UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K


(Mark
One):





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








For the
fiscal year ended:  December 31, 2007





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





For the
transition period from:  ___________ to ___________





Commission
File Number:  000-18464





EMCLAIRE
FINANCIAL CORP.


(Exact
name of registrant as specified in its charter)





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





Registrant’s
telephone number:  (724) 867-2311





Securities
      registered pursuant to Section 12(b) of the Act:
            
            None.
            
            OTC Electronic Bulletin Board
      (OTCBB)Name
      of exchange on which registered





Securities
registered pursuant to Section 12(g) of the Act:





Common Stock, par value
$1.25 per share


(Title of
Class)




Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.


YES o  NO x.





Indicate by checkmark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.


YES o NO x.





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.  YES x  NO o.





Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.  o





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company.





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








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





As of June
29, 2007, the aggregate value of the 1,267,835 shares of Common Stock of the
Registrant issued and outstanding on such date, which excludes 150,422 shares
held by the directors and officers of the Registrant as a group, was
approximately $28.2 million.  This figure is based on the last sales
price of $25.25 per share of the Registrant’s Common Stock on June 29,
2007.




DOCUMENTS
INCORPORATED BY REFERENCE


1.
            Portions
      of the Annual Report to Stockholders for the Fiscal Year ended December
      31, 2007 (Parts I, II, and IV).2.
            Portions
      of the Proxy Statement for the April 23, 2008 Annual Meeting of
      Stockholders (Part III).









EMCLAIRE
FINANCIAL CORP.
 
 TABLE
OF CONTENTS
  PART IItem 1.
                Business
                1Item
    1A.
                Risk
      Factors
                16Item
    1B.
                Unresolved Staff
      Comments
                17Item 2.
                Properties
                17Item 3.
                Legal
      Proceedings
                18Item 4.
                Submission of Matters to a
      Vote of Security Holders
                18PART
      IIItem 5.
                Market for Registrant’s
      Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
                19Item 6.
                Selected Financial
      Data
                20Item 7.
                Management’s Discussion and
      Analysis of Financial Condition and Results of
    Operation
                20Item
    7A.
                Quantitative and
      Qualitative Disclosure about Market Risk
                20Item 8.
                Financial Statements and
      Supplementary Data
                21Item 9.
                Changes in and
      Disagreements with Accountants on Accounting and Financial
      Disclosure
                21Item 9A
      (T).
                Controls and
      Procedures
                21Item
    9B.
                Other
      Information
                21PART
      IIIItem
    10.
                Directors, Executive
      Officers and Corporate Governance
                22Item
    11.
                Executive
      Compensation
                22Item
    12.
                Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters
                22Item
    13.
                Certain Relationships,
      Related Transactions and Director Independence
                22Item
    14.
                Principal Accounting Fees
      and Services
                22PART
      IVItem 15.
                Exhibits and Financial Statement
    Schedules
                23Signatures
                
                25









PART I
 
 Item
1.  Business
 
 General
 
 Emclaire
Financial Corp. (the Corporation) is a Pennsylvania corporation and financial
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 also provides investment advisory services through
its Farmers National Financial Services division.
 
 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 eleven retail branch offices in Venango, Butler,
Clarion, Clearfield, Elk and Jefferson counties, Pennsylvania.  The
Corporation and the Bank are headquartered in Emlenton,
Pennsylvania.
 
 The
Corporation and the Bank are 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 is a registered financial holding company pursuant to the Bank
Holding Company Act of 1956 (BHCA), as amended.
 
 At
December 31, 2007, the Corporation had $311.7 million in total assets, $24.7
million in stockholders’ equity, $229.8 million in loans and $244.3 million in
deposits.
 
 Lending
Activities
 
 General.  The
principal lending activities of the Bank are the origination of residential
mortgage, commercial mortgage, commercial business and consumer loans.
Significantly all of the Bank’s loans are secured by property in the Bank’s
primary market area.
 
 One-to-Four Family Mortgage
Loans.  The Bank offers first mortgage loans secured by
one-to-four family residences located in the Bank’s primary lending
area.  Typically such residences are single-family owner occupied
units.  The Bank is an approved, qualified lender for the Federal Home
Loan Mortgage Corporation (FHLMC).  As a result, the Bank may sell
loans to and service loans for the FHLMC in market conditions and circumstances
where this is advantageous in managing interest rate risk.
 
 Home Equity
Loans.  The Bank originates home equity loans secured by
single-family residences.  These loans may be either a single advance
fixed-rate loan with a term of up to 20 years, or a variable rate revolving line
of credit.  These loans are made only on owner-occupied single-family
residences.
 
 Commercial Business and Commercial
Real Estate Loans.  Commercial lending constitutes a
significant portion of the Bank’s lending activities.  Commercial
business and commercial real estate loans amounted to 46.2% of the total loan
portfolio at December 31, 2007.  Commercial real estate loans
generally consist of loans granted for commercial purposes secured by commercial
or other nonresidential real estate.  Commercial loans consist of
secured and unsecured loans for such items as capital assets, inventory,
operations and other commercial purposes.
 
 Consumer
Loans.  Consumer loans generally consist of fixed-rate term
loans for automobile purchases, home improvements not secured by real estate,
capital and other personal expenditures.  The Bank also offers
unsecured revolving personal lines of credit and overdraft
protection.
 
 1
  Loans to One
Borrower.  National banks are subject to limits on the amount
of credit that they can extend to one borrower.  Under current law,
loans to one borrower are limited to an amount equal to 15% of unimpaired
capital and surplus on an unsecured basis, and an additional amount equal to 10%
of unimpaired capital and surplus if the loan is secured by readily marketable
collateral.  At December 31, 2007, the Bank’s loans to one borrower
limit based upon 15% of unimpaired capital was $3.6 million.  At
December 31, 2007, the Bank’s largest single lending relationship had an
outstanding balance of $5.2 million.  Credit granted to this borrower
in excess of the legal lending limit is part of the Pilot Program approved by
the OCC which allows the Bank to exceed its legal lending limit within certain
parameters.  The Bank’s next largest single lending relationship had
an outstanding balance of $4.3 million, which consisted of a loan to a
municipality and was not subject to the legal lending limit.  The Bank
had one additional lending relationship exceeding the legal lending limit
totaling $3.8 million at December 31, 2007.  Credit granted to this
borrower in excess of the legal lending limit is also part of the Pilot
Program.  The next largest borrower had loans which totaled $3.5
million and consisted of loans secured by commercial real estate and business
property in the Bank’s lending area.  At December 31, 2007, all of
such loans were performing in accordance with their original terms.
 
 Loan
Portfolio.The following table sets forth the composition and
percentage of the Corporation’s loans receivable in dollar amounts and in
percentages of the portfolio as of December 31:
  (Dollar
      amounts in thousands)
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004
                
                
                2003Dollar
                
                
                
                
                
                Dollar
                
                
                
                
                
                Dollar
                
                
                
                
                
                Dollar
                
                
                
                
                
                DollarAmount
                
                
                %
                
                
                Amount
                
                
                %
                
                
                Amount
                
                
                %
                
                
                Amount
                
                
                %
                
                
                Amount
                
                
                %Mortgage
      loans on real estate:Residential
      first mortgages
                
                $
                65,706
                
                
                
                28.3
                %
                
                $
                64,662
                
                
                
                30.0
                %
                
                $
                66,011
                
                
                
                34.0
                %
                
                $
                69,310
                
                
                
                38.2
                %
                
                $
                76,396
                
                
                
                39.7
                %Home
      equity loans and lines of credit
                
                
                49,426
                
                
                
                21.3
                %
                
                
                47,330
                
                
                
                22.0
                %
                
                
                39,933
                
                
                
                20.5
                %
                
                
                31,548
                
                
                
                17.4
                %
                
                
                30,316
                
                
                
                15.8
                %Commercial
                
                
                71,599
                
                
                
                30.9
                %
                
                
                61,128
                
                
                
                28.4
                %
                
                
                52,990
                
                
                
                27.3
                %
                
                
                48,539
                
                
                
                26.8
                %
                
                
                44,935
                
                
                
                23.4
                %Total
      real estate loans
                
                
                186,731
                
                
                
                80.5
                %
                
                
                173,120
                
                
                
                80.4
                %
                
                
                158,934
                
                
                
                81.8
                %
                
                
                149,397
                
                
                
                82.4
                %
                
                
                151,647
                
                
                
                78.9
                %Other
      loans:Commercial
      business
                
                
                35,566
                
                
                
                15.3
                %
                
                
                34,588
                
                
                
                16.0
                %
                
                
                27,732
                
                
                
                14.2
                %
                
                
                23,898
                
                
                
                13.2
                %
                
                
                26,470
                
                
                
                13.8
                %Consumer
                
                
                9,679
                
                
                
                4.2
                %
                
                
                7,671
                
                
                
                3.6
                %
                
                
                7,729
                
                
                
                4.0
                %
                
                
                8,090
                
                
                
                4.4
                %
                
                
                14,142
                
                
                
                7.3
                %Total
      other loans
                
                
                45,245
                
                
                
                19.5
                %
                
                
                42,259
                
                
                
                19.6
                %
                
                
                35,461
                
                
                
                18.2
                %
                
                
                31,988
                
                
                
                17.6
                %
                
                
                40,612
                
                
                
                21.1
                %Total
      loans receivable
                
                
                231,976
                
                
                
                100.0
                %
                
                
                215,379
                
                
                
