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, 2018

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)

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 every Interactive Data File required to be submitted 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 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 2,690,312 at November 8, 2018.

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, 2018 and December 31, 2017	1
	Consolidated Statements of Net Income for the three and nine months ended September 30, 2018 and 2017	2
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	4
	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2018 and 2017	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43
Signatures		44

PART I - FINANCIAL INFORMATION

Item 1. Interim Financial Statements

Emclaire Financial Corp

Consolidated Balance Sheets (Unaudited)

As of September 30, 2018 and December 31, 2017

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

	September 30,		December 31,
	2018		2017
Assets
Cash and due from banks	$	2,776	$	3,072
Interest earning deposits with banks		19,904		11,302
Cash and cash equivalents		22,680		14,374
Securities-available for sale		97,509		99,350
Securities-equity investments		473		1,817
Loans held for sale		120		504
Loans receivable, net of allowance for loan losses of $6,360 and $6,127		592,125		577,234
Federal bank stocks, at cost		4,466		4,662
Bank-owned life insurance		11,974		11,724
Accrued interest receivable		2,302		2,217
Premises and equipment, net		17,722		18,010
Goodwill		10,288		10,288
Core deposit intangible, net		278		481
Prepaid expenses and other assets		12,867		9,423
Total Assets	$	772,804	$	750,084
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing	$	133,311	$	126,263
Interest bearing		549,050		528,380
Total deposits		682,361		654,643
Short-term borrowed funds		2,050		2,500
Long-term borrowed funds		17,750		23,500
Accrued interest payable		460		413
Accrued expenses and other liabilities		10,573		9,937
Total Liabilities		713,194		690,993
Commitments and Contingent Liabilities		-		-
Stockholders' Equity:
Common stock, $1.25 par value, 12,000,000 shares authorized; 2,373,156 and 2,373,156 shares issued; 2,271,139 and 2,271,139 shares outstanding, respectively		2,966		2,966
Additional paid-in capital		31,218		31,031
Treasury stock, at cost; 102,017 shares		(2,114)		(2,114)
Retained earnings		34,940		32,726
Accumulated other comprehensive loss		(7,400)		(5,518)
Total Stockholders' Equity		59,610		59,091
Total Liabilities and Stockholders' Equity	$	772,804	$	750,084

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, 2018 and 2017

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

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Interest and dividend income:
Loans receivable, including fees	$	6,688	$	5,966	$	19,703	$	17,333
Securities:
Taxable		464		421		1,312		1,208
Exempt from federal income tax		137		134		430		418
Federal bank stocks		65		64		221		179
Interest earning deposits with banks		112		98		228		151
Total interest and dividend income		7,466		6,683		21,894		19,289
Interest expense:
Deposits		1,183		824		3,277		2,276
Borrowed funds		142		322		440		954
Total interest expense		1,325		1,146		3,717		3,230
Net interest income		6,141		5,537		18,177		16,059
Provision for loan losses		300		270		980		633
Net interest income after provision for loan losses		5,841		5,267		17,197		15,426
Noninterest income:
Fees and service charges		528		448		1,428		1,290
Net gain (loss) on sales of securities		(4)		-		(34)		350
Net gain on sales of loans		35		46		60		176
Other than temporary impairment losses		-		-		-		(508)
Earnings on bank-owned life insurance		105		103		311		305
Gain on bargain purchase		-		1,307		-		1,307
Other		398		370		1,244		1,076
Total noninterest income		1,062		2,274		3,009		3,996
Noninterest expense:
Compensation and employee benefits		2,519		2,288		7,493		6,957
Premises and equipment		736		718		2,264		2,203
Intangible asset amortization		67		58		203		177
Professional fees		243		157		712		575
Federal deposit insurance		103		115		391		325
Acquisition costs		677		963		1,036		1,069
Other		1,210		1,143		3,437		3,434
Total noninterest expense		5,555		5,442		15,536		14,740
Income before provision for income taxes		1,348		2,099		4,670		4,682
Provision for income taxes		187		392		735		978
Net income		1,161		1,707		3,935		3,704
Preferred stock dividends		-		-		-		-
Net income available to common stockholders	$	1,161	$	1,707	$	3,935	$	3,704
Basic earnings per common share	$	0.51	$	0.77	$	1.73	$	1.70
Diluted earnings per common share		0.51		0.77		1.72		1.69
Average common shares outstanding - basic		2,271,139		2,204,949		2,271,139		2,174,210
Average common shares outstanding - diluted		2,291,286		2,220,420		2,288,723		2,190,647

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, 2018 and 2017

(Dollar amounts in thousands)

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Net income	$	1,161	$	1,707	$	3,935	$	3,704
Other comprehensive income (loss)
Unrealized gains/(losses) on securities:
Unrealized holding gain/(loss) arising during the period		(566)		232		(2,180)		638
Reclassification adjustment for (gains) losses included in net income		4		-		34		(350)
Reclassification adjustment for other than temporary impairment losses included in net income		-		-		-		508
Net period change		(562)		232		(2,146)		796
Tax effect		118		(79)		451		(271)
Net of tax		(444)		153		(1,695)		525
Comprehensive income	$	717	$	1,860	$	2,240	$	4,229

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, 2018 and 2017

(Dollar amounts in thousands)

	For the nine months ended
	September 30,
	2018		2017
Cash flows from operating activities
Net income	$	3,935	$	3,704
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		862		864
Provision for loan losses		980		633
Amortization of premiums, net		309		367
Amortization of intangible assets and mortgage servicing rights		244		213
Securities impairment loss recognized in earnings		-		508
Realized losses (gains) on sales of securities, net		34		(350)
Net gains on sales of loans		(60)		(176)
Net losses on foreclosed real estate		40		(10)
Gain on sale of premises and equipment		(25)		-
Loans originated for sale		(4,241)		(4,266)
Proceeds from the sale of loans originated for sale		4,685		4,418
Write-down of foreclosed real estate		11		-
Stock compensation expense		187		164
Increase in bank-owned life insurance, net		(250)		(249)
Increase in accrued interest receivable		(85)		(310)
(Increase) decrease in prepaid expenses and other assets		(2,959)		1,265
Increase (decrease) in accrued interest payable		47		154
Decrease in accrued expenses and other liabilities		636		1,095
Gain on bargain purchase		-		(1,307)
Net cash provided by operating activities		4,350		6,717
Cash flows from investing activities
Loan originations and principal collections, net		(16,679)		(43,771)
Purchase of residential mortgage loans		-		-
Proceeds from sales of loans held for sale previously classified as portfolio loans		-		1,817
Settlement of syndicated national credits		-		-
Securities:
Sales		12,683		18,195
Maturities, repayments and calls		6,822		7,818
Purchases		(18,645)		(25,163)
Net cash paid for acquisition		-		2,517
Redemption of federal bank stocks		196		(34)
Proceeds from the sale of bank premises and equipment		155		-
Proceeds from the sale of foreclosed real estate		388		144
Purchases of premises and equipment		(574)		(279)
Net cash used in investing activities		(15,654)		(38,756)
Cash flows from financing activities
Net increase in deposits		27,718		57,864
Repayments on long-term debt		(5,750)		(750)
Proceeds from other long-term debt		-		5,000
Net change in short-term borrowings		(450)		(7,000)
Proceeds from exercise of stock options		-		1,376
Dividends paid		(1,908)		(1,763)
Net cash provided by financing activities		19,610		54,727
Increase in cash and cash equivalents		8,306		22,688
Cash and cash equivalents at beginning of period		14,374		17,568
Cash and cash equivalents at end of period	$	22,680	$	40,256
Supplemental information:
Interest paid	$	3,670	$	3,070
Income taxes paid		560		875
Supplemental noncash disclosure:
Transfers from loans to foreclosed real estate		526		272
Transfers from portfolio loans to loans held for sale		-		1,725

See accompanying notes to consolidated financial statements.

4

Emclaire Financial Corp. and Subsidiary

Consolidated Statements of Changes in Stockholders' Equity

For the nine months ended September 30, 2018 and 2017

(Dollar amounts in thousands, except per share data)

	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders' Equity
Balance at January 1, 2017	$	2,818	$	27,900	$	(2,114)	$	29,960	$	(4,491)	$	54,073
Net income		-		-		-		3,704		-		3,704
Other comprehensive income		-		-		-		-		525		525
Stock compensation expense		-		164		-		-		-		164
Exercise of stock options (53,586 shares)		67		1,309		-		-		-		1,376
Issuance of common stock (58,445 shares)		73		1,601		-		-		-		1,674
Cash dividends declared on common stock ($0.81 per share)		-		-		-		(1,763)		-		(1,763)
Balance at September 30, 2017	$	2,958	$	30,974	$	(2,114)	$	31,901	$	(3,966)	$	59,753
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		-		-		-		3,935		-		3,935
Other comprehensive loss		-		-		-		-		(1,695)		(1,695)
Stock compensation expense		-		187		-		-		-		187
Cash dividends declared on common stock ($0.84 per share)		-		-		-		(1,908)		-		(1,908)
Balance at September 30, 2018	$	2,966	$	31,218	$	(2,114)	$	34,940	$	(7,400)	$	59,610

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, 2017, as contained in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC.

The balance sheet at December 31, 2017 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.

2. Mergers and Acquisitions

On October 1, 2018, the Corporation completed its acquisition of Community First Bancorp, Inc. (Community First), and its banking subsidiary Community First Bank, a Pennsylvania bank headquartered in Reynoldsville, Pennsylvania.

Under the terms of the merger agreement, Community First merged into the Corporation and shareholders of Community First received 1.2008 shares of the Corporation's common stock and $6.95 in cash for each share of common stock of Community First or approximately $15.6 million in common stock and $2.4 million in cash in the aggregate. In addition, Community First Bank merged into the Bank.

The transaction added total consolidated assets, loans and deposits of approximately $121.0 million, $111.6 million and $106.5 million, respectively.  Acquisition costs for the three and nine month periods were $677,000 and $1.0 million, respectively.  It is anticipated that the Corporation will recognize approximately $2.6 million of additional merger costs during the fourth quarter. The initial accounting for the acquisition is incomplete as the fair value adjustments to the acquired assets and assumed liabilities are not finalized.

6

3. 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 and shares issued under stock options.

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				For the nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Earnings per common share - basic
Net income	$	1,161	$	1,707	$	3,935	$	3,704
Less: Preferred stock dividends		-		-		-		-
Net income available to common stockholders	$	1,161	$	1,707	$	3,935	$	3,704
Average common shares outstanding		2,271,139		2,204,949		2,271,139		2,174,210
Basic earnings per common share	$	0.51	$	0.77	$	1.73	$	1.70
Earnings per common share - diluted
Net income available to common stockholders	$	1,161	$	1,707	$	3,935	$	3,704
Average common shares outstanding		2,271,139		2,204,949		2,271,139		2,174,210
Add: Dilutive effects of assumed issuance of restricted stock and exercise of stock options		20,147		15,471		17,584		16,437
Average shares and dilutive potential common shares		2,291,286		2,220,420		2,288,723		2,190,647
Diluted earnings per common share	$	0.51	$	0.77	$	1.72	$	1.69
Stock options not considered in computing earnings per share because they were antidilutive		-		-		-		-

7

4. Securities

Equity Securities

The Corporation held equity securities with fair values of $473,000 and $1.8 million at September 30, 2018 and December 31, 2017, 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, 2018, the Corporation recognized a loss of $1,000 and a gain of $62,000, respectively, on the equity securities held at September 30, 2018. During the three months ended September 30, 2018, 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 loss of $25,000.

Debt Securities - Available for Sale

The following table summarizes the Corporation’s debt securities as of September 30, 2018 and December 31, 2017:

(Dollar amounts in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Available for sale:
September 30, 2018:
U.S. Treasury and federal agency	$	4,534	$	-	$	(139)	$	4,395
U.S. government sponsored entities and agencies		17,058		-		(508)		16,550
U.S. agency mortgage-backed securities: residential		28,526		-		(862)		27,664
U.S. agency collateralized mortgage obligations: residential		20,171		36		(1,002)		19,205
State and political subdivisions		22,943		3		(686)		22,260
Corporate debt securities		7,520		1		(86)		7,435
Total Securities available-for-sale	$	100,752	$	40	$	(3,283)	$	97,509
December 31, 2017:
U.S. Treasury and federal agency	$	4,541	$	-	$	(69)	$	4,472
U.S. government sponsored entities and agencies		14,136		2		(212)		13,926
U.S. agency mortgage-backed securities: residential		20,904		7		(153)		20,758
U.S. agency collateralized mortgage obligations: residential		22,607		25		(708)		21,924
State and political subdivisions		29,249		87		(96)		29,240
Corporate debt securities		9,009		38		(17)		9,030
Total Securities available-for-sale	$	100,446	$	159	$	(1,255)	$	99,350

The following table summarizes scheduled maturities of the Corporation’s debt securities as of September 30, 2018. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities and collateralized mortgage obligations are not due at a single maturity and are shown separately.

(Dollar amounts in thousands)	Available for sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	1,924	$	1,912
Due after one year through five years		30,077		29,308
Due after five through ten years		15,305		14,803
Due after ten years		4,749		4,617
Mortgage-backed securities: residential		28,526		27,664
Collateralized mortgage obligations: residential		20,171		19,205
Total	$	100,752	$	97,509

8

4. Securities (continued)

Information pertaining to debt securities with gross unrealized losses at September 30, 2018 and December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous loss position are included in the table below:

(Dollar amounts in thousands)	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
September 30, 2018:
U.S. Treasury and federal agency	$	-	$	-	$	4,395	$	(139)	$	4,395	$	(139)
U.S. government sponsored entities and agencies		7,796		(134)		8,754		(374)		16,550		(508)
U.S. agency mortgage-backed securities: residential		21,938		(600)		5,726		(262)		27,664		(862)
U.S. agency collateralized mortgage obligations: residential		1,500		(5)		15,870		(997)		17,370		(1,002)
State and political subdivisions		17,386		(514)		4,325		(172)		21,711		(686)
Corporate debt securities		2,936		(68)		484		(18)		3,420		(86)
Total	$	51,556	$	(1,321)	$	39,554	$	(1,962)	$	91,110	$	(3,283)
December 31, 2017:
U.S. Treasury and federal agency	$	-	$	-	$	4,472	$	(69)	$	4,472	$	(69)
U.S. government sponsored entities and agencies		3,447		(42)		8,975		(170)		12,422		(212)
U.S. agency mortgage-backed securities: residential		9,659		(48)		6,581		(105)		16,240		(153)
U.S. agency collateralized mortgage obligations: residential		954		(16)		19,147		(692)		20,101		(708)
State and political subdivisions		10,510		(60)		3,487		(36)		13,997		(96)
Corporate debt securities		2,992		(16)		999		(1)		3,991		(17)
Total	$	27,562	$	(182)	$	43,661	$	(1,073)	$	71,223	$	(1,255)

Gains/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				For the nine months
	ended September 30,				ended September 30,
	2018		2017		2018		2017
Proceeds	$	5,888	$	-	$	12,683	$	18,195
(Losses) Gains		(4)		-		(34)		350
Tax provision related to gains		(1)		-		(7)		119

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic, market or other conditions warrant such evaluation. Consideration is given to: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether the Corporation has the intent to sell the 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.

9

4. Securities (continued)

There were 133 debt securities in an unrealized loss position as of September 30, 2018, of which 56 were in an unrealized loss position for more than 12 months. Of these 56 securities, 24 were government-backed collateralized mortgage obligations, 12 were state and political subdivision securities, eight were U.S. government sponsored entity and agency securities, six were mortgage-backed securities, five 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 its amortized cost basis, the Corporation does not consider these debt securities with unrealized losses as of September 30, 2018 to be other-than-temporarily impaired.

5. 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,		December 31,
	2018		2017
Mortgage loans on real estate:
Residential first mortgages	$	237,106	$	221,823
Home equity loans and lines of credit		99,668		99,940
Commercial real estate		200,169		193,068
Total		536,943		514,831
Other loans:
Commercial business		52,594		58,941
Consumer		8,948		9,589
Total		61,542		68,530
Total loans, gross		598,485		583,361
Less allowance for loan losses		6,360		6,127
Total loans, net	$	592,125	$	577,234

Included in total loans above are net deferred costs of $1.9 million and $1.5 million at September 30, 2018 and December 31, 2017, 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, 2018, there was no allowance for loan losses allocated to loans acquired in the April 2016 acquisition of United American Savings Bank or the September 2017 acquisition of Northern Hancock Bank and Trust Co.

10

5. 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)

			Home Equity
	Residential		& Lines		Commercial		Commercial
	Mortgages		of Credit		Real Estate		Business		Consumer		Total
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
At September 30, 2018:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	7	$	-	$	-	$	-	$	-	$	7
Acquired loans		-		-		-		-		-		-
Collectively evaluated for impairment		2,154		659		2,970		510		60		6,353
Total	$	2,161	$	659	$	2,970	$	510	$	60	$	6,360
Total loans:
Individually evaluated for impairment	$	401	$	6	$	2,512	$	39	$	-	$	2,958
Acquired loans		17,767		9,817		22,784		1,778		1,080		53,226
Collectively evaluated for impairment		218,938		89,845		174,873		50,777		7,868		542,301
Total	$	237,106	$	99,668	$	200,169	$	52,594	$	8,948	$	598,485
At December 31, 2017:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	7	$	-	$	-	$	-	$	-	$	7
Acquired loans		-		-		-		-		-		-
Collectively evaluated for impairment		2,083		646		2,753		585		53		6,120
Total	$	2,090	$	646	$	2,753	$	585	$	53	$	6,127
Total loans:
Individually evaluated for impairment	$	425	$	8	$	914	$	569	$	-	$	1,916
Acquired loans		20,300		10,873		27,404		1,451		2,893		62,921
Collectively evaluated for impairment		201,098		89,059		164,750		56,921		6,696		518,524
Total	$	221,823	$	99,940	$	193,068	$	58,941	$	9,589	$	583,361
Three months ended September 30, 2017:
Allowance for loan losses:
Beginning Balance	$	1,994	$	639	$	2,460	$	621	$	53	$	5,767
Charge-offs		(2)		(33)		(36)		(4)		(26)		(101)
Recoveries		-		1		2		-		1		4
Provision		46		20		200		(21)		25		270
Ending Balance	$	2,038	$	627	$	2,626	$	596	$	53	$	5,940
Nine months ended September 30, 2017:
Allowance for loan losses:
Beginning Balance	$	1,846	$	633	$	2,314	$	700	$	52	$	5,545
Charge-offs		(38)		(44)		(126)		(14)		(53)		(275)
Recoveries		-		21		6		-		10		37
Provision		230		17		432		(90)		44		633
Ending Balance	$	2,038	$	627	$	2,626	$	596	$	53	$	5,940

11

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

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of September 30, 2018:

(Dollar amounts in thousands)

	Impaired Loans with Specific Allowance
							For the three months
	As of September 30, 2018						ended September 30, 2018
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		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
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		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
					For the three months
	As of September 30, 2018				ended September 30, 2018
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		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
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		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

12

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

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2017:

(Dollar amounts in thousands)

	Impaired Loans with Specific Allowance
							For the year ended
	As of December 31, 2017						December 31, 2017
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	75	$	75	$	7	$	88	$	3	$	3
Home equity and lines of credit		8		8		-		2		-		-
Commercial real estate		-		-		-		111		-		-
Commercial business		-		-		-		118		-		-
Consumer		-		-		-		-		-		-
Total	$	83	$	83	$	7	$	319	$	3	$	3

	Impaired Loans with No Specific Allowance
					For the year ended
	As of December 31, 2017				December 31, 2017
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	461	$	350	$	289	$	8	$	8
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		1,089		914		855		3		3
Commercial business		569		569		498		3		3
Consumer		-		-		-		-		-
Total	$	2,119	$	1,833	$	1,642	$	14	$	14

13

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

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of September 30, 2017:

(Dollar amounts in thousands)

	Impaired Loans with Specific Allowance
							For the three months
	As of September 30, 2017						ended September 30, 2017
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	76	$	76	$	8	$	76	$	-	$	-
Home equity and lines of credit		-		-		-		-		-		-
Commercial real estate		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	76	$	76	$	8	$	76	$	-	$	-

	For the nine months
	ended September 30, 2017
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		in Period
Residential first mortgages	$	91	$	2	$	2
Home equity and lines of credit		-		-		-
Commercial real estate		139		-		-
Commercial business		147		-		-
Consumer		-		-		-
Total	$	377	$	2	$	2

	Impaired Loans with No Specific Allowance
					For the three months
	As of September 30, 2017				ended September 30, 2017
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	469	$	357	$	362	$	1	$	1
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		1,113		939		957		1		1
Commercial business		585		585		592		1		1
Consumer		-		-		-		-		-
Total	$	2,167	$	1,881	$	1,911	$	3	$	3

	For the nine months
	ended September 30, 2017
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		in Period
Residential first mortgages	$	274	$	5	$	5
Home equity and lines of credit		-		-		-
Commercial real estate		840		2		2
Commercial business		481		2		2
Consumer		-		-		-
Total	$	1,595	$	9	$	9

14

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

Unpaid principal balance includes any loans that have been partially charged off but not forgiven. Accrued interest is not included in the recorded investment in loans 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, 2018 and December 31, 2017, the Corporation had $407,000 and $433,000, respectively, of loans classified as TDRs, which are included in impaired loans above. The Corporation had allocated $7,000 and $7,000 of specific allowance for these loans at September 30, 2018 and December 31, 2017, respectively.

