EXHIBIT 13

    Annual Report to Stockholders for the fiscal year ended December 31, 2004





<PAGE>

<TABLE>
<CAPTION>

Consolidated Financial Highlights
---------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)



                                                          As of or for the year ended December 31,
---------------------------------------------------------------------------------------------------------
                                                           2004               2003               Change
                                                         ---------         ---------             ------
Balance Sheet:

<S>                                                      <C>                <C>                    <C>
   Total assets                                          $273,380           $262,512               4%
   Loans receivable, net                                  179,575            190,482              (6%)
   Total deposits                                         232,874            217,110               7%
   Stockholders' equity                                    23,616             22,655               4%
   Stockholders' equity per share                           18.63              17.87               4%

Income Statement:

   Net income                                            $  2,557           $  2,492               3%
   Net interest income                                      8,734              9,308              (6%)
   Basic earnings per share                                  2.02               1.91               5%
   Cash dividends per share                                  0.94               1.11             (15%)

Key Ratios:

   Return on average assets                                 0.96%              0.99%              (3%)
   Return on average stockholders' equity                  11.08%             10.96%               1%
   Efficiency ratio                                        67.11%             64.16%              (5%)

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



<PAGE>
<TABLE>
<CAPTION>

Selected Consolidated Financial Data
------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)

                                                         ---------------------------------------------------------------
                                                                               As of December 31,
Financial Condition Data                                    2004         2003         2002         2001         2000
------------------------                                 ---------------------------------------------------------------

<S>                                                      <C>          <C>          <C>          <C>          <C>
   Total assets                                          $  273,380   $  262,512   $  238,577   $  216,717   $  194,165
   Securities                                                63,362       49,162       48,748       38,755       26,688
   Loans receivable, net                                    179,575      190,482      169,557      160,540      150,332
   Deposits                                                 232,874      217,110      204,425      189,470      171,125
   Borrowed funds                                            15,000       20,700       10,000        5,000        2,000
   Stockholders' equity                                      23,616       22,655       22,680       21,111       20,045
   Stockholders' equity per common share                 $    18.63   $    17.87   $    17.02   $    15.84   $    15.04
   Tangible stockholders' equity per common share        $    17.48   $    16.70   $    15.82   $    14.54   $    13.53
------------------------                                 ---------------------------------------------------------------
                                                                         For the year ended December 31,
Operations Data                                             2004         2003         2002         2001        2000(1)
----------------                                         ---------------------------------------------------------------

   Interest income                                       $   13,953   $   14,209   $   14,653   $   14,589   $   14,402
   Interest expense                                           5,219        4,901        5,161        6,097        5,832
                                                         -----------  -----------  -----------  -----------  -----------
   Net interest income                                        8,734        9,308        9,492        8,492        8,570
   Provision for loan losses                                    290          330          381          154          209
                                                         -----------  -----------  -----------  -----------  -----------
   Net interest income after provision for loan losses        8,444        8,978        9,111        8,338        8,361
   Noninterest income                                         2,535        1,785        1,400        1,339        1,187
   Noninterest expense                                        7,909        7,522        7,420        7,254        8,977
                                                         -----------  -----------  -----------  -----------  -----------
   Income before income taxes                                 3,070        3,241        3,091        2,423          571
   Provision for income taxes                                   513          749          834          718          567
                                                         -----------  -----------  -----------  -----------  -----------

   Net income                                            $    2,557   $    2,492   $    2,257   $    1,705   $        4
                                                         ===========  ===========  ===========  ===========  ===========

     Average common shares outstanding                    1,267,835    1,301,714    1,332,835    1,332,835    1,348,210
     Basic earnings per share                            $     2.02   $     1.91   $     1.69   $     1.28   $     0.00
     Dividends per share (3)                             $     0.94   $     1.11   $     1.03   $     0.70   $     0.62
                                                         ---------------------------------------------------------------
                                                                    As of or for the year ended December 31,
Other Data                                                  2004         2003         2002         2001        2000(1)
----------                                               ---------------------------------------------------------------

   Performance Ratios
     Return on average assets                                  0.96%        0.99%        0.99%        0.84%           -
     Return on average equity                                 11.08%       10.96%       10.21%        8.35%        0.02%
     Yield on interest-earning assets (2)                      5.81%        6.28%        6.93%        7.69%        8.04%
     Cost of interest-bearing liabilities                      2.57%        2.56%        2.99%        3.99%        4.06%
     Cost of funds                                             2.15%        2.16%        2.53%        3.35%        3.38%
     Interest rate spread (2)                                  3.24%        3.72%        3.94%        3.70%        3.98%
     Net interest margin (2)                                   3.71%        4.18%        4.54%        4.52%        4.83%
     Efficiency ratio (2) (4)                                 67.11%       64.16%       64.98%       69.58%       86.99%
     Noninterest expense to average assets                     2.96%        2.99%        3.25%        3.56%        4.62%
     Interest-earning assets to average assets                92.86%       92.69%       94.65%       94.42%       93.39%
     Loans to deposits                                        77.11%       87.74%       82.94%       84.73%       87.85%
     Dividend payout ratio (3)                                46.61%       57.98%       60.95%       54.72%           -
   Asset Quality Ratios
     Non-performing loans to total loans                       0.46%        0.69%        0.68%        0.78%        0.59%
     Non-performing assets to total assets                     0.33%        0.52%        0.49%        0.58%        0.48%
     Allowance for loan losses to total loans                  1.00%        0.92%        0.93%        0.90%        0.96%
     Allowance for loan losses to non-performing loans       215.48%      133.71%      136.81%      117.59%      162.22%
   Capital Ratios
     Stockholders' equity to assets                            8.64%        8.63%        9.51%        9.74%       10.32%
     Tangible stockholders' equity to tangible assets          8.15%        8.11%        8.90%        9.01%        9.38%
     Average equity to average assets                          8.63%        9.02%        9.69%       10.02%       10.71%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Exclusive of $2.0 million ($1.8 million net of applicable income tax
     benefits) in charges for the write-down of an intangible asset assessed as
     impaired of $1.6 million and a decline in the value of a marketable
     security determined to be other than temporary of $448,000, net income,
     noninterest expense, return on average assets, return on average equity,
     noninterest expense to average assets, and efficiency ratio would have been
     $1.8 million, $6.5 million, 0.94%, 8.77%, 3.36% and 65.32%, respectively,
     for the year ended December 31, 2000.
(2)  Interest income utilized in calculation is on a fully tax equivalent basis.
(3)  Includes $.25 per share special cash dividends paid in December 2003 and
     December 2002.
(4)  The efficiency ratio is calculated by dividing operating expenses (less
     intangible amortization) by net income (TE basis) and noninterest income.
     The efficiency ratio gives us a measure of how effectively a bank is
     operating.



<PAGE>



Management's Discussion and Analysis of
Financial Condition and Results of Operations
-------------------------------------------------------------------------------

                                        I am pleased to report that the year
                                        ended December 31, 2004 was another
                                        successful year for Emclaire Financial
                                        Corp. and Farmers National Bank of
                                        Emlenton. Growth in the Corporation's
                                        assets and earnings continued to be
                                        strong and we remain confident that an
                                        expanding economy will strengthen our
                                        ability to further enhance
                                        profitability. I am excited about the
                                        future of Emclaire Financial Corp. and
                                        pleased to be associated with such a
                                        wonderful organization. The following
                                        information discusses the major
                                        activities and events that affected the
                                        condition and earnings as of December
                                        31, 2004 and for the year ended December
                                        31, 2004, respectively.

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.


<PAGE>

Changes in Financial Condition
------------------------------

Total assets  increased  $10.9 million or 4.1% to $273.4 million at December 31,
2004 from $262.5  million at December 31, 2003.  This increase was primarily due
to  increases  in  securities  of $14.2  million  and cash  equivalents  of $6.9
million.  Offsetting  the  net  increase  in  assets  was a  decrease  in  loans
receivable of $10.5 million.

The increase in the Corporation's total assets was primarily funded by increases
in total  liabilities  of $9.9 million or 4.1% to $249.8 million at December 31,
2004 from $239.9 million at December 31, 2003. The increase in total liabilities
was primarily due to an increase in customer  deposits of $15.8 million or 7.3%.
Offsetting the increase in total liabilities was a decrease in borrowed funds of
$5.7 million or 27.5%.

Cash and cash equivalents.  Cash on hand and interest-earning deposits increased
a combined $6.9 million or 89.9% to $14.6 million at December 31, 2004 from $7.7
million at December 31, 2003.  These  accounts  are  typically  increased by net
operating  results,  deposits by customers  into savings and checking  accounts,
loan repayments,  the maturities of securities and proceeds from borrowed funds.
Decreases result from customer deposit withdrawals, loan originations,  security
purchases, repayments of borrowed funds and cash dividends to stockholders.