                100.0
                %
                
                
                194,395
                
                
                
                100.0
                %
                
                
                181,385
                
                
                
                100.0
                %
                
                
                192,259
                
                
                
                100.0
                %Less:Allowance
      for loan losses
                
                
                2,157
                
                
                
                
                
                
                
                2,035
                
                
                
                
                
                
                
                1,869
                
                
                
                
                
                
                
                1,810
                
                
                
                
                
                
                
                1,777Net
      loans receivable
                
                $
                229,819
                
                
                
                
                
                
                $
                213,344
                
                
                
                
                
                
                $
                192,526
                
                
                
                
                
                
                $
                179,575
                
                
                
                
                
                
                $
                190,482




The
following table sets forth the scheduled contractual principal repayments or
interest repricing of loans in the Corporation’s portfolio as of December 31,
2007.  Demand loans having no stated schedule of repayment and no
stated maturity are reported as due within one year.
  (Dollar
      amounts in thousands)
                
                Due
      in one
                
                
                Due
      from one
                
                
                Due
      from five
                
                
                Due
      afteryear
      or less
                
                
                to
      five years
                
                
                to
      ten years
                
                
                ten
      years
                
                
                TotalResidential
      mortgages
                
                $
                1,142
                
                
                $
                3,829
                
                
                $
                11,487
                
                
                $
                49,248
                
                
                $
                65,706Home
      equity loans and lines of credit
                
                
                379
                
                
                
                6,229
                
                
                
                16,694
                
                
                
                26,124
                
                
                
                49,426Commercial
      mortgages
                
                
                2,758
                
                
                
                4,487
                
                
                
                13,306
                
                
                
                51,048
                
                
                
                71,599Commercial
      business
                
                
                4,068
                
                
                
                9,314
                
                
                
                4,063
                
                
                
                18,121
                
                
                
                35,566Consumer
                
                
                593
                
                
                
                6,926
                
                
                
                1,727
                
                
                
                433
                
                
                
                9,679$
                8,940
                
                
                $
                30,785
                
                
                $
                47,277
                
                
                $
                144,974
                
                
                $
                231,976




2




The
following table sets forth the dollar amount of the Corporation’s fixed- and
adjustable-rate loans with maturities greater than one year as of December 31,
2007:
  Fixed
                
                
                Adjustable(Dollar
      amounts in thousands)
                
                rates
                
                
                ratesResidential
      mortgage
                
                $
                52,120
                
                
                $
                13,586Home
      equity loans and lines of credit
                
                
                45,782
                
                
                
                3,644Commercial
      mortgage
                
                
                16,260
                
                
                
                55,339Commercial
      business
                
                
                14,114
                
                
                
                21,452Consumer
                
                
                8,876
                
                
                
                803$
                137,152
                
                
                $
                94,824




Contractual
maturities of loans do not reflect the actual term of the Corporation’s loan
portfolio.  The average life of mortgage loans is substantially less
than their contractual terms because of loan prepayments and enforcement of
due-on-sale clauses, which give the Corporation the right to declare a loan
immediately payable in the event, among other things, that the borrower sells
the real property subject to the mortgage.  Scheduled principal
amortization also reduces the average life of the loan portfolio.  The
average life of mortgage loans tends to increase when current market mortgage
rates substantially exceed rates on existing mortgages and conversely, decrease
when rates on existing mortgages substantially exceed current market interest
rates.
 
 Delinquencies
and Classified Assets
 
 Delinquent Loans and Real Estate
Acquired Through Foreclosure (REO).Typically, a loan is
considered past due and a late charge is assessed when the borrower has not made
a payment within fifteen days from the payment due date.  When a
borrower fails to make a required payment on a loan, the Corporation attempts to
cure the deficiency by contacting the borrower.  The initial contact
with the borrower is made shortly after the seventeenth day following the due
date for which a payment was not received.  In most cases,
delinquencies are cured promptly.
 
 If the
delinquency exceeds 60 days, the Corporation works with the borrower to set up a
satisfactory repayment schedule.  Typically loans are considered
non-accruing upon reaching 90 days delinquent, although the Corporation may be
receiving partial payments of interest and partial repayments of principal on
such loans.  When a loan is placed in non-accrual status, previously
accrued but unpaid interest is deducted from interest income.  The
Corporation institutes foreclosure action on secured loans only if all other
remedies have been exhausted.  If an action to foreclose is instituted
and the loan is not reinstated or paid in full, the property is sold at a
judicial or trustee’s sale at which the Corporation may be the
buyer.
 
 Real
estate properties acquired through, or in lieu of, loan foreclosure are to be
sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis.  After foreclosure, management
periodically performs valuations and the real estate is carried at the lower of
carrying amount or fair value less cost to sell.  Revenue and expenses
from operations and changes in the valuation allowance are included in loss on
foreclosed real estate.  The Corporation generally attempts to sell
its REO properties as soon as practical upon receipt of clear
title.  The original lender typically handles disposition of those REO
properties resulting from loans purchased in the secondary market.
 
 As of
December 31, 2007, the Corporation’s non-performing assets, which include
non-accrual loans, loans delinquent due to maturity, troubled debt
restructuring, repossessions and REO, amounted to $1.1 million or 0.35% of the
Corporation’s total assets.
 
 3
  Classified
Assets.  Regulations applicable to insured institutions require
the classification of problem assets as “substandard,” “doubtful,” or “loss”
depending upon the existence of certain characteristics as discussed
below.  A category designated “special mention” must also be
maintained for assets currently not requiring the above classifications but
having potential weakness or risk characteristics that could result in future
problems.  An asset is classified as substandard if not adequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any.  A substandard asset is characterized by
the distinct possibility that the Corporation will sustain some loss if the
deficiencies are not corrected.  Assets classified as doubtful have
all the weaknesses inherent in those classified as substandard.  In
addition, these weaknesses make collection or liquidation in full, on the basis
of currently existing facts, conditions and values, highly questionable and
improbable.  Assets classified as loss are considered uncollectible
and of such little value that their continuance as assets is not
warranted.
 
 The
Corporation’s classification of assets policy requires the establishment of
valuation allowances for loan losses in an amount deemed prudent by
management.  Valuation allowances represent loss allowances that have
been established to recognize the inherent risk associated with lending
activities.  When the Corporation classifies a problem asset as a
loss, the portion of the asset deemed uncollectible is charged off
immediately.
 
 The
Corporation regularly reviews the problem loans and other assets in its
portfolio to determine whether any require classification in accordance with the
Corporation’s policy and applicable regulations.  As of December 31,
2007, the Corporation’s classified and criticized assets amounted to $6.6
million with $2.8 million classified as substandard and $3.8 million identified
as special mention.
 
 The
following table sets forth information regarding the Corporation’s
non-performing assets as of December 31:
  (Dollar
      amounts in thousands)
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004
                
                
                2003Non-performing
      loans
                
                $
                952
                
                
                $
                1,841
                
                
                $
                1,452
                
                
                $
                840
                
                
                $
                1,329Total
      as a percentage of gross loans
                
                
                0.41
                %
                
                
                0.85
                %
                
                
                0.75
                %
                
                
                0.46
                %
                
                
                0.69
                %Repossessions
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2
                
                
                
                45Real
      estate acquired through foreclosure
                
                
                129
                
                
                
                98
                
                
                
                106
                
                
                
                69
                
                
                
                -Total
      as a percentage of total assets
                
                
                0.04
                %
                
                
                0.03
                %
                
                
                0.04
                %
                
                
                0.03
                %
                
                
                0.00
                %Total
      non-performing assets
                
                $
                1,081
                
                
                $
                1,939
                
                
                $
                1,558
                
                
                $
                911
                
                
                $
                1,374Total
      non-performing assetsas a
      percentage of total assets
                
                
                0.35
                %
                
                
                0.65
                %
                
                
                0.57
                %
                
                
                0.33
                %
                
                
                0.52
                %Allowance
      for loan losses as apercentage
      of non-performing loans
                
                
                226.58
                %
                
                
                110.54
                %
                
                
                128.72
                %
                
                
                215.48
                %
                
                
                133.71
                %




Allowance for Loan
Losses.  Management establishes allowances for estimated losses
on loans based upon its evaluation of the pertinent factors underlying the types
and quality of loans; historical loss experience based on volume and types of
loans; trend in portfolio volume and composition; level and trend on
non-performing assets; detailed analysis of individual loans for which full
collectibility may not be assured; determination of the existence and realizable
value of the collateral and guarantees securing such loans and the current
economic conditions affecting the collectibility of loans in the
portfolio.  The Corporation analyzes its loan portfolio each quarter
for valuation purposes and to determine the adequacy of its allowance for
losses.  Based upon the factors discussed above, management believes
that the Corporation’s allowance for losses as of December 31, 2007 of $2.2
million was adequate to cover probable losses inherent in the
portfolio.
 
