UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


___________________________





FORM
10-K





[X]
            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended September 30, 2008       OR[  ]
            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





Commission
File Number:  001-33003





CITIZENS
COMMUNITY BANCORP, INC.


(Exact
name of small business issuer as specified in its charter)





Maryland
            
            20-5120010(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)2174
      EastRidge Center, Eau Claire, Wisconsin
            
            54701(Address
      of principal executive offices)
            (Zip
      Code)





Registrant's
telephone number, including area code:  (715) 836-9994





Securities
registered pursuant to Section 12(b) of the Act:  None





Securities
      registered pursuant to Section 12(g)of the Act:
            Common
      Stock, par value $0.01 per share(Title
      of Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act.  YES  __  NO  X





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
YES  __  NO  X





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





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





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


Large
accelerated filer  ___   Accelerated
filer  ___   Non-accelerated filer  ___Smaller reporting
company   X





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





The
aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average of the bid and asked price of
such stock as of the last business day of the registrant's most recently
completed second fiscal quarter, was $55,187,753.  (The exclusion from
such amount of the market value of the shares owned by any person shall not be
deemed an admission by the registrant that such person is an affiliate of the
registrant.)





As of
December 18, 2008, there were issued and outstanding 6,095,561 shares of the
Registrant's common stock.





DOCUMENTS
INCORPORATED BY REFERENCE





Part II
of Form 10-K B Annual
Report to Stockholders for the fiscal year ended September 30,
2008.


Part III
of Form 10-K B Portions of
the Proxy Statement for the 2009 Annual Meeting of Stockholders.








PART
I




Item
1.                      Description of
Business




General




Historically,
Citizens Community Federal (the "Bank") was a federal credit
union.  The Bank accepted deposits and made loans to members, who
live, work or worship in the Wisconsin counties of Chippewa and Eau Claire, and
parts of Pepin, Buffalo and Trempealeau.  In addition, this included
businesses and other entities located in these counties, and members and
employees of the Hocak Nation.  In December 2001, the Bank converted
to a federal mutual savings bank in order to better serve our customers and the
local community through the broader lending ability of a federal savings bank,
and to expand our customer base beyond the limited field of membership permitted
for credit unions.  As a federal savings bank, the Bank has expanded
authority in structuring residential mortgage and consumer loans, and the
ability to make commercial loans, although the Bank does not currently have any
immediate plans to commence making commercial loans. In 2004, Citizens Community
Federal reorganized into the mutual holding company form of
organization.




On July
1, 2005, Citizens Community Bancorp acquired Community Plus Savings Bank,
Rochester Hills, Michigan, through a merger with and into Citizens Community
Federal.  In accordance with the merger agreement, Citizens Community
Bancorp issued 705,569 additional shares to Citizens Community MHC, based on the
$9.25 million independently appraised value of Community Plus Savings
Bank.  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.




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, the MHC's
former stock holding company subsidiary.  Each outstanding share of
common stock of the former mid-tier stock holding company (other than shares
held by the MHC which were canceled) was converted into 1.91067 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.




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.  Citizens 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, as
noted, acquired Community Plus Savings Bank's Lake Orion and Rochester Hills,
Michigan, branches on July 1, 2003.




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.  To date, the Bank has opened new Wal-Mart Supercenter
in-store branches in Brooklyn Park, Faribault, Hutchinson and Red Wing,
Minnesota.  The Bank has moved its existing branches in Black River
Falls, Rice Lake and Wisconsin Dells, 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 an
agreement with Wal-Mart to open six 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 Supercenters located in Appleton, Fond du Lac and Oshkosh,
Wisconsin.  The Bank completed these branch acquisitions on August 3,
2008.




Citizens
Community Bancorp, Inc. is incorporated under the laws of the State of Maryland
to hold all of the stock of Citizens Community Federal.  Citizens
Community Bancorp, Inc. is a unitary savings and loan holding company and is
subject to regulation by the Office of Thrift Supervision
(OTS).  Citizens Community Bancorp, Inc. has no significant assets
other than all of the outstanding shares of common stock of Citizens Community
Federal, the net proceeds of the reorganization it kept and its loan to the
Citizens Community Bancorp, Inc. employee stock ownership plan.




1


At
September 30, 2008, the Company had total assets of $480 million, total deposits
of $297.2 million and stockholders' equity of $68.5 million.The Company and the Bank
are examined and regulated by the OTS, its primary federal
regulator.  The Company and the Bank are also regulated by the
FDIC.  The Bank is required to have certain reserves set by the
Federal Reserve Board and is a member of the Federal Home Loan Bank of Chicago,
which is one of the 12 regional banks in the Federal Home Loan Bank
System.




Forward
Looking Statements




This
document, including information incorporated by reference, contains
forward-looking statements about the Company and its subsidiary which we believe
are within the meaning of the Private Securities Litigation Reform Act of
1995.  These forward-looking statements include, without limitation,
statements with respect to anticipated future operating and financial
performance, growth opportunities, interest rates, cost savings and funding
advantages expected or anticipated to be realized by
management.  Words such as "may," "could," "should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan" and similar
expressions are intended to identify these forward-looking
statements.  Forward-looking statements by the Company and its
management are based on beliefs, plans, objectives, goals, expectations,
anticipations, estimates and the intentions of management and are not guarantees
of future performance.  The Company disclaims any obligation to update
or revise any forward-looking statements based on the occurrence of future
events, the receipt of new information, or otherwise. The important factors we
discuss below, as well as other factors discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as identified in our filings with the SEC and those presented
elsewhere by our management from time to time, could cause actual results to
differ materially from those indicated by the forward-looking statements made in
this document:




·
            further
      developments in the Company's ongoing review of and efforts to resolve
      possible problem credit relationships, which could result in, among other
      things, further downgrades of loans, additional provisions to the loan
      loss reserve and the incurrence of other material non-cash and cash
      charges;




·
            the
      strength of the U.S. economy in general and the strength of the local
      economies in which we conduct
operations;




·
            the
      effects of, and changes in, trade, monetary and fiscal policies and laws,
      including interest rate policies of the Federal Reserve
    Board;




·
            inflation,
      interest rate, market and monetary
fluctuations;




·
            the
      timely development of and acceptance of our new products and services, and
      the perceived overall value of these products and services by users
      including the features, pricing and quality compared to competitors'
      products and services;




·
            the
      willingness of users to substitute our products and services for products
      and services of our competitors;




·
            the
      impact of changes in financial services' laws and regulations (including
      laws concerning taxes, banking, securities and
  insurance);




·
            the
      impact of technological changes;




·
            acquisitions;




·
            changes
      in consumer spending and saving habits;
and




·
            our
      success at managing the risks detailed
above.




The
Company disclaims any obligation to update or revise any forward-looking
statements based on the occurrence of future events, the receipt of new
information, or otherwise.




2


Market
Area




The Bank
is a community-oriented financial institution offering a variety of financial
services to meet the needs of the communities we serve.  The Bank is
headquartered in Eau Claire, Wisconsin, and has 20 branch offices - nine
stand-alone locations and 11 Wal-Mart Supercenter in-store branches - primarily
serving Wisconsin, central and southern Minnesota, and the northern suburbs of
Detroit and Oakland and Macomb counties in Michigan.




Competition




The Bank
faces strong competition in originating real estate and other loans, and in
attracting deposits.  Competition in originating real estate loans
comes primarily from other savings institutions, commercial banks, credit unions
and mortgage bankers.  Other savings institutions, commercial banks,
credit unions and finance companies provide vigorous competition in consumer
lending.




The Bank
attracts deposits through its branch office system. Competition for those
deposits is principally from other savings institutions, commercial banks and
credit unions located in the same community, as well as mutual funds and other
alternative investments.  The Bank competes for these deposits by
offering superior service and a variety of deposit accounts at competitive
rates.




Internet
Website




The
Company maintains a Website at www.citizenscommunityfederal.net.  The
information contained on that Website is not included as part of, or
incorporated by reference into, this Annual Report on Form
10-K.  Citizens Community Bancorp, Inc. currently makes available on
or through its Website its Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K or amendments to these reports. These
materials are also available free of charge on the Securities and Exchange
Commission's Website at www.sec.gov.




Selected
Consolidated Financial Information




This
information is incorporated by reference from pages 2 and 3 of the
2008 Annual Report to Stockholders attached hereto as Exhibit 13 ("Annual
Report").




Yields
Earned and Rates Paid




This
information contained under the section captioned "Average Balances, Net
Interest Income, Yields Earned and Rates Paid" is incorporated herein by
reference from page 14 of the Annual Report.




Rate/Volume
Analysis




This
information is incorporated by reference from page 15 of the Annual
Report.




Average
Balance, Interest and Average Yields and Rates




This
information contained under the section captioned "Average Balances, Net
Interest Income, Yields Earned and Rates Paid" is incorporated herein by
reference from page 14 of the Annual Report.




Lending
Activities




General.  Citizens
Community Federal's first mortgage loans currently being originated carry a
fixed rate of interest.  First mortgage loans generally are long-term
and amortize on a monthly basis with principal and interest due each
month.  A majority of Citizens Community Federal's first mortgage
loans also contain a payable-on-demand clause, which allows Citizens Community
Federal to call the loan due after a stated period, usually between two and five
years from origination.  Citizens Community Federal also has home
equity loans in its portfolio, which have an interest rate that adjusts based on
the prime rate.  At September 30, 2008, the net loan portfolio totaled
$368.5 million, which constituted 76.8% of total assets.




Mortgage
loans up to $500,000 and consumer loans may be approved at various levels by
loan officers and senior management.  The President may approve loans
up to our regulatory lending limit, along with recommendations from the Chief
Financial Officer and the Executive Vice President.  Loans outside our
general




3


underwriting
guidelines must be approved by the board of directors.  At September
30, 2008, our regulatory lending limit to any one borrower and the borrower's
related entities was approximately $7.0 million.  The largest lending
relationship to a single borrower or a group of related borrowers consisted of
four loans to a single borrower with a total balance of $654,000. These loans
were current as of September 30, 2008.























4


Loan Portfolio
Composition.  The following table presents information
concerning the composition of the Citizen Community Federal's loan portfolio in
dollar amounts and in percentages (before deductions for allowances for loan
losses) as of the dates indicated.