During the three and nine month periods ended September 30, 2018 , the Corporation did not modify any loans as TDRs.  During the three month period ended September 30, 2017, the Corporation did not modify any loans as TDRs.  During the nine month period ended September 30, 2017, the Corporation modified one residential mortgage loan with a recorded investment of $323,000 due to a bankruptcy order. At September 30, 2017, the Corporation did not have any specific allowance for loan losses allocated to this specific loan.

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 month periods ended September 30, 2018 and 2017, 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.

15

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

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, 2018 and December 31, 2017:

(Dollar amounts in thousands)

					Special
	Not Rated		Pass		Mention		Substandard		Doubtful		Total
September 30, 2018:
Residential first mortgages	$	235,817	$	-	$	-	$	1,289	$	-	$	237,106
Home equity and lines of credit		98,647		-		-		1,021		-		99,668
Commercial real estate		-		189,273		3,785		7,111		-		200,169
Commercial business		-		51,381		150		1,063		-		52,594
Consumer		8,851		-		-		97		-		8,948
Total	$	343,315	$	240,654	$	3,935	$	10,581	$	-	$	598,485
December 31, 2017:
Residential first mortgages	$	220,730	$	-	$	-	$	1,093	$	-	$	221,823
Home equity and lines of credit		98,946		-		-		994		-		99,940
Commercial real estate		-		182,460		2,744		7,864		-		193,068
Commercial business		-		56,960		477		1,504		-		58,941
Consumer		9,443		-		-		146		-		9,589
Total	$	329,119	$	239,420	$	3,221	$	11,601	$	-	$	583,361

16

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

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonperforming loans as of September 30, 2018 and December 31, 2017:

(Dollar amounts in thousands)

	Performing						Nonperforming
	Accruing		Accruing		Accruing		Accruing
	Loans Not		30-59 Days		60-89 Days		90 Days +				Total
	Past Due		Past Due		Past Due		Past Due		Nonaccrual		Loans
September 30, 2018:
Residential first mortgages	$	233,448	$	2,019	$	427	$	129	$	1,083	$	237,106
Home equity and lines of credit		97,716		906		146		379		521		99,668
Commercial real estate		196,184		737		8		-		3,240		200,169
Commercial business		52,233		322		-		-		39		52,594
Consumer		8,704		97		50		27		70		8,948
Total loans	$	588,285	$	4,081	$	631	$	535	$	4,953	$	598,485
December 31, 2017:
Residential first mortgages	$	218,515	$	1,936	$	357	$	159	$	856	$	221,823
Home equity and lines of credit		98,112		598		370		334		526		99,940
Commercial real estate		190,451		1,026		430		197		964		193,068
Commercial business		58,058		74		225		-		584		58,941
Consumer		9,162		273		81		-		73		9,589
Total loans	$	574,298	$	3,907	$	1,463	$	690	$	3,003	$	583,361

17

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

The following table presents the Corporation’s nonaccrual loans by aging category as of September 30, 2018 and December 31, 2017:

(Dollar amounts in thousands)

	Not		30-59 Days		60-89 Days		90 Days +		Total
	Past Due		Past Due		Past Due		Past Due		Loans
September 30, 2018:
Residential first mortgages	$	346	$	-	$	74	$	663	$	1,083
Home equity and lines of credit		7		-		-		514		521
Commercial real estate		2,665		-		268		307		3,240
Commercial business		39		-		-		-		39
Consumer		-		-		-		70		70
Total loans	$	3,057	$	-	$	342	$	1,554	$	4,953
December 31, 2017:
Residential first mortgages	$	366	$	-	$	75	$	415	$	856
Home equity and lines of credit		8		-		-		518		526
Commercial real estate		341		-		-		623		964
Commercial business		569		-		-		15		584
Consumer		-		-		-		73		73
Total loans	$	1,284	$	-	$	75	$	1,644	$	3,003

6. Goodwill and Intangible Assets

The following table summarizes the Corporation’s acquired goodwill and intangible assets as of September 30, 2018 and December 31, 2017: 

(Dollar amounts in thousands)	September 30, 2018				December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill	$	10,288	$	-	$	10,288	$	-
Core deposit intangibles		4,426		4,148		4,426		3,945
Total	$	14,714	$	4,148	$	14,714	$	3,945

Goodwill resulted from four 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 2017 or in the first nine months of 2018.

The core deposit intangible asset, resulting from three acquisitions, is amortized using the double declining balance method 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 month periods ending September 30, 2018 the Corporation recorded intangible amortization expense totaling $67,000 and $203,000, respectively, compared to $58,000 and $177,000, respectively for the same periods in 2017.

18

7. Stock Compensation Plan

In April 2014, the Corporation adopted the 2014 Stock Incentive Plan (the 2014 Plan), which is shareholder approved 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, 2018, 52,533 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, 2018 there are 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, 2018, and changes during the period then ended is presented below:

			Weighted-Average
	Shares		Grant-date Fair Value
Nonvested at January 1, 2018		33,400	$	27.70
Granted		-		-
Vested		-		-
Forfeited		(2,500)		27.17
Nonvested as of September 30, 2018		30,900	$	27.74

For the three and nine month periods ended September 30, 2018, the Corporation recognized stock compensation expense of $37,000 and $187,000, respectively, compared to $55,000 and $164,000, respectively, for the same period in 2017. As of September 30, 2018, there was $411,000 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.

8. 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 dates 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.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value.

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

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

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

19

8. Fair Value (continued)

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

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

Securities (debt-available for sale, equities) – 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. The Level 3 corporate debt securities consist of certain subordinated notes which are priced at par because management has determined that the par value approximates the fair value of these instruments. The Level 3 equity security valuations were supported by an analysis prepared by the Corporation which relies on inputs such as the security issuer’s publicly attainable financial information, multiples derived from prices in observed transactions involving comparable businesses and other market, financial and nonfinancial factors.

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, 2018 and December 31, 2017, the Corporation did not have any impaired loans carried at fair value measured using the fair value of collateral. There was no additional provision for loan losses recorded for impaired loans during the three and nine month periods ended September 30, 2018 and 2017.

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, 2018 and December 31, 2017, the Corporation did not have any OREO measured at fair value.

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 appraisal 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.

20

8. Fair Value (continued)

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

(Dollar amounts in thousands)			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Market		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
September 30, 2018:
Securities available for sale
U.S. Treasury and federal agency	$	4,395	$	4,395	$	-	$	-
U.S. government sponsored entities and agencies		16,550		-		16,550		-
U.S. agency mortgage-backed securities: residential		27,664		-		27,664		-
U.S. agency collateralized mortgage obligations: residential		19,205		-		19,205		-
State and political subdivision		22,260		-		22,260		-
Corporate debt securities		7,435		-		3,935		3,500
Total	$	97,509	$	4,395	$	89,614	$	3,500
Equity securities	$	473	$	473	$	-	$	-
December 31, 2017:
Securities available for sale
U.S. Treasury and federal agency	$	4,472	$	4,472	$	-	$	-
U.S. government sponsored entities and agencies		13,926		-		13,926		-
U.S. agency mortgage-backed securities: residential		20,758		-		20,758		-
U.S. agency collateralized mortgage obligations: residential		21,924		-		21,924		-
State and political subdivisions		29,240		-		29,240		-
Corporate debt securities		9,030		-		1,032		7,998
Total	$	99,350	$	4,472	$	86,880	$	7,998
Equity securities	$	1,817	$	1,683	$	-	$	134

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8. Fair Value (continued)

The Corporation’s policy is to transfer assets or liabilities from one level to another when the methodology to obtain the fair value changes such that there are more or fewer unobservable inputs as of the end of the reporting period. During the nine month period ended September 30, 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 the nine month period, $25,000 in Level 3 equity securities were sold from the portfolio. For the same period in 2017, the Corporation had no transfers between levels. The following table presents changes in Level 3 assets measured on a recurring basis for the three and nine month periods ended September 30, 2018 and 2017:

(Dollar amounts in thousands)	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Balance at the beginning of the period	$	3,500	$	135	$	8,132	$	136
Total gains or losses (realized/unrealized):		-		-		-		-
Included in earnings		-		-		1		-
Included in other comprehensive income		-		(1)		-		(2)
Acquired		-		-		-		-
Sold out of Level 3		-		-		(25)		-
Transfers in and/or out of Level 3		-		-		(4,608)		-
Balance at the end of the period	$	3,500	$	134	$	3,500	$	134

The Corporation had no OREO assets measured at fair value on a non-recurring basis at September 30, 2018 and December 31, 2017.

The Corporation had an impaired residential mortgage loan totaling $62,000 and an impaired home equity loan totaling $6,000 at September 30, 2018 which were classified as TDRs and measured using a discounted cash flow methodology. At December 31, 2017 these loans were valued at $68,000 and $8,000, respectively.

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8. Fair Value (continued)

The following table sets forth the carrying amount and estimated fair values of the Corporation’s financial instruments included in the consolidated balance sheet as of September 30, 2018 and December 31, 2017:

(Dollar amounts in thousands)
	Carrying		Fair Value Measurements using:
Description	Amount		Total		Level 1		Level 2		Level 3
September 30, 2018:
Financial Assets:
Cash and cash equivalents	$	22,680	$	22,680	$	22,680	$	-	$	-
Securities-available for sale		97,509		97,509		4,395		89,614		3,500
Securities-equities		473		473		473		-		-
Loans held for sale		120		120		-		120		-
Loans, net		592,125		583,741		-		-		583,741
Federal bank stock		4,466		N/A		N/A		N/A		N/A
Accrued interest receivable		2,302		2,302		88		353		1,861
Total	$	719,675	$	706,825	$	27,636	$	90,087	$	589,102
Financial Liabilities:
Deposits		682,361		685,333		513,011		172,322		-
Borrowed funds		19,800		19,414		-		19,414		-
Accrued interest payable		460		460		38		422		-
Total	$	702,621	$	705,207	$	513,049	$	192,158	$	-

	Carrying		Fair Value Measurements using:
	Amount		Total		Level 1		Level 2		Level 3
December 31, 2017:
Financial Assets:
Cash and cash equivalents	$	14,374	$	14,374	$	14,374	$	-	$	-
Securities-available for sale		99,350		99,350		4,472		86,880		7,998
Securities-equities		1,817		1,817		1,683		-		134
Loans held for sale		504		504		-		504		-
Loans, net		577,234		577,616		-		-		577,616
Federal bank stock		4,662		N/A		N/A		N/A		N/A
Accrued interest receivable		2,217		2,217		59		338		1,820
Total	$	700,158	$	695,878	$	20,588	$	87,722	$	587,568
Financial Liabilities:
Deposits		654,643		657,414		483,956		173,458		-
Borrowed funds		26,000		25,499		-		25,499		-
Accrued interest payable		413		413		23		390		-
Total	$	681,056	$	683,326	$	483,979	$	199,347	$	-

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9. 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 2015, 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 $500 million to $1 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 by 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 is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2018 is 1.875% and was 1.25% for 2017 and 0.625% for 2016. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of September 30, 2018, the Bank meets all capital adequacy requirements to which they are 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, 2018, 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, 2018				December 31, 2017
	Amount		Ratio		Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	66,711		13.22%	$	64,221		12.96%
For capital adequacy purposes		40,381		8.00%		39,630		8.00%
To be well capitalized		50,476		10.00%		49,537		10.00%
Tier 1 capital to risk-weighted assets:
Actual	$	60,401		11.97%	$	58,088		11.73%
For capital adequacy purposes		30,286		6.00%		29,722		6.00%
To be well capitalized		40,381		8.00%		39,630		8.00%
Common Equity Tier 1 capital to risk-weighted assets:
Actual	$	60,401		11.97%	$	58,088		11.73%
For capital adequacy purposes		22,714		4.50%		22,292		4.50%
To be well capitalized		32,809		6.50%		32,199		6.50%
Tier 1 capital to average assets:
Actual	$	60,401		7.90%	$	58,088		7.71%
For capital adequacy purposes		30,574		4.00%		30,117		4.00%
To be well capitalized		38,218		5.00%		37,647		5.00%

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10. 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, 2018 and 2017 and summarizes the significant amounts reclassified out of each component of accumulated other comprehensive income:

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2018	$	(2,117)	$	(4,839)	$	(6,956)
Other comprehensive income before reclassification		(447)		-		(447)
Amounts reclassified from accumulated other comprehensive income (loss)		3		-		3
Net current period other comprehensive income		(444)		-		(444)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561)	$	(4,839)	$	(7,400)

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the three months		Statement Where Net
Comprehensive Income Components	ended September 30, 2018		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(4)	Net gain on sale of available-for-sale securities
Unrealized gains and losses on available-for-sale securities		-	Other than temporary impairment losses
		1	Provision for income taxes
Total reclassifications for the period	$	(3)	Net of tax

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2017	$	(307)	$	(3,812)	$	(4,119)
Other comprehensive income before reclassification		153		-		153
Amounts reclassified from accumulated other comprehensive income (loss)		-		-		-
Net current period other comprehensive income		153		-		153
Accumulated Other Comprehensive Income (Loss) at September 30, 2017	$	(154)	$	(3,812)	$	(3,966)

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10. Accumulated Other Comprehensive Income (Loss)

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the three months		Statement Where Net
Comprehensive Loss Components	ended September 30, 2017		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	-	Net gain on sale of available-for-sale securities
	$	-	Other than temporary impairment losses
		-	Provision for income taxes
Total reclassifications for the period	$	-	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, 2018 and 2017 and summarized the significant amounts reclassified out of each component of accumulated other comprehensive income:

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2018	$	(679)	$	(4,839)	$	(5,518)
Other comprehensive income before reclassification		(1,722)		-		(1,722)
Amounts reclassified from accumulated other comprehensive income (loss)		27		-		27
Net current period other comprehensive income		(1,695)		-		(1,695)
Cumulative effect of adoption of ASU 2016-01		(187)		-		(187)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561)	$	(4,839)	$	(7,400)

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the nine months		Statement Where Net
Comprehensive Income Components	ended September 30, 2018		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(34)	Net gain on sale of available-for-sale securities
Unrealized gains and losses on available-for-sale securities		-	Other than temporary impairment losses
		7	Provision for income taxes
Total reclassifications for the period	$	(27)	Net of tax

26

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2017	$	(679)	$	(3,812)	$	(4,491)
Other comprehensive income before reclassification		421		-		421
Amounts reclassified from accumulated other comprehensive income (loss)		104		-		104
Net current period other comprehensive income		525		-		525
Accumulated Other Comprehensive Income (Loss) at September 30, 2017	$	(154)	$	(3,812)	$	(3,966)

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the nine months		Statement Where Net
Comprehensive Income Components	ended September 30, 2017		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	350	Net gain on sale of available-for-sale securities
Unrealized gains and losses on available-for-sale securities		(508)	Other than temporary impairment losses
		54	Provision for income taxes
Total reclassifications for the period	$	(104)	Net of tax

11. 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.

27

The following table presents the Corporation's sources of noninterest income for the three and nine months ended September 30, 2018 and 2017:

(Dollar amounts in thousands)	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Non Interest Income
In-scope of Topic 606:
Service charges on deposits
Maintenance fees	$	38	$	40	$	114	$	118
Overdraft fees		417		341		1,100		965
Other fees		73		66		214		207
Electronic banking fees		327		292		971		855
Noninterest income (in-scope of Topic 606)		855		739		2,399		2,145
Noninterest income (out-of-scope of Topic 606)		207		1,535		610		1,851
Total noninterest income	$	1,062	$	2,274	$	3,009	$	3,996

⁽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.

12. Recent Accounting Pronouncements

Newly Issued Not Yet Effective Accounting Standards

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 is effective for annual periods beginning after December 15, 2018, and interim periods therein. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Corporation has analyzed data on leased assets and purchased software to manage lease accounting. The adoption of this guidance is expected to increase both assets and liabilities, but is not expected to have a material impact on the consolidated statement of income.

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 is currently in the developmental stages of collecting 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.

28

12. Recent Accounting Pronouncements (continued)

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.

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, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Corporation is currently evaluating the potential impact of ASU 2017-08 on its financial statements and disclosures.

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 is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Corporation is currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

In August 2018, the FASB issued ASU 2018-13 "Fair Value Measurement".  ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements.  Disclosures for transfers between Level 1 and Level 2, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurement will be removed.  Additional disclosures will be required relating to (a) changes in unrealized gains/losses in OCI for Level 3 fair value measurements for assets held at the end of the reporting period, and (b) the process of calculating weighted average for significant unobservable inputs used to develop Level 3 fair value measurements.  The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019.  Early adoption is permitted.  The Corporation is currently evaluating the potential impact of ASU 2018-13 on its financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-14 "Compensation - Retirement Benefits - Defined Benefit Plans".  ASU 2018-14 removes disclosures pertaining to (a) the amounts of AOCI expected to be recognized as pension costs over the next fiscal year, (b) the amount and timing of plan assets expected to be returned to the employer, and (c) the effect of one-percentage-point change in the assumed health care trends on (i) service and interest costs and (ii) post-retirement health care benefit obligation.  A disclosure will be added requiring an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.  The amendments in this update are effective retrospectively for annual periods and interim periods within those annual periods beginning after December 15, 2020.  Early adoption is permitted.  The Corporation is currently evaluating the potential impact of ASU 2018-14 on its financial statements and disclosures.

Adoption of New Accounting Policies

In March 2017, the FASB issued ASU 2017-07, "Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The amendments in this update require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendments in this update improve the consistency, transparency, and usefulness of financial information to users that have communicated that the service cost component generally is analyzed differently from the other components of net benefit cost. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The adoption of the new guidance did not have a material impact on the consolidated financial statements.

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12. Recent Accounting Pronouncements (continued)

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-9 “Revenue from Contracts with Customers”. ASU 2014-9 provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance does not apply to revenue associated with financial instruments, including loans and securities. The Corporation has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Corporation generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. The Corporation has evaluated revenue streams within noninterest income to assess the applicability of this guidance and determined that service charges on deposits and electronic banking fees within the scope of this ASU. Because performance obligations are satisfied as services are rendered and the fees are fixed, there is little judgment involved in applying the guidance that significantly affects the determination of the amount and timing of revenue from contracts with customers. The adoption of this guidance on January 1, 2018 did not have a material impact on the Corporation's financial statements.  See Note 11 for further detail related to the adoption of this standard.

In January 2016, the FASB issued ASU 2016-1 “Recognition and Measurement of Financial Assets and Financial Liabilities”. ASU 2016-1 revises the accounting for the classification and measurement of investments in equity securities and revises the presentation of certain fair value changes for financial liabilities measured at fair value. For equity securities, the guidance in ASU 2016-1 requires equity investments to be measured at fair value with changes in fair value recognized in net income. For financial liabilities that are measured at fair value in accordance with the fair value option, the guidance requires presenting in other comprehensive income the change in fair value that relates to a change in instrument-specific credit risk. ASU 2016-1 also eliminates the disclosure assumptions used to estimate fair value for financial instruments measured at amortized cost and requires disclosure of an exit price notion in determining the fair value of financial instruments measured at amortized cost. ASU 2016-1 was effective for interim and annual periods beginning after December 15, 2017. The adoption of ASU 2016-1 did not have a significant impact on the Corporation's financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)”. ASU 2016-15 clarifies the presentation of specific types of cash flow receipts and payments, including the payment of debt prepayment or debt extinguishment costs, contingent consideration cash payments paid subsequent to the acquisition date and proceeds from settlement of BOLI policies. This guidance was effective for fiscal years beginning after December 15, 2017. The adoption of ASU 2016-15 did not have an impact the Corporation's financial statements and disclosures.

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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, 2018, compared to the same periods in 2017 and should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, 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 $22.7 million to $772.8 million at September 30, 2018 from $750.1 million at December 31, 2017. Asset growth was driven by increases in cash and equivalents and net loans receivable of $8.3 million and $14.9 million, respectively. Total liabilities increased $22.2 million to $713.2 million at September 30, 2018 from $691.0 million at December 31, 2017, resulting primarily from a $27.7 million, or 4.2%, increase in customer deposits, partially offset by a $6.2 million decrease in borrowed funds. Deposit growth consisted of a $20.7 million, or 3.9%, increase in interest bearing deposits and a $7.0 million, or 5.6%, increase in non-interest bearing deposits.

Stockholders’ equity increased $519,000 to $59.6 million at September 30, 2018 from $59.1 million at December 31, 2017 primarily due to a $2.2 million increase in retained earnings as a result of $3.9 million of net income, partially offset by $1.9 million of common dividends paid, and a $1.9 million decrease in accumulated other comprehensive income. The Corporation remains well capitalized and is positioned for continued growth with total stockholders’ equity at 7.7% of total assets.  Tangible book value per common share was $21.59 at September 30, 2018, compared to $21.28 at December 31, 2017.

At September 30, 2018, 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 7.90%, 11.97%, 11.97% and 13.22%, respectively. The Bank was also considered “well-capitalized” at December 31, 2017 with a Tier 1 leverage ratio, Common Equity Tier 1 ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio of 7.71%, 11.73%, 11.73% and 12.96%, respectively.

