EXHIBIT 13

    Annual Report to Stockholders for the fiscal year ended December 31, 1998

<PAGE>

1998 
ANNUAL REPORT

[GRAPHIC OMITTED]
<PAGE>


The Cover

Elk County Courthouse - Ridgway, PA

The  construction  of the Elk County  Courthouse  commenced  with a  cornerstone
laying  ceremony on July 16, 1879 and was completed on December 28, 1880.  Costs
of  construction  totaled  approximately  $65,000,  including the bell tower and
clock.  At  the  time  of  completion,  it  was  noted  the  construction  costs
represented $4.96 for every resident of the county.

The  building  was designed by J. P.  Marston,  and is modeled  after the Warren
County  Courthouse,  for which Marston was also the  architect and builder.  The
original  masonry  structure,  constructed of brick and sandstone taken from the
hills surrounding  Ridgway,  stood  approximately 110 feet by 64 feet. The tower
was topped  with a zinc  statue of the  Goddess of Justice  which stood 130 feet
above street level.

Since  its  completion  in  1880  the  courthouse  has  undergone  a  number  of
renovations and improvements. From the addition of the law library in 1894 to an
extensive renovation in 1970, attempts have been made to improve and enhance the
structure.  In 1994,  the  Centennial  Building  adjacent to the  courthouse was
purchased and renovated from 1995 to 1997 into the Courthouse Annex.


Acknowledgment: Cover Photograph: Elk County Courthouse, circa 1910;
Courtesy of The Elk County Historical Society


<PAGE>


[OBJECT OMITTED]

Emclaire Financial Corp.


1998 ANNUAL REPORT
TABLE OF CONTENTS

President's letter                                        1
Selected Financial Data                                   2
Consolidated Financial Statements                       3 - 6
Notes to Consolidated Financial Statements              7 - 22
Report of Independent Auditors                            23
Management's Discussion and Analysis of
     Financial Condition and Results of Operations     24 - 35
Common Stock Information                                  36

<PAGE>

Dear stockholders and friends:

As we reflect on the year 1998,  we can honestly  say "here we grow  again".  We
began with the addition of our Clarion Mall Office in March,  and continued with
the purchase of Peoples Savings Bank, with offices in Ridgway,  Brookville,  and
DuBois.  The three former offices of Peoples were  integrated into our system as
of the end of August. Our branching network now covers six counties and consists
of eleven offices.  The growth encountered over the past year has offered us new
markets for our type of community banking.

During  1998,  we  erected  a new data  processing  facility  on Main  Street in
Emlenton.  This facility,  which we occupied in August, offers us the ability to
service our  branching  network  now and in the  future.  In addition to the new
building, we replaced our computer with a new enterprise server and upgraded our
software.  We also  purchased  a new check  sorter and imaging  system.  The new
system  allows  us to be more  efficient  and  gives  our  customers  the  added
convenience  of check  imaging.  Year  2000  issues  were a major  factor in our
conversion to the new system at this time. All our testing and  verification  of
the new system, which was completed at the beginning of 1999, indicates that our
systems are ready for the new millennium.

Growth and  expansion has not come without its  challenges.  Since 1995 our bank
has almost doubled in asset size, growing from $98.6 million,  year end 1995, to
$194.1 million,  year end 1998. During this same period, we increased our number
of offices from four  branches,  serving  three  counties,  to eleven  branches,
serving six counties.  With the purchase of Peoples  Savings Bank, we also added
270  shareholders  and now have 747  shareholders  of  record.  We would like to
welcome those new members to our banking family.

Total assets  increased to $194.1  million for 1998,  which  amounted to a 44.9%
increase. Total deposits increased $52.2 million or 44.4%. Although the purchase
of Peoples  Savings Bank  accounted  for a major portion of this  increase,  our
other nine offices showed an impressive  15% deposit growth rate for 1998.  This
is a direct  reflection  of the  dedication  of our  employees and their efforts
throughout the Bank. Stockholders' equity at December 31, 1998 amounted to $21.1
million.  This represented a 56.3% or $7.6 million increase from the prior year.
This  increase  was  attributed  mainly to the purchase  transaction  of Peoples
Savings Bank. Net income  increased by 6.4% for the year, which equated to a per
share earning of $1.12.

As previously  stated,  growth  presents  many new  challenges  for  management,
employees and the Board of Directors. Over the past five years we have been able
to expand into new markets and increase our market share in existing markets. We
have  accomplished  this through branch  purchases,  de novo  branches,  Peoples
Savings Bank purchase, and normal deposit growth. The challenge that faces us in
the future will be to profitably increase our market share. We will only be able
to succeed in this endeavor if we have the assistance of our employees.

The next twelve  months will be spent  reviewing our  organizational  structure,
developing our employees,  and increasing our customer service.  To this end, we
have  solicited the services of J. L. Nick & Associates,  Inc., a human resource
consulting  firm from  Erie,  Pennsylvania.  They will be  developing  our human
resource  function  and  employee  training  program,  while also aiding us with
organizational  analysis.  Our employees are one of our most valuable assets. In
order to  properly  manage  the  growth we have  experienced,  we must  recruit,
develop, and train the best employees.

During  the next five  years our Bank  will  have many  opportunities  that will
present  unique  challenges.  The banking  philosophy we have developed over the
past  years  will  serve us well into the  future.  Concern  for our  customers,
employees,  and shareholders  will be paramount to our success.  I would like to
invite every shareholder to attend the annual meeting on May 10, 1999 to be held
at our Data Center in Emlenton.  Please feel free to come and discuss the future
of our organization.


Sincerely,

/s/ David L. Cox
-------------------------------------
David L. Cox
President and Chief Executive Officer



<PAGE>


EMCLAIRE FINANCIAL CORP.
Selected Financial Data
<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                    ------------------------------------------------------------------------------
                                                        1998             1997            1996            1995            1994
                                                    --------------   -------------   -------------   -------------   -------------
<S>                                                    <C>             <C>             <C>             <C>             <C>  
SUMMARY OF EARNINGS
Interest income                                          $ 11,343        $  9,523        $  8,098        $  7,437        $  6,751
Interest expense                                            4,669           3,727           3,352           2,986           2,573
                                                    --------------   -------------   -------------   -------------   -------------
Net interest income                                         6,674           5,796           4,746           4,451           4,178
Provision for loan losses                                     200             220             120             143             132
                                                    --------------   -------------   -------------   -------------   -------------
Net interest income after
   provision for loan losses                                6,474           5,576           4,626           4,308           4,046
Other income                                                  793             596             427             389             384
Other expense                                               5,354           4,382           3,636           3,005           2,899
                                                    --------------   -------------   -------------   -------------   -------------
Income before income taxes and
  cumulative effect adjustment                              1,913           1,790           1,417           1,692           1,531
Applicable income tax expense                                 590             546             436             520             454
                                                    --------------   -------------   -------------   -------------   -------------

NET INCOME                                               $  1,323        $  1,244         $   981        $  1,172        $  1,077
                                                    ==============   =============   =============   =============   =============

PER SHARE DATA (1)
Earnings per share                                       $   1.12        $   1.15        $   1.15        $   1.40        $   1.28
Dividends paid                                           $    .50        $    .44        $    .41        $    .43        $    .38
Book value per share at period end                       $  15.12        $  12.48        $  11.68        $  10.76        $   9.72
Average number of shares outstanding                    1,186,540       1,081,453         852,403         839,160         839,160

STATEMENT OF CONDITION STATISTICS
(At end of period)
Assets                                                   $194,132        $133,956        $128,002        $ 98,599        $ 96,714
Deposits                                                  169,870         117,655         114,725          88,944          87,986
Loans                                                     134,249          86,144          68,428          64,322          64,086
Allowance for loan losses                                   1,336             874             733             687             688
Federal funds sold                                          9,700               -           3,500           2,500             900
Investment securities                                      32,321          38,034          46,483          26,361          25,436
Stockholders' equity                                       21,101          13,498          12,631           9,032           8,155

SIGNIFICANT RATIOS
Return on average equity                                     8.08%           9.57 %         10.33 %         13.56 %         13.80 %
Return on average assets                                     0.85             .96             .89            1.20            1.12
Net yield on earning assets                                  4.70            4.87            4.68            4.97            4.81
Net loans as a percent of deposits                          78.24           72.47           59.01           71.55           72.05
Equity to assets at period end                              10.87           10.08            9.87            9.16            8.43
Earning average assets to total assets                      92.82           93.10           93.63           94.11           92.84
Average interest bearing liabilities to assets              74.47           74.71           77.02           77.26           78.36
Dividends as a percent of net income                        44.64           38.26           35.65           30.71           29.69
Allowance for loan losses to total loans                     1.00            1.01            1.07            1.07            1.07
Full time equivalent employees                              88              75              74              52              47
Banking offices                                             11               7               7               4               4
</TABLE>

(1) - Adjusted  for a 5% stock  dividend in 1997,  and a 4-for-1  stock split in
1996.


                                       2
<PAGE>
                                             EMCLAIRE FINANCIAL CORP.
                                            CONSOLIDATED BALANCE SHEET
                                              (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                      December 31,
                                                                 1998            1997
                                                              ---------       ---------                              
<S>                                                           <C>            <C>       
ASSETS
Cash and due from banks                                        $  8,989        $  4,975
Federal funds sold                                                9,700               -
Time deposits with other financial institutions                     100               -
Investment securities (Note 4):
         Available for sale                                      28,929          31,977
         Held to maturity (estimated market value
         of $3,419 and $6,053)                                    3,392           6,057
Loans (Note 5)                                                  134,249          86,144
Less allowance for loan losses (Note 6)                           1,336             874
                                                               --------        --------
         Net loans                                              132,913          85,270
Premises and equipment (Note 7)                                   3,625           2,619
Accrued interest and other assets                                 6,484           3,058
                                                               --------        --------
         TOTAL ASSETS                                          $194,132        $133,956
                                                               ========        ========
LIABILITIES
Deposits
         Noninterest bearing demand                            $ 24,746          19,765
         Interest bearing demand                                 22,026          17,276
         Savings                                                 22,527          16,261
         Money market                                            21,381          18,077
         Time (Note 8)                                           79,190          46,276
                                                               --------        --------
         Total deposits                                         169,870         117,655
Obligation under capital lease                                       19              63
Borrowed funds (Note 12)                                          2,000           2,200
Accrued interest and other liabilities                            1,142             540
                                                               --------        --------
         TOTAL LIABILITIES                                      173,031         120,458
                                                               --------        --------
STOCKHOLDERS' EQUITY
         Preferred stock, par value $1.00;                                             
         3,000,000 shares authorized; none issued                     -               -
         Common stock, par value $1.25 per share;                
         12,000,000 shares authorized; 1,395,852
         and 1,081,453 shares issued in    
         1998 and 1997, respectively                              1,745           1,352
         Additional paid-in capital                              10,871           4,432
         Retained earnings                                        8,192           7,492
         Net unrealized gain on securities                          293             222
                                                               --------        --------
         TOTAL STOCKHOLDERS' EQUITY                              21,101          13,498
                                                               --------        --------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            $194,132        $133,956
                                                               ========        ========
         
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       3

<PAGE>


                            EMCLAIRE FINANCIAL CORP.
                        CONSOLIDATED STATEMENT OF INCOME
                (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                                           1998             1997
                                                                                      ---------------- ----------------
<S>                                                                                        <C>              <C>      
 INTEREST INCOME
      Loans, including fees                                                                $    8,943      $     6,969
      Interest bearing deposits in other banks                                                     41                1
      Federal funds sold                                                                          226               89
      Investment securities:
          Taxable                                                                               1,940            2,279
          Exempt from federal income tax                                                          193              185
                                                                                      ---------------- ----------------
             Total interest income                                                             11,343            9,523
                                                                                      ---------------- ----------------

 INTEREST EXPENSE
      Deposits                                                                                  4,550            3,655
      Borrowed funds                                                                              117               67
      Lease obligation                                                                              2                5
                                                                                      ---------------- ----------------
             Total interest expense                                                             4,669            3,727
                                                                                      ---------------- ----------------

 NET INTEREST INCOME                                                                            6,674            5,796

 Provision for loan losses                                                                        200              220
                                                                                      ---------------- ----------------

 NET INTEREST INCOME AFTER
      PROVISION FOR LOAN LOSSES                                                                 6,474            5,576
                                                                                      ---------------- ----------------

 OTHER OPERATING INCOME
     Service fees on deposit accounts                                                             551              476
     Other                                                                                        242              120
                                                                                      ---------------- ----------------
             Total other operating income                                                         793              596
                                                                                      ---------------- ----------------

 OTHER OPERATING EXPENSE
      Salaries and employee benefits                                                            2,474            2,240
      Occupancy, furniture and equipment                                                          938              688
      Other (Note 9)                                                                            1,942            1,454
                                                                                      ---------------- ----------------
             Total other operating expense                                                      5,354            4,382
                                                                                      ---------------- ----------------

 Income before income taxes                                                                     1,913            1,790
 Income taxes (Note 10)                                                                           590              546
                                                                                      ---------------- ----------------

 NET INCOME                                                                                $    1,323      $     1,244
                                                                                      ================ ================

 EARNINGS PER SHARE                                                                        $     1.12      $      1.15

 AVERAGE SHARES OUTSTANDING                                                                 1,186,540        1,081,453

</TABLE>

 See accompanying notes to the consolidated financial statements.