Securities.  Securities  increased  $14.2  million or 28.9% to $63.4  million at
December 31, 2004 from $49.2  million at December 31, 2003 as a result of excess
liquidity.  This excess liquidity  resulted in security purchases totaling $29.0
million, comprised of purchases of short-term commercial paper,  mortgage-backed
securities,  U.S.  Government  agency and related entities and marketable equity
securities  of $2.5  million,  $3.0  million,  $22.4  million and $1.1  million,
respectively,  during 2004.  Partially offsetting the net increase in securities
were security maturities,  calls and sales totaling $13.4 million,  comprised of
commercial  paper,  corporate,  U.S.  Government agency and related entities and
marketable  equity  securities of $2.5 million,  $3.5 million,  $6.5 million and
$953,000,  respectively,  during  2004.  Also  contributing  to  the  change  in
securities for the year was a decrease in the  unrealized  gain on available for
sale securities.

Loans receivable. Net loans receivable decreased $10.5 million or 5.5% to $180.0
million at December  31, 2004 from $190.5  million at December  31,  2003.  This
decrease  can  be  attributed  to  decreases  in the  Corporation's  residential
mortgage  loans,  commercial  business loans and consumer loans of $7.1 million,
$2.6 million and $5.7  million,  respectively.  Contributing  to the decrease in
consumer  loans was the sale of our  student  loan  portfolio  of $3.9  million.
Offsetting  these  decreases in the loan  portfolio were increases in commercial
real estate  loans of $3.6 million or 8.0% and home equity loans of $1.2 million
or 4.1%. The increase in commercial real estate 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  decreased  $463,000  or 33.7% to  $911,000  or 0.33% of total  assets at
December  31, 2004 from $1.4  million or 0.52% of total  assets at December  31,
2003.   Non-performing   assets  consisted  of  non-performing  loans,  REO  and
repossessions of $840,000,  $69,000, and $2,000,  respectively,  at December 31,
2004 and $1.3 million, $0 and $45,000, respectively, at December 31, 2003.


<PAGE>

Federal  bank stocks.  Federal  bank stocks were  comprised of Federal Home Loan
Bank stock and  Federal  Reserve  Bank  stock of $1.398  million  and  $333,000,
respectively,  at December 31, 2004.  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 2004, the BOLI increased $176,000 or 4.1% to $4.4 million at December 31,
2004 from $4.3 million at December 31, 2003.  This net increase was comprised of
the  appreciation  of the cash surrender  value of $192,000  offset by executive
life insurance expense of $16,000.

Premises and  equipment.  Premises and equipment  increased  $143,000 or 2.7% to
$5.4 million at December  31, 2004 from $5.2  million at December 31, 2003.  The
net increase  resulted from capital  expenditures of $682,000,  offset by normal
depreciation  of fixed  assets of  $539,000.  Contributing  to the  increase  in
capital  expenditures  was  the  final  completion  of  the  renovations  to our
headquarters  in Emlenton and also the purchase of a new  mainframe for our data
processing operations.

Goodwill,  core  deposit and  customer  relationship  intangibles.  Core deposit
intangibles  decreased  $33,000 or 61.1% to $21,000 at  December  31,  2004 from
$54,000 at December 31, 2003 as a result of normal amortization during the year.
Also   during   2004   the   Corporation   purchased   our   financial   service
representative's  customer list and recognized a $20,000  customer  relationship
intangible  asset.  During the year this intangible  asset  decreased  $3,000 or
16.7% to $17,000 as a result of normal amortization.

Deposits.  Total deposits  increased  $15.8 million or 7.3% to $232.9 million at
December  31, 2004 from $217.1  million at December  31,  2003.  The increase in
customer  deposits can be attributed to internal growth within the Bank's branch
network across all major deposit categories.  For the year,  noninterest-bearing
demand,  interest-bearing  demand and time  deposits  increased  $4.2 million or
11.5%,  $2.5  million  or 3.2% and $9.1  million  or  8.9%,  respectively.  Also
contributing to the increase in customer  deposits was the introduction of a new
Certificate  of Deposit  product  which  steps up to a higher  rate at each year
anniversary  date over the next four  years,  the  marketing  efforts  put forth
during the year  throughout  our branch  network  and the  transfer of two large
sweep accounts into other demand deposit accounts. This increase in deposits can
also be  attributed  to a shift of customer  funds from  mutual  funds and other
equity  investments  to  FDIC-insured  bank  deposit  products.  This  shift has
happened  industry-wide  during  recent  years  as a result  from  the  national
economic downturn and overall weaker stock market performance experienced.

Borrowed  funds.  Borrowed  funds,  or advances  from the FHLB,  decreased  $5.7
million or 27.5% to $15.0  million at December  31,  2004 from $20.7  million at
December 31, 2003.  The decrease in advances was the result of the  repayment of
FHLB overnight borrowings of $5.7 million using excess funds.

Accrued interest payable.  Accrued interest payable increased  $100,000 or 21.0%
to $577,000 at December 31, 2004 from  $477,000 at December 31, 2003 as a result
of the increase in interest-bearing deposits.

Accrued expenses and other  liabilities.  Accrued expenses and other liabilities
decreased  $257,000  or 16.4% to $1.3  million at  December  31,  2004 from $1.6
million at December 31, 2003  primarily  as a result of  decreased  accruals for
income taxes,  incentive  bonus and other  pension  expenses to be paid in early
2005.



<PAGE>

Capital Resources
-----------------

Total  stockholders'  equity  increased  $961,000  or 4.2% to $23.6  million  at
December 31, 2004 from $22.7 million at December 31, 2003.  Contributing to this
increase  was net income of $2.6 million  offset by  dividends  declared of $1.2
million and a decrease in accumulated  other  comprehensive  income of $404,000.
Returns on average  equity and assets  were 11.08% and 0.96%,  respectively  for
2004.

The  Corporation  has  maintained a strong  capital  position  with an equity to
assets  ratio of 8.6% for both years ended  December  31,  2004 and 2003.  While
continuing  to sustain  this  strong  capital  position,  stockholders  received
dividends of $1.2 million in 2004.  Exclusive of a special cash  dividend in the
fourth quarter 2003 of $317,000,  regular quarterly  dividends increased $71,000
or 6.3% to $1.19 million in 2004 from $1.12 million in 2003.  Stockholders  have
taken part in the  Corporation's  dividend  reinvestment  plan introduced during
2002 with 38% of registered  shareholder accounts active in the plan at December
31, 2004 and 2003.

Capital adequacy is the Corporation's ability to support growth while protecting
the interest of  shareholders  and  depositors and to ensure 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,
2004,  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 offices of the Bank,  borrowings from the FHLB, and amortization and
prepayments  of  outstanding  loans and maturing  securities.  During 2004,  the
Corporation  used its sources of funds  primarily to fund loan  commitments  and
purchase  securities.  As of December 31, 2004, the  Corporation had outstanding
loan commitments, including undisbursed loans and amounts available under credit
lines,  totaling  $14.9  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, 2004,  time deposits  amounted to $111.4 million or 47.8% of the
Corporation's  total  consolidated  deposits,   including   approximately  $44.3
million,  which are scheduled to mature within the next year.  Management of the
Corporation  believes  that  they  have  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, 2004, the Corporation's  borrowing  capacity with
the FHLB, net of funds borrowed, was $109.7 million.

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



<PAGE>

Critical Accounting Policies
----------------------------

The most significant  accounting  policies followed by the Company 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  reserves  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.



<PAGE>

Changes in Results of Operations
--------------------------------

The  Corporation  reported  net income of $2.6  million,  $2.5  million and $2.3
million in 2004, 2003 and 2002,  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  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,

                                                  2004                        2003                        2002
                                       -------------------------  --------------------------  ---------------------------
                                        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 receivable                    $186,374   $11,892   6.38%  $178,030   $12,130   6.81%  $167,062   $12,441   7.45%
                                      ---------  --------  -----  ---------  --------  -----  ---------  --------  -----

  Securities, taxable                   40,245     1,396   3.47%    35,635     1,391   3.90%    29,745     1,485   4.99%
  Securities, tax exempt                15,398     1,014   6.58%    16,070     1,066   6.63%    12,970       902   6.95%
                                      ---------  --------  -----  ---------  --------  -----  ---------  --------  -----
                                        55,643     2,410   4.33%    51,705     2,457   4.75%    42,715     2,387   5.59%
                                      ---------  --------  -----  ---------  --------  -----  ---------  --------  -----

  Interest-earning cash equivalents      4,405        71   1.61%     1,996        25   1.25%     4,719        73   1.55%
  Federal bank stocks                    1,753        42   2.40%     1,749        48   2.74%     1,314        55   4.19%
                                      ---------  --------  -----  ---------  --------  -----  ---------  --------  -----
                                         6,158       113   1.84%     3,745        73   1.95%     6,033       128   2.12%
                                      ---------  --------  -----  ---------  --------  -----  ---------  --------  -----

  Total interest-earning assets        248,175    14,415   5.81%   233,480    14,660   6.28%   215,810    14,956   6.93%

  Cash and due from banks                7,175                       6,066                       5,467
  Other noninterest-earning assets      11,913                      12,355                       6,741
                                      ---------                   ---------                   ---------

     Total Assets                     $267,263                    $251,901                    $228,018
                                      =========                   =========                   =========

