EXHIBIT 13

    ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005






<PAGE>

                                            SELECTED CONSOLIDATED FINANCIAL DATA


(Dollar amounts in thousands, excpet share data)

<TABLE>
<CAPTION>
                                                  ----------------------------------------------------------------------------
                                                                             AS OF DECEMBER 31,
FINANCIAL CONDITION DATA                              2005           2004             2003           2002             2001
-----------------------------                     ----------------------------------------------------------------------------
<S>                                               <C>            <C>           <C>              <C>              <C>
Total assets                                      $   275,517    $  273,380    $     262,512    $     238,577    $     216,717
Securities                                             56,304        63,362           49,162           48,748           38,755
Loans receivable, net                                 192,526       179,575          190,482          169,557          160,540
Deposits                                              230,503       232,874          217,110          204,425          189,470
Borrowed funds                                         19,500        15,000           20,700           10,000            5,000
Stockholders' equity                                   23,615        23,616           22,655           22,680           21,111
Stockholders' equity per common share             $     18.63    $    18.63    $       17.87    $       17.02    $       15.84
Tangible stockholders' equity
   per common share                               $     17.50    $    17.48    $       16.70    $       15.82    $       14.54

                                                  ----------------------------------------------------------------------------
                                                                       FOR THE YEAR ENDED DECEMBER 31,
OPERATIONS DATA                                      2005           2004             2003           2002             2001
-----------------------------                     ----------------------------------------------------------------------------
Interest income                                   $    14,877    $   13,953    $      14,209    $      14,653    $      14,589
Interest expense                                        5,573         5,219            4,901            5,161            6,097
                                                  -----------    ----------    -------------    -------------    -------------
Net interest income                                     9,304         8,734            9,308            9,492            8,492
Provision for loan losses                                 205           290              330              381              154
                                                  -----------    ----------    -------------    -------------    -------------
Net interest income after
   provision for loan losses                            9,099         8,444            8,978            9,111            8,338
Noninterest income                                      3,317         2,535            1,785            1,400            1,339
Noninterest expense                                     9,146         7,909            7,522            7,420            7,254
                                                  -----------    ----------    -------------    -------------    -------------
Income before income taxes                              3,270         3,070            3,241            3,091            2,423
Provision for income taxes                                697           513              749              834              718
                                                  -----------    ----------    -------------    -------------    -------------

Net income                                        $     2,573    $    2,557    $       2,492    $       2,257    $       1,705
                                                  ===========    ==========    =============    =============    =============

       Average common shares outstanding            1,267,835     1,267,835        1,301,714        1,332,835        1,332,835
       Basic earnings per share                   $      2.03    $     2.02    $        1.91    $        1.69    $        1.28
       Dividends per share (2)                    $      1.02    $     0.94    $        1.11    $        1.03    $        0.70

                                                  ----------------------------------------------------------------------------
                                                                    AS OF OR FOR THE YEAR ENDED DECEMBER 31,
OTHER DATA                                            2005           2004             2003           2002             2001
-----------------------------                     ----------------------------------------------------------------------------
PERFORMANCE RATIOS
       Return on average assets                          0.94%         0.96%            0.99%            0.99%            0.84%
       Return on average equity                         10.69%        11.08%           10.96%           10.21%            8.35%
       Yield on interest-earning assets (1)              6.00%         5.81%            6.28%            6.93%            7.69%
       Cost of interest-bearing liabilities              2.70%         2.57%            2.56%            2.99%            3.99%
       Cost of funds                                     2.24%         2.15%            2.16%            2.53%            3.35%
       Interest rate spread (1)                          3.30%         3.24%            3.72%            3.94%            3.70%
       Net interest margin (1)                           3.82%         3.71%            4.18%            4.54%            4.52%
       Efficiency ratio (1) (3)                         69.72%        67.11%           64.16%           64.98%           69.58%
       Noninterest expense to average assets             3.33%         2.96%            2.99%            3.25%            3.56%
       Interest-earning assets to average assets        92.82%        92.86%           92.69%           94.65%           94.42%
       Loans to deposits                                83.52%        77.11%           87.74%           82.94%           84.73%
       Dividend payout ratio (2)                        50.25%        46.61%           57.98%           60.95%           54.72%
ASSET QUALITY RATIOS
       Non-performing loans to total loans               0.75%         0.46%            0.69%            0.68%            0.78%
       Non-performing assets to total assets             0.57%         0.33%            0.52%            0.49%            0.58%
       Allowance for loan losses to total loans          0.96%         1.00%            0.92%            0.93%            0.90%
       Allowance for loan losses to
           non-performing loans                        128.72%       215.48%          133.71%          136.81%          117.59%
CAPITAL RATIOS
       Stockholders' equity to assets                    8.57%         8.64%            8.63%            9.51%            9.74%
       Tangible stockholders' equity to
           tangible assets                               8.09%         8.15%            8.11%            8.90%            9.01%
       Average equity to average assets                  8.75%         8.63%            9.02%            9.69%           10.02%

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

(1)  Interest income utilized in calculation is on a fully tax equivalent basis.
(2)  Includes  $.25 per share special cash  dividends  paid in December 2003 and
     December 2002.
(3)  The  efficiency  ratio is calculated by dividing  operating  expenses (less
     intangible  amortization) by net income (TE basis) and noninterest  income.
     The  efficiency  ratio  gives  a  measure  of how  effectively  a  bank  is
     operating.

                                      -1-

<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


OVERVIEW
--------

Emclaire  Financial  Corp. (the  Corporation) is a Pennsylvania  corporation and
bank  holding  company  that  provides  a full  range of retail  and  commercial
financial products and services to customers in western Pennsylvania through its
wholly owned subsidiary bank, the Farmers National Bank of Emlenton (the Bank).

The  Bank was  organized  in 1900 as a  national  banking  association  and is a
financial  intermediary whose principal business consists of attracting deposits
from the general public and investing such funds in real estate loans secured by
liens  on  residential  and  commercial  property,  consumer  loans,  commercial
business loans,  marketable securities and interest-earning  deposits.  The Bank
operates  through  a  network  of  10  offices  in  Venango,   Butler,  Clarion,
Clearfield,  Elk and Jefferson counties,  Pennsylvania.  The Corporation and the
Bank are headquartered in Emlenton, Pennsylvania.

The Bank is subject to examination and comprehensive regulation by the Office of
the Comptroller of the Currency (OCC), which is the Bank's chartering authority,
and the Federal Deposit  Insurance  Corporation  (FDIC),  which insures customer
deposits  held by the Bank to the full  extent  provided  by law.  The Bank is a
member of the Federal  Reserve Bank of Cleveland (FRB) and the Federal Home Loan
Bank of  Pittsburgh  (FHLB).  The  Corporation,  as a  registered  bank  holding
company, is subject to regulation by the Federal Reserve Board.

FORWARD LOOKING STATEMENTS

Discussions of certain  matters in this Annual Report and other related year end
documents  may  constitute  forward-looking  statements  within  the  meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange Act of 1934, as amended (the "Exchange  Act"), and as such,
may involve risks and uncertainties. These forward-looking statements relate to,
among  other  things,  expectations  of the  business  environment  in which the
Corporation  operates,  projections of future  performance and potential  future
credit   experience.   The   Corporation's   actual  results,   performance  and
achievements   may  differ   materially   from  the  results,   performance  and
achievements  expressed or implied in such  forward-looking  statements due to a
wide range of factors. These factors include, but are not limited to, changes in
interest  rates,  general  economic  conditions,  the local economy,  accounting
principles  or  guidelines,   legislative  and  regulatory  changes,  government
monetary and fiscal policies,  real estate markets,  financial services industry
competition,  attracting  and retaining key  personnel,  regulatory  actions and
other risks detailed in the Corporation's  reports filed with the Securities and
Exchange  Commission (SEC) from time to time. These factors should be considered
in evaluating the forward-looking  statements,  and undue reliance should not be
placed on such statements.  The Corporation does not undertake, and specifically
disclaims any obligation,  to update any  forward-looking  statements to reflect
occurrences  or  unanticipated  events or  circumstances  after the date of such
statements.


                                      -2-
<PAGE>



                                         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                     (CONTINUED)

CHANGES IN FINANCIAL CONDITION
------------------------------

Total assets  increased  $2.2 million or 1.0% to $275.6  million at December 31,
2005 from $273.4  million at December 31, 2004.  This increase was primarily due
to an increase in loans receivable of $13.0 million. Offsetting the net increase
in loans were  decreases in cash and cash  equivalents  and  securities  of $4.3
million and $7.1 million, respectively. Total liabilities increased $2.2 million
or 1.0% due  primarily  to an  increase  in  short-term  borrowed  funds of $4.5
million,  offset by a decrease in deposits of $2.4 million or 1.0%. As discussed
in further  detail  below,  the  increase in loans was  primarily  funded by the
decreases in cash and securities and the increase in short-term borrowings.

CASH AND CASH EQUIVALENTS.  Cash on hand and interest-earning deposits decreased
a combined  $4.2  million or 29.1% to $10.4  million at  December  31, 2005 from
$14.6 million at December 31, 2004. These accounts fluctuate depending on, among
other factors,  net operating  results,  deposits and  withdrawals by customers,
loan  repayments  and  originations,  maturities  of  securities,  proceeds from
borrowed funds and cash dividends to stockholders. The decrease in cash and cash
equivalents was primarily used to fund loan originations.

SECURITIES.  Securities  decreased  $7.1  million  or 11.1% to $56.3  million at
December  31,  2005 from  $63.4  million  at  December  31,  2004 as a result of
increased loan demand.  This decrease resulted from security  maturities,  calls
and sales totaling $10.0 million. Offsetting the net decrease in securities were
security  purchases  totaling $4.9 million.  Also  contributing to the change in
securities for the year was a decrease in the  unrealized  gain on available for
sale  securities.  The funds  available  from the  decrease in  securities  were
primarily used to fund loan originations.

LOANS RECEIVABLE. Net loans receivable increased $13.0 million or 7.2% to $192.5
million at December  31, 2005 from $179.6  million at December  31,  2004.  This
increase can be attributed to increases in the  Corporation's  home equity loans
and lines of credit,  commercial mortgages and commercial business loans of $8.4
million,  $4.4  million  and $3.8  million,  respectively.  Offsetting  this net
increase  in loans  receivable  were  decreases  in  residential  mortgages  and
consumer  loans of $3.3  million and  $361,000,  respectively.  The  increase in
commercial  real estate loans and  business  loans was a result of the growth in
the commercial real estate market,  the lower interest rate  environment and the
continued focus by management on commercial lending. The increase in home equity
loans was due primarily to loan campaigns put forth during the year and also the
shift from  residential  first  mortgage loans to home equity loans and lines of
credit.

NON-PERFORMING  ASSETS.  Non-performing  assets include  non-accrual loans, real
estate acquired  through  foreclosure  (REO) and  repossessions.  Non-performing
assets  increased  $647,000 or 71.0% to $1.6 million or 0.57% of total assets at
December  31, 2005 from  $911,000 or 0.33% of total assets at December 31, 2004.
Non-performing  assets consisted of non-performing  loans, REO and repossessions
of $1.5  million,  $106,000,  and $0,  respectively,  at  December  31, 2005 and
$840,000, $69,000 and $2,000,  respectively,  at December 31, 2004. The increase
in  non-performing  assets was  primarily  contributed  to one  commercial  loan
customer who totaled $1.0 million or 64.0% of total non-performing assets.


                                      -3-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)


FEDERAL  BANK STOCKS.  Federal  bank stocks were  comprised of Federal Home Loan
Bank  stock  and  Federal  Reserve  Bank  stock of $1.4  million  and  $333,000,
respectively,  at December 31, 2005.  These stocks are purchased and redeemed at
par as directed by the federal banks and levels  maintained are based  primarily
on borrowing and other correspondent  relationships  between the Corporation and
the banks.

BANK-OWNED  LIFE  INSURANCE  (BOLI).  BOLI is comprised  of single  premium life
insurance  policies of $4.0  million on 20 officers  and  employees of the Bank.
During 2005, the value of the BOLI increased $175,000 or 3.9% to $4.6 million at
December 31, 2005 from $4.4 million at December 31, 2004.  This net increase was
comprised of the  appreciation of the cash surrender value of $191,000 offset by
executive life insurance expense of $16,000.

PREMISES AND  EQUIPMENT.  Premises and equipment  increased  $445,000 or 7.8% to
$6.1 million at December  31, 2005 from $5.7  million at December 31, 2004.  The
net increase  resulted  from capital  expenditures  of $1.3  million,  offset by
normal depreciation of fixed assets of $855,000. Contributing to the increase in
capital  expenditures  was the purchase of property for a new branch location of
$423,000 and the  construction of a new drive-thru for the Brookville  office of
$330,000.

GOODWILL. Goodwill remained constant at $1.4 million at each year ended December
31, 2005 and 2004.

OTHER INTANGIBLES. Core deposit intangibles decreased $21,000 or 100.0% to $0 at
December  31,  2005 from  $21,000  at  December  31,  2004 as a result of normal
amortization during the year. Also during the year the customer intangible asset
decreased  $10,000  or 60.0% to $7,000 at  December  31,  2005 from  $17,000  at
December 31, 2004 as a result of normal amortization.

DEPOSITS.  Total  deposits  decreased  $2.4 million or 1.0% to $230.5 million at
December  31, 2005 from $232.9  million at December  31,  2004.  The decrease in
customer deposits can be attributed to the decrease in  interest-bearing  demand
deposits  of $6.9  million or 8.6%.  This  decrease in  interest-bearing  demand
deposits can primarily be attributed to the decrease in money market accounts of
$5.4 million as a result of customers  shifting  their monies from  FDIC-insured
bank  deposit  products to mutual funds and other  equity  investments.  For the
year,  noninterest-bearing  demand and time deposits  increased  $3.5 million or
8.7% and $1.0 million or 1.0%, respectively.

BORROWED  FUNDS.  Borrowed  funds,  or advances  from the FHLB,  increased  $4.5
million or 30.0% to $19.5  million at December  31,  2005 from $15.0  million at
December  31,  2004.  The increase in advances was the result of the increase in
FHLB overnight borrowings of $4.5 million to fund loan originations.

ACCRUED INTEREST PAYABLE.  Accrued interest payable increased $30,000 or 5.2% to
$607,000 at December 31, 2005 from  $577,000 at December 31, 2004 as a result of
the increase in the cost of interest-bearing deposits.




                                      -4-
<PAGE>

                                         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                     (CONTINUED)

CAPITAL RESOURCES
-----------------

Total stockholders'  equity remained level at $23.6 million at December 31, 2005
and 2004.  Contributing to  stockholders'  equity was net income of $2.6 million
offset by dividends declared of $1.3 million and a decrease in accumulated other
comprehensive income of $1.3 million.  Returns on average equity and assets were
10.69% and 0.94%, respectively, for 2005.

The  Corporation  has  maintained a strong  capital  position  with an equity to
assets  ratio of 8.6% for both years ended  December  31,  2005 and 2004.  While
continuing  to sustain  this  strong  capital  position,  stockholders  received
dividends  of $1.3  million  in  2005.  Regular  quarterly  dividends  increased
$101,000 or 8.5% to $1.3 million in 2005 from $1.2 million in 2004. Stockholders
have taken  part in the  Corporation's  dividend  reinvestment  plan  introduced
during 2003 with 38% of registered  stockholder  accounts  active in the plan at
December 31, 2005 and 2004.

The  Corporation's  strong capital  position  supports its growth strategy while
both  protecting the interest of  stockholders  and depositors and ensuring that
capital  ratios  are  in  compliance  with  regulatory   minimum   requirements.
Regulatory  agencies have developed certain capital ratio  requirements that are
used to  assist  them in  monitoring  the  safety  and  soundness  of  financial
institutions.  At  December  31,  2005,  the  Corporation  and the Bank  were in
compliance with all regulatory capital requirements.

LIQUIDITY

The Corporation's primary sources of funds generally have been deposits obtained
through the Bank's office network,  borrowings  from the FHLB, and  amortization
and prepayments of outstanding loans and maturing  securities.  During 2005, the
Corporation used its sources of funds primarily to fund loan commitments.  As of
December 31, 2005, the Corporation had outstanding loan  commitments,  including
undisbursed  loans and amounts  available  under credit  lines,  totaling  $17.1
million.  The Bank is required by the OCC to  establish  policies to monitor and
manage  liquidity  levels to ensure  the  Bank's  ability  to meet  demands  for
customer  withdrawals  and the repayment of short-term  borrowings.  The Bank is
currently in compliance with all liquidity policy limits.

At December 31, 2005,  time deposits  amounted to $112.4 million or 48.8% of the
Corporation's total consolidated deposits, including approximately $45.7 million
which are scheduled to mature within the next year. Management believes that the
Corporation has adequate  resources to fund all of its commitments,  that all of
its commitments  will be funded as required by related  maturity dates and that,
based upon past experience and current pricing policies, it can adjust the rates
of time deposits to retain a substantial portion of maturing liabilities.

Aside from  liquidity  available  from  customer  deposits or through  sales and
maturities of securities,  the Corporation has alternative sources of funds such
as a term borrowing capacity from the FHLB and, to a limited extent, through the
sale of loans. At December 31, 2005, the Corporation's  borrowing  capacity with
the FHLB, net of funds borrowed, was $107.2 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.


