--------------------------------------------------------------------------------

                                  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 June 30, 2008
                                                 -------------

                                       or

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

          For the transition period from _____________ to _____________

                        Commission File Number: 000-18464
                                                ---------


                            EMCLAIRE FINANCIAL CORP.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          Pennsylvania                                     25-1606091
--------------------------------------------------------------------------------
  (State or other jurisdiction                 (IRS Employer Identification No.)
of incorporation or organization)


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 |X| No |_|

    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 |_|   Accelerated filer |_|    Non-accelerated filer |_|
                          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 |_| No |X|

    The  number of  shares  outstanding  of the  Registrant's  common  stock was
1,267,835 at August 14, 2008.

--------------------------------------------------------------------------------


<PAGE>

                            EMCLAIRE FINANCIAL CORP.

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q



                         PART I - FINANCIAL INFORMATION
                         ------------------------------

Item 1.    Interim Financial Statements (Unaudited)

           Consolidated Balance Sheets as of
           June 30, 2008 and December 31, 2007.................................1

           Consolidated Statements of Income for the three and six
           months ended June 30, 2008 and 2007.................................2

           Condensed Consolidated Statements of Cash Flows for the six
           months ended June 30, 2008 and 2007.................................3

           Consolidated Statements of Changes in Stockholders'
           Equity for the three and six months ended June 30, 2008 and 2007....4

           Notes to Consolidated Financial Statements..........................5

Item 2.    Management's Discussion and Analysis
           of Financial Condition and Results of Operations...................12

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........23

Item 4T.   Controls and Procedures............................................24

                           PART II - OTHER INFORMATION
                           ---------------------------

Item 1.    Legal Proceedings..................................................24

Item 1A.   Risk Factors.......................................................25

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds........25

Item 3.    Defaults Upon Senior Securities....................................25

Item 4.    Submission of Matters to a Vote of Security Holders................25

Item 5.    Other Information..................................................25

Item 6.    Exhibits...........................................................25

Signatures ...................................................................26


<PAGE>

                         PART I - FINANCIAL INFORMATION
                         ------------------------------

Item 1.  Interim Financial Statements
-------------------------------------

                          Emclaire Financial Corp. and Subsidiary
                                Consolidated Balance Sheets
                   As of June 30, 2008 (Unaudited) and December 31, 2007
                     (Dollar amounts in thousands, except share data)

<TABLE>
<CAPTION>

                                                                            June 30,      December 31,
                                                                              2008            2007
                                                                          ------------    ------------

                                     Assets
                                     ------

<S>                                                                       <C>             <C>
Cash and due from banks                                                   $      7,654    $     10,288
Interest earning deposits with banks                                             3,463             195
                                                                          ------------    ------------
      Cash and cash equivalents                                                 11,117          10,483
Securities available for sale, at fair value                                    61,942          51,919
Loans receivable, net of allowance for loan losses of $2,301 and $2,157        241,855         229,819
Federal bank stocks, at cost                                                     2,849           2,662
Bank-owned life insurance                                                        5,086           4,987
Accrued interest receivable                                                      1,291           1,365
Premises and equipment, net                                                      8,016           7,904
Goodwill                                                                         1,422           1,422
Prepaid expenses and other assets                                                1,152           1,159
                                                                          ------------    ------------

          Total Assets                                                    $    334,730    $    311,720
                                                                          ============    ============

                      Liabilities and Stockholders' Equity
                      ------------------------------------

Liabilities:
    Deposits:
      Non-interest bearing                                                $     51,427    $     47,111
      Interest bearing                                                         207,606         197,151
                                                                          ------------    ------------
          Total deposits                                                       259,033         244,262
    Short-term borrowed funds                                                   13,651           5,400
    Long-term borrowed funds                                                    35,000          35,000
    Accrued interest payable                                                       753             771
    Accrued expenses and other liabilities                                       1,288           1,584
                                                                          ------------    ------------

        Total Liabilities                                                      309,725         287,017
                                                                          ------------    ------------

Commitments and Contingencies                                                       --              --

Stockholders' Equity:
    Preferred stock, $1.00 par value, 3,000,000 shares authorized;
      none issued                                                                   --              --
    Common stock, $1.25 par value, 12,000,000 shares authorized;
      1,395,852 shares issued; 1,267,835 shares outstanding                      1,745           1,745
    Additional paid-in capital                                                  10,954          10,902
    Treasury stock, at cost; 128,017 shares                                     (2,653)         (2,653)
    Retained earnings                                                           15,403          15,114
    Accumulated other comprehensive loss                                          (444)           (405)
                                                                          ------------    ------------

        Total Stockholders' Equity                                              25,005          24,703
                                                                          ------------    ------------

          Total Liabilities and Stockholders' Equity                      $    334,730    $    311,720
                                                                          ============    ============

</TABLE>

See accompanying notes to consolidated financial statements.


                                        1
<PAGE>



                                   Emclaire Financial Corp. and Subsidiary
                                      Consolidated Statements of Income
                                     For the three and six months ended
                                     June 30, 2008 and 2007 (Unaudited)
                            (Dollar amounts in thousands, except per share data)

<TABLE>
<CAPTION>

                                                         For the three months ended         For the six months ended
                                                                   June 30,                         June 30,
                                                        ------------------------------   ------------------------------
                                                            2008              2007           2008             2007
                                                        -------------    -------------   -------------    -------------

Interest and dividend income:
<S>                                                     <C>              <C>             <C>              <C>
     Loans receivable, including fees                   $       3,929    $       3,788   $       7,858    $       7,392
     Securities:
            Taxable                                               412              419             789              783
            Exempt from federal income tax                        161              172             323              345
     Federal bank stocks                                           25               21              55               71
     Deposits with banks                                           36               16              59              137
                                                        -------------    -------------   -------------    -------------
         Total interest and dividend income                     4,563            4,416           9,084            8,728
                                                        -------------    -------------   -------------    -------------

Interest expense:
     Deposits                                                   1,554            1,568           3,126            3,235
     Borrowed funds                                               445              350             851              686
                                                        -------------    -------------   -------------    -------------
         Total interest expense                                 1,999            1,918           3,977            3,921
                                                        -------------    -------------   -------------    -------------

Net interest income                                             2,564            2,498           5,107            4,807
     Provision for loan losses                                     85               30             145               75
                                                        -------------    -------------   -------------    -------------

Net interest income after provision for loan losses             2,479            2,468           4,962            4,732
                                                        -------------    -------------   -------------    -------------

Noninterest income:
     Fees and service charges                                     407              391             765              716
     Commissions on financial services                            127               81             245              243
     Net gain (loss) on available for sale securities            (275)             118            (275)             176
     Net gain (loss) on sales of loans                             (6)               7               8                7
     Earnings on bank-owned life insurance                         57               54             113              108
     Other                                                        186              121             301              253
                                                        -------------    -------------   -------------    -------------
         Total noninterest income                                 496              772           1,157            1,503
                                                        -------------    -------------   -------------    -------------

Noninterest expense:
     Compensation and employee benefits                         1,283            1,245           2,700            2,550
     Premises and equipment                                       418              401             839              801
     Other                                                        592              690           1,169            1,295
                                                        -------------    -------------   -------------    -------------
         Total noninterest expense                              2,293            2,336           4,708            4,646
                                                        -------------    -------------   -------------    -------------

Income before provision for income taxes                          682              904           1,411            1,589
     Provision for income taxes                                   141              197             311              331
                                                        -------------    -------------   -------------    -------------

Net income                                              $         541    $         707   $       1,100    $       1,258
                                                        =============    =============   =============    =============

     Basic and diluted earnings per share               $        0.43    $        0.56   $        0.87    $        0.99

     Average common shares outstanding                      1,267,835        1,267,835       1,267,835        1,267,835

</TABLE>

See accompanying notes to consolidated financial statements.