Interest-bearing liabilities:
-----------------------------
  Interest-bearing demand deposits    $ 77,421   $   457   0.59%  $ 77,058   $   596   0.77%  $ 71,983   $   799   1.11%
  Time deposits                        110,456     4,129   3.74%    99,562     3,775   3.79%    94,301     4,094   4.34%
                                      ---------  --------  -----  ---------  --------  -----  ---------  --------  -----
                                       187,877     4,586   2.44%   176,620     4,371   2.47%   166,284     4,893   2.94%
                                      ---------  --------  -----  ---------  --------  -----  ---------  --------  -----

  Borrowed funds                        15,504       633   4.08%    14,724       530   3.60%     6,203       268   4.32%
                                      ---------  --------  -----  ---------  --------  -----  ---------  --------  -----

  Total interest-bearing liabilities   203,381     5,219   2.57%   191,344     4,901   2.56%   172,487     5,161   2.99%
  Noninterest-bearing demand deposits   38,800         -      -     35,970         -      -     31,679         -      -
                                      ---------  --------  -----  ---------  --------  -----  ---------  --------  -----

  Funding and cost of funds            242,181     5,219   2.15%   227,314     4,901   2.16%   204,166     5,161   2.53%

  Other noninterest-bearing
   liabilities                           2,005                       1,856                       1,748
                                      ---------                   ---------                   ---------
     Total Liabilities                 244,186                     229,170                     205,914
     Stockholders' Equity               23,077                      22,731                      22,104
                                      ---------                   ---------                   ---------

     Total Liabilities and Equity     $267,263                    $251,901                    $228,018
                                      =========  --------         =========  --------         =========  --------

Net interest income                              $ 9,196                     $ 9,759                     $ 9,795
                                                 ========                    ========                    ========

Interest rate spread (difference between
  weighted average rate on interest-earning
  assets and interest-bearing liabilities)                 3.24%                       3.72%                       3.94%
                                                           =====                       =====                       =====

Net interest margin (net interest
  income as a percentage of average
  interest-earning assets)                                 3.71%                       4.18%                       4.54%
                                                           =====                       =====                       =====

</TABLE>


<PAGE>



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

<TABLE>
<CAPTION>

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

                                                                       2004 versus 2003            2003 versus 2002

                                                                       Increase (decrease)        Increase (decrease)
                                                                              due to                    due to
                                                                     ------------------------  -------------------------
 (Dollar amounts in thousands)                                       Volume    Rate    Total   Volume     Rate    Total
------------------------------------------------------------------------------------------------------------------------
 Interest income:
<S>                                                                   <C>    <C>       <C>     <C>      <C>       <C>
    Loans                                                             $553   $  (791)  $(238)  $  787   $(1,098)  $(311)
    Securities                                                         179      (226)    (47)     458      (388)     70
    Interest-earning cash equivalents                                   37         9      46      (36)      (12)    (48)
    Federal bank stocks                                                  -        (6)     (6)      15       (22)     (7)
                                                                      -----  --------  ------  -------  --------  ------

    Total interest-earning assets                                      769    (1,014)   (245)   1,224    (1,520)   (296)
                                                                      -----  --------  ------  -------  --------  ------

 Interest expense:
    Deposits                                                           275       (60)    215      291      (813)   (522)
    Borrowed funds                                                      29        74     103      313       (51)    262
                                                                      -----  --------  ------  -------  --------  ------

    Total interest-bearing liabilities                                 304        14     318      604      (864)   (260)
                                                                      -----  --------  ------  -------  --------  ------

 Net interest income                                                  $465   $(1,028)  $(563)  $  620   $  (656)  $ (36)
                                                                      =====  ========  ======  =======  ========  ======
</TABLE>

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.


<PAGE>


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 Federal  Reserve Board
(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.

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.


<PAGE>


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  nonperforming  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.

The  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 our non-sufficient funds fee early
in 2004.

During  the year 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.

<PAGE>



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 our  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 our  financial  services  representative  were  the  major
components of this increase.  Also contributing to the increase was the addition
of our 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.

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 (see discussion above on the
intangible  asset  section of the  balance  sheet).  The  customer  relationship
intangible asset will be amortized over two years.

Other  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
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.


<PAGE>



2003 Results Compared to 2002 Results

The  Corporation  reported  net income of $2.5 million and $2.3 million for 2003
and 2002,  respectively.  The  $235,000  or 10.4%  increase in net income can be
attributed to increases in  noninterest  income of $385,000 and decreases in the
provision  for loan  losses and the  provision  for income  taxes of $51,000 and
$85,000,  respectively,  offset by a decrease in net interest income of $184,000
and an increase in noninterest expense of $102,000.

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 $36,000 to
$9.75 million for 2003, compared to $9.79 million for 2002. This decrease in net
interest  income can be  attributed  to a decrease  in tax  equivalent  interest
income of $296,000 and a decrease in interest expense of $260,000.

Interest income.  Tax equivalent  interest income decreased  $296,000 or 2.0% to
$14.7 million for 2003, compared to $15.0 million for 2002. This decrease can be
attributed  to  decreases  in interest  earned on loans,  interest-earning  cash
equivalents   and  federal  bank  stocks  of   $311,000,   $48,000  and  $7,000,
respectively, offset by an increase in securities of $70,000.

Tax equivalent interest earned on loans receivable decreased $311,000 or 2.5% to
$12.1 million for 2003,  compared to $12.4  million for 2002.  During that time,
average  loans  increased  $11.0  million or 6.6%,  accounting  for  $787,000 in
additional  loan interest  income.  Due to the  continually  lower interest rate
environment in 2003 versus 2002,  this volume increase was more than offset by a
decrease of $1.1 million relating to the 64 basis point reduction in the average
interest rate earned on the loan portfolio.

Aside from changes in the volume and rates of loans receivable  discussed above,
$93,000 of the  decrease in loan net  interest  income  between the years can be
attributed to the payoff of a previously  non-performing  commercial real estate
loan in March 2002 that had been on non-accrual  status.  In connection with the
loan payoff,  the Corporation  received all principal and interest due under the
contractual terms of the loan agreement;  and therefore,  interest collected was
recorded as loan interest income during 2002.

Tax equivalent  interest earned on securities  increased $70,000 or 2.9% to $2.5
million for 2003, compared to $2.4 million for 2002. The average volume of these
assets  increased $9.0 million or 21.0% - as a result of the deployment of funds
from deposit growth, in excess of loan demand, into short-term commercial paper,
corporate,  U.S.  Government agency and related entities and equity securities -
accounting for $458,000 of the increase in interest income.  The average rate of
securities  decreased 84 basis  points  during 2003  resulting in an  offsetting
reduction in such interest income of $388,000.

Interest earned on  interest-earning  deposit accounts,  including federal funds
sold,  decreased  $48,000 or 65.8% to $25,000 for 2003,  compared to $73,000 for
2002,  as a result of lower  average  balances  maintained  and a decline in the
yield on these funds.  Interest earned on federal bank stocks declined primarily
as a result of lower yields on these instruments in 2003 versus 2002.


<PAGE>



Interest expense.  Interest expense  decreased  $260,000 or 5.0% to $4.9 million
for 2003,  compared to $5.2 million for 2002. This decrease in interest  expense
can be  attributed  to a decrease in interest  incurred on deposits of $522,000,
offset by an increase in interest incurred on borrowed funds of $262,000.

Deposit interest expense  decreased  $522,000 or 10.7% to $4.4 million for 2003,
compared to $4.9  million  for 2002.  This  decrease in interest  expense can be
attributed to a 47 basis point decline in the cost of interest-bearing  deposits
to 2.47% for 2003 versus 2.94% for 2002  resulting in a reduction in expense due
to rate of $813,000.  The favorable  rate  variance was  partially  offset by an
increase in average  interest-bearing  deposits of $10.3 million or 6.2% between
2003 and 2002 resulting in additional interest expense of $291,000.

Interest  expense on borrowed funds increased  $262,000 or 97.8% to $530,000 for
2003,  compared to $268,000 for 2002 due to a $5.0  million FHLB term  borrowing
placed  in June  2003 and the  increase  in the  average  balance  of  overnight
borrowings  of $1.7  million to $1.8  million  for 2003  compared to $161,000 in
2002. 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  inherent in the loan portfolio.  In determining the appropriate
level of  allowance  for  loan  losses,  management  considers  historical  loss
experience,  the present  and  prospective  financial  condition  of  borrowers,
current 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  $51,000 or 13.4% to $330,000 for 2003,
compared to  $381,000  for 2002.  The  Corporation's  allowance  for loan losses
amounted to $1.8 million or 0.92% of the  Corporation's  total loan portfolio at
December 31, 2003,  compared to $1.6 million or 0.93% at December 31, 2002.  The
allowance  for loan losses as a percentage of  non-performing  loans at December
31, 2003 and 2002 was 133.71% and  136.81%,  respectively.  The  decrease in the
provision  for loan  losses  from 2002 to 2003 was  primarily  due to  decreased
charge-offs  in 2003  while  impaired  and other  nonperforming  loans  remained
relatively stable.

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  $385,000 or 27.5% to $1.8  million for
2003,  compared to $1.4 million for 2002. This can be attributed to increases in
fees and service charges,  gains on the sale of loans and marketable  securities
and earnings on BOLI of $65,000,  $8,000,  $170,000 and $175,000,  respectively.
Offsetting this increase was a decrease in other noninterest income of $33,000.