At
      September 30,2008
            
            2007
            
            2006
            
            2005
            
            2004Amount
            
            Percent
            
            Amount
            
            Percent
            
            Amount
            
            Percent
            
            Amount
            
            Percent
            
            Amount
            
            Percent(Dollars
      in thousands)Real
      Estate Loans:One-
      to four-family first mortgages
            $193,958
            
            52.5%
            
            $177,281
            
            55.3%
            
            $156,235
            
            60.3%
            
            $136,647
            
            62.5%
            
            $  89,841
            
            58.8%Second
      mortgages
            10,774
            
            2.8
            
            10,461
            
            3.2
            
            9,161
            
            3.5
            
            7,630
            
            3.5
            
            5,398
            
            3.5Multi-family
      and commercial
            180
            
            0.1
            
            215
            
            0.1
            
            240
            
            0.1
            
            274
            
            0.1
            
            321
            
            0.2Total
      real estate loans
            204,912
            
            55.4
            
            187,957
            
            58.6
            
            165,636
            
            63.9
            
            144,551
            
            66.1
            
            95,560
            
            62.5Consumer
      Loans:Automobile
      (1)
            25,887
            
            7.0
            
            27,168
            
            8.5
            
            24,445
            
            9.4
            
            25,980
            
            11.9
            
            25,808
            
            16.9Other
      secured personal loans (2)
            133,181
            
            36.0
            
            100,966
            
            31.5
            
            64,384
            
            24.9
            
            43,460
            
            19.8
            
            27,607
            
            18.0Unsecured
      personal loans (3)
            5,797
            
            1.6
            
            4,610
            
            1.4
            
            4,774
            
            1.8
            
            4,743
            
            2.2
            
            3,955
            
            2.6Total
      consumer loans
            164,865
            
            44.6
            
            132,744
            
            41.4
            
            93,603
            
            36.1
            
            74,183
            
            33.9
            
            57,370
            
            37.5Gross
      loans
            369,777
            
            100.0%
            
            320,701
            
            100.0%
            
            259,239
            
            100.0%
            
            218,734
            
            100.0%
            
            152,930
            
            100.0%Net
      deferred loan costs
            (67)
            
            
            
            252
            
            
            
            63
            
            
            
            ---
            
            
            
            ---Allowance
      for loan losses
            (1,192)
            
            
            
            (926)
            
            
            
            (835)
            
            
            
            (803)
            
            
            
            (554)Total
      loans receivable, net
            $368,518
            
            
            
            $320,027
            
            
            
            $258,467
            
            
            
            $217,931
            
            
            
            $152,376


_______________


(1)
            Includes
      both direct and indirect lending activities.(2)
            Includes
      both direct and indirect lending activities for personal items other than
      automobiles.(3)
            Includes
      only direct lending.








5


The
following table shows the composition of Citizen Community Federal's loan
portfolio by fixed- and adjustable-rate at the dates indicated.




At
      September 30,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004Amount
                    
                    
                    Percent
                    
                    
                    Amount
                    
                    
                    Percent
                    
                    
                    Amount
                    
                    
                    Percent
                    
                    
                    Amount
                    
                    
                    Percent
                    
                    
                    Amount
                    
                    
                    PercentFixed
      Rate Loans:
                    
                    (Dollars
      in thousands)Real
      estateOne-
      to four-family first mortgages(1)
                    
                    $
                    189,247
                    
                    
                    
                    51.1
                    %
                    
                    $
                    170,127
                    
                    
                    
                    53.0
                    %
                    
                    $
                    148,211
                    
                    
                    
                    57.0
                    %
                    
                    $
                    128,300
                    
                    
                    
                    58.7
                    %
                    
                    $
                    89,841
                    
                    
                    
                    58.8
                    %Second mortgages
                    
                    
                    10,373
                    
                    
                    
                    2.8
                    
                    
                    
                    9,989
                    
                    
                    
                    3.1
                    
                    
                    
                    8,367
                    
                    
                    
                    3.2
                    
                    
                    
                    6,189
                    
                    
                    
                    2.8
                    
                    
                    
                    4,772
                    
                    
                    
                    3.1Multi-family and commercial
                    
                    
                    180
                    
                    
                    
                    0.1
                    
                    
                    
                    215
                    
                    
                    
                    0.1
                    
                    
                    
                    240
                    
                    
                    
                    0.1
                    
                    
                    
                    274
                    
                    
                    
                    0.1
                    
                    
                    
                    321
                    
                    
                    
                    0.2Total
      fixed-rate real estate loans
                    
                    
                    199,800
                    
                    
                    
                    54.0
                    
                    
                    
                    180,331
                    
                    
                    
                    56.2
                    
                    
                    
                    156,818
                    
                    
                    
                    60.3
                    
                    
                    
                    134,763
                    
                    
                    
                    61.6
                    
                    
                    
                    94,934
                    
                    
                    
                    62.1Consumer loans
                    
                    
                    164,865
                    
                    
                    
                    44.6
                    
                    
                    
                    132,744
                    
                    
                    
                    41.4
                    
                    
                    
                    93,603
                    
                    
                    
                    36.3
                    
                    
                    
                    74,183
                    
                    
                    
                    33.9
                    
                    
                    
                    57,370
                    
                    
                    
                    37.5Total
      fixed rate loans
                    
                    
                    364,665
                    
                    
                    
                    98.6
                    
                    
                    
                    313,075
                    
                    
                    
                    97.6
                    
                    
                    
                    250,421
                    
                    
                    
                    96.6
                    
                    
                    
                    208,946
                    
                    
                    
                    95.5
                    
                    
                    
                    152,304
                    
                    
                    
                    99.6Adjustable Rate Loans:Real estateOne- to four-family first
      mortgages
                    
                    
                    4,711
                    
                    
                    
                    1.3
                    
                    
                    
                    7,154
                    
                    
                    
                    2.2
                    
                    
                    
                    8,024
                    
                    
                    
                    3.1
                    
                    
                    
                    8,347
                    
                    
                    
                    3.8
                    
                    
                    
                    ---
                    
                    
                    
                    ---Second mortgages
                    
                    
                    401
                    
                    
                    
                    0.1
                    
                    
                    
                    472
                    
                    
                    
                    0.2
                    
                    
                    
                    794
                    
                    
                    
                    0.3
                    
                    
                    
                    1,441
                    
                    
                    
                    0.7
                    
                    
                    
                    626
                    
                    
                    
                    0.4Multi-family and commercial
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---Total adjustable rate
      real estate loans
                    
                    
                    5,112
                    
                    
                    
                    1.4
                    
                    
                    
                    7,626
                    
                    
                    
                    2.4
                    
                    
                    
                    8,818
                    
                    
                    
                    3.4
                    
                    
                    
                    9,788
                    
                    
                    
                    4.5
                    
                    
                    
                    626
                    
                    
                    
                    0.4Consumer
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    ---Total adjustable rate loans
                    
                    
                    5,112
                    
                    
                    
                    1.4
                    
                    
                    
                    7,626
                    
                    
                    
                    2.4
                    
                    
                    
                    8,818
                    
                    
                    
                    3.4
                    
                    
                    
                    9,788
                    
                    
                    
                    4.5
                    
                    
                    
                    626
                    
                    
                    
                    0.4Total loans
                    
                    
                    369,777
                    
                    
                    
                    100.0
                    %
                    
                    
                    320,701
                    
                    
                    
                    100.0
                    %
                    
                    
                    259,239
                    
                    
                    
                    100.0
                    %
                    
                    
                    218,734
                    
                    
                    
                    100.0
                    %
                    
                    
                    152,930
                    
                    
                    
                    100.0
                    %Net
      deferred loan costs
                    
                    
                    (67
                    )
                    
                    
                    
                    
                    
                    
                    252
                    
                    
                    
                    
                    
                    
                    
                    63
                    
                    
                    
                    
                    
                    
                    
                    ---
                    
                    
                    
                    
                    
                    
                    
                    ---Allowance for loan losses
                    
                    
                    (1,192
                    )
                    
                    
                    
                    
                    
                    
                    (926
                    )
                    
                    
                    
                    
                    
                    
                    (835
                    )
                    
                    
                    
                    
                    
                    
                    (803
                    )
                    
                    
                    
                    
                    
                    
                    (554
                    )Total loans receivable, net
                    
                    $
                    368,518
                    
                    
                    
                    
                    
                    
                    $
                    320,027
                    
                    
                    
                    
                    
                    
                    $
                    258,467
                    
                    
                    
                    
                    
                    
                    $
                    217,931
                    
                    
                    
                    
                    
                    
                    $
                    152,376


__________________


(1)
            Includes
      $162.5 million in 2008, $144.5 million in 2007, $122.2 million in 2006,
      $102.9 million in 2005 and $81.6 million in 2004 of loans with a
      payable-on-demand clause.








6


The
following schedule illustrates the contractual maturity of Citizen Community
Federal's loan portfolio at September 30, 2008.  Mortgages which have
adjustable or renegotiable interest rates are shown as maturing in the period
during which the contract is due.  The schedule does not reflect the
effects of possible prepayments or enforcement of payable-on-demand
clauses.




Real
      Estate
            
            ConsumerOne-
      to Four- Family
              First
      Mortgage(1)
            
            Second
      Mortgage
            
            Multi-Family
      and
              Commercial
            
            Automobile
            
            Secured
      Personal
            
            Unsecured
      Personal
            
            TotalAmount
            
            Weighted
              Average
              Rate
            
            Amount
            
            Weighted
              Average
              Rate
            
            Amount
            
            Weighted
              Average
              Rate
            
            Amount
            
            Weighted
              Average
              Rate
            
            Amount
            
            Weighted
              Average
              Rate
            
            Amount
            
            Weighted
              Average
              Rate
            
            Amount
            
            Weighted
              Average
              Rate2009(2)
            $       107
            
            6.67%
            
            $     770
            
            7.57%
            
            $180
            
            7.12%
            
            $     918
            
            9.10%
            
            $    2,275
            
            7.11%
            
            $2,863
            
            14.14%
            
            $    7,113
            
            10.24%2010
            225
            
            2.83
            
            885
            
            7.94
            
            ---
            
            ---
            
            2,930
            
            9.12
            
            2,638
            
            8.61
            
            658
            
            10.42
            
            7,336
            
            8.722011
            185
            
            6.61
            
            1,156
            
            8.75
            
            ---
            
            ---
            
            6,285
            
            9.46
            
            6,359
            
            8.59
            
            651
            
            10.75
            
            14,636
            
            9.052012-2013
            1,438
            
            5.22
            
            2,681
            
            8.76
            
            ---
            
            ---
            
            13,576
            
            8.98
            
            21,487
            
            8.62
            
            1,549
            
            10.14
            
            40,731
            
            8.692014-2015
            2,514
            
            5.84
            
            1,668
            
            8.84
            
            ---
            
            ---
            
            1,092
            
            8.03
            
            16,356
            
            7.84
            
            17
            
            7.00
            
            21,647
            
            7.692016-2030
            54,140
            
            6.13
            
            3,354
            
            8.38
            
            ---
            
            ---
            
            1,086
            
            8.16
            
            84,026
            
            7.96
            
            59
            
            4.80
            
            142,665
            
            7.282031
      and
              after
            135,349
            
            6.41
            
            260
            
            5.99
            
            ---
            
            ---
            
            ---
            
            ---
            
            40
            
            7.57
            
            ---
            
            ---
            
            135,649
            
            6.41$193,958
            
            6.32%
            
            $10,774
            
            8.43%
            
            $180
            
            7.12%
            
            $25,887
            
            9.04%
            
            $133,181
            
            8.08%
            
            $5,797
            
            12.15%
            
            $369,777
            
            7.29%


_______________


(1)
            Includes
      $162.5 million of loans with a payable-on-demand
clause.(2)
            Includes
      home equity lines of credit, credit card loans, loans having no stated
      maturity and overdraft loans.





The total
amount of loans due after September 30, 2008, which have predetermined interest
rates is $364.7 million, while the total amount of loans due after such date
which have floating or adjustable interest rates is $5.1 million.










7


First Mortgage
Lending.  Citizens Community Federal focuses its lending
efforts primarily on the origination of loans secured by first mortgages on
owner-occupied, one- to four-family residences in our market area.  At
September 30, 2008, one- to four-family residential mortgage loans totaled
$194.0 million, or 52.5% of the gross loan portfolio.




