TABLE
OF CONTENTS
 
  
 
 
 A
      Message from the Board of Directors
                  1Selected
      Consolidated Financial Information
                  2Management's
      Discussion and Analysis of FinancialCondition
      and Results of Operations
                  4Consolidated
      Financial Statements
                  23Stockholder
      Information
                  70Corporate
      Information
                  72
 
 
 
 
  
  FROM
YOUR BOARD OF DIRECTORS
 
 Dear
Fellow Stockholders,
  At
Citizens, our mission is to utilize our resources, and platform as a strong and
secure financial institution, to satisfy the needs and fulfill the dreams of the
customers we serve - and to grow together. We accomplished that in fiscal 2008,
along with continuing to deliver solid loan and earnings growth - despite trying
economic conditions. We're very pleased with our performance for the
year.
  For
fiscal 2008, Citizens Community Bancorp, Inc.'s net income was $1.47 million, or
$0.24 per diluted share, up 98.4 percent from net income of $743,000, or $0.11
per diluted share for the prior year. The year-over-year gain came mainly from
an increase in net interest income. In addition, fiscal 2007 results included a
previously disclosed one-time, after-tax charge of $370,000 ($610,000 pre-tax)
taken in the first quarter of that year. Excluding the charge, the Company would
have reported fiscal 2007 net income of $1.1l million, or $0.17 per diluted
share.
  Our total
assets in fiscal 2008 increased by $94.0 million, or 24.3 percent, to $480.0
million at September 30, 2008. The growth was primarily due to a $48.5 million
increase in loans receivable, of which $9.1 million came from our new Wal-Mart
in-store branches. Also, as part of the asset increase, we had a $17.7 million
increase related to our acquisition of three Wal-Mart Supercenter branches from
American National Bank.  We're very pleased with the performance of
our new Wal-Mart locations and we plan to open six additional Wal-Mart branches
in 2009.
  Looking
ahead, our growth strategy will remain consistent with our efforts in 2008 - an
approach that has been successful for the Company. For fiscal 2009, we will
focus on the following areas:
  ·
              Expansion
      in select locations that offer growth potential - in-store locations have
      provided a solid stream of new checking accounts, deposits and
      loans;
  ·
              A
      continued focus on increasing core
deposits;
  ·
              Rigorous
      management of our lending portfolio to minimize risk and maximize
      income-Citizens does not originate any higher risk sub-prime or
      construction loans; and
  ·
              Leveraging
      our experienced and skilled management team to pursue growth
      targets.
  Thank you
for your belief in our vision and continued support.
  
 
 [signature
      cut]
              [signature
      cut]
 
 Richard
      McHugh
              James
      G. Cooley
 Chairman
              President,
      Chief Executive Officer
 and
Director
  1
  SELECTED
CONSOLIDATED FINANCIAL INFORMATION
  The
summary information presented below under "Selected Financial Condition Data"
and "Selected Operations Data" for, and as of the end of, each of the years
ended September 30 is derived from our audited financial
statements.  The following information is only a summary and you
should read it in conjunction with our financial statements and notes beginning
on page 33.
  September
      30,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004(In
      Thousands)Selected
      Financial Condition Data:Total
      assets
                  
                  $
                  480,036
                  
                  
                  $
                  386,113
                  
                  
                  $
                  283,990
                  
                  
                  $
                  245,707
                  
                  
                  $
                  161,980Loans
      receivable, net
                  
                  
                  368,518
                  
                  
                  
                  320,027
                  
                  
                  
                  258,467
                  
                  
                  
                  217,931
                  
                  
                  
                  152,376Other
      interest-bearing deposits
                  
                  
                  371
                  
                  
                  
                  371
                  
                  
                  
                  959
                  
                  
                  
                  1,444
                  
                  
                  
                  ---Securities
      available for sale
                  
                  
                  61,776
                  
                  
                  
                  39,592
                  
                  
                  
                  782
                  
                  
                  
                  2,088
                  
                  
                  
                  ---Deposits
                  
                  
                  297,243
                  
                  
                  
                  207,734
                  
                  
                  
                  186,711
                  
                  
                  
                  177,469
                  
                  
                  
                  127,976Total
      borrowings
                  
                  
                  110,245
                  
                  
                  
                  96,446
                  
                  
                  
                  61,200
                  
                  
                  
                  36,200
                  
                  
                  
                  13,500Stockholders'
      equity(1)
                  
                  
                  68,476
                  
                  
                  
                  78,149
                  
                  
                  
                  30,082
                  
                  
                  
                  29,553
                  
                  
                  
                  19,606
 
 
 Year
      Ended September 30,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004(In
      Thousands)Selected
      Operations Data:Total
      interest income
                  
                  $
                  26,734
                  
                  
                  $
                  19,346
                  
                  
                  $
                  15,311
                  
                  
                  $
                  11,926
                  
                  
                  $
                  9,619Total
      interest expense
                  
                  
                  14,139
                  
                  
                  
                  8,889
                  
                  
                  
                  7,221
                  
                  
                  
                  3,992
                  
                  
                  
                  2,889Net
      interest income
                  
                  
                  12,595
                  
                  
                  
                  10,457
                  
                  
                  
                  8,090
                  
                  
                  
                  7,934
                  
                  
                  
                  6,730Provision
      for loan losses
                  
                  
                  721
                  
                  
                  
                  470
                  
                  
                  
                  251
                  
                  
                  
                  414
                  
                  
                  
                  396Net
      interest income after provision for loanlosses
                  
                  
                  11,874
                  
                  
                  
                  9,987
                  
                  
                  
                  7,839
                  
                  
                  
                  7,520
                  
                  
                  
                  6,334Fees
      and service charges
                  
                  
                  1,352
                  
                  
                  
                  1,262
                  
                  
                  
                  1,243
                  
                  
                  
                  1,160
                  
                  
                  
                  1,038Gain
      on sales of loans, mortgage-backedsecurities
      and investment securities
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  27
                  
                  
                  
                  ---
                  
                  
                  
                  ---Other
      non-interest income
                  
                  
                  357
                  
                  
                  
                  464
                  
                  
                  
                  387
                  
                  
                  
                  861
                  
                  
                  
                  331Total
      non-interest income
                  
                  
                  1,709
                  
                  
                  
                  1,726
                  
                  
                  
                  1,657
                  
                  
                  
                  2,021
                  
                  
                  
                  1,369Total
      non-interest expense
                  
                  
                  11,101
                  
                  
                  
                  10,522
                  
                  
                  
                  8,741
                  
                  
                  
                  7,806
                  
                  
                  
                  6,323Income
      before taxes
                  
                  
                  2,482
                  
                  
                  
                  1,191
                  
                  
                  
                  755
                  
                  
                  
                  1,735
                  
                  
                  
                  1,380Income
      tax provision
                  
                  
                  1,008
                  
                  
                  
                  448
                  
                  
                  
                  309
                  
                  
                  
                  684
                  
                  
                  
                  543Net
      income
                  
                  $
                  1,474
                  
                  
                  $
                  743
                  
                  
                  $
                  446
                  
                  
                  $
                  1,051
                  
                  
                  $
                  837Basic
      and diluted earnings per share
                  
                  $
                  0.24
                  
                  
                  $
                  0.11
                  
                  
                  $
                  0.06
                  (1)
                  
                  $
                  0.18
                  (1)
                  
                  $
                  0.14
                  (1)
 
 (Footnotes
on following page)
  2
  Selected
Financial Ratios and Other Data
 
 September
      30,2008
                
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004Performance
      RatiosReturn
      on assets (ratio of net income to average total assets)
                
                
                0.34
                %
                
                
                0.22
                %
                
                
                0.17
                %
                
                
                0.56
                %
                
                
                0.57
                %Return
      on equity (ratio of net income to averageequity)
                
                
                2.00
                %
                
                
                1.09
                %
                
                
                1.50
                %
                
                
                4.87
                %
                
                
                5.47
                %Interest
      rate spread informationAverage
      during period
                
                
                2.44
                %
                
                
                3.07
                %
                
                
                3.28
                %
                
                
                4.28
                %
                
                
                4.50
                %End
      of period
                
                
                3.11
                %
                
                
                3.05
                %
                
                
                3.11
                %
                
                
                3.92
                %
                
                
                4.59
                %Net
      interest margin
                
                
                3.02
                %
                
                
                3.77
                %
                
                
                3.54
                %
                
                
                4.19
                %
                
                
                4.70
                %Ratio
      of operating expense to average total assets
                
                
                2.56
                %
                
                
                3.14
                %
                
                
                3.30
                %
                
                
                4.12
                %
                
                
                4.33
                %Ratio
      of average interest-bearing assets toaverage
      interest-bearing liabilities
                
                
                1.17
                %
                
                
                1.24
                %
                
                
                1.09
                %
                
                
                1.11
                %
                
                
                1.10
                %Quality
      RatiosNon-performing
      assets to total assets at endof
      period
                
                
                0.68
                %
                
                
                0.43
                %
                
                
                0.63
                %
                
                
                0.29
                %
                
                
                0.43
                %Allowance
      for loan losses to non-performingloans
                
                
                36.62
                %
                
                
                60.92
                %
                
                
                60.07
                %
                
                
                118.26
                %
                
                
                79.51
                %Allowance
      for loan losses to net loans
                
                
                0.32
                %
                
                
                0.29
                %
                
                
                0.32
                %
                
                
                0.37
                %
                
                
                0.36
                %Capital
      RatiosEquity
      to total assets at end of period
                
                
                14.26
                %
                
                
                20.24
                %
                
                
                10.59
                %
                
                
                12.03
                %
                
                
                12.10
                %Average
      equity to average assets
                
                
                17.04
                %
                
                
                21.42
                %
                
                
                11.26
                %
                
                
                11.40
                %
                
                
                10.46
                %Other
      DataNumber
      of full-service offices
                
                
                18
                
                
                
                12
                
                
                
                12
                
                
                
                12
                
                
                
                9
 _________________
 (1)
              The
      formation of Citizens Community Bancorp (the original mid-tier holding
      company of the Bank) was completed March 29, 2004, the date of closing of
      the initial public offering.  The basic and diluted EPS are
      presented for the period March 29, 2004, through September 30,
      2004.  The weighted average number of shares outstanding for
      this period was 3,038,769 for basic and diluted EPS.  Earnings
      per share were restated to reflect the impact of the second-step
      conversion and reorganization of the Company, which occurred October 31,
      2006.
 
