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                                  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 SEPTEMBER 30, 2004

                        Commission File Number: 000-18464


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


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



     612 MAIN STREET, EMLENTON, PENNSYLVANIA                16373
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     (Address of principal executive offices)             (Zip Code)


                                 (724) 867-2311
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                         (Registrant's telephone number)


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              (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 [_] No [X]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).    Yes [X] No [_]

     The number of shares outstanding of the Registrant's common stock was
1,267,835 at November 10, 2004.

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<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
           September 30, 2004 and December 31, 2003.........................1

           Consolidated Income Statements for the three and nine
           months ended September 30, 2004 and 2003.........................2

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

           Consolidated Statement of Changes in Stockholders'
           Equity for the nine months ended September 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......18

Item 4.    Controls and Procedures.........................................18

                        PART II - OTHER INFORMATION

Item 1.    Legal Proceedings...............................................19

Item 2.    Changes in Securities and Use of Proceeds.......................19

Item 3.    Defaults Upon Senior Securities.................................19

Item 4.    Submission of Matters to a Vote of Security Holders.............19

Item 5.    Other Information...............................................19

Item 6.    Exhibits and Reports on Form 8-K................................19

Signatures ................................................................20


<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  INTERIM FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                 SEPTEMBER 30,DECEMBER 31,
                                                                                2004                 2003
                                                                              --------             --------
                     ASSETS
<S>                                                                           <C>                  <C>
Cash and due from banks                                                       $   6,158            $   6,776
Interest-earning deposits in banks                                                5,548                  927
                                                                              ---------            ---------
    Cash and cash equivalents                                                    11,706                7,703
Securities available for sale                                                    59,279               49,145
Securities held to maturity; fair value of $16 and $17                               16                   17
Loans receivable, held for sale                                                     473                 --
Loans receivable, net of allowance for loan
 losses of $1,716 and $1,777
                                                                                183,260              190,482
Federal bank stocks, at cost                                                      1,692                1,982
Bank-owned life insurance                                                         4,427                4,272
Accrued interest receivable                                                       1,191                1,270
Premises and equipment                                                            5,472                5,223
Goodwill                                                                          1,422                1,422
Other intangible assets                                                              49                   54
Prepaid expenses and other assets                                                 1,211                  942
                                                                              ---------            ---------
       Total assets                                                           $ 270,198            $ 262,512
                                                                              =========            =========
      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Deposits:
    Noninterest bearing                                                       $  38,577            $  36,332
    Interest bearing                                                            191,554              180,778
                                                                              ---------            ---------
       Total deposits                                                           230,131              217,110
   Borrowed funds                                                                15,000               20,700
   Accrued interest payable                                                         503                  477
   Accrued expenses and other liabilities                                         1,163                1,570
                                                                              ---------            ---------
      Total liabilities                                                         246,797              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                                                             11,930               11,033
   Accumulated other comprehensive income                                         1,508                1,659
                                                                              ---------            ---------
      Total stockholders' equity                                                 23,401               22,655
                                                                              ---------            ---------
       Total liabilities and stockholders' equity                             $ 270,198            $ 262,512
                                                                              =========            =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       1
<PAGE>



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


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                    SEPTEMBER 30,                     SEPTEMBER 30,
                                                             ---------------------------       ---------------------------
                                                                2004             2003             2004             2003
                                                             ----------       ----------       ----------       ----------
<S>                                                          <C>              <C>              <C>              <C>
INTEREST AND DIVIDEND INCOME:
   Loans receivable                                          $    2,961       $    2,965       $    8,827       $    8,919
   Securities:
     Taxable                                                        360              373              990            1,076
     Exempt from federal income tax                                 175              181              524              560
   Federal bank stocks                                                8               13               29               39
   Deposits with banks and federal funds sold                        17                2               32               24
                                                             ----------       ----------       ----------       ----------
    TOTAL INTEREST INCOME                                         3,521            3,534           10,402           10,618
                                                             ----------       ----------       ----------       ----------
INTEREST EXPENSE:
   Deposits                                                       1,129            1,073            3,322            3,286
   Borrowed funds                                                   158              154              475              365
                                                             ----------       ----------       ----------       ----------
    TOTAL INTEREST EXPENSE                                        1,287            1,227            3,797            3,651
                                                             ----------       ----------       ----------       ----------
NET INTEREST INCOME                                               2,234            2,307            6,605            6,967
   Provision for loan losses                                         95               75              170              225
                                                             ----------       ----------       ----------       ----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES               2,139            2,232            6,435            6,742
                                                             ----------       ----------       ----------       ----------
NONINTEREST INCOME:
   Service fees                                                     282              268              836              777
   Commissions                                                       11             --                 11             --
   Gain on sale of securities available for sale                     88               60              257              115
   Gain on sale of loans held for sale                               39                5               37               23
   Earnings on bank-owned life insurance                             56               58              167              175
   Other                                                            100               76              269              228
                                                             ----------       ----------       ----------       ----------
    TOTAL NONINTEREST INCOME                                        576              467            1,577            1,318
                                                             ----------       ----------       ----------       ----------
NONINTEREST EXPENSE:
   Compensation and employee benefits                             1,087            1,022            3,259            3,198
   Premises and equipment, net                                      315              245              919              786
   Intangible amortization expense                                    9               34               25              107
   Other                                                            538              540            1,704            1,567
                                                             ----------       ----------       ----------       ----------
    TOTAL NONINTEREST EXPENSE                                     1,949            1,841            5,907            5,658
                                                             ----------       ----------       ----------       ----------
INCOME BEFORE PROVISION FOR INCOME TAXES                            766              858            2,105            2,402
   Provision for income taxes                                        81              209              333              585
                                                             ----------       ----------       ----------       ----------
Net income                                                   $      685       $      649       $    1,772       $    1,817
                                                             ==========       ==========       ==========       ==========
    Basic Earnings per Share                                 $     0.54       $     0.51       $     1.40       $     1.38