Citizens
Community Federal generally underwrites its one- to four-family loans based on
the applicant's employment and credit history, their debt to income ratio and
the appraised value of the subject property.  Presently, Citizens
Community Federal generally lends up to 80% of the appraised value for one- to
four-family residential loans and up to 70% for non-owner occupied residential
loans.  For loans used to purchase the property with a loan-to-value
ratio in excess of 80%, Citizens Community Federal requires private mortgage
insurance in order to reduce our exposure below 80%.  Properties
securing one- to four-family loans are appraised by independent fee appraisers
approved by the board of directors to the extent the loan exceeds
$50,000.  In-house appraisals, prepared by persons other than the
originating loan officer, may be used for loans of less than $50,000, or loans
of less than $100,000 if the loan-to-value ratio is less than
50%.  Citizens Community Federal requires its borrowers to obtain
evidence of clear title and hazard insurance, and flood insurance, if
necessary.




Citizens
Community Federal currently originates most of its one- to four-family mortgage
loans on a fixed-rate basis.  Citizens Community Federal's pricing
strategy for mortgage loans includes setting interest rates that benefit our
asset/liability management strategies.  Our one- to four-family loans
are not assumable.




Most
mortgage loans include a payable-on-demand clause, which allows the loan to be
called at any time after the demand date.  Citizens Community Federal
has had no reason to utilize the clause over the past several years, because
rates have been historically low during this period.  May 2000 was the
last and only time the clause was utilized.  At that time, 13 loans,
totaling $541,442, were called.  It is Citizens Community Federal's
policy to write the majority of its real estate loans with a payable-on-demand
clause.  The intent of the clause is to give Citizens Community
Federal some ability to protect against sharp and prolonged interest rate
increases and their impact on net interest margin.  The clause is not
intended for responding to temporary interest rate fluctuations.  The
following factors are considered in determining whether and when to utilize the
clause: (1) a significant, prolonged increase in market rates of interest; (2)
the liquidity needs of Citizens Community Federal; (3) Citizens Community
Federal's desire to restructure its balance sheet; and (4) an unsatisfactory
payment history, including delinquent real estate taxes.  Other
factors considered include the remaining term of the loan (i.e., a shorter
remaining term could justify not calling a loan with the same rate as a loan
with a longer remaining term), other lending relationships, payment history and
the equity position of the borrower.  When Citizens Community Federal
determines to utilize the clause, we call loans with the lowest interest rates
first.




The
following trigger guidelines are used to determine whether to utilize the
payable-on-demand clause:  (1) when rates available for six-month
investment certificates of deposit exceed the rate on loans eligible to be
called under the payable-on-demand clause by more than 75 basis points; or (2)
when local market rates of interest for real estate loans exceed the rate on
existing loans with the payable-on-demand clause by 150 basis
points.  If either of these triggers are reached, management has 12
months to utilize the clause and call loans, if management determines that doing
so would be in the overall best interests of Citizens Community
Federal.  The existence of the payable-on-demand clauses is not
considered as a factor in determining our accounting policies for loan
origination fees and costs, because we have only used the clause once in May
2000 with respect to 13 loans.




The
demand date is set based on the loan-to-value ratio and other underwriting
criteria, and is usually two to five years from the date of
origination.  During the fiscal year ended September 30, 2008,
Citizens Community Federal originated $43.7 million of one- to four-family loans
that included the payable-on-demand clause.  Fixed-rate loans secured
by one- to four-family residences have contractual maturities of up to 30 years,
and are generally fully amortizing, with payments due monthly.




The
Company's mortgage banking operation had minimal activity in 2008.




Second Mortgage
Lending.  Citizens Community Federal also offers second
mortgage loans and home equity lines of credit.  Home equity lines of
credit totaled $401,000 and comprised 0.01% of the gross loan portfolio at
September 30, 2008.These loans may be
originated in amounts, together with the amount of the existing first mortgage,
of up to 80% of the value of the property securing the loan.  A loan
may go over 80% of the value of the property securing the loan if Citizens
Community Federal holds the first mortgage.  Home equity lines of
credit are originated with an adjustable rate of interest, based on the prime
rate of interest plus a margin, fixed for the first year and adjustable monthly
thereafter.  Home equity lines of credit have up to a 10-year draw
period and require the




8


payment
of 1.5% of the outstanding loan balance per month during the draw period, which
amount may be re-borrowed at any time during the draw period.  Once
the draw period has lapsed, the payment is fixed based on the loan balance at
that time.  At September 30, 2008, un-funded commitments on these
lines of credit totaled $660,000.




Citizens
Community Federal also offers second mortgage loans with a fixed rate of
interest.  These loans may be amortized up to 15 years with a balloon
payment at three, five or 10 years.  At September 30, 2008, fixed-rate
second mortgage loans totaled $10.4 million, or 2.8% of the gross loan
portfolio.




Consumer
Lending.  At September 30, 2008, consumer and other loans
totaled $164.9 million, or 44.6% of the gross loan
portfolio.  Citizens Community Federal offers a variety of secured
consumer loans, including new and used auto, motorcycle, boat and recreational
vehicle loans, loans secured by savings deposits, and a limited amount of
unsecured loans.  Citizens Community Federal originates consumer and
other loans primarily in its market areas.  For fiscal 2008, consumer
lending increased as a result of a strong loan demand throughout our growing
branch system.




Citizens
Community Federal originates secured loans on an indirect basis through its
indirect dealer program.  These secured consumer loans consist of
loans for a wide variety of products, including motorcycles, recreational
vehicles, pianos, all-terrain vehicles, pools and spas.  An indirect
dealer network is currently comprised of 859 active dealerswith businesses located
throughout Citizens Community Federal's market area.  In some
instances, the participating dealer may receive a premium rate for the amount
over our initial interest rate.  The loans are generally originated
with terms from 36 to 60 months and carry fixed rates of
interest.  Citizens Community Federal follows its internal
underwriting guidelines in evaluating loans obtained through the indirect dealer
program, including using credit scoring to approve loans.




Auto
loans totaled $25.9 million at September 30, 2008, or 7.0% of gross
loans.  Auto loans may be written for up to five years for a new car
and four years for a used car with fixed rates of
interest.  Loan-to-value ratios are up to 100% of the sales price for
new autos and 100% of the retail value on used autos, based on a valuation from
official used car guides.  In addition, Citizens Community Federal
may, on occasion, originate secured auto loans in excess of 100% loan-to-value
ratio based upon the credit quality of the borrower.  Auto loans also
may be originated through Citizens Community Federal's indirect lending
program.  Indirect auto loans are made using the same underwriting
guidelines as auto loans originated directly by Citizens Community
Federal.




Citizens
Community Federal originates secured direct loans on a variety of collateral
with terms varying from 36 to 60 months.  At September 30, 2008,
Citizens Community Federal had secured direct consumer loans totaling $37.1
million, of which $18.3 million was for automobiles.  At September 30,
2008, the indirect lending portfolio totaled $122 million, of which $7.6 million
was for automobiles.




Citizens
Community Federal also originates unsecured consumer loans consisting primarily
of credit card loans totaling $1.4 million at September 30, 2008, overdraft
protection loans totaling $910,000 at September 30, 2008, and loans made through
the Freedom Loan program.  The Freedom Loan program offers unsecured
loans to consumers with a fixed rate of interest for a maximum term of 48 months
for amounts not to exceed $20,000 per individual.  At September 30,
2008, loans originated through the Freedom Loan program totaled $4.1
million.




Consumer
loans generally have shorter terms to maturity, which reduces Citizens Community
Federal's exposure to changes in interest rates, and carry higher rates of
interest than do one- to four-family residential mortgage loans.  In
addition, management believes that offering consumer loan products helps to
expand and create stronger ties to our existing customer base by increasing the
number of customer relationships and providing cross-marketing
opportunities.




Consumer
and other loans may entail greater risk than do one- to four-family residential
mortgage loans, particularly in the case of consumer loans which are secured by
rapidly depreciable assets, such as automobiles and recreational
vehicles.  In these cases, any repossessed collateral for a defaulted
loan may not provide an adequate source of repayment of the outstanding loan
balance.  As a result, consumer loan collections are dependent on the
borrower's continuing financial stability and, thus, are more likely to be
adversely affected by job loss, divorce, illness or personal
bankruptcy.




Multi-family and Commercial Real
Estate Lending.  We generally do not engage in this type of
lending, but may consider doing so in the future.  However, as part of
the acquisition of the Chippewa Falls branch on November 1, 2002, Citizens
Community Federal obtained a nominal amount of multi-family and commercial real
estate loans.




9


At
September 30, 2008, our two multi-family and commercial real estate loans
totaled $180,000, or 0.01% of our loan portfolio.  In order to monitor
the adequacy of cash flows on these loans, the borrower is requested or required
to provide periodic financial information.




Loan
Originations and Repayments




Citizens
Community Federal originates loans through marketing efforts and our existing
and walk-in customers.  The ability to originate loans is dependent
upon customer demand for loans in Citizens Community Federal's market
areas.  Demand is affected by competition and the interest rate
environment.  Since becoming a savings bank, Citizens Community
Federal has significantly increased its origination of residential real estate
loans.  During the past few years, Citizens Community Federal, like
many other financial institutions, has experienced significant refinancing on
loans due to the low interest rate environment prevailing in the United
States.  In periods of economic uncertainty, the ability of financial
institutions, including Citizens Community Federal, to originate or purchase
large dollar volumes of real estate loans may be substantially reduced or
restricted, with a resultant decrease in interest income. Citizens Community
Federal does not engage in, nor have any exposure to, subprime or construction
lending.




The
following table shows the loan origination, purchase, sale and repayment
activities of Citizens Community Federal for the periods indicated.




Year
      ended September 30,2008
            
            2007
            
            2006(In
      thousands)Originations
      by Type:Real
      estate(1)
            $55,499
            
            $  41,701
            
            $  48,280Non-real
      estate-consumer
            90,143
            
            91,447
            
            70,286Total
      loans originated
            145,642
            
            133,148
            
            118,566Loans
      obtained through merger
            ---
            
            ---
            
            ---Repayments:Principal
      repayments
            96,251
            
            71,512
            
            77,564Loans
      transferred to otherreal
      estate/collateral
            315
            
            174
            
            434Net
      increase(decrease)
            $49,076
            
            $61,462
            
            $  40,568


______________


(1)
            Real
      estate loans include loans with a payable-on-demand feature of $43.7
      million in fiscal 2008, $32.1 million in fiscal 2007, and $42.3 million in
      fiscal 2006.  Real estate loans also include home equity lines
      of credit of $129,000 for fiscal 2008, $349,000 for fiscal 2007 and
      $125,000 for fiscal 2006.





Asset
Quality




Procedures.  When a
borrower fails to make a payment on a mortgage loan on or before the due date, a
late notice is mailed five days after the due date.  When the loan is
10 days past due, a loan officer will begin contacting the borrower by
phone.  This process will continue until satisfactory payment
arrangements have been made.  If the loan becomes two payments and ten
days past due, a notice of right-to-cure default is sent.  If the loan
becomes over 90 days delinquent, a drive-by inspection is done while further
attempts to contact the borrower by phone are made.  After the loan is
120 days past due, and acceptable arrangements have not been made, Citizens
Community Federal will generally refer the loan to legal counsel, with
instructions to prepare a notice of intent to foreclose.  This notice
allows the borrower up to 30 days to bring the loan current.  During
this 30-day period, Citizens Community Federal will still attempt to contact the
borrower to implement satisfactory payment arrangements.  If the loan
becomes 150 days past due and satisfactory arrangements have not been made,
foreclosure will be instituted.