 4
  The
following table sets forth an analysis of the allowance for losses on loans
receivable for the years ended December 31:
  (Dollar
      amounts in thousands)
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004
                
                
                2003Balance
      at beginning of period
                
                $
                2,035
                
                
                $
                1,869
                
                
                $
                1,810
                
                
                $
                1,777
                
                
                $
                1,587Provision
      for loan losses
                
                
                256
                
                
                
                358
                
                
                
                205
                
                
                
                290
                
                
                
                330Charge-offs:Mortgage
      loans
                
                
                (82
                )
                
                
                (154
                )
                
                
                (46
                )
                
                
                (165
                )
                
                
                (25
                )Commercial
      business loans
                
                
                (22
                )
                
                
                (18
                )
                
                
                (60
                )
                
                
                (36
                )
                
                
                (26
                )Consumer
      loans
                
                
                (60
                )
                
                
                (49
                )
                
                
                (91
                )
                
                
                (117
                )
                
                
                (154
                )(164
                )
                
                
                (221
                )
                
                
                (197
                )
                
                
                (318
                )
                
                
                (205
                )Recoveries:Mortgage
      loans
                
                
                1
                
                
                
                -
                
                
                
                -
                
                
                
                17
                
                
                
                -Commercial
      business loans
                
                
                16
                
                
                
                19
                
                
                
                18
                
                
                
                19
                
                
                
                22Consumer
      loans
                
                
                13
                
                
                
                10
                
                
                
                33
                
                
                
                25
                
                
                
                4330
                
                
                
                29
                
                
                
                51
                
                
                
                61
                
                
                
                65Balance
      at end of period
                
                $
                2,157
                
                
                $
                2,035
                
                
                $
                1,869
                
                
                $
                1,810
                
                
                $
                1,777Ratio
      of net charge-offs to average loans outstanding
                
                
                0.06
                %
                
                
                0.09
                %
                
                
                0.08
                %
                
                
                0.14
                %
                
                
                0.08
                %Ratio
      of allowance to total loans at end of period
                
                
                0.93
                %
                
                
                0.94
                %
                
                
                0.96
                %
                
                
                1.00
                %
                
                
                0.92
                %




The
following table provides a breakdown of the allowance for loan losses by major
loan category for the years ended December 31:
  (Dollar
      amounts in thousands)
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004
                
                
                2003Percent
      of
                
                
                
                
                
                Percent
      of
                
                
                
                
                
                Percent
      of
                
                
                
                
                
                Percent
      of
                
                
                
                
                
                Percent
      ofloans
      in each
                
                
                
                
                
                loans
      in each
                
                
                
                
                
                loans
      in each
                
                
                
                
                
                loans
      in each
                
                
                
                
                
                loans
      in eachDollar
                
                
                category
      to
                
                
                Dollar
                
                
                category
      to
                
                
                Dollar
                
                
                category
      to
                
                
                Dollar
                
                
                category
      to
                
                
                Dollar
                
                
                category
      toLoan
      Categories:
                
                Amount
                
                
                total
      loans
                
                
                Amount
                
                
                total
      loans
                
                
                Amount
                
                
                total
      loans
                
                
                Amount
                
                
                total
      loans
                
                
                Amount
                
                
                total
      loansCommercial,
      financial and agricultural
                
                $
                387
                
                
                
                17.9
                %
                
                $
                532
                
                
                
                26.1
                %
                
                $
                554
                
                
                
                29.6
                %
                
                $
                503
                
                
                
                27.8
                %
                
                $
                623
                
                
                
                35.1
                %Commercial
      mortgages
                
                
                1,068
                
                
                
                49.5
                %
                
                
                820
                
                
                
                40.3
                %
                
                
                841
                
                
                
                45.0
                %
                
                
                1,137
                
                
                
                62.8
                %
                
                
                798
                
                
                
                44.9
                %Residential
      mortgages
                
                
                309
                
                
                
                14.3
                %
                
                
                239
                
                
                
                11.7
                %
                
                
                211
                
                
                
                11.3
                %
                
                
                10
                
                
                
                0.6
                %
                
                
                20
                
                
                
                1.1
                %Home
      equity loans
                
                
                368
                
                
                
                17.1
                %
                
                
                339
                
                
                
                16.7
                %
                
                
                150
                
                
                
                8.0
                %
                
                
                39
                
                
                
                2.2
                %
                
                
                68
                
                
                
                3.8
                %Consumer
      loans
                
                
                79
                
                
                
                3.7
                %
                
                
                83
                
                
                
                4.1
                %
                
                
                106
                
                
                
                5.7
                %
                
                
                121
                
                
                
                6.7
                %
                
                
                190
                
                
                
                10.7
                %Unallocated
                
                
                (54
                )
                
                
                -2.5
                %
                
                
                22
                
                
                
                1.1
                %
                
                
                7
                
                
                
                0.4
                %
                
                
                -
                
                
                
                0.0
                %
                
                
                78
                
                
                
                4.4
                %$
                2,157
                
                
                
                100
                %
                
                $
                2,035
                
                
                
                100
                %
                
                $
                1,869
                
                
                
                100
                %
                
                $
                1,810
                
                
                
                100
                %
                
                $
                1,777
                
                
                
                100
                %




Investment
Portfolio
 
 General.  The
Corporation maintains an investment portfolio of securities such as U.S.
government and agency securities, state and municipal debt obligations,
corporate notes and bonds, and to a lesser extent, mortgage-backed and equity
securities. Management generally maintains an investment portfolio with
relatively short maturities to minimize overall interest rate
risk.  However, at December 31, 2007 approximately $13.7 million was
invested in longer-term callable municipal securities, as part of a strategy to
moderate federal income taxes.  The Bank has no investment with any
one issuer in an amount greater than 10% of stockholders’ equity.
 
 Investment
decisions are made within policy guidelines established by the Board of
Directors.  This policy is aimed at maintaining a diversified
investment portfolio, which complements the overall asset/liability and
liquidity objectives of the Bank, while limiting the related credit risk to an
acceptable level.
 
 5
  The
following table sets forth certain information regarding the fair value,
weighted average yields and contractual maturities of the Corporation’s
securities as of December 31, 2007:
  (Dollar
      amounts in thousands)
                
                Due
      in 1
                
                
                Due
      from 1
                
                
                Due
      from 3
                
                
                Due
      from 5
                
                
                Due
      after
                
                
                No
      scheduledyear
      or less
                
                
                to 3
      years
                
                
                to 5
      years
                
                
                to
      10 years
                
                
                10
      years
                
                
                maturity
                
                
                TotalU.S.
      Government securities
                
                $
                10,105
                
                
                $
                14,226
                
                
                $
                1,000
                
                
                $
                1,000
                
                
                $
                3,003
                
                
                $
                -
                
                
                $
                29,334Mortgage-backed
      securities
                
                
                210
                
                
                
                793
                
                
                
                -
                
                
                
                881
                
                
                
                -
                
                
                
                -
                
                
                
                1,884Municipal
      securities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,463
                
                
                
                12,788
                
                
                
                -
                
                
                
                14,251Corporate
      securities
                
                
                2,939
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,939Equity
      securities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,511
                
                
                
                3,511Estimated
      fair value
                
                $
                13,254
                
                
                $
                15,019
                
                
                $
                1,000
                
                
                $
                3,344
                
                
                $
                15,791
                
                
                $
                3,511
                
                
                $
                51,919Weighted
      average yield (1)
                
                
                4.44
                %
                
                
                4.56
                %
                
                
                4.90
                %
                
                
                3.87
                %
                
                
                5.08
                %
                
                
                4.41
                %
                
                
                4.64
                %(1)
      Weighted average yield is calculated based upon amortized
      cost.




For
additional information regarding the Corporation’s investment portfolio see
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Notes to Consolidated Financial Statements” in the Annual
Report incorporated herein by reference.
 
 Sources
of Funds
 
 General.  Deposits
are the primary source of the Bank’s funds for lending and investing activities.
Secondary sources of funds are derived from loan repayments and investment
maturities.  Loan repayments can be considered a relatively stable
funding source, while deposit activity is greatly influenced by interest rates
and general market conditions.  The Bank also has access to funds
through credit facilities available from the FHLB.  In addition, the
Bank can obtain advances from the FRB discount window.  For a
description of the Bank’s sources of funds, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in the Annual Report
incorporated herein by reference.
 
 Deposits.  The Bank
offers a wide variety of retail deposit account products to both consumer and
commercial deposit customers, including time deposits, non-interest bearing and
interest bearing demand deposit accounts, savings deposits and money market
accounts.
 
 Deposit
products are promoted in periodic newspaper and radio advertisements, along with
notices provided in customer account statements.  The Bank’s market
strategy is based on its reputation as a community bank that provides quality
products and personal customer service.
 
 The Bank
pays interest rates on its interest bearing deposit products that are
competitive with rates offered by other financial institutions in its market
area.  Management reviews interest rates on deposits weekly and
considers a number of factors, including (1) the Bank’s internal cost of funds;
(2) rates offered by competing financial institutions; (3) investing and lending
opportunities; and (4) the Bank’s liquidity position.
 
 For
additional information regarding the Corporation’s deposit base and borrowed
funds, see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Notes to Consolidated Financial Statements” in the
Annual Report incorporated herein by reference.
 
 Subsidiary
Activity
 
 The
Corporation has one wholly owned subsidiary, the Bank, a national
association.  As of December 31, 2007, the Bank had no
subsidiaries.
 
 6
  Personnel
 
 At
December 31, 2007, the Bank had 103 full time equivalent
employees.  There is no collective bargaining agreement between the
Bank and its employees, and the Bank believes its relationship with its
employees to be satisfactory.
 
 Competition
 
 The Bank
competes for loans, deposits and customers with other commercial banks, savings
and loan associations, securities and brokerage companies, mortgage companies,
insurance companies, finance companies, money market funds, credit unions and
other nonbank financial service providers.
  Supervision
and Regulation
 
 General.Bank holding
companies and banks are extensively regulated under both federal and state
law.  Set forth below is a summary description of certain provisions
of certain laws that relate to the regulation of the Corporation and the
Bank.  The description does not purport to be complete and is
qualified in its entirety by reference to the applicable laws and
regulations.
 