 
  3
  MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  General
  Our
results of operations depend primarily on our net interest
income.  Net interest income is the difference between the interest
income we earn on our interest-earning assets, consisting primarily of loans,
investment securities and interest-bearing deposits with other financial
institutions, and the interest we pay on our interest-bearing liabilities,
consisting primarily of savings accounts, money market accounts, time deposits
and borrowings.  Our results of operations are also affected by our
provision for loan losses, non-interest income and non-interest
expense.  Non-interest expense includes salaries and employee
benefits, occupancy, equipment, data processing costs and deposit insurance
premiums.  Our results of operations also may be affected
significantly by general and local economic and competitive conditions, changes
in market interest rates, governmental policies and actions of regulatory
authorities.
  Evolution
of Business Strategy
  Citizens
Community Bancorp, Inc. ("CCBI") is a Maryland chartered corporation established
June 27, 2006, for the purpose of being the stock holding company of Citizens
Community Federal upon the conversion of Citizens Community MHC from a mutual to
a stock form of organization.  Today, public stockholders own 100% of
Citizens Community Bancorp, Inc.  Citizens Community Federal is a
wholly owned subsidiary of Citizens Community Bancorp, Inc.
  On
October 31, 2006, Citizens Community MHC (the "MHC") completed its
reorganization into stock form and Citizens Community Bancorp, Inc. (the
"Company") succeeded to the business of Citizens Community Bancorp ("CCB"), the
MHC's former stock holding company subsidiary.  The outstanding shares
of common stock of the former mid-tier stock holding company (other than shares
held by the MHC which were canceled) were converted into 1,826,380 shares of
common stock of the Company.  As part of the second-step mutual to
stock conversion transaction, the Company sold a total of 5,290,000 shares to
eligible depositors of the Bank in a subscription offering at $10.00 per share,
including 341,501 shares purchased by the Bank's employee stock ownership plan
with funds borrowed from the Company.
  On March
29, 2004, CCB was formed as a federally chartered holding company for the
purpose of acquiring all of the common stock of Citizens Community Federal
concurrent with its reorganization and stock issuance plan.  In doing
so, CCB became the majority-owned subsidiary of Citizens Community MHC, a
federally chartered mutual holding company.
  On July
1, 2005, Community Plus Savings Bank, Rochester Hills, Michigan, was acquired
through a merger with and into Citizens Community Federal.  At June
30, 2005, Community Plus Savings Bank had total assets of $46.0 million and
deposits and other liabilities of $41.8 million, prior to purchase accounting
adjustments.
  Historically,
Citizens Community Federal was a federal credit union. Citizens Community
Federal accepted deposits and made loans to members who lived, worked or
worshiped in the Wisconsin counties of Chippewa and Eau Claire, and parts of
Pepin, Buffalo
   4
  and
Trempeleau. Members included businesses and other entities located in these
communities, and members and employees of the Hocak Nation.
  In
December 2001, Citizens Community Federal converted to a federal mutual savings
bank in order to better serve its customers and the local community through the
broader lending ability of a federal savings bank, and to expand its customer
base beyond the limited field of membership permitted for credit unions. As a
federal savings bank, Citizens Community Federal (the "Bank") has expanded
authority in structuring residential mortgage and consumer loans, and it has the
ability to make commercial loans, although the Bank does not currently have any
immediate plans to commence making commercial loans.
  The Bank
is a federally chartered stock savings institution with 20 full-service offices
- nine stand-alone locations and 11 in-store Wal-Mart Supercenter branches. Two
of the bank's branches were opened after September 30, 2008.  We
acquired a branch in Chippewa Falls, Wisconsin, in November 2002, as well as a
branch in Mankato, Minnesota, in November of 2003, opened a new branch office in
Oakdale, Minnesota, on October 1, 2004, and acquired Community Plus Savings
Bank's Lake Orion and Rochester Hills, Michigan, branches on July 1,
2005.
  On
January 22, 2008, the Bank signed a letter of intent with Wal-Mart to open seven
branches during 2008 in Wal-Mart Supercenters in Wisconsin and Minnesota.
Pursuant to this agreement, we have opened new Wal-Mart Supercenter in-store
branches in Brooklyn Park, Faribault, Hutchinson and Red Wing,
Minnesota.  The Bank has also moved its existing branches in Black
River Falls, Wisconsin Dells and Rice Lake, Wisconsin to the new Wal-Mart
Supercenter locations in those respective communities.  An additional
letter of intent was signed with Wal-Mart to open a branch in Winona, Minnesota,
which opened on November 3, 2008.  On October 30, 2008, the Bank
signed another agreement with Wal-Mart to open six more branches during 2009 in
Wal-Mart Supercenters in Oak Park Heights, Minnesota, and Menomonie, Neenah,
Plover, Shawano and Wisconsin Rapids, Wisconsin.
  On April
9, 2008, the Bank announced that it had entered into an agreement with American
National Bank ("ANB") of Beaver Dam, Wisconsin, to acquire three ANB branches
located in Wal-Mart Superstores located in Appleton, Fond du Lac and Oshkosh,
Wisconsin.  The Bank acquired these branches on August 3,
2008.
  As a
federal savings bank, we have utilized our expanded lending authority to
significantly increase our ability to market one- to four-family residential
lending. Most of these loans are originated through our internal marketing
efforts, and our existing and walk-in customers. We typically do not rely on
real estate brokers or builders to help us generate loan originations.In addition, we continue
to originate a significant amount of consumer loans, on both a direct and
indirect basis.
  In order
to differentiate ourselves from our competitors, we have stressed the use of
personalized, branch-oriented customer service. With operations structured
around a branch system staffed with knowledgeable and well-equipped employees,
our ongoing commitment to training at all levels of our staff remains a key to
the Company 's success. As such, our focus is on building and growing banking
relationships, in addition to opening new accounts.
   5
  Our
current business strategy is to operate Citizens Community Federal as a
well-capitalized, profitable and community-oriented savings bank dedicated to
providing quality customer service. We intend to make primarily one- to
four-family residential and consumer loans. Subject to capital requirements and
our ability to continue to grow in a reasonable and prudent manner, we may open
or acquire additional branches as opportunities arise. One element of our
business plan is to open branches in select locations that we believe offer
growth potential, including the six new Wal-Mart Supercenter in-store branches
we intend to open in 2009. There can be no assurances that we will successfully
implement our strategy.
  Comparison
of Operating Results for the Years Ended September 30, 2008, and
 September
30, 2007
  Overview.  Our
results of operations depend primarily on the level of our net interest margin,
our provision for loan losses, our non-interest income and our operating
expenses.  Net interest income depends on the volume and rate
associated with interest-earning assets and interest-bearing liabilities which
result in net interest margin.  Net income increased by 98.4% to $1.5
million for the year ended September 30, 2008, from $743,000 for the year ended
September 30, 2007.  The increase was primarily due to an increase in
net interest income, partially offset by a small increase in operating
expenses.  Fiscal 2007 included a one-time, after-tax charge of
$370,000 ($610,000 pre-tax) taken in the first quarter of fiscal 2007 related to
agreements with two Citizens Community Federal executives who
resigned.  Excluding the charge, the Company would have reported
fiscal 2007 net income of $1.1 million.
  Interest
Income.  Total interest and dividend income increased by $7.4
million, or 38.2%, to $26.7 million for the year ended September 30, 2008, from
$19.3 million for the year ended September 30, 2007.  The primary
reason for the increase in interest income was the $59.0 million increase in the
average outstanding balance of loans receivable from $285.7 million for the year
ended September 30, 2007, to $344.7 million for the year ended September 30,
2008.  The increase was the result of loan originations exceeding
repayments due to strong loan demand.  The yield on average loans
receivable decreased to 6.71% from 6.90%, reflecting lower yielding new loans
replacing payoffs on loans with higher interest rates due to a reduction in
market rates of interest.  In addition, interest and dividend income
increased $2.9 million to $3.6 million in fiscal 2008, compared to $659,000 for
fiscal 2007, as a result of an increase in investments.
  Interest
Expense.  Total interest expense increased $5.2 million, or
59.1%, to $14.1 million for the year ended September 30, 2008, from $8.9 million
for the year ended September 30, 2007.  The increase in interest
expense resulted from an increase in the cost of both deposits and notes payable
as a result of an increase in average deposits outstanding and an increase in
average advances outstanding from the Federal Home Loan Bank ("FHLB") of
Chicago.  In prior years, management used the FHLB advances as it
sought the most cost-effective source to fund loan demand.  The use of
borrowed funds helped to keep deposit yields lower than would have been
necessary to attract the additional funding for loan demand through additional
deposit growth.  No new FHLB advances were used in fiscal 2008 to fund
loan demand.  In fiscal 2008, FHLB advances were utilized to purchase
mortgage-backed security (MBS) investments.  The average cost of
interest-bearing liabilities increased from 3.61% for the year ended September
30, 2007, to 3.97% for the year ended September 30, 2008, reflecting marginally
higher deposit costs in fiscal 2008, and the cost of additional FHLB advances
used to fund the MBS investments.
   6
  Net Interest
Income.  Net interest income increased 20.0% to $12.6 million
for the year ended September 30, 2008, from $10.5 million for the year ended
September 30, 2007.  The average net interest spread for fiscal 2008
was 2.44%, a decrease of 63 basis points from the average interest spread for
fiscal 2007 of 3.07%.  The average interest rate margin decreased 75
basis points to 3.02% from 3.77%.  The net interest spread performance
was a result of the cost of interest-bearing liabilities increasing while the
yield on earning assets decreased.  Largely contributing to the
decrease in net interest spread and interest margin was the MBS portfolio being
funded through FHLB advances.  The spreads produced from leveraged
investments result in consistently lower interest margins than the loans
receivable portfolio, and as a result, the overall net interest spread was
affected at the benefit of net income.
  Provision for Loan
Losses.  Management establishes provisions for loan losses,
which are charged to operations, at a level we believe reflects probable
incurred credit losses in the loan portfolio.  In evaluating the level
of the allowance for loan losses, management considers the types of loans and
the amount of loans in the loan portfolio, historical loss experience, adverse
situations that may affect the borrower's ability to repay, estimated value of
any underlying collateral and prevailing economic conditions.
  In fiscal
2008, we recorded a provision for loan losses of $721,000, compared to $470,000
in fiscal 2007.  The rise in provision for loan losses was attributed
to a 15% increase in loans receivable as well as a slightly higher loan
delinquency level.This evaluation is
inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available, or as future events
change.  The allowance for loan losses as a percentage of loans
receivable increasedto 0.32% at September
30, 2008, from 0.29% at September 30, 2007.  The level of the
allowance is based on estimates and the ultimate losses may vary from the
estimates.
  Non-performing
assets at September 30, 2008, were 0.68% of total assets, compared to 0.41% of
total assets at September 30, 2007.  Net charged-off loans were
$455,000 for the year ended September 30, 2008, compared to $379,000 for the
year ended September 30, 2007.  The allowance for loan losses as a
percentage of non-performing loans was 36.6% at September 30, 2008, compared to
60.9% at September 30, 2007.  The decrease in allowance for loan
losses as a percentage of nonperforming loans was due to more secure underlying
assets associated with the loans.  Charge-offs and delinquencies
remain low when compared to thrift industry averages.
  Management
assesses the allowance for loan losses on a quarterly basis and makes provisions
for loan losses as necessary in order to maintain the
allowance.  While management uses available information to recognize
losses on loans, future loan loss provisions may be necessary based on changes
in economic conditions.  In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the allowance
for loan losses and may require us to recognize additional provisions based on
their judgment of information available to them at the time of their
examination.  The allowance for loan losses as of September 30, 2008,
was maintained at a level that represents management's best estimate of probable
losses inherent in the loan portfolio, and such losses were both probable and
reasonably estimable.
  Non-Interest
Income.  Total non-interest income remained unchanged at $1.7
million in fiscal 2008 and fiscal 2007 as all categories stayed relatively
constant.  Service charges on deposit accounts increased from $1.0
million for the year ended September 30, 2007, to $1.1
   7
  million
for the year ended September 30, 2008.  Insurance commissions
decreased from $450,000 for the year ended September 30, 2007 to $344,000 for
the year ended September 30, 2008 as a result of lower credit insurance
sales.  Challenging economic conditions resulted in lower appraisals
for properties securing loans.  As a result, fewer loans closed, which
decreased sales of credit insurance.
  Non-Interest Expense.Total
non-interest expense for the year ended September 30, 2008, increased 5.7% to
$11.1 million from $10.5 million for the year ended September 30,
2007.  The increase resulted mainly from normal costs associated with
the Company's continued growth, including planned costs associated with the
current and future openings of the Company's Wal-Mart Supercenter branches,
salary and benefits, occupancy and professional services.
  Income Tax
Expense.Income tax expense increased to $1.0 million, or
40.6% of income before income taxes, for the year ended September 30, 2008, from
$448,000, or 37.6% of income before income taxes, for the year ended September
30, 2007.  The increase was a result of increased
earnings.
  Comparison
of Operating Results for the Years Ended September 30, 2007, and
 September
30, 2006
  Overview.  Our
results of operations depend primarily on the level of our net interest margin,
our provision for loan losses, our non-interest income and our operating
expenses.  Net interest income depends on the volume and rate
associated with interest-earning assets and interest-bearing liabilities which
result in net interest margin.  Net income increased by 66.6% to
$743,000 for the year ended September 30, 2007, from $446,000 for the year ended
September 30, 2006.  The increase was primarily due to an increase in
net interest income, partially offset by an increase in operating expenses.
Fiscal 2007 included a one-time, after-tax charge of $370,000 ($610,000 pre-tax)
taken in the first quarter of fiscal 2007 related to agreements with two
Citizens Community Federal executives who resigned.  Excluding the
charge, the Company would have reported fiscal 2007 net income of $1.1 million,
a 149.6% increase from the prior year.
  Interest
Income.  Total interest income increased by $4.0 million, or
26.1%, to $19.3 million for the year ended September 30, 2007, from $15.3
million for the year ended September 30, 2006.  The primary reason for
the increase in interest income was the $48.1 million increase in the average
outstanding balance of loans receivable from $237.6 million for the year ended
September 30, 2006, to $285.7 million for the year ended September 30,
2007.  The increase was the result of loan originations exceeding
repayments due to strong loan demand.  The yield in average loans
receivable increased to 6.90% from 6.59%, reflecting higher yielding new loans
replacing payoffs on loans with lower interest rates.  In addition,
interest and dividend income increased as a result of an increase in
investments.  These increases resulted in a fiscal year-to-date
increase in interest income of $306,000, or 86.7% as interest income at
September 30, 2007 was $659,000 compared to $353,000 for fiscal
2006.
  Interest
Expense.  Total interest expense increased $1.7 million, or
23.6%, to $8.9 million for the year ended September 30, 2007, from $7.2 million
for the year ended September 30, 2006.  The increase in interest
expense resulted from an increase in cost of both deposits and notes payable as
a result of an increase in average deposits outstanding and an increase
in
   8
  advances
from the FHLB.  Management used the FHLB advances as it sought the
most cost-effective source to fund loan demand.  The use of borrowed
funds helped to keep deposit yields lower than would have been necessary to
attract the additional funding for loan demand through additional deposit
growth.  In addition, mortgage-backed security investments ("MBS")
were purchased with FHLB advances.  The average cost of
interest-bearing liabilities increased from 3.16% for the year ended September
30, 2006, to 3.61% for the year ended September 30, 2007, reflecting generally
higher market rates of interest in fiscal 2007, combined with maturing CDs with
lower rates of interest renewing into higher current rates and the additional
FHLB advances used to fund the MBS investments.
  Net Interest
Income.  Net interest income increased 29.6% to $10.5 million
for the year ended September 30, 2007, from $8.1 million for the year ended
September 30, 2006.  The average net interest spread for fiscal 2007
was 3.07%, a decrease of 21 basis points from the average interest spread for
2006 of 3.28%.  The average interest rate margin increased 23 basis
points to 3.77% from 3.54%.  The net interest spread performance was a
result of the cost of interest-bearing liabilities increasing at a faster pace
than the increase in the yield on earning assets.  Contributing to the
decrease in net interestspread was the MBS
portfolio being funded through FHLB advances.  The spreads produced
from leveraged investments result in consistently lower interest margins than
the loans receivable portfolio, and as a result, the overall net interest spread
was affected.  The increase in net margin was a result of the use of
proceeds from the second step offering to initially pay down FHLB advances and
was also used to pay down advances with higher rates.
  Provision for Loan
Losses.  Management establishes provisions for loan losses,
which are charged to operations, at a level we believe reflects probable
incurred credit losses in the loan portfolio.  In evaluating the level
of the allowance for loan losses, management considers the types of loans and
the amount of loans in the loan portfolio, historical loss experience, adverse
situations that may affect the borrower's ability to repay, estimated value of
any underlying collateral and prevailing economic conditions.
  In fiscal
2007, we recorded a provision for loan losses of $470,000, compared to $251,000
in fiscal 2006.  This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available, or as future events change.  The
allowance for loan losses as a percentage of loans receivable decreased to 0.29%
at September 30, 2007, from 0.32% at September 30, 2006.  The level of
the allowance is based on estimates and the ultimate losses may vary from the
estimates.  Non-performing assets were approximately $1.7 million at
September 30, 2007, as compared to $1.8 million at September 30,
2006.
  Non-performing
assets at September 30, 2007, were 0.41% of total assets, compared to 0.63% of
total assets at September 30, 2006.  Net charged-off loans were
$378,000 for the year ended September 30, 2007, compared to $219,000 for the
year ended September 30, 2006.  The allowance for loan losses as a
percentage of non-performing loans was 60.9% at September 30, 2007, compared to
60.1% at September 30, 2006.  While net charged-off loans increased in
fiscal 2007 from fiscal 2006, non-performing loans decreased during the same
period.  Charge-offs and delinquencies remain low when compared to
thrift industry averages.
  Management
assesses the allowance for loan losses on a quarterly basis and makes provisions
for loan losses as necessary in order to maintain the
allowance.  While management
   9
  uses
available information to recognize losses on loans, future loan loss provisions
may be necessary based on changes in economic conditions.  In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses and may require us to
recognize additional provisions based on their judgment of information available
to them at the time of their examination.  The allowance for loan
losses as of September 30, 2007, was maintained at a level that represents
management's best estimate of probable losses inherent in the loan portfolio,
and such losses were both probable and reasonably estimable.
  Non-Interest
Income.  Total non-interest income remained unchanged at $1.7
million in fiscal 2007 and fiscal 2006 as all categories stayed relatively
constant.
  Non-Interest
Expense.  Total non-interest expense for the year ended
September 30, 2007, increased 20.7% to $10.5 million from $8.7 million for the
year ended September 30, 2006.  The increase was primarily due to
costs associated with the Company's growth, including salary and benefits, the
one-time charge detailed earlier, occupancy and professional services, and
higher employee stock ownership plan (ESOP) expenses related to the second step
conversion.
  Income Tax
Expense.  Income tax expense increased to $448,000, or 37.6% of
income before income taxes, for the year ended September 30, 2007, from
$309,000, or 40.9% of income before income taxes, for the year ended September
30, 2006.  The increase was a result of increased
earnings.
  Comparison
of Financial Condition at September 30, 2008, and September 30,
2007
  Total Assets.Our
total assets as of September 30, 2008, were $480.0 million, compared to $386.1
million as of September 30, 2007.  The 2008 fiscal year increase of
24.3% was primarily due to:
  ·
              A
      $48.8 million increase in loans receivable, of which $9.1 million was
      originated through the Company's new Wal-Mart in-store
      branches;
  ·
              $17.7
      million in assets acquired by the Company through
      the  previously disclosed acquisition from ANB of three Wal-Mart
      Supercenter branches; and
  ·
              A
      $22.2 million rise in MBS as the result of additional MBS
      purchases.
  Loans
Receivable.Loans increased by $48.5 million, or 15.2%, from
$320 million as of September 30, 2007, to $368.5 million as of September 30,
2008.  At September 30, 2008, the loan portfolio was comprised of
$205.0 million of loans secured by real estate, or 55.4% of total loans, and
$164.9 million of consumer loans, or 44.6% of total loans.  Although
the Wal-Mart in-store branch offices were only open for part of the fiscal year,
they were a significant contributor to the lending performance, as $9.1 million
of the increase in loans receivable was originated through the Wal-Mart in-store
branches.
   10
  Allowance for Loan
Losses.  The following table is an analysis of the activity in
the allowance for loan losses for the years ended September 30, 2008, and
September 30, 2007.
  Year
      Ended
                              September
      30,2008
                            
                            
                            2007(In
      thousands)Balance
      at Beginning
                            
                            $
                            926
                            
                            
                            $
                            835Provisions Charged to Operating Expense
                            
                            
                            721
                            
                            
                            
                            470Loans Charged Off
                            
                            
                            (492
                            )
                            
                            
                            (413
                            )Recoveries on Loans
                            
                            
                            37
                            
                            
                            
                            34Balance at End
                            
                            $
                            1,192
                            
                            
                            $
                            926
 
 Securities Available for
Sale.  Securities available for sale increased from $39.6
million on September 30, 2007, to $61.8 million on September 30,
2008.  We selectively purchased non-agency MBS that either met or
exceeded our underwriting guidelines.  This strategy was employed to
compliment consumer loan underwriting.  In order to comply with the
consumer lending limit imposed on federally chartered savings banks, management
chose to increase the asset base by purchasing AAA-rated MBS funded by FHLB
advances.  This strategy allowed us to continue to satisfy strong
demand consumer loans and still comply with our regulatory
limits.  The securities purchased were AAA-rated Jumbo Prime
MBS.  The average loan-to-value ratio at origination for the entire
MBS portfolio was 64.7%, while the average FICO score was 742.  We
have refrained from purchasing any subprime Alt-A negative amortization loans or
other types of securities with unusual characteristics.  While
performance of the MBS portfolio has deteriorated somewhat, the unrealized
losses are largely a function of market conditions, and to date, all securities
continue to pay as scheduled.
  FHLB Stock.FHLB
stock increased from $4.8 million on September 30, 2007, to $5.8 million on
September 30, 2008.  The increase was a result of required stock
purchases to access additional FHLB borrowings.
  Office Properties and
Equipment.  Total investment in office properties and equipment
was $3.5 million on September 30, 2007, and $5.9 million on September 30, 2008,
an increase of $2.4 million, or 68.6%.  The increase was primarily a
result of our Wal-Mart in-store locations opened in fiscal 2008.
  Deposits.  Deposits
grew to $297.2 million at September 30, 2008, from $207.7 at September 30,
2007.  The fiscal year increase of $89.5 million, or 43.1%, was the
result of growth both in new certificates of deposit, as well as new core
deposits.  $18.1 million of the increase came from total deposit
growth at the Bank's newly opened Wal-Mart Supercenter branch locations; of that
amount, $11.4 million was core deposit growth.  $18.4 million of the
increase was the result of the Bank's ANB branch acquisitions.
  Borrowed
Funds.  FHLB advances increased from $96.4 million on September
30, 2007, to $110.2 million on September 30, 2008, in order to fund MBS
investments.
  Stockholders'
Equity.  Stockholders' equity decreased $9.6 million to $68.5
million at September 30, 2008, from $78.1 million at September 30,
2007.  The decrease, partially offset by net income, was due to the
repurchase of 890,300 shares under the Company's previously announced share
repurchase programs, dividends paid, and a temporary, unrealized
impairment
   11
  of $2.8
million related to mark-to-market valuation of the Company's MBS portfolio,
which was conducted due to current market conditions.
  Comparison
of Financial Condition at September 30, 2007, and September 30,
2006
  Total Assets.  Our
total assets as of September 30, 2007, were $386.1 million, compared to $284.0
million as of September 30, 2006.  The 2007 fiscal year increase of
36.0% was primarily due to a $61.7 million increase in loans receivable and a
$38.8 million increase in investments.
  Securities Available for
Sale.  Securities available for sale increased from $782,000 on
September 30, 2006, to $39.6 million on September 30, 2007.  We
selectively purchased non-agency MBS that either met or exceeded our
underwriting guidelines.  This strategy was employed to complement
consumer loan underwriting.  Strong demand in consumer lending
required managing the balance sheet's structure to comply with the consumer
lending limit imposed on federally chartered savings
banks.  Management chose to increase the asset base by purchasing
AAA-rated MBS funded by FHLB advances.  This strategy allowed us to
continue making consumer loans within our regulatory limits.  The
securities purchased are AAA-rated Jumbo Prime MBS, with an average
loan-to-value ratio of 68.98% and an average FICO score of 741.  We
have stayed within the Jumbo Prime sector, purchasing no Sub-Prime or Alt-A
MBS.  Furthermore, while the Bank has purchased hybrid ARM securities,
we have refrained from purchasing any negative amortization loans or option ARM
securities.  Finally, the MBS portfolio consists only of those
securities that are in one of the two highest-rating categories and are
first-lien mortgages only.
  FHLB Stock.FHLB
stock increased from $3.1 million on September 30, 2006, to $4.8 million on
September 30, 2007.  The increase was a result of required stock
purchases to access additional FHLB borrowings.
  Loans
Receivable.  Loans increased by $61.5 million, or 23.7%, from
$259.2 million as of September 30, 2006, to $320.0 million as of September 30,
2007.  At September 30, 2007, the loan portfolio was comprised of
$188.0 million of loans secured by real estate, or 58.6% of total loans, and
$132.7 million of consumer loans, or 41.4% of total loans.
  At
September 30, 2006, the loan portfolio mix included real estate loans of $165.6
million, or 63.9% of total loans, and consumer loans of $93.6 million, or 36.1%
of total loans.  Loan production was strong throughout the Branch
system.  A significant contributing factor to the loans receivable
increase were the indirect consumer loans generated from our established dealer
network, especially in our Michigan and Minnesota markets.  At
September 30, 2007, indirect loans from our Minnesota and Michigan branches
totaled $34.4 million and $24.4 million, respectively, compared with $11.1
million and $3.6 million at September 30, 2006.
   12
  Allowance for Loan
Losses.  The following table is an analysis of the activity in
the allowance for loan losses for the years ended September 30, 2007, and
September 30, 2006.
  Year
      Ended
                        September
      30,2007
                      
                      
                      2006(In
      thousands)Balance
      at Beginning
                      
                      $
                      835
                      
                      
                      $
                      803Provisions Charged to Operating Expense
                      
                      
                      470
                      
                      
                      
                      251Loans Charged Off
                      
                      
                      (413
                      )
                      
                      
                      (247
                      )Recoveries on Loans
                      
                      
                      34
                      
                      
                      
                      28Balance at End
                      
                      $
                      926
                      
                      
                      $
                      835
 
 Office Properties and
Equipment.  Total investment in office properties and equipment
was $3.7 million on September 30, 2006, and $3.5 million on September 30, 2007,
a decrease of $200,000, or 5.4%.  The decrease was a result of the
depreciation of current equipment and properties, partially offset by modest
additions to property and equipment.
  Deposits.  Deposits
as of September 30, 2007, were $207.7 million, compared to $186.7 million as of
September 30, 2006, an increase of $21.0 million, or 11.2%.  The
fiscal 2007 growth came primarily from new certificates of deposit, money market
accounts and checking accounts.  A deposit campaign was initiated in
2007 that generated 1,587 new checking accounts.  Management expects
this program to continue in fiscal 2008.
  Borrowed
Funds.  FHLB advances increased from $61.2 million on September
30, 2006, to $96.4 million on September 30, 2007, as a result of the need to
utilize a funding source other than deposits to fund MBS investments and strong
loan demand.
  Stockholders'
Equity.  Stockholders' equity increased $48.0 million to $78.1
million at September 30, 2007, from $30.1 million at September 30,
2006.  The increase for the period was primarily a result of the
proceeds received from the second step conversion and reorganization and
retained earnings.
  