For
consumer loans a similar process is followed, with the initial written contact
being made once the loan is five days past due.  Follow-up contacts
are generally on an accelerated basis compared to the mortgage loan
procedure.




Citizens
Community Federal divides its loans into two categories, mortgage loans and
non-mortgage loans.  For all loans in both categories, Citizens
Community Federal employs a dual-loss reserve strategy.  First, using
a running five-year history, all loans, excluding classified loans, are assigned
an inherent loss reserve.  Next, each loan (mortgage and non-mortgage)
that becomes over 61 days delinquent is reviewed by senior
management.  In




10


addition,
Citizens Community Federal assesses several factors including negative change in
income, negative change in collateral, negative change in employment and other
characteristics.




The
procedure for charging off consumer loans does not differentiate between the
different types of consumer loans.  Citizens Community Federal's loan
underwriting is based mainly on the borrowers' ability to pay, along with the
value of the collateral.  All closed-end consumer loans are either
charged off or recognized as a specific loss after they become delinquent 120
days.  All open-end consumer loans are charged off or recognized as a
specific loss after they become delinquent 180 days.  Consumer loans
with collateral are charged off or recognized as a specific loss down to
collateral resale value less 10 percent if repossession of collateral is
assured.




In lieu
of charging off the entire balance, loans with non-real estate collateral may be
written down to the value of the collateral, if repossession is assured and in
process.  For open-end and closed-end loans secured by real estate, a
current assessment of value will be made no later than 180 days past
due.  Any outstanding loan balance in excess of the value of the
property, less selling costs, is charged off.




Delinquent
Loans.  The following table sets forth our loan delinquencies
by type, number and amount at September 30, 2008.




Loans
      Delinquent For:60-89
      Days
            
            90
      Days and Over
            
            Total
      Delinquent LoansNumber
            
            Amount
            
            Number
            
            Amount
            
            Number
            
            Amount(Dollars
      in thousands)Real
      estate
            ---
            
            $  
      ---
            
            10
            
            $1,067
            
            10
            
            $1,067Consumer(1)
            152
            
            687
            
            343
            
            2,188
            
            495
            
            2,875Total
            152
            
            $687
            
            353
            
            $3,255
            
            505
            
            $3,942


__________


(1)           Includes
credit card accounts.





Non-performing
Assets.  The table below sets forth the amounts and categories
of non-performing assets in our loan portfolio.  Loans are placed on
non-accrual status when the loan becomes more than 90 days
delinquent.  At all dates presented, we had no troubled debt
restructurings which involve forgiving a portion of interest or principal on any
loans or making loans at a rate materially less than that of market
rates.  Foreclosed assets owned include assets acquired in settlement
of loans.




At
      September 30,2008
            
            2007
            
            2006
            
            2005
            
            2004(Dollars
      in thousands)Non-Accruing
      Loans:One-
      to
      four-family
            $1,067
            
            $   297
            
            $  406
            
            $207
            
            $300Consumer(1)
            2,188
            
            1,223
            
            984
            
            462
            
            397Total
            3,255
            
            1,520
            
            1,390
            
            669
            
            697Foreclosed
      Assets:One-
      to
      four-family
            ---
            
            94
            
            376
            
            ---
            
            ---Consumer
            ---
            
            29
            
            13
            
            32
            
            ---Total
            ---
            
            123
            
            389
            
            32
            
            ---Total
      non-performing
      assets
            $3,255
            
            $1,643
            
            $1,779
            
            $701
            
            $697Total
      as a percentage of total assets
            0.68%
            
            0.43%
            
            0.63%
            
            0.29%
            
            0.43%


___________


(1)
            Includes
      credit card accounts.





For the
years ended September 30, 2008, 2007 and 2006, gross interest income, which
would have been recorded had the non-accruing loans been current in accordance
with their original terms, amounted to $187,000, $101,900 and $52,400,
respectively.  No amount was included in interest income on these
loans for these periods.




11


Other Loans of
Concern.  In addition to the non-performing assets set forth in
the table above, as of September 30, 2008, there was also an aggregate of
$699,000 of loans with respect to which known information about the possible
credit problems of the borrowers have caused management to have doubts as to the
ability of the borrowers to comply with present loan repayment terms and which
may result in the future inclusion of such items in the non-performing asset
categories.  These loans are not considered "classified" due to their
delinquency status; however, they are identified as "watch"
loans.  They are not reserved for in the allowance for loan losses
other than as part of the inherent portion.  These loans have been
considered in management's determination of the adequacy of our allowance for
loan losses.




Classified
Assets.  OTS regulations provide for the classification of
loans and other assets, such as debt and equity securities considered to be of
lesser quality, as "substandard," "doubtful" or "loss."  An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if
any.  "Substandard" assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss" if
the deficiencies are not corrected.  Assets classified as "doubtful"
have all of the weaknesses inherent in those classified "substandard," with the
added characteristic that the weaknesses present make "collection or liquidation
in full," on the basis of currently existing facts, conditions, and values,
"highly questionable and improbable."  Assets classified as "loss" are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not
warranted.




When we
classify problem assets as either substandard or doubtful, we may establish
general allowances for loan losses in an amount deemed prudent by management and
approved by the board of directors.  General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets.  When we classify problem
assets as "loss," we are required either to establish a specific allowance for
losses equal to 100% of that portion of the asset so classified or to charge off
such amount.  Our determination as to the classification of our assets
and the amount of its valuation allowances is subject to review by the OTS and
the FDIC, which may order the establishment of additional general or specific
loss allowances.




In
connection with the filing of our periodic reports with the OTS and in
accordance with our classification of assets policy, we regularly review the
problem assets in our portfolio to determine whether any assets require
classification in accordance with applicable regulations.  On the
basis of management's review of our assets, at September 30, 2008, Citizens
Community Federal had classified $2.1 million of the loans in its portfolio as
substandard, all of which was included in non-performing assets.  The
total amount classified represented 4.82% of CCB's equity capital and 0.68% of
assets at September 30, 2008.  The percentage of substandard loans is
below comparable industry peers.




Provision for Loan
Losses.  Citizens Community Federal recorded a provision for
loan losses for the year ended September 30, 2008, of $721,000, compared to
$470,000 for the year ended September 30, 2007, and $251,000 for the year ended
September 30, 2006.  The provision for loan losses is charged to
income to bring the allowance for loan losses to reflect probable incurred
losses based on the factors discussed below under "Allowance for Loan
Losses."  The provision for loan losses for the year ended September
30, 2008, was based on management's review of such factors which indicated that
the allowance for loan losses reflected probable incurred losses in the loan
portfolio as of the year ended September 30, 2008.




Allowance for Loan
Losses.  Citizens Community Federal maintains an allowance for
loan losses to absorb probable incurred losses in the loan
portfolio.  The allowance is based on ongoing, quarterly assessments
of the estimated probable incurred 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.




At
September 30, 2008, the allowance for loan losses was $1.2 million, or 0.32%, of
the total loan portfolio. Assessing the allowance for loan losses is inherently
subjective as it requires making material estimates, including the amount and
timing of future cash flows expected to be received on impaired loans, that may
be susceptible to significant change.  In the opinion of management,
the allowance, when taken as a whole, reflects estimated probable loan losses in
our loan portfolios.




12


The
following table sets forth an analysis of our allowance for loan
losses.




Year
      Ended September 30,2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004(Dollars
      in Thousands)Balance at beginning of period
              
              $
              926
              
              
              $
              835
              
              
              $
              803
              
              
              $
              554
              
              
              $
              467Charge-offs:One- to four-family
              
              
              (44
              )
              
              
              (83
              )
              
              
              (19
              )
              
              
              (24
              )
              
              
              ---Consumer
              
              
              (448
              )
              
              
              (330
              )
              
              
              (228
              )
              
              
              (212
              )
              
              
              (342
              )Total charge-offs
              
              
              (492
              )
              
              
              (413
              )
              
              
              (247
              )
              
              
              (236
              )
              
              
              (342
              )Recoveries:Consumer
              
              
              37
              
              
              
              34
              
              
              
              28
              
              
              
              31
              
              
              
              33Total recoveries
              
              
              37
              
              
              
              34
              
              
              
              28
              
              
              
              31
              
              
              
              33Net charge-offs
              
              
              (455
              )
              
              
              (379
              )
              
              
              (219
              )
              
              
              (205
              )
              
              
              (309
              )Other-obtained through merger
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              40
              
              
              
              ---Additions charged to operations
              
              
              721
              
              
              
              470
              
              
              
              251
              
              
              
              414
              
              
              
              396Balance at end of period
              
              $
              1,192
              
              
              $
              926
              
              
              $
              835
              
              
              $
              803
              
              
              $
              554Ratio
      of allowance for loan losses to
                net
      loans outstanding at
                end
      of
      period
              
              
              0.32
              %
              
              
              0.29
              %
              
              
              0.32
              %
              
              
              0.37
              %
              
              
              0.36
              %Ratio
      of net charge-offs during the
                period
      to average gross loans outstanding
                during
      the
      period
              
              
              0.13
              %
              
              
              0.13
              %
              
              
              0.08
              %
              
              
              0.12
              %
              
              
              0.22
              %Ratio
      of net charge-offs during the
                period
      to average non-performing
                assets
              
              
              18.58
              %
              
              
              22.15
              %
              
              
              17.66
              %
              
              
              28.37
              %
              
              
              49.05
              %





13


The
distribution of our allowance for losses on loans at the dates indicated is
summarized as follows:




At
      September 30,2008
              
              
              2007
              
              
              2006Amount
      of
                Loan
      Loss
                Allowance
              
              
              Loan
                Amounts
      by
                Category
              
              
              Percent
      of
                Loans
      in Each
                Category
      to
                Total
      Loans
              
              
              Amount
      of
                Loan
      Loss
                Allowance
              
              
              Loan
                Amounts
      by
                Category
              
              
              Percent
      of
                Loans
      in Each
                Category
      to
                Total
      Loans
              
              
              Amount
      of
                Loan
      Loss
                Allowance
              
              
              Loan
                Amounts
      by
                Category
              
              
              Percent
      of
                Loans
      in Each
                Category
      to
                Total
      Loans(Dollars in Thousands)Real estate
              
              $
              184
              
              
              $
              204,912
              
              
              
              55
              %
              
              $
              64
              
              
              $
              187,957
              
              
              
              59
              %
              
              $
              52
              
              
              $
              165,636
              
              
              
              64
              %Consumer
              
              
              1,008
              
              
              
              164,865
              
              
              
              45
              
              
              
              862
              
              
              
              132,744
              
              
              
              41
              
              
              
              783
              
              
              
              93,603
              
              
              
              36Unallocated
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---Total
              
              $
              1,192
              
              
              $
              369,777
              
              
              
              100
              %
              
              $
              926
              
              
              $
              320,701
              
              
              
              100
              %
              
              $
              835
              
              
              $
              259,239
              
              
              
              100
              %








At
      September 30,2005
                
                
                2004Amount
      of
                  Loan
      Loss
                  Allowance
                
                
                Loan
                  Amounts
      by
                  Category
                
                
                Percent
      of
                  Loans
      in Each
                  Category
      to
                  Total
      Loans
                
                
                Amount
      of
                  Loan
      Loss
                  Allowance
                
                
                Loan
                  Amounts
      by
                  Category
                
                
                Percent
      of
                  Loans
      in Each
                  Category
      to
                  Total
      Loans(Dollars in Thousands)Real estate
                
                $
                59
                
                
                $
                144,551
                
                
                
                66
                %
                
                $
                61
                
                
                $
                95,560
                
                
                
                62
                %Consumer
                
                
                744
                
                
                
                74,183
                
                
                
                34
                
                
                
                490
                
                
                
                57,370
                
                
                
                38Unallocated
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                3
                
                
                
                ---
                
                
                
                ---Total
                
                $
                803
                
                
                $
                218,734
                
                
                
                100
                %
                
                $
                554
                
                
                $
                152,930
                
                
                
                100
                %








14


Investment
Activities




Federally chartered
savings institutions have the authority to invest in various types of liquid
assets, including United States Treasury obligations, securities of various
federal agencies, including callable agency securities, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds.  Subject to various
restrictions, federally chartered savings institutions may also invest their
assets in investment grade commercial paper and corporate debt securities, and
mutual funds whose assets conform to the investments that a federally chartered
savings institution is otherwise authorized to make directly.