 The
Corporation.  The Corporation is a registered bank holding
company, and subject to regulation and examination by the FRB under the Bank
Holding Company Act of 1956, as amended (the BHCA).  The Corporation
is required to file with the FRB periodicreports and such
additional information as the FRB may require.  Recent changes to the
Bank Holding Company rating system emphasizes risk management and evaluation of
the potential impact of non-depository entities on safety and
soundness.
 
 The FRB
may require the Corporation to terminate an activity or terminate control of or
liquidate or divest certain subsidiaries, affiliates or investments when the FRB
believes the activity or the control of the subsidiary or affiliate constitutes
a significant risk to the financial safety, soundness or stability of any of its
banking subsidiaries.  The FRB also has the authority to regulate
provisions of certain bank holding company debt, including the authority to
impose interest ceilings and reserve requirements on such debt.  Under
certain circumstances, the Corporation must file written notice and obtain FRB
approval prior to purchasing or redeeming its equity securities.
 
 Further,
the Corporation is required by the FRB to maintain certain levels of
capital.  See “Capital Standards.”
 
 The
Corporation is required to obtain prior FRB approval for the acquisition of more
than 5% of the outstanding shares of any class of voting securities or
substantially all of the assets of any bank or bank holding
company.  Prior FRB approval is also required for the merger or
consolidation of the Corporation and another bank holding company.
 
 The
Corporation is prohibited by the BHCA, except in certain statutorily prescribed
instances, from acquiring direct or indirect ownership or control of more than
5% of the outstanding voting shares of any company that is not a bank or bank
holding company and from engaging directly or indirectly in activities other
than those of banking, managing or controlling banks, or furnishing services to
its subsidiaries.  However, subject to the prior FRB approval, the
Corporation may engage in any, or acquire shares of companies engaged in,
activities that the FRB deems to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
 
 Under FRB
regulations, the Corporation is required to serve as a source of financial and
managerial strength to the Corporation’s subsidiary bank and may not conduct
operations in an unsafe or unsound manner.  In addition, it is the
FRB’s policy that a bank holding company should stand ready to use available
resources to provide adequate capital funds to its subsidiary banks during
periods of financial stress or adversity and should maintain the financial
flexibility and capital-raising capacity to obtain additional resources for
assisting its subsidiary banks.  A bank holding company’s failure to
meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the FRB to be an unsafe and unsound banking
practice or a violation of FRB regulations or both.
 The
Corporation is also a bank holding company within the meaning of the
Pennsylvania Banking Code.  As such, the Corporation and its
subsidiaries are subject to examination by, and may be required to file reports
with, the Pennsylvania Department of Banking.
 
 7
  The
Corporation’s securities are registered with the SEC under the Exchange
Act.  As such, the Corporation is subject to the information, proxy
solicitation, insider trading, corporate governance, and other requirements and
restrictions of the Exchange Act.  The public may obtain all forms and
information filed with the SEC through their website
http://www.sec.gov.
 
 The
Bank.  As a national
banking association, the Bank is subject to primary supervision, examination and
regulation by the OCC.  The Corporation is also subject to regulations
of the FDIC as administrator of the Deposit Insurance Fund (DIF) and the
FRB.  If, as a result of an examination of the Bank, the OCC should
determine that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity or other aspects of the Corporation’s
operations are unsatisfactory or that the Bank is violating or has violated any
law or regulation, various remedies are available to the OCC.  Such
remedies include the power to enjoin “unsafe or unsound practices,” to require
affirmative action to correct any conditions resulting from any violation or
practice, to issue an administrative order that can be judicially enforced, to
direct an increase in capital, to restrict the Bank’s growth, to assess civil
monetary penalties, and to remove officers and directors.  The FDIC
has similar enforcement authority, in addition to its authority to terminate the
Bank’s deposit insurance in the absence of action by the OCC and upon a finding
that the Bank is operating in an unsafe or unsound condition, is engaging in
unsafe or unsound activities, or that the Corporation’s conduct poses a risk to
the deposit insurance fund or may prejudice the interest of its
depositors.
 
 A national
bank may have a financial subsidiary engaged in any activity authorized for
national banks directly or certain permissible activities.  Generally,
a financial subsidiary is permitted to engage in activities that are “financial
in nature” or incidental thereto, even though they are not permissible for the
national bank itself. The definition of “financial in nature” includes, among
other items, underwriting, dealing in or making a market in securities,
including, for example, distributing shares of mutual funds. The subsidiary may
not, however, engage as principal in underwriting insurance, issue annuities or
engage in real estate development or investment or merchant
banking.
 
 The
Sarbanes-Oxley Act of 2002.  The Sarbanes-Oxley Act of 2002
addresses accounting oversight and corporate governance matters,
including:
  ·
              the
      prohibition of accounting firms from providing various types of consulting
      services to public clients and requiring accounting firms to rotate
      partners among public client assignments every five
  years;
 ·
              increased
      penalties for financial crimes and forfeiture of executive bonuses in
      certain circumstances;
 ·
              required
      executive certification of financial
  presentations;
 ·
              increased
      requirements for board audit committees and their
  members;
 ·
              enhanced
      disclosure of controls and procedures and internal control over financial
      reporting;
 ·
              enhanced
      controls on, and reporting of, insider trading;
  and
 ·
              statutory
      separations between investment bankers and
  analysts.
  The new
legislation and its implementing regulations have resulted in increased costs of
compliance, including certain outside professional costs.  To date
these costs have not had a material impact on the Corporation’s
operations.
  USA PATRIOT Act
of 2001.  The USA PATRIOT Act of 2001 and its implementing
regulations significantly expanded the anti-money laundering and financial
transparency laws.  Under the USA PATRIOT Act, financial institutions
are subject to prohibitions regarding specified financial transactions and
account relationships, as well as enhanced due diligence and “know your
customer” standards in their dealings with foreign financial institutions and
foreign customers. For example, the enhanced due diligence policies, procedures
and controls generally require financial institutions to take reasonable
steps:
  8
  ·
              To
      conduct enhanced scrutiny of account relationships to guard against money
      laundering and report any suspicious
  transaction,
 ·
              To
      ascertain the identity of the nominal and beneficial owners of, and the
      source of funds deposited into, each account as needed to guard against
      money laundering and report any suspicious
  transactions,
 ·
              To
      ascertain for any foreign bank, the shares of which are not publicly
      traded, the identity of the owners of the foreign bank, and the nature and
      extent of the ownership interest of each such owner,
  and
 ·
              To
      ascertain whether any foreign bank provides correspondent accounts to
      other foreign banks and, if so, the identity of those foreign banks and
      related due diligence information.
  Under the
USA PATRIOT Act, financial institutions are required to establish and maintain
anti-money laundering programs which include:
  ·
              The
      establishment of a customer identification
  program,
 ·
              The
      development of internal policies, procedures, and
  controls,
 ·
              The
      designation of a compliance
officer,
 ·
              An
      ongoing employee training program,
and
 ·
              An
      independent audit function to test the
programs.
  The Bank
has implemented comprehensive policies and procedures to address the
requirements of the USA PATRIOT Act.
  Privacy.  Federal
banking rules limit the ability of banks and other financial institutions to
disclose non-public information about consumers to nonaffiliated third parties.
Pursuant to these rules, financial institutions must provide:
  ·
              Initial
      notices to customers about their privacy policies, describing the
      conditions under which they may disclose nonpublic personal information to
      nonaffiliated third parties and
affiliates;
 ·
              Annual
      notices of their privacy policies to current customers;
  and
 ·
              A
      reasonable method for customers to “opt out” of disclosures to
      nonaffiliated third parties.
  These
privacy provisions affect how consumer information is transmitted through
diversified financial companies and conveyed to outside vendors.  The
Corporation’s privacy policies have been implemented in accordance with the
law.
  Dividends and
Other Transfers of Funds.  Dividends from the Bank constitute
the principal source of income to the Corporation.  The Corporation is
a legal entity separate and distinct from the Bank. The Bank is subject to
various statutory and regulatory restrictions on its ability to pay dividends to
the Corporation.  In addition, the Bank’s regulators have the
authority to prohibit the Bank from paying dividends, depending upon the Bank’s
financial condition, if such payment is deemed to constitute an unsafe or
unsound practice.
  Transactions with
Affiliates.  The Bank is
subject to certain restrictions imposed by federal law on any extensions of
credit to, or the issuance of a guarantee or letter of credit on behalf of, any
affiliates, the purchase of, or investments in, stock or other securities
thereof, the taking of such securities as collateral for loans, and the purchase
of assets of any affiliates. Such restrictions prevent any affiliates from
borrowing from the Bank unless the loans are secured by marketable obligations
of designated amounts. Further, such secured loans and investments by the Bank
to or in any affiliate are limited, individually, to 10% of the Bank’s capital
and surplus (as defined by federal regulations), and such secured loans and
investments are limited, in the aggregate, to 20% of the Bank’s capital and
surplus.  Some of the entities included in the definition of an
affiliate are parent companies, sister banks, sponsored and advised companies,
investment companies whereby the Bank or its affiliate serves as investment
advisor, and financial subsidiaries of the bank.  Additional
restrictions on transactions with affiliates may be imposed onthe Bank under the
prompt corrective action provisions of federal law. See “Prompt Corrective
Action and Other Enforcement Mechanisms.”
  9
  Loans
to One Borrower Limitations.With certain
limited exceptions, the maximum amount that a national bank may lend to any
borrower (including certain related entities of the borrower) at one time may
not exceed 15% of the unimpaired capital and surplus of the institution, plus an
additional 10% of unimpaired capital and surplus for loans fully secured by
readily marketable collateral.  At December 31, 2007, the Bank’s
loans-to-one-borrower limit was $3.6 million based upon the 15% of unimpaired
capital and surplus measurement.At December 31, 2007, the
Bank’s largest single lending relationship had an outstanding balance of $5.2
million.  Credit granted to this borrower in excess of the legal
lending limit is part of the Pilot Program approved by the OCC which allows the
Bank to exceed its legal lending limit within certain parameters.  The
Bank’s next largest single lending relationship had an outstanding balance of
$4.3 million, which consisted of a loan to a municipality and was not subject to
the legal lending limit.  The Bank had one additional lending
relationship exceeding the legal lending limit totaling $3.8 million at December
31, 2007.  Credit granted to this borrower in excess of the legal
lending limit is also part of the Pilot Program.  The next largest
borrower had loans which totaled $3.5 million and consisted of loans secured by
commercial real estate and business property in the Bank’s lending
area.  At December 31, 2007, all of such loans were performing in
accordance with their terms.
 