In 2003,  Management began to diversify its security  portfolio with an emphasis
on marketable  equity  securities  into community  banks with growth  potential,
increasing  dividend  yields and the  potential to diversify  the  Corporation's
business.  Reducing  risk and  increasing  the return on equity and asset ratios
were also contributing  factors.  The unrealized gain on the equity portfolio is
attributable  largely to one equity security  holding which  management has held
during  several  years  of  appreciation  in  price.  As  these  securities  are
classified as available for sale,  they may be sold in the future.  Gains on the
sale of these available for sale marketable equity securities are anticipated to
be recognized over the next two years.  The increase in the gains on the sale of
marketable  equity  securities  of $170,000 in 2003 was a direct  result of this
diversification.


<PAGE>


The  earnings  on BOLI  increased  $175,000 to  $233,000  for 2003,  compared to
$58,000  for  2002.  The  difference  consists  of an  entire  year of  earnings
recognized in 2003 versus only three months in 2002.

Other  noninterest  income  decreased  $33,000  or 9.9% to  $301,000  for  2003,
compared to $334,000 for 2002. 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  $102,000 or 1.4% to $7.5
million  for  2003,  compared  to  $7.4  million  for  2002.  This  increase  in
noninterest  expense is  comprised of  increases  in  compensation  and employee
benefits and other noninterest  expenses of $155,000 and $64,000,  respectively,
offset by the  reduction  in  intangible  amortization  expense and premises and
equipment expense of $31,000 and $86,000, respectively.

The largest  component  of  noninterest  expense is  compensation  and  employee
benefits. This expense increased $155,000 or 3.9%. Normal annual salary and wage
adjustments,  increased  pension  costs  and  a  higher  accrual  for  incentive
compensation,  which is based on return on average asset and equity ratios, were
the major components of this increase.  Partially offsetting this increase was a
reduction  in  headcount  through  normal  attrition  between  2003 and 2002,  a
decrease in employee  benefits  expense as a result of the  decrease in staffing
levels  and  an  increase  in  standard  loan  costs  deferred  associated  with
personnel.

Premises and equipment  expense  decreased $86,000 or 7.6% primarily as a result
of the cessation of  depreciation  on certain data  processing  equipment in the
fourth  quarter  2002.  In 2004,  depreciation  will increase as a result of the
final  renovations  of the main office and the purchases of new data  processing
equipment that will be placed in service throughout the year.

Intangible  amortization  expense  decreased $31,000 or 21.2% as a result of the
cessation  of  intangible  amortization  expense  on three  branches  previously
acquired which have been fully amortized.

Other  expense  increased  $64,000 or 3.0%  primarily  as a result of  increased
printing and office supplies, postage, marketing and other noninterest expenses.
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. Contributing to the increase in these expenses
was the  addition  of a new  branch  early in 2003  and  increased  loan  volume
throughout the year.  Partially  offsetting this increase in other expenses were
decreases  in  software  amortization  expense as certain  amortization  periods
expired  in  late  2002  and  in  2003,   telephone  and  data   communications,
professional fees and Pennsylvania shares tax expenses.

Provision  for income  taxes  decreased  $85,000 or 10.2% to $749,000  for 2003,
compared to $834,000 for 2002. Contributing to this change was the effective tax
rate  decreasing  to 23.2% for 2003 from 27.0% for 2002 as a direct result of an
increase  in  nontaxable  interest  income on  tax-free  investments  and loans,
nontaxable BOLI income and a historical tax credit related to the renovations of
the main office building.


<PAGE>



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 Bank'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.

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.

At December 31, 2004,  the  Corporation's  interest-earning  assets  maturing or
repricing  within  one  year  totaled  $81.9  million  while  the  Corporation's
interest-bearing  liabilities  maturing or  repricing  within  one-year  totaled
$124.1  million,  providing  an  excess  of  interest-bearing  liabilities  over
interest-earning assets of $42.2 million or a negative 15.5% of total assets. At
December 31, 2004,  the  percentage of the  Corporation's  assets to liabilities
maturing or repricing within one year was 65.9%.



<PAGE>



The  following  table  presents  the  amounts  of  interest-earning  assets  and
interest-bearing  liabilities  outstanding  as of  December  31,  2004 which are
expected  to  mature,  prepay or  reprice  in each of the  future  time  periods
presented:
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------
                                                                Due within  Due within  Due within  Due in
                                                       Due in    six months   one to     three to    over
(Dollar amounts in thousands)                         six months   to one      three       five      five       Total
                                                       or less      year       years       years     years
------------------------------------------------------------------------------------------------------------------------

<S>                                                   <C>         <C>         <C>        <C>        <C>        <C>
Total interest-earning assets                         $ 55,610    $ 26,246    $72,404    $52,342    $46,277    $252,879

Total interest-bearing liabilities                     104,270      19,850     35,826     19,183     27,086     206,215
                                                      ---------   ---------   --------   --------   --------   ---------

Maturity or repricing gap during the period           $(48,660)   $  6,396    $36,578    $33,159    $19,191    $ 46,664
                                                      =========   =========   ========   ========   ========   =========

Cumulative gap                                        $(48,660)   $(42,264)   $(5,686)   $27,473    $46,664
                                                      =========   =========   ========   ========   ========

Ratio of gap during the period to total assets         (17.80%)       2.34%     13.38%     12.13%      7.02%
                                                      =========   =========   ========   ========   ========

Ratio of cumulative gap to total assets                (17.80%)    (15.46%)    (2.08%)     10.05%     17.07%
                                                      =========   =========   ========   ========   ========

Total assets                                                                                                   $273,380
                                                                                                               ========

</TABLE>

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 Bank 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.



<PAGE>



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 25% 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 30% 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.

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,
2004  and  2003,  respectively.   This  analysis  was  done  assuming  that  the
interest-earning  asset and  interest-bearing  liability  levels at December 31,
2004 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,  2004 levels for net  interest
income.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                        Increase         Decrease
                                                     --------------- ------------------
                                                     +100     +200      -100      -200
                                                      BP      BP        BP        BP
---------------------------------------------------------------------------------------

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

2003 Net interest income - increase (decrease)       1.32%    0.59%   (4.49%)   (9.37%)
---------------------------------------------------------------------------------------
</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.

<PAGE>

Effect of Newly Issued But Not Yet Effective Accounting Standards
-----------------------------------------------------------------

Statement of Financial Accounting Standards (SFAS) No. 153 modifies an exception
from fair value  measurement  of nonmonetary  exchanges.  Exchanges that are not
expected to result in significant  changes in cash flows of the reporting entity
are not measured at fair value.  This  supersedes the prior  exemption from fair
value  measurement  for exchanges of similar  productive  assets and applies for
fiscal years beginning after June 15, 2005.

Statement  of  Position  03-3  requires  that a  valuation  allowance  for loans
acquired in a transfer, including in a business combination, reflect only losses
incurred after acquisition and should not be recorded at acquisition. It applies
to any loan  acquired  in a transfer  that  showed  evidence  of credit  quality
deterioration since it was made.

The effect of these new standards on the  Corporation's  financial  position and
results of operations is not expected to be material upon and after adoption.



<PAGE>



<TABLE>
<CAPTION>

Consolidated Balance Sheets
---------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)
---------------------------------------------------------------------------------------------------

                                                                                   December 31,
                                                                               --------------------
                                                                                  2004       2003
                                                                               ---------  ---------

                                     Assets

<S>                                                                            <C>        <C>
Cash and due from banks                                                        $  7,769   $  6,776
Interest-earning deposits in banks                                                6,855        927
                                                                               ---------  ---------
  Cash and cash equivalents                                                      14,624      7,703
Securities available for sale                                                    63,346     49,145
Securities held to maturity; fair value of $16 and $17                               16         17
Loans held for sale                                                                 386          -
Loans receivable, net of allowance for loan losses of $1,810 and $1,777         179,575    190,482
Federal bank stocks                                                               1,731      1,982
Bank-owned life insurance                                                         4,448      4,272
Accrued interest receivable                                                       1,203      1,270
Premises and equipment, net                                                       5,366      5,223
Goodwill                                                                          1,422      1,422
Other intangibles                                                                    38         54
Prepaid expenses and other assets                                                 1,225        942
                                                                               ---------  ---------

      Total assets                                                             $273,380   $262,512
                                                                               =========  =========

                      Liabilities and Stockholders' Equity

Liabilities:
  Deposits:
     Noninterest bearing                                                       $ 40,511   $ 36,332
     Interest-bearing                                                           192,363    180,778
                                                                                ---------  ---------
     Total deposits                                                            232,874    217,110
  Borrowed funds                                                                 15,000     20,700
  Accrued interest payable                                                          577        477
  Accrued expenses and other liabilities                                          1,313      1,570
                                                                                ---------  ---------

     Total liabilities                                                          249,764    239,857
                                                                                ---------  ---------

Stockholders' Equity:
  Preferred stock, $1.00 par value, 3,000,000 shares authorized;
     none issued                                                                      -          -
  Common stock, $1.25 par value, 12,000,000 shares authorized;
     1,395,852 shares issued, 1,267,835 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                                                              12,398     11,033
  Accumulated other comprehensive income                                          1,255      1,659
                                                                                ---------  ---------

