================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended JUNE 30, 2004

                        Commission File Number: 000-18464


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


         PENNSYLVANIA                                 25-1606091
--------------------------------------------------------------------------------
(State  or  other  jurisdiction of          (IRS Employer Identification No.)
 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 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 an  accelerated  filer
(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 12, 2004.

================================================================================
<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, 2004 and December 31, 2003...............................1

            Consolidated Income Statements for the three and six
            months ended June 30, 2004 and 2003...............................2

            Condensed Consolidated Statements of Cash Flows for the six
            months ended June 30, 2004 and 2003...............................3

            Consolidated Statement of Changes in Stockholders'
            Equity for the six months ended June 30, 2004 and 2003............4

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

Item 2.     Management's Discussion and Analysis
            of Financial Condition and Results of Operations..................7

Item 3.     Quantitative and Qualitative Disclosures About Market Risk.......17

Item 4.     Controls and Procedures..........................................17

                           PART II - OTHER INFORMATION

Item 1.     Legal Proceedings................................................18

Item 2.     Changes in Securities and Use of Proceeds........................18

Item 3.     Defaults Upon Senior Securities..................................18

Item 4.     Submission of Matters to a Vote of Security Holders..............18

Item 5.     Other Information................................................18

Item 6.     Exhibits and Reports on Form 8-K.................................18

Signatures  .................................................................19





                                       21

                         PART I - FINANCIAL INFORMATION

ITEM 1.  INTERIM FINANCIAL STATEMENTS

                     EMCLAIRE FINANCIAL CORP. AND SUBSIDIARY
                           Consolidated Balance Sheets
              As of June 30, 2004 (Unaudited) and December 31, 2003
                (Dollar amounts in thousands, except share data)


<TABLE>
<CAPTION>
                                                                        JUNE 30,        DECEMBER 31,
                                                                         2004              2003
                                                                       ---------         ---------
                          ASSETS
<S>                                                                    <C>               <C>
Cash and due from banks                                                $   6,908         $   6,776
Interest-earning deposits in banks                                         5,294               927
                                                                       ---------         ---------
    Cash and cash equivalents                                             12,202             7,703
Securities available for sale                                             54,871            49,145
Securities held to maturity; fair value of $16 and $17                        16                17
Loans receivable, held for sale                                              174              --
Loans receivable, net of allowance for loan losses
   of $1,809 and $1,777                                                  184,124           190,482
Federal bank stocks, at cost                                               1,684             1,982
Bank-owned life insurance                                                  4,376             4,272
Accrued interest receivable                                                1,201             1,270
Premises and equipment                                                     5,560             5,223
Goodwill                                                                   1,422             1,422
Core deposit intangibles                                                      38                54
Prepaid expenses and other assets                                          1,566               942
                                                                       ---------         ---------
       Total assets                                                    $ 267,234         $ 262,512
                                                                       =========         =========
           LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Deposits:
    Noninterest bearing                                                $  38,733         $  36,332
    Interest bearing                                                     188,871           180,778
                                                                       ---------         ---------
       Total deposits                                                    227,604           217,110
   Borrowed funds                                                         15,000            20,700
   Accrued interest payable                                                  493               477
   Accrued expenses and other liabilities                                  1,578             1,570
                                                                       ---------         ---------
      Total liabilities                                                  244,675           239,857
                                                                       ---------         ---------
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                                             10,871            10,871
   Treasury stock, at cost; 128,017 shares                                (2,653)           (2,653)
   Retained earnings                                                      11,536            11,033
   Accumulated other comprehensive income                                  1,060             1,659
                                                                       ---------         ---------
      Total stockholders' equity                                          22,559            22,655
                                                                       ---------         ---------
       Total liabilities and stockholders' equity                      $ 267,234         $ 262,512
                                                                       =========         =========
</TABLE>


See accompanying notes to consolidated financial statements.

                                        1



<PAGE>

                     EMCLAIRE FINANCIAL CORP. AND SUBSIDIARY
                               Consolidated Income
                  Statements For the three and six months ended
                       June 30, 2004 and 2003 (Unaudited)
                (Dollar amounts in thousands, except share data)


<TABLE>
<CAPTION>
                                                        Three months ended         Six months ended
                                                             June 30,                  June 30,
                                                   -------------------------   --------------------------
                                                       2004          2003          2004           2003
                                                   -----------   -----------   -----------    -----------
INTEREST AND DIVIDEND INCOME:
<S>                                                <C>           <C>           <C>            <C>
   Loans receivable                                $     2,882   $     2,973   $     5,866    $     5,954
   Securities:
     Taxable                                               341           361           630            703
     Exempt from federal income tax                        174           186           348            379
   Federal bank stocks                                      11            11            22             26
   Deposits with banks and federal funds sold               10             8            15             22
                                                   -----------   -----------   -----------    -----------
    TOTAL INTEREST INCOME                                3,418         3,539         6,881          7,084
                                                   -----------   -----------   -----------    -----------
INTEREST EXPENSE:
   Deposits                                              1,103         1,103         2,194          2,213
   Borrowed funds                                          156           104           317            211
                                                   -----------   -----------   -----------    -----------
    TOTAL INTEREST EXPENSE                               1,259         1,207         2,511          2,424
                                                   -----------   -----------   -----------    -----------
NET INTEREST INCOME                                      2,159         2,332         4,370          4,660
   Provision for loan losses                                20            75            75            150
                                                   -----------   -----------   -----------    -----------