RESULTS OF OPERATIONS

Comparison of Results for the Three Months Ended September 30, 2018 and 2017

General. Net income decreased $546,000, or 32.0%, to $1.2 million, or $0.51 per common share, for the three months ended September 30, 2018 from $1.7 million, or $0.77 per common share, for the same period in 2017. This decrease was the result of a $1.2 million decrease in noninterest income and increases in noninterest expense and the provision for loan losses of $113,000 and $30,000, respectively, partially offset by a $604,000 increase in net interest income and a decrease of $205,000 in the provision for income taxes.

Net interest income. Tax equivalent net interest income increased $519,000, or 9.2%, to $6.2 million for the three months ended September 30, 2018 from $5.7 million for the three months ended September 30, 2017. This increase was attributed to an increase in tax equivalent interest income of $697,000, partially offset by an increase in interest expense of $179,000.

Interest income. Tax equivalent interest income increased $697,000, or 10.2%, to $7.5 million for the three months ended September 30, 2018 from $6.8 million for the same period in 2017. This increase was attributed to increases in interest earned on loans, securities and interest-earning deposits with banks of $664,000, $18,000 and $14,000, respectively.

Tax equivalent interest earned on loans receivable increased $664,000, or 11.0%, to $6.7 million for the three months ended September 30, 2018 compared to $6.1 million for the same period in 2017. This increase resulted from a $37.5 million, or 6.7%, increase in average loans, accounting for an increase of $418,000 in interest income. The increase in loans receivable was related to the acquisition of Northern Hancock Bank and Trust Co. (Northern Hancock) in September 2017 and strong loan growth achieved in late 2017 and the first nine months of 2018. Adding to this favorable volume variance, the average yield on loans increased 17 basis points to 4.48% for the three months ended September 30, 2018, versus 4.31% for the same period in 2017. This favorable yield variance accounted for a $246,000 increase in interest income.

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Tax equivalent interest earned on securities increased $18,000, or 3.0%, to $622,000 for the three months ended September 30, 2018 compared to $604,000 for the three months ended September 30, 2017. This increase resulted from a 12 basis point increase in the average yield on securities to 2.48% for the three months ended September 30, 2018 versus 2.36% for the same period in 2017. This favorable yield variance accounted for a $30,000 increase in interest income. Partially offsetting this favorable variance, the average balance of securities decreased $2.0 million, accounting for a $12,000 decrease in interest income.

Interest earned on deposits with banks increased $14,000, or 14.3%, to $112,000 for the three months ended September 30, 2018 compared to $98,000 for the three months ended September 30, 2017. This increase resulted from a 57 basis point increase in the average yield on these accounts to 1.73% for the three months ended September 30, 2018, versus 1.16% for the same period in 2017, accounting for a $41,000 increase in interest income. Partially offsetting this favorable variance, the average balance of interest-earning deposits decreased $7.8 million, or 23.4%, accounting for a decrease of $27,000 in interest income.

Interest expense. Interest expense increased $179,000, or 15.6%, to $1.3 million for the three months ended September 30, 2018 from $1.1 million for the same period in 2017. This increase in interest expense can be attributed to a $359,000 increase in interest incurred on deposits, partially offset by a decrease of $180,000 in interest incurred on borrowed funds.

Interest expense incurred on deposits increased $359,000, or 43.6%, to $1.2 million for the three months ended September 30, 2018 compared to $824,000 for the same period in 2017. The average cost of interest-bearing deposits increased 22 basis points to 0.86% for the three months ended September 30, 2018, versus 0.64% for the same period in 2017, accounting for a $288,000 increase in interest expense. Additionally, the average balance of interest-bearing deposits increased $40.8 million, or 8.0%, to $548.5 million for the three months ended September 30, 2018, compared to $507.6 million for the same period in 2017 causing a $71,000 increase in interest expense. This increase was primarily due to the acquisition of Northern Hancock in September 2017 and strong deposit growth during late 2017 and the first nine months of 2018.

Interest expense incurred on borrowed funds decreased $180,000, or 55.9%, to $142,000 for the three months ended September 30, 2018, compared to $322,000 for the same period in the prior year. The average balance of borrowed funds decreased $21.5 million, or 52.0%, to $19.8 million for the three months ended September 30, 2018, compared to $41.3 million for the same period in 2017 causing a $143,000 decrease in interest expense. The reduction in the outstanding balance of borrowed funds resulted from the payoff of maturing FHLB long-term notes of $15.0 million in November 2017 and the early payoff of a $5.0 million FHLB long-term note in February 2018. In addition, the average cost of borrowed funds decreased 28 basis points to 2.82% for the three months ended September 30, 2018 compared to 3.10% for the same period in 2017 causing a $38,000 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,
	2018						2017
	Average				Yield /		Average				Yield /
	Balance		Interest		Rate		Balance		Interest		Rate
Interest-earning assets:
Loans, taxable	$	574,904	$	6,536		4.51%	$	532,225	$	5,763		4.30%
Loans, tax exempt		19,294		180		3.70%		24,495		289		4.69%
Total loans receivable		594,198		6,716		4.48%		556,720		6,052		4.31%
Securities, taxable		75,759		464		2.43%		75,367		421		2.22%
Securities, tax exempt		23,733		158		2.65%		26,100		183		2.78%
Total securities		99,492		622		2.48%		101,467		604		2.36%
Interest-earning deposits with banks		25,670		112		1.73%		33,512		98		1.16%
Federal bank stocks		4,453		65		5.79%		4,882		64		5.20%
Total interest-earning cash equivalents		30,123		177		2.33%		38,394		162		1.67%
Total interest-earning assets		723,813		7,515		4.12%		696,581		6,818		3.88%
Cash and due from banks		2,940						2,720
Other noninterest-earning assets		46,375						45,308
Total Assets	$	773,128					$	744,609
Interest-bearing liabilities:
Interest-bearing demand deposits	$	379,544	$	502		0.52%	$	340,771	$	314		0.37%
Time deposits		168,933		681		1.60%		166,872		510		1.21%
Total interest-bearing deposits		548,477		1,183		0.86%		507,643		824		0.64%
Borrowed funds, short-term		2,050		33		6.31%		2,500		28		4.50%
Borrowed funds, long-term		17,753		109		2.42%		38,766		294		3.01%
Total borrowed funds		19,803		142		2.84%		41,266		322		3.10%
Total interest-bearing liabilities		568,280		1,325		0.93%		548,909		1,146		0.83%
Noninterest-bearing demand deposits		134,183		-		-		128,254		-		-
Funding and cost of funds		702,463		1,325		0.75%		677,163		1,146		0.67%
Other noninterest-bearing liabilities		10,733						10,061
Total Liabilities		713,196						687,224
Stockholders' Equity		59,932						57,385
Total Liabilities and Stockholders' Equity	$	773,128					$	744,609
Net interest income			$	6,190					$	5,672
Interest rate spread (difference between weighted average rate on interest-earning assets and interest-bearing liabilities)						3.19%						3.05%
Net interest margin (net interest income as a percentage of average interest-earning assets)						3.39%						3.23%

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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,
	2018 versus 2017
	Increase (Decrease) due to
	Volume		Rate		Total
Interest income:
Loans	$	418	$	246	$	664
Securities		(12)		30		18
Interest-earning deposits with banks		(27)		41		14
Federal bank stocks		(6)		7		1
Total interest-earning assets		373		324		697
Interest expense:
Interest-bearing deposits		70		289		359
Borrowed funds, short-term		(6)		11		5
Borrowed funds, long-term		(136)		(49)		(185)
Total interest-bearing liabilities		(72)		251		179
Net interest income	$	445	$	73	$	518

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, 2018 and 2017 is as follows:

(Dollar amounts in thousands)	As of or for the three months ended
	September 30,
	2018		2017
Balance at the beginning of the period	$	6,118	$	5,767
Provision for loan losses		300		270
Charge-offs		(76)		(101)
Recoveries		18		4
Balance at the end of the period	$	6,360	$	5,940
Nonperforming loans	$	5,488	$	3,731
Nonperforming assets		6,088		4,160
Nonperforming loans to total loans		0.92%		0.64%
Nonperforming assets to total assets		0.79%		0.54%
Allowance for loan losses to total loans		1.06%		1.02%
Allowance for loan losses to non-performing loans		115.89%		159.21%

Nonperforming loans increased $3.0 million to $5.5 million at September 30, 2018 from $2.5 million at June 30, 2018. This increase was primarily due to a $2.5 million commercial mortgage loan being placed on nonaccrual status based on the deteriorating financial condition of the borrower. Given the estimated value of the borrower's significant real estate holdings, most of which are pledged as collateral for the loan, the Corporation does not currently expect to incur any loss on this loan and the loan continues to pay per its contractual terms. Of the $5.5 million in nonperforming loans, $3.1 million were not 30 days or more past due at September 30, 2018.

As of September 30, 2018, the Corporation’s classified and criticized assets amounted to $14.5 million, or 1.9% of total assets, with $10.6 million classified as substandard and $3.9 million identified as special mention. This compares to classified and criticized assets of $14.3 million, or 1.9% of total assets, with $10.3 million classified as substandard and $4.1 million identified as special mention at June 30, 2018. 

The provision for loan losses increased $30,000, or 11.1%, to $300,000 for the three months ended September 30, 2018 from $270,000 for the same period in 2017 due primarily to general growth in the loan portfolio experienced in the third quarter of 2018.

Noninterest income. Noninterest income decreased $1.2 million, or 53.3%, to $1.1 million for the three months ended September 30, 2018, compared to $2.3 million for the same period in 2017. During the quarter ended September 30, 2017, the Corporation recorded a $1.3 million bargain purchase gain related to the acquisition of NHBT. Partially offsetting this, fees and service charges increased $80,000 as overdraft charges for the three months ended September 30, 2018 outpaced the same period in the prior year and other income increased $28,000 due to increased interchange fee income.

Noninterest expense. Noninterest expense increased $113,000, or 2.1%, to $5.6 million for the three months ended September 30, 2018 compared to $5.4 million for the same period in 2017. This increase in noninterest expense can be attributed primarily to increases in compensation and benefits expense and professional fees of $231,000 and $86,000 respectively, partially offset by a $286,000 decrease in acquisition costs.

Compensation and employee benefits increased $231,000, or 10.1%, to $2.5 million for the three months ended September 30, 2018 compared to $2.3 million for the same period in 2017.This increase was primarily the result of increases in salaries, other compensation and benefits and insurance benefits of $179,000, $39,000 and $33,000, respectively. These increases are primarily related to costs associated with the operation of the new full-service banking office in Chester, West Virginia which was acquired from Northern Hancock, increased health insurance costs and normal salary and benefit increases.

Professional fees increased $86,000, or 54.8%, to $243,000 for the three months ended September 30, 2018 compared to $157,000 for the same period in 2017.  This increase was primarily the result of the addition of new consulting agreements added during the period as compared to 2017.

Acquisition costs decreased $286,000 for the three months ended September 30, 2018 compared to the same period in 2017. Costs related to the acquisition of Community First totaled $677,000 for the three months ended September 30, 2018, while costs related to the acquisition of Northern Hancock totaled $963,000 for the three months ended September 30, 2017.

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Provision for income taxes. The provision for income taxes decreased $205,000, or 52.3%, to $187,000 for the three months ended September 30, 2018 compared to $392,000 for the same period in the prior year. This related to a decrease in net income before taxes and a decrease in the Corporation’s effective tax rate to 13.9% for the three months ended September 30, 2018 compared to 18.7% for the same period in 2017. The decrease in the Corporation's effective tax rate was due to the enactment of the Tax Cuts and Job Act in December 2017 and the reduction of the corporate income tax rate from a maximum of 35% to a flat 21%.

Comparison of Results for the Nine Months Ended September 30, 2018 and 2017

General. Net income increased $231,000, or 6.3%, to $3.9 million, or $1.72 per diluted share, for the nine months ended September 30, 2018 from $3.7 million, or $1.69 per diluted share, for the same period in 2017. This increase was the result of a $2.1 million increase in net interest income and a $243,000 decrease in the provision for income taxes, partially offset by increases in the provision for loan losses and noninterest expense of $347,000 and $796,000, respectively, and a $987,000 decrease in noninterest income.

Net interest income. Tax equivalent net interest income increased $1.9 million, or 11.4%, to $18.3 million for the nine months ended September 30, 2018 from $16.5 million for the nine months ended September 30, 2017. This increase was attributed to an increase in tax equivalent interest income of $2.4 million, partially offset by an increase in interest expense of $487,000.

Interest income. Tax equivalent interest income increased $2.4 million, or 12.0%, to $22.0 million for the nine months ended September 30, 2018 from $19.7 million for the same period in 2017. This increase was attributed to increases in interest earned on loans and interest-earning deposits with banks, dividends on federal bank stocks and interest earned on securities of $2.2 million, $77,000, $42,000 and $27,000, respectively.

Tax equivalent interest earned on loans receivable increased $2.2 million, or 12.6%, to $19.8 million for the nine months ended September 30, 2018 compared to $17.6 million for the same period in 2017. This increase resulted from a $44.3 million, or 8.1%, increase in average loans, accounting for a $1.5 million increase in interest income. The increase in loans receivable was related to the acquisition of Northern Hancock in September 2017 and strong loan growth achieved in late 2017 and the first nine months of 2018. Adding to this favorable volume variance, the average yield on loans increased 18 basis points to 4.48% for the nine months ended September 30, 2018, versus 4.30% for the same period in 2017. This favorable yield variance accounted for a $745,000 increase in interest income. Included in interest earned on loans receivable for the nine months ended September 30, 2018, the Corporation recorded $113,000 of recovered interest related to the payoff of a nonperforming loan relationship totaling $789,000.

Tax equivalent interest earned on securities increased $27,000, or 1.5%, to $1.8 million for the nine months ended September 30, 2018 and September 30, 2017. This increase resulted from a 6 basis point increase in the average yield on securities to 2.44% for the nine months ended September 30, 2018 versus 2.38% for the same period in 2017. This favorable yield variance accounted for a $48,000 increase in interest income. Partially offsetting this favorable variance, the average balance of securities decreased $1.2 million, accounting for a $21,000 decrease in interest income.

Interest earned on deposits with banks increased $77,000, or 51.0%, to $228,000 for the nine months ended September 30, 2018 compared to $151,000 for the nine months ended September 30, 2017. This increase resulted from a 47 basis point increase in the average yield on these accounts to 1.47% for the nine months ended September 30, 2018, versus 1.00% for the same period in 2017, accounting for a $73,000 increase in interest income. Additionally, the average balance of interest-earning deposits increased $485,000, accounting for a increase of $4,000 in interest income.

Dividends on federal bank stocks increased $42,000, or 23.5%, to $221,000 for the nine months ended September 30, 2018 from $179,000 for the same period in 2017. This increase was primarily due to an increase of 172 basis points in the average yield on federal bank stocks to 6.64% for the nine months ended September 30, 2018, versus 4.92% for the same period in 2017, accounting for a $58,000 increase in interest income. The increase in the average yield resulted from recent increases in the dividend rate paid on FHLB stock. Partially offsetting the favorable yield variance, the average balance of federal bank stocks decreased $408,000, or 8.4%, accounting for a $16,000 decrease in interest income.

Interest expense. Interest expense increased $487,000, or 15.1%, to $3.7 million for the nine months ended September 30, 2018 from $3.2 million for the same period in 2017. This increase in interest expense can be attributed to a $1.0 million increase in interest incurred on deposits, partially offset by a decrease of $514,000 in interest incurred on borrowed funds.

Interest expense incurred on deposits increased $1.0 million, or 44.0%, to $3.3 million for the nine months ended September 30, 2018 compared to $2.3 million for the same period in 2017. The average cost of interest-bearing deposits increased 18 basis points to 0.81% for the nine months ended September 30, 2018, versus 0.63% for the same period in 2017, accounting for a $702,000 increase in interest expense. Additionally, the average balance of interest-bearing deposits increased $58.8 million, or 12.1%, to $543.7 million for the nine months ended September 30, 2018, compared to $484.9 million for the same period in 2017 causing a $299,000 increase in interest expense. This increase was primarily due to the acquisition of Northern Hancock in September 2017 and strong deposit growth during late 2017 and the first nine months of 2018.

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Interest expense incurred on borrowed funds decreased $514,000, or 53.9%, to $440,000 for the nine months ended September 30, 2018, compared to $954,000 for the same period in the prior year. The average balance of borrowed funds decreased $20.8 million, or 49.2%, to $21.5 million for the nine months ended September 30, 2018, compared to $42.2 million for the same period in 2017 causing a $422,000 decrease in interest expense. The reduction in the outstanding balance of borrowed funds resulted from the payoff of maturing FHLB long-term notes of $15.0 million in November 2017 and the early payoff of a $5.0 million FHLB long-term note in February 2018. In addition, the average cost of borrowed funds decreased 28 basis points to 2.74% for the nine months ended September 30, 2018 compared to 3.02% for the same period in 2017 causing a $92,000 decrease in interest expense.

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,
	2018						2017
	Average				Yield /		Average				Yield /
	Balance		Interest		Rate		Balance		Interest		Rate
Interest-earning assets:
Loans, taxable	$	569,745	$	19,223		4.51%	$	522,156	$	16,747		4.29%
Loans, tax exempt		20,661		568		3.68%		23,914		833		4.66%
Total loans receivable		590,406		19,791		4.48%		546,070		17,580		4.30%
Securities, taxable		73,705		1,312		2.38%		74,128		1,208		2.18%
Securities, tax exempt		25,239		497		2.63%		26,008		574		2.95%
Total securities		98,944		1,809		2.44%		100,136		1,782		2.38%
Interest-earning deposits with banks		20,763		228		1.47%		20,278		151		1.00%
Federal bank stocks		4,461		221		6.64%		4,869		179		4.92%
Total interest-earning cash equivalents		25,224		449		2.38%		25,147		330		1.75%
Total interest-earning assets		714,574		22,049		4.13%		671,353		19,692		3.92%
Cash and due from banks		2,812						2,684
Other noninterest-earning assets		46,172						45,882
Total Assets	$	763,558					$	719,919
Interest-bearing liabilities:
Interest-bearing demand deposits	$	373,534	$	1,375		0.49%	$	321,177	$	685		0.28%
Time deposits		170,151		1,902		1.49%		163,746		1,591		1.30%
Total interest-bearing deposits		543,685		3,277		0.81%		484,923		2,276		0.63%
Borrowed funds, short-term		2,817		98		4.64%		5,237		100		2.55%
Borrowed funds, long-term		18,661		342		2.45%		37,011		854		3.09%
Total borrowed funds		21,478		440		2.74%		42,248		954		3.02%
Total interest-bearing liabilities		565,163		3,717		0.88%		527,171		3,230		0.82%
Noninterest-bearing demand deposits		128,590		-		-		127,331		-		-
Funding and cost of funds		693,753		3,717		0.72%		654,502		3,230		0.66%
Other noninterest-bearing liabilities		10,494						9,580
Total Liabilities		704,247						664,082
Stockholders' Equity		59,311						55,837
Total Liabilities and Stockholders' Equity	$	763,558					$	719,919
Net interest income			$	18,332					$	16,462
Interest rate spread (difference between weighted average rate on interest-earning assets and interest-bearing liabilities)						3.25%						3.10%
Net interest margin (net interest income as a percentage of average interest-earning assets)						3.43%						3.28%

37

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,
	2018 versus 2017
	Increase (Decrease) due to
	Volume		Rate		Total
Interest income:
Loans	$	1,466	$	745	$	2,211
Securities		(21)		48		27
Interest-earning deposits with banks		4		73		77
Federal bank stocks		(16)		58		42
Total interest-earning assets		1,433		924		2,357
Interest expense:
Interest-bearing deposits		299		702		1,001
Borrowed funds, short-term		(59)		57		(2)
Borrowed funds, long-term		(363)		(149)		(512)
Total interest-bearing liabilities		(123)		610		487
Net interest income	$	1,556	$	314	$	1,870

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 nine months ended September 30, 2018 and 2017 is as follows:

(Dollar amounts in thousands)	As of or for the nine months
	September 30,
	2018		2017
Balance at the beginning of the period	$	6,127	$	5,545
Provision for loan losses		980		633
Charge-offs		(807)		(275)
Recoveries		60		37
Balance at the end of the period	$	6,360	$	5,940
Non-performing loans	$	5,488	$	3,731
Non-performing assets		6,088		4,160
Non-performing loans to total loans		0.92%		0.64%
Non-performing assets to total assets		0.79%		0.54%
Allowance for loan losses to total loans		1.06%		1.02%
Allowance for loan losses to non-performing loans		115.89%		159.21%

Nonperforming loans increased $1.8 million, or 48.6%, to $5.5 million at September 30, 2018 from $3.7 million at December 31, 2017. This increase was primarily due to a $2.5 million commercial mortgage loan being place on nonaccrual status based on the deteriorating financial condition of the borrower. Given the estimated value of the borrower's significant real estate holdings, most of which are pledged as collateral for the loan, the Corporation does not currently expect to incur any loss on this loan and the loan continues to pay per its contractual terms. Partially offsetting this increase, a $559,000 commercial mortgage was transferred to OREO and a $789,000 commercial relationship was repaid in full during the nine months ended September 30, 2018. Of the $5.5 million in nonperforming loans, $3.1 million were not 30 days or more past due at September 30, 2018.

