GlobeNewswire Inc | Jan 29, 2021 04:30PM EST

January 29, 2021

EMLENTON, Pa., Jan. 29, 2021 (GLOBE NEWSWIRE) -- Emclaire Financial Corp (NASDAQ:EMCF), the parent holding company of The Farmers National Bank of Emlenton, reported consolidated net income available to common stockholders of $6.6 million, or $2.41 per diluted common share, for the year ended December 31, 2020, adecrease of $1.2 million, or 15.6%, from $7.8million, or $2.86per diluted common share, reported for the year ended December 31,2019. The decrease in net income was largely driven by an increase in the provision for loan losses resulting from record loan growth and current economic uncertainties related to the COVID-19 pandemic.

William C. Marsh, Chairman, President and Chief Executive Officer of the Corporation and the Bank, noted, Despite the most unusual and operationally challenging year, we are extremely pleased with the results for 2020. We achieved solid financial results, grew loans and depositsand successfully navigated the disruptionsof the COVID-19 pandemic while keeping the well-being of our shareholders, customers, employees and communities at the forefront. We have and will continue to meet our customerneeds and support our communities by operating our banking offices in a safe and socially responsible manner, strengthening our product offerings and delivery channels and providing loan payment relief assistance. We are confident that with our dedicated board of directors, management team and staff, diversified loan portfolioand strong capital position, we willsuccessfully endure these uncertain times.

2020 OPERATING RESULTS OVERVIEW

Net income available to common stockholders decreased $1.2 million, or 15.6%,to $6.6million, or $2.41 per diluted common share, for the year ended December31, 2020, compared to net income available to common stockholders of $7.8 million, or $2.86per diluted common sharefor 2019. The decrease resulted from a $2.5 million increasein the provision for loan losses and a decrease in noninterest income of $28,000, partially offset by an increase in net interest income of $1.0 million and decreases in noninterest expense and the provision for income taxes of $104,000 and $227,000, respectively.

Net interest income increased $1.0 million, or 3.7%, to $29.1 million for the year ended December 31, 2020from $28.1 million for 2019. The increase in net interest income resulted from an increase in interest income of $1.0 million, or 2.8%, while interest expense decreased a modest $21,000.The increase in interest income was driven by a$90.2 million increase in the average balance of loans outstanding as a result of record loan production and the addition of $54.9 million of Paycheck Protection Program (PPP) loans in the second and third quarters of 2020. The PPP loans are earning an annual interest rate of 1.00% and resulted in $2.1million of SBA fees which will be accreted into interest income over the life of the loans. During the year ended December 31, 2020, the Corporation recognized $1.6 millionof interest income related to the PPP loans. Partially offsetting the increase in income from the additional loan volume, the Corporation experienced a 34basis point decrease in the yield on loansto 4.32% for the year ended December 31, 2020 from 4.66% for2019. This was primarily driven by lower yields on new loans resulting from a highly competitive environment, market interest ratedecreasesduring the second half of 2019 and through the first half of 2020 and the addition of the lowyielding PPP loans. Without the addition of thePPP loans, the Corporation would have experienced a 35basis point decrease in the yield on loansto 4.31% for the year ended December 31, 2020. The decrease in interest expense occurred as the average rate on borrowed funds decreased 48 basis points to 2.25% for the year ended December 31, 2020 from 2.73% for 2019 causing a $176,000 decrease in interest expense, partially offset by a $3.4 millionincrease in the average balance of borrowed funds which added $77,000 in interest expense. Additionally, the Corporation's average balance of interest-bearing deposits increased $48.6 million, or 7.8%, causing a $533,000 increase in interest expense, which was partially offset by a 7 basis point decrease in the rate oninterest-bearing deposits to1.06% for the year ended December 31, 2020 from 1.13% for the same period in 2019 causing a $455,000 decrease in interest expense.

The provision for loan losses increased $2.5 million to $3.2 million for the yearended December 31, 2020from$715,000 for2019.The increase in the provision for loan losses was due to growth in the residential real estate, commercial real estate and consumer loan portfolios, an increase in the specific pandemic qualitative allowance factorand risk rating changes for loans which were granted payment deferrals.Criticized and classified loans increased $27.4million during year ended December 31, 2020 to $44.4 million, or 4.3%, of total assetsfrom $17.0 million, or 1.9%, of total assets at December 31, 2019 due to classification changes in the Corporation's hospitality loans resulting from the pandemic.