  13
  Average
Balances, Net Interest Income, Yields Earned and Rates Paid
  The
following table presents for the periods indicated the total dollar amount of
interest income from average interest-earning assets and the resultant yields,
as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates.  Also presented is the weighted
average yield on interest-earning assets, rates paid on interest-bearing
liabilities and the resultant spread at September 30.  No tax
equivalent adjustments were made.  Non-accruing loans have been
included in the table as loans carrying a zero yield.
  Year
      ended September 30,2008
                  
                  
                  2007
                  
                  
                  2006Average
                    Outstanding
                    Balance
                  
                  
                  Interest
                    Earned/
                    Paid
                  
                  
                  Yield/
                    Rate
                  
                  
                  Average
                    Outstanding
                    Balance
                  
                  
                  Interest
                    Earned/
                    Paid
                  
                  
                  Yield/
                    Rate
                  
                  
                  Average
                    Outstanding
                    Balance
                  
                  
                  Interest
                    Earned/
                    Paid
                  
                  
                  Yield/
                    Rate(In
      Thousands)Interest-Earning Assets:Cash equivalents
                  
                  $
                  13,445
                  
                  
                  $
                  277
                  
                  
                  
                  2.06
                  %
                  
                  $
                  5,953
                  
                  
                  $
                  167
                  
                  
                  
                  2.81
                  %
                  
                  $
                  6,135
                  
                  
                  $
                  184
                  
                  
                  
                  3.00
                  %Loans receivable(1)
                  
                  
                  344,654
                  
                  
                  
                  23,129
                  
                  
                  
                  6.71
                  
                  
                  
                  285,668
                  
                  
                  
                  19,713
                  
                  
                  
                  6.90
                  
                  
                  
                  237,553
                  
                  
                  
                  15,664
                  
                  
                  
                  6.59Other interest-bearing deposits
                  
                  
                  371
                  
                  
                  
                  8
                  
                  
                  
                  2.16
                  
                  
                  
                  567
                  
                  
                  
                  30
                  
                  
                  
                  5.29
                  
                  
                  
                  1,153
                  
                  
                  
                  46
                  
                  
                  
                  3.99Securities available for sale
                  
                  
                  53,417
                  
                  
                  
                  3,320
                  
                  
                  
                  6.22
                  
                  
                  
                  9,487
                  
                  
                  
                  379
                  
                  
                  
                  3.99
                  
                  
                  
                  1,478
                  
                  
                  
                  58
                  
                  
                  
                  3.92Federal Home Loan Bank stock
                  
                  
                  5,420
                  
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  3,115
                  
                  
                  
                  83
                  
                  
                  
                  2.66
                  
                  
                  
                  2,280
                  
                  
                  
                  65
                  
                  
                  
                  2.85Total interest-earning assets
                  
                  $
                  417,307
                  
                  
                  
                  26,734
                  
                  
                  
                  6.41
                  
                  
                  $
                  304,790
                  
                  
                  
                  20,372
                  
                  
                  
                  6.68
                  
                  
                  $
                  248,599
                  
                  
                  
                  16,017
                  
                  
                  
                  6.44Interest-Bearing Liabilities:Savings accounts
                  
                  $
                  21,091
                  
                  
                  
                  172
                  
                  
                  
                  0.82
                  
                  
                  $
                  22,858
                  
                  
                  
                  218
                  
                  
                  
                  0.95
                  
                  
                  $
                  24,703
                  
                  
                  
                  167
                  
                  
                  
                  0.68Demand accounts(2)
                  
                  
                  18,711
                  
                  
                  
                  26
                  
                  
                  
                  0.14
                  
                  
                  
                  19,283
                  
                  
                  
                  28
                  
                  
                  
                  0.15
                  
                  
                  
                  19,622
                  
                  
                  
                  28
                  
                  
                  
                  0.14Money market accounts
                  
                  
                  31,711
                  
                  
                  
                  717
                  
                  
                  
                  2.26
                  
                  
                  
                  24,323
                  
                  
                  
                  588
                  
                  
                  
                  2.42
                  
                  
                  
                  26,623
                  
                  
                  
                  500
                  
                  
                  
                  1.88CDs
                  
                  
                  166,758
                  
                  
                  
                  7,716
                  
                  
                  
                  4.63
                  
                  
                  
                  120,148
                  
                  
                  
                  5,707
                  
                  
                  
                  4.75
                  
                  
                  
                  104,536
                  
                  
                  
                  4,126
                  
                  
                  
                  3.95IRAs
                  
                  
                  12,016
                  
                  
                  
                  507
                  
                  
                  
                  4.22
                  
                  
                  
                  10,876
                  
                  
                  
                  453
                  
                  
                  
                  4.17
                  
                  
                  
                  10,252
                  
                  
                  
                  361
                  
                  
                  
                  3.52Federal Home Loan Bank advances
                  
                  
                  105,699
                  
                  
                  
                  5,001
                  
                  
                  
                  4.73
                  
                  
                  
                  48,643
                  
                  
                  
                  1,895
                  
                  
                  
                  3.90
                  
                  
                  
                  42,500
                  
                  
                  
                  2,039
                  
                  
                  
                  4.80Total interest-bearing liabilities
                  
                  $
                  355,986
                  
                  
                  
                  14,139
                  
                  
                  
                  3.97
                  
                  
                  $
                  246,130
                  
                  
                  
                  8,889
                  
                  
                  
                  3.61
                  
                  
                  $
                  228,237
                  
                  
                  
                  7,221
                  
                  
                  
                  3.16Net interest income
                  
                  
                  
                  
                  
                  $
                  12,595
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  11,483
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  8,796Net interest rate spread
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.44
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.07
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.28
                  %Net interest margin(3)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.02
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.77
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.54
                  %Average interest-earning assets to average interest-
                    bearingliabilities
                  
                  
                  
                  
                  
                  
                  1.17
                  x
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1.24
                  x
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1.09
                  x
 _________________
 (1)
                Calculated
      net of loan fees of $(1,026,000) in 2007 and $(706,000) in 2006, loan
      discounts, loans in process and allowance for losses on
    loans.(2)
                Includes
      $14.4 million, $13.8 million and $13.8 million of non-interest-bearing
      demand deposits during the years ended September 30, 2008, 2007 and 2006,
      respectively.(3)
                Net
      interest income divided by interest-earning
  assets.
  14
  Rate/Volume
Analysis
  The
following table presents the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities.  For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to:  (1) changes in volume, which are changes in volume
multiplied by the old rate; and (2) changes in rate, which are changes in rate
multiplied by the old volume.  Changes attributable to both rate and
volume which cannot be segregated have been allocated proportionately to the
change due to volume and the change due to rate.
  Year
      Ended September 30,
                  2008
      vs. 2007
                
                
                Year
      Ended September 30,
                  2007
      vs. 2006Increase
      (Decrease)
                  Due
      to
                
                
                Total
                  Increase
                
                
                Increase
      (Decrease)
                  Due
      to
                
                
                Total
                  IncreaseVolume
                
                
                Rate
                
                
                (Decrease)
                
                
                Volume
                
                
                Rate
                
                
                (Decrease)(In
      Thousands)Interest-Earning Assets:Loans receivable(1)
                
                $
                3,972
                
                
                $
                (556
                )
                
                $
                3,416
                
                
                $
                3,293
                
                
                $
                756
                
                
                $
                4,049Other
                
                
                2,812
                
                
                
                134
                
                
                
                2,946
                
                
                
                318
                
                
                
                (12
                )
                
                
                306Total interest-earning
      assets
                
                
                6,784
                
                
                
                (422
                )
                
                
                6,362
                
                
                $
                3,611
                
                
                $
                744
                
                
                $
                4,355Interest-Bearing Liabilities:Savings accounts
                
                
                (18
                )
                
                
                (28
                )
                
                
                (46
                )
                
                $
                (12
                )
                
                
                63
                
                
                
                51Demand accounts
                
                
                (1
                )
                
                
                (1
                )
                
                
                (2
                )
                
                
                ---
                
                
                
                ---
                
                
                
                ---Money market account
                
                
                169
                
                
                
                (40
                )
                
                
                129
                
                
                
                (46
                )
                
                
                134
                
                
                
                88IRA accounts
                
                
                48
                
                
                
                6
                
                
                
                54
                
                
                
                23
                
                
                
                69
                
                
                
                92Certificates of deposit
                
                
                2,160
                
                
                
                (151
                )
                
                
                2,009
                
                
                
                669
                
                
                
                912
                
                
                
                1,581Federal
      Home Loan Bank advances
                
                
                2,626
                
                
                
                480
                
                
                
                3,106
                
                
                
                271
                
                
                
                (415
                )
                
                
                (144
                )Total interest-bearing liabilities
                
                $
                4,984
                
                
                $
                266
                
                
                
                5,250
                
                
                $
                905
                
                
                $
                763
                
                
                
                1,668Net interest income
                
                
                
                
                
                
                
                
                
                $
                1,112
                
                
                
                
                
                
                
                
                
                
                $
                2,687
 ______________
 (1)
                Calculated
      net of loan fees of $(1,026,000) in 2007 and $(706,000) in
      2006.
 
  Liquidity
and Commitments
  We are
required to have enough investments that qualify as liquid assets in order to
maintain sufficient liquidity to ensure a safe and sound
operation.  Liquidity may increase or decrease depending upon the
availability of funds and comparative yields on investments in relation to the
return on loans.  Historically, we have maintained liquid assets above
levels believed to be adequate to meet the requirements of normal operations,
including potential deposit outflows.  Cash flow projections are
regularly reviewed and updated to assure that adequate liquidity is
maintained.  At September 30, 2008, our liquidity ratio, which is our
liquid assets as a percentage of net withdrawable savings deposits with a
maturity of one year or less and current borrowings was 7.7%.
  Citizens
Community Federal's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing
activities.  Citizens Community Federal's primary sources of funds are
deposits, amortization, prepayments and maturities of outstanding loans, and
other short-term investments and funds provided from
operations.  While scheduled payments from the amortization of loans
and maturing short-term investments are relatively predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions and competition.  In addition, Citizens
Community
   15
  Federal
invests excess funds in short-term, interest-earning assets, which provide
liquidity to meet lending requirements.  Citizens Community Federal
also generates cash through borrowings.  Citizens Community Federal
utilizes FHLB advances to leverage its capital base, and provide funds for its
lending and investment activities, and to enhance its interest rate risk
management.
  Liquidity
management is both a daily and long-term function of business
management.  Excess liquidity is generally invested in short-term
investments such as overnight deposits or certificates of deposit in other
financial institutions.  On a longer-term basis, Citizens Community
Federal maintains a strategy of investing in various lending products as
described in greater detail under "Evolving Business
Strategies."  Citizens Community Federal uses its sources of funds
primarily to meet its ongoing commitments, to pay maturing certificates of
deposit and savings withdrawals, and to fund loan commitments.
  At
September 30, 2008, the total approved loan origination commitments outstanding
amounted to $360,000.  At the same date, unused approved lines of
credit to our customers were $7.6 million and certificates of deposit scheduled
to mature in one year or less, totaled $185.1 million.
  The
average cost of deposits increased modestly throughout fiscal 2007 and fiscal
2008.  Management's policy is to maintain deposit rates at levels that
are competitive with other local financial institutions.  Based on the
competitive rates and on historical experience, management believes that a
significant portion of maturing deposits will remain with Citizens Community
Federal.  In addition, Citizens Community Federal had the ability as
of September 30, 2008, to borrow an additional $38.9 million from the FHLB as a
funding source to meet commitments and for liquidity purposes.
  Capital
  Consistent
with its goals to operate a sound and profitable financial organization,
Citizens Community Federal actively seeks to maintain a "well-capitalized"
institution in accordance with regulatory standards.  Total equity of
Citizens Community Federal was $46.6 million at September 30, 2008, or 9.7% of
total assets.  As of September 30, 2008, Citizens Community Federal
exceeded all regulatory capital requirements of the Office of Thrift Supervision
(OTS).  Citizens Community Federal's regulatory capital ratios at
September 30, 2008, were as follows:  core capital 9.6%;Tier 1 risk-based
capital, 15.1%; and total risk-based capital, 15.3%.  The regulatory
capital requirements to be considered well capitalized are core capital of 5.0%,
Tier 1 risk-based capital of 6.0% and risk-based capital of 10.0%,
respectively.
  Impact
of Inflation
  The
consolidated financial statements presented herein have been prepared in
accordance with accounting principles generally accepted in the United
States.  These principles require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
  Our
primary assets and liabilities are monetary in nature.  As a result,
interest rates have a more significant impact on our performance than the
effects of general levels of inflation.
   16
  Interest
rates, however, do not necessarily move in the same direction or with the same
magnitude as the price of goods and services, since such prices are affected by
inflation.  In a period of rapidly rising interest rates, the
liquidity and maturity structures of our assets and liabilities are critical to
the maintenance of acceptable performance levels.
  The
principal effect of inflation, as distinct from levels of interest rates, on
earnings is in the area of non-interest expense.  Such expense items
as employee compensation, employee benefits, and occupancy and equipment costs
may be subject to increases as a result of inflation.  An additional
effect of inflation is the possible increase in the dollar value of the
collateral securing loans that we have made.  We are unable to
determine the extent, if any, to which properties securing our loans have
appreciated in dollar value due to inflation.
  Recent
Accounting Pronouncements
  In
December 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141R, Business
Combinations.  This statement establishes principles and
requirements for the acquirer in a business combination to recognize and measure
identifiable assets acquired and liabilities assumed; to recognize and measure
goodwill acquired or gained from a bargain purchase; and to determine what
information to disclose in the financial statements.  SFAS No. 141R is
effective for business combinations for which the acquisition date determined in
accordance with this Statement is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  The Company
believes the adoption of this statement will not have a significant effect on
the financial statements of the Company.
  In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities.  This statement permits
entities to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair
value.  The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions.  This statement also establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities.  SFAS No. 159 is effective for financial
statements issued for fiscal years beginning after November 15,
2007.  The Company believes the adoption of this statement will not
have a significant effect on the financial statements of the
Company.
  In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 157, Fair Value
Measurements.  Effective for financial statements issued for
fiscal years beginning after November 1, 2007, SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements.  While SFAS No. 157 does not require any new
fair value measurements. The statement emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and should be
determined based on the assumptions that market participants would use in
pricing the asset or liability.  The standard will be effective for
the Company as of October 1, 2008.  The Company believes the adoption
of this statement will not have a significant effect on the financial statements
of the Company.
   17
  In June
2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48
(FIN 48), Accounting for
Uncertainty in Income Taxes.This interpretation clarifies the accounting
for uncertainty in income taxes recognized in a company's financial statements
in accordance with SFAS No. 109, Accounting for Income
Taxes.  FIN 48 prescribed a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return.  This
interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and
transition.  FIN 48 is effective for fiscal years beginning after
December 15, 2006, for public companies.  The Company believes the
adoption of this interpretation did not have a significant effect on the
financial statements of the Company.
  Quantitative
and Qualitative Disclosures About Market Risk
  Our Risk When Interest Rates
Change.  The rates of interest we earn on assets and pay on
liabilities generally are established contractually for a period of
time.  Market interest rates change over time.  Accordingly,
our results of operations, like those of other financial institutions, are
impacted by changes in interest rates and the interest rate sensitivity of our
assets and liabilities.  The risk associated with changes in interest
rates and our ability to adapt to these changes is known as interest rate risk
and is our most significant market risk.
  How We Measure Our Risk of Interest
Rate Changes.  As part of our attempt to manage our exposure to
changes in interest rates and comply with applicable regulations, we monitor our
interest rate risk.  In monitoring interest rate risk, we continually
analyze and manage assets and liabilities based on their payment streams and
interest rates, the timing of their maturities, and their sensitivity to actual
or potential changes in market interest rates.
  In order
to manage the potential for adverse effects of material and prolonged increases
in interest rates on our results of operations, we adopted asset and liability
management policies to better align the maturities and repricing terms of our
interest-earning assets and interest-bearing liabilities.  These
policies are implemented by the asset and liability management
committee.  The asset and liability management committee is comprised
of members of senior management.  The asset and liability management
committee establishes guidelines for and monitors the volume and mix of assets,
and funding sources taking into account relative costs and spreads, interest
rate sensitivity and liquidity needs.  The objectives are to manage
assets and funding sources to produce results that are consistent with
liquidity, capital adequacy, growth, risk and profitability
goals.  The asset and liability management committee generally meets
on a weekly basis to review, among other things, economic conditions and
interest rate outlook, current and projected liquidity needs and capital
position, anticipated changes in the volume and mix of assets and liabilities,
and interest rate risk exposure limits versus current projections pursuant to
net present value of portfolio equity analysis.  At each meeting, the
asset and liability management committee recommends strategy changes, as
appropriate, based on this review.  The committee is responsible for
reviewing and reporting on the effects of the policy implementations and
strategies to the board of directors on a monthly basis.
  In order
to manage our assets and liabilities, and achieve the desired liquidity, credit
quality, interest rate risk, profitability and capital targets, we have focused
our strategies on:
   18
  ·
                originating
      first mortgage loans, with a clause allowing for payment on demand after a
      stated period of time;
 ·
              originating
      shorter-term consumer loans;
  ·
              originating
      prime-based home equity lines of
credit;
  ·
              managing
      our deposits to establish stable deposit
  relationships;
  ·
              using
      FHLB advances to align maturities and repricing terms;
  and
  ·
              attempting
      to limit the percentage of long-term, fixed-rate loans in our portfolio
      which do not contain a payable-on-demand
clause.
  At times,
depending on the level of general interest rates, the relationship between long-
and short-term interest rates, market conditions and competitive factors, the
asset and liability management committee may determine to increase Citizens
Community Federal's interest rate risk position somewhat in order to maintain
its net-interest margin.
  In light
of our performance in fiscal 2007 and fiscal 2008, management believes our
strategies have proven to be effective.  Credit quality continued to
be strong with delinquency and charge-off ratios remaining below thrift industry
averages.  Interest rate risk, defined by net portfolio value (NPV),
continued to show minimal risk.  By continuing to include our
payment-on-demand clauses on our first mortgage loan originations, less than 10%
of the Citizens Community Federal assets were represented by traditional
fixed-rate mortgage loans with amortizations of 15 years or
greater.
  As of
September 30, 2008, $162.5 million of our loans in portfolio included a
payable-on-demand clause.  We have not utilized the demand clause
since fiscal 2000 because, in management's view, it has not been
appropriate.  Therefore, the clause has had no impact on our liquidity
and overall financial performance for the periods presented.
  As part
of its procedures, the asset and liability management committee regularly
reviews interest rate risk by forecasting the impact of alternative interest
rate environments on net interest income and market value of portfolio
equity.  Market value of portfolio equity is defined as the net
present value of an institution's existing assets, liabilities and off-balance
sheet instruments, and evaluating such impacts against the maximum potential
changes in net interest income and market value of portfolio equity that are
authorized by the board of directors of Citizens Community Federal.
   19
  The
following table sets forth, at September 30, 2008, an analysis of Citizen
Community Federal's interest rate risk as measured by the estimated changes in
NPV resulting from instantaneous and sustained parallel shifts in the yield
curve (up 300 basis points and down 200 basis points, measured in 100 basis
point increments).  As of September 30, 2008, due to the current level
of interest rates, the OTS no longer provides NPV estimates for decreases in
interest rates greater than 200 basis points.
  Change
      in Interest Rates in
                Basis
      Points ("bp")
                (Rate Shock in
      Rates)(1)
              Net
      Portfolio Value
              Net
      Portfolio Value as % of
                Present
      Value of AssetsAmount
              Change
              Change
              NPV
      Ratio
              Change(Dollars
      in thousands)+300 
      bp
              $27,546
              $(10,206)
              (27)%
              6.10%
              (190)
      bp+200 
      bp
              31,438
              (6,314)
              (17)
              6.86
              (114)+100 
      bp
              34,922
              (2,830)
              (7)
              7.50
              (50)0  bp
              37,752
              ---
              ---
              8.00
              ----100 
      bp
              39,669
              1,916
              5
              8.31
              31
 ___________
 (1)
              Assumes
      an instantaneous uniform change in interest rates at all
      maturities.
 
 For
comparative purposes, the table below sets forth, at September 30, 2007, an
analysis of Citizen Community Federal's interest rate risk as measured by the
estimated changes in NPV resulting from instantaneous and sustained parallel
shifts in the yield curve (up 300 basis points and down 200 basis points,
measured in 100 basis point increments).  As of September 30, 2007,
due to the current level of interest rates, the OTS no longer provides NPV
estimates for decreases in interest rates greater than 200 basis
points.
  Change
      in Interest Rates in
                Basis
      Points ("bp")
                (Rate Shock in
      Rates)(1)
              Net
      Portfolio Value
              Net
      Portfolio Value as % of
                Present
      Value of AssetsAmount
              Change
              Change
              NPV
      Ratio
              Change(Dollars
      in thousands)+300 
      bp
              $36,641
              $(7,080)
              (16)%
              10.01%
              (148)
      bp+200 
      bp
              39,118
              (4,603)
              (11)
              10.55
              (95)+100 
      bp
              41,514
              (2,207)
              (5)
              11.05
              (44)0  bp
              43,721
              ---
              ---
              11.50
              ----100 
      bp
              45,442
              1,721
              4
              11.81
              32-200 
      bp
              46,445
              2,724
              6
              11.96
              46
 ___________
 (1)
              Assumes
      an instantaneous uniform change in interest rates at all
      maturities.
 
 The OTS
uses certain assumptions in assessing the interest rate risk of savings
associations.  These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates, and the market values of certain assets
under differing interest rate scenarios, among others.
  The
assumptions used by management to evaluate the vulnerability of Citizens
Community Federal's operations to changes in interest rates in the table above
are utilized in, and set forth under, the gap table below.  Although
management finds these assumptions reasonable, the interest rate sensitivity of
Citizens Community Federal's assets and liabilities and the
   20
  estimated
effects of changes in interest rates on Citizens Community Federal's net
interest income and market value of portfolio equity indicated in the above
table could vary substantially if different assumptions were used or actual
experience differs from such assumptions.
  The
following table summarizes the anticipated maturities or repricing of Citizens
Community Federal's interest-earning assets and interest-bearing liabilities at
September 30, 2008, based on the information and assumptions set forth
below.
  Six Months
                or Less
              
              Over Six
                Months to
                One Year
              
              Over One
                to Three
                Years
              
              Over Three
                to Five
                Years
              
              Over
                Five
                Years
              
              Total(Dollars in Thousands)Real estate mortgage loans
              $  37,056
              
              $  30,467
              
              $
      75,271
              
              $34,578
              
              $27,540
              
              $204,912Consumer loans
              68,927
              
              45,604
              
              43,697
              
              4,297
              
              2,340
              
              164,865Securities available for sale
              4,393
              
              4,428
              
              18,677
              
              17,296
              
              16,982
              
              61,776Other interest-bearing deposits
              ---
              
              371
              
              ---
              
              ---
              
              ---
              
              371Federal Home Loan Bank stock
              ---
              
              ---
              
              ---
              
              5,787
              
              ---
              
              5,787Cash equivalents(1)
              23,666
              
              ---
              
              ---
              
              ---
              
              ---
              
              23,666Total interest-earning assets
              134,042
              
              80,870
              
              137,645
              
              61,958
              
              46,862
              
              461,377Savings accounts
              2,227
              
              2,227
              
              17,101
              
              684
              
              28
              
              22,267Demand and money market
              11,192
              
              11,192
              
              16,787
              
              4,197
              
              20,426
              
              63,794Certificates of deposit
              95,988
              
              89,164
              
              22,127
              
              3,903
              
              ---
              
              211,182Federal
      Home Loan Bank advances
              11,020
              
              12,375
              
              64,700
              
              18,250
              
              3,900
              
              110,245Total interest-bearing liabilities
              120,427
              
              114,958
              
              120,715
              
              27,034
              
              24,354
              
              407,488Interest-earning assets lessinterest-bearing liabilities
              $  13,615
              
              $(34,088)
              
              $
      16,930
              
              $34,924
              
              $22,508
              
              $  53,889Cumulative interest rate sensitivity gap
              $  13,615
              
              $(20,473)
              
              $
      (3,543)
              
              $31,381
              
              $53,889Cumulative
      interest rate gap as a
                percentage
      of assets at September 30,
                2008
              2.84%
              
              (4.26)%
              
              (0.74)%
              
              6.54%
              
              11.23%Cumulative interest rate gap as a
                percentage of interest-earning assets
                at September
      30, 2008
              2.95%
              
              (4.44)%
              
              (0.77)%
              
              6.80%
              
              11.68%
 __________________________
 (1)
              Net
      of corporate checks issued of
$4,795.
 