                                       2
<PAGE>

<TABLE>
<CAPTION>

                                 Emclaire Financial Corp. and Subsidiary
                             Condensed Consolidated Statements of Cash Flows
                       For the six months ended June 30, 2008 and 2007 (Unaudited)
                                      (Dollar amounts in thousands)

                                                                                    For the six months ended
                                                                                            June 30,
                                                                                    ------------------------
                                                                                       2008           2007
                                                                                    ----------    ----------

Cash flows from operating activities
<S>                                                                                 <C>           <C>
     Net income                                                                     $    1,100    $    1,258
     Adjustments to reconcile net income to net cash provided
        by operating activities:
           Depreciation and amortization of premises and equipment                         342           332
           Provision for loan losses                                                       145            75
           Amortization of premiums and accretion of discounts, net                        (84)            6
           Amortization of intangible assets and mortgage servicing rights                   5             8
           Amortization of deferred loan costs                                             156           126
           Realized (gains) losses on sales of available for sale securities, net          275          (176)
           Net gains on sales of loans                                                      (8)           (7)
           Originations of loans sold                                                   (1,263)         (603)
           Proceeds from the sale of loans                                               1,261           605
           Stock compensation expense                                                       52             1
           Earnings on bank owned life insurance, net                                      (99)          (95)
           Decrease (increase) in accrued interest receivable                               74            (5)
           Decrease (increase) in prepaid expenses and other assets                         22          (237)
           Decrease in accrued interest payable                                            (18)         (104)
           Increase (decrease) in accrued expenses and other liabilities                  (297)          643
                                                                                    ----------    ----------
        Net cash provided by operating activities                                        1,663         1,827
                                                                                    ----------    ----------

Cash flows from investing activities
     Loan originations and principal collections, net                                  (12,331)       (7,005)
     Available for sale securities:
               Sales                                                                        --           989
               Maturities, repayments and calls                                         45,440         9,256
               Purchases                                                               (55,708)      (11,693)
     Purchase of federal bank stocks                                                      (187)         (176)
     Purchases of premises and equipment                                                  (454)         (186)
                                                                                    ----------    ----------
        Net cash used in investing activities                                          (23,240)       (8,815)
                                                                                    ----------    ----------

Cash flows from financing activities
     Net increase (decrease) in deposits                                                14,771        (4,524)
     Net increase in short-term borrowed funds                                           8,251         1,700
     Dividends paid on common stock                                                       (811)         (735)
                                                                                    ----------    ----------
        Net cash provided by (used in) financing activities                             22,211        (3,559)
                                                                                    ----------    ----------

Net increase (decrease) in cash and cash equivalents                                       634       (10,547)
Cash and cash equivalents at beginning of period                                        10,483        16,717
                                                                                    ----------    ----------
Cash and cash equivalents at end of period                                          $   11,117    $    6,170
                                                                                    ==========    ==========

Supplemental information:
     Interest paid                                                                  $    3,995    $    4,025
     Income taxes paid                                                                     180           126
Supplemental noncash disclosure:
     Transfers from loans to foreclosed real estate                                         44            --

See accompanying notes to consolidated financial statements.

</TABLE>

                                       3
<PAGE>

<TABLE>
<CAPTION>

                                     Emclaire Financial Corp. and Subsidiary
                                      Consolidated Statements of Changes in
                                   Stockholders' Equity For the three and six
                                 months ended June 30, 2008 and 2007 (Unaudited)
                              (Dollar amounts in thousands, except per share data)


                                                             For the three months ended       For the six months ended
                                                                      June 30,                        June 30,
                                                            ------------    ------------    ------------    ------------
                                                                2008            2007            2008            2007
                                                            ------------    ------------    ------------    ------------

<S>                                                         <C>             <C>             <C>             <C>
Balance at beginning of period                              $     25,086    $     24,069    $     24,703    $     23,917

Net income                                                           541             707           1,100           1,258

Other comprehensive income (loss):
     Change in net unrealized gains (losses) on available
      for sale securities, net of taxes                             (429)           (341)           (221)           (335)
     Less reclassification adjustment for (gains) losses
      included in net income, net of taxes                           182             (78)            182            (116)
                                                            ------------    ------------    ------------    ------------
     Other comprehensive loss                                       (247)           (419)            (39)           (451)
                                                            ------------    ------------    ------------    ------------

Total comprehensive income                                           294             288           1,061             807

Stock compensation expense                                            31               1              52               1

Dividends declared                                                  (406)           (368)           (811)           (735)
                                                            ------------------------------------------------------------

Balance at end of period                                    $     25,005    $     23,990    $     25,005    $     23,990
                                                            ============    ============    ============    ============

Common cash dividend per share                              $       0.32    $       0.29    $       0.64    $       0.58
                                                            ============    ============    ============    ============

</TABLE>

See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                     Emclaire Financial Corp. and Subsidiary
             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").  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 subsidiary, the Bank. All 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 Form 10-Q 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. For further information,  refer to the
         audited consolidated financial statements and footnotes thereto for the
         year ended  December 31, 2007, as contained in the  Corporation's  2007
         Annual  Report of Form 10-K  filed  with the  Securities  and  Exchange
         Commission.

         The  balance  sheet at  December  31,  2007 has been  derived  from the
         audited financial  statements at that date but does not include all the
         information  and footnotes  required by generally  accepted  accounting
         principles for complete financial statements.

         The preparation of financial statements,  in conformity with accounting
         principles generally accepted in the United States of America, 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. 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 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 on 85,000 shares of common stock were not included
         in computing  diluted earnings per share because their effects were not
         dilutive for the three and six months  periods  ended June 30, 2008 and
         2007.


                                       5
<PAGE>

3.       Securities.

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

<TABLE>
<CAPTION>

         -------------------------------------------------------------------------------------------------------

         (Dollar amounts in thousands)                       Amortized    Unrealized    Unrealized      Fair
                                                                cost        gains         losses        value
         -------------------------------------------------------------------------------------------------------
         Available for sale:
         -------------------
           June 30, 2008:
         <S>                                                 <C>          <C>           <C>           <C>
             U.S. Government agencies and related entities   $   20,987   $      114    $      (44)   $   21,057
             Mortgage-backed securities                          20,485           52           (53)       20,484
             Municipal securities                                13,686          430            --        14,116
             Corporate securities                                 3,001           --            (4)        2,997
             Equity securities                                    3,990           --          (702)        3,288
                                                             ----------   ----------    ----------    ----------
                                                             $   62,149   $      596    $     (803)   $   61,942
                                                             ==========   ==========    ==========    ==========
           December 31, 2007:
             U.S. Government agencies and related entities   $   29,356   $       37    $      (59)   $   29,334
             Mortgage-backed securities                           1,932           --           (48)        1,884
             Municipal securities                                13,685          566            --        14,251
             Corporate securities                                 2,939           --            --         2,939
             Equity securities                                    4,156           --          (645)        3,511
                                                             ----------   ----------    ----------    ----------
                                                             $   52,068   $      603    $     (752)   $   51,919
                                                             ==========   ==========    ==========    ==========
         -------------------------------------------------------------------------------------------------------

</TABLE>

         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.

         Effective  June  30,  2008,   management  evaluated  the  Corporation's
         investment   portfolio  and  determined  that  a  $275,000  other  than
         temporary impairment existed on two financial industry investments. The
         impairment  of  these  securities  were  considered  to be  other  than
         temporary due to recent  developments  in the  financial  condition and
         near-term  prospects  of  the  issuers,  a  downturn  in  the  economic
         conditions affecting the financial services industry and declining book
         values of these securities. These securities were written down to their
         fair  market  value as of June 30,  2008 and the  resulting  impairment
         losses were  recognized in earnings  during the second quarter of 2008.
         Management will continue to evaluate the value of these investments and
         make any necessary adjustments as conditions dictate.

         There were no other  unrealized  losses that were considered other than
         temporary at June 30, 2008.