                                      -5-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)

CRITICAL ACCOUNTING POLICIES
----------------------------

The  most  significant  accounting  policies  followed  by the  Corporation  are
presented in Note 1 to the consolidated  financial  statements.  These policies,
along with the disclosures  presented in the other financial statement notes and
in this financial  review,  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 currently views the determination
of the allowance for loan losses as a critical accounting policy.

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


                                      -6-
<PAGE>

                                         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                     (CONTINUED)

CHANGES IN RESULTS OF OPERATIONS
--------------------------------
The  Corporation  reported  net income of $2.6  million,  $2.6  million and $2.5
million in 2005, 2004 and 2003,  respectively.  The following  "Average  Balance
Sheet and Yield/Rate  Analysis" and "Analysis of Changes in Net Interest Income"
tables  should be utilized in  conjunction  with the  discussion of net interest
income.

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 resultant 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.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                          Year ended December 31,
                                                         2005                         2004                         2003
                                            ----------------------------- ---------------------------  --------------------------
                                            Average                Yield/ Average              Yield/  Average              Yield/
(Dollar amounts in thousands)               Balance    Interest    Rate   Balance    Interest  Rate    Balance    Interest  Rate
---------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
<S>                                         <C>        <C>         <C>    <C>        <C>       <C>     <C>        <C>       <C>
    Loans, taxable                          $181,109   $12,011     6.63%  $178,998   $11,414   6.38%   $171,953   $11,859   6.90%
    Loans, tax-exempt                          7,052       454     6.44%     7,376       478   6.48%      6,077       271   4.46%
                                            --------   -------            --------   -------           --------   -------
          Total loans receivable             188,161    12,465     6.62%   186,374    11,892   6.38%    178,030    12,130   6.81%
                                            --------   -------            --------   -------           --------   -------
    Securities, taxable                       47,075     1,714     3.64%    40,245     1,396   3.47%     35,635     1,391   3.90%
    Securities, tax-exempt                    15,468     1,012     6.54%    15,398     1,014   6.58%     16,070     1,066   6.63%
                                            --------   -------            --------   -------           --------   -------
          Total securities                    62,543     2,726     4.36%    55,643     2,410   4.33%     51,705     2,457   4.75%
                                            --------   -------            --------   -------           --------   -------
    Interest-earning deposits
          with banks                           2,978        81     2.72%     4,405        71   1.61%      1,996        25   1.25%
    Federal bank stocks                        1,633        58     3.55%     1,753        42   2.40%      1,749        48   2.74%
                                            --------   -------            --------   -------           --------   -------
          Total interest-earning
                cash equivalents               4,611       139     3.01%     6,158       113   1.84%      3,745        73   1.95%
                                            --------   -------            --------   -------           --------   -------
    TOTAL INTEREST-EARNING ASSETS            255,315    15,330     6.00%   248,175    14,415   5.81%    233,480    14,660   6.28%

          Cash and due from banks              7,399                         7,175                        6,066
          Other noninterest-earning
                assets                        12,340                        11,913                       12,355
                                            --------                      --------                     --------
          Total Assets                      $275,054                      $267,263                     $251,901
                                            ========                      ========                     ========
INTEREST-BEARING LIABILITIES:
    Interest-bearing demand deposits        $ 79,063   $   570     0.72%  $ 77,421   $   457   0.59%   $ 77,058     $ 596   0.77%
    Time deposits                            110,829     4,324     3.90%   110,456     4,129   3.74%     99,562     3,775   3.79%
                                            --------   -------            --------   -------           --------   -------
          Total interest-bearing deposits    189,892     4,894     2.58%   187,877     4,586   2.44%    176,620     4,371   2.47%
                                            --------   -------            --------   -------           --------   -------
    Borrowed funds, short-term                 1,199        50     4.17%       504         3   0.60%      2,032        23   0.00%
    Borrowed funds, long-term                 15,000       629     4.19%    15,000       630   4.20%     12,692       507   3.99%
                                            --------   -------            --------   -------           --------   -------
          Total borrowed funds                16,199       679     4.19%    15,504       633   4.08%     14,724       530   3.60%
                                            --------   -------            --------   -------           --------   -------
    TOTAL INTEREST-BEARING LIABILITIES       206,091     5,573     2.70%   203,381     5,219   2.57%    191,344     4,901   2.56%

          Noninterest-bearing
                demand deposits               42,450         -         -    38,800         -       -     35,970         -       -
                                            --------   -------            --------   -------           --------   -------
          FUNDING AND COST OF FUNDS          248,541     5,573     2.24%   242,181     5,219   2.15%    227,314     4,901   2.16%

          Other noninterest-bearing
                liabilities                    2,452                         2,005                        1,856
                                            --------                      --------                     --------
          Total Liabilities                  250,993                       244,186                      229,170

          Stockholders' Equity                24,061                        23,077                       22,731
                                            --------                      --------                     --------
          Total Liabilities and
                Stockholders' Equity        $275,054                      $267,263                     $251,901
                                            ========   -------            ========   -------           ========   -------
NET INTEREST INCOME                                    $ 9,757                       $ 9,196                      $ 9,759
                                                       =======                       =======                      =======
INTEREST RATE SPREAD (difference between
    weighted average rate on
    interest-earning
    assets and interest-bearing
    liabilities)                                                   3.30%                       3.24%                        3.72%

NET INTEREST MARGIN (net interest
    income as a percentage of average
    interest-earning assets)                                       3.82%                       3.71%                        4.18%

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




                                      -7-
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)


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


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                  2005 versus 2004                 2004 versue 2003

                                             Increase (decrease) due to       Increase (decrease) due to
                                            ----------------------------    -------------------------------
(Dollar amounts in thousands)               Volume     Rate       Total     Volume     Rate          Total
-----------------------------------------------------------------------------------------------------------
Interest income:
<S>                                          <C>         <C>       <C>       <C>       <C>           <C>
   Loans                                     $ 115       $458      $573      $553      $  (791)      $(238)
   Securities                                  300         16       316       179         (226)        (47)
   Interest-earning deposits with banks        (28)        38        10        37            9          46
   Federal bank stocks                          (3)        19        16       --            (6)         (6)
                                             -----       ----      ----      ----      -------       -----

   Total interest-earning assets               384        531       915       769       (1,014)       (245)
                                             -----       ----      ----      ----      -------       -----
Interest expense:
   Deposits                                     50        258       308       275          (60)        215
   Borrowed funds                               29         17        46        29           74         103
                                             -----       ----      ----      ----      -------       -----
   Total interest-bearing liabilities           79        275       354       304           14         318
                                             -----       ----      ----      ----      -------       -----
Net interest income                          $ 305       $256      $561      $465      $(1,028)      $(563)
                                             =====       ====      ====      ====      =======       =====
</TABLE>

2005 RESULTS COMPARED TO 2004 RESULTS

The Corporation  reported net income of $2.57 million and $2.56 million for 2005
and 2004,  respectively.  The  $16,000  or 1.0%  increase  in net  income can be
attributed  to  increases  in net  interest  income  and  noninterest  income of
$570,000 and  $782,000,  respectively,  and a decrease in the provision for loan
losses of $85,000, offset by increases in noninterest expenses and the provision
for income taxes of $1.2 million and $184,000, respectively.

NET INTEREST  INCOME.  The primary  source of the  Corporation's  revenue is net
interest income.  Net interest income is the difference  between interest income
on  earning  assets,  such as loans and  securities,  and  interest  expense  on
liabilities,  such as  deposits  and  borrowed  funds,  used to fund the earning
assets.  Net  interest  income is  impacted  by the  volume and  composition  of
interest-earning  assets and  interest-bearing  liabilities  and  changes in the
level of interest rates. Tax equivalent net interest income  increased  $561,000
or 6.1% to $9.8  million  for 2005,  compared  to $9.2  million  for 2004.  This
increase  in  net  interest  income  can be  attributed  to an  increase  in tax
equivalent interest income of $915,000 offset by an increase in interest expense
of $354,000.

INTEREST INCOME.  Tax equivalent  interest income increased  $915,000 or 6.4% to
$15.3 million for 2005, compared to $14.4 million for 2004. This increase can be
attributed  primarily to increases in interest earned on loans and securities of
$573,000 and $316,000, respectively.

                                      -8-
<PAGE>


                                         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                     (CONTINUED)


Tax equivalent interest earned on loans receivable increased $573,000 or 4.8% to
$12.5 million for 2005,  compared to $11.9  million for 2004.  During that time,
average loans receivable increased $1.8 million or 1.0%, accounting for $115,000
in additional loan interest  income.  This volume increase was accompanied by an
increase  of  $458,000  related to the 24 basis  point  increase  in the average
interest rate earned on the loan portfolio.  The increase in the average balance
of loans was  primarily due to increased  originations  of home equity loans and
lines of credit,  commercial  mortgages and commercial  business loans while the
increases in the average yield primarily  reflects the recent upward movement in
short-term market interest rates.

Tax equivalent interest earned on securities increased $316,000 or 13.1% to $2.7
million for 2005, compared to $2.4 million for 2004 primarily due to an increase
in the average volume. The average volume of these assets increased $6.9 million
or 12.4% as a result of the deployment of funds from deposit  growth,  in excess
of loan demand,  into short-term  commercial paper,  U.S.  Government agency and
related entities, mortgage-backed and equity securities.

Interest earned on interest-earning deposits with banks, including federal funds
sold,  increased  $10,000 or 14.1% to $81,000 for 2005,  compared to $71,000 for
2004. The average rate of  interest-earning  deposits increased 111 basis points
during 2005  resulting  in an increase in interest  income of $38,000.  Interest
rates earned on interest-earning  deposit accounts are influenced by the Federal
Reserve Board (FRB) and generally  fluctuate  with changes in the discount rate.
During  2005,  the FRB raised  the  discount  rate 200 basis  points to 4.25% at
December 31, 2005 from 2.25% at December 31, 2004.  The average  volume of these
assets  decreased  $1.4 million or 32.4% as a result of  investing  excess funds
into increased loan production and a decline in deposits.

Interest earned on federal bank stocks increased $16,000 or 38.1% to $58,000 for
2005,  compared to $42,000 for 2004.  The  average  rate of federal  bank stocks
increased  115 basis  points  during 2005  resulting  in an increase in interest
income of $19,000. The average volume of these assets decreased $120,000 or 6.8%
during 2005 resulting in a decrease of interest income of $3,000.

INTEREST EXPENSE.  Interest expense  increased  $354,000 or 6.8% to $5.6 million
for 2005,  compared to $5.2 million for 2004. This increase in interest  expense
can be  attributed  to increases  in interest  incurred on deposits and borrowed
funds of $308,000 and $46,000, respectively.

Deposit  interest expense  increased  $308,000 or 6.7% to $4.9 million for 2005,
compared to $4.6  million  for 2004.  This  increase in interest  expense can be
attributed to the increase in average interest-bearing  deposits of $2.0 million
or 1.1%  between  2005 and 2004  resulting  in  additional  interest  expense of
$50,000.  Contributing  to the volume  variance was a 14 basis point increase in
the average cost of interest-bearing deposits to 2.58% for 2005 versus 2.44% for
2004  resulting in an increase in expense due to rate of $258,000.  The increase
in the average balance of deposits was primarily due to the general  fluctuation
in transactional  demand deposit accounts while the increase in the average cost
was due to the recent upward movement in short-term market interest rates.

Interest  expense on borrowed  funds  increased  $46,000 or 7.3% to $679,000 for
2005,  compared to $633,000 for 2004. This increase was a result of the increase
in the average balance of borrowed funds of $695,000 or 4.5% to $16.2 million in
2005 from $15.5  million in 2004  resulting in  additional  interest  expense of
$29,000. In addition to the volume increase,  the average rate on borrowed funds
increased 11 basis  points to 4.19% for 2005 versus 4.08% for 2004  resulting in
an  increase in interest  expense  due to rate of $17,000.  The  increase in the
average balance and rate of borrowed funds was primarily a result of the Federal
Home Loan Bank short-term  borrowings incurred throughout 2005 primarily to fund
loan demand and the outflow in deposits.


                                      -9-
<PAGE>




MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)


PROVISION FOR LOAN LOSSES. The Corporation records provisions for loan losses to
bring the total  allowance  for loan losses to a level deemed  adequate to cover
probable losses  incurred in the loan portfolio.  In determining the appropriate
level of  allowance  for  loan  losses,  management  considers  historical  loss
experience,  the present  and  prospective  financial  condition  of  borrowers,
current and  prospective  economic  conditions  (particularly  as they relate to
markets where the Corporation  originates  loans),  the status of non-performing
assets,  the  estimated  underlying  value of the  collateral  and other factors
related to the collectibility of the loan portfolio.

The provision for loan losses  decreased  $85,000 or 29.3% to $205,000 for 2005,
compared to  $290,000  for 2004.  The  Corporation's  allowance  for loan losses
amounted to $1.9 million or 0.96% of the  Corporation's  total loan portfolio at
December 31, 2005,  compared to $1.8 million or 1.00% at December 31, 2004.  The
allowance  for loan losses as a percentage of  non-performing  loans at December
31, 2005 and 2004 was 128.72% and  215.48%,  respectively.  The  decrease in the
provision for loan losses from 2004 to 2005 was primarily due to the decrease of
charge-offs and also qualitative factors such as local economics,  portfolio mix
and trends.

NONINTEREST  INCOME.  Noninterest  income includes items that are not related to
interest rates, but rather to services rendered and activities  conducted in the
financial  services  industry,  such  as fees on  depository  accounts,  general
transaction and service fees, security and loan gains and losses and earnings on
BOLI.  Noninterest  income increased $782,000 or 30.8% to $3.3 million for 2005,
compared to $2.5 million for 2004.  This can be  attributed to increases in fees
and service charges,  commissions on financial services, gains on securities and
other  noninterest   income  of  $298,000,   $342,000,   $156,000  and  $19,000,
respectively.  Offsetting  this increase were  decreases in gains on the sale of
loans and earnings on BOLI of $32,000 and $1,000, respectively.

Earnings on fees and service charges increased $298,000 or 26.6% to $1.4 million
for 2005,  compared to $1.1 million for 2004.  This  increase was  primarily the
result of the  addition  of the  Overdraft  Privilege  Program  to our  existing
product and service line during  April 2005.  During the year,  the  Corporation
realized an increase in  overdraft  charges of $307,000 to $1.2  million for the
year ended  December 31, 2005  compared to $889,000 for the year ended  December
31, 2004.

During July 2004,  the  Corporation  entered  into an  agreement  with Blue Vase
Securities,  LLC to provide investment  advisory services to our customers,  and
operates  as  Farmers  Financial  Services.  Blue  Vase  Securities,  LLC  is  a
nation-wide,   full-service,   independent  broker/dealer  that  offers  various
services such as investments,  insurances, wealth management, advisory services,
estate and retirement planning and account  consolidation.  This partnership has
enabled us to provide our customers with financial solutions that extend outside
the Bank's  ordinary  deposit  products  and  services.  The  Corporation  earns
commissions  from  providing this service and recognized an increase of $342,000
in  commissions  to $437,000 for the year ended  December  31, 2005  compared to
$95,000 in 2004.

In 2004,  management elected to sell its student loan portfolio based on the low
interest rate  environment and the higher expense  associated with the servicing
of these loans. The final sale of this portfolio  occurred in 2005. Gains on the
sale of loans  decreased  $32,000 or 86.5% to $5,000 for the year ended December
31, 2005 compared to $37,000 for the year ended December 31, 2004.

                                      -10-
<PAGE>



                                         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                     (CONTINUED)

In 2003,  management began to diversify its security  portfolio with an emphasis
on  marketable  equity  securities  of  community  banks with growth  potential,
increasing  dividend  yields and the  potential to diversify  the  Corporation's
business.  In 2005, management continued to realize gains on the diversification
of the security portfolio. The first investment contributed $628,000 to gains on
securities as management  elected to divest this investment into other community
bank  stocks  and other  funding  needs.  The  second  investment,  which was an
involuntary  transaction  that  resulted  from the sale of the  community  bank,
contributed  $198,000 to gains on  securities.  The Bank also realized  gains on
securities  from  the sale of  investments  of  Fannie  Mae and  Freddie  MAC of
$31,000.

Other  noninterest  income  increased  $19,000  or 4.9% to  $407,000  for  2005,
compared to $388,000 for 2004. Other  noninterest  income consists  primarily of
miscellaneous  customer  fees for ATM and debit card  privileges,  wire transfer
fees, commissions on insurance and gains on the sale of foreclosed assets.

NONINTEREST EXPENSE. Noninterest expense increased $1.2 million or 15.6% to $9.1
million  for  2005,  compared  to  $7.9  million  for  2004.  This  increase  in
noninterest  expense is  comprised of  increases  in  compensation  and employee
benefits,  premises and  equipment  expenses and other  noninterest  expenses of
$712,000,  $225,000  and  $305,000,  respectively,  offset by the  reduction  in
intangible amortization expense of $5,000.

The largest  component  of  noninterest  expense is  compensation  and  employee
benefits.  This expense  increased  $712,000 or 16.2%.  Normal annual salary and
wage  adjustments,   increased  health  insurance  and  pension  costs,   higher
director's fees, and commissions paid to the financial  services  representative
were the major  components of this increase.  Also  contributing to the increase
was the  addition of a new  commercial  lender,  compliance  officer,  financial
services  assistant,  trainer  and credit  analyst.  Partially  offsetting  this
increase  was an  increase  in  standard  loan costs  deferred  associated  with
personnel as a result of increased loan production.

