UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q




(Mark
One)




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





For the
quarterly period ended March 31,
2010





or





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





For the
transition period from _____________ to _____________





Commission
File Number:  000-18464





EMCLAIRE
FINANCIAL CORP.


(Exact
name of registrant as specified in its charter)


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




(724)
867-2311


(Registrant’s
telephone number)








(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes oNo o





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






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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o  No x





The
number of shares outstanding of the Registrant’s common stock was 1,431,404 at
May 10, 2010.













EMCLAIRE
FINANCIAL CORP.





INDEX
TO QUARTERLY REPORT ON FORM 10-Q





PART I – FINANCIAL
      INFORMATIONItem
      1.
              
              Interim
      Financial Statements (Unaudited)Consolidated
      Balance Sheets as ofMarch
      31, 2010 and December 31, 2009
              
              1Consolidated
      Statements of Operations for the threemonths
      ended March 31, 2010 and 2009
              
              2Consolidated
      Statements of Cash Flows for the threemonths
      ended March 31, 2010 and 2009
              
              3Consolidated
      Statements of Changes in Stockholders’Equity
      for the three months ended March 31, 2010 and 2009
              
              4Notes
      to Consolidated Financial Statements
              
              5Item
      2.
              
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              14Item
      3.
              
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              22Item
      4T.
              
              Controls
      and Procedures
              
              23PART
      II – OTHER INFORMATIONItem
      1.
              
              Legal
      Proceedings
              
              23Item
      1A.
              
              Risk
      Factors
              
              23Item
      2.
              
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              23Item
      3.
              
              Defaults
      Upon Senior Securities
              
              23Item
      4.
              
              (Removed
      and Reserved)
              
              23Item
      5.
              
              Other
      Information
              
              23Item
      6.
              
              Exhibits
              
              23Signatures
              
              24







PART I - FINANCIAL
INFORMATION





Item 1.  Interim
Financial Statements





Emclaire
Financial Corp.


Consolidated
Balance Sheets (Unaudited)


As of
March 31, 2010 and December 31, 2009


(Dollar
amounts in thousands, except share data)


March
      31,
              
              
              December
      31,2010
              
              
              2009AssetsCash
      and due from banks
              
              $
              2,593
              
              
              $
              2,822Interest
      earning deposits with banks
              
              
              24,920
              
              
              
              36,130Cash
      and cash equivalents
              
              
              27,513
              
              
              
              38,952Securities
      available for sale, at fair value
              
              
              130,946
              
              
              
              105,243Loans
      receivable, net of allowance for loan losses of $3,174 and
      $3,202
              
              
              291,282
              
              
              
              292,615Federal
      bank stocks, at cost
              
              
              4,125
              
              
              
              4,125Bank-owned
      life insurance
              
              
              5,439
              
              
              
              5,388Accrued
      interest receivable
              
              
              1,706
              
              
              
              1,574Premises
      and equipment, net
              
              
              9,096
              
              
              
              9,170Goodwill
              
              
              3,664
              
              
              
              3,657Core
      deposit intangible
              
              
              2,433
              
              
              
              2,585Prepaid
      expenses and other assets
              
              
              4,332
              
              
              
              4,217Total
      Assets
              
              $
              480,536
              
              
              $
              467,526Liabilities and Stockholders'
      EquityLiabilities:Deposits:Non-interest
      bearing
              
              $
              74,417
              
              
              $
              67,033Interest
      bearing
              
              
              325,245
              
              
              
              318,292Total
      deposits
              
              
              399,662
              
              
              
              385,325Short-term
      borrowed funds
              
              
              5,000
              
              
              
              5,000Long-term
      borrowed funds
              
              
              35,000
              
              
              
              35,000Accrued
      interest payable
              
              
              729
              
              
              
              711Accrued
      expenses and other liabilities
              
              
              2,415
              
              
              
              4,456Total
      Liabilities
              
              
              442,806
              
              
              
              430,492Commitments
      and Contingent Liabilities
              
              
              -
              
              
              
              -Stockholders'
      Equity:Cumulative
      preferred stock, $1.00 par value, $7,500 liquidation
value,3,000,000
      shares authorized; 7,500 issued and outstanding
              
              
              7,434
              
              
              
              7,430Warrants
              
              
              88
              
              
              
              88Common
      stock, $1.25 par value, 12,000,000 shares authorized;1,559,421
      shares issued; 1,431,404 shares outstanding
              
              
              1,949
              
              
              
              1,949Additional
      paid-in capital
              
              
              14,726
              
              
              
              14,685Treasury
      stock, at cost; 128,017 shares
              
              
              (2,653
              )
              
              
              (2,653
              )Retained
      earnings
              
              
              16,351
              
              
              
              15,967Accumulated
      other comprehensive loss
              
              
              (165
              )
              
              
              (432
              )Total
      Stockholders' Equity
              
              
              37,730
              
              
              
              37,034Total
      Liabilities and Stockholders' Equity
              
              $
              480,536
              
              
              $
              467,526




See
accompanying notes to consolidated financial statements.




1




Emclaire
Financial Corp.


Consolidated
Statements of Operations (Unaudited)


For the
three months ended March 31, 2010 and 2009


(Dollar
amounts in thousands, except per share data)




For
      the three months endedMarch
      31,2010
              
              
              2009Interest
      and dividend income:Loans
      receivable, including fees
              
              $
              4,413
              
              
              $
              4,236Securities:Taxable
              
              
              608
              
              
              
              529Exempt
      from federal income tax
              
              
              265
              
              
              
              152Federal
      bank stocks
              
              
              11
              
              
              
              5Interest
      earning deposits with banks
              
              
              84
              
              
              
              89Total
      interest and dividend income
              
              
              5,381
              
              
              
              5,011Interest
      expense:Deposits
              
              
              1,426
              
              
              
              1,540Borrowed
      funds
              
              
              446
              
              
              
              410Total
      interest expense
              
              
              1,872
              
              
              
              1,950Net
      interest income
              
              
              3,509
              
              
              
              3,061Provision
      for loan losses
              
              
              128
              
              
              
              297Net
      interest income after provision for loan losses
              
              
              3,381
              
              
              
              2,764Noninterest
      income:Fees
      and service charges
              
              
              322
              
              
              
              340Commissions
      on financial services
              
              
              180
              
              
              
              83Title
      premiums
              
              
              18
              
              
              
              2Net
      gain on sale of available for sale securities
              
              
              99
              
              
              
              56Net
      gain on sale of loans
              
              
              -
              
              
              
              4Earnings
      on bank-owned life insurance
              
              
              58
              
              
              
              56Other
              
              
              165
              
              
              
              179Total
      noninterest income
              
              
              842
              
              
              
              720Noninterest
      expense:Compensation
      and employee benefits
              
              
              1,830
              
              
              
              1,438Premises
      and equipment
              
              
              550
              
              
              
              481Intangible
      amortization expense
              
              
              152
              
              
              
              -Professional
      fees
              
              
              114
              
              
              
              173FDIC
      expense
              
              
              141
              
              
              
              44Other
              
              
              604
              
              
              
              486Total
      noninterest expense
              
              
              3,391
              
              
              
              2,622Income
      before income taxes
              
              
              832
              
              
              
              862Provision
      for income taxes
              
              
              150
              
              
              
              194Net
      income
              
              
              682
              
              
              
              668Accumulated
      preferred stock dividends and discount accretion
              
              
              98
              
              
              
              98Net
      income available to common stockholders
              
              $
              584
              
              
              $
              570Basic
      and diluted earnings per common share
              
              $
              0.41
              
              
              $
              0.40Average
      common shares outstanding
              
              
              1,431,404
              
              
              
              1,431,404




See
accompanying notes to consolidated financial statements.




2




Emclaire
Financial Corp.