 The
difference between repricing assets and liabilities for a specific period is
referred to as the gap.  An excess of repriceable assets over
liabilities is referred to as a positive gap.  An excess of
repriceable liabilities over assets is referred to as a negative
gap.  The cumulative gap is the summation of the gap for all periods
to the end of the period for which the cumulative gap is being
measured.
  Assets
and liabilities scheduled to reprice are included in the period in which the
rate is next scheduled to adjust rather than in the period in which the assets
or liabilities are due.  Fixed-rate loans are included in the periods
in which they are scheduled to be repaid, based on scheduled amortization, as
adjusted to take into account estimated prepayments based on OTS prepayment
tables.  No effect is given to the payable-on-demand clause in certain
mortgage loans originated by Citizens Community Federal.
   21
  As with
any method of measuring interest rate risk, certain shortcomings are inherent in
the method of analysis presented in the foregoing table.  For example,
although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates.  Also, 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 may lag behind changes in market
rates.  Additionally, a limited amount of our assets have features
which restrict changes in interest rates on a short-term basis and over the life
of the asset.  Further, if interest rates change, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
  Critical
Accounting Policies
  There are
certain accounting policies that we have established which require us to use our
judgment.  The only critical accounting policy, in addition to the
policies included in Note 1, "Summary of Significant Accounting Policies," to
the Consolidated Financial Statements, is as follows:
  Allowance for Loan
Losses.  Establishing the amount of the allowance for loan
losses requires the use of our judgment.  We evaluate our assets at
least quarterly, and review their risk components as part of that
evaluation.  If we misjudge a major component and experience a loss,
it will likely affect our earnings.  In addition, by the very nature
of the determination of the allowance, developments as to particular loans can
affect year-to-year provision amounts.  We consistently challenge
ourselves in the review of the risk components to identify any changes in trends
and their cause.
   22
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Consolidated
Financial Statements
 Years
Ended September 30, 2008, 2007, and
2006
  
 
 
 Table of
Contents
 
 Independent
      Auditor’s Report
                24Consolidated
      Financial StatementsConsolidated
      Balance Sheets
                25Consolidated
      Statements of Income
                27Consolidated
      Statements of Changes in Stockholders’ Equity
                28Consolidated
      Statements of Cash Flows
                31Notes
      to Consolidated Financial Statements
                33
 
  23
  
 WIPFLI
 
 Independent
Auditor’s Report
 
 
 
 Board of
Directors
 Citizens
Community Bancorp, Inc.
 Eau
Claire, Wisconsin
 
 
 We have
audited the accompanying consolidated balance sheets of Citizens Community
Bancorp, Inc. and Subsidiary as of September 30, 2008 and 2007, and the related
consolidated statements of income, changes in stockholders’ equity, and cash
flows for each of the years in the three-year period ended September 30,
2008.  These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on
these financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Citizens Community Bancorp,
Inc. and Subsidiary as of September 30, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 2008, in conformity with accounting principles generally
accepted in the United States.
 
  
 Wipfli
LLP
 
 
 December
19, 2008
 Eau
Claire, Wisconsin
  24
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Consolidated
Balance Sheets
 September
30, 2008 and 2007
  Assets
                    
                    2008
                    2007(In
      Thousands)Cash
      and cash equivalents
                    
                    $23,666
                    $6,354Interest-bearing
      deposits
                    
                    371
                    371Securities
      available-for-sale `
                    
                    61,776
                    39,592Loans
      receivable - Net of allowance for loan losses of
                      $1,192
      and $926 in 2008 and 2007, respectively
                    368,518
                    320,027Federal
      Home Loan Bank stock - At cost
                    
                    5,787
                    4,822Office
      properties and equipment - Net
                    
                    5,916
                    3,460Accrued
      interest receivable
                    
                    1,726
                    1,397Intangible
      assets
                    
                    1,481
                    1,528Goodwill
                    
                    5,593
                    5,466Other
      assets
                    
                    5,202
                    3,096TOTAL
      ASSETS
                    
                    $480,036
                    $386,113
  25
  
 Liabilities
      and Stockholders’ Equity
                              
                              2008
                              2007(In
      Thousands)Deposits
                              
                              $297,243
                              $207,734Borrowed
      funds
                              
                              110,245
                              96,446Other
      liabilities
                              
                              4,072
                              3,784Total
      liabilities
                              
                              411,560
                              307,964Preferred
      stock - Par value $.01:Authorized
      - 1,000,000 shares in 2008 and 2007Issued
      and outstanding - 0 shares outstanding
                                in
      2008 and 2007Common
      stock - Par value $.01:Authorized
      - 20,000,000 shares in 2008 and 2007Issued
      and outstanding - 6,226,995 shares in 2008
                                and
      7,118,205 shares in 2007
                              62
                              71Additional
      paid-in capital
                              
                              62,192
                              69,934Retained
      earnings
                              
                              12,550
                              12,420Unearned
      ESOP shares
                              
                              (3,416)
                              (3,877)Unearned
      compensation
                              
                              (126)
                              (207)Accumulated
      other comprehensive loss
                              
                              (2,786)
                              (192)Total
      stockholders’ equity
                              
                              68,476
                              78,149TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                              
                              $480,036
                              $386,113
 
  See
accompanying notes to consolidated financial statements.
 26
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Consolidated
Statements of Income
 Years
Ended September 30, 2008, 2007, and
2006
  2008
                2007
                2006(In
      Thousands)Interest
      and dividend income:Interest
      and fees on loans
                
                $23,129
                $18,687
                $14,958Interest
      on investments
                
                3,605
                659
                353Total
      interest and dividend income
                
                26,734
                19,346
                15,311Interest
      expense:Interest
      on deposits
                
                9,138
                6,994
                5,182Interest
      on borrowed funds
                
                5,001
                1,895
                2,039Total
      interest expense
                
                14,139
                8,889
                7,221Net
      interest income
                
                12,595
                10,457
                8,090Provision
      for loan losses
                
                721
                470
                251Net
      interest income after provision for loan losses
                
                11,874
                9,987
                7,839Noninterest
      income:Service
      charges on deposit accounts
                
                1,069
                980
                981Insurance
      commissions
                
                344
                450
                372Loan
      fees and service charges
                
                283
                282
                262Security
      gains
                
                0
                0
                27Other
                
                13
                14
                15Total
      noninterest income
                
                1,709
                1,726
                1,657Noninterest
      expense:Salaries
      and related benefits
                
                5,857
                6,026
                4,978Occupancy
      - Net
                
                1,313
                1,143
                1,016Office
                
                1,133
                836
                767Data
      processing
                
                359
                452
                438Amortization
      of core deposit intangible
                
                307
                301
                302Advertising
                
                148
                161
                218Professional
      fees
                
                765
                690
                314Other
                
                1,219
                913
                708Total
      noninterest expense
                
                11,101
                10,522
                8,741Income
      before provision for income taxes
                
                2,482
                1,191
                755Provision
      for income taxes
                
                1,008
                448
                309Net
      income
                
                $1,474
                $743
                $446Basic
      earnings per share
                
                $0.24
                $0.11
                $0.06
                *Diluted
      earnings per share
                
                $0.24
                $0.11
                $0.06
                *
 *Earnings per share were restated to
reflect the impact of the second-step conversion and reorganization of the
Company, which occurred October 31, 2006.
  See
accompanying notes to consolidated financial statements.
 27
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Consolidated
Statements of Changes in Stockholders’ Equity
 Years
Ended September 30, 2008, 2007, and
2006
  AccumulatedAdditional
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          Unearned
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          OtherCommon
                                                                                          
                                                                                          
                                                                                          Paid-In
                                                                                          
                                                                                          
                                                                                          Retained
                                                                                          
                                                                                          
                                                                                          ESOP
                                                                                          
                                                                                          
                                                                                          Unearned
                                                                                          
                                                                                          
                                                                                          Comprehensive
                                                                                          
                                                                                          
                                                                                          TreasuryShares
                                                                                          
                                                                                          
                                                                                          Stock
                                                                                          
                                                                                          
                                                                                          Capital
                                                                                          
                                                                                          
                                                                                          Earnings
                                                                                          
                                                                                          
                                                                                          Shares
                                                                                          
                                                                                          
                                                                                          Compensation
                                                                                          
                                                                                          
                                                                                          Gain
      (Loss)
                                                                                          
                                                                                          
                                                                                          Stock
                                                                                          
                                                                                          
                                                                                          Totals(In
      Thousands, Except Shares)Balance
      - September 30, 2005
                                                                                          
                                                                                          
                                                                                          3,747,319
                                                                                          
                                                                                          
                                                                                          $
                                                                                          37
                                                                                          
                                                                                          
                                                                                          $
                                                                                          18,780
                                                                                          
                                                                                          
                                                                                          $
                                                                                          12,536
                                                                                          
                                                                                          
                                                                                          $
                                                                                          (1,013
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (389
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (4
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (394
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          29,553Comprehensive
      income:Net
      income
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          446
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          446Reclassification
      adjustment for net
                                                                                            security
      gains included in income,
                                                                                            net of tax of $11
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (16
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (16
                                                                                          )Net
      unrealized gain on available-for-sale
                                                                                            securities
      - Net of tax
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          9
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          9Total
      comprehensive income
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          439Committed
      ESOP shares
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          119
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          119Appreciation
      in fair value of ESOP shares charged to expense
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          64
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          64Common
      stock awarded for Recognition andRetention
      Plan - 3,576 shares
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (11
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (43
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          54
                                                                                          
                                                                                          
                                                                                          
                                                                                          016
      shares of common stock purchased from Employee
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          0401(k)
      Retirement Plan
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (1
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (1
                                                                                          )Amortization
      of restricted stock
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          98
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          98Cash
      dividends ($0.20 per share)
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (190
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (190
                                                                                          )Balance
      - September 30, 2006
                                                                                          
                                                                                          
                                                                                          3,747,319
                                                                                          
                                                                                          
                                                                                          
                                                                                          37
                                                                                          
                                                                                          
                                                                                          
                                                                                          18,833
                                                                                          
                                                                                          
                                                                                          
                                                                                          12,792
                                                                                          
                                                                                          
                                                                                          
                                                                                          (894
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (334
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (11
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (341
                                                                                          )
                                                                                          
                                                                                          
                                                                                          30,082
 
  28
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Consolidated
Statements of Changes in Stockholders’ Equity (Continued)
 Years
Ended September 30, 2008, 2007, and
2006
  
 AccumulatedAdditional
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          Unearned
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          OtherCommon
                                                                                          
                                                                                          
                                                                                          Paid-In
                                                                                          
                                                                                          
                                                                                          Retained
                                                                                          
                                                                                          
                                                                                          ESOP
                                                                                          
                                                                                          
                                                                                          Unearned
                                                                                          
                                                                                          
                                                                                          Comprehensive
                                                                                          
                                                                                          
                                                                                          TreasuryShares
                                                                                          
                                                                                          
                                                                                          Stock
                                                                                          
                                                                                          
                                                                                          Capital
                                                                                          
                                                                                          
                                                                                          Earnings
                                                                                          
                                                                                          
                                                                                          Shares
                                                                                          
                                                                                          
                                                                                          Compensation
                                                                                          
                                                                                          
                                                                                          Gain
      (Loss)
                                                                                          
                                                                                          
                                                                                          Stock
                                                                                          
                                                                                          
                                                                                          Totals(In
      Thousands, Except Shares)Balance
      - September 30, 2006 (brought forward)
                                                                                          
                                                                                          
                                                                                          3,747,319
                                                                                          
                                                                                          
                                                                                          $
                                                                                          37
                                                                                          
                                                                                          
                                                                                          $
                                                                                          18,833
                                                                                          
                                                                                          
                                                                                          $
                                                                                          12,792
                                                                                          
                                                                                          
                                                                                          $
                                                                                          (894
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (334
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (11
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (341
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          30,082Adjustment
      to initially apply FASB Statement
                                                                                            No.
      158 - Net of tax
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (621
                                                                                          )
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          (621
                                                                                          )Comprehensive
      income:Net
      income
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          743
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          743Pension
      curtailment - Net of tax
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          75
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          75Amortization
      of unrecognized prior
                                                                                            service costs and net gains/losses -
                                                                                            Net
      of tax
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          262
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          262Net
      unrealized gain on available-for-sale
                                                                                            securities - Net of tax
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          103
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          103Total
      comprehensive income
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,183Sale
      of common stock (net of CCMHC shares reissued)
                                                                                          
                                                                                          
                                                                                          3,369,061
                                                                                          
                                                                                          
                                                                                          
                                                                                          34
                                                                                          
                                                                                          
                                                                                          
                                                                                          51,204
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          51,238Unearned
      shares held by ESOP
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (3,415
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (3,415
                                                                                          )Stock
      option expense
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          75
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          75Committed
      ESOP shares
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          432
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          432Appreciation
      in fair value of ESOP shares charged to expense
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          76
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          76Cancellation
      of treasury stock
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (341
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          341
                                                                                          
                                                                                          
                                                                                          
                                                                                          0Dissolution
      of CCMHC
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          92
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          92Cancellation
      of unvested restricted stock
                                                                                          
                                                                                          
                                                                                          (2,733
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (37
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          37
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0Stock
      options exercised
                                                                                          
                                                                                          
                                                                                          4,558
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          32
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          32Amortization
      of restricted stock
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          90
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          
                                                                                          90Cash
      dividends ($0.20 per share)
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (1,115
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          (1,115
                                                                                          )Balance
      - September 30, 2007
                                                                                          
                                                                                          
                                                                                          7,118,205
                                                                                          
                                                                                          
                                                                                          
                                                                                          71
                                                                                          
                                                                                          
                                                                                          
                                                                                          69,934
                                                                                          
                                                                                          
                                                                                          
                                                                                          12,420
                                                                                          
                                                                                          
                                                                                          
                                                                                          (3,877
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (207
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (192
                                                                                          )
                                                                                          
                                                                                          
                                                                                          0
                                                                                          
                                                                                          
                                                                                          
                                                                                          78,149
  29
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Consolidated
Statements of Changes in Stockholders’ Equity (Continued)
 Years
Ended September 30, 2008, 2007, and
2006
  
 AccumulatedAdditional
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                Unearned
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                OtherCommon
                                                                                                                                
                                                                                                                                
                                                                                                                                Paid-In
                                                                                                                                
                                                                                                                                
                                                                                                                                Retained
                                                                                                                                
                                                                                                                                
                                                                                                                                ESOP
                                                                                                                                
                                                                                                                                
                                                                                                                                Unearned
                                                                                                                                
                                                                                                                                
                                                                                                                                Comprehensive
                                                                                                                                
                                                                                                                                
                                                                                                                                TreasuryShares
                                                                                                                                
                                                                                                                                
                                                                                                                                Stock
                                                                                                                                
                                                                                                                                
                                                                                                                                Capital
                                                                                                                                
                                                                                                                                
                                                                                                                                Earnings
                                                                                                                                
                                                                                                                                
                                                                                                                                Shares
                                                                                                                                
                                                                                                                                
                                                                                                                                Compensation
                                                                                                                                
                                                                                                                                
                                                                                                                                Gain
      (Loss)
                                                                                                                                
                                                                                                                                
                                                                                                                                Stock
                                                                                                                                
                                                                                                                                
                                                                                                                                Totals(In
      Thousands, Except Shares)Balance
      - September 30, 2007 (brought forward)
                                                                                                                                
                                                                                                                                
                                                                                                                                7,118,205
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                71
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                69,934
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                12,420
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                (3,877
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                (207
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                (192
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                78,149Comprehensive
      income:Net
      income
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                1,474
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                1,474Amortization
      of unrecognized prior
                                                                                                                                  service costs and net gains/losses -
                                                                                                                                  Net of tax
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                102
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                102Net
      unrealized loss on available-for-sale
                                                                                                                                  securities - Net of tax
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (2,696
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (2,696
                                                                                                                                )Total
      comprehensive income
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (1,120
                                                                                                                                )Common
      stock repurchased
                                                                                                                                
                                                                                                                                
                                                                                                                                (890,300
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                (9
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                (7,846
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (7,855
                                                                                                                                )Stock
      option expense
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                71
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                71Committed
      ESOP shares
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                461
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                461Appreciation
      in fair value of ESOP shares
                                                                                                                                  charged to expense
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                22
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                22Cancellation
      of unvested restricted stock
                                                                                                                                
                                                                                                                                
                                                                                                                                (910
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                11
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (11
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0Amortization
      of restricted stock
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                92
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                92Cash
      dividends ($0.20 per share)
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (1,344
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (1,344
                                                                                                                                )Balance
      - September 30, 2008
                                                                                                                                
                                                                                                                                
                                                                                                                                6,226,995
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                62
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                62,192
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                12,550
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                (3,416
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                (126
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                (2,786
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                0
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                68,476
 
  See
accompanying notes to consolidated financial statements.
 30
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Consolidated
Statements of Cash Flows
 Years
Ended September 30, 2008, 2007, and
2006
  2008
                                                                                                      
                                                                                                      
                                                                                                      2007
                                                                                                      
                                                                                                      
                                                                                                      2006(In
      Thousands)Increase
      (decrease) in cash and cash equivalents:Cash
      flows from operating activities:Net
      income
                                                                                                      
                                                                                                      $
                                                                                                      1,474
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      743
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      446Adjustments
      to reconcile net income to net cash providedby
      (used in) operating activities:Securities
      discount accretion
                                                                                                      
                                                                                                      
                                                                                                      (274
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (17
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      0Provision
      for depreciation
                                                                                                      
                                                                                                      
                                                                                                      533
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      493
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      416Provision
      for loan losses
                                                                                                      
                                                                                                      
                                                                                                      721
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      470
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      251Gain
      on sale of securities
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (27
                                                                                                      )Amortization
      of purchase accounting adjustments
                                                                                                      
                                                                                                      
                                                                                                      (65
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (68
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (76
                                                                                                      )Amortization
      of core deposit intangible
                                                                                                      
                                                                                                      
                                                                                                      307
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      301
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      302Amortization
      of restricted stock
                                                                                                      
                                                                                                      
                                                                                                      92
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      90
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      98Provision
      for stock options
                                                                                                      
                                                                                                      
                                                                                                      71
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      75
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      0Benefit
      for deferred income taxes
                                                                                                      
                                                                                                      
                                                                                                      (184
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (230
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (338
                                                                                                      )Net
      change in loans held for sale
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      321
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (321
                                                                                                      )Federal
      Home Loan Bank stock dividends
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (16
                                                                                                      )ESOP
      contribution expense in excess of shares released
                                                                                                      
                                                                                                      
                                                                                                      22
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      76
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      64Decrease
      (increase) in accrued interest receivable and other assets
                                                                                                      
                                                                                                      
                                                                                                      (617
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (967
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (891
                                                                                                      )Increase
      (decrease) in other liabilities
                                                                                                      
                                                                                                      
                                                                                                      288
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (2,497
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      3,850Total
      adjustments
                                                                                                      
                                                                                                      
                                                                                                      894
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (1,953
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      3,312Net
      cash provided by (used in) operating activities
                                                                                                      
                                                                                                      
                                                                                                      2,368
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (1,210
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      3,758Cash
      flows from investing activities:Proceeds
      from maturities of interest-bearing deposits
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      588
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      492Sale
      of Federal Home Loan Bank stock
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      496
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      0Purchase
      of Federal Home Loan Bank stock
                                                                                                      