     Total Stockholders' Equity                                                  23,616     22,655
                                                                                ---------  ---------

      Total Liabilities and Stockholders' Equity                               $273,380   $262,512
                                                                               =========  =========

See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>



<TABLE>
<CAPTION>

Consolidated Statements of Income
-------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)
-------------------------------------------------------------------------------------------------

                                                                    Year ended December 31,
                                                              ------------------------------------
                                                                 2004          2003        2002
                                                              ----------   ----------   ----------

Interest and dividend income:
<S>                                                          <C>          <C>          <C>
  Loans receivable, including fees                           $   11,744   $   12,009   $   12,419
  Securities:
     Taxable                                                      1,396        1,391        1,485
     Exempt from federal income tax                                 700          736          621
  Federal bank stocks                                                42           48           55
  Deposits with banks and federal funds sold                         71           25           73
                                                             -----------  -----------  -----------
     Total interest and dividend income                          13,953       14,209       14,653
                                                             -----------  -----------  -----------

Interest expense:
  Deposits                                                        4,586        4,371        4,893
  Borrowed funds                                                    633          530          268
                                                             -----------  -----------  -----------
     Total interest expense                                       5,219        4,901        5,161
                                                             -----------  -----------  -----------

Net interest income                                               8,734        9,308        9,492
  Provision for loan losses                                         290          330          381
                                                             -----------  -----------  -----------

Net interest income after provision for loan losses               8,444        8,978        9,111
                                                             -----------  -----------  -----------

Noninterest income:
  Fees and service charges                                        1,122        1,034          969
  Commissions on financial services                                  95            -            -
  Gain on the sale of loans                                          37           47           39
  Gains on securities                                               701          170            -
  Earnings on bank-owned life insurance                             192          233           58
  Other                                                             388          301          334
                                                             -----------  -----------  -----------
     Total noninterest income                                     2,535        1,785        1,400
                                                             -----------  -----------  -----------

Noninterest expense:
  Compensation and employee benefits                              4,395        4,176        4,021
  Premises and equipment, net                                     1,222        1,050        1,136
  Intangible amortization expense                                    36          115          146
  Other                                                           2,256        2,181        2,117
                                                             -----------  -----------  -----------
     Total noninterest expense                                    7,909        7,522        7,420
                                                             -----------  -----------  -----------

Income before provision for income taxes                          3,070        3,241        3,091
  Provision for income taxes                                        513          749          834
                                                             -----------  -----------  -----------

Net income                                                   $    2,557   $    2,492   $    2,257
                                                             ===========  ===========  ===========

Basic earnings per share                                     $     2.02   $     1.91   $     1.69

Average common shares outstanding                             1,267,835    1,301,714    1,332,835

See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>



Consolidated Statements of Changes in Stockholders' Equity
---------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)

                                                                                            Accumulated
                                                             Additional                        Other          Total
                                                    Common    Paid-in    Treasury  Retained  Comprehensive Stockholders'
                                                     Stock    Capital     Stock    Earnings     Income        Equity
                                                   --------  ----------  --------  --------  ------------  -------------

<S>                                                  <C>        <C>       <C>       <C>            <C>           <C>
Balance at January 1, 2002                          $1,745     $10,871   $  (971)  $ 9,094        $  372        $21,111

Comprehensive income:
  Net income                                                                         2,257                        2,257
  Change in net unrealized gain on
   securities available for sale, net of
   taxes of $353                                                                                    685            685
                                                                                                                -------

Comprehensive income                                                                                             2,942

Dividends declared, $1.03 per share                                                 (1,373)                      (1,373)
                                                   --------  ----------  --------  --------  ------------  -------------

Balance at December 31, 2002                         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
                                                   ========  ==========  ========  ========  ============  =============

See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>



Consolidated Statements of Cash Flows
---------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)

                                                                           Year ended December 31,
                                                                       -------------------------------
                                                                           2004       2003       2002
                                                                       ---------  ---------  ---------

Operating activities:
<S>                                                                    <C>        <C>        <C>
   Net income                                                          $  2,557   $  2,492   $  2,257
   Adjustments to reconcile net income to net cash from
    operating activities:
        Depreciation and amortization for premises and equipment            539        404        460
        Provision for loan losses                                           290        330        381
        Amortization of premiums and accretion of discounts, net            223        253        236
        Amortization of intangible assets                                    36        115        146
        Gains on Securities                                                (701)      (170)         -
        Gain on sale of loans                                               (37)       (47)       (39)
        Loans originated for sale                                             -     (1,989)    (1,245)
        Proceeds from sales of loans held for sale                        3,541      2,036      1,284
        Earnings on bank-owned life insurance, net                         (176)      (218)       (54)
        Changes in:
           Accrued interest receivable                                       67         55        (74)
           Prepaid expenses and other assets                                 (6)      (642)      (338)
           Accrued interest payable                                         100         10        (13)
           Accrued expenses and other liabilities                          (257)       565        349
                                                                       ---------  ---------  ---------
    Net cash provided by operating activities                             6,176      3,194      3,350
                                                                       ---------  ---------  ---------

Investing activities:
   Loan originations and payments, net                                    6,628    (21,344)    (9,531)
   Available-for-sale securities:
        Sales                                                               945        647          -
        Maturities, prepayments and calls                                13,299     36,369     33,475
        Purchases                                                       (28,549)   (36,524)   (42,561)
   Held-to-maturity securities:
        Maturities, prepayments and calls                                     1         12         31
   (Purchases) Sale of federal bank stocks                                  251       (684)       (37)
   Purchase of bank-owned life insurance                                      -          -     (4,000)
   Purchase of intangible asset - customer relationship                     (20)         -          -
   Purchases of premises and equipment                                     (682)    (1,949)      (750)
                                                                       ---------  ---------  ---------
    Net cash used in investing activities                                (8,127)   (23,473)   (23,373)
                                                                       ---------  ---------  ---------

Financing activities:
   Net increase in deposits                                              15,764     12,685     14,955
   Borrowings from the FHLB                                                   -     10,700      5,000
   Repayments of borrowed funds                                          (5,700)         -          -
   Dividends paid                                                        (1,192)    (1,437)    (1,373)
   Payments to acquire treasury stock                                         -     (1,682)         -
                                                                       ---------  ---------  ---------
    Net cash provided by financing activities                             8,872     20,266     18,582
                                                                       ---------  ---------  ---------

Net increase (decrease) in cash equivalents                               6,921        (13)    (1,441)
Cash equivalents at beginning of period                                   7,703      7,716      9,157
                                                                       ---------  ---------  ---------
Cash equivalents at end of period                                      $ 14,624   $  7,703   $  7,716
                                                                       =========  =========  =========

Supplemental cash flow information:
   Interest paid                                                       $  5,119   $  4,891   $  5,174
   Income taxes paid                                                        295        828        725

Supplemental noncash disclosures:
   Transfers from portfolio loans to loans held for sale               $  3,890   $      -   $      -
   Transfers from loans to repossessed assets                                69          -          3

See accompanying notes to consolidated financial statements.

</TABLE>

<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 mortgage, 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  and  in  banks,
       interest-earning  deposits with other financial  institutions and federal
       funds  sold.  Interest-earning  deposits  mature  within one year and are
       carried  at cost.  Net  cash  flows  are  reported  for loan and  deposit
       transactions.

       Restrictions on Cash. Cash on hand or on deposit with the Federal Reserve
       Bank of approximately  $3.0 million and $2.5 million was required to meet
       regulatory  reserve and  clearing  requirements  at December 31, 2004 and
       2003, 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.


<PAGE>


1.     Summary of Significant Accounting Policies (continued)

       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.

       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 historic  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.


<PAGE>


1.     Summary of Significant Accounting Policies (continued)

       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  and  equipment.
       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.

       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.

<PAGE>


1.     Summary of Significant Accounting Policies (continued)

       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  $69,000 and
       $0 at December 31, 2004 and 2003, 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.

       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.



<PAGE>



1.     Summary of Significant Accounting Policies (continued)

       Effect of Newly Issued But Not Yet Effective Accounting Standards.

       In 2005, the Corporation will adopt FASB Statement No. 153, Fair Value of
       Nonmonetary Exchanges and FASB Statement of Position 03-3, Loans Acquired
       in a  Transfer.  Adoption  of these  new  standards  is not  expected  to
       materially  affect  the  Corporation's  operating  results  or  financial
       condition.

       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.

       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 financial statements.

       Reclassifications.