   Weighted average common shares outstanding                 1,267,835        1,280,552        1,267,835        1,313,131
</TABLE>


See accompanying notes to consolidated financial statements.

                                       2
<PAGE>



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

<TABLE>
<CAPTION>
                                                                                 For the nine months ended
                                                                                       September 30,
                                                                               -----------------------------
                                                                                 2004                  2003
                                                                               --------              --------
OPERATING ACTIVITIES:
<S>                                                                            <C>                   <C>
   Net income                                                                  $  1,772              $  1,817
   Adjustments to reconcile net income to net cash provided
    by operating activities                                                       1,361                   453
                                                                               --------              --------
    NET CASH FROM OPERATING ACTIVITIES                                            3,133                 2,270
                                                                               --------              --------
INVESTING ACTIVITIES:
   Loan originations, net of principal collections                                6,593               (13,445)
   Purchases of securities available for sale                                   (22,174)              (37,062)
   Redemption (Purchases) of Federal bank stocks                                    290                  (644)
   Repayments, maturities and calls of securities
      available for sale                                                          9,679                31,565
   Principal repayments of securities held to maturity                                1                    12
   Proceeds from the sale of securities available for sale                          704                   582
   Purchase of customer relationship intangible                                     (20)                 --
   Purchases of premises and equipment                                             (649)               (1,406)
                                                                               --------              --------
    NET CASH FROM INVESTING ACTIVITIES                                           (5,576)              (20,398)
                                                                               --------              --------
FINANCING ACTIVITIES:
   Net increase in deposits                                                      13,021                11,468
   Increase (Decrease) in overnight borrowed funds                               (5,700)                2,930
   Proceeds from long term advances                                                --                   5,000
   Dividends paid on common stock                                                  (875)                 (829)
   Payments to acquire treasury stock                                              --                  (1,682)
                                                                               --------              --------
    NET CASH FROM FINANCING ACTIVITIES                                            6,446                16,887
                                                                               --------              --------
Net (decrease) increase in cash equivalents                                       4,003                (1,241)
Cash equivalents at beginning of period                                           7,703                 7,716
                                                                               --------              --------
Cash equivalents at end of period                                              $ 11,706              $  6,475
                                                                               ========              ========
SUPPLEMENTAL INFORMATION:

   Interest paid                                                               $  3,771              $  3,645
   Income taxes paid                                                                232                   708

</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>



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


<TABLE>
<CAPTION>
                                                              For the three months ended      For the nine months ended
                                                                   September 30,                    September 30,
                                                              -------------------------       -----------------------
                                                                 2004            2003           2004            2003
                                                              ---------       ---------       --------        --------
<S>                                                           <C>             <C>             <C>             <C>
BALANCE AT BEGINNING OF PERIOD                                $ 22,559        $ 22,835        $ 22,655        $ 22,680

   Net income                                                      685             649           1,772           1,817

   Change in net unrealized gain on available for sale
     securities, net of taxes                                      506            (345)             18             539
   Less reclassification adjustment for gains included
     in net income, net of taxes                                   (58)            (39)           (169)            (75)
                                                              --------        --------        --------        --------
   Other comprehensive income (loss)                               448            (384)           (151)            464

Total comprehensive income                                       1,133             265           1,621           2,281

Dividends paid                                                    (291)           (269)           (875)           (829)

Purchase of treasury stock (65,000 shares)                        --              (381)           --            (1,682)
                                                              --------        --------        --------        --------
BALANCE AT END OF PERIOD                                      $ 23,401        $ 22,450        $ 23,401        $ 22,450
                                                              ========        ========        ========        ========
Common cash dividend per share                                $   0.23        $   0.21        $   0.69        $   0.63
                                                              ========        ========        ========        ========
</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.   The  Corporation's   business  is  conducted
         principally  through  the bank.  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 nine
         months ended September 30, 2004 was $17,000 and $50,000, 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 nine months ended    Year ended
                                       September 30,  September 30,  September 30,  September 30,  December 31,
(Dollar amounts in thousands)             2004           2003           2004            2003           2003
------------------------------------------------------------------------------------------------    -------------
<S>                                       <C>            <C>            <C>            <C>            <C>
Service cost                              $  41          $  37          $ 123          $ 110          $ 147
Interest cost                                46             41            138            123            164
Expected return on plan assets              (53)           (44)          (159)          (132)          (176)
Transition asset                             (2)            (2)            (6)            (6)            (8)
Prior service costs                          (8)            (8)           (24)           (23)           (31)
Recognized net actuarial (gain) loss          8             12             24             35             47
                                          -------------------------------------------------------  --------------
Net periodic pension cost                 $  32          $  36          $  96          $ 107          $ 143
                                          =======================================================  ==============
</TABLE>