                                       4

<PAGE>


                            EMCLAIRE FINANCIAL CORP.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
                 (Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
                                                                                                           Net
                                                                    Additional                         Unrealized
                                                    Common           Paid-in          Retained          Gains on
                                                     Stock           Capital          Earnings         Securities          Total
                                                     -----           -------          --------         ----------          -----
<S>                                               <C>              <C>               <C>                <C>            <C>      
Balance, December 31, 1996                         $  1,288         $  3,622          $  7,597            $  124        $  12,631
Comprehensive income:
  Net income                                                                             1,244                              1,244
  Other comprehensive income, net
         Unrealized gains on
         securities of $148                                                                                   98               98
                                                                                                                          -------
Total comprehensive income                                                                                                  1,342

Dividends declared
($.44 per share)                                                                          (474)                              (474)
Five percent stock dividend including
  fractional shares cash paid (Note 15)                  64              810              (875)                                (1)
                                                      -----            -----          --------            ------           ------
Balance, December 31, 1997                            1,352            4,432             7,492               222           13,498

Comprehensive income:
  Net income                                                                             1,323                              1,323
  Other comprehensive income, net
         Unrealized gains on
         securities of $108                                                                                   71               71
                                                                                                                           ------
Total comprehensive income                                                                                                  1,394
Dividends declared ($.50 per share)                                                       (623)                              (623)
Issuance of 314,399 shares of
  common stock in acquisition
  transaction (Note 3)                                  393            6,439                                                6,832
                                                    -------         --------          --------            ------          -------
Balance, December 31, 1998                         $  1,745         $ 10,871          $  8,192           $   293        $  21,101
                                                    =======          =======           =======            ======         ========
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       5
<PAGE>

<TABLE>
<CAPTION>
                            EMCLAIRE FINANCIAL CORP.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (Dollars in thousands)

                                                                                             Year Ended December 31,
                                                                                             1998               1997
                                                                                       -----------------  -----------------
<S>                                                                                        <C>                 <C>       
OPERATING ACTIVITIES
     Net income                                                                              $    1,323         $    1,244
     Adjustments to reconcile net income to net
         cash provided by operating activities:
            Depreciation and amortization                                                           788                598
            Net amortization of investment security
                discounts and premiums                                                              147                198
            Provision for loan losses                                                               200                220
            Deferred income taxes                                                                   (47)                (3)
            Decrease in accrued interest receivable                                                  21                102
            Increase (decrease) in accrued interest payable                                        (113)                 2
            Other, net                                                                             (170)              (250)
                                                                                       -----------------  -----------------
                Net cash provided by operating activities                                         2,149              2,111
                                                                                       -----------------  -----------------

INVESTING ACTIVITIES
     Proceeds from maturities and repayments of investment securities:
            Available for sale                                                                    5,500              5,000
            Held to maturity                                                                      2,623              4,157
     Proceeds from sales of investment securities:
            Available for sale                                                                        -              1,990
     Purchases of investment securities:
            Available for sale                                                                   (1,903)            (2,748)
     Net loan originations                                                                      (12,395)           (17,813)
     Purchases of premises and equipment                                                         (1,118)              (588)
     Proceeds from sales of premises and equipment                                                    -                 10
     Proceeds from sale of foreclosed assets                                                        343                  -
     Net proceeds from acquisition (Note 3)                                                       2,232                  -
                                                                                       -----------------  -----------------
                Net cash used for investing activities                                           (4,718)            (9,992)
                                                                                       -----------------  -----------------

FINANCING ACTIVITIES
     Net increase in deposits                                                                    17,150              2,930
     Increase (decrease) in short-term borrowings                                                  (200)               200
     Proceeds from borrowed funds                                                                     -              2,000
     Payments for obligation under capital lease                                                    (44)               (41)
     Cash dividends paid, including fractional shares                                              (623)              (475)
                                                                                       -----------------  -----------------
                Net cash provided by financing activities                                        16,283              4,614
                                                                                       -----------------  -----------------

                Increase (decrease) in cash and cash equivalents                                 13,714             (3,267)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                    4,975              8,242
                                                                                       -----------------  -----------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                                    $    18,689         $    4,975
                                                                                       =================  =================
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       6
<PAGE>


EMCLAIRE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization
------------

Emclaire Financial Corp. ("Company") is a Pennsylvania  corporation organized as
the holding company of The Farmers National Bank of Emlenton ("Bank").  The Bank
is a national association headquartered in Emlenton, Pennsylvania. The Company's
principal sources of revenue emanate from its investment  securities  portfolio,
its portfolio of residential real estate, commercial real estate, commercial and
consumer  loans,  as  well as a  variety  of  deposit  services  offered  to its
customers  through  eleven  offices.  The Company is  supervised by the Board of
Governors of the Federal Reserve System, while the Bank is subject to regulation
and supervision by the Office of the Comptroller of the Currency.

Basis of Presentation
---------------------

The  consolidated  financial  statements of the Company include its wholly-owned
subsidiary,  the Bank. All  intercompany  transactions  have been  eliminated in
consolidation.  The  investment in subsidiary  on the parent  company  financial
statements is carried at the parent  company's equity position in the underlying
net assets.

The  financial  statements  have been  prepared  in  conformity  with  generally
accepted  accounting   principles.   In  preparing  the  financial   statements,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported  amounts of assets and  liabilities  as of the  balance  sheet date and
revenues and expenses for the period.  Actual results could differ significantly
from those estimates.

Investment Securities
---------------------

Investment securities have been classified into two categories: Held to Maturity
and Available for Sale. Debt securities  acquired with the ability and intent to
hold to maturity  are stated at cost  adjusted for  amortization  of premium and
accretion  of  discount  which  are  computed  using  the  interest  method  and
recognized as adjustments of interest  income.  All other debt  securities  have
been  classified  as  available  for sale to  serve  principally  for  liquidity
purposes.  Unrealized holding gains and losses for available for sale securities
are reported as a separate component of stockholders'  equity, net of tax, until
realized.

Realized   securities   gains  and  losses  are  computed   using  the  specific
identification  method.  Interest and dividends on securities  are recognized as
income when earned.

Common stock of the Federal Home Loan Bank and Federal  Reserve Bank  represents
ownership  in   institutions   which  are   wholly-owned   by  other   financial
institutions.  These equity  securities are accounted for at cost and classified
as available for sale.

Loans
-----

Loans are  reported  at their  principal  amount net of the  allowance  for loan
losses. Interest on all loans is recognized as income when earned on the accrual
method.  The  accrual of  interest  is  discontinued  on a loan when  management
believes,   after  considering  economic  and  business  conditions,   that  the
borrower's  financial condition is such that collection of interest is doubtful.
Interest payments received on nonaccrual loans are recorded as income or applied
against principal according to management's judgment as to the collectibility of
such principal.

Loan  origination  fees and  certain  direct  loan  origination  costs are being
deferred and the net amount  amortized as an  adjustment  of the related  loan's
yield. The Company is amortizing these amounts over the contractual lives of the
related loans.

Allowance for Loan Losses
-------------------------

The allowance for loan losses  represents the amount which management  estimates
is adequate to provide for potential losses in its loan portfolio. The allowance
method is used in providing  for loan losses.  Accordingly,  all loan losses are
charged to the  allowance,  and all recoveries are credited to it. The allowance
for loan  losses is  established  through a provision  for loan losses  which is
charged  to  operations.  The  provision  is based  upon  management's  periodic
evaluation of individual loans, the overall risk  characteristics of the various
portfolio  segments,  past  experience  with  losses,  the  impact  of  economic
conditions on  borrowers,  and other  relevant  factors.  The estimates  used in
determining  the  adequacy of the  allowance  for loan  losses are  particularly
susceptible to significant change in the near term.

The Company considers a commercial or commercial real estate loan to be impaired
when, based on current  information and events,  it is probable the Company will
be unable to collect  principal  or interest due  according  to the  contractual
terms of the loan. Loan impairment is

                                       7
<PAGE>

measured  based on the present  value of expected  cash flows  discounted at the
loan's  effective  interest  rate or, as a  practical  expedient,  at the loan's
observable  market  price or the fair  value  of the  collateral  if the loan is
collateral dependent.

Residential  mortgage  loans and  consumer  loans are  large  groups of  smaller
balance  homogenous  loans and are measured for impairment  collectively.  Loans
that experience  insignificant  payment delays are,  generally not classified as
impaired.  The  significance  of payment  delays is determined on a case by case
basis, considering the length of the delay, the prior payment record, the amount
of the shortfall, and the principal and interest owed

Payments received on impaired loans are applied against the recorded  investment
in the loan.  For loans  other  than those that the  Company  expects  repayment
through liquidation of the collateral, when the remaining recorded investment in
the  impaired  loans is less than or equal to the present  value of the expected
cash flows, income is recorded on a cash basis.

Premises and Equipment
----------------------

Premises  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Depreciation is computed on the  straight-line  method over the estimated useful
lives of the  assets.  Expenditures  for  maintenance  and  repairs  are charged
against  income as  incurred.  Costs of major  additions  and  improvements  are
capitalized.

Other Real Estate Owned 
----------------------- 

Other real estate owned acquired in settlement of foreclosed loans is carried as
a component of other assets at the lower of cost or fair value minus the cost to
sell.  Valuation  allowances for estimated losses are provided when the carrying
value of the real estate acquired exceeds the fair value.  Direct costs incurred
in the  foreclosure  process  and  subsequent  holding  costs  incurred  on such
properties are recorded as expenses of current operations.

Intangible Assets
-----------------

Goodwill is the excess cost over net tangible  assets and identified  intangible
assets acquired through purchase  acquisitions.  This intangible asset, included
in other assets and totaling  $3,218,000 and $683,000,  at December 31, 1998 and
1997, respectively is amortized using the straight-line method over a period not
to exceed 25 years. Core deposit  intangible  premiums  totaling  $1,063,000 and
$655,000 at  December  31, 1998 and 1997,  respectively,  are  included in other
assets and are  amortized on a  straight-line  basis over the average  remaining
lives of the acquired  deposits,  not to exceed eight years.  Goodwill and other
intangible assets are periodically reviewed for possible impairment.

Pension Plan
------------

The Bank  maintains a  noncontributory  defined  benefit  pension plan  covering
substantially all employees and officers. The plan calls for benefits to be paid
to eligible  employees at retirement  based primarily upon years of service with
the Bank and compensation rates near retirement.

Income Taxes
------------

The Company and the Bank file a consolidated federal income tax return. Deferred
tax assets and liabilities  are reflected at currently  enacted income tax rates
applicable  to the period in which the  deferred tax assets or  liabilities  are
expected to be realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and  liabilities  are  adjusted  through the  provision  for
income taxes.

Comprehensive Income
--------------------

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130,  "Reporting  Comprehensive  Income".  This statement  defines
comprehensive  income as net income as  currently  reported,  as well as certain
changes  in assets  and  liabilities,  such as  unrealized  gains and  losses on
investment securities available for sale. Statement 130 requires the presentment
of  comprehensive  income and its  components  in a full set of general  purpose
financial statements. The Company has elected to report the effects of Statement
130 as part of the Consolidated Statement of Changes in Stockholders' Equity.

Earnings Per Share
------------------

The  Company  maintains  a simple  capital  structure;  therefore,  there are no
dilutive effects on earnings per share. As such, earnings per share computations
are based on the weighted average number of shares  outstanding of 1,186,540 and
1,081,453 for 1998 and 1997, respectively.

Cash Flow Information
---------------------

The Company has defined cash  equivalents as those amounts  included in due from
banks and federal funds sold.

                                       8
<PAGE>

Cash  payments for  interest in 1998 and 1997 were  $4,571,000  and  $3,725,000,
respectively.  Cash  payments or income taxes in 1998 and 1997 were $608,000 and
$625,000, respectively.

Assets  acquired,  net of cash, and  liabilities  assumed in the  acquisition of
Peoples Savings Financial Corporation amounted to $40,289,000 and $35,689,000.

2.  RECENT ACCOUNTING PRONOUNCEMENTS

Employer's Disclosures About Pension and Other Post Retirement Benefits
-----------------------------------------------------------------------

In February 1998, the Financial  Accounting Standards Board issued Statement No.
132 "Employer's  Disclosures about Pensions and Other Post Retirement Benefits."
This statement revised  employers'  disclosures  pertaining to pension and other
post retirement  benefits,  by  standardizing  the disclosure  requirements  for
pension and other post  retirement  benefits to the extent  practicable;  and by
requiring  additional  information on changes in the benefit obligations and the
fair value of plan  assets to  facilitate  financial  analysis.  This  statement
requires  changes in  disclosure  only,  and its  adoption  had no effect on the
financial condition, results of operation, or liquidity of the company

Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------

In June 1998, the Financial  Accounting Standards Board issued Statement No. 133
"Accounting for Derivative  Instruments and Hedging Activities",  requiring that
derivative  instruments  be  carried  at fair value on the  balance  sheet.  The
statement  allows for the continued use of  derivatives  to hedge various risks,
and sets forth specific  criteria to be used to determine when hedge  accounting
should be used. The statement also provides for offsetting changes in fair value
or cash flows of both the  derivatives  and the hedged  asset or liability to be
recognized in earnings in the same period.

