UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





(Mark
One)




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





For the
quarterly period ended March 31,
2009





or





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





For the
transition period from _____________ to _____________





Commission
File Number:  000-18464





EMCLAIRE
FINANCIAL CORP.





(Exact
name of registrant as specified in its charter)





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





(724)
867-2311





(Registrant’s
telephone number)








(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   xNoo





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company as
defined in Rule 12b-2 of the Exchange Act.





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes   o     Nox





The
number of shares outstanding of the Registrant’s common stock was 1,431,404 at
May 14, 2009.








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 ofMarch
      31, 2009 and December 31, 2008
                    1Consolidated
      Statements of Income for the threemonths
      ended March 31, 2009 and 2008
                    2Condensed
      Consolidated Statements of Cash Flows for the threemonths
      ended March 31, 2009 and 2008
                    3Consolidated
      Statements of Changes in Stockholders’Equity
      for the three months ended March 31, 2009 and 2008
                    4Notes
      to Consolidated Financial Statements
                    5Item
      2.
                    Management’s
      Discussion and Analysisof
      Financial Condition and Results of Operations
                    13Item
      3.
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    19Item
      4T.
                    Controls
      and Procedures
                    20PART II – OTHER
  INFORMATIONItem
      1.
                    Legal
      Proceedings
                    20Item
      1A.
                    Risk
      Factors
                    20Item
      2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    21Item
      3.
                    Defaults
      Upon Senior Securities
                    21Item
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    21Item
      5.
                    Other
      Information
                    21Item
      6.
                    Exhibits
                    21Signatures
                    
                    22








PART I - FINANCIAL
INFORMATION





Item 1.  Interim
Financial Statements





Emclaire
Financial Corp. and Subsidiaries


Consolidated
Balance Sheets


As of
March 31, 2009 (Unaudited) and December 31, 2008


(Dollar
amounts in thousands, except share data)




March 31,
                                      
                                      
                                      December
31,2009
                                      
                                      
                                      2008AssetsCash and due from
      banks
                                      
                                      $
                                      2,010
                                      
                                      
                                      $
                                      4,292Interest earning deposits with
      banks
                                      
                                      
                                      30,082
                                      
                                      
                                      
                                      12,279Cash and cash
      equivalents
                                      
                                      
                                      32,092
                                      
                                      
                                      
                                      16,571Securities available for sale, at
      fair value
                                      
                                      
                                      53,050
                                      
                                      
                                      
                                      71,443Loans receivable, net of allowance
      for loan losses of $2,885 and $2,651
                                      
                                      
                                      273,993
                                      
                                      
                                      
                                      264,838Federal bank stocks, at
      cost
                                      
                                      
                                      3,797
                                      
                                      
                                      
                                      3,797Bank-owned life
      insurance
                                      
                                      
                                      5,236
                                      
                                      
                                      
                                      5,186Accrued interest
      receivable
                                      
                                      
                                      1,355
                                      
                                      
                                      
                                      1,519Premises and equipment,
      net
                                      
                                      
                                      8,865
                                      
                                      
                                      
                                      8,609Goodwill
                                      
                                      
                                      1,422
                                      
                                      
                                      
                                      1,422Prepaid expenses and other
      assets
                                      
                                      
                                      2,410
                                      
                                      
                                      
                                      2,279Total
Assets
                                      
                                      $
                                      382,220
                                      
                                      
                                      $
                                      375,664Liabilities and Stockholders'
      EquityLiabilities:Deposits:Non-interest
      bearing
                                      
                                      $
                                      50,806
                                      
                                      
                                      $
                                      56,351Interest
      bearing
                                      
                                      
                                      244,384
                                      
                                      
                                      
                                      230,296Total
    deposits
                                      
                                      
                                      295,190
                                      
                                      
                                      
                                      286,647Short-term borrowed
      funds
                                      
                                      
                                      12,000
                                      
                                      
                                      
                                      13,188Long-term borrowed
      funds
                                      
                                      
                                      35,000
                                      
                                      
                                      
                                      35,000Accrued interest
      payable
                                      
                                      
                                      767
                                      
                                      
                                      
                                      761Accrued expenses and other
      liabilities
                                      
                                      
                                      3,090
                                      
                                      
                                      
                                      3,945Total
      Liabilities
                                      
                                      
                                      346,047
                                      
                                      
                                      
                                      339,541Commitments and
      Contingencies
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Stockholders'
      Equity:Preferred stock, $1.00
      par value, 3,000,000 shares authorized;7,500 issued and
      outstanding
                                      
                                      
                                      7,417
                                      
                                      
                                      
                                      7,412Warrants
                                      
                                      
                                      88
                                      
                                      
                                      
                                      88Common stock, $1.25 par
      value, 12,000,000 shares authorized;1,559,421 shares issued; 1,431,404
      shares outstanding
                                      
                                      
                                      1,949
                                      
                                      
                                      
                                      1,949Additional paid-in
      capital
                                      
                                      
                                      14,588
                                      
                                      
                                      
                                      14,564Treasury stock, at cost; 128,017
      shares
                                      
                                      
                                      (2,653
                                      )
                                      
                                      
                                      (2,653
                                      )Retained
      earnings
                                      
                                      
                                      15,991
                                      
                                      
                                      
                                      15,840Accumulated other comprehensive
      loss
                                      
                                      
                                      (1,207
                                      )
                                      
                                      
                                      (1,077
                                      )Total Stockholders'
      Equity
                                      
                                      
                                      36,173
                                      
                                      
                                      
                                      36,123Total Liabilities and
      Stockholders' Equity
                                      
                                      $
                                      382,220
                                      
                                      
                                      $
                                      375,664




See
accompanying notes to consolidated financial statements.


1


Emclaire
Financial Corp. and Subsidiaries


Consolidated
Statements of Income


For the
three months ended March 31, 2009 and 2008 (Unaudited)


(Dollar
amounts in thousands, except per share data)





For the three months
      endedMarch 31,2009
                                
                                
                                2008Interest and dividend
      income:Loans receivable, including
      fees
                                
                                $
                                4,236
                                
                                
                                $
                                3,928Securities:Taxable
                                
                                
                                529
                                
                                
                                
                                378Exempt from federal income
      tax
                                
                                
                                152
                                
                                
                                
                                161Federal bank
      stocks
                                
                                
                                5
                                
                                
                                
                                30Interest-earning deposits with
      banks
                                
                                
                                89
                                
                                
                                
                                23Total interest and dividend
      income
                                
                                
                                5,011
                                
                                
                                
                                4,520Interest
      expense:Deposits
                                
                                
                                1,540
                                
                                
                                
                                1,572Borrowed
    funds
                                
                                
                                410
                                
                                
                                
                                405Total interest
      expense
                                
                                
                                1,950
                                
                                
                                
                                1,977Net interest
      income
                                
                                
                                3,061
                                
                                
                                
                                2,543Provision for loan
      losses
                                
                                
                                297
                                
                                
                                
                                60Net interest income after
      provision for loan losses
                                
                                
                                2,764
                                
                                
                                
                                2,483Noninterest
      income:Fees and service
      charges
                                
                                
                                340
                                
                                
                                
                                358Commissions on financial
      services
                                
                                
                                85
                                
                                
                                
                                118Net gain on sale of available for
      sale securities
                                
                                
                                56
                                
                                
                                
                                -Net gain on sales of
      loans
                                
                                
                                4
                                
                                
                                
                                14Earnings on bank-owned life
      insurance
                                
                                
                                56
                                
                                
                                
                                56Other
                                
                                
                                179
                                
                                
                                
                                114Total noninterest
      income
                                
                                
                                720
                                
                                
                                
                                660Noninterest
      expense:Compensation and employee
      benefits
                                
                                
                                1,438
                                
                                
                                
                                1,417Premises and
      equipment
                                
                                
                                481
                                
                                
                                
                                420Other
                                
                                
                                703
                                
                                
                                
                                576Total noninterest
      expense
                                
                                
                                2,622
                                
                                
                                
                                2,413Income before provision for income
      taxes
                                
                                
                                862
                                
                                
                                
                                730Provision for income
      taxes
                                
                                
                                194
                                
                                
                                
                                171Net income
                                
                                
                                668
                                
                                
                                
                                559Accumulated preferred stock
      dividends and discount accretion
                                
                                
                                98
                                
                                
                                
                                -Net income available to common
      shareholders
                                
                                $
                                570
                                
                                
                                $
                                559Basic and diluted earnings per
      common share
                                
                                $
                                0.40
                                
                                
                                $
                                0.44Average common shares
      outstanding
                                
                                
                                1,431,404
                                
                                
                                
                                1,267,835Dilutive
    Shares
                                
                                
                                -
                                
                                
                                
                                -




See
accompanying notes to consolidated financial statements.


