EXHIBIT 13

    Annual Report to Stockholders for the fiscal year ended December 31, 1996


<PAGE>




The Cover [PICTURE OMITTED]

The grist mill at McDonnell's Mill State Park,  located west of Butler,  PA, was
originally  constructed  in 1852.  It was destroyed by fire and rebuilt in 1867.
The mill was  reconstructed  in 1963 and is the focal  point of the  2,500  acre
park.






TABLE OF CONTENTS

President's letter                                        1
Selected Financial Data                                   2
Consolidated Financial Statements                       3-6
Notes to Consolidated Financial Statements             7-19
Report of Independent Auditors                           20
Management's Discussion and Analysis of
     Financial Condition and Results of Operations    21-33
Common Stock Information                                 33


<PAGE>

Dear Stockholders and Friends:

The year  was one full of  growth  and  change.  We took  advantage  of  several
opportunities  to expand  and  strengthen  our  branch  network.  A  significant
technology investment was made which should allow us to better serve our current
and future  customers.  Your Company also sought to further improve  stockholder
value by effecting a 4-for-1 stock split, completing a sale of common stock, and
arranging for the stock to be listed on the NASD Electronic Bulletin Board.

In May, we expanded  our branch  network with the opening of the Bon Aire branch
office,  located in the Bon Aire Plaza in Butler,  PA. This office has been well
received by the residents and merchants of Butler,  having accumulated  deposits
in excess of $6 million in its first seven months of operation.

We  strengthened  our market  presence in western Clarion County by establishing
two offices in Knox,  PA. In August our first  supermarket  office was opened in
Tom's Riverside Market. This office has become quite popular due to its extended
hours,  convenience and automated teller machine. The second office,  located on
Main Street, was acquired from Mellon Bank in September.  This operation and the
new employees it brought have been a welcome addition.

The opening of these new  offices  allowed us to  increase  our total  assets to
$128.0 million,  and total deposits to $114.7 million,  an increase of 29.8% and
29.0%,  respectively,  from 1995. This growth did not come without a price. As a
result of the  capital  outlay and  increase in  overhead,  net income for 1996,
decreased 16.3% to $981,000,  as compared to $1,172,000  reported in 1995. These
results mirror those  experienced in 1991,  when the last branch  expansion took
place.

During  1996,  a wide area  personal  computer  network  and  teller  processing
platform system were installed.  These improvements allow for tellers to process
a greater  variety of transactions  for the customer,  while the network allowed
for the installation of deposit and loan processing software systems. We believe
this  investment in technology will enable us to provide more and better service
to our  customers,  while still  maintaining  that personal  touch our customers
deserve.

In December, we completed the sale of 230,800 shares of common stock. As result,
the number of  stockholders  more than  doubled to 570 at year end. I am pleased
that the vast majority of our new stockholders  reside in communities  served by
Farmers  National  Bank.  This stock sale  resulted in net proceeds in excess of
$2.9 million, of which, $2.8 million was contributed to the Bank. As part of the
stock sale, the Board of Directors authorized the listing of the common stock on
the NASD Electronic  Bulletin Board under the symbol "EMCF".  This change should
afford  current  and  prospective   stockholders  the  opportunity  to  purchase
additional  shares by  contacting a local  broker,  or one of the market  makers
listed in the back of this annual report.

The biggest change in 1996, had nothing to do with branch  expansion,  high tech
gadgets,  or stock  symbols.  On December  31,  1996,  Ron  Ashbaugh  retired as
president  and  chief  executive  officer,  after a  thirty-seven  year  career,
including  twenty-two  as  president  and  chief  executive  officer.  It  is  a
reflection  of a man that he leaves a place  better than he found it; and it was
Ron's  vision and energy  that  allowed the Company to survive and prosper in an
era of stiff competition and rapid consolidation in the banking industry.  While
we all will miss  seeing Ron on a daily  basis,  he has agreed to  continue as a
member of the Board of Directors.

As I begin my tenure as president of your  company,  I hope that we will be able
to continue to grow and prosper by providing  timely and  effective  products to
our customers,  while maintaining a high level of customer service. For 1997, we
plan on offering a debit card, which will allow our customers access to point of
sale purchases at over 13 million merchants worldwide, along with access to over
200,000 ATM's on the MAC and Plus networks.

In addition, the expansion undertaken this past year has caused us to review our
entire data processing  system. As part of that process,  we are considering the
construction of a separate facility to house the data processing and bookkeeping
operations.  A site in downtown  Emlenton is currently  under  consideration.  A
decision on this project should be made by mid-year.

I would like to thank our Board of Directors  and  employees,  for their support
and effort over the past year.  The projects  undertaken in 1996 were vast,  and
could not have been achieved without their commitment and hard work.

Lastly,  I encourage each of you to attend the annual meeting of stockholders to
be held at 7:00 p.m.,  on May 21,  1997,  at the Holiday Inn in Clarion,  PA. It
will be a great opportunity to meet the directors,  officers and employees,  and
to share in the discussion with your fellow stockholders.

Sincerely,

/s/David L. Cox
David L. Cox
President and Chief Executive Officer
                                       1
<PAGE>




Selected Financial Data
(Dollars in thousands)
<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                              -------------------------------------------------------------------------------------
                                                      1996            1995            1994             1993            1992
                                                  -------------   -------------   -------------    -------------   -------------
<S>                                              <C>              <C>             <C>              <C>             <C>
SUMMARY OF EARNINGS
Interest income                                  $       8,098    $      7,437    $      6,751     $      6,772    $      7,144
Interest expense                                         3,352           2,986           2,573            2,651           3,256
                                                  -------------   -------------   -------------    -------------   -------------
Net interest income                                      4,746           4,451           4,178            4,121           3,888
Provision for loan losses                                  120             143             132              180             165
                                                  -------------   -------------   -------------    -------------   -------------
Net interest income after
   provision for loan losses                             4,626           4,308           4,046            3,941           3,723
Other income                                               427             389             384              301             299
Other expense                                            3,636           3,005           2,899            2,780           2,678
                                                  -------------   -------------   -------------    -------------   -------------
Income before income taxes and
  cumulative effect adjustment                           1,417           1,692           1,531            1,462           1,344
Applicable income tax expense                              436             520             454              450             432
                                                  -------------   -------------   -------------    -------------   -------------
Net income before cumulative
  effect adjustment                                        981           1,172           1,077            1,012             912
Cumulative effect adjustment                                 -               -               -                                -
                                                  -------------   -------------   -------------    -------------   -------------

NET INCOME                                        $        981    $      1,172    $      1,077     $      1,043    $        912
                                                  =============   =============   =============    =============   =============

PER SHARE DATA (1) Earnings per share:
Prior to cumulative effect adjustment             $       1.21    $       1.47    $       1.35     $       1.27    $       1.14
Cumulative effect adjustment                                 -               -               -              .04               -
                                                  =============   =============   =============    =============   =============
Earnings per share                                $       1.21    $       1.47    $       1.35     $       1.31    $       1.14
                                                  =============   =============   =============    =============   =============

Dividends paid                                    $        .43    $        .45    $        .40     $        .38    $        .27
Book value per share at period end                $      12.26    $      11.30    $      10.20     $       9.26    $       8.33
Average number of shares outstanding                   811,812         799,200         799,200          799,200         799,200

BALANCE SHEET STATISTICS
(at end of period)

Assets                                            $    128,002    $     98,599    $     96,714     $     94,774    $     91,520
Deposits                                               114,725          88,944          87,986           86,996          84,014
Loans                                                   68,428          64,322          64,086           61,378          60,365
Allowance for loan losses                                  733             687             688              639             573
Federal funds sold                                       3,500           2,500             900            3,350           4,175
Investment securities                                   46,483          26,361          25,436           23,180          18,795
Stockholders' equity                                    12,631           9,032           8,155            7,397           6,654

SIGNIFICANT RATIOS
Return on average equity                                 10.33 %         13.56 %         13.80 %          14.69 %         14.51 %
Return on average assets                                   .89            1.20            1.12             1.11            1.01
Net yield on earning assets                               4.68            4.97            4.81             4.80            4.64
Net loans as a percent of deposits                       59.01           71.55           72.05            69.82           71.17
Equity to assets at period end                            9.87            9.16            8.43             7.80            7.27
Earning average assets to total assets                   93.63           94.11           92.84            92.62           92.60
Average interest bearing liabilities to assets           77.02           77.26           78.36            79.84           80.94
Dividends as a percent of net income (1)                 35.54           30.61           29.63            29.01           23.68
Allowance for loan losses to total loans                  1.07            1.07            1.07             1.04            0.95
Full time equivalent employees                              74              52              47               47              47
Banking offices                                              7               4               4                4               4
</TABLE>

(1) - Adjusted for a four-for-one stock split effected June 20, 1996.

                                       2
<PAGE>

                            EMCLAIRE FINANCIAL CORP.
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>

                                                                December 31,
                                                              1996         1995
                                                           -----------  -----------
<S>                                                     <C>           <C>
ASSETS
   Cash and due from banks                              $  4,741,568  $ 3,175,347
    Federal funds sold                                     3,500,000    2,500,000
    Investment securities(Note 3):
      Available for sale                                  36,207,683   10,111,138
      Held to maturity (estimated market value
        of $10,246,617 and $16,299,328)                   10,274,937   16,249,637
    Loans (Note 4)                                        68,428,063   64,322,111
    Less allowance for loan losses(Note 5)                   733,202      687,415
                                                         -----------  -----------
      Net loans                                           67,694,861   63,634,696
    Premises and equipment (Note 6)                        2,308,374    1,663,096
    Accrued interest and other assets                      3,274,895    1,264,867
                                                         -----------  -----------

         TOTAL ASSETS                                   $128,002,318 $98,598,781
                                                        ============ ===========

LIABILITIES
    Deposits
      Non-interest bearing demand                         17,649,969   12,606,044
      Interest bearing demand                             15,784,028   12,370,668
      Savings                                             14,167,947   12,805,694
      Money market                                        19,058,897   15,604,881
      Time (Note 7)                                       48,064,028   35,556,273
                                                         -----------  -----------
         Total deposits                                  114,724,869   88,943,560
    Obligation under capital lease                           104,233      143,083
    Accrued interest and other liabilities                   542,218      479,841
                                                         -----------  -----------
         TOTAL LIABILITIES                               115,371,320   89,566,484
                                                         -----------  -----------
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,
      1,030,000 and 800,000 shares issued                  1,287,500    1,000,000
    Additional paid-in capital                             3,621,758    1,013,080
    Retained earnings                                      7,597,592    6,959,932
    Net unrealized gain on securities                        124,148       65,685
    Treasury stock, at cost (800 shares)                           -       (6,400)
                                                         -----------  -----------
         TOTAL STOCKHOLDERS' EQUITY                       12,630,998    9,032,297
                                                         -----------  -----------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $128,002,318  $98,598,781
                                                        ============  ===========
</TABLE>

See the accompanying notes to the consolidated financial statements.