Premises and equipment expense increased $225,000 or 16.2% primarily as a result
of a change in the estimated  useful life of an asset which was replaced  during
the fourth  quarter of 2005 and resulted in additional  depreciation  expense of
$108,000.  Also contributing to the increase in premises and equipment  expenses
were  increases  in repairs and  maintenance,  utilities  resulting  from higher
energy  costs  experienced  during the year and  maintenance  service  contracts
incurred as a result of new technology.

Other noninterest  expense increased  $305,000 or 14.6% primarily as a result of
increased professional fees, travel and entertainment, loan expenses, collection
costs,  bad checks and other  losses,  expenses  associated  with the  overdraft
privilege  program and losses  associated  with  reconciling  items related to a
correspondent bank relationship.  During 2005, the introduction of the overdraft
privilege  program to our product and service line  accounted for $47,000 of the
increase in other noninterest  expenses.  Also contributing to this increase was
the  write-off of amounts  related to a  correspondent  bank  reconciliation  of
$203,000  resulting from the  inefficiencies  related to  consolidation of their
offices as well as variances  resulting from the Bank's  technology  conversions
late in 2004.

Provision  for income  taxes  increased  $184,000 or 35.9% to $697,000 for 2005,
compared to $513,000 for 2004.  Contributing  to this change was the increase in
the  effective  tax rate to 21.3% for 2005 from 16.7% for 2004.  During 2004 the
Corporation  generated  tax  credits  and  reduced  federal  income tax  expense
primarily as a result of the historical  renovations to our headquarters located
in Emlenton, Pennsylvania.


                                      -11-
<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)


2004 RESULTS COMPARED TO 2003 RESULTS

The  Corporation  reported  net income of $2.6 million and $2.5 million for 2004
and 2003,  respectively.  The  $65,000  or 2.6%  increase  in net  income can be
attributed to increases in  noninterest  income of $750,000 and decreases in the
provision  for loan  losses and the  provision  for income  taxes of $40,000 and
$236,000, respectively,  offset by a decrease in net interest income of $574,000
and an increase in noninterest expense of $387,000.

NET INTEREST  INCOME.  The primary  source of the  Corporation's  revenue is net
interest income.  Net interest income is the difference  between interest income
on  earning  assets,  such as loans and  securities,  and  interest  expense  on
liabilities,  such as  deposits  and  borrowed  funds,  used to fund the earning
assets.  Net  interest  income is  impacted  by the  volume and  composition  of
interest-earning  assets and  interest  bearing  liabilities  and changes in the
level of interest rates. Tax equivalent net interest income  decreased  $564,000
or 5.8% to $9.2  million  for 2004,  compared  to $9.8  million  for 2003.  This
decrease  in  net  interest  income  can  be  attributed  to a  decrease  in tax
equivalent  interest  income of $245,000  and a increase in interest  expense of
$319,000.

INTEREST INCOME.  Tax equivalent  interest income decreased  $245,000 or 1.7% to
$14.4 million for 2004, compared to $14.7 million for 2003. This decrease can be
attributed to decreases in interest earned on loans, securities and federal bank
stocks of $238,000, $47,000 and $6,000,  respectively,  offset by an increase in
interest earned on interest-earning cash equivalents of $46,000.

Tax equivalent interest earned on loans receivable decreased $238,000 or 2.0% to
$11.9 million for 2004,  compared to $12.1  million for 2003.  During that time,
average  loans  increased  $8.3  million or 4.7%,  accounting  for  $553,000  in
additional  loan interest  income.  Due to the  continually  lower interest rate
environment  experienced  in both 2004 and 2003,  this volume  increase was more
than offset by a decrease of $791,000  relating to the 43 basis point  reduction
in the average interest rate earned on the loan portfolio.

Tax equivalent  interest earned on securities  decreased $47,000 or 1.9% to $2.4
million for 2004, compared to $2.5 million for 2003. The average volume of these
assets  increased  $3.9 million or 7.6% - as a result of the deployment of funds
from deposit growth, in excess of loan demand, into short-term commercial paper,
U.S.  Government  agency  and  related  entities,   mortgage-backed  and  equity
securities - accounting  for  $179,000 of the increase in interest  income.  The
average rate of securities decreased 42 basis points during 2004 resulting in an
offsetting reduction in such interest income of $226,000.

Interest earned on  interest-earning  deposit accounts,  including federal funds
sold,  increased $40,000 or 54.8% to $113,000 for 2004,  compared to $73,000 for
2003.  The average  volume of these assets  increased $2.4 million or 64.4% as a
result of excess  funds  resulting  from  lower  loan  production  and growth in
deposits, accounting for $37,000 of the increase in interest income. The average
rate  of  interest-earning  deposits  decreased  11  basis  points  during  2004
resulting in a decrease in interest  income of $3,000.  Interest rates earned on
interest-earning  deposit  accounts  are  influenced  by the FRB  and  generally
fluctuate  with changes in the discount  rate.  During 2004,  the FRB raised the
discount  rate 125 basis  points to 3.25% at  December  31,  2004 from  2.00% at
December 31, 2003.

INTEREST EXPENSE.  Interest expense  increased  $319,000 or 6.5% to $5.2 million
for 2004,  compared to $4.9 million for 2003. This increase in interest  expense
can be  attributed  to increases  in interest  incurred on deposits and borrowed
funds of $216,000 and $103,000, respectively.

                                      -12-
<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)

Deposit interest expense increased $216,000 or 4.9% to $4.6 million for 2004,
compared to $4.4 million for 2003.  This increase in interest expense can be
attributed to the increase in average  interest-bearing  deposits of $11.3
million or 6.4% between 2004 and 2003 resulting in additional  interest expense
of $275,000.  Offsetting the volume variance was a 3 basis point decline in the
cost of interest-bearing deposits to 2.44% for 2004 versus 2.47% for 2003
resulting in a reduction in expense due to rate of $59,000.

Interest  expense on borrowed funds increased  $103,000 or 19.4% to $633,000 for
2004,  compared to $530,000 for 2003. This increase was a result of the increase
in the average balance of borrowed funds of $780,000 or 5.3% to $15.5 million in
2004 from $14.7  million in 2003  resulting in  additional  interest  expense of
$29,000. In addition to the volume increase,  the average rate on borrowed funds
increased 48 basis  points to 4.08% for 2004 versus 3.60% for 2003  resulting in
an  increase in interest  expense  due to rate of $74,000.  The  increase in the
average balance and rate of borrowed funds was primarily a result of the Federal
Home Loan Bank term borrowing in June 2003. Offsetting the increase was interest
capitalization  on  the  renovations  of  the  main  headquarters  in  Emlenton,
Pennsylvania.

PROVISION FOR LOAN LOSSES. The Corporation records provisions for loan losses to
bring the total  allowance  for loan losses to a level deemed  adequate to cover
probable losses  incurred in the loan portfolio.  In determining the appropriate
level of  allowance  for  loan  losses,  management  considers  historical  loss
experience,  the present  and  prospective  financial  condition  of  borrowers,
current and  prospective  economic  conditions  (particularly  as they relate to
markets where the Corporation  originates  loans),  the status of non-performing
assets,  the  estimated  underlying  value of the  collateral  and other factors
related to the collectibility of the loan portfolio.

The provision for loan losses  decreased  $40,000 or 12.1% to $290,000 for 2004,
compared to  $330,000  for 2003.  The  Corporation's  allowance  for loan losses
amounted to $1.8 million or 1.00% of the  Corporation's  total loan portfolio at
December 31, 2004,  compared to $1.8 million or 0.92% at December 31, 2003.  The
allowance  for loan losses as a percentage of  non-performing  loans at December
31, 2004 and 2003 was 215.48% and  133.71%,  respectively.  The  decrease in the
provision  for loan losses from 2004 to 2003 was  primarily due to the decreases
in loans  receivable  and  non-performing  loans of $10.5  million and $489,000,
respectively.

NONINTEREST  INCOME.  Noninterest  income includes items that are not related to
interest rates, but rather to services rendered and activities  conducted in the
financial  services  industry,  such  as fees on  depository  accounts,  general
transaction and service fees, security and loan gains and losses and earnings on
BOLI.  Noninterest  income increased $750,000 or 42.0% to $2.5 million for 2004,
compared to $1.8 million for 2003.  This can be  attributed to increases in fees
and service charges,  commissions on financial services, gains on securities and
other noninterest income $88,000, $95,000,  $531,000 and $87,000,  respectively.
Offsetting  this  increase  were  decreases  in gains  on the sale of loans  and
earnings on BOLI of $10,000 and $41,000, respectively.

Earnings on fees and service charges  increased  $88,000 or 8.5% to $1.1 million
for 2004,  compared to $1.0 million for 2003.  This  increase was  primarily the
result of management electing to increase the non-sufficient  funds fee early in
2004.


                                      -13-
<PAGE>




                                         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                     (CONTINUED)

During  2004,  the  Corporation   entered  into  an  agreement  with  Blue  Vase
Securities,  LLC to provide investment  advisory services to our customers,  and
operates  as  Farmers  Financial  Services.  Blue  Vase  Securities,  LLC  is  a
nation-wide,   full-service,   independent  broker/dealer  that  offers  various
services such as investments,  insurances, wealth management, advisory services,
estate and retirement planning and account  consolidation.  This partnership has
enabled the  Corporation to provide our customers with financial  solutions that
extend  outside  the  Bank's  ordinary  deposit   products  and  services.   The
Corporation earns commissions from providing this service and recognized $95,000
in 2004.

In 2004,  management elected to sell its student loan portfolio based on the low
interest rate  environment and the higher expense  associated with the servicing
of these loans.  This sale resulted in a gain on the sale of loans of $39,000 in
2004.  Offsetting  this gain was an adjustment of $2,000  associated  with loans
sold in 2003. The remainder of this portfolio has been  classified as loans held
for sale.

In 2003,  management began to diversify its security  portfolio with an emphasis
on  marketable  equity  securities  of  community  banks with growth  potential,
increasing  dividend  yields and the  potential to diversify  the  Corporation's
business.  In 2004,  management began to realize gains on the diversification of
the security portfolio. The first investment contributed $296,000 to the gain on
the sale of  securities  as management  elected to divest this  investment  into
other  community  bank stocks and other funding  needs.  The second  investment,
which  was an  involuntary  transaction  that  resulted  from  the  sale  of the
community bank, contributed $365,000 to gains on securities.

The earnings on BOLI decreased  $41,000 or 17.6% to $192,000 for 2004,  compared
to $233,000 for 2003.  Lower interest rates earned on bank-owned  life insurance
contributed to this decrease in earnings between 2004 and 2003.

Other  noninterest  income  increased  $87,000  or 28.9% to  $388,000  for 2004,
compared to $301,000 for 2003. Other  noninterest  income consists  primarily of
miscellaneous  customer  fees for ATM and debit card  privileges,  wire transfer
fees, commissions on insurance and gains on the sale of foreclosed assets.

NONINTEREST  EXPENSE.  Noninterest  expense  increased  $387,000 or 5.1% to $7.9
million  for  2004,  compared  to  $7.5  million  for  2003.  This  increase  in
noninterest  expense is  comprised of  increases  in  compensation  and employee
benefits,  premises and  equipment  expenses and other  noninterest  expenses of
$219,000,  $172,000  and  $75,000,  respectively,  offset  by the  reduction  in
intangible amortization expense of $79,000.

The largest  component  of  noninterest  expense is  compensation  and  employee
benefits. This expense increased $219,000 or 5.2%. Normal annual salary and wage
adjustments,  increased  health  insurance  costs,  higher  director's fees, and
commissions  paid  to the  financial  services  representative  were  the  major
components of this increase.  Also contributing to the increase was the addition
of a new  compliance  officer  and credit  analyst.  Partially  offsetting  this
increase was a reduction in pension costs, employee training expenses, incentive
accruals  and a  decrease  in  standard  loan  costs  deferred  associated  with
personnel as a result of lower loan production.

                                      -14-
<PAGE>

                                         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                     (CONTINUED)

Premises and equipment expense increased $172,000 or 16.4% primarily as a result
of  additional  depreciation  on certain  data  processing  equipment  placed in
service  in  the  first  quarter  2004  and  the  depreciation  related  to  the
renovations incurred at the headquarter office in Emlenton during 2003.

Intangible  amortization  expense  decreased $79,000 or 68.7% as a result of the
cessation  of  intangible  amortization  expense  on three  branches  previously
acquired  which have been fully  amortized.  Offsetting  this  decrease  was the
increase in intangible  amortization  expense of $3,000  related to the customer
relationship  intangible  asset  recognized in 2004.  The customer  relationship
intangible asset will be amortized over two years.

Other  noninterest  expense  increased  $75,000 or 3.4% primarily as a result of
increased  telephone  costs,  Pennsylvania  shares  and use taxes  and  software
amortization.  Other noninterest  expenses consists  primarily of loan servicing
costs,  credit  bureau and loan  expenses,  contributions,  bad checks and other
losses and other  miscellaneous  operating expenses.  Partially  offsetting this
increase in other  noninterest  expenses were  decreases in  professional  fees,
postage and freight, advertising and other noninterest expenses.

Provision  for income  taxes  decreased  $236,000 or 31.5% to $513,000 for 2004,
compared to $749,000 for 2003. Contributing to this change was the effective tax
rate  decreasing  to 16.7%  for 2004 from  23.2% for 2003 as a direct  result of
investments in tax-free municipal  securities and loans,  nontaxable BOLI income
and a  historical  tax credit  related  to the  renovations  of the main  office
building.

MARKET RISK MANAGEMENT

The primary objective of the Corporation's  asset liability  management function
is to maximize  the  Corporation's  net  interest  income  while  simultaneously
maintaining  an acceptable  level of interest rate risk given the  Corporation's
operating   environment,   capital  and  liquidity   requirements,   performance
objectives  and  overall  business  focus.  One of the  primary  measures of the
exposure  of the  Corporation's  earnings  to  interest  rate risk is the timing
difference between the repricing or maturity of interest-earning  assets and the
repricing or maturity of interest-bearing liabilities.

The  Corporation's  Board of  Directors  has  established  a Finance  Committee,
consisting of four outside directors,  the President and Chief Executive Officer
and the Principal  Financial and  Accounting  Officer,  to monitor  market risk,
including  primarily  interest rate risk. This  committee,  which meets at least
quarterly, generally establishes and monitors the investment, interest rate risk
and asset and liability management policies established by the Corporation.

In order to minimize the potential for adverse affects of material and prolonged
changes  in  interest  rates on the  Corporation's  results of  operations,  the
Corporation's  management  has  implemented  and  continues to monitor asset and
liability management policies to better match the maturities and repricing terms
of the Corporation's  interest-earning assets and interest-bearing  liabilities.
Such  policies  have  consisted  primarily  of (i)  originating  adjustable-rate
mortgage loans; (ii) originating  short-term  secured  commercial loans with the
rate on the loan  tied to the  prime  rate or reset  features  in which the rate
changes at determined  intervals;  (iii) emphasizing  investment in shorter-term
(15 years or less)  investment  securities;  (iv) selling  longer-term (30 year)
fixed-rate residential mortgage loans in the secondary market; (v) maintaining a
high level of liquid assets  (including  securities  classified as available for
sale) that can be  readily  reinvested  in higher  yielding  investments  should
interest rates rise;  (vi)  emphasizing the retention of  lower-costing  savings
accounts and other core deposits; and (vii) lengthening  liabilities and locking
in lower borrowing rates with longer terms whenever possible.


                                      -15-
<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)



MARKET RISK MANAGEMENT (CONTINUED).
----------------------

INTEREST RATE SENSITIVITY GAP ANALYSIS.

The  implementation  of asset  and  liability  initiatives  and  strategies  and
compliance with related policies,  combined with other external factors, such as
demand  for  the   Corporation's   products  and  economic  and  interest   rate
environments in general, has resulted in the Corporation  maintaining a one-year
cumulative interest rate sensitivity gap ranging between a positive and negative
20% of total assets. The one-year interest rate sensitivity gap is identified as
the  difference  between  the  Corporation's  interest-earning  assets  that are
scheduled  to  mature  or  reprice  within  one-year  and  its  interest-bearing
liabilities that are scheduled to mature or reprice within one-year.

The  interest  rate  sensitivity  gap is defined as the  difference  between the
amount of  interest-earning  assets maturing or repricing within a specific time
period and the amount of  interest-bearing  liabilities  maturing  or  repricing
within  that  time  period.  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, or
more neutral, that gap is maintained, generally, the lesser the impact of market
interest rate changes on net interest income.

Based on certain  assumptions  provided by a federal  regulatory  agency,  which
management   believes  most   accurately   represents  the  sensitivity  of  the
Corporation's  assets and liabilities to interest rate changes,  at December 31,
2005, the  Corporation's  interest-earning  assets maturing or repricing  within
one-year  totaled  $67.2  million  while  the   Corporation's   interest-bearing
liabilities  maturing  or  repricing  within  one-year  totaled  $83.1  million,
providing an excess of interest-bearing liabilities over interest-earning assets
of $15.9 million or a negative 5.8% of total assets.  At December 31, 2005,  the
percentage  of the  Corporation's  assets to  liabilities  maturing or repricing
within one-year was 80.9%.