The chief
financial officer has the basic responsibility for the management of our
investment portfolio, subject to the direction and guidance of the ALM
Committee.  The chief financial officer considers various factors when
making decisions, including the marketability, maturity and tax consequences of
the proposed investment.  The maturity structure of investments will
be affected by various market conditions, including the current and anticipated
slope of the yield curve, the level of interest rates, the trend of new deposit
inflows, and the anticipated demand for funds via deposit withdrawals and loan
originations and purchases.




The
general objectives of our investment portfolio are to provide liquidity when
loan demand is high, to assist in maintaining earnings when loan demand is low
and to maximize earnings while satisfactorily managing risk, including credit
risk, reinvestment risk, liquidity risk and interest rate risk.




In fiscal
2008, we utilized our expertise as a mortgage loan originator, selectively
purchasing non-agency mortgage-backed securities ("MBS") that either met or
exceeded our underwriting guidelines.  This strategy
was  employed to complement consumer loan
underwriting.  Strong loan demand in consumer lending required
management of the structure of the balance sheet and compliance with the 35%
consumer lending bucket cap.  Management chose to increase the asset
base by purchasing AAA-rated MBSs funded by FHLB advances.  This
allowed the Bank to continue making consumer loans.




At the
time of purchase, the securities were AAA-rated Jumbo Prime MBS, with an average
loan-to-value ratio of 68.98% and an average FICO score of 741.  We
stayed within the Jumbo Prime sector, purchasing no Sub-Prime or Alt-A MBS to
date.  Furthermore, while the bank has purchased hybrid ARM
securities, we have refrained from purchasing any negative-amortization loans or
option ARMs.  Finally, the MBS portfolio consists only of those assets
that are Secondary Mortgage Enhancement Act of 1984 ("SMMEA") eligible, meaning
that the MBS purchased are in one of the two highest rating categories and are
first-lien mortgages only.




Although
the Bank has maintained this conservative approach to investing in non-agency
MBS, it has not been immune to the turmoil of 2008.  A portion of the
portfolio has recently seen downgrades from one or more rating agencies,
primarily in securities created in 2006 and 2007.  The securities
referenced have not realized any credit losses to date, and continue to pay
principal and interest as scheduled.  Citizens Community Federal
continually monitors these bonds, the entire portfolio and the state of the
overall market.




The
following table sets forth the composition of Citizens Community Federal's
investment securities and interest-bearing deposits at the dates
indicated.




At
      September 30,2008
                        
                        2007
                        
                        2006Book
                          Value
                        
                        % of
      Total
                        
                        Book
                          Value
                        
                        % of
      Total
                        
                        Book
                          Value
                        
                        % of
      Total(Dollars
      in Thousands)Investment
      securities:Federal
      Home Loan Bank stock
                        $5,787
                        
                        8.52%
                        
                        $4,822
                        
                        10.77%
                        
                        $3,060
                        
                        63.74%Interest-bearing
      deposits with banks
                        371
                        
                        0.55
                        
                        371
                        
                        0.83
                        
                        959
                        
                        19.97Mortgage-backed
      securities
                        61,776
                        
                        90.93
                        
                        39,592
                        
                        88.40
                        
                        782
                        
                        16.29$67,934
                        
                        100.00%
                        
                        $44,785
                        
                        100.00%
                        
                        $4,801
                        
                        100.00%





15


Sources
of Funds




General.  Citizens
Community Federal's sources of funds are deposits, borrowings, payment of
principal and interest on loans, interest earned on or maturation of other
investment securities and funds provided from operations.




Deposits.  Citizens
Community Federal offers a variety of deposit accounts to both consumers and
businesses having a wide range of interest rates and terms.  Deposits
consist of savings accounts, money market deposit accounts, demand accounts and
certificates of deposit.  Citizens Community Federal solicits deposits
primarily in its market areas, including its Wal-Mart in-store branches, and
from financial institutions and has accepted a limited amount of brokered
deposits.  At September 30, 2008, Citizens Community Federal had $18.3
million of brokered deposits.  We obtain these deposits from brokers
when the rates requested are less than the amount we pay our retail
customers.  The typical term for these brokered deposits are 12 to 18
months.  Our experience is that these are not volatile deposits
subject to significant early withdrawal.  Citizens Community Federal
primarily relies on competitive pricing policies, marketing and customer service
to attract and retain these deposits.  Citizens Community Federal from
time to time participates in an auction for brokered deposits to assist in
finding the lowest cost deposits possible.  Citizens Community Federal
constantly searches for the most cost-effective source of funds, either through
brokered deposits, or through marketing our own rates to protect our margin and
maintain our sales culture.




The flow
of deposits is influenced significantly by general economic conditions, changes
in money market and prevailing interest rates and competition.  The
variety of deposit accounts we offer has allowed us to be competitive in
obtaining funds and to respond with flexibility to changes in consumer
demand.  We have become more susceptible to short-term fluctuations in
deposit flows, as customers have become more interest rate
conscious.  We try to manage the pricing of our deposits in keeping
with our asset/liability management, liquidity and profitability objectives,
subject to competitive factors.  Based on experience, management
believes that Citizens Community Federal's deposits are relatively stable
sources of funds.  Despite this stability, the ability to attract and
maintain these deposits and the rates paid on them has been and will continue to
be significantly affected by market conditions.




Deposit
Flow




The
following table sets forth deposit flows during the periods
indicated.




Year
      Ended September 30,2008
              
              2007
              
              2006(Dollars
      in Thousands)Opening
      balance
              $207,734
              
              $186,711
              
              $177,469Deposits
      assumed in ANB branch
                acquisition
              18,406
              
              ---
              
              ---Net
      change in deposits
              61,965
              
              14,029
              
              4,060Interest
      credited
              9,138
              
              6,994
              
              5,182Ending
      balance
              $297,243
              
              $207,734
              
              $186,711Net
      increase
              $  89,509
              
              $  21,023
              
              $   9,242Percent
      increase
              43.1%
              
              11.3%
              
              5.2%





16


The
following table sets forth the dollar amount of savings deposits in the various
types of deposit programs we offered at the dates indicated.




At
      September 30,2008
              
              
              2007
              
              
              2006Amount
              
              
              Percent
                of
      Total
              
              
              Amount
              
              
              Percent
                of
      Total
              
              
              Amount
              
              
              Percent
                of
      Total(Dollars
      in Thousands)Transaction Accounts
                and Savings Deposits:Demand accounts
              
              $
              19,017
              
              
              
              6.40
              %
              
              $
              18,657
              
              
              
              8.98
              %
              
              $
              18,669
              
              
              
              10.00
              %Savings accounts
              
              
              22,267
              
              
              
              7.49
              
              
              
              22,855
              
              
              
              13.06
              
              
              
              24,975
              
              
              
              13.38Money market accounts
              
              
              44,777
              
              
              
              15.06
              
              
              
              27,121
              
              
              
              11.00
              
              
              
              22,262
              
              
              
              11.92Total non-certificates
              
              
              86,061
              
              
              
              28.95
              
              
              
              68,633
              
              
              
              33.04
              
              
              
              65,906
              
              
              
              35.30Certificates:6-12
      month
              
              
              67,481
              
              
              
              22.70
              
              
              
              53,868
              
              
              
              25.93
              
              
              
              26,413
              
              
              
              14.1415-18
      month
              
              
              52,504
              
              
              
              17.67
              
              
              
              30,055
              
              
              
              14.47
              
              
              
              44,715
              
              
              
              23.9524-60
      month
              
              
              21,908
              
              
              
              7.37
              
              
              
              18,744
              
              
              
              9.02
              
              
              
              25,313
              
              
              
              13.56Anniversary
              
              
              265
              
              
              
              0.09
              
              
              
              170
              
              
              
              0.08
              
              
              
              463
              
              
              
              0.25Institutional
              
              
              56,738
              
              
              
              19.09
              
              
              
              26,378
              
              
              
              12.70
              
              
              
              14,796
              
              
              
              7.92Borrowers
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---IRA
              
              
              12,286
              
              
              
              4.13
              
              
              
              9,886
              
              
              
              4.76
              
              
              
              9,105
              
              
              
              4.88Total certificates
              
              
              211,182
              
              
              
              71.05
              
              
              
              139,101
              
              
              
              66.96
              
              
              
              120,805
              
              
              
              64.70Total Deposits
              
              $
              297,243
              
              
              
              100.00
              %
              
              $
              207,734
              
              
              
              100.00
              %
              
              $
              186,711
              
              
              
              100.00
              %





The
following table shows rate and maturity information for Citizens Community
Federal's certificates of deposit at September 30, 2008.




0.00-
                  1.99%
                
                
                
                2.00-
                  3.99%
                
                
                
                4.00
                  5.99%
                
                
                Total
                
                
                
                Percent
                  of
      Total(Dollars
      in Thousands)Certificate Accounts Maturing
                  During
      the 12 Months Ended:September
      30, 2009
                
                $
                377
                
                
                $
                87,300
                
                
                $
                97,439
                
                
                $
                185,116
                
                
                
                
                87.66
                %September
      30, 2010
                
                
                ---
                
                
                
                11,383
                
                
                
                6,761
                
                
                
                18,144
                
                
                
                
                8.59September
      30, 2011
                
                
                9
                
                
                
                619
                
                
                
                3,391
                
                
                
                4,019
                
                
                
                
                1.90September
      30, 2012
                
                
                ---
                
                
                
                1,493
                
                
                
                2,403
                
                
                
                3,896
                
                
                
                
                1.84Thereafter
                
                
                ---
                
                
                
                7
                
                
                
                ---
                
                
                
                7
                
                
                
                
                0.01Total
                
                $
                386
                
                
                $
                100,802
                
                
                $
                109,994
                
                
                $
                211,182
                
                
                
                
                100.00
                %Percent of total
                
                
                0.18
                %
                
                
                47.73
                %
                
                
                52.09
                %
                
                
                100.00
                %








17


The
following table indicates the amount of Citizens Community Federal's
certificates of deposit by time remaining until maturity as of September 30,
2008.