NET INTEREST INCOME AFTER PROVISION
   FOR LOAN LOSSES                                       2,139         2,257         4,295          4,510
                                                   -----------   -----------   -----------    -----------
NONINTEREST INCOME:
   Service fees                                            290           267           554            510
   Gain on sale of securities available for sale            86            42           169             55
   Gain (Loss) on sale of loans held for sale             --              18            (2)            18
   Earnings on bank-owned life insurance                    56            58           112            117
   Other                                                    89            84           169            152
                                                   -----------   -----------   -----------    -----------
    TOTAL NONINTEREST INCOME                               521           469         1,002            852
                                                   -----------   -----------   -----------    -----------
NONINTEREST EXPENSE:
   Compensation and employee benefits                    1,086         1,084         2,172          2,176
   Premises and equipment, net                             302           254           604            542
   Intangible amortization expense                           8            36            16             73
   Other                                                   612           524         1,166          1,026
                                                   -----------   -----------   -----------    -----------
    TOTAL NONINTEREST EXPENSE                            2,008         1,898         3,958          3,817
                                                   -----------   -----------   -----------    -----------
INCOME BEFORE PROVISION FOR INCOME TAXES                   652           828         1,339          1,545
   Provision for income taxes                              129           203           252            377
                                                   -----------   -----------   -----------    -----------
NET INCOME                                         $       523   $       625   $     1,087    $     1,168
                                                   ===========   ===========   ===========    ===========
    Basic Earnings per Share                       $      0.41   $      0.47   $      0.86    $      0.88
   Weighted average common shares outstanding        1,267,835     1,326,581     1,267,835      1,329,691
</TABLE>


See accompanying notes to consolidated financial statements.

                                       2
<PAGE>


                     EMCLAIRE FINANCIAL CORP. AND SUBSIDIARY
                 Condensed Consolidated Statements of Cash Flows
               For the six months ended June 30, 2004 (Unaudited)
                          (Dollar amounts in thousands)



<TABLE>
<CAPTION>

                                                                    For the six months ended
                                                                             June 30,
                                                                       --------------------
                                                                         2004        2003
                                                                       --------    --------
OPERATING ACTIVITIES:
<S>                                                                    <C>         <C>
   Net income                                                          $  1,087    $  1,168
   Adjustments to reconcile net income to net cash provided
    by operating activities                                               1,258         614
                                                                       --------    --------
    NET CASH FROM OPERATING ACTIVITIES                                    2,345       1,782
                                                                       --------    --------
INVESTING ACTIVITIES:
   Loan originations, net of principal collections                        6,090      (7,471)
   Purchases of securities available for sale                           (14,763)    (30,725)
   Redemption (Purchases) of Federal bank stocks                            298        (431)
   Repayments, maturities and calls of securities available for sale      6,664      23,870
   Principal repayments of securities held to maturity                        1          12
   Proceeds from the sale of securities available for sale                  251         330
   Purchases of premises and equipment                                     (597)     (1,201)
                                                                       --------    --------
    NET CASH FROM INVESTING ACTIVITIES                                   (2,056)    (15,616)
                                                                       --------    --------
FINANCING ACTIVITIES:
   Net increase in deposits                                              10,494       9,802
   Increase (Decrease) in overnight borrowed funds                       (5,700)        225
   Proceeds from long term advances                                        --         5,000
   Dividends paid on common stock                                          (584)       (559)
   Payments to acquire treasury stock                                      --        (1,301)
                                                                       --------    --------
    NET CASH FROM FINANCING ACTIVITIES                                    4,210      13,167
                                                                       --------    --------
Net (decrease) increase in cash equivalents                               4,499        (667)
Cash equivalents at beginning of period                                   7,703       7,716
                                                                       --------    --------
Cash equivalents at end of period                                      $ 12,202    $  7,049
                                                                       ========    ========
SUPPLEMENTAL INFORMATION:
   Interest paid                                                       $  2,495    $  2,423
   Income taxes paid                                                        120         441
</TABLE>


See accompanying notes to consolidated financial statements.


                                       3

<PAGE>


                     EMCLAIRE FINANCIAL CORP. AND SUBSIDIARY
            Consolidated Statement of Changes in Stockholders' Equity
           For the six months ended June 30, 2004 and 2003 (Unaudited)
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                           FOR THE THREE MONTHS ENDED       FOR THE SIX MONTHS ENDED
                                                                    JUNE 30,                       JUNE 30,
                                                          ----------------------------    ---------------------------
                                                             2004              2003           2004           2003
                                                          ------------     -----------    ------------   ------------
<S>                                                      <C>              <C>             <C>             <C>
BALANCE AT BEGINNING OF PERIOD                            $     23,204        $ 23,024        $ 22,655   $     22,680

    Net income                                                     523             625           1,087          1,168

    Change in net unrealized gain on available for sale
    securities, net of taxes                                      (817)            793            (487)           883
    Less reclassification adjustment for gains included
    in net income, net of taxes                                    (59)            (27)           (112)           (36)
                                                          ------------     -----------        --------   ------------
    Other comprehensive income                                    (876)            766            (599)           847

Total comprehensive income                                        (353)          1,391             488          2,015

Dividends paid                                                    (292)           (279)           (584)          (559)

Purchase of treasury stock (65,000 shares)                          --          (1,301)           --           (1,301)
                                                          ------------     -----------        --------   ------------

BALANCE AT END OF PERIOD                                  $     22,559     $    22,835        $ 22,559   $     22,835
                                                          ============     ===========        ========   ============

Common cash dividend per share                            $       0.23     $      0.21        $   0.46   $       0.42
                                                          ============     ===========        ========   ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4

<PAGE>



                     EMCLAIRE FINANCIAL CORP. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

1.       BUSINESS AND BASIS OF PRESENTATION

         Emclaire   Financial   Corp.   (the   Corporation)  is  a  Pennsylvania
         corporation  and bank  holding  company  that  provides a full range of
         retail and commercial  financial  products and services to customers in
         western  Pennsylvania  through its wholly owned  subsidiary  bank,  the
         Farmers  National  Bank of  Emlenton  (the  Bank),  a national  banking
         association.  The consolidated  financial  statements  contained herein
         include the accounts of the Corporation and the Bank,  which operate as
         one operating segment. All inter-company amounts have been eliminated.

         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 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, 2003, as contained in the  Corporation's  2003
         Annual Report to Stockholders.

         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 and deferred tax assets.  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.       BASIC EARNINGS PER SHARE

         The   Corporation   maintains  a  simple  capital   structure  with  no
         potentially dilutive  instruments.  Earnings per share computations are
         based on the weighted  average number of common shares  outstanding for
         the respective reporting periods.

3.       EMPLOYEE BENEFIT PLANS

         DEFINED CONTRIBUTION PLAN.