The  following  table  presents  the  amounts  of  interest-earning  assets  and
interest-bearing  liabilities  outstanding  as of  December  31,  2005 which are
expected  to  mature,  prepay or  reprice  in each of the  future  time  periods
presented:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                  Due in       Due within     Due within    Due within   Due in
                                                  six months   six months       one to      three to       over
(Dollar amounts in thousands)                     or less      to one year    three years   five years   five years  Total
------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>            <C>          <C>         <C>         <C>
Total interest-earning assets                     $ 45,861      $   21,378     $ 77,516     $ 48,098    $ 56,157    $249,010

Total interest-bearing liabilities                  45,915          37,183       56,277       21,502      89,137     250,014
                                                  ---------     ----------     --------     --------    --------    --------
Maturity or repricing gap during the period       $    (54)     $  (15,805)    $ 21,239     $ 26,596    $(32,980)   $ (1,004)
                                                  =========     ==========     ========     ========    ========    ========
Cumulative gap                                    $    (54)     $  (15,859)    $  5,380     $ 31,976    $ (1,004)
                                                  =========     ==========     ========     ========    ========
Ratio of gap during the period to total assets      (0.02%)         (5.74%)       7.71%        9.65%     (11.97%)
                                                  =========     ==========     ========     ========    ========
Ratio of cumulative gap to total assets             (0.02%)         (5.76%)       1.95%       11.61%      (0.36%)
                                                  =========     ==========     ========     ========    ========
Total assets                                                                                                        $275,517
                                                                                                                    ========
</TABLE>

                                      -16-
<PAGE>


                                         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                     (CONTINUED)



INTEREST RATE SENSITIVITY GAP ANALYSIS (CONTINUED)
--------------------------------------

Although  certain assets and liabilities may have similar  maturities or periods
of repricing,  they may react in different degrees to changes in market interest
rates.  The  interest  rates on  certain  types of assets  and  liabilities  may
fluctuate in advance of changes in market interest  rates,  while interest rates
on other  types of assets  and  liabilities  may lag  behind  changes  in market
interest rates. In the event of a change in interest rates, prepayment and early
withdrawal  levels  would likely  deviate  significantly  from those  assumed in
calculating  the table.  The ability of many borrowers to service their debt may
decrease in the event of an interest rate increase.

The one-year  interest rate  sensitivity  gap has been the most common  industry
standard used to measure an institution's  interest rate risk position regarding
maturities, repricing and prepayments. In recent years, in addition to utilizing
interest  rate  sensitivity  gap  analysis,  the  Corporation  has increased its
emphasis on the utilization of interest rate sensitivity  simulation analysis to
evaluate and manage interest rate risk.

INTEREST RATE SENSITIVITY SIMULATION ANALYSIS.

The  Corporation  also  utilizes  income  simulation  modeling in measuring  its
interest  rate risk and  managing  its interest  rate  sensitivity.  The Finance
Committee of the  Corporation  believes  that  simulation  modeling  enables the
Corporation to more accurately  evaluate and manage the possible  effects on net
interest income due to the exposure to changing market interest rates, the slope
of the yield curve and different loan and security  prepayment and deposit decay
assumptions under various interest rate scenarios.

As with gap analysis and earnings  simulation  modeling,  assumptions  about the
timing  and  variability  of cash flows are  critical  in net  portfolio  equity
valuation analysis.  Particularly important are the assumptions driving mortgage
prepayments  and the  assumptions  about expected  attrition of the core deposit
portfolios.   These  assumptions  are  based  on  the  Corporation's  historical
experience  and  industry  standards  and are  applied  consistently  across the
different rate risk measures.

The Corporation has established the following  guidelines for assessing interest
rate risk:

          NET INTEREST INCOME  SIMULATION.  Given a 200 basis point parallel and
          gradual  increase or decrease in market interest  rates,  net interest
          income may not change by more than 10% for a one-year period.

          PORTFOLIO EQUITY SIMULATION. Portfolio equity is the net present value
          of the  Corporation's  existing  assets and  liabilities.  Given a 200
          basis point  immediate  and  permanent  increase or decrease in market
          interest rates,  portfolio equity may not correspondingly  decrease or
          increase by more than 20% of stockholders' equity.

These guidelines take into  consideration the current interest rate environment,
the  Corporation's  financial  asset and  financial  liability  product  mix and
characteristics and liquidity sources among other factors.

                                      -17-

<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)

INTEREST RATE SENSITIVITY SIMULATION ANALYSIS (CONTINUED).
---------------------------------------------

The following  table  presents the simulated  impact of a 100 basis point or 200
basis point  upward or a 100 basis point or 200 basis  point  downward  shift of
market  interest  rates on net interest  income for the years ended December 31,
2005  and  2004,  respectively.   This  analysis  was  done  assuming  that  the
interest-earning  asset and  interest-bearing  liability  levels at December 31,
2005 remained constant.  The impact of the market rate movements on net interest
income was  developed  by  simulating  the effects of rates  changing  gradually
during a one-year  period from the  December  31,  2005 levels for net  interest
income.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                              Increase                            Decrease
                                                  ---------------------------------   --------------------------------
                                                        +100                  +200        -100                  -200
                                                          BP                    BP          BP                    BP
----------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                  <C>         <C>                   <C>
2005 Net interest income - increase (decrease)          0.40%                (0.53%)     (1.45%)               (4.75%)

2004 Net interest income - increase (decrease)          0.46%                (1.12%)     (4.95%)              (11.75%)
----------------------------------------------------------------------------------------------------------------------
</TABLE>

IMPACT OF INFLATION AND CHANGING PRICES

The  consolidated  financial  statements  of the  Corporation  and related notes
presented  herein have been prepared in accordance  with  accounting  principles
generally accepted in the United States of America which require the measurement
of financial  condition  and operating  results in terms of historical  dollars,
without  considering changes in the relative purchasing power of money over time
due to inflation.

Unlike  most  industrial   companies,   substantially  all  of  the  assets  and
liabilities  of a financial  institution  are  monetary in nature.  As a result,
interest  rates  have a more  significant  impact on a  financial  institution's
performance  than the effects of general levels of inflation.  Interest rates do
not  necessarily  move in the same  direction  or in the same  magnitude  as the
prices of goods and  services  since such prices are  affected by inflation to a
larger degree than interest  rates.  In the current  interest rate  environment,
liquidity and the maturity structure of the Corporation's assets and liabilities
are critical to the maintenance of acceptable performance levels.


                                      -18-

<PAGE>
                                         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                     (CONTINUED)


RECENT ACCOUNTING PRONOUNCEMENTS AND STANDARDS
----------------------------------------------

In March 2004, the FASB's  Emerging Issues Task Force (EITF) reached a consensus
on Issue No.  03-1,  "The  Meaning of  Other-Than-Temporary  Impairment  and Its
Application   to  Certain   Investments."   EITF  03-1   provides   guidance  on
other-than-temporary impairment models for marketable debt and equity securities
accounted for under SFAS 115 and non-marketable  equity securities accounted for
under the cost method.  The EITF developed a basic  three-step model to evaluate
whether an investment is other-than-temporarily  impaired. In November 2005, the
FASB  approved the issuance of FASB Staff  Position  (FSP) FAS No. 115-1 and FAS
124-1,  "The Meaning of  Other-Than-Temporary  Impairment and Its Application to
Certain  Investments."  The FSP  addresses  when  an  investment  is  considered
impaired,  whether the impairment is other-than-temporary and the measurement of
an impairment loss. The FSP also includes accounting  considerations  subsequent
to the recognition of an  other-than-temporary  impairment and requires  certain
disclosures   about   unrealized   losses  that  have  not  been  recognized  as
other-than-temporary. The FSP is effective for reporting periods beginning after
December 15, 2005 with earlier  application  permitted.  For the Corporation the
effective date will be the first quarter of fiscal year 2006.

In June 2005, the FASB's  Emerging  Issues Task Force (EITF) reached a consensus
on  Issue  No.  05-6,   "Determining  the  Amortization   Period  for  Leasehold
Improvements   Purchased  after  Lease  Inception  or  Acquired  in  a  Business
Combination" ("EITF 05-6").  This guidance requires that leasehold  improvements
acquired in a business combination or purchased subsequent to the inception of a
lease be  amortized  over the shorter of the useful life of the assets or a term
that includes required lease periods and renewals that are reasonably assured at
the date of the business  combination  or purchase.  This guidance is applicable
only to  leasehold  improvements  that are  purchased  or acquired in  reporting
periods beginning after June 29, 2005. The adoption of this accounting principle
did not have a  significant  impact on our  financial  position  or  results  of
operations.

In May 2005, FASB issued SFAS 154,  "Accounting Changes and Error Corrections.".
The  Statement  requires  retroactive  application  of  a  voluntary  change  in
accounting   principle  to  prior  period  financial  statements  unless  it  is
impracticable.  SFAS 154 also requires that a change in method of  depreciation,
amortization, or depletion for long-lived, non-financial assets be accounted for
as a change in  accounting  estimate  that is affected by a change in accounting
principle.  SFAS 154 replaces APB Opinion 20, "Accounting Changes",  and SFAS 3,
"Reporting Accounting Changes in Interim Financial Statements." SFAS 154 will be
effective for accounting  changes and corrections of errors made in fiscal years
beginning after December 15, 2005.  Management  currently believes that adoption
of  the  provisions  of  SFAS  154  will  not  have  a  material  impact  on the
Corporation's consolidated financial statements.


                                      -19-
<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

(Dollar amounts in thousands, except share data)
-------------------------------------------------------------------------------------------------------------------
                                                                                         December 31,
-------------------------------------------------------------------------------------------------------------------
                                                                             2005                            2004
-------------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                                       <C>                            <C>
Cash and due from banks                                                   $   9,399                      $   7,769
Interest-earning deposits with banks                                            968                          6,855
-------------------------------------------------------------------------------------------------------------------
        Total cash and cash equivalents                                      10,367                         14,624
-------------------------------------------------------------------------------------------------------------------
Securities:
        Available for sale, at fair value                                    56,289                         63,346
        Held to maturity; fair value of $14 and $16                              15                             16
-------------------------------------------------------------------------------------------------------------------
              Total securities                                               56,304                         63,362
-------------------------------------------------------------------------------------------------------------------
Loans held for sale                                                               -                            386
Loans receivable, net of allowance for loan losses of $1,869 and $1,810     192,526                        179,575
Federal bank stocks, at cost                                                  1,773                          1,731
Bank-owned life insurance                                                     4,623                          4,448
Accrued interest receivable                                                   1,271                          1,203
Premises and equipment, net                                                   6,123                          5,678
Goodwill                                                                      1,422                          1,422
Other intangibles                                                                 7                             38
Prepaid expenses and other assets                                             1,101                            913
-------------------------------------------------------------------------------------------------------------------
              TOTAL ASSETS                                                $ 275,517                      $ 273,380
-------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
        Noninterest-bearing                                               $  44,044                       $ 40,511
        Interest-bearing                                                    186,459                        192,363
-------------------------------------------------------------------------------------------------------------------
              Total deposits                                                230,503                        232,874
-------------------------------------------------------------------------------------------------------------------
Borrowed funds
        Short-term                                                            4,500                              -
        Long-term                                                            15,000                         15,000
-------------------------------------------------------------------------------------------------------------------
              Total borrowed funds                                           19,500                         15,000
-------------------------------------------------------------------------------------------------------------------
Accrued interest payable                                                        607                            577
Accrued expenses and other liabilities                                        1,292                          1,313
-------------------------------------------------------------------------------------------------------------------
              TOTAL LIABILITIES                                             251,902                        249,764
-------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value, 3,000,000 shares authorized; none issued        -                              -
Common stock, $1.25 par value, 12,000,000 shares authorized;
              1,395,852 shares issued, 1,267,835 shares outstanding           1,745                          1,745
Additional paid-in capital                                                   10,871                         10,871
Treasury stock, at cost; 128,017 shares                                      (2,653)                        (2,653)
Retained earnings                                                            13,678                         12,398
Accumulated other comprehensive (loss) income                                   (26)                         1,255
-------------------------------------------------------------------------------------------------------------------
              TOTAL STOCKHOLDERS' EQUITY                                     23,615                         23,616
-------------------------------------------------------------------------------------------------------------------
              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $ 275,517                      $ 273,380
-------------------------------------------------------------------------------------------------------------------
</TABLE>



See accompanying notes to consolidated financial statements.

                                      -20-
<PAGE>
                                               CONSOLIDATED STATEMENTS OF INCOME


(Dollar amounts in thousands, except share data)

<TABLE>
<CAPTION>
                                                                       Year ended December 31,
------------------------------------------------------------------------------------------------------
                                                                    2005            2004       2003
------------------------------------------------------------------------------------------------------
Interest and dividend income
<S>                                                       <C>             <C>             <C>
        Loans receivable, including fees                  $   12,325      $   11,744      $   12,009
        Securities:
              Taxable                                          1,714           1,396           1,391
              Exempt from federal income tax                     699             700             736
        Federal bank stocks                                       58              42              48
        Deposits with banks                                       81              71              25
------------------------------------------------------------------------------------------------------
              Total interest and dividend income              14,877          13,953          14,209
------------------------------------------------------------------------------------------------------
Interest expense
        Deposits                                               4,894           4,586           4,371
        Short-term borrowed funds                                 50               3              23
        Long-term borrowed funds                                 629             630             507
------------------------------------------------------------------------------------------------------
              Total interest expense                           5,573           5,219           4,901
------------------------------------------------------------------------------------------------------
Net interest income                                            9,304           8,734           9,308
        Provision for loan losses                                205             290             330
------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses            9,099           8,444           8,978
------------------------------------------------------------------------------------------------------
Noninterest income
        Fees and service charges                               1,420           1,122           1,034
        Commissions on financial services                        437              95            --
        Gain on the sale of loans                                  5              37              47
        Gains on securities                                      857             701             170
        Earnings on bank-owned life insurance (BOLI)             191             192             233
        Other                                                    407             388             301
------------------------------------------------------------------------------------------------------
              Total noninterest income                         3,317           2,535           1,785
------------------------------------------------------------------------------------------------------
Noninterest expense
        Compensation and employee benefits                     5,107           4,395           4,176
        Premises and equipment                                 1,611           1,386           1,136
        Intangible amortization expense                           31              36             115
        Other                                                  2,397           2,092           2,095
------------------------------------------------------------------------------------------------------
              Total noninterest expense                        9,146           7,909           7,522
------------------------------------------------------------------------------------------------------
Income before provision for income taxes                       3,270           3,070           3,241
        Provision for income taxes                               697             513             749
------------------------------------------------------------------------------------------------------
Net income                                                $    2,573      $    2,557      $    2,492
------------------------------------------------------------------------------------------------------
Basic earnings per share                                  $     2.03      $     2.02      $     1.91

Average common shares outstanding                          1,267,835       1,267,835       1,301,714
</TABLE>




See accompanying notes to consolidated financial statements.


                                      -21-

<PAGE>




CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>

(Dollar amounts in thousands, except share data)

                                                                                                     Accumulated
                                                             Additional                                 Other            Total
                                                   Common     Paid-in      Treasury    Retained      Comprehensive   Stockholders'
                                                   Stock      Capital        Stock     Earnings      Income (Loss)      Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>      <C>            <C>         <C>                <C>           <C>
Balance at January 1, 2003                          $ 1,745  $ 10,871       $  (971)    $ 9,978            $ 1,057       $ 22,680
---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
      Net income                                                                          2,492                             2,492
      Change in net unrealized gain on
          securities available for sale, net of
          taxes of $310                                                                                        602            602
                                                                                                                         --------
Comprehensive income                                                                                                        3,094
Purchase of treasury stock, 65,000 Shares                                    (1,682)                                       (1,682)
Dividends declared, $1.11 per share                                                      (1,437)                           (1,437)
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003                          1,745    10,871        (2,653)     11,033              1,659         22,655
---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
      Net income                                                                          2,557                             2,557
      Change in net unrealized gain on
          securities available for sale, net of
          taxes of ($207)                                                                                     (404)          (404)
                                                                                                                         --------
Comprehensive income                                                                                                        2,153
Dividends declared, $0.94 per share                                                      (1,192)                           (1,192)
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2004                          1,745   10,871         (2,653)     12,398              1,255         23,616
---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
      Net income                                                                          2,573                             2,573
      Change in net unrealized gain on
          securities available for sale, net of
          taxes of ($660)                                                                                   (1,281)        (1,281)
                                                                                                                         --------
Comprehensive income                                                                                                        1,292
Dividends declared, $1.02 per share                                                      (1,293)                           (1,293)
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2005                        $ 1,745  $ 10,871       $(2,653)    $13,678            $   (26)      $ 23,615
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.