3
      Months
                or
      Less
              
              
              Over
      3 to
                6
      Months
              
              
              Over
      6 to
                12
      Months
              
              
              Over
                12
      Months
              
              
              Total(In
      thousands)Certificates
      of depositless
      than $100,000
              
              $
              30,280
              
              
              $
              42,029
              
              
              $
              65,798
              
              
              $
              19,695
              
              
              $
              157,802Certificates
      of depositof
      $100,000 or more
              
              
              8,796
              
              
              
              14,845
              
              
              
              23,368
              
              
              
              6,371
              
              
              
              53,380Total
      certificates of deposit
              
              $
              39,076
              
              
              $
              56,874
              
              
              $
              89,166
              
              
              $
              26,066
              
              
              $
              211,182





Borrowings.  Although
deposits are our primary source of funds, Citizens Community Federal may utilize
borrowings when they are a less costly source of funds and can be invested at a
positive interest rate spread, when it desires additional capacity to fund loan
demand or when they meet asset/liability management goals.  Borrowings
consist of advances from the Federal Home Loan Bank of Chicago.  See
Note 11 of the Notes to Consolidated Financial Statements.




Citizens
Community Federal may obtain advances from the Federal Home Loan Bank of Chicago
upon the security of certain of our mortgage loans and mortgage-backed and other
securities.  These advances may be made pursuant to several different
credit programs, each of which has its own interest rate, range of maturities
and call features.  At September 30, 2008, Citizens Community Federal
had $110.2 million in Federal Home Loan Bank advances outstanding and the
ability to borrow an additional $38.9 million.  These advances were
taken as a liquidity source to fund increasing loan demand in previous years,
and the purchase of investment securities in fiscal 2008.




Citizens
Community Federal is authorized to borrow from the Federal Reserve Bank of
Chicago's "discount window" after it has exhausted other reasonable alternative
sources of funds, including Federal Home Loan Bank borrowings.  We
have never borrowed from our Federal Reserve Bank.




The
following table sets forth the maximum month-end balance and average balance of
borrowings for the periods indicated.




Year
      Ended September 30,2008
                
                
                2007
                
                
                2006(In
      Thousands)Maximum Balance:FHLB advances
                
                $
                115,737
                
                
                $
                96,446
                
                
                $
                61,200Average Balance:FHLB
      advances
                
                $
                105,699
                
                
                $
                48,643
                
                
                $
                48,700





The
following table sets forth certain information as to Citizens Community
Federal's borrowings at the dates indicated.





At
      September 30,2008
                
                
                2007
                
                
                2006(Dollars
      in Thousands)FHLB advances
                
                $
                110,245
                
                
                $
                96,446
                
                
                $
                61,200Weighted
      average interest rate
                  of
      FHLB advances
                
                
                4.48
                %
                
                
                5.19
                %
                
                
                5.52
                %






18





Subsidiary
and Other Activities




As a
federally chartered savings bank, Citizens Community Federal is permitted by OTS
regulations to invest up to 2% of assets, or $9.6 million at September 30, 2008,
in the stock of, or unsecured loans to, service corporation subsidiaries.
Citizens Community Federal may invest an additional 1% of our assets in service
corporations where such additional funds are used for inner-city or community
development purposes.  Citizens Community Federal does not currently
have any subsidiary service corporations.




Employees




At
September 30, 2008, the Bank had a total of 91 full-time employees and 126
part-time employees.  Employees are not represented by any collective
bargaining group.  Management considers its employee relations to be
good.




REGULATION




Set forth
below is a brief description of certain laws and regulations that are applicable
to Citizens Community Bancorp, Inc. and Citizens Community
Federal.  The description of these laws and regulations, as well as
descriptions of laws and regulations contained elsewhere herein, does not
purport to be complete and is qualified in its entirety by reference to the
applicable laws and regulations.




Legislation
is introduced from time to time in the United States Congress that may affect
our operations.  In addition, the regulations governing Citizens
Community Bancorp, Inc. and Citizens Community Federal may be amended from time
to time by the OTS, the FDIC or the SEC, as appropriate.  Any such
legislative or regulatory changes in the future could adversely affect our
operations and financial condition.  No assurance can be given as to
whether or in what form any such changes may occur.




Citizens
Community Federal




Citizens
Community Federal, as a federally chartered savings bank, is subject to
regulation and oversight by the OTS extending to all aspects of its
operations.  Citizens Community Federal also is subject to regulation
and examination by the FDIC, which insures the deposits of Citizens Community
Federal to the maximum extent permitted by law.  This regulation of
Citizens Community Federal is intended for the protection of depositors and the
insurance of accounts fund and not for the purpose of protecting
stockholders.  As a federal savings bank, Citizens Community Federal
is required to file periodic reports with the OTS and is subject to periodic
examinations by the OTS.




OTS
Regulation.  Our relationship with our depositors and borrowers
is regulated to a great extent by federal laws and OTS regulations, especially
in such matters as the ownership of savings accounts and the form and content of
our mortgage requirements.  In addition, the branching authority of
Citizens Community Federal is regulated by the OTS.  Citizens
Community Federal is generally authorized to branch nationwide.




The
investment and lending authority of Citizens Community Federal is prescribed by
federal laws and regulations, and it is prohibited from engaging in any
activities not permitted by such laws and regulations.  As a federal
savings bank, Citizens Community Federal is required to meet a qualified thrift
lender test.  This test requires Citizens Community Federal to have at
least 65% of its portfolio assets, as defined by regulation, in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis.  In addition, Citizens may have no more than 35% of total
assets in consumer loans, commercial paper and corporate debt
securities  As an alternative, we may maintain 60% of the Bank's
assets in those assets specified in Section 7701(a)(19) of the Internal Revenue
Code.  Under either test, we are required to maintain a significant
portion of our assets in residential-housing-related loans and
investments.  Any institution that fails to meet the qualified thrift
lender test becomes subject to certain restrictions on its operations and must
convert to a national bank charter, unless it re-qualifies as, and thereafter
remains, a qualified thrift lender.  If such an institution has not
re-qualified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank.  We were not subject to a similar
requirement when we were a credit union and were not in compliance with this
requirement at the time we became a federal savings bank.  As of
September 30, 2008, Citizens Community Federal met this requirement with a
qualified thrift lender percentage of 85.4%.  In addition, at
September 30, 2008, Citizens had 33.8% of its assets in consumer loans,
commercial paper and corporate debt securities, in compliance with the
limit.




19


Under OTS
regulations, Citizens Community Federal is subject to a lending limit for loans
to one borrower or group of related borrowers.  This lending limit is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case the limit is increased to 25% of impaired capital and
surplus).  At September 30, 2008, Citizens Community Federal's lending
limit under this restriction was $7.0 million.  Our outstanding loans
are in compliance with this lending limit.




The OTS's
oversight of Citizens Community Federal includes reviewing its compliance with
the customer privacy requirements imposed by the Gramm-Leach-Bliley Act of 1999
and the anti-money laundering provisions of the USA Patriot Act.  The
Gramm-Leach-Bliley privacy requirements place limitations on the sharing of
consumer financial information with unaffiliated third parties.  They
also require each financial institution offering financial products or services
to retail customers to provide such customers with its privacy policy and with
the opportunity to "opt out" of the sharing of their personal information with
unaffiliated third parties.  The USA Patriot Act significantly expands
the responsibilities of financial institutions in preventing the use of the
United States financial system to fund terrorist activities.  Its
anti-money laundering provisions require financial institutions operating in the
United States to develop anti-money laundering compliance programs and due
diligence policies and controls to ensure the detection and reporting of money
laundering.  These compliance programs are intended to supplement
existing compliance requirements under the Bank Secrecy Act and the Office of
Foreign Assets Control Regulations.




We are
subject to periodic examinations by the OTS.  During these
examinations, the examiners may require Citizens Community Federal to provide
for higher general or specific loan loss reserves, which can impact our capital
and earnings.  As a federal savings bank, Citizens Community Federal
is subject to a semi-annual assessment, based upon its total assets, to fund the
operations of the OTS.




Transactions
between Citizens Community Federal and its affiliates generally are required to
be on terms as favorable to the institution as transactions with non-affiliates,
and certain of these transactions, such as loans to an affiliate, are restricted
to a percentage of Citizens Community Federal's capital.  In addition,
Citizens Community Federal may not lend to any affiliate engaged in activities
not permissible for a bank holding company or acquire the securities of most
affiliates.  Citizens Community Bancorp, Inc. is an affiliate of
Citizens Community Federal.  Citizens Community Federal has entered
into an expense allocation agreement and a tax allocation agreement with
Citizens Community Bancorp, Inc. in order to meet these
requirements.




The OTS
has adopted guidelines establishing safety and soundness standards on such
matters as loan underwriting and documentation, asset quality, earnings
standards, internal controls and audit systems, interest rate risk exposure and
compensation and other employee benefits.  Any institution regulated
by the OTS that fails to comply with these standards must submit a compliance
plan.




The OTS
has extensive enforcement authority over all savings associations and their
holding companies, including, Citizens Community Federal and Citizens Community
Bancorp, Inc. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions.  In general, these
enforcement actions may be initiated for violations of laws and regulations and
unsafe or unsound practices.  Other actions or inactions may provide
the basis for enforcement action, including misleading or untimely reports filed
with the OTS.  Except under certain circumstances, public disclosure
of final enforcement actions by the OTS is required by law.




FDIC Regulation and Insurance of
Accounts.  Citizens Community Federal's deposits are insured up
to the applicable limits by the FDIC, and such insurance is backed by the full
faith and credit of the United States Government.  As insurer, the
FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured
institutions.  It also may prohibit any FDIC-insured institution from
engaging in any activity the FDIC determines by regulation or order to pose a
serious risk to the deposit insurance fund.  The FDIC also has the
authority to initiate enforcement actions against Citizens Community Federal and
may terminate our deposit insurance if it determines that we have engaged in
unsafe or unsound practices or is in an unsafe or unsound
condition.




Citizens
Community Bancorp, Inc.




As a
savings association holding company, Citizens Community Bancorp, Inc. is subject
to regulation, supervision and examination by the OTS.  Applicable
federal law and regulations limit the activities of Citizens Community Bancorp,
Inc. and require the approval of the OTS for any acquisition or divestiture of a
subsidiary,




20


including
another financial institution or holding company thereof.  Citizens
Community Bancorp, Inc. is an affiliate of Citizens Community Federal, so its
transactions with Citizens Community Federal are subject to regulatory limits
and must be on terms as favorable to Citizens Community Federal as in
transactions with non-affiliates.




If
Citizens Community Federal fails the qualified thrift lender test Citizens
Community Bancorp, Inc. must obtain the approval of the OTS prior to continuing
after such failure, directly or through other subsidiaries, any business
activity other than those approved for bank holding companies or their
subsidiaries.  In addition, within one year of such failure Citizens
Community Bancorp, Inc. must register as, and will become subject to, the
restrictions applicable to bank holding companies.




Regulatory
Capital Requirements




Capital Requirements for Citizens
Community Federal.  Citizens Community Federal is required to
maintain minimum levels of regulatory capital under OTS
regulations.  These regulations established three capital standards, a
tangible capital requirement, a leverage or core capital requirement and a
risk-based capital requirement.  The OTS is also authorized to impose
capital requirements in excess of these standards on a case-by-case
basis.




The
capital regulations require tangible capital of at least 1.5% of adjusted total
assets, as defined by regulation.  Tangible capital generally includes
common stockholders' equity and retained earnings, and certain noncumulative
perpetual preferred stock and related earnings and excludes most intangible
assets, which also are deducted from assets for purposes of calculating this
capital ratio.  At September 30, 2008, Citizens Community Federal had
tangible capital of $45.8 million, or 9.6% of adjusted total assets, which was
approximately $38.7 million above the required level.