         The Corporation maintains a defined contribution 401(k) Plan. Employees
         are eligible to participate by providing tax-deferred  contributions up
         to 20% of qualified compensation.  Employee contributions are vested at
         all times. The Corporation makes matching  contributions as approved by
         the Board of Directors.  Matching  contributions  for the three and six
         months ended June 30, 2004 was $17,000 and $33,000, respectively.

         DEFINED BENEFIT PLAN.

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

                                       5
<PAGE>

3.       EMPLOYEE BENEFIT PLANS (CONTINUED)

         DEFINED BENEFIT PLAN (CONTINUED).

         The Corporation uses a December 31 measurement date for its plans.

         Information  pertaining to the components of the periodic  pension cost
         is as follows:


<TABLE>
<CAPTION>
                                        FOR THE THREE MONTHS ENDED   FOR THE SIX MONTHS ENDED
                                        --------------------------   ------------------------
                                          JUNE 30,     JUNE 30,      JUNE 30,      JUNE 30,   DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS)              2004         2003          2004          2003         2003
---------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>           <C>          <C>
Service cost                                $ 41         $ 37         $  82         $ 74         $ 147
Interest cost                                 46           41            92           82           164
Expected return on plan assets               (53)         (44)         (106)         (88)         (176)
Transition asset                              (2)          (2)           (4)          (4)           (8)
Prior service costs                           (8)          (8)          (16)         (16)          (31)
Recognized net actuarial (gain) loss           8           12            16           23            47
                                           --------------------------------------------------------------
Net periodic pension cost                   $ 32         $ 36         $  64         $ 71         $ 143
=========================================================================================================
</TABLE>


         The expected  rate of return on plan assets 8.50% for the periods ended
         June 30,  2004 and  December  31,  2003.  The  Corporation  expects  to
         contribute $209,000 to its pension plan in 2004.


                                       6
<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 month periods ended June 30, 2004 and should be read in conjunction with
the accompanying  consolidated financial statements and notes presented on pages
1 through 6.

The Private  Securities  Litigation 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  $4.7 million or 1.8% to $267.2 million at June 30, 2004
from $262.5  million at December 31, 2003.  This  increase was  primarily due to
increases in cash and cash  equivalents  and securities of $4.5 million and $5.7
million,  respectively,  partially  offset by a decrease in loans  receivable of
$6.2 million.

Cash and cash  equivalents  increased  $4.5 million or 58.4% to $12.2 million at
June 30, 2004 from $7.7  million at December  31, 2003  primarily as a result of
the increase in deposits of $10.5 million,  decrease of loans receivable of $6.2
million and the maturities of securities of $6.7 million, offset by the purchase
of $14.8  million of  securities  and the repayment of $5.7 million of overnight
borrowings.

Securities  increased  $5.7  million or 11.7% to $54.9  million at June 30, 2004
from $49.2  million at  December  31, 2003 as a result of  investing  deployable
funds in US government  agencies and mortgage backed securities.  These types of
investments   are   considered   safe  and  sound  and  complement  the  overall
asset/liability and liquidity objectives of the Corporation.

Loans  receivable  decreased  $6.2 million or 3.3% to $184.3 million at June 30,
2004 from $190.5 million at December 31, 2003.  During the six months ended June
30, 2004, the  refinancing  activity  experienced in 2003 has decreased as rates
continue to remain low. Also  contributing  to the change in loan volume was the
pay-off of two short-term  commercial loans financed in the fourth quarter 2003.
Although there can be no assurances, management believes that lending activities
will  increase in the third  quarter  based on the trends  experienced  in prior
years and the outlook on the economy as key economic data indicates growth.

Deposits increased $10.5 million or 4.8% to $227.6 million at June 30, 2004 from
$217.1 million at December 31, 2003. The increase in deposits  during the period
can be attributed to the  introduction  of a new  Certificate of Deposit product
which steps up to a higher rate at each year anniversary date over the next four
years, the marketing efforts put forth in our Clarion market and the transfer of
two large sweep accounts into other demand deposit accounts.

Borrowed funds decreased $5.7 million or 27.5% to $15.0 million at June 30, 2004
from $20.7  million at  December  31,  2003.  This was the direct  result of the
decrease  in FHLB  overnight  borrowings  of $5.7  million  which was due to the
decrease in loan demand and the increase in deposits.

Stockholders'  equity  decreased  $96,000 to $22.6 million at June 30, 2004 from
$22.7 million at December 31, 2003. This decrease was the result of increases in
retained earnings of $503,000; comprised of net income of $1.1 million offset by
dividends paid of $584,000,  and a decrease in accumulated  other  comprehensive
income of $599,000.


                                       7
<PAGE>

RESULTS OF OPERATIONS

COMPARISON OF RESULTS FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2004 AND 2003

GENERAL.  Net income for the three months ended June 30, 2004 decreased $102,000
or 16.3% to $523,000  from  $625,000  for the three  months ended June 30, 2003.
This decrease was a result of a decrease in net interest  income of $173,000 and
an increase in  noninterest  expense of $110,000.  Offsetting  this  unfavorable
variance was an increase in  noninterest  income of $52,000 and decreases in the
provision for loan losses and income taxes of $55,000 and $74,000, respectively.

NET INTEREST  INCOME.  Net interest  income on a tax equivalent  basis decreased
$169,000 or 6.9% to $2.3  million for the three  months ended June 30, 2004 from
$2.4 million for the same period in 2003. This net decrease can be attributed to
a decrease in interest  income of $117,000  coupled with an increase in interest
expense of $52,000.

INTEREST INCOME. Interest income on a tax equivalent basis decreased $117,000 or
3.2% to $3.5 million for the three months ended June 30, 2004,  compared to $3.6
million for the same period in the prior year.  This decrease in interest income
can be  attributed  to a 50 basis point  decline in the interest rate on average
interest-earning  assets to 5.76%  during the three  months ended June 30, 2004,
compared to 6.26% for the same  period in the prior  year.  The yield on average
loans,  securities and  interest-bearing  cash  equivalents  decreased to 6.28%,
4.36% and 1.65%,  respectively,  during the three  months  ended June 30,  2004,
compared  to 6.86%,  4.61% and 2.19%,  respectively,  for the same period in the
prior  year.  The  decrease  in  interest  income  due to rate was  offset by an
increase in the average  balance of  interest-earning  assets,  as average loans
receivable and interest-bearing cash equivalents increased to $186.7 million and
$5.1  million,  respectively,  during  the three  months  ended  June 30,  2004,
compared  to $175.5  million  and $3.5  million,  respectively,  during the same
period in the prior year. Increases in average loans and  interest-bearing  cash
equivalents  between  quarterly  periods  were  funded by  deposit  growth.  See
comments in the "Changes in Financial Condition" section above for discussion of
security and deposit growth factors.

