EXHIBIT 13

Annual Report to Stockholders for the fiscal year ended December 31, 2002

EMCLAIRE FINANCIAL CORP.

2002

Table of Contents

       Consolidated Financial Highlights...................................................................1
       Chairman's Letter...................................................................................2
       Selected Consolidated Financial Data................................................................3
       Customer Service...Staying the Course...............................................................4
       Management's Discussion and Analysis of
                Financial Condition and Results of Operations..............................................6
       Consolidated Financial Statements..................................................................21
       Notes to Consolidated Financial Statements.........................................................25
       Report of Independent Auditors.....................................................................43
       Stock and Dividend Information.....................................................................44
       Corporate Information..............................................................................45
       Board of Directors and Officers....................................................................46
       Office Locations and Branch Managers................................................Inside Back Cover

Corporate Profile

Emclaire Financial Corp. (OTCBB: EMCF), a publicly traded Pennsylvania corporation and bank holding company, provides a wide range of retail and commercial financial products and services to customers in western Pennsylvania through its wholly owned subsidiary bank, the Farmers National Bank of Emlenton.

The Farmers National Bank of Emlenton is an FDIC-insured national banking association, which conducts business through ten offices in Venango, Butler, Clarion, Clearfield, Elk and Jefferson counties, Pennsylvania. To complement retail operations conducted through its bank offices, the Corporation also invests in U.S. Government, municipal, mortgage-backed and corporate marketable securities primarily through its subsidiary bank.

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

                                                     As of or for the
                                                  year ended December 31,
                                                   2002           2001         Change
                                                 ----------    -----------    ---------

       Balance Sheet:

          Total assets                            $238,577       $216,717           10%
          Loans receivable, net                    169,557        160,540            6%
          Total deposits                           204,425        189,470            8%
          Stockholders' equity                      22,680         21,111            7%
          Stockholders' equity per share             17.02          15.84            7%

       Income Statement:

          Net income                                $2,257         $1,705           32%
          Net interest income                        9,492          8,492           12%
          Net income per share                        1.69           1.28           32%
          Cash dividends per share                    1.03           0.70           47%

       Key Ratios:

          Return on average assets                    0.99%          0.84%          18%
          Return on average stockholders' equity     10.21%          8.35%          22%
          Efficiency ratio                           64.98%         69.58%         (7%)

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

         Asset & Loan Growth                Deposit and Equity Growth

        1998  1999 2000 2001 2002           1998 1999 2000 2001 2002
Assets  $194  $192 $194 $217 $239  Deposits $170 $168 $171 $189 $204

Loans $134 $139 $152 $161 $170 Equity $21 $21 $20 $21 $23

Dear Stockholders and Friends:

David L. Cox Chairman, President and CEO

The year 2002 was an indication what hard work, planning, and dedicated employees can accomplish. Over the last several years, we have been building a management team and a vision to lead us into the future as a community bank. This year we witnessed a result of the effort we have put forth over the past several years. Net income increased over 30% and we achieved a record earnings year. Deposit growth was strong, increasing 8% and loans increased almost 6%. The record earnings allowed us to declare a special dividend to shareholders in the fourth quarter as an indication of our continued success.

The vision we have been building over the past several years is to be the "number one community bank in western Pennsylvania". The strong growth and increased earnings are indications we are having success in this area. We planned and opened a new office in the Butler area to help us succeed in our vision. Our office at the intersection of route 68 and Meridian road opened on January 23, 2003. This is our first office attached to a convenience store and will offer customers in the Butler and Meridian area another avenue for banking with a community bank.

In 2002, we also began a major remodeling project in the Emlenton Office. When completed, Emlenton will see a new and expanded office, loan processing department, and enhanced executive and board offices. This project was undertaken not only to provide a better facility for our Emlenton customers, but also to show our commitment to the Emlenton community and to our dedication to remain an independent community bank. Lee Ligo of Slippery Rock was chosen to design the renovations and Joe McNany of Emlenton is the general contractor. We are working closely with the Historical Society to restore the original look of the outside of the building. We hope to have this project completed by mid year and look forward to an open house that will show off our newly remodeled facility.

We continue to bring new products to our customers. We had been working on a new internet banking product in 2002 and have now introduced it to our customers in January 2003. This product will offer our customers the convenience of doing their banking from their home or from anywhere in the world. It includes the ability to review balances and statements, transfer funds between accounts, and to utilize bill payments over the internet. This type of product is a great addition to the others we offer, such as telephone banking and debit cards. We have the unique opportunity to offer technology that circumvents the globe with a hometown attitude.

Our employees continue to be one of the most important keys to our success. The past year was one of becoming more efficient with our staff. We are consolidating our two branches in Clarion and we are also using more part-time employees to help serve our customers more efficiently. The employees have been very supportive and the board of directors and management remain dedicated to the needs of our employees. By having a loyal and dedicated staff, we are able to offer excellent customer service. This translates into more efficiency and better shareholder value. We can see the results of these changes in our profitable performance over the past year. We are positioned to continue to grow in the future, with dedicated employees, strong capital, and the ability to compete in a very competitive market. I would like to thank all the shareholders for their continued confidence and support of our efforts.

Very truly yours,

/s/ David L. Cox

David L. Cox
Chairman of the Board,
President and Chief Executive Officer                           January 29, 2003

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

                                                             -------------------------------------------------------
                                                                               As of December 31,
Financial Condition Data                                           2002       2001       2000       1999     1998(3)
------------------------                                     -------------------------------------------------------

   Total assets                                                $238,577   $216,717   $194,165   $192,004   $192,132
   Securities                                                    48,748     38,755     26,688     34,838     31,421
   Loans receivable, net                                        169,557    160,540    150,332    138,089    132,913
   Deposits                                                     204,425    189,470    171,125    168,425    169,870
   Borrowed funds                                                10,000      5,000      2,000      2,000      2,000
   Stockholders' equity                                          22,680     21,111     20,045     20,804     21,101
   Stockholders' equity per common share                         $17.02     $15.84     $15.04     $15.11     $15.12
   Tangible stockholders' equity per common share                $15.82     $14.54     $13.53     $12.87     $12.81

                                                             -------------------------------------------------------
                                                                         For the year ended December 31,
Operations Data                                                    2002       2001      2000(1)     1999     1998(3)
---------------                                              -------------------------------------------------------

   Interest income                                              $14,653    $14,589    $14,402    $13,652    $11,343
   Interest expense                                               5,161      6,097      5,832      5,647      4,669
                                                             ----------- ---------- ---------- ---------- ----------
   Net interest income                                            9,492      8,492      8,570      8,005      6,674
   Provision for loan losses                                        381        154        209        162        200
                                                             ----------- ---------- ---------- ---------- ----------
   Net interest income after provision for loan losses            9,111      8,338      8,361      7,843      6,474
   Noninterest income                                             1,400      1,339      1,187        860        793
   Noninterest expense                                            7,420      7,254      8,977      6,167      5,354
                                                             ----------- ---------- ---------- ---------- ----------
   Net income before income taxes                                 3,091      2,423        571      2,536      1,913
   Provision for income taxes                                       834        718        567        782        590
                                                             ----------- ---------- ---------- ---------- ----------

   Net income                                                    $2,257     $1,705         $4     $1,754     $1,323
                                                             =========== ========== ========== ========== ==========

      Average common shares outstanding                       1,332,835  1,332,835  1,348,210  1,394,473  1,186,540
      Net income per common share                                 $1.69      $1.28      $0.00      $1.26      $1.12
      Dividends per share (4)                                     $1.03      $0.70      $0.62      $0.57      $0.50

                                                             -------------------------------------------------------
                                                                    As of or for the year ended December 31,
Other Data                                                         2002       2001      2000(1)     1999     1998(3)
----------                                                   -------------------------------------------------------

   Performance Ratios
      Return on average assets                                     0.99%      0.84%         -       0.90%      0.85%
      Return on average equity                                    10.21%      8.35%      0.02%      8.27%      8.08%
      Yield on interest-earning assets (2)                         6.93%      7.69%      8.04%      7.70%      7.94%
      Cost of interest-bearing liabilities                         2.99%      3.99%      4.06%      3.89%      4.02%
      Cost of funds                                                2.53%      3.35%      3.38%      3.29%      3.36%
      Interest rate spread (2)                                     3.94%      3.70%      3.98%      3.81%      3.92%
      Net interest margin (2)                                      3.94%      4.52%      4.83%      4.56%      4.71%
      Efficiency ratio (2)                                        64.98%     69.58%     86.99%     64.01%     65.63%
      Noninterest expense to average assets                        3.25%      3.56%      4.62%      3.18%      3.43%
      Interest-earning assets to average assets                   94.65%     94.42%     93.39%     92.71%     92.56%
      Loans to deposits                                           82.94%     84.73%     87.85%     81.99%     78.24%
      Dividend payout ratio (4)                                   60.95%     54.72%         -      45.24%     44.64%
   Asset Quality Ratios
      Non-performing loans to total loans                          0.68%      0.78%      0.59%      0.50%      0.98%
      Non-performing assets to total assets                        0.49%      0.58%      0.48%      0.42%      0.72%
      Allowance for loan losses to total loans                     0.93%      0.90%      0.96%      0.98%      1.00%
      Allowance for loan losses to non-performing loans          136.81%    117.59%    162.22%    195.31%    102.06%
   Capital Ratios
      Stockholders' equity to assets                               9.51%      9.74%     10.32%     10.84%     10.98%
      Tangible stockholders' equity to tangible assets             8.90%      9.01%      9.38%      9.38%      9.47%
      Average equity to average assets                             9.69%     10.02%     10.71%     10.94%     10.50%

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

(1) Exclusive of $2.0 million ($1.8 million net of applicable income tax benefits) in charges for the write-down of an intangible asset assessed as impaired of $1.6 million and a decline in the value of a marketable security determined to be other than temporary of $448,000, net income, noninterest expense, return on average assets, return on average equity, noninterest expense to average assets, and efficiency ratio would have been $1.8 million, $6.5 million, 0.94%, 8.77%, 3.36% and 65.32%, respectively, for the year ended December 31, 2000.
(2) Interest income utilized in calculation is on a fully tax equivalent basis.
(3) In August 1998 the Corporation acquired Peoples Savings Financial Corporation.
(4) Includes $0.25 per share special cash dividend paid in December 2002.