                                                                                                      
                                                                                                      (965
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (2,258
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (949
                                                                                                      )Purchase
      of securities available for sale
                                                                                                      
                                                                                                      
                                                                                                      (31,839
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (39,219
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      0Proceeds
      from principal repayments on securities available for sale
                                                                                                      
                                                                                                      
                                                                                                      5,780
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      583
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      0Proceeds
      from sale of securities available for sale
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,325Net
      increase in loans
                                                                                                      
                                                                                                      
                                                                                                      (49,162
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (62,074
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (40,737
                                                                                                      )Net
      capital expenditures
                                                                                                      
                                                                                                      
                                                                                                      (2,555
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (272
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (1,171
                                                                                                      )Net
      cash received from branch acquisition
                                                                                                      
                                                                                                      
                                                                                                      17,509
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      0Net
      cash used in investing activities
                                                                                                      
                                                                                                      
                                                                                                      (61,232
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (102,156
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (41,040
                                                                                                      )
 
  31
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Consolidated
Statements of Cash Flows (Continued)
 Years
Ended September 30, 2008, 2007, and
2006
  
 2008
                                                                                      
                                                                                      
                                                                                      2007
                                                                                      
                                                                                      
                                                                                      2006(In
      Thousands)Increase
      (decrease) in cash and cash equivalents: (continued)Cash
      flows from financing activities:Net
      increase in borrowings
                                                                                      
                                                                                      $
                                                                                      13,799
                                                                                      
                                                                                      
                                                                                      $
                                                                                      35,246
                                                                                      
                                                                                      
                                                                                      $
                                                                                      25,000Increase
      in deposits
                                                                                      
                                                                                      
                                                                                      71,115
                                                                                      
                                                                                      
                                                                                      
                                                                                      21,040
                                                                                      
                                                                                      
                                                                                      
                                                                                      9,259Payments
      to acquire treasury stock
                                                                                      
                                                                                      
                                                                                      0
                                                                                      
                                                                                      
                                                                                      
                                                                                      0
                                                                                      
                                                                                      
                                                                                      
                                                                                      (1
                                                                                      )Proceeds
      from sale of common stock
                                                                                      
                                                                                      
                                                                                      0
                                                                                      
                                                                                      
                                                                                      
                                                                                      51,238
                                                                                      
                                                                                      
                                                                                      
                                                                                      0Repurchase
      shares of common stock
                                                                                      
                                                                                      
                                                                                      (7,855
                                                                                      )
                                                                                      
                                                                                      
                                                                                      0
                                                                                      
                                                                                      
                                                                                      
                                                                                      0Dissolution
      of CCMHC
                                                                                      
                                                                                      
                                                                                      0
                                                                                      
                                                                                      
                                                                                      
                                                                                      92
                                                                                      
                                                                                      
                                                                                      
                                                                                      0Stock
      options exercised
                                                                                      
                                                                                      
                                                                                      0
                                                                                      
                                                                                      
                                                                                      
                                                                                      32
                                                                                      
                                                                                      
                                                                                      
                                                                                      0Loan
      to ESOP for purchase of common stock
                                                                                      
                                                                                      
                                                                                      0
                                                                                      
                                                                                      
                                                                                      
                                                                                      (3,415
                                                                                      )
                                                                                      
                                                                                      
                                                                                      0Reduction
      in unallocated shares held by ESOP
                                                                                      
                                                                                      
                                                                                      461
                                                                                      
                                                                                      
                                                                                      
                                                                                      432
                                                                                      
                                                                                      
                                                                                      
                                                                                      119Cash
      dividends paid
                                                                                      
                                                                                      
                                                                                      (1,344
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,115
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (190
                                                                                      )Net
      cash provided by financing activities
                                                                                      
                                                                                      
                                                                                      76,176
                                                                                      
                                                                                      
                                                                                      
                                                                                      103,550
                                                                                      
                                                                                      
                                                                                      
                                                                                      34,187Net
      increase (decrease) in cash and cash equivalents
                                                                                      
                                                                                      
                                                                                      17,312
                                                                                      
                                                                                      
                                                                                      
                                                                                      184
                                                                                      
                                                                                      
                                                                                      
                                                                                      (3,095
                                                                                      )Cash
      and cash equivalents at beginning
                                                                                      
                                                                                      
                                                                                      6,354
                                                                                      
                                                                                      
                                                                                      
                                                                                      6,170
                                                                                      
                                                                                      
                                                                                      
                                                                                      9,265Cash
      and cash equivalents at end
                                                                                      
                                                                                      $
                                                                                      23,666
                                                                                      
                                                                                      
                                                                                      $
                                                                                      6,354
                                                                                      
                                                                                      
                                                                                      $
                                                                                      6,170Supplemental
      cash flow information:Cash
      paid during the year for:Interest
      on deposits
                                                                                      
                                                                                      $
                                                                                      9,137
                                                                                      
                                                                                      
                                                                                      $
                                                                                      6,994
                                                                                      
                                                                                      
                                                                                      $
                                                                                      5,231Interest
      paid on borrowings
                                                                                      
                                                                                      
                                                                                      4,991
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,757
                                                                                      
                                                                                      
                                                                                      
                                                                                      2,028Income
      taxes
                                                                                      
                                                                                      
                                                                                      1,312
                                                                                      
                                                                                      
                                                                                      
                                                                                      806
                                                                                      
                                                                                      
                                                                                      
                                                                                      555Supplemental
      schedule of noncash investing and financing activities:Loans
      transferred to foreclosed properties
                                                                                      
                                                                                      $
                                                                                      315
                                                                                      
                                                                                      
                                                                                      $
                                                                                      94
                                                                                      
                                                                                      
                                                                                      $
                                                                                      376On
      August 1, 2008, the Company purchased certain assets and assumed the
      deposits of the Fond du Lac, Oshkosh, and Appleton branches of American
      National Bank. The Company paid a total of $387 to acquire these
      assets and liabilities. This amount included $45 in direct
      acquisition costs. In conjunction with the acquisition, the Company
      received $17,509 and the following assets and liabilities:Cash
      in vault
                                                                                      
                                                                                      $
                                                                                      223Office
      properties and equipment
                                                                                      
                                                                                      
                                                                                      432Assets
      acquired
                                                                                      
                                                                                      $
                                                                                      655Deposits
      assumed
                                                                                      
                                                                                      $
                                                                                      18,406Other
      liabilities
                                                                                      
                                                                                      
                                                                                      145Liabilities
      assumed
                                                                                      
                                                                                      $
                                                                                      18,551
 
 
  See
accompanying notes to consolidated financial statements.
 32
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
     Note
      1
                    Summary
      of Significant Accounting Policies
                      
                      Nature
      of Operations
                      
                      Citizens
      Community Bancorp, Inc. (the “Company”) is a federally chartered holding
      company which owns all of the common stock of Citizens Community Federal
      (the "Bank").  The Bank operates as a full service savings bank
      with primary markets in, but not limited to, Wisconsin, Minnesota, and
      Michigan.  It is engaged in the business of attracting deposits
      from the general public and investing those deposits in residential and
      consumer loans.
                      
                      On
      October 31, 2006, a second-step conversion was completed, and as a result,
      the Company was formed.  Prior to the second-step conversion,
      Citizens Community Bancorp was a majority-owned subsidiary of CCMHC, a
      federally chartered mutual holding company.  See Note 2 for
      further discussion.
                      
                      Principles
      of Consolidation
                      
                      The
      consolidated financial statements include the accounts of Citizens
      Community Bancorp, Inc. and its wholly owned subsidiary, Citizens
      Community Federal.  All significant intercompany balances and
      transactions have been eliminated.  The accounting and reporting
      policies of the Company conform to accounting principles generally
      accepted in the United States and to the practices within the banking
      industry.
                      
                      Use
      of Estimates in Preparation of Financial Statements
                      
                      The
      preparation of the consolidated financial statements in conformity with
      accounting principles generally accepted in the United States requires
      management to make certain estimates and assumptions that affect the
      reported amounts of assets and liabilities, the disclosure of contingent
      assets and liabilities at the date of the financial statements, and the
      reported amounts of revenue and expenses during the reporting
      period.  Actual results could differ from these
      estimates.
                      
                      Cash
      and Cash Equivalents
                      
                      For
      purposes of reporting cash flows in the consolidated financial statements,
      cash and cash equivalents include cash, due from banks and
      interest-bearing deposits with original maturities of three months or
      less.
    
  
 
   33
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
   Note
      1
                      Summary of Significant Accounting Policies (Continued)
                        
                        Other
      Interest-Bearing Deposits
                        
                        Other
      interest-bearing deposits mature within three years and are carried at
      cost, which approximates fair value.
                        
                        Securities
                        
                        Securities
      are classified as available for sale and are carried at fair value, with
      unrealized gains and losses reported in other comprehensive
      income.  Amortization of premiums and accretion of discounts are
      recognized in interest income using the interest method over the estimated
      lives of the securities.
                        
                        Declines
      in fair value of securities that are deemed to be other than temporary, if
      applicable, are reflected in earnings as realized losses.  In
      estimating other-than-temporary impairment losses, management considers
      the length of time and the extent to which fair value has been less than
      cost, the financial condition and near-term prospects of the issuer, and
      the intent and ability of the Company to retain its investment in the
      issuer for a period of time sufficient to allow for any anticipated
      recovery in fair value.  Gains and losses on the sale of
      securities are recorded on the trade date and determined using the
      specific-identification method.
                        
                        Loans
                        
                        Loans
      that management has the intent and ability to hold for the foreseeable
      future, or until maturity or payoff, generally are reported at their
      outstanding unpaid principal balances adjusted for charge-offs, the
      allowance for loan losses, and any deferred fees or costs on originated
      loans.  Interest on loans is accrued and credited to income
      based on the unpaid principal balance.  Loan origination fees,
      net of certain direct origination costs, are deferred and recognized as an
      adjustment of the related loan yield over the life of the
      loan.
   34
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      1
                      Summary
      of Significant Accounting Policies(Continued)
                        
                        Allowance
      for Loan Losses
                        
                        The
      allowance for loan losses is established through a provision for loan
      losses charged to expense.  Loan losses are charged against the
      allowance for loan losses when management believes that the collectibility
      of the principal is unlikely.  Subsequent recoveries, if any,
      are credited to the allowance.
                        
                        Management
      regularly evaluates the allowance for loan losses using the Company's past
      loan loss experience, known and inherent risks in the portfolio,
      composition of the portfolio, adverse situations that may affect the
      borrower's ability to repay, estimated value of any underlying collateral,
      current economic conditions, and other relevant factors.  This
      evaluation is inherently subjective since it requires material estimates
      that may be susceptible to significant change.
                        
                        The
      allowance for loan losses consists of specific, general, and unallocated
      components.  The specific component relates to loans that are
      classified as doubtful, substandard, or special mention and includes
      allowances estimated for any impaired loans.  The general
      component covers nonclassified loans and is based on historical loss
      experience adjusted for qualitative factors.  An unallocated
      component is maintained to cover uncertainties that could affect
      management's estimate of probable losses and reflects the margin or
      imprecision inherent in the underlying assumptions used in the
      methodologies for estimating specific and general losses in the
      portfolio.
                        
                        The
      allowance for loan losses includes specific allowances related to loans
      that have been judged to be impaired under current accounting
      standards.  A loan is impaired when, based on current
      information, it is probable that the Company will not collect all amounts
      due in accordance with the contractual terms of the loan
      agreement.  Management determines whether a loan is impaired on
      a case-by-case basis, taking into consideration the payment status,
      collateral value, length and reason of any payment delays, the borrower's
      prior payment record, and any other relevant factors.  Specific
      allowances for impaired loans are based on discounted cash flows of
      expected future payments using the loan's initial effective interest rate
      or the fair value of the collateral if the loan is collateral
      dependent.
                        
                        In
      addition, various regulatory agencies periodically review the allowance
      for loan losses.  These agencies may require additions to the
      allowance for loan losses based on their judgments of
      collectibility.
   35
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      1
                      Summary
      of Significant Accounting Policies (Continued)
                        
                        Allowance for Loan
      Losses (Continued)
                        
                        In
      management's judgment, the allowance for loan losses is maintained at a
      level that represents its best estimate of probable losses relating to
      specifically identified loans, as well as probable losses inherent in the
      balance of the loan portfolio.  While management uses the best
      information available to make its evaluation, future adjustments to the
      allowance may be necessary if there are significant changes in economic
      conditions.
                        
                        Federal
      Home Loan Bank Stock
                        
                        The
      Bank owns stock in the Federal Home Loan Bank (FHLB).  FHLB
      stock is carried at cost which approximates fair value.  The
      Bank is required to hold the stock as a member of the FHLB system, and
      transfer of the stock is substantially restricted.  The stock is
      pledged as collateral for outstanding FHLB advances.  The FHLB
      of Chicago is under a regulatory order for its capital level which
      requires approval of dividend payments and stock
      redemptions.  The stock is evaluated for impairment on an annual
      basis.  There is no impairment at September 30,
      2008.
                        
                        Office
      Properties and Equipment
                        
                        Office
      properties and equipment are stated at cost.  Maintenance and
      repair costs are charged to expense as incurred.  Gains or
      losses on disposition of office properties and equipment are reflected in
      income.  Depreciation is computed principally on the
      straight-line method and is based on the estimated useful lives of the
      assets, varying from 10 to 40 years for buildings and 3 to 10 years for
      equipment.
                        
                        Intangible
      Assets and Goodwill
                        
                        Intangible
      assets attributable to the value of core deposits acquired and the excess
      of purchase price over fair value of assets acquired (goodwill) are stated
      at cost less accumulated amortization.  Intangible assets are
      amortized on a straight-line basis over periods of seven to fifteen
      years.  Goodwill is not amortized.
                        
                        The
      Company reviews intangible assets and goodwill for impairment at least
      annually and whenever events or changes in circumstances indicate that the
      carrying amount of an asset may not be recoverable.  The
      evaluation includes assessing the estimated fair value of the intangible
      asset based on market prices for similar assets, where available, and the
      present value of the estimated future cash flows associated with the
      intangible asset.  Adjustments are recorded if it is determined
      that the benefit of the intangible asset has
    decreased.
  36
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
   Note
      1
                      Summary
      of Significant Accounting Policies(Continued)
                        
                        Foreclosed
      Assets
                        
                        Assets
      acquired through, or in lieu of, loan foreclosure are held for sale and
      are initially recorded at fair value at the date of foreclosure,
      establishing a new cost basis.  Subsequent to foreclosure,
      valuations are periodically performed by management, and the assets are
      carried at the lower of carrying amount or fair value less cost to
      sell.  Expenses from operations and changes in the valuation
      allowance are included in net other expenses.
                        
                        Income
      Taxes
                        
                        Deferred
      income taxes have been provided under the liability
      method.  Deferred tax assets and liabilities are determined
      based on the difference between the consolidated financial statement and
      tax basis of assets and liabilities as measured by the current enacted tax
      rates which will be in effect when these differences are expected to
      reverse.  Provision (credit) for deferred taxes is the result of
      changes in the deferred tax assets and liabilities.
                        
                        Advertising
      Costs
                        
                        Advertising
      costs are expensed as incurred.
                        
                        Off-Balance-Sheet
      Financial Instruments
                        
                        In
      the ordinary course of business, the Bank has entered into
      off-balance-sheet financial instruments consisting of commitments to
      extend credit and commitments under credit card
      arrangements.  Such financial instruments are recorded in the
      financial statements when they become payable.
                        
                        Other
      Comprehensive Income (Loss)
                        
                        The
      Company's accumulated other comprehensive income (loss) is comprised of
      the unrealized gain (loss) on securities available for sale and prior
      service costs, and net gain and loss required to be recognized under FAS
      No. 158, net of tax, and is shown on the consolidated statements of
      stockholders'
equity.
   37
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      1
                      Summary
      of Significant Accounting Policies(Continued)
                        
                        Segment
      Information
                        
                        The
      Company, through a branch network of its banking subsidiary, provides a
      full range of banking services in Wisconsin, Minnesota, and
      Michigan.
                        
                        While
      the Company’s chief decision makers monitor the revenue streams of various
      Company products and services, operations are managed and financial
      performance is evaluated on a companywide basis.  Accordingly,
      all of the Company’s banking operations are considered by management to be
      aggregated in one reportable operating segment.
                        
                        Rate
      Lock Commitments
                        
                        The
      Company enters into commitments to originate loans whereby the interest
      rate on the loan is determined prior to funding (rate lock
      commitments).  Rate lock commitments on mortgage loans that are
      intended to be sold are considered to be derivatives.  Rate lock
      commitments are recorded only to the extent of fees received since
      recording the estimated fair value of these commitments would not have a
      significant impact on the consolidated financial
      statements.  Fees received are subsequently included in the net
      gain or loss on the sale of loans.
                        
                        Stock-Based
      Compensation
                        
                        Effective
      October 1, 2006, the Company adopted SFAS No. 123 (R), Share-Based
      Payment, which requires the Company to measure all employee
      stock-based compensation awards using a fair value method and to record
      such expense in its consolidated financial statements.
                        
                        The
      Company accounts for employee stock compensation plans using the
      fair-value-based method of accounting.  Under this method,
      compensation cost is measured at the grant date based on the value of the
      award and is recognized over the service period, which is also the vesting
      period.
   38
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      1
                      Summary
      of Significant Accounting Policies (Continued)
                        
                        Stock-Based
      Compensation (Continued)
                        
                        Pursuant
      to SFAS No. 123 disclosure requirements, pro forma net income and basic
      and diluted earnings per share are presented below as if compensation cost
      for stock options was determined under the fair value method and amortized
      to expense over the options' vesting periods for each
      year.
 Year
      EndedSeptember
      30,2006(In
      Thousands)Net
      income, as reported
                      $446Deduct:Total
      stock-based employee compensation expense determined under the
      fair-value-based method for all awards, net of related tax
      effects
                      67Pro
      forma net income
                      $379Earnings
      per share - Basic and dilutedAs
      reported:Basic
                      $0.12Diluted
                      $0.12Pro
      forma:Basic
                      $0.10Diluted
                      $0.10
 
 Presentation
                      
                      All
      footnote information is presented in thousands, except for per share
      amounts.
  39
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
 Note
      1
                      Summary
      of Significant Accounting Policies(Continued)
                        
                        Recent
      Accounting Changes
                        
                        In
      December 2007, the Financial Accounting Standards Board (FASB) issued
      Statement of Financial Accounting Standards (SFAS) No. 141R, Business
      Combinations.  This statement establishes principles and
      requirements for the acquirer in a business combination to recognize and
      measure identifiable assets acquired and liabilities assumed; to recognize
      and measure goodwill acquired or gain from a bargain purchase; and to
      determine what information to disclose in the financial
      statements.  SFAS No. 141R is effective for business
      combinations for which the acquisition date determined in accordance with
      this Statement is on or after the beginning of the first annual reporting
      period beginning on or after December 15, 2008.  The Company
      believes the adoption of this statement will not have a significant effect
      on the financial statements of the Company.
                        
                        In
      February 2007, the Financial Accounting Standards Board (FASB) issued
      Statement of Financial Accounting Standards (SFAS) No. 159, The
      Fair Value Option for Financial Assets and Financial
      Liabilities.  This statement permits entities to choose
      to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair
      value.  The objective is to improve financial reporting by
      providing entities with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently
      without having to apply complex hedge accounting
      provisions.
                        
                        This
      statement also establishes presentation and disclosure requirements
      designed to facilitate comparisons between entities that choose different
      measurement attributes for similar types of assets and
      liabilities.  SFAS No. 159 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007.  The
      Company believes the adoption of this statement will not have a
      significant effect on the financial statements of the
      Company.
  40
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      1
                      Summary
      of Significant Accounting Policies(Continued)
                        
                        Recent Accounting
      Changes (Continued)
                        
                        In
      September 2006, the Financial Accounting Standards Board issued Statement
      of Financial Accounting Standards No. 157, Fair
      Value Measurements,effective for financial statements issued for
      fiscal years beginning after November 1, 2007. SFAS No. 157 defines fair
      value, establishes a framework for measuring fair value, and expands
      disclosures about fair value measurements.  While SFAS No. 157
      does not require any new fair value measurements, the statement emphasizes
      that fair value is market-based measurement, not an entity-specific
      measurement, and should be determined based on the assumptions that market
      participants would use in pricing the asset or liability.  The
      standard will be effective for the Company as of October 1,
      2008.  The Company believes the adoption of this statement will
      not have a significant effect on the financial statements of the
      Company.
                        