As of September 30, 2018, the Corporation’s classified and criticized assets amounted to $14.5 million, or 1.9% of total assets, with $10.6 million classified as substandard and $3.9 million identified as special mention. This compares to classified and criticized assets of $14.8 million, or 2.0% of total assets, with $11.6 million classified as substandard and $3.2 million identified as special mention at December 31, 2017.This decrease was primarily related to the risk rating upgrade of one $1.9 million commercial loan relationship, the payoff of two commercial loan relationships totaling $1.1 million and the aforementioned $559,000 loan transferred to OREO. These favorable changes to the Corporation's classified and criticized assets were partially offset by the risk rating downgrades of three commercial loan relationships to special mention and substandard.

The provision for loan losses increased $347,000, or 54.8%, to $980,000 for the nine months ended September 30, 2018 from $633,000 for the same period in 2017 due primarily to general growth in the loan portfolio and certain charge-offs experienced during the first nine months of 2018.

Noninterest income. Noninterest income decreased $987,000, or 24.7%, to $3.0 million for the nine months ended September 30, 2018 from $4.0 million for the same period in 2017. During the nine months ended September 30, 2017, the Corporation recorded a $1.3 million bargain purchase gain related to the acquisition of NHBT. Also during the nine months ended September 30, 2017, the Corporation recorded a $508,000 other-than-temporary impairment charge on a subordinated debt investment issued by First NBC Bank Holding Company. Partially offsetting the impairment charge, the Corporation realized security gains of $350,000 during the nine months ended September 30, 2017. During the nine months ended September 30, 2018, the Corporation realized security losses of $34,000. Additionally, fees and service charges increased $138,000 as overdraft charges for the nine months ended September 30, 2018 outpaced the same period in the prior year and other income increased $168,000 due to increased interchange fee income and fair value adjustments related to the Corporation's equity securities. Partially offsetting these favorable items, gains on the sales of loans totaled $60,000 for the nine months ended September 30, 2018, compared to $176,000 for the same period in 2017.

Noninterest expense. Noninterest expense increased $796,000, or 5.4%, to $15.5 million for the nine months ended September 30, 2018 compared to $14.7 million for the same period in 2017. This increase in noninterest expense can be attributed to increases in compensation and benefits and professional fees of $536,000 and $137,000, respectively.

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Compensation and employee benefits increased $536,000, or 7.7%, to $7.5 million for the nine months ended September 30, 2018 compared to $7.0 million for the same period in 2017. This increase was primarily the result of increases in salaries, insurance benefits and stock compensation expense of $341,000, $91,000 and $22,000, respectively. These increases are primarily related to costs associated with the operation of the new full-service banking office in Chester, West Virginia which was acquired from Northern Hancock, increased health insurance costs and normal salary and benefit increases.

Professional fees costs increased $137,000, or 23.8%, to $712,000 for the nine months ended September 30, 2018 compared to $575,000 for the same period in 2017. The increase was primarily the result of additional consulting agreements added during 2018.

Provision for income taxes. The provision for income taxes decreased $243,000, or 24.9%, to $735,000 for the nine months ended September 30, 2018 compared to $978,000 for the same period in the prior year. This related to an decrease in the Corporation’s effective tax rate to 15.7% for the nine months ended September 30, 2018 compared to 20.9% for the same period in 2017, partially offset by an increase in net income before income taxes. The decrease in the Corporation's effective tax rate was due to the enactment of the Tax Cuts and Job Act in December 2017 and the reduction of the corporate income tax rate from a maximum of 35% to a flat 21%.

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, 2018, the Corporation used its sources of funds primarily to fund loan advances and repay long-term borrowed funds. As of September 30, 2018, the Corporation had outstanding loan commitments, including undisbursed loans and amounts available under credit lines, totaling $99.9 million, and standby letters of credit totaling $96,000, net of collateral maintained by the Bank.

At September 30, 2018, time deposits amounted to $169.4 million, or 24.9% of the Corporation’s total consolidated deposits, including approximately $44.0 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, 2018, the Corporation had borrowed funds of $19.8 million consisting of $15.0 million of long-term FHLB advances, a $2.8 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, 2018, 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 $191.6 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 will increase 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 to be fully phased-in by January 1, 2019.

At September 30, 2018, the Bank exceeded all minimum capital requirements under these capital guidelines.

40

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, 2017. 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 delinquencies, recoveries and losses. All of these factors may be susceptible to significant change. Among the many factors affecting the allowance for loan losses, some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all of the potential factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact the Corporation’s financial condition or earnings in future periods.

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

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. The impairment test is a two-step process that begins with an initial impairment evaluation. If the initial evaluation suggests that an impairment of the asset value exists, the second step is to determine the amount of the impairment. If the tests conclude that goodwill is impaired, the carrying value is adjusted and an impairment charge is recorded. As of November 30, 2017, the required annual impairment test of goodwill was performed and management concluded that no impairment existed as of that date. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values.

41

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, 2018, the Corporation’s interest-earning assets maturing or repricing within one year totaled $177.0 million while the Corporation’s interest-bearing liabilities maturing or repricing within one-year totaled $155.5 million, providing an excess of interest-earning assets over interest-bearing liabilities of $21.5million. At September 30, 2018, the percentage of the Corporation’s assets to liabilities maturing or repricing within one year was 113.8%.

For more information, see “Market Risk Management” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017.

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, 2018, 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.

42

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

43

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 9, 2018	By:	/s/ William C. Marsh
	William C. Marsh
	Chairman of the Board,
	President and Chief Executive Officer
Date: November 9, 2018	By:	/s/ Amanda L. Engles
	Amanda L. Engles
	Chief Financial Officer
	Treasurer

44

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 9, 2018	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 9, 2018	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 ending September 30, 2018 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 result of operations of the Corporation.

/s/  William C. Marsh

William C. Marsh

Chairman of the Board,

President and Chief Executive Officer

November 9, 2018

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 ending September 30, 2018 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 result of operations of the Corporation.

/s/  Amanda L. Engles

Amanda L. Engles

Chief Financial Officer

November 9, 2018

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.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 08, 2018
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)		2,690,312
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Assets
Cash and due from banks	$ 2,776,000	$ 3,072,000
Interest earning deposits with banks	19,904,000	11,302,000
Cash and cash equivalents	22,680,000	14,374,000
Securities-available for sale	97,509,000	99,350,000
Securities-equity investments	473,000	1,817,000
Loans held for sale	120,000	504,000
Loans receivable, net of allowance for loan losses of $6,360 and $6,127	592,125,000	577,234,000
Federal bank stocks, at cost	4,466,000	4,662,000
Bank-owned life insurance	11,974,000	11,724,000
Accrued interest receivable	2,302,000	2,217,000
Premises and equipment, net	17,722,000	18,010,000
Goodwill	10,288,000	10,288,000
Core deposit intangible, net	278,000	481,000
Prepaid expenses and other assets	12,867,000	9,423,000
Total Assets	772,804,000	750,084,000
Deposits:
Non-interest bearing	133,311,000	126,263,000
Interest bearing	549,050,000	528,380,000
Total deposits	682,361,000	654,643,000
Short-term borrowed funds	2,050,000	2,500,000
Long-term borrowed funds	17,750,000	23,500,000
Accrued interest payable	460,000	413,000
Accrued expenses and other liabilities	10,573,000	9,937,000
Total Liabilities	713,194,000	690,993,000
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, $1.25 par value, 12,000,000 shares authorized; 2,373,156 and 2,373,156 shares issued; 2,271,139 and 2,271,139 shares outstanding, respectively	2,966,000	2,966,000
Additional paid-in capital	31,218,000	31,031,000
Treasury stock, at cost; 102,017 shares	(2,114,000)	(2,114,000)
Retained earnings	34,940,000	32,726,000
Accumulated other comprehensive loss	(7,400,000)	(5,518,000)
Total Stockholders' Equity	59,610,000	59,091,000
Total Liabilities and Stockholders' Equity	$ 772,804,000	$ 750,084,000

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Allowance for loan losses	$ 6,360	$ 6,127
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)	2,373,156	2,373,156
Common stock, outstanding (in shares)	2,271,139	2,271,139
Treasury stock (in shares)	102,017	102,017

XML

Consolidated Statements of Net Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Interest and dividend income:
Loans receivable, including fees	$ 6,688,000	$ 5,966,000	$ 19,703,000	$ 17,333,000
Securities:
Taxable	464,000	421,000	1,312,000	1,208,000
Exempt from federal income tax	137,000	134,000	430,000	418,000
Federal bank stocks	65,000	64,000	221,000	179,000
Interest earning deposits with banks	112,000	98,000	228,000	151,000
Total interest and dividend income	7,466,000	6,683,000	21,894,000	19,289,000
Interest expense:
Deposits	1,183,000	824,000	3,277,000	2,276,000
Borrowed funds	142,000	322,000	440,000	954,000
Total interest expense	1,325,000	1,146,000	3,717,000	3,230,000
Net interest income	6,141,000	5,537,000	18,177,000	16,059,000
Provision for loan losses	300,000	270,000	980,000	633,000
Net interest income after provision for loan losses	5,841,000	5,267,000	17,197,000	15,426,000
Noninterest income:
Fees and service charges	528,000	448,000	1,428,000	1,290,000
Net gain (loss) on sales of securities	(4,000)		(34,000)	350,000
Net gain on sales of loans	35,000	46,000	60,000	176,000
Other than temporary impairment losses				(508,000)
Earnings on bank-owned life insurance	105,000	103,000	311,000	305,000
Gain on bargain purchase		1,307,000		1,307,000
Other	398,000	370,000	1,244,000	1,076,000
Total noninterest income	1,062,000	2,274,000	3,009,000	3,996,000
Noninterest expense:
Compensation and employee benefits	2,519,000	2,288,000	7,493,000	6,957,000
Premises and equipment	736,000	718,000	2,264,000	2,203,000
Intangible asset amortization	67,000	58,000	203,000	177,000
Professional fees	243,000	157,000	712,000	575,000
Federal deposit insurance	103,000	115,000	391,000	325,000
Acquisition costs	677,000	963,000	1,036,000	1,069,000
Other	1,210,000	1,143,000	3,437,000	3,434,000
Total noninterest expense	5,555,000	5,442,000	15,536,000	14,740,000
Income before provision for income taxes	1,348,000	2,099,000	4,670,000	4,682,000
Provision for income taxes	187,000	392,000	735,000	978,000
Net income	1,161,000	1,707,000	3,935,000	3,704,000
Preferred stock dividends
Net income available to common stockholders	$ 1,161,000	$ 1,707,000	$ 3,935,000	$ 3,704,000
Basic earnings per common share (in dollars per share)	$ 0.51	$ 0.77	$ 1.73	$ 1.70
Diluted earnings per common share (in dollars per share)	$ 0.51	$ 0.77	$ 1.72	$ 1.69
Average common shares outstanding - basic (in shares)	2,271,139	2,204,949	2,271,139	2,174,210
Average common shares outstanding - diluted (in shares)	2,291,286	2,220,420	2,288,723	2,190,647

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net income	$ 1,161	$ 1,707	$ 3,935	$ 3,704
Unrealized gains/(losses) on securities:
Unrealized holding gain/(loss) arising during the period	(566)	232	(2,180)	638
Reclassification adjustment for (gains) losses included in net income	4		34	(350)
Reclassification adjustment for other than temporary impairment losses included in net income				508
Net period change	(562)	232	(2,146)	796
Tax effect	118	(79)	451	(271)
Net of tax	(444)	153	(1,695)	525
Comprehensive income	$ 717	$ 1,860	$ 2,240	$ 4,229

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities
Net income	$ 3,935	$ 3,704
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	862	864
Provision for loan losses	980	633
Amortization of premiums, net	309	367
Amortization of intangible assets and mortgage servicing rights	244	213
Securities impairment loss recognized in earnings		508
Realized losses (gains) on sales of securities, net	34	(350)
Net gains on sales of loans	(60)	(176)
Net losses on foreclosed real estate	40	(10)
Gain on sale of premises and equipment	(25)
Loans originated for sale	(4,241)	(4,266)
Proceeds from the sale of loans originated for sale	4,685	4,418
Write-down of foreclosed real estate	11
Stock compensation expense	187	164
Increase in bank-owned life insurance, net	(250)	(249)
Increase in accrued interest receivable	(85)	(310)
(Increase) decrease in prepaid expenses and other assets	(2,959)	1,265
Increase (decrease) in accrued interest payable	47	154
Decrease in accrued expenses and other liabilities	636	1,095
Gain on bargain purchase		(1,307)
Net cash provided by operating activities	4,350	6,717
Cash flows from investing activities
Loan originations and principal collections, net	(16,679)	(43,771)
Purchase of residential mortgage loans
Proceeds from sales of loans held for sale previously classified as portfolio loans		1,817
Settlement of syndicated national credits
Sales	12,683	18,195
Maturities, repayments and calls	6,822	7,818
Purchases	(18,645)	(25,163)
Net cash paid for acquisition		2,517
Redemption of federal bank stocks	196	(34)
Proceeds from the sale of bank premises and equipment	155
Proceeds from the sale of foreclosed real estate	388	144
Purchases of premises and equipment	(574)	(279)
Net cash used in investing activities	(15,654)	(38,756)
Cash flows from financing activities
Net increase in deposits	27,718	57,864
Repayments on long-term debt	(5,750)	(750)
Proceeds from other long-term debt		5,000
Net change in short-term borrowings	(450)	(7,000)
Proceeds from exercise of stock options		1,376
Dividends paid	(1,908)	(1,763)
Net cash provided by financing activities	19,610	54,727
Increase in cash and cash equivalents	8,306	22,688
Cash and cash equivalents at beginning of period	14,374	17,568
Cash and cash equivalents at end of period	22,680	40,256
Supplemental information:
Interest paid	3,670	3,070
Income taxes paid	560	875
Supplemental noncash disclosure:
Transfers from loans to foreclosed real estate	526	272
Transfers from portfolio loans to loans held for sale		$ 1,725

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Previously Reported [Member] Common Stock [Member]	Previously Reported [Member] Additional Paid-in Capital [Member]	Previously Reported [Member] Treasury Stock [Member]	Previously Reported [Member] Retained Earnings [Member]	Previously Reported [Member] AOCI Attributable to Parent [Member]	Previously Reported [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Beginning balance at Dec. 31, 2016							$ 2,818	$ 27,900	$ (2,114)	$ 29,960	$ (4,491)	$ 54,073
Net income										3,704		3,704
Other comprehensive income (loss)											525	525
Stock compensation expense								164				164
Exercise of stock options (53,586 shares)							67	1,309				1,376
Issuance of common stock							73	1,601				1,674
Cash dividends declared on common stock										(1,763)		(1,763)
Ending Balance at Sep. 30, 2017							2,958	30,974	(2,114)	31,901	(3,966)	59,753
Beginning balance at Jun. 30, 2017											(4,119)
Net income												1,707
Other comprehensive income (loss)											153	153
Ending Balance at Sep. 30, 2017							2,958	30,974	(2,114)	31,901	(3,966)	59,753
Beginning balance at Dec. 31, 2017	$ 2,966	$ 31,031	$ (2,114)	$ 32,726	$ (5,518)	$ 59,091	2,966	31,031	(2,114)	32,913	(5,705)	59,091
Net income										3,935		3,935
Other comprehensive income (loss)											(1,695)	(1,695)
Stock compensation expense								187				187
Cash dividends declared on common stock										(1,908)		(1,908)
Cumulative effect of change in accounting principle for marketable equity securities, net of tax at Dec. 31, 2017										187	(187)
Ending Balance at Sep. 30, 2018							2,966	31,218	(2,114)	34,940	(7,400)	59,610
Beginning balance at Jun. 30, 2018											(6,956)
Net income												1,161
Other comprehensive income (loss)											(444)	(444)
Ending Balance at Sep. 30, 2018							$ 2,966	$ 31,218	$ (2,114)	$ 34,940	$ (7,400)	$ 59,610

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Issuance of common stock (in shares)		58,445
Cash dividend per common share (in dollars per share)	$ 0.84	$ 0.81

XML

Note 1 - Nature of Operations and Basis of Presentation

9 Months Ended

Sep. 30, 2018

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,

2017,

as contained in the Corporation’s Annual Report on Form

10

-K for the year ended

December 

31,

2017

filed with the SEC.

The balance sheet at

December 

31,

2017

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

Note 2 - Mergers and Acquisitions

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Business Combination Disclosure [Text Block]

2. Mergers and Acquisitions

On

October 1, 2018,

the Corporation completed its acquisition of Community First Bancorp, Inc. (Community First), and its banking subsidiary Community First Bank, a Pennsylvania bank headquartered in Reynoldsville, Pennsylvania.

Under the terms of the merger agreement, Community First merged into the Corporation and shareholders of Community First received

1.2008

shares of the Corporation's common stock and

$6.95

in cash for each share of common stock of Community First or approximately

$15.6

 million in common stock and

$2.4

 million in cash in the aggregate. In addition, Community First Bank merged into the Bank.

The transaction added total consolidated assets, loans and deposits of approximately

$121.0

million,

$111.6

million and

$106.5

million, respectively.  Acquisition costs for the

three

and

nine

month periods were

$677,000

and

$1.0

million, respectively.  It is anticipated that the Corporation will recognize approximately

$2.6

million of additional merger costs during the

fourth

quarter. The initial accounting for the acquisition is incomplete as the fair value adjustments to the acquired assets and assumed liabilities are

not

finalized.

XML

Note 3 - Earnings Per Common Share

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

3. 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 and shares issued under stock options.

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				For the nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Earnings per common share - basic
Net income	$	1,161	$	1,707	$	3,935	$	3,704
Less: Preferred stock dividends		-		-		-		-
Net income available to common stockholders	$	1,161	$	1,707	$	3,935	$	3,704
Average common shares outstanding		2,271,139		2,204,949		2,271,139		2,174,210
Basic earnings per common share	$	0.51	$	0.77	$	1.73	$	1.70
Earnings per common share - diluted
Net income available to common stockholders	$	1,161	$	1,707	$	3,935	$	3,704
Average common shares outstanding		2,271,139		2,204,949		2,271,139		2,174,210
Add: Dilutive effects of assumed issuance of restricted stock and exercise of stock options		20,147		15,471		17,584		16,437
Average shares and dilutive potential common shares		2,291,286		2,220,420		2,288,723		2,190,647
Diluted earnings per common share	$	0.51	$	0.77	$	1.72	$	1.69
Stock options not considered in computing earnings per share because they were antidilutive		-		-		-		-

XML

Note 4 - Securities

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

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

4. Securities

Equity Securities

The Corporation held equity securities with fair values of

$473,000

and

$1.8

million at 

September 30, 2018

and

December 31, 2017,

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, 2018,

the Corporation recognized a loss of

$1,000

and a gain of

$62,000,

respectively, on the equity securities held at 

September 30, 2018.

During the

three

months ended

September 30, 2018,

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 loss of

$25,000.

Debt Securities - Available for Sale

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

September 

30,

2018

and

December 

31,

2017:

(Dollar amounts in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Available for sale:
September 30, 2018:
U.S. Treasury and federal agency	$	4,534	$	-	$	(139)	$	4,395
U.S. government sponsored entities and agencies		17,058		-		(508)		16,550
U.S. agency mortgage-backed securities: residential		28,526		-		(862)		27,664
U.S. agency collateralized mortgage obligations: residential		20,171		36		(1,002)		19,205
State and political subdivisions		22,943		3		(686)		22,260
Corporate debt securities		7,520		1		(86)		7,435
Total Securities available-for-sale	$	100,752	$	40	$	(3,283)	$	97,509
December 31, 2017:
U.S. Treasury and federal agency	$	4,541	$	-	$	(69)	$	4,472
U.S. government sponsored entities and agencies		14,136		2		(212)		13,926
U.S. agency mortgage-backed securities: residential		20,904		7		(153)		20,758
U.S. agency collateralized mortgage obligations: residential		22,607		25		(708)		21,924
State and political subdivisions		29,249		87		(96)		29,240
Corporate debt securities		9,009		38		(17)		9,030
Total Securities available-for-sale	$	100,446	$	159	$	(1,255)	$	99,350

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

September 

30,

2018.

Expected maturities

may

differ from contractual maturities because issuers

may

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

not

due at a single maturity and are shown separately.

(Dollar amounts in thousands)	Available for sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	1,924	$	1,912
Due after one year through five years		30,077		29,308
Due after five through ten years		15,305		14,803
Due after ten years		4,749		4,617
Mortgage-backed securities: residential		28,526		27,664
Collateralized mortgage obligations: residential		20,171		19,205
Total	$	100,752	$	97,509

Information pertaining to debt securities with gross unrealized losses at 

September 

30,

2018

and

December 

31,

2017,

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

(Dollar amounts in thousands)	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
September 30, 2018:
U.S. Treasury and federal agency	$	-	$	-	$	4,395	$	(139)	$	4,395	$	(139)
U.S. government sponsored entities and agencies		7,796		(134)		8,754		(374)		16,550		(508)
U.S. agency mortgage-backed securities: residential		21,938		(600)		5,726		(262)		27,664		(862)
U.S. agency collateralized mortgage obligations: residential		1,500		(5)		15,870		(997)		17,370		(1,002)
State and political subdivisions		17,386		(514)		4,325		(172)		21,711		(686)
Corporate debt securities		2,936		(68)		484		(18)		3,420		(86)
Total	$	51,556	$	(1,321)	$	39,554	$	(1,962)	$	91,110	$	(3,283)
December 31, 2017:
U.S. Treasury and federal agency	$	-	$	-	$	4,472	$	(69)	$	4,472	$	(69)
U.S. government sponsored entities and agencies		3,447		(42)		8,975		(170)		12,422		(212)
U.S. agency mortgage-backed securities: residential		9,659		(48)		6,581		(105)		16,240		(153)
U.S. agency collateralized mortgage obligations: residential		954		(16)		19,147		(692)		20,101		(708)
State and political subdivisions		10,510		(60)		3,487		(36)		13,997		(96)
Corporate debt securities		2,992		(16)		999		(1)		3,991		(17)
Total	$	27,562	$	(182)	$	43,661	$	(1,073)	$	71,223	$	(1,255)

Gains/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				For the nine months
	ended September 30,				ended September 30,
	2018		2017		2018		2017
Proceeds	$	5,888	$	-	$	12,683	$	18,195
(Losses) Gains		(4)		-		(34)		350
Tax provision related to gains		(1)		-		(7)		119

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

1

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

2

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

3

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

4

) whether the Corporation has the intent to sell the 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

133

debt securities in an unrealized loss position as of 

September 

30,

2018,

of which

56

were in an unrealized loss position for more than

12

months. Of these

56

securities,

24

were government-backed collateralized mortgage obligations, 

12

were state and political subdivision securities,

eight

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

six

were mortgage-backed securities,

five

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 its amortized cost basis, the Corporation does

not

consider these debt securities with unrealized losses as of 

September 

30,

2018

to be other-than-temporarily impaired.