Community banking remained the focus throughout 2002 and now into 2003. In all aspects of the Bank's operations - from customer satisfaction to new product development, from community involvement to expanding our service area, and from employee development to system enhancement - the Farmers National Bank of Emlenton's vision to be the Number One Community Bank in Western Pennsylvania has continued.
To reinforce and realize the Bank's vision during the past year, the Bank sponsored employee meeting nights, continued the "Donuts with Dave" employee and President meeting program, encouraged customer and community feedback through the "Tell it to the President" campaign, introduced a new home equity loan product and began construction on improvements to the Bank's main office and corporate headquarters. During early 2003, the Bank launched Internet banking and opened a new branch office in Butler, Pennsylvania.
During 2002, management sponsored two employee "Vision" nights where all employees and management met to review past accomplishments and set forth future goals. In June, with a baseball field as the backdrop and all Farmers employees wearing team hats and shirts, our emphasis was on the importance of all 102 employees moving in unison to accomplish organizational goals. Management discussed and reviewed objectives on how each team member was integral to the Bank's success. In the fall, a second vision night focused on the various departments and branch offices of the Bank. Each area exhibited - through skits, presentations, poems and songs - the positive aspects that make Farmers National Bank a special place to work and bank.
At the end of the evening, a video tied all the teams together presenting one team working to be the number one community bank in Western Pennsylvania.
Again this year, employees had the chance to meet regularly in small groups with Dave Cox, the Bank's President, to discuss current issues and concerns during "Donuts with Dave" meetings. These informal meetings provide Dave with direct feedback and the opportunity to discuss the organization as well as offering a forum for direct employee questions. This program, in place for a couple of years, has proven to be successful in facilitating management-employee communication.
Farmers is not only concerned with employee feedback, but also wants to know what customers and the community are thinking about the Bank and the service received. The "Tell it to the President" campaign addressed this issue. Displays and feedback cards were strategically placed throughout the branch offices, affording customers the opportunity to fill out a card and drop it in the box. All cards were reviewed and addressed directly by Dave. The results of this campaign were positive and served as a good barometer of what customers are thinking.

A Home Equity Loan Campaign was also offered during the year in an old-fashioned lighthearted way. This campaign read "Are you steamed over high credit card bills?" and presented customers a great home equity loan product as well as a free iron with each loan application. The results were quite favorable as this campaign generated more than 150 loan accounts during a three-month period.
Farmers demonstrated its commitment to the local area and to providing a safe, pleasant place to bank and work with the commencement of a $1 million renovation project for its main office and corporate headquarters in Emlenton, Pennsylvania. This project, reviewed by management and the Board of Directors throughout 2002 and started in December 2002, will provide historical significance to the Emlenton area as the historic integrity of the building is being restored. Included in the renovations of this 100 year-old building is an expanded and improved lobby as well as enhanced, more efficient corporate and administrative offices. The Bank is working with a local architect, contractors and state and federal historic agencies to complete this project by mid-year 2003.
Internet banking @ www.farmersnb.com was launched in January 2003 as another service convenience to customers. This service allows customers to go on-line to check account balances or transfer funds 24 hours a day, seven days a week. Customers can also download financial information from other financial software packages and pay bills and order new checks on-line from their home, business or other location.
Farmers' commitment to providing expanded service and to growing our franchise was evidenced by the recent opening of its newest office on Meridian Road in Butler, Pennsylvania. This full service office with three drive-thru lanes and an automatic teller machine will serve the east-Butler area. A dignitary night kicked off the opening in late-January 2003.
We will continue to seek favorable growth investment opportunities, similar to this new Meridian Office, as we move forward to expand our franchise and service area.
The Farmers National Bank of Emlenton's commitment to community banking is paying off as we continue to grow after more than 102 years of operation. "Serving this Area from this Area" is more than Farmer's slogan, it's the way we do business.

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

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

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

Discussions of certain matters in this Annual Report and other related year end documents may constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve risks and uncertainties. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations, are generally identifiable by the use of words or phrases such as "believe", "plan", "expect", "intend", "anticipate", "estimate", "project", "forecast", "may increase", "may fluctuate", "may improve" and similar expressions of future or conditional verbs such as "will", "should", "would", and "could". These forward-looking statements relate to, among other things, expectations of the business environment in which the Corporation operates, projections of future performance, potential future credit experience, perceived opportunities in the market, and statements regarding the Corporation's mission and vision. The Corporation's actual results, performance, and achievements may differ materially from the results, performance, and achievements expressed or implied in such forward-looking statements due to a wide range of factors. These factors include, but are not limited to, changes in interest rates, general economic conditions, the demand for the Corporation's products and services, accounting principles or guidelines, legislative and regulatory changes, monetary and fiscal policies of the U.S. Government, U.S. Treasury, and Federal Reserve, real estate markets, competition in the financial services industry, attracting and retaining key personnel, performance of new employees, regulatory actions, changes in and utilization of new technologies, and other risks detailed in the Corporation's reports filed with the Securities and Exchange Commission (SEC) from time to time, including the Quarterly Reports on Form 10-QSB. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. The Corporation does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

Total assets increased $21.9 million or 10.1% to $238.6 million at December 31, 2002 from $216.7 million at December 31, 2001. This increase was primarily due to increases in securities of $10.0 million, and loans receivable of $9.0 million. Also contributing to the increase in total assets was the purchase of $4.0 million in bank-owned life insurance during the third quarter of 2002. Partially offsetting the net increase in assets was a decrease in cash and cash equivalents of $1.4 million as these funds were utilized, in part, to fund growth in the aforementioned earning-asset categories.

The increase in the Corporation's total assets was primarily funded by increases in total liabilities of $20.3 million or 10.4% and total stockholders' equity of $1.6 million or 7.4%. The increase in total liabilities was primarily due to increases in customer deposits of $15.0 million or 7.9% and borrowed funds of $5.0 million. This increase in deposits, experienced industry-wide, reflects lower stock market returns in recent years and the corresponding desire of customers to seek the safety of government insured bank deposits.

Cash and cash equivalents. Cash on hand, interest-earning deposits and federal funds sold decreased a combined $1.4 million or 15.7% to $7.7 million at December 31, 2002 from $9.2 million at December 31, 2001. These accounts are typically increased by net operating results, deposits by customers into savings and checking accounts, loan and security repayments and proceeds from borrowed funds. Decreases result from customer deposit withdrawals, new loan originations or other loan fundings, security purchases, repayments of borrowed funds and cash dividends to stockholders. The decrease experienced during 2002 was a direct result of funding shorter-term higher yielding investment securities, loan growth and concerted efforts by management to reduce the levels of non-earning cash reserves maintained in the Bank's branch network.

Securities. Securities increased $10.0 million or 25.8% to $48.7 million at December 31, 2002 from $38.8 million at December 31, 2001. This net increase resulted from security purchases totaling $42.6 million, comprised of purchases of short-term commercial paper, U.S. Government agency and municipal securities of $17.3 million, $20.0 million and $5.3 million, respectively, during 2002. Partially offsetting the net increase in securities were security maturities and calls totaling $33.5 million, comprised of commercial paper, U.S. Government agency and municipal securities of $17.3 million, $15.5 million and $715,000, respectively, during 2002. Also contributing to the change in securities for the year was an increase in the unrealized gain on securities available for sale. The overall increase in securities for the year resulted from management deploying funds obtained through deposit growth as well as borrowed funds, that outpaced loan production, into marketable securities within targeted maturity terms and where optimal yields could be realized.

Loans receivable. Net loans receivable increased $9.0 million or 5.6% to $169.6 million at December 31, 2002 from $160.5 million at December 31, 2001. This increase can be attributed to growth in the Corporation's commercial loan portfolios. Commercial real estate loans increased $8.5 million or 32.2% and commercial business loans increased $1.1 million or 5.3% as business activity in the Bank's markets have increased as a result of the lower interest rate environment as well as an increased focus by management on commercial lending. Also contributing to the growth in the loan portfolio was an increase in home equity loans of $3.7 million or 23.9% due primarily to home equity loan campaigns put forth during the year. First mortgage loans decreased $2.5 million or 3.0% during the year amid considerable refinancing activity. During the year $1.3 million of fixed-rate conforming 20- and 30-year mortgages were sold in connection with managing interest rate risk. As noted, during the year the Corporation experienced significant refinancing activity in its real estate loan portfolios as a result of the decline in market interest rates.

Non-performing assets. Non-performing assets include non-accrual loans and real estate acquired through foreclosure (REO). Non-performing assets decreased $102,000 or 8.0% to $1.2 million or 0.49% of total assets at December 31, 2002 from $1.3 or 0.58% of total assets at December 31, 2001. Non-performing assets consisted of non-performing loans and REO of $1.2 million and $3,000, respectively, at December 31, 2002 and $1.3 million and $20,000, respectively, at December 31, 2001.

Federal bank stocks. Federal bank stocks were comprised of FHLB stock and FRB stock of $965,000 and $333,000, respectively, at December 31, 2002. These stocks are purchased and redeemed at par as directed by the federal banks and levels maintained are based primarily on borrowing and other correspondent relationships between the Corporation and the banks.

Bank-owned life insurance (BOLI). On September 30, 2002, the Corporation paid $4.0 million in BOLI premiums to obtain single premium life insurance policies on twenty officers and employees of the Bank. In addition to providing life insurance coverage, whereby the Bank as well as the officers and employees receive life insurance benefits, the appreciation of the cash surrender value of the BOLI will serve to offset and finance existing and future employee benefit costs. The BOLI premium paid is projected to preliminarily yield approximately 5.40% in tax-free non-cash appreciation on an annual basis.

Premises and equipment. Premises and equipment increased $290,000 or 8.6% to $3.7 million at December 31, 2002 from $3.4 million at December 31, 2001. The net increase resulted from capital expenditures of $750,000, primarily for remodeling of the Corporation's headquarters, investment in a new branch office, and data processing equipment upgrades, partially offset by normal depreciation of fixed assets of $460,000.

Goodwill and Core deposit intangibles. Core deposit intangibles decreased $146,000 or 46.3% to $169,000 at December 31, 2002 from $315,000 at December 31, 2001 as a result of normal amortization during the year. Upon adopting new accounting guidance effective January 1, 2002, the Corporation ceased amortizing goodwill.