                                      -22-
<PAGE>




                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except share data)

                                                                                               Year ended December 31,
--------------------------------------------------------------------------------------------------------------------------------
                                                                                         2005          2004            2003
--------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S>                                                                                    <C>            <C>            <C>
Net income                                                                             $  2,573       $  2,557       $  2,492
Adjustments to reconcile net income to net cash provided by operating activities:
       Depreciation and amortization of premises and equipment                              855            703            490
       Provision for loan losses                                                            205            290            330
       Amortization of premiums and accretion of discounts, net                              94            223            253
       Amortization of intangible assets and mortgage servicing rights                       37             36            115
       Gains on securities                                                                 (857)          (701)          (170)
       Gain on sale of loans                                                                 (5)           (37)           (47)
       Loans originated for sale                                                           (155)          --           (1,989)
       Proceeds from sales of loans held for sale                                           546          3,541          2,036
       Earnings on bank-owned life insurance, net                                          (175)          (176)          (218)
       (Increase) decrease in accrued interest receivable                                   (68)            67             55
       (Increase) decrease in prepaid expenses and other assets                             572             (6)          (642)
       Increase in accrued interest payable                                                  30            100             10
       Increase (decrease) in accrued expenses and other liabilities                        (21)          (421)           479
--------------------------------------------------------------------------------------------------------------------------------
            Net cash provided by operating activities                                     3,631          6,176          3,194
--------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Loan originations and principal collections, net                                        (13,286)         6,628        (21,344)
Available for sale securities:
            Sales                                                                         1,646            945            647
            Maturities, prepayments and calls                                             8,809         13,299         36,369
            Purchases                                                                    (4,552)       (28,549)       (36,524)
Held to maturity securities:
            Maturities, prepayments and calls                                                 1              1             12
Redemptions of federal bank stocks                                                        1,068            737            658
Purchases of federal bank stocks                                                         (1,110)          (486)        (1,342)
Purchase of customer relationship intangible                                               --              (20)          --
Purchases of premises and equipment                                                      (1,300)          (682)        (1,949)
--------------------------------------------------------------------------------------------------------------------------------
            Net cash used in investing activities                                        (8,724)        (8,127)       (23,473)
--------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net (decrease) increase in deposits                                                      (2,371)        15,764         12,685
Borrowings from the FHLB                                                                   --             --           10,700
Increase (decrease) of overnight borrowed funds                                           4,500         (5,700)          --
Dividends paid on common stock                                                           (1,293)        (1,192)        (1,437)
Payments to acquire treasury stock                                                         --             --           (1,682)
--------------------------------------------------------------------------------------------------------------------------------
            Net cash provided by financing activities                                       836          8,872         20,266
--------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                     (4,257)         6,921            (13)
Cash and cash equivalents at beginning of period                                         14,624          7,703          7,716
--------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                             $ 10,367       $ 14,624       $  7,703
--------------------------------------------------------------------------------------------------------------------------------

Supplemental information:
       Interest paid                                                                   $  5,543       $  5,119       $  4,891
       Income taxes paid                                                                    442            295            828

Supplemental noncash disclosures:
       Transfers from portfolio loans to loans held for sale                           $   --         $  3,890       $   --
       Transfers from loans to foreclosed real estate                                       106             69           --
</TABLE>




See accompanying notes to consolidated financial statements.

                                      -23-
<PAGE>




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

              NATURE OF OPERATIONS AND BASIS OF PRESENTATION.

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

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

              USE OF ESTIMATES.

              To prepare  financial  statements  in conformity  with  accounting
              principles  generally  accepted  in the United  States of America,
              management  makes  estimates  and  assumptions  based on available
              information.  These estimates and  assumptions  affect the amounts
              reported in the 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,  loan  servicing  rights,  fair  value of  financial
              instruments and deferred tax assets.

              CASH AND CASH EQUIVALENTS.

              Cash and  cash  equivalents  include  cash on  hand,  cash  items,
              interest-earning   deposits  with  other  financial  institutions,
              federal   funds   sold   and   due   from   correspondent   banks.
              Interest-earning  deposits  mature within one year and are carried
              at cost. Federal funds are generally sold or purchased for one day
              periods.  Net  cash  flows  are  reported  for  loan  and  deposit
              transactions.

              Restricted  cash on hand or on deposit  with the  Federal  Reserve
              Bank of  approximately  $2.1 million and $3.0 million was required
              to meet regulatory  reserve and clearing  requirements at December
              31,  2005  and  2004,  respectively.  Such  balances  do not  earn
              interest.

              SECURITIES.

              Securities are classified as either  available for sale or held to
              maturity at the time of purchase based on management's  intent and
              ability.  Securities acquired with the positive intent and ability
              to hold to maturity are stated at cost  adjusted for  amortization
              of premium and accretion of discount  which are computed using the
              interest method and recognized as adjustments of interest  income.
              Available for sale  securities  consist of securities that are not
              classified as held to maturity and are carried at fair value, with
              unrealized  holding  gains  and  losses  reported  as  a  separate
              component of  stockholders'  equity,  net of tax, until  realized.
              Realized   gains  and  losses  are  computed  using  the  specific
              identification method and are included in operations in the period
              sold.   Interest  and  dividends  on  investment   securities  are
              recognized as income when earned.  Securities  are written down to
              fair value when a decline in fair value is not temporary.

                                      -24-
<PAGE>




                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              SECURITIES (CONTINUED).

              The  Corporation's  policy  requires an annual  review of impaired
              securities. This review includes analyzing the length and time and
              the extent to which the market value has been less than cost;  the
              financial   condition  and  near-term  prospects  of  the  issuer,
              including any specific  events which may influence the  operations
              of the issuer and the intent  and  ability of the  Corporation  to
              hold its investment  for a period of time  sufficient to allow for
              any anticipated  recovery in market value.  Declines in fair value
              of  impaired  securities  below  their  cost that are deemed to be
              other-than-temporary are reflected in earnings as realized losses.

              LOANS HELD FOR SALE.

              Loans originated and intended for sale in the secondary market are
              carried at the lower of aggregate cost or market, as determined by
              outstanding commitments from investors.  Net unrealized losses, if
              any,  are  recorded  as  a  valuation  allowance  and  charged  to
              earnings.  Loans held for sale are generally  sold with  servicing
              rights  retained.  The carrying  value of loans sold is reduced by
              the cost  allocated to the servicing  rights.  Gains and losses on
              sales of mortgage  loans are based on the  difference  between the
              selling price and the carrying value of the related loan sold.

              LOANS RECEIVABLE.

              Loans that  management  has the intent and ability to hold for the
              foreseeable  future or until  maturity  or payoff are  reported at
              their outstanding principal balances adjusted for charge-offs, the
              allowance  for  loan  losses  and any  deferred  fees or  costs on
              originated  loans or premiums or  discounts  on  purchased  loans.
              Interest income is accrued on the unpaid principal  balance.  Loan
              origination  fees, net of certain direct  origination  costs,  and
              premiums  and  discounts   are  deferred  and   recognized  as  an
              adjustment of the related loan yield using the interest method.

              The accrual of interest on loans is typically  discontinued at the
              time the loan is 90 days or more  delinquent  unless the credit is
              well secured and in the process of collection. Loans are placed on
              non-accrual  or  charged-off  at an earlier date if  collection of
              principal or interest is considered doubtful. All interest accrued
              but not collected for loans that are placed on non-accrual  status
              or charged-off is reversed against  interest income.  The interest
              on these loans is accounted for on the cash-basis or cost-recovery
              method, until qualifying for return to accrual. Loans are returned
              to  accrual  status  when  all  principal  and  interest   amounts
              contractually  due are  brought  current and future  payments  are
              reasonably assured.

              ALLOWANCE FOR LOAN LOSSES.

              The allowance for loan losses is a valuation allowance established
              for probable  incurred  credit losses,  increased by the provision
              for loan losses and decreased by charge-offs less recoveries. Loan
              losses are charged against the allowance when management  believes
              the  uncollectibility  of a loan balance is confirmed.  Subsequent
              recoveries, if any, are credited to the allowance.

                                      -25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              ALLOWANCE FOR LOAN LOSSES (CONTINUED).

              The  allowance  for loan losses is evaluated on a regular basis by
              management and is based upon  management's  periodic review of the
              collectibility  of loans in light of  historical  experience,  the
              nature and volume of the loan portfolio,  adverse  situations that
              may affect the borrower's ability to repay, estimated value of any
              underlying  collateral and prevailing  economic  conditions.  This
              evaluation is inherently  subjective as it requires estimates that
              are  susceptible  to  significant  revision  as  more  information
              becomes available.

              A loan is considered  impaired when, based on current  information
              and events,  it is probable that the Corporation will be unable to
              collect the  scheduled  payments of principal or interest when due
              according to the contractual  terms of the loan  agreement.  Loans
              that   experience   insignificant   payment   delays  and  payment
              shortfalls  generally are not  classified as impaired.  Management
              determines  the   significance   of  payment  delays  and  payment
              shortfalls on a case-by-case  basis, taking into consideration all
              the  circumstances  surrounding  the loan and the borrower.  Large
              groups  of  homogeneous  loans  are  evaluated   collectively  for
              impairment.   Accordingly,   the  Corporation  does  not  identify
              individual consumer and residential  mortgage loans for impairment
              disclosures.

              BANK-OWNED LIFE INSURANCE (BOLI).

              The Corporation  has purchased life insurance  policies on certain
              key officers and employees. BOLI is recorded at its cash surrender
              value, or the amount that can be realized.

              PREMISES AND EQUIPMENT.

              Land is carried at cost.  Premises,  furniture and equipment,  and
              leasehold  improvements  are  carried  at  cost  less  accumulated
              depreciation  or  amortization.  Depreciation  is  calculated on a
              straight-line  basis for the estimated useful lives of the related
              assets,  which  are 39 to 40 years for  buildings  and three to 10
              years for  furniture,  equipment  and  software.  Amortization  of
              leasehold  improvements is computed using the straight-line method
              for the term of the related  lease.  Premises  and  equipment  are
              reviewed for  impairment  when events  indicate their carry amount
              may not be recoverable  from future  undiscounted  cash flows.  If
              impaired, assets are recorded at fair value.

              GOODWILL AND INTANGIBLE ASSETS.

              Goodwill  results from business  acquisitions  and  represents the
              excess of the  purchase  price  above the fair  value of  acquired
              assets and liabilities.  Core deposit intangible assets arise from
              whole bank or branch  acquisitions  and are measured at fair value
              and  then  are  amortized  on  a  straight-line  basis  for  their
              estimated   lives,   generally   less  than  10  years.   Customer
              relationship  intangible  assets  arise  from  the  purchase  of a
              customer  list from  another  company or  individual  and then are
              amortized on a straight-line  basis over 2 years.  Goodwill is not
              amortized and is assessed at least annually for impairment and any
              such impairment will be recognized in the period identified.

                                      -26-
<PAGE>

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              SERVICING ASSETS.

              Servicing   assets  represent  the  allocated  value  of  retained
              servicing  rights on loans sold.  Servicing assets are expensed in
              proportion  to,  and for the period of,  estimated  net  servicing
              revenues.  Impairment is evaluated  based on the fair value of the
              assets,  using  groupings of the  underlying  loans as to interest
              rates.  Fair value is determined  using prices for similar  assets
              with  similar  characteristics,  when  available,  or  based  upon
              discounted  cash  flows  using   market-based   assumptions.   Any
              impairment of a grouping is reported as a valuation allowance,  to
              the extent that fair value is less than the capitalized amount for
              a grouping.

              REAL ESTATE ACQUIRED THROUGH FORECLOSURE.

              Real estate  properties  acquired  through  foreclosure  (REO) are
              initially  recorded at the lower of cost or fair value at the date
              of  foreclosure,  establishing  a new cost  basis.  If fair  value
              declines  subsequent  to  foreclosure,  a  valuation  is  recorded
              through expense. Costs after acquisition are expensed. Real estate
              acquired through foreclosure is classified in prepaid expenses and
              other assets and totaled $106,000 and $69,000 at December 31, 2005
              and 2004, respectively.

              INCOME TAXES.

              Income tax expense is the total of the current year income tax due
              or   refundable   and  the  change  in  deferred  tax  assets  and
              liabilities.  Deferred tax assets and liabilities are the expected
              future tax amounts for the temporary  differences between carrying
              amounts and tax bases of assets and  liabilities,  computed  using
              enacted  tax rates.  A  valuation  allowance,  if needed,  reduces
              deferred tax assets to the amount expected to be realized.

              BASIC EARNINGS PER COMMON SHARE.

              The  Corporation  maintains  a simple  capital  structure  with no
              common  stock  equivalents.  Basic  earnings  per common  share is
              calculated using net income divided by the weighted average number
              of common shares  outstanding during the period. The Corporation's
              capital structure contains no potentially dilutive securities.

              COMPREHENSIVE INCOME.

              Comprehensive   income   consists   of  net   income   and   other
              comprehensive   income.   Other   comprehensive   income  includes
              unrealized gains and losses on securities available for sale which
              are also recognized as separate components of equity.

              OPERATING SEGMENTS.

              Operations are managed and financial performance is evaluated on a
              corporate-wide   basis.   Accordingly,   all  financial   services
              operations  are  considered  by management to be aggregated in one
              reportable operating segment, banking.

                                      -27-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              RETIREMENT PLANS.

              The Corporation  maintains a noncontributory  defined benefit plan
              covering  substantially all employees and officers. The plan calls
              for benefits to be paid to eligible  employees at retirement based
              primarily  on  years  of  service  and  compensation   rates  near
              retirement.  The  Corporation  also  maintains a 401(k) plan which
              covers  substantially  all employees and a supplemental  executive
              retirement plan for key executive officers.

              RECENT ACCOUNTING PRONOUNCEMENTS.

              In March  2004,  the FASB's  Emerging  Issues  Task  Force  (EITF)
              reached  a  consensus   on  Issue  No.   03-1,   "The  Meaning  of
              Other-Than-Temporary  Impairment  and Its  Application  to Certain
              Investments." EITF 03-1 provides guidance on  other-than-temporary
              impairment  models  for  marketable  debt  and  equity  securities
              accounted for under SFAS 115 and non-marketable  equity securities
              accounted  for under the cost method.  The EITF  developed a basic
              three-step   model  to   evaluate   whether   an   investment   is
              other-than-temporarily   impaired.  In  November  2005,  the  FASB
              approved the issuance of FASB Staff Position FAS No. 115-1 and FAS
              124-1,  "The Meaning of  Other-Than-Temporary  Impairment  and Its
              Application  to Certain  Investments."  The FSP addresses  when an
              investment  is  considered  impaired,  whether the  impairment  is
              other-than-temporary  and the  measurement of an impairment  loss.
              The FSP also includes accounting  considerations subsequent to the
              recognition  of an  other-than-temporary  impairment  and requires
              certain  disclosures  about  unrealized  losses that have not been
              recognized  as  other-than-temporary.  The  FSP is  effective  for
              reporting  periods  beginning after December 15, 2005 with earlier
              application permitted. For the Corporation the effective date will
              be the first quarter of fiscal 2006.

              In June 2005, the FASB's Emerging Issues Task Force (EITF) reached
              a  consensus  on Issue No.  05-6,  "Determining  the  Amortization
              Period for Leasehold  Improvements Purchased after Lease Inception
              or  Acquired  in  a  Business  Combination"  ("EITF  05-6").  This
              guidance  requires  that  leasehold  improvements  acquired  in  a
              business combination or purchased subsequent to the inception of a
              lease be  amortized  over the  shorter of the  useful  life of the
              assets or a term that includes required lease periods and renewals
              that  are   reasonably   assured  at  the  date  of  the  business
              combination  or  purchase.  This  guidance is  applicable  only to
              leasehold improvements that are purchased or acquired in reporting
              periods  beginning  after  June 29,  2005.  The  adoption  of this
              accounting  principle  did not have a  significant  impact  on our
              financial position or results of operations.

              In May 2005, FASB issued SFAS 154,  "Accounting  Changes and Error
              Corrections." The Statement requires retroactive  application of a
              voluntary change in accounting principle to prior period financial
              statements unless it is impracticable. SFAS 154 also requires that
              a change in method of depreciation, amortization, or depletion for
              long-lived,  non-financial  assets be accounted for as a change in
              accounting  estimate  that is affected  by a change in  accounting
              principle. SFAS 154 replaces APB Opinion 20, "Accounting Changes",
              and SFAS 3,  "Reporting  Accounting  Changes in Interim  Financial
              Statements." SFAS 154 will be effective for accounting changes and
              corrections  of  errors  made  in  fiscal  years  beginning  after
              December 15, 2005.  Management currently believes that adoption of
              the provisions of SFAS 154 will not have a material  impact on the
              Corporation's consolidated financial statements.

                                      -28-
<PAGE>


                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

              TRANSFERS OF FINANCIAL ASSETS.

              Transfers of financial  assets are  accounted  for as sales,  when
              control  over  the  assets  has  been  surrendered.  Control  over
              transferred assets is deemed to be surrendered when (1) the assets
              have  been  isolated  from  the  Corporation,  (2) the  transferee
              obtains  the right  (free of  conditions  that  constrain  it from
              taking  advantage  of  that  right)  to  pledge  or  exchange  the
              transferred  assets,  and (3) the  Corporation  does not  maintain
              effective control over the transferred assets through an agreement
              to repurchase them before their maturity.

              ADVERTISING.

              The   Corporation   follows  the  policy  of  charging   costs  of
              advertising to expense as incurred.

              OFF-BALANCE SHEET FINANCIAL INSTRUMENTS.

              In the ordinary  course of business,  the  Corporation has entered
              into  off-balance  sheet  financial  instruments,   consisting  of
              commitments  to extend  credit,  commitments  under line of credit
              lending   arrangements  and  letters  of  credit.  Such  financial
              instruments are recorded in the financial statements when they are
              funded or related fees are received.