INTEREST  EXPENSE.  Interest expense  increased $52,000 or 4.3% to $1.26 million
for the three months ended June 30, 2004, compared to $1.21 million for the same
period in the prior year. This increase in interest expense can be attributed to
an increase in the average balance of interest-bearing  liabilities,  as average
interest-bearing  deposits and borrowed  funds  increased to $186.9  million and
$15.0  million,  respectively,  during the three  months  ended  June 30,  2004,
compared to $177.1  million  and $11.4  million,  respectively,  during the same
period in the prior year.  The  increase  in interest  expense due to volume was
partially  offset by a 6 basis  point  decline in the  interest  rate on average
interest-bearing  liabilities  to 2.51%  during the three  months ended June 30,
2004,  compared to 2.57% for the same period in the prior year. The average cost
of deposits  decreased  to 2.37%  during the three  months  ended June 30, 2004,
compared to 2.50% for the same period in the prior year.

                                       8
<PAGE>

AVERAGE BALANCE SHEET AND YIELD/RATE  ANALYSIS.  The following table sets forth,
for  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 costs.  Interest and yields on tax-exempt loans and securities  (tax-exempt
for federal income tax purposes) are shown on a fully tax equivalent basis.


<TABLE>
<CAPTION>
====================================================================================================================
(DOLLAR AMOUNTS IN THOUSANDS)
                                                                2004                             2003
                                                  ------------------------------     -------------------------------
                                                                           YIELD /    AVERAGE                 YIELD/
                                                   BALANCE     INTEREST    RATE       BALANCE   INTEREST      RATE
--------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
------------------------
<S>                                               <C>           <C>         <C>      <C>       <C>         <C>
   Loans, taxable                                 $   179,327   $ 2,800     6.28%    $ 170,019  $   2,910       6.87%
   Loans, tax exempt                                    7,366       116     6.34%        5,467         89       6.55%
                                                  -----------   -------    -----     ---------  ---------   --------
      Total Loans Receivable                          186,693     2,916     6.28%      175,486      2,999       6.86%
                                                  -----------   -------    -----     ---------  ---------   --------
   Securities, taxable                                 39,206       341     3.50%       37,793        361       3.83%
   Securities, tax exempt                              15,048       247     6.59%       16,469        263       6.41%
                                                  ------------  -------    -----     ---------  ---------   --------
      Total Securities                                 54,254       588     4.36%       54,262        624       4.61%
                                                  ------------  -------    -----     ---------  ---------   --------
   Interest-earning cash equivalents                    3,421        10     1.18%        1,913          8       1.68%
   Federal bank stocks                                  1,690        11     2.62%        1,559         11       2.83%
                                                  -----------   -------    -----     ---------  ---------   --------
      Total Interest-Bearing Cash Equivalents           5,111        21     1.65%        3,472         19       2.19%
                                                  -----------   -------    -----     ---------  ---------   --------
   TOTAL INTEREST-EARNING ASSETS                      246,058     3,525     5.76%      233,220      3,642       6.26%
      Cash and due from banks                           6,927                            6,421
      Other noninterest-earning assets                 12,043                           10,348
                                                  -----------                        ---------
      Total assets                                $   265,028                        $ 249,989
                                                  ===========                        =========
INTEREST-BEARING LIABILITIES:
------------------------------
   Interest-bearing demand deposits                  $ 74,783   $    98     0.53%    $  77,287  $     158       0.82%
   Time deposits                                      112,073     1,005     3.61%       99,853        945       3.80%
                                                  -----------   -------    -----     ---------  ---------   --------
      Total Interest-Bearing Deposits                 186,856     1,103     2.37%      177,140      1,103       2.50%
                                                  -----------   -------    -----     ---------  ---------   --------
   Borrowed funds, term                                15,000       156     4.18%       10,833        102       3.78%
   Borrowed funds, overnight                               --        --     0.00%          544          2       1.47%
                                                  -----------   -------    -----     ---------  ---------   --------
      Total Borrowed Funds                             15,000       156     4.18%       11,377        104       3.67%
                                                  -----------   -------    -----     ---------  ---------   --------
   TOTAL INTEREST-BEARING LIABILITIES                 201,856     1,259     2.51%      188,517      1,207       2.57%
      Noninterest-bearing demand deposits              38,482        --       --        36,159                    --
                                                  -----------   -------    -----     ---------  ---------   --------
    FUNDING AND COST OF FUNDS                         240,338     1,259     2.11%      224,676      1,207       2.15%
      Other noninterest-bearing liabilities             2,067                            1,868
                                                  -----------                        ---------

      Total liabilities                               242,405                          226,544
      Stockholders' equity                             22,623                           23,445
                                                  -----------                        ---------
      Total liabilities and stockholders' equity  $   265,028                        $ 249,989
                                                  ===========   -------              =========  ---------
NET INTEREST INCOME                                             $ 2,266                           $ 2,435
                                                                =======                         =========
INTEREST RATE SPREAD (difference between                                    3.25%                               3.70%
                                                                           =====                            ========
   weighted average rate on interest-earning
   assets and interest-bearing liabilities)

NET INTEREST MARGIN (net interest                                           3.70%                               4.19%
                                                                           =====                            ========
   income as a percentage of average
   interest-earning assets)

--------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       9
<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.