                        In
      June 2006, the Financial Accounting Standards Board (FASB) issued FASB
      Interpretation No. (FIN) 48, Accounting
      for Uncertainty in Income Taxes.  This interpretation
      clarifies the accounting for uncertainty in income taxes recognized in a
      company’s financial statements in accordance with Statement of Financial
      Accounting Standards (SFAS) No. 109, Accounting
      for Income Taxes.  FIN 48 prescribes a recognition
      threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be
      taken in a tax return.  This interpretation also provides
      guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition.  The
      Company adopted FIN 48 effective October 1, 2007.  The adoption
      of this interpretation not have a significant effect on the financial
      statements of the
Company.
 Note
      2
                      Second-Step
      Conversion
                        
                        On
      October 31, 2006, a second-step conversion was completed in which Citizens
      Community MHC converted to stock form.  Through this
      transaction, Citizens Community Bancorp (CCB) ceased to exist and was
      replaced by Citizens Community Bancorp, Inc. (CCB, Inc.) as the holding
      company for the Bank.  A total of 5,290,000 shares of common
      stock was sold in the offering at $10 per share through which CCB, Inc.
      received proceeds of $51,238 net of offering costs of
      $1,662.  CCB, Inc. also contributed $25,619 or approximately 50%
      of the net proceeds to the Bank in the form of a capital
      contribution.  CCB, Inc. lent $3,415 to the Bank’s employee
      stock ownership plan, and the plan used those funds to acquire 341,501
      shares of common stock at $10 per
share.
   41
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      2
                      Second-Step
      Conversion (Continued)
                        
                        As
      part of the conversion, outstanding public shares of CCB were exchanged
      for 1.91067 shares of CCB, Inc.  The exchange resulted in an
      additional 1,826,380 of outstanding shares of CCB, Inc. for a total of
      7,116,380 outstanding shares.  Treasury stock held was cancelled
      as of that date.
                        
                        At
      the time of closing of the conversion on October 31, 2006, approximately
      $49,485, less offering expenses, became capital of CCB,
      Inc.
 Note
      3
                      Acquisition
                        
                        On
      August 1, 2008, the acquisition of the Fond du Lac, Oshkosh, and Appleton,
      Wisconsin, branch offices from American National Bank of Beaver Dam,
      Wisconsin, was completed.  The primary objective of the
      acquisition was to provide additional liquidity and geographic growth
      opportunities for the Company.
                        
                        The
      acquisition was accounted for using the purchase method of
      accounting.  Accordingly, the results of operations since the
      date of acquisition are included in the consolidated financial
      statements.
                        
                        The
      purchase price to complete the acquisition was $387.  The
      purchase price of the acquisition has been allocated to the assets
      acquired and liabilities assumed, using their fair values at the
      acquisition date.
                        
                        Goodwill
      of approximately $127 was recorded upon the consummation of the
      acquisition due to expenses associated with the
      acquisition.  The Bank recorded a core deposit intangible of
      $260, which is being amortized over 100
  months.
 Note
      4
                      Cash
      and Cash Equivalents
                        
                        In
      the normal course of business, the Bank maintains cash and due from bank
      balances with correspondent banks which routinely exceed insured
      amounts.  Accounts at each institution are insured by the
      Federal Deposit Insurance Corporation up to $100.
                        
                        On
      October 3, 2008, the deposit insurance was increased to $250 per depositor
      until December 31, 2009.
                        
                        The
      Bank monitors the financial condition of correspondent banks and believes
      credit risk is
minimal.
   42
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      5
                      Securities
                        
                        The
      amortized cost and estimated fair value of securities, with gross
      unrealized gains and losses at September 30,
  follows:
 Gross
                        GrossAmortized
                        Unrealized
                        Unrealized
                        EstimatedCost
                        Gains
                        Losses
                        Fair
      Value(In
      Thousands)2008Securities
      Available for Sale:Debt
      securities:Mortgage-related
      securities
                        
                        $65,783
                        $185
                        $4,192
                        $61,7762007Securities
      Available for Sale:Debt
      securities:Mortgage-related
      securities
                        
                        $39,450
                        $150
                        $8
                        $39,592
 
 The
      following tables show the fair value and gross unrealized losses of
      securities with unrealized losses at September 30, aggregated by
      investment category and length of time that individual securities have
      been in a continuous unrealized loss
  position:
 Less
      than 12 Months
                      12
      Months or More
                      TotalDescription
                      
                      Fair
                      Unrealized
                      Fair
                      Unrealized
                      Fair
                      Unrealizedof
      Securities
                      
                      Value
                      Losses
                      Value
                      Losses
                      Value
                      Losses(In
      Thousands)2008Mortgage-related
      securities
                      $52,491
                      $4,191
                      $149
                      $1
                      $52,640
                      $4,1922007Mortgage-related
      securities
                      $0
                      $0
                      $655
                      $8
                      $655
                      $8
   43
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      5
                      Securities
      (Continued)
                        
                        At
      September 30, 2008, 17 securities have unrealized losses with aggregate
      depreciation of less than 8% of the Company’s amortized cost
      basis.  While performance of the mortgage-related securities has
      deteriorated and have been subject to downgrades, the unrealized losses
      relate principally to the continued dislocation of the securities
      market.  All securities continue to pay as scheduled despite
      their impairment due to market conditions.  When analyzing an
      issuer’s financial condition, management considers whether the securities
      are issued by a government body or agency, whether a rating agency has
      downgraded the securities, and industry analysts’
      reports.  Since management has the ability to hold securities
      until the foreseeable future for securities available for sale, no
      declines are deemed to be other than temporary.
                        
                        Following
      is a summary of the proceeds from sales of securities available for sale,
      as well as gross gains and losses for the years ended September
      30:
 2008
                  2007
                  2006(In
      Thousands)Proceeds
      from sale of securities
                  
                  $0
                  $0
                  $1,325Gross
      gains on sales
                  
                  0
                  0
                  27
 
 No
      securities were pledged by the Company as of September 30, 2008 and
      2007.
  44
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      6
                      Loans
                        
                        The
      composition of loans at September 30
  follows:
 2008
                                                                              
                                                                              
                                                                              2007(In
      Thousands)Real
      estate loans:First
      mortgages--1- to 4-family
                                                                              
                                                                              $
                                                                              193,958
                                                                              
                                                                              
                                                                              $
                                                                              177,281Multifamily
      and commercial
                                                                              
                                                                              
                                                                              180
                                                                              
                                                                              
                                                                              
                                                                              215Second
      mortgages
                                                                              
                                                                              
                                                                              10,774
                                                                              
                                                                              
                                                                              
                                                                              10,461Total
      real estate loans
                                                                              
                                                                              
                                                                              204,912
                                                                              
                                                                              
                                                                              
                                                                              187,957Consumer
      loans:Automobile
                                                                              
                                                                              
                                                                              25,887
                                                                              
                                                                              
                                                                              
                                                                              27,168Secured
      personal
                                                                              
                                                                              
                                                                              133,181
                                                                              
                                                                              
                                                                              
                                                                              100,966Unsecured
      personal
                                                                              
                                                                              
                                                                              5,797
                                                                              
                                                                              
                                                                              
                                                                              4,610Total
      consumer loans
                                                                              
                                                                              
                                                                              164,865
                                                                              
                                                                              
                                                                              
                                                                              132,744Gross
      loans
                                                                              
                                                                              
                                                                              369,777
                                                                              
                                                                              
                                                                              
                                                                              320,701Allowance
      for loan losses
                                                                              
                                                                              
                                                                              (1,192
                                                                              )
                                                                              
                                                                              
                                                                              (926
                                                                              )Net
      deferred loan costs (fees)
                                                                              
                                                                              
                                                                              (67
                                                                              )
                                                                              
                                                                              
                                                                              252Loans
      receivable, net
                                                                              
                                                                              $
                                                                              368,518
                                                                              
                                                                              
                                                                              $
                                                                              320,027
 
 The
      aggregate amount of nonperforming loans was $3,255 and $1,520 at
      September 30, 2008 and 2007, respectively.  Nonperforming
      loans are those which are contractually past due more than 90 days as to
      interest or principal payments, on a nonaccrual of interest status, or
      loans the terms of which have been renegotiated to provide a reduction or
      deferral of interest or principal.  If interest on those loans
      had been accrued, such income would have been $187, $102, and $52 in 2008,
      2007, and 2006, respectively.  No loans were considered impaired
      in 2008 and 2007.
  45
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      6
                      Loans(Continued)
                        
                        Directors,
      officers, principal stockholders, and employees of the Company, including
      their families and firms in which they are principal owners, are
      considered to be related parties.  Substantially all loans to
      directors and executive officers were made on the same terms, including
      interest rates and collateral, as those prevailing at the time for
      comparable transactions with others and, in the opinion of management, did
      not involve more than the normal risk of collectibility or present other
      unfavorable features.
                        
                        Activity
      in related-party loans for the years ended September 30, 2008 and 2007, is
      as follows:
 2008
                                            
                                            
                                            2007(In
      Thousands)Loans
      outstanding, October 1
                                            
                                            $
                                            27
                                            
                                            
                                            $
                                            46New
      loans
                                            
                                            
                                            18
                                            
                                            
                                            
                                            0Repayments
                                            
                                            
                                            (9
                                            )
                                            
                                            
                                            (19
                                            )Loans
      outstanding, September 30
                                            
                                            $
                                            36
                                            
                                            
                                            $
                                            27
  An
      analysis of the activity in the allowance for loan losses at September 30
      follows:
 2008
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2006(In
      Thousands)Balance
      at beginning
                                                        
                                                        $
                                                        926
                                                        
                                                        
                                                        $
                                                        835
                                                        
                                                        
                                                        $
                                                        803Provisions
      charged to operating expense
                                                        
                                                        
                                                        721
                                                        
                                                        
                                                        
                                                        470
                                                        
                                                        
                                                        
                                                        251Loans
      charged off
                                                        
                                                        
                                                        (492
                                                        )
                                                        
                                                        
                                                        (413
                                                        )
                                                        
                                                        
                                                        (247
                                                        )Recoveries
      on loans
                                                        
                                                        
                                                        37
                                                        
                                                        
                                                        
                                                        34
                                                        
                                                        
                                                        
                                                        28Balance
      at end
                                                        
                                                        $
                                                        1,192
                                                        
                                                        
                                                        $
                                                        926
                                                        
                                                        
                                                        $
                                                        835
   46
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      7
                          Office
      Properties and Equipment
                            
                            Office
      properties and equipment at September 30 consists of the
      following:
 2008
                                                          
                                                          
                                                          2007(In
      Thousands)Land
                                                          
                                                          $
                                                          613
                                                          
                                                          
                                                          $
                                                          613Buildings
                                                          
                                                          
                                                          2,945
                                                          
                                                          
                                                          
                                                          3,007Furniture,
      equipment, and vehicles
                                                          
                                                          
                                                          6,460
                                                          
                                                          
                                                          
                                                          3,487Subtotals
                                                          
                                                          
                                                          10,018
                                                          
                                                          
                                                          
                                                          7,107Less
      - Accumulated depreciation
                                                          
                                                          
                                                          4,102
                                                          
                                                          
                                                          
                                                          3,647Office
      properties and equipment - Net
                                                          
                                                          $
                                                          5,916
                                                          
                                                          
                                                          $
                                                          3,460
 
 Depreciation charged to operating expense totaled $533, $493, and
      $416 for the years ended September 30, 2008, 2007, and 2006,
      respectively.
 Note
      8
                      Intangible
      Assets
                        
                        The
      carrying amount of the core deposit intangible at September 30 is as
      follows:
 2008
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2006(In
      Thousands)Balance
      at beginning
                                                        
                                                        $
                                                        1,528
                                                        
                                                        
                                                        $
                                                        1,829
                                                        
                                                        
                                                        $
                                                        2,131Capitalized
                                                        
                                                        
                                                        260
                                                        
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        0Amortization
                                                        
                                                        
                                                        (307
                                                        )
                                                        
                                                        
                                                        (301
                                                        )
                                                        
                                                        
                                                        (302
                                                        )Balance
      at end
                                                        
                                                        $
                                                        1,481
                                                        
                                                        
                                                        $
                                                        1,528
                                                        
                                                        
                                                        $
                                                        1,829
 
 Estimated future amortization expense for amortizing core deposit
      intangible is $333 annually.
  47
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      9
                      Goodwill
                        
                        Goodwill
      resulting from an acquisition in 2005 was $5,466 as of September 30, 2008
      and 2007.  The Company tested for impairment during the fourth
      quarter and determined there was no impairment of goodwill during 2008 or
      2007.
                        
                        Goodwill
      resulting from an acquisition in August 2008 was $127 as of September 30,
      2008.
 Note
      10
                      Deposits
                        
                        The
      composition of deposits at September 30
  follows:
 2008
                                                  
                                                  
                                                  2007(In
      Thousands)Non-interest-bearing
      demand deposits
                                                  
                                                  $
                                                  14,363
                                                  
                                                  
                                                  $
                                                  13,783Interest-bearing
      demand deposits
                                                  
                                                  
                                                  4,654
                                                  
                                                  
                                                  
                                                  4,874Savings
      accounts
                                                  
                                                  
                                                  22,267
                                                  
                                                  
                                                  
                                                  22,855Money
      market accounts
                                                  
                                                  
                                                  44,777
                                                  
                                                  
                                                  
                                                  27,121Certificate
      accounts
                                                  
                                                  
                                                  211,182
                                                  
                                                  
                                                  
                                                  139,101Total
      deposits
                                                  
                                                  $
                                                  297,243
                                                  
                                                  
                                                  $
                                                  207,734
  Interest expense on deposits for the years ended September 30 was
      as follows:
 2008
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2006(In
      Thousands)Interest-bearing
      demand deposits
                                                        
                                                        $
                                                        26
                                                        
                                                        
                                                        $
                                                        28
                                                        
                                                        
                                                        $
                                                        28Savings
      accounts
                                                        
                                                        
                                                        172
                                                        
                                                        
                                                        
                                                        218
                                                        
                                                        
                                                        
                                                        167Money
      market accounts
                                                        
                                                        
                                                        717
                                                        
                                                        
                                                        
                                                        588
                                                        
                                                        
                                                        
                                                        500Certificate
      accounts
                                                        
                                                        
                                                        8,223
                                                        
                                                        
                                                        
                                                        6,160
                                                        
                                                        
                                                        
                                                        4,487Totals
                                                        
                                                        $
                                                        9,138
                                                        
                                                        
                                                        $
                                                        6,994
                                                        
                                                        
                                                        $
                                                        5,182
  The
      aggregate amount of time deposit accounts with individual balances greater
      than $100,000 was $40,380 and $30,221 at September 30, 2008 and 2007,
      respectively.
  48
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      10
                      Deposits(Continued)
                        
                        At
      September 30, 2008, the scheduled maturities of certificate accounts are
      as follows:
 (In
      Thousands)2009
                                
                                $
                                185,1162010
                                
                                
                                18,1442011
                                
                                
                                4,0192012
                                
                                
                                3,896After
      2013
                                
                                
                                7Total
                                
                                $
                                211,182
  Deposits from directors, executive officers, principal shareholders
      and their affiliates, totaled $465 and $446 for the years ended September
      30, 2008 and 2007,
respectively.
 Note
      11
                      Borrowed
      Funds
                        
                        Borrowed
      funds consist of the following at September
  30:
 
 2008
                                                                        
                                                                        
                                                                        2007Rates
                                                                        
                                                                        
                                                                        Amount
                                                                        
                                                                        
                                                                        Rates
                                                                        
                                                                        
                                                                        Amount(Dollars
      in Thousands)Federal
      Home Loan Bank (FHLB):Fixed-rate,
      fixed-term advances
                                                                        
                                                                        
                                                                        2.88-5.48
                                                                        %
                                                                        
                                                                        $
                                                                        110,245
                                                                        
                                                                        
                                                                        
                                                                        4.84-5.48
                                                                        %
                                                                        
                                                                        $
                                                                        53,087Adjustable
      rate advances
                                                                        
                                                                        
                                                                        0
                                                                        %
                                                                        
                                                                        
                                                                        0
                                                                        
                                                                        
                                                                        
                                                                        5.09
                                                                        %
                                                                        
                                                                        
                                                                        43,359Totals
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        110,245
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        96,446
 
   49
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      11
                      Borrowed
      Funds(Continued)
                        
                        The
      following is a summary of scheduled maturities of fixed-term borrowed
      funds as of September 30,
2008:
 WeightedAverage
                                            
                                            
                                            TotalRate
                                            
                                            
                                            Amount(In
      Thousands)2009
                                            
                                            
                                            4.86
                                            %
                                            
                                            $
                                            23,3952010
                                            
                                            
                                            4.22
                                            %
                                            
                                            
                                            33,1502011
                                            
                                            
                                            4.29
                                            %
                                            
                                            
                                            31,5502012
                                            
                                            
                                            4.78
                                            %
                                            
                                            
                                            13,7502013
                                            
                                            
                                            4.41
                                            %
                                            
                                            
                                            4,500After
      2013
                                            
                                            
                                            4.94
                                            %
                                            
                                            
                                            3,900Total
                                            
                                            
                                            
                                            
                                            
                                            $
                                            110,245
 
 Actual
      maturities may differ from the scheduled principal maturities due to call
      options on the various advances.
                    
                    The
      Company has a master contract agreement with the Federal Home Loan Bank
      that provides for borrowing up to the maximum of 75% of the book value of
      the Company's qualifying one- to four-family residential real estate
      loans.  The FHLB provides both fixed and floating rate
      advances.  Floating rates are tied to short-term market rates of
      interest, such as London InterBank Offered Rate (LIBOR), federal funds, or
      treasury bill rates.  Advances with call provisions permit the
      FHLB to request payment beginning on the call date and quarterly
      thereafter.  FHLB advances are subject to a prepayment penalty
      if they are repaid prior to maturity.  FHLB advances are also
      secured by FHLB stock owned by the Company of $5,787 and $4,822 at
      September 30, 2008 and 2007, respectively.
                    