              FAIR VALUE OF FINANCIAL INSTRUMENTS.

              Fair values of financial  instruments are estimated using relevant
              market information and other assumptions,  as more fully disclosed
              in a separate note. Fair value estimates involve uncertainties and
              matters of significant  judgment regarding interest rates,  credit
              risk, prepayments and other factors,  especially in the absence of
              broad markets for particular  items.  Changes in assumptions or in
              market conditions could significantly affect the estimates.

              LOSS CONTINGENCIES.

              Loss contingencies,  including claims and legal actions arising in
              the ordinary course of business,  are recorded as liabilities when
              the  likelihood of loss is probable and an amount or range of loss
              can be reasonably estimated. Management does not believe there are
              now  such  matters  that  will  have  a  material  effect  on  the
              consolidated financial statements.

              RECLASSIFICATIONS.

              Certain items in the prior year consolidated  financial statements
              were reclassified to conform to the current presentation.

                                      -29-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.           SECURITIES

              The following table summarizes the Corporation's  securities as of
December 31:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                               Amortized    Unrealized     Unrealized      Fair
(Dollar amounts in thousands)                                   Cost          gains         losses         value
------------------------------------------------------------------------------------------------------------------
Available for sale:
       December 31, 2005:
<S>                                                             <C>          <C>           <C>            <C>
             U.S. Government agencies and related entities      $34,353      $  --         $   (818)      $33,535
             Mortgage-backed securities                           3,046         --             (124)        2,922
             Municipal securities                                14,685          664           --          15,349
             Corporate securities                                 2,249            4             (4)        2,249
             Equity securities                                    1,995          383           (144)        2,234
                                                                -------      -------       --------       -------
                                                                $56,328      $ 1,051       $ (1,090)      $56,289
                                                                =======      =======       ========       =======
       December 31, 2004:
             U.S. Government agencies and related entities      $34,869      $    61       $   (260)      $34,670
             Mortgage-backed securities                           3,911         --              (47)        3,864
             Municipal securities                                14,682          901           --          15,583
             Corporate securities                                 6,012           69             (9)        6,072
             Equity securities                                    1,970        1,200            (13)        3,157
                                                                -------      -------       --------       -------
                                                                $61,444      $ 2,231       $   (329)      $63,346
                                                                =======      =======       ========       =======
Held to maturity:
       December 31, 2005:
             Mortgage-backed securities                         $    15      $  --         $     (1)      $    14
                                                                -------      -------       --------       -------
                                                                $    15      $  --         $     (1)      $    14
                                                                =======      =======       ========       =======
       December 31, 2004:
             Mortgage-backed securities                         $    16      $  --         $   --         $    16
                                                                -------      -------       --------       -------
                                                                $    16      $  --         $   --         $    16
                                                                =======      =======       ========       =======
</TABLE>



              Sales of available for sale securities were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------

             (Dollar amounts in thousands)                       2005           2004       2003
-------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>        <C>
             Proceeds                                          $ 1,646          $ 945      $ 647
             Gross gains                                           857            701        170
             Tax provision related to gains                        291            238         58

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

              The  following  table  summarizes   scheduled  maturities  of  the
Corporation's securities as of December 31, 2005:


<TABLE>
<CAPTION>
                                                  Available for sale                 Held to maturity
                                            -------------------------------    ---------------------------
                                               Amortized          Fair            Amortized      Fair
(Dollar amounts in thousands)                    cost             value             cost         value
----------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>                  <C>           <C>
Due in one year or less                           $  5,248        $  5,221              $ -          $  -
Due after one year through five years               29,222          28,468                -             -
Due after five through ten years                     5,178           5,017                -             -
Due after ten years                                 14,685          15,349               15            14
No scheduled maturity                                1,995           2,234                -             -
                                            ---------------  --------------    -------------  ------------
                                                  $ 56,328        $ 56,289              $15          $ 14
                                            ===============  ==============    =============  ============
</TABLE>

                                      -30-
<PAGE>
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2.            SECURITIES (CONTINUED)

              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.

              Securities  with carrying values of $11.4 million and $9.7 million
              as of December  31, 2005 and 2004,  respectively,  were pledged to
              secure  public  deposits  and  for  other  purposes   required  or
              permitted by law.

              At year end 2005 and 2004, there were no holdings of securities of
              any one  issuer,  other than U.S.  Government  agency and  related
              entities, in an amount greater than 10% of stockholders' equity.

              Securities  with  unrealized  losses at year end 2005 and 2004 not
              recognized in income are as follows:


<TABLE>
<CAPTION>
                                                             Less than 12 Months         12 Months or More         Total
                                                -----------------------------------------------------------------------------
             Description of Securities           Fair       Unrealized      Fair       Unrealized      Fair      Unrealized
(Dollar amounts in thousands)                    Value        Loss          Value        Loss          Value        Loss
-----------------------------------------------------------------------------------------------------------------------------
December 31, 2005:
<S>                                               <C>           <C>          <C>           <C>          <C>          <C>
U.S. Government agencies and related entities     $17,031       $ (318)      $16,504       $ (500)      $33,535      $  (818)
Mortgage-backed securities                            702          (34)        2,220          (91)        2,922         (125)
Municipal securities                                    -            -             -            -             -            -
Corporate securities                                    -            -           745           (4)          745           (4)
Equity securities                                   1,126         (139)          215           (5)        1,341         (144)
                                                ---------- ------------  ------------ ------------  ------------ ------------
                                                  $18,859       $ (491)      $19,684       $ (600)      $38,543      $(1,091)
                                                ========== ============  ============ ============  ============ ============

December 31, 2004:
U.S. Government agencies and related entities     $10,968       $  (48)      $ 9,288       $ (212)      $20,256      $  (260)
Mortgage-backed securities                          3,292          (41)          573           (6)        3,865          (47)
Municipal securities                                    -            -             -            -             -            -
Corporate securities                                1,512           (9)            -            -         1,512           (9)
Equity securities                                      39           (1)          268          (12)          307          (13)
                                                ---------- ------------  ------------ ------------  ------------ ------------
                                                  $15,811       $  (99)      $10,129       $ (230)      $25,940      $  (329)
                                                ========== ============  ============ ============  ============ ============
</TABLE>

              At December  31, 2005 there were 44  securities  in an  unrealized
              loss position.

              Unrealized  losses on available for sale  securities have not been
              recognized  into  income  because the  issuers'  bonds are of high
              credit quality (rated AA or higher), management has the intent and
              ability to hold for the foreseeable  future and the decline in the
              fair value is largely due to an increase in market interest rates.
              The fair value is expected to recover as the bonds  approach their
              maturity dates and/or market rates decline.


                                      -31-
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3.            LOANS RECEIVABLE

              The following table summarizes the Corporation's  loans receivable
              as of December 31:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)                                             2005           2004
-------------------------------------------------------------------------------------------------
Mortgage loans on real estate:
<S>                                                                  <C>             <C>
     Residential first mortgages                                     $      66,011   $     69,310
     Home equity loans and lines of credit                                  39,933         31,548
     Commercial real estate                                                 52,990         48,539
                                                                     -------------   ------------
                                                                     -------------   ------------
                                                                           158,934        149,397
Other loans:
     Commercial business                                                    27,732         23,898
     Consumer                                                                7,729          8,090
                                                                     -------------   ------------
                                                                     -------------   ------------
                                                                            35,461         31,988

                                                                     -------------   ------------
                                                                     -------------   ------------
Total loans, gross                                                         194,395        181,385

Less allowance for loan losses                                               1,869          1,810
                                                                     -------------   ------------
Total loans, net                                                     $     192,526   $    179,575
                                                                     =============   ============
</TABLE>

              Following is an analysis of the changes in the  allowance for loan
              losses for the years ended December 31:



<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
(Dollar amounts in thousands)                                 2005          2004        2003
---------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>       <C>
Balance at the beginning of the year                          $ 1,810      $ 1,777   $ 1,587

Provision for loan losses                                         205          290       330
Charge-offs                                                      (197)        (318)     (205)
Recoveries                                                         51           61        65
                                                            ----------    ---------  --------
Balance at the end of the year                                $ 1,869      $ 1,810   $ 1,777
                                                            ==========    =========  ========
</TABLE>


              Non-performing  loans, which include primarily  non-accrual loans,
              were $1.5  million and  $840,000  at  December  31, 2005 and 2004,
              respectively. The Corporation is not committed to lend significant
              additional funds to debtors whose loans are on non-accrual status.
              At December 31, 2005 and 2004,  the recorded  investment  in loans
              considered  to be impaired,  requiring an allowance for loan loss,
              was   $999,000   and   $441,000,   respectively,   against   which
              approximately   $100,000  and  $104,000,   respectively,   of  the
              allowance  for loan losses was  allocated.  There were no impaired
              loans that did not  require  an  allowance  for loan loss.  During
              2005,  2004  and  2003,  impaired  loans  averaged  $1.2  million,
              $635,000 and $728,000,  respectively.  The Corporation  recognized
              interest  income  on  impaired  loans  of  approximately  $95,000,
              $27,000 and $29,000,  on a cash basis, during 2005, 2004 and 2003,
              respectively.  Non-performing loans and impaired loans are defined
              differently. Some loans may be included in both categories whereas
              other loans may be included in only one category.


                                      -32-
<PAGE>
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.            LOANS RECEIVABLE (CONTINUED)

              The  Corporation  conducts  its  business  through  10  offices in
              Venango, Butler, Clarion,  Clearfield, Elk and Jefferson counties,
              Pennsylvania  and primarily lends in this  geographical  area. The
              Corporation does not have any significant concentrations of credit
              risk to any one industry or customer.

              The Corporation is required to maintain qualifying collateral with
              the FHLB to secure all outstanding  loans.  Loans with book values
              of $52.1  million and $56.6  million as of  December  31, 2005 and
              2004,  respectively,  are pledged as  qualifying  collateral.  The
              Corporation  is in  compliance  with all FHLB  credit  policies at
              December 31, 2005.

              The Corporation was servicing loans with unpaid principal balances
              of $2.4  million and $2.5  million at December  31, 2005 and 2004,
              respectively,  for a third  party  investor.  Such  loans  are not
              reflected  in  the  consolidated   balance  sheets  and  servicing
              operations  result  in the  generation  of  annual  fee  income of
              approximately  0.25%  of the  unpaid  principal  balances  of such
              loans.

4.            FEDERAL BANK STOCKS

              The Bank is a member of the Federal  Home Loan Bank of  Pittsburgh
              (FHLB) and the  Federal  Reserve  Bank of  Cleveland  (FRB).  As a
              member of these federal  banking  systems,  the Bank  maintains an
              investment in the capital stock of the respective  regional banks,
              at  cost.  These  stocks  are  purchased  and  redeemed  at par as
              directed  by the  federal  banks and levels  maintained  are based
              primarily on borrowing and other correspondent relationships.  The
              Bank's  investment  in FHLB and FRB stocks was $1.440  million and
              $333,000,  respectively,  at December 31, 2005, and $1.398 million
              and $333,000, respectively, at December 31, 2004.

5.            PREMISES AND EQUIPMENT

              Premises  and  equipment  at December 31 are  summarized  by major
              classification as follows:


-------------------------------------------------------------------------------
(Dollar amounts in thousands)                       2005               2004
-------------------------------------------------------------------------------
Land                                           $     349            $   349
Buildings and improvements                         4,738              4,571
Leasehold improvements                               695                694
Furniture, fixtures and equipment                  4,410              4,245
Software                                           1,389              1,328
Construction in progess                              914                 18
                                               ---------            -------
                                                  12,495             11,205
                                               ---------            -------
Less accumulated depreciation and amortization $   6,123            $ 5,678
                                               =========            =======

              Depreciation and amortization expense for the years ended December
              31, 2005,  2004 and 2003 were  $855,000,  $703,000  and  $490,000,
              respectively.  The increase in  depreciation  expense between 2005
              and 2004 was primarily the additional expense incurred as a result
              of the change in the estimated life of equipment during the fourth
              quarter  of 2005  which  resulted  in an  additional  $108,000  of
              depreciation.  The increase in  depreciation  expense between 2004
              and 2003 was primarily as a result of additional  depreciation  on
              certain data processing  equipment  placed in service in the first
              quarter  2004  and the  depreciation  related  to the  renovations
              incurred at the headquarter office in Emlenton during 2003.

                                      -33-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




5.            PREMISES AND EQUIPMENT (CONTINUED)

              Rent expense under  non-cancelable  operating lease agreements for
              the years ended  December  31, 2005,  2004 and 2003 was  $109,000,
              $108,000  and  $124,000,   respectively.  Rent  commitments  under
              non-cancelable  long-term  operating lease  agreements for certain
              branch  offices for the years ended  December  31, are as follows,
              before considering renewal options that are generally present:

              ---------------------------------------------------------------
              (Dollar amounts in thousands)                     Amount
              ---------------------------------------------------------------

                                 2006                                  $ 112
                                 2007                                    115
                                 2008                                    120
                                 2009                                    122
                                 2010                                    112
                              Thereafter                                 105
                                                          -------------------

                                                                       $ 686
                                                          ===================
6.            GOODWILL AND INTANGIBLE ASSETS

              The following table summarizes the Corporation's acquired Goodwill
and intangible assets as of December 31:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                          2005                            2004
                                               --------------------------     -------------------------
                                                Gross                         Gross
                                                Carrying     Accumulated      Carrying     Accumulated
(Dollar amounts in thousands)                   Amount       Amortization     Amount       Amortization
-------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>            <C>            <C>
Goodwill                                        $1,422         $ --           $1,422         $ --
Core deposit intangibles                         1,240          1,240          1,240          1,219
Other customer relationship intangibles             20             13             20              3
                                                ------         ------         ------         ------
  Total                                         $2,682         $1,253         $2,682         $1,222
                                                ======         ======         ======         ======
</TABLE>


              Goodwill resulted from two previous branch  acquisitions and is no
              longer amortized.

              Aggregate  amortization  expense  for  2005,  2004  and  2003  was
              $31,000, $36,000 and $115,000, respectively.

7.            RELATED PARTY BALANCES AND TRANSACTIONS

              In the ordinary  course of business,  the Bank  maintains loan and
              deposit  relationships  with  employees,  principal  officers  and
              directors.  The Bank has granted  loans to principal  officers and
              directors and their affiliates  amounting to $1.4 million and $1.6
              million at December 31, 2005 and 2004, respectively.  During 2005,
              total   principal   additions  and  total   principal   repayments
              associated   with  these   loans  were   $93,000   and   $245,000,
              respectively.  Deposits from principal officers and directors held
              by the Bank at December 31, 2005 and 2004 totaled $3.3 million and
              $4.0 million, respectively.

              In addition,  directors and their  affiliates may provide  certain
              professional and other services to the Corporation and the Bank in
              the  ordinary  course of  business.  During  2005,  2004 and 2003,
              amounts paid to  affiliates  for such  services  totaled  $55,000,
              $104,000 and $74,000, respectively.

                                      -34-
<PAGE>

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8.            DEPOSITS

              The following table  summarizes the  Corporation's  deposits as of
              December 31:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)                    2005                               2004
-----------------------------    ---------------------------------- -----------------------------------

                                 Weighted                               Weighted
                                 average                                average
       Type of accounts            rate         Amount          %        rate      Amount        %
-------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>             <C>                <C>            <C>
Noninterest-bearing deposits         --       $   44,044      19.1%       --     $  40,511      17.4%
Interest-bearing demand deposits   0.70%          74,067      32.1%     0.76%       80,998      34.8%
Time deposits                      4.13%         112,392      48.8%     3.80%      111,365      47.8%
                                              ----------     ------    ------     --------     ------
                                   2.24%      $  230,503     100.0%     2.08%     $232,874     100.0%
                                              ==========     ======    ======     ========     ======
</TABLE>


              The  Corporation had a total of $25.9 million and $24.0 million in
              time  deposits of $100,000 or more at December  31, 2005 and 2004,
              respectively.

              Scheduled maturities of time deposits for the next five years were
              as follows:


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

              (Dollar amounts in thousands)           Amount             %
              ---------------------------------------------------------------
                                           2006       $  45,720        40.7%
                                           2007          13,499        12.0%
                                           2008          25,266        22.5%
                                           2009           5,643         5.0%
                                           2010           8,197         7.3%
                                        Thereafter       14,067        12.5%
                                                   -------------    ---------
                                                      $ 112,392       100.0%
                                                   =============    =========


9.            BORROWED FUNDS

              The following table summarizes the Corporation's borrowed funds as
              of December 31:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                    2005                                       2004
                                                   ----------------------------------------   ------------------------------------
                                                                                   Weighted                               Weighted
                                                               Average    Average   average             Average  Average  average
(Dollar amounts in thousands)                      Balance     Balance     Rate      rate     Balance   Balance   Rate     rate
----------------------------------------------------------------------------------------------------------------------------------
FHLB advances:
<S>                                               <C>         <C>         <C>       <C>      <C>       <C>         <C>     <C>
         Due within 12 months                      $ 4,500     $ 1,199     3.75%     4.17%    $      -  $   504     1.26%   0.60%
         Due beyond 12 months but within 5 years         -           -         -         -           -        -        -        -
         Due beyond 5 years but within 10 years     15,000      15,000     4.13%     4.19%      15,000   15,000     4.13%   4.20%
         Due beyond 10 years                             -           -         -         -           -                 -        -
                                                   -------     -------                        --------  -------
                                                   $19,500     $16,199                        $ 15,000  $15,504
                                                   =======     =======                        ========  =======
</TABLE>

              The Bank maintains a credit  arrangement with the FHLB as a source
              of additional liquidity. The total maximum borrowing capacity with
              the FHLB,  excluding loans  outstanding,  at December 31, 2005 was
              $107.2 million.