4.       Loans Receivable.

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

<TABLE>
<CAPTION>

            -------------------------------------------------------------------------------

            (Dollar amounts in thousands)                         June 30,     December 31,
                                                                    2008           2007
            -------------------------------------------------------------------------------
<S>                                                            <C>            <C>
            Mortgage loans on real estate:
              Residential first mortgages                      $     65,659   $     65,706
              Home equity loans and lines of credit                  53,081         49,426
              Commercial real estate                                 76,637         71,599
                                                                ------------   ------------
                                                                     195,377        186,731
            Other loans:
              Commercial business                                     39,997         35,566
              Consumer                                                 8,782          9,679
                                                                ------------   ------------
                                                                      48,779         45,245
                                                                ------------   ------------

            Total loans, gross                                       244,156        231,976

            Less allowance for loan losses                             2,301          2,157
                                                                ------------   ------------

            Total loans, net                                    $    241,855   $    229,819
                                                                ============   ============
            -------------------------------------------------------------------------------

</TABLE>

                                                   6
<PAGE>

5.       Deposits.

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

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------
(Dollar amounts in thousands)                 June 30, 2008          December 31, 2007
-----------------------------------------------------------------------------------------

         Type of accounts                  Amount         %         Amount           %
---------------------------------------------------------------    ----------------------

<S>                                      <C>               <C>     <C>               <C>
Non-interest bearing deposits            $  51,427         19.8%   $  47,111         19.3%
Interest bearing demand deposits            91,340         35.3%      77,614         31.8%
Time deposits                              116,266         44.9%     119,537         48.9%
                                         ---------    ---------    ---------    ---------

                                         $ 259,033        100.0%   $ 244,262        100.0%
                                         =========    =========    =========    =========
-----------------------------------------------------------------------------------------

</TABLE>

6.       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 June 30, 2008, $85,000 will expire
         within the next  fourteen  months,  $798,000 will  automatically  renew
         within the next twelve  months and $216,000  will  automatically  renew
         within thirteen to twenty 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 June 30, 2008 for guarantees  under standby  letters of
         credit issued is not material.

7.       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 six months
         ended  June  30,  2008  and  2007  amounted  to  $76,000  and  $67,000,
         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 three years of service.

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


                                       7
<PAGE>

7.       Employee Benefit Plans (continued).

         The components of the periodic pension cost are as follows:

<TABLE>
<CAPTION>

         --------------------------------------------------------------------------------------------------------------
         (Dollar amounts in thousands)          For the three months ended     For the six months ended     Year ended
                                                         June 30,                      June 30,             December 31,
                                                --------------------------    --------------------------    -----------
                                                   2008           2007           2008           2007           2007
         --------------------------------------------------    -----------    -----------    -----------    -----------

         <S>                                    <C>            <C>            <C>            <C>            <C>
         Service cost                           $        63    $        57    $       126    $       114    $       238
         Interest cost                                   71             65            142            130            262
         Expected return on plan assets                 (79)           (77)          (158)          (154)          (303)
         Transition asset                                --             (2)            --             (4)            --
         Prior service costs                             (8)            (8)           (16)           (16)           (31)
         Recognized net actuarial (gain) loss             4              7              8             14             31
                                                -----------    -----------    -----------    -----------    -----------
         Net periodic pension cost              $        51    $        42    $       102    $        84    $       197
                                                ===========    ===========    ===========    ===========    ===========
         --------------------------------------------------------------------------------------------------------------

</TABLE>

         The  expected  rate of return on plan  assets was 8.50% for the periods
         ended June 30, 2008 and 2007. The Corporation  previously  disclosed in
         its financial  statements  for the year ended December 31, 2007 that it
         expected to contribute $335,000 to its pension plan in 2008. As of June
         30, 2008, there have been no contributions.  The Corporation  presently
         anticipates contributing $335,000 to its pension plan in 2008.

8.       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 shall vest and become  exercisable  at the rate, to the
         extent  and  subject to such  limitations  as may be  specified  by the
         Corporation.  Effective  May 2007,  the  Corporation  adopted  SFAS No.
         123(R),  Share-Based  Payment,  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 six-month period ended
         June 30,  2008,  the  Corporation  recognized  $52,000 in  compensation
         expense for stock options.

         The fair value of each option  grant is  estimated on the date of grant
         using  the  Black-Scholes   option-pricing  model  with  the  following
         weighted average assumptions:


    ----------------------------------------------------------------------
                                                For the six months ended
                                                     June 30, 2008
    ----------------------------------------------------------------------
    Dividend yield                                        4.46%
    Expected life                                       10 years
    Expected volatility                                  14.09%
    Risk-free interest rate                               5.10%
    ----------------------------------------------------------------------



         The   expected   volatility   is  based  on   historical   stock  price
         fluctuations.  The  risk-free  interest  rates for  periods  within the
         contractual  life of the  awards are based on the U.S.  Treasury  yield
         curve in effect at the time of the grant. The expected life is based on
         the maximum term of the options. The dividend yield assumption is based
         on the Corporation's history and expectation of dividend payouts.


                                       8
<PAGE>

8.       Stock Compensation Plans (continued).

         A summary of option  activity  under the Plan as of June 30, 2008,  and
         changes during the period then ended is presented below:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------
                                                                                                       Weighted-Average
                                                                 Weighted-Average      Aggregate        Remaining Term
                                                  Options         Exercise Price    Intrinsic Value       (in years)
-----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                <C>                <C>
Outstanding at the beginning of the year                84,000   $          26.00                                   9.0
Granted                                                  5,500              25.90                                   9.8
Exercised                                                   --                                    --                 --
Forfeited                                                4,500              26.00                                    --
                                              ----------------   ----------------   ----------------   ----------------
Outstanding as of June 30, 2008                         85,000   $          25.99   $             --                9.0
                                              ================   ================   ================   ================
Exercisable as of June 30, 2008                             --   $             --   $             --                 --
                                              ================   ================   ================   ================

-----------------------------------------------------------------------------------------------------------------------

</TABLE>

         A summary of the  status of the  Corporation's  nonvested  shares as of
         June 30,  2008,  and changes  during the period then ended is presented
         below:

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------
                                                                   Weighted-Average
                                               Options          Grant-date Fair Value
-------------------------------------------------------------------------------------
<S>                                     <C>                     <C>
Nonvested at the beginning of the year                 84,000   $                3.39
Granted                                                 5,500                    2.90
Vested                                                     --                      --
Forfeited                                               4,500                      --
                                        ---------------------   ---------------------
Nonvested as of June 30, 2008                          85,000   $                3.36
                                        =====================   =====================
-------------------------------------------------------------------------------------

</TABLE>

         As  of  June  30,  2008,  there  was  $203,000  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 2.0 years.

9.       Fair Values of Financial Instruments.

         In September  2006,  the Financial  Accounting  Standards  Board (FASB)
         issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair
         Value Measurements (SFAS 157), which defines fair value,  establishes a
         framework for measuring fair value under generally accepted  accounting
         principles   (GAAP),   and   expands   disclosures   about  fair  value
         measurements.  SFAS 157 applies to other accounting pronouncements that
         require  or  permit  fair  value  measurements.  The  new  guidance  is
         effective for financial  statements  issued for fiscal years  beginning
         after  November 15, 2007,  and for interim  periods within those fiscal
         years. The Corporation  adopted SFAS 157 effective  January 1, 2008 for
         financial assets and liabilities that are measured and reported at fair
         value. There was no impact from the adoption of SFAS 157 on the amounts
         reported in the consolidated  financial statements.  The primary effect
         of SFAS 157 on the Corporation  was to expand the required  disclosures
         pertaining to the methods used to determine fair values.

         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.


                                       9
<PAGE>

9.       Fair Values of Financial Instruments (continued).

                  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 used at June 30,
         2008 are as follows:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)                           (Level 1)         (Level 2)
                                                    Quoted Prices in     Significant          (Level 3)
                                                     Active Markets         Other           Significant
                                                     for Identical        Observable        Unobservable
Description                       June 30, 2008          Assets             Inputs             Inputs
----------------------------------------------------------------------------------------------------------
<S>                              <C>                <C>                <C>                <C>
Securities available for sale    $         61,942   $          3,288   $         58,654   $             --
                                 ----------------   ----------------   ----------------   ----------------
                                 $         61,942   $          3,288   $         58,654   $             --
                                 ================   ================   ================   ================
----------------------------------------------------------------------------------------------------------

</TABLE>

         The  Corporation's  adoption of SFAS 157 applies only to its  financial
         instruments  required to be reported at fair value.  The adoption  does
         not apply to non-financial  assets and non-financial  liabilities until
         January  1,  2009 in  accordance  with  FSP FAS  157-2.  The  following
         valuation  technique  was used to  measure  fair value of assets in the
         table above on a recurring basis as of June 30, 2008:

         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 June 30, 2008, 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.

