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

The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiary, the Bank. 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

-Q and Article

of Regulation S-

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, 2020

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

-K for the year ended

December 31, 2020

filed with the SEC.

The balance sheet at

December 31, 2020

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.

The coronavirus (COVID-

) pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. Although the temporary closure of many businesses and shelter-in-place policies have eased, restrictions and social distancing continue to impact many of the Corporation's customers. While the full effects of the pandemic still remain unknown, the Corporation is committed to supporting its customers, employees and communities during this difficult time. The Corporation has given hardship relief assistance to customers, including the consideration of various loan payment deferral and fee waiver options, and encourages customers to reach out for assistance to support their individual circumstances. The pandemic could result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions, we

may

be required to recognize impairments on securities, goodwill or other significant estimates. The extent to which the pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other

third

parties in response to the pandemic.

Effective

March 16, 2020,

the Federal Reserve lowered the federal funds target rate to a range of between

zero

and

0.25%.

This action followed a prior reduction of the federal funds target rate to a range of

1.00%

1.25%

effective on

March 4, 2020.

These actions were taken in an emergency response to stem the economic impact of the pandemic. The Federal Reserve has indicated that it expects to maintain the targeted federal funds rate at current levels until such time that the economic environment has stabilized for a period of time. The Corporation's earnings and related cash flows are largely dependent upon net interest income, representing the difference between interest income received on interest-earnings assets, primarily loans and securities, and the interest paid on interest-bearing liabilities, primarily customer deposits and borrowed funds. Since the Corporation's balance sheet is asset sensitive, earnings are more adversely affected by falling rates since rate sensitive assets reprice more quickly than rate sensitive liabilities. Should the Federal Reserve take any further action regarding rates in relation to the pandemic, the Corporation's margins could be compressed even further, perpetuating the negative effect on net income.

The U.S. government also enacted certain fiscal stimulus measures in several phases to assist in counteracting the economic disruptions caused by the pandemic. On

March 6, 2020,

the Coronavirus Preparedness and Response Supplemental Appropriations Act was enacted to authorize funding for research and development of vaccines and to allocate money to state and local governments for response and containment measures. On

March 18, 2020,

the Families First Coronavirus Response Act was put in place to provide for paid sick/medical leave,

-cost coverage for testing, expanded unemployment benefits and additional funding to states for the ongoing economic consequences of the pandemic. On

March 27, 2020,

the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by the President of the United States. Among other measures, the CARES Act provided

$349

billion for the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA) to assist qualified small businesses with certain operational expenses, certain credits for individuals and their dependents against their

2020

personal income tax and expanded eligibility for unemployment benefits. This legislation was later amended on

April 24, 2020,

by the Paycheck Protection Program and Healthcare Enhancement Act (PPPHE Act) which provided an additional

$310

billion of funding for PPP loans.

Certain provisions within the CARES Act encourage financial institutions to practice prudent efforts to work with borrowers impacted by the pandemic. Under these provisions, loan modifications deemed to be COVID-

related would

not

be considered a troubled debt restructuring (TDR) if the loan was

not

more than

days past due as of

December 31, 2019

and the deferral was executed between

March 1, 2020

and the earlier of

days after the date of the termination of the COVID-

national emergency or

December 31, 2020.

The banking regulators issued a similar guidance, which also clarified that a COVID-

related modification should

not

be considered a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and if the modification is considered to be short-term. The Corporation implemented a short-term modification program to provide relief to consumer and commercial customers following the guidelines of these provisions. Most modifications fall into the

180

-day range with deferred principal and interest due and payable on the maturity date of the existing loans. Recently, Section

541

of the Consolidated Appropriations Act,

2021,

has extended this relief to the earlier of

days after the end of the national emergency proclamation or

January 1, 2022.

Specific detail describing these modifications made in relation to the CARES Act can be found in the TDR discussion in "Note

- Loans" on page

15.

Following the enactment of these provisions, in

December 2020,

the Bipartisan-Bicameral Omnibus COVID Relief Deal was enacted to provide additional economic stimulus to individuals and businesses in response to the extended economic distress caused by the pandemic. This included additional stimulus payments to individuals and their dependents, the extension of enhanced unemployment benefits,

$284

billion of additional funds for a

second

round of PPP loans and a new simplified forgiveness procedure for PPP loans of

$150,000

or less. The Bank was a lender for the initial SBA program and closed

688

PPP loans totaling

$54.9

million. As of

April 30, 2021,

640

loans totaling

$48.3

million were fully repaid, including

loan totaling

$66,000

that were voluntarily repaid, rather than forgiven by the SBA.

Five

loans had aggregate unforgiven balances totaling

$97,000,

two

of which have remaining outstanding balances totaling

$96,000.

The Bank is also participating in the

second

round of the program and through

April 30, 2021

has closed

390

loans totaling

$26.5

million. There are an additional

loans totaling

$1.9

million awaiting final processing and approval.