2


Emclaire
Financial Corp. and Subsidiaries


Condensed
Consolidated Statements of Cash Flows


For the
three months ended March 31, 2009 and 2008 (Unaudited)


(Dollar
amounts in thousands)




For the three months
      endedMarch 31,2009
                                
                                
                                2008Cash flows from operating
      activitiesNet income
                                
                                $
                                668
                                
                                
                                $
                                559Adjustments to reconcile
      net income to net cash providedby operating
      activities:Depreciation and amortization of
      premises and equipment
                                
                                
                                196
                                
                                
                                
                                165Provision for loan
      losses
                                
                                
                                297
                                
                                
                                
                                60Amortization of premiums and
      (accretion of discounts), net
                                
                                
                                (53
                                )
                                
                                
                                (35
                                )Amortization of intangible assets
      and mortgage servicing rights
                                
                                
                                4
                                
                                
                                
                                5Amortization of deferred loan
      costs
                                
                                
                                62
                                
                                
                                
                                70Realized (gain) loss on available
      for sale securities, net
                                
                                
                                (56
                                )
                                
                                
                                -Net gains on sales of
      loans
                                
                                
                                (4
                                )
                                
                                
                                (14
                                )Originations of loans
      sold
                                
                                
                                (159
                                )
                                
                                
                                (355
                                )Proceeds from the sale of
      loans
                                
                                
                                163
                                
                                
                                
                                357Restricted stock and stock option
      compensation
                                
                                
                                24
                                
                                
                                
                                20Earnings on bank-owned life
      insurance, net
                                
                                
                                (50
                                )
                                
                                
                                (49
                                )Decrease in accrued interest
      receivable
                                
                                
                                164
                                
                                
                                
                                5Increase in prepaid expenses and
      other assets
                                
                                
                                (4
                                )
                                
                                
                                (25
                                )Increase in accrued interest
      payable
                                
                                
                                6
                                
                                
                                
                                9Decrease in accrued expenses and
      other liabilities
                                
                                
                                (855
                                )
                                
                                
                                (216
                                )Net cash provided by operating
      activities
                                
                                
                                403
                                
                                
                                
                                556Cash flows from investing
      activitiesLoan originations and principal
      collections, net
                                
                                
                                (9,591
                                )
                                
                                
                                (3,164
                                )Available for sale
      securities:Sales
                                
                                
                                4,107
                                
                                
                                
                                -Maturities, repayments and
      calls
                                
                                
                                18,193
                                
                                
                                
                                24,486Purchases
                                
                                
                                (3,998
                                )
                                
                                
                                (27,291
                                )Redemption of federal bank
      stocks
                                
                                
                                -
                                
                                
                                
                                (35
                                )Proceeds from the sale of
      foreclosed real estate
                                
                                
                                16
                                
                                
                                
                                -Purchases of premises and
      equipment
                                
                                
                                (452
                                )
                                
                                
                                (352
                                )Net cash provided by (used in)
      investing activities
                                
                                
                                8,275
                                
                                
                                
                                (6,356
                                )Cash flows from financing
      activitiesNet increase in
      deposits
                                
                                
                                8,543
                                
                                
                                
                                7,269Net increase (decrease) in
      short-term borrowed funds
                                
                                
                                (1,188
                                )
                                
                                
                                3,357Dividends
    paid
                                
                                
                                (512
                                )
                                
                                
                                (405
                                )Net cash provided by financing
      activities
                                
                                
                                6,843
                                
                                
                                
                                10,221Net increase in cash and cash
      equivalents
                                
                                
                                15,521
                                
                                
                                
                                4,421Cash and cash equivalents at
      beginning of period
                                
                                
                                16,571
                                
                                
                                
                                10,483Cash and cash equivalents at end
      of period
                                
                                $
                                32,092
                                
                                
                                $
                                14,904Supplemental
      information:Interest
    paid
                                
                                $
                                1,944
                                
                                
                                $
                                1,968Supplemental noncash
      disclosure:Transfers from loans to foreclosed
      real estate
                                
                                
                                76
                                
                                
                                
                                -




See
accompanying notes to consolidated financial statements.


3


Emclaire
Financial Corp. and Subsidiaries


Consolidated
Statements of Changes in Stockholders’ Equity


For the
three months ended March 31, 2009 and 2008 (Unaudited)


(Dollar
amounts in thousands, except per share data)




For the three months
      endedMarch 31,2009
                                  
                                  
                                  2008Balance at beginning of
      period
                                  
                                  $
                                  36,123
                                  
                                  
                                  $
                                  24,703Net income
                                  
                                  
                                  668
                                  
                                  
                                  
                                  559Other comprehensive income
      (loss):Change in net unrealized gains
      (losses) on available for salesecurities, net of taxes of ($47)
      in 2009 and $108 in 2008
                                  
                                  
                                  (93
                                  )
                                  
                                  
                                  209Less reclassification adjustment
      for gains includedin net income, net of taxes of
      ($19) in 2009 and $0 in 2008
                                  
                                  
                                  (37
                                  )
                                  
                                  
                                  -Other comprehensive income
      (loss)
                                  
                                  
                                  (130
                                  )
                                  
                                  
                                  209Total comprehensive
      income
                                  
                                  
                                  538
                                  
                                  
                                  
                                  768Stock compensation
      expense
                                  
                                  
                                  24
                                  
                                  
                                  
                                  20Dividends declared on preferred
      stock
                                  
                                  
                                  (54
                                  )
                                  
                                  
                                  -Dividends declared on common
      stock
                                  
                                  
                                  (458
                                  )
                                  
                                  
                                  (405
                                  )Balance at end of
      period
                                  
                                  $
                                  36,173
                                  
                                  
                                  $
                                  25,086





See
accompanying notes to consolidated financial statements.


4


Emclaire
Financial Corp. and Subsidiaries


Notes to
Consolidated Financial Statements (Unaudited)





1.
            Nature
      of Operations and Basis of
Presentation.





Emclaire
Financial Corp. (the “Corporation”) is a Pennsylvania company organized as the
holding company of 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.  Its primary deposit products are
checking, savings and certificate of deposit accounts and its primary lending
products are residential and commercial mortgages, commercial business 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, 2008, as contained in the
Corporation’s 2008 Annual Report on Form 10-K filed with the SEC.





The
balance sheet at December 31, 2008 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.  Material estimates that
are particularly susceptible to significant change in the near term relate to
the determination of the allowance for loan losses, fair value of financial
instruments, goodwill, the valuation of deferred tax assets and other than
temporary impairment charges.  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.           
Earnings per Common Share.





Basic
earnings per common share (EPS) excludes dilution and is computed by dividing
net income available to common shareholders by the weighted average number of
common shares outstanding during the period.  Diluted EPS reflects the
potential dilution that could occur if securities or contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the
Corporation.  Options and restricted stock awards of 94,000 shares of
common stock and warrants to purchase 50,111 shares of common stock were not
included in computing diluted earnings per share because their cumulative
effects were not dilutive for the three months periods ended March 31, 2009 and
2008.