                                      -35-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10.           INSURANCE OF ACCOUNTS AND REGULATORY MATTERS

              INSURANCE OF ACCOUNTS.

              The Federal Deposit Insurance  Corporation (FDIC) insures deposits
              of account  holders  up to  $100,000  per  insured  depositor.  To
              provide this insurance,  the Bank must pay an annual  premium.  In
              connection with the insurance of deposits, the Bank is required to
              maintain certain minimum levels of regulatory  capital as outlined
              below.

              RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES.

              The Bank is  subject to a  regulatory  dividend  restriction  that
              generally  limits the amount of dividends  that can be paid by the
              Bank to the Corporation.  Prior regulatory approval is required if
              the total of all  dividends  declared in any calendar year exceeds
              net profits (as defined in the  regulations) for the year combined
              with net retained  earnings  (as  defined)  for the two  preceding
              calendar  years.  In addition,  dividends  paid by the Bank to the
              Corporation  would be prohibited if the effect thereof would cause
              the Bank's capital to be reduced below applicable  minimum capital
              requirements.   As  of  December   31,   2005,   $3.0  million  of
              undistributed  earnings  of  the  Corporation  was  available  for
              distribution as dividends, without prior regulatory approval.

              Loans or advances from the Bank to the  Corporation are limited to
              10 percent of the Bank's  capital  stock and  surplus on a secured
              basis.  Funds  available  for loans or advances by the Bank to the
              Corporation  amounted to approximately $1.1 million as of December
              31, 2005.

              MINIMUM REGULATORY CAPITAL REQUIREMENTS.

              The Corporation (on a consolidated basis) and the Bank are subject
              to various  regulatory  capital  requirements  administered by the
              federal  banking   agencies.   Failure  to  meet  minimum  capital
              requirements   can  initiate   certain   mandatory   and  possibly
              additional   discretionary   actions  by   regulators   that,   if
              undertaken,   could   have  a  direct   material   effect  on  the
              Corporation's and the Bank's financial  statements.  Under capital
              adequacy  guidelines  and  the  regulatory  framework  for  prompt
              corrective action, the Corporation and the Bank must meet specific
              capital guidelines that involve  quantitative  measures of assets,
              liabilities  and certain  off-balance  sheet  items as  calculated
              under  regulatory  accounting  practices.  The capital amounts and
              classification  are also subject to  qualitative  judgments by the
              regulators  about  components,  risk weightings and other factors.
              Prompt  corrective  action  provisions  are not applicable to bank
              holding companies.

              Quantitative  measures established by regulation to ensure capital
              adequacy  require the Corporation and the Bank to maintain minimum
              amounts and ratios (set forth in the following table) of total and
              Tier 1 capital (as defined in the  regulations)  to  risk-weighted
              assets (as  defined) and of Tier 1 capital (as defined) to average
              assets  (as  defined).  As of  December  31,  2005 and  2004,  the
              Corporation and the Bank met all capital adequacy  requirements to
              which they are subject.

              As of December 31,  2005,  the most recent  notification  from the
              FDIC categorized the Bank as well capitalized under the regulatory
              framework for prompt corrective  action. To be categorized as well
              capitalized,   an   institution   must   maintain   minimum  total
              risk-based,  Tier 1 risk-based  and Tier 1 leverage  ratios as set
              forth in the  following  table.  There are no conditions or events
              since the notification  that management  believes have changed the
              Bank's category.


                                      -36-
<PAGE>
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10.           INSURANCE OF ACCOUNTS AND REGULATORY MATTERS (CONTINUED)

              The  following  table sets forth  certain  information  concerning
regulatory capital of the consolidated  Corporation and the Bank as of the dates
presented:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                         December 31, 2005                       December 31, 2004
                                          ------------------------------------------   ----------------------------------------
                                              Consolidated              Bank              Consolidated                  Bank
                                          ----------------------   -----------------   -------------------  -------------------
(Dollar amounts in thousands)               Amount       Ratio     Amount    Ratio      Amount     Ratio     Amount     Ratio
-------------------------------------------------------------------------------------------------------------------------------
Total capital to risk weighted assets:
<S>                                        <C>           <C>       <C>       <C>        <C>        <C>       <C>        <C>
     Actual                                $24,196       12.36%    $22,175   11.44%     $23,245    12.49%    $20,859    11.36%
     For capital adequacy purposes          15,662        8.00%     15,501    8.00%      14,889     8.00%     14,686     8.00%
     To be well capitalized                    N/A          N/A     19,376   10.00%         N/A       N/A     18,358    10.00%
Tier 1 capital to risk-weighted assets:
     Actual                                $22,212       11.35%    $20,312   10.48%     $20,901    11.23%    $19,049    10.38%
     For capital adequacy purposes           7,831        4.00%      7,751    4.00%       7,445     4.00%      7,343     4.00%
     To be well capitalized                    N/A          N/A     11,626    6.00%         N/A       N/A     11,015     6.00%
Tier 1 capital to average assets:
     Actual                                $22,212        8.13%    $20,312    7.51%     $20,901     7.68%    $19,049     7.08%
     For capital adequacy purposes          10,926        4.00%     10,824    4.00%      10,882     4.00%     10,768     4.00%
     To be well capitalized                    N/A          N/A     13,530    5.00%         N/A       N/A     13,460     5.00%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


11.           INCOME TAXES

              The  Corporation  and the Bank file a consolidated  federal income
              tax return.  The  provision  for income  taxes for the years ended
              December 31 is comprised of the following:


----------------------------------------------------------------------------
(Dollar amounts in thousands)      2005              2004             2003
----------------------------------------------------------------------------
        Current                       $ 556             $ 538         $ 618
        Deferred                        141               (25)          131
                              --------------    --------------    ----------
                                      $ 697             $ 513         $ 749
                              ==============    ==============    ==========

              A  reconciliation  between the  provision for income taxes and the
              amount  computed by  multiplying  operating  results before income
              taxes  by the  statutory  federal  income  tax rate of 34% for the
              years ended December 31 is as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                      2005                    2004                  2003
                                              --------------------    ---------------------  -----------------
                                                        % Pre-tax               % Pre-tax            % Pre-tax
(Dollar amounts in thousands)                   Amount     Income       Amount     Income    Amount    Income
--------------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>        <C>          <C>     <C>         <C>
Provision at statutory tax rate               $ 1,112      34.0%      $ 1,044      34.0%   $ 1,102     34.0%
Increase (decrease) resulting from:
        Tax free interest, net of disallowance   (313)     (9.6%)        (319)    (10.4%)     (312)    (9.6%)
        Earnings on BOLI                          (59)     (1.8%)         (53)     (1.7%)      (79)    (2.4%)
        Other, net                                (43)     (1.3%)        (159)     (5.2%)       38      1.2%
                                              -------------------   --------------------- -------------------
Provision                                     $   697      21.3%      $   513      16.7%   $   749     23.2%
                                              ===================   ===================== ===================
</TABLE>

                                      -37-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


11.           INCOME TAXES (CONTINUED)

              The tax effects of  temporary  differences  between the  financial
              reporting  basis and income  tax basis of assets  and  liabilities
              that are  included in the net deferred tax asset as of December 31
              relate to the following:

              -----------------------------------------------------------------
              (Dollar amounts in thousands)                  2005       2004
              -----------------------------------------------------------------
              Deferred tax assets:

                      Net unrealized loss on securities     $    13    $  --
                      Loss on securities                         40        107
                      Provision for loan losses                 582        562
                      Deferred loan fees                         10         29
                      Intangible assets                         130        145
                      Accrued pension cost                       42         28
                      Tax credits                               202        314
                      Other                                       3          4
                                                            -------    -------

                      Gross deferred tax assets               1,022      1,189

              Deferred tax liabilities:
                                                            -------    -------
                      Net unrealized gain on securities        --          647
                      Depreciation                              318        389
                      Stock gain                                184        118
                      Prepaid expenses                           68         81
                      Loan servicing                              5          7
                      Other                                      64         83
                                                            -------    -------
                      Gross deferred tax liabilities            639      1,325
                                                            -------    -------
                      Net deferred tax asset/(liability)    $   383    $  (136)
                                                            =======    =======

              The Corporation determined that it was not required to establish a
              valuation  allowance  for deferred tax assets in  accordance  with
              SFAS No.  109,  "Accounting  for Income  Taxes,"  since it is more
              likely  than not that the  deferred  tax  asset  will be  realized
              through  carry-back  to  taxable  income  in prior  years,  future
              reversals of existing  taxable  temporary  differences,  and, to a
              lesser extent, future taxable income.

12.           COMMITMENTS AND LEGAL CONTINGENCIES

              In the ordinary  course of business,  the  Corporation has various
              outstanding  commitments and contingent  liabilities  that are not
              reflected in the accompanying  consolidated  financial statements.
              In addition,  the  Corporation  is involved in certain  claims and
              legal  actions  arising in the ordinary  course of  business.  The
              outcome  of  these   claims   and   actions   are  not   presently
              determinable;   however,  in  the  opinion  of  the  Corporation's
              management,   after   consulting   legal  counsel,   the  ultimate
              disposition  of these  matters  will not have a  material  adverse
              effect on the consolidated financial statements.

                                      -38-
<PAGE>

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.           EMPLOYEE BENEFIT PLANS

              DEFINED BENEFIT PLAN.

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

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

              Information pertaining to changes in obligations and funded status
              of the defined benefit pension plan is as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(Dollar amounts in thousands)                          2005         2004      2003
----------------------------------------------------------------------------------------
Change in plan assets:
<S>                                                    <C>         <C>         <C>
     Fair value of plan assets at beginning of year    $ 2,818     $ 2,483     $ 1,983
     Actual return on plan assets                          164         204         316
     Employer contribution                                 135         209         248
     Benefits paid                                         (80)        (78)        (64)
                                                       -------     -------     -------
     Fair value of plan assets at end of year            3,037       2,818       2,483
                                                       -------     -------     -------
Change in benefit obligation:
     Benefit obligation at beginning of year             3,276       2,912       2,801
     Service cost                                          188         158         147
     Interest cost                                         214         187         164
     Actuarial loss                                        154          97         235
     Effect of plan amendment                             --          --          (580)
     Effect of change in assumptions                       174        --           209
     Benefits paid                                         (80)        (78)        (64)
                                                       -------     -------     -------
     Benefit obligation at end of year                   3,926       3,276       2,912
                                                       -------     -------     -------
Funded status (plan assets less benefit obligation)       (889)       (458)       (429)
Unrecognized prior service cost                           (486)       (517)       (548)
Unrecognized net actuarial gain                          1,283         923         843
Unrecognized transition asset                              (48)        (56)        (65)
                                                       -------     -------     -------
Accrued pension cost                                   $  (140)    $  (108)    $  (199)
                                                       =======     =======     =======
</TABLE>

                                      -39-


<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13.           EMPLOYEE BENEFIT PLANS (CONTINUED)

              Amounts recognized in the year end balance sheet consist of:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                             Pension Benefits         Other Benefits
                                          ----------------------    -------------------
(Dollar amounts in thousands)               2005          2004         2005       2004
---------------------------------------------------------------------------------------
<S>                                        <C>           <C>            <C>        <C>
Prepaid benefit cost                       $    -        $    -         $ -        $ -
Accrued benefit cost                         (140)         (108)          -          -
Intangible assets                               -             -           -          -
Accumulated other comprehensive income          -             -           -          -
                                          --------      --------   --------------------
Net amount recognized                      $ (140)       $ (108)        $ -        $ -
                                          ========      ========   =========   ========
</TABLE>


              The accumulated benefit obligation for all defined benefit pension
              plans was $3.1 million and $2.7 million at year end 2005 and 2004,
              respectively.

              The components of the periodic pension cost are as follows:

------------------------------------------------------------------------------
(Dollar amounts in thousands)        2005             2004           2003
------------------------------------------------------------------------------

Service cost                            $ 188          $ 158          $ 147
Interest cost                             214            187            164
Expected return on plan assets           (246)          (209)          (176)
Transition asset                           (8)            (8)            (8)
Prior service costs                        19            (10)           (31)
Recognized net actuarial (gain) loss        -              -             47
                                    ---------      ---------     ----------
Net periodic pension cost               $ 167          $ 118          $ 143
                                    =========      =========     ==========

              Weighted-average actuarial assumptions include the following:



----------------------------------------------------------------------------
                                                    2005      2004    2003
----------------------------------------------------------------------------
Discount rate for benefit obligations and net cost  6.30%     6.30%   6.30%
Rate of increase in future compensation levels      4.50%     4.50%   4.50%
Expected rate of return on plan assets              8.50%     8.50%   8.50%


                                      -40-

<PAGE>

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.           EMPLOYEE BENEFIT PLANS (CONTINUED)

              PLAN ASSETS.

              The  Corporation's  pension plan asset allocation at year end 2005
              and 2004, target allocation for 2006, and expected  long-term rate
              of return by asset category are as follows:

----------------------------------------------------------------------------
                                                               Weighted-
                                                               Average
                                                             Expected Long-
 Asset Category         Target           Percentage of Plan  Term Rate of
                      Allocation         Assets at Year End     Return
                         2006            2005          2004      2005
------------------------------------------------------------------------
Equity Securities         62%            55%            52%      6.0%
 Debt Securities          15%            14%            16%      2.0%
      Other               23%            31%            32%      0.5%
                                       ----------  ----------- ---------
                                         100%          100%      8.5%
                                       ==========  =========== =========

              The intent of the Plan is to provide a range of investment options
              for building a  diversified  asset  allocation  strategy that will
              provide the highest likelihood of meeting the aggregate  actuarial
              projections.   In  selecting  the  options  and  asset  allocation
              strategy,  the  Corporation  has  determined  that the benefits of
              reduced  portfolio  risk are best  received  through  asset  style
              diversification.   The  following   asset  classes  or  investment
              categories  are  utilized  to meet the  Plan's  objectives:  Small
              company stock,  International  stock, Mid-cap stock, Large company
              stock, Diversified bond, Money Market/Stable Value and Cash.

              CONTRIBUTIONS.

              The Corporation  expects to contribute  approximately  $135,000 to
              its pension plan in 2006.

              ESTIMATED FUTURE BENEFIT PAYMENTS.

              The following  benefit  payments,  which reflect  expected  future
              service, as appropriate, are expected to be paid:

              ----------------------------------------------------------
              (Dollar amounts in thousands)
                     For year ended              Pension Benefits
              ----------------------------------------------------------

                          2006                       $    81
                          2007                            83
                          2008                            84
                          2009                           103
                          2010                           133
                        2011-2015                      1,032
                       Thereafter                      2,410
                                                   ----------

                   Benefit Obligation                $ 3,926
                                                   ==========


                                      -41-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.           EMPLOYEE BENEFIT PLANS (CONTINUED)

              DEFINED CONTRIBUTION PLAN.

              The  Corporation  maintains a defined  contribution  401(k)  Plan.
              Employees are eligible to  participate  by providing  tax-deferred
              contributions  up  to  20%  of  qualified  compensation.  Employee
              contributions  are  vested at all  times.  The  Corporation  makes
              matching  contributions  as  approved  by the Board of  Directors.
              Matching  contributions  for  2005,  2004 and 2003  were  $75,000,
              $67,000 and $68,000, respectively.

              SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN.

              During 2003, the Corporation  established a Supplemental Executive
              Retirement  Plan (SERP) to provide certain  additional  retirement
              benefits to participating executive officers. The SERP was adopted
              in order to provide benefits to such executives whose benefits are
              reduced  under  the  Corporation's   tax-qualified  benefit  plans
              pursuant to limitations  under the Internal Revenue Code. The SERP
              is subject to certain  vesting  provisions  and provides  that the
              executives shall receive a supplemental  retirement benefit if the
              executive's  employment  is terminated  after  reaching the normal
              retirement age of 62. For the years ended December 31, 2005,  2004
              and 2003,  the  Corporation  recognized  SERP  expense of $40,000,
              $38,000 and $33,000, respectively.

14.           FINANCIAL INSTRUMENTS

              FAIR VALUE OF FINANCIAL INSTRUMENTS.

              The following  table sets forth the carrying amount and fair value
              of  the  Corporation's   financial  instruments  included  in  the
              consolidated balance sheets as of December 31:

------------------------------------------------------------------------------
                                           2005                  2004
                                  ---------------------- ---------------------
                                  Carrying       Fair      Carrying     Fair
(Dollar amounts in thousands)      amount       value       amount      value
------------------------------------------------------------------------------
Financial assets:
     Cash and cash equivalents   $ 10,367     $ 10,367    $ 14,624   $ 14,624
     Securities                    56,304       56,303      63,362     63,362
     Loans held for sale                -            -         386        386
     Loans receivable             192,526      190,596     179,575    180,832
     Federal bank stocks            1,773        1,773       1,731      1,731
     Accrued interest receivable    1,271        1,271       1,203      1,203

Financial liabilities:
     Deposits                     230,503      228,720     232,874    232,394
     Borrowed funds                19,500       19,039      15,000     15,034
     Accrued interest payable         607          607         577        577


              The  methods  and  assumptions  used to  estimate  fair  value are
              described as follows.