         The  expected  rate of return on plan  assets is 8.50% for the  periods
         ended  September  30,  2004 and  December  31,  2003.  The  Corporation
         contributed  $209,000  to its  pension  plan for the nine month  period
         ending September 30, 2004.


<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  nine  month  periods  ended  September  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  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  $7.7 million or 2.9% to $270.2 million at September 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 $4.0 million and
$10.1 million,  respectively.  Offsetting  this increase was a decrease in loans
receivable of $6.7 million.

Cash and cash  equivalents  increased  $4.0 million or 52.0% to $11.7 million at
September 30, 2004 from $7.7 million at December 31, 2003  primarily as a result
of the increase in deposits of $13.0 million,  the decrease in loans  receivable
of $6.7 million and the maturities of securities of $9.7 million,  offset by the
purchase of $22.1  million of  securities  and the  repayment of $5.7 million of
overnight borrowings.

Securities  increased  $10.1  million or 20.6% to $59.3 million at September 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 a lower  investment  risk and complement the overall
asset/liability and liquidity objectives of the Corporation.

Loans  receivable  decreased $6.7 million or 3.5% to $183.7 million at September
30, 2004 from $190.5 million at December 31, 2003.  During the nine months ended
September 30, 2004, the refinancing  activity experienced in 2003 has decreased.
Also contributing to the change in loan volume was the pay-off of two short-term
commercial  loans  financed in the fourth quarter 2003 and the sale of a portion
of the student loan  portfolio of $3.9 million in the third quarter of 2004. The
remaining  balance of  $473,000  of student  loans will be sold by June 2005 and
have been classified as loans held for sale on the balance sheet.

Federal bank stocks decreased $290,000 or 14.7% to $1.7 million at September 30,
2004 from $2.0  million at  December  31,  2003.  The  levels of  capital  stock
required by the Federal Home Loan Bank is directly  correlated to our borrowings
and  decreased as a result of the decrease in our FHLB  overnight  borrowings of
$5.7 million.

Other  intangible  assets  decreased  $5,000 or 9.8% to $49,000 at September 30,
2004 from  $54,000 at December  31,  2003.  Contributing  to this  decrease  was
intangible  amortization  expense of $25,000 for the nine months ended September
30, 2004. Offsetting this decrease was an increase of $20,000 as a result of the
purchase  of a  customer  list  associated  with  our  new  investment  advisory
services. In July 2004, the Bank formed a partnership with Blue Vase Securities,
LLC. Blue Vase  Securities,  LLC is a  nation-wide,  full  service,  independent
broker/dealer.  This partnership allows us to offer investment advisory services
to our customers whose needs extend beyond the traditional banking products. Our
financial services representative has been associated with Blue Vase for several
years and as a result had an established customer base. The Bank purchased these
established  customer  relationships  for $20,000 and will be amortized over the
next 2 years.

                                       7

<PAGE>


Deposits increased $13.0 million or 6.0% to $230.1 million at September 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 September 30,
2004 from $20.7 million at December 31, 2003.  The  repayment of FHLB  overnight
borrowings  of $5.7 million was a result of using excess funds from the decrease
in loan demand and the increase in deposits.

Stockholders'  equity  increased  $746,000 or 3.3% to $23.4 million at September
30, 2004 from $22.7  million at December 31, 2003.  This increase was the result
of increases in retained  earnings of $897,000;  comprised of net income of $1.8
million  offset by  dividends  paid of $875,000,  and a decrease in  accumulated
other comprehensive income of $151,000.

RESULTS OF OPERATIONS

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

GENERAL.  Net income for the three months  ended  September  30, 2004  increased
$36,000 or 5.6% to $685,000 from  $649,000 for the three months ended  September
30, 2003.  This  increase was a result of an increase in  noninterest  income of
$109,000  and a  decrease  in  the  provision  for  income  taxes  of  $128,000.
Offsetting  this  favorable  variance was a decrease in net  interest  income of
$73,000 and increases in  noninterest  expense and the provision for loan losses
of $108,000 and $20,000, respectively.

NET INTEREST  INCOME.  Net interest  income on a tax equivalent  basis decreased
$74,000 or 3.1% to $2.3 million for the three months  ended  September  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 $14,000 coupled with an increase
in interest expense of $60,000.