XML

Note 5 - Loans Receivable and Related Allowance for Loan Losses

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

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

5. 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,		December 31,
	2018		2017
Mortgage loans on real estate:
Residential first mortgages	$	237,106	$	221,823
Home equity loans and lines of credit		99,668		99,940
Commercial real estate		200,169		193,068
Total		536,943		514,831
Other loans:
Commercial business		52,594		58,941
Consumer		8,948		9,589
Total		61,542		68,530
Total loans, gross		598,485		583,361
Less allowance for loan losses		6,360		6,127
Total loans, net	$	592,125	$	577,234

Included in total loans above are net deferred costs o

f

$1.9

 million a

nd

$1.5

million at

September 30, 2018

and

December 

31,

2017,

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, 2018,

there was

no

allowance for loan losses allocated to loans acquired in the

April 2016

acquisition of United American Savings Bank or the

September 2017

acquisition of Northern Hancock Bank and Trust Co.

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

(Dollar amounts in thousands)

			Home Equity
	Residential		& Lines		Commercial		Commercial
	Mortgages		of Credit		Real Estate		Business		Consumer		Total
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
At September 30, 2018:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	7	$	-	$	-	$	-	$	-	$	7
Acquired loans		-		-		-		-		-		-
Collectively evaluated for impairment		2,154		659		2,970		510		60		6,353
Total	$	2,161	$	659	$	2,970	$	510	$	60	$	6,360
Total loans:
Individually evaluated for impairment	$	401	$	6	$	2,512	$	39	$	-	$	2,958
Acquired loans		17,767		9,817		22,784		1,778		1,080		53,226
Collectively evaluated for impairment		218,938		89,845		174,873		50,777		7,868		542,301
Total	$	237,106	$	99,668	$	200,169	$	52,594	$	8,948	$	598,485
At December 31, 2017:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	7	$	-	$	-	$	-	$	-	$	7
Acquired loans		-		-		-		-		-		-
Collectively evaluated for impairment		2,083		646		2,753		585		53		6,120
Total	$	2,090	$	646	$	2,753	$	585	$	53	$	6,127
Total loans:
Individually evaluated for impairment	$	425	$	8	$	914	$	569	$	-	$	1,916
Acquired loans		20,300		10,873		27,404		1,451		2,893		62,921
Collectively evaluated for impairment		201,098		89,059		164,750		56,921		6,696		518,524
Total	$	221,823	$	99,940	$	193,068	$	58,941	$	9,589	$	583,361
Three months ended September 30, 2017:
Allowance for loan losses:
Beginning Balance	$	1,994	$	639	$	2,460	$	621	$	53	$	5,767
Charge-offs		(2)		(33)		(36)		(4)		(26)		(101)
Recoveries		-		1		2		-		1		4
Provision		46		20		200		(21)		25		270
Ending Balance	$	2,038	$	627	$	2,626	$	596	$	53	$	5,940
Nine months ended September 30, 2017:
Allowance for loan losses:
Beginning Balance	$	1,846	$	633	$	2,314	$	700	$	52	$	5,545
Charge-offs		(38)		(44)		(126)		(14)		(53)		(275)
Recoveries		-		21		6		-		10		37
Provision		230		17		432		(90)		44		633
Ending Balance	$	2,038	$	627	$	2,626	$	596	$	53	$	5,940

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
							For the three months
	As of September 30, 2018						ended September 30, 2018
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		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
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		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
					For the three months
	As of September 30, 2018				ended September 30, 2018
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		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
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		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

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,

2017:

(Dollar amounts in thousands)

	Impaired Loans with Specific Allowance
							For the year ended
	As of December 31, 2017						December 31, 2017
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	75	$	75	$	7	$	88	$	3	$	3
Home equity and lines of credit		8		8		-		2		-		-
Commercial real estate		-		-		-		111		-		-
Commercial business		-		-		-		118		-		-
Consumer		-		-		-		-		-		-
Total	$	83	$	83	$	7	$	319	$	3	$	3

	Impaired Loans with No Specific Allowance
					For the year ended
	As of December 31, 2017				December 31, 2017
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	461	$	350	$	289	$	8	$	8
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		1,089		914		855		3		3
Commercial business		569		569		498		3		3
Consumer		-		-		-		-		-
Total	$	2,119	$	1,833	$	1,642	$	14	$	14

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, 2017:

(Dollar amounts in thousands)

	Impaired Loans with Specific Allowance
							For the three months
	As of September 30, 2017						ended September 30, 2017
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	76	$	76	$	8	$	76	$	-	$	-
Home equity and lines of credit		-		-		-		-		-		-
Commercial real estate		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	76	$	76	$	8	$	76	$	-	$	-

	For the nine months
	ended September 30, 2017
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		in Period
Residential first mortgages	$	91	$	2	$	2
Home equity and lines of credit		-		-		-
Commercial real estate		139		-		-
Commercial business		147		-		-
Consumer		-		-		-
Total	$	377	$	2	$	2

	Impaired Loans with No Specific Allowance
					For the three months
	As of September 30, 2017				ended September 30, 2017
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	469	$	357	$	362	$	1	$	1
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		1,113		939		957		1		1
Commercial business		585		585		592		1		1
Consumer		-		-		-		-		-
Total	$	2,167	$	1,881	$	1,911	$	3	$	3

	For the nine months
	ended September 30, 2017
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		in Period
Residential first mortgages	$	274	$	5	$	5
Home equity and lines of credit		-		-		-
Commercial real estate		840		2		2
Commercial business		481		2		2
Consumer		-		-		-
Total	$	1,595	$	9	$	9

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, 2018

and

December 

31,

2017,

the Corporation had

$407,000

and

$433,000,

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

$7,000

a

nd

$7,000

of specific allowance for these loans at

September 30, 2018

and

December 

31,

2017,

respectively.

During the

three

and

nine

month periods ended

September 30, 2018 ,

the Corporation did

not

modify any loans as TDRs.  During the

three

month period ended

September 30, 2017,

the Corporation did

not

modify any loans as TDRs.  During the 

nine

month period ended

September 30, 2017,

the Corporation modified

one

residential mortgage loan with a recorded investment of

$323,000

due to a bankruptcy order. At

September 30, 2017,

the Corporation did

not

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

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

month periods ended

September 30, 2018

and

2017,

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, 2018

and

December 

31,

2017:

(Dollar amounts in thousands)

					Special
	Not Rated		Pass		Mention		Substandard		Doubtful		Total
September 30, 2018:
Residential first mortgages	$	235,817	$	-	$	-	$	1,289	$	-	$	237,106
Home equity and lines of credit		98,647		-		-		1,021		-		99,668
Commercial real estate		-		189,273		3,785		7,111		-		200,169
Commercial business		-		51,381		150		1,063		-		52,594
Consumer		8,851		-		-		97		-		8,948
Total	$	343,315	$	240,654	$	3,935	$	10,581	$	-	$	598,485
December 31, 2017:
Residential first mortgages	$	220,730	$	-	$	-	$	1,093	$	-	$	221,823
Home equity and lines of credit		98,946		-		-		994		-		99,940
Commercial real estate		-		182,460		2,744		7,864		-		193,068
Commercial business		-		56,960		477		1,504		-		58,941
Consumer		9,443		-		-		146		-		9,589
Total	$	329,119	$	239,420	$	3,221	$	11,601	$	-	$	583,361

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, 2018

and

December 

31,

2017:

(Dollar amounts in thousands)

	Performing						Nonperforming
	Accruing		Accruing		Accruing		Accruing
	Loans Not		30-59 Days		60-89 Days		90 Days +				Total
	Past Due		Past Due		Past Due		Past Due		Nonaccrual		Loans
September 30, 2018:
Residential first mortgages	$	233,448	$	2,019	$	427	$	129	$	1,083	$	237,106
Home equity and lines of credit		97,716		906		146		379		521		99,668
Commercial real estate		196,184		737		8		-		3,240		200,169
Commercial business		52,233		322		-		-		39		52,594
Consumer		8,704		97		50		27		70		8,948
Total loans	$	588,285	$	4,081	$	631	$	535	$	4,953	$	598,485
December 31, 2017:
Residential first mortgages	$	218,515	$	1,936	$	357	$	159	$	856	$	221,823
Home equity and lines of credit		98,112		598		370		334		526		99,940
Commercial real estate		190,451		1,026		430		197		964		193,068
Commercial business		58,058		74		225		-		584		58,941
Consumer		9,162		273		81		-		73		9,589
Total loans	$	574,298	$	3,907	$	1,463	$	690	$	3,003	$	583,361

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

September 30, 2018

and

December 

31,

2017:

(Dollar amounts in thousands)

	Not		30-59 Days		60-89 Days		90 Days +		Total
	Past Due		Past Due		Past Due		Past Due		Loans
September 30, 2018:
Residential first mortgages	$	346	$	-	$	74	$	663	$	1,083
Home equity and lines of credit		7		-		-		514		521
Commercial real estate		2,665		-		268		307		3,240
Commercial business		39		-		-		-		39
Consumer		-		-		-		70		70
Total loans	$	3,057	$	-	$	342	$	1,554	$	4,953
December 31, 2017:
Residential first mortgages	$	366	$	-	$	75	$	415	$	856
Home equity and lines of credit		8		-		-		518		526
Commercial real estate		341		-		-		623		964
Commercial business		569		-		-		15		584
Consumer		-		-		-		73		73
Total loans	$	1,284	$	-	$	75	$	1,644	$	3,003

XML

Note 6 - Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

6. Goodwill and Intangible Assets

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

September 30, 2018

and

December 

31,

2017:

 

(Dollar amounts in thousands)	September 30, 2018				December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill	$	10,288	$	-	$	10,288	$	-
Core deposit intangibles		4,426		4,148		4,426		3,945
Total	$	14,714	$	4,148	$	14,714	$	3,945

Goodwill resulted from

four

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

2017

or in the

first

nine

months of

2018.

The core deposit intangible asset, resulting from

three

acquisitions, is amortized using the double declining balance method 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

month periods ending

September 30, 2018

the Corporation recorded intangible amortization expense totaling

$67,000

and

$203,000,

respectively, compared to

$58,000

and

$177,000,

respectively for the same periods in

2017.

XML

Note 7 - Stock Compensation Plan

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

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

7. Stock Compensation Plan

In

April 2014,

the Corporation adopted the

2014

Stock Incentive Plan (the

2014

Plan), which is shareholder approved 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, 2018,

52,533

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, 2018

there are

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, 2018,

and changes during the period then ended is presented below:

			Weighted-Average
	Shares		Grant-date Fair Value
Nonvested at January 1, 2018		33,400	$	27.70
Granted		-		-
Vested		-		-
Forfeited		(2,500)		27.17
Nonvested as of September 30, 2018		30,900	$	27.74

For the

three

and

nine

month periods ended

September 30, 2018,

the Corporation recognized stock compensation expense o

f

$37,000

and

$187,000,

respectively, compared t

o

$55,000

and

$164,000,

respectively, for the same period in

2017.

As of

September 30, 2018,

there was

$411,000

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.

XML

Note 8 - Fair Value

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

8. 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 dates 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.

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

three

levels of inputs that

may

be used to measure fair value.

Level

1

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

Level

2

: Significant other observable inputs other than Level

1

prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are

not

active; or other inputs that are observable or can be corroborated by observable market data.

Level

3

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

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

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

Securities (debt-available for sale, equities)

– 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. The Level

3

corporate debt securities consist of certain subordinated notes which are priced at par because management has determined that the par value approximates the fair value of these instruments. The Level

3

equity security valuations were supported by an analysis prepared by the Corporation which relies on inputs such as the security issuer’s publicly attainable financial information, multiples derived from prices in observed transactions involving comparable businesses and other market, financial and nonfinancial factors.

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, 2018

and

December 31, 2017,

the Corporation did

not

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

no

additional provision for loan losses recorded for impaired loans during the

three

and

nine

 month periods ended

September 30, 2018

and

2017.

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, 2018

and

December 31, 2017,

the Corporation did

not

have any OREO measured at fair value.

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 appraisal 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 recurring basis, the fair value measurements by level within the fair value hierarchy are as follows:

(Dollar amounts in thousands)			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Market		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
September 30, 2018:
Securities available for sale
U.S. Treasury and federal agency	$	4,395	$	4,395	$	-	$	-
U.S. government sponsored entities and agencies		16,550		-		16,550		-
U.S. agency mortgage-backed securities: residential		27,664		-		27,664		-
U.S. agency collateralized mortgage obligations: residential		19,205		-		19,205		-
State and political subdivision		22,260		-		22,260		-
Corporate debt securities		7,435		-		3,935		3,500
Total	$	97,509	$	4,395	$	89,614	$	3,500
Equity securities	$	473	$	473	$	-	$	-
December 31, 2017:
Securities available for sale
U.S. Treasury and federal agency	$	4,472	$	4,472	$	-	$	-
U.S. government sponsored entities and agencies		13,926		-		13,926		-
U.S. agency mortgage-backed securities: residential		20,758		-		20,758		-
U.S. agency collateralized mortgage obligations: residential		21,924		-		21,924		-
State and political subdivisions		29,240		-		29,240		-
Corporate debt securities		9,030		-		1,032		7,998
Total	$	99,350	$	4,472	$	86,880	$	7,998
Equity securities	$	1,817	$	1,683	$	-	$	134

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

month period ended

September 30, 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 the

nine

month period,

$25,000

in Level

3

equity securities were sold from the portfolio. For the same period in

2017,

the Corporation had

no

transfers between levels. The following table presents changes in Level

3

assets measured on a recurring basis for the

three

and

nine

month periods ended

September 30, 2018

and

2017:

(Dollar amounts in thousands)	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Balance at the beginning of the period	$	3,500	$	135	$	8,132	$	136
Total gains or losses (realized/unrealized):		-		-		-		-
Included in earnings		-		-		1		-
Included in other comprehensive income		-		(1)		-		(2)
Acquired		-		-		-		-
Sold out of Level 3		-		-		(25)		-
Transfers in and/or out of Level 3		-		-		(4,608)		-
Balance at the end of the period	$	3,500	$	134	$	3,500	$	134

The Corporation had

no

OREO assets measured at fair value on a non-recurring basis at

September 30, 2018

and

December 31, 2017.

The Corporation had an impaired residential mortgage loan totaling

$62,000

and an impaired home equity loan totaling

$6,000

at

September 

30,

2018

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

December 31, 2017

these loans were valued at

$68,000

and

$8,000,

respectively.

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

September 30, 2018

and

December 

31,

2017:

(Dollar amounts in thousands)
	Carrying		Fair Value Measurements using:
Description	Amount		Total		Level 1		Level 2		Level 3
September 30, 2018:
Financial Assets:
Cash and cash equivalents	$	22,680	$	22,680	$	22,680	$	-	$	-
Securities-available for sale		97,509		97,509		4,395		89,614		3,500
Securities-equities		473		473		473		-		-
Loans held for sale		120		120		-		120		-
Loans, net		592,125		583,741		-		-		583,741
Federal bank stock		4,466		N/A		N/A		N/A		N/A
Accrued interest receivable		2,302		2,302		88		353		1,861
Total	$	719,675	$	706,825	$	27,636	$	90,087	$	589,102
Financial Liabilities:
Deposits		682,361		685,333		513,011		172,322		-
Borrowed funds		19,800		19,414		-		19,414		-
Accrued interest payable		460		460		38		422		-
Total	$	702,621	$	705,207	$	513,049	$	192,158	$	-

	Carrying		Fair Value Measurements using:
	Amount		Total		Level 1		Level 2		Level 3
December 31, 2017:
Financial Assets:
Cash and cash equivalents	$	14,374	$	14,374	$	14,374	$	-	$	-
Securities-available for sale		99,350		99,350		4,472		86,880		7,998
Securities-equities		1,817		1,817		1,683		-		134
Loans held for sale		504		504		-		504		-
Loans, net		577,234		577,616		-		-		577,616
Federal bank stock		4,662		N/A		N/A		N/A		N/A
Accrued interest receivable		2,217		2,217		59		338		1,820
Total	$	700,158	$	695,878	$	20,588	$	87,722	$	587,568
Financial Liabilities:
Deposits		654,643		657,414		483,956		173,458		-
Borrowed funds		26,000		25,499		-		25,499		-
Accrued interest payable		413		413		23		390		-
Total	$	681,056	$	683,326	$	483,979	$	199,347	$	-

XML

Note 9 - Regulatory Matters

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

9. 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

2015,

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

$500

million to

$1

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 by

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 is being phased in from

0.0%

for

2015

to

2.50%

by

2019.

The capital conservation buffer for

2018

is

1.875%

and was

1.25%

for

2017

and

0.625%

for

2016.

The net unrealized gain or loss on available for sale securities is

not

included in computing regulatory capital. Management believes as of

September 30, 2018,

the Bank meets all capital adequacy requirements to which they are 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, 2018,

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, 2018				December 31, 2017
	Amount		Ratio		Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	66,711		13.22%	$	64,221		12.96%
For capital adequacy purposes		40,381		8.00%		39,630		8.00%
To be well capitalized		50,476		10.00%		49,537		10.00%
Tier 1 capital to risk-weighted assets:
Actual	$	60,401		11.97%	$	58,088		11.73%
For capital adequacy purposes		30,286		6.00%		29,722		6.00%
To be well capitalized		40,381		8.00%		39,630		8.00%
Common Equity Tier 1 capital to risk-weighted assets:
Actual	$	60,401		11.97%	$	58,088		11.73%
For capital adequacy purposes		22,714		4.50%		22,292		4.50%
To be well capitalized		32,809		6.50%		32,199		6.50%
Tier 1 capital to average assets:
Actual	$	60,401		7.90%	$	58,088		7.71%
For capital adequacy purposes		30,574		4.00%		30,117		4.00%
To be well capitalized		38,218		5.00%		37,647		5.00%

XML

Note 10 - Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

10. 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, 2018

and

2017

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

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2018	$	(2,117)	$	(4,839)	$	(6,956)
Other comprehensive income before reclassification		(447)		-		(447)
Amounts reclassified from accumulated other comprehensive income (loss)		3		-		3
Net current period other comprehensive income		(444)		-		(444)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561)	$	(4,839)	$	(7,400)

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the three months		Statement Where Net
Comprehensive Income Components	ended September 30, 2018		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(4)	Net gain on sale of available-for-sale securities
Unrealized gains and losses on available-for-sale securities		-	Other than temporary impairment losses
		1	Provision for income taxes
Total reclassifications for the period	$	(3)	Net of tax

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2017	$	(307)	$	(3,812)	$	(4,119)
Other comprehensive income before reclassification		153		-		153
Amounts reclassified from accumulated other comprehensive income (loss)		-		-		-
Net current period other comprehensive income		153		-		153
Accumulated Other Comprehensive Income (Loss) at September 30, 2017	$	(154)	$	(3,812)	$	(3,966)

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the three months		Statement Where Net
Comprehensive Loss Components	ended September 30, 2017		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	-	Net gain on sale of available-for-sale securities
	$	-	Other than temporary impairment losses
		-	Provision for income taxes
Total reclassifications for the period	$	-	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, 2018

and

2017

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

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2018	$	(679)	$	(4,839)	$	(5,518)
Other comprehensive income before reclassification		(1,722)		-		(1,722)
Amounts reclassified from accumulated other comprehensive income (loss)		27		-		27
Net current period other comprehensive income		(1,695)		-		(1,695)
Cumulative effect of adoption of ASU 2016-01		(187)		-		(187)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561)	$	(4,839)	$	(7,400)

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the nine months		Statement Where Net
Comprehensive Income Components	ended September 30, 2018		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(34)	Net gain on sale of available-for-sale securities
Unrealized gains and losses on available-for-sale securities		-	Other than temporary impairment losses
		7	Provision for income taxes
Total reclassifications for the period	$	(27)	Net of tax

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2017	$	(679)	$	(3,812)	$	(4,491)
Other comprehensive income before reclassification		421		-		421
Amounts reclassified from accumulated other comprehensive income (loss)		104		-		104
Net current period other comprehensive income		525		-		525
Accumulated Other Comprehensive Income (Loss) at September 30, 2017	$	(154)	$	(3,812)	$	(3,966)

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the nine months		Statement Where Net
Comprehensive Income Components	ended September 30, 2017		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	350	Net gain on sale of available-for-sale securities
Unrealized gains and losses on available-for-sale securities		(508)	Other than temporary impairment losses
		54	Provision for income taxes
Total reclassifications for the period	$	(104)	Net of tax

XML

Note 11 - Revenue Recognition

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

11. 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, 2018

and

2017:

(Dollar amounts in thousands)	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Non Interest Income
In-scope of Topic 606:
Service charges on deposits
Maintenance fees	$	38	$	40	$	114	$	118
Overdraft fees		417		341		1,100		965
Other fees		73		66		214		207
Electronic banking fees		327		292		971		855
Noninterest income (in-scope of Topic 606)		855		739		2,399		2,145
Noninterest income (out-of-scope of Topic 606)		207		1,535		610		1,851
Total noninterest income	$	1,062	$	2,274	$	3,009	$	3,996

( 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.