--------------------------------------------------------------------------------
(IN THOUSANDS)                                  THREE MONTHS ENDED JUNE 30,
                                                    2004 VERSUS 2003
                                               INCREASE (DECREASE) DUE TO
                                         ---------------------------------------
                                           VOLUME          RATE         TOTAL
--------------------------------------------------------------------------------
INTEREST INCOME:
   Loans                                     $185        $(268)        $ (83)
   Securities                                  --          (36)          (36)
   Interest-earning cash equivalents            5           (3)            2
   Federal bank stocks                          1           (1)           --
                                             ----        -----         -----

   Total interest-earning assets              191         (308)         (117)
                                             ----        -----         -----

INTEREST EXPENSE:
   Deposits                                    59          (59)           --
   Borrowed funds                              36           16            52
                                             ----        -----         -----
   Total interest-bearing liabilities          95          (43)           52
                                             ----        -----         -----
NET INTEREST INCOME                          $ 96        $(265)        $(169)
                                             ====        =====         =====
--------------------------------------------------------------------------------


PROVISION FOR LOAN LOSSES. The Corporation records provisions for loan losses to
bring the total  allowance  for loan losses to a level deemed  adequate to cover
probable losses  inherent in the loan portfolio.  In determining the appropriate
level of  allowance  for  loan  losses,  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 second quarter of 2004 and 2003 is as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                                                       FOR THE THREE MONTHS ENDED,
                                                       JUNE 30,           JUNE 30,
                                                         2004               2003
------------------------------------------------------------------------------------
<S>                                                      <C>              <C>
Beginning Balance - March 31                             $ 1,827          $ 1,620
Provision for Loan Losses                                     20               75
Charge-Offs                                                  (47)              (7)
Recoveries                                                     9               10
                                                         -------          -------
Ending Balance - June 30                                 $ 1,809          $ 1,698
                                                         =======          =======
Non-performing assets                                    $ 1,190          $ 1,572
Non-performing loans to total loans                         0.64%            0.88%
Non-performing assets to total assets                       0.45%            0.63%
Allowance for loan losses to total loans                    0.97%            0.95%
Allowance for loan losses to non-performing loans         152.02%          108.02%
----------------------------------------------------------------------------------
</TABLE>


                                       10
<PAGE>


The  provision  for loan  losses  decreased  $55,000 or 73.3% to $20,000 for the
three month period  ending June 30, 2004 from $75,000 for the same period in the
prior year. During the second quarter 2004, the actual allowance level decreased
$18,000 or 1.0% as a result of the decrease in loans receivable of $2.5 million.
Management's  evaluation  of the  loan  portfolio,  including  economic  trends,
regulatory  considerations,  the increase in charged-off loans and other factors
contributed to the recognition of $20,000 in the provision for loan losses.

NONINTEREST  INCOME.  Noninterest  income increased $52,000 or 11.1% to $521,000
during the three  months ended June 30,  2004,  compared to $469,000  during the
same period in the prior year.  This  increase can be attributed to the increase
in customer service fees, gains on the sale of marketable  equity securities and
other  noninterest  income of $23,000,  $44,000 and  $5,000,  respectively.  The
increase in customer  service fees was a result of the increase in the overdraft
fees and also the increase in the number of accounts.  Offsetting this favorable
variance  was a decrease in the gains on loans sold and  earnings on  bank-owned
life insurance of $18,000 and $2,000, respectively.

NONINTEREST  EXPENSE.  Noninterest  expense  increased  $110,000 or 5.8% to $2.0
million  during the three months  ended June 30, 2004,  compared to $1.9 million
during the same period in the prior year.  This increase in noninterest  expense
can be attributed to increases in compensation and employee  benefits,  premises
and  equipment  expense  and other  noninterest  expense of $2,000,  $48,000 and
$88,000,  respectively.  This  increase  was offset by a decrease in  intangible
amortization expense of $28,000.

Compensation and employee  benefits  expense  increased $2,000 to $1.086 million
during the three months ended June 30, 2004,  compared to $1.084 million for the
same period in the prior year. Contributing to this variance was the increase in
employee  and officer  salaries  and employee  insurance  expense  offset by the
decrease in employee  incentive  costs and deferred loan costs  associated  with
salaries.

Premises and equipment expense increased $48,000 or 18.9% to $302,000 during the
three months  ended June 30,  2004,  compared to $254,000 for the same period in
the prior year. This increase can be primarily  attributed to increased building
and equipment  depreciation  expenses and equipment service contracts of $8,000,
$30,000 and $9,000, respectively.  Contributing to the increases in depreciation
expenses  between the two periods was the completion of the  construction on the
main office building during the fourth quarter of 2003 and the addition of a new
mainframe and imaging system in January 2004.

Intangible  amortization expense decreased $28,000 or 77.8% to $8,000 during the
three months ended June 30, 2004, compared to $36,000 for the same period in the
prior year. This variance was a result of the cessation of amortization  expense
on three branches  previously  acquired which were fully amortized in the fourth
quarter of 2003.

Other  noninterest  expense  increased  $88,000 or 16.8% to $612,000  during the
three months  ended June 30,  2004,  compared to $524,000 for the same period in
the prior year.  This  increase  can be  attributed  primarily  to  increases in
telephone and  communication  expenses,  Pennsylvania use tax expense,  software
depreciation  and marketing  expenses.  Partially  offsetting  this  unfavorable
variance were decreases in professional  fees,  Pennsylvania  shares taxes,  and
travel and entertainment expenses between the two periods.

PROVISION FOR INCOME TAXES. The provision for income taxes decreased  $74,000 or
36.5% to $129,000 for the three months ended June 30, 2004, compared to $203,000
for the same period in the prior year.  Contributing to this favorable  variance
was the decrease in the  Corporation's  effective  tax rate  resulting  from the
investment in bank-owned  life insurance and tax-free  municipal  securities and
loans,  as well as historic tax credits  attributable  to the  remodeling of the
Corporation's   headquarters.   Also   contributing   was  a  decrease   in  the
Corporation's pre-tax earnings base between the second quarter 2004 and 2003.

                                       11
<PAGE>

COMPARISON OF RESULTS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2004 AND 2003

GENERAL.  Net income for the six months ended June 30, 2004 decreased $81,000 or
6.9% to $1.1  million  from $1.2 million for the six months ended June 30, 2003.
This decrease was a result of a decrease in net interest  income of $290,000 and
an increase in noninterest  expense of $141,000.  Offsetting  these  unfavorable
variances  were  decreases in the  provision for loan losses and income taxes of
$75,000 and $125,000,  respectively,  and an increase in  noninterest  income of
$150,000.