INTEREST INCOME.  Interest income on a tax equivalent basis decreased $14,000 to
$3.6  million for the three months ended  September  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 24 basis point  decline in the interest rate on average
interest-earning  assets to 5.78% during the three months  ended  September  30,
2004,  compared  to 6.02% for the same  period in the prior  year.  The yield on
average loans,  securities and  interest-bearing  cash equivalents  decreased to
6.42%,  4.20% and 1.53%,  respectively,  during the three months ended September
30, 2004, compared to 6.57%, 4.48% and 1.91%, 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, securities and interest-bearing cash equivalents increased to $185.7
million, $57.6 million and $6.5 million,  respectively,  during the three months
ended  September 30, 2004,  compared to $181.2  million,  $55.7 million and $3.1
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 $60,000 or 4.9% to $1.3 million for
the three months ended September 30, 2004, compared to $1.2 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  increased to $189.5  million during the three months
ended  September 30, 2004,  compared to $177.1 million during the same period in
the prior year.  Offsetting this increase in interest-bearing  liabilities was a
decrease  in  borrowed  funds to $15.0  million  during the three  months  ended
September  30,  2004,  compared to $17.7  million  during the same period in the
prior year. The interest rate on average interest-bearing  liabilities was 2.50%
for the three  months  ended  September  30, 2004 and 2003.  The average cost of
deposits was 2.09% for the three months ended September 30, 2004 and 2003.

                                       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)
                                                              THREE MONTHS ENDED SEPTEMBER 30,
                                                           2004                               2003
                                            ----------------------------------  --------------------------------
                                             AVERAGE                    YIELD/   AVERAGE                  YEILD/
                                             BALANCE     INTEREST       RATE     BALANCE    INTEREST      RATE
-----------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
------------------------
<S>                                          <C>         <C>             <C>     <C>        <C>            <C>
 Loans, taxable                              $178,302    $  2,878        6.42%   $174,040   $  2,885       6.58%
 Loans, tax exempt                              7,388         117        6.32%      7,121        113       6.30%
                                             --------    --------    ---------   --------   --------    --------
   TOTAL LOANS RECEIVABLE                     185,690       2,995        6.42%    181,161      2,998        6.57%
                                             --------    --------    ---------   --------   --------    ---------
 Securities, taxable                           42,262         360        3.39%     40,206        373        3.68%
 Securities, tax exempt                        15,291         248        6.44%     15,504        256        6.56%
                                             --------    --------    ---------   --------   --------    ---------
   TOTAL SECURITIES                            57,553         608        4.20%     55,710        629        4.48%
                                             --------    --------    ---------   --------   --------    ---------
 Interest-earning cash equivalents              4,794          17        1.41%      1,234          2        0.64%
 Federal bank stocks                            1,690           8        1.88%      1,886         13        2.73%
                                             --------    --------    ---------   --------   --------    ---------
   TOTAL INTEREST-BEARING CASH EQUIVALENTS      6,484          25        1.53%      3,120         15        1.91%
                                             --------    --------    ---------   --------   --------    ---------
 TOTAL INTEREST-EARNING ASSETS                249,727       3,628        5.78%    239,991      3,642        6.02%
   Cash and due from banks                      7,744                               5,762
   Other noninterest-earning assets            12,263                              11,184
                                             --------                            --------
   Total assets                              $269,734                            $256,937
                                             ========                            ========
INTEREST-BEARING LIABILITIES:
-----------------------------
 Interest-bearing demand deposits            $ 77,829    $    106        0.54%   $ 78,946   $    144        0.72%
 Time deposits                                111,698       1,023        3.64%     98,119        929        3.76%
                                             --------    --------    ---------   --------   --------    ---------
   TOTAL INTEREST-BEARING DEPOSITS            189,527       1,129        2.37%    177,065      1,073        2.40%
                                             --------    --------    ---------   --------   --------    ---------
 Borrowed funds, term                          15,000         158        4.19%     15,000        147        3.89%
 Borrowed funds, overnight                         --          --        0.00%      2,662          7        1.04%
                                             --------    --------    ---------   --------   --------    ---------
   TOTAL BORROWED FUNDS                        15,000         158        4.19%     17,662        154        3.46%
                                             --------    --------    ---------   --------   --------    ---------
 TOTAL INTEREST-BEARING LIABILITIES           204,527       1,287        2.50%    194,727      1,227        2.50%
   Noninterest-bearing demand deposits         40,168          --           --     38,084                     --
                                             --------    --------    ---------   --------   --------    --------
  FUNDING AND COST OF FUNDS                   244,695       1,287        2.09%    232,811      1,227        2.09%
   Other noninterest- bearing liabilities       2,002          --                   2,023
                                             --------    --------                --------
   Total liabilities                          246,697       1,287                 234,834
   Stockholders' equity                        23,037                              22,103
                                             --------                            --------
   Total liabilities and stockholders'
      equity                                 $269,734                            $256,937
                                             ========    ========                ========  --------
NET INTEREST INCOME                                      $  2,341                          $   2,415
                                                                                           =========
INTEREST RATE SPREAD (difference between                                 3.28%                              3.52%
 weighted average rate on interest-earning                           =========                         ==========
 assets and interest-bearing liabilities)

NET INTEREST MARGIN (net interest                                        3.73%                              3.99%
 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.