Deposits. Total deposits increased $15.0 million or 7.9% to $204.4 million at December 31, 2002 from $189.5 million at December 31, 2001. The increase in customer deposits can be attributed to internal growth within the Bank's branch network across all major deposit categories. For the year, noninterest-bearing demand, interest-bearing demand and time deposits increased $3.5 million or 12.1%, $3.0 million or 4.3% and $8.5 million or 9.3%, respectively. This increase in deposits can be attributed primarily to a shift of customer funds from mutual funds and other equity investments to FDIC insured bank deposit products. This shift has happened industry-wide and has resulted from the national economic downturn and overall weaker stock market performance experienced during recent years.

Borrowed funds. Borrowed funds, or advances from the FHLB, increased $5.0 million to $10.0 million at December 31, 2002 from $5.0 million at December 31, 2001. The increase in advances was the result of management's matching long term borrowed funds with municipal investment securities with similar maturity terms to obtain an acceptable spread.

Accrued expenses and other liabilities. Accrued expenses and other liabilities increased $349,000 or 53.2% to $1.0 million at December 31, 2002 from $656,000 at December 31, 2001 primarily as a result of increased accruals for incentive bonus and professional fee expenses to be paid in early 2003.

Total stockholders' equity increased $1.6 million or 7.4% to $22.7 million at December 31, 2002 from $21.1 million at December 31, 2001. Net income of $2.3 million in 2002, represented growth in earnings of $552,000 or 32.4% compared to last year. Returns on averages equity and assets were 10.21% and 0.99%, respectively for 2002.

The Corporation has maintained a strong capital position with a capital to assets ratio of 9.5% at December 31, 2002, a slight decline over the ratio of 9.7% a year earlier. While continuing to sustain this strong capital position, stockholders received dividends of $1.4 million in 2002, including a special fourth quarter 2002 cash dividend of $333,000. Exclusive of the special cash dividend, regular quarterly dividends increased to $1.0 million in 2002 from $931,000 in 2001. Stockholders have taken part in the Corporation's dividend reinvestment plan introduced during 2002 with 36% of registered shareholder accounts active in the plan at December 31, 2002.

Capital adequacy is the Corporation's ability to support growth while protecting the interest of shareholders and depositors and to ensure that capital ratios are in compliance with regulatory minimum requirements. Regulatory agencies have developed certain capital ratio requirements that are used to assist them in monitoring the safety and soundness of financial institutions. At December 31, 2002, the Corporation and the Bank were in compliance with all regulatory capital requirements.

The Corporation's primary sources of funds generally have been deposits obtained through the offices of the Bank, borrowings from the FHLB, and amortization and prepayments of outstanding loans and maturing securities. During 2002 the Corporation used its sources of funds primarily to fund loan commitments and purchase securities. As of December 31, 2002, the Corporation had outstanding loan commitments, including undisbursed loans and amounts available under credit lines, totaling $14.2 million, and standby letters of credit totaling $686,000. The Bank is required by the OCC to establish policies to monitor and manage liquidity levels to ensure the Bank's ability to meet demands for customer withdrawals and the repayment of short-term borrowings, and the Bank is currently in compliance with all liquidity policy limits.

At December 31, 2002, time deposits amounted to $99.0 million or 48.4% of the Corporation's total consolidated deposits, including approximately $31.0 million, which are scheduled to mature within the next year. Management of the Corporation believes that they have adequate resources to fund all of its commitments, that all of its commitments will be funded as required by related maturity dates and that, based upon past experience and current pricing policies, it can adjust the rates of time deposits to retain a substantial portion of maturing liabilities.

Aside from liquidity available from customer deposits or through sales and maturities of securities, the Corporation has alternative sources of funds such as a line of credit and term borrowing capacity from the FHLB and, to a limited and rare extent, through the sale of loans. At December 31, 2002, the Corporation's borrowing capacity with the FHLB, net of funds borrowed, was $93.0 million.

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

The Corporation reported net income of $2.3 million, $1.7 million and $4,000 in 2002, 2001 and 2000, respectively. The following "Average Balance Sheet and Yield/Rate Analysis" and "Analysis of Changes in Net Interest Income" tables should be utilized in conjunction with the discussion of net interest income.

Average Balance Sheet and Yield/Rate Analysis. The following table sets forth, for periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resultant average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resulting average costs, net interest income, interest rate spread and the net interest margin earned on average interest-earning assets. For purposes of this table, average loan balances include non-accrual loans and exclude the allowance for loan losses, and interest income includes accretion of net deferred loan fees. Interest and yields on tax-exempt loans and securities (tax-exempt for federal income tax purposes) are shown on a fully tax equivalent basis.

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(Dollar amounts in thousands)                      Year ended December 31,

                                                       2002                      2001                      2000
                                             --------------------------------------------------- --------------------------
                                              Average           Yield / Average           Yield / Average           Yield /
                                              Balance  Interest  Rate   Balance  Interest  Rate   Balance  Interest  Rate
---------------------------------------------------------------------------------------------------------------------------

Interest-earning assets:
------------------------

 Loans receivable                            $167,062  $12,441   7.45% $155,769  $12,668   8.13% $148,482  $12,481    8.41%
                                             --------- -------- ------ --------- -------- ------ --------- -------- -------

 Securities, taxable                           29,745    1,485   4.99%   19,871    1,202   6.05%   24,122    1,515    6.28%
 Securities, tax exempt                        12,970      902   6.95%    8,157      565   6.93%    7,089      480    6.77%
                                             --------- -------- ------ --------- -------- ------ --------- -------- -------
                                               42,715    2,387   5.59%   28,028    1,767   6.30%   31,211    1,995    6.39%
                                             --------- -------- ------ --------- -------- ------ --------- -------- -------

 Interest-earning cash equivalents              4,719       73   1.55%    7,296      272   3.73%      766       46    6.01%
 Federal bank stocks                            1,314       55   4.19%    1,255       80   6.37%    1,130       77    6.81%
                                             --------- -------- ------ --------- -------- ------ --------- -------- -------
                                                6,033      128   2.12%    8,551      352   4.12%    1,896      123    6.49%
                                             --------- -------- ------ --------- -------- ------ --------- -------- -------

 Total interest-earning assets                215,810   14,956   6.93%  192,348   14,787   7.69%  181,589   14,599    8.04%

 Cash and due from banks                        5,467                     6,168                     6,136
 Other noninterest-earning assets               6,741                     5,205                     6,707
                                             ---------                 ---------                 ---------

    Total assets                             $228,018                  $203,721                  $194,432
                                             =========                 =========                 =========

Interest-bearing liabilities:
--------------------------------------------
 Interest-bearing demand deposits             $71,983     $799   1.11%  $65,595   $1,312   2.00%  $65,393   $1,523    2.33%
 Time deposits                                 94,301    4,094   4.34%   85,696    4,714   5.50%   75,160    4,110    5.47%
                                             --------- -------- ------ --------- -------- ------ --------- -------- -------
                                              166,284    4,893   2.94%  151,291    6,026   3.98%  140,553    5,633    4.01%
                                             --------- -------- ------ --------- -------- ------ --------- -------- -------

 Borrowed funds                                 6,203      268   4.32%    1,370       71   5.18%    3,122      199    6.37%
                                             --------- -------- ------ --------- -------- ------ --------- -------- -------

 Total interest-bearing liabilities           172,487    5,161   2.99%  152,661    6,097   3.99%  143,675    5,832    4.06%
 Noninterest-bearing demand deposits           31,679        -      -    29,411        -      -    29,041        -       -
                                             --------- -------- ------ --------- -------- ------ --------- -------- -------

 Funding and cost of funds                    204,166    5,161   2.53%  182,072    6,097   3.35%  172,716    5,832    3.38%

 Other noninterest-bearing liabilities          1,748                     1,232                       925
                                             ---------                 ---------                 ---------
    Total liabilities                         205,914                   183,304                   173,641
    Stockholders' equity                       22,104                    20,417                    20,791
                                             ---------                 ---------                 ---------

    Total liabilities and equity             $228,018                  $203,721                  $194,432
                                             ========= --------        ========= --------        ========= --------

Net interest income                                     $9,795                    $8,690                    $8,767
                                                       ========                  ========                  ========

Interest rate spread (difference between
 weighted average rate on interest-earning
 assets and interest-bearing liabilities)                        3.94%                     3.70%                      3.98%
                                                                ======                    ======                    =======

Net interest margin (net interest
 income as a percentage of average
 interest-earning assets)                                        4.54%                     4.52%                      4.83%
                                                                ======                    ======                    =======

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

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

 (In thousands)                                2002 versus 2001             2001 versus 2000

                                         Increase (decrease) due to    Increase (decrease) due to
                                       ------------------------------ ----------------------------
                                         Volume      Rate      Total    Volume    Rate     Total
--------------------------------------------------------------------------------------------------
 Interest income:
    Loans                                   $883    $(1,110)   $(227)     $601    $(414)     $187
    Securities                               839       (219)     620      (201)     (27)     (228)
    Interest-earning cash equivalents        (75)      (124)    (199)      250      (24)      226
    Federal bank stocks                        4        (29)     (25)        8       (5)        3
                                       ---------- ---------- -------- --------- -------- ---------

    Total interest-earning assets          1,651     (1,482)     169       658     (470)      188
                                       ---------- ---------- -------- --------- -------- ---------

 Interest expense:
    Deposits                                 554     (1,687)  (1,133)      428      (35)      393
    Borrowed funds                           211        (14)     197       (96)     (32)     (128)
                                       ---------- ---------- -------- --------- -------- ---------

    Total interest-bearing liabilities       765     (1,701)    (936)      332      (67)      265
                                       ---------- ---------- -------- --------- -------- ---------

 Net interest income                        $886       $219   $1,105      $326    $(403)     $(77)
                                       ========== ========== ======== ========= ======== =========

2002 Results Compared to 2001 Results

The Corporation reported net income of $2.3 million and $1.7 million for 2002 and 2001, respectively. The $552,000 increase or 32.4% increase in net income can be attributed to increases in net interest income and noninterest income of $1.0 million and $61,000, respectively, partially offset by increases in the provision for loan losses, noninterest expense and the provision for income taxes of $227,000, $166,000 and $116,000, respectively.

Net interest income. The primary source of the Corporation's revenue is net interest income. Net interest income is the difference between interest income on earning assets such as loans and securities, and interest expense on liabilities, such as deposits and borrowed funds, used to fund the earning assets. Net interest income is impacted by the volume and composition of interest-earning assets and interest-bearing liabilities, and changes in the level of interest rates. Tax equivalent net interest income increased $1.1 million or 12.7% to $9.8 million for 2002, compared to $8.7 million for 2001. This increase in net interest income can be attributed to an increase in tax equivalent interest income of $169,000 and a decrease in interest expense of $936,000.