10.      Adoption of New Accounting Standards.

         The Corporation adopted the Financial Accounting Standards Board (FASB)
         Statement of Financial  Accounting Standards (SFAS) No. 157, Fair Value
         Measurements  (SFAS 157) effective January 1, 2008 for financial assets
         and liabilities that are measured and reported at fair value. There was
         no impact from the adoption of SFAS 157 on the amounts  reported in the
         consolidated  financial  statements.  The primary effect of SFAS 157 on
         the Corporation was to expand  required  disclosures  pertaining to the
         methods used to determine fair values. See note 9 for further detail.

11.      Proposed Merger Conversion

         Effective  May 22,  2008,  the  Corporation  entered  into a definitive
         agreement  with  Elk  County  Savings  and  Loan  Association  (ECSLA),
         headquartered  in  Ridgway,   Pennsylvania,   to  acquire  ECSLA  in  a
         conversion  merger  transaction.  At June 30,  2008,  ECSLA  had  total
         assets,  loans, deposits and equity of $9.4 million, $7.6 million, $7.0
         million  and  $2.4  million,  respectively.  In  connection  with  this
         transaction,  the Corporation  will offer shares of its common stock to
         certain  members  of ECSLA in a  subscription  offering.  Any stock not
         purchased  by eligible  members of ECSLA in the  subscription  offering
         will then be  offered to certain  members of the  community  and to the
         general   public.   Following  the  closing  of  the  offering  of  the
         Corporation's  common  stock,  ECSLA will  merge with and into  Farmers
         National Bank, with Farmers National Bank as the surviving institution.
         The  Corporation  expects this  transaction to be finalized  during the
         fourth quarter of 2008.


                                       10
<PAGE>

12.      Effect of Recently Issued Accounting Standards.

         In February  2007,  the FASB issued SFAS No. 159, The Fair Value Option
         for Financial Assets and Financial Liabilities - Including an amendment
         of FASB  Statement  No. 115 (SFAS 159).  SFAS 159  permits  entities to
         choose to measure many financial instruments and certain other items at
         fair  value.  Unrealized  gains and  losses on items for which the fair
         value option has been elected  will be  recognized  in earnings at each
         subsequent  reporting  date.  SFAS 159 is effective for the Corporation
         January 1, 2008. This new accounting pronouncement had no effect on the
         Corporation's  consolidated  financial  statements  as the  Corporation
         elected not to adopt SFAS 159.

         In  December  2007,   the  FASB  issued  SFAS  No.   141(R),   Business
         Combinations   (SFAS  141R).  SFAS  141R  establishes   principles  and
         requirements for how the acquirer of a business recognizes and measures
         in its financial  statements  the  identifiable  assets  acquired,  the
         liabilities assumed,  and any noncontrolling  interest in the acquiree.
         SFAS 141R also  provides  guidance for  recognizing  and  measuring the
         goodwill  acquired in the  business  combination  and  determines  what
         information to disclose to enable users of the financial  statements to
         evaluate the nature and financial effects of the business  combination.
         The guidance  will become  effective for fiscal years  beginning  after
         December 15, 2008. This new pronouncement will impact the Corporation's
         accounting for business  combinations  completed  beginning  January 1,
         2009.

         In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest
         in Consolidated Financial Statements - An Amendment of ARB No. 51 (SFAS
         160). SFAS 160 establishes  accounting and reporting  standards for the
         noncontrolling  interest in a subsidiary and for the deconsolidation of
         a  subsidiary.  The  guidance  will become  effective  for fiscal years
         beginning after December 15, 2008,  which for the  Corporation  will be
         January 1, 2009. The Corporation  believes that this new  pronouncement
         will  have  an  immaterial   impact  on  its   consolidated   financial
         statements.

         In April 2008,  the FASB issued  FASB Staff  Position  (FSP) FAS 142-3,
         Determination of the Useful Life of Intangible Assets.  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 142, Goodwill and Other Intangible  Assets.
         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  141R  and  other  GAAP.  This  FSP  is  effective  for  financial
         statements  issued for fiscal years  beginning after December 15, 2008,
         and interim  periods  within  those  fiscal  years.  Early  adoption is
         prohibited.  The  Corporation  is currently  evaluating  the  potential
         impact the new  pronouncement  will have on its consolidated  financial
         statements.

         In May 2008,  the FASB issued SFAS No. 162, The  Hierarchy of Generally
         Accepted  Accounting  Principles  (SFAS 162).  SFAS 162  identifies the
         sources of  accounting  principles  and the framework for selecting the
         principles  used  in the  preparation  of  financial  statements.  This
         Statement  is  effective 60 days  following  the SEC's  approval of the
         Public Company Accounting Oversight Board amendments to AU Section 411,
         The Meaning of Present  Fairly in Conformity  with  Generally  Accepted
         Accounting  Principles.  The  Corporation  is currently  evaluating the
         potential  impact the new  pronouncement  will have on its consolidated
         financial statements.

         In June  2008,  the FASB  ratified  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 is effective for fiscal
         years  beginning  after December 15, 2008. The Corporation is currently
         evaluating the potential impact the new pronouncement  will have on its
         consolidated financial statements.


                                       11
<PAGE>

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. (the  "Corporation") and its wholly owned
subsidiary  bank,  the Farmers  National Bank of Emlenton (the "Bank"),  for the
three and six months  ended June 30, 2008  compared to the same  periods in 2007
and should be read in  conjunction  with the  Corporation's  December  31,  2007
Annual Report on Form 10-K filed with the Securities and Exchange Commission and
with the accompanying  consolidated  financial statements and notes presented on
pages 1 through 11 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  $23.0  million to $334.7  million at June 30, 2008 from
$311.7 million at December 31, 2007. This 7.4% increase  resulted from increases
in securities and loans  receivable,  net of allowance for loan losses, of $10.0
million and $12.0  million,  respectively.  The  increase  in the  Corporation's
assets was  primarily  funded by  increases  in customer  deposits  and borrowed
funds.

Non-performing  assets  to total  assets  decreased  to  0.31% at June 30,  2008
compared to 0.35% at December  31, 2007.  The Bank has a $2.3  million  personal
loan that was not  included as a  non-performing  asset for purposes of the June
30,  2008  calculation  that  has  exhibited  credit  weaknesses  and  has  been
classified as substandard.  This loan is secured by local real property  pledged
by an  associate  of the  borrower  as well as  proceeds  from a life  insurance
policy.  Although  the  Bank is in  negotiations  with  the  borrower,  the Bank
believes that it may be required to initiate foreclosure  proceedings.  However,
due to the low loan to value ratio at the time of the loan  origination in March
2006, the Bank does not believe it will incur any material losses on this loan.

Total  liabilities  increased  $22.7 million to $309.7  million at June 30, 2008
from $287.0  million at December  31,  2007,  while total  stockholders'  equity
increased  $302,000  to $25.0  million at June 30,  2008 from  $24.7  million at
December 31, 2007.  The increase in total  liabilities  resulted  primarily from
increases  in customer  deposits of $14.8  million  and  borrowed  funds of $8.3
million.

RESULTS OF OPERATIONS

Comparison of Results for the Three Month Periods Ended June 30, 2008 and 2007

General. Net income decreased $166,000 or 23.5% to $541,000 for the three months
ended June 30, 2008 from $707,000 for the same period in 2007. This decrease was
the result of an  increase  in the  provision  of loan  losses of $55,000  and a
decrease in noninterest  income of $276,000,  partially offset by an increase in
net  interest  income of $66,000 and  decreases in  noninterest  expense and the
provision for income taxes of $43,000 and $56,000, respectively.

Net interest  income.  Net interest  income on a tax equivalent  basis increased
$57,000 or 2.2% to $2.7  million for the three  months  ended June 30, 2008 from
$2.6 million for the same period in 2007. This net increase can be attributed to
an increase in tax equivalent  interest income of $138,000,  partially offset by
an increase in interest expense of $81,000.