                                       3

<PAGE>

                            EMCLAIRE FINANCIAL CORP.
                        CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>


                                                            Year Ended December 31,
                                                               1996         1995
                                                            -----------  -----------
<S>                                                        <C>          <C>
INTEREST INCOME
    Loans, including fees                                  $ 5,839,546  $ 6,035,217
    Interest bearing deposits in other banks                     2,120        2,122
    Federal funds sold                                         236,020      198,240
    Investment securities:
      Taxable                                                1,879,123    1,033,546
      Exempt from federal income tax                           140,743      168,164
                                                           -----------  -----------
         Total interest income                               8,097,552    7,437,289
                                                           -----------  -----------

INTEREST EXPENSE
    Deposits                                                 3,281,826    2,976,453
    Short-term borrowings (Note 11)                             63,198            -
    Lease obligation                                             7,470        9,943
                                                           -----------  -----------
         Total interest expense                              3,352,494    2,986,396
                                                           -----------  -----------

NET INTEREST INCOME                                          4,745,058    4,450,893

Provision for loan losses                                      120,000      143,000
                                                           -----------  -----------

NET INTEREST INCOME AFTER
    PROVISION FOR LOAN LOSSES                                4,625,058    4,307,893
                                                           -----------  -----------

OTHER OPERATING INCOME
    Service fees on deposit accounts                           343,727      296,148
    Other                                                       83,588       92,786
                                                           -----------  -----------
         Total other operating income                          427,315      388,934
                                                           -----------  -----------

OTHER OPERATING EXPENSE
    Salaries and employee benefits                           1,902,901    1,544,172
    Occupancy, furniture and equipment                         524,038      388,358
    Other (Note 8)                                           1,208,564    1,072,227
                                                           -----------  -----------
         Total other operating expense                       3,635,503    3,004,757
                                                           -----------  -----------

Income before income taxes                                   1,416,870    1,692,070
Income taxes (Note 9)                                          435,554      520,468
                                                           -----------  -----------

NET INCOME                                                 $   981,316  $ 1,171,602
                                                           ===========  ===========

EARNINGS PER SHARE                                         $      1.21  $      1.47

AVERAGE SHARES OUTSTANDING                                     811,812      799,200
</TABLE>

See the accompanying notes to the consolidated financial statements.

                                       4
<PAGE>


                            EMCLAIRE FINANCIAL CORP.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                   Net
                                     Additional                                 Unrealized
                                       Common          Paid-in       Retained     Gain           Treasury
                                        Stock          Capital       Earnings   on Securities      Stock          Total
                                      ----------      ---------     ---------- --------------  ------------    -----------

<S>                                  <C>            <C>            <C>             <C>         <C>             <C>
Balance December 31, 1994            $ 1,000,000    $ 1,013,080    $ 6,147,970     $        -  $    (6,400)    $ 8,154,650

Net income                                                           1,171,602                                   1,171,602
Dividends declared
    ($.45 per share)                                                  (359,640)                                   (359,640)
Net unrealized gain on securities                                                      65,685                       65,685
                                     -----------    -----------    -----------     ----------  -----------     -----------

Balance December 31, 1995              1,000,000      1,013,080      6,959,932         65,685       (6,400)      9,032,297

Net income                                                             981,316                                     981,316
Dividends declared
    ($.43 per share)                                                  (343,656)                                   (343,656)
Net proceeds from sale
of 230,800 shares of common
    stock (Note 14)                      287,500      2,608,678                                      6,400       2,902,578
Net unrealized gain on securities                                                      58,463                       58,463
                                     -----------    -----------    -----------     ----------  -----------     -----------

Balance December 31, 1996            $ 1,287,500    $ 3,621,758    $ 7,597,592     $  124,148  $          -    $12,630,998
                                     ===========    ===========    ===========     ==========  ===========     ===========
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       5
<PAGE>

                            EMCLAIRE FINANCIAL CORP.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>

                                                           Year Ended December 31,
                                                              1996         1995
                                                           ------------ ------------
<S>                                                        <C>          <C>
OPERATING ACTIVITIES
    Net income                                             $   981,316  $ 1,171,602
    Adjustments to reconcile net income to net
      cash provided by operating activities:
         Depreciation and amortization                         364,618      240,571
         Net amortization of investment security
           discounts and premiums                              219,856      224,633
         Provision for loan losses                             120,000      143,000
         Deferred income taxes                                 (60,602)     (24,062)
         Increase in accrued interest receivable              (358,229)     (35,425)
         Increase in accrued interest payable                   60,883       63,907
         Other, net                                           (369,314)     111,108
                                                           -----------  -----------
           Net cash provided by operating activities           958,528    1,895,334
                                                           -----------  -----------

INVESTING ACTIVITIES
    Proceeds from maturities and repayments of
      investment securities:
         Held to maturity                                    8,961,382    6,524,531
    Proceeds from sales of investment securities:
         Available for sale                                     89,800            -
    Purchases of investment securities:
         Available for sale                                (26,167,933)           -
         Held to maturity                                   (3,136,371)  (7,574,662)
    Net loan originations                                   (4,217,569)    (332,827)
    Purchases of premises and equipment                       (779,239)    (153,913)
    Proceeds from sales of other real estate                    50,201      231,163
    Net proceeds from branch acquisition                    12,682,685            -
                                                           ------------  ----------
           Net cash used for investing
           activities                                      (12,517,044)  (1,305,708)
                                                           -----------   ----------

FINANCING ACTIVITIES
    Net increase in deposits                                11,604,665      957,434
    Payments for obligation under capital lease                (38,850)     (36,377)
    Proceeds from sale of common stock, net of cost          2,902,578            -
    Cash dividends paid                                       (343,656)    (359,640)
                                                           -----------   ----------
           Net cash provided by financing activities        14,124,737      561,417
                                                           -----------   -----------

           Increase in cash and cash equivalents             2,566,221    1,151,043

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR               5,675,347    4,524,304
                                                            ----------   ----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                   $ 8,241,568  $ 5,675,347
                                                            ==========   ==========

</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  mortgage,  commercial and consumer  loans, as well as a variety
of deposit  services  offered to its customers  through seven offices.  The
Company is  supervised  by the Board of  Directors  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 date of the balance
sheet 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.

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 is
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
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 managemen'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.

Effective  January 1, 1995,  the Company  adopted  Statement  of  Financial
Accounting  Standards No. 114  "Accounting by Creditors for Impairment of a
Loan",  as amended  by  Statement  No. 118  "Accounting  by  Creditors  For
Impairment  of  a  Loan  Income   Recognition   and   Disclosures".   These
statements  address the  accounting  by creditors,  such as banks,  for the
impairment  of  certain  loans.  The  Company  considers  a  commercial  or

                                       7
<PAGE>


commercial  real  estate  loan  to  be  impaired  when,  based  on  current
information  and events,  it is probable that the Company will be unable to
collect  principal or interest due  according to the  contractual  terms of
the  loan.  Loan  impairment  is  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 loans  observable  market  price or the
fair value of the collateral if the loan is collateral dependent.

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

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 valued
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
-----------------

The excess cost over net tangible assets and identified  intangible  assets
of acquired  branch  offices is amortized  using the  straight-line  method
over  a  period  not to  exceed  fifteen  years.  Core  deposit  intangible
premiums are amortized on a straight-line  basis over the average remaining
lives  of  the  acquired   deposits,   not  to  exceed  ten  years.   Other
identified  intangible  assets are amortized  over the estimated  benefited
period, not to exceed ten years.

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

The  Bank  maintains  a  non-contributory   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.

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

Earnings  per share are  calculated  using the weighted  average  number of
shares of stock  outstanding  which were  811,812  and 799,200 for 1996 and
1995,  respectively,  after  giving  effect for the 4-for-1  stock split in
1996. (Note 14)

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

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

Cash  payments  for  interest  in  1996  and  1995  were   $3,291,611   and
$2,922,489,  respectively.  Cash payments for income taxes in 1996 and 1995
were $501,308 and $541,000, respectively.

2.    BRANCH ACQUISITION

On September 20, 1996,  the Bank acquired  certain  deposit  liabilities of
the Knox,  Pennsylvania  office  of  Mellon  Bank,  N.A.  in a  transaction
recorded as a branch  purchase.  The Bank assumed  deposit  liabilities  of
approximately   $14.1   million  and  acquired   the  land,   building  and
equipment.  The difference  between the liabilities  assumed and the assets
acquired was received in cash totaling  approximately  $12.6  million.  The
amount by which  the  acquisition  cost  exceeded  the value of the  assets
purchased,   totaling  approximately  $1.4  million,  was  recorded  as  an
intangible asset.