Noninterest income decreased $28,000 to $4.4million for the yearended December 31, 2020 due to decreases in fees and service charges and earnings on bank-owned life insuranceof $659,000 and $165,000, respectively, partially offset by increases in gains on the sales of securities and loans and other noninterest income of $609,000, $127,000 and $60,000, respectively.The decrease in fees and service charges was primarily due to a decline in overdraft charges as the COVID-19 pandemic resulted in widespread government mandated stay-at-home and business shut down orders which dramatically impacted consumer spending. During the yearended December 31, 2020, the Corporation sold a total of $43.9million of primarily low-yielding mortgage-backed and collateralized mortgage obligation securities and realized a net gain of $687,000. The sale proceeds were utilized to repay $15.0 million of FHLB term advances and purchase higher yielding municipal and corporate securities. The increase in other noninterest incomeresulted from increases in rental income, ATM surcharge fees and interchange fees.

Noninterest expense decreased $104,000 to $22.0 million for the year ended December 31, 2020from $22.1 million for2019. The decrease was primarily attributable to decreases in compensation and benefits expense, professional fees and premises and equipment expense of $590,000, $87,000 and $73,000, respectively, partially offset by increases inFDIC insurance expense and other noninterest expenseof $265,000 and $393,000, respectively. The increase in FDIC insurance expense primarily related to the Small Bank Assessment credits utilized during 2019, and the increase in other noninterest expense primarily related toprepayment penalties of $238,000 incurred as a result of the aforementioned early repayment of FHLB debt.

The provision for income taxes decreased $227,000, or 13.7%, to$1.4 million for the yearended December 31, 2020from $1.7 millionfor2019as a result of the decrease in net income before provision for income taxes.

FOURTH QUARTER OPERATING RESULTS OVERVIEW

Net income available to common stockholders increased $899,000, or 61.1%,to $2.4 million, or $0.87 per diluted common share, for the three months ended December31, 2020, compared to net income of $1.5 million, or $0.54 per diluted common shareforsame period in 2019. The increase resulted from an increasein net interest income available to common stockholdersof $1.5 million and a decrease in noninterest expense of $33,000, partially offset by increases in the provision for loan losses and provision for income taxes of $195,000 and $252,000 respectively,and adecrease in noninterest income of $176,000.

Net interest income increased $1.5 million, or 22.1%, to $8.2 million for the three months ended December 31, 2020from $6.7 million for the same period in 2019. The increase in net interest income resulted from an increase in interest income of $979,000, or 10.9%, whileinterest expense decreased $514,000, or 22.7%. The increase in interest income was driven by a$137.0million increase in the average balance of loans outstanding as a result of record loan production during2020 and the addition of $54.9 million of PPP loans in the second and third quarters of 2020. During the threemonths ended December 31, 2020, the Corporation recognized $991,000 of interest income related to the PPP loans. Partially offsetting the increase in income from the additional loan volume, the Corporation experienced a 14 basis point decrease in the yield on loanto 4.44% for the threemonths ended December 31, 2020 from 4.58% for the same period in 2019. Without the addition of thePPP loans, the Corporation would have experienced a 39basis point decrease in the yield on loansto 4.19% for the three months ended December 31, 2020.The Corporation's cost of funds decreased28 basis points to 0.76% for the three months ended December 31, 2020 from 1.04% for the same period in 2019, resulting in a $579,000 decrease in interest expense. The decrease in the cost of funds was partially offset by an increase of $61.3 million in interest-bearing deposits to $703.9 million for the three months ended December 31, 2020 from $642.5 million for the same period in 2019,causing a $172,000 increase in interest expense.

The provision for loan losses increased $195,000, or 47.6%, to $605,000 for the threemonths ended December 31, 2020from $410,000 for the same period in 2019. The increase in the provision for loan losses was due to risk rating changes for the Corporation'shospitality loans which were granted additional payment deferrals as a result of the pandemic.