XML

Note 12 - Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

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

12. Recent Accounting Pronouncements

Newly Issued

Not

Yet Effective Accounting Standards

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

is effective for annual periods beginning after

December 15, 2018,

and interim periods therein. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Corporation has analyzed data on leased assets and purchased software to manage lease accounting. The adoption of this guidance is expected to increase both assets and liabilities, but is

not

expected to have a material impact on the consolidated statement of income.

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 is currently in the developmental stages of collecting 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.

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.

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, 2019,

and interim periods within fiscal years beginning after

December 15, 2020.

Early adoption is permitted, including adoption in an interim period. The Corporation is currently evaluating the potential impact of ASU

2017

-

08

on its financial statements and disclosures.

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 is effective for fiscal years beginning after

December 15, 2018,

and interim periods therein. Early adoption is permitted. The Corporation is currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is

not

expected to have a material impact.

In

August 2018,

the FASB issued ASU

2018

-

13

"Fair Value Measurement".  ASU

2018

-

13

eliminates, adds and modifies certain disclosure requirements for fair value measurements.  Disclosures for transfers between Level

1

and Level

2,

the policy for timing of transfers between levels, and the valuation processes for Level

3

fair value measurement will be removed.  Additional disclosures will be required relating to (a) changes in unrealized gains/losses in OCI for Level

3

fair value measurements for assets held at the end of the reporting period, and (b) the process of calculating weighted average for significant unobservable inputs used to develop Level

3

fair value measurements.  The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after

December 15, 2019. 

Early adoption is permitted.  The Corporation is currently evaluating the potential impact of ASU

2018

-

13

on its financial statements and disclosures.

In

August 2018,

the FASB issued ASU

2018

-

14

"Compensation - Retirement Benefits - Defined Benefit Plans".  ASU

2018

-

14

removes disclosures pertaining to (a) the amounts of AOCI expected to be recognized as pension costs over the next fiscal year, (b) the amount and timing of plan assets expected to be returned to the employer, and (c) the effect of

one

-percentage-point change in the assumed health care trends on (i) service and interest costs and (ii) post-retirement health care benefit obligation.  A disclosure will be added requiring an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.  The amendments in this update are effective retrospectively for annual periods and interim periods within those annual periods beginning after

December 15, 2020. 

Early adoption is permitted.  The Corporation is currently evaluating the potential impact of ASU

2018

-

14

on its financial statements and disclosures.

Adoption of New Accounting Policies

In

March 2017,

the FASB issued ASU

2017

-

07,

"Compensation – Retirement Benefits (Topic

715

): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The amendments in this update require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendments in this update improve the consistency, transparency, and usefulness of financial information to users that have communicated that the service cost component generally is analyzed differently from the other components of net benefit cost. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after

December 15, 2017.

The adoption of the new guidance did

not

have a material impact on the consolidated financial statements.

In

May 2014,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

2014

-

9

“Revenue from Contracts with Customers”. ASU

2014

-

9

provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance does

not

apply to revenue associated with financial instruments, including loans and securities. The Corporation has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was

not

necessary. The Corporation generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. The Corporation has evaluated revenue streams within noninterest income to assess the applicability of this guidance and determined that service charges on deposits and electronic banking fees within the scope of this ASU. Because performance obligations are satisfied as services are rendered and the fees are fixed, there is little judgment involved in applying the guidance that significantly affects the determination of the amount and timing of revenue from contracts with customers. The adoption of this guidance on

January 1, 2018

did

not

have a material impact on the Corporation's financial statements.  See Note

11

for further detail related to the adoption of this standard.

In

January 2016,

the FASB issued ASU

2016

-

1

“Recognition and Measurement of Financial Assets and Financial Liabilities”. ASU

2016

-

1

revises the accounting for the classification and measurement of investments in equity securities and revises the presentation of certain fair value changes for financial liabilities measured at fair value. For equity securities, the guidance in ASU

2016

-

1

requires equity investments to be measured at fair value with changes in fair value recognized in net income. For financial liabilities that are measured at fair value in accordance with the fair value option, the guidance requires presenting in other comprehensive income the change in fair value that relates to a change in instrument-specific credit risk. ASU

2016

-

1

also eliminates the disclosure assumptions used to estimate fair value for financial instruments measured at amortized cost and requires disclosure of an exit price notion in determining the fair value of financial instruments measured at amortized cost. ASU

2016

-

1

was effective for interim and annual periods beginning after

December 15, 2017.

The adoption of ASU

2016

-

1

did

not

have a significant impact on the Corporation's financial statements.

In

August 2016,

the FASB issued ASU

2016

-

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)”

.

ASU

2016

-

15

clarifies the presentation of specific types of cash flow receipts and payments, including the payment of debt prepayment or debt extinguishment costs, contingent consideration cash payments paid subsequent to the acquisition date and proceeds from settlement of BOLI policies. This guidance was effective for fiscal years beginning after

December 15, 2017.

The adoption of ASU

2016

-

15

did

not

have an impact the Corporation's financial statements and disclosures.

XML

Note 3 - Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2018

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				For the nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Earnings per common share - basic
Net income	$	1,161	$	1,707	$	3,935	$	3,704
Less: Preferred stock dividends		-		-		-		-
Net income available to common stockholders	$	1,161	$	1,707	$	3,935	$	3,704
Average common shares outstanding		2,271,139		2,204,949		2,271,139		2,174,210
Basic earnings per common share	$	0.51	$	0.77	$	1.73	$	1.70
Earnings per common share - diluted
Net income available to common stockholders	$	1,161	$	1,707	$	3,935	$	3,704
Average common shares outstanding		2,271,139		2,204,949		2,271,139		2,174,210
Add: Dilutive effects of assumed issuance of restricted stock and exercise of stock options		20,147		15,471		17,584		16,437
Average shares and dilutive potential common shares		2,291,286		2,220,420		2,288,723		2,190,647
Diluted earnings per common share	$	0.51	$	0.77	$	1.72	$	1.69
Stock options not considered in computing earnings per share because they were antidilutive		-		-		-		-

XML

Note 4 - Securities (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

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

(Dollar amounts in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Available for sale:
September 30, 2018:
U.S. Treasury and federal agency	$	4,534	$	-	$	(139)	$	4,395
U.S. government sponsored entities and agencies		17,058		-		(508)		16,550
U.S. agency mortgage-backed securities: residential		28,526		-		(862)		27,664
U.S. agency collateralized mortgage obligations: residential		20,171		36		(1,002)		19,205
State and political subdivisions		22,943		3		(686)		22,260
Corporate debt securities		7,520		1		(86)		7,435
Total Securities available-for-sale	$	100,752	$	40	$	(3,283)	$	97,509
December 31, 2017:
U.S. Treasury and federal agency	$	4,541	$	-	$	(69)	$	4,472
U.S. government sponsored entities and agencies		14,136		2		(212)		13,926
U.S. agency mortgage-backed securities: residential		20,904		7		(153)		20,758
U.S. agency collateralized mortgage obligations: residential		22,607		25		(708)		21,924
State and political subdivisions		29,249		87		(96)		29,240
Corporate debt securities		9,009		38		(17)		9,030
Total Securities available-for-sale	$	100,446	$	159	$	(1,255)	$	99,350

Investments Classified by Contractual Maturity Date [Table Text Block]

(Dollar amounts in thousands)	Available for sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	1,924	$	1,912
Due after one year through five years		30,077		29,308
Due after five through ten years		15,305		14,803
Due after ten years		4,749		4,617
Mortgage-backed securities: residential		28,526		27,664
Collateralized mortgage obligations: residential		20,171		19,205
Total	$	100,752	$	97,509

Schedule of Unrealized Loss on Investments [Table Text Block]

(Dollar amounts in thousands)	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
September 30, 2018:
U.S. Treasury and federal agency	$	-	$	-	$	4,395	$	(139)	$	4,395	$	(139)
U.S. government sponsored entities and agencies		7,796		(134)		8,754		(374)		16,550		(508)
U.S. agency mortgage-backed securities: residential		21,938		(600)		5,726		(262)		27,664		(862)
U.S. agency collateralized mortgage obligations: residential		1,500		(5)		15,870		(997)		17,370		(1,002)
State and political subdivisions		17,386		(514)		4,325		(172)		21,711		(686)
Corporate debt securities		2,936		(68)		484		(18)		3,420		(86)
Total	$	51,556	$	(1,321)	$	39,554	$	(1,962)	$	91,110	$	(3,283)
December 31, 2017:
U.S. Treasury and federal agency	$	-	$	-	$	4,472	$	(69)	$	4,472	$	(69)
U.S. government sponsored entities and agencies		3,447		(42)		8,975		(170)		12,422		(212)
U.S. agency mortgage-backed securities: residential		9,659		(48)		6,581		(105)		16,240		(153)
U.S. agency collateralized mortgage obligations: residential		954		(16)		19,147		(692)		20,101		(708)
State and political subdivisions		10,510		(60)		3,487		(36)		13,997		(96)
Corporate debt securities		2,992		(16)		999		(1)		3,991		(17)
Total	$	27,562	$	(182)	$	43,661	$	(1,073)	$	71,223	$	(1,255)

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

(Dollar amounts in thousands)	For the three months				For the nine months
	ended September 30,				ended September 30,
	2018		2017		2018		2017
Proceeds	$	5,888	$	-	$	12,683	$	18,195
(Losses) Gains		(4)		-		(34)		350
Tax provision related to gains		(1)		-		(7)		119

XML

Note 5 - Loans Receivable and Related Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

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

(Dollar amounts in thousands)	September 30,		December 31,
	2018		2017
Mortgage loans on real estate:
Residential first mortgages	$	237,106	$	221,823
Home equity loans and lines of credit		99,668		99,940
Commercial real estate		200,169		193,068
Total		536,943		514,831
Other loans:
Commercial business		52,594		58,941
Consumer		8,948		9,589
Total		61,542		68,530
Total loans, gross		598,485		583,361
Less allowance for loan losses		6,360		6,127
Total loans, net	$	592,125	$	577,234

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

			Home Equity
	Residential		& Lines		Commercial		Commercial
	Mortgages		of Credit		Real Estate		Business		Consumer		Total
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
At September 30, 2018:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	7	$	-	$	-	$	-	$	-	$	7
Acquired loans		-		-		-		-		-		-
Collectively evaluated for impairment		2,154		659		2,970		510		60		6,353
Total	$	2,161	$	659	$	2,970	$	510	$	60	$	6,360
Total loans:
Individually evaluated for impairment	$	401	$	6	$	2,512	$	39	$	-	$	2,958
Acquired loans		17,767		9,817		22,784		1,778		1,080		53,226
Collectively evaluated for impairment		218,938		89,845		174,873		50,777		7,868		542,301
Total	$	237,106	$	99,668	$	200,169	$	52,594	$	8,948	$	598,485
At December 31, 2017:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	7	$	-	$	-	$	-	$	-	$	7
Acquired loans		-		-		-		-		-		-
Collectively evaluated for impairment		2,083		646		2,753		585		53		6,120
Total	$	2,090	$	646	$	2,753	$	585	$	53	$	6,127
Total loans:
Individually evaluated for impairment	$	425	$	8	$	914	$	569	$	-	$	1,916
Acquired loans		20,300		10,873		27,404		1,451		2,893		62,921
Collectively evaluated for impairment		201,098		89,059		164,750		56,921		6,696		518,524
Total	$	221,823	$	99,940	$	193,068	$	58,941	$	9,589	$	583,361
Three months ended September 30, 2017:
Allowance for loan losses:
Beginning Balance	$	1,994	$	639	$	2,460	$	621	$	53	$	5,767
Charge-offs		(2)		(33)		(36)		(4)		(26)		(101)
Recoveries		-		1		2		-		1		4
Provision		46		20		200		(21)		25		270
Ending Balance	$	2,038	$	627	$	2,626	$	596	$	53	$	5,940
Nine months ended September 30, 2017:
Allowance for loan losses:
Beginning Balance	$	1,846	$	633	$	2,314	$	700	$	52	$	5,545
Charge-offs		(38)		(44)		(126)		(14)		(53)		(275)
Recoveries		-		21		6		-		10		37
Provision		230		17		432		(90)		44		633
Ending Balance	$	2,038	$	627	$	2,626	$	596	$	53	$	5,940

Impaired Financing Receivables [Table Text Block]

	Impaired Loans with Specific Allowance
							For the three months
	As of September 30, 2018						ended September 30, 2018
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		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
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		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
					For the three months
	As of September 30, 2018				ended September 30, 2018
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		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
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		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

	Impaired Loans with Specific Allowance
							For the year ended
	As of December 31, 2017						December 31, 2017
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	75	$	75	$	7	$	88	$	3	$	3
Home equity and lines of credit		8		8		-		2		-		-
Commercial real estate		-		-		-		111		-		-
Commercial business		-		-		-		118		-		-
Consumer		-		-		-		-		-		-
Total	$	83	$	83	$	7	$	319	$	3	$	3

	Impaired Loans with No Specific Allowance
					For the year ended
	As of December 31, 2017				December 31, 2017
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	461	$	350	$	289	$	8	$	8
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		1,089		914		855		3		3
Commercial business		569		569		498		3		3
Consumer		-		-		-		-		-
Total	$	2,119	$	1,833	$	1,642	$	14	$	14

	Impaired Loans with Specific Allowance
							For the three months
	As of September 30, 2017						ended September 30, 2017
											Cash Basis
	Unpaid						Average		Interest Income		Interest
	Principal		Recorded		Related		Recorded		Recognized		Recognized
	Balance		Investment		Allowance		Investment		in Period		in Period
Residential first mortgages	$	76	$	76	$	8	$	76	$	-	$	-
Home equity and lines of credit		-		-		-		-		-		-
Commercial real estate		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	76	$	76	$	8	$	76	$	-	$	-

	For the nine months
	ended September 30, 2017
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		in Period
Residential first mortgages	$	91	$	2	$	2
Home equity and lines of credit		-		-		-
Commercial real estate		139		-		-
Commercial business		147		-		-
Consumer		-		-		-
Total	$	377	$	2	$	2

	Impaired Loans with No Specific Allowance
					For the three months
	As of September 30, 2017				ended September 30, 2017
									Cash Basis
	Unpaid				Average		Interest Income		Interest
	Principal		Recorded		Recorded		Recognized		Recognized
	Balance		Investment		Investment		in Period		in Period
Residential first mortgages	$	469	$	357	$	362	$	1	$	1
Home equity and lines of credit		-		-		-		-		-
Commercial real estate		1,113		939		957		1		1
Commercial business		585		585		592		1		1
Consumer		-		-		-		-		-
Total	$	2,167	$	1,881	$	1,911	$	3	$	3

	For the nine months
	ended September 30, 2017
					Cash Basis
	Average		Interest Income		Interest
	Recorded		Recognized		Recognized
	Investment		in Period		in Period
Residential first mortgages	$	274	$	5	$	5
Home equity and lines of credit		-		-		-
Commercial real estate		840		2		2
Commercial business		481		2		2
Consumer		-		-		-
Total	$	1,595	$	9	$	9

Financing Receivable Credit Quality Indicators [Table Text Block]

					Special
	Not Rated		Pass		Mention		Substandard		Doubtful		Total
September 30, 2018:
Residential first mortgages	$	235,817	$	-	$	-	$	1,289	$	-	$	237,106
Home equity and lines of credit		98,647		-		-		1,021		-		99,668
Commercial real estate		-		189,273		3,785		7,111		-		200,169
Commercial business		-		51,381		150		1,063		-		52,594
Consumer		8,851		-		-		97		-		8,948
Total	$	343,315	$	240,654	$	3,935	$	10,581	$	-	$	598,485
December 31, 2017:
Residential first mortgages	$	220,730	$	-	$	-	$	1,093	$	-	$	221,823
Home equity and lines of credit		98,946		-		-		994		-		99,940
Commercial real estate		-		182,460		2,744		7,864		-		193,068
Commercial business		-		56,960		477		1,504		-		58,941
Consumer		9,443		-		-		146		-		9,589
Total	$	329,119	$	239,420	$	3,221	$	11,601	$	-	$	583,361

Past Due Financing Receivables [Table Text Block]

	Performing						Nonperforming
	Accruing		Accruing		Accruing		Accruing
	Loans Not		30-59 Days		60-89 Days		90 Days +				Total
	Past Due		Past Due		Past Due		Past Due		Nonaccrual		Loans
September 30, 2018:
Residential first mortgages	$	233,448	$	2,019	$	427	$	129	$	1,083	$	237,106
Home equity and lines of credit		97,716		906		146		379		521		99,668
Commercial real estate		196,184		737		8		-		3,240		200,169
Commercial business		52,233		322		-		-		39		52,594
Consumer		8,704		97		50		27		70		8,948
Total loans	$	588,285	$	4,081	$	631	$	535	$	4,953	$	598,485
December 31, 2017:
Residential first mortgages	$	218,515	$	1,936	$	357	$	159	$	856	$	221,823
Home equity and lines of credit		98,112		598		370		334		526		99,940
Commercial real estate		190,451		1,026		430		197		964		193,068
Commercial business		58,058		74		225		-		584		58,941
Consumer		9,162		273		81		-		73		9,589
Total loans	$	574,298	$	3,907	$	1,463	$	690	$	3,003	$	583,361

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

	Not		30-59 Days		60-89 Days		90 Days +		Total
	Past Due		Past Due		Past Due		Past Due		Loans
September 30, 2018:
Residential first mortgages	$	346	$	-	$	74	$	663	$	1,083
Home equity and lines of credit		7		-		-		514		521
Commercial real estate		2,665		-		268		307		3,240
Commercial business		39		-		-		-		39
Consumer		-		-		-		70		70
Total loans	$	3,057	$	-	$	342	$	1,554	$	4,953
December 31, 2017:
Residential first mortgages	$	366	$	-	$	75	$	415	$	856
Home equity and lines of credit		8		-		-		518		526
Commercial real estate		341		-		-		623		964
Commercial business		569		-		-		15		584
Consumer		-		-		-		73		73
Total loans	$	1,284	$	-	$	75	$	1,644	$	3,003

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Note 6 - Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

(Dollar amounts in thousands)	September 30, 2018				December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill	$	10,288	$	-	$	10,288	$	-
Core deposit intangibles		4,426		4,148		4,426		3,945
Total	$	14,714	$	4,148	$	14,714	$	3,945

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Note 7 - Stock Compensation Plan (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

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

			Weighted-Average
	Shares		Grant-date Fair Value
Nonvested at January 1, 2018		33,400	$	27.70
Granted		-		-
Vested		-		-
Forfeited		(2,500)		27.17
Nonvested as of September 30, 2018		30,900	$	27.74

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Note 8 - Fair Value (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

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

(Dollar amounts in thousands)			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Market		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
September 30, 2018:
Securities available for sale
U.S. Treasury and federal agency	$	4,395	$	4,395	$	-	$	-
U.S. government sponsored entities and agencies		16,550		-		16,550		-
U.S. agency mortgage-backed securities: residential		27,664		-		27,664		-
U.S. agency collateralized mortgage obligations: residential		19,205		-		19,205		-
State and political subdivision		22,260		-		22,260		-
Corporate debt securities		7,435		-		3,935		3,500
Total	$	97,509	$	4,395	$	89,614	$	3,500
Equity securities	$	473	$	473	$	-	$	-
December 31, 2017:
Securities available for sale
U.S. Treasury and federal agency	$	4,472	$	4,472	$	-	$	-
U.S. government sponsored entities and agencies		13,926		-		13,926		-
U.S. agency mortgage-backed securities: residential		20,758		-		20,758		-
U.S. agency collateralized mortgage obligations: residential		21,924		-		21,924		-
State and political subdivisions		29,240		-		29,240		-
Corporate debt securities		9,030		-		1,032		7,998
Total	$	99,350	$	4,472	$	86,880	$	7,998
Equity securities	$	1,817	$	1,683	$	-	$	134

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

(Dollar amounts in thousands)	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Balance at the beginning of the period	$	3,500	$	135	$	8,132	$	136
Total gains or losses (realized/unrealized):		-		-		-		-
Included in earnings		-		-		1		-
Included in other comprehensive income		-		(1)		-		(2)
Acquired		-		-		-		-
Sold out of Level 3		-		-		(25)		-
Transfers in and/or out of Level 3		-		-		(4,608)		-
Balance at the end of the period	$	3,500	$	134	$	3,500	$	134