This  statement  becomes  effective for interim and annual  reporting  beginning
January 1, 2000. The impact on the financial  position and results of operations
of the Company in adopting this statement are not currently determinable.

3.   ACQUISITION

On August 31, 1998, the Company  completed the  acquisition  of Peoples  Savings
Financial Corporation ("Peoples"), in a transaction accounted for as a purchase.
This  transaction  was  consummated  through the  issuance of 314,399  shares of
Emclaire  common  stock and a cash  payment  of  $5,684,000,  and was  valued at
approximately  $12.6  million.  Under  the  terms of the  Agreement  and Plan of
Reorganization,  Peoples'  wholly-owned  subsidiary,  Peoples  Savings Bank, was
merged into and became part of the Bank. The results of operations for the three
branch offices  acquired in this  transaction  are included in the  accompanying
financial  statements  since  the  date  of  acquisition.  As a  result  of this
transaction,  total consolidated  assets increased  approximately $42.1 million,
including  net fair  value and  identifiable  intangible  asset  adjustments  of
$917,000,  and  goodwill  of  $2.6  million.  The  fair  value  adjustments  and
identifiable intangible assets are being amortized over two to twenty years. The
resulting goodwill is being amortized over 25 years..

The following  summarizes  unaudited pro forma information,  assuming the merger
had occurred January 1, 1997:


                                     1998               1997
                                  -----------        ----------

Net interest income               $    7,402         $    7,009
                                  ===========        ==========
Net income                        $      707         $    1,136
                                  ===========        ==========
Earnings per share                $     0.51         $     0.81
                                  ===========        ==========

This  proforma  information  does not purport to be indicative of the results of
operations which would have resulted had the acquisition been consummated on the
date assumed.

                                       9

<PAGE>

4.   INVESTMENT SECURITIES


The amortized  cost and estimated  market  values of investment  securities  are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Available for Sale                                                             1998
                                                  --------------------------------------------------------------------
                                                                          Gross             Gross           Estimated
                                                      Amortized         Unrealized        Unrealized          Market 
                                                        Cost              Gains            Losses             Value
                                                        ----              -----            ------             -----
<S>                                               <C>                 <C>               <C>              <C>       
U.S. Treasury securities and
     obligations of U.S. Government
     corporations and agencies                      $   12,001         $     203          $      -        $   12,204
Obligations of states and political
     subdivisions                                                                                     
                                                         4,252                65                 -             4,317
Corporate notes                                                                                       
                                                         9,971               192                 -            10,163
Mortgage-backed securities                                   9                 -                 -                 9
                                                        ------            ------             -----            ------
            Total debt securities                       26,233               460                 -            26,693
Marketable equity securities including
     equity investments in Federal Reserve
     and Federal Home Loan Banks                         2,252                 -               (16)            2,236
                                                        ------            ------             -----            ------
            Total                                  $    28,485         $     460         $     (16)       $   28,929
                                                        ======            ======             =====            ======

Held to Maturity                                                               1998
                                                  ---------------------------------------------------------------------
                                                                           Gross             Gross           Estimated
                                                       Amortized         Unrealized        Unrealized          Market
                                                         Cost              Gains            Losses             Value
                                                         ----              -----            ------             -----
U.S. Treasury securities and
     obligations of U.S. Government
     corporations and agencies                     $     1,003          $     19         $       -        $    1,022
Corporate notes                                          2,044                18                 -             2,062
Mortgage-backed securities                                 345                 -               (10)              335
                                                        ------            ------             -----            ------

            Total                                  $     3,392          $     37         $     (10)       $    3,419
                                                        ======            ======             =====            ======
</TABLE>

                                       10
<PAGE>
<TABLE>
<CAPTION>

Available for Sale                                                             1997
                                                  --------------------------------------------------------------------
                                                                           Gross             Gross           Estimated
                                                       Amortized         Unrealized        Unrealized          Market
                                                         Cost              Gains            Losses             Value
                                                         ----              -----            ------             -----
<S>                                                <C>                <C>              <C>               <C>       
U.S. Treasury securities and
     obligations of U.S. Government
     corporations and agencies                      $   17,510         $     163        $      (1)        $   17,672
Obligations of states and political
     subdivisions                                        3,617                43                -              3,660
Corporate notes                                         10,067               134               (3)            10,198
                                                       -------           -------          --------         ---------
            Total debt securities                       31,194               340               (4)            31,530
                                                       -------           -------          --------         ---------
Equity investment in Federal Reserve
     and Federal Home Loan Banks                           447                 -                 -               447
                                                       -------           -------          --------         ---------
            Total                                   $   31,641         $     340         $      (4)       $   31,977
                                                    ==========         =========         =========        ==========

Held to Maturity                                                               1997
                                                  --------------------------------------------------------------------
                                                                           Gross             Gross           Estimated
                                                       Amortized         Unrealized        Unrealized          Market
                                                         Cost              Gains            Losses             Value
                                                         ----              -----            ------             -----

U.S. Treasury securities and
     obligations of U.S. Government
     corporations and agencies                      $    1,006          $      7         $       -        $    1,013
Obligations of states and political
     subdivisions                                        1,390                 1                 -             1,391
Corporate notes                                          2,978                10                (3)            2,985
Mortgage-backed securities                                 683                 -               (19)              664
                                                       -------           -------          --------         ---------
            Total                                   $    6,057          $     18         $     (22)       $    6,053
                                                    ==========          ========         =========        ==========
</TABLE>

No sales of securities  were transacted  during 1998.  Proceeds from the sale of
investment  securities  classified as available for sale totaled  $1,990,000 for
1997. No gains or losses resulted from these sales.

Investment  securities  with a carrying  value of  approximately  $5,779,000 and
$5,738,000 at December 31, 1998 and 1997,  respectively,  were pledged to secure
deposits  and for  other  purposes  as  required  by  law.  The  carrying  value
approximated  the estimated  market value of the investment  securities for both
years.

The amortized cost and estimated market value of debt securities at December 31,
1998,  by  contractual  maturity,  are  shown  below  (in  thousands).  Expected
maturities will differ from contractual  maturities  because  borrowers may have
the right to call or  prepay  obligations  with or  without  call or  prepayment
penalties.

                                       11

<PAGE>
<TABLE>
<CAPTION>
                                                          Available for Sale                   Held to Maturity
                                                   -----------------------------        ----------------------------
                                                                       Estimated                           Estimated
                                                     Amortized           Market          Amortized           Market
                                                        Cost              Value             Cost              Value
                                                        ----              -----             ----              -----
<S>                                                <C>               <C>               <C>               <C>      
Due in one year or less                             $    7,824        $    7,879        $    1,017        $    1,024
Due after one year through five years                   16,954            17,340             2,030             2,060
Due after five years through ten years                   1,455             1,474                 -                 -
After ten years                                              -                 -               345               335
                                                   -----------       -----------        ----------        ----------
            Total                                   $  26,233         $  26,693         $   3,392         $   3,419
                                                   ===========       ===========       ===========        ==========
</TABLE>

5.   LOANS


Major classifications of loans are summarized as follows (in thousands):

                                                    1998               1997
                                                    ----               ----

Commercial and industrial                     $    14,223        $    11,147
Real estate mortgages
     Residential                                   87,137             45,709
     Commercial and other                          18,381             15,188
Consumer                                           14,508             14,100
                                                  -------            -------
                                                  134,249             86,144
Less allowance for loan losses                      1,336                874
                                                  -------            -------
            Total                             $   132,913        $    85,270
                                              ===========        ===========



In the normal  course of business,  loans are extended to  directors,  executive
officers, and their associates.  In management's opinion, all of these loans are
on substantially the same terms and conditions as loans to other individuals and
businesses  of comparable  creditworthiness,  with the exception of consumer and
residential mortgage loans granted to executive officers which carry an interest
rate one percent below that quoted non-employees. Such loans, which are included
in the following  schedule,  totaled  $167,000 and $197,000 at December 31, 1998
and  1997,  respectively.  A  summary  of loan  activity  for  those  directors,
executive officers,  and their associates with aggregate loan balances in excess
of $60,000 for the year ended December 31, 1998, is as follows (in thousands):




                                              Repayments
       1997              New Loans            and Other              1998
       ----              ----------           ----------             ----

      $1,168                864                  515                $1,517



The Bank's primary business  activity is with customers  located within Venango,
Butler, Clarion, Clearfield, Elk and Jefferson Counties. Commercial, residential
and  personal  loans  are  granted.  Although  the Bank has a  diversified  loan
portfolio at December 31, 1998 and 1997,  loans  outstanding to individuals  and
businesses are dependent upon the local economic conditions within the immediate
trade area.


                                       12
<PAGE>


6.   ALLOWANCE FOR LOAN LOSSES

Changes  in the  allowance  for  loan  losses  are  summarized  as  follows  (in
thousands):

                                                   1998               1997
                                                   ----               ----

Balance, January 1                            $     874          $     733

     Allowance related to loans acquired            349                  -
     Provision                                      200                220
     Recoveries                                      26                 29
     Charge-offs                                   (113)              (108)
                                               --------           --------
Balance, December 31                          $   1,336          $     874
                                               ========          =========


At  December  31,  1998 and 1997,  the  recorded  investment  in loans which are
considered to be impaired was $515,000 and $685,000,  respectively, all of which
was placed in nonaccrual status. In addition, $40,000 and $70,000 of the related
allowance  for loan  losses  has been  allocated  for  these  impaired  loans at
December  31,  1998 and 1997,  respectively.  There  were also  commitments  for
unfunded letters of credit totaling $7,500, to a borrower with outstanding loans
considered to be impaired,  in both years.  The average  recorded  investment in
impaired  loans  during  the  years  ended  December  31,  1998  and  1997,  was
approximately  $575,000  and  $719,000,  respectively.  No  interest  income was
recognized on impaired loans during 1998.  Interest income totaling  $14,000 was
recognized on impaired loans in 1997, all of which was recognized using the cash
basis method of income recognition.


7.   PREMISES AND EQUIPMENT

Major  classifications  of premises and equipment are  summarized as follows (in
thousands):


                                            1998               1997
                                            ----               ----

Land and improvements                  $     304          $     256
Buildings                                  2,752              1,431
Construction in process                        -                489
Leasehold improvements                       183                148
Furniture and fixtures                     2,343              1,695
                                          ------             ------
                                           5,582              4,019
Less accumulated depreciation              1,957              1,400
                                          ------             ------
            Total                      $   3,625          $   2,619
                                        ========            =======
                                                     
Depreciation  and  amortization  charged to operations  was $365,000 in 1998 and
$272,000 in 1997.

8.   TIME DEPOSITS

Time deposits  include  certificates of deposit in  denominations of $100,000 or
more. Such deposits  aggregated  $10,397,000 and $4,328,000 at December 31, 1998
and  1997,  respectively.   The  following  schedule  presents  the  contractual
maturities  for time  deposits in excess of  $100,000  at December  31, 1998 (in
thousands):


                                       13
<PAGE>


            Within three months                              $    1,914
            After three months through six months                 2,198
            After six months through one year                     2,072
            After one year                                        4,213
            Total                                            $   10,397
                                                             ==========

9.   OTHER EXPENSES


The following is an analysis of other expense (in thousands):


                                                1998             1997
                                            ----------       ----------

Software amortization                      $     122                 83
Postage                                          135                140
ATM and debit card processing                    136                 96
Telephone                                        186                105
Printing and supplies                            228                138
Amortization of intangible assets                301                243
Other                                            834                649
                                                ----               ----
            Total                          $   1,942         $    1,454
                                           =========         ==========

10.  INCOME TAXES

The provision for income taxes is summarized as follows (in thousands):


                                        1998               1997
                                     ---------          ---------

Currently payable                    $     637          $     549
Deferred                                   (47)                (3)
                                     ---------          ---------
            Total                    $     590          $     546
                                     =========          =========


The  reconciliation  between  the  federal  statutory  rate  and  the  Company's
effective income tax rate is as follows (dollars in thousands):



                                       14


<PAGE>

<TABLE>
<CAPTION>
                                                       1998                                 1997
                                           -----------------------------        -----------------------------
                                                            % of Pre-Tax                         % of Pre-Tax
                                              Amount            Income             Amount             Income
                                              ------            ------             ------             ------
<S>                                       <C>                   <C>            <C>                    <C>  
Provision at statutory rate                $     650             34.0%          $     609              34.0%
Effect of tax exempt income                      (86)            (4.5)                (76)             (4.2)
Goodwill                                          12              0.6                   -               0.0
Other                                             14              0.7                  13               0.7
                                           ---------          -------           ---------          --------
            Total                          $     590             30.8%          $     546              30.5%
                                           =========          =======           =========          ========