 Capital
Standards.The federal
banking agencies have adopted risk-based minimum capital guidelines intended to
provide a measure of capital that reflects the degree of risk associated with a
banking organization’s operations for both transactions reported on the balance
sheet as assets and transactions which are recorded as off-balance sheet
items.  Under these guidelines, nominal dollar amounts of assets and
credit equivalent amounts of off-balance sheet items are multiplied by one of
several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as federal banking agencies, to 100% for assets with
relatively high credit risk.
  The
risk-based capital ratio is determined by classifying assets and certain
off-balance sheet financial instruments into weighted categories, with higher
levels of capital being required for those categories perceived as representing
greater risk. Under the capital guidelines, a banking organization’s total
capital is divided into tiers. “Tier I capital” consists of (1) common equity,
(2) qualifying noncumulative perpetual preferred stock, (3) a limited amount of
qualifying cumulative perpetual preferred stock and (4) minority interests in
the equity accounts of consolidated subsidiaries (including trust-preferred
securities), less goodwill and certain other intangible assets. Not more than
25% of qualifying Tier I capital may consist of trust-preferred securities.
“Tier II capital” consists of hybrid capital instruments, perpetual debt,
mandatory convertible debt securities, a limited amount of subordinated debt,
preferred stock that does not qualify as Tier I capital, a limited amount of the
allowance for loan and lease losses and a limited amount of unrealized holding
gains on equity securities. “Tier III capital” consists of qualifying unsecured
subordinated debt. The sum of Tier II and Tier III capital may not exceed the
amount of Tier I capital.
  The
guidelines require a minimum ratio of qualifying total capital to risk-adjusted
assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of
4%.  In addition to the risk-based guidelines, federal banking
regulators require banking organizations to maintain a minimum amount of Tier 1
capital to total assets, referred to as the leverage ratio.  For a
banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%.  In addition to these uniform
risk-based capital guidelines and leverage ratios that apply across the
industry, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.
 
 In
addition, federal banking regulators may set capital requirements higher than
the minimums described above for financial institutions whose circumstances
warrant it. For example, a financial institution experiencing or anticipating
significant growth may be expected to maintain capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets.
 
 10
  Prompt Corrective
Action and Other Enforcement Mechanisms.  Federal banking
agencies possess broad powers to take corrective and other supervisory action to
resolve the problems of insured depository institutions, including but not
limited to those institutions that fall below one or more prescribed minimum
capital ratios.  Each federal banking agency has promulgated
regulations defining the following five categories in which an insured
depository institution will be placed, based on its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized.  At December 31,
2007, the Bank exceeded the required ratios for classification as
“well/adequately capitalized.”
 
 An
institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment.  At each successive lower capital category, an insured
depository institution is subject to more restrictions.  The federal
banking agencies, however, may not treat a significantly undercapitalized
institution as critically undercapitalized unless its capital ratio actually
warrants such treatment.
 
 In
addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement actions
by the federal regulators for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation, or any condition
imposed in writing by the agency or any written agreement with the
agency.  Finally, pursuant to an interagency agreement, the FDIC can
examine any institution that has a substandard regulatory examination score or
is considered undercapitalized – without the express permission of the
institution’s primary regulator.
 
 Safety and
Soundness Standards.  The federal banking agencies have adopted
guidelines designed to assist the federal banking agencies in identifying and
addressing potential safety and soundness concerns before capital becomes
impaired. The guidelines set forth operational and managerial standards relating
to: (i) internal controls, information systems and internal audit systems,
(ii) loan documentation, (iii) credit underwriting, (iv) asset
growth, (v) earnings, and (vi) compensation, fees and benefits. In
addition, the federal banking agencies have also adopted safety and soundness
guidelines with respect to asset quality and earnings standards. These
guidelines provide six standards for establishing and maintaining a system to
identify problem assets and prevent those assets from deteriorating. Under these
standards, an insured depository institution should: (i) conduct periodic
asset quality reviews to identify problem assets, (ii) estimate the
inherent losses in problem assets and establish reserves that are sufficient to
absorb estimated losses, (iii) compare problem asset totals to capital,
(iv) take appropriate corrective action to resolve problem assets,
(v) consider the size and potential risks of material asset concentrations,
and (vi) provide periodic asset quality reports with adequate information
for management and the board of directors to assess the level of asset risk.
These guidelines also set forth standards for evaluating and monitoring earnings
and for ensuring that earnings are sufficient for the maintenance of adequate
capital and reserves.
 
 Insurance of
Accounts.The deposits of
the Bank are insured to the maximum extent permitted by the Deposit Insurance
Fund (DIF) and are backed by the full faith and credit of the U.S.
Government.  As insurer, the Federal Deposit Insurance Corporation
(FDIC) is authorized to conduct examinations of, and to require reporting by,
insured institutions.  It also may prohibit any insured institution
from engaging in any activity determined by regulation or order to pose a
serious threat to the FDIC.
 
 Each FDIC
insured institution is assigned to one of three capital groups which are based
solely on the level of an institution's capital— “well capitalized,” “adequately
capitalized,” and “undercapitalized.”  These capital levels are
defined in the same manner as under the prompt corrective action system
discussed above.  These three groups are then divided into three
subgroups which reflect varying levels of supervisory concern, from those which
are considered to be healthy to those which are considered to be of substantial
supervisory concern.  Assessment rates for insured institutions are
determined semi-annually by the FDIC and currently range from zero basis points
for well-capitalized healthy institutions, such as the Bank, to 27 basis points
for undercapitalized institutions with substantial supervisory
concern.
 
 11
  In
addition, all institutions with deposits insured by the FDIC are required to pay
assessments to fund interest payments on bonds issued by the Financing
Corporation, a mixed-ownership government corporation established to
recapitalize the predecessor to the DIF.  The annual assessment rate
set for the third quarter of 2007 was 0.00285% of insured deposits and is
adjusted quarterly.  These assessments will continue until the
Financing Corporation bonds mature in 2019.
 
 The FDIC
may terminate the deposit insurance of any insured depository institution,
including the Bank, if it determines after a hearing that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the
FDIC.  It also may suspend deposit insurance temporarily during the
hearing process for the permanent termination of insurance, if the institution
has no tangible capital.  If insurance of accounts is terminated, the
accounts at the institution at the time of the termination, less subsequent
withdrawals, shall continue to be insured for a period of six months to two
years, as determined by the FDIC.  Management is aware of no existing
circumstances which would result in termination of the Bank's deposit
insurance.
 
 On
February 8, 2006, President George W. Bush signed into law legislation that
merged the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund
(SAIF) to form the DIF, eliminated any disparities in bank and thrift risk-based
premium assessments, reduced the administrative burden of maintaining and
operating two separate funds and established certain new insurance coverage
limits and a mechanism for possible periodic increases.  The
legislation also gave the FDIC greater discretion to identify the relative risks
all institutions present to the DIF and set risk-based premiums.
 
 Major
provisions in the legislation include:
 
 ·
              Merging
      the SAIF and BIF, which became effective March 31,
  2006.
 ·
              Maintaining
      basic deposit and municipal account insurance coverage at $100,000 but
      providing for a new basic insurance coverage for retirement accounts of
      $250,000.  Insurance coverage for basic deposit and retirement
      accounts could be increased for inflation every five years in $10,000
      increments beginning in 2011.
 ·
              Providing
      the FDIC with the ability to set the designated reserve ratio within a
      range of between 1.15% and 1.50%, rather than maintaining 1.25% at all
      times regardless of prevailing economic
  conditions.
 ·
              Providing
      a one-time assessment credit of $4.7 billion to banks and savings
      associations in existence on December 31, 1996.  The
      institutions qualifying for the credit may use it to offset future
      premiums with certain limitations.
 ·
              Requiring
      the payment of dividends of 100% of the amount that the insurance fund
      exceeds 1.5% of the estimated insured deposits and the payment of 50% of
      the amount that the insurance fund exceeds 1.35% of the estimated insured
      deposits (when the reserve is greater than 1.35% but no more than
      1.5%).
 