                    At
      September 30, 2008, the Company’s available and unused portion of this
      borrowing agreement totaled approximately $38.9
    million.
  50
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      12
                      Income
      Taxes
                        
                        The
      components of the provision for income taxes are as
      follows:
 2008
                                                                                            
                                                                                            
                                                                                            2007
                                                                                            
                                                                                            
                                                                                            2006(In
      Thousands)Current
      tax expense:Federal
                                                                                            
                                                                                            $
                                                                                            894
                                                                                            
                                                                                            
                                                                                            $
                                                                                            580
                                                                                            
                                                                                            
                                                                                            $
                                                                                            509State
                                                                                            
                                                                                            
                                                                                            298
                                                                                            
                                                                                            
                                                                                            
                                                                                            98
                                                                                            
                                                                                            
                                                                                            
                                                                                            138Total
      current tax expense
                                                                                            
                                                                                            
                                                                                            1,192
                                                                                            
                                                                                            
                                                                                            
                                                                                            678
                                                                                            
                                                                                            
                                                                                            
                                                                                            647Deferred
      tax expense (benefit):Federal
                                                                                            
                                                                                            
                                                                                            (140
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (190
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (261
                                                                                            )State
                                                                                            
                                                                                            
                                                                                            (44
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (40
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (77
                                                                                            )Total
      deferred tax benefit
                                                                                            
                                                                                            
                                                                                            (184
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (230
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (338
                                                                                            )Total
      provision for income taxes
                                                                                            
                                                                                            $
                                                                                            1,008
                                                                                            
                                                                                            
                                                                                            $
                                                                                            448
                                                                                            
                                                                                            
                                                                                            $
                                                                                            309
 
   51
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      12
                      Income
      Taxes(Continued)
                        
                        Deferred
      income taxes are provided for the temporary differences between the
      financial reporting basis and the tax basis of the Company’s assets and
      liabilities.  The major components of net deferred tax asset
      (liability) at September 30 are as
  follows:
 2008
                                                                    
                                                                    
                                                                    2007(In
      Thousands)Deferred
      tax assets:Mutual
      savings bank conversion costs
                                                                    
                                                                    $
                                                                    4
                                                                    
                                                                    
                                                                    $
                                                                    11Director/officer
      compensation plans
                                                                    
                                                                    
                                                                    1,202
                                                                    
                                                                    
                                                                    
                                                                    1,148Allowance
      for loan losses
                                                                    
                                                                    
                                                                    264
                                                                    
                                                                    
                                                                    
                                                                    169Net
      unrealized loss on securities available for sale
                                                                    
                                                                    
                                                                    1,402
                                                                    
                                                                    
                                                                    
                                                                    0Purchase
      accounting adjustments
                                                                    
                                                                    
                                                                    94
                                                                    
                                                                    
                                                                    
                                                                    119Deferred
      tax assets
                                                                    
                                                                    
                                                                    2,966
                                                                    
                                                                    
                                                                    
                                                                    1,447Deferred
      tax liabilities:Deferred
      loan costs
                                                                    
                                                                    
                                                                    (60
                                                                    )
                                                                    
                                                                    
                                                                    (64
                                                                    )Office
      properties and equipment
                                                                    
                                                                    
                                                                    (159
                                                                    )
                                                                    
                                                                    
                                                                    (84
                                                                    )Federal
      Home Loan Bank stock
                                                                    
                                                                    
                                                                    (67
                                                                    )
                                                                    
                                                                    
                                                                    (68
                                                                    )Prepaids
                                                                    
                                                                    
                                                                    (36
                                                                    )
                                                                    
                                                                    
                                                                    (81
                                                                    )Core
      deposit intangible
                                                                    
                                                                    
                                                                    (486
                                                                    )
                                                                    
                                                                    
                                                                    (494
                                                                    )Net
      unrealized gain on securities available for sale
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    (50
                                                                    )Other
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    (16
                                                                    )Deferred
      tax liabilities
                                                                    
                                                                    
                                                                    (808
                                                                    )
                                                                    
                                                                    
                                                                    (857
                                                                    )Net
      deferred tax asset (liability)
                                                                    
                                                                    $
                                                                    2,158
                                                                    
                                                                    
                                                                    $
                                                                    590
 
   52
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      12
                      Income
      Taxes(Continued)
                        
                        A
      summary of the sources of differences between income taxes at the federal
      statutory rate and the provision for income taxes for the years ended
      September 30
follows:
 2008
                  
                  2007
                  
                  2006Percent
                  
                  
                  Percent
                  
                  
                  Percentof
      Pretax
                  
                  
                  of
      Pretax
                  
                  
                  of
      PretaxAmount
                  Income
                  
                  Amount
                  Income
                  
                  Amount
                  Income(Dollars
      in Thousands)Tax
      expense at statutory rate
                  $844
                  34.0%
                  
                  $405
                  34.0%
                  
                  $257
                  34.0%Increase
      in taxes resulting from state taxes
                  164
                  6.60%
                  
                  43
                  3.60%
                  
                  52
                  6.9%Total
      provision for income taxes
                  $1,008
                  40.6%
                  
                  $448
                  37.6%
                  
                  $309
                  40.9%
  Note
      13
                      Retirement
      Plans
                        
                        401(k)
      Plan
                        
                        The
      Company sponsors a 401(k) profit sharing plan that covers substantially
      all employees.  Employees may make pretax voluntary
      contributions to the plan which are matched in part by the
      Company.  Employer matching contributions to the plan were $85,
      $84, and $83, for 2008, 2007, and 2006, respectively.
                        
                        Supplemental
      Executive and Director Retirement Plan
                        
                        The
      Company maintains an unfunded Supplemental Executive Retirement Plan
      (SERP) providing retirement benefits for key employees designated by the
      Board of Directors.  Benefits under the SERP generally are based
      on the key employees' years of service and compensation during the years
      preceding retirement.  The Company also maintains an unfunded
      Directors' Retirement Plan.  The benefit amounts are determined
      by individual director
agreements.
  53
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      13
                      Retirement
      Plans(Continued)
                        
                        The
      components of the SERP and Directors' Retirement plans' cost at September
      30 are summarized as
follows:
 2008
                                                                                
                                                                                
                                                                                2007
                                                                                
                                                                                
                                                                                2006(In
      Thousands)Beginning
      accrued benefit cost
                                                                                
                                                                                $
                                                                                2,149
                                                                                
                                                                                
                                                                                $
                                                                                1,613
                                                                                
                                                                                
                                                                                $
                                                                                1,220Service
      cost
                                                                                
                                                                                
                                                                                54
                                                                                
                                                                                
                                                                                
                                                                                64
                                                                                
                                                                                
                                                                                
                                                                                86Interest
      cost
                                                                                
                                                                                
                                                                                158
                                                                                
                                                                                
                                                                                
                                                                                148
                                                                                
                                                                                
                                                                                
                                                                                137Amortization
      of prior service costs
                                                                                
                                                                                
                                                                                91
                                                                                
                                                                                
                                                                                
                                                                                117
                                                                                
                                                                                
                                                                                
                                                                                156Unrecognized
      net loss
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                14Net
      periodic benefit cost
                                                                                
                                                                                
                                                                                303
                                                                                
                                                                                
                                                                                
                                                                                329
                                                                                
                                                                                
                                                                                
                                                                                393Benefits
      paid
                                                                                
                                                                                
                                                                                (8
                                                                                )
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                0Curtailment
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                207
                                                                                
                                                                                
                                                                                
                                                                                0Ending
      accrued benefit cost
                                                                                
                                                                                $
                                                                                2,444
                                                                                
                                                                                
                                                                                $
                                                                                2,149
                                                                                
                                                                                
                                                                                $
                                                                                1,613
 
 
   54
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      13
                      Retirement
      Plans(Continued)
                        
                        The
      following table sets forth the change in projected benefit obligation and
      change in plan assets, funded status of the SERP and Directors' Retirement
      plans, and net liability recognized in the Company's balance sheet at
      September
30:
 
 2008
                                                                                
                                                                                
                                                                                2007
                                                                                
                                                                                
                                                                                2006(In
      Thousands)Change
      in benefit obligation:Projected
      benefit obligation, beginning of year
                                                                                
                                                                                $
                                                                                2,627
                                                                                
                                                                                
                                                                                $
                                                                                2,646
                                                                                
                                                                                
                                                                                $
                                                                                2,613Service
      cost
                                                                                
                                                                                
                                                                                54
                                                                                
                                                                                
                                                                                
                                                                                64
                                                                                
                                                                                
                                                                                
                                                                                86Interest
      cost
                                                                                
                                                                                
                                                                                158
                                                                                
                                                                                
                                                                                
                                                                                148
                                                                                
                                                                                
                                                                                
                                                                                137Actuarial
      loss
                                                                                
                                                                                
                                                                                (80
                                                                                )
                                                                                
                                                                                
                                                                                (124
                                                                                )
                                                                                
                                                                                
                                                                                (190
                                                                                )Benefits
      paid
                                                                                
                                                                                
                                                                                (8
                                                                                )
                                                                                
                                                                                
                                                                                (107
                                                                                )
                                                                                
                                                                                
                                                                                0Projected
      benefit obligation, end of year
                                                                                
                                                                                $
                                                                                2,751
                                                                                
                                                                                
                                                                                $
                                                                                2,627
                                                                                
                                                                                
                                                                                $
                                                                                2,646Change
      in plan assets:Plan
      assets at fair value, beginning of year
                                                                                
                                                                                $
                                                                                0
                                                                                
                                                                                
                                                                                $
                                                                                0
                                                                                
                                                                                
                                                                                $
                                                                                0Actual
      return on plan assets
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                0Company
      contributions
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                0Benefits
      paid
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                0
                                                                                
                                                                                
                                                                                
                                                                                0Plan
      assets at fair value, end of year
                                                                                
                                                                                $
                                                                                0
                                                                                
                                                                                
                                                                                $
                                                                                0
                                                                                
                                                                                
                                                                                $
                                                                                0
 
   55
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      13
                      Retirement
      Plans(Continued)
                        
                        Weighted
      average assumptions used in determining the benefit obligation and net
      pension costs as of September 30 are as
  follows:
 2008
                                
                                
                                2007
                                
                                
                                2006Benefit
      obligation actuarial assumptions:Discount
      rate
                                
                                
                                6.25
                                %
                                
                                
                                6.00
                                %
                                
                                
                                5.75
                                %Rate
      of compensation increase
                                
                                
                                5.00
                                %
                                
                                
                                5.00
                                %
                                
                                
                                5.00
                                %Net
      pension cost actuarial assumption:Discount
      rate
                                
                                
                                6.00
                                %
                                
                                
                                5.75
                                %
                                
                                
                                5.25
                                %Expected
      long-term rate of return on plan assets
                                
                                
                                N/A
                                
                                
                                
                                N/A
                                
                                
                                
                                N/ARate
      of compensation increase
                                
                                
                                5.00
                                %
                                
                                
                                5.00
                                %
                                
                                
                                5.00
                                %
  Estimated future benefit payments as of September 30, 2008, which
      reflect expected future service, as appropriate, are as
      follows:
 (In
      Thousands)2009
                  
                  $152010
                  
                  532011
                  
                  562012
                  
                  1192013
                  
                  2692014
      - 2018
                  
                  1,370
  Employee
      Stock Ownership Plan
                    
                    The
      Board of Directors approved an Employee Stock Ownership Plan (ESOP) that
      became effective March 29, 2004.  The Plan is designed to
      provide eligible employees the advantage of ownership of Company
      stock.  Employees are eligible to participate in the Plan after
      reaching age twenty-one, completing one year of service, and working at
      least one thousand hours of consecutive service during the
      year.  Contributions are allocated to eligible participants on
      the basis of compensation.
  56
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      13
                      Retirement
      Plans(Continued)
                        
                        The
      ESOP borrowed $1,192 from the Company to finance the purchase of 227,821
      shares in connection with the initial public offering.  The loan
      is payable in annual installments over ten years at an annual interest
      rate equal to 5%.
                        
                        The
      ESOP borrowed $3,415 from the Company to finance the purchase of 341,501
      shares in connection with the second-step conversion.  The loan
      is payable in annual installments over ten years at an annual interest
      rate of 4.9%.
                        
                        The
      loans can be prepaid without penalty.  Loan payments are
      principally funded by cash contributions from the Company, subject to
      federal tax law limits.
                        
                        Shares
      used as collateral to secure the loan are released and available for
      allocation to eligible employees as the principal and interest on the loan
      are paid.  Eligible employees must obtain a year of service and
      be 21 years old.  Employees become fully vested in their ESOP
      account after five years of service.  Dividends on unallocated
      shares are generally applied toward payment of the loan.  ESOP
      shares committed to be released are considered outstanding in determining
      earnings per share.
                        
                        Contribution
      expense to the ESOP is based on the fair value (average stock price) of
      the shares scheduled to be released and totaled $483 in
      2008.  Approximately one-tenth of the shares are scheduled to be
      released each year.  The cost of all unallocated shares held by
      the ESOP has been reflected in the consolidated balance sheets as a
      reduction to equity.
                        
                        The
      ESOP shares as of September 30, 2008, were as
    follows:
 Allocated
                  
                  124,896Committed
      to be released
                  
                  56,932Unallocated
                  
                  387,105Estimated
      fair value of unallocated shares held (In Thousands)
                  
                  $2,807
  Note
      14
                      Leases
                        
                        The
      Company leases certain branch facilities and its administrative offices
      under operating leases.  Rent expense under these operating
      leases was $337, $302, and $316, for the years ended September 30, 2008,
      2007, and 2006,
respectively.
  57
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      14
                      Leases(Continued)
                        
                        Future
      minimum lease payments by year and in aggregate under the original terms
      of the noncancelable operating leases consist of the
      following:
 (In
      Thousands)2009
                  
                  $7552010
                  
                  8502011
                  
                  8062012
                  
                  734Thereafter
                  
                  727Total
                  
                  $3,872
  Note
      15
                      Stock-Based
      Compensation Plans
                        
                        Recognition
      and Retention Plans
                        
                        On
      February 4, 2005, shareholders approved the Citizens Community Bancorp,
      Inc. 2004 Recognition and Retention Plan (Recognition Plan) which
      authorized the Board of Directors to award up to 113,910 shares of common
      stock.  On February 4, 2005, and November 5, 2005, the Board of
      Directors granted 63,789 and 6,833 shares, respectively.  The
      market value of the shares awarded at the grant date amounted to $449 and
      $42, respectively, and has been recognized in the accompanying balance
      sheet as unearned stock-based compensation.  The market value of
      the shares awarded is being recognized as compensation expense ratably
      over the five-year vesting period.  During fiscal years 2008 and
      2007, 910 shares and 2,733 shares, respectively, were
      forfeited.  Compensation expense related to the Recognition Plan
      was $92, $90, and $98 for the years ended September 30, 2008, 2007, and
      2006,
respectively.
  58
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      15
                      Stock-Based
      Compensation Plans (Continued)
                        
                        Stock
      Option Plan
                        
                        In
      February 2005, the 2004 stock option and incentive plan was approved by
      Citizens Community Bancorp, Inc.'s shareholders.  The plan
      provides for the grant of nonqualified and incentive stock
      options.  The plan provides for the grant of options for up to
      284,778 shares.  At September 30, 2008, 202,197 options had been
      granted under this plan at a weighted average exercise price of $7.04 per
      share.  Exercised options will be satisfied by the issuance of
      previously unissued shares or treasury stock.  Options vest over
      a five-year period.  Unexercised nonqualified stock options
      expire in 15 years and unexercised incentive stock options expire in 10
      years.  The fair value of stock options granted in 2005 was
      estimated at the date of grant using the Black-Scholes
      methodology.  No options were granted in 2008, 2007, or
      2006.  The following assumptions were made in estimating the
      fair value for options granted for the year ended September 30,
      2005.
 2005Dividend
      yield
                  
                  1.49%Risk-free
      interest rate
                  
                  4.16%Weighted
      average expected life (years)
                  
                  10Expected
      volatility
                  
                  16.08%
 
   59
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      15
                      Stock-Based
      Compensation Plans(Continued)
                        
                        The
      weighted average fair value of options at their grant date, using the
      assumptions shown above, was computed at $3.66 per share.  Total
      compensation expense of $71 and $75 was recognized during 2008 and 2007,
      respectively.  As of September 30, 2008 and 2007, there was $88
      and $170, respectively, of total unrecognized compensation cost related to
      the nonvested share-based compensation arrangement, which is expected to
      be recognized over the next two
years.
 2008
                  
                  2007Weighted
                  
                  WeightedOption
                  Average
                  
                  Option
                  AverageShares
                  Price
                  
                  Shares
                  PriceOutstanding
      - Beginning of year
                  190,806
                  $7.04
                  
                  202,197
                  $7.04Options
      forfeited
                  5,696
                  
                  
                  6,833Options
      exercised
                  0
                  
                  
                  4,558Outstanding
      - End of Year
                  185,110
                  $7.04
                  
                  190,806
                  $7.04Exercisable
      at September 30, 2008
                  
                  
                  
                  109,714Weighted
      average fair value of options granted
                  
                  
                  $3.66Available
      for future grant at year-end
                  
                  
                  
                  95,110
  The
      following table summarizes information about Plan awards outstanding at
      September 30, 2008:
 Options
      OutstandingNumber
                  
                  Weighted
      Average
                  
                  Weighted
      AverageOutstanding
                  
                  Remaining
      Contractual Life
                  
                  Exercise
      Price119,606
                  
                  6.42
      years
                  
                  $7.0468,219
                  
                  11.42
      years
                  
                  $7.04
  In
      February 2008, the 2008 Equity Incentive Plan was approved by
      stockholders.  The aggregate number of shares of Citizens
      Community Bancorp, Inc. reserved and available for issuance under the
      Incentive Plan is 597,605.  Under the Plan, the Incentive Plan
      Committee may grant stock options and stock appreciation rights that, upon
      exercise, result in the issuance of 426,860 shares of Citizens Community
      Bancorp, Inc. common stock.  The Committee may grant restricted
      stock and restricted stock units for an aggregate of 170,745 shares of
      Citizens Community Bancorp, Inc. common stock.  As of September
      30, 2008, no shares have been granted under the 2008 Equity Incentive
      Plan.
  60
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      16
                      Earnings
      Per Share
                        
                        Basic
      and diluted earnings per share data are based on the weighted-average
      number of common shares outstanding during each period.  Diluted
      earnings per share are further adjusted for potential common shares that
      were dilutive and outstanding during the period.  Potential
      common shares consist of stock options outstanding under the incentive
      plan.  The dilutive effect of potential common shares is
      computed using the treasury stock method.  All stock options are
      assumed to be 100% vested for purposes of the earnings per share
      computations.  The computation of earnings per share for the
      years ended September 30, 2008, 2007, and 2006, are as
      follows:
 2008
                  2007
                  2006
      *Weighted
      average shares outstanding
                  
                  6,225,270
                  6,709,115
                  6,933,254Effect
      of dilutive stock options outstanding
                  
                  17,370
                  25,834
                  25,718Diluted
      weighted average shares outstanding
                  6,242,640
                  6,734,949
                  6,958,972Basic
      earnings per share
                  
                  $0.24
                  $0.11
                  $0.06Diluted
      earnings per share
                  
                  $0.24
                  $0.11
                  $0.06
 
 *
                  Earnings
      per share were restated to reflect the impact of the second-step
      conversion and reorganization of the Company which occurred on October 31,
      2006.
  Note
      17
                      Commitments
      and Contingencies
                        
                        Financial
      Instruments with Off-Balance-Sheet Risk
                        
                        The
      Company’s financial statements do not reflect various commitments and
      contingent liabilities which arise in the normal course of business and
      which involve elements of credit risk, interest rate risk, and liquidity
      risk.  These commitments and contingent liabilities are
      commitments to extend
credit.
   61
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      17
                      Commitments
      and Contingencies(Continued)
                        
                        A
      summary of the Company’s commitments and contingent liabilities at
      September 30
follows:
 2008
                  2007(In
      Thousands)Commitments
      to extend credit - Fixed rate 5.00 - 9.90% in 2008 and 6.99 - 9.50% in
      2007
                  $360
                  $428Unused
      lines of credit:Real
      estate equity advance plan (REAP)
                  
                  660
                  692Kwik
      cash and lines of credit
                  
                  2,254
                  2,049MasterCard
      and VISA credit cards
                  
                  4,687
                  4,721Totals
                  
                  $7,961
                  $7,890
 
 Commitments
      to extend credit are agreements to lend to a customer as long as there is
      no violation of any conditions established in the
      contract.  Commitments generally have fixed expiration dates or
      other termination clauses and may require payment of a fee.  A
      portion of the commitments is expected to be drawn upon, thus representing
      future cash requirements.  Management evaluates each customer’s
      creditworthiness on a case-by-case basis.  The amount of
      collateral obtained upon extension of credit is based on management’s
      credit evaluation of the customer.  Collateral held varies but
      may include real estate and personal property.  Substantial
      amounts of unsecured personal loans are granted by the
      Company.  However, ongoing credit evaluations of customers are
      performed.
                    
                    Concentration
      of Credit Risk
                    
                    The
      majority of the Company’s loans and commitments have been granted to
      customers in the Company’s local market areas.  The
      concentrations of credit by type are set forth in Note
      6.  Management believes the diversity of the various economies
      will prevent significant losses through the current economic
      downturn.
                    
                    Contingencies
                    
                    In
      the normal course of business, the Company occasionally becomes involved
      in various legal proceedings.  In the opinion of management, any
      liability from such proceedings would not have a material adverse effect
      on the business or financial condition of the
    Company.
 62
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
 Note
      18
                      Capital
      Requirements
                        
                        The
      Bank is subject to various regulatory capital requirements administered by
      the federal agencies.  Failure to meet minimum capital
      requirements can initiate certain mandatory, and possibly additional
      discretionary, actions by regulators that, if undertaken, could have a
      direct material effect on the Bank’s financial
      statements.  Under capital adequacy guidelines and the
      regulatory framework for prompt corrective action, the Bank must meet
      specific capital guidelines that involve quantitative measures of the
      Bank’s assets, liabilities, and certain off-balance-sheet items as
      calculated under regulatory accounting practices.  The capital
      amounts and classification are also subject to qualitative judgments by
      the regulators about components, risk weightings, and other
      factors.
                        
                        Quantitative
      measures established by regulation to ensure capital adequacy require the
      Bank to maintain minimum amounts and ratios (set forth in the table below)
      of total and Tier I capital to risk-weighted assets and of Tier I capital
      to average assets.  It is management’s opinion as of September
      30, 2008, that the Bank meets all capital adequacy
      requirements.
                        