Condensed
Consolidated Statements of Cash Flows (Unaudited)


For the
three months ended March 31, 2010 and 2009


(Dollar
amounts in thousands)




For
      the three months endedMarch
      31,2010
              
              
              2009Cash
      flows from operating activitiesNet
      income
              
              $
              682
              
              
              $
              668Adjustments
      to reconcile net income to net cash providedby (used in)
      operating activities:Depreciation
      and amortization of premises and equipment
              
              
              216
              
              
              
              196Provision
      for loan losses
              
              
              128
              
              
              
              297Net
      amortization (accretion)
              
              
              (16
              )
              
              
              9Amortization
      of intangible assets and mortgage servicing rights
              
              
              156
              
              
              
              4Realized
      gains on sales of available for sale securities, net
              
              
              (99
              )
              
              
              (56
              )Net
      gains on sales of loans
              
              
              -
              
              
              
              (4
              )Net
      losses on foreclosed real estate
              
              
              32
              
              
              
              -Originations
      of loans sold
              
              
              -
              
              
              
              (159
              )Proceeds
      from the sale of loans
              
              
              -
              
              
              
              163Restricted
      stock and stock option compensation
              
              
              41
              
              
              
              24Increase
      in bank-owned life insurance, net
              
              
              (51
              )
              
              
              (50
              )(Increase)
      decrease in accrued interest receivable
              
              
              (132
              )
              
              
              164Increase
      in prepaid expenses and other assets
              
              
              (275
              )
              
              
              (4
              )Increase
      in accrued interest payable
              
              
              18
              
              
              
              6Decrease
      in accrued expenses and other liabilities
              
              
              (45
              )
              
              
              (855
              )Net
      cash provided by operating activities
              
              
              655
              
              
              
              403Cash
      flows from investing activitiesLoan
      originations and principal collections, net
              
              
              1,149
              
              
              
              (9,591
              )Available
      for sale securities:Sales
              
              
              5,080
              
              
              
              4,107Maturities,
      repayments and calls
              
              
              17,013
              
              
              
              18,193Purchases
              
              
              (49,272
              )
              
              
              (3,998
              )Proceeds
      from the sale of foreclosed real estate
              
              
              35
              
              
              
              16Purchases
      of premises and equipment
              
              
              (142
              )
              
              
              (452
              )Net
      cash provided by (used in) investing activities
              
              
              (26,137
              )
              
              
              8,275Cash
      flows from financing activitiesNet
      increase in deposits
              
              
              14,337
              
              
              
              8,543Net
      change in borrowings
              
              
              -
              
              
              
              (1,188
              )Dividends
      paid
              
              
              (294
              )
              
              
              (512
              )Net
      cash provided by financing activities
              
              
              14,043
              
              
              
              6,843Increase
      (decrease) in cash and cash equivalents
              
              
              (11,439
              )
              
              
              15,521Cash
      and cash equivalents at beginning of period
              
              
              38,952
              
              
              
              16,571Cash
      and cash equivalents at end of period
              
              $
              27,513
              
              
              $
              32,092Supplemental
      information:Interest
      paid
              
              $
              1,854
              
              
              $
              1,944Income
      taxes paid
              
              
              100
              
              
              
              -Supplemental
      noncash disclosure:Transfers
      from loans to foreclosed real estate
              
              
              51
              
              
              
              76




See
accompanying notes to consolidated financial statements.




3




Emclaire
Financial Corp.


Consolidated
Statements of Changes in Stockholders’ Equity (Unaudited)


For the
three months ended March 31, 2010 and 2009


(Dollar
amounts in thousands, except per share data)





For
      the three months endedMarch
      31,2010
              
              
              2009Balance
      at beginning of period
              
              $
              37,034
              
              
              $
              36,123Net
      income
              
              
              682
              
              
              
              668Other
      comprehensive income (loss):Change
      in net unrealized gains (losses) on available for salesecurities,
      net of taxes
              
              
              332
              
              
              
              (93
              )Less:
      reclassification adjustment for gains includedin
      net income, net of taxes
              
              
              65
              
              
              
              37Other
      comprehensive income (loss)
              
              
              267
              
              
              
              (130
              )Total
      comprehensive income
              
              
              949
              
              
              
              538Stock
      compensation expense
              
              
              41
              
              
              
              24Dividends
      declared on preferred stock
              
              
              (94
              )
              
              
              (54
              )Dividends
      declared on common stock
              
              
              (200
              )
              
              
              (458
              )Balance
      at end of period
              
              $
              37,730
              
              
              $
              36,173Common
      cash dividend per share
              
              $
              0.14
              
              
              $
              0.32


See
accompanying notes to consolidated financial statements.




4


Emclaire
Financial Corp.


Notes to
Consolidated Financial Statements (Unaudited)





1.
            Nature
      of Operations and Basis of
Presentation.





Emclaire
Financial Corp. (the “Corporation”) is a Pennsylvania company and the holding
company of Farmers National Bank of Emlenton (the “Bank”) and Emclaire
Settlement Services, LLC (the “Title Company”).  The Corporation
provides a variety of financial products and services to individuals and
businesses through its offices in western Pennsylvania.  Its primary
deposit products are checking, savings and certificate of deposit accounts and
its primary lending products are residential and commercial mortgages,
commercial business and consumer loans.





The
consolidated financial statements include the accounts of the Corporation and
its wholly owned subsidiaries, the Bank and the Title Company.  All
significant intercompany transactions and balances have been eliminated in
preparing the consolidated financial statements.





The
accompanying unaudited consolidated financial statements for the interim periods
include all adjustments, consisting of normal recurring accruals, which are
necessary, in the opinion of management, to fairly reflect the Corporation’s
consolidated financial position and results of
operations.  Additionally, these consolidated financial statements for
the interim periods have been prepared in accordance with instructions for the
Securities and Exchange Commission’s (SEC’s) Form 10-Q and Article 10 of
Regulation S-X and therefore do not include all information or footnotes
necessary for a complete presentation of financial condition, results of
operations and cash flows in conformity with accounting principles generally
accepted in the United States of America (GAAP).  For further
information, refer to the audited consolidated financial statements and
footnotes thereto for the year ended December 31, 2009, as contained in the
Corporation’s 2009 Annual Report on Form 10-K filed with the SEC.





The
balance sheet at December 31, 2009 has been derived from the audited financial
statements at that date but does not include all the information and footnotes
required by GAAP for complete financial statements.





The
preparation of financial statements, in conformity with GAAP, requires
management to make estimates and assumptions that affect the reported amounts in
the consolidated financial statements and accompanying notes.  Actual
results could differ from those estimates.  Material estimates that
are particularly susceptible to significant change in the near term relate to
the determination of the allowance for loan losses, fair value of financial
instruments, goodwill, the valuation of deferred tax assets and
other-than-temporary impairment charges on securities.  The results of
operations for interim quarterly or year to date periods are not necessarily
indicative of the results that may be expected for the entire year or any other
period.  Certain amounts previously reported may have been
reclassified to conform to the current year’s financial statement
presentation.





2.
            Earnings
      per Common Share.





Basic
earnings per common share (EPS) excludes dilution and is computed by dividing
net income available to common shareholders by the weighted average number of
common shares outstanding during the period.  Diluted EPS reflects the
potential dilution that could occur if securities or contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the
Corporation.  Options and restricted stock awards of 108,750 shares of
common stock and warrants to purchase 50,111 shares of common stock were not
included in computing diluted earnings per share because their cumulative
effects were not dilutive for the three month period ended March 31, 2010 and
2009.




5


4.
            Securities.





The
following table summarizes the Corporation’s securities as of March 31, 2010 and
December 31, 2009:





(Dollar
      amounts in thousands)
              
              Amortized
              
              
              Unrealized
              
              
              Unrealized
              
              
              Faircost
              
              
              gains
              
              
              losses
              
              
              valueAvailable for
      sale:March
      31, 2010:U.S.
      Treasury and federal agency
              
              $
              2,977
              
              
              $
              44
              
              
              $
              -
              
              
              $
              3,021U.S.
      government sponsored entities and agencies
              
              
              66,992
              
              
              
              102
              
              
              
              (111
              )
              
              
              66,983Mortgage-backed
      securities: residential
              
              
              27,982
              
              
              
              228
              
              
              
              (35
              )
              
              
              28,175Collateralized
      mortgage obligations
              
              
              3,077
              
              
              
              -
              
              
              
              (11
              )
              
              
              3,066State
      and political subdivisions
              
              
              26,059
              
              
              
              777
              
              
              
              (11
              )
              
              
              26,825Equity
      securities
              
              
              3,003
              
              
              
              54
              
              
              
              (181
              )
              
              
              2,876$
              130,090
              
              
              $
              1,205
              
              
              $
              (349
              )
              
              $
              130,946December
      31, 2009:U.S.
      Treasury and federal agency
              
              $
              2,976
              
              
              $
              25
              
              
              $
              -
              
              
              $
              3,001U.S.
      government sponsored entities and agencies
              
              
              50,953
              
              
              
              113
              
              
              
              (269
              )
              
              
              50,797Mortgage-backed
      securities: residential
              
              
              16,459
              
              
              
              109
              
              
              
              (38
              )
              
              
              16,530Collateralized
      mortgage obligations
              
              
              5,130
              
              
              
              4
              
              
              
              (4
              )
              
              
              5,130State
      and political subdivisions
              
              
              26,271
              
              
              
              696
              
              
              
              -
              
              
              
              26,967Equity
      securities
              
              
              3,003
              
              
              
              -
              
              
              
              (185
              )
              
              
              2,818$
              104,792
              
              
              $
              947
              
              
              $
              (496
              )
              
              $
              105,243


The
following table summarizes scheduled maturities of the Corporation’s securities
as of March 31, 2010:





(Dollar
      amounts in thousands)
              
              Available
      for saleAmortized
              
              
              Faircost
              
              
              valueDue
      in one year or less
              
              $
              266
              
              
              $
              272Due
      after one year through five years
              
              
              65,514
              
              
              
              65,573Due
      after five through ten years
              
              
              21,149
              
              
              
              21,621Due
      after ten years
              
              
              40,158
              
              
              
              40,604No
      scheduled maturity
              
              
              3,003
              
              
              
              2,876$
              130,090
              
              
              $
              130,946


Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.