                                       12
<PAGE>

Interest income. Interest income on a tax equivalent basis increased $138,000 or
3.0% to $4.7 million for the three months ended June 30, 2008,  compared to $4.5
million for the same period in the prior year.  This  increase can be attributed
to increases in interest on loans and  interest-earning  deposits with banks and
dividends on federal bank stocks of $137,000, $20,000 and $4,000,  respectively,
partially offset by a decrease in interest on securities of $23,000.

Tax equivalent interest earned on loans receivable increased $137,000 or 3.6% to
$4.0 million for the three months ended June 30, 2008,  compared to $3.8 million
for the same period in 2007. This increase resulted primarily from average loans
increasing  $21.2 million or 9.7%,  accounting  for $357,000 in additional  loan
interest  income.  This  increase can be primarily  attributed  to growth in the
Corporation's  commercial loan portfolios.  Offsetting this volume increase, the
yield on loans  receivable  decreased  37 basis  points  to 6.61%  for the three
months ended June 30, 2008, versus 6.98% for the same period in 2007, accounting
for a $220,000  decrease in interest  income.  Contributing  to this decrease in
yields on loans  receivable was recent  decreases in short-term  market interest
rates. In addition, the Corporation collected $54,000 of interest due associated
with the payoff of a  previously  non-performing  commercial  loan in April 2007
that had been on non-accrual  status.  In connection  with the loan payoff,  the
Corporation  received all principal and interest due under the contractual terms
of the loan  agreement  and interest  collected  was  recorded as loan  interest
income during the three months ended June 30, 2007.

Interest earned on interest-earning deposit accounts increased $20,000 or 125.0%
to $36,000 for the three  months  ended June 30, 2008 from  $16,000 for the same
period in 2007.  The average  volume of these assets  increased  $6.4 million or
183.2%,  primarily as a result of an increase in customer  deposits,  increasing
interest income by $36,000.  Offsetting this volume increase,  the average yield
on interest-earning deposit accounts decreased 344 basis points to 2.03% for the
three months  ended June 30, 2008,  compared to 5.47% for the same period in the
prior year,  accounting for a $16,000 decrease in interest income.  The decrease
in the average yield reflects the recent decreases in short-term market interest
rates. Dividends on federal bank stocks increased $4,000 or 19.0% to $25,000 for
the three month  period  ended June 30, 2008 from $21,000 for the same period in
2007. The average volume of these assets increased $430,000 or 18.5%, accounting
for the increase in income.

Tax equivalent  interest earned on securities  decreased $23,000 to $645,000 for
the three months  ended June 30, 2008,  compared to $668,000 for the same period
in 2007. The average yield on securities  decreased 14 basis points to 4.78% for
the three months ended June 30, 2008,  versus 4.92% for the same period in 2007,
as a result of certain higher yielding  securities  maturing.  This  unfavorable
yield variance accounted for a $21,000 decrease in interest income. In addition,
the average  volume of securities  decreased  $192,000,  accounting for a $2,000
decrease in interest income.

Interest expense. Interest expense increased $81,000 or 4.2% to $2.0 million for
the three  months  ended June 30,  2008,  compared to $1.9  million for the same
period in 2007.  This  increase in  interest  expense  can be  attributed  to an
increase in interest incurred on borrowed funds of $95,000,  partially offset by
a decrease in interest incurred on deposits of $14,000.

Interest  expense  incurred  on  borrowed  funds  increased  $95,000 or 27.1% to
$445,000 for the three months ended June 30, 2008,  compared to $350,000 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 $12.5
million or 39.3% to $44.3  million  for the three  months  ended June 30,  2008,
compared to $31.8  million  for the same  period in the prior year  contributing
$128,000 in  additional  expense.  This volume  increase  was the result of $5.0
million of FHLB long-term  borrowings  placed in the fourth quarter of 2007 used
primarily  to fund loan  growth  and an average  of $9.3  million in  short-term
borrowings  used to fund security  purchases.  Partially  offsetting this volume
increase,  the cost of borrowed funds decreased 38 basis points to 4.04% for the
three months ended June 30, 2008,  compared to 4.42% for the same period in 2007
causing a $33,000 decrease in interest expense.


                                       13
<PAGE>

Interest expense incurred on deposits  decreased $14,000 or 1.0% to $1.6 million
for the three  months  ended June 30, 2008  compared to the same period in 2007.
The cost of interest-bearing deposits decreased 18 basis points to 3.06% for the
three months ended June 30, 2008,  compared to 3.24% for the same period in 2007
causing a $96,000 decrease in interest expense.  Partially offsetting this yield
decrease,  the  average  volume of  interest-bearing  deposits  increased  $10.4
million to $204.4 million for the three months ended June 30, 2008,  compared to
$194.0  million  for the same  period in 2007  causing  an $82,000  increase  in
interest expense.


                                       14
<PAGE>

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.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)                                        Three months ended June 30,
--------------------------------------------------------------------------------------------------------------------
                                                                 2008                             2007
                                                    ------------------------------  --------------------------------
                                                     Average               Yield /   Average                 Yield /
                                                     Balance    Interest    Rate     Balance    Interest      Rate
--------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
------------------------
<S>                                                 <C>         <C>          <C>    <C>        <C>           <C>
 Loans, taxable                                     $  234,664  $  3,865     6.62%  $ 213,162  $   3,718     7.00%
 Loans, tax exempt                                       6,072        92     6.12%      6,325        102     6.49%
                                                    ----------  --------            ---------  ---------
   Total loans receivable                              240,736     3,957     6.61%    219,487      3,820     6.98%
                                                    ----------  --------            ---------  ---------

 Securities, taxable                                    39,934       412     4.15%     39,587        419     4.25%
 Securities, tax exempt                                 14,332       233     6.54%     14,871        249     6.71%
                                                    ----------  --------            ---------  ---------
   Total securities                                     54,266       645     4.78%     54,458        668     4.92%
                                                    ----------  --------            ---------  ---------

 Interest-earning deposits with banks                    7,148        36     2.03%      1,174         16     5.47%
 Federal bank stocks                                     2,751        25     3.66%      2,321         21     3.68%
                                                    ----------  --------            ---------  ---------
   Total interest-earning cash equivalents               9,899        61     2.48%      3,495         37     4.28%
                                                    ----------  --------            ---------  ---------

 Total interest-earning assets                         304,901     4,663     6.15%    277,440      4,525     6.54%
   Cash and due from banks                               5,569                          5,668
   Other noninterest-earning assets                     14,590                         14,668
                                                    ----------                      ---------

   Total Assets                                     $  325,060                      $ 297,776
                                                    ==========                      =========

Interest-bearing liabilities:
-----------------------------
 Interest-bearing demand deposits                   $   87,112       311     1.44%  $  72,859        224     1.23%
 Time deposits                                         117,290     1,243     4.26%    121,095      1,344     4.45%
                                                    ----------  --------            ---------  ---------
   Total interest-bearing deposits                     204,402     1,554     3.06%    193,954      1,568     3.24%
                                                    ----------  --------            ---------  ---------

 Borrowed funds, short-term                              9,291        53     2.29%      1,791         25     5.60%
 Borrowed funds, long-term                              35,000       392     4.50%     30,000        325     4.35%
                                                    ----------  --------            ---------  ---------
   Total borrowed funds                                 44,291       445     4.04%     31,791        350     4.42%
                                                    ----------  --------            ---------  ---------

 Total interest-bearing liabilities                    248,693     1,999     3.23%    225,745      1,918     3.41%
                                                    ----------  --------            ---------  ---------

   Noninterest-bearing demand deposits                  48,878         -        -      45,088          -        -
                                                    ----------  --------            ---------  ---------

   Funding and cost of funds                           297,571     1,999     2.70%    270,833      1,918     2.84%

   Other noninterest-bearing liabilities                 2,466                          2,851
                                                    ----------                      ---------

   Total Liabilities                                   300,037                        273,684
   Stockholders' Equity                                 25,023                         24,092
                                                    ----------                      ---------

   Total Liabilities and Stockholders' Equity       $  325,060                      $ 297,776
                                                    ==========  --------            =========  ---------

Net interest income                                             $  2,664                       $   2,607
                                                                ========                       =========