                        As
      of September 30, 2008, the most recent notification from the Office of
      Thrift Supervision categorized the Bank as well-capitalized under the
      regulatory framework for prompt corrective action.  To be
      categorized as well-capitalized, the Bank must maintain minimum net worth
      ratios as set forth in the table.  There are no conditions or
      events since that notification that management believes have changed the
      Bank’s category.
  63
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      18
                      Capital
      Requirements(Continued)
                        
                        The
      Bank’s actual and regulatory capital amounts and ratios are presented in
      the following
table:
 To
      Be Well-Capitalized
      UnderFor
      Capital
                                                
                                                Prompt
      CorrectiveActual
                                                
                                                Adequacy
      Purposes
                                                
                                                Actions
      ProvisionsAmount
                                                Ratio
                                                
                                                Amount
                                                
                                                Ratio
                                                
                                                Amount
                                                
                                                Ratio(Dollars
      in Thousands)September
      30, 2008Total
      risk-based capital (to risk-weighted assets)
                                                $46,591
                                                15.3%
                                                
                                                $24,340
                                                >
                                                8.0%
                                                
                                                $30,425
                                                >
                                                10.0%Tier
      1 capital:To
      risk-weighted assets
                                                
                                                45,821
                                                15.1%
                                                
                                                12,170
                                                >
                                                4.0%
                                                
                                                18,255
                                                >
                                                6.0%To
      adjusted total assets
                                                
                                                45,821
                                                9.6%
                                                
                                                19,023
                                                >
                                                4.0%
                                                
                                                23,778
                                                >
                                                5.0%Tangible
      capital (to tangible assets)
                                                45,821
                                                9.6%
                                                
                                                7,134
                                                >
                                                1.5%
                                                
                                                N/A
                                                
                                                N/ASeptember
      30, 2007Total
      risk-based capital (to risk-weighted assets)
                                                44,416
                                                18.0%
                                                
                                                19,757
                                                >
                                                8.0%
                                                
                                                24,696
                                                >
                                                10.0%Tier
      1 capital:To
      risk-weighted assets
                                                
                                                43,709
                                                17.7%
                                                
                                                9,878
                                                >
                                                4.0%
                                                
                                                14,817
                                                >
                                                6.0%To
      adjusted total assets
                                                
                                                43,709
                                                11.5%
                                                
                                                15,161
                                                >
                                                4.0%
                                                
                                                18,952
                                                >
                                                5.0%Tangible
      capital (to tangible assets)
                                                43,709
                                                11.5%
                                                
                                                5,685
                                                >
                                                1.5%
                                                
                                                N/A
                                                
                                                N/A
  Note
      19
                      Fair
      Values of Financial Instruments
                        
                        Current
      accounting standards require that the Company disclose estimated fair
      values for its financial instruments.  Fair value estimates,
      methods, and assumptions for the Company’s financial instruments are
      summarized below.
                        
                        Cash
      and Cash Equivalents
                        
                        The
      carrying values approximate the fair values for these assets.
                        
                        Interest-Bearing
      Deposits
                        
                        The
      carrying values approximate the fair values for these
      assets.
 64
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
 Note
      19
                      Fair
      Values of Financial Instruments(Continued)
                        
                        Securities
      Available for Sale
                        
                        Fair
      values are based on quoted market prices, where available.  If a
      quoted market price is not available, fair value is estimated using quoted
      market prices for similar securities.
                        
                        Loans
                        
                        Fair
      value is estimated for portfolios of loans with similar financial
      characteristics.  Loans are segregated by type such as
      residential mortgage and consumer.  The fair value of loans is
      calculated by discounting scheduled cash flows through the estimated
      maturity using market discount rates reflecting the credit and interest
      rate risk inherent in the loan.  The estimate of maturity is
      based on the Company’s repayment schedules for each loan
      classification.
                        
                        The
      methodology in determining fair value of nonaccrual loans is to average
      them into the blended interest rate at 0% interest.  This has
      the effect of decreasing the carrying amount below the risk-free rate
      amount and therefore, discounts the estimated fair value.
                        
                        Impaired
      loans are measured at the estimated fair value of the expected future cash
      flows at the loan’s effective interest rate or the fair value of the
      collateral for loans which are collateral dependent.  Therefore,
      the carrying values of impaired loans approximate the estimated fair
      values for these assets.
                        
                        Federal
      Home Loan Bank Stock
                        
                        Fair
      value for the Federal Home Loan Bank stock is based on its redeemable
      (carrying) value, since the market for this stock is
      restricted.
                        
                        Deposits
                        
                        The
      fair value of deposits with no stated maturity, such as demand deposits,
      savings accounts, and money market accounts, is the amount payable on
      demand at the reporting date.  The fair value of certificate
      accounts is calculated by using discounted cash flows applying interest
      rates currently being offered on similar
    certificates.
  65
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      19
                      Fair
      Values of Financial Instruments (Continued)
                        
                        Borrowed
      Funds
                        
                        The
      fair value of borrowed funds is estimated using discounted cash flows
      based on the Bank’s current incremental borrowing rates for similar
      borrowing arrangements.
                        
                        Accrued
      Interest
                        
                        The
      carrying amount of accrued interest approximates its fair
      value.
                        
                        Off-Balance-Sheet
      Instruments
                        
                        The
      fair value of commitments would be estimated using the fees currently
      charged to enter into similar agreements, taking into account the
      remaining terms of the agreements, the current interest rates, and the
      present creditworthiness of the customers.  Since this amount is
      immaterial, no amounts for fair value are presented.
                        
                        The
      carrying amount and estimated fair value of financial instruments at
      September 30 were as
follows:
 2008
                  
                  2007Estimated
                  
                  EstimatedCarrying
                  Fair
                  
                  Carrying
                  FairAmount
                  Value
                  
                  Amount
                  Value(In
      Thousands)Financial
      assets:Cash
      and cash equivalents
                  $23,666
                  $23,666
                  
                  $6,354
                  $6,354Interest-bearing
      deposits
                  371
                  371
                  
                  371
                  371Securities
      available for sale
                  61,776
                  61,776
                  
                  39,592
                  39,592Loans
      receivable
                  368,518
                  367,153
                  
                  320,027
                  311,642FHLB
      stock
                  5,787
                  5,787
                  
                  4,822
                  4,822Accrued
      interest receivable
                  1,726
                  1,726
                  
                  1,397
                  1,397Financial
      liabilities:Deposits
                  297,243
                  301,803
                  
                  207,734
                  208,282Borrowed
      funds
                  110,245
                  111,339
                  
                  96,446
                  101,230Accrued
      interest payable
                  412
                  412
                  
                  402
                  402
 
  66
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      19
                      Fair
      Values of Financial Instruments(Continued)
                        
                        Limitations
                        
                        Fair
      value estimates are made at a specific time, based on relevant market
      information and information about the financial
      instrument.  These estimates do not reflect any premium or
      discount that could result from offering for sale at one time the
      Company’s entire holdings of a particular financial
      instrument.  Because no market exists for a significant portion
      of the Company’s financial instruments, fair value estimates are based on
      judgments regarding future expected loss experience, current economic
      conditions, risk characteristics of various financial instruments, and
      other factors.  These estimates are subjective in nature and
      involve uncertainties and matters of significant judgment and therefore
      cannot be determined with precision.  Changes in assumptions
      could significantly affect the estimates.  Fair value estimates
      are based on existing on- and off-balance-sheet financial instruments
      without attempting to estimate the value of anticipated future business
      and the value of assets and liabilities that are not considered financial
      instruments.  Significant assets and liabilities that are not
      considered financial assets or liabilities include premises and equipment,
      other assets, and other liabilities.
                        
                        In
      addition, the tax ramifications related to the realization of the
      unrealized gains or losses can have a significant effect on fair value
      estimates and have not been considered in the
    estimates.
   67
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      20
                      Condensed
      Parent Company Only Financial Statements
                        
                        The
      following condensed balance sheets as of September 30, 2008 and 2007, and
      condensed statements of income and cash flows for each of the years in the
      three-year period ended September 30, 2008, for Citizens Community
      Bancorp, Inc. should be read in conjunction with the consolidated
      financial statements and the notes
  thereto.
 Balance
Sheets
 
 Assets
                                                              
                                                              2008
                                                              
                                                              
                                                              2007(In
      Thousands)Cash
      and cash equivalents
                                                              
                                                              $
                                                              14,754
                                                              
                                                              
                                                              $
                                                              23,630Investment
      in subsidiary
                                                              
                                                              
                                                              50,109
                                                              
                                                              
                                                              
                                                              50,510Note
      receivable - ESOP
                                                              
                                                              
                                                              3,613
                                                              
                                                              
                                                              
                                                              4,009TOTAL
      ASSETS
                                                              
                                                              $
                                                              68,476
                                                              
                                                              
                                                              $
                                                              78,149Stockholders'
      EquityTOTAL
      STOCKHOLDERS' EQUITY
                                                              
                                                              $
                                                              68,476
                                                              
                                                              
                                                              $
                                                              78,149
 
 Statements
of Income
 
 2008
                                                                                
                                                                                
                                                                                2007
                                                                                
                                                                                
                                                                                2006(In
      Thousands)Income
      - Interest and dividends
                                                                                
                                                                                $
                                                                                189
                                                                                
                                                                                
                                                                                $
                                                                                240
                                                                                
                                                                                
                                                                                $
                                                                                89Expenses
      - Other
                                                                                
                                                                                
                                                                                454
                                                                                
                                                                                
                                                                                
                                                                                292
                                                                                
                                                                                
                                                                                
                                                                                132Loss
      before provision for income taxes and equity in
                                                                                  undistributed
      net income of subsidiary
                                                                                
                                                                                
                                                                                (265
                                                                                )
                                                                                
                                                                                
                                                                                (52
                                                                                )
                                                                                
                                                                                
                                                                                (43
                                                                                )Benefit
      for income taxes
                                                                                
                                                                                
                                                                                (121
                                                                                )
                                                                                
                                                                                
                                                                                (43
                                                                                )
                                                                                
                                                                                
                                                                                (6
                                                                                )Loss
      before equity in undistributed net income of subsidiary
                                                                                
                                                                                
                                                                                (144
                                                                                )
                                                                                
                                                                                
                                                                                (9
                                                                                )
                                                                                
                                                                                
                                                                                (37
                                                                                )Equity
      in undistributed net income of subsidiary
                                                                                
                                                                                
                                                                                1,618
                                                                                
                                                                                
                                                                                
                                                                                752
                                                                                
                                                                                
                                                                                
                                                                                483Net
      income
                                                                                
                                                                                $
                                                                                1,474
                                                                                
                                                                                
                                                                                $
                                                                                743
                                                                                
                                                                                
                                                                                $
                                                                                446
 
   68
 Citizens
Community Bancorp, Inc. and Subsidiary
 
 Notes to
Consolidated Financial Statements
  Note
      20
                  Condensed Parent Company Only Financial Statements(Continued)
 Statements
of Cash Flows
 
 2008
                                                                                                                  
                                                                                                                  
                                                                                                                  2007
                                                                                                                  
                                                                                                                  
                                                                                                                  2006(In
      Thousands)Increase
      (decrease) in cash and cash equivalents:Cash
      flows from operating activities:Net
      income
                                                                                                                  
                                                                                                                  $
                                                                                                                  1,474
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  743
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  446Provision
      for stock options
                                                                                                                  
                                                                                                                  
                                                                                                                  71
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  75
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  0Adjustments
      to reconcile net income to net cashprovided
      by operating activities - Equity inundistributed
      income of subsidiary
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,618
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (752
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (483
                                                                                                                  )Net
      cash provided by (used in) operating activities
                                                                                                                  
                                                                                                                  
                                                                                                                  (73
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  66
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (37
                                                                                                                  )Cash
      flows from investing activities:Investment
      in subsidiary
                                                                                                                  
                                                                                                                  
                                                                                                                  0
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (25,619
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  0Loan
      to ESOP
                                                                                                                  
                                                                                                                  
                                                                                                                  0
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (3,415
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  0Principal
      received on ESOP loan
                                                                                                                  
                                                                                                                  
                                                                                                                  396
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  355
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  102Net
      cash provided by (used in) investing activities
                                                                                                                  
                                                                                                                  
                                                                                                                  396
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (28,679
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  102Cash
      flows from financing activities:Sale
      of common stock
                                                                                                                  
                                                                                                                  
                                                                                                                  0
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  51,238
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  0Repurchase
      shares of common stock
                                                                                                                  
                                                                                                                  
                                                                                                                  (7,855
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  0
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  0Stock
      options exercised
                                                                                                                  
                                                                                                                  
                                                                                                                  0
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  32
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  0Purchase
      of treasury stock
                                                                                                                  
                                                                                                                  
                                                                                                                  0
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  0
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (1
                                                                                                                  )Cash
      dividends paid
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,344
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,115
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (190
                                                                                                                  )Net
      cash provided by (used in) financing activities
                                                                                                                  
                                                                                                                  
                                                                                                                  (9,199
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  50,155
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (191
                                                                                                                  )Net
      increase (decrease) in cash and cash equivalents
                                                                                                                  
                                                                                                                  
                                                                                                                  (8,876
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  21,542
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (126
                                                                                                                  )Cash
      and cash equivalents at beginning
                                                                                                                  
                                                                                                                  
                                                                                                                  23,630
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  2,088
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  2,214Cash
      and cash equivalents at end
                                                                                                                  
                                                                                                                  $
                                                                                                                  14,754
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  23,630
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  2,088Supplemental
      cash flow information:Cash
      received during the year for income taxes
                                                                                                                  
                                                                                                                  $
                                                                                                                  121
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  43
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  6
 
  69
  CITIZENS
COMMUNITY BANCORP, INC.
 STOCKHOLDER
INFORMATION
  ANNUAL
MEETING
  The
annual meeting of stockholders of Citizens Community Bancorp, Inc. will be held
at our branch office in Chippewa Falls, located at 427 West Prairie View Road,
Chippewa Falls, Wisconsin, 54729, on February 26, 2009, at 4:00 p.m. local
time.
  STOCK
LISTING
  Citizens
Community Bancorp, Inc. common stock is traded on the Nasdaq Global Market under
the symbol "CZWI."
  PRICE
RANGE OF COMMON STOCK
  HIGH
                    LOW
                    DIVIDENDSFiscal
      2008First
      Quarter
                    $  9.55
                    $  8.84
                    $0.05Second
      Quarter
                    $  9.24
                    $  8.02
                    $0.05Third
      Quarter
                    $  8.65
                    $  7.65
                    $0.05Fourth
      Quarter
                    $  8.50
                    $  6.78
                    $0.05Fiscal
      2007First
      Quarter
                    $20.00
                    $  9.65
                    $0.05Second
      Quarter
                    $  9.78
                    $  9.33
                    $0.05Third
      Quarter
                    $  9.55
                    $  8.75
                    $0.05Fourth
      Quarter
                    $  9.54
                    $  8.04
                    $0.05Fiscal
      2006First
      Quarter
                    $13.20
                    $10.30
                    $0.05Second
      Quarter
                    $14.25
                    $12.90
                    $0.05Third
      Quarter
                    $18.39
                    $13.75
                    $0.05Fourth
      Quarter
                    $21.15
                    $17.65
                    $0.05
 
 The stock
price information set forth in the table above was provided by the Yahoo Finance
System.  This information includes Citizens Community Bancorp Inc.'s
predecessor, Citizens Community Bancorp, whose common stock began trading on
March 29, 2004.  The closing price of Citizens Community Bancorp, Inc.
common stock on December 18, 2008 was $6.76.
  At
December 18, 2008, there were 6,095,561 shares of Citizens Community Bancorp,
Inc. common stock outstanding (including unallocated ESOP shares) and there were
444 holders of record.
  Our cash
dividend payout policy is continually reviewed by management and the board of
directors.  We intend to continue our policy of paying quarterly
dividends; however, these payments will depend on a number of factors, including
capital requirements, regulatory limitations, our financial condition, results
of operations and the Bank's ability to pay dividends.
  
   70
  
  STOCKHOLDERS
      AND GENERAL INQUIRIES
                  
                  TRANSFER
      AGENTCitizens
      Community Bancorp, Inc. files an annual report with the Securities and
      Exchange Commission on Form 10-K and three quarterly reports on Form
      10-Q.  Copies of these forms are available by
      request.  Requests, as well as inquiries from stockholders,
      analysts and others seeking information about Citizens Community Bancorp,
      Inc. should be directed to John D. Zettler, Senior Vice President and
      Chief Financial Officer, at 2174 EastRidge Center, Eau Claire, WI 54701,
      telephone (715) 836-9994.
                    
                    www.citizenscommunityfederal.net
                  
                  Stockholders
      should direct inquiries concerning their stock, change of name, address or
      ownership; report lost certificates or consolidate accounts to our
      transfer agent at 1-800-368-5948 or write:
                    Registrar
      and Transfer Co.
                    10
      Commerce Drive
                    Cranford,
      NJ  07016
                    1-(800)
      368-5948
 
 ANNUAL
AND OTHER REPORTS
  A copy of
our Annual Report on Form 10-K for the year ended September 30, 2008, as
filed with the Securities and Exchange Commission, may be obtained without
charge by contacting John D. Zettler, Citizens Community Bancorp, 2174 EastRidge
Center, Eau Claire, Wisconsin  54701.
   71
  CITIZENS
COMMUNITY BANCORP, INC.
 CORPORATE
INFORMATION
  Citizens
      Community Bancorp, Inc.
                                and
      Citizens Community Federal
                                Board of Directors
                              
                              Citizens
      Community Federal
                                OfficersRichard
      McHugh, Chairman
                                Thomas
      C. Kempen, Vice
      Chairman
                                Brian
      R. Schilling
                                David
      B. Westrate
                                James
      G. Cooley
                              
                              James
      G. Cooley, President and
      Chief Executive Officer
                                John
      D. Zettler, Senior Vice President
      and
                                Chief
      Financial Officer
                                Timothy
      J. Cruciani, Executive
      Vice President
                                Rebecca
      Johnson, Senior
      Vice
      President,
                                MIC/AccountingCitizens
      Community Federal Locations:Administrative Offices
                                2174
      EastRidge Center
                                Eau
      Claire, WI 54701
                                
                                Branch Offices:
                                Appleton
      Branch
                                3701
      E. Calumet St.
                                Appleton,
      WI  54915
                                
                                Black
      River Falls Branch
                                611
      Highway 54 E.
                                Black
      River Falls, WI 54615
                                
                                Chippewa
      Falls Branch
                                427
      W.  Prairie View Road
                                Chippewa
      Falls, WI 54729
                                
                                East
      Branch
                                1028
      N. Hillcrest Parkway
                                Altoona,
      WI 54720
                                
                                Fairfax
      Branch
                                219
      Fairfax Street
                                Altoona,
      WI 54720
                                
                                Fond
      du Lac Branch
                                377
      N. Rolling Meadows Dr.
                                Fond
      du Lac, WI  54936
                              
                              Mondovi
      Branch
                                695
      E. Main Street
                                Mondovi,
      WI 54755
                                
                                Oshkosh
      Branch
                                351
      S. Washburn St.
                                Oshkosh,
      WI  54904
                                
                                Rice
      Lake Branch
                                2501
      West Ave.
                                Rice
      Lake, WI 54868
                                
                                Westside
      Branch
                                2125
      Cameron Street
                                Eau
      Claire, WI 54703
                                
                                Wisconsin
      Dells Branch
                                130
      Commerce St.
                                Wisconsin
      Dells, WI 53965
                                
                                Michigan Offices:
                                Rochester
      Hills Branch
                                310
      W. Tienken Road
                                Rochester
      Hills, MI  48306
                                
                                Lake
      Orion Branch
                                688
      S. Lapeer Road
                                Lake
      Orion, MI  48362
                              
                              Minnesota Offices:
                                Brooklyn
      Park Branch
                                8000
      Lakeland Ave.
                                Brooklyn
      Park, MN 55445
                                
                                Faribault
      Branch
                                150
      Western Ave.
                                Faribault,
      MN 55021
                                
                                Hutchinson
      Branch
                                1300
      Trunk Hwy. 15 S
                                Hutchinson,
      MN  55350
                                
                                Mankato
      Branch
                                1410
      Madison Avenue
                                Mankato,
      MN 56001
                                
                                Oakdale
      Branch
                                7035
      10th Street North
                                Oakdale,
      MN 55128
                                
                                Red
      Wing Branch
                                295
      Tyler Rd. S
                                Red
      Wing, MN  55066
                                
                                Winona
      Branch
                                955
      Frontenac Dr.
                                Winona,
      MN   55987Independent Auditors
                                Wipfli LLP
                                3703
      Oakwood Hills Pkwy
                                Eau
      Claire, WI  54703
                              
                              Special Counsel
                                Silver, Freedman & Taff, L.L.P.
                                3299
      K Street, N.W.
                                Suite
      100
                                Washington, D.C.  20007
 
  72