</TABLE>

The tax effects of deductible and taxable  temporary  differences that give rise
to significant portions of the deferred tax assets and deferred tax liabilities,
respectively, at December 31, are as follows (in thousands):

                                                     1998               1997
                                                     ----               ----
Deferred tax assets:
     Provision for loan losses                   $     399          $     244
     Other real estate owned                             2                  -
     Intangible assets                                   -                 83
     Capital lease obligation                            6                 21
     Pension expense                                    58                 35
                                                      ----               ---- 
         Gross deferred tax assets                     465                383
                                                      ----               ----
Deferred tax liabilities:
     Net unrealized gain on securities                 152                114
     Depreciation                                      221                215
     Intangible assets                                 308                  -
     Net loan origination costs                         21                 17
     Other                                              38                  -
                                                      ----               ----
         Gross deferred tax liabilities                740                346
                                                      ----               ----
            Net deferred tax (liability)asset    $    (275)         $      37
                                                 =========          =========

                                       15
<PAGE>


11.  PENSION PLAN

The  following  summarizes  benefit  obligation  and  plan  asset  activity  (in
thousands):

                                           1998               1997
                                           ----               ----
Change in fair value of plan assets
     Balance at beginning of period         1,802              1,509
     Actual return on plan assets             352                312
     Benefits paid                            (46)               (19)
                                           ------            -------
Balance at end of year                      2,108              1,802
                                           ------            -------

Change in benefit obligation
     Balance at beginning of period         1,586              1,319
     Service cost                             112                 95
     Interest cost                            113                 99
     Actuarial loss                           111                 92
     Benefits paid                            (46)               (19)
                                           ------            -------
Balance at end of year                      1,876              1,586
                                           ------            -------

Funded status                                 232                216
Unamortized prior service cost                  1                  1
Unrecognized net actuarial gain              (297)              (208)
Unrecognized transition asset                (105)              (113)
                                           ------            -------
Accrued pension cost                   $     (169)        $     (104)
                                           =======           ========   

Plan assets are primarily  comprised of debt and equity mutual funds at December
31, 1998 and 1997.

In preparing the above information, the following actuarially assumed rates were
used.


                                                 1998               1997
                                                 ----               ----

Discount rate                                    6.75%              7.25%
Rate of increase in future compensation levels   5.00               5.00
Rate of return on plan assets                    8.50               8.50


The  following   presents  the  components  of  the  pension  plan  expense  (in
thousands):



                                                  1998               1997
                                                  ----               ----

Service cost                                $     112          $      95
Interest cost                                     113                 99
Expected return on plan assets                   (151)              (128)
Transition asset                                   (8)                (8)
Recognized net actuarial loss                      (1)                 -
                                            ---------          ---------
Net periodic pension cost                   $      65          $      58
                                            =========          =========


                                       16

<PAGE>


12.  BORROWED FUNDS

Short-term Borrowings and Available Lines of Credit
---------------------------------------------------

The Bank  maintains  a credit  arrangement  with the  Federal  Home Loan Bank of
Pittsburgh ("FHLB"), as a source of additional  liquidity.  This credit line has
an available  limit of $10.0  million at December 31, 1998, is subject to annual
renewal,  incurs no  service  charges,  and is  secured  by a  blanket  security
agreement on outstanding  residential mortgage loans and the FHLB stock owned by
the Bank.

The  following  table  presents  information  related to short- term  borrowings
during 1998 and 1997 (dollars in thousands):
                                                   1998               1997
                                                   ----               ----

Outstanding balance at December 31,              $      -          $     200
Average balance outstanding                            83                117
Maximum month-end balance                           1,850              1,250

Weighted average interest rate for the year          5.72%              5.71%
Weighted average interest rate at year-end            N/A               6.75


Long-term borrowings
--------------------

Included in borrowed  funds is an advance from the FHLB  totaling  $2,000,000 at
December 31, 1998,  maturing July 11, 2002, with a current interest rate of 5.60
percent.  This  borrowing may convert to a variable rate  instrument  should the
benchmark interest rate reach 6.50 percent. The Bank has the option to repay the
borrowing without penalty at the conversion date, or at any subsequent repricing
date. This borrowing is secured by a blanket  security  agreement on outstanding
residential mortgage loans and the FHLB stock owned by the Bank.

13.  COMMITMENTS AND CONTINGENT LIABILITIES

Loans and Letters of Credit
---------------------------

In the normal course of business,  the Bank makes various  commitments which are
not reflected in the  accompanying  financial  statements.  The Bank offers such
products  to enable its  customers  to meet their  financing  objectives.  These
instruments  involve,  to varying degrees,  elements of credit and interest rate
risk in excess  of the  amount  recognized  in the  balance  sheet.  The  Bank's
exposure to credit loss in the event of  nonperformance  by the other parties to
the  financial   instruments  is  represented  by  the  contractual  amounts  as
disclosed.  Losses,  if any, are charged to the allowance  for loan losses.  The
Bank minimizes its exposure to credit loss under these commitments by subjecting
them to credit  approval,  review  procedures,  and collateral  requirements  as
deemed necessary.

The off-balance  sheet  commitments  were comprised of the following at December
31, (in thousands):

                                      1998               1997
                                      ----               ----

Commitments to extend credit    $    9,078         $    8,122
Standby letters of credit            1,171              1,225


Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the loan agreement.  These
commitments are comprised  primarily of available  commercial and personal lines
of credit and loans  approved but not yet funded.  The Bank uses the same credit
policies in making loan  commitments and conditional  obligations as it does for
on-balance sheet instruments. Since many of

                                       17

<PAGE>
the credit line  commitments  are expected to expire  without  being fully drawn
upon, the total contractual amounts do not necessarily  represent future funding
requirements.

Standby  letters of credit  obligate the Bank to disburse funds to a third party
if the Bank's  customer  fails to perform under the terms of the agreement  with
the  beneficiary.  These  instruments  are issued  primarily  to support  bid or
performance-related  contracts.  The coverage  period for these  instruments  is
typically  a one year  period  with an annual  renewal  option  subject to prior
approval  by  management.   The  Bank  generally  holds   collateral  for  these
instruments, as deemed necessary.

Operating Leases

Certain office  facilities are leased under various  operating  leases  expiring
through  2003.  Rental  expense  was  $87,000  and  $45,000  in 1998  and  1997,
respectively.  Future minimum rental commitments under noncancellable leases are
(in thousands):

                                Future Minimum
                                Lease Payments
                                --------------

          1999                  $     111
          2000                        111
          2001                         88
          2002                         66
          2003                         17

14.  REGULATORY MATTERS

Cash and Due from Banks
-----------------------

The district  Federal Reserve Bank requires the Bank to maintain certain reserve
balances.  As of December 31, 1998 and 1997,  the Bank had required  reserves of
$1,084,000 and $899,000, respectively, comprised of vault cash, and a depository
amount held with the Federal Reserve Bank.

Loans
-----

The Federal  Reserve Act limits  extensions of credit by the Bank to the Company
and requires such credits to be collateralized.  Further, such secured loans are
limited in amount to ten percent of the Bank's  capital and surplus.  There were
no loans between the Bank and the Company during 1998 and 1997.

Dividends
---------

The Bank is subject to a dividend  restriction which generally limits the amount
of  dividends  that  can be paid  by a  national  bank.  Prior  approval  of the
Comptroller  of the Currency is required if the total of all dividends  declared
by a national  bank in any calendar  year exceeds net profits as defined for the
year combined with its retained net profits for the two preceding calendar years
less any required transfer to surplus.  Using this formula, the amount available
for payment of dividends by the Bank to the Company in 1998, without approval of
the comptroller, will be limited to $748,000 plus net profits retained up to the
date of the dividend declaration.

Regulatory Capital Requirements
-------------------------------

The  Company  is subject to various  capital  requirements  administered  by the
federal banking agencies.  Under capital adequacy  guidelines and the regulatory
framework  for  prompt  corrective   action,  the  Company  must  meet  specific
guidelines  that  involve   quantitative   measures  of  the  Company's  assets,
liabilities,  and certain off-balance sheet items as calculated under regulatory
accounting practices.  The Company's capital amounts and classification are also
subject  to  qualitative   judgments  by  regulators  about   components,   risk
weightings,  and other factors.  Failure to meet minimum capital requirements an
initiate  certain  mandatory and possibly  additional  discretionary  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Company's financial position and results of operations.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company to maintain minimum amounts and ratios,  as set forth in the
table below, of total capital and Tier 1 capital to risk-weighted assets, and of
Tier 1 capital to average  assets.  Management  believes that as of December 31,
1998.  The  Company  meets  all  capital  adequacy  requirements  to which it is
subject.


                                       18
<PAGE>

As of December  31, 1998 and 1997,  the  Company has been  categorized  as "Well
Capitalized" under the regulatory  framework for prompt corrective action. To be
categorized  as well  capitalized,  the  Company  must  maintain  minimum  total
risk-based,  Tier 1, and Tier 1  leverage  ratios as set forth in the  following
table. There are no conditions or events since that notification that management
believes have changed the Company's classification category.
<TABLE>
<CAPTION>
                                                                                  Regulatory Capitalization Requirement
                                                                             ----------------------------------------------
                                                         Actual                    Adequate                    Well
                                                 ---------------------      ---------------------     ---------------------
                                                  Amount        Ratio         Amount       Ratio        Amount        Ratio

December 31, 1998
<S>                                              <C>            <C>         <C>             <C>       <C>            <C>  
Total capital to risk weighted assets             $17,899         15.7%      $ 9,142          8.0%     $11,428         10.0%
Tier 1 capital to risk weighted assets             16,563         14.5         4,571          4.0        6,857          6.0
Tier 1 capital to average assets                   16,563          8.8         7,496          4.0        9,369          5.0

December 31, 1997

Total capital to risk weighted assets             $12,795         15.0%      $ 6,824          8.0%     $ 8,530         10.0%
Tier 1 capital to risk weighted assets             11,921         14.0         3,412          4.0        5,118          6.0
Tier 1 capital to average assets                   11,921          9.1         5,260          4.0        6,576          5.0
</TABLE>

15.  COMMON STOCK

Stock Dividend
--------------

On December 18, 1997, the Company  distributed  51,453 shares of common stock in
connection  with a  five  percent  stock  dividend.  As a  result  of the  stock
dividend, common stock was increased by $64,000,  additional paid-in capital was
increased  by  $810,000,  and  retained  earnings  was  decreased  by  $875,000.
Fractional shares were paid in cash.

16.  FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

Financial  instruments are defined as cash, evidence of an ownership interest in
an entity,  or a contract  which  creates an  obligation  or right to receive or
deliver  cash or  another  financial  instrument  from/to  a  second  entity  on
potentially favorable or unfavorable terms.

Fair value is defined as the  amount at which a  financial  instrument  could be
exchanged  in a current  transaction  between  willing  parties  other than in a
forced  or  liquidation  sale.  If a  quoted  market  price is  available  for a
financial  instrument,  the estimated fair value would be calculated  based upon
the market price per trading  unit of the  instrument.  If no readily  available
market exists, the fair value estimates for financial instruments would be based
upon management's judgment regarding current economic conditions,  interest rate
risk,  expected  cash  flows,  future  estimated  losses,  and other  factors as
determined  through various option pricing formulas or simulation  modeling.  As
many of these  assumptions  result from judgments made by management  based upon
estimates which are inherently  uncertain,  the resulting  estimated fair values
may not be  indicative  of the  amount  realizable  in the sale of a  particular
financial  instrument.  In  addition,  changes in the  assumptions  on which the
estimated  fair values are based may have a significant  impact on the resulting
estimated fair values.

As certain assets and liabilities,  such as deferred tax assets and premises and
equipment, are not considered financial instruments, the estimated fair value of
financial instruments would not represent the full value of the Company.

The estimated fair values of the Company's financial instruments at December 31,
are as follows (in thousands):

                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                                   1998                                  1997
                                                     -------------------------------       -------------------------------
                                                       Carrying             Fair             Carrying             Fair
                                                         Value              Value              Value              Value
                                                         -----              -----              -----              -----

Financial assets
<S>                                                 <C>                 <C>                <C>               <C>        
     Cash and due from banks and federal
         funds sold                                  $    18,689        $    18,689        $     4,975        $     4,975
     Time deposits with others                               100                100                  -                  -
     Investment securities:
         Available for sale                               28,929             28,929             31,977             31,977
         Held to maturity                                  3,392              3,419              6,057              6,053
     Net loans                                           132,913            135,801             85,270             86,811
     Accrued interest receivable                           1,165              1,165              1,009              1,009
                                                     -----------        -----------        -----------        -----------
                                                     $   185,188        $   188,103        $   129,288        $   130,825
                                                     ===========        ===========        ===========         ==========
Financial liabilities

     Deposits                                        $   169,870        $   170,777        $   117,655        $   117,986
     Borrowed funds                                        2,000              2,020              2,200              2,200
     Accrued interest payable                                420                420                322                322
                                                     -----------        -----------        -----------        -----------
                                                     $   172,290         $  173,217         $  120,177        $   120,508
                                                     ===========        ===========       ============        ===========

</TABLE>

The Company employed simulation modeling in determining the estimated fair value
of financial instruments for which quoted market prices were not available based
upon the following assumptions:

Cash and Due From Banks, Time Deposits with Others,  Federal Funds Sold, Accrued
--------------------------------------------------------------------------------
Interest Receivable, and Accrued Interest Payable
-------------------------------------------------

The fair value is equal to the current carrying value.