Interest income. Tax equivalent interest income increased $169,000 or 1.1% to $15.0 million for 2002, compared to $14.8 million for 2001. This increase can be attributed to an increase in interest earned on securities of $620,000, partially offset by decreases in interest earned on loans, interest-earning cash equivalents and federal bank stocks of $227,000, $199,000 and $25,000, respectively.

Tax equivalent interest earned on loans receivable decreased $227,000 or 1.8% to $12.4 million for 2002, compared to $12.7 million for 2001. During that time, average loans increased $11.3 million or 7.3%, accounting for $880,000 in additional loan interest income. Due to the continually lower interest rate environment in 2002 versus 2001, this volume increase was more than offset by a decrease of $1.2 million relating to the 68 basis point reduction in the average interest rate earned on the loan portfolio.

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

Tax equivalent interest earned on securities increased $620,000 or 35.1% to $2.4 million for 2002, compared to $1.8 million for 2001. The average volume of these assets increased $14.7 million or 52.4% - as a result of the deployment of funds from deposit growth, in excess of loan demand, into short-term commercial paper, tax-free municipal securities and U.S. Government agency securities - accounting for $839,000 of the increase in interest income. The average rate of securities decreased 71 basis points during 2002 resulting in an offsetting reduction in such interest income of $219,000.

Interest earned on interest-earning deposit accounts, including federal funds sold, decreased $199,000 to $73,000 for 2002, compared to $272,000 for 2001, as a result of lower average balances maintained and a decline in the yield on these funds. Interest earned on federal bank stocks declined primarily as a result of lower yields on these instruments in 2002 versus 2001.

Interest expense. Interest expense decreased $936,000 or 15.4% to $5.2 million for 2002, compared to $6.1 million for 2001. This decrease in interest expense can be attributed to a decrease in interest incurred on deposits of $1.1 million, partially offset by an increase in interest incurred on borrowed funds of $197,000.

Deposit interest expense decreased $1.1 million or 18.8% to $4.9 million for 2002, compared to $6.0 million for 2001. This decrease in interest expense can be attributed to a 104 basis point decline in the cost of interest-bearing deposits to 2.94% for 2002 versus 3.98% for 2001 resulting in a reduction in expense due to rate of $1.7 million. The favorable rate variance was partially offset by an increase in average interest-bearing deposits of $15.0 million or 9.9% between 2002 and 2001 resulting in additional interest expense of $554,000. As noted, this increase in deposits, despite the historically low interest rate environment, has been market driven as stock market investors nationwide have returned to community banks as a safer alternative for investing funds.

Interest expense on borrowed funds increased $197,000 to $268,000 for 2002, compared to $71,000 for 2001 due to a $5.0 million FHLB term borrowing placed in November 2002 and a similar $5.0 million FHLB term borrowing placed in late 2001.

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

The provision for loan losses increased $227,000 to $381,000 for 2002, compared to $154,000 for 2001. The Corporation's allowance for loan losses amounted to $1.6 million or 0.93% of the Corporation's total loan portfolio at December 31, 2002, compared to $1.5 million or 0.90% at December 31, 2001. The allowance for loan losses as a percentage of non-performing loans at December 31, 2002 and 2001 was 136.8% and 117.6%, respectively. The increase in the provision for loan losses from 2001 to 2002 was primarily due to increased charge-offs in 2002 and continued growth in the loan portfolio.

Noninterest income. Noninterest income includes items that are not related to interest rates, but rather to services rendered and activities conducted in the financial services industry, including fees on depository accounts, general transaction and service fees, security and loan gains and losses, and earnings on BOLI. Noninterest income increased $61,000 or 4.6% to $1.4 million for 2002, compared to $1.3 million for 2001. This increase can be attributed to a gain of $39,000 on loans sold during the third quarter 2002, $58,000 on BOLI earnings as a result of the Corporation's aforementioned BOLI purchase during 2002 and a gain on the sale of a former office facility. Partially offsetting this increase in noninterest income was decrease of $61,000 in service fees earned - primarily overdraft fees as customers have followed previously prescribed guidelines to assist in managing account overdrafts.

Noninterest expense. Noninterest expense increased $166,000 or 2.3% to $7.4 million for 2002, compared to $7.3 million for 2001. This increase in noninterest expense is comprised of increases in compensation and employee benefits, premises and equipment and other expenses of $134,000, $43,000 and $119,000, respectively, partially offset by reduction in intangible amortization expense of $130,000.

The largest component of noninterest expense is compensation and employee benefits. This expense increased $134,000 or 3.4%. Normal annual salary and wage adjustments, increased pension costs and a higher accrual for incentive compensation, which is based on return on average asset and equity ratios, were the major components of this increase. Partially offsetting this increase was a reduction in headcount through normal attrition between 2002 and 2001, an increase in standard loan costs deferred associated with personnel early in 2002, and the elimination of temporary staffing costs incurred in 2001, but not 2002.

In October 2002, the Bank entered into supplemental executive retirement plan (SERP) agreements with six of its executives. In addition, effective January 1, 2003, the Corporation elected to begin matching employee contributions under the Bank's 401(k) retirement plan and expects increased compensation as a result of these matching contributions. The Bank has purchased the aforementioned BOLI policies out of general assets to provide sufficient funds to pay the benefits provided under the SERP agreements and to fund the 401(k) match. The Corporation expects an additional $50,000 and $72,000 per year in compensation expense to fund the additional costs under the SERP agreements and the 401(k) match, respectively, over the next five years.

Premises and equipment expense increased $43,000 or 3.9% as a result of depreciation in connection with capital improvement projects, primarily the Knox office consolidation, that occurred in late 2001 and certain equipment upgrades realized in 2002. Also contributing to the increase was an increase in rent on the Knox office after consolidation and certain repair and maintenance projects during the year.

Intangible amortization expense decreased $130,000 as a result of the Corporation's adoption of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.'s 142, "Goodwill and Other Intangible Assets" and 147, "Acquisitions of Certain Financial Institutions," effective January 1, 2002.

Other expense increased $119,000 or 6.0% primarily as a result of increased professional fees due principally to legal counsel fees associated with new corporate governance legislation and the retention of new accounting firms and separating the internal and external audit functions at the beginning of 2002; retaining a transfer agent in late 2001 to assist in shareholder record keeping and maintenance; and increased telephone and data communication costs, among other variances between the two years. Partially offsetting this increase was a decrease in software amortization expense as certain amortization periods expired in late 2001 and in 2002 and a reduction of other expenses primarily as a result of reevaluating deferred standard loans costs at the beginning of 2002.

2001 Results Compared to 2000 Results

The Corporation reported net income of $1.7 million and $4,000 for 2001 and 2000, respectively. The $1.7 million increase in net income between 2001 and 2000, can primarily be attributed to charges taken in the fourth quarter of 2000 totaling $2.0 million ($1.8 million net of applicable income tax benefit). These charges included the write down of intangible assets assessed as permanently impaired of $1.6 million and a decline in the value of a marketable security determined to have an other than temporary decline in value of $448,000.

During the fourth quarter of 2000, as part of a regular assessment of the value of intangible assets related to branch offices that were purchased as part of a stock acquisition in 1998, the Corporation recorded a write-down of $1.6 million. The decision to revalue these intangible assets was based on several factors including, necessary capital improvements, unanticipated personnel changes and weaker than expected deposit growth associated with these offices. A combination of these and other factors resulted in the decision to adjust the value of the intangible assets and shorten the periods over which the remaining balances would be amortized.

During the fourth quarter of 2000, a non-recurring charge of $448,000 was recorded to recognize a decline in the value of a marketable equity security investment in another financial institution that was determined to be other than temporary. In assessing the operations and financial performance of the issuing entity, no weaknesses or adverse trends were noted. However, due to the general decline in the value of financial sector securities, management's determination, at that time, was that this decline would not be recovered in the foreseeable future. This investment had a cost and market value of $1.5 million and $959,000, respectively, at December 31, 2000, near the time of the write-down charge. At December 31, 2002, the market value of this investment was $1.5 million.

Exclusive of these charges, net income would have been $1.8 million for 2000, and would have decreased $118,000 or 6.5% to $1.7 million for 2001 on an adjusted basis. The decrease in net income, excluding consideration of the nonrecurring charges, can be attributed to a decrease in net interest income of $78,000 and an increase in noninterest expenses of $324,000, partially offset by an increase in noninterest income of $152,000 and decreases in the provisions for loan losses and income taxes of $55,000 and $77,000, respectively.

During 2001, the Corporation and the nation experienced a historically dramatic drop in national market interest rates with the federal funds discount rate decreasing 375 basis points to 1.75% in December 2001 from 5.50% in January 2001. Over the same period, the national prime-lending rate has declined similarly from 9.50% to 4.75%.

As outlined in detail below, this declining rate environment has resulted in a significant repricing of the Corporation's loan products, reducing the yield of the Corporation's interest-earning assets as new loan production and refinancing of existing loans during 2001 has resulted in lower yielding loan assets. Because the Corporation's time deposit products don't afford a call feature, the cost of funds during 2001, did not decrease as quickly as the yield on interest-earning assets, however, such repricing of deposits is expected to approach that of interest-earning assets, particularly as the current lower interest rate environment continues. The Corporation continues to evaluate the pricing of interest-bearing demand deposits (checking, savings and money market products) in light of the current rate environment and will adjust pricing to reflect current market conditions. Specifically, the Corporation expects to see a decrease in the cost of time deposits as approximately $50.5 million of these deposits are expected to mature and reprice within the next year. The Corporation does not expect a significant decrease in deposit balances as this repricing occurs. And the repricing of these time deposits could result in a lower cost of funds and a more stabilized or higher interest rate spread especially if the current lower rate environment persists.

Net interest income. Tax equivalent net interest income decreased $77,000 or approximately 1.0% to $8.7 million for 2001, compared to $8.8 million for 2000. This decrease in net interest income can be attributed to an increase in interest expense of $265,000, partially offset by an increase in interest income of $188,000.

Interest income. Tax equivalent interest income increased $188,000 or 1.3% to $14.8 million for 2001, compared to $14.6 million for 2000. This increase in interest income can be attributed to increases in interest earned on loans receivable, interest-earning cash equivalents and federal bank stocks of $187,000, $226,000 and $3,000, respectively, partially offset by a decrease in interest earned on securities of $228,000.