NET INTEREST  INCOME.  Net interest  income on a tax equivalent  basis decreased
$279,000  or 5.7% to $4.6  million  for the six months  ended June 30, 2004 from
$4.9 million for the same period in 2003. This net decrease can be attributed to
a decrease in interest  income of $192,000  coupled with an increase in interest
expense of $87,000.

INTEREST INCOME. Interest income on a tax equivalent basis decreased $192,000 or
2.6% to $7.1 million for the six months  ended June 30,  2004,  compared to $7.3
million for the same period in the prior year.  This decrease in interest income
can be  attributed  to a 60 basis point  decline in the interest rate on average
interest-earning  assets to 5.83%  during  the six months  ended June 30,  2004,
compared to 6.43% for the same  period in the prior  year.  The yield on average
loans,  securities  and cash  equivalents  decreased to 6.34%,  4.34% and 1.69%,
respectively,  during the six months  ended June 30,  2004,  compared  to 6.98%,
4.93% and  2.08%,  respectively,  for the same  period in the  prior  year.  The
decrease in interest income due to rate was offset by an increase in the average
balance of  interest-earning  assets, as average loans receivable and securities
increased  to $188.2  million and $52.0  million,  respectively,  during the six
months  ended June 30,  2004,  compared  to $173.3  million  and $50.7  million,
respectively,  during the same period in the prior year. Offsetting the increase
in average loans  receivable and securities was a slight decrease in the average
balance of cash equivalents to $4.4 million during the six months ended June 30,
2004,  compared  to $4.7  million  during  the same  period in the  prior  year.
Increases in average loans and securities  between quarterly periods were funded
by deposit growth and borrowed funds.  See comments in the "Changes in Financial
Condition" section above for discussion of security and deposit growth factors.

INTEREST EXPENSE. Interest expense increased $87,000 or 3.6% to $2.5 million for
the six months ended June 30, 2004, compared to $2.4 million for the same period
in the prior year.  This  increase in interest  expense can be  attributed to an
increase  in the average  balance of  interest-bearing  liabilities,  as average
interest-bearing  deposits and borrowed  funds  increased to $184.6  million and
$16.0 million, respectively, during the six months ended June 30, 2004, compared
to $174.9 million and $10.7 million, respectively, during the same period in the
prior year. The increase in interest  expense due to volume was partially offset
by an 11 basis point  decline in the interest  rate on average  interest-bearing
liabilities  to 2.52%  during the six months  ended June 30,  2004,  compared to
2.63% for the same  period in the  prior  year.  The  average  cost of  deposits
decreased to 2.39% during the six months ended June 30, 2004,  compared to 2.55%
for the same period in the prior year.

                                       12
<PAGE>

AVERAGE BALANCE SHEET AND YIELD/RATE  ANALYSIS.  The following table sets forth,
for  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 costs.  Interest and yields on tax-exempt loans and securities  (tax-exempt
for federal income tax purposes) are shown on a fully tax equivalent basis.


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)                                          SIX MONTHS ENDED JUNE 30,

                                                               2004                              2003
                                                  -----------------------------  ---------------------------------
                                                   AVERAGE              YIELD/    AVERAGE                   YIELD/
                                                   BALANCE    INTEREST  RATE      BALANCE       INTEREST    RATE
-----------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
------------------------
<S>                                               <C>         <C>       <C>       <C>           <C>         <C>
   Loans, taxable                                 $ 180,742   $ 5,700   6.34%     $ 168,474     $ 5,847     7.00%
   Loans, tax exempt                                  7,445       234   6.33%         4,802         151     6.35%
                                                  ---------   -------  ------     ---------     -------    ------
      Total Loans Receivable                      $ 188,187   $ 5,935   6.34%     $ 173,276     $ 5,998     6.98%
                                                  ---------   -------  ------     ---------     -------    ------
   Securities, taxable                               36,611       630   3.46%        34,075         703     4.16%
   Securities, tax exempt                            15,350       493   6.45%        16,615         537     6.52%
                                                  ---------   -------  ------     ---------     -------    ------
      Total Securities                               51,961     1,123   4.34%        50,690       1,240     4.93%
                                                  ---------   -------  ------     ---------     -------    ------
   Interest-earning cash equivalents                  2,600        15   1.16%         3,128          22     1.42%
   Federal bank stocks                                1,800        22   2.46%         1,523          26     3.44%
                                                  ---------   -------  ------     ---------     -------    ------
      Total Interest-Bearing Cash Equivalents         4,400        37   1.69%         4,651          48     2.08%
                                                  ---------   -------  ------     ---------     -------    ------
   TOTAL INTEREST-EARNING ASSETS                    244,548     7,094   5.83%       228,617       7,286     6.43%
      Cash and due from banks                         6,638                           6,250
      Other noninterest-earning assets               11,724                          10,100
                                                  ---------   -------  ------     ---------     -------    ------
      Total assets                                $ 262,910   $ 7,094   5.43%     $ 244,967     $ 7,286     6.00%
                                                  =========   =======             =========     =======
INTEREST-BEARING LIABILITIES:
------------------------------
   Interest-bearing demand deposits                $ 75,645     $ 212   0.56%      $ 75,336       $ 315     0.84%
   Time deposits                                    108,992     1,982   3.66%        99,546       1,898     3.84%
                                                  ---------   -------  ------     ---------     -------    ------
     Total Interest-Bearing Deposits                184,637     2,194   2.39%       174,882       2,213     2.55%
                                                  ---------   -------  ------     ---------     -------    ------
   Borrowed funds, term                              15,000       311   4.17%        10,417         209     4.05%
   Borrowed funds, overnight                          1,008         6   1.20%           272           2     1.48%
                                                  ---------   -------  ------     ---------     -------    ------
     Total Borrowed Funds                            16,008       317   3.98%        10,689         211     3.98%
                                                  ---------   -------  ------     ---------     -------    ------
   TOTAL INTEREST-BEARING LIABILITIES               200,645     2,511   2.52%       185,571       2,424     2.63%
      Noninterest-bearing demand deposits            37,405         -       -        34,549                     -
                                                  ---------   -------  ------     ---------     -------    ------
    FUNDING AND COST OF FUNDS                       238,050     2,511   2.12%       220,120       2,424     2.22%
      Other noninterest-bearing liabilities           2,022                           1,658
                                                  ---------                       ---------
      Total liabilities                             240,072                         221,778
      Stockholders' equity                           22,838                          23,189
                                                  ---------   -------  ------     ---------     -------    ------
      Total liabilities and stockholders' equity  $ 262,910   $ 2,511   2.12%     $ 244,967     $ 2,424     2.22%
                                                  =========   =======             =========     =======
NET INTEREST INCOME                                           $ 4,583                           $ 4,862
                                                              =======                           ========
INTEREST RATE SPREAD (difference between                                3.32%                               3.79%
                                                                        =====                              ======
   weighted average rate on interest-earning
   assets and interest-bearing liabilities)