The
capital standards require core or Tier 1 capital equal to at least 3.0% of
adjusted total assets for the strongest institutions with the highest
examination rating and 4.0% of adjusted total assets for all other institutions,
unless the OTS requires a higher level based on the particular circumstances or
risk profile of the institution.  Core capital generally consists of
tangible capital, plus certain intangibles.  At September 30, 2008,
Citizens Community Federal had $7.1 million of intangibles, $0 of which were
included in core capital.  At September 30, 2008, Citizens Community
Federal had core capital equal to $45.8 million, or 9.6% of adjusted total
assets, which was $26.8 million above the required level of 4%.




The OTS
also requires Citizens Community Federal to have total capital of at least 8.0%
of risk-weighted assets.  Total capital consists of core or Tier 1
capital, as defined above, and Tier 2 capital, which consists of certain
permanent and maturing capital instruments that do not qualify as Tier 1 capital
and of the allowance for possible loan and lease losses up to a maximum of 1.25%
of risk-weighted assets.  Tier 2 capital may be used to satisfy this
risk-based requirement only to the extent of Tier 1 capital.  In
determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to
100%, based on the risk inherent in the type of asset.  The OTS is
authorized to require Citizens Community Federal to maintain an additional
amount of total capital to account for concentration of credit risk, level of
interest rate risk, equity investments in non-financial companies and the risk
of non-traditional activities.  At September 30, 2008, Citizens
Community Federal had $304.2 million in risk-weighted assets and total capital
of $46.6 million, or 15.3% of risk-weighted assets, which was $22.3 million
above the required level.




The OTS
is authorized and, under certain circumstances, required to take certain actions
against savings banks that fail to meet these capital requirements, or that fail
to maintain an additional capital ratio of Tier 1 capital of at least 4.0% of
risk weighted-assets.  The OTS is generally required to take action to
restrict the activities of an "under-capitalized institution," which is an
institution with less than either a 4.0% core capital ratio, a 4.0% Tier 1
risked-based capital ratio or an 8.0% total risk-based capital
ratio.  Any such institution must submit a capital restoration plan,
and, until such plan is approved by the OTS, it may not increase its assets,
acquire another institution, establish a branch or engage in any new activities,
and generally may not make capital distributions.  The OTS is
authorized to impose the additional restrictions on under-capitalized
institutions.




Any
institution that fails to comply with its capital plan or has Tier 1 risk-based
or core capital ratios of less than 3.0% or a total risk-based capital ratio of
less than 6.0% is considered "significantly undercapitalized" and must be made
subject to one or more additional specified actions and operating restrictions
that may cover all aspects of its operations and may include a forced merger or
acquisition of the institution.  An institution with tangible
equity




21


to total
assets of less than 2.0% is "critically undercapitalized" and becomes subject to
further mandatory restrictions on it.  The OTS generally is authorized
to reclassify an institution into a lower capital category and impose the
restrictions applicable to such category if the institution is engaged in unsafe
or unsound practices or is in an unsafe or unsound condition.  The
imposition by the OTS of any of these measures on Citizens Community Federal may
have a substantial adverse effect on its operations and
profitability.




Institutions
with at least a 4.0% core capital ratio, a 4.0% Tier 1 risked-based capital
ratio and an 8.0% total risk-based capital ratio are considered "adequately
capitalized."  An institution is deemed a "well capitalized"
institution if it has at least a 5% leverage capital ratio, a 6.0% Tier 1
risked-based capital ratio and a 10.0% total risk-based capital
ratio.  At September 30, 2008, Citizens Community Federal was
considered a "well capitalized" institution.




The OTS
is also generally authorized to reclassify an institution into a lower capital
category and impose the restrictions applicable to such category if the
institution is engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.  The imposition by the OTS of any of these measures
on Citizens Community Federal may have a substantial adverse effect on its
operations and profitability.




Capital Requirements for Citizens
Community Bancorp, Inc.  Citizens Community Bancorp, Inc. is
not subject to any specific capital requirements.  The OTS, however,
does expect Citizens Community Bancorp, Inc. to support Citizens Community
Federal, including providing additional capital when Citizens Community Federal
does not meet its capital requirements.  As a result of this
expectation, the OTS regulates the ability of Citizens Community Federal to pay
dividends to Citizens Community Bancorp, Inc.




Limitations
on Dividends and Other Capital Distributions




OTS
regulations impose various restrictions on savings institutions with respect to
the ability of Citizens Community Federal to make distributions of capital,
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account.  Citizens Community
Federal must file a notice or application with the OTS before making any capital
distribution.  Citizens Community Federal generally may make capital
distributions during any calendar year in an amount up to 100% of net income for
the year to date plus retained net income for the two preceding years, so long
as it is well-capitalized after the distribution.  If Citizens
Community Federal, however, proposes to make a capital distribution when it does
not meet its current minimum capital requirements (or will not following the
proposed capital distribution) or that will exceed these net income limitations,
it must obtain OTS approval prior to making such distribution.  The
OTS may always object to any distribution based on safety and soundness
concerns.




Citizens
Community Bancorp, Inc. is not subject to OTS regulatory restrictions on the
payment of dividends.  Dividends from Citizens Community Bancorp,
Inc., however, may depend, in part, upon its receipt of dividends from Citizens
Community Federal.  In addition, Citizens Community Federal may not
make a distribution that would constitute a return of capital during the
three-year term of the business plan submitted in connection with this mutual
holding company reorganization and stock issuance.  No insured
depository institution may make a capital distribution if, after making the
distribution, the institution would be undercapitalized.




Federal
Securities Law




The stock
of Citizens Community Bancorp, Inc. is registered with the SEC under the
Securities Exchange Act of 1934, as amended.  Citizens Community
Bancorp, Inc. is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Securities Exchange Act
of 1934.




Citizens
Community Bancorp, Inc. stock held by persons who are affiliates of Citizens
Community Bancorp, Inc. may not be resold without registration unless sold in
accordance with certain resale restrictions.  Affiliates are generally
considered to be officers, directors and principal stockholders.  If
Citizens Community Bancorp, Inc. meets specified current public information
requirements, each affiliate of Citizens Community Bancorp, Inc. will be able to
sell in the public market, without registration, a limited number of shares in
any three-month period.




The SEC
and NASDAQ have adopted regulations and policies under the Sarbanes-Oxley Act of
2002 that apply to Citizens Community Bancorp, Inc. as a registered company
under the Securities Exchange Act of 1934 and a NASDAQ-traded
company.  The stated goals of these Sarbanes-Oxley requirements are to
increase corporate responsibility, provide for enhanced penalties for accounting
and auditing improprieties at publicly traded




22


companies
and to protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws.  The SEC and NASDAQ
Sarbanes-Oxley-related regulations and policies include very specific additional
disclosure requirements and new corporate governance rules.  The
Sarbanes-Oxley Act represents significant federal involvement in matters
traditionally left to state regulatory systems, such as the regulation of the
accounting profession, and to state corporate law, such as the relationship
between a board of directors and management and between a board of directors and
its committees.




TAXATION




Federal
Taxation




General.  Citizens
Community Bancorp, Inc., and Citizens Community Federal are subject to federal
income taxation in the same general manner as other corporations, with some
exceptions discussed below.  The following discussion of federal
taxation is intended only to summarize certain pertinent federal income tax
matters and is not a comprehensive description of the tax rules applicable to
Citizens Community Bancorp, Inc. or Citizens Community Federal.  Prior
to December 2001, Citizens Community Federal was a credit union and was not
generally subject to corporate income tax.  The Company files
consolidated federal tax returns with Citizens Community
Federal.  Neither the Company nor Citizens Community Federal has been
audited by the Internal Revenue Service during the past five years.




Method of
Accounting.  For federal income tax purposes, Citizens
Community Federal currently reports its income and expenses on the accrual
method of accounting and uses a fiscal year ending on September 30 for filing
its federal income tax return.




Minimum Tax.  The
Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a
base of regular taxable income plus certain tax preferences, called alternative
minimum taxable income.  The alternative minimum tax is payable to the
extent such alternative minimum taxable income is in excess of the regular
tax.  Net operating losses can offset no more than 90% of alternative
minimum taxable income.  Certain payments of alternative minimum tax
may be used as credits against regular tax liabilities in future
years.  Citizens Community Federal has not been subject to the
alternative minimum tax, nor do we have any such amounts available as credits
for carryover.




Net Operating Loss
Carryovers.  A financial institution may carryback net
operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years.  This provision applies to losses
incurred in taxable years beginning after August 6, 1997.  At
September 30, 2008, Citizens Community Federal had no net operating loss
carryforwards for federal income tax purposes.




Corporate Dividends-Received
Deduction.  We have elected to file a consolidated return with
Citizens Community Federal, dividends it receives from Citizens Community
Federal will not be included as income to Citizens Community Bancorp,
Inc.  The corporate dividends-received deduction is 100% or 80%, in
the case of dividends received from corporations with which a corporate
recipient does not file a consolidated tax return, depending on the level of
stock ownership of the payer of the dividend.




State
Taxation




Citizens
Community Bancorp, Inc. and Citizens Community Federal are subject to the
Wisconsin corporate franchise (income) tax, which is assessed at the rate of
7.9% of taxable income.  Wisconsin taxable income generally is the
same as federal taxable income with certain adjustments.  Citizens
Community Federal has branch offices in Minnesota and Michigan and, accordingly,
is subject to state taxes in these states as well.  Neither the
Company nor Citizens Community Federal has been audited by Wisconsin or any
other state taxing authorities during the past five years.




As a
Maryland corporation, Citizens Community Bancorp, Inc. is required to file an
annual report with and pay an annual fee to the State of Maryland.




Executive
Officers Who Are Not Directors




The
business experience for at least the past five years for each of our executive
officers who do not serve as directors is set forth below.






23




John
Zettler.  Mr. Zettler is currently serving as Chief Financial
Officer.  In his capacity as Senior Vice President, Mr. Zettler
assists the President in all of his duties with primary responsibility for
financial information and human resources activity of Citizens Community
Federal.  Mr. Zettler joined Citizens Community Federal in 1980 and
was named Senior Vice President in 1997.




Timothy J.
Cruciani.  Mr. Cruciani is currently serving as Executive Vice
President.  He joined Citizens Community Federal in
1989.  Mr. Cruciani oversees the operations of Citizens Community
Federal.




Rebecca
Johnson.  Ms. Johnson serves as Senior Vice President
MIC/Accounting for Citizens Community Federal, a position she has held since
2002.  She directs all computer/data processing and accounting
activities associated with Citizens Community Federal.  Ms. Johnson
joined Citizens Community Federal in 1980.




Item
1A.  Risk Factors




An
investment in our common stock is subject to risks inherent in our business.
Before making an investment decision, you should carefully consider the risks
and uncertainties described below together with all of the other information
included and incorporated by reference in this report. In addition to the risks
and uncertainties described below, other risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially and
adversely affect our business, financial condition and results of operations.
The value or market price of our common stock could decline due to any of these
identified or other risks, and you could lose all or part of your
investment.




Risks
Related to Our Business




Our
loan portfolio possesses increased risk due to our substantial number of
consumer loans.