Tax equivalent interest earned on loans receivable increased $187,000 or 1.5% to $12.7 million for 2001, compared to $12.5 million for 2000. This increase was primarily attributable to an increase in the average balance of loans outstanding of $7.3 million or 4.9% to $155.8 million for 2001 compared to $148.5 million for 2000. Partially offsetting this volume increase was a decline in the yield on loans to 8.13% for 2001, compared to 8.41% for 2000. As noted previously, the increase in average loans receivable can be attributed to the development of certain new consumer loan products and increased sales efforts in the Bank's branch network, as well as increased market demand. The 28 basis point decline in the yield on loans can be directly attributed to the decline in national market interest rates noted above and the corresponding effect of this decline on the Corporation's variable rate loans, mortgage refinancings and lower attainable yields on new loan originations.

Tax equivalent interest earned on securities decreased $228,000 or 11.4% to $1.8 million for 2001, compared to $2.0 million for 2000. This decrease was attributable to a decrease in the average balance of securities of $3.2 million or 10.2% to $28.0 million for 2001, compared to $31.2 million for 2000. Also contributing to the decrease in interest earned on securities was a slight decline in the yield on securities to 6.30% for 2001, compared to 6.39% for 2000.

Interest earned on cash equivalents increased $226,000 to $272,000 for 2001, compared to $46,000 for 2000 as the average balance increased $6.5 million to $7.3 million for 2001, compared to $766,000 for 2000. The yield on interest-earning cash equivalents decreased 228 basis points, as a direct result of the aforementioned decline in the federal funds rate, to 3.73% for 2001, compared to 6.01% for 2000.

The net increase in the combined average balances of securities and interest-earning cash equivalents between 2001 and 2000 resulted from increases in funding through deposit growth and borrowed fund balances during 2001.

Income from federal bank stocks and related average balances and yields remained relatively consistent at $80,000, $1.3 million and 6.37%, respectively, for 2001, compared to $77,000, $1.1 million and 6.81%, respectively, for 2000.

Interest expense. Interest expense increased $265,000 or 4.5% to $6.1 million for 2001, compared to $5.8 million for 2000. This increase in interest expense can be attributed to increases in interest incurred on deposits of $393,000, partially offset by a decrease in interest incurred on borrowed funds of $128,000.

Interest incurred on deposits increased $393,000 or 7.0% to $6.0 million for 2001, compared to $5.6 million for 2000. This increase was primarily attributable to an increase in the average balance of interest-bearing deposits of $10.7 million or 7.6% to $151.3 million for 2001, compared to $140.6 million for 2000. Partially offsetting the increase in interest incurred on interest-bearing deposits was a decrease in the cost of deposits to 3.98% for 2001, compared to 4.01% for 2000.

As noted previously, this increase in average deposits can be attributed to the development of new deposit products and services, and enhanced sales efforts in the Bank's branch offices. Also contributing to the increase in deposits is the shift of customer funds from mutual funds and other equity investments to FDIC insured bank deposit products as the result of the national economic downturn and overall weaker stock market performance experienced during 2001.

Interest incurred on borrowed funds decreased $128,000 to $ 71,000 for 2001, compared to $199,000 for 2000. This decrease was attributable to a decrease in the average balance of borrowings of $1.8 million to $1.4 million for 2001, compared to $3.1 million for 2000. Also contributing to the decrease in interest incurred on borrowings was a decrease in the cost of these funds to 5.18% for 2001, compared to 6.37% for 2000.

Provision for loan losses. The provision for loan losses decreased $55,000 or 26.3% to $154,000 for 2001, compared to $209,000 for 2000. The Corporation's allowance for loan losses amounted to $1.5 million or 0.90% of the Corporation's total loan portfolio at December 31, 2001, compared to $1.5 million or 0.96% at December 31, 2000. The allowance for loan losses as a percentage of non-performing loans at December 31, 2001 and 2000 was 117.59% and 162.22%, respectively.

Noninterest income. Noninterest income increased $152,000 or 12.8% to $1.3 million for 2001, compared to $1.2 million for 2000. This increase in noninterest income is primarily attributed to increased transactional activity associated with the growth of the deposit and loan portfolios during 2001.

Noninterest expense. Noninterest expense, exclusive of the aforementioned fourth quarter 2000 nonrecurring charges for intangible impairment and the investment security write-down of $1.6 million and $448,000, respectively, increased $324,000 or 4.3% to $7.3 million for 2001, compared to $6.9 million for 2000. This increase in noninterest expense can be attributed to increases in compensation and employee benefits, premises and equipment and other expenses of $270,000, $64,000 and $32,000, respectively. Partially offsetting the overall increase in noninterest expense were decreases in intangible amortization of $42,000.

Provision for income taxes. The provision for income taxes, exclusive of consideration of the impact of the fourth quarter 2000 charges, decreased $77,000 or 9.7% to $718,000 for 2001, compared to $795,000 for 2000. This decrease was primarily the result of a decrease in pre-tax income between the two years. The Corporation's effective income tax rate remained relatively consistent between 2001 and 2000 at approximately 30%.

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

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

Interest Rate Sensitivity Gap Analysis

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

The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities, and is considered negative when the amount of interest rate-sensitive liabilities exceeds the amount of interest rate-sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income while a positive gap would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income and a positive gap would adversely affect net interest income. The closer to zero, or more neutral, that gap is maintained, generally, the lesser the impact of market interest rate changes on net interest income.

At December 31, 2002, the Corporation's interest-earning assets maturing or repricing within one year totaled $81.8 million while the Corporation's interest-bearing liabilities maturing or repricing within one-year totaled $103.7 million, providing an excess of interest-bearing liabilities over interest-earning assets of $21.8 million or a negative 9.2% of total assets. At December 31, 2002, the percentage of the Corporation's assets to liabilities maturing or repricing within one year was 78.9%.

The following table presents the amounts of interest-earning assets and interest-bearing liabilities outstanding as of December 31, 2002 which are expected to mature, prepay or reprice in each of the future time periods presented:

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

Total interest-earning assets                     $58,875     $22,964     $70,512    $32,025    $38,035  $222,411

Total interest-bearing liabilities                 88,139      15,547      36,031     27,714     14,233   181,664
                                               ----------- ----------- ----------- ---------- ---------- ---------

Maturity or repricing gap during the period      $(29,264)     $7,417     $34,481     $4,311    $23,802   $40,747
                                               =========== =========== =========== ========== ========== =========

Cumulative gap                                   $(29,264)   $(21,847)    $12,634    $16,945    $40,747
                                               =========== =========== =========== ========== ==========

Ratio of gap during the period to total assets    (12.27%)       3.11%      14.45%      1.81%      9.98%
                                               =========== =========== =========== ========== ==========

Ratio of cumulative gap to total assets           (12.27%)     (9.16%)       5.30%      7.10%     17.08%
                                               =========== =========== =========== ========== ==========

Total assets                                                                                             $238,577
                                                                                                         =========

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

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

Interest Rate Sensitivity Simulation Analysis

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

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

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

Net interest income simulation. Given a 200 basis point parallel and gradual increase or decrease in market interest rates, net interest income may not change by more than 25% for a one-year period.

Portfolio equity simulation. Portfolio equity is the net present value of the company's existing assets and liabilities. Given a 200 basis point immediate and permanent increase or decrease in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 30% of stockholders' equity.

These guidelines take into consideration the current interest rate environment, the Corporation's financial asset and financial liability product mix and characteristics and liquidity sources among other factors. Given the current rate environment, a drop in short-term market interest rates of 200 basis points immediately or over a one-year horizon would seem unlikely. This should be considered in evaluating modeling results outlined in the table below.

The following table presents the simulated impact of a 100 basis point or 200 basis point upward or downward shift of market interest rates on net interest income, return on average equity and the change in portfolio equity. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at December 31, 2002 remained constant. The impact of the market rate movements on net interest income and return on average equity was developed by simulating the effects of rates changing gradually over a one-year period from the December 31, 2002 levels for net interest income and return on average equity. The impact of market rate movements on portfolio equity was developed by simulating the effects of an immediate and permanent change in rates at December 31, 2002:

                                                        Increase          Decrease
                                                   ------------------------------------
                                                     +100     +200     -100     -200
                                                      BP        BP       BP       BP
---------------------------------------------------------------------------------------

Net interest income - increase (decrease)              5.38%    6.84% (16.26%) (35.09%)

Return on average equity - increase (decrease)         5.38%    6.84% (16.26%) (35.09%)

Portfolio equity - increase (decrease)               (0.75%)  (6.62%)  (5.70%) (10.72%)

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

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

On January 1, 2002, the Corporation adopted SFAS No. 142, "Goodwill and Other Intangible Assets." This statement changed the accounting for goodwill from an amortization method to an impairment-only approach. Thus amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement. However, this statement did not amend SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," which requires recognition and amortization of unidentified intangible assets relating to the acquisitions of certain financial institutions or branches thereof.

In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions," which amends and reconsiders certain provisions of SFAS No. 72. This statement addresses the financial accounting and reporting for the acquisition of all or part of a financial institution. The statement provides that unidentified intangible assets associated with branch acquisitions, considered a business combination under the provisions of SFAS No. 141, "Business Combinations," should be reclassified as goodwill and accounted for under the provisions of SFAS No. 142. This statement was effective on October 1, 2002, with earlier application permitted. In September 2002, the Corporation adopted SFAS No. 147. At December 31, 2002, the Corporation had $484,000 in previously classified SFAS No. 72 unidentified intangible assets classified as goodwill.

On July 30, 2002, President Bush signed into law new legislation that addresses accounting oversight and corporate governance. The new law creates a five-member oversight board appointed by the Securities and Exchange Commission (SEC) that will set standards for accountants and have investigative and disciplinary powers. The new legislation bars accounting firms from providing a number of consulting services to audit clients and requires accounting firms to rotate partners among client assignments every five years. The new legislation also increases penalties for financial crimes, requires expanded disclosure of corporate operations and internal controls, enhances controls on and reporting of insider trading, expands the SEC's budget, and places statutory separations between investment bankers and analysts. Management is currently evaluating recently adopted SEC rulemaking and its impact upon the Corporation. The Corporation utilizes its external attestation auditor only for audit services and assistance with the preparation of tax returns.