3. INVESTMENT SECURITIES

The  amortized  cost and estimated  market values of investment  securities
are summarized as follows:
                                       8
<PAGE>

<TABLE>
<CAPTION>
Available for Sale                                                   1996
                                            --------------------------------------------------
                                                             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                $23,539,460    $ 165,784   $(42,832)  $23,662,412
Obligations of states and political
    subdivisions                               1,919,500        1,206     (3,020)    1,917,686
Corporate notes                               10,156,821       94,005    (27,041)   10,223,785
                                             -----------    ---------   ---------  -----------
         Total debt securities                35,615,781      260,995    (72,893)   35,803,883
Equity investment in Federal Reserve
    and Federal Home Loan Banks                  403,800            -          -       403,800
                                             -----------    ---------   ---------  -----------

         Total                               $36,019,581    $ 260,995   $(72,893)  $36,207,683
                                             ===========    =========   ========   ===========

</TABLE>



<TABLE>
<CAPTION>
Held to Maturity                                      1996
                                --------------------------------------------------
                                                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   $ 2,011,764  $         -  $  (1,139)  $ 2,010,625
Obligations of states and
  political subdivisions          3,129,733        4,759       (749)    3,133,743
Corporate notes                   3,527,955        9,180     (5,743)    3,531,392
Mortgage-backed securities        1,605,485            -    (34,628)    1,570,857
                                ------------ ------------ -----------  -----------

         Total                  $10,274,937  $    13,939  $ (42,259)  $10,246,617
                                ============ ============ ===========  ===========
</TABLE>
<TABLE>
<CAPTION>
Available for Sale                                    1995
                                --------------------------------------------------
                                                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   $ 9,593,915  $   121,733  $ (22,210)  $ 9,693,438
Equity investment in Federal
Reserve and Federal Home Loan
  Banks                             417,700            -           -      417,700
                                ------------ ------------ -----------  -----------

         Total                  $10,011,615  $   121,733  $ (22,210)  $10,111,138
                                ============ ============ ===========  ===========
</TABLE>
                                       9
<PAGE>

<TABLE>
<CAPTION>
Held to Maturity                                      1995
                                --------------------------------------------------
                                                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   $ 7,077,756  $    26,891  $  (4,147)  $ 7,100,500
Obligations of states and
  political subdivisions          3,869,528        3,262     (9,283)    3,863,507
Corporate notes                   2,758,448       52,433     (5,451)    2,805,430
Mortgage-backed securities        2,543,905        2,276    (16,290)    2,529,891
                                ------------ ------------ -----------  -----------

         Total                  $16,249,637  $    84,862  $ (35,171)  $16,299,328
                                ============ ============ ===========  ===========
</TABLE>

In December,  1995, in accordance with the Financial  Accounting  Standards
Board Special Report,  "A Guide to  Implementation  of Statement No. 115 on
Accounting  for Certain  Investments  in Debt and Equity  Securities",  the
Company  reclassified  investment  securities  from  the  held to  maturity
classification to the available for sale  classification  with an amortized
cost of $10,012,503 and an estimated  market value of $10,057,238.  The net
appreciation  of these  securities was recorded net of federal income taxes
to an  unrealized  gain  account,  which is a  component  of  stockholders'
equity.

Proceeds  from the sale of  investment  securities  classified as available
for sale totaled $89,800 and represented  proceeds from the sale of Federal
Home Loan Bank  stock.  Such  periodic  sales are  transacted  at cost.  No
sales of investment securities occurred in 1995.

Investment  securities  with a carrying value of  approximately  $5,362,820
and $3,551,250 at December 31, 1996, and 1995,  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,  1996,  by  contractual  maturity,  are shown below.  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.
<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                  $ 6,052,779  $ 6,029,061 $ 3,248,244  $ 3,251,760
Due after 1 year through 5 years          29,348,502   29,560,316   5,421,208    5,424,000
Due after 5 years through 10 years           214,500      214,506           -            -
                                         ------------ ------------ -----------  -----------

                                          35,615,781   35,803,883   8,669,452    8,675,760
Mortgage-backed securities                         -            -   1,605,485    1,570,857
                                         ------------ ------------ -----------  -----------

         Total                           $ 35,615,781 $ 35,803,883 $10,274,937  $10,246,617
                                         ============ ============ ===========  ===========
</TABLE>
                                       10
<PAGE>

4. Loans

Major classifications of loans are summarized as follows:

<TABLE>
<CAPTION>
                                                             1996         1995
                                                          -----------  -----------
<S>                                                      <C>          <C>
Commercial and industrial                                $10,390,129  $ 9,611,079
Real estate mortgages:
    Residential                                           34,251,136   31,195,745
    Commercial and other                                  11,400,243   10,969,236
Consumer                                                  12,386,555   12,546,051
                                                          -----------  -----------

                                                          68,428,063   64,322,111
Less allowance for loan losses                               733,202      687,415
                                                          -----------  -----------

                                                         $67,694,861  $63,634,696
                                                          ===========  ===========
</TABLE>

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.   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, 1996, is as follows:


               Balance                                   Balance
             December 31,                              December 31,
                 1995       New Loans     Repayments       1996
             ------------- ------------- ------------- -------------

             $ 1,389,697     573,372       710,336     $ 1,252,733

The Bank's  primary  business  activity is with  customers  located  within
Venango, Clarion, and Butler Counties. Commercial,  residential,  personal,
and  agricultural  loans are granted.  Although the Bank has a  diversified
loan  portfolio  at  December  31,  1996 and  1995,  loans  outstanding  to
individuals   and   businesses   are  dependent  upon  the  local  economic
conditions within the immediate trade area.

5. ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
                                                             1996         1995
                                                          -----------  -----------


<S>                                                    <C>          <C>
Balance, January 1                                        $  687,415   $  687,578

    Provision charged to operations                          120,000      143,000
    Recoveries
                                                              46,658       61,869

Less loans charged off                                       120,871      205,032
                                                          -----------  -----------

Balance, December 31                                      $   733,202  $   687,415
                                                          ===========  ===========
</TABLE>

At  December  31,  1996,  the  recorded   investment  in  loans  which  are
considered  to be  impaired  was  $742,805,  all of  which  was  placed  in
nonaccrual  status. In addition,  $80,000 of the related allowance for loan
losses has been allocated for these impaired  loans.  At December 31, 1996,
there were commitments for unfunded  letters of
                                       11
<PAGE>

credit totaling $7,500,  to a borrower with  outstanding  loans considered to be
impaired. At December 31, 1995, no loans were considered to be impaired.

The average  recorded  investment  in impaired  loans during the year ended
December 31, 1996, was  approximately  $820,007.  Interest  income totaling
$13,330 was  recognized  on  impaired  loans,  all of which was  recognized
using the cash basis method of income recognition.

6. PREMISES AND EQUIPMENT

Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>

                                                             1996         1995
                                                          -----------  -----------

<S>                                                      <C>           <C>
Land and improvements                                    $   221,342   $  208,742
Buildings                                                  1,430,275    1,358,247
Leasehold improvements                                       128,862            -
Furniture and fixtures                                     1,655,951    1,025,630
                                                          -----------  -----------

                                                           3,436,430    2,592,619

Less accumulated depreciation                              1,128,056      929,523
                                                          -----------  -----------

                                                         $ 2,308,374   $1,663,096
                                                          ===========  ===========
</TABLE>


Depreciation  and  amortization  charged to operations was $201,052 in 1996
and $146,361 in 1995.

7. TIME DEPOSITS

Time deposits include  certificates of deposit in denominations of $100,000
or more.  Such deposits  aggregated  $4,583,000  and $3,597,000 at December
31, 1996 and 1995, respectively.

The  following  schedule  presents  the  contractual  maturities  for  time
deposits at December 31, 1996:

         Within one year                                 $30,963,299
         After one year through three years               13,258,111
         After three years through five years              3,729,986
         after five years                                    112,632
                                                          -----------

                                                         $48,064,028
                                                          ===========

8. OTHER EXPENSES

The following is an analysis of other expense:

                                                   1996         1995
                                                -----------  -----------

FDIC insurance                                  $    1,500   $  100,722
Telephone                                           91,486       48,619
Printing, forms and supplies                       183,390      101,854
Postage                                             97,413       93,596
Amortization of intangible                         129,165       91,115
Other                                              705,610      636,321
                                                -----------  -----------

                                                $1,208,564   $1,072,227
                                                ===========  ===========
                                       12
<PAGE>

9. INCOME TAXES

The provision for income taxes is summarized as follows:

                                                    1996         1995
                                                 -----------  -----------

Currently payable                                 $496,156      $544,530
Deferred                                           (60,602)     (24,062)
                                                 -----------  -----------

                                                  $435,554      $520,468
                                                 ===========  ===========


The  reconciliation  between the federal  statutory  rate and the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
                                          1996                     1995
                                ------------------------- ------------------------
                                                % of                   % of
                                               Pre-Tax                  Pre-Tax
                                  Amount       Income       Amount       Income
                                ------------ ------------ -----------  -----------

<S>                             <C>             <C>       <C>            <C>
Provision at statutory rate     $   481,736     34.0%     $  575,304     (34.4)
Effect of tax exempt income         (56,785)    (4.0)        (57,450)     (3.4)

Other                                10,603       .7           2,614        .2
                                ------------ ------------ -----------  -----------

                                $   435,554     30.7%     $  520,468      30.8%
                                ============ ============ ===========  ===========
</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:
<TABLE>
<CAPTION>
                                                             1996         1995
                                                          -----------  -----------
<S>                                                       <C>          <C>
Deferred tax assets
    Provision for loan losses                             $  195,551   $  179,983
    Intangible asset amortization                             50,964       33,977
    Capital lease obligation                                  35,439       48,648
    Pension expense                                           15,753       10,762
                                                          -----------  -----------
      Gross tax assets                                       297,707      273,370
                                                          -----------  -----------

Deferred tax liabilities
    Net unrealized gain on securities                         63,955       33,838
    Depreciation                                             142,579      166,422
    Net loan origination costs                                 6,878        5,742
    Discount accretion                                             -       13,559
                                                          -----------  -----------
      Gross deferred tax liabilities                         213,412      219,561
                                                          -----------  -----------

         Net deferred tax asset                           $   84,295       53,809
                                                          ===========  ===========
</TABLE>

No valuation  allowance was  established  at December 31, 1996 and 1995, in
view of the  Company's  ability to  carry-back  to taxes  paid in  previous
years and future  anticipated  taxable  income  which is  evidenced  by the
Company's earnings potential.