6


4.
            Securities
      (continued).





Information
pertaining to securities with gross unrealized losses as of March 31, 2010 and
December 31, 2009, aggregated by investment category and length of time that
individual securities have been in a continuous loss position,
follows:





(Dollar
      amounts in thousands)
              
              Less
      than 12 Months
              
              
              12
      Months or More
              
              
              TotalFair
              
              
              Unrealized
              
              
              Fair
              
              
              Unrealized
              
              
              Fair
              
              
              UnrealizedDescription
      of Securities
              
              Value
              
              
              Loss
              
              
              Value
              
              
              Loss
              
              
              Value
              
              
              LossMarch
      31,  2010:U.S.
      government sponsored entities and agencies
              
              $
              36,395
              
              
              $
              (111
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              36,395
              
              
              $
              (111
              )Mortgage-backed
      securities: residential
              
              
              11,873
              
              
              
              (35
              )
              
              
              -
              
              
              
              -
              
              
              
              11,873
              
              
              
              (35
              )Collateralized
      mortgage obligations
              
              
              1,247
              
              
              
              (5
              )
              
              
              774
              
              
              
              (6
              )
              
              
              2,021
              
              
              
              (11
              )State
      and political subdivisions
              
              
              344
              
              
              
              (11
              )
              
              
              -
              
              
              
              -
              
              
              
              344
              
              
              
              (11
              )Equity
      securities
              
              
              932
              
              
              
              (105
              )
              
              
              685
              
              
              
              (76
              )
              
              
              1,617
              
              
              
              (181
              )$
              50,791
              
              
              $
              (267
              )
              
              $
              1,459
              
              
              $
              (82
              )
              
              $
              52,250
              
              
              $
              (349
              )December
      31, 2009:U.S.
      government sponsored entities and agencies
              
              $
              32,716
              
              
              $
              (269
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              32,716
              
              
              $
              (269
              )Mortgage-backed
      securities: residential
              
              
              1,961
              
              
              
              (38
              )
              
              
              -
              
              
              
              -
              
              
              
              1,961
              
              
              
              (38
              )Collateralized
      mortgage obligations
              
              
              1,275
              
              
              
              (2
              )
              
              
              910
              
              
              
              (2
              )
              
              
              2,185
              
              
              
              (4
              )Equity
      securities
              
              
              1,341
              
              
              
              (110
              )
              
              
              686
              
              
              
              (75
              )
              
              
              2,027
              
              
              
              (185
              )$
              37,293
              
              
              $
              (419
              )
              
              $
              1,596
              
              
              $
              (77
              )
              
              $
              38,889
              
              
              $
              (496
              )


Management
evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic, market or other concerns warrant such
evaluation.  Consideration is given to: (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer and (3) the intent of the
Corporation to sell the security, and (4) whether it is more likely than not the
Corporation will have to sell the security before recovery of its cost
basis.





The
following table presents information related to the Corporation’s gains and
losses on the sales of equity and debt securities, and losses recognized for the
other-than-temporary impairment of investments:





(Dollar
      amounts in thousands)
            
            Gross
      Realized
            
            
            Gross
      Realized
            
            
            Other-than-temporary
                Impairment
            
            
            Net
      GainsGains
            
            
            Losses
            
            
            Losses
            
            
            (Losses)Three
      months ended March 31, 2010:Equity
      securities
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Debt
      securities
            
            
            99
            
            
            
            -
            
            
            
            -
            
            
            
            99$
            99
            
            
            $
            -
            
            
            $
            -
            
            
            $
            99Three
      months ended March 31, 2009:Equity
      securities
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Debt
      securities
            
            
            56
            
            
            
            -
            
            
            
            -
            
            
            
            56$
            56
            
            
            $
            -
            
            
            $
            -
            
            
            $
            56




7




4.
            Securities
      (continued).





There
were five equity and thirty-four debt securities in an unrealized loss
position as of March 31, 2010.  Equity securities owned by the
Corporation consist of common stock of various financial service
providers.  These investment securities have traditionally been
high-performing stocks and are in an unrealized loss position as a result of
recent market volatility.  The Corporation does not invest in these
securities with the intent to sell them for a profit in the near term and
believes these securities have potential to appreciate in value over the
long-term, while providing for a reasonable dividend yield.  For
investments in equity securities, in addition to the general factors mentioned
above for determining whether the decline in market value is
other-than-temporary, the analysis of whether an equity security is
other-than-temporarily impaired includes a review of the profitability and
capital adequacy and all information available to determine the financial
position and near term prospects of each issuer.  Based on that
evaluation, and given that the Corporation’s current intention is not to sell
any impaired securities and it is more likely than not it will not be required
to sell these securities before the recovery of its amortized cost basis, the
Corporation does not consider the equity securities with unrealized losses as of
March 31, 2010 to be other-than-temporarily impaired.





For debt
securities, an additional and critical component of the evaluation for
other-than-temporary impairment is the identification of credit-related
impairment of securities where it is likely that the Corporation will not
receive cash flows sufficient to recover the entire amortized cost basis of the
security.  Based on that evaluation and other general considerations,
and given that the Corporation’s current intention is not to sell any impaired
securities and it is more likely than not it will not be required to sell these
securities before the recovery of its amortized cost basis, the Corporation does
not consider the debt securities with unrealized losses as of March 31, 2010 to
be other-than-temporarily impaired.





5.
            Loans
      Receivable.





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





(Dollar
      amounts in thousands)
              
              March
      31,
              
              
              December
      31,2010
              
              
              2009Mortgage
      loans on real estate:Residential
      first mortgages
              
              $
              74,837
              
              
              $
              74,099Home
      equity loans and lines of credit
              
              
              76,221
              
              
              
              77,284Commercial
      real estate
              
              
              89,282
              
              
              
              89,952240,340
              
              
              
              241,335Other
      loans:Commercial
      business
              
              
              41,473
              
              
              
              41,588Consumer
              
              
              12,643
              
              
              
              12,89454,116
              
              
              
              54,482Total
      loans, gross
              
              
              294,456
              
              
              
              295,817Less
      allowance for loan losses
              
              
              3,174
              
              
              
              3,202Total
      loans, net
              
              $
              291,282
              
              
              $
              292,615Nonaccrual
      loans
              
              $
              3,136
              
              
              $
              2,359Loans
      90 days or more past due and still accruing
              
              
              101
              
              
              
              59Total
      nonperforming loans
              
              $
              3,237
              
              
              $
              2,418
  8


6.
            Goodwill
      and Intangible Assets.





The
following table summarizes the Corporation’s acquired goodwill and intangible
assets as of March 31, 2010 and December 31, 2009:





(Dollar
      amounts in thousands)
              
              March
      31, 2010
              
              December
      31, 2009Gross
      Carrying Amount
              
              Accumulated
      Amortization
              
              Gross
      Carrying Amount
              
              Accumulated
      AmortizationGoodwill
              
              $
              3,664
              
              $
              -
              
              $
              3,657
              
              $
              -Core
      deposit intangibles
              
              
              4,027
              
              
              1,595
              
              
              4,027
              
              
              1,443Total
              
              $
              7,691
              
              $
              1,595
              
              $
              7,684
              
              $
              1,443


During
the third quarter of 2009, the Corporation recorded goodwill and a core deposit
intangible of $2.2 million and $2.8 million, respectively, associated with a
branch purchase transaction.  Goodwill is not amortized but is
evaluated for impairment on an annual basis or whenever events or changes in
circumstances indicate the carrying value may not be recoverable.  No
goodwill impairment charges were recorded during 2009 or in the first quarter of
2010.  The core deposit intangible asset is amortized using the double
declining balance method over a weighted average estimated life of nine years
and is not estimated to have a significant residual value.  During the
first three months of 2010, the Corporation recorded intangible amortization
expense totaling $152,000.





7.
            Employee Benefit
      Plans.





The
Corporation maintains a defined contribution 401(k) Plan.  Eligible
employees participate by providing tax-deferred contributions up to 20% of
qualified compensation.  Employee contributions are vested at all
times.  The Corporation provides a matching contribution of up to 4%
of the participant’s salary.  Matching contributions for the three
months ended March 31, 2010 and 2009 amounted to $43,000 and $37,000,
respectively.