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)

                                              THREE MONTHS ENDED SEPTEMBER 30,
                                                      2004 VERSUS 2003
                                                  INCREASE (DECREASE) DUE TO
                                       --------------------------------------------------
                                        VOLUME                 RATE                 TOTAL
------------------------------------------------------------------------------------------
 INTEREST INCOME:
<S>                                       <C>                  <C>                   <C>
    Loans                                 $  74                $ (77)                $ (3)
    Securities                               20                  (41)                 (21)
    Interest-earning cash
        equiva1ents                          11                    4                   15
    Federal bank stocks                      (1)                  (4)                  (5)
                                          -----                -----                -----
    Total interest-earning asse104         (118)                 (14)
                                          -----                -----                -----
 INTEREST EXPENSE:
    Deposits                                 74                  (18)                  56
    Borrowed funds                          (25)                  29                    4
                                          -----                -----                -----
    Total interest-bearing liabilities       49                   11                   60
                                          -----                -----                -----
 NET INTEREST INCOME                      $  55                $(129)               $ (74)
                                          =====                =====                =====
</TABLE>

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 third quarter of 2004 and 2003 is as follows:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                                     For the three months ended
(Dollar amounts in thousands)                       September 30,  September 30,
                                                  --------------   -------------
                                                          2004          2003
-----------------------------------------------------------------  -------------
<S>                                                       <C>           <C>
Balance at the beginning of the period                    $ 1,809       $ 1,698
Provision for Loan Losses                                      95            75
Charge-Offs                                                  (196)          (87)
Recoveries                                                      8            19
                                                          -------       -------
Balance at the end of the period                          $ 1,716       $ 1,705
                                                          =======       =======
Non-performing loans                                      $ 1,244       $ 1,650
Non-performing assets                                       1,314         1,650
Non-performing loans to total loans                          0.67%         0.89%
Non-performing assets to total assets                        0.49%         0.65%
Allowance for loan losses to total loans                     0.93%         0.92%
Allowance for loan losses to non-performing loans          137.94%       103.33%
</TABLE>


                                       10

<PAGE>

The  provision  for loan  losses  increased  $20,000 or 26.7% to $95,000 for the
three month period ending September 30, 2004 from $75,000 for the same period in
the prior year.  Despite the decrease in loans receivable,  the actual allowance
level increased  $11,000 or 1.0% as a result of an increase in charged off loans
of $109,000 and a decrease in recoveries of $11,000.  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 $95,000 in the  provision  for loan  losses  during  the three  months  ended
September 30, 2004.

NONINTEREST  INCOME.  Noninterest income increased $109,000 or 23.3% to $576,000
during the three months ended  September 30, 2004,  compared to $467,000  during
the same  period in the prior  year.  This  increase  can be  attributed  to the
increase in customer service fees, commissions,  gains on the sale of marketable
equity  securities  and on the sale of loans  and  other  noninterest  income of
$14,000,  $11,000, $28,000, $34,000 and $24,000,  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.  Also  contributing to the increase
in  noninterest  income  was the  increase  in  commissions  earned  of  $11,000
resulting  from the addition of the investment  advisory  services in July 2004.
The increase in gains on loans sold of $34,000 was the result of the sale of our
student loan portfolio in September 2004. Offsetting this favorable variance was
a decrease in the earnings on bank-owned life insurance of $2,000.

NONINTEREST  EXPENSE.  Noninterest  expense  increased  $108,000 or 5.9% to $1.9
million  during the three months  ended  September  30,  2004,  compared to $1.8
million  during the same period in the prior year.  This increase in noninterest
expense can be attributed to increases in compensation and employee benefits and
premises and equipment expense $65,000 and $70,000, respectively.  This increase
was offset by decreases in intangible amortization expense and other noninterest
expense of $25,000 and $2,000, respectively.

Compensation and employee  benefits expense  increased  $65,000 to $1.09 million
during the three months ended September 30, 2004,  compared to $1.02 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 as a result of lower loan production. The increase in salaries and
insurance expense is a direct result of increased personnel.

Premises and equipment expense increased $70,000 or 28.6% to $315,000 during the
three months ended September 30, 2004,  compared to $245,000 for the same period
in the prior year.  This  increase  can be  primarily  attributed  to  increased
building and equipment  depreciation  expenses,  repairs and  maintenance,  real
estate taxes and equipment service contracts of $7,000, $35,000,  $7,000, $8,000
and $7,000, 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 $25,000 or 73.5% to $9,000 during the
three months ended  September 30, 2004,  compared to $34,000 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.  Offsetting  this  decrease  was an  increase  in the
amortization of $1,000 for the newly acquired customer  relationship  intangible
associated with the addition of the investment  advisory  services (see comments
in Changes in Financial Condition above) in July 2004.