10.   PENSION PLAN


The following presents the components of the pension expense for each year:
                                       13
<PAGE>
<TABLE>
<CAPTION>

                                                             1996         1995
                                                          -----------  -----------

<S>                                                       <C>          <C>
Service cost of benefits earned during the period         $    65,517  $    47,800
Interest cost on projected benefit obligation                  75,340       62,534
Return on plan assets                                        (176,605)    (287,502)
Net amortization and deferral                                  50,427      186,302
                                                          -----------  -----------

Net periodic pension cost                                 $    14,679  $     9,134
                                                          ===========  ===========
</TABLE>

The actuarial present value of accumulated  benefit obligations at December
31, 1996 and 1995,  was  $737,527  and $607,103  including  vested  benefit
obligations  of $714,831 and $600,275.  The following  table sets forth the
funded status and amounts recognized in the balance sheets at December 31:
<TABLE>
<CAPTION>
                                                             1996         1995
                                                          -----------  -----------

<S>                                                       <C>          <C>
Plan assets at fair value                                 $1,509,521   $1,339,813
Projected benefit obligation                               1,319,173    1,010,270
                                                          -----------  -----------

Funded status                                                190,348      329,543
Unrecognized net gain from past experience
    different from assumed                                  (116,657)    (233,154)
Unamortized prior service cost                                 1,102        1,174
Unrecognized net transition asset                           (121,125)    (129,216)
                                                          -----------  -----------

Accrued pension cost                                       $ (46,332)  $  (31,653)
                                                          ===========  ===========
</TABLE>

Plan assets are  primarily  comprised  of debt and equity  mutual  funds at
December 31, 1996 and 1995.

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

                                                         1996         1995
                                                     -----------  -----------

Discount rate                                             7.5%         7.5%
Rate of increase in future compensation levels            5.0          5.0
Rate of return on plan assets                             8.5          8.5

11.   SHORT-TERM BORROWINGS AND AVAILABLE LINES OF CREDIT

The Bank  maintains  two  credit  arrangements  as a source  of  additional
liquidity.  One of these  arrangements,  with a borrowing limit at December
31, 1996, of approximately  $3.2 million is with the Federal Home Loan Bank
of  Pittsburgh.  This credit line 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  second  arrangement  is an  unsecured  federal  funds  line  or
credit,  with a  borrowing  limit at  December  31,  1996 of $2.0  million,
maintained with a correspondent bank. There were no borrowings  outstanding
during 1995.  While there were no balances  outstanding  on either of these
lines of credit at December 31, 1996,  the following  presents  information
pertaining to borrowings initiated and repaid during 1996:

                                                             1996
                                                          -----------

Average balance outstanding                               $ 1,128,415
Maximum month-end balance                                   5,000,000

Weighted average interest rate                                    5.6%

                                       14
<PAGE>

12.   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  and  review  procedures  and  collateral  requirements  as deemed
necessary.

The  off-balance  sheet  commitments  were  comprised  of the  following at
December 31:
                                                   1996         1995
                                                -----------  -----------

Commitments to extend credit                    $ 6,810,000  $ 5,002,000
Standby letters of credit                         1,112,000    1,089,000

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 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 holds  collateral
for these  instruments,  as deemed  necessary,  which  are  typically  Bank
deposit instruments.

Operating Leases
----------------

Certain  office  facilities  are leased  under  various  operating  leases.
Rental  expense was $23,027 in 1996.  No such rental  expense was  incurred
in 1995.  Future minimum rental  commitments  under  noncancellable  leases
are:
                                                            Future
                                                            Minimum
                                                             Lease
                                                           Payments
                                                         --------------

                  1997                                    $   43,008
                  1998                                        45,339
                  1999                                        48,046
                  2000                                        48,254
                  2001                                        24,168


13.   REGULATORY MATTERS

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

The district  Federal  Reserve Bank  requires the Bank to maintain  certain
reserve  balances.  As of December 31, 1996 and 1995, the Bank had required
reserves  of  $880,000  and  $603,000   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 10% of the  Bank's  capital  and
surplus.  There were no loans between the Bank and the Company  during 1996
and 1995.
                                       15
<PAGE>

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 1997,  without approval of the Comptroller,  will be
limited  to  $1,478,000  plus net  profits  retained  up to the date of the
dividend declaration.

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

Various  regulatory  agencies  require banks and bank holding  companies to
maintain  minimum capital  amounts and ratios.  These  regulations  require
the  Bank  to meet  specific  capital  adequacy  guidelines  which  involve
quantitative  measures  of the  Bank's  assets,  liabilities,  and  certain
off-balance sheet items as calculated and defined by regulation.

Due to the  size  and  corporate  structure  of the  consolidated  Company,
regulatory  capital  compliance  is monitored  based on the Bank's  capital
structure.  The  following  table sets forth the Bank's  actual  regulatory
capital and ratios,  as well as, the capital and ratios generally  required
for a bank to be considered  adequately  capitalized  under the  regulatory
framework for prompt corrective action:
<TABLE>
<CAPTION>

                                                        Actual                  Required
                                               ------------------------- ----------------------
                                                 Amount        Ratio       Amount       Ratio
                                               ------------ ------------ -----------  ---------
<S>                                             <C>             <C>       <C>            <C>
December 31, 1996

Total capital to risk weighted assets           $11,557,617     15.7%     $ 5,896,480    8.0%
Tier 1 capital to risk weighted assets           10,824,415     14.7        2,948,240    4.0
Tier 1 capital to average assets                 10,824,415      8.7        4,990,340    4.0

December 31, 1995

Total capital to risk weighted assets           $ 9,322,471     15.9%     $ 4,684,480    8.0%
Tier 1 capital to risk weighted assets            8,635,056     14.7        2,342,240    4.0
Tier 1 capital to average assets                  8,635,056      8.7        3,953,204    4.0

</TABLE>

14.   COMMON STOCK

Stock Split
-----------

On June 20, 1996, the Company  effected a four-for-one  split of its common
stock.  As a result of this  transaction,  the authorized and issued number
of shares  increased  from 3,000,000 and 200,000 to 12,000,000 and 800,000,
respectively,  and the par value was reduced  from $5.00 per share to $1.25
per share. All references in the accompanying  financial  statements to the
number of shares and the per share  amounts  have been  restated to reflect
this stock split.

Stock Sale

On December 12, 1996,  the Company  completed the sale of 230,800 shares of
common  stock,  par  value  $1.25.  These  shares  were  sold at a price of
$13.50 per share,  resulting in net proceeds to the Company of  $2,902,578.
Included  in the shares  offered  were 800  shares of stock  which had been
previously held as treasury  shares.  Upon completion of the stock sale the
Company  directly  contributed  $2,800,000  to  the  Bank  in the  form  of
additional paid-in capital.

15.   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
                                       16
<PAGE>
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 at December 31, 1996 and 1995, of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
                                          1996                      1995
                                ----------------------------------------------------
                                  Carrying       Fair       Carrying       Fair
                                   Value        Value        Value        Value
                                ----------------------------------------------------
<S>                             <C>          <C>          <C>          <C>
Financial assets
    Cash and due from banks
    and federal
      funds sold                $  8,241,568 $  8,241,568 $  5,675,347 $  5,675,347
    Investment securities:
      Available for sale          36,207,683   36,207,683   10,111,138   10,111,138
      Held to maturity            10,274,937   10,246,617   16,249,637   16,299,328
    Net loans                     67,694,861   68,583,000   63,634,696   65,317,000
    Accrued interest receivable    1,111,424    1,111,424      753,195      753,195
                                ----------------------------------------------------

                                $123,530,473 $124,390,292 $ 96,424,013 $ 98,156,008
                                ====================================================

Financial liabilities
    Deposits                    $114,724,869 $114,423,000 $ 88,943,560 $ 89,259,000
    Accrued interest payable
                                     320,486      320,486      259,603      259,603
                                ----------------------------------------------------

                                $115,045,355 $114,743,486 $ 89,203,163 $ 89,518,603
                                ====================================================
</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, 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 and Deposits
------------------

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

                                       17
<PAGE>

demand as of year  end.  Fair  value for time  deposits  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 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 12.

16.   PARENT COMPANY
<TABLE>
<CAPTION>
                             CONDENSED BALANCE SHEET

                                                               December 31,
                                                             1996         1995
                                                          -----------  -----------
<S>                                                      <C>          <C>
ASSETS
    Cash on deposit in subsidiary bank                   $   165,835  $    10,024
    Investment in bank subsidiary                         12,539,063    9,019,643
    Other assets                                               2,774        2,630
                                                          -----------  -----------

         TOTAL ASSETS                                    $12,707,672    9,032,297
                                                          ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
    Accounts payable                                     $    76,674  $         -
    Stockholders' equity                                  12,630,998    9,032,297
                                                          -----------  -----------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $12,707,672    9,032,297
                                                          ===========  ===========
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>
                          CONDENSED STATEMENT OF INCOME

                                                          Year Ended December 31,
                                                             1996         1995
                                                          -----------  -----------
INCOME
<S>                                                       <C>         <C>
    Dividends from subsidiary                             $ 325,744   $   359,640

EXPENSES                                                      8,159         7,310
                                                          -----------  -----------
Income before income taxes and equity in undistributed
  earnings of subsidiary                                    317,585       352,330
Income tax benefit
                                                             (2,774)      (2,486)
                                                          -----------  -----------

Income before equity in undistributed earnings in
  subsidiary                                                3 20,359     354,816
Equity in undistributed earnings in subsidiary               660,957     816,786
                                                          -----------  -----------

NET INCOME                                                 $ 981,316  $1,171,602
                                                          ===========  ===========
</TABLE>


<TABLE>
<CAPTION>
                        CONDENSED STATEMENT OF CASH FLOWS

                                                          Year Ended December 31,
                                                             1996         1995
                                                          -----------  -----------

OPERATING ACTIVITIES
<S>                                                        <C>         <C>
    Net income                                             $  981,316  $ 1,171,602
    Adjustments to reconcile net income to net
      cash provided by operating activities:
         Equity in undistributed earnings of subsidiary      (660,957)    (816,786)
         Amortization                                               -        3,097
         Other, net                                            76,530        3,332
                                                          -----------  -----------
           Net cash provided by operating activities          396,889      361,245
                                                          -----------  -----------

INVESTING ACTIVITIES
    Investment in subsidiary                               (2,800,000)           -
                                                          -----------  -----------
           Net cash used for investing activities          (2,800,000)           -
                                                          -----------  -----------

FINANCING ACTIVITIES
    Proceeds from sale of common stock, net of cost         2,902,578            -
    Cash dividends paid                                      (343,656)    (359,640)
                                                          -----------  -----------
           Net cash provided by (used for) financing
             activities                                     2,558,922     (359,640)
                                                          -----------  -----------

           Increase in cash                                   155,811        1,605

 CASH AT BEGINNING OF YEAR                                     10,024        8,419
                                                          -----------  -----------

CASH AT END OF YEAR                                        $  165,835  $    10,024
                                                          ===========  ===========
</TABLE>

                                       19
<PAGE>

                      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,  1996  and  1995,  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, 1996 and 1995,
and the  results  of their  operations  and their  cash flows for the years
then ended in conformity with generally accepted accounting principles.