Consolidated Balance Sheets
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)
                                                                                   December 31,
                                                                         --------------------------------
                                                                             2002               2001
                                                                         -------------      -------------

                                 Assets
                                 -----

Cash and due from banks                                                        $5,495             $7,127
Interest-earning deposits in banks                                              2,221                620
Federal funds sold                                                                  -              1,410
                                                                         -------------      -------------
  Cash and cash equivalents                                                     7,716              9,157
Securities available for sale                                                  48,719             38,695
Securities held to maturity; fair value of $29 and $61                             29                 60
Loans receivable, net of allowance for loan losses of $1,587 and $1,464       169,557            160,540
Federal bank stocks                                                             1,298              1,261
Bank-owned life insurance                                                       4,054                  -
Accrued interest receivable                                                     1,325              1,251
Premises and equipment, net                                                     3,678              3,388
Goodwill                                                                        1,422              1,422
Core deposit intangibles                                                          169                315
Prepaid expenses and other assets                                                 610                628
                                                                         -------------      -------------

        Total assets                                                         $238,577           $216,717
                                                                         =============      =============

                  Liabilities and Stockholders' equity
                  ------------------------------------

Liabilities:
  Deposits:
       Noninterest bearing                                                    $32,762            $29,199
       Interest bearing                                                       171,663            160,271
                                                                         -------------      -------------
        Total deposits                                                        204,425            189,470
  Borrowed funds                                                               10,000              5,000
  Accrued interest payable                                                        467                480
  Accrued expenses and other liabilities                                        1,005                656
                                                                         -------------      -------------

       Total liabilities                                                      215,897            195,606
                                                                         -------------      -------------

Stockholders' equity:
  Preferred stock, $1.00 par value, 3,000,000 shares authorized;
       none issued                                                                  -                  -
  Common stock, $1.25 par value, 12,000,000 shares authorized;
       1,395,852 shares issued; 1,332,835 shares outstanding                    1,745              1,745
  Additional paid-in capital                                                   10,871             10,871
  Treasury stock, at cost; 63,017 shares                                         (971)              (971)
  Retained earnings                                                             9,978              9,094
  Accumulated other comprehensive income                                        1,057                372
                                                                         -------------      -------------

       Total stockholders' equity                                              22,680             21,111
                                                                         -------------      -------------

        Total liabilities and stockholders' equity                           $238,577           $216,717
                                                                         =============      =============

See accompanying notes to consolidated financial statements.

                                                               Year ended December 31,
                                                    ---------------------------------------------
                                                           2002            2001           2000
                                                    --------------   -------------   ------------

Interest and dividend income:
  Loans receivable, including fees                        $12,419         $12,646        $12,433
  Securities:
    Taxable                                                 1,485           1,202          1,515
    Exempt from federal income tax                            621             389            331
  Federal bank stocks                                          55              80             77
  Deposits with banks and federal funds sold                   73             272             46
                                                    --------------   -------------   ------------
    Total interest and dividend income                     14,653          14,589         14,402
                                                    --------------   -------------   ------------

Interest expense:
  Deposits                                                  4,893           6,026          5,633
  Borrowed funds                                              268              71            199
                                                    --------------   -------------   ------------
    Total interest expense                                  5,161           6,097          5,832
                                                    --------------   -------------   ------------

Net interest income                                         9,492           8,492          8,570
  Provision for loan losses                                   381             154            209
                                                    --------------   -------------   ------------

Net interest income after provision for loan losses         9,111           8,338          8,361
                                                    --------------   -------------   ------------

Noninterest income:
  Fees and service charges                                    969           1,030            864
  Gain on the sale of loans                                    39               -              -
  Earnings on bank-owned life insurance                        58               -              -
  Other                                                       334             309            323
                                                    --------------   -------------   ------------
    Total noninterest income                                1,400           1,339          1,187
                                                    --------------   -------------   ------------

Noninterest expense:
  Compensation and employee benefits                        4,021           3,887          3,617
  Premises and equipment, net                               1,136           1,093          1,029
  Intangible amortization expense                             146             276            318
  Other                                                     2,117           1,998          4,013
                                                    --------------   -------------   ------------
    Total noninterest expense                               7,420           7,254          8,977
                                                    --------------   -------------   ------------

Income before provision for income taxes                    3,091           2,423            571
  Provision for income taxes                                  834             718            567
                                                    --------------   -------------   ------------

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

Net income per share                                        $1.69           $1.28             $-
Dividends per share                                         $1.03           $0.70          $0.62

Average common shares outstanding                       1,332,835       1,332,835      1,348,210

See accompanying notes to consolidated financial statements.

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


                                                                                         Accumulated
                                                       Additional                          Other          Total
                                              Common    Paid-in   Treasury   Retained   Comprehensive Stockholder's
                                              Stock     Capital     Stock    Earnings   Income (Loss)    Equity
                                            ---------- ---------- --------- ----------- ----------------------------

Balance at December 31, 1999                   $1,745    $10,871     $(300)     $9,151        $(663)        $20,804

Comprehensive income:
  Net income                                                                         4                            4
  Change in net unrealized gain on
    securities available for sale, net of
    taxes of $384                                                                               743             743
                                                                            ----------------------------------------

Comprehensive income                                                                 4          743             747
                                                                            ----------------------------------------

Dividends declared, $0.62 per share                                               (835)                        (835)

Treasury stock acquired                                               (671)                                    (671)
                                            ---------- ---------- --------- ----------- ------------ ---------------

Balance at December 31, 2000                    1,745     10,871      (971)      8,320           80          20,045

Comprehensive income:
  Net income                                                                     1,705                        1,705
  Change in net unrealized gain on
    securities available for sale, net of
    taxes of $149                                                                               292             292
                                                                            ----------------------------------------

Comprehensive income                                                             1,705          292           1,997
                                                                            ----------------------------------------

Dividends declared, $0.70 per share                                               (931)                        (931)
                                            ---------- ---------- --------- ----------- ------------ ---------------

Balance at December 31, 2001                    1,745     10,871      (971)      9,094          372          21,111

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

Comprehensive income                                                             2,257          685           2,942
                                                                            ----------------------------------------

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

Balance at December 31, 2002                   $1,745    $10,871     $(971)     $9,978       $1,057         $22,680
                                            ========== ========== ========= =========== ============ ===============

See accompanying notes to consolidated financial statements.

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


                                                                       Year ended December 31,
                                                                   --------------------------------
                                                                     2002       2001       2000
                                                                   ---------- ---------- ----------

Operating activities:
  Net income                                                          $2,257     $1,705         $4
  Adjustments to reconcile net income to net cash from
    operating activities:
      Depreciation and amortization for premises and equipment           460        432        425
      Provision for loan losses                                          381        154        209
      Amortization of premiums and accretion of discounts, net           236         17         50
      Amortization of intangible assets                                  146        276        318
      Gain on sale of loans                                               39          -          -
      Earnings on bank-owned life insurance, net                         (54)         -          -
      Changes in:
        Accrued interest receivable                                      (74)        (4)       (50)
        Prepaid expenses and other assets                                 18        175      2,161
        Accrued interest payable                                         (13)       (25)       129
        Accrued expenses and other liabilities                           349        166         91
        Other                                                           (356)      (165)       (99)
                                                                   ---------- ---------- ----------
    Net cash provided by operating activities                          3,389      2,731      3,238
                                                                   ---------- ---------- ----------

Investing activities:
  Loan originations and payments, net                                 (9,570)   (10,362)   (12,606)
  Purchases of securities available for sale                         (42,561)   (19,595)    (1,788)
  Purchases of federal bank stocks                                       (37)       (22)         -
  Repayment, maturities and calls of securities available for sale    33,475      7,809      8,223
  Principal repayments of securities held to maturity                     31        159      2,043
  Purchase of bank-owned life insurance                               (4,000)         -          -
  Purchases of premises and equipment                                   (750)      (487)      (389)
                                                                   ---------- ---------- ----------
    Net cash used in investing activities                            (23,412)   (22,498)    (4,517)
                                                                   ---------- ---------- ----------

Financing activities:
  Net increase in deposits                                            14,955     18,345      2,700
  Borrowings from the FHLB                                             5,000      5,000          -
  Repayments of borrowed funds                                             -     (2,000)         -
  Dividends paid                                                      (1,373)      (931)      (835)
  Payments to acquire treasury stock                                       -          -       (671)
                                                                   ---------- ---------- ----------
    Net cash provided by financing activities                         18,582     20,414      1,194
                                                                   ---------- ---------- ----------

Net increase (decrease) in cash equivalents                           (1,441)       647        (85)
Cash equivalents at beginning of period                                9,157      8,510      8,595
                                                                   ---------- ---------- ----------
Cash equivalents at end of period                                     $7,716     $9,157     $8,510
                                                                   ========== ========== ==========

Supplemental information:

  Interest paid                                                       $5,174     $6,122     $5,703
  Income taxes paid                                                      725        922        886

See accompanying notes to consolidated financial statements.