 Interstate
Banking and Branching.Banks have the
ability, subject to certain State restrictions, to acquire, by acquisition or
merger, branches outside its home state.  The establishment of new
interstate branches is also possible in those states with laws that expressly
permit it.  Interstate branches are subject to certain laws of the
states in which they are located.  Competition may increase further as
banks branch across state lines and enter new markets.
  Consumer
Protection Laws and Regulations.  The bank regulatory agencies
are focusing greater attention on compliance with consumer protection laws and
their implementing regulations. Examination and enforcement have become more
intense in nature, and insured institutions have been advised to monitor
carefully compliance with such laws and regulations. The Bank is subject to many
federal consumer protection statutes and regulations, some of which are
discussed below.
  The
Community Reinvestment Act (CRA) is intended to encourage insured depository
institutions, while operating safely and soundly, to help meet the credit needs
of their communities. The CRA specifically directs the federal regulatory
agencies, in examining insured depository institutions, to assess a bank’s
record of helping meet the credit needs of its entire community, including low-
and moderate-income neighborhoods, consistent with safe and sound banking
practices. The CRA further requires the agencies to take a financial
institution’s record of meeting its community credit needs into account when
evaluating applications for, among other things, domestic branches, mergers or
acquisitions, or holding company formations. The agencies use the CRA assessment
factors in order to provide a rating to the financial institution. The ratings
range from a high of “outstanding” to a low of “substantial noncompliance.” In
its last examination for CRA compliance, as of May 5, 2004, the Bank was rated
“satisfactory.”
  12
  On
September 1, 2005, the federal banking agencies amended the CRA regulations
to:
  ·
              establish
      the definition of “Intermediate Small Bank” as an institution with total
      assets of $250 million to $1 billion, without regard to any holding
      company; and
 ·
              take
      into account abusive lending practices by a bank or its affiliates in
      determining a bank’s CRA rating.
 
 The Fair
Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions
Act (FACT) requires financial firms to help deter identity theft, including
developing appropriate fraud response programs, and give consumers more control
of their credit data.  It also reauthorizes a federal ban on state
laws that interfere with corporate credit granting and marketing
practices.  In connection with FACT, financial institution regulatory
agencies proposed rules that would prohibit an institution from using certain
information about a consumer it received from an affiliate to make a
solicitation to the consumer, unless the consumer has been notified and given a
chance to opt out of such solicitations.  A consumer’s election to opt
out would be applicable for at least five years.
  The Check
Clearing for the 21st Century
Act (Check 21) facilitates check truncation and electronic check exchange by
authorizing a new negotiable instrument called a “substitute check,” which is
the legal equivalent of an original check.  Check 21, effective
October 28, 2004, does not require banks to create substitute checks or accept
checks electronically; however, it does require banks to accept a legally
equivalent substitute check in place of an original.
  The Equal
Credit Opportunity Act (ECOA) generally prohibits discrimination in any credit
transaction, whether for consumer or business purposes, on the basis of race,
color, religion, national origin, sex, marital status, age (except in limited
circumstances), receipt of income from public assistance programs, or good faith
exercise of any rights under the Consumer Credit Protection Act.
  The Truth
in Lending Act (TILA) is designed to ensure that credit terms are disclosed in a
meaningful way so that consumers may compare credit terms more readily and
knowledgeably. As a result of the TILA, all creditors must use the same credit
terminology to express rates and payments, including the annual percentage rate,
the finance charge, the amount financed, the total of payments and the payment
schedule, among other things.
  The Fair
Housing Act (FH Act) regulates many practices, including making it unlawful for
any lender to discriminate in its housing-related lending activities against any
person because of race, color, religion, national origin, sex, handicap or
familial status. A number of lending practices have been found by the courts to
be, or may be considered, illegal under the FH Act, including some that are not
specifically mentioned in the FH Act itself.
  13
  The Home
Mortgage Disclosure Act (HMDA) grew out of public concern over credit shortages
in certain urban neighborhoods and provides public information that will help
show whether financial institutions are serving the housing credit needs of the
neighborhoods and communities in which they are located. The HMDA also includes
a “fair lending” aspect that requires the collection and disclosure of data
about applicant and borrower characteristics as a way of identifying possible
discriminatory lending patterns and enforcing anti-discrimination
statutes.
  The term
“predatory lending,” much like the terms “safety and soundness” and “unfair and
deceptive practices,” is far-reaching and covers a potentially broad range of
behavior. As such, it does not lend itself to a concise or a comprehensive
definition. But typically predatory lending involves at least one, and perhaps
all three, of the following elements:
  ·
              making
      unaffordable loans based on the assets of the borrower rather than on the
      borrower’s ability to repay an obligation (“asset-based
      lending”)
 ·
              inducing
      a borrower to refinance a loan repeatedly in order to charge high points
      and fees each time the loan is refinanced (“loan
  flipping”)
 ·
              engaging
      in fraud or deception to conceal the true nature of the loan obligation
      from an unsuspecting or unsophisticated
  borrower.
 
 FRB
regulations aimed at curbing such lending significantly widen the pool of
high-cost home-secured loans covered by the Home Ownership and Equity Protection
Act of 1994, a federal law that requires extra disclosures and consumer
protections to borrowers.  Lenders that violate the rules face
cancellation of loans and penalties equal to the finance charges
paid.
  Effective
April 8, 2005, OCC guidelines require national banks and their operating
subsidiaries to comply with certain standards when making or purchasing loans to
avoid predatory or abusive residential mortgage lending
practices.  Failure to comply with the guidelines could be deemed an
unsafe and unsound or unfair or deceptive practice, subjecting the bank to
supervisory enforcement actions.
  Finally,
the Real Estate Settlement Procedures Act (RESPA) requires lenders to provide
borrowers with disclosures regarding the nature and cost of real estate
settlements. Also, RESPA prohibits certain abusive practices, such as kickbacks,
and places limitations on the amount of escrow accounts. Penalties under the
above laws may include fines, reimbursements and other penalties. Due to
heightened regulatory concern related to compliance with the CRA, TILA, FH Act,
ECOA, HMDA and RESPA generally, the Bank may incur additional compliance costs
or be required to expend additional funds for investments in its local
community.
  Federal Home Loan
Bank System.  The Bank is a
member of the Federal Home Loan Bank of Pittsburgh.  Among other
benefits, each FHLB serves as a reserve or central bank for its members within
its assigned region. Each FHLB is financed primarily from the sale of
consolidated obligations of the FHLB system. Each FHLB makes available loans or
advances to its members in compliance with the policies and procedures
established by the Board of Directors of the individual FHLB. As an FHLB member,
the Bank is required to own a certain amount of capital stock in the
FHLB.  At December 31, 2007, the Bank was in compliance with the stock
requirements.
  Federal Reserve
System.The FRB requires
all depository institutions to maintain non-interest bearing reserves at
specified levels against their transaction accounts (primarily checking, NOW,
and Super NOW checking accounts) and non-personal time deposits.  At
December 31, 2007, the Bank was in compliance with these
requirements.
  14
  Forward
Looking Statements
 Discussions
of certain matters in this Form 10-K 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.  Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies, and expectations, are
generally identifiable by the use of words or phrases such as “believe”, “plan”,
“expect”, “intend”, “anticipate”, “estimate”, “project”, “forecast”, “may
increase”, “may fluctuate”, “may improve” and similar expressions of future or
conditional verbs such as “will”, “should”, “would”, and
“could”.  These forward-looking statements relate to, among other
things, expectations of the business environment in which the Corporation
operates, projections of future performance, potential future credit experience,
perceived opportunities in the market and statements regarding the Corporation’s
mission and vision.  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, the
demand for the Corporation’s products and services, accounting principles or
guidelines, legislative and regulatory changes, monetary and fiscal policies of
the U.S. Government, U.S. Treasury, and Federal Reserve, real estate markets,
competition in the financial services industry, attracting and retaining key
personnel, performance of new employees, regulatory actions, changes in and
utilization of new technologies and other risks detailed in the Corporation’s
reports filed with the Securities and Exchange Commission (SEC) from time to
time.  These factors and those discussed under “Risk 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.
 
 15
 
 Item
1A.  Risk Factors
  The
following discusses certain factors that may affect the Corporation’s financial
condition and results of operations and should be considered in analyzing
whether to make or continue an investment in our common stock.
 
 Economic Conditions and Geographic
Concentration.  The Corporation’s operations are located in
western Pennsylvania and are concentrated in Venango, Clarion and Butler
Counties, Pennsylvania.  Although management has diversified the
Corporation’s loan portfolio into other Pennsylvania counties, and to a very
limited extent, into other states, the vast majority of the Corporation’s
credits remain concentrated in the threeprimary
counties.  As a result of this geographic concentration, the
Corporation’s results depend largely upon economic and real estate market
conditions in these areas.  Deterioration in economic or real estate
market conditions in the Corporation’s primary market areas could have a
material adverse impact on the quality of the Corporation’s loan portfolio, the
demand for its products and services, and its financial condition and results of
operations.
 
 Interest Rates.  By
nature, all financial institutions are impacted by changing interest
rates.  Among other issues, changes in interest rates may affect the
following:
 §
              the
      demand for new loans;
 §
              the
      value of our interest-earning
assets;
 §
              prepayment
      speeds experienced on various asset classes, particularly residential
      mortgage loans;
 §
              credit
      profiles of existing borrowers;
 §
              rates
      received on loans and securities;
 §
              our
      ability to obtain and retain deposits in connection with other available
      investment alternatives; and
 §
              rates
      paid on deposits and borrowings.
 