The
Corporation provides pension benefits for eligible employees through a defined
benefit pension plan.  Substantially all full-time employees
participate in the retirement plan on a non-contributing basis and are fully
vested after three years of service.  Effective January 1, 2009, the
plan was closed to new participants.





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





The
components of the periodic pension cost are as follows:





(Dollar
      amounts in thousands)
              
              For
      the three months ended
              
              
              Year
      endedMarch
      31,
              
              
              December
      31,2010
              
              
              2009
              
              
              2009Service
      cost
              
              $
              79
              
              
              $
              62
              
              
              $
              296Interest
      cost
              
              
              75
              
              
              
              75
              
              
              
              281Expected
      return on plan assets
              
              
              (79
              )
              
              
              (66
              )
              
              
              (258
              )Prior
      service costs
              
              
              (8
              )
              
              
              (8
              )
              
              
              (31
              )Recognized
      net actuarial loss
              
              
              12
              
              
              
              27
              
              
              
              75Net
      periodic pension cost
              
              $
              79
              
              
              $
              90
              
              
              $
              363


The
Corporation previously disclosed in its financial statements for the year ended
December 31, 2009 that it expected to contribute $425,000 to its pension plan in
2010.  As of March 31, 2010, there have been no
contributions.  The Corporation presently anticipates contributing
$425,000 to its pension plan in 2010.




9


8.
            Stock
      Compensation Plans.





The
Corporation’s 2007 Stock Incentive Plan and Trust (the Plan), which is
shareholder-approved, permits the grant of restricted stock awards and options
to its directors, officers and employees for up to 177,496 shares of common
stock.  Incentive stock options, non-incentive or compensatory stock
options and share awards may be granted under the Plan.  The exercise
price of each option shall at least equal the market price of a share of common
stock on the date of grant and have a contractual term of ten
years.  Options shall vest and become exercisable at the rate, to the
extent and subject to such limitations as may be specified by the
Corporation.  Compensation cost related to share-based payment
transactions must be recognized in the financial statements with measurement
based upon the fair value of the equity or liability instruments
issued.





A summary
of option activity under the Plan as of March 31, 2010, and changes during the
period then ended is presented below:





Options
              
              
              Weighted- Average Exercise
      Price
              
              
              Aggregate Intrinsic
      Value
              
              
              Weighted-Average Remaining Term (in
      years)Outstanding
      as of January 1, 2010
              
              
              96,250
              
              
              $
              24.79
              
              
              $
              -
              
              
              
              7.8Granted
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Outstanding
      as of March 31, 2010
              
              
              96,250
              
              
              $
              24.79
              
              
              $
              -
              
              
              
              7.6Exercisable
      as of March 31, 2010
              
              
              -
              
              
              $
              -
              
              
              $
              -
              
              
              
              -


A summary
of the status of the Corporation’s nonvested shares as of March 31, 2010, and
changes during the period then ended is presented below:





Weighted-AverageOptions
              
              
              Grant-date
      Fair ValueNonvested
      at January 1, 2010
              
              
              96,250
              
              
              $
              3.02Granted
              
              
              -
              
              
              
              -Vested
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Nonvested
      as of March 31, 2010
              
              
              96,250
              
              
              $
              3.02


During
the three month period ended March 31, 2010, the Corporation granted 1,250
restricted stock awards with a face value of $17,000 based on the grant date
stock price of $13.60.  In addition, the Corporation granted 4,500
shares of restricted stock awards in 2008 and 6,750 shares of restricted stock
awards in 2009 with face values of $101,000 and $91,000, respectively based on
the grant date stock prices of $22.50 and $13.50,
respectively.  Restricted stock awards are 100% vested on the third
anniversary date of the grant.





For the
three month periods ended March 31, 2009 and 2008, the Corporation recognized
$41,000 and $24,000, respectively, in stock compensation expense.  As
of March 31, 2010, there was $194,000 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plan.  That cost is expected to be recognized over the next three
years.




10


9.
            Fair
      Values of Financial Instruments.





Fair
value is the exchange price that would be received for an asset or paid to
transfer a liability (exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants
on the measurement date.  There are three levels of inputs that may be
used to measure fair value.





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





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





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





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





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





Available for sale securities– Fair value on available for sale securities is based upon quoted market
prices when available (Level 1).  If quoted market prices are not
available, fair values are measured utilizing independent valuation techniques
of identical or similar securities for which significant assumptions are derived
primarily from or corroborated by observable market data.  Third party
vendors compile prices from various sources and may determine the fair value of
identical or similar securities by using pricing models that consider observable
market data (Level 2).





Impaired loans – Loans are
designated as impaired when, in the judgment of management based on current
information and events, it is probable that all amounts due according to the
contractual terms of the loan agreement will not be collected.  Most
of the Corporation’s loans are collateral dependent and, accordingly, fair value
is measured based on the estimated fair market value of the collateral less the
estimate costs to sell.  Fair value of the loan’s collateral is
typically determined by appraisals or independent valuation (Level
3).  Upon management’s ongoing review, adjustments may be made to an
appraised value to reflect various factors such as the age of the appraisal,
known changes in the market or the collateral and management’s estimation of the
costs to sell.  As of March 31, 2010 and December 31, 2009, the fair
value consisted of loan balances of $808,000 and $590,000, respectively, net of
a valuation allowance of $139,000 and $128,000, respectively.  These
impaired loans consisted primarily of commercial real
estate.  Additional provision for loan losses of $62,000 was recorded
during the quarter ended March 31, 2010.




11


9.
            Fair
      Values of Financial Instruments
(continued).





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


(Dollar
      amounts in thousands)Description
              
              Total
              
              
              (Level 1) Quoted Prices in Active Markets for Identical Assets
              
              
              (Level 2) Significant Other Observable Inputs
              
              
              (Level 3) Significant Unobservable InputsMarch
      31, 2010:U.S.
      Treasury and federal agency
              
              $
              3,021
              
              
              $
              -
              
              
              $
              3,021
              
              
              $
              -U.S.
      government sponsored entities and agencies
              
              
              66,983
              
              
              
              -
              
              
              
              66,983
              
              
              
              -Mortgage-backed
      securities: residential
              
              
              28,175
              
              
              
              -
              
              
              
              28,175
              
              
              
              -Collateralized
      mortgage obligations
              
              
              3,066
              
              
              
              -
              
              
              
              3,066
              
              
              
              -State
      and political subdivision
              
              
              26,825
              
              
              
              -
              
              
              
              26,825
              
              
              
              -Equity
      securities
              
              
              2,876
              
              
              
              2,151
              
              
              
              725
              
              
              
              -$
              130,946
              
              
              $
              2,151
              
              
              $
              128,795
              
              
              $
              -December
      31, 2009:U.S.
      government sponsored entities and agencies
              
              $
              3,001
              
              
              $
              -
              
              
              $
              3,001
              
              
              $
              -Mortgage-backed
      securities: residential
              
              
              50,797
              
              
              
              -
              
              
              
              50,797
              
              
              
              -Collateralized
      mortgage obligations
              
              
              16,530
              
              
              
              -
              
              
              
              16,530
              
              
              
              -State
      and political subdivision
              
              
              5,130
              
              
              
              -
              
              
              
              5,130
              
              
              
              -Corporate
      securities
              
              
              26,967
              
              
              
              -
              
              
              
              26,967
              
              
              
              -Equity
      securities
              
              
              2,818
              
              
              
              2,093
              
              
              
              725
              
              
              
              -$
              105,243
              
              
              $
              2,093
              
              
              $
              103,150
              
              
              $
              -


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





(Dollar
      amounts in thousands)Description
                
                Total
                
                
                (Level
      1) Quoted Prices in Active Markets for Identical Assets
                
                
                (Level
      2) Significant Other Observable Inputs
                
                
                (Level
      3) Significant Unobservable InputsMarch
      31, 2010:Impaired
      loans
                
                $
                669
                
                
                $
                -
                
                
                $
                -
                
                
                $
                669$
                669
                
                
                $
                -
                
                
                $
                -
                
                
                $
                669December
      31, 2009:Impaired
      loans
                
                $
                462
                
                
                $
                -
                
                
                $
                -
                
                
                $
                462$
                462
                
                
                $
                -
                
                
                $
                -
                
                
                $
                462


12


9.
            Fair
      Values of Financial Instruments
(continued).





The
following table sets forth the carrying amount and fair value of the
Corporation’s financial instruments included in the consolidated balance sheet
as of March 31, 2010:





(Dollar
      amounts in thousands)
              
              March
      31, 2010
              
              
              December
      31, 2009Carrying
      amount
              
              
              Fair
      value
              
              
              Carrying
      amount
              
              
              Fair
      valueFinancial
      assets:Cash
      and cash equivalents
              
              $
              27,513
              
              
              $
              27,513
              
              
              $
              38,952
              
              
              $
              38,952Securities
              
              
              130,946
              
              
              