5


3.           
Branch Purchase.





On April
6, 2009, the Corporation entered into a Purchase and Assumption Agreement with
PNC Financial Services Group, Inc. (PNC) and National City Bank (National City)
to acquire certain assets and assume certain liabilities of National City’s
full-service branch office located in Titusville, Pennsylvania.  As
part of the agreement, the Bank will assume approximately $90 million in
deposits in exchange for approximately $35 million in loans, cash, and certain
fixed assets of the branch office.  The Bank has agreed to pay a
premium of 3.4% of deposits assumed based on the average balance of deposits
during a pre-determined period leading up to the transaction closing
date.  The proposed branch office acquisition is subject to customary
closing conditions, including receipt of applicable regulatory
approvals.  The Corporation intends to consummate the transaction
during the third quarter of 2009.  The transaction is expected to be
accretive to the Corporation’s earnings in the fourth quarter of
2009.





4.           
Securities.





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


(Dollar amounts in
      thousands)
                                                                    
                                                                    Amortized
                                                                    
                                                                    
                                                                    Unrealized
                                                                    
                                                                    
                                                                    Unrealized
                                                                    
                                                                    
                                                                    Faircost
                                                                    
                                                                    
                                                                    gains
                                                                    
                                                                    
                                                                    losses
                                                                    
                                                                    
                                                                    valueAvailable for
      sale:March 31,
    2009:U.S. Government agencies and
      related entities
                                                                    
                                                                    $
                                                                    9,496
                                                                    
                                                                    
                                                                    $
                                                                    38
                                                                    
                                                                    
                                                                    $
                                                                    (10
                                                                    )
                                                                    
                                                                    $
                                                                    9,524Mortgage-backed
      securities
                                                                    
                                                                    
                                                                    26,932
                                                                    
                                                                    
                                                                    
                                                                    729
                                                                    
                                                                    
                                                                    
                                                                    (65
                                                                    )
                                                                    
                                                                    
                                                                    27,596Municipal
      securities
                                                                    
                                                                    
                                                                    12,693
                                                                    
                                                                    
                                                                    
                                                                    587
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    13,280Corporate
      securities
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -Equity
      securities
                                                                    
                                                                    
                                                                    3,893
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    (1,243
                                                                    )
                                                                    
                                                                    
                                                                    2,650$
                                                                    53,014
                                                                    
                                                                    
                                                                    $
                                                                    1,354
                                                                    
                                                                    
                                                                    $
                                                                    (1,318
                                                                    )
                                                                    
                                                                    $
                                                                    53,050December 31,
      2008:U.S. Government agencies and
      related entities
                                                                    
                                                                    $
                                                                    19,985
                                                                    
                                                                    
                                                                    $
                                                                    139
                                                                    
                                                                    
                                                                    $
                                                                    (47
                                                                    )
                                                                    
                                                                    $
                                                                    20,077Mortgage-backed
      securities
                                                                    
                                                                    
                                                                    29,806
                                                                    
                                                                    
                                                                    
                                                                    586
                                                                    
                                                                    
                                                                    
                                                                    (12
                                                                    )
                                                                    
                                                                    
                                                                    30,380Municipal
      securities
                                                                    
                                                                    
                                                                    13,543
                                                                    
                                                                    
                                                                    
                                                                    270
                                                                    
                                                                    
                                                                    
                                                                    (5
                                                                    )
                                                                    
                                                                    
                                                                    13,808Corporate
      securities
                                                                    
                                                                    
                                                                    3,984
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    3,984Equity
      securities
                                                                    
                                                                    
                                                                    3,893
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    (699
                                                                    )
                                                                    
                                                                    
                                                                    3,194$
                                                                    71,211
                                                                    
                                                                    
                                                                    $
                                                                    995
                                                                    
                                                                    
                                                                    $
                                                                    (763
                                                                    )
                                                                    
                                                                    $
                                                                    71,443





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 and (3) the intent and ability
of the Corporation to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.





As of March 31, 2009, there were 13
securities in an unrealized loss position.  These unrealized losses
are considered to be temporary impairments.  A decline in the value of
the debt securities is due only to interest rate fluctuations, rather then
erosion of quality.  As a result, the payment of contractual cash
flows, including principal repayment, is not at risk.  As management
has the intent and ability to hold these investments until market recovery or
maturity, none of the unrealized losses on debt securities are deemed to be
other than temporary.





6


4.           Securities
(continued).





Equity securities owned by the
Corporation consist of common stock of various financial service providers that
have traditionally been high-performing stocks.  However, as a result
of recent market volatility in financial stocks, the fair value of most of the
stock held are “under water” as of March 31, 2009, and as such, could be
considered impaired.  The Corporation does not invest in these
securities with the intent to sell them for a profit in the
near-term.  Management believes these securities have potential to
appreciate in value over the long-term, while providing for a reasonable
dividend yield.  In addition, stocks can by cyclical and will
experience some down periods.  Historically, bank stocks have
sustained cyclical losses followed by periods of substantial
gains.  Based on these circumstances and the ability and intent to
hold these securities for a reasonable period of time sufficient for a recovery
of fair value, the Corporation does not consider these investments to be other
than temporarily impaired at March 31, 2009.





5.           Loans
Receivable.





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


(Dollar amounts in
      thousands)
                                          
                                          March 31,
                                          
                                          
                                          December
31,2009
                                          
                                          
                                          2008Mortgage loans on real
      estate:Residential first
      mortgages
                                          
                                          $
                                          72,844
                                          
                                          
                                          $
                                          74,130Home equity loans and lines of
      credit
                                          
                                          
                                          55,723
                                          
                                          
                                          
                                          57,454Commercial real
      estate
                                          
                                          
                                          90,107
                                          
                                          
                                          
                                          85,689218,674
                                          
                                          
                                          
                                          217,273Other
loans:Commercial
      business
                                          
                                          
                                          49,499
                                          
                                          
                                          
                                          40,787Consumer
                                          
                                          
                                          8,705
                                          
                                          
                                          
                                          9,42958,204
                                          
                                          
                                          
                                          50,216Total loans,
      gross
                                          
                                          
                                          276,878
                                          
                                          
                                          
                                          267,489Less allowance for loan
      losses
                                          
                                          
                                          2,885
                                          
                                          
                                          
                                          2,651Total loans,
      net
                                          
                                          $
                                          273,993
                                          
                                          
                                          $
                                          264,838





6.           Deposits.





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


(Dollar amounts in
      thousands)
                                                            
                                                            March 31,
    2009
                                                            
                                                            
                                                            March 31,
    2008Type of
      accounts
                                                            
                                                            Amount
                                                            
                                                            
                                                            %
                                                            
                                                            
                                                            Amount
                                                            
                                                            
                                                            %Non-interest bearing
      deposits
                                                            
                                                            $
                                                            50,806
                                                            
                                                            
                                                            
                                                            17.2
                                                            %
                                                            
                                                            $
                                                            56,351
                                                            
                                                            
                                                            
                                                            19.7
                                                            %Interest bearing demand
      deposits
                                                            
                                                            
                                                            113,431
                                                            
                                                            
                                                            
                                                            38.4
                                                            %
                                                            
                                                            
                                                            106,042
                                                            
                                                            
                                                            
                                                            37.0
                                                            %Time
    deposits
                                                            
                                                            
                                                            130,953
                                                            
                                                            
                                                            
                                                            44.4
                                                            %
                                                            
                                                            
                                                            124,254
                                                            
                                                            
                                                            
                                                            43.3
                                                            %$
                                                            295,190
                                                            
                                                            
                                                            
                                                            100.0
                                                            %
                                                            
                                                            $
                                                            286,647
                                                            
                                                            
                                                            
                                                            100.0
                                                            %


7


7.           Guarantees.





The
Corporation does not issue any guarantees that would require liability
recognition or disclosure, other than its standby letters of
credit.  Standby letters of credit are conditional commitments issued
by the Corporation to guarantee the performance of a customer to a third
party.  Of these letters of credit at March 31, 2009, $81,000 will
expire within the next thirteen months, $663,000 will automatically renew within
the next twelve months and $307,000 will automatically renew within thirteen to
twenty-one months.  The Corporation, generally, holds collateral
and/or personal guarantees supporting these commitments.  Management
believes that the proceeds obtained through a liquidation of collateral and the
enforcement of guarantees would be sufficient to cover the potential amount of
future payments required under the corresponding guarantees.  The
credit risk involved in issuing letters of credit is essentially the same as
those that are involved in extending loan facilities to
customers.  The current amount of the liability as of March 31, 2009
for guarantees under standby letters of credit issued is not
material.