 As
presented previously, the Corporation is financially exposed to parallel shifts
in general market interest rates, changes in the relative pricing of the term
structure of general market interest rates, and relative credit
spreads.  Therefore, significant fluctuations in interest rates may
have an adverse effect upon the Corporation’s financial condition and results of
operations.
 
 Credit Quality.  A
significant source of risk arises from the possibility that losses will be
sustained because borrowers, guarantors, and related parties may fail to perform
in accordance with the terms of their loans.  The Corporation has
adopted underwriting and credit monitoring procedures and credit policies,
including the establishment and review of the allowance for loan losses, that
management believes are appropriate to control this risk by assessing the
likelihood of non-performance, tracking loan performance, and diversifying the
credit portfolio. Such policies and procedures may not, however, prevent
unexpected losses that could have a material adverse effect on the Corporation’s
financial condition or results of operations.  Unexpected losses may
arise from a wide variety of specific or systemic factors, many of which are
beyond the Corporation’s ability to predict, influence, or control.
 
 There are increased risks involved
with commercial real estate and commercial business and consumer lending
activities.  Our lending
activities include loans secured by commercial real
estate.  Commercial real estate lending generally is considered to
involve a higher degree of risk than single-family residential lending due to a
variety of factors, including generally larger loan balances and the dependency
on successful operation of the project for repayment.  Our lending
activities also include commercial business loans to small to medium business,
which generally are secured by various equipment, machinery and other corporate
assets, and a wide variety of consumer loans, including home equity and second
mortgage loans, automobile loans and unsecured loans.  Although
commercial business loans and consumer loans generally have shorter terms and
higher interest rates than mortgage loans, they generally involve more risk than
mortgage loans because of the nature of, or in certain cases the absence of, the
collateral which secures such loans.
 
 Our allowance for loan losses on
loans may not be adequate to cover probable losses.  We have
established an allowance for loan losses which we believe is adequate to offset
probable losses on our existing loans.  There can be no assurance that
any future declines in real estate market conditions, general economic
conditions or changes in regulatory policies will not require us to increase our
allowance for loan losses, which could adversely affect our results of
operations.
  16
  Other Risks.  From
time to time, the Corporation details other risks with respect to its business
and financial results in its filings with the SEC.
 
 Item
1B.  Unresolved Staff Comments
 
 Not
applicable.
 
 Item
2.  Properties
 
 The
Corporation owns no real property but utilizes the main office of the
Bank.  The Corporation’s and the Bank’s executive offices are located
at 612 Main Street, Emlenton, Pennsylvania.  The Corporation pays no
rent or other form of consideration for the use of this facility.  The
following table sets forth information with respect to the Bank’s offices at
December 31, 2007:
  (Dollar amounts in
      thousands)
                
                Owned
                
                Lease
                
                
                Net
      Book
                
                
                Depositsor
                
                Expiration
                
                
                Value
      or
                
                
                atLocation
                County
                Leased
                
                Date
      (1)
                
                
                Annual
      Rent
                
                
                12/31/2007Corporate and Bank
      Main Offices:Headquarters
      and Main Office
                Venango
                Owned
                
                
                --
                
                
                $
                1,880
                
                
                $
                44,238612
      Main Street, Emlenton, Pennsylvania 16373Data
      Center
                Venango
                Owned
                
                
                --
                
                
                
                1,041
                
                
                
                --708
      Main Street, Emlenton, Pennsylvania 16373Bank Branch
      OfficesBon
      Aire Office
                Butler
                Leased
                
                May
      2011
                
                
                
                40
                
                
                
                38,3471101
      North Main Street, Butler, Pennsylvania 16003Brookville
      Office
                Jefferson
                Owned
                
                
                --
                
                
                
                692
                
                
                
                21,988263
      Main Street, Brookville, Pennsylvania 15825Clarion
      Office
                Clarion
                Owned
                
                
                --
                
                
                
                310
                
                
                
                34,973Sixth
      & Wood Street, Clarion, Pennsylvania 16214Cranberry
      Office
                Venango
                Owned
                
                
                --
                
                
                
                1,198
                
                
                
                6,3257001  Route
      322, PO Box 235, Cranberry, PA 16319DuBois
      Office
                Clearfield
                Leased
                
                June
      2010
                
                
                
                21
                
                
                
                15,755861
      Beaver Drive, Dubois, Pennsylvania 15801East
      Brady Office
                Clarion
                Owned
                
                
                --
                
                
                
                47
                
                
                
                18,833323
      Kelly's Way, East Brady, Pennsylvania 16028Eau
      Claire Office
                Butler
                Owned
                
                
                --
                
                
                
                149
                
                
                
                15,815207
      Washington Street, Eau Claire, Pennsylvania 16030Grove
      City Office (2)
                Mercer
                Owned
                
                
                --
                
                
                
                688
                
                
                
                --1319
      West Main Street, Grove City, Pennsylvania 16127Knox
      Office
                Clarion
                Leased
                
                December
      2011
                
                
                
                28
                
                
                
                29,955Route
      338 South, Knox, Pennsylvania 16232Meridian
      Office
                Butler
                Leased
                
                December
      2012
                
                
                
                26
                
                
                
                7,798101
      Meridian Road, Butler, Pennsylvania 16003Ridgway
      Office
                Elk
                Owned
                
                
                --
                
                
                
                149
                
                
                
                10,235173
      Main Street, Ridgway, Pennsylvania 15853$
                244,262(1)
                Lease
      agreements for leased offices typically include renewal
      options.(2)
                Branch
      office expected to open in early 2008.




17




Item  3.  Legal
Proceedings
 
 Neither
the Bank nor the Corporation is involved in any material legal
proceedings.  The Bank, from time to time, is party to litigation that
arises in the ordinary course of business, such as claims to enforce liens,
claims involving the origination and servicing of loans, and other issues
related to the business of the Bank. In the opinion of management, the
resolution of any such issues would not have a material adverse impact on the
financial position, results of operation, or liquidity of the Bank or the
Corporation.
 
 Item  4.  Submission of Matters to a Vote of
Security Holders
 
 No matters
were submitted to stockholders for a vote during the quarter ended December 31,
2007.
  18
  PART II
 
 Item  5.  Market for the Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
 
 (a)
              The
      information is contained under the section captioned “Stock and Dividend
      Information” in the Corporation’s Annual Report for the fiscal year ended
      December 31, 2007, and is incorporated herein by reference.  For
      information with respect to equity compensation plans, see “Item 12 –
      Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.”  There were no sales of the Corporation’s
      unregistered securities during the period covered by this
      report.
  Set forth
below is a graph comparing the yearly percentage change in the cumulative total
shareholder return on the Corporation’s common stock against the cumulative
total return of NASDAQ Composite and SNL $250 million to $500 million Bank Index
for the five year period beginning December 31, 2002 and ending December 31,
2007. Each assumes an investment of $100 on December 31, 2002 and reinvestment
of dividends when paid.  The graph is not necessarily indicative of
future price performance.
  
  (b)
                    Not
      applicable.
 
 (c)
                    Issuer
      Purchases of Equity Securities.  The Corporation did not
      repurchase any of its equity securities in the year ended December 31,
      2007.
  19
  Item
6.  Selected Financial Data
 
 The
required information is contained in the section captioned “Selected
Consolidated Financial Data” in the Corporation’s Annual Report for the year
ended December 31, 2007 and incorporated herein by reference.
 
 Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations
 
 The
required information is contained in the section captioned “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in the
Corporation’s Annual Report for the year ended December 31, 2007 and is
incorporated herein by reference.
 
 Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk
 
 Market
risk for the Corporation is comprised primarily from interest rate risk exposure
and liquidity risk.  Since virtually all of the interest-earning
assets and paying liabilities are at the Bank, virtually all of the interest
rate risk and liquidity risk lies at the Bank level.  The Bank is not
subject to currency exchange risk or commodity price risk, and has no trading
portfolio, and therefore, is not subject to any trading risk.  In
addition, the Bank does not participate in hedging transactions such as interest
rate swaps and caps.  Changes in interest rates will impact both
income and expense recorded and also the market value of long-term
interest-earning assets.  Interest rate risk and liquidity risk
management is performed at the Bank level.  Although the Bank has a
diversified loan portfolio, loans outstanding to individuals and businesses
depend upon the local economic conditions in the immediate trade
area.
 
 One of the
primary functions of the Corporation’s asset/liability management committee is
to monitor the level to which the balance sheet is subject to interest rate
risk.  The goal of the asset/liability committee is to manage the
relationship between interest rate sensitive assets and liabilities, thereby
minimizing the fluctuations in the net interest margin, which achieves
consistent growth of net interest income during periods of changing interest
rates.
 
 Interest
rate sensitivity is the result of differences in the amounts and repricing dates
of the Bank’s rate sensitive assets and rate sensitive
liabilities.  These differences, or interest rate repricing “gap”,
provide an indication of the extent that the Corporation’s net interest income
is affected by future changes in interest rates.  A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount of
interest rate-sensitive liabilities and is considered negative when the amount
of interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets.  Generally, during a period of rising interest
rates, a negative gap would adversely affect net interest income while a
positive gap would result in an increase in net interest
income.  Conversely, during a period of falling interest rates, a
negative gap would result in an increase in net interest income and a positive
gap would adversely affect net interest income.  The closer to zero
that gap is maintained, generally, the lesser the impact of market interest rate
changes on net interest income.
 