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


<PAGE>

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, 2004:
<S>                                                      <C>          <C>          <C>      <C>
     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
                                                         ========     =======      ======   ========
  December 31, 2003:
     U.S. Government agencies and related entities       $19,061      $   83       $(249)   $18,895
     Mortgage-backed securities                            1,691           -         (22)     1,669
     Municipal securities                                 14,680         811           -     15,491
     Corporate securities                                  9,599         273          (1)     9,871
     Equity securities                                     1,601       1,622          (4)     3,219
                                                         --------     -------      ------   --------
                                                         $46,632      $2,789       $(276)   $49,145
                                                         ========     =======      ======   ========
Held to maturity:
-----------------
  December 31, 2004:
     Mortgage-backed securities                          $    16      $    -       $   -    $    16
                                                         --------     -------      ------   --------
                                                         $    16      $    -       $   -    $    16
                                                         ========     =======      ======   ========
  December 31, 2003:
     Mortgage-backed securities                          $    17      $    -       $   -    $    17
                                                         --------     -------      ------   --------
                                                         $    17      $    -       $   -    $    17
                                                         ========     =======      ======   ========

</TABLE>

Sales of available for sale securities were as follows:

----------------------------------------------------------------------
  (Dollar amounts in thousands)                  2004    2003    2002
----------------------------------------------------------------------

  Proceeds                                      $ 945   $ 647   $   -
  Gross gains                                     701     170       -
  Tax provision related to gains                  238      58       -
----------------------------------------------------------------------



The  following  table  summarizes  scheduled  maturities  of  the  Corporation's
securities as of December 31, 2004:

-----------------------------------------------------------------------------
                                       Available for sale    Held to maturity
                                       -------------------  -----------------
                                       Amortized    Fair     Amortized Fair
(Dollar amounts in thousands)            cost      value     cost      value
-----------------------------------------------------------------------------

Due in one year or less                $ 5,263    $ 5,262     $ -       $ -
Due from one year to five years         31,177     31,020       -         -
Due from five to ten years               8,351      8,324       -         -
Due after ten years                     14,683     15,583      16        16
No scheduled maturity                    1,970      3,157       -         -
                                       --------   --------    ----      ----
                                       $61,444    $63,346     $16       $16
                                       ========   ========    ====      ====




<PAGE>
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 $9.7 million and $8.6 million as of
       December 31, 2004 and 2003,  respectively,  were pledged to secure public
       deposits and for other purposes required or permitted by law.

       At year end 2004 and 2003,  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 shareholders' equity.

       Securities  with  unrealized  losses  at  year  end  2004  and  2003  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, 2004:
<S>                                                  <C>           <C>      <C>           <C>      <C>            <C>
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)
                                                     ========      ======   ========      ======   ========       ======

December 31, 2003:
U.S. Government agencies and related entities        $11,316       $(249)   $     -       $   -    $11,316        $(249)
Mortgage-backed securities                             1,669         (22)         -           -      1,669          (22)
Municipal securities                                       -           -          -           -          -            -
Corporate securities                                     809          (1)         -           -        809           (1)
Equity securities                                        214          (4)         -           -        214           (4)
                                                     --------      ------   --------      ------   --------       ------
                                                     $14,008       $(276)   $     -       $   -    $14,008        $(276)
                                                     ========      ======   ========      ======   ========       ======

</TABLE>

       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.


<PAGE>

3.     Loans Receivable

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


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

   Mortgage loans:
       Residential first mortgage                  $ 69,310     $ 76,396
       Home equity                                   31,548       30,316
       Commercial                                    48,539       44,935
                                                   ---------    ---------
                                                    149,397      151,647
   Other loans:
       Commercial business                           23,898       26,470
       Consumer                                       8,090       14,142
                                                   ---------    ---------
                                                     31,988       40,612
                                                   ---------    ---------

   Total loans, gross                               181,385      192,259

   Less allowance for loan losses                     1,810        1,777
                                                   ---------    ---------

   Total loans, net                                $179,575     $190,482
                                                   =========    =========

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

   -------------------------------------------------------------------
   (Dollar amounts in thousands)               2004     2003     2002
   -------------------------------------------------------------------

   Balance at the beginning of the year      $1,777   $1,587   $1,464

   Provision for loan losses                    290      330      381
   Loans charged-off                           (318)    (205)    (331)
   Recoveries                                    61       65       73
                                             -------  -------  -------

   Balance at the end of the year            $1,810   $1,777   $1,587
                                             =======  =======  =======


       Non-performing  loans,  which include primarily  non-accrual  loans, were
       $840,000 and $1.3  million at December  31, 2004 and 2003,  respectively.
       The Corporation is not committed to lend significant  additional funds to
       debtors whose loans are on non-accrual  status.  At December 31, 2004 and
       2003,  the recorded  investment  in loans  considered  to be impaired was
       $441,000 and $821,000, respectively, against which approximately $104,000
       and  $202,000,  respectively,  of  the  allowance  for  loan  losses  was
       allocated.  During 2004, 2003 and 2002, impaired loans averaged $635,000,
       $728,000 and $789,000,  respectively. The Corporation recognized interest
       income on impaired loans of approximately  $27,000,  $29,000 and $13,000,
       on a cash basis, during 2004, 2003 and 2002, respectively.  Nonperforming
       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.

<PAGE>


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 was servicing  loans with unpaid  principal  balances of
       $2.5   million  and  $2.8   million  at  December   31,  2004  and  2003,
       respectively, for a third party investor. Such loans are not reflected in
       the  consolidated  balance sheet 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 $1.398
       million and  $333,000,  respectively,  at December 31,  2004,  and $1.649
       million and $333,000, respectively, at December 31, 2003.

5.     Premises and Equipment

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

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

   Land                                             $  349     $  349
   Buildings and improvements                        4,571      4,201
   Leasehold improvements                              694        696
   Furniture, fixtures and equipment                 4,245      3,532
   Construction in progress                             18        456
                                                    -------    -------
                                                     9,877      9,234
   Less accumulated depreciation and amortization    4,511      4,011
                                                    -------    -------
                                                    $5,366     $5,223
                                                    =======    =======



       Depreciation  and  amortization  expense for the years December 31, 2004,
       2003 and 2002 were  $539,000,  $404,000 and $460,000,  respectively.  The
       increase in depreciation expense between 2004 and 2003 was the additional
       expense  incurred as a result of our  renovations to the  headquarters in
       Emlenton  and  also  the  addition  of  new  data  processing  equipment.
       Offsetting the increase in accumulated  depreciation  was the disposal of
       assets of $39,000.


<PAGE>



5. Premises and Equipment (continued)

       Rent expense under  non-cancelable  operating  lease  agreements  for the
       years ended December 31, 2004,  2003 and 2002 was $108,000,  $124,000 and
       $146,000,  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
        ------------------------------------------------------

                2005                                     $ 109
                2006                                       112
                2007                                       115
                2008                                       120
                2009                                       122
             Thereafter                                    217
                                                ---------------

                                                         $ 795
                                               ================


6.     Goodwill and Intangible Assets

       The following  table  summarizes the  Corporation's  acquired  intangible
assets as of December 31:
<TABLE>
<CAPTION>


                                                         -------------------------------------------------------------
                                                                       2004                          2003
                                                         -------------------------------------------------------------
(Dollar amounts in thousands)                            Gross Carrying   Accumulated  Gross Carrying    Accumulated
                                                              Amount      Amortization      Amount       Amortization
------------------------------------------------------------------------------------------------------  --------------

<S>                                                            <C>           <C>              <C>              <C>
Core deposit intangibles                                       $1,240        $1,218           $1,240           $1,186
Other customer relationship intangibles                            20             3                -                -
                                                         -------------   -----------   --------------   --------------

Total                                                          $1,260        $1,222           $1,240           $1,186
                                                         =============   ===========   ==============   ==============

</TABLE>

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

       Amortization  expense  in 2005  and  2006  will be  $31,000  and  $7,000,
       respectively.  All acquired  intangible assets will be fully amortized in
       2006.

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 $1.6  million and $1.7  million at December 31,
       2004 and 2003,  respectively.  During 2004, total principal additions and
       total principal repayments  associated with these loans were $190,000 and
       $198,000,  respectively.  Deposits from principal  officers and directors
       held by the Bank at December  31, 2004 and 2003  totaled $4.0 million and
       $3.2 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 2004, 2003 and 2002, amounts paid to
       affiliates  for such  services  totaled  $104,000,  $74,000 and  $79,000,
       respectively.

<PAGE>

8.     Deposits

       The following table summarizes the Corporation's  deposits as of December
       31:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)                       2004                        2003
-------------------------------------  ---------------------------  ----------------------------

                                        Weighted                     Weighted
                                        average                      average
     Type of accounts                    rate      Amount      %       rate     Amount      %
------------------------------------------------------------------------------------------------

<S>                                         <C>         <C>     <C>     <C>      <C>         <C>
Noninterest-bearing deposits                  -   $ 40,511    17.4%        -   $ 36,332    16.7%
Interest-bearing demand deposits           0.76%    80,998    34.8%     0.68%    78,468    36.1%
Time deposits                              3.80%   111,365    47.8%     3.73%   102,310    47.2%
                                                  ---------  ------            ---------  ------
                                           2.08%  $232,874   100.0%     2.01%  $217,110   100.0%
                                                  =========  ======            =========  ======

</TABLE>


       The  Corporation  had a total of $24.0  million and $20.5 million in time
       deposits of $100,000 or more at December 31, 2004 and 2003, respectively.