Investment Securities
---------------------

The fair value of securities  held to maturity is equal to the available  quoted
market price. If no quoted market price is available,  fair values are estimated
using the quoted market price for similar securities.

The fair value of securities available for sale is equal to the current carrying
value.

Loans,  Deposits and Borrowed Funds 
----------------------------------- 

The fair value of loans is estimated by discounting  the future cash flows using
a simulation  model which  estimates  future cash flows and constructs  discount
rates that consider reinvestment opportunities, operating expenses, non-interest
income,  credit quality, and prepayment risk. Demand,  savings, and money market
deposit accounts are valued at the amount payable on demand as of year end. Fair
value for time deposits and borrowed funds are estimated using a discounted cash
flow calculation that applies  contractual  costs currently being offered in the
existing  portfolio  to current  market  rates being  offered for  deposits  and
borrowed funds of similar remaining maturities.

Commitments to Extend Credit and Standby Letters of Credit
----------------------------------------------------------

These  financial  instruments  are generally not subject to sale,  and estimated
fair values are not readily  available.  The carrying value,  represented by the
net deferred fee arising from the  unrecognized  commitment or letter of credit,
and the fair value, determined by discounting the remaining contractual fee over
the term of the commitment  using fees  currently  charged to enter into similar
agreements with similar credit risk, are not considered material for disclosure.
The  contractual  amounts  of  unfunded  commitments  and  letters of credit are
presented in Note 13.

                                       20
<PAGE>


17.  PARENT COMPANY CONDENSED FINANCIAL INFORMATION


                             CONDENSED BALANCE SHEET
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                         ---------------------------
                                                                           1998               1997
                                                                         --------          ---------
<S>                                                                    <C>                <C>      
 ASSETS
      Cash on deposit in subsidiary bank                                $      19          $       6
      Investment securities available for sale                              1,344                  -
      Investment in bank subsidiary                                        19,665             13,490
      Other assets                                                             80                  8
                                                                         --------          ---------
             TOTAL ASSETS                                               $  21,108          $  13,504
                                                                         ========          =========

 LIABILITIES AND STOCKHOLDERS' EQUITY
      Accounts payable                                                  $       7          $       6
      Stockholders' equity                                                 21,101             13,498
                                                                         --------          ---------

             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $  21,108           $ 13,504
                                                                        =========          =========
</TABLE>

<TABLE>
<CAPTION>
                          CONDENSED STATEMENT OF INCOME
                             (Dollars in thousands)

                                                                         Year Ended December 31,
                                                                         1998               1997
                                                                       --------             ------
<S>                                                                 <C>                <C>       
 INCOME
      Dividends from subsidiary                                      $    1,443         $      403
      Other dividends                                                         3                  -
                                                                       --------             ------
                                                                          1,446                403

 EXPENSES                                                                    26                 18
                                                                       --------             ------
 Income before income taxes and equity in undistributed
      earnings of subsidiary                                              1,420                385
 Income tax benefit                                                          (8)                (6)
                                                                       --------             ------
 Income before equity in undistributed earnings in subsidiary             1,428                391
 Equity in undistributed earnings in subsidiary                            (105)               853
                                                                       --------             ------
 NET INCOME                                                          $    1,323         $    1,244
                                                                     ==========         ==========
</TABLE>

                                       21

<PAGE>
<TABLE>
<CAPTION>
                        CONDENSED STATEMENT OF CASH FLOWS
                             (Dollars in thousands)

                                                                       Year Ended December 31,
                                                                   ----------------------------
                                                                  
                                                                      1998               1997
                                                                   --------           --------
<S>                                                                <C>                <C>  
 OPERATING ACTIVITIES
      Net income                                                    $  1,323           $  1,244
      Adjustments to reconcile net income to net
          cash provided by operating activities:
             Equity in undistributed earnings of subsidiary              105               (853)
             Other, net                                                   (9)               (76)
                                                                    --------           --------
                 Net cash provided by operating activities             1,419                315
                                                                    --------           --------

 INVESTING ACTIVITIES
      Purchase of available for sale securities                       (1,360)                 -
      Net proceeds from acquisition                                      577                  -
                                                                    --------           --------
                 Net cash used for investing activities                 (783)                 -
                                                                    --------           --------

 FINANCING ACTIVITIES
      Cash dividends paid                                               (623)              (475)
                                                                    --------           --------
                 Net cash used for financing activities                 (623)              (475)
                                                                    --------           --------
                 Increase (decrease) in cash                              13               (160)
 
 CASH AT BEGINNING OF YEAR                                                 6                166
                                                                    --------           --------
 CASH AT END OF YEAR                                                $     19           $      6
                                                                    ========           ========
</TABLE>


                                       22
<PAGE>
SNODGRASS
Certified Public Accountants and Consultants



REPORT OF INDEPENDENT AUDITORS
------------------------------

Board of Directors and Stockholders
Emclaire Financial Corp.

We have audited the consolidated  balance sheet of Emclaire  Financial Corp. and
Subsidiary  as of  December  31,  1998 and 1997,  and the  related  consolidated
statements of income,  changes in stockholders'  equity,  and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Emclaire Financial
Corp.  and Subsidiary as of December 31, 1998 and 1997, and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.



/s/S.R. Snodgrass, A.C.
S.R. Snodgrass, A.C.
Wexford, Pennsylvania
March 26, 1999



<TABLE>
<S>                          <C>                      <C>                  <C>
S.R. Snodgrass, A.C.
101 Bradford Road, Suite 100  Wexford, PA 15090-6909  Phone: 724-0934-0344  Facsimile: 724-934-03545
</TABLE>

<PAGE>

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

Emclaire  Financial  Corp.  ("Emclaire"  or the "Company") is the parent holding
company for the Farmers National Bank of Emlenton ("Farmers" or the "Bank"). The
following  discussion and analysis is intended to provide  information about the
financial  condition  and results of operation of the Company and should be read
in conjunction with the Consolidated  Financial Statements and the related notes
thereto appearing elsewhere in this annual report.

Certain  information  presented  in this  annual  report  and  other  statements
concerning  future  performance,  developments or events,  and  expectations for
growth and market  forecasts  constitute  forward-looking  statements  which are
subject  to a  number  of  risks  and  uncertainties,  including  interest  rate
fluctuations,  changes in local or national economic conditions,  and government
and  regulatory  actions which might cause actual  results to differ  materially
from stated expectations or estimates.

[Assets Graph Omitted]

OVERVIEW

During  1998,  Emclaire  completed  its first  merger  transaction  by acquiring
Peoples  Savings  Financial  Corporation  ("Peoples") in a purchase  transaction
valued at  approximately  $12.6 million.  As a result of this  transaction,  the
three offices  operated by Peoples'  subsidiary  Peoples  Savings Bank ("Peoples
Savings") became offices of Farmers.

This  acquisition  increased  total  assets,  net loans,  and  deposits by $42.1
million,  $35.5 million and $35.0 million,  respectively.  The  transaction  was
completed  through  the  issuance of 314,399  shares of common  stock and a cash
payment of $5.7 million.

In March, the Company opened its eighth office located in Clarion Mall. The full
service  office is located in a site  previously  occupied by another  financial
institution.  This new location  allows us to better serve our existing  Clarion
customers,  by  providing  them an  alternate  site  to  conduct  their  banking
business,  while allowing Emclaire the opportunity to attract new customers from
the western side of Clarion.

In August,  the Company occupied its newly  constructed data processing  center.
Along  with this  construction,  the  Company's  data  processing  hardware  and
software were upgraded, and check imaging was implemented.

Due largely to the increase in the loan portfolio, net interest income, on a tax
equivalent basis,  increased 15%, resulting in an increase in net income of 27%.
Due to the effect of the  issuance of 314,399  additional  shares as part of the
Peoples merger,  earnings per share for 1998 of $1.12, declined approximately 3%
from the $1.15 reported in 1997.

RESULTS OF OPERATIONS

Summary

Net income for 1998,  totaled  $1.3  million,  an increase of $79,000 or 6% from
1997. This increase was largely due to the 15% increase in net interest  income,
on a tax  equivalent  basis,  which rose  $893,000,  to $6.8 million.  The $25.9
million or 33% increase in loan volume was the principal factor for the increase
in net interest income.

Other operating income of $793,000 rose $197,000 or 33% from 1997. Excluding the
effect of a $50,000  nonrecurring  net gain  recorded on the sales of other real
estate owned, other operating income rose 25% due to the fees resulting from the
increase in the number of deposit accounts,  combined with fee income associated
with ATM convenience charges and debit card transactions.

Total other operating  expenses for the Company increased 22% to $5.4 million in
1998 as compared to $4.4 million in 1997. This increase in other operating costs
was due to a combination of factors including costs associated with the staffing
and  operation of the  additional  branch  operations,  the  transition  to, and
ongoing  operation  of, the data  processing  center,  and costs  related to the
upgrading of the data processing software.

Earnings  per share for 1998 of $1.12,  represented  a 3% decline from the $1.15
reported for 1997. This decline is attributed to the additional shares issued in
the merger.

                                       24

<PAGE>


[Net Income Graph Omitted]

Net interest income

The Company's net interest income on a tax equivalent  basis increased  $893,000
or 15% to $6.8  million in 1998,  due to an increase  of $1.8  million or 19% in
interest income on a tax equivalent basis,  which totaled $11.5 million for 1998
as compared to $9.6 million in 1997.  This increase in interest income more than
offset the $942,000 or 25% increase in interest expense.

The increase in interest income for 1998, resulted primarily from an increase of
$1.99  million or 28% in  interest  income on loans,  due to an  increase in the
average outstanding balance of the portfolio, which rose $25.9 million to $104.5
million for the year.  The 28% increase in loan volume (18% excluding the effect
of the loans  acquired  in the  merger)  served to offset the  reduction  in the
overall  yield on the  portfolio  which  declined 30 basis points to 8.59%.  The
decline in yield is due to a general decline in long-term  interest rates during
the second half of 1998. Specifically, the prime interest rate was lowered three
times,  for a total  reduction of 75 basis  points,  during the third and fourth
quarters.  This general rate reduction,  combined with increased competition for
loan customers impacted all segments of the portfolio.  In addition, many of the
Company's variable rate commercial loans reprice quarterly,  which resulted in a
further drop in the yield.  Should the current interest rate environment prevail
and the level of  competition  continue,  it is likely the overall return on the
loan portfolio will decline further.

Interest income on investment securities decreased $327,000, on a tax equivalent
basis,  to $2.2  million.  This  decline was the result of the  reduction in the
average  volume of  investment  securities  which  fell $5.8  million or 16% for
taxable securities,  and $114,000 or 3% for tax-exempt investments.  The reduced
volume was partially offset by a slight increase in the yields on the investment
portfolio,  which rose to 6.32% from 6.24% for taxable securities,  and to 6.67%
from 6.23%, on a tax equivalent basis, for tax-exempt investments.  The improved
yield on the taxable securities  portfolio was due to the maturity of some lower
yielding issues during the year.

For 1998 the yield on earning  assets,  on a tax equivalent  basis,  decreased 3
basis  points to 7.92%.  This  slight  decline  resulted  from the effect of the
generally lower interest rate environment, previously discussed

Interest expense  increased  $942,000 or 25% to $4.7 million for 1998, from $3.7
million in 1997, due to the increase in the average  volume of  interest-bearing
liabilities  which rose $18.9 million  during 1998 ($7.0  million  excluding the
impact of the merger),  to $116.2  million.  The average volume of time deposits
increased  $11.8  million or 26% during  1998,  resulting  in an increase in the
related interest expense of $768,000 or 33%.

Despite the  general  decline in interest  rates,  the cost of interest  bearing
liabilities  increased to 4.02% for 1998 as compared to 3.83% for 1997. The most
significant  contributing  factor to the  increase  in the cost of funds was the
impact of the time  deposits  acquired in the merger.  During  1998,  continuing
competition  for  deposits and a  flattening  of the yield curve,  as the spread
between short- and long-term interest rates narrowed, caused interest rates time
and core deposits to either  increase  slightly or not fall in proportion to the
reduction in long-term rates resulting in the increased cost of funds.

As a result of the slight decline in the yield on total earning assets, combined
with the increase in the cost of interest-bearing  liabilities, the net yield on
earning assets decreased to 4.70% for 1998 as compared to 4.87% in 1997.