Interest rate spread (difference between                                     2.92%                           3.13%
                                                                         =========                        ========
 weighted average rate on interest-earning
 assets and interest-bearing liabilities)

Net interest margin (net interest                                            3.51%                           3.77%
                                                                         =========                        ========
 income as a percentage of average
 interest-earning assets)
--------------------------------------------------------------------------------------------------------------------

</TABLE>


                                       15
<PAGE>

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 June 30,
                                                      2008 versus 2007
                                                 Increase (Decrease) due to
------------------------------------------------------------------------------
                                               Volume       Rate       Total
------------------------------------------------------------------------------
 Interest income:
    Loans                                     $    357    $   (220)   $    137
    Securities                                      (2)        (21)        (23)
    Interest-earning deposits with banks            36         (16)         20
    Federal bank stocks                              4          --           4
                                              --------    --------    --------

    Total interest-earning assets                  395        (257)        138
                                              --------    --------    --------

 Interest expense:
    Deposits                                        82         (96)        (14)
    Borrowed funds                                 128         (33)         95
                                              --------    --------    --------

    Total interest-bearing liabilities             210        (129)         81
                                              --------    --------    --------

 Net interest income                          $    185    $   (128)   $     57
                                              ========    ========    ========
------------------------------------------------------------------------------

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 June 30, 2008 and 2007 is as follows:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------
(Dollar amounts in thousands)                        At or for the three months ended
                                                                 June 30,
                                                    -----------------------------------
                                                         2008                2007
---------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>
Balance at the beginning of the period              $         2,218     $         2,078
  Provision for loan losses                                      85                  30
  Charge-offs                                                   (17)                (32)
  Recoveries                                                     15                  10
                                                    ---------------     ---------------
Balance at the end of the period                    $         2,301     $         2,086
                                                    ===============     ===============

Non-performing loans                                $           986     $         1,176
Non-performing assets                                         1,030               1,176
Non-performing loans to total loans                            0.40%               0.53%
Non-performing assets to total assets                          0.31%               0.39%
Allowance for loan losses to total loans                       0.94%               0.94%
Allowance for loan losses to non-performing loans            233.37%             177.36%
---------------------------------------------------------------------------------------

</TABLE>


                                       16
<PAGE>

The  provision  for loan losses  increased  $55,000 or 183.3% to $85,000 for the
three month  period  ended June 30, 2008 from $30,000 for the same period in the
prior  year.  Management's  evaluation  of the  loan  portfolio,  including  the
changing  composition  of the portfolio as well as economic  trends,  regulatory
considerations  and other factors  contributed to the  recognition of $85,000 in
the provision for loan losses during the three months ended June 30, 2008.

Noninterest  income.  Noninterest income decreased $276,000 or 35.8% to $496,000
during the three  months ended June 30,  2008,  compared to $772,000  during the
same period in the prior year.  This  decrease can be attributed to the negative
variance in gains and losses on securities and decreases in gains on the sale of
loans of $393,000 and $13,000, respectively.  Partially offsetting this decrease
in noninterest income were increases in fees and service charges, commissions on
financial services,  earnings on bank-owned life insurance and other noninterest
income of $16,000, $46,000, $3,000 and $65,000, respectively.

The  Corporation  realized  security losses of $275,000 in the second quarter of
2008  compared  to gains of  $118,000  for the same  period in 2007.  Management
determined that two marketable equity  securities were impaired.  The impairment
of  these  financial  industry  securities  were  considered  to be  other  than
temporary due to recent  developments  in the financial  condition and near-term
prospects of the issuers,  a downturn in the economic  conditions  affecting the
industry and declining book values of the  securities.  At June 30, 2008,  these
securities  were written down to their  current fair value.  The gain during the
three month periods ended June 30, 2007, was primarily due to the realization of
a gain from the sale of a community  bank stock  investment  as a result of that
bank's merger with a larger financial institution.

Noninterest  expense.  Noninterest  expense  decreased  $43,000  or 1.8% to $2.3
million  during the three months ended June 30, 2008 compared to the same period
in 2007. This decrease in noninterest expense can be attributed to a decrease in
other  noninterest  expense  of  $98,000,   partially  offset  by  increases  in
compensation  and employee  benefits  and premises and  equipment of $38,000 and
$17,000, respectively.

Compensation and employee benefits increased $38,000 or 3.1% to $1.3 million for
the three  months  ended June 30,  2008,  compared to $1.2  million for the same
period in the prior year.  This increase can be  attributed  primarily to normal
salary and wage increases and the addition of staff at a new branch location.

Premises  and  equipment  increased  $17,000 or 4.2% to  $418,000  for the three
months  ended June 30,  2008,  compared to  $401,000  for the same period in the
prior year. This increase can be attributed  primarily to costs  associated with
an additional branch office which was opened in April 2008.

Other  noninterest  expense  decreased  $98,000 or 14.2% to $592,000  during the
three months  ended June 30,  2008,  compared to $690,000 for the same period in
the prior year.  This  decrease  can be  attributed  primarily  to a decrease in
professional fees relating to Sarbanes-Oxley Section 404 compliance.

Provision for income taxes. The provision for income taxes decreased  $56,000 or
28.4% to $141,000 for the three months ended June 30, 2008, compared to $197,000
for the same  period in the prior  year.  This was due to a decrease  in pre-tax
earnings of $222,000 or 24.6% to $682,000  for the three  months  ended June 30,
2008,  compared to $904,000 for the same period in the prior year and a decrease
in the  effective  tax rate to 20.7% for the three  months  ended June 30, 2008,
compared  to 21.8%  for the same  period in 2007.  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.


                                       17
<PAGE>

Comparison of Results for the Six Month Periods Ended June 30, 2008 and 2007

General.  Net income  decreased  $158,000  or 12.6% to $1.1  million for the six
months ended June 30, 2008 from $1.3  million for the same period in 2007.  This
decrease  was a result  of  increases  in the  provision  for loans  losses  and
noninterest  expense of $70,000  and  $62,000,  respectively,  and a decrease in
noninterest  income of  $346,000.  Partially  offsetting  this  decrease  was an
increase in net interest  income of $300,000 and a decrease in the provision for
income taxes of $20,000.

Net interest  income.  Net interest  income on a tax equivalent  basis increased
$285,000  or 5.7% to $5.3  million  for the six months  ended June 30, 2008 from
$5.0 million for the same period in 2007. This net increase can be attributed to
an increase in tax equivalent interest income of $341,000, partially offset by a
$56,000 increase in interest expense.

Interest income. Interest income on a tax equivalent basis increased $341,000 or
3.8% to $9.3 million for the six months  ended June 30,  2008,  compared to $8.9
million for the same period in the prior year.  This  increase can be attributed
to an increase  in interest  earned on loans of  $461,000,  partially  offset by
decreases  in  interest   earned  on  securities,   federal  bank  stocks,   and
interest-earning   deposits   with  banks  of  $26,000,   $16,000  and  $78,000,
respectively.

Tax equivalent interest earned on loans receivable increased $461,000 or 6.2% to
$7.9 million for the six months  ended June 30,  2008,  compared to $7.5 million
for the same period in 2007.  During that time,  average loans  increased  $19.8
million or 9.1%,  accounting  for $666,000 in additional  loan interest  income.
This  increase  can be  primarily  attributed  to  growth  in the  Corporation's
commercial loan portfolios. Partially offsetting this volume increase, the yield
on loans  decreased  21 basis  points to 6.71% for the six months ended June 30,
2008,  versus  6.92% for the same  period  in 2007,  accounting  for a  $205,000
decrease in interest income. Contributing to this unfavorable yield variance was
the recent  decrease in  short-term  market  interest  rates.  In addition,  the
Corporation  collected  $54,000 of  interest  due as a result of the payoff of a
previously commercial loan in April 2007 that had been on non-accrual status. In
connection  with the loan payoff,  the  Corporation  received all  principal and
interest  due under the  contractual  terms of the loan  agreement  and interest
collected  was recorded as loan  interest  income  during the three months ended
June 30, 2007.