Other  noninterest  expense decreased $2,000 to $538,000 during the three months
ended September 30, 2004,  compared to $540,000 for the same period in the prior
year.  This decrease can be  attributed  primarily to decreases in telephone and
communication expenses, marketing expenses, Pennsylvania shares taxes and travel
and entertainment  expenses.  Partially  offsetting this favorable variance were
increases  in  professional  fees  and  software  depreciation  between  the two
periods.

                                       11
<PAGE>




PROVISION FOR INCOME TAXES. The provision for income taxes decreased $128,000 or
61.2% to $81,000 for the three months  ended  September  30,  2004,  compared to
$209,000 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 third quarter 2004 and 2003.



                                       12
<PAGE>




COMPARISON OF RESULTS FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2004 AND 2003

GENERAL.  Net income for the nine months  ended  September  30,  2004  decreased
$45,000 or 2.5% to $1.77  million  from $1.82  million for the nine months ended
September  30,  2003.  This  decrease was a result of a decrease in net interest
income  of  $362,000  and  an  increase  in  noninterest  expense  of  $249,000.
Offsetting these unfavorable  variances were decreases in the provision for loan
losses and income taxes of $55,000 and $252,000,  respectively,  and an increase
in noninterest income of $259,000.

NET INTEREST  INCOME.  Net interest  income on a tax equivalent  basis decreased
$351,000 or 4.8% to $6.9  million for the nine months ended  September  30, 2004
from  $7.3  million  for the same  period  in 2003.  This  net  decrease  can be
attributed to a decrease in interest income of $205,000 coupled with an increase
in interest expense of $146,000.

INTEREST INCOME. Interest income on a tax equivalent basis decreased $205,000 or
1.9% to $10.7 million for the nine months ended September 30, 2004,  compared to
$10.9  million for the same period in the prior year.  This decrease in interest
income can be  attributed  to a 47 basis point  decline in the interest  rate on
average  interest-earning assets to 5.82% during the nine months ended September
30, 2004,  compared to 6.29% for the same period in the prior year. The yield on
average loans,  securities and  interest-bearing  cash equivalents  decreased to
6.37%, 4.30% and 1.60%, respectively, during the nine months ended September 30,
2004, compared to 6.83%, 4.78% 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, securities and interest-bearing cash equivalents increased to $187.4
million,  $53.8 million and $5.1 million,  respectively,  during the nine months
ended  September 30, 2004,  compared to $176.1  million,  $52.3 million and $4.1
million,  respectively,  during the same period in the prior year.  Increases in
average loans,  securities and  interest-bearing  cash  equivalents  between the
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  $146,000 or 4.0% to $3.8 million
for the nine months ended  September 30, 2004,  compared to $3.7 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 $186.3 million and $15.7 million, respectively,  during the nine months ended
September 30, 2004, compared to $175.5 million and $13.1 million,  respectively,
during the same period in the prior year.  The increase in interest  expense due
to volume was partially  offset by an 8 basis point decline in the interest rate
on average  interest-bearing  liabilities  to 2.51% during the nine months ended
September 30, 2004, compared to 2.59% for the same period in the prior year. The
average  cost of  deposits  decreased  to 2.11%  during  the nine  months  ended
September 30, 2004, compared to 2.18% for the same period in the prior year.