As  explained  in the  notes  to  the  consolidated  financial  statements,
effective  January 1, 1995,  the Company  changed its method of  accounting
for impaired loans and the related allowance for loan losses.





/s/S. R. Snodgrass, A.C.
S. R. Snodgrass, A.C.
Wexford, PA
February  28, 1997



                                       20
<PAGE>





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

Emclaire  Financial  Corp.  ("Company")  is the parent  holding  company for the
Farmers  National  Bank of  Emlenton  ("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  discussion  and  analysis  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.

                               [GRAPHIC OMITTED]

                             [Amounts in Thousands]

                       1992         1993        1994        1995         1996
                       ----         ----        ----        ----         ----
Assets                 91,520       94,774      96,714      98,599      128,002


OVERVIEW

During 1996, the Company took advantage of several  opportunities  to expand its
branch network.  The Company through its bank subsidiary commenced operations at
two start-up  branch offices,  Bon Aire Plaza in Butler,  and Route 338 in Knox;
and purchased a third office with deposits totaling $14.1 million,  also located
in Knox, from another  commercial bank. These additions  increased the number of
branch  offices  to seven,  and  contributed  greatly  to the  29.82% and 28.99%
increases in total assets and total deposits,  respectively.  In addition,  this
growth  expanded the Company's  market area into central  Butler  county,  while
increasing its market share in western Clarion county.

As part of the branch  expansion,  the Company also upgraded its data processing
capabilities by installing a wide area network  throughout its branch system, to
replace the previous dedicated terminal system; and a teller platform system was
installed. In addition, software was installed for loan originations and deposit
account openings.

To support  the  growth  experienced  during  1996,  in  December,  the  Company
completed the sale of 230,800 shares of common stock,  resulting in net proceeds
of $2.9 million,  of which $2.8 million was directly  contributed to the Bank in
the form of  additional  paid in capital.  Prior to the stock sale,  the Company
effected a four-for-one split of its common stock, in June 1996.

Interest rates in 1996 remained  relatively  stable after declining early in the
year.  This relatively low level of interest rates combined with the increase in
lower yielding earning assets,  principally investment securities purchased with
proceeds  from the branch  purchase,  resulted in a decline in the total and net
yields on earning assets.

RESULTS OF OPERATIONS

Summary

As a result of the costs incurred and capital  investment  made in the expansion
and data  processing  projects,  net income for the year ended December 31, 1996
declined  16.30% to $981,000 or $1.21 per share,  from  $1,172,000  or $1.47 per
share  reported in 1995,  after giving effect for the  four-for-one  stock split
declared in June 1996.

While it is expected the new branch operations will eventually contribute to the
future earnings of the Company,  their short-term  impact resulted in additional
overhead and operating  costs. In addition to the costs  associated with the new
offices,  the Company  hired,  promoted or transferred  additional  personnel to
staff newly created  positions  within the Company.  These positions  included a
chief financial officer,  consumer loan manager,  manager of human resources and
assistant  marketing director.  In addition,  several persons were hired as loan
officers or management trainees at existing branch offices.

Total other operating  expenses for the Company increased 20.99% to $3.6 million
in 1996 as compared to $3.0 million in 1995.  This  increase in other  operating
costs exceeded the increase in net interest  income which rose $295,000 or 6.61%
due  principally  to the  increase in earning  assets,  particularly  investment
securities.

Earnings per share for 1996 decreased 17.69% to $1.21 from $1.47 in 1995, due to
the decrease in net income, combined with additional weighted shares outstanding
due to the sale of  230,800  shares  of common  stock  which  was  completed  in
December 1996.
                                       21
<PAGE>

Net interest income

The Company's net interest income on a tax equivalent  basis increased  $278,000
or 6.10% to $4.8  million in 1996,  due to an  increase  of $644,000 or 8.54% in
interest income on a tax equivalent  basis,  which totaled $8.2 million for 1996
as compared to $7.5 million in 1995.  This increase in interest income more than
offset the $366,000 or 12.26% increase in interest expense.

The increase in interest income in 1996,  resulted primarily from an increase of
$845,000  or 81.72% in  earnings  on taxable  investment  securities,  due to an
increase in the average outstanding  balance of these securities,  which rose to
$30.8  million  for  the  year.  This  62.81%  increase  in  taxable  investment
securities  was  funded by deposit  growth.  In  addition,  the yield on taxable
investment  securities increased 11.72% to 6.10% in 1996 as compared to 5.46% in
1995.  This  increase was the result of the  combination  of changing the mix of
securities held by increasing  investments in corporate debt, slightly extending
the maturities of securities purchased,  and a slight, temporary upturn in rates
experienced in May and June when a number of investment purchases were executed.

The increase in taxable  security  interest  income more than offset declines in
earnings in tax exempt  investment  securities and loans which decreased $41,000
or 16.08% and $198,000 or 3.27%,  respectively,  on a tax equivalent  basis. The
decline in earnings on tax exempt  securities  resulted from  maturities in this
portfolio  being  replaced  with  securities  offering a lower  yield due to the
general decline in interest rates. Management endeavors to maintain a portion of
the  investment  portfolio  in tax exempt  securities  to support debt issues by
local governmental entities and as part of the overall tax planning strategy.

Interest income on loans on a tax equivalent basis declined $198,000 or 3.27% to
$5.9 million  during 1996 as compared to $6.1  million in 1995.  The decrease is
due principally,  to the lower interest rates experienced during 1996, resulting
in a yield  of 9.09%  for the year as  compared  to 9.35% in 1995.  The  average
balance  of the loan  portfolio  for 1996 of $64.4  million  remained  virtually
unchanged from $64.7 million in 1995.  While the average balance at December 31,
1996  approximates that at December 31, 1995, the ending balance at December 31,
1996 of $68.4, as compared to $64.3 at December 31, 1995,  indicates an increase
in loan  demand that should  result in an  increase in loan  interest  income in
1997. While this recent increase in loan demand is promising, future loan demand
is  subject  to a number of  factors,  including  general  economic  conditions,
competition and interest rates.

The  combination of flat interest rates,  and the increase in investable  funds,
which were  placed in the lower  yielding  investment  portfolio,  resulted in a
decline in the yield on earning assets which  decreased  3.65% to 7.93% for 1996
as compared to 8.23% in 1995.

Interest  expense  increased  $366,000 or 12.26% to $3.4 million for 1996,  from
$3.0  million  in  1995,   due  to  the  increase  in  the  average   volume  of
interest-bearing  liabilities which increased $9.7 million during 1996, to $84.9
million.  The average  volume of time deposits  increased $6.8 million or 20.29%
during  1996,  resulting  in an  increase  in the  related  interest  expense of
$333,000 or 18.87%. In addition, in May 1996, in anticipation of the purchase of
the branch office in Knox, a short-term borrowing totaling $4.0 million from the
Federal  Home  Loan  Bank was  incurred  and used for the  purchase  of  taxable
investment securities.

The cost of interest bearing liabilities decreased slightly to 3.95% for 1996 as
compared  to 3.97%  for 1995,  due to the  slight  decrease  in  interest  rates
experienced early in 1996.

As a result of the decline in the yield on total earning  assets,  the net yield
on earning  assets  decreased  5.84% to 4.68% for 1996 as  compared  to 4.97% in
1995.

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):

                                      22
<PAGE>


                AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
                                                                   1996                                       1995
                                                    ---------------------------------------  ---------------------------------------
                                                      Average                    Yield/        Average                     Yield/
                                                      Balance    Interest (2)   Rate (2)       Balance      Interest      Rate (2)
                                                    ------------ ------------- ------------  ------------- ------------ ------------
<S>                                                 <C>            <C>              <C>        <C>          <C>              <C>
ASSETS
Interest-earning assets
     Investment securities
        Taxable                                     $   30,810     $    1,879       6.10%      $   18,924   $    1,034       5.46%
        Exempt from federal income tax                   3,644            214       5.87            4,588          255       5.56
     Interest bearing deposits in other banks               37              2       5.41               38            2       5.26
     Loans  (1)(3)                                      64,414          5,853       9.09           64,701        6,051       9.35
     Federal funds sold                                  4,348            236       5.43            3,408          198       5.81
                                                    ------------ -------------               ------------- ------------  -----------
     Total interest-earning assets                     103,253          8,184       7.93           91,659        7,540       8.23
                                                                 -------------
Noninterest-earning assets
     Cash and due from banks                             3,638                                      3,226
     Allowance for loan losses                            (714)                                      (680)
     Other assets                                        4,101                                      3,188
                                                    ------------                             -------------
        Total assets                                $  110,278                                 $   97,393
                                                    ============                             =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
    NOW accounts                                    $    12,966              267    2.06%      $   12,217          272       2.23%
    Money market accounts                                16,921              544    3.21           16,793          554       3.30
    Savings deposits                                     13,543              373    2.75           12,600          385       3.06
    Time deposits                                        40,266            2,098    5.21           33,473        1,765       5.27
    Obligation under capital lease                          124                7    5.65              162           10       6.17
    Borrowed funds                                        1,128               63    5.59                -                       -
                                                    ------------ -------------               ------------- ------------  -----------
     Total interest-bearing liabilities                  84,948            3,352    3.95          75,245         2,986       3.97
                                                                   -------------                           ------------
Noninterest-bearing liabilities
     Demand deposits                                     15,257                                   13,080
     Other liabilities                                      584                                      431
     Capital                                              9,499                                    8,637
                                                    ------------                             -------------
        Total liabilities and stockholders'
              equity                                 $  110,288                                $  97,393
                                                     ============                             =============
        Net interest income and net yield on
              interest-earning assets                              $       4,832                            $     4,554
                                                                 ===============                           ============
</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.