Noninterest income decreased $176,000, or 17.7%, to $819,000 for the threemonths ended December31, 2020from $995,000 for the same period in 2019due todecreases in earnings on bank-owned life insurance and fees and service charges of$157,000 and $138,000, respectively, partially offset by a $75,000 increase in gains on the sale of loans.The decrease in earnings on bank-owned life insurance was due to a death benefitof $160,000 recordedduring the three months ended December 31, 2019. The decrease in fees and service charges was primarily due to a decline in overdraft charges as a result of theCOVID-19 pandemic.

Noninterest expense decreased $33,000 to $5.4 million for the three months ended December 31, 2020from $5.5million for the same period in 2019. The decrease was primarily attributable to decreases in compensation and benefits expense, professional feesand other noninterest expenseof $202,000, $38,000 and $23,000, respectively, partially offset by increases in FDIC insurance expense and premises and equipment expense of $204,000 and $29,000, respectively. The increase in FDIC insurance expense primarily related to the Small Bank Assessment credits utilized during 2019.

The provision for income taxes increased $252,000, or 86.9%, to$542,000 for the three months ended December 31, 2020from $290,000 for the same period in 2019as a result of the increase in net income before provision for income taxes.

CONSOLIDATED BALANCE SHEET & ASSET QUALITY OVERVIEW

Total assets increased $117.0 million, or 12.8%,to $1.0 billion at December31, 2020from $915.3 million at December 31, 2019. The increasein assetswas driven primarily by increases in net loans receivable and cash and equivalents of $105.0 million and $22.5 million, respectively, partially offset by a decreasein securitiesof $7.1million. Loan balances at December 31, 2020 includes $30.4 million of PPP loans which were funded during the second and third quarters of 2020. In addition, the Bank's commercial mortgage, consumer loan and residential mortgage portfolios grew by $55.7million, $25.4 million and $14.9million, respectively, since December 31, 2019. Liabilities increased $111.4 million, or 13.4%, to $940.8 million at December 31, 2020from$829.4 million at December 31, 2019due toincreasesin customer deposits and borrowed funds of $106.5 million and$3.5 million, respectively.The increase in customer deposits was primarily associated with the retention of PPP loan proceeds, consumer economic stimulus payments and a decrease in overall consumer spending resulting from the COVID-19 pandemic.

Nonperforming assets increased to $4.4million, or 0.43% of total assets at December 31, 2020, compared to $3.2million, or 0.34% of total assets at December 31, 2019.Classified and criticized assets increased $27.4 million to $44.4 million or 4.3% of total assetsat December 31, 2020, compared to$17.0 million or 1.9% of total assets at December 31, 2019. The increase in classified and criticized asset balances was largely due to the impact of COVID-19 on the hospitality loan portfolio. At December 31, 2020, the Corporation's hotel portfolio totaled $36.1 million of which $30.1 million was rated classified or criticized.

The COVID-19 pandemic has impactedthe global and local economiesand some customers' ability to continue making timely loan payments. The Bank addressed thechallenges of those facing hardship due to the pandemic by grantingpayment deferralson 402loans which totaled $108.1million.At January 26, 2021, 28 loans totaling $33.6 million remained on deferral while374 loans totaling $74.5 millionhave resumed normal repayment. Of the $33.6 million in loans on deferral at January 26, 2021, 18 loans totaling $30.0 million are associated with borrowers within the hospitality industry.The Bank continues to carefully monitor these loans and the entireloan portfolio and is well-positioned to weather a potential weakening of asset quality that may occur related to current circumstances.

Stockholders equity increased $5.6 million, or 6.6%,to $91.5 million at December 31, 2020from $85.9million at December 31, 2019primarily due to a $1.9million increase in accumulated other comprehensive income and a $3.3 million increase inretained earnings as a result of $6.6 million of net income available to common stockholders, partially offset by $3.3million of common dividends paid. The Corporation remains well capitalized and is wellpositioned for continued growth with total stockholders equity at 8.9% of total assets. Book value per common share was $32.07 at December 31, 2020, compared to $30.14 at December 31, 2019.

ANNUAL SHAREHOLDER MEETING

In addition to reporting earnings, the Corporation announced that the annual meeting of shareholders will be held virtually on Wednesday, April 21, 2021 at 9:00 a.m. The voting record date for the purpose of determining shareholders eligible to vote on proposals presented at the meeting will be March 1, 2021.