8.
            Employee Benefit
      Plans.





The
Corporation maintains a defined contribution 401(k) Plan.  Eligible
employees participate by providing tax-deferred contributions up to 20% of
qualified compensation.  Employee contributions are vested at all
times.  The Corporation provides a matching contribution of up to 4%
of the participant’s salary.  Matching contributions for the three
months ended March 31, 2009 and 2008 amounted to $37,000 and $37,000,
respectively.





The Corporation provides pension
benefits for eligible employees through a defined benefit pension
plan.  Substantially all full-time employees participate in the
retirement plan on a non-contributing basis and are fully vested after five
years of service.





The
Corporation uses December 31 as the measurement date for its plans.





The
components of the periodic pension cost are as follows:


(Dollar amounts in
      thousands)
                                                  
                                                  For the three months
      ended
                                                  
                                                  
                                                  Year endedMarch 31,
                                                  
                                                  
                                                  December
31,2009
                                                  
                                                  
                                                  2008
                                                  
                                                  
                                                  2008Service
cost
                                                  
                                                  $
                                                  62
                                                  
                                                  
                                                  $
                                                  63
                                                  
                                                  
                                                  $
                                                  233Interest
    cost
                                                  
                                                  
                                                  75
                                                  
                                                  
                                                  
                                                  71
                                                  
                                                  
                                                  
                                                  285Expected return on plan
      assets
                                                  
                                                  
                                                  (66
                                                  )
                                                  
                                                  
                                                  (79
                                                  )
                                                  
                                                  
                                                  (305
                                                  )Prior service
      costs
                                                  
                                                  
                                                  (8
                                                  )
                                                  
                                                  
                                                  (8
                                                  )
                                                  
                                                  
                                                  (31
                                                  )Recognized net actuarial
      loss
                                                  
                                                  
                                                  27
                                                  
                                                  
                                                  
                                                  4
                                                  
                                                  
                                                  
                                                  19Net periodic pension
      cost
                                                  
                                                  $
                                                  90
                                                  
                                                  
                                                  $
                                                  51
                                                  
                                                  
                                                  $
                                                  201




The
expected rate of return on plan assets was 7.75% for the periods ended March 31,
2009 and 2008.  The Corporation previously disclosed in its financial
statements for the year ended December 31, 2008 that it expected to contribute
$350,000 to its pension plan in 2009.  As of March 31, 2009, there
have been no contributions.  The Corporation presently anticipates
contributing $350,000 to its pension plan in 2009.





8


9.           
Stock Compensation Plans.





In May
2007, the Corporation adopted the 2007 Stock Incentive Plan and Trust. Under the
Plan, the Corporation may grant options to its directors, officers and employees
for up to 177,496 shares of common stock.  Incentive stock options,
non-incentive or compensatory stock options and share awards may be granted
under the Plan.  The exercise price of each option shall at least
equal the market price of a share of common stock on the date of grant and have
a contractual term of ten years.  Options and restricted stock awards
shall vest and become exercisable at the rate, to the extent and subject to such
limitations as may be specified by the Corporation.  The Corporation
accounts for its stock compensation plans in accordance with the Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS
123(R)),which requires
that compensation cost related to share-based payment transactions be recognized
in the financial statements with measurement based upon the fair value of the
equity or liability instruments issued.  For the three-month periods
ended March 31, 2009 and 2008, the Corporation recognized $24,000 and $20,000,
respectively, in stock compensation expense.





A summary
of option activity under the Plan as of March 31, 2009, and changes during the
period then ended is presented below:


Weighted-AverageWeighted-Average
                                                              
                                                              
                                                              Aggregate
                                                              
                                                              
                                                              Remaining
                                                                TermOptions
                                                              
                                                              
                                                              Exercise
    Price
                                                              
                                                              
                                                              Intrinsic
    Value
                                                              
                                                              
                                                              (in years)Outstanding at the beginning of
      the year
                                                              
                                                              
                                                              94,000
                                                              
                                                              
                                                              $
                                                              25.66
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              8.7Granted
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -Exercised
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -Forfeited
                                                              
                                                              
                                                              4,500
                                                              
                                                              
                                                              
                                                              26.00
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -Outstanding as of March 31,
      2009
                                                              
                                                              
                                                              89,500
                                                              
                                                              
                                                              $
                                                              25.64
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              
                                                              8.4Exercisable as of March 31,
      2009
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              
                                                              -





A summary
of the status of the Corporation’s nonvested shares as of March 31, 2009, and
changes during the period then ended is presented below:


Weighted-AverageOptions
                                        
                                        
                                        Grant-date Fair
      ValueNonvested at the beginning of the
      year
                                        
                                        
                                        94,000
                                        
                                        
                                        $
                                        3.13Granted
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Vested
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Forfeited
                                        
                                        
                                        4,500
                                        
                                        
                                        
                                        3.39Nonvested as of March 31,
      2009
                                        
                                        
                                        89,500
                                        
                                        
                                        $
                                        3.12





As of
March 31, 2009, there was $212,000 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plan.  That cost is expected to be recognized over an average period
of 1.4 years.





9


10.          Fair
Values of Financial Instruments.





Effective
January 1, 2008, the Corporation adopted FASB SFAS No. 157, Fair Value Measurements(SFAS
157), which defines fair value, establishes a framework for measuring fair value
under GAAP, and expands disclosures about fair value
measurements.  SFAS 157 applies to other accounting pronouncements
that require or permit fair value measurements.





SFAS 157
establishes a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value.  The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements).  The three levels of the fair value
hierarchy under SFAS 157 are as follows:





Level
1:  Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets or
liabilities.





Level 2:  Quoted
prices in markets that are not active, or inputs that are observable either
directly or indirectly, for substantially the full term of the asset or
liability.





Level 3:  Prices or
valuation techniques that require inputs that are both significant to the fair
value measurement and unobservable (i.e. supported with little or no market
activity).