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, 2018:
Financial Assets:
Cash and cash equivalents	$	22,680	$	22,680	$	22,680	$	-	$	-
Securities-available for sale		97,509		97,509		4,395		89,614		3,500
Securities-equities		473		473		473		-		-
Loans held for sale		120		120		-		120		-
Loans, net		592,125		583,741		-		-		583,741
Federal bank stock		4,466		N/A		N/A		N/A		N/A
Accrued interest receivable		2,302		2,302		88		353		1,861
Total	$	719,675	$	706,825	$	27,636	$	90,087	$	589,102
Financial Liabilities:
Deposits		682,361		685,333		513,011		172,322		-
Borrowed funds		19,800		19,414		-		19,414		-
Accrued interest payable		460		460		38		422		-
Total	$	702,621	$	705,207	$	513,049	$	192,158	$	-

	Carrying		Fair Value Measurements using:
	Amount		Total		Level 1		Level 2		Level 3
December 31, 2017:
Financial Assets:
Cash and cash equivalents	$	14,374	$	14,374	$	14,374	$	-	$	-
Securities-available for sale		99,350		99,350		4,472		86,880		7,998
Securities-equities		1,817		1,817		1,683		-		134
Loans held for sale		504		504		-		504		-
Loans, net		577,234		577,616		-		-		577,616
Federal bank stock		4,662		N/A		N/A		N/A		N/A
Accrued interest receivable		2,217		2,217		59		338		1,820
Total	$	700,158	$	695,878	$	20,588	$	87,722	$	587,568
Financial Liabilities:
Deposits		654,643		657,414		483,956		173,458		-
Borrowed funds		26,000		25,499		-		25,499		-
Accrued interest payable		413		413		23		390		-
Total	$	681,056	$	683,326	$	483,979	$	199,347	$	-

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Note 9 - Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

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

(Dollar amounts in thousands)	September 30, 2018				December 31, 2017
	Amount		Ratio		Amount		Ratio
Total capital to risk-weighted assets:
Actual	$	66,711		13.22%	$	64,221		12.96%
For capital adequacy purposes		40,381		8.00%		39,630		8.00%
To be well capitalized		50,476		10.00%		49,537		10.00%
Tier 1 capital to risk-weighted assets:
Actual	$	60,401		11.97%	$	58,088		11.73%
For capital adequacy purposes		30,286		6.00%		29,722		6.00%
To be well capitalized		40,381		8.00%		39,630		8.00%
Common Equity Tier 1 capital to risk-weighted assets:
Actual	$	60,401		11.97%	$	58,088		11.73%
For capital adequacy purposes		22,714		4.50%		22,292		4.50%
To be well capitalized		32,809		6.50%		32,199		6.50%
Tier 1 capital to average assets:
Actual	$	60,401		7.90%	$	58,088		7.71%
For capital adequacy purposes		30,574		4.00%		30,117		4.00%
To be well capitalized		38,218		5.00%		37,647		5.00%

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Note 10 - Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

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

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2018	$	(2,117)	$	(4,839)	$	(6,956)
Other comprehensive income before reclassification		(447)		-		(447)
Amounts reclassified from accumulated other comprehensive income (loss)		3		-		3
Net current period other comprehensive income		(444)		-		(444)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561)	$	(4,839)	$	(7,400)

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at July 1, 2017	$	(307)	$	(3,812)	$	(4,119)
Other comprehensive income before reclassification		153		-		153
Amounts reclassified from accumulated other comprehensive income (loss)		-		-		-
Net current period other comprehensive income		153		-		153
Accumulated Other Comprehensive Income (Loss) at September 30, 2017	$	(154)	$	(3,812)	$	(3,966)

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2018	$	(679)	$	(4,839)	$	(5,518)
Other comprehensive income before reclassification		(1,722)		-		(1,722)
Amounts reclassified from accumulated other comprehensive income (loss)		27		-		27
Net current period other comprehensive income		(1,695)		-		(1,695)
Cumulative effect of adoption of ASU 2016-01		(187)		-		(187)
Accumulated Other Comprehensive Income (Loss) at September 30, 2018	$	(2,561)	$	(4,839)	$	(7,400)

(Dollar amounts in thousands)	Unrealized Gains		Defined
	and Losses on		Benefit
	Available-for-Sale		Pension
	Securities		Items		Totals
Accumulated Other Comprehensive Income (Loss) at January 1, 2017	$	(679)	$	(3,812)	$	(4,491)
Other comprehensive income before reclassification		421		-		421
Amounts reclassified from accumulated other comprehensive income (loss)		104		-		104
Net current period other comprehensive income		525		-		525
Accumulated Other Comprehensive Income (Loss) at September 30, 2017	$	(154)	$	(3,812)	$	(3,966)

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

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the three months		Statement Where Net
Comprehensive Income Components	ended September 30, 2018		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(4)	Net gain on sale of available-for-sale securities
Unrealized gains and losses on available-for-sale securities		-	Other than temporary impairment losses
		1	Provision for income taxes
Total reclassifications for the period	$	(3)	Net of tax

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the three months		Statement Where Net
Comprehensive Loss Components	ended September 30, 2017		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	-	Net gain on sale of available-for-sale securities
	$	-	Other than temporary impairment losses
		-	Provision for income taxes
Total reclassifications for the period	$	-	Net of tax

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the nine months		Statement Where Net
Comprehensive Income Components	ended September 30, 2018		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	(34)	Net gain on sale of available-for-sale securities
Unrealized gains and losses on available-for-sale securities		-	Other than temporary impairment losses
		7	Provision for income taxes
Total reclassifications for the period	$	(27)	Net of tax

(Dollar amounts in thousands)	Amount Reclassified
	from Accumulated
	Other Comprehensive
	Income		Affected Line Item in the
Details about Accumulated Other	For the nine months		Statement Where Net
Comprehensive Income Components	ended September 30, 2017		Income is Presented
Unrealized gains and losses on available-for-sale securities	$	350	Net gain on sale of available-for-sale securities
Unrealized gains and losses on available-for-sale securities		(508)	Other than temporary impairment losses
		54	Provision for income taxes
Total reclassifications for the period	$	(104)	Net of tax

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Note 11 - Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Disaggregation of Revenue [Table Text Block]

(Dollar amounts in thousands)	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Non Interest Income
In-scope of Topic 606:
Service charges on deposits
Maintenance fees	$	38	$	40	$	114	$	118
Overdraft fees		417		341		1,100		965
Other fees		73		66		214		207
Electronic banking fees		327		292		971		855
Noninterest income (in-scope of Topic 606)		855		739		2,399		2,145
Noninterest income (out-of-scope of Topic 606)		207		1,535		610		1,851
Total noninterest income	$	1,062	$	2,274	$	3,009	$	3,996

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Note 2 - Mergers and Acquisitions (Details Textual) - USD ($)		3 Months Ended			9 Months Ended
	Oct. 01, 2018	Dec. 31, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Business Combination, Acquisition Related Costs			$ 677,000	$ 963,000	$ 1,036,000	$ 1,069,000
Scenario, Forecast [Member]
Business Combination, Acquisition Related Costs		$ 2,600,000
Community First [Member] | Subsequent Event [Member]
Business Combination Consideration Transferred Equity Interests Issued and Issuable Per Share	1.2008
Business Combination Consideration Transferred Cash, Per Share	$ 6.95
Business Acquisition, Equity Interest Issued or Issuable, Value Assigned	$ 15,600,000
Payments to Acquire Businesses, Gross	2,400,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Assets, Total	121,000,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Loans	111,600,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Deposits	$ 106,500,000

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Note 3 - Earnings Per Common Share - Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Earnings per common share - basic
Net income	$ 1,161	$ 1,707	$ 3,935	$ 3,704
Preferred stock dividends
Net income available to common stockholders	$ 1,161	$ 1,707	$ 3,935	$ 3,704
Average common shares outstanding - basic (in shares)	2,271,139	2,204,949	2,271,139	2,174,210
Basic earnings per common share (in dollars per share)	$ 0.51	$ 0.77	$ 1.73	$ 1.70
Earnings per common share - diluted
Net income available to common stockholders	$ 1,161	$ 1,707	$ 3,935	$ 3,704
Average common shares outstanding - basic (in shares)	2,271,139	2,204,949	2,271,139	2,174,210
Add: Dilutive effects of assumed issuance of restricted stock and exercise of stock options (in shares)	20,147	15,471	17,584	16,437
Average shares and dilutive potential common shares (in shares)	2,291,286	2,220,420	2,288,723	2,190,647
Diluted earnings per common share (in dollars per share)	$ 0.51	$ 0.77	$ 1.72	$ 1.69
Stock options not considered in computing earnings per share because they were antidilutive (in shares)

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Note 4 - Securities (Details Textual)	3 Months Ended	9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Equity Securities, FV-NI	$ 473,000	$ 473,000	$ 1,817,000
Equity Securities, FV-NI, Gain (Loss), Total	(1,000)	62,000
Equity Securities Sold, Amount	$ 0	1,200,000
Equity Securities, FV-NI, Realized Gain (Loss), Total		$ (25,000)
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	133	133
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	56	56
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	24	24
US States and Political Subdivisions Debt Securities [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	12	12
US Government-sponsored Enterprises Debt Securities [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	8	8
Collateralized Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	6	6
US Treasury and Government [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	5	5
Corporate Debt Securities [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	1	1

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Note 4 - Securities - Summary of Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Debt securities, amortized cost	$ 100,752	$ 100,446
Debt securities, gross unrealized gains	40	159
Debt securities, gross unrealized losses	(3,283)	(1,255)
Debt securities, fair value	97,509	99,350
US Treasury and Government [Member]
Debt securities, amortized cost	4,534	4,541
Debt securities, gross unrealized gains
Debt securities, gross unrealized losses	(139)	(69)
Debt securities, fair value	4,395	4,472
US Government-sponsored Enterprises Debt Securities [Member]
Debt securities, amortized cost	17,058	14,136
Debt securities, gross unrealized gains		2
Debt securities, gross unrealized losses	(508)	(212)
Debt securities, fair value	16,550	13,926
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Debt securities, amortized cost	28,526	20,904
Debt securities, gross unrealized gains		7
Debt securities, gross unrealized losses	(862)	(153)
Debt securities, fair value	27,664	20,758
Collateralized Mortgage Obligations [Member]
Debt securities, amortized cost	20,171	22,607
Debt securities, gross unrealized gains	36	25
Debt securities, gross unrealized losses	(1,002)	(708)
Debt securities, fair value	19,205	21,924
US States and Political Subdivisions Debt Securities [Member]
Debt securities, amortized cost	22,943	29,249
Debt securities, gross unrealized gains	3	87
Debt securities, gross unrealized losses	(686)	(96)
Debt securities, fair value	22,260	29,240
Corporate Debt Securities [Member]
Debt securities, amortized cost	7,520	9,009
Debt securities, gross unrealized gains	1	38
Debt securities, gross unrealized losses	(86)	(17)
Debt securities, fair value	$ 7,435	$ 9,030

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Note 4 - Securities - Maturity of Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Due in one year or less, amortized cost	$ 1,924
Due in one year or less, fair value	1,912
Due after one year through five years, amortized cost	30,077
Due after one year through five years, fair value	29,308
Due after five through ten years, amortized cost	15,305
Due after five through ten years, fair value	14,803
Due after ten years, amortized cost	4,749
Due after ten years, fair value	4,617
Securities without single maturity date, amortized cost	100,752
Securities-available for sale	97,509	$ 99,350
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities without single maturity date, amortized cost	28,526
Securities without single maturity date, fair value	27,664
Securities-available for sale	27,664	20,758
Collateralized Mortgage Obligations [Member]
Securities without single maturity date, amortized cost	20,171
Securities without single maturity date, fair value	19,205
Securities-available for sale	$ 19,205	$ 21,924

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Note 4 - Securities - Securities in a Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Less than 12 months, fair value	$ 51,556	$ 27,562
Less than 12 months, unrealized loss	(1,321)	(182)
12 months or more, fair value	39,554	43,661
12 months or more, unrealized loss	(1,962)	(1,073)
Total, fair value	91,110	71,223
Total, unrealized loss	(3,283)	(1,255)
US Treasury and Government [Member]
Less than 12 months, fair value
Less than 12 months, unrealized loss
12 months or more, fair value	4,395	4,472
12 months or more, unrealized loss	(139)	(69)
Total, fair value	4,395	4,472
Total, unrealized loss	(139)	(69)
US Government Agencies Debt Securities [Member]
Less than 12 months, fair value	7,796	3,447
Less than 12 months, unrealized loss	(134)	(42)
12 months or more, fair value	8,754	8,975
12 months or more, unrealized loss	(374)	(170)
Total, fair value	16,550	12,422
Total, unrealized loss	(508)	(212)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Less than 12 months, fair value	21,938	9,659
Less than 12 months, unrealized loss	(600)	(48)
12 months or more, fair value	5,726	6,581
12 months or more, unrealized loss	(262)	(105)
Total, fair value	27,664	16,240
Total, unrealized loss	(862)	(153)
Collateralized Mortgage Obligations [Member]
Less than 12 months, fair value	1,500	954
Less than 12 months, unrealized loss	(5)	(16)
12 months or more, fair value	15,870	19,147
12 months or more, unrealized loss	(997)	(692)
Total, fair value	17,370	20,101
Total, unrealized loss	(1,002)	(708)
US States and Political Subdivisions Debt Securities [Member]
Less than 12 months, fair value	17,386	10,510
Less than 12 months, unrealized loss	(514)	(60)
12 months or more, fair value	4,325	3,487
12 months or more, unrealized loss	(172)	(36)
Total, fair value	21,711	13,997
Total, unrealized loss	(686)	(96)
Corporate Debt Securities [Member]
Less than 12 months, fair value	2,936	2,992
Less than 12 months, unrealized loss	(68)	(16)
12 months or more, fair value	484	999
12 months or more, unrealized loss	(18)	(1)
Total, fair value	3,420	3,991
Total, unrealized loss	$ (86)	$ (17)

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Note 4 - Securities - Gains on Sales of Available for Sale Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Proceeds	$ 5,888		$ 12,683	$ 18,195
(Losses) Gains	(4)		(34)	350
Tax provision related to gains	$ (1)		$ (7)	$ 119

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Note 5 - Loans Receivable and Related Allowance for Loan Losses (Details Textual)	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)	Jun. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)
Loans and Leases Receivable, Deferred Income, Total	$ 1,900,000		$ 1,900,000			$ 1,500,000
Loans and Leases Receivable, Allowance, Ending Balance	6,360,000	$ 5,940,000	6,360,000	$ 5,940,000	$ 6,118,000	6,127,000	$ 5,767,000	$ 5,545,000
Financing Receivable, Modifications, Recorded Investment	407,000		407,000			433,000
Allowance for Losses Allocated to Loans Classified as TDRS	$ 7,000		$ 7,000			7,000
Financing Receivable, Modifications, Number of Contracts	0	0	0
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	0	0	0	0
Residential Portfolio Segment [Member]
Loans and Leases Receivable, Allowance, Ending Balance	$ 2,161,000	$ 2,038,000	$ 2,161,000	$ 2,038,000	$ 2,033,000	$ 2,090,000	$ 1,994,000	$ 1,846,000
Financing Receivable, Modifications, Recorded Investment		323,000		323,000
Allowance for Losses Allocated to Loans Classified as TDRS		$ 0		$ 0
Financing Receivable, Modifications, Number of Contracts				1
Northern Hancock [Member]
Loans and Leases Receivable, Allowance, Ending Balance	0		0
United American Savings Bank [Member]
Loans and Leases Receivable, Allowance, Ending Balance	$ 0		$ 0

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Note 5 - Loans Receivable and Related Allowance for Loan Losses - Summary of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Dec. 31, 2016
Loans, gross	$ 598,485		$ 583,361
Allowance for loan losses	6,360	$ 6,118	6,127	$ 5,940	$ 5,767	$ 5,545
Total loans, net	592,125		577,234
Mortgage Receivable [Member]
Loans, gross	536,943		514,831
Other Loans [Member]
Loans, gross	61,542		68,530
Residential Portfolio Segment [Member]
Loans, gross	237,106		221,823
Allowance for loan losses	2,161	2,033	2,090	2,038	1,994	1,846
Residential Portfolio Segment [Member] | Mortgage Receivable [Member]
Loans, gross	237,106		221,823
Home Equity Loans and Lines of Credit [Member]
Loans, gross	99,668		99,940
Allowance for loan losses	659	650	646	627	639	633
Home Equity Loans and Lines of Credit [Member] | Mortgage Receivable [Member]
Loans, gross	99,668		99,940
Commercial Real Estate Portfolio Segment [Member]
Loans, gross	200,169		193,068
Allowance for loan losses	2,970	2,882	2,753	2,626	2,460	2,314
Commercial Real Estate Portfolio Segment [Member] | Mortgage Receivable [Member]
Loans, gross	200,169		193,068
Commercial Portfolio Segment [Member]
Loans, gross	52,594		58,941
Allowance for loan losses	510	499	585	596	621	700
Commercial Portfolio Segment [Member] | Other Loans [Member]
Loans, gross	52,594		58,941
Consumer Portfolio Segment [Member]
Loans, gross	8,948		9,589
Allowance for loan losses	60	$ 54	53	$ 53	$ 53	$ 52
Consumer Portfolio Segment [Member] | Other Loans [Member]
Loans, gross	$ 8,948		$ 9,589

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Note 5 - 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		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017	Sep. 30, 2018	Dec. 31, 2017
Beginning Balance	$ 6,118	$ 5,767	$ 6,127	$ 5,545	$ 5,545
Charge-offs	(76)	(101)	(807)	(275)
Recoveries	18	4	60	37
Provision	300	270	980	633
Ending Balance	6,360	5,940	6,360	5,940	6,127
Individually evaluated for impairment						$ 7	$ 7
Acquired loans
Collectively evaluated for impairment						6,353	6,120
Total	6,360	5,767	6,360	5,940	6,127	6,360	6,127
Individually evaluated for impairment						2,958	1,916
Acquired loans			53,226		62,921
Collectively evaluated for impairment						542,301	518,524
Loans, gross						598,485	583,361
Residential Portfolio Segment [Member]
Beginning Balance	2,033	1,994	2,090	1,846	1,846
Charge-offs		(2)	(61)	(38)
Recoveries			3
Provision	128	46	129	230
Ending Balance	2,161	2,038	2,161	2,038	2,090
Individually evaluated for impairment						7	7
Acquired loans
Collectively evaluated for impairment						2,154	2,083
Total	2,033	1,994	2,161	2,038	2,090	2,161	2,090
Individually evaluated for impairment						401	425
Acquired loans			17,767		20,300
Collectively evaluated for impairment						218,938	201,098
Loans, gross						237,106	221,823
Home Equity Loans and Lines of Credit [Member]
Beginning Balance	650	639	646	633	633
Charge-offs	(26)	(33)	(109)	(44)
Recoveries	1	1	12	21
Provision	34	20	110	17
Ending Balance	659	627	659	627	646
Individually evaluated for impairment
Acquired loans
Collectively evaluated for impairment						659	646
Total	650	639	659	627	646	659	646
Individually evaluated for impairment						6	8
Acquired loans			9,817		10,873
Collectively evaluated for impairment						89,845	89,059
Loans, gross						99,668	99,940
Commercial Real Estate Portfolio Segment [Member]
Beginning Balance	2,882	2,460	2,753	2,314	2,314
Charge-offs	(6)	(36)	(424)	(126)
Recoveries	13	2	32	6
Provision	81	200	609	432
Ending Balance	2,970	2,626	2,970	2,626	2,753
Individually evaluated for impairment
Acquired loans
Collectively evaluated for impairment						2,970	2,753
Total	2,882	2,460	2,970	2,626	2,753	2,970	2,753
Individually evaluated for impairment						2,512	914
Acquired loans			22,784		27,404
Collectively evaluated for impairment						174,873	164,750
Loans, gross						200,169	193,068
Commercial Portfolio Segment [Member]
Beginning Balance	499	621	585	700	700
Charge-offs		(4)		(14)
Recoveries			1
Provision	11	(21)	(76)	(90)
Ending Balance	510	596	510	596	585
Individually evaluated for impairment
Acquired loans
Collectively evaluated for impairment						510	585
Total	499	621	510	596	585	510	585
Individually evaluated for impairment						39	569
Acquired loans			1,778		1,451
Collectively evaluated for impairment						50,777	56,921
Loans, gross						52,594	58,941
Consumer Portfolio Segment [Member]
Beginning Balance	54	53	53	52	52
Charge-offs	(44)	(26)	(213)	(53)
Recoveries	4	1	12	10
Provision	46	25	208	44
Ending Balance	60	53	60	53	53
Individually evaluated for impairment
Acquired loans
Collectively evaluated for impairment						60	53
Total	$ 54	$ 53	60	$ 53	53	60	53
Individually evaluated for impairment
Acquired loans			$ 1,080		$ 2,893
Collectively evaluated for impairment						7,868	6,696
Loans, gross						$ 8,948	$ 9,589