              130,946
              
              
              
              105,243
              
              
              
              105,243Loans
      receivable, net
              
              
              291,282
              
              
              
              297,606
              
              
              
              292,615
              
              
              
              298,197Federal
      bank stocks
              
              
              4,125
              
              
              
              N/A
              
              
              
              4,125
              
              
              
              N/AAccrued
      interest receivable
              
              
              1,706
              
              
              
              1,706
              
              
              
              1,574
              
              
              
              1,574Financial
      liabilities:Deposits
              
              
              399,662
              
              
              
              404,701
              
              
              
              385,325
              
              
              
              389,443Borrowed
      funds
              
              
              40,000
              
              
              
              43,303
              
              
              
              40,000
              
              
              
              43,258Accrued
      interest payable
              
              
              729
              
              
              
              729
              
              
              
              711
              
              
              
              711Off-balance
      sheet commitments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -


Management
uses its best judgment in estimating the fair value of the Corporation’s
financial instruments; however, there are inherent weaknesses in any estimation
technique.  Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amounts
the Corporation could have realized in a sale transaction on the dates
indicated.  The estimated fair value amounts have been measured as of
the dates shown and have not been re-evaluated or updated for purposes of these
financial statements subsequent to those respective dates.





This
information should not be interpreted as an estimate of the fair value of the
entire Corporation since a fair value calculation is only provided for a limited
portion of the Corporation’s assets and liabilities.  Due to a wide
range of valuation techniques and the degree of subjectivity used in making the
estimates, comparisons between the Corporation’s disclosures and those of other
companies may not be meaningful.  The following methods and
assumptions were used to estimate fair values of the Corporation’s financial
instruments at March 31, 2010 and December 31, 2009:





Carrying
amount is the estimated fair value for cash and cash equivalents, securities,
federal bank stocks, accrued interest receivable and payable, demand deposits,
borrowed funds, and variable rate loans or deposits that reprice frequently and
fully.  For fixed rate loans or deposits and for variable rate loans
or deposits with infrequent repricing or repricing limits, fair value is based
on discounted cash flows using current market rates applied to the estimated
life and credit risk.  Fair value of debt is based on current rates
for similar financing.  It was not practicable to determine the fair
value of federal bank stocks due to restrictions placed on the stocks
transferability.





Estimates
of the fair value of off-balance sheet items were not made because of the
short-term nature of these arrangements and the credit standing of the
counterparties.  Also, unfunded loan commitments relate principally to
variable rate commercial loans.  Therefore, the fair value of these
instruments is not material.


10.
            Adoption
      of New Accounting Standards.





In
January 2010, the Financial Accounting Standards Board (FASB) issued guidance
increasing fair value disclosure and to clarify some existing disclosure
requirements about fair value measurement  It requires separate
presentation of significant transfers into and out of Levels 1 and 2 of the fair
value hierarchy and disclosure of the reasons for such transfers.  It
will also require the presentation of purchases, sales, issuances and
settlements within Level 3 on a gross basis rather than a net
basis.  The amendments also clarify that disclosures should be
disaggregated by class of asset or liability and that disclosures about inputs
and valuation techniques should be provided for both recurring and non-recurring
fair value measurements.  These new disclosure requirements were
adopted by the Corporation during the current period, with the exception of the
requirement concerning gross presentation of Level 3 activity, which is
effective for fiscal years beginning after December 15, 2010.  With
respect to the portions of this amendment that were adopted during the current
period, the adoption of this standard did not have a significant impact on the
Corporation’s consolidated financial statements.  The Corporation
believes that the adoption of the remaining portion of this amendment will not
have a significant impact on the consolidated financial statements.


13


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





This
section discusses the consolidated financial condition and results of operations
of Emclaire Financial Corp. and its wholly owned subsidiaries, the Bank and the
Title Company, for the three months ended March 31, 2010, compared to the same
period in 2009 and should be read in conjunction with the Corporation’s December
31, 2009 Annual Report on Form 10-K filed with the SEC and with the accompanying
consolidated financial statements and notes presented on pages 1 through 14 of
this Form 10-Q.





This Form
10-Q, including the financial statements and related notes, contains forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, or the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act.  These forward
looking statements represent plans, estimates, objectives, goals, guidelines,
expectations, intentions, projections and statements of our beliefs concerning
future events, business plans, objectives, expected operating results and the
assumptions upon which those statements are based.  Forward looking
statements include without limitation, any statement that may predict, forecast,
indicate or imply future results, performance or achievements, and are typically
identified with words such as “may,” “could,” “should,” “will,” “would,”
“believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” or words or
phrases of similar meaning.  We caution that the forward looking
statements are based largely on our expectations and are subject to a number of
known and unknown risks and uncertainties that are subject to change based on
factors which are, in many instances, beyond our control.  Actual
results, performances or achievements could differ materially from those
contemplated, expressed or implied by the forward looking
statements.  Therefore, we caution you not to place undue reliance on
our forward looking information and statements.  Except as required by
applicable law or regulation, we will not update the forward looking statements
to reflect actual results or changes in factors affecting the forward looking
statements.





CHANGES
IN FINANCIAL CONDITION





Total
assets increased $13.0 million or 2.8% to $480.5 million at March 31, 2010 from
$467.5 million at December 31, 2009.  This increase resulted from an
increase in securities of $25.7 million, partially offset by decreases in cash
and cash equivalents and loans receivable, net of allowance for loan losses, of
$11.4 million and $1.3 million, respectively.  The net increase in the
Corporation’s assets was primarily funded by increases in customer
deposits.





Total
liabilities increased $12.3 million or 2.9% to $442.8 million at March 31, 2010
from $430.5 million at December 31, 2009, while total stockholders’ equity
increased $696,000 or 1.9% to $37.7 million at March 31, 2010 from $37.0 million
at December 31, 2009.  The increase in total liabilities resulted
primarily from increases in customer deposits.




14


RESULTS
OF OPERATIONS





Comparison
of Results for the Three Month Period Ended March 31, 2010 and 2009





General.  Net income
increased $14,000 or 2.1% to $682,000 for the three months ended March 31, 2010
from $668,000 for the same period in 2009.  This $14,000 increase was
the result of increases in net interest income and noninterest income of
$448,000 and $122,000, respectively, and decreases in the provision for loan
losses and the provision for income taxes of $169,000 and $44,000,
respectively.  Partially offsetting these favorable items, noninterest
expense increased $769,000.





Net interest
income.  Net interest income on a tax equivalent basis
increased $479,000 or 15.1% to $3.7 million for the three months ended March 31,
2010 from $3.2 million for the same period in 2009.  This net increase
can be attributed to an increase in tax equivalent interest income of $401,000
and a decrease in interest expense of $78,000.





Interest
income.  Interest income on a tax equivalent basis increased
$401,000 or 7.8% to $5.5 million for the three months ended March 31, 2010,
compared to $5.1 million for the same period in the prior year.  This
increase can be attributed to increases in interest on loans, securities and
federal bank stock dividends of $159,000, $241,000 and $6,000, respectively,
partially offset by a decrease in interest-earning deposits with banks of
$5,000.





Tax
equivalent interest earned on loans receivable increased $159,000 or 3.7% to
$4.4 million for the three months ended March 31, 2010, compared to $4.3 million
for the same period in 2009.  This increase resulted primarily from
average loans increasing $15.7 million or 5.6%, accounting for $237,000 in
additional loan interest income.  This increase can be attributed to
growth in the Corporation’s existing loan portfolio and loans acquired through
the third quarter 2009 purchase of the Titusville banking office from PNC
(formerly National City Bank).  Offsetting this favorable volume
increase, the average yield on loans receivable decreased 12 basis points to
6.10% for the three months ended March 31, 2010, versus 6.22% for the same
period in 2009, due to declining market interest rates, accounting for a $78,000
decrease in interest income.





Tax
equivalent interest earned on securities increased $241,000 or 32.2% to $990,000
for the three months ended March 31, 2010, compared to $749,000 for the same
period in 2009.  The average volume of securities increased $54.3
million, primarily as a result of the deployment of net cash received in the
branch purchase, accounting for a $518,000 increase in interest
income.  Offsetting this favorable volume increase, the average yield
on securities decreased 151 basis points to 3.49% for the three months ended
March 31, 2010, versus 5.00% for the same period in 2009, due primarily to
shorter-termed security purchases made in the third and fourth quarters of 2009
and first quarter of 2010 at market yields lower than the overall average of the
existing portfolio.  This unfavorable yield variance accounted for a
$278,000 decrease in interest income.