NET INTEREST MARGIN (net interest                                       3.77%                               4.29%
                                                                        =====                               =====
   income as a percentage of average
   interest-earning assets)
-----------------------------------------------------------------------------------------------------------------
</TABLE>



                                       13
<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.

--------------------------------------------------------------------------------
 (IN THOUSANDS)                                SIX MONTHS ENDED JUNE 30,
                                                    2004 VERSUS 2003
                                               INCREASE (DECREASE) DUE TO
                                           -------------------------------------
                                            VOLUME          RATE        TOTAL
--------------------------------------------------------------------------------
 INTEREST INCOME:
   Loans                                     $ 494         $(557)        $ (63)
   Securities                                   30          (148)         (118)
   Interest-earning cash equivalents            (3)           (4)           (7)
   Federal bank stocks                           4            (8)           (4)
                                             -----         -----         -----
   Total interest-earning assets               525          (717)         (192)
                                             -----         -----         -----
Interest expense:
   Deposits                                    120          (139)          (19)
   Borrowed funds                              105             1           106
                                             -----         -----         -----
   Total interest-bearing liabilities          225          (138)           87
                                             -----         -----         -----
Net interest income                          $ 300         $(579)        $(279)
                                             =====         =====         =====
-------------------------------------------------------------------------------


PROVISION FOR LOAN LOSSES. The Corporation records provisions for loan losses to
bring the total  allowance  for loan losses to a level deemed  adequate to cover
probable losses  inherent in the loan portfolio.  In determining the appropriate
level of  allowance  for  loan  losses,  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 is as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                        FOR THE SIX MONTHS ENDED,
                                                         JUNE 30,        JUNE 30,       DECEMBER 31,
----------------------------------------------------------------------------------------------------
                                                           2004            2003             2003
                                                         -------          -------         -------
<S>                          <C>                         <C>              <C>               <C>
Beginning Balance - December 31                          $ 1,777          $ 1,587           1,587
Provision for Loan Losses                                     75              150             330
Charge-Offs                                                  (77)             (68)           (205)
Recoveries                                                    34               29              65
Ending Balance - June 30                                 $ 1,809          $ 1,698         $ 1,777
                                                         =======          =======          ======
Non-performing assets                                    $ 1,190          $ 1,572           1,329
Non-performing loans to total loans                         0.64%            0.88%           0.69%
Non-performing assets to total assets                       0.45%            0.63%           0.52%
Allowance for loan losses to total loans                    0.97%            0.95%           0.92%
Allowance for loan losses to non-performing loans         152.02%          108.02%         133.71
----------------------------------------------------------------------------------------------------
</TABLE>





                                       14
<PAGE>


The provision for loan losses decreased  $75,000 or 50.0% to $75,000 for the six
month period ending June 30, 2004 from $150,000 for the same period in the prior
year.  Although the loan balances decreased in the first six months of 2004, the
actual allowance level reflected an increase of $32,000 or 1.8% to $1.81 million
at June 30, 2004 from $1.78  million at December 31, 2003.  This  increase was a
result of an increase in charged-off loans combined with management's evaluation
of the loan portfolio,  including economic trends, regulatory considerations and
other  factors.  Nonperforming  loans also  decreased  $139,000 or 10.5% to $1.2
million  at June 30,  2004 from $1.3  million at  December  31,  2003.  This was
primarily a result of the change in the status of two commercial  mortgages from
nonperforming to performing.

NONINTEREST  INCOME.  Noninterest  income  increased  $150,000  or 17.6% to $1.0
million during the six months ended June 30, 2004,  compared to $852,000  during
the same  period in the prior  year.  This  increase  can be  attributed  to the
increase  in  customer  service  fees,  gains on the sale of  marketable  equity
securities  and other  noninterest  income of  $44,000,  $114,000  and  $17,000,
respectively. The increase in customer service fees was a result of the increase
in the  overdraft  fees  and  also  the  increase  in the  number  of  accounts.
Offsetting this favorable variance was a decrease in the gains on loans sold and
earnings on bank-owned life insurance of $20,000 and $5,000, respectively.

NONINTEREST  EXPENSE.  Noninterest  expense  increased  $141,000 or 3.7% to $4.0
million  during the six months  ended June 30,  2004,  compared to $3.8  million
during the same period in the prior year.  This increase in noninterest  expense
can be  attributed  to  increases in premises  and  equipment  expense and other
noninterest  expense of $62,000 and  $140,000,  respectively.  This  unfavorable
variance  was offset by  decreases in  compensation  and  employee  benefits and
intangible amortization expense of $4,000 and $57,000, respectively.

Compensation and employee  benefits  expense  decreased $4,000 to $2.172 million
during the six months  ended June 30, 2004,  compared to $2.176  million for the
same period in the prior year. Contributing to this variance was the decrease in
employee  retirement  costs,  training  expenses,  employee  incentive costs and
deferred loan fees  associated with salaries offset by increases in employee and
officer salaries, employee insurance costs and director fees.