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





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)Quoted Prices
      in
                                                                                                          
                                                                                                          
                                                                                                          (Level
    2)
                                                                                                          
                                                                                                          
                                                                                                          (Level 3)Active
    Markets
                                                                                                          
                                                                                                          
                                                                                                          SignificantOther
                                                                                                          
                                                                                                          
                                                                                                          Significantfor
    Identical
                                                                                                          
                                                                                                          
                                                                                                          Observable
                                                                                                          
                                                                                                          
                                                                                                          UnobservableDescription
                                                                                                          
                                                                                                          Total
                                                                                                          
                                                                                                          
                                                                                                          Assets
                                                                                                          
                                                                                                          
                                                                                                          Inputs
                                                                                                          
                                                                                                          
                                                                                                          InputsMarch 31,
    2009:Securities available for
      sale
                                                                                                          
                                                                                                          $
                                                                                                          53,050
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          2,650
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          50,400
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -$
                                                                                                          53,050
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          2,650
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          50,400
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -Decmeber 31,
      2008:Securities available for
      sale
                                                                                                          
                                                                                                          $
                                                                                                          71,443
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          3,194
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          68,249
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -$
                                                                                                          71,443
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          3,194
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          68,249
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -





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


(Dollar amounts in
      thousands)
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (Level 1)Quoted Prices
      in
                                                                                                              
                                                                                                              
                                                                                                              (Level
    2)
                                                                                                              
                                                                                                              
                                                                                                              (Level 3)Active
    Markets
                                                                                                              
                                                                                                              
                                                                                                              SignificantOther
                                                                                                              
                                                                                                              
                                                                                                              Significantfor
    Identical
                                                                                                              
                                                                                                              
                                                                                                              Observable
                                                                                                              
                                                                                                              
                                                                                                              UnobservableDescription
                                                                                                              
                                                                                                              Total
                                                                                                              
                                                                                                              
                                                                                                              Assets
                                                                                                              
                                                                                                              
                                                                                                              Inputs
                                                                                                              
                                                                                                              
                                                                                                              InputsMarch 31,
    2009:Impaired
    loans
                                                                                                              
                                                                                                              $
                                                                                                              580
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              580$
                                                                                                              580
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              580Decmeber 31,
      2008:Impaired
    loans
                                                                                                              
                                                                                                              $
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -$
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              -


10


10.           Fair
Values of Financial Instruments (continued).





The
following valuation techniques were used to measure fair value of assets in the
tables above:





Available for sale securities– Fair value on available for sale securities were based upon a market
approach.  Prices for securities that are fixed income instruments
that are not quoted on an exchange, but are traded in active markets, are
obtained through third party data service providers or dealer market
participants which the Corporation has historically transacted both purchases
and sales of investment securities.  As of March 31, 2009, all fair
values on available for sale securities were based on prices obtained from these
sources and were based on actual market quotations for each specific
security.





Impaired loans – Fair value
on impaired loans is measured using the estimate fair market value of the
collateral less the estimate costs to sell.  Fair value of the loan’s
collateral is typically determined by appraisals or independent
valuation.  Management’s ongoing review of appraisal information may
result in additional discounts or adjustments to valuation based upon more
recent market sales activity or more current appraisal information derived from
properties of similar type and/or locale.  As of March 31, 2009 the
fair value consists of the loan balance of $614,000, net of a valuation
allowance of $34,000.  Additional provision for loan losses of $34,000
was recorded during the three months ended March 31, 2009.





Effective
January 1, 2009, the Corporation adopted FSP 157-2, Effective Date of FASB Statement No.
157(FSP 157-2), which delayed the effective date of SFAS 157 for all
non-financial assets and liabilities, except those that are recognized or
disclosed at fair value on a recurring basis (at least annually) to fiscal years
beginning after November 15, 2008 and interim periods within those fiscal
years.  At March 31, 2009, the Corporation had no non-financial assets
or liabilities carried at fair value, measured on a recurring or non-recurring
basis.





11.           Effect
of Recently Issued Accounting Standards.





In April
2008, the FASB issued FASB Staff Position (FSP) SFAS No. 142-3, Determination of the Useful Life of
Intangible Assets(FSP 142-3).  This FSP amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, Goodwill
and Other Intangible Assets(SFAS 142).  The intent of this FSP
is to improve the consistency between the useful life of a recognized intangible
asset under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS 141(R) and other GAAP.  This FSP is
effective for financial statements issued for fiscal years and interim periods
beginning after December 15, 2008, and interim periods within those fiscal
years.  This FSP did not effect the Corporation’s consolidated
financial statements.





In June
2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 07-5, Determining Whether an Instrument
(or an Embedded Feature) is Indexed to an Entity’s Own Stock(EITF
07-5).  EITF 07-5 provides that an entity should use a two step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument’s
contingent exercise and settlement provisions.  It also clarifies the
impact of foreign currency denominated strike prices and market-based employee
stock option valuation instruments on the evaluation.  EITF 07-5
became effective for fiscal years beginning after December 15,
2008.  EITF 07-5 did not effect the Corporation’s consolidated
financial statements.





In
November 2008, the FASB ratified EITF Issue No. 08-6, Equity Method Investment Accounting
Considerations (EITF 08-6).  EITF 08-6 clarifies the accounting
for certain transactions and impairment considerations involving equity method
investments.  EITF 08-6 became effective for fiscal years beginning
after December 15, 2008.  EITF 08-6 did not effect the Corporation’s
consolidated financial statements.





11


11.           Effect
of Recently Issued Accounting Standards (continued).





In April 2009, the FASB
issued FSP No. 107-1 and APB 28-1,Interim
Disclosures about Fair Value of Financial Instruments(FSP107-1 and APB
28-1).FSP 107-1 and APB 28-1
amends FASB SFAS 107,Disclosures
about Fair Value of Financial Instruments, to require
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial statements.This FSP also amends
APB Opinion No.28,Interim
Financial Reporting, to require those
disclosures in summarized financial information at interim reporting
periods.This FSP is effective
for interim and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009.  An entity
early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP FAS
157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderlyand FSP FAS 115-2 and
FAS 124-2,Recognition
and Presentation of Other-Than-Temporary Impairments.The Corporation did not early adopt
this standard and is currently reviewing the effect this new pronouncement will
have on its consolidated financial statements.





In April 2009, the FASBissued FSP No 115-2 and FAS 124-2,Recognition and
Presentation of Other ThanTemporary
Impairments(FSP 115-2 and
FAS 124-2).FSP115-2 and FAS 124-2 clarifies the
interaction of the factors that should be considered when determining
whether a debt security is
other thantemporarily
impaired.For debt securities, management must assess whether (a)it has the intent to sell the security and (b)it is more likely than not
that it will be required to sell the security prior to its anticipated recovery.These steps are done before assessing
whether the entity will recover the cost basis of the investment.Previously, this assessment required
management to assert it has both the intent and the ability to hold a security
for a period of time sufficient to allow for an anticipated recovery in fair
value to avoid recognizing
an other thantemporary
impairment.This change does not affect the need to
forecast recovery of the value of the security through either cash flows or
market price.





In instances when a determination is made that an other thantemporary impairment exists
but the investor does not intend to sell the debt security and it is not more
likely than not that it will be required to sell the debt security prior to its
anticipated recovery, FSP 115-2 and FAS 124-2 changes the presentation and
amount of the otherthantemporary impairment
recognized inthe income
statement. The other thantemporary impairment is separated into (a)the amount of the total
other-than-temporary impairment related to a decrease in cash flows expected to
be collected from the debt security (the credit loss) and (b)the amount of the total other thantemporary impairment
related to all other factors.The amount of the total other thantemporary impairment
related to the credit loss is recognized in earnings.The amount of the total
otherthantemporary impairment related to all
other factors is recognized in other comprehensive income.





This FSP is effective for interim and
annual reporting periods
ending after June15, 2009,
with early adoption permittedfor periods ending after March15, 2009.  An
entity early adopting FSP 115-2 and FAS 124-2 must also early adopt FSP
157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly.The Corporation did
not early adopt this standard and is currently reviewing the effect this new
pronouncement will have on its consolidated financial statements.





In April 2009, the FASBissuedFSP No.FAS 157-4,Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly(FSP
157-4).FASBSFAS157,Fair Value
Measurements, defines fair
value as the price that would be received to sell the asset or transfer the
liability in an orderly transaction (that is, not a forced liquidation or
distressed sale) between market participants at the measurement date under
current market conditions.FSP 157-4 provides additional guidance
on determining when the volume and level of activity for the asset or liability
has significantly decreased.The FSP also includes guidance on
identifying circumstances when a transaction may not be considered
orderly.