                                       23


<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.  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. (in thousands)
<TABLE>
<CAPTION>
                                     ANALYSIS OF CHANGES IN NET INTEREST INCOME

                                           1996 Change from 1995     1995 Change from 1994
                                        --------------------------- -------------------------
                                          Total    Change due to     Total   Change due to
                                          Change   Volume    Rate    Change   Volume    Rate
                                        -------- ---------  -------  ------   ------- -------
<S>                                       <C>        <C>      <C>      <C>     <C>     <C>
 INTEREST INCOME ON:
     Taxable investment securities        $ 845      712      133       99       (7)     106
     Non-taxable investments                (41)     (54)      13      (53)     (59)       6
     Interest bearing deposits in other
        banks                                --       --       --        1        1       --
     Loans                                 (198)     (31)    (167)     541      289      252
     Federal funds sold                      38       52      (14)      83       22       61
                                          -----    -----    -----    -----    -----    -----
        Total interest income               644      679      (35)     671      246      425
                                          -----    -----    -----    -----    -----    -----
INTEREST EXPENSE ON:
     NOW accounts                            (5)      17      (22)      (5)      (8)       3
     Money market accounts                  (10)       5      (15)      41
     Savings deposits                       (12)      29      (41)       4
     Time deposits                          333      353      (20)     471      150      321
     Obligation under capital lease          (3)      (2)      (1)       3        7
     Borrowed funds                          63       63     --       --         --       --
                                          -----    -----    -----    -----    -----    -----
        Total interest expense              366      465      (99)     413       48      365
                                          -----    -----    -----    -----    -----    -----
NET INTEREST INCOME                       $ 278      214       64      258      198       60
                                          =====    =====    =====    =====    =====    =====
</TABLE>


Provision for loan losses

The provision  for loan losses of $120,000 for the year ended  December 31, 1996
represented  a 16.08%  decrease from the $143,000  provided in 1995.  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 following  table
presents a summary of loan losses by loan type and changes in the  allowance for
loan losses for the two years ended December 31, 1996 (dollars in thousands):

                                       24
<PAGE>



                                                     Year Ended December 31,
                                                  -----------------------------
                                                         1996     1995
                                                       --------  -------

Total loans outstanding                               $ 68,428  $ 64,322
                                                        ======    ======
Average loans outstanding                               64,414    64,701
                                                        ======    ======

Allowance for loan losses at
     beginning of year                                $    687  $    688
Provision charged to expense                               120       143
Charge-offs:
     Commercial and industrial                              11        10
     Real estate                                             1        55
     Consumer                                              109       140
                                                        ------    ------
        Total                                              121       205
                                                        ------    ------
Recoveries:
     Commercial and industrial                               1         6
     Real estate                                             1        30
     Consumer                                               45        25
                                                        ------    ------
        Total                                               47        61
                                                        ------    ------
     Net charge-offs                                        74       144
                                                        ------    ------

Allowance for loan losses at end of period            $    733  $    687
                                                        ======    ======

Allowance for loan losses as a percent of total loans     1.07%     1.07%
Net charge-offs as a percent of average loans              .11%      .22%


Other operating income

Other  operating  income which is comprised  principally  of fees and charges on
customer  deposit accounts  increased  $38,000 or 9.77% to $427,000 in 1996 from
$389,000 in 1995.  Service  charges on customer  accounts  increased  $48,000 or
16.22 %, due to the increase in the volume and number of deposit accounts. Other
income  decreased  $9,000  during the same period due  primarily to a decline in
fees recognized for the issuance of letters of credit, which fell $4,000.

Other operating expense

Other operating expense increased  $631,000 or 20.99% to $3.6 million in 1996 as
compared to $3.0 million in 1995.  This  increase is largely  attributed  to the
costs  associated with the  establishment,  staffing and operation of the branch
offices  added in 1996,  which  totaled  approximately  $475,000.  The hiring of
personnel not assigned to the new branch office  operations and the installation
of  the  computer  network  system  increased  total  other  operating   expense
approximately $125,000.

Salaries and employee  benefits  for 1996 totaled $1.9  million,  an increase of
$359,000 or 23.23% from $1.5 million  reported in 1995. Of this total  increase,
approximately  $252,000  represented  costs  associated with new employees added
during 1996,  including those at the new branch offices, and $177,000 represents
normal  recurring  employee  cost  increases  for such  things as  salaries  and
hospitalization  insurance.  Increased  employee  costs in 1996 were offset by a
reduction in a  discretionary  bonus paid to employees and officers,  based upon
the Bank meeting  certain  earnings  goals,  which was reduced by  approximately
$70,000  or 49.94%  from that paid in 1995.

Occupancy and equipment  expenses  increased $137,000 or 34.94% in 1996. Of this
increase,  $119,000 is due to  additional  costs related to the operation of the
new branch  offices,  the addition of automatic  teller machines at two existing
offices and an off-site  location,  and  depreciation  costs associated with the
wide area network and teller terminal projects. The remaining $17,000 represents
normal costs for  improvements,  repairs and  maintenance,  along with  periodic
increases in maintenance contracts and service agreements.

                                       25
<PAGE>

Other expense for 1996 totaled $1.2 million,  a $136,000 or 12.72% increase from
the $1.1 million reported in 1995.  Costs associated with the additional  branch
offices primarily  accounted for this increase.  Telephone,  office supplies and
postage increased  $43,000,  $81,000 and $4,000,  respectively.  Amortization of
intangible  assets  increased  approximately  $38,000 due to the purchase of the
Knox branch office.  With the installation of the ATM's,  previously  discussed,
costs associated with  participating in the MAC(R) network  increased $53,000 or
50.79% in 1996.  The  increase  in other  costs  was  lessened  somewhat  by the
reduction in deposit insurance premiums,  which decreased  approximately $99,000
from 1995.

Certain other  expenses  incurred in 1996,  are  considered to be non recurring,
including  costs  associated  with the  opening of the branch  offices  for such
things as professional and regulatory fees, data processing  conversion and free
checks provided to deposit customers  acquired in the branch purchased,  totaled
approximately  $ 32,000  in 1996.  While  these  costs  are not  expected  to be
repeated in 1997, management anticipates recurring costs associated with the new
branch offices and computer  network to increase total other  operating costs an
additional  $568,000 in 1997.  This  increase  reflects the timing of the branch
openings,  which  occurred in the second and third  quarters of 1996,  while the
computer network became operational during the fourth quarter of 1996.

Management  has begun an  assessment of the current data  processing  operation,
including the space occupied by the data processing and bookkeeping  departments
located at the Emlenton office.  The branch expansion in 1996 consumed a sizable
portion of the available  data  processing  capacity.  In assessing  future data
processing  needs,  management  is  considering  the  possibility  of building a
separate facility to house the data processing and bookkeeping operations. A lot
acquired in Emlenton and used for employee  parking is being  considered  as the
site of this possible data processing  center.  Should this site be constructed,
it is expected  future  occupancy  and equipment  costs would  increase for such
items as  depreciation,  maintenance  and  utilities.  However,  at this  time a
detailed estimate of these costs has not been developed.

Income Tax Expense

Income tax expense  decreased  $85,000 or 16.31%  during  1996 when  compared to
1995, due to the 16.26% decline in income before income taxes.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31, 1995

Total assets at December 31, 1996,  amounted to $128.0  million,  an increase of
$29.4  million or 29.82%,  over total assets at December 31, 1995.  The increase
was due principally to funds received in the purchase of the Knox branch office,
combined  with  funds  obtained  through  the  other  branch  offices,  and  the
completion  of the stock  offering  resulting in net  proceeds of $2.9  million.
These funds were used for the purchase of investment  securities and the funding
of loans.

Investment Securities

Total investment  securities  increased $20.1 million or 76.33% to $46.5 million
at December 31, 1996. This increase was in the available for sale classification
which increased $26.1 million to $36.2 million, as all investment purchases made
during 1996 were classified as available for sale.  Held to maturity  investment
securities  fell $6.0 million to $10.3  million  during 1996,  due to funds from
maturities being reinvested in the available for sale classification. While this
increase in available for sale securities does not indicate a fundamental change
from  management's  past  investment  practices,  it does  allow the  investment
portfolio to be used as a tool to provide  additional  liquidity  beyond that of
normal principal and interest payments.  Information detailing the book value of
the  investment  portfolio by security type and  classification  is presented in
Note 3 to the audited consolidated financial statements.