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

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

      2005                                           $ 44,269    19.0%
      2006                                             25,704    11.0%
      2007                                             10,123     4.3%
      2008                                             14,042     6.0%
      2009                                              3,161     1.4%
   Thereafter                                          14,066     6.0%
                                                     ---------   -----

                                                     $111,365    47.8%
                                                     =========   =====


9.     Borrowed Funds

       The following  table  summarizes the  Corporation's  borrowed funds as of
       December 31:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
                                                   2004                2003
                                             ------------------  ------------------
                                             Weighted            Weighted
                                             average             average
(Dollar amounts in thousands)                  rate     Amount     rate     Amount
-----------------------------------------------------------------------------------

FHLB advances:
<S>                                              <C>    <C>          <C>    <C>
   Due within 12 months                         0.00%  $     -      1.06%  $ 5,700
   Due beyond 12 months but within 5 years      0.00%        -      0.00%        -
   Due beyond 5 years but within 10 years       4.20%   15,000      4.13%   15,000
   Due beyond 10 years                          0.00%        -      0.00%        -
                                                       --------            --------
                                                       $15,000             $20,700
                                                       ========            ========
</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, 2004 was $109.7 million.


<PAGE>



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, 2004, $2.7 million of
       undistributed  earnings of the company 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.

       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, 2004 and 2003, the  Corporation and the Bank met all capital
       adequacy requirements to which they are subject.

       As of  December  31,  2004,  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.

<PAGE>


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, 2004                 December 31, 2003
                                                  ----------------------------------  ---------------------------------
                                                    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                                          $23,245   12.49%  $20,859   11.36%  $22,018   11.72%  $19,669   10.61%
  For capital adequacy purposes                    14,889    8.00%   14,686    8.00%   15,025    8.00%   14,837    8.00%
  To be well capitalized                              N/A     N/A    18,358   10.00%      N/A     N/A    18,546   10.00%
Tier 1 capital to risk-weighted assets:
  Actual                                          $20,901   11.23%  $19,049   10.38%  $19,520   10.39%  $17,885    9.64%
  For capital adequacy purposes                     7,445    4.00%    7,343    4.00%    7,513    4.00%    7,418    4.00%
  To be well capitalized                              N/A     N/A    11,015    6.00%      N/A     N/A    11,128    6.00%
Tier 1 capital to average assets:
  Actual                                          $20,901    7.68%  $19,049    7.08%  $19,520    7.59%  $17,885    7.00%
  For capital adequacy purposes                    10,882    4.00%   10,768    4.00%   10,288    4.00%   10,220    4.00%
  To be well capitalized                              N/A     N/A    13,460    5.00%      N/A     N/A    12,775    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)                2004      2003      2002
   ----------------------------------------------------------------------

     Current                                   $ 538     $ 618     $ 984
     Deferred                                    (25)      131      (150)
                                               ------    ------    ------
                                               $ 513     $ 749     $ 834
                                               ======    ======    ======


       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>

--------------------------------------------------------------------------------------------------------
                                                 2004                  2003                2002
                                           -------------------   -------------------  ------------------
                                                    % 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           $ 1,044        34.0%   $1,102        34.0%  $1,051       34.0%
Increase (decrease) resulting from:
  Tax free interest, net of disallowance     (319)     (10.4%)     (312)      (9.6%)    (226)     (7.3%)
  Earnings on BOLI                            (53)      (1.7%)      (79)      (2.4%)       -        0.0%
  Other, net                                 (159)      (5.2%)       38         1.2%       9        0.3%
                                          --------  ----------   -------  ----------  -------  ---------

Provision                                 $   513        16.7%   $  749        23.2%  $  834       27.0%
                                          ========  ==========   =======  ==========  =======  =========

</TABLE>


<PAGE>


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)                         2004       2003
----------------------------------------------------------------------

Deferred tax assets:

  Loss on securities                                $  107     $  134
  Provision for loan losses                            562        550
  Deferred loan fees                                    29         39
  Intangible assets                                    145        158
  Accrued pension cost                                  28          -
  Tax credits                                          314          -
  Other                                                  4         25
                                                    -------    -------

  Gross deferred tax assets                          1,189        906

Deferred tax liabilities:
                                                         -          -
  Net unrealized gain on securities                    647        855
  Depreciation                                         389        302
  Stock Gain                                           118          -
  Prepaid Expenses                                      81          -
  Loan servicing                                         7         10
  Other                                                 83        108
                                                    -------    -------

  Gross deferred tax liabilities                     1,325      1,275
                                                    -------    -------

  Net deferred tax asset/(liability)                $ (136)    $ (369)
                                                    =======    =======



       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.


<PAGE>



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)                              2004      2003    2002
-----------------------------------------------------------------------------------

Change in plan assets:
<S>                                                       <C>      <C>      <C>
  Fair value of plan assets at beginning of year          $2,483   $1,983   $2,117
  Actual (loss) return on plan assets                        204      316     (264)
  Employer contribution                                      209      248      194
  Benefits paid                                              (78)     (64)     (64)
                                                          -------  -------  -------

  Fair value of plan assets at end of year                 2,818    2,483    1,983
                                                          -------  -------  -------

Change in benefit obligation:
  Benefit obligation at beginning of year                  2,912    2,801    2,358
  Service cost                                               158      147      186
  Interest cost                                              187      164      169
  Actuarial loss                                              97      235      152
  Effect of Plan Amendment                                     -     (580)       -
  Effect of Change in Assumptions                              -      209        -
  Benefits paid                                              (78)     (64)     (64)
                                                          -------  -------  -------

  Benefit obligation at end of year                        3,276    2,912    2,801
                                                          -------  -------  -------

Funded status (plan assets less benefit obligations)        (458)    (429)    (818)
Unrecognized prior service cost                             (517)    (548)       1
Unrecognized net actuarial loss                              923      843      586
Unrecognized transition asset                                (56)     (65)     (73)
                                                          -------  -------  -------

Accrued pension cost                                      $ (108)  $ (199)  $ (304)
                                                          =======  =======  =======


</TABLE>

<PAGE>



13. Employee Benefit Plans (continued)

       Amounts recognized in the year end balance sheet consist of:

----------------------------------------------------------------------
                                           Pension          Other
                                           Benefits        Benefits
                                        --------------  --------------
(Dollar amounts in thousands)            2004    2003    2004    2003
----------------------------------------------------------------------

Prepaid benefit cost                    $   -   $   -   $   -   $   -
Accrued benefit cost                     (108)   (199)      -       -
Intangible assets                           -       -       -       -
Accumulated other comprehensive income      -       -       -       -
                                        ------  ------  ------- ------

Net amount recognized                   $(108)  $(199)  $   -   $   -
                                        ======  ======  ======  ======


       The accumulated  benefit obligation for all defined benefit pension plans
       was  $2.7   million  and  $2.4   million  at  year  end  2004  and  2003,
       respectively.

       The components of the periodic pension cost are as follows:


----------------------------------------------------------------------
(Dollar amounts in thousands)                    2004    2003    2002
----------------------------------------------------------------------

Service cost                                    $ 158   $ 147   $ 186
Interest cost                                     187     164     169
Expected return on plan assets                   (209)   (176)   (188)
Transition asset                                   (8)     (8)     (8)
Prior service costs                               (10)    (31)      -
Recognized net actuarial (gain) loss                -      47       -
                                                ------  ------  ------

Net periodic pension cost                       $ 118   $ 143   $ 159
                                                ======  ======  ======

       Weighted-average actuarial assumptions include the following:

-----------------------------------------------------------------------------
(Dollar amounts in thousands)                             2004   2003   2002
-----------------------------------------------------------------------------

Discount rate for benefit obligations and net cost        6.30%  6.30%  6.80%
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%
-----------------------------------------------------------------------------
<PAGE>


13.    Employee Benefit Plans (continued)

       Plan Assets.

       The  Corporation's  pension  plan asset  allocation  at year end 2004 and
       2003, target  allocation for 2005, and expected  long-term rate of return
       by asset category are as follows:
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------
       Asset Category             Target     Percentage of Plan Assets  Weighted-Average Expected
                                Allocation       at Year End            Long-Term Rate of Return
(Dollar amounts in thousands)      2005          2004       2003                  2004
------------------------------------------------------------------------------------------------
<S>                                  <C>             <C>     <C>                            <C>
Equity Securities                    50%         52%        52%                   6.0%
Debt Securities                      20%         16%        18%                   2.0%
Other                                30%         32%        30%                   0.5%
                                           -------------   -----     ---------------------------

                                                100%        100%                  8.5%
                                           =============   =====     ===========================
</TABLE>



       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  $135,000 to its pension plan in
       2005.

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

                    2005             $       78
                    2006                     78
                    2007                     77
                    2008                     78
                    2009                     97
                  2010-2014                 856
                  Thereafter              2,012
                                    ---------------

                   Benefit
                  Obligations        $    3,276
                                    ===============



<PAGE>



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 2004 and 2003 were $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 year ended December 31,
       2004 and 2003,  the  Corporation  recognized  SERP expense of $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
       sheet as of December 31:

--------------------------------------------------------------------------------
                                           2004                    2003
                                    -------------------    -------------------
                                   Carrying      Fair      Carrying      Fair
(Dollar amounts in thousands)       amount       value      amount      amount
--------------------------------------------------------------------------------

Financial assets:
   Cash equivalents                $ 14,624    $ 14,624    $  7,703    $  7,703
   Securities                        63,362      63,362      49,162      49,162
   Loans held for sale                  386         386           -           -
   Loans receivable                 179,575     180,832     190,482     198,092
   Federal bank stocks                1,731       1,731       1,982       1,982
   Bank-owned life insurance          4,448       4,448       4,272       4,272
   Accrued interest receivable        1,203       1,203       1,270       1,270

Financial liabilities:
   Deposits                         232,874     232,394     217,110     218,915
   Borrowed funds                    15,000      15,034      20,700      20,699
   Accrued interest payable             577         577         477         477
--------------------------------------------------------------------------------

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

<PAGE>



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 statement 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:


----------------------------------------------------------------------
                                        2004               2003
                                   ---------------   -----------------
(Dollar amounts in thousands)      Fixed   Variable  Fixed    Variable
                                    Rate     Rate     Rate      Rate
----------------------------------------------------------------------

Commitments to make loans          $424   $   648   $  969     $    -
Unused lines of credit              315    12,690    1,898      9,300
----------------------------------------------------------------------



       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.