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

(In thousands)                             Amortized    Unrealized   Unrealized     Fair
                                             cost         gains        losses       value
-------------------------------------------------------------------------------------------

Available for sale:
-------------------
   December 31, 2002:
      U.S. Government securities            $17,486          $350           $-     $17,836
      Municipal securities                   16,515           391          (99)     16,807
      Corporate securities                   12,146           421           (5)     12,562
      Equity securities                         971           543            -       1,514
                                           ---------    ----------   ----------   ---------
                                            $47,118        $1,705        $(104)    $48,719
                                           =========    ==========   ==========   =========
   December 31, 2001:
      U.S. Government securities            $12,978          $441         $(14)    $13,405
      Municipal securities                   11,919            24         (176)     11,767
      Corporate securities                   12,264           157         (115)     12,306
      Equity securities                         971           246            -       1,217
                                           ---------    ----------   ----------   ---------
                                            $38,132          $868        $(305)    $38,695
                                           =========    ==========   ==========   =========
Held to maturity:
-----------------
   December 31, 2002:
      Mortgage-backed securities                $29            $-           $-         $29
                                           ---------    ----------   ----------   ---------
                                                $29            $-           $-         $29
                                           =========    ==========   ==========   =========
   December 31, 2001:
      Mortgage-backed securities                $60            $1           $-         $61
                                           ---------    ----------   ----------   ---------
                                                $60            $1           $-         $61
                                           =========    ==========   ==========   =========

(In thousands)                                 Available for sale       Held to maturity
                                           ------------------------------------------------
                                           Amortized      Fair       Amortized      Fair
                                             cost         value        cost         value
-------------------------------------------------------------------------------------------

Due in one year or less                      $7,872       $7,991           $-           $-
Due from one year to five years              21,600       22,241            -            -
Due after ten years                          16,675       16,973           29           29
No scheduled maturity                           971        1,514            -            -
                                           ---------    ---------    ---------    ---------
                                            $47,118      $48,719          $29          $29
                                           =========    =========    =========    =========

(In thousands)                             2002                  2001
------------------------------------------------------------------------

Mortgage loans:
  Residential first mortgage              $82,449               $84,974
  Home equity                              19,136                15,446
  Commercial                               34,986                26,470
                                         ---------             ---------
                                          136,571               126,890
Other loans:
  Commercial business                      21,913                20,806
  Consumer                                 12,660                14,308
                                         ---------             ---------
                                           34,573                35,114
                                         ---------             ---------

Total gross loans                         171,144               162,004

Less allowance for loan losses              1,587                 1,464
                                         ---------             ---------

                                         $169,557              $160,540
                                         =========             =========

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

(In thousands)                                             2002         2001         2000
                                                     ---------------------------------------

Balance at the beginning of the year                       $1,464       $1,460       $1,373

Provision for loan losses                                     381          154          209
Loans charged-off                                            (331)        (197)        (156)
Recoveries                                                     73           47           34
                                                        ----------   ----------   ----------

Balance at the end of the year                             $1,587       $1,464       $1,460
                                                        ==========   ==========   ==========

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

-----------------------------------------------------------------------------------
(In thousands)                                            2002                2001
-----------------------------------------------------------------------------------

Land                                                      $296                $306
Buildings and improvements                               2,981               2,957
Leasehold improvements                                     481                 198
Furniture, fixtures and equipment                        3,111               2,839
Construction in progress                                   416                 243
                                                      ---------           ---------

                                                         7,285               6,543
Less accumulated depreciation and amortization           3,607               3,155
                                                      ---------           ---------

                                                        $3,678              $3,388
                                                      =========           =========

                                         2003                    $123
                                         2004                     107
                                         2005                      97
                                         2006                      92
                                         2007                      94
                                    Thereafter                    380
                                                ----------------------
                                                                    -
                                                                 $893
                                                ======================


--------------------------------------------------------------------------------
Emclaire Financial Corp.               31                     2002 Annual Report

In thousands, except per share data                            2002      2001      2000
----------------------------------------------------------------------------------------

Net income:

 Reported net income                                         $2,257    $1,705        $4
 Add back goodwill amortization                                   -       130       130
                                                           --------- --------- ---------

 Adjusted net income                                         $2,257    $1,835      $134
                                                           ========= ========= =========

Net income per share:

 Reported net income per share                                $1.69     $1.28        $-
 Add back goodwill amortization                                   -      0.10      0.10
                                                           --------- --------- ---------

 Adjusted net income per share                                $1.69     $1.38     $0.10
                                                           ========= ========= =========

(Dollar amounts in thousands)                     2002                                  2001
                                    ----------------------------------     --------------------------------
                                       Weighted                                Weighted
                                        average                                average
         Type of accounts                rate       Amount         %             rate    Amount         %
-----------------------------------------------------------------------------------------------------------

Noninterest-bearing deposits                 -     $32,762       16.0%             -     $29,237      15.4%
Interest-bearing demand deposits          0.88%     72,637       35.5%          1.32%     69,665      36.8%
Time deposits                             3.97%     99,026       48.5%          4.83%     90,568      47.8%
                                                ----------- ----------                ----------- ---------

                                          2.24%   $204,425      100.0%          2.79%   $189,470     100.0%
                                                =========== ==========                =========== =========

Time deposits mature as follows:

Three months or less                                $8,008        3.9%                   $19,382      10.2%
Over three months through one year                  23,041       11.3%                    31,140      16.4%
Over one year through three years                   36,030       17.6%                    20,232      10.7%
Over three years through five years                 27,714       13.6%                    16,731       8.8%
Thereafter                                           4,233        2.2%                     3,083       1.6%
                                                ----------- ----------                ----------- ---------

                                                   $99,026       48.5%                   $90,568      47.8%
                                                =========== ==========                =========== =========

(Dollar amounts in thousands)                      December 31, 2002                      December 31, 2001
                                        --------------------------------------- -----------------------------------
                                           Consolidated            Bank           Consolidated          Bank
                                        ------------------ -------------------- ----------------- -----------------
                                         Amount    Ratio     Amount    Ratio     Amount   Ratio    Amount   Ratio
-------------------------------------------------------------------------------------------------------------------

Total capital to risk weighted assets:
  Actual                                 $21,858    13.11%   $20,498     12.38%  $20,739   14.54%  $19,334   13.65%
  For capital adequacy purposes           13,338     8.00%    13,248      8.00%   11,411    8.00%   11,329    8.00%
  To be well capitalized                  16,675    10.00%    16,561     10.00%   14,263   10.00%   14,161   10.00%
Tier 1 capital to risk-weighted assets:
  Actual                                 $20,032    12.04%   $18,906     11.42%  $19,163   13.43%  $17,859   12.61%
  For capital adequacy purposes            6,655     4.00%     6,624      4.00%    5,708    4.00%    5,664    4.00%
  To be well capitalized                   9,983     6.00%     9,936      6.00%    8,561    6.00%    8,497    6.00%
Tier 1 capital to average assets:
  Actual                                 $20,032     8.60%   $18,906      8.15%  $19,163    9.10%  $17,859    8.56%
  For capital adequacy purposes            9,317     4.00%     9,275      4.00%    8,423    4.00%    8,343    4.00%
  To be well capitalized                  11,647     5.00%    11,594      5.00%   10,529    5.00%   10,429    5.00%

--------------------------------------------------------------------
(In thousands)                    2002          2001           2000
--------------------------------------------------------------------

   Current                        $984          $908           $964
   Deferred                       (150)         (190)          (397)
                             ----------     ---------   ------------

                                  $834          $718           $567
                             ==========     =========   ============

(Dollars in thousands)                           2002             2001              2000
                                           ----------------- ---------------- -----------------
                                                   % Pre-tax        % Pre-tax        % Pre-tax
                                            Amount  Income   Amount  Income   Amount   Income
                                           ----------------- ---------------- -----------------

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

Provision at statutory tax rate             $1,051     34.0%   $824     34.0%   $194      34.0%
Increase (decrease) resulting from:
   Tax free interest, net of disallowance     (226)   (7.3%)   (166)   (6.9%)   (153)   (26.8%)
   Goodwill                                      -      0.0%     44      1.8%    504      88.3%
   Other, net                                    9      0.3%     16      0.7%     22       3.9%
                                           ----------------- ---------------- -----------------

Reported rate                                 $834     27.0%   $718     29.6%   $567      99.4%
                                           ================= ================ =================

(In thousands)                                2002         2001
------------------------------------------------------------------

Deferred tax assets:

   Loss on securities                          $152          $152
   Provision for loan losses                    486           440
   Deferred loan fees                            23            30
   Intangible assets                            150            85
   Accrued pension cost                         103           115
   Other                                         15             -
                                          ----------  ------------

   Gross deferred tax assets                    929           822

Deferred tax liabilities:
                                                  -
   Net unrealized gain on securities            544           191
   Depreciation                                 150           184
   Loan servicing                                 4             -
   Other                                        158           171
                                          ----------  ------------

   Gross deferred tax liabilities               856           546
                                          ----------  ------------

   Net deferred tax asset                       $73          $276
                                          ==========  ============

------------------------------------------------------------------------------
(In thousands)                                       2002      2001      2000
------------------------------------------------------------------------------

Change in plan assets:
 Fair value of plan assets at beginning of year    $2,117    $2,244    $2,234
 Actual (loss) return on plan assets                 (264)     (114)      (20)
 Employer contribution                                194        43        81
 Benefits paid                                        (64)      (56)      (51)
                                                  --------  --------  --------

 Fair value of plan assets at end of year           1,983     2,117     2,244
                                                  --------  --------  --------

Change in benefit obligation:
 Benefit obligation at beginning of year            2,358     2,087     1,950
 Service cost                                         186       173       171
 Interest cost                                        169       150       140
 Actuarial loss (gain)                                152         4      (123)
 Benefits paid                                        (64)      (56)      (51)
                                                  --------  --------  --------

 Benefit obligation at end of year                  2,801     2,358     2,087
                                                  --------  --------  --------

Funded status                                        (818)     (241)      157
Unrecognized prior service cost                         1         1         1
Unrecognized net actuarial gain                       586       (18)     (339)
Unrecognized transition asset                         (73)      (81)      (89)
                                                  --------  --------  --------

Accrued pension cost                                $(304)    $(339)    $(270)
                                                  ========  ========  ========

(In thousands)                               2002     2001       2000
----------------------------------------------------------------------

Service cost                                 $186     $173       $171
Interest cost                                 169      150        140
Expected return on plan assets               (188)    (197)      (192)
Transition asset                               (8)      (8)        (8)
Recognized net actuarial loss                   -       (6)       (11)
                                         --------- -------- ----------

Net periodic pension cost                    $159     $112       $100
                                         ========= ======== ==========

(In thousands)                                          2002                2001
                                                 ------------------- -------------------
                                                 Carrying    Fair    Carrying    Fair
                                                  amount     value    amount    amount
----------------------------------------------------------------------------------------

Financial assets:
 Cash equivalents                                  $7,716    $7,716    $9,157    $9,157
 Securities                                        48,748    48,748    38,755    38,756
 Loans receivable                                 169,557   178,195   160,540   164,815
 Federal bank stocks                                1,298     1,298     1,261     1,261
 Accrued interest receivable                        1,325     1,325     1,251     1,251

Financial liabilities:
 Deposits                                         204,425   209,158   189,470   189,749
 Borrowed funds                                    10,000    10,582     5,000     4,982
 Accrued interest payable                             467       467       480       480

(In thousands)                                   2002                     2001
                                        Fixed Rate Variable Rate Fixed Rate  Variable Rate
------------------------------------------------------------------------------------------

Commitments to make loans                  $2,864           $-       $1,810            $-
Unused lines of credit                        124       11,229          132        11,826
Standby letters of credit                       -          686            -           805

--------------------------------------------------------------------------------------
Condensed Statements of Financial Condition                        As of December 31,
(In thousands)                                                      2002         2001
--------------------------------------------------------------------------------------