                                [GRAPH OMITTED]

                             [Amounts in Thousands]

    Investments         1992         1993        1994        1995         1996
    -----------         ----         ----        ----        ----         ----

Available for sale         --           --          --      10,111       36,208
Held to maturity       18,795       23,180      25,436      16,250       10,275


Loans

Loans receivable at December 31, 1996 totaled $68.4 million, an increase of $4.1
million or 6.38% from 1995. Of this increase,  $3.3 million was realized  during
the fourth  quarter of 1996.  During the first six months of 1996,  total  loans
decreased  $876,000 from December  1995, as a result of a soft loan market.  The
opening of the three additional  offices during the second and third quarters of
1996, served to increase loan demand, with $3.4 million of the total increase in
loans  originating  from these three offices.  The
                                       26

<PAGE>

following  table  presents  the  composition  of  the  loan  portfolio  and  the
percentage  of  loans  by type  at  December  31,  1996  and  1995  (dollars  in
thousands):

                                [GRAPH OMITTED]

                                 [In Thousands]

                        1992         1993        1994        1995         1996
                        ----         ----        ----        ----         ----
Loans

                       60,365       61,378      64,086      64,322       68,428


<TABLE>
<CAPTION>
                                                                     December 31,
                                               ----------------------------------------------------------
                                                          1996                          1995
                                               ----------------------------  ----------------------------
                                                              % of Loans                     % of Loans
                                                                  to                             to
                                                 Amount       Total Loans      Amount       Total Loans
                                               ------------  --------------  ------------   -------------
<S>                                             <C>            <C>            <C>           <C>
Commercial and industrial                         10,390          15.18%         9,647        15.00%

Commercial and multi-family real estate           11,400          16.66         10,969        17.05

1 - 4 Family real estate                          34,251          50.06         31,196        48.50

Consumer                                          12,387          18.10         12,510        19.45

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

        Total loans                               68,428         100.00%        64,322       100.00%
                                                             ==============                 =============

Less: allowance for loan losses                      733                           687
                                               ------------                  ------------

        Net loans                               $ 67,695                     $  63,635
                                               ============                  ============
</TABLE>



Loan Quality

Loans are continually monitored 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, 1996,  the Bank had $111,000 in loans  greater than 90
days past due and still accruing  interest,  and $778,000 in loans on nonaccrual
status.

Of the  nonaccrual and  nonperforming  loans,  $743,000 in principal  amounts of
loans to a single  customer were  classified as impaired  loans.  Under SFAS No.
114, 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 six  commercial  and  commercial  real  estate  loans  to one
borrower.  The loans are secured by real estate and vehicles.  During 1996,  the
borrower sought  bankruptcy  protection under Chapter 11. However,  the borrower
has yet to file a plan of reorganization.  While management believes the Company
is  adequately  secured  by the  underlying  collateral,  the  lack of a plan of
reorganization and the number of unsecured creditors, is likely to cause a delay
of time before a plan of reorganization can be adopted and implemented.

                                       27
<PAGE>

As part of management's ongoing assessment of its loan portfolio, $80,000 of the
allowance  for loan losses at December  31,  1996 had been  allocated  for these
loans. The following table sets forth  non-performing loans at December 31, 1996
and 1995 along with nonaccrual loan interest data for 1996 (in thousands):

<TABLE>
<CAPTION>

                                                                     December 31,
                                                              ---------------------------
                                                                 1996           1995
                                                              ------------   ------------

Loans past due 90 days or more and
<S>                                                            <C>            <C>
     accruing                                                  $    111       $      77
Nonaccrual loans                                                    778            194
                                                              ------------   ------------

     Non performing loans                                      $    889            271
                                                              ============   ============

Non-performing loans to total loas                                 1.30%           .42%
Allowance for loan losses to non-
     performing loans                                             82.45%        253.51%
Non-performing loans to total assets                                .69%           .27%

Nonaccrual loan interest data:
     Interest computed on original terms                       $      92
                                                              ============
     Interest recognized in income                             $      14
                                                              ============
</TABLE>

At December 31, 1996,  no real estate or other assets were held as foreclosed or
repossessed property.  In addition,  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,  as well as,  the
current risk elements in the loan portfolio,  management  believes the allowance
for loan losses at December 31, 1996 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,
                                               ----------------------------------------------------------------
                                                            1996                             1995
                                               -------------------------------  -------------------------------
                                                                 % of Loans                       % of Loans
                                                                     to                               to
                                                  Amount        Total Loans        Amount         Total Loans

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

<S>                                            <C>                    <C>       <C>                    <C>
Commercial and industrial                      $         106           15.18%   $         158           15.00%
Commercial & multi-family real estate                    158           16.66               87           17.05
1-4 family real estate                                    13           50.06               33           48.50
Consumer                                                 106           18.10              113           19.45
Unallocated                                              350               -              296               -
                                               --------------  ---------------  --------------   --------------
                                               $         733          100.00%   $         687          100.00%
                                               ==============  ===============  ==============   ==============
</TABLE>

                                       28

<PAGE>


Deposits

Total deposits of $114.7 million at December 31, 1996 represented an increase of
$25.8  million or 28.99% from  December  31,  1995.  The increase in deposits is
principally related to the branch offices opened or acquired in 1996.

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 1996 and 1995. The following table presents a maturity  schedule for time
deposits of $100,000 and over at December 31, 1996 (dollars in thousands):

                                [GRAPH OMITTED]

                             [Amounts in Thousands]

                        1992         1993        1994        1995         1996
                        ----         ----        ----        ----         ----
Deposits               84,014       86,996      87,986      88,944      114,725



                                                          Certificates
   Maturity Period                                        of Deposit
-----------------------------------------------           ---------------

Within ninety days                                        $   1,138

Three Months to  one year                                     2,025

Greater than one year                                         1,420
                                                          ---------

     Total                                                $   4,583
                                                          =========

Stockholders' Equity

Stockholders'  equity  increased  $3.6  million or 39.84%  during  1996 to $12.6
million.  This increase was the result of the net proceeds of the stock offering
of approximately $2.9 million combined with net retained income of $637,000.

                                [GRAPH OMITTED]

                             [Amounts in Thousands]

                        1992         1993        1994        1995         1996
                        ----         ----        ----        ----         ----
Equity                 6,654        7,397       8,155       9,032       12,631

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.
These  differences,  or interest rate repricing "gap",  provide an indication to
the extent to which net interest income could be effected by changes in interest
rates.  During a period of rising  interest  rates a positive gap (a point where
interest-earning  assets  are  greater  than  interest-bearing  liabilities)  is
desirable.  A falling  interest  rate  environment  would  favor a negative  gap
position (a point where  interest-earning  assets are less than interest-bearing
liabilities).  However,  not all assets and liabilities with similar  maturities
and repricing opportunities will reprice at the same time or to the same degree.
As a result, the Company's gap position does not necessarily  predict the impact
on net interest income given a change in interest rate levels.

The following  table sets forth the Company's gap position for December 31, 1996
based upon contractual repricing opportunities or maturities, with variable rate
products  measured to the date of the next  repricing  opportunity as opposed to
contractual maturities. Fixed rate products are measured to contractual maturity
considering  scheduled  payment  amortization  for fixed rate loans  (dollars in
thousands):

                                       29
<PAGE>
<TABLE>
<CAPTION>
                                                                           At December 31, 1996
                                              -------------------------------------------------------------------------------
                                                            0-90     91 Days -    1 - 3       3 - 5      5 - 10      Over
                                               Balance      Days       1 Year     Years       Years      Years     10 Years
                                              ---------- ----------- ---------- ----------- ---------- ----------- ----------
<S>                                           <C>        <C>         <C>        <C>         <C>        <C>              <C>
ASSETS
Interest bearing deposits                     $       30 $       30  $        - $         - $        - $         -
Federal funds sold                                 3,500       3,500
Investment securities (2)                         45,890       2,193      7,752      18,687     17,044         214          -
Loans (1)                                         68,428      21,078      6,774      12,481      8,507      13,458      6,130
                                              ---------- ----------- ---------- ----------- ---------- ----------- ----------
Total earning assets                             117,848      26,801     14,526      31,168     25,551      13,672      6,130
                                              ---------- ----------- ---------- ----------- ---------- ----------- ----------
LIABILITIES
Interest bearing demand                           15,784      15,784          -           -          -           -          -
Savings                                           14,168      14,168          -           -          -           -          -
Money market funds                                19,059      19,059          -           -          -           -          -
Certificates greater than $100,000                 4,583       1,138      2,025       1,252        168           -          -
Other time deposits                               43,481       9,398     18,401      12,007      3,561         114          -


Capital lease obligation                             104          10         31          63          -           -          -
                                              ---------- ----------- ---------- ----------- ---------- ----------- ----------
     Total interest bearing liabilities           97,179      59,557     20,457      13,322      3,729         114          -
                                              ---------- ----------- ---------- ----------- ---------- ----------- ----------

Interest rate sensitivity gap                     20,669     (32,756)    (5,931)     17,846     21,822      13,558      6,130
Cumulative interest rate sensitivity gap                     (32,756)    (38,687)   (20,841)       981      14,539     20,669
Rate sensitive assets/rate sensitive liabilities               45.00%      71.01%    233.96%    685.20%     11,933%       N/A

Interest rate sensitivity gap/total assets                    (25.59)%     (4.63)%    13.94%     17.05%      10.59%      4.79%
Cumulative rate sensitivity gap/total assets                  (25.59)%    (30.22)%  (16.28)%       .77%      11.36%     16.15%
</TABLE>

(1)  Includes nonaccrual loans.
(2)  Includes debt  securities  available for sale at amortized  cost.  Excludes
     Federal Reserve and FHLB stock.

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 financial statements presented elsewhere herein,  provided $959,000
in cash during 1996,  generated  principally from net income, as compared to the
$1,895,000  provided  during 1995. The primary  reasons for the decrease  during
1996 was the  increase of accrued  interest  receivable  due to the  increase in
investment  securities  which  generally  pay  interest  semi-annually,  and the
decline in net income.

Investing activities consist primarily of loan originations and repayments,  and
investment  purchases and  maturities.  These  activities  used $12.5 million in
funds during 1996,  principally for the purchase of investment  securities which
totaled  $29.3  million and the net funding of loans which  totaled $4.2 million
for the year.  These cash outlays exceeded funds received in the purchase of the
Knox branch office which totaled $12.7  million,  and $9.0 million of investment
repayments and  maturities.  For 1995,  investing  activities used $1.3 million,
resulting  from $7.6  million in  investment  securities  purchases,  which were
principally  funded  by  $6.5  million  in  investment   maturities.   Financing
activities  consist of the  solicitation  and  repayment  of customer  deposits,
borrowings and  repayments and the payment of dividends,  and for 1996, the sale
of common  stock.  During 1996,  financing  activities  yielded $11.6 million in
funds,  derived  from an increase in deposit  accounts,  exclusive  of the funds
acquired in the branch purchase. In addition,  the sale of common stock provided

                                       30

<PAGE>

net proceeds of  approximately  $2.9 million.  During 1995,  financing  provided
$561,000  derived from a net increase in deposits of $957,000 which exceeded the
payment of dividends.