Tax equivalent  interest earned on securities  decreased $26,000 or 2.0% to $1.3
million for the six months ended June 30, 2008. The average volume of securities
decreased  $2.6 million to $50.6 million for the six months ended June 30, 2008,
compared to $53.2 million for the six months ended June 30, 2007, primarily as a
result of the  utilization  of these funds for loan growth.  This  resulted in a
$63,000 decline in interest income. Partially offsetting this unfavorable volume
variance, the average yield on securities increased 13 basis points to 4.99% for
the six months ended June 30, 2008, versus 4.86% for the same period in 2007, as
a result of certain lower yielding  securities  maturing.  This favorable  yield
variance contributed an additional $37,000 to interest income.

Interest  earned on  interest-earning  deposit  accounts  decreased  $78,000  to
$59,000 for the six months ended June 30, 2008 from $137,000 for the same period
in 2007. The average yield on  interest-earning  deposit accounts  decreased 301
basis points to 2.26% for the six months ended June 30, 2008,  compared to 5.27%
for the same  period in the prior year,  accounting  for the decline in interest
income.  The  decrease in the average  yield  reflects  the recent  decreases in
short-term  market  interest  rates.  Interest  earned on  federal  bank  stocks
decreased  $16,000 to $55,000 for the six month  period ended June 30, 2008 from
$71,000 for the same period in the prior year as a result of a lower yield.  The
lower yield resulted from the recognition of a special  dividend on FHLB capital
stock during the six months ended June 30, 2007.

Interest expense. Interest expense increased $56,000 or 1.4% to $4.0 million for
the six months ended June 30, 2008, compared to $3.9 million for the same period
in the prior year.  This  increase in interest  expense can be  attributed to an
increase in interest incurred on borrowed funds of $165,000, partially offset by
a decrease in interest incurred on deposits of $109,000.


                                       18
<PAGE>

Interest  expense  incurred on  borrowed  funds  increased  $165,000 or 24.1% to
$851,000 for the six months  ended June 30,  2008,  compared to $686,000 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 $10.4
million to $41.3  million for the six months  ended June 30,  2008,  compared to
$30.9  million for the same period in the prior year.  This volume  increase was
the result of $5.0  million of FHLB  long-term  borrowings  placed in the fourth
quarter  of 2007 used  primarily  to fund loan  growth  and an  average  of $6.3
million in short-term borrowings used primarily to fund security purchases. This
volume variance contributed $217,000 in additional expense. Partially offsetting
this volume  increase,  the cost of borrowed funds  decreased 34 basis points to
4.14% for the six months  ended June 30,  2008,  compared  to 4.48% for the same
period in 2007 causing a $52,000 decrease in interest expense.

Interest expense incurred on deposits decreased $109,000 or 3.4% to $3.1 million
for the six months  ended June 30,  2008,  compared to $3.2 million for the same
period  in the  prior  year.  This  decrease  can be  attributed  to the cost of
interest-bearing deposits decreasing 17 basis points to 3.14% for the six months
ended June 30,  2008,  compared to 3.31% for the same period in 2007  accounting
for a $162,000  decline in interest  expense.  The  decrease in the rate paid on
deposits  reflects the recent  decreases in short-term  market  interest  rates.
Partially  offsetting  this  favorable  yield  variance,  the average  volume of
deposits  increased  $3.2  million or 1.7% to $200.0  million for the six months
ended June 30,  2008,  compared  to $196.8  million  for the same period in 2007
contributing $53,000 in additional expense.


                                       19
<PAGE>

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.

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------
                                                                   Six months ended June 30,
                                               -------------------------------------------------------------

                                                              2008                          2007
                                               ------------------------------- -----------------------------
                                                Average               Yield /  Average              Yield /
(Dollar amounts in thousands)                   Balance   Interest     Rate    Balance  Interest     Rate
                                               --------- ----------- --------- -------- --------- ----------
------------------------------------------------------------------------------------------------------------

Interest-earning assets:
------------------------
<S>                                            <C>       <C>             <C>   <C>      <C>            <C>
 Loans, taxable                                $ 231,135 $     7,727     6.72% $210,977 $   7,250      6.93%
 Loans, tax exempt                                 6,078         190     6.29%    6,419       206      6.48%
                                               --------- ----------- --------- -------- --------- ----------
   Total loans receivable                        237,213       7,917     6.71%  217,396     7,456      6.92%
                                               --------- ----------- --------- -------- --------- ----------

 Securities, taxable                              36,296         789     4.37%   38,176       783      4.14%
 Securities, tax exempt                           14,346         468     6.56%   15,046       500      6.70%
                                               --------- ----------- --------- -------- --------- ----------
   Total securities                               50,642       1,257     4.99%   53,222     1,283      4.86%
                                               --------- ----------- --------- -------- --------- ----------

 Interest-earning deposits with banks              5,249          59     2.26%    5,247       137      5.27%
 Federal bank stocks                               2,635          55     4.20%    2,265        71      6.32%
                                               --------- ----------- --------- -------- --------- ----------
   Total interest-earning cash equivalents         7,884         114     2.91%    7,512       208      5.58%
                                               --------- ----------- --------- -------- --------- ----------

 Total interest-earning assets                   295,739       9,288     6.32%  278,130     8,947      6.49%
   Cash and due from banks                         5,399                          5,913
   Other noninterest-earning assets               14,601                         14,601
                                               ---------                       --------

   Total assets                                $ 315,739                       $298,644
                                               =========                       ========

Interest-bearing liabilities:
-----------------------------
 Interest-bearing demand deposits              $  83,035         594     1.44% $ 72,513       457      1.27%
 Time deposits                                   117,014       2,532     4.35%  124,291     2,778      4.51%
                                               --------- ----------- --------- -------- --------- ----------
   Total interest-bearing deposits               200,049       3,126     3.14%  196,804     3,235      3.31%
                                               --------- ----------- --------- -------- --------- ----------

 Borrowed funds, long-term                        35,000         782     4.49%   30,000       661      4.44%
 Borrowed funds, short-term                        6,319          69     2.20%      908        25      5.55%
                                               --------- ----------- --------- -------- --------- ----------
   Total borrowed funds                           41,319         851     4.14%   30,908       686      4.48%
                                               --------- ----------- --------- -------- --------- ----------

 Total interest-bearing liabilities              241,368       3,977     3.31%  227,712     3,921      3.47%
   Noninterest-bearing demand deposits            47,018           -        -    44,230         -         -
                                               --------- ----------- --------- -------- --------- ----------

  Funding and cost of funds                      288,386       3,977     2.77%  271,942     3,921      2.91%
   Other noninterest-bearing liabilities           2,428                          2,712
                                               ---------                       --------

   Total liabilities                             290,814                        274,654
   Stockholders' equity                           24,925                         23,990
                                               ---------                       --------

   Total liabilities and stockholders' equity  $ 315,739                       $298,644
                                               ========= -----------           ======== ---------

Net interest income                                      $     5,311                    $   5,026
                                                         ===========                    =========

Interest rate spread (difference between                                 3.00%                         3.01%
                                                                     =========                    ==========
 weighted average rate on interest-earning
 assets and interest-bearing liabilities)

Net interest margin (net interest                                        3.61%                         3.64%
                                                                     =========                    ==========
 income as a percentage of average
 interest-earning assets)

</TABLE>


                                       20
<PAGE>

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.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
 (Dollar amounts in thousands)                          Six months ended June 30,
                                                             2008 versus 2007
                                                        Increase (Decrease) due to
                                               ------------------------------------------
                                                 Volume           Rate           Total
-----------------------------------------------------------------------------------------
<S>                                              <C>             <C>             <C>
 Interest income:
    Loans                                        $   666         $  (205)        $   461
    Securities                                       (63)             37             (26)
    Interest-earning deposits with banks               -             (78)            (78)
    Federal bank stocks                               10             (26)            (16)
                                               ----------      ----------      ----------

    Total interest-earning assets                    613            (272)            341
                                               ----------      ----------      ----------

 Interest expense:
    Deposits                                          53            (162)           (109)
    Borrowed funds                                   217             (52)            165
                                               ----------      ----------      ----------

    Total interest-bearing liabilities               270            (214)             56
                                               ----------      ----------      ----------