Interest
earned on interest-earning deposit accounts decreased $5,000 or 5.6% to $84,000
for the three months ended March 31, 2010 from $89,000 for the same period in
2009.  The average volume of these assets increased $6.2 million,
increasing interest income by $22,000.  Offsetting this volume
increase, the average yield on interest-earning deposit accounts decreased 43
basis points to 1.20% for the three months ended March 31, 2010, compared to
1.63% for the same period in the prior year, accounting for a $27,000 decrease
in interest income.





Dividends
on federal bank stocks increased $6,000 to $11,000 for the three month period
ended March 31, 2010 from $5,000 for the same period in 2009.  The
average yield on these assets increased 55 basis points to 1.08% for the three
months ended March 31, 2010, compared to 0.53% for the same period the prior
year.





Interest
expense.  Interest expense decreased $78,000 or 4.0% to $1.9
million for the three months ended March 31, 2010 from $2.0 million for the same
period in 2009.  This decrease in interest expense can be attributed
to a decrease in interest incurred on deposits of $114,000, partially offset by
an increase in interest incurred on borrowed funds of $36,000.




15


Interest
expense incurred on deposits decreased $114,000 or 7.4% to $1.4 million for the
three months ended March 31, 2010 compared to $1.5 million for the same period
in 2009.  The average cost of interest-bearing deposits decreased 82
basis points to 1.81% for the three months ended March 31, 2010, compared to
2.63% for the same period in 2009 causing a $557,000 decrease in interest
expense.  Partially offsetting this favorable rate variance, the
average volume of interest-bearing deposits increased $81.8 million or 34.4% to
$319.6 million for the three months ended March 31, 2010, compared to $237.8
million for the same period in 2009 causing a $443,000 increase in interest
expense.  This increase was primarily due to deposits assumed through
the aforementioned branch purchase.





Interest
expense incurred on borrowed funds increased $36,000 or 8.8% to $446,000 for the
three months ended March 31, 2010, compared to $410,000 for the same period in
the prior year.  This increase can be attributed to an increase in the
average cost of borrowed funds of 158 basis points to 4.52% for the three months
ended March 31, 2010, compared to 2.94% for the same period in 2009 causing a
$179,000 increase in interest expense.  This increase in the average
cost was due to higher short-term borrowing rates resulting from the third
quarter 2009 $5.0 million advance on a line of credit with Atlantic Central
Bankers Bank.  The line of credit has a current rate of
4.75%.  Partially offsetting this unfavorable cost increase, the
average balance of borrowed funds decreased $16.5 million or 76.8% to $5.0
million for the three months ended March 31, 2010, compared to $21.5 million for
the same period in the prior year, causing a $143,000 decrease in interest
expense.  This volume decrease was related to a decrease in short-term
borrowings.




16


Average Balance Sheet and Yield/Rate
Analysis.  The following table sets forth, for the periods
indicated, information concerning the total dollar amounts of interest income
from interest-earning assets and the resulting average yields, the total dollar
amounts of interest expense on interest-bearing liabilities and the resulting
average costs, net interest income, interest rate spread and the net interest
margin earned on average interest-earning assets.  For purposes of
this table, average loan balances include non-accrual loans and exclude the
allowance for loan losses and interest income includes accretion of net deferred
loan fees.  Interest and yields on tax-exempt loans and securities
(tax-exempt for federal income tax purposes) are shown on a fully tax equivalent
basis.  The information is based on average daily balances during the
periods presented.





(Dollar
      amounts in thousands)
                
                Three
      months ended March 31,2010
                
                
                2009Average
                
                
                
                
                
                Yield
      /
                
                
                Average
                
                
                
                
                
                Yield
      /Balance
                
                
                Interest
                
                
                Rate
                
                
                Balance
                
                
                Interest
                
                
                RateInterest-earning
      assets:Loans,
      taxable
                
                $
                288,234
                
                
                $
                4,347
                
                
                
                6.12
                %
                
                $
                263,114
                
                
                $
                4,120
                
                
                
                6.35
                %Loans,
      tax exempt
                
                
                6,965
                
                
                
                95
                
                
                
                5.53
                %
                
                
                16,373
                
                
                
                163
                
                
                
                4.03
                %Total
      loans receivable
                
                
                295,199
                
                
                
                4,442
                
                
                
                6.10
                %
                
                
                279,487
                
                
                
                4,283
                
                
                
                6.22
                %Securities,
      taxable
                
                
                88,522
                
                
                
                608
                
                
                
                2.79
                %
                
                
                47,128
                
                
                
                529
                
                
                
                4.55
                %Securities,
      tax exempt
                
                
                26,562
                
                
                
                382
                
                
                
                5.83
                %
                
                
                13,652
                
                
                
                220
                
                
                
                6.54
                %Total
      securities
                
                
                115,084
                
                
                
                990
                
                
                
                3.49
                %
                
                
                60,780
                
                
                
                749
                
                
                
                5.00
                %Interest-earning
      deposits with banks
                
                
                28,354
                
                
                
                84
                
                
                
                1.20
                %
                
                
                22,130
                
                
                
                89
                
                
                
                1.63
                %Federal
      bank stocks
                
                
                4,125
                
                
                
                11
                
                
                
                1.08
                %
                
                
                3,797
                
                
                
                5
                
                
                
                0.53
                %Total
      interest-earning cash equivalents
                
                
                32,479
                
                
                
                95
                
                
                
                1.19
                %
                
                
                25,927
                
                
                
                94
                
                
                
                1.47
                %Total
      interest-earning assets
                
                
                442,762
                
                
                
                5,527
                
                
                
                5.06
                %
                
                
                366,194
                
                
                
                5,126
                
                
                
                5.68
                %Cash
      and due from banks
                
                
                2,156
                
                
                
                
                
                
                
                
                
                
                
                2,173Other
      noninterest-earning assets
                
                
                23,183
                
                
                
                
                
                
                
                
                
                
                
                16,533Total
      Assets
                
                $
                468,101
                
                
                
                
                
                
                
                
                
                
                $
                384,900Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                
                $
                158,314
                
                
                $
                230
                
                
                
                0.59
                %
                
                $
                109,466
                
                
                $
                313
                
                
                
                1.16
                %Time
      deposits
                
                
                161,236
                
                
                
                1,196
                
                
                
                3.01
                %
                
                
                128,301
                
                
                
                1,227
                
                
                
                3.88
                %Total
      interest-bearing deposits
                
                
                319,550
                
                
                
                1,426
                
                
                
                1.81
                %
                
                
                237,767
                
                
                
                1,540
                
                
                
                2.63
                %Borrowed
      funds, short-term
                
                
                5,001
                
                
                
                59
                
                
                
                4.78
                %
                
                
                21,536
                
                
                
                24
                
                
                
                0.45
                %Borrowed
      funds, long-term
                
                
                35,000
                
                
                
                387
                
                
                
                4.48
                %
                
                
                35,000
                
                
                
                386
                
                
                
                4.48
                %Total
      borrowed funds
                
                
                40,001
                
                
                
                446
                
                
                
                4.52
                %
                
                
                56,536
                
                
                
                410
                
                
                
                2.94
                %Total
      interest-bearing liabilities
                
                
                359,551
                
                
                
                1,872
                
                
                
                2.11
                %
                
                
                294,303
                
                
                
                1,950
                
                
                
                2.69
                %Noninterest-bearing
      demand deposits
                
                
                67,912
                
                
                
                -
                
                
                
                -
                
                
                
                50,319
                
                
                
                -
                
                
                
                -Funding
      and cost of funds
                
                
                427,463
                
                
                
                1,872
                
                
                
                1.78
                %
                
                
                344,622
                
                
                
                1,950
                
                
                
                2.29
                %Other
      noninterest-bearing liabilities
                
                
                3,135
                
                
                
                
                
                
                
                
                
                
                
                4,218Total
      Liabilities
                
                
                430,598
                
                
                
                
                
                
                
                
                
                
                
                348,840Stockholders'
      Equity
                
                
                37,503
                
                
                
                
                
                
                
                
                
                
                
                36,060Total
      Liabilities and Stockholders' Equity
                
                $
                468,101
                
                
                
                
                
                
                
                
                
                
                $
                384,900Net
      interest income
                
                
                
                
                
                $
                3,655
                
                
                
                
                
                
                
                
                
                
                $
                3,176Interest rate spread(difference between weighted average rate on interest-earning
      assets and interest-bearing liabilities)
                
                
                
                
                
                
                
                
                
                
                2.95
                %
                
                
                
                
                
                
                
                
                
                
                2.99
                %Net interest margin(net
      interest income as a percentage of average interest-earning
      assets)
                
                
                
                
                
                
                
                
                
                
                3.35
                %
                
                
                
                
                
                
                
                
                
                
                3.52
                %




17


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





(Dollar
      amounts in thousands)
              