The following tables set forth for the periods indicated  information  regarding
the total dollar amounts of interest income from interest-earning assets and the
resulting  average  yields,  the total  dollar  amount of  interest  expense  on
interest-bearing  liabilities and the resulting  average rate paid, net interest
income and the net yield on interest-earning assets (dollars in thousands):


                                       25

<PAGE>


                            Emclaire Financial Corp.
                AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
                                                    1998                          1997
                                        ------------------------------  -----------------------------
                                        Average                Yield/   Average               Yield/
                                         Volume  Interest(2)  Rate (2)   Volume Interest(2)  Rate (2)
                                        -------  -----------  --------   ------ -----------  --------
ASSETS
Interest-earning assets
    Investment securities
<S>                                    <C>        <C>          <C>   <C>        <C>          <C>  
       Taxable                          $ 30,711   $ 1,940      6.32% $ 36,525   $ 2,279      6.24%
       Exempt from federal income tax      4,381       292      6.67     4,495       280      6.23
    Interest bearing deposits in 
    other banks                              855        41      4.80        24         1      4.17
    Loans (1) (3)                        104,513     8,974      8.59    78,610     6,989      8.89
    Federal funds sold                     4,401       226      5.14     1,610        89      5.53
                                         -------    ------             -------     -----            
    Total interest-earning assets        144,861    11,473      7.92   121,264     9,638      7.95
                                                    ------                         -----
Noninterest-earning assets
    Cash and due from banks                4,907                         4,281
    Allowance for loan losses             (1,035)                         (795)
    Other assets                           7,332                         5,501
                                         -------                       -------
       Total assets                     $156,065                      $130,251
                                         =======                       =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
    NOW accounts                        $ 18,669       329      1.76%   16,481       295      1.79%
    Money market accounts                 18,785       607      3.23    18,134       579      3.19
    Savings deposits                      19,344       508      2.63    15,903       443      2.79 
    Time deposits                         57,300     3,106      5.42    45,515     2,338      5.14
    Obligation under capital lease            42         2      4.76        85         5      5.88
    Borrowed funds                         2,083       117      5.62     1,196        67      5.60
                                         -------    ------             -------     -----           

    Total interest-bearing
    liabilities                          116,223     4,669      4.02    97,314     3,727      3.83
                                                    ------                         -----

Noninterest-bearing liabilities
    Demand deposits                       22,731                        19,417
    Other liabilities                        730                           517
    Capital                               16,381                        13,003
                                         -------                       -------

       Total liabilities and 
       stockholders' equity             $156,065                      $130,251
                                        ========                       =======

       Net interest income and net yield on
         interest-earning assets                   $ 6,804     4.70%             $ 5,911      4.87%
                                                  ========     =====            ========     =====
</TABLE>

(1) - Interest on loans includes fee income.
(2) - Tax  exempt  income on loans and  investment  securities  and the  related
yields  are  computed  on a tax  equivalent  basis  computed  using the  federal
statutory rate of 34%.
(3) - Nonaccrual loans included.

                                       26
<PAGE>


Changes in net interest income are attributable to three factors: 1) a change in
the volume of an  interest-earning  asset or  interest-bearing  liability,  2) a
change in  interest  rates,  or 3) a change  attributable  to a  combination  of
changes in volume and rate. The following  table sets forth certain  information
regarding  changes in interest income,  on a tax-equivalent  basis, and interest
expense of the Company for the periods  indicated  (dollars in  thousands).  For
each  category  of  interest-earning   asset  and  interest-bearing   liability,
information is provided on changes attributable to 1) changes in volume (changes
in volume multiplied by the old interest rate); and 2) changes in rates (changes
in interest rates multiplied by the old average volume). Changes attributable to
a  combination  of changes in volume and rate are  proportionately  allocated to
changes in volume and changes in rate.



                   ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
                                         1998 Change From 1997         1997 Change From 1996
                                      ---------------------------  ----------------------------
                                      Total      Change Due To      Total      Change Due To
                                      Change    Volume     Rate     Change    Volume     Rate

INTEREST INCOME ON:
<S>                                   <C>       <C>        <C>      <C>       <C>       <C> 
    Taxable investment securities     $  (339)   $ (368)   $   29    $  400    $  356    $   44
    Non-taxable investments                12       (7)        19        66        52        14
    Interest bearing deposits in other
       banks                               40        40         -        (1)       (1)        -
    Loans                               1,985     2,228      (243)    1,136     1,268      (132)
    Federal funds sold                    137       143        (6)     (147)     (151)        4
                                      -------    ------     -----     -----    ------     -----
       Total interest income            1,835     2,036      (201)    1,454     1,524       (70)
                                      -------    ------     -----     -----    ------     -----

INTEREST EXPENSE ON:
    NOW accounts                           34        39        (5)       28        66      (38)
    Money market accounts                  28        21         7        35        38       (3)
    Savings deposits                       65        91       (26)       16        37      (21)
    Time deposits                         768       635       133       294       321      (27)
    Obligation under capital lease         (3)       (2)       (1)       (2)       (2)       -
    Borrowed funds                         50        50         -         4         4         -
                                       -------    ------     -----    -----    ------     -----
       Total interest expense             942       834       108       375       464       (89)
                                       -------    ------    -----     -----    ------     -----
NET INTEREST INCOME                   $  893    $ 1,202    $ (309)   $1,079   $ 1,060    $   19
                                      -------    ------     -----     -----    ------     -----
                                   
</TABLE>

Provision for loan losses

The provision  for loan losses of $200,000 for the year ended  December 31, 1998
represented a 9% decrease from the $220,000  provided in 1997. In addition,  the
allowance was increased by  approximately  $349,000,  as a result of the Peoples
acquisition.  Management  makes  periodic  provisions  to the allowance for loan
losses to maintain the allowance at an acceptable  level  commensurate  with the
credit risk inherent in the loan  portfolio.  See "Loan  Quality" for additional
discussion  of the  allowance  for loan  losses.  The level at which  funds were
provided to the allowance  during 1998, is a reflection of the overall growth of
the  loan  portfolio  during  the  year,  combined  with  management's   ongoing
assessment  of the quality of the  portfolio.  The  following  table  presents a
summary of loan losses by loan type and changes in the allowance for loan losses
(dollars in thousands):

                                       27

<PAGE>
<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                              ------------------------
                                                                1998            1997
                                                              ---------       --------

<S>                                                         <C>              <C>      
Total loans outstanding                                       $ 134,249       $  86,144
                                                              ---------        --------
Average loans outstanding                                       104,513          78,610
                                                              ---------        --------

Allowance for loan losses at beginning of year                $     874       $     733
Provision charged to expense                                        200             220
Allowance related to loans acquired                                 349               -
Charge-offs:
     Commercial and industrial                                        -               1
     Real estate                                                     21              33
     Consumer                                                        92              74
                                                              ---------        --------
         Total                                                      113             108
                                                              ---------        --------
Recoveries:
     Commercial and industrial                                        9               2
     Real estate                                                      -              19
     Consumer                                                        17               8
                                                              ---------        --------
         Total                                                       26              29
                                                              ---------        --------
     Net charge-offs                                                 87              79
                                                              ---------        --------
Allowance for loan losses at end of period                    $   1,336       $     874
                                                              =========        ========

Allowance for loan losses as a percent of total loans              1.00%           1.01%
Net charge-offs as a percent of average loans                       .08             .10

</TABLE>

Other operating income

Other  operating  income which is comprised  principally  of fees and charges on
customer  deposit  accounts  increased  $197,000 or 33% to $793,000 in 1998 from
$596,000 in 1997.  Included  in the total for 1998,  are  nonrecurring  gains of
approximately  $50,000,  resulting  from the  sale of  foreclosed  real  estate.
Service charges on customer  accounts  increased $75,000 or 16%, due principally
to overdraft charges and returned check charges  associated with the increase in
the number of deposit accounts.  The operations  acquired in the Peoples Savings
acquisition did not contribute  significantly to the increase in fee income, due
to the low volume of checking accounts maintained at these offices.

Excluding the gains on other real estate,  other income increased $72,000 or 60%
during  the year due  primarily  to the  effect  of a full year of fees from the
MasterMoney(TM)   debit  card  product  and  an  ATM   convenience   charge  for
non-customers  using a  Farmers  ATM.  These two user  based  fees  increased  a
combined  $59,000  from  1997.   Increases  in  safe  deposit  box  rentals  and
commissions on accident,  life and health  insurance on loans  accounted for the
remaining increase.

Other operating expense

Other  operating  expense  increased  $972,000 or 22% to $5.4 million in 1998 as
compared to $4.4 million in 1997.  This  increase is largely  attributed  to the
overhead costs associated with the expansion and capital investments made by the
company during 1998. These projects included;

o    Opening a de novo branch operation at Clarion Mall in March
o    Completion and occupancy of the data processing center in August
o    Integrating the branch operations from the Peoples Savings acquisition
o    Upgrading computer equipment and core data processing software
o    Implementing check imaging

Salaries and employee  benefits  for 1998 totaled $2.5  million,  an increase of
$234,000  or 10% from $2.2  million  reported in 1997.  Of this total  increase,
approximately  $160,000 is related to the four additional  branch offices opened
or acquired  during the year.  The  remainder of the increase  relates to normal
salary  adjustments  and to  increases  for such  employee  benefits  as  health
insurance


                                       28
<PAGE>


and pension costs. For 1999, in addition to normal recurring salary adjustments,
it is expected  certain  employee  benefit  costs will again  increase,  such as
medical benefits which will rise approximately 12% or $35,000.

Occupancy  and  equipment  expense  increased  $250,000 or 36% in 1998.  Of this
increase,  $109,000 is due to  additional  costs related to the operation of the
new branch offices.  Additional  depreciation of approximately $30,000 was taken
on computer  network  equipment,  and costs associated with the operation of the
data center amounted to approximately $70,000, including depreciation on the new
data processing, and check imaging equipment.  Increases in recurring costs such
as rent, service contracts,  repairs and maintenance and utilities accounted for
the remainder of the increase.

Other  expenses for 1998 totaled $1.9  million,  a $488,000 or 34% increase from
the $1.5 million reported in 1997.  Costs associated with the additional  branch
offices  primarily  accounted for this  increase.  Printing and office  supplies
increased  $90,000 or 65% to  $228,000  due to the  addition  of the four branch
operations, combined with costs associated with the transition to check imaging.
Telephone  costs rose 77% to $186,000 as a result of the additional  facilities,
combined with costs of transferring  the Company's  network data  communications
from dedicated  private lines to a frame relay network.  This upgrade required a
period of time during which both the private  lines and frame relay network were
both operating.  In addition,  the frame relay configuration is more costly than
private lines,  but  significantly  improves the capacity and efficiency of data
transmissions. Costs associated with operating the Company's ATMs and debit card
product rose 42% to $136,000,  due to the addition of an ATM at the Clarion Mall
office and costs  resulting from  increased  customer usage of the ATM and debit
card products.  Advertising and promotions costs increased  approximately 29% to
$101,000,  due to costs related to the implementation of check imaging,  and the
acquisition  of  Peoples   Savings.   During  the  fourth  quarter  of  1998,  a
non-recurring  charge of $36,000 was recorded to write-off  certain computer and
other data processing  equipment,  as a result of the upgrading of equipment and
the transition to check imaging.  Amortization  of intangible  assets  increased
approximately  $58,000  due  to the  acquisition  of the  Peoples  Savings  Bank
offices.  The remaining  increase is a result of the growth  experienced  by the
Company,  and affected such things as  correspondent  banking  fees,  insurance,
travel and lodging, and regulatory assessments.

In December 1998,  the Company  retained the services of a consultant to conduct
an  organizational  needs  assessment.  During the first  quarter  of 1999,  the
Company began to outsource its human resource function,  and committed to retain
an advisor to develop and coordinate a comprehensive training program. The costs
for these services will  approximate  $12,000 per month, and will continue for a
period ranging from 12 to 36 months.

In addition,  based on the significant  growth experienced over the past several
years,  the  board of  directors  will  reevaluate  and  redraft  the  Company's
strategic plan beginning early in the second quarter of 1999.

Income Tax Expense

Income tax expense  increased  $44,000 or 8% during 1998 when  compared to 1997,
due principally to the 7% increase in income before income taxes.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND DECEMBER 31, 1997

Total assets at December 31, 1998,  amounted to $194.1  million,  an increase of
$60.2 million or 45%, from December 31, 1997. Of this increase, $42.1 million or
70%  resulted  from  the  Peoples  acquisition.  Excluding  the  effect  of  the
acquisition, asset growth totaled $18.1 million or 14%.

During  1998,  the  Company  made  significant  capital  investments,  with  the
completion of the data processing  center,  the upgrade of computer  systems and
core data  processing  software,  the  implementation  of check  imaging and the
upgrade of its data  transmission  capabilities.  The total  capital  outlay for
these projects amounted to approximately $1.7 million.

In addition,  the  acquisition of Peoples  resulted in the recording of net fair
value and  identifiable  intangible  assets of  $917,000,  and  goodwill of $2.6
million.  These  assets  will be  amortized  over  periods  ranging  from two to
twenty-five  years. The future expense  resulting from the amortization of these
assets,  does not represent a future cash outlay and will not  adversely  impact
liquidity.