12


11.           Effect
of Recently Issued Accounting Standards (continued).





FSP 157-4 provides a list of factors
that a reporting entity should evaluate to determine whether there has been a
significant decrease in the volume and level of activity for the asset or
liability in relation to normal market activity for the asset or liability.When the reporting entity concludes
there has been a significant decrease in the volume and level of activity for
the asset or liability, further analysis of the information from that market is
needed and significant adjustments to the related prices may be necessary to
estimate fair value in accordance withSFAS157.





This FSP clarifies that when there has
been a significant decrease in the volume and level of activity for the asset or
liability, some transactions may not be orderly. In those situations, the entity
must evaluate the weight of the evidence to determine whether the transaction is
orderly.The FSP provides a list of circumstances
that may indicate that a transaction is not orderly.A transaction price that is not
associated with an orderly transaction is given little, if any, weight when
estimating fair value.





This FSP is effective for interim and
annual reporting periods
ending after June15, 2009,
with early adoption permittedfor periods ending after March15, 2009.  An
entity early adopting FSP 157-4 must also early adopt FSP 115-2 and FAS 124-2,Recognition and
Presentation of Other
ThanTemporary
Impairments.The Corporation did
not early adopt this standard and is currently reviewing the effect this new
pronouncement will have on its consolidated financial statements.





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, the Bank and the
Title Company, for the three months ended March 31, 2009 compared to the same
period in 2008 and should be read in conjunction with the Corporation’s December
31, 2008 Annual Report on Form 10-K filed with the SEC and with the accompanying
consolidated financial statements and notes presented on pages 1 through 13 of
this Form 10-Q.





The
Private Securities Litigation Reform Act of 1995 contains safe harbor provisions
regarding forward-looking statements.  When used in this discussion,
the words “believes,” “anticipates,” “contemplates” and similar expressions are
intended to identify forward-looking statements.  Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected.  Those risks and uncertainties
include changes in interest rates, the ability to control costs and expenses and
general economic conditions.  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.





CHANGES
IN FINANCIAL CONDITION





Total
assets increased $6.6 million or 1.7% to $382.2 million at March 31, 2009 from
$375.7 million at December 31, 2008.  This increase resulted from
increases in cash and cash equivalents and loans receivable, net of allowance
for loan losses, of $15.5 million and $9.2 million, respectively, partially
offset by a decrease in securities of $18.4 million.  The net increase
in the Corporation’s assets was primarily funded by an increase in customer
deposits of $8.5 million.





Total
liabilities increased $6.5 million or 1.9% to $346.0 million at March 31, 2009
from $339.5 million at December 31, 2008, while total stockholders’ equity
increased to $36.2 million at March 31, 2009 from $36.1 million at December 31,
2008.  The increase in total liabilities resulted primarily from
increases in customer deposits of $8.5 million, partially offset by a decrease
in borrowed funds of $1.2 million.





13


RESULTS
OF OPERATIONS





Comparison
of Results for the Three Month Periods Ended March 31, 2009 and
2008





General.  Net income
increased $109,000 or 19.5% to $668,000 for the three months ended March 31,
2009 from $559,000 for the same period in 2008.  This increase was the
result of increases in net interest income and noninterest income of $518,000
and $60,000, respectively, partially offset by increases in the provision for
loan losses, noninterest expense and the provision for income taxes of $237,000,
$209,000 and $23,000, respectively.





Net interest
income.  Net interest income on a tax equivalent basis
increased $531,000 or 20.1% to $3.2 million for the three months ended March 31,
2009 from $2.6 million for the same period in 2008.  This net increase
can be attributed to an increase in tax equivalent interest income of $504,000
and a decrease in interest expense of $27,000.





Interest
income.  Interest income on a tax equivalent basis increased
$504,000 or 10.9% to $5.1 million for the three months ended March 31, 2009,
compared to $4.6 million for the same period in the prior year.  This
increase can be attributed to increases in interest on loans, securities and
interest-earning deposits with banks of $325,000, $138,000 and $66,000,
respectively, partially offset by a decrease in dividends on federal bank stocks
of $25,000.





Tax
equivalent interest earned on loans receivable increased $325,000 or 8.2% to
$4.3 million for the three months ended March 31, 2009, compared to $4.0 million
for the same period in 2008.  This increase resulted primarily from
average loans increasing $45.8 million or 19.6%, accounting for $726,000 in
additional loan interest income.  This increase can be primarily
attributed to growth in the Corporation’s commercial loan portfolios and loans
acquired through the merger of Elk County Savings and Loan Association (ECSLA)
in the fourth quarter of 2008.  Offsetting this volume increase, the
yield on loans receivable decreased 59 basis points to 6.22% for the three
months ended March 31, 2009, versus 6.81% for the same period in 2008, due to a
decline in market interest rates, accounting for a $401,000 decrease in interest
income.





Tax
equivalent interest earned on securities increased $138,000 or 22.6% to $749,000
for the three months ended March 31, 2009, compared to $611,000 for the same
period in 2008.  The average volume of securities increased $13.8
million, primarily through U.S. Government agency and mortgage-backed security
purchases, accounting for a $171,000 increase in interest
income.  Offsetting this volume increase, the average yield on
securities decreased 23 basis points to 5.00% for the three months ended March
31, 2009, versus 5.23% for the same period in 2008, due to declining market
interest rates.  This unfavorable yield variance accounted for a
$33,000 decrease in interest income.





Interest
earned on interest-earning deposit accounts increased $66,000 to $89,000 for the
three months ended March 31, 2009 from $23,000 for the same period in
2008.  The average volume of these assets increased $18.8 million,
primarily due to investments made in certificates of deposit with other
financial institutions, increasing interest income by
$79,000.  Offsetting this volume increase, the average yield on
interest-earning deposit accounts decreased 112 basis points to 1.63% for the
three months ended March 31, 2009, compared to 2.75% for the same period in the
prior year, accounting for a $13,000 decrease in interest
income.  This yield decrease was a result of the continued low
interest rate environment during 2008 and 2009.





Dividends
on federal bank stocks decreased $25,000 or 83.3% to $5,000 for the three month
period ended March 31, 2009 from $30,000 for the same period in
2008.  The average yield on these assets decreased 426 basis points to
0.53% for the three months ended March 31, 2009, compared to 4.79% for the same
period the prior year, due to the Federal Home Loan Bank of Pittsburgh
suspending its dividend and repurchase of capital stock as announced in late
December 2008.





Interest
expense.  Interest expense decreased $27,000 or 1.4% to $2.0
million for the three months ended March 31, 2009 compared to the same period in
2008.  This decrease in interest expense can be attributed to a
decrease in interest incurred on deposits of $32,000, partially offset by an
increase in interest incurred on borrowings of $5,000.


14


Interest
expense incurred on deposits decreased $32,000 or 2.0% to $1.5 million for the
three months ended March 31, 2009 compared $1.6 million for the same period in
2008.  The cost of interest-bearing deposits decreased 60 basis points
to 2.63% for the three months ended March 31, 2009, compared to 3.23% for the
same period in 2008 causing a $336,000 decrease in interest
expense.  This occurred as management elected to lower deposit rates
during the three months ended March 31, 2009 as market rates continued to
decline.  Partially offsetting this favorable rate variance, the
average volume of interest-bearing deposits increased $42.1 million or 21.5% to
$237.8 million for the three months ended March 31, 2009, compared to $195.7
million for the same period in 2008 causing a $304,000 increase in interest
expense.  The opening of the Grove City, PA office in 2008 and the
acquisition of ECSLA contributed to the increase in average
deposits.





Interest
expense incurred on borrowed funds increased $5,000 or 1.2% to $410,000 for the
three months ended March 31, 2009, compared to $405,000 for the same period in
the prior year.  This increase in interest expense can be attributed
to the increase in the average balance of borrowed funds of $18.2 million or
47.4% to $56.5 million for the three months ended March 31, 2009, compared to
$38.4 million for the same period in the prior year, contributing $156,000 in
additional expense.  This volume increase was primarily related to the
funding of certain mortgage-backed investment security
purchases.  Partially offsetting this volume increase, the cost of
borrowed funds decreased 131 basis points to 2.94% for the three months ended
March 31, 2009, compared to 4.25% for the same period in 2008 causing a $151,000
decrease in interest expense.  This cost decrease was a result of the
low rate environment during the second half of 2008 and 2009.