                                       13
<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)
                                                                  NINE MONTHS ENDED SEPTEMBER 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                              $ 179,929      $ 8,578      6.37%    $ 170,433  $  8,732        6.85%
   Loans, tax exempt                               7,426          352      6.33%        5,659       264        6.24%
                                               ---------      -------    -------    ---------  --------    ---------
      Total Loans Receivable                   $ 187,355      $ 8,930      6.37%    $ 176,092  $  8,996        6.83%
                                               ---------      -------    -------    ---------  --------    ---------
   Securities, taxable                            38,495          990      3.44%       36,015     1,076        3.99%
   Securities, tax exempt                         15,330          742      6.46%       16,254       793        6.52%
                                               ---------      -------    -------    ---------  --------    ---------
      TOTAL SECURITIES                            53,825        1,732      4.30%       52,269     1,869        4.78%
                                               ---------      -------    -------    ---------  --------    ---------
   Interest-earning cash equivalents               3,331           32      1.28%        2,414        24        1.33%
   Federal bank stocks                             1,763           29      2.20%        1,642        39        3.18%
                                               ---------      -------    -------    ---------  --------    ---------
      TOTAL INTEREST-BEARING CASH EQUIVALENTS      5,094           61      1.60%        4,056        63        2.08%
                                               ---------      -------    -------    ---------  --------    ---------
   TOTAL INTEREST-EARNING ASSETS                 246,274       10,723      5.82%      232,417    10,928        6.29%
      Cash and due from banks                      7,007                                6,021
      Other noninterest-earning assets            11,904                               10,449
                                               ---------                            ---------
      Total assets                             $ 265,185                            $ 248,887
                                               =========                            =========
INTEREST-BEARING LIABILITIES:
   Interest-bearing demand deposits             $ 76,373        $ 318      0.56%     $ 76,477     $ 458        0.80%
   Time deposits                                 109,894        3,004      3.65%       99,057     2,828        3.82%
                                               ---------      -------  ---------    ---------  --------    ---------
      TOTAL INTEREST-BEARING DEPOSITS            186,267        3,322      2.38%      175,534     3,286        2.50%
                                               ---------      -------  ---------    ---------  --------    ---------
   Borrowed funds, term                           15,000          470      4.19%       12,000       356        3.97%
   Borrowed funds, overnight                         672            5      0.99%        1,108         9        1.09%
                                               ---------      -------  ---------    ---------  --------    ---------
      TOTAL BORROWED FUNDS                        15,672          475      4.05%       13,108       365        3.72%
                                               ---------      -------  ---------    ---------  --------    ---------
   TOTAL INTEREST-BEARING LIABILITIES            201,939        3,797      2.51%      188,642     3,651        2.59%
      Noninterest-bearing demand deposits         38,326            -          -       35,686                      -
                                               ---------      -------  ---------    ---------  --------    ---------
    FUNDING AND COST OF FUNDS                    240,265        3,797      2.11%      224,328     3,651        2.18%
      Other noninterest-bearing liabilities        2,016                                1,758
                                               ---------                            ---------
      Total liabilities                          242,281                              226,086
      Stockholders' equity                        22,904                               22,801
                                               ----------                           ---------
      Total liabilities and stockholders'
        equity                                 $ 265,185      $ 3,797      2.11%    $ 248,887  $  3,651
                                               ==========     -------               =========  --------
NET INTEREST INCOME                                           $ 6,926                          $ 7,277
                                                              =======                          ========
INTEREST RATE SPREAD (difference between                                   3.30%                               3.70%
   weighted average rate on interest-earning                             =======                            =======
   assets and interest-bearing liabilities)

Net interest margin (net interest                                          3.76%                               4.19%
   income as a percentage of average                                     =======                            =======
   interest-earning assets)
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       14


<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)
                                                         NINE MONTHS ENDED SEPTEMBER 30,
                                                                  2004 VERSUS 2003
                                                             INCREASE (DECREASE) DUE TO
                                                -----------------------------------------------------
                                                 VOLUME                    RATE                TOTAL
-----------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S>                                               <C>                     <C>                 <C>
   Loans                                          $ 557                   $ (623)             $  (66)
   Securities                                        54                     (192)               (138)
   Interest-earning cash
     equivalents                                      9                       (1)                  8
   Federal bank stocks                                3                      (13)                (10)
                                                  -----                    -----               -----
   Total interest-earning assets 623               (829)                    (206)
                                                  -----                    -----               -----
INTEREST EXPENSE:
   Deposits                                         196                     (160)                 36
   Borrowed funds                                    76                       34                 110
                                                  -----                    -----               -----
   Total interest-bearing liabilities               272                     (126)                146
                                                  -----                    -----               -----
NET INTEREST INCOME                               $ 351                   $ (703)             $ (352)
                                                  =====                    =====               =====
</TABLE>

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 NINE MONTHS ENDED
                                                  SEPTEMBER 30,        SEPTEMBER 30,       DECEMBER 31,
                                                  --------------       ------------        ------------
                                                       2004                2003                 2003
-------------------------------------------------------------------------------------------------------
<S>                                                   <C>                 <C>                   <C>
Balance at the beginning of the period                $ 1,777             $ 1,587               1,587
Provision for Loan Losses                                 170                 225                 330
Charge-Offs                                              (273)               (154)               (205)
Recoveries                                                 42                  47                  65
                                                      -------             -------             -------
Balance at the end of the period                      $ 1,716             $ 1,705             $ 1,777
                                                      =======             =======             =======
Non-performing loans                                  $ 1,244             $ 1,650             $ 1,329
Non-performing assets                                   1,314               1,650               1,374
Non-performing loans to total loans                      0.67%               0.89%               0.69%
Non-performing assets to total assets                    0.49%               0.65%               0.52%
Allowance for loan losses to total loans                 0.93%               0.92%               0.92%
Allowance for loan losses to non-performing loans      137.94%             103.33%             133.71%
-------------------------------------------------------------------------------------------------------
</TABLE>

                                       15
<PAGE>



The  provision  for loan losses  decreased  $55,000 or 24.4% to $170,000 for the
nine month period ending September 30, 2004 from $225,000 for the same period in
the prior year. The decrease in the actual allowance level of $61,000 or 3.4% to
$1.72  million at September 30, 2004 from $1.78 million at December 31, 2003 was
a result  of the  decrease  in loans  receivable  of $6.7  million  offset by an
increase in charged-off loans and a decrease in recoveries.  Nonperforming loans
also  decreased  $85,000 or 6.4% to $1.2 million at September 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 and the
restructure  of a  commercial  customer  relationship  which  is now  considered
performing.