For 1999, the Company plans to remodel its Brookville office facility,  in order
to improve  the layout of the  facility  and to bring the facade more in keeping
with the historic  business  district.  While this project is in its preliminary
stages  and a  final  estimate  of the  cost  has  not  been  determined,  it is
anticipated the remodeling costs will total  approximately  $100,000,  excluding
furnishings and equipment.

                                       29
<PAGE>

[Investment Securities Graph Omitted]

Investment Securities

Total  investment  securities  decreased  $5.7  million  during  1998,  to $32.3
million,  as the proceeds from investment  security maturities were used to fund
loan demand.

Information  detailing  the book value of the  investment  portfolio by security
type and  classification  is presented in Note 4 to the  consolidated  financial
statements.

[Loans Graph Omitted]

Loans

Loans  receivable at December 31, 1998 totaled  $134.2  million,  an increase of
$48.1 million or 56% from 1997. The acquisition of Peoples Savings accounted for
approximately $35.9 million of the total growth achieved.

The loan growth  generated  through  originations  during 1998, was largely from
increases in loans  secured by  residential  or  commercial  real estate.  These
segments of the  portfolio  increased  $6.9  million or 15%, and $3.1 million or
20%,  respectively.  Commercial  loans grew $2.1 million or 17%,  while consumer
loans exhibited little change.

As a result of the acquisition of Peoples Savings, the mix of the loan portfolio
changed  significantly.  Residential mortgage loans now comprise 65% of the loan
portfolio,  as compared  to 53% in 1997.  The other  segments  of the  portfolio
declined  proportionately,  as a result of the increase in residential  mortgage
loans.

The  following  table  presents the  composition  of the loan  portfolio and the
percentage of loans by type (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                December 31,
                                                     ------------------------------------------------------------------
                                                                    1998                                1997
                                                     ------------------------------     -------------------------------
                                                                        % of loans                          % of loans
                                                                            to                                  to
                                                        Amount          Total Loans         Amount          Total Loans
                                                       ------          -----------         ------          -----------
<S>                                                <C>                    <C>          <C>                    <C>  
Commercial and industrial                           $   14,223             10.6%        $   11,147             12.9%
Commercial and multi-family real estate                 18,381             13.7             15,188             17.6
1 - 4 Family real estate                                87,137             64.9             45,709             53.1
Consumer                                                14,508             10.8             14,100             16.4
                                                       -------            -----             ------            -----

         Total loans                                   134,249            100.0%            86,144            100.0%
                                                                          =====                               =====
Less: allowance for loan losses                          1,336                                 874
                                                       -------                              ------
         Net loans                                  $  132,913                          $   85,270
                                                      ========                              ======
</TABLE>

                                       30
<PAGE>

Loan Quality

Loans are subject to ongoing periodic  monitoring by management and the Board of
Directors.  Loans are  placed on  nonaccrual  status  when,  in the  opinion  of
management,  the collection of additional  interest is doubtful;  but not longer
than 90 days past due for non-real  estate loans and 120 days past due for loans
secured by real estate.  Interest  accrued and unpaid at the time the account is
placed on  nonaccrual  status is  generally  charged  against  interest  income.
Subsequent  payments are either applied to the outstanding  principal balance or
recorded  as  interest  income  based  upon   management's   assessment  of  the
collectibility of the account.

At December 31, 1998,  the Bank had $287,000 in loans  greater than 90 days past
due and still accruing interest, and $1,022,000 in loans on nonaccrual status.

Of the total non-performing  loans,  $515,000 of loans to a single customer were
classified as impaired loans. A loan is considered to be impaired when, based on
current  information,  it is probable  the Company will be unable to collect all
principal and interest due in accordance with the contractual  terms of the loan
agreement.  These impaired loans consist of four commercial real estate loans to
one borrower.  The loans are secured by real estate.  The borrower  continues to
operate  under  Chapter 11  bankruptcy  protection.  During  1998,  $170,000  in
payments  were  received on this  account,  resulting  from the  liquidation  of
collateral.  All the funds  received,  were  applied  to  principal.  As part of
management's ongoing assessment of its loan portfolio,  $40,000 of the allowance
for loan  losses at December  31,  1998,  has been  allocated  for these  loans.
Management  believes  the  Company  is  adequately  secured  by  the  underlying
collateral.

The following table sets forth non-performing  loans, along with nonaccrual loan
interest data (dollars in thousands):


                                                        December 31,
                                               --------------------------
                                                  1998              1997
                                                  ----              ----

Loans past due 90 days or more and
     accruing                                 $     287         $     171
Nonaccrual loans                                  1,022               820
                                                 ------             -----

     Non performing loans                     $   1,309         $     991
                                                 ------             -----
Other real estate owned                              80                 -
                                                 ------             -----

     Total non performing assets              $   1,389         $     991
                                                 ======             =====


Non-performing loans to total loans                0.98%             1.15%
Allowance for loan losses to non-
     performing loans                            102.06             88.19
Non-performing loans to total assets                .67               .74

Nonaccrual loan interest data:
     Interest computed on original terms      $      76         $      81
                                                =======            ======
     Interest recognized in income            $       -         $      15
                                                =======            ======


                                       31
<PAGE>

At December 31, 1998, based upon the ongoing  quarterly review and assessment of
credit quality,  management is not aware of any trends or uncertainties  related
to any accounts which might have a material  adverse effect on future  earnings,
liquidity,  or  capital  resources.  Based  upon the  results  of the  quarterly
internal loan review process,  and considering the trend of past loan losses and
recoveries,  and the current  risk  elements in the loan  portfolio,  management
believes the  allowance  for loan losses at December  31, 1998 is adequate.  The
following  table  presents  management's  estimate  of  the  allocation  of  the
allowance for loan losses among the loan  categories,  along with the percentage
of loans in each category to total loans (dollars in thousands):
<TABLE>
<CAPTION>
                                                                              December 31,
                                             --------------------------------------------------------------------------
                                                               1998                                   1997
                                             -------------------------------       ------------------------------------
                                                                % of Loans                            % of Loans
                                                                    to                                    to
                                              Amount           Total Loans           Amount           Total Loans
                                              ------           -----------           ------           -----------
<S>                                         <C>                     <C>           <C>                      <C>   
Commercial and industrial                    $      30                10.6%          $     49                12.9%
Commercial & multi-family real estate              153                13.7                205                17.6
1-4 family real estate                              49                64.9                 19                53.1
Consumer                                           291                10.8                101                16.4
Unallocated                                        813                   -                500                   -
                                             ---------               -----           --------             -------
                                             $   1,336               100.0%        $      874               100.0%
                                             =========               =====           ========             =======
</TABLE>


[Deposits Graph Omitted]

Deposits

Total deposits of $169.9  million at December 31, 1998,  represented an increase
of $52.2  million or 44% from  December  31, 1997.  Excluding  the impact of the
Peoples Savings acquisition, deposits increased approximately $17.2 million.

See also,  "Average  Balance Sheets and Net Interest  Analysis" for  information
related to the average amount and average interest rate paid on deposit accounts
during 1998 and 1997.  Information  related to the maturity of time  deposits of
$100,000  and  over  at  December  31,  1998  is  presented  in  Note  8 of  the
accompanying consolidated financial statements.

Stockholders' Equity

Stockholders' equity increased $7.6 million or 56% during 1998 to $21.1 million.
This increase was  principally  the result of the issuance of 314,399  shares of
common stock in the Peoples Savings  acquisition,  which provided  approximately
$6.8 million. The remaining $771,000,  represents net retained earnings, and net
unrealized  securities  gains  during  the  year.

[OBJECT  OMITTED]

Market Risk Management

Market risk is the risk of loss arising  from adverse  changes in the fair value
of financial  instruments due to changes in interest  rates,  exchange rates and
equity prices.  The Company's  market risk is comprised  principally of interest
rate risk. The Company's  Asset/Liability committee is responsible for reviewing
the interest rate sensitivity position of the Company and establishing  policies
to monitor and limit exposure to interest rate risk. The

                                       32

<PAGE>

guidelines established by the Asset/Liability committee are subject to review by
the Company's Board of Directors.

Asset/Liability Management

One of the  principal  functions  of the  Company's  asset/liability  management
program  is to  monitor  the  level to which the  balance  sheet is  subject  to
interest  rate risk.  The goal of this  program  is to manage  the  relationship
between interest-earning assets and interest-bearing liabilities to minimize the
fluctuations  in the net interest  spread and achieve  consistent  growth in net
interest income during periods of changing interest rates.

Interest rate  sensitivity is the relationship of differences in the amounts and
repricing dates of interest-earning assets and interest-bearing  liabilities. In
order to measure the impact on net interest  income and pre-tax  income,  and to
limit the adverse  effect on earnings  due to interest  rate  changes,  Emclaire
monitors  interest rate  sensitivity  through gap and simulation  analyses.  The
Company's gap model includes  certain  assumptions  based on past experience and
expected  customer  behavior during periods of rising or falling interest rates.
These  assumptions  deal  primarily  with the interest  rate changes for deposit
accounts with no fixed maturity, such as savings, NOW and money market accounts.
These  assumptions  have been  developed  through  consideration  of past events
combined with estimates of future pricing practices.

The Company's  policy is to limit the adverse change in annual pre-tax income to
5% based on an  immediate  change  in  interest  rates of 200 basis  points.  At
December 31, 1998, pre-tax income would be impacted by such a change in interest
rates as follows:

Cumulative gap at 1 year                              (3.2%)
Impact on pre-tax earnings
+200 basis points                                   
                                                       1.2
-200 basis points                                   
                                                      (5.0)

Liquidity

Liquidity represents the Company's ability to meet normal cash flow requirements
of its customers  for the funding of loans and repayment of deposits.  Liquidity
is generally  derived from the repayments and maturities of loans and investment
securities,  and the receipt of deposits.  Management  monitors liquidity daily,
and  on  a   monthly   basis   incorporates   liquidity   management   into  its
asset/liability program.

Operating  activities,  as  presented  in the  statement  of cash  flows  in the
accompanying  consolidated  financial statements,  provided $2.1 million in cash
during 1998,  equaling that  achieved  during 1997.  These funds were  generated
principally from net income, and depreciation and amortization.

Investing activities consist primarily of loan originations and repayments,  and
investment purchases and maturities. These activities used $4.7 million in funds
during  1998,  principally  for the net  funding of loans  which  totaled  $12.4
million for the year.  This cash outlay  exceeded funds received from investment
repayments and  maturities,  totaling $8.1 million.  The  acquisition of Peoples
Savings provided net cash of $2.2 million.  For 1997,  investing activities used
$10.0 million, resulting from $17.8 million in net loan originations, which were
funded by investment  securities  maturities  and repayments of $9.1 million and
securities sales of $2.0

Financing  activities  consisted of the  solicitation  and repayment of customer
deposits,  repayments of borrowed funds, and the payment of dividends. For 1998,
financing  activities  provided $16.3 million comprised of net deposit increases
of $17.2 million. For 1997,  financing  activities generated  approximately $4.6
million,  as the result of deposit  growth of $2.9 million and an FHLB borrowing
of $2.0 million.

As presented in Note 8 of the consolidated financial statements, certificates of
deposit  scheduled to mature in one year or less total $42.5 million at December
31, 1998.

In addition to using the loan,  investment and deposit  portfolios as sources of
liquidity,  the  Company  has access to funds  from other  sources if a need for
additional  funds would arise.  There is an available line of credit through the
FHLB. In addition,  the Bank has access to funds through the discount  window at
the Federal  Reserve Bank.  The Company also has a ready source of funds through
the  available-for-sale  component of the investment securities  portfolio.  The
following  table presents the amortized cost of the  investment  portfolio,  the
weighted  average,  tax  equivalent  yield and  maturities  at December 31, 1998
(dollars in thousands).  Securities with no fixed maturity represent  marketable
equity securities and stock of the Federal Reserve and Federal Home Loan Banks:

                                       33
<PAGE>



<TABLE>
<CAPTION>

Available for Sale                                                        After 5                       
                                                           After 1 Year    Years                      No
                                                 Within       Within       Within       After        Fixed
                                                 1 Year      5 Years      10 Years     10 Years     Maturity       Total
                                                 ------      -------      --------     --------     --------       -----

<S>                                              <C>         <C>           <C>           <C>          <C>         <C>      
U. S. Treasury                                    $  3,012     $  3,983      $     -      $     -       $     -     $  6,995
U. S. Government Agency                              3,003        2,003            -            -             -        5,006
Obligations of states and polictical
     subdivisions                                        -        2,797        1,455            -             -        4,252
Corporate                                            1,809        8,162            -            -             -        9,971
Mortgage-backed securities                               -            9            -            -             -            9
Other                                                    -            -            -            -         2,252        2,252
                                                  --------      -------       ------      -------      --------    ---------
         Total                                    $  7,824    $  16,954     $  1,455      $     -      $  2,252    $  28,485
                                                  ========    =========     ========      =======      ========    =========

         Yield                                        6.36%        6.65%        6.71%           -%         N/A          6.57%

Held to Maturity

U. S. Treasury                                     $     -     $  1,003      $     -      $     -       $     -     $  1,003
Corporate                                            1,017        1,027            -            -             -        2,044
Mortgage-backed securities                               -            -            -          345             -          345
                                                  --------      -------       ------      -------      --------    ---------
         Total                                    $  1,017     $  2,030      $     -      $   345       $     -     $  3,392
                                                  ========    =========     ========      =======      ========    =========
         Yield                                        6.19%        6.18%           -%        6.48%         N/A          6.21%

</TABLE>


The  following  table  presents the  maturity  distribution  and  interest  rate
sensitivity of commercial and industrial  loans, and commercial and multi-family
real estate loans at December 31, 1998 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                After 1 Year
                                                Within            Within
                                                1 Year            5 Years        After 5 Years         Total
                                                ------            -------        -------------         -----

<S>                                            <C>               <C>               <C>               <C>        
Commercial and industrial                       $     3,472       $     6,412       $     4,339       $    14,223
Commercial and multi-family real estate               1,194             2,131            15,056            18,381
                                                     ------            ------           -------            ------
                                                $     4,666       $     8,543       $    19,395       $    32,604
                                                     ======            ======           =======            ======

Predetermined interest rates                    $       896       $     7,065       $    11,864       $    19,825
Floating interest rates                               3,770             1,478             7,531            12,779
                                                     ------            ------            ------            ------
                                                $     4,666       $     8,543       $    19,395       $    32,604
                                                     ======            ======            ======            ======

</TABLE>

Generally, commercial loans with maturities of one year or less consist of funds
drawn on commercial lines of credit, short-term notes written with maturities of
ninety days to six months, and demand notes written without alternative maturity
schedules.  All lines of credit and demand  loans are  subject to annual  review
where the  account  may be  approved  for up to one year.  Short-term  notes are
generally  permitted  two renewals,  prior to being placed on a fixed  repayment
schedule.