15


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 non-accrual 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 March
      31,2009
                                                                                                                
                                                                                                                
                                                                                                                2008AverageBalance
                                                                                                                
                                                                                                                
                                                                                                                Interest
                                                                                                                
                                                                                                                
                                                                                                                Yield /Rate
                                                                                                                
                                                                                                                
                                                                                                                AverageBalance
                                                                                                                
                                                                                                                
                                                                                                                Interest
                                                                                                                
                                                                                                                
                                                                                                                Yield /RateInterest-earning
      assets:Loans,
    taxable
                                                                                                                
                                                                                                                $
                                                                                                                263,114
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                4,120
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                6.35
                                                                                                                %
                                                                                                                
                                                                                                                $
                                                                                                                227,600
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                3,860
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                6.82
                                                                                                                %Loans, tax
      exempt
                                                                                                                
                                                                                                                
                                                                                                                16,373
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                163
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4.03
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                6,082
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                98
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                6.47
                                                                                                                %Total loans
      receivable
                                                                                                                
                                                                                                                
                                                                                                                279,487
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4,283
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                6.22
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                233,682
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3,958
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                6.81
                                                                                                                %Securities,
      taxable
                                                                                                                
                                                                                                                
                                                                                                                47,128
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                529
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4.55
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                32,664
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                378
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4.65
                                                                                                                %Securities, tax
      exempt
                                                                                                                
                                                                                                                
                                                                                                                13,652
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                220
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                6.54
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                14,361
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                233
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                6.53
                                                                                                                %Total
      securities
                                                                                                                
                                                                                                                
                                                                                                                60,780
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                749
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5.00
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                47,025
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                611
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5.23
                                                                                                                %Interest-earning deposits with
      banks
                                                                                                                
                                                                                                                
                                                                                                                22,130
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                89
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1.63
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                3,362
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                23
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2.75
                                                                                                                %Federal bank
      stocks
                                                                                                                
                                                                                                                
                                                                                                                3,797
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                0.53
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                2,518
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                30
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4.79
                                                                                                                %Total interest-earning cash
      equivalents
                                                                                                                
                                                                                                                
                                                                                                                25,927
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                94
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1.47
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                5,880
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                53
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3.63
                                                                                                                %Total interest-earning
      assets
                                                                                                                
                                                                                                                
                                                                                                                366,194
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5,126
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5.68
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                286,587
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4,622
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                6.49
                                                                                                                %Cash and due from
      banks
                                                                                                                
                                                                                                                
                                                                                                                2,173
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                5,224Other noninterest-earning
      assets
                                                                                                                
                                                                                                                
                                                                                                                16,533
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                14,614Total
Assets
                                                                                                                
                                                                                                                $
                                                                                                                384,900
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                306,425Interest-bearing
      liabilities:Interest-bearing demand
      deposits
                                                                                                                
                                                                                                                $
                                                                                                                109,466
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                313
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1.16
                                                                                                                %
                                                                                                                
                                                                                                                $
                                                                                                                78,962
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                282
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1.44
                                                                                                                %Time
    deposits
                                                                                                                
                                                                                                                
                                                                                                                128,301
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,227
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3.88
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                116,734
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,290
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4.44
                                                                                                                %Total interest-bearing
      deposits
                                                                                                                
                                                                                                                
                                                                                                                237,767
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,540
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2.63
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                195,696
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,572
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3.23
                                                                                                                %Borrowed funds,
      short-term
                                                                                                                
                                                                                                                
                                                                                                                21,536
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                24
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                0.45
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                3,351
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                0.48
                                                                                                                %Borrowed funds,
      long-term
                                                                                                                
                                                                                                                
                                                                                                                35,000
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                386
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4.48
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                35,000
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                401
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4.61
                                                                                                                %Total borrowed
      funds
                                                                                                                
                                                                                                                
                                                                                                                56,536
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                410
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2.94
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                38,351
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                405
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                4.25
                                                                                                                %Total interest-bearing
      liabilities
                                                                                                                
                                                                                                                
                                                                                                                294,303
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,950
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2.69
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                234,047
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,977
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3.40
                                                                                                                %Noninterest-bearing demand
      deposits
                                                                                                                
                                                                                                                
                                                                                                                50,319
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                45,163
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -Funding and cost of
      funds
                                                                                                                
                                                                                                                
                                                                                                                344,622
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,950
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2.29
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                279,210
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,977
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2.85
                                                                                                                %Other noninterest-bearing
      liabilities
                                                                                                                
                                                                                                                
                                                                                                                4,218
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2,388Total
      Liabilities
                                                                                                                
                                                                                                                
                                                                                                                348,840
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                281,598Stockholders'
      Equity
                                                                                                                
                                                                                                                
                                                                                                                36,060
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                24,827Total Liabilities and
      Stockholders' Equity
                                                                                                                
                                                                                                                $
                                                                                                                384,900
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                306,425Net interest
      income
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                3,176
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                2,645Interest rate
      spread(difference
      between
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2.99
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3.09
                                                                                                                %weighted average rate on
      interest-earningassets and interest-bearing
      liabilities)Net interest
      margin(net
      interest
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3.52
                                                                                                                %
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3.69
                                                                                                                %income as a percentage of
      averageinterest-earning
      assets)


16


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


(Dollar amounts in
      thousands)
                                                
                                                Three months ended March
      31,2009 versus
      2008Increase (Decrease) due
      toVolume
                                                
                                                
                                                Rate
                                                
                                                
                                                TotalInterest
      income:Loans
                                                
                                                $
                                                726
                                                
                                                
                                                $
                                                (401
                                                )
                                                
                                                $
                                                325Securities
                                                
                                                
                                                171
                                                
                                                
                                                
                                                (33
                                                )
                                                
                                                
                                                138Interest-earning
      deposits with banks
                                                
                                                
                                                79
                                                
                                                
                                                
                                                (13
                                                )
                                                
                                                
                                                66Federal
      bank stocks
                                                
                                                
                                                10
                                                
                                                
                                                
                                                (35
                                                )
                                                
                                                
                                                (25
                                                )Total
      interest-earning assets
                                                
                                                
                                                986
                                                
                                                
                                                
                                                (482
                                                )
                                                
                                                
                                                504Interest
      expense:Interest-bearing
      deposits
                                                
                                                
                                                304
                                                
                                                
                                                
                                                (336
                                                )
                                                
                                                
                                                (32
                                                )Borrowed
      funds
                                                
                                                
                                                156
                                                
                                                
                                                
                                                (151
                                                )
                                                
                                                
                                                5Total
      interest-bearing liabilities
                                                
                                                
                                                460
                                                
                                                
                                                
                                                (487
                                                )
                                                
                                                
                                                (27
                                                )Net interest
      income
                                                
                                                $
                                                526
                                                
                                                
                                                $
                                                5
                                                
                                                
                                                $
                                                531





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 known and inherent losses that are both
probable and reasonably 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 non-performing
assets, the estimated underlying value of the collateral and other factors
related to the collectibility of the loan portfolio.