Premises and equipment expense increased $62,000 or 11.4% to $604,000 during the
six months ended June 30, 2004,  compared to $542,000 for the same period in the
prior year. This increase can be primarily  attributed to increased building and
equipment depreciation expenses and other equipment expenses of $13,000, $48,000
and  $14,000,  respectively.  Contributing  to  the  increases  in  depreciation
expenses  between the two periods was the completion of the  construction on the
main office building during the fourth quarter of 2003 and the addition of a new
mainframe and imaging system in January 2004. Partially offsetting this increase
between the two periods was the decrease in office rent of $17,000,  as a direct
result of the closing of our Clarion Mall office in March 2003.

Intangible amortization expense decreased $57,000 or 78.1% to $16,000 during the
six months ended June 30,  2004,  compared to $73,000 for the same period in the
prior year. This variance was a result of the cessation of amortization  expense
on three branches  previously  acquired which were fully amortized in the fourth
quarter of 2003.

Other noninterest expense increased $140,000 or 13.7% to $1.2 million during the
six months ended June 30, 2004,  compared to $1.0 million for the same period in
the prior year.  This  increase  can be  attributed  primarily  to  increases in
telephone and  communication  expenses,  Pennsylvania use tax expense,  software
depreciation  and marketing  expenses.  Partially  offsetting  this  unfavorable
variance were decreases in professional fees,  Pennsylvania shares taxes, travel
and entertainment expenses and postage expenses between the two periods.

PROVISION FOR INCOME TAXES. The provision for income taxes decreased $125,000 or
33.2% to $252,000 for the six months  ended June 30, 2004,  compared to $377,000
for the same period in the prior year.  Contributing to this favorable  variance
was the decrease in the  Corporation's  effective  tax rate  resulting  from the
investment in bank-owned  life insurance and tax-free  municipal  securities and
loans,  as well as historic tax credits  attributable  to the  remodeling of the
Corporation's   headquarters.   Also   contributing   was  a  decrease   in  the
Corporation's  pre-tax  earnings  base between the six month period  ending June
2004 and 2003.


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<PAGE>


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,  2004,  the  Corporation  used its sources of funds  primarily to
purchase  securities and payoff  overnight  borrowings from the FHLB. As of such
date, the Corporation had outstanding loan  commitments,  including  undisbursed
loans and amounts  available  under credit lines,  totaling $15.6  million,  and
standby letters of credit totaling $637,000.

At June 30,  2004,  time  deposits  amounted  to $112.0  million or 49.2% of the
Corporation's  total  consolidated  deposits,   including   approximately  $31.0
million,  which were 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, 2004, the Corporation's  borrowing  capacity with
the FHLB, net of funds borrowed, was $94.1 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.


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<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk for the  Corporation is comprised  primarily from interest rate risk
exposure and liquidity risk. Since virtually all of the interest-earning  assets
and paying 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.

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.

At  June  30,  2004,  the  Corporation's  interest-earning  assets  maturing  or
repricing  within  one  year  totaled  $92.6  million  while  the  Corporation's
interest-bearing  liabilities  maturing or  repricing  within  one-year  totaled
$113.1  million,  providing  an  excess  of  interest-bearing  liabilities  over
interest-earning  assets of $20.5 million or a negative 7.7% of total assets. At
June 30,  2004,  the  percentage  of the  Corporation's  assets  to  liabilities
maturing or repricing within one year was 81.9%.

Market  risk  information  will be  presented  in more detail in the 2004 Annual
Report.

ITEM 4.  CONTROLS AND PROCEDURES

 The Corporation  maintains disclosure controls and procedures that are designed
 to ensure  that  information  required  to be  disclosed  in the  Corporation's
 Exchange Act reports is recorded, processed, summarized and reported within the
 time periods  specified in the SEC's rules and forms, and that such information
 is accumulated and communicated to the Corporation's management,  including its
 Chief  Executive  Officer and Principal  Financial and Accounting  Officer,  as
 appropriate,  to allow timely  decisions  regarding  required  disclosure based
 closely on the  definition  of  "disclosure  controls and  procedures"  in Rule
 13a-15(e).

 As of  the  quarter  ended  June  30,  2004,  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 Principal  Financial and Accounting  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 Principal
 Financial and Accounting  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.


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<PAGE>

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

The  Corporation  is  involved in various  legal  proceedings  occurring  in the
ordinary course of business. It is the opinion of management, after consultation
with  legal  counsel,   that  these  matters  will  not  materially  effect  the
Corporation's consolidated financial position or results of operations.

ITEM 2.  CHANGES IN 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 May 19,
     2004. Of 1,267,835 common shares eligible to vote, 982,693 or 77.5% were
     voted in person or by proxy.

(b)  The following Class A directors were elected for a three year term expiring
     in 2007:

         NAME                    SHARES FOR           SHARES WITHHELD
         J. Michael King           946,228                     36,465
         David L. Cox              979,042                       3,652

     In addition to the above listed individuals, the following persons continue
     to serve as directors: Ronald L. Ashbaugh, George W. Freeman, Brian C.
     McCarrier, Bernadette H. Crooks, Robert L. Hunter and John B. Mason.

(c)  The recommendation of the Board of Directors to ratify the appointment of
     Crowe Chizek and Company LLC as the Corporation's independent auditors, as
     described in the proxy statement for the annual meeting was approved with
     980,629 shares in favor, 1,959 shares against and 105 shares abstained.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS

         EXHIBIT 31.1 Rule 13a-14(a)  Certification  of Chief Executive  Officer
         EXHIBIT 31.2 Rule 13a-14(a)  Certification  of Principal  Financial and
                      Accounting Officer
         EXHIBIT 32.1 CEO Certification Pursuant to 18 U.S.C. Section  1350
         EXHIBIT 32.2 PFO Certification  Pursuant  to 18 U.S.C. Section 1350

(B)      REPORTS ON FORM 8-K

         The  Corporation  filed a Form 8-K dated  August 13,  2004 to  announce
second quarter 2004 earnings.


                                       18
<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.



Date:  August 13, 2004   By: /S/ David L. Cox
                         ---------------------------------------------
                                 David L. Cox
                                 Chairman of the Board,
                                 President and Chief Executive Officer

Date:  August 13, 2004   By: /S/ Shelly L. Rhoades
                         --------------------------------------------------
                                 Assistant Controller
                                (Principal Financial and Accounting Officer)



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