              Three
      months ended March 31,2010
      versus 2009Increase
      (Decrease) due toVolume
              
              
              Rate
              
              
              TotalInterest
      income:Loans
              
              $
              237
              
              
              $
              (78
              )
              
              $
              159Securities
              
              
              519
              
              
              
              (278
              )
              
              
              241Interest-earning
      deposits with banks
              
              
              22
              
              
              
              (27
              )
              
              
              (5
              )Federal
      bank stocks
              
              
              -
              
              
              
              6
              
              
              
              6Total
      interest-earning assets
              
              
              778
              
              
              
              (377
              )
              
              
              401Interest
      expense:Interest-bearing
      deposits
              
              
              443
              
              
              
              (557
              )
              
              
              (114
              )Borrowed
      funds
              
              
              (143
              )
              
              
              179
              
              
              
              36Total
      interest-bearing liabilities
              
              
              300
              
              
              
              (378
              )
              
              
              (78
              )Net
      interest income
              
              $
              478
              
              
              $
              1
              
              
              $
              479


Provision for loan
losses.  The Corporation records provisions for loan losses to
maintain a level of total allowance for loan losses that management believes, to
the best of its knowledge, covers all known and inherent losses that are both
probable and reasonably estimable at each reporting date.  Management
considers historical loss experience, the present and prospective financial
condition of borrowers, current conditions (particularly as they relate to
markets where the Corporation originates loans), the status of non-performing
assets, the estimated underlying value of the collateral and other factors
related to the collectability of the loan portfolio.





Information
pertaining to the allowance for loan losses and non-performing assets for the
quarter ended March 31, 2010 and 2009 is as follows:





(Dollar
      amounts in thousands)
              
              At
      or for the three months endedMarch
      31,2010
              
              
              2009Balance
      at the beginning of the period
              
              $
              3,202
              
              
              $
              2,651Provision
      for loan losses
              
              
              128
              
              
              
              297Charge-offs
              
              
              (167
              )
              
              
              (71
              )Recoveries
              
              
              11
              
              
              
              8Balance
      at the end of the period
              
              $
              3,174
              
              
              $
              2,885Non-performing
      loans
              
              $
              3,237
              
              
              $
              1,747Non-performing
      assets
              
              
              3,470
              
              
              
              1,857Non-performing
      loans to total loans
              
              
              1.10
              %
              
              
              0.63
              %Non-performing
      assets to total assets
              
              
              0.72
              %
              
              
              0.49
              %Allowance
      for loan losses to total loans
              
              
              1.08
              %
              
              
              1.04
              %Allowance
      for loan losses to non-performing loans
              
              
              98.04
              %
              
              
              165.14
              %




18


The
provision for loan losses decreased $169,000 or 56.9% to $128,000 for the three
month period ended March 31, 2010 from $297,000 for the same period in the prior
year due to a decline in overall delinquency in the loan
portfolio.  At March 31, 2010, loans past due 30 days or more totaled
$5.0 million, compared to $7.7 million in delinquent loans at December 31,
2009.





Nonperforming
loans increased $1.5 million to $3.2 million at March 31, 2010 from $1.7 million
at March 31, 2009 as a result of pressure on borrowers related to the prevailing
poor economic climate.  During the quarter ended March 31, 2010,
nonperforming loans increased by $800,000 from $2.4 million at December 31,
2009.  This increase was due primarily to the addition of an $811,000
credit relationship to nonaccrual status due to its recent
performance.





Classified
Assets.  Regulations applicable to insured institutions require
the classification of problem assets as “substandard,” “doubtful,” or “loss”
depending upon the existence of certain characteristics as discussed
below.  A category designated “special mention” must also be
maintained for assets currently not requiring the above classification but
having potential weakness or risk characteristics that could result in future
problems.  An asset is classified as substandard if not adequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any.  A substandard asset is characterized by
the distinct possibility that the Corporation will sustain some loss if the
deficiencies are not corrected.  Assets classified as doubtful have
all the weaknesses inherent in those classified as substandard.  In
addition, these weaknesses make collection or liquidation in full, on the basis
of currently existing facts, conditions and values, highly questionable or
improbable. Assets classified as loss are considered uncollectible and of such
little value their continuance as assets is not warranted.





The
Corporation’s classification of assets policy requires the establishment of
valuation allowances for loan losses in an amount deemed prudent by
management.  Valuation allowances represent loss allowances that have
been established to recognize the inherent risk associated with lending
activities.  When the Corporation classifies a problem asset as a
loss, the portion of the asset deemed uncollectible is charged off
immediately.





The
Corporation regularly reviews the problem loans and other assets in its
portfolio to determine whether any require classification in accordance with the
Corporation’s policy and applicable regulations.  As of March 31,
2010, the Corporation’s classified and criticized assets amounted to $15.8
million, with $9.3 million classified as substandard, $48,000 classified as
doubtful and $6.4 million identified as special mention.  Included in
classified and criticized assets at March 31, 2010 are two separate loans
exhibiting credit deterioration impacting the ability of the borrowers to comply
with their present loan repayment terms.





The first
loan, with an outstanding balance of $3.0 million at March 31, 2010, was
originated for the construction of a hotel, restaurant and retail plaza secured
by such property, the borrower’s personal residence, a separate residence and a
separate farm.  The hotel, restaurant and retail plaza are complete
and operational.  However, cash flows from operations have not been
constant due to the seasonal business of the hotel.  In addition, the
borrower does not have other liquid sources of cash flow.  As a
result, the borrower has listed substantial real estate holdings for
sale.  Pending such sales, the Bank anticipates that the relationship
may continue to have cash flow issues which may impact the timely payment of
principal and interest to the Bank.  At March 31, 2010, the loan was
current but identified as special mention.  Ultimately, due to the
estimated value of the borrower’s significant real estate holdings, the Bank
does not currently expect to incur any significant loss on this
loan.





The
second loan, with an outstanding balance of $2.2 million at March 31, 2010, is a
consumer installment loan for the purpose of the consolidating various personal
debts.  This loan is secured by a lien on the primary residence of the
first borrower discussed above, an assigned life insurance policy and the
assignment of patent royalty income.  Due to business difficulties and
decreased royalty income, payments on the loan have not always been
timely.  At March 31, 2010, the loan was performing but was classified
substandard.  As a result of the estimated value of the lien on the
property owned by the first borrower, the estimated cash flow of royalty income
and the borrower’s business prospects, the Bank does not currently expect to
incur any significant loss on this loan.




19


Noninterest
income.  Noninterest income increased $122,000 or 16.9% to
$842,000 during the three months ended March 31, 2010, compared to $720,000
during the same period in the prior year.  This increase was primarily
due to increased commissions on financial services and gains on the sale of
securities.  Commissions on financial services increased $97,000 due
in part to a second financial services representative added to cover the
Titusville and surrounding market areas.  The Corporation recorded
gains on the sale of certain U.S agency securities totaling $99,000 during the
first quarter of 2010 compared to gains totaling $56,000 on the sale of similar
type investments during the first quarter of 2009.





Noninterest
expense.  Noninterest expense increased $769,000 or 29.3% to
$3.4 million during the three months ended March 31, 2010 compared to $2.6
million for the same period in 2009.  This increase in noninterest
expense can be attributed to increases in compensation and employee benefits,
premises and equipment, intangible amortization, FDIC expense and other
noninterest expenses of $392,000, $69,000, $152,000, $97,000 and $118,000,
respectively, partially offset by a decrease in professional fees of
$59,000.





Compensation
and employee benefits increased $392,000 or 27.3% to $1.8 million for the three
months ended March 31, 2010 compared to $1.4 million for the same period in the
prior year.  This increase can be primarily attributed to normal
salary and wage increases and staff added in connection with the 2009 branch
purchase.





Premises
and equipment increased $69,000 or 14.3% to $550,000 for the three months ended
March 31, 2010, compared to $481,000 for the same period in the prior
year.  This increase was primarily related to the 2009 branch purchase
and increased fixed asset depreciation expenses.





Associated
with the branch purchase, the Bank recognized $152,000 of core deposit
intangible amortization expense during the first quarter of
2010.  Further discussion related to goodwill and intangible assets
related to the branch office purchase can be found in the “Notes to Consolidated
Financial Statements” beginning on page 5.





Professional
fees decreased $59,000 or 34.1% to $114,000 for the three months ended March 31,
2010, compared to $173,000 for the same period in the prior
year.  This decrease was primarily related to a decrease in legal and
consulting fees associated with the 2009 branch office purchase.





FDIC
expense increased $97,000 to $141,000 for the three months ended March 31, 2010,
compared to $44,000 for the same period in the prior year.  This
increase was primarily the result of increased base assessment rates applied to
all FDIC insured depository institutions.