Information
pertaining to the allowance for loan losses and non-performing assets for the
quarters ended March 31, 2009 and 2008 is as follows:


(Dollar amounts in
      thousands)
                                          
                                          At or for the three months
      endedMarch 31,2009
                                          
                                          
                                          2008Balance at the beginning of the
      period
                                          
                                          $
                                          2,651
                                          
                                          
                                          $
                                          2,157Provision for loan
      losses
                                          
                                          
                                          297
                                          
                                          
                                          
                                          60Charge-offs
                                          
                                          
                                          (71
                                          )
                                          
                                          
                                          (9
                                          )Recoveries
                                          
                                          
                                          8
                                          
                                          
                                          
                                          11Balance at the end of the
      period
                                          
                                          $
                                          2,885
                                          
                                          
                                          $
                                          2,219Non-performing
      loans
                                          
                                          $
                                          1,747
                                          
                                          
                                          $
                                          855Non-performing
      assets
                                          
                                          
                                          1,857
                                          
                                          
                                          
                                          979Non-performing loans to total
      loans
                                          
                                          
                                          0.63
                                          %
                                          
                                          
                                          0.36
                                          %Non-performing assets to total
      assets
                                          
                                          
                                          0.49
                                          %
                                          
                                          
                                          0.30
                                          %Allowance for loan losses to total
      loans
                                          
                                          
                                          1.04
                                          %
                                          
                                          
                                          0.94
                                          %Allowance for loan losses to
      non-performing loans
                                          
                                          
                                          165.14
                                          %
                                          
                                          
                                          259.53
                                          %


17





The
provision for loan losses increased $237,000 to $297,000 for the three month
period ended March 31, 2009 from $60,000 for the same period in the prior
year.  This increase was attributable to the aforementioned loan
growth and management’s estimates of the impact on the loan portfolio of credit
defaults related to the prevailing poor economic climate.





Noninterest
income.  Noninterest income increased $60,000 or 9.1% to
$720,000 during the three months ended March 31, 2009, compared to $660,000
during the same period in the prior year.  This increase can primarily
be attributed to gains recorded in 2009 related to the sale of investment
securities and the sale of the former ECSLA building, partially offset by a
decrease in commissions earned associated with the Bank’s financial services
division.





Noninterest
expense.  Noninterest expense increased $209,000 or 8.7% to
$2.6 million during the three months ended March 31, 2009 compared to $2.4
million for the same period in 2008.  This increase in noninterest
expense can be attributed to an increase in compensation and employee benefits,
premises and equipment and other noninterest expenses of $21,000, $61,000 and
$127,000, respectively.





Compensation
and employee benefits increased $21,000 or 1.5% to $1.4 million for the three
months ended March 31, 2009.  This increase can be attributed
primarily to normal salary and wage increases.





Premises
and equipment increased $61,000 or 14.5% to $481,000 for the three months ended
March 31, 2009, compared to $420,000 for the same period in the prior
year.  This increase was primarily related to costs associated with
the addition of the Grove City, Pennsylvania office that opened in
second-quarter 2008.





Other
noninterest expense increased $127,000 or 22.0% to $703,000 during the three
months ended March 31, 2009, compared to $576,000 for the same period in the
prior year.  This increase was primarily associated with an increase
in professional fees related to the Bank’s proposed purchase of a branch office
in Titusville, Pennsylvania and an increase in FDIC expense.  Due to
assessment credits that partially offset FDIC premiums in 2008 as well as
deposit insurance premium increased effective for 2009 and possible emergency
assessments, FDIC insurance expense will be significantly higher in 2009 than in
previous periods.





Provision for income
taxes.  The provision for income taxes increased $23,000 or
13.5% to $194,000 for the three months ended March 31, 2009, compared to
$171,000 for the same period in the prior year.  This was due to an
increase in pre-tax earnings of $132,000 or 18.1% to $862,000 for the three
months ended March 31, 2009, compared to $730,000 for the same period in the
prior year and a decrease in the effective tax rate to 22.5% for the three
months ended March 31, 2009, compared to 23.4% for the same period in
2008.  The difference between the statutory rate of 34% and the
Corporation’s effective tax rate is due to tax-exempt income earned on certain
tax-free loans and securities and bank-owned life insurance.





LIQUIDITY





The
Corporation’s primary sources of funds generally have been deposits obtained
through the offices of the Bank, borrowings from the FHLB and amortization and
prepayments of outstanding loans and maturing securities.  During the
three months ended March 31, 2009, the Corporation used its sources of funds
primarily to fund loan originations and security purchases.  As of
such date, the Corporation had outstanding loan commitments, including
undisbursed loans and amounts available under credit lines, totaling $24.0
million, and standby letters of credit totaling $1.0 million.





At March
31, 2009, time deposits amounted to $131.0 million or 44.4% of the Corporation’s
total consolidated deposits, including approximately $46.2 million of which are
scheduled to mature within the next year.  Management of the
Corporation believes that it has adequate resources to fund all of its
commitments, that all of its commitments will be funded as required by related
maturity dates and that, based upon past experience and current pricing
policies, it can adjust the rates of time deposits to retain a substantial
portion of maturing liabilities.


18


Aside
from liquidity available from customer deposits or through sales and maturities
of securities, the Corporation has alternative sources of funds such as a term
borrowing capacity from the FHLB and the Federal Reserve’s Treasury Auction
Facility.  At March 31, 2009, the Corporation’s borrowing capacity
with the FHLB, net of funds borrowed, was $195.9 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.





CRITICAL
ACCOUNTING POLICIES





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 currently views the determination of the
allowance for loan losses and the evaluation of securities for other than
temporary impairment as critical accounting policies.





The
allowance for loan losses provides for an estimate of probable losses in the
loan portfolio.  In determining the appropriate level of the allowance
for loan losses, the loan portfolio is separated into risk-rated and homogeneous
pools.  Migration analysis/historical loss rates, adjusted for
relevant trends, have been applied to these pools.  Qualitative
adjustments are then applied to the portfolio 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, experience, ability and depth
of lending management, changes in the trends, volumes and severity of past due,
non-accrual and classified loans and loss and recovery trends, quality of the
Corporation’s loan review system, concentrations of credit, and external
factors.  The methodology used to determine the adequacy of the
Corporation’s allowance for loan losses is comprehensive and meets regulatory
and accounting industry standards for assessing the allowance, however, it is
still an estimate.  Loan losses are charged against the allowance
while recoveries of amounts previously charged-off are credited to the
allowance.  Loan loss provisions are charged against current earnings
based on management’s periodic evaluation and review of the factors indicated
above.





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 and (3) the intent and ability
of the Corporation to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.





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.





19


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.





Based on certain 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, atMarch 31, 2009,  the Corporation’s
interest-earning assets maturing or repricing within one year totaled$156.3million while the Corporation’s
interest-bearing liabilities maturing or repricing within one-year totaled$114.8million, providing an excess of
interest-earning assets over interest-bearing liabilities of $41.5 million.AtMarch 31, 2009, the percentage of the Corporation’s
assets to liabilities maturing or repricing within one year was136.2%.





For more information, see “Market Risk
Management” in the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2008.





Item
4T.  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
Principal Accounting Officer (PAO), as appropriate, to allow timely decisions
regarding required disclosure based on the definition of “disclosure controls
and procedures” in Rule 13a-15(e).





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.





As of March 31, 2009, the Corporation
carried out an evaluation, under the supervision and with the participation of
the Corporation’s management, including the Corporation’s CEO and PAO, 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 PAO 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.





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 effect
the Corporation’s consolidated financial position or results of
operations.





Item 1A.  Risk
Factors





There
have been no material changes in the Corporation’s risk factors from those
previously disclosed in the 2008 Form 10-K.





20


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





None.





Item 3.  Defaults
Upon Senior Securities





None.





Item
4.  Submission of Matters to a Vote of Security
Holders





None.





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 Accounting
  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





21


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. AND SUBSIDIARIES








Date:  May
      14, 2009
                  By:
                  /s/ William C. MarshWilliam
      C. MarshChairman
      of the Board,President
      and Chief Executive OfficerDate:  May
      14, 2009
                  By:
                  /s/ Amanda L. EnglesAmanda
      L. EnglesTreasurer
      and Principal Accounting Officer


22