500,000		500,000
Sold out of Level 3				(25,000)
Transfers in and/or out of Level 3			(500,000)	(4,608,000)
Balance at the end of the period	$ 3,500,000	$ 3,500,000	$ 3,500,000	$ 3,500,000

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Note 8 - Regulatory Matters (Details Textual)	Dec. 31, 2019	Sep. 30, 2019	Dec. 31, 2018	Dec. 31, 2015
Capital Conservation Buffer		2.50%	1.875%	0.00%
Forecast [Member]
Capital Conservation Buffer	2.50%