 Based on
certain assumptions by a federal regulatory agency, which management believes
most accurately represents the sensitivity of the Corporation’s assets and
liabilities to interest rate changes, at December 31, 2007, the Corporation’s
interest-earning assets maturing or repricing within one year totaled $72.7
million while the Corporation’s interest-bearing liabilities maturing or
repricing within one-year totaled $93.2 million, providing an excess of
interest-bearing liabilities over interest-earning assets of $20.5 million or a
negative 6.6% of total assets.  At December 31, 2007, the percentage
of the Corporation’s assets to liabilities maturing or repricing within one year
was 78.1%.
 
 For more
information, see “Market Risk Management” in the Corporation’s Annual Report on
Form 10-K for the year ended December 31, 2007.
 
 20
  Item  8.  Financial Statements and Supplementary
Data
 
 The
Corporation’s consolidated financial statements required herein are contained in
the Corporation’s Annual Report for the year ended December 31, 2007 and are
incorporated herein by reference.
 
 Item
9.  Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
 
 None.
 
 Item 9A
(T).  Controls and Procedures.
 
 The
Corporation maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Corporation’s reports in
compliance with the Exchange Act, is recorded, processed, summarized, and
reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to the Corporation’s
Management, including its Chief Executive Officer and Principal Financial and
Accounting Officer, as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of “disclosure controls and
procedures” in Rule 13a-14(c) promulgated under the Exchange Act.  As
of December 31, 2007, the Corporation carried out an evaluation, under the
supervision and with the participation of the Corporation’s Management,
including the Corporation’s Chief Executive Officer and the Corporation’s Chief
Financial Officer, of the effectiveness of the design and operation of the
Corporation’s disclosure controls and procedures.  Based on the
foregoing, the Corporation’s Chief Executive Officer and Chief Financial Officer
concluded that the Corporation’s disclosure controls and procedures were
effective.
 
 During the
fourth quarter of fiscal year 2007, there were no significant changes in the
Corporation’s internal control over financial reporting or in other factors that
could significantly affect the internal controls subsequent to the date of the
evaluation referenced above.
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined under Exchange Act Rules 13a –
15(f).  The Corporation’s internal control system is designed to
provide reasonable assurance to its management and board of directors regarding
the preparation and fair presentation of published financial
statements.  Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on our evaluation under that framework,
management concluded that our internal control over financial reporting was
effective as of December 31, 2007.
 
 This
annual report does not include an attestation report of the Corporation’s
registered public accounting firm regarding internal control over financial
reporting.  The Corporation’s internal control over financial
reporting was not subject to attestation by the Corporation’s registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Corporation to provide only management’s report in
this annual report.
 
 Item
9B.  Other Information.
 
 None.
 21
  PART III
 
 Item
10.  Directors, Executive Officers  and Corporate
Governance
 
 The
information contained under the sections captioned “Principal Beneficial Owners
of the Corporation’s Common Stock”, “Section 16(a) Beneficial Ownership
Reporting Compliance” and “Information With Respect to Nominees For Director,
Continuing Director and Executive Officers” is incorporated herein by reference
to the Corporation’s definitive proxy statement for the Corporation’s Annual
Meeting of Stockholders to be held on April 23, 2008 (the Proxy Statement) which
will be filed no later than 120 days following the Corporation’s fiscal year
end.
 
 The
Corporation maintains a Code of Personal and Business Conduct and Ethics (the
Code) that applies to all employees, including the CEO and the CFO.  A
copy of the Code has previously been filed with the SEC and is posted on our
website at www.farmersnb.com.  Any
waiver of the Code with respect to the CEO and the CFO will be publicly
disclosed in accordance with applicable regulations.
 
 Item
11.  Executive Compensation
 
 The
information contained under the section captioned “Executive Compensation” in
the Proxy Statement is incorporated herein by reference.
 
 Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
 
 Information
      required by this item is incorporated herein by reference to the section
      captioned “Principal Beneficial
 Owners
      of the Corporation’s Common Stock” in the Proxy
  Statement.
 
 Item
13.  Certain Relationships and Related Transactions, and Director
Independence
 
 The
information required by this item is incorporated herein by reference to the
sections captioned “Information With Respect to Nominees For Director,
Continuing Directors and Executive Officers” and “Executive Compensation” in the
Proxy Statement.
 
 Item
14.  Principal Accountant Fees and Services
 
 The
information required by this item is incorporated herein by reference to the
section captioned “Relationship With Independent Registered Public Accounting
Firm” in the Proxy Statement.
  22
  PART IV
 
 Item
15.  Exhibits and Financial Statement
Schedules
  (a)(1)-(2)
                        Financial
      Statements and Schedules:(i)  Financial
      statements and schedules included in Exhibit 13 to this Form 10-K are
      filed as part of this report.(ii)
      All other financial statement schedules are omitted because the required
      information is not applicable, or because the information required is
      included in the consolidated financial statements and notes
      thereto.(3)
                        Management
      Contracts or Compensatory Plans:(i)
      Exhibits 10.1-10.3 listed below in (b) below identify management contracts
      or compensatory plans or arrangements required to be filed as exhibits to
      this report, and such listing is incorporated herein by
      reference.(b)
                        Exhibits
      are either attached as part of this Report or incorporated herein by
      reference.3.1
      Articles
      of Incorporation of Emclaire Financial Corp. (1)3.2
      Bylaws
      of Emclaire Financial Corp. (1)4
      Specimen
      Stock Certificate of Emclaire Financial Corp. (2)10.1
      Employment
      Agreement between Emclaire Financial Corp., the Farmers National bank of
      Emlenton and David L. Cox, dated as of July 1, 2007. (3)10.2
      Employment
      Agreement between Emclaire Financial Corp., the Farmers National bank of
      Emlenton and William C. Marsh, dated as of July 1, 2007. (3)10.3
      Change
      in Control Agreement between Emclaire Financial Corp., the Farmers
      National bank of Emlenton and Raymond M. Lawton, dated as of July 1, 2007.
      (3)10.4
      Change
      in Control Agreement between Emclaire Financial Corp., the Farmers
      National bank of Emlenton and Kathleen L. Buzzard, dated as of July 1,
      2007. (3)10.5
      Form
      of Group Term Carve-Out Plan between the Farmers National Bank of Emlenton
      and 20 Officers and Employees. (5)10.6
      Form
      of Supplemental Executive Retiement Plan Agreement between the Farmers
      National Bank of Emlenton and Six Officers. (5)11  
      Statement
      regarding computation of earnings per share (see Note 1 of the Notes to
      Consolidated Financial Statements in the Annual Report).13  
      Annual
      Report to Stockholders for the fiscal year ended December 31,
    2007.14   Code
      of Personal and Business Conduct and Ethics. (6)16   Letter
      regarding change in certifying accountant
 23
  20    
      Emclaire Financial Corp. Dividend Reinvestment and Stock Purchase
      Plan.(4)21    
      Subsidiaries of the Registrant (see information contained herein under
      “Item 1. Description of Business - Subsidiary
      Activity”).31.1 
      CEO 302 Certification.31.2   CFO
      302 Certification.32.1   Chief
      Executive Officer 906 Certification.32.2   CFO
      906 Certification.




(1)
      Incorporated
      by reference to the Registrant’s Registration Statement on Form SB-2, as
      amended, (File No. 333-11773) declared effective by the SEC on October 25,
      1996.(2)
      Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 1997.(3)
      Incorporated
      by reference to the Registrant’s Current Report on Form 8-K dated June 21,
      2007.(4)
      Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2001.(5)
      Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2002.(6)
      Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2004.




24




SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
  EMCLAIRE
      FINANCIAL CORP.Dated:  March
      24, 2008
                
                
                
                By:
                /s/ David L. CoxDavid
      L. CoxPresident,
      Chief Executive Officer, and Director(Duly
      Authorized
Representative)




Pursuant
to the requirement of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
  By:
                
                /s/ David L. Cox
                
                By:
                
                /s/ William C. MarshDavid
      L. Cox
                
                
                
                William
      C. MarshPresident
                
                
                
                Chief
      Financial Officer and TreasurerChairman
      of the Board
                
                
                
                DirectorChief
      Executive Officer
                
                
                
                (Principal
      Financial and Accounting Officer)Director(Principal
      Executive Officer)Date:
                
                March
      24, 2008
                
                Date:
                
                March
      24, 2008By:
                
                /s/ Ronald L.
Ashbaugh
                
                By:
                
                /s/ Brian C.
  McCarrierRonald
      L. Ashbaugh
                
                
                
                Brian
      C. McCarrierDirector
                
                
                
                DirectorDate:
                
                March
      24, 2008
                
                Date:
                
                March
      24, 2008By:
                
                /s/ James M. Crooks
                
                By:
                
                /s/ George W.
  FreemanJames
      M. Crooks
                
                
                
                George
      W. FreemanDirector
                
                
                
                DirectorDate:
                
                March
      24, 2008
                
                Date:
                
                March
      24, 2008By:
                
                /s/ Mark A. Freemer
                
                By:
                
                /s/ Robert L.
  HunterMark
      A. Freemer
                
                
                
                Robert
      L. HunterDirector
                
                
                
                DirectorDate:
                
                March
      24, 2008
                
                Date:
                
                March
      24, 2008By:
                
                /s/ J. Michael King
                
                By:
                
                /s/ John B. MasonJ.
      Michael King
                
                
                
                John
      B. MasonDirector
                
                
                
                DirectorDate:
                
                March
      24, 2008
                
                Date:
                
                March
      24, 2008