The Company  anticipates  it will have  sufficient  funds  available to meet the
needs of its customers for deposit repayments and loan fundings. At December 31,
1998, loan and letter of credit commitments totaled $10.2 million. 


                                       34

<PAGE>

Many of these  commitments  are in the form of lines of credit  and  letters  of
credit which are available for use by the borrower,  but are generally not drawn
on.

Capital Resources

Capital  adequacy  is the  ability  of  the  Company  to  support  growth  while
protecting  the  interests  of  shareholders  and  depositors.  Bank  regulatory
agencies have developed  certain capital ratio  requirements,  which are used to
assist them in monitoring  the safety and  soundness of financial  institutions.
Management  continually  monitors  these capital  requirements  and believes the
Company to be in compliance with these regulations at December 31, 1998.

The Bank's regulatory  capital position at December 31, 1998, as compared to the
minimum  regulatory  capital   requirements  imposed  on  the  Bank  by  banking
regulators  at that date is presented in Note 14 of the  accompanying  financial
statements.  Management  is not aware of any  actions  contemplated  by  banking
regulators  which would result in the Bank being in  non-compliance  with any of
the above requirements.

Impact of Inflation and Changing Prices

The  financial  statements  of the  Company  and the  notes  thereto,  presented
elsewhere  herein,  have been prepared in  accordance  with  generally  accepted
accounting  standards,  which require the measurement of financial  position and
operating results in terms of historical dollars without  considering the change
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the  increased  cost of the  Company's  operations.
Unlike  most  industrial  companies,  nearly  all of the  Company's  assets  and
liabilities are monetary.  As a result,  interest rates have a greater impact on
the Company's  performance  than do the effects of general  levels of inflation.
Interest  rates do not  necessarily  move in the same  direction  or to the same
extent as the price of goods and services.

YEAR 2000

During 1998, the Company  continued  preparing for the century date change.  The
upgrading of computer equipment and core software  applications helped to ensure
that internal  systems would be Y2K compliant.  Testing of the new equipment and
software was  successfully  completed during the first quarter of 1999. With the
completion  of the core  software  testing,  the  Company's  testing  program is
substantially complete.

Since commencing this project in 1997, the Company has completed the assessment,
remediation  and  testing  of all  critical  components  of its  operations.  In
addition,  a contingency  plan has been developed to be implemented in should an
unforeseen event occur that would limit the Company's  ability to fully operate.
Such an event would be the failure of a public utility or key service  provider.
Part of the contingency plan will involve the installation of a generator at the
data processing center.

During the first quarter of 1999,  the Company's  independent  accountants  were
contracted to review the results of the Company's testing program.

For the remainder of 1999, the Company will focus on maintaining  Y2K compliance
by  testing  any   equipment  or  software   upgrades,   continuing  a  customer
communication program, and refining its contingency plans.

As part of its customer awareness  program,  the Company sponsored a seminar for
customers and local  businesses in May 1998. In addition,  major commercial loan
customers were contacted in writing to assess their preparedness for the century
date change. Since the initial assessment in June 1998, loan officers and branch
managers have  implemented a personal  contact  program with these  customers to
determine  any  potential  exposure  that might exist if the  customer  fails to
adequately prepare for the Year 2000.

As part of the ongoing contingency planning, the Company has begun to assess the
potential liquidity risks associated with the century date change. This need for
additional  liquidity will be addressed by monitoring  customer  deposit account
activity, and ensuring that alternative sources of funds are available.

Direct costs to date for achieving  Y2K  compliance  have not been  significant.
However,  the time devoted by  employees  in this project has been  significant.
Furthermore, as discussed earlier in this report, the Company made a significant
capital investment to upgrade its data processing capabilities.

Despite the best efforts of management to address this issue, the vast number of
external entities that have direct and indirect business  relationships with the
Company,  such  as  customers,  vendors,  payment  system  providers  and  other
financial institutions,  makes it impossible to assure that a failure to achieve
compliance by one or more of these  entities  would not have a material  adverse
impact on the operations of the Company.

                                       35
<PAGE>

COMMON STOCK INFORMATION


The Company's common stock traded over-the-counter and is quoted on the National
Association  of  Securities   Dealers  OTC  Electronic   Bulletin  Board.  Price
quotations reflect inter-dealer prices, without mark-up, mark-down or commission
and may not represent  actual  transactions.  The following table summarizes the
high and low prices without retail mark-up, mark-down or commission, and may not
represent actual transactions. Dividend information for 1997 has been adjustment
for a 5% stock dividend paid in December 1997. Prices are based upon information
made available to the Company. Cash dividends are declared on a quarterly basis.

<TABLE>
<CAPTION>
                                                     1998                                       1997
                                     -------------------------------------     --------------------------------------
                                                                 Dividend                                   Dividend
                                       High          Low         Declared         High          Low         Declared
                                       ----          ---         --------         ----          ---         --------

<S>                                <C>           <C>            <C>           <C>           <C>           <C>     
First Quarter                       $  22.00      $  17.00       $   .12       $  14.75      $  13.25      $   .105
                                                                                                        
Second Quarter                         24.00         21.00           .12          15.00         13.25          .105
                                                                                                        
Third Quarter                          24.00         21.75           .12          16.67         14.28          .114
                                                                                                        
Fourth Quarter                         23.00         21.00           .14          17.00         16.25          .114

</TABLE>


At December 31, 1998, the Company had 747 shareholders of record.



                                       36
<PAGE>





BOARD OF DIRECTORS

<TABLE>
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<S>                                                  <C>                                      <C>  
Ronald L. Ashbaugh                                     J. Michael King                             
Retired President                                      Senior Partner                              
Emclaire Financial Corp. and                           Lynn, King & Schreffler                     
Farmers National Bank                                  Attorneys at Law                            
                                                                                                   
David L. Cox                                           John B. Mason                               
President, Emclaire Financial Corp.                    H. B. Beels & Sons, Inc.                    
President, Farmers National Bank                                                                   
                                                       Brian C. McCarrier                          
Bernadette H. Crooks                                   President - Interstate Pipe and Supply      
Retired Retailer                                                                                   
Crooks Clothing                                        Elizabeth C. Smith                          
                                                       Retired                                     
George W. Freeman                                      Former Owner-The Inn at Oakmont             
Freeman's Tree Farm                                                                                
                                                       Director Emeritus                           
Rodney C. Heeter                                                                                   
Heeter Lumber, Co.                                     Dr. Clinton R. Coulter                      
                                                       Retired Medical Doctor                      
Robert L. Hunter                                                                                                           
Hunter Truck Sales and Service                         The above  listed  persons  are members 
Hunter Leasing                                         of the Boards of  Directors  of both the Company and the Bank.  
                                                                                                                       
                                                      

EXECUTIVE OFFICERS                                        
                                                          
Emclaire Financial Corp.                               Farmers National Bank                                                        
                                                                                                      
David L. Cox                                           David L. Cox                                  
President and Chief Executive Officer                  President and Chief Executive Officer         
                                                                                                      
John J. Boczar, CPA                                    John J. Boczar, CPA                           
Treasurer                                              Vice President and Chief Financial Officer    
                                                                                                    
                                                       Robert W. Foust                            
                                                       Vice President and Branch Administrator    
                                                       


OTHER OFFICERS

Edith M. Beckwith                                      Mark L. Emerick                         Fred S. Port                
Manager - Eau Claire                                   Manager - Brookville                    Assistant Vice President    
                                                                                               Manager - Clarion Mall      
Sue Bricen                                             Dwane A. Galbraith                                                  
Manager - Ridgway                                      Assistant Manager- Brookville           Joseph M. Sporer            
                                                                                               Assistant Vice President    
Scott B. Daum                                          Allan I. Johnson                        Manager - Clarion           
Assistant Vice President                               Manager - Knox                                                      
Operations Officer                                                                             Robert A. Vernick           
                                                       James W. LeVier                         Assistant Vice President    
Janice F. Dittman                                      Assistant Vice President                Manager - Bon Aire          
Manager - Data Processing                              Credit Administration                   
                                                                                              
Cindy L. Elder                                         Troy J. Moore                          
Assistant Vice President                               Acting Manager - East Brady            
Manager - Emlenton                                                                            
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<PAGE>


ANNUAL MEETING

The Annual Meeting of Shareholders  of Emclaire  Financial Corp. will be held at
the Farmers  National Bank Data Processing  Center,  708 Main Street,  Emlenton,
Pennsylvania, on Monday, May 10, 1999 at 7:00 p.m.

ADDITIONAL FINANCIAL INFORMATION

A copy of Emclaire Financial Corp.'s Annual Report on Form 10-KSB, as filed with
the Securities and Exchange Commission,  will be furnished, free of charge, upon
written  request  to  John  J.  Boczar,  Treasurer,   Drawer  D,  Emlenton,  PA,
16373-0046.

The  Annual  Report and other  Company  reports  are also  filed  electronically
through the Electronic Data Gathering,  Analysis, and Retrieval System ("EDGAR")
which performs  automated  collection,  validation,  indexing,  acceptance,  and
forwarding of  submissions  to the  Securities  and Exchange  Commission  and is
accessible     to    the     public     by     using     the     Internet     at
http://www.sec.gov/edgarhp.htm.

TRANSFER AGENT

Emclaire Financial Corp.
612 Main Street
P.O. Drawer D
Emlenton, PA 16373
(724) 867-2311

INVESTOR INFORMATION

Emclaire  Financial Corp. common stock is quoted on the OTC Electronic  Bulletin
Board under the symbol "EMCF". The following companies act as market makers:

                           Hopper Soliday & Co., Inc.
                                1703 Oregon Pike
                               Lancaster, PA 17601
                                 (800) 646-8647

                            E. E. Powell & Co., Inc.
                                 1100 Gulf Tower
                              Pittsburgh, PA 15219
                                 (412) 391-4594

                           F. J. Morrissey & Co., Inc.
                         1700 Market Street - Suite 1420
                             Philadelphia, PA 19103
                                 (215) 563-8500

                                 Ryan Beck & Co.
                                 80 Main Street
                              West Orange, NJ 07052
                                 (201) 325-3200


                             BRANCH OFFICE LOCATIONS


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<S>                            <C>                            <C>                       <C>  
         Emlenton                     Eau Claire              Clarion - 2 Locations       Knox - 2 Locations
      612 Main Street          207 S. Washington Street        Sixth & Wood Streets         Rt. 338 South
    Emlenton, PA 16373           Eau Claire, PA 16030           Clarion, PA 16214           Knox, PA 16232
      (724) 867-2311                (724) 791-2591                (814) 226-7523            (814) 797-2200

                                                                       and                       and
        East Brady                      Butler
     323 Broad Street               Bon Aire Plaza                 Clarion Mall          Main & State Streets
   East Brady, PA 16028         1101 North Main Street           I-80 and Rt. 68            Knox, PA 16232
      (724) 526-5793               Butler, PA 16003                Clarion, PA              (814) 797-1136
                                    (724) 283-4666                (814) 226-7488

          Ridgway                       DuBois                      Brookville
      173 Main Street              17 W. Long Avenue             263 Main Street
     Ridgway, PA 15853             DuBois, PA 15801            Brookville, PA 15825
      (814) 773-3195                (814) 371-2166                (814) 849-8363

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