<PAGE>

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  $902,000  and  $682,000  at  December  31,  2004 and  2003,
       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)                                              2004       2003
---------------------------------------------------------------------------------------------

Assets:
<S>                                                                       <C>        <C>
  Cash in banks                                                           $   109    $    93
  Securities available for sale                                             3,157      3,204
  Equity in net assets of subsidiary bank                                  20,981     19,963
  Other assets                                                                 10         12
                                                                          --------   --------
    Total assets                                                          $24,257    $23,272
                                                                          ========   ========
Liabilities and Stockholders' Equity:
  Accrued expenses and other liabilities                                  $   641    $   617
  Stockholders' Equity                                                     23,616     22,655
                                                                          --------   --------
    Total Liabilities and Stockholders' Equity                            $24,257    $23,272
                                                                          ========   ========
</TABLE>

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------
Condensed Statements of Operations                                 Year Ended December 31,
(Dollar amounts in thousands)                                     2004       2003       2002
---------------------------------------------------------------------------------------------

Income:
<S>                                                             <C>       <C>        <C>
  Dividends from subsidiary                                     $1,192    $ 1,437    $ 1,373
  Investment income                                                758        202         56
                                                                -------   --------   --------
    Total income                                                 1,950      1,639      1,429
Expense:
  Noninterest expense                                               41         91         80
                                                                -------   --------   --------
    Total expense                                                   41         91         80
                                                                -------   --------   --------

  Income before income taxes and equity in undistributed
    operating results of subsidiary                              1,909      1,548      1,349
  Equity in undistributed net income of subsidiary                 831        966        901
                                                                -------   --------   --------
  Income before income taxes                                     2,740      2,514      2,250
  Income tax expense (benefit)                                     183         22         (7)
                                                                -------   --------   --------
Net income                                                      $2,557    $ 2,492    $ 2,257
                                                                =======   ========   ========


</TABLE>

<PAGE>



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)                                       2004      2003      2002
---------------------------------------------------------------------------------------------

Operating activities:
<S>                                                               <C>       <C>       <C>
  Net income                                                      $2,557    $2,492    $2,257
  Adjustments to reconcile net income to net cash provided
   by operating activities:
      Equity in undistributed operating results of subsidiary       (831)     (966)     (901)
      Other, net                                                  (1,332)    2,176        17
                                                                  -------   -------   -------
        Net cash provided by operating activities                    394     3,702     1,373
                                                                  -------   -------   -------

Investing activities:
      Purchases of securities                                       (131)     (748)        -
      Proceeds from the sale of available for sale securities        945       244         -
                                                                  -------   -------   -------
        Net cash provided by (used) in investing activities          814      (504)        -
                                                                  -------   -------   -------

Financing activities:
      Dividends paid                                              (1,192)   (1,437)   (1,373)
      Payments to acquire treasury stock                               -    (1,682)        -
                                                                  -------   -------   -------
        Net cash used in financing activities                     (1,192)   (3,119)   (1,373)
                                                                  -------   -------   -------

Increase in cash equivalents                                          16        79         -
Cash equivalents at beginning of period                               93        14        14
                                                                  -------   -------   -------

Cash equivalents at end of period                                 $  109    $   93    $   14
                                                                  =======   =======   =======

</TABLE>


16.      Other Comprehensive Income (Loss)

       Other  comprehensive  income (loss)  components and related taxes were as
       follows:
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)                                            2004      2003      2002
------------------------------------------------------------------------------  --------  --------

<S>                                                                     <C>      <C>       <C>
Unrealized holding gains (losses) on available-for-sale securities      $  90    $1,082    $1,041
Reclassification adjustment for gains later recognized in income         (701)     (170)        -
                                                                        ------   -------   -------

Net unrealized gains (losses)                                            (611)      912     1,038

Tax Effect                                                                207      (310)     (353)
                                                                        ------   -------   -------

Other comprehensive income (loss)                                       $(404)   $  602    $  685
                                                                        ======   =======   =======
</TABLE>

<PAGE>



17.    Other Noninterest Expenses

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

----------------------------------------------------------------------
(Dollar amounts in thousands)                2004      2003      2002
----------------------------------------------------------------------

Telephone and data communications          $  327    $  228    $  287
Professional fees                             223       238       273
Customer bank card processing                 239       228       225
Pennsylvania shares and use taxes             202       159       189
Correspondent and courier fees                190       177       174
Postage and freight                           157       172       150
Marketing and advertising                     114       143       127
Printing and supplies                         147       154       122
Software amortization                         164        86       112
Travel, entertainment and conferences          84        98       102
Other                                         409       498       356
                                           -------   -------   -------
                                           $2,256    $2,181    $2,117
                                           =======   =======   =======



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

2004:
-----
<S>                                                              <C>       <C>       <C>       <C>
   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 (1)                                           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
                                                                 =======   =======   =======   =======

2003:
-----
   Interest income                                               $3,544    $3,539    $3,534    $3,592
   Interest expense                                               1,217     1,207     1,227     1,250
                                                                 -------   -------   -------   -------
   Net interest income                                            2,327     2,332     2,307     2,342
   Provision for loan losses                                         75        75        75       105
                                                                 -------   -------   -------   -------
   Net interest income after provision for loan losses            2,252     2,257     2,232     2,237
   Noninterest income                                               383       469       467       466
   Noninterest expense                                            1,920     1,898     1,841     1,863
                                                                 -------   -------   -------   -------
   Income before income taxes                                       715       828       858       840
   Provision for income taxes                                       174       203       209       163
                                                                 -------   -------   -------   -------

   Net income                                                    $  541    $  625    $  649    $  677
                                                                 =======   =======   =======   =======

   Basic earnings per share                                      $ 0.41    $ 0.47    $ 0.51    $ 0.53
                                                                 =======   =======   =======   =======

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


<PAGE>



Report of Independent Registered Public Accounting Firm
-------------------------------------------------------------------------------




Board of Directors and Stockholders
Emclaire Financial Corp.
Emlenton, Pennsylvania

We have  audited  the  accompanying  consolidated  balance  sheets  of  Emclaire
Financial  Corp. as of December 31, 2004 and 2003, and the related  consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the  three  years  in the  period  ended  December  31,  2004.  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  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 from material misstatement.  An audit includes examining, on
a test basis,  evidence  supporting the amounts and disclosures in the financial
statements.  An audit also includes 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, 2004 and 2003,  and the results of its  operations  and
its cash flows for each of the three years in the period ended December 31, 2004
in conformity with U.S. generally accepted accounting principles.

As  disclosed  in Note 6, during  2002 the  Corporation  adopted new  accounting
guidance for goodwill and intangible assets.


                                                /s/ Crowe Chizek and Company LLC
                                                --------------------------------
                                                    Crowe Chizek and Company LLC
Columbus, Ohio
March 10, 2005

<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."  The  listed  market  makers  for the
Corporation's common stock include:

<TABLE>
<CAPTION>

<S>                                     <C>                             <C>                              <C>
Arthurs, Lestrange & Co., Inc.     Ferris, Baker Watts, Inc.       Boenning and Scattergood        Parker Hunter, Inc.
Two Gateway Center                 100 Light Street                200 Bar Harbor Drive            600 Grant Street - Suite 3100
Pittsburgh, PA 15222               Baltimore, MD 21202             West Conshonhocken, PA 19428    Pittsburgh, PA 15219
Telephone:  (877) 282-1941         Telephone:  (800) 638-7411      Telephone:  (610) 862-5360      Telephone:  (412) 562-8000
</TABLE>


Stock Price and Cash Dividend Information

The bid and ask price of the  Corporation's  common stock was $27.50 and $28.25,
respectively,  as of March  7,  2005.  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
----------------------------------------------------------------------

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

2003:
-----
  Fourth quarter            $26.50    $25.25    $25.75          $0.48
  Third quarter              26.20     24.65     25.45           0.21
  Second quarter             27.60     25.75     26.20           0.21
  First quarter              27.60     21.50     27.60           0.21
----------------------------------------------------------------------

Number of Stockholders and Shares Outstanding

As of December 31, 2004, there were approximately 690 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  Corporation  dividends  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.




<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 18, 2005, 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

       Crowe Chizek and Company LLC
       5900 Landerbrook Corporate Center, Suite 205
       Cleveland, OH 44124

Special Counsel

       Manatt, Phelps & Phillips, LLP
       1501 M Street NW, Suite 700
       Washington, D.C.  20005

Registrar and Transfer Agent

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