                                      -42-
<PAGE>

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.           FINANCIAL INSTRUMENTS (CONTINUED)

              FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED).

              Carrying  amount  is the  estimated  fair  value for cash and cash
              equivalents,  short-term borrowings,  federal bank stocks, accrued
              interest receivable and payable, demand deposits,  short-term debt
              and variable  rate loans or deposits that reprice  frequently  and
              fully.  Security  fair values are based on market prices or dealer
              quotes,  and if no such information is available,  on the rate and
              term of the security and information  about the issuer.  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 values for impaired loans are
              estimated  using  discounted  cash  flow  analysis  or  underlying
              collateral  values.  Fair value of loans held for sale is based on
              market  quotes.  Fair value of debt is based on current  rates for
              similar  financing.  The fair value of off-balance  sheet items is
              based on the  current  fees or cost that would be charged to enter
              into or terminate such arrangements and is not material.

              OFF-BALANCE SHEET FINANCIAL INSTRUMENTS.

              The Corporation is party to credit-related  financial  instruments
              with  off-balance  sheet risk in the normal  course of business to
              meet  the  financing  needs  of  its  customers.  These  financial
              instruments  include  commitments  to extend credit and commercial
              letters of credit.  Commitments  to extend  credit  involve,  to a
              varying  degree,  elements  of credit  and  interest  rate risk in
              excess of amounts  recognized  in the  consolidated  statements of
              financial condition.  The Corporation's exposure to credit loss in
              the event of non-performance by the other party for commitments to
              extend credit is  represented by the  contractual  amount of these
              commitments,  less any collateral value obtained.  The Corporation
              uses  the  same  credit  policies  in  making  commitments  as for
              on-balance sheet  instruments.  The Corporation's  distribution of
              commitments  to extend credit  approximates  the  distribution  of
              loans receivable outstanding.

              The  following   table   presents  the  notional   amount  of  the
              Corporation's  off-balance sheet commitment financial  instruments
              as of December 31:


--------------------------------------------------------------------------------
                                        2005                     2004
                              ------------------------- ------------------------
                                            Variable                   Variable
(Dollar amounts in thousands) Fixed Rate      Rate       Fixed Rate      Rate
--------------------------------------------------------------------------------
Commitments to make loans       $ 280     $       143   $        424  $     648
Unused lines of credit          1,192          15,516            315     12,690
Standby letters of credit           -             682              -        686
                              --------   -------------  ------------  ----------
                              $ 1,472     $    15,659   $        739   $ 13,338
                              ========   =============  ============  ==========

              Commitments  to make loans are  generally  made for  periods of 30
              days or less. The fixed rate loan  commitments have interest rates
              ranging from 4.00% to 11.25% and  maturities  ranging from five to
              30 years at both year end  dates.  Commitments  to  extend  credit
              include  agreements  to lend to a customer  as long as there is no
              violation of any  condition  established  in the  contract.  These
              commitments   generally  have  fixed  expiration  dates  or  other
              termination clauses and may require payment of a fee.  Commitments
              to  extend  credit  also  include   unfunded   commitments   under
              commercial  and consumer lines of credit,  revolving  credit lines
              and overdraft protection agreements.  These lines of credit may be
              collateralized  and usually do not  contain a  specified  maturity
              date and may be  drawn  upon to the  total  extent  to  which  the
              Corporation is committed.

                                      -43-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.           FINANCIAL INSTRUMENTS (CONTINUED)

              OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (CONTINUED).

              Standby  letters of credit are conditional  commitments  issued by
              the Corporation usually for commercial  customers to guarantee the
              performance  of a  customer  to a third  party.  The  credit  risk
              involved in issuing  letters of credit is essentially  the same as
              that  involved in extending  loan  facilities  to  customers.  The
              Corporation    generally   holds   collateral   supporting   those
              commitments if deemed  necessary.  Standby  letters of credit were
              $629,000 and $902,000 at December 31, 2005 and 2004, respectively.

15.           EMCLAIRE FINANCIAL CORP. - CONDENSED FINANCIAL STATEMENTS,
              PARENT CORPORATION ONLY

              Following  are  condensed  financial  statements  for  the  parent
              company as of and for the years ended December 31:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Condensed Statements of Financial Condition                                                  December 31,
(Dollar amounts in thousands)                                                       2005                 2004
------------------------------------------------------------------------------------------------------------------
Assets:
<S>                                                                  <C>           <C>              <C>
      Cash and cash equivalents                                                            $ 306            $ 109
      Securities available for sale                                                        2,088            3,157
      Equity in net assets of subsidiary bank                                             21,558           20,981
      Other assets                                                                             7               10
                                                                                   -------------    --------------
          Total Assets                                                                   $23,959          $24,257
                                                                                   =============    ==============
Liabilities and Stockholders' Equity:
      Accrued expenses and other liabilities                                             $   344          $   641
      Stockholders' Equity                                                                23,615           23,616
                                                                                   -------------    --------------
          Total Liabilities and Stockholders' Equity                                     $23,959          $24,257
                                                                                   =============    ==============
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
Condensed Statements of Operations                                           Year ended December 31,
(Dollar amounts in thousands)                                          2005          2004             2003
------------------------------------------------------------------------------------------------------------------
Income:
      Dividends from subsidiary                                           $  721         $ 1,192           $1,437
      Investment income                                                      917             758              202
                                                                 ---------------   -------------   --------------
          Total income                                                     1,638           1,950            1,639
Expense:
      Noninterest expense                                                     83              41               91
                                                                 ---------------   -------------   --------------
          Total expense                                                       83              41               91
                                                                 ---------------   -------------   --------------
      Income before income taxes and equity in undistributed
          operating results of subsidiary                                  1,555           1,909            1,548

      Equity in undistributed net income of subsidiary                     1,241             831              966
                                                                 ---------------   -------------   --------------
      Income before income taxes                                           2,796           2,740            2,514

      Income tax expense                                                     223             183               22
                                                                 ---------------   -------------   --------------
Net income                                                                $2,573         $ 2,557           $2,492
                                                                 ===============   =============   ==============
</TABLE>
                                      -44-
<PAGE>
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15.           EMCLAIRE FINANCIAL CORP. - CONDENSED FINANCIAL STATEMENTS,
              PARENT CORPORATION ONLY (CONTINUED)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Condensed Statements of Cash Flows                                             Year ended December 31,
(Dollar amounts in thousands)                                               2005        2004        2003
----------------------------------------------------------------------------------------------------------
Operating activities:
<S>                                                                       <C>          <C>         <C>
      Net income                                                          $2,573       $2,557      $2,492
      Adjustments to reconcile net income to net cash provided
          by operating activities:
               Equity in undistributed operating results of subsidiary    (1,241)        (831)       (966)
               Other, net                                                   (803)      (1,332)      2,176
                                                                         --------     --------    --------
                   Net cash provided by operating activities                 529          394       3,702
                                                                         --------     --------    --------
Investing activities:
               Purchases of securities                                       (99)        (131)       (748)
               Proceeds from the sale of available for sale securities     1,060          945         244
                                                                         --------     --------    --------
                   Net cash provided by (used) in investing activities       961          814        (504)
                                                                         --------     --------    --------
Financing activities:
               Dividends paid                                             (1,293)      (1,192)     (1,437)
               Payments to acquire treasury stock                              -            -      (1,682)
                                                                         --------     --------    --------
                   Net cash used in financing activities                  (1,293)      (1,192)     (3,119)
                                                                         --------     --------    --------
Increase in cash and cash equivalents                                        197           16          79
Cash and cash equivalents at beginning of period                             109           93          14
                                                                         --------     --------    --------
Cash and cash equivalents at end of period                                 $ 306        $ 109        $ 93
                                                                         ========     ========    ========
</TABLE>


16.           OTHER COMPREHENSIVE INCOME (LOSS)

              Other  comprehensive  income (loss)  components  and related taxes
              were as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)                                           2005       2004       2003
-------------------------------------------------------------------   --------  ---------   --------
<S>                                                                   <C>          <C>      <C>
Unrealized holding gains (losses) on available for sale securities    $ (1,084)    $   90   $ 1,082
Reclassification adjustment for gains later recognized in income          (857)      (701)     (170)
                                                                      --------  ---------   -------
Net unrealized gains (losses)                                           (1,941)      (611)      912

Tax effect                                                                 660        207      (310)
                                                                      --------  ---------   -------
Other comprehensive income (loss)                                     $ (1,281)    $ (404)  $   602
                                                                      ========  =========   =======
</TABLE>


                                      -45-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17.           OTHER NONINTEREST EXPENSES

              The  following  summarizes  the  Corporation's  other  noninterest
              expenses for the years ended December 31:

-----------------------------------------------------------------------
(Dollar amounts in thousands)               2005      2004        2003
-----------------------------------------------------------------------
Telephone and data communications         $  272    $  327      $  228
Professional fees                            231       223         238
Customer bank card processing                241       239         228
Pennsylvania shares and use taxes            142       202         159
Correspondent and courier fees               189       190         177
Postage and freight                          148       157         172
Marketing and advertising                    109       114         143
Printing and supplies                        141       147         154
Travel, entertainment and conferences        140        84          98
Other                                        784       409         498
                                         --------  --------   ---------
      Total other noninterest expenses    $2,397    $2,092      $2,095
                                         ========  ========   =========


18.           QUARTERLY FINANCIAL DATA (UNAUDITED)

              The  following  is a summary of  selected  quarterly  data for the
              years ended December 31:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                                First     Second     Third   Fourth
(Dollar amounts in thousands, except share data)               Quarter    Quarter   Quarter  Quarter
---------------------------------------------------------------------------------------------------
2005:
<S>                                                            <C>        <C>       <C>      <C>
      Interest income                                          $3,544     $3,782    $3,733   $3,818
      Interest expense                                          1,354      1,342     1,405    1,472
                                                               -------   --------  -------  -------
      Net interest income                                       2,190      2,440     2,328    2,346
      Provision for loan losses                                    60         45        40       60
                                                               -------   --------  -------  -------
      Net interest income after provision for loan losses       2,130      2,395     2,288    2,286
      Noninterest income (1)                                      655        757       920      985
      Noninterest expense                                       2,087      2,330     2,386    2,343
                                                               -------   --------  -------  -------
      Income before income taxes                                  698        822       822      928
      Provision for income taxes                                  131        168       159      239
                                                               -------   --------  -------  -------
      Net income                                                $ 567     $  654    $  663   $  689
                                                               =======   ========  =======  =======
      Basic earnings per share                                  $0.45     $ 0.52    $ 0.52   $ 0.54
                                                               =======   ========  =======  =======
2004:
      Interest income                                          $3,463     $3,418    $3,521   $3,551
      Interest expense                                          1,251      1,259     1,287    1,422
                                                               -------   --------  -------  -------
      Net interest income                                       2,212      2,159     2,234    2,129
      Provision for loan losses                                    55         20        95      120
                                                               -------   --------  -------  -------
      Net interest income after provision for loan losses       2,157      2,139     2,139    2,009
      Noninterest income                                          480        521       576      958
      Noninterest expense                                       1,950      2,008     1,949    2,002
                                                               -------   --------  -------  -------
      Income before income taxes                                  687        652       766      965
      Provision for income taxes                                  122        129        81      181
                                                               -------   --------  -------  -------
      Net income                                               $  565     $  523    $  685   $  784
                                                               =======   ========  =======  =======
      Basic earnings per share                                 $ 0.45     $ 0.41    $ 0.54   $ 0.62
                                                               =======   ========  =======  =======
</TABLE>

(1)           Noninterest  income  fluctuated  upward during the fourth  quarter
              2004 as a result of gains on equity stocks.

                                      -46-

<PAGE>




                         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


BMC [LOGO]


AUDIT COMMITTEE, BOARD OF DIRECTORS AND STOCKHOLDERS
EMCLAIRE FINANCIAL CORP.
EMLENTON, PENNSYLVANIA

We  have  audited  the  accompanying  consolidated  balance  sheet  of  Emclaire
Financial Corp. as of December 31, 2005, and the related consolidated  statement
of  income,  changes  in  stockholders'  equity and cash flows for the year then
ended. The financial  statements of Emclaire  Financial Corp., as of and for the
two years ended  December 31, 2004 and 2003 were audited by other auditors whose
report,  dated  March  10,  2005,  expressed  an  unqualified  opinion  on those
statements.   These  financial   statements  are  the   responsibility   of  the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Emclaire Financial
Corp. as of December 31, 2005,  and the results of its  operations  and its cash
flows  for the  year  then  ended,  in  conformity  with  accounting  principles
generally accepted in the United States of America.



                                                    /s/ Beard Miller Company LLP
                                                    ----------------------------
Beard Miller Company LLP
Pittsburgh, Pennsylvania
March 10, 2006


                                      -47-


<PAGE>




STOCK AND DIVIDEND INFORMATION


LISTINGS AND MARKETS

Emclaire Financial Corp. common stock is traded on the Over the Counter Bulletin
Board  (OTCBB)  under the symbol  "EMCF.OB."  The listed  market  makers for the
Corporation's common stock include:

ARTHURS, LESTRANGE & CO., INC.
Two Gateway Center
Pittsburgh, PA 15222
Telephone: (877) 282-1941

FERRIS, BAKER, WATTS, INC.
100 Light Street, 8th Floor
Baltimore, MD 21202
Telephone: (800) 638-7411

BOENNING AND SCATTERGOOD
4 Tower Bridge, Suite 300
200 Bar Harbor Drive
West Conshonhocken, PA 19428
Telephone: (610) 862-5360

PARKER HUNTER, INC.
600 Grant Street-Suite 3100
Pittsburgh, PA 15219
Telephone: (412) 562-8000


STOCK PRICE AND CASH DIVIDEND INFORMATION

The bid and ask price of the  Corporation's  common stock was $26.00 and $26.75,
respectively,  as of March 10,  2006.  The  Corporation  traditionally  has paid
regular quarterly cash dividends.

The  following  table  sets  forth  the high and low sale  market  prices of the
Corporation's  common  stock as well as cash  dividends  paid for the  quarterly
periods presented:



----------------------------------------------------------------------
                                   Market Price
                        ---------------------------------    Cash
                            High       Low      Close      Dividend
----------------------------------------------------------------------
2005:
  Fourth quarter      $   30.25   $   26.50   $   26.60   $   0.27
  Third quarter           31.00       29.00       30.00       0.25
  Second quarter          31.75       28.00       30.25       0.25
  First quarter           28.50       26.30       28.50       0.25

2004:
  Fourth quarter      $   26.50   $   25.50   $   26.25   $   0.25
  Third quarter           26.25       24.75       26.00       0.23
  Second quarter          26.25       24.50       26.00       0.23
  First quarter           26.50       25.60       26.40       0.23


NUMBER OF STOCKHOLDERS AND SHARES OUTSTANDING

As of December 31, 2005, there were approximately 695 stockholders of record and
1,267,835  shares  of common  stock  entitled  to vote,  receive  dividends  and
considered   outstanding  for  financial  reporting  purposes.   The  number  of
stockholders  of record does not  include the number of persons or entities  who
hold their stock in nominee or "street" name.

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

Common  stockholders  may have cash  dividends,  declared  on the  Corporation's
common stock,  reinvested to purchase  additional shares.  Participants may also
make  optional  cash  purchases  of common  stock  through  this plan and pay no
brokerage  commissions or fees. To obtain a plan document and authorization card
call (800) 757-5755.


                                      -48-

<PAGE>

CORPORATE HEADQUARTERS

              Emclaire Financial Corp.
              612 Main Street
              Emlenton, Pennsylvania 16373
              Phone:                (724) 867-2311
              Website:              www.farmersnb.com

SUBSIDIARY BANK

              The Farmers National Bank of Emlenton.

ANNUAL MEETING

              The annual meeting of the Corporation's  stockholders will be held
              at 11:00 a.m.,  on  Wednesday,  May 17,  2006,  at the main office
              building in Emlenton, Pennsylvania 16373.

STOCKHOLDER AND INVESTOR INFORMATION

              Copies  of  annual   reports,   quarterly   reports   and  related
              stockholder  literature are available upon written request without
              charge to stockholders.  Requests should be addressed to Shelly L.
              Rhoades,  Treasurer of Emclaire  Financial Corp., 612 Main Street,
              Emlenton, Pennsylvania 16373.

              In addition,  other public filings of the  Corporation,  including
              the  Annual  Report  on  Form  10-K,  can  be  obtained  from  the
              Securities     and     Exchange     Commission's     website    at
              http://www.sec.gov.

INDEPENDENT ACCOUNTANTS

              Beard Miller Company LLP
              P.O. Box 101086
              Pittsburgh, PA  15237

SPECIAL COUNSEL

              Elias, Matz, Tiernan and Herrick L.L.P.
              12th Floor
              734 15th Street, N.W.
              Washington, DC  20005

REGISTRAR AND TRANSFER AGENT

              Illinois Stock Transfer Corporation
              209 West Jackson Boulevard, Suite 903
              Chicago, IL  60606
              www.illinoisstocktransfer.com
              (800) 757-5755




                                      -49-




<PAGE>
                                     NOTES

                                      -50-