NONINTEREST  INCOME.  Noninterest  income  increased  $259,000  or 19.7% to $1.6
million  during the nine  months  ended  September  30,  2004,  compared to $1.3
million  during  the  same  period  in the  prior  year.  This  increase  can be
attributed to the increase in customer service fees,  commissions,  gains on the
sale of  marketable  equity  securities  and  loans  held  for  sale  and  other
noninterest  income  of  $59,000,  $11,000,   $142,000,   $14,000  and  $41,000,
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.  Also
contributing  to  the  increase  in  noninterest  income  was  the  increase  in
commissions  earned of $11,000  resulting  from the  addition of the  investment
advisory  services in July 2004.  The increase in gains on loans sold of $34,000
was the result of the sale of our student  loan  portfolio  in  September  2004.
Offsetting this favorable variance was a decrease in earnings on bank-owned life
insurance of $8,000.

NONINTEREST  EXPENSE.  Noninterest  expense  increased  $249,000 or 4.4% to $5.9
million  during the nine  months  ended  September  30,  2004,  compared to $5.7
million  during the same period in the prior year.  This increase in noninterest
expense can be attributed to increases in  compensation  and benefits,  premises
and equipment  expense and other  noninterest  expense of $61,000,  $133,000 and
$137,000,  respectively.  This unfavorable  variance was offset by a decrease in
intangible amortization expense of $82,000.

Compensation  and employee  benefits expense  increased  $61,000 to $3.3 million
during the nine months ended  September  30, 2004,  compared to $3.2 million for
the same period in the prior year.  Contributing to this variance were increases
in  employee  and  officer  salaries,  payroll  taxes,  employee  insurance  and
directors  fees.  Offsetting  this  unfavorable  variance  was the  decrease  in
employee  retirement  costs,  training  expenses,  employee  incentive costs and
deferred loan fees associated with salaries.

Premises and equipment  expense  increased  $133,000 or 16.9% to $919,000 during
the nine months  ended  September  30,  2004,  compared to $786,000 for the same
period in the prior year. This increase can be primarily attributed to increased
building and equipment  depreciation  expenses and other  building and equipment
expenses of $21,000, $83,000, $11,000 and $19,000, 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 and utilities of $17,000 and $3,000,  respectively.  The
decrease  in office rent is a direct  result of the closing of our Clarion  Mall
office in March 2003.

Intangible amortization expense decreased $82,000 or 76.6% to $25,000 during the
nine months ended  September 30, 2004,  compared to $107,000 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.  Offsetting  this  decrease  was an  increase  in the
amortization of $1,000 for the newly acquired customer  relationship  intangible
associated with the addition of the investment  advisory  services (see comments
in Changes in Financial Condition above) in July 2004.

Other noninterest  expense increased $137,000 or 8.7% to $1.7 million during the
nine months  ended  September  30,  2004,  compared to $1.6 million for the same
period in the prior year. This increase can be attributed primarily to increases
in professional fees, telephone and communication expenses, Pennsylvania use tax
expense,  software  depreciation  and   correspondent/courier   fees.  Partially
offsetting  these  unfavorable  variances were decreases in Pennsylvania  shares
taxes,  travel and  entertainment  expenses and postage expenses between the two
periods.


                                       16
<PAGE>


PROVISION FOR INCOME TAXES. The provision for income taxes decreased $252,000 or
43.1% to $333,000 for the nine months  ended  September  30,  2004,  compared to
$585,000 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 nine  month  period  ending
September 30, 2004 and 2003.

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 nine months
ended September 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 $16.4  million,  and
standby letters of credit totaling $644,000.

At September 30, 2004, time deposits  amounted to $112.3 million or 48.8% of the
Corporation's  total  consolidated  deposits,   including   approximately  $43.4
million,  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 September 30, 2004, the Corporation's  borrowing  capacity
with the FHLB, net of funds borrowed, was $92.7 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.

                                       17
<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 September 30, 2004, the  Corporation's  interest-earning  assets  maturing or
repricing  within  one  year  totaled  $85.6  million  while  the  Corporation's
interest-bearing  liabilities  maturing or  repricing  within  one-year  totaled
$123.2  million,  providing  an  excess  of  interest-bearing  liabilities  over
interest-earning assets of $37.7 million or a negative 13.9% of total assets. At
September 30, 2004,  the percentage of the  Corporation's  assets to liabilities
maturing or repricing within one year was 69.4%.

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, 2003.

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  September  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.

                                       18
<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

None.

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  October  22, 2004 to announce
         third quarter 2004  earnings.  The  Corporation  filed a Form 8-K dated
         October 26, 2004 to announce the election and retirement of Directors.

                                       19
<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:  November 10, 2004        BY:      /S/ DAVID L. COX
                                --------------------------------------------
                                David L. Cox
                                Chairman of the Board,
                                President and Chief Executive Officer

Date:  November 10, 2004        BY:      /S/ SHELLY L. RHOADES
                                --------------------------------------------
                                Treasurer
                                (Principal Financial and Accounting Officer)


                                       20