Assets:
 Cash in banks                                                       $14          $14
 Securities available for sale                                     1,503        1,217
 Equity in net assets of subsidiary bank                          21,203       19,805
 Other assets                                                         14           87
                                                                --------- ------------

  Total assets                                                   $22,734      $21,123
                                                                ========= ============

Liabilities and stockholders' equity:
 Accrued expenses and other liabilities                               54           12
 Stockholders' equity                                             22,680       21,111
                                                                --------- ------------

  Total liabilities and stockholders' equity                     $22,734      $21,123
                                                                ========= ============
--------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------
Condensed Statements of Operations                    For the years ended December 31,
(In thousands)                                            2002      2001         2000
--------------------------------------------------------------------------------------

Income:
 Dividends from subsidiary                              $1,373      $941       $1,507
 Investment income                                          56        60           39
                                                      --------- --------- ------------

  Total income                                           1,429     1,001        1,546

Expense:
 Noninterest expense                                        80        55          479
                                                      --------- --------- ------------

  Total expense                                             80        55          479
                                                      --------- --------- ------------

 Income before income taxes and equity in
  undistributed operating results of subsidiary          1,349       946        1,067

 Equity (deficit) in net income (loss) of subsidiary       901       752       (1,222)
                                                      --------- --------- ------------

 Income (loss) before income taxes                       2,250     1,698         (155)

 Income tax benefit                                         (7)       (7)        (159)
                                                      --------- --------- ------------

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

Condensed Statements of Cash Flows                          For the years ended December 31,
(In thousands)                                                2002       2001       2000
--------------------------------------------------------------------------------------------

Operating activities:
 Net income                                                    $2,257    $1,705          $4
 Adjustments to reconcile net income to net cash provided
  by operating activities:
   Equity in undistributed operating results of subsidiary       (901)     (752)      1,222
   Other, net                                                      17        (4)        311
                                                            ---------- --------- -----------
    Net cash provided by operating activities                   1,373       949       1,537
                                                            ---------- --------- -----------

Investing activities:
   Purchases of securities                                          -       (12)        (39)
                                                            ---------- --------- -----------
    Net cash used in investing activities                           -       (12)        (39)
                                                            ---------- --------- -----------

Financing activities:
   Dividends paid                                              (1,373)     (931)       (835)
   Payments to acquire treasury stock                               -         -        (671)
                                                            ---------- --------- -----------
    Net cash used in financing activities                      (1,373)     (931)     (1,506)
                                                            ---------- --------- -----------

Increase (decrease) in cash equivalents                             -         6          (8)
Cash equivalents at beginning of period                            14         8          16
                                                            ---------- --------- -----------

Cash equivalents at end of period                                 $14       $14          $8
                                                            ========== ========= ===========

(In thousands)                                                2002        2001        2000
-------------------------------------------------------------------------------------------

Telephone and data communications                             $287        $250        $225
Professional fees                                              273         133         101
Customer bank card processing                                  225         218         215
Pennsylvania shares tax                                        189         167         142
Correspondent and courier fees                                 174         165         156
Postage and freight                                            150         142         145
Marketing and advertising                                      127         119         132
Printing and supplies                                          122         125         144
Software amortization                                          112         162         166
Travel, entertainment and conferences                          102         107         102
Other                                                          356         410         438
                                                          ---------   ---------   ---------

                                                             2,117       1,998       1,966

Intangible asset impairment charge                               -           -       1,599
Other than temporary decline in value of security                -           -         448
                                                          ---------   ---------   ---------

                                                            $2,117      $1,998      $4,013
                                                          =========   =========   =========

(Dollar amounts in thousands, except share data)         First    Second     Third    Fourth
                                                        Quarter   Quarter   Quarter   Quarter
----------------------------------------------------------------------------------------------

2002:
-----
 Interest income                                         $3,681    $3,655    $3,653    $3,664
 Interest expense                                         1,288     1,290     1,302     1,281
                                                       --------- --------- --------- ---------
 Net interest income                                      2,393     2,365     2,351     2,383
 Provision for loan losses                                  111        90        90        90
                                                       --------- --------- --------- ---------
 Net interest income after provision for loan losses      2,282     2,275     2,261     2,293
 Noninterest income                                         297       342       357       404
 Noninterest expense                                      1,915     1,868     1,773     1,864
                                                       --------- --------- --------- ---------
 Net income before income taxes                             664       749       845       833
 Provision for income taxes                                 181       219       264       170
                                                       --------- --------- --------- ---------

 Net income                                                $483      $530      $581      $663
                                                       ========= ========= ========= =========

 Net income per share                                     $0.36     $0.40     $0.44     $0.50
                                                       ========= ========= ========= =========

2001:
-----
 Interest income                                         $3,648    $3,656    $3,661    $3,624
 Interest expense                                         1,590     1,574     1,494     1,439
                                                       --------- --------- --------- ---------
 Net interest income                                      2,058     2,082     2,167     2,185
 Provision for loan losses                                   46        36        36        36
                                                       --------- --------- --------- ---------
 Net interest income after provision for loan losses      2,012     2,046     2,131     2,149
 Noninterest income                                         309       344       343       343
 Noninterest expense                                      1,763     1,793     1,767     1,931
                                                       --------- --------- --------- ---------
 Net income before income taxes                             558       597       707       561
 Provision for income taxes                                 167       176       216       159
                                                       --------- --------- --------- ---------

 Net income                                                $391      $421      $491      $402
                                                       ========= ========= ========= =========

 Net income per share                                     $0.29     $0.32     $0.37     $0.30
                                                       ========= ========= ========= =========

                                          /s/ Crowe, Chizek and Company LLP

Cleveland, Ohio
January 10, 2003

E.E. Powell & Co., Inc.   Ferris, Baker Watts, Inc. F.J. Morrissey & Co., Inc. Parker Hunter, Inc.
1100 Gulf Tower           100 Light Street          1700 Market Street         600 Grant Street - Suite 3100
Pittsburgh, PA   15219    Baltimore, MD 21202       Philadelphia, PA 19103     Pittsburgh, PA 15219
Telephone:  800 289-7865  Telephone:  800 638-7411  Telephone:  215 563-8500   Telephone:  412 562-8000

                             Market Price                            Cash
                          High          Low          Close         Dividend
-------------------------------------------------------------------------------

2002:
-----
  Fourth quarter            $21.75        $19.25        $21.75           $0.46
  Third quarter              20.50         19.00         19.50            0.19
  Second quarter             20.00         17.25         20.00            0.19
  First quarter              17.25         16.50         17.25            0.19

2001:
-----
  Fourth quarter            $17.75        $13.95        $17.15           $0.19
  Third quarter              14.35         13.25         14.00            0.17
  Second quarter             14.75         12.50         13.00            0.17
  First quarter              15.00         14.00         14.00            0.17

Corporate Information
--------------------------------------------------------------------------------

Corporate Headquarters

       Emclaire Financial Corp.
       612 Main Street
       Emlenton, PA 16373

Board of Directors
------------------

Ronald L. Ashbaugh                             David L. Cox                               Bernadette H. Crooks
Retired President                              Chairman, President and CEO                Retired Retailer
Emclaire Financial Corp.                       Emclaire Financial Corp.                   Crooks Clothing
Farmers National Bank of Emlenton              Farmers National Bank of Emlenton

George W. Freeman                              Rodney C. Heeter                           Robert L. Hunter
Freeman's Tree Farm                            Heeter Lumber, Co.                         Hunter Truck Sales and Service
                                                                                          Hunter Leasing

J. Michael King                                John B. Mason                              Brian C. McCarrier
Senior Partner                                 President                                  President
Lynn, King & Schreffler                        H.B. Beels & Sons, Inc.                    Interstate Pipe and Supply
Attorneys at Law

Elizabeth C. Smith
Retired Former Owner
The Inn at Oakmont

Senior Officers
---------------

David L. Cox                                   William C. Marsh
Chairman, President and                        Treasurer/Secretary
Chief Executive Officer                        Chief Financial Officer

Senior Officers
---------------

David L. Cox                                   William C. Marsh                         Raymond M. Lawton
Chairman, President and                        Senior Vice President                    Senior Vice President
Chief Executive Officer                        Chief Financial Officer                  Chief Lending Officer

Scott B. Daum                Robert W. Foust                Fred S. Port                Stan Simons
Vice President               Vice President                 Vice President              Vice President
Operations                   Business Development           Branch Administration       Human Resources Director

Other Officers
--------------

Andrew M. Hogue              David J. Stuber                Richard E. Grejda           Lisa R. Zigo
Assistant Vice President     Assistant Vice President       Assistant Vice President    Assistant Vice President
Compliance and Security      Marketing Director             Commercial Lending          Manager of Credit Administration

Office Locations and Branch Managers
--------------------------------------------------------------------------------


     Corporate Headquarters

     612 Main Street
     Emlenton, PA 16373
     724 867-2311

     Retail Banking Offices                      Branch Manager/Telephone

     Emlenton Office                             Michael J. Meals
     612 Main Street                             724 867-1001
     Emlenton, PA 16373

     Bon Aire Office                             R. Dennis Fehl
     1101 N. Main Street, Suite 1                Assistant Vice President
     Butler, PA 16003                            724 283-4666

     Brookville Office                           C. Sue Solida
     263 Main Street                             814 849-8363
     Brookville, PA 15825

     Butler Meridian Office                      Deborah A. Sanford
     101 Meridian Road                           724 482-0133
     Butler, PA 16001

     Clarion Office                              Timothy G. Slaugenhoup
     Sixth and Wood Street                       814 226-7523
     Clarion, PA 16214

     DuBois Office                               Frank J. Calderone
     861 Beaver Drive                            814 371-2166
     DuBois, PA 15801

     East Brady Office                           R. Dennis Fehl
     323 Kellys Way                              Assistant Vice President
     East Brady, PA 16028                        724 526-5793

     Eau Claire Office                           Cindy L. Elder
     207 S. Washington Street                    Assistant Vice President
     Eau Claire, PA 16030                        724 791-2591

     Knox Office                                 Allan I. Johnson
     Route 338 South                             814 797-2200
     Knox, PA 16232

     Ridgway Office                              Gregory A. Kowatch
     173 Main Street                             814 773-3195
     Ridgway, PA 15853

--------------------------------------------------------------------------------
Emclaire Financial Corp.               47                     2002 Annual Report