Emclaire Financial Corp is the parent company of The Farmers National Bank of Emlenton, an independent, nationally chartered, FDIC-insured community bank headquartered in Emlenton, Pennsylvania, operating 20 full service banking offices in Venango, Allegheny, Butler, Clarion, Clearfield, Crawford, Elk, Jefferson and Mercer counties, Pennsylvania and Hancock County, West Virginia. The Corporation's common stock is quoted on and traded through the NASDAQ Capital Market under the symbol "EMCF". For more information, visit the Corporation's website at "www.emclairefinancial.com."

This news release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may contain words such as believe, expect, anticipate, estimate, should, may, can, will, outlook, project, appears or similar expressions. Such forward-looking statements are subject to risk and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors. Such factors include, but are not limited to, the effects of the COVID-19 pandemic on the United States economy and the Corporation, changes in interest rates which could affect net interest margins and net interest income, the possibility that increased demand or prices for the Corporation's financial services and products may not occur, changing economic and competitive conditions, technological and regulatory developments, and other risks and uncertainties, including those detailed in the Corporation's filings with the Securities and Exchange Commission. The Corporation does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

INVESTOR RELATIONS CONTACT:William C. MarshChairman, President andChief Executive OfficerPhone: (844) 800-2193Email: investor.relations@farmersnb.com

EMCLAIRE FINANCIAL CORPConsolidated Financial Highlights(Unaudited - Dollar amounts in thousands, except share data)

CONSOLIDATEDOPERATING RESULTS Three month period Year DATA: ended December 31, ended December 31, 2020 2019 2020 2019 Interest income $ 9,990 $ 9,011 $ 37,147 $ 36,145 Interest expense 1,754 2,268 8,062 8,083 Net interest 8,236 6,743 29,085 28,062 incomeProvision for 605 410 3,247 715 loan lossesNoninterest 819 995 4,363 4,391 incomeNoninterest 5,442 5,475 22,018 22,122 expenseIncome beforeprovision for 3,008 1,853 8,183 9,616 income taxesProvision for 542 290 1,435 1,662 income taxesNet income 2,466 1,563 6,748 7,954 Preferred stock 95 91 186 182 dividendsNet incomeavailable to $ 2,371 $ 1,472 $ 6,562 $ 7,772 commonstockholders Basic earnings $ 0.87 $ 0.54 $ 2.42 $ 2.88 per common shareDiluted earnings $ 0.87 $ 0.54 $ 2.41 $ 2.86 per common shareDividends per $ 0.30 $ 0.29 $ 1.20 $ 1.16 common share Return on average 0.95 % 0.67 % 0.68 % 0.88 %assets (1)Return on average 10.86 % 7.18 % 7.61 % 9.50 %equity (1)Return on average 10.95 % 7.11 % 7.76 % 9.77 %common equity (1)Yield on averageinterest-earning 4.14 % 4.18 % 4.03 % 4.31 %assetsCost of averageinterest-bearing 0.95 % 1.27 % 1.13 % 1.22 %liabilitiesCost of funds 0.76 % 1.04 % 0.91 % 1.00 %Net interest 3.42 % 3.18 % 3.16 % 3.35 %marginEfficiency ratio 59.66 % 69.21 % 66.32 % 67.39 %

_______________(1) Returns are annualized for the periods reported.

CONSOLIDATED BALANCE SHEET DATA: As of As of 12/31/2020 12/31/2019 Total assets $ 1,032,323 $ 915,296 Cash and equivalents 37,439 14,986 Securities 113,056 120,126 Loans, net 800,413 695,348 Intangible assets 20,543 20,707 Deposits 893,627 787,124 Borrowed funds 32,050 28,550 Common stockholders' equity 87,274 81,652 Stockholders' equity 91,480 85,858 Book value per common share $ 32.07 $ 30.14 Net loans to deposits 89.57 % 88.34 %Allowance for loan losses to total loans 1.18 % 0.93 %Nonperforming assets to total assets 0.43 % 0.34 %Stockholders' equity to total assets 8.86 % 9.38 %Shares of common stock outstanding 2,721,212 2,708,712