 Net interest income                             $   343         $   (58)        $   285
                                               ==========      ==========      ==========
-----------------------------------------------------------------------------------------
</TABLE>

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 six months ended June 30, 2008 and 2007 is as follows:


-----------------------------------------------------------------------------
                                                                  At or for
                                                                   the year
                                     For the six months ended:      ended
                                              June 30,           December 31,
                                    ---------------------------  ------------
(Dollar amounts in thousands)           2008           2007          2007
-----------------------------------------------------------------------------
Balance at the beginning of the
 period                             $     2,157       $  2,035         2,035
Provision for loan losses                   145             75           256
Charge-offs                                 (27)           (47)         (164)
Recoveries                                   26             23            30
                                    ------------   ------------  ------------
Balance at the end of the period    $      2,301   $     2,086   $     2,157
                                    ============   ============  ============

Non-performing loans                $       986    $     1,176           952
Non-performing assets                     1,030          1,176         1,081
Non-performing loans to total
 loans                                     0.40%          0.53%         0.41%
Non-performing assets to total
 assets                                    0.31%          0.39%         0.35%
Allowance for loan losses to total
 loans                                     0.94%          0.94%         0.93%
Allowance for loan losses to non-
 performing loans                        233.37%        177.36%       226.58%
-----------------------------------------------------------------------------


                                       21
<PAGE>

The provision for loan losses increased $70,000 or 93.3% to $145,000 for the six
month  period  ended June 30, 2008 from $75,000 for the same period in the prior
year.  Management's  evaluation  of the loan  portfolio,  including the changing
composition   of  the   portfolio  as  well  as  economic   trends,   regulatory
considerations  and other factors  contributed to the recognition of $145,000 in
the provision for loan losses during the six months ended June 30, 2008.

Noninterest  income.  Noninterest  income decreased $346,000 to $1.2 million for
the six months ended June 30, 2008, compared to $1.5 million for the same period
in the prior year.  This  decrease can be  attributed  to a decrease in gains on
securities  of  $451,000,  partially  offset by  increases  in fees and  service
charges,  commissions earned on financial services,  gains on the sale of loans,
earnings on bank-owned life insurance and other  noninterest  income of $49,000,
$2,000, $1,000, $5,000 and $48,000, respectively.

The Corporation realized security losses of $275,000 during the six months ended
June 30, 2008 compared to gains of $176,000 for the same period in 2007.  During
the second quarter of 2008,  management  determined  that two marketable  equity
securities were impaired.  The impairment of these financial industry securities
were  considered to be other than  temporary due to recent  developments  in the
financial  condition and near-term  prospects of the issuers,  a downturn in the
economic  conditions  affecting  the industry and  declining  book values of the
securities.  At June 30,  2008,  these  securities  were  written  down to their
current  fair value.  The gain during the six month  period ended June 30, 2007,
was  primarily  due to the  realization  of a  $166,000  gain from the sale of a
community bank stock  investment as a result of that bank's merger with a larger
financial institution.

Noninterest  expense.  Noninterest  expense  increased  $62,000  or 1.3% to $4.7
million  during the six months  ended June 30,  2008,  compared to $4.6  million
during the same period in the prior year.  This increase in noninterest  expense
can be  attributed  to increases in  compensation  and benefits and premises and
equipment of $150,000 and $38,000, respectively,  partially offset by a decrease
in other noninterest expense of $126,000.

Compensation and benefits  increased $150,000 or 5.9% to $2.7 million during the
six months ended June 30, 2008,  compared to $2.6 million for the same period in
the prior year.  This increase can be attributed  primarily to normal salary and
wage increases and the addition of staff at a new branch location.

Premises  and  equipment  increased  $38,000 or 4.7% to $839,000  during the six
months  ended June 30,  2008,  compared to  $801,000  for the same period in the
prior year. This increase can be attributed  primarily to costs  associated with
an additional branch office which was opened in April 2008.

Other noninterest  expense decreased $126,000 or 9.7% to $1.2 million during the
six months ended June 30, 2008,  compared to $1.3 million for the same period in
the prior year.  This  decrease  can be  attributed  primarily  to a decrease in
professional fees relating to Sarbanes-Oxley Section 404 compliance.

Provision for income taxes. The provision for income taxes decreased  $20,000 or
6.0% to $311,000 for the six months  ended June 30,  2008,  compared to $331,000
for the same period in the prior year due  primarily  to the decrease in pre-tax
earnings of $178,000 or 11.2% to $1.4  million for the six months ended June 30,
2008, compared to $1.6 million for the same period in the prior year.  Partially
offsetting this favorable variance, the effective tax rate was 22.0% for the six
months ended June 30, 2008,  compared to 20.8% for the same period in 2007.  The
difference between the statutory rate of 34% and the Corporation's effective tax
rate is due to tax-exempt income earned on loans, 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 six months
ended June 30, 2008, 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  $28.1  million,  and standby  letters of credit
totaling $1.1 million.


                                       22
<PAGE>

At June 30,  2008,  time  deposits  amounted  to $116.3  million or 44.9% of the
Corporation's total consolidated deposits, including approximately $47.7 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.

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, to a limited and rare extent,
the sale of loans. At June 30, 2008, the Corporation's  borrowing  capacity with
the FHLB, net of funds borrowed, was $116.1 million.

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

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 a 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
loss,  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.  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.


                                       23
<PAGE>

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

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

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, at June 30, 2008,
the Corporation's  interest-earning assets maturing or repricing within one year
totaled  $86.3  million  while the  Corporation's  interest-bearing  liabilities
maturing or repricing within one-year totaled $99.2 million, providing an excess
of interest-bearing liabilities over interest-earning assets of $12.9 million or
3.9% of total assets.  At June 30, 2008,  the  percentage  of the  Corporation's
assets to liabilities maturing or repricing within one year was 114.9%.

For  more  information,  see  "Market  Risk  Management"  in  Exhibit  13 to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2007.

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 and Chief Financial Officer,  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 June 30,  2008,  the  Corporation  carried out an  evaluation,  under the
 supervision  and  with  the  participation  of  the  Corporation's  management,
 including  the  Corporation's  Chief  Executive  Officer  and  Chief  Financial
 Officer,  of the effectiveness of the design and operation of the Corporation's
 disclosure controls and procedures.  Based on the foregoing,  the Corporation's
 Chief  Executive  Officer  and  Chief  Financial  Officer  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.


                                       24
<PAGE>

Item 1A.  Risk Factors
----------------------

There have been no material changes in the Corporation's risk factors from those
previously disclosed in the 2007 Form 10-K.

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
------------------------------------------------------------


(a)      The annual meeting of  stockholders  of the  Corporation was held April
         23, 2008. Of 1,267,835 common shares eligible to vote, 937,632 or 74.0%
         were voted in person or by proxy.

(b)      The  following  Class B  directors  were  elected for a three year term
         expiring in 2011:

         Name                        Shares For               Shares Withheld
         ----                        ----------               ---------------
         James M. Crooks              899,862                      37,770
         Robert L. Hunter             929,184                       8,448
         John B. Mason                922,406                      15,226

         In addition to the above  listed  individuals,  the  following  persons
         continue  to serve as  directors:  Ronald  L.  Ashbaugh,  David L. Cox,
         George W. Freeman,  Mark A. Freemer,  J. Michael King, William C. Marsh
         and Brian C. McCarrier.

         The  recommendation of the Board of Directors to ratify the appointment
         of Beard Miller Company LLP as the Corporation's  independent auditors,
         as described in the proxy statement for the annual meeting was approved
         with 930,172  shares in favor,  2,258  shares  against and 5,202 shares
         abstained.

Item 5.  Other Information
--------------------------

(a) Not applicable.

(b) Not applicable.

Item 6.  Exhibits
-----------------

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


                                       25
<PAGE>

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 SUBSIDIARY



Date:  August 14, 2008                  By:      /s/ David L. Cox
                                        -------------------------------------
                                        David L. Cox
                                        Chairman of the Board,
                                        President and Chief Executive Officer

Date:  August 14, 2008                  By:      /s/ William C. Marsh
                                        -------------------------------------
                                        William C. Marsh
                                        Treasurer and Chief Financial Officer


                                       26