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 are available  lines of credit through the
FHLB,  along with a federal  funds line of credit  available  through the Bank's
primary  correspondent  bank. In addition,  the Bank has access to funds through
the discount window at the Federal  Reserve Bank.  During 1996, the Company used
short-term  borrowings to fund investment  purchases made in anticipation of the
purchase of the Knox branch office.  Information detailing the average volume of
these  borrowings  is  presented  in  Note 11 of the  accompanying  consolidated
financial  statements.  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  yield  and  maturities  at  December  31,  1996  (dollars  in
thousands):

<TABLE>
<CAPTION>

Available for Sale                                         After 1 Year   After 5 Years
                                              Within          Within          Within          After
                                              1 Year          5 Years        10 Years       10 Years         Total
                                           -----------------------------------------------------------------------------

<S>                                        <C>             <C>            <C>             <C>            <C>
U. S. Treasury                             $       5,053   $      12,484  $            -  $           -  $       17,537
U. S. Government Agency                            1,000           5,002               -              -           6,002
Obligations of states and political
     subdivisions                                      -           1,705             215              -           1,920
Corporate                                              -          10,157               -              -          10,157
                                           --------------  -------------- --------------- -------------- ---------------
        Total                                      6,053          29,348             215              -          35,616
                                           ==============  ============== =============== ============== ===============

        Yield                                       5.66%           6.32%           4.55%           N/A            6.20%

Held to Maturity
U. S. Treasury                                     1,004           1,008               -              -           2,012
Obligations of states and political
     subdivisions                                  1,740           1,390               -              -           3,130
Corporate                                            504           3,024               -              -           3,528
Mortgage-backed securities                             -             960               -            645           1,605
                                           --------------  -------------- --------------- -------------- ---------------

        Total                              $       3,248   $       6,382  $            -  $         645  $       10,275
                                           ==============  ============== =============== ============== ===============

        Yield                                       4.64%           5.62%             N/A          7.60%           5.43%

</TABLE>
                                       31

<PAGE>

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, 1996 (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                  $       6,498     $       3,414    $         478    $   10,390
Commercial and multi-family real estate              417             1,444            9,539        11,400
                                           ---------------   ---------------  ---------------  ------------
                                           $        6,915    $        4,858   $       10,017   $    21,790
                                           ===============   ===============  ===============  ============

Predetermined interest rates               $          636    $        4,123   $        4,070   $     8,829
Floating interest rates                             6,279               735            5,947        12,961
                                           ---------------   ---------------  ---------------  ------------
                                           $        6,915    $        4,858   $       10,017   $    21,790
                                           ===============   ===============  ===============  ============
</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,
1996, loan and letter of credit commitments totaled $7.9 million.  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. Certificates
of deposit  scheduled  to mature in one year or less  totaled  $30.9  million at
December 31, 1996.

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, 1996.

The Bank's regulatory  capital position at December 31, 1996, as compared to the
minimum  regulatory  capital   requirements  imposed  on  the  Bank  by  banking
regulators  at that date is presented in Note 13 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.

Impact of recent accounting pronouncements

In June 1996, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
125,   "Accounting   for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishments   of  Liabilities"  (SFAS  No.  125).  This  statement  provides
consistent  standards for distinguishing  transfers of financial assets that are
sales from transfers  that are secured  borrowings  based on a  control-oriented
"financial  components"  approach.  Under this  approach,  after a  transfer  of
financial  assets,  an entity  recognizes the financial and servicing  assets it
controls and  liabilities it has incurred,

                                       32

<PAGE>


derecognizes financial assets when control has been surrendered and derecognizes
liabilities when extinguished.  The provisions of SFAS No. 125 are effective for
transactions occurring after December 31, 1996, except those provisions relating
to repurchase agreements, securities lending, and other similar transactions and
pledged  collateral,  which have been delayed  until after  December 31, 1997 by
SFAS No. 127,  "Deferral of the  Effective  Date of Certain  Provisions  of FASB
Statement No. 125, an Amendment of FASB Statement No. 125".

In March 1997,  the FASB issued SFAS No.  128,  "Earnings  per Share"  (SFAS No.
128). This statement,  which replaces Accounting  Principles Board Statement No.
15, is intended to simplify the  computation  of earnings  per share  ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS. SFAS
No. 128 requires  dual  presentation  of basic and diluted EPS by entities  with
complex  capital  structures.  Basic EPS includes no dilution and is computed by
dividing income available to common stockholders by the weighted-average  number
of common shares outstanding for the period.  Diluted EPS reflects the potential
dilution of securities  that could share in the earnings of the entity,  similar
to fully  diluted  EPS.  SFAS No. 128 is  effective  for  periods  ending  after
December 15, 1997.

In March 1997, the FASB issued SFAS No. 129,  "Disclosure  of Information  about
Capital  Structure"  (SFAS No. 129).  This  statement is intended to consolidate
existing capital disclosure  requirements,  and contains no change in disclosure
requirements  for  entities  that  were  subject  to  the  previously   existing
requirements.  SFAS No. 129 is effective for periods  ending after  December 15,
1997.

The adoption of these  statements  is not expected to have a material  impact on
the Company's financial position or results of operation.

COMMON STOCK INFORMATION

Prior to December 1996,  there was no established  public trading market for the
Company's common stock. In December 1996, the Company began trading its stock in
the local over-the-counter market through the National Association of Securities
Dealers OTC Electronic  Bulletin Board.  Price quotations for the fourth quarter
of 1996,  reflect  inter-dealer  prices,  without retail  mark-up,  mark-down or
commission  and may not  represent  actual  transactions.  The  following  table
summarizes  the high and low prices and dividend  information  since  January 1,
1995,  after  adjustment  for the 4-for-1  stock split  effected  June 20, 1996.
Prices are based upon information made available to the Company.  Cash dividends
are declared on a quarterly basis.

<TABLE>
<CAPTION>
                                                        1996                                     1995
                                       ---------------------------------------  ---------------------------------------
                                                                   Dividend                                 Dividend
                                          High          Low        Declared        High          Low        Declared
                                       ------------ ------------ -------------  ------------ ------------  ------------

<S>                                    <C>          <C>          <C>            <C>          <C>           <C>
First Quarter                          $         -  $         -  $        .10   $         -  $         -   $       .10
Second Quarter                               11.25        11.25           .11             -            -           .10
Third Quarter                                    -            -           .11         10.50        10.50           .10
Fourth Quarter (1)                            13.50        13.00          .11             -            -           .15
</TABLE>

(1) - Includes a $.05 special dividend declared in the fourth quarter of 1995.

At December 31, 1996, the Company had approximately 590 shareholders of record.

                                       33
<PAGE>



BOARD OF DIRECTORS


Ronald L. Ashbaugh
Retired President
Emclaire Financial Corp. and
Farmers National Bank

Dr. Clinton R. Coulter
Retired Medical Doctor

David L. Cox
President, Emclaire Financial Corp.
President, Farmers National Bank

Bernadette H. Crooks
Consultant - Crooks Clothing Store

George W. Freeman
Freeman's Tree Farm

Rodney C. Heeter
Heeter Lumber, Co.

Robert L. Hunter
Hunter Truck Sales and Service
Hunter Leasing

J. Michael King
Senior Partner
Lynn, King & Schreffler
Attorneys at Law

John B. Mason
H. B. Beels & Sons, Inc.

Elizabeth C. Smith
Retired
Former Owner-The Inn at Oakmont

The above listed  persons are members of the Board of Directors of both
the Company and the Bank.

EXECUTIVE OFFICERS

Emclaire Financial Corp.

David L. Cox
President and Chief Executive Officer

Ronald L. Larimore
Secretary

John J. Boczar, CPA
Treasurer

Farmers National Bank

David L. Cox
President and Chief Executive Officer

Ronald L. Larimore
Vice President /Cashier and Chief Operations Officer

John J. Boczar, CPA
Vice President and Chief Financial Officer

Robert W. Foust
Vice President and Branch Administrator

Other Officers

Edith M. Beckwith
Manager - Eau Claire

Ray  K. Cornelius
Manager - Collections

Scott B. Daum
Manager - Human Resources

Janice F. Dittman
Manager - Data Processing

Cindy L. Elder
Assistant Vice President
Manager - Emlenton

Allan I. Johnson
Manager - Knox

James W. LeVier
Assistant Vice President
Compliance Officer

Thomas E. McFadden
Assistant Vice President
Assistant Cashier

Troy J. Moore
Acting Manager - East Brady

Fred S. Port
Manager - Clarion

Joseph M. Sporer
Assistant Vice President
Manager - Consumer Loans

Robert A. Vernick
Assistant Vice President
Manager - Bon Aire

ANNUAL MEETING

The Annual Meeting of Shareholders  of Emclaire  Financial Corp. will be held at
the Holiday Inn, I-80 and Rt. 68, Clarion  Pennsylvania,  on Wednesday,  May 21,
1997 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
412/867-2311

INVESTOR INFORMATION

Emclaire  Financial Corp. common stock is traded 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

                                             Elmer 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

       Emlenton                  Eau Claire                      Clarion
   612 Main Street        207 S. Washington Street        Sixth & Wood Streets
  Emlenton, PA 16373        Eau Claire, PA 16030            Clarion, PA 16214
     412/867-2311               412/791-2591                  814/226-7523
      East Brady                   Butler                  Knox - 2 Locations
Broad & Brady Streets          Bon Aire Plaza                 Rt. 338 South
 East Brady, PA 16028      1101 North Main Street            Knox, PA 16232
     412/526-5793             Butler, PA 16003                814/797-2200
                                412/286-4666                       and
                                                          Main & State Streets
                                                             Knox, PA 16232
                                                              814/797-1136
                                       34