XML

Note 5 - 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, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Impaired loans with specific allowance, unpaid principal balance	$ 80	$ 76	$ 80	$ 76	$ 83
Impaired loans with specific allowance, recorded investment	80	76	80	76	83
Related allowance	7	8	7	8	7
Impaired loans with specific allowance, average recorded investment	81	76	82	377	319
Impaired loans with specific allowance, interest income recognized in period	1		2	2	3
Impaired loans with specific allowance, cash basis interest recognized in period	1		2	2	3
Impaired loans with no specific allowance, unpaid principal balance	2,989	2,167	2,989	2,167	2,119
Impaired loans with no specific allowance, recorded investment	2,878	1,881	2,878	1,881	1,833
Impaired loans with no specific allowance, average recorded investment	1,647	1,911	1,590	1,595	1,642
Impaired loans with no specific allowance, interest income recognized in period	86	3	202	9	14
Impaired loans with no specific allowance, cash basis interest recognized in period	5	3	119	9	14
Residential Portfolio Segment [Member]
Impaired loans with specific allowance, unpaid principal balance	74	76	74	76	75
Impaired loans with specific allowance, recorded investment	74	76	74	76	75
Related allowance	7	8	7	8	7
Impaired loans with specific allowance, average recorded investment	74	76	75	91	88
Impaired loans with specific allowance, interest income recognized in period	1		2	2	3
Impaired loans with specific allowance, cash basis interest recognized in period	1		2	2	3
Impaired loans with no specific allowance, unpaid principal balance	438	469	438	469	461
Impaired loans with no specific allowance, recorded investment	327	357	327	357	350
Impaired loans with no specific allowance, average recorded investment	330	362	338	274	289
Impaired loans with no specific allowance, interest income recognized in period	2	1	3	5	8
Impaired loans with no specific allowance, cash basis interest recognized in period	2	1	3	5	8
Home Equity Loans and Lines of Credit [Member]
Impaired loans with specific allowance, unpaid principal balance	6		6		8
Impaired loans with specific allowance, recorded investment	6		6		8
Related allowance
Impaired loans with specific allowance, average recorded investment	7		7		2
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				139	111
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	2,512	1,113	2,512	1,113	1,089
Impaired loans with no specific allowance, recorded investment	2,512	939	2,512	939	914
Impaired loans with no specific allowance, average recorded investment	1,278	957	952	840	855
Impaired loans with no specific allowance, interest income recognized in period	83	1	125	2	3
Impaired loans with no specific allowance, cash basis interest recognized in period	2	1	42	2	3
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				147	118
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	39	585	39	585	569
Impaired loans with no specific allowance, recorded investment	39	585	39	585	569
Impaired loans with no specific allowance, average recorded investment	39	592	300	481	498
Impaired loans with no specific allowance, interest income recognized in period	1	1	74	2	3
Impaired loans with no specific allowance, cash basis interest recognized in period	1	1	74	2	3
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

XML

Note 5 - Loans Receivable and Related Allowance for Loan Losses - Loan Portfolio by Internal Risk Rating (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Loans	$ 598,485	$ 583,361
Residential Portfolio Segment [Member]
Loans	237,106	221,823
Home Equity Loans and Lines of Credit [Member]
Loans	99,668	99,940
Commercial Real Estate Portfolio Segment [Member]
Loans	200,169	193,068
Commercial Portfolio Segment [Member]
Loans	52,594	58,941
Consumer Portfolio Segment [Member]
Loans	8,948	9,589
Not Rated [Member]
Loans	343,315	329,119
Not Rated [Member] | Residential Portfolio Segment [Member]
Loans	235,817	220,730
Not Rated [Member] | Home Equity Loans and Lines of Credit [Member]
Loans	98,647	98,946
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	8,851	9,443
Pass [Member]
Loans	240,654	239,420
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	189,273	182,460
Pass [Member] | Commercial Portfolio Segment [Member]
Loans	51,381	56,960
Pass [Member] | Consumer Portfolio Segment [Member]
Loans
Special Mention [Member]
Loans	3,935	3,221
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	3,785	2,744
Special Mention [Member] | Commercial Portfolio Segment [Member]
Loans	150	477
Special Mention [Member] | Consumer Portfolio Segment [Member]
Loans
Substandard [Member]
Loans	10,581	11,601
Substandard [Member] | Residential Portfolio Segment [Member]
Loans	1,289	1,093
Substandard [Member] | Home Equity Loans and Lines of Credit [Member]
Loans	1,021	994
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans	7,111	7,864
Substandard [Member] | Commercial Portfolio Segment [Member]
Loans	1,063	1,504
Substandard [Member] | Consumer Portfolio Segment [Member]
Loans	97	146
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

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Note 5 - Loans Receivable and Related Allowance for Loan Losses - Classes of Loan Portfolio by Aging Categories (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Accruing loans not past due	$ 588,285	$ 574,298
Nonaccrual	4,953	3,003
Loans	598,485	583,361
Financing Receivables, 30 to 59 Days Past Due [Member]
Accruing loans past due	4,081	3,907
Nonaccrual
Financing Receivables, 60 to 89 Days Past Due [Member]
Accruing loans past due	631	1,463
Nonaccrual	342	75
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accruing loans past due	535	690
Nonaccrual	1,554	1,644
Residential Portfolio Segment [Member]
Accruing loans not past due	233,448	218,515
Nonaccrual	1,083	856
Loans	237,106	221,823
Residential Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accruing loans past due	2,019	1,936
Nonaccrual
Residential Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accruing loans past due	427	357
Nonaccrual	74	75
Residential Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accruing loans past due	129	159
Nonaccrual	663	415
Home Equity Loans and Lines of Credit [Member]
Accruing loans not past due	97,716	98,112
Nonaccrual	521	526
Loans	99,668	99,940
Home Equity Loans and Lines of Credit [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accruing loans past due	906	598
Nonaccrual
Home Equity Loans and Lines of Credit [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accruing loans past due	146	370
Nonaccrual
Home Equity Loans and Lines of Credit [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accruing loans past due	379	334
Nonaccrual	514	518
Commercial Real Estate Portfolio Segment [Member]
Accruing loans not past due	196,184	190,451
Nonaccrual	3,240	964
Loans	200,169	193,068
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accruing loans past due	737	1,026
Nonaccrual
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accruing loans past due	8	430
Nonaccrual	268
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accruing loans past due		197
Nonaccrual	307	623
Commercial Portfolio Segment [Member]
Accruing loans not past due	52,233	58,058
Nonaccrual	39	584
Loans	52,594	58,941
Commercial Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accruing loans past due	322	74
Nonaccrual
Commercial Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accruing loans past due		225
Nonaccrual
Commercial Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accruing loans past due
Nonaccrual		15
Consumer Portfolio Segment [Member]
Accruing loans not past due	8,704	9,162
Nonaccrual	70	73
Loans	8,948	9,589
Consumer Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accruing loans past due	97	273
Nonaccrual
Consumer Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accruing loans past due	50	81
Nonaccrual
Consumer Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accruing loans past due	27
Nonaccrual	$ 70	$ 73

XML

Note 5 - Loans Receivable and Related Allowance for Loan Losses - Nonaccrual Loans by Aging Category (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Nonaccrual	$ 4,953	$ 3,003
Residential Portfolio Segment [Member]
Nonaccrual	1,083	856
Home Equity Loans and Lines of Credit [Member]
Nonaccrual	521	526
Commercial Real Estate Portfolio Segment [Member]
Nonaccrual	3,240	964
Commercial Portfolio Segment [Member]
Nonaccrual	39	584
Consumer Portfolio Segment [Member]
Nonaccrual	70	73
Not Past Due [Member]
Nonaccrual	3,057	1,284
Not Past Due [Member] | Residential Portfolio Segment [Member]
Nonaccrual	346	366
Not Past Due [Member] | Home Equity Loans and Lines of Credit [Member]
Nonaccrual	7	8
Not Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Nonaccrual	2,665	341
Not Past Due [Member] | Commercial Portfolio Segment [Member]
Nonaccrual	39	569
Not Past Due [Member] | Consumer Portfolio Segment [Member]
Nonaccrual
Financing Receivables, 30 to 59 Days Past Due [Member]
Nonaccrual
Financing Receivables, 30 to 59 Days Past Due [Member] | Residential Portfolio Segment [Member]
Nonaccrual
Financing Receivables, 30 to 59 Days Past Due [Member] | Home Equity Loans and Lines of Credit [Member]
Nonaccrual
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Nonaccrual
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Nonaccrual
Financing Receivables, 30 to 59 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Nonaccrual
Financing Receivables, 60 to 89 Days Past Due [Member]
Nonaccrual	342	75
Financing Receivables, 60 to 89 Days Past Due [Member] | Residential Portfolio Segment [Member]
Nonaccrual	74	75
Financing Receivables, 60 to 89 Days Past Due [Member] | Home Equity Loans and Lines of Credit [Member]
Nonaccrual
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Nonaccrual	268
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Nonaccrual
Financing Receivables, 60 to 89 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Nonaccrual
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Nonaccrual	1,554	1,644
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Residential Portfolio Segment [Member]
Nonaccrual	663	415
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Home Equity Loans and Lines of Credit [Member]
Nonaccrual	514	518
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Nonaccrual	307	623
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Nonaccrual		15
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member]
Nonaccrual	$ 70	$ 73

XML

Note 6 - Goodwill and Intangible Assets (Details Textual)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Business Acquisition Number of Acquisitions Resulting in Goodwill	4		4
Goodwill, Impairment Loss			$ 0		$ 0
Business Acquisition, Number of Acquisitions Resulting in Intangible Assets	3		3
Amortization of Intangible Assets, Total	$ 67,000	$ 58,000	$ 203,000	$ 177,000

XML

Note 6 - Goodwill and Intangible Assets - Acquired Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Goodwill	$ 10,288	$ 10,288
Core deposit intangibles, gross carring amount	4,426	4,426
Core deposit intangibles, accumulated amortization	4,148	3,945
Total, gross carring amount	$ 14,714	$ 14,714

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Note 7 - Stock Compensation Plan (Details Textual) - USD ($)	3 Months Ended	6 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	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
Allocated Share-based Compensation Expense, Total	$ 37,000	$ 55,000	$ 187,000	$ 164,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	$ 411,000		$ 411,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			3 years
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	52,533		52,533
Employee Stock 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

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Note 7 - Stock Compensation Plan - Summary of Nonvested Restricted Stock Awards (Details) - Restricted Stock [Member]	9 Months Ended
	Sep. 30, 2018 $ / shares shares
Nonvested (in shares) | shares	33,400
Nonvested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 27.70
Granted (in shares) | shares
Granted, weighted average grant date fair value (in dollars per share) | $ / shares
Vested (in shares) | shares
Vested, weighted average grant date fair value (in dollars per share) | $ / shares
Forfeited (in shares) | shares	(2,500)
Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares	$ 27.17
Nonvested (in shares) | shares	30,900
Nonvested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 27.74

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Note 8 - Fair Value (Details Textual)	3 Months Ended		6 Months Ended	9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Provision for Loan Losses Expensed	$ 300,000	$ 270,000		$ 980,000	$ 633,000
Other Real Estate, Ending Balance	0			0		$ 0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Sales				25,000
Fair Value, Measurements, Nonrecurring [Member]
Other Real Estate, Ending Balance	$ 0			$ 0		0
Fair Value, Inputs, Level 3 [Member] | Equity Securities [Member]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Sales			$ 25,000
Measurement Input, Discount Rate [Member]
Alternative Investment, Measurement Input	0.1			0.1
Real Estate Loan [Member]
Impaired Financing Receivable, Unpaid Principal Balance, Total	$ 62,000			$ 62,000		68,000
Home Equity Loan [Member]
Impaired Financing Receivable, Unpaid Principal Balance, Total	6,000			6,000		8,000
Market and Income Approach Valuation Technique [Member]
Impaired Financing Receivable, Recorded Investment, Total	0			0		$ 0
Market and Income Approach Valuation Technique [Member] | Impaired Loans [Member]
Provision for Loan Losses Expensed	$ 0	$ 0		$ 0	$ 0

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Note 8 - Fair Value - Assets Measured at Fair Value on a Recurring Basis (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Securities-available for sale	$ 97,509,000	$ 99,350,000
Securities-equity investments	473,000	1,817,000
Fair Value, Inputs, Level 1 [Member]
Securities-available for sale	4,395,000	4,472,000
Securities-equity investments	473,000	1,683,000
Fair Value, Inputs, Level 2 [Member]
Securities-available for sale	89,614,000	86,880,000
Securities-equity investments
Fair Value, Inputs, Level 3 [Member]
Securities-available for sale	3,500,000	7,998,000
Securities-equity investments		134,000
US Treasury and Government [Member]
Securities-available for sale	4,395,000	4,472,000
US Treasury and Government [Member] | Fair Value, Inputs, Level 1 [Member]
Securities-available for sale	4,395,000	4,472,000
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	16,550,000	13,926,000
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	16,550,000	13,926,000
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	27,664,000	20,758,000
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	27,664,000	20,758,000
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	19,205,000	21,924,000
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	19,205,000	21,924,000
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	22,260,000	29,240,000
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	22,260,000	29,240,000
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	7,435,000	9,030,000
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	3,935,000	1,032,000
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities-available for sale	$ 3,500,000	$ 7,998,000

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Note 8 - Fair Value - Changes in Level 3 Assets Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Jun. 30, 2018	Sep. 30, 2018	Sep. 30, 2017
Balance at the beginning of the period	$ 3,500	$ 135	$ 8,132	$ 8,132	$ 136
Included in earnings				1
Included in other comprehensive income		(1)			(2)
Acquired
Sold out of Level 3				(25)
Transfers in and/or out of Level 3				(4,608)
Balance at the end of the period	$ 3,500	$ 134	$ 3,500	$ 3,500	$ 134

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Note 8 - Fair Value - Carrying Amount and Fair Value of Financial Instruments Included in the Consolidated Balance Sheet (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Financial Assets:
Securities-available for sale	$ 97,509,000	$ 99,350,000
Securities-equities	473,000	1,817,000
Fair Value, Inputs, Level 1 [Member]
Financial Assets:
Securities-available for sale	4,395,000	4,472,000
Securities-equities	473,000	1,683,000
Fair Value, Inputs, Level 2 [Member]
Financial Assets:
Securities-available for sale	89,614,000	86,880,000
Securities-equities
Fair Value, Inputs, Level 3 [Member]
Financial Assets:
Securities-available for sale	3,500,000	7,998,000
Securities-equities		134,000
Reported Value Measurement [Member]
Financial Assets:
Cash and cash equivalents	22,680,000	14,374,000
Securities-available for sale	97,509,000	99,350,000
Securities-equities	473,000	1,817,000
Loans held for sale	120,000	504,000
Loans, net	592,125,000	577,234,000
Federal bank stock	4,466,000	4,662,000
Accrued interest receivable	2,302,000	2,217,000
Total	719,675,000	700,158,000
Accrued interest receivable	2,302,000	2,217,000
Total	719,675,000	700,158,000
Financial Liabilities:
Deposits	682,361,000	654,643,000
Borrowed funds	19,800,000	26,000,000
Accrued interest payable	460,000	413,000
Total	702,621,000	681,056,000
Borrowed funds	19,800,000	26,000,000
Estimate of Fair Value Measurement [Member]
Financial Assets:
Cash and cash equivalents	22,680,000	14,374,000
Securities-available for sale	97,509,000	99,350,000
Securities-equities	473,000	1,817,000
Loans held for sale	120,000	504,000
Loans, net	583,741,000	577,616,000
Federal bank stock
Accrued interest receivable	2,302,000	2,217,000
Total	706,825,000	695,878,000
Accrued interest receivable	2,302,000	2,217,000
Total	706,825,000	695,878,000
Financial Liabilities:
Deposits	685,333,000	657,414,000
Borrowed funds	19,414,000	25,499,000
Accrued interest payable	460,000	413,000
Total	705,207,000	683,326,000
Borrowed funds	19,414,000	25,499,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial Assets:
Cash and cash equivalents	22,680,000	14,374,000
Securities-available for sale	4,395,000	4,472,000
Securities-equities	473,000	1,683,000
Loans held for sale
Loans, net
Federal bank stock
Accrued interest receivable	88,000	59,000
Total	27,636,000	20,588,000
Accrued interest receivable	88,000	59,000
Total	27,636,000	20,588,000
Financial Liabilities:
Deposits	513,011,000	483,956,000
Borrowed funds
Accrued interest payable	38,000	23,000
Total	513,049,000	483,979,000
Borrowed funds
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial Assets:
Cash and cash equivalents
Securities-available for sale	89,614,000	86,880,000
Securities-equities
Loans held for sale	120,000	504,000
Loans, net
Federal bank stock
Accrued interest receivable	353,000	338,000
Total	90,087,000	87,722,000
Accrued interest receivable	353,000	338,000
Total	90,087,000	87,722,000
Financial Liabilities:
Deposits	172,322,000	173,458,000
Borrowed funds	19,414,000	25,499,000
Accrued interest payable	422,000	390,000
Total	192,158,000	199,347,000
Borrowed funds	19,414,000	25,499,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Financial Assets:
Cash and cash equivalents
Securities-available for sale	3,500,000	7,998,000
Securities-equities		134,000
Loans held for sale
Loans, net	583,741,000	577,616,000
Federal bank stock
Accrued interest receivable	1,861,000	1,820,000
Total	589,102,000	587,568,000
Accrued interest receivable	1,861,000	1,820,000
Total	589,102,000	587,568,000
Financial Liabilities:
Deposits
Borrowed funds
Accrued interest payable
Total
Borrowed funds

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Note 9 - Regulatory Matters (Details Textual)	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Capital Conservation Buffer			1.25%	0.625%	0.00%
Scenario, Forecast [Member]
Capital Conservation Buffer	2.50%	1.875%

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Note 9 - Regulatory Matters - Schedule of Regulatory Capital (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Total capital to risk-weighted assets, actual, amount	$ 66,711	$ 64,221
Total capital to risk-weighted assets, actual, ratio	13.22%	12.96%
Total capital to risk-weighted assets, for capital adequacy purposes, amount	$ 40,381	$ 39,630
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	$ 50,476	$ 49,537
Total capital to risk-weighted assets, to be well capitalized, ratio	10.00%	10.00%
Tier 1 capital to risk-weighted assets, actual, amount	$ 60,401	$ 58,088
Tier 1 capital to risk-weighted assets, actual, ratio	11.97%	11.73%
Tier 1 capital to risk-weighted assets, for capital adequacy purposes, amount	$ 30,286	$ 29,722
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	$ 40,381	$ 39,630
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	$ 60,401	$ 58,088
Common equity tier 1 capital to risk weighted assets, actual, ratio	11.97%	11.73%
Common equity tier 1 capital to risk-weighted assets, for capital adequacy purposes, amount	$ 22,714	$ 22,292
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	$ 32,809	$ 32,199
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	$ 60,401	$ 58,088
Tier 1 capital to average asset, actual, ratio	7.90%	7.71%
Tier 1 capital to average assets, for capital adequacy purposes, amount	$ 30,574	$ 30,117
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	$ 38,218	$ 37,647
Tier 1 capital to average asset, to be well capitalized, ratio	5.00%	5.00%

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Note 10 - 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, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Beginning balance			$ 59,091	$ 54,073
Net of tax	$ (444)	$ 153	(1,695)	525
Ending Balance	59,610	59,753	59,610	59,753
Previously Reported [Member]
Beginning balance			59,091
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Beginning balance	(2,117)	(307)		(679)
Other comprehensive income before reclassification	(447)	153	(1,722)	421
Amounts reclassified from accumulated other comprehensive income (loss)	3		27	104
Net of tax	(444)	153	(1,695)	525
Cumulative effect of adoption of ASU 2016-01			(187)
Ending Balance	(2,561)	(154)	(2,561)	(154)
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member] | Previously Reported [Member]
Beginning balance			(679)
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Beginning balance	(4,839)	(3,812)		(3,812)
Other comprehensive income before reclassification
Amounts reclassified from accumulated other comprehensive income (loss)
Net of tax
Cumulative effect of adoption of ASU 2016-01
Ending Balance	(4,839)	(3,812)	(4,839)	(3,812)
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member] | Previously Reported [Member]
Beginning balance			(4,839)
AOCI Attributable to Parent [Member]
Beginning balance	(6,956)	(4,119)	(5,705)	(4,491)
Other comprehensive income before reclassification	(447)	153	(1,722)	421
Amounts reclassified from accumulated other comprehensive income (loss)	3		27	104
Net of tax	(444)	153	(1,695)	525
Cumulative effect of adoption of ASU 2016-01			(187)
Ending Balance	$ (7,400)	$ (3,966)	(7,400)	$ (3,966)
AOCI Attributable to Parent [Member] | Previously Reported [Member]
Beginning balance			$ (5,518)

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Note 10 - 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		6 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Other than temporary impairment losses					$ (508)
Provision for income taxes	187	392		735	978
Net income	1,161	$ 1,707		3,935	3,704
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Unrealized gains and losses on available-for-sale securities	(4)			(34)	350
Other than temporary impairment losses					(508)
Provision for income taxes	1			7	54
Net income	$ (3)			$ (27)	$ (104)

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Note 11 - Revenue Recognition - Noninterest Income (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Noninterest income (in-scope of Topic 606)		$ 855	$ 739	$ 2,399	$ 2,145
Noninterest income (out-of-scope of Topic 606)	[1]	207	1,535	610	1,851
Total noninterest income		1,062	2,274	3,009	3,996
Maintenance Fees [Member]
Noninterest income (in-scope of Topic 606)		38	40	114	118
Overdraft Fees [Member]
Noninterest income (in-scope of Topic 606)		417	341	1,100	965
Other Fees [Member]
Noninterest income (in-scope of Topic 606)		73	66	214	207
Electronic Banking Fees [Member]
Noninterest income (in-scope of Topic 606)		$ 327	$ 292	$ 971	$ 855

[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.