Other
noninterest expense increased $118,000 or 24.3% to $604,000 during the three
months ended March 31, 2010, compared to $486,000 for the same period in the
prior year.  This increase was primarily due to increased telephone
and communications, printing and office supplies, contributions, internet
banking and collection expenses.





Provision for income
taxes.  The provision for income taxes decreased $44,000 or
22.7% to $150,000 for the three months ended March 31, 2010 compared to $194,000
for the same period in the prior year.  This decrease was primarily
related to a decrease in the effective tax rate to 18.0% for the three months
ended March 31, 2010, compared to 22.5% for the same period in
2009.  This lower effective tax rate resulted from an increased
portion of pre-tax income having been generated from tax-exempt investment
securities and loans.  The difference between the statutory rate of
34% and the Corporation’s effective tax rate is due to tax-exempt income earned
on certain tax-free loans and securities and bank-owned life
insurance.





LIQUIDITY





The
Corporation’s primary sources of funds generally have been deposits obtained
through the offices of the Bank, borrowings from the FHLB and Federal Reserve
and amortization and prepayments of outstanding loans and maturing
securities.  During the three months ended March 31, 2010, the
Corporation used its sources of funds primarily to fund loan originations and
security purchases.  As of such date, the Corporation had outstanding
loan commitments, including undisbursed loans and amounts available under credit
lines, totaling $48.8 million, and standby letters of credit totaling $1.1
million.




20


At March
31, 2010, time deposits amounted to $158.8 million or 39.8% of the Corporation’s
total consolidated deposits, including approximately $56.6 million of which are
scheduled to mature within the next year.  Management of the
Corporation believes it has adequate resources to fund all of its commitments,
all of its commitments will be funded as required by related maturity dates and
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 the Federal Reserve’s Term Auction Facility
and Discount Window.  At March 31, 2010, the Corporation’s borrowing
capacity with the FHLB, net of funds borrowed, was $126.2 million.





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





CRITICAL
ACCOUNTING POLICIES





The
Corporation’s consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America and
follow general practices within the industry in which it
operates.  Application of these principles requires management to make
estimates or judgments that affect the amounts reported in the financial
statements and accompanying notes.  These estimates are based on
information available as of the date of the financial statements; accordingly,
as this information changes, the financial statements could reflect different
estimates or judgments.  Certain policies inherently have a greater
reliance on the use of estimates, and as such have a greater possibility of
producing results that could be materially different than originally
reported.  Estimates or judgments are necessary when assets and
liabilities are required to be recorded at fair value, when a decline in the
value of an asset not carried on the financial statements at fair value warrants
an impairment write-down or valuation reserve to be established or when an asset
or liability needs to be recorded contingent upon a future
event.  Carrying assets and liabilities at fair value inherently
results in more financial statement volatility.  The fair values and
the information used to record valuation adjustments for certain assets and
liabilities are based either on quoted market prices or are provided by
third-party sources, when available.  When third-party information is
not available, valuation adjustments are estimated in good faith by management
primarily though the use of internal cash flow modeling techniques.





The most
significant accounting policies followed by the Corporation are presented in
Note 1 to the consolidated financial statements included in the Corporation’s
Annual Report on Form 10-K.  These policies, along with the
disclosures presented in the other financial statement notes provide information
on how significant assets and liabilities are valued in the financial statements
and how those values are determined.  Management views critical
accounting policies to be those which are highly dependent on subjective or
complex judgments, estimates and assumptions and where changes in those
estimates and assumptions could have a significant impact on the financial
statements.  Management has identified the following as critical
accounting policies.





Allowance for
loan losses.  The Corporation considers that the determination
of the allowance for loan losses involves a higher degree of judgment and
complexity than its other significant accounting policies.  The
balance in the allowance for loan losses is determined based on management’s
review and evaluation of the loan portfolio in relation to past loss experience,
the size and composition of the portfolio, current economic events and
conditions and other pertinent factors, including management’s assumptions as to
future delinquencies, recoveries and losses.  All of these factors may
be susceptible to significant change.  Among the many factors
affecting the allowance for loan losses, some are quantitative while others
require qualitative judgment.  Although management believes its
process for determining the allowance adequately considers all of the potential
factors that could potentially result in credit losses, the process includes
subjective elements and may be susceptible to significant change.  To
the extent actual outcomes differ from management’s estimates, additional
provisions for loan losses may be required that would adversely impact the
Corporation’s financial condition or earnings in future periods.





21


Other-than-temporary
impairment.  Management
evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic, market or other concerns warrant such
evaluation.  Consideration is given to (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial
condition and near term prospects of the issuer, (3) the intent of the
Corporation to sell a security, and (4) whether it is more likely than not the
Corporation will have to sell the security before recovery of its cost
basis.





Item
3.  Quantitative and Qualitative Disclosures About Market
Risk





Market
risk for the Corporation consists primarily of interest rate risk exposure and
liquidity risk.  Since virtually all of the interest-earning assets
and interest-bearing liabilities are at the Bank, virtually all of the interest
rate risk and liquidity risk lies at the Bank level.  The Bank is not
subject to currency exchange risk or commodity price risk, and has no trading
portfolio, and therefore, is not subject to any trading risk.  In
addition, the Bank does not participate in hedging transactions such as interest
rate swaps and caps.  Changes in interest rates will impact both
income and expense recorded and also the market value of long-term
interest-earning assets and interest-bearing liabilities.  Interest
rate risk and liquidity risk management is performed at the Bank
level.  Although the Bank has a diversified loan portfolio, loans
outstanding to individuals and businesses depend upon the local economic
conditions in the immediate trade area.





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





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.





Assumptions
about the timing and variability of cash flows are critical in gap
analysis.  Particularly important are the assumptions driving mortgage
prepayments and the expected attrition of the core deposits
portfolios.  These assumptions are based on the Corporation’s
historical experience, industry standards and assumptions provided by a federal
regulatory agency, which management believes most accurately represents the
sensitivity of the Corporation’s assets and liabilities to interest rate
changes, at March 31, 2010,  the Corporation’s interest-earning assets
maturing or repricing within one year totaled $129.1 million while the
Corporation’s interest-bearing liabilities maturing or repricing within one-year
totaled $145.0 million, providing an excess of interest-bearing liabilities over
interest-earning assets of $15.9 million.  At March 31, 2010, the
percentage of the Corporation’s assets to liabilities maturing or repricing
within one year was 89.0%.





For more
information, see “Market Risk Management” in the Corporation’s Annual Report on
Form 10-K for the year ended December 31, 2009.




22


Item 4T.  Controls
and Procedures





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





There has
been no change made in the Corporation’s internal control over financial
reporting during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Corporation’s internal control
over financial reporting.





As of
March 31, 2010, the Corporation carried out an evaluation, under the supervision
and with the participation of the Corporation’s management, including the
Corporation’s CEO and PAO, of the effectiveness of the design and operation of
the Corporation’s disclosure controls and procedures.  Based on the
foregoing, the Corporation’s CEO and PAO concluded that the Corporation’s
disclosure controls and procedures were effective.  There have been no
significant changes in the Corporation’s internal controls or in other factors
that could significantly affect the internal controls subsequent to the date the
Corporation completed its evaluation.





PART II - OTHER
INFORMATION





Item 1.  Legal
Proceedings





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





Item 1A.  Risk
Factors





There
have been no material changes from those risk factors previously disclosed in
the Corporation’s Annual Report on Form 10-K for the Fiscal Year Ended December
31, 2009, as filed with the Securities and Exchange
Commission.  Additional risks not presently known to us, or that we
currently deem immaterial, may also adversely affect our business, financial
condition or results of operations.





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





None.





Item 3.  Defaults
Upon Senior Securities





None.





Item 4.  (Removed
and Reserved)





Item 5.  Other
Information





(a)
            Not
      applicable.





(b)
            Not
      applicable.





Item
6.  Exhibits





Exhibit  3.2
            Amended
      and RestatedBy-Laws of
      Emclaire Financial Corp.


Exhibit
    31.1
            Rule
      13a-14(a) Certification of Principal Executive
  Officer


Exhibit
    31.2
            Rule
      13a-14(a) Certification of Principal Accounting
  Officer


Exhibit
    32.1
            CEO
      Certification Pursuant to 18 U.S.C. Section
1350


Exhibit
    32.2
            CFO
      Certification Pursuant to 18 U.S.C. Section
1350




23


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 SUBSIDIARIESDate:  May
      10, 2010
              By:
              /s/ William C.
      MarshWilliam
      C. MarshChairman
      of the Board,President
      and Chief Executive OfficerDate:  May
      10, 2010
              By:
              /s/ Amanda L.
      EnglesAmanda
      L. EnglesTreasurer
      and Principal Accounting Officer
  24