Our
consumer loans accounted for approximately $164.9 million, or 44.6%, of our
total loan portfolio as of September 30, 2008, of which $25.9 million consisted
of automobile loans, $133.2 million consisted of personal loans secured by other
collateral and $5.8 million consisted of unsecured personal
loans.  Generally, we consider these types of loans to involve a
higher degree of risk compared to first mortgage loans on one- to four-family,
owner-occupied residential properties.  As a result of our large
portfolio of consumer loans, it may become necessary to increase the level of
our provision for loan losses, which could hurt our profits.  Consumer
loans generally entail greater risk than do one- to four-family residential
mortgage loans, particularly in the case of loans that are secured by rapidly
depreciable assets, such as automobiles.  In these cases, any
repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance.  In addition, $7.6
million of our automobile loans and $114.4 million of our other secured consumer
loans were indirect loans originated by or through third parties, which present
greater risk than our direct lending products.  See "Lending
Activities - Consumer Lending" and "Asset Quality."




If
our allowance for loan losses is not sufficient to cover actual loan losses, our
earnings could decrease.




We make
various assumptions and judgments about the collectibility of our loan
portfolio, including the creditworthiness of our borrowers and the value of the
real estate and other assets serving as collateral for the repayment of many of
our loans.  In determining the amount of the allowance for loan
losses, we review our loans and our loss and delinquency experience and evaluate
economic conditions.  Management recognizes that significant new
growth in the loan portfolio and the refinancing of existing loans can result in
completely new portfolios of unseasoned loans that may not perform in a
historical or projected manner.  If our assumptions are incorrect, our
allowance for loan losses may not be sufficient to cover actual losses,
resulting in additions to our allowance.  Material additions to our
allowance could decrease our net income.  Our allowance for loan
losses was 0.32% of net loans, and 36.6% of non-performing loans at September
30, 2008.  Our regulators periodically review our allowance for loan
losses and may require us to increase our provision for loan losses or recognize
additional loan charge-offs.  Any increase in our allowance for loan
losses or loan charge-offs as required by these regulatory authorities will have
a material adverse effect on our financial condition and results of
operations.  As of September 30, 2008, we believe that the current
allowance reflects probable incurred credit losses in the
portfolio.




Rising
interest rates may hurt our profits.




To be
profitable we have to earn more interest on our loans and investments than we
pay on our deposits and borrowings.  Overall, interest rates generally
have decreased in fiscal 2008 and 2007.  If interest rates begin to






24






rise
again, our net interest income and the value of our assets could be reduced if
interest paid on interest-bearing liabilities, such as deposits and borrowings,
increases more quickly than interest received on interest-earning assets, such
as loans and investments.  This is most likely to occur if short-term
interest rates increase at a faster rate than long-term interest rates, which
would cause income to go down.  In addition, rising interest rates may
hurt our income, because they may reduce the demand for loans and the value of
our securities.  A flat yield curve also may hurt our income, because
it would reduce our ability to reinvest proceeds from loan and investment
repayments at higher rates.  See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Quantitative and Qualitative
Disclosures About Market Risk" in the Annual Report, attached hereto as Exhibit
13.




In 2008,
yields on deposits and other interest-bearing liabilities increased, while
yields on loans decreased, which reduced our net interest margin.  The
increase in the average balance of interest-earning assets resulted in an
increase in return on assets and return on equity.  See "Selected
Consolidated Financial Information and Other Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Quantitative and
Qualitative Disclosures About Market Risk" in the Annual Report, attached hereto
as Exhibit 13.




If
economic conditions deteriorate, our results of operations and financial
condition could be adversely impacted as borrowers' ability to repay loans
declines and the value of the collateral securing our loans
decreases.




Our
financial results may be adversely affected by changes in prevailing economic
conditions, including decreases in real estate values, changes in interest rates
that cause a decrease in interest rate spreads, adverse employment conditions,
the monetary and fiscal policies of the federal government and other significant
external events.  In addition, we have a significant amount of real
estate loans.  Accordingly, decreases in real estate values could
adversely affect the value of collateral securing our loans.  Adverse
changes in the economy may also have a negative effect on the ability of our
borrowers to make timely repayments of their loans.  These factors
could expose us to an increased risk of loan defaults and losses and have an
adverse impact on our earnings.




We
operate in a highly regulated environment and may be affected adversely by
negative examination results and changes in laws and regulations.




Citizens
Community Federal is subject to extensive regulation, supervision and
examination by the OTS, our chartering authority, and by the Federal Deposit
Insurance Corporation ("FDIC"), the insurer of our deposits.  Citizens
Community Bancorp, Inc. is subject to regulation and supervision by the
OTS.  This regulation and supervision governs the activities in which
we may engage and are intended primarily for the protection of the deposit
insurance fund administered by the FDIC and our
depositors.  Regulatory authorities have extensive discretion in their
supervisory and enforcement activities, including the imposition of restrictions
on our operations, the classification of our assets and determination of the
level of our allowance for loan losses.  Any change in this regulation
and oversight, whether in the form of regulatory policy, regulations,
legislation or supervisory action, may have a material impact on our operations
and profitability.




Strong
competition within our market areas may limit our growth and
profitability.




Competition
in the banking and financial services industry is intense.  In our
market areas, we compete with numerous commercial banks, savings institutions,
mortgage brokerage firms, credit unions, finance companies, mutual funds,
insurance companies, and brokerage and investment banking firms operating
locally and elsewhere.  Some of our competitors have substantially
greater resources and broader lending authority than we have, greater name
recognition and market presence, which benefit them in attracting business, and
offer certain services that we do not or cannot provide.  In addition,
larger competitors may be able to price loans and deposits more aggressively
than we do.  Our profitability depends upon our continued ability to
successfully compete in our market areas.  The greater resources and
deposit and loan products offered by some of our competitors may limit our
ability to increase our interest-earning assets.


Our
business is geographically concentrated in Wisconsin, Minnesota and Michigan and
a downturn in economic conditions in these states could reduce our
profits.




Most of
our loans are to individuals located in Wisconsin, Minnesota and
Michigan.  Any decline in the economy of these states could have an
adverse impact on our earnings.  Decreases in local real estate values
could adversely affect the value of property used as
collateral.  Adverse changes in the economy also may have a negative
effect on the ability of our borrowers to make timely repayments of their loans,
which would have an adverse impact on our earnings.






25






Difficult
market conditions and economic trends have adversely affected our industry and
our business.




Negative
developments beginning in the latter half of 2007 in the sub-prime mortgage
market and the securitization markets for such loans, together with volatility
in oil prices and other factors, have resulted in uncertainty in the financial
markets in general and a related general economic downturn, which have continued
in 2008.  Dramatic declines in the housing market, with decreasing
home prices and increasing delinquencies and foreclosures, have negatively
impacted the credit performance of mortgage and construction loans and resulted
in significant write-downs of assets by many financial
institutions.  In addition, the values of real estate collateral
supporting many loans have declined and may continue to decline. General
downward economic trends, reduced availability of commercial credit and
increasing unemployment have negatively impacted the credit performance of
commercial and consumer credit, resulting in additional
write-downs.  Concerns over the stability of the financial markets and
the economy have resulted in decreased lending by financial institutions to
their customers and to each other.  This market turmoil and tightening
of credit has led to increased commercial and consumer delinquencies, lack of
customer confidence, increased market volatility and widespread reduction in
general business activity.  Competition among depository institutions
for deposits has increased significantly. Financial institutions have
experienced decreased access to deposits or borrowings.




The
resulting economic pressure on consumers and businesses and the lack of
confidence in the financial markets may adversely affect our business, financial
condition, results of operations and stock price.




Our
ability to assess the creditworthiness of customers and to estimate the losses
inherent in our credit exposure is made more complex by these difficult market
and economic conditions.  As a result of the foregoing factors, there
is a potential for new federal or state laws and regulations regarding lending
and funding practices and liquidity standards, and bank regulatory agencies are
expected to be very aggressive in responding to concerns and trends identified
in examinations.   This increased government action may increase our
costs and limit our ability to pursue certain business
opportunities.  We also may be required to pay even higher Federal
Deposit Insurance Corporation premiums than the recently increased level,
because financial institution failures resulting from the depressed market
conditions have depleted and may continue to deplete the deposit insurance fund
and reduce its ratio of reserves to insured deposits.




We do not
believe these difficult conditions are likely to improve in the near
future.  A worsening of these conditions would likely exacerbate the
adverse effects of these difficult market and economic conditions on us, our
customers and the other financial institutions in our market.  As a
result, we may experience increases in foreclosures, delinquencies and customer
bankruptcies, as well as more restricted access to funds.




We
may elect or be compelled to seek additional capital in the future, but that
capital may not be available when it is needed.




We are
required by federal and state regulatory authorities to maintain adequate levels
of capital to support our operations.  In addition, we may elect to
raise additional capital to support the growth of our business or to finance
acquisitions, if any, or we may elect to raise additional capital for other
reasons.  In that regard, a number of financial institutions have
recently raised considerable amounts of capital as a result of deterioration in
their results of operations and financial condition arising from the turmoil in
the mortgage loan market, deteriorating economic conditions, declines in real
estate values and other factors.  Should we be required by regulatory
authorities or otherwise elect to raise additional capital, we may seek to do so
through the issuance of, among other things, our common stock or securities
convertible into our common stock, which could dilute your ownership interest in
the Company.




Our
ability to raise additional capital, if needed, will depend on conditions in the
capital markets, economic conditions and a number of other factors, many of
which are outside our control, and on our financial performance. Accordingly,
we cannot assure you of our ability to raise additional capital if needed or on
terms acceptable to us. If we cannot raise additional capital when needed or on
terms acceptable to us, it may have a material adverse effect on our financial
condition and results of operations.




Recent
legislative and regulatory initiatives to address these difficult market and
economic conditions may not stabilize the U.S. banking system.




The
recently enacted Emergency Economic Stabilization Act of 2008 ("EESA")
authorizes the United States Department of the Treasury, hereafter the Treasury
Department, to purchase from financial institutions and






26






their
holding companies up to $700 billion in mortgage loans, mortgage-related
securities and certain other financial instruments, including debt and equity
securities issued by financial institutions and their holding companies in a
troubled asset relief program.  The purpose of the troubled asset
relief program is to restore confidence and stability to the U.S. banking system
and to encourage financial institutions to increase their lending to customers
and to each other.  The Treasury Department has allocated $250 billion
towards the troubled asset relief program capital purchase
program.  Under the capital purchase program, the Treasury Department
will purchase debt or equity securities from participating
institutions.  The troubled asset relief program is also expected to
include direct purchases or guarantees of troubled assets of financial
institutions.




EESA also
increased Federal Deposit Insurance Corporation deposit insurance on most
accounts from $100,000 to $250,000.  This increase is in place until
the end of 2009 and is not covered by deposit insurance premiums paid by the
banking industry.  In addition, the Federal Deposit Insurance
Corporation has implemented two temporary programs to provide deposit insurance
for the full amount of most non-interest bearing transaction accounts through
the end of 2009 and to guarantee certain unsecured debt of financial
institutions and their holding companies through June 2012.  Financial
institutions had until December 5, 2008 to opt out of these two
programs.  The purpose of these legislative and regulatory actions is
to stabilize the volatility in the U.S. banking system.




EESA, the
troubled asset relief program and the Federal Deposit Insurance Corporation's
recent regulatory initiatives may not stabilize the U.S. banking system or
financial markets.  If the volatility in the market and the economy
continue or worsen, our business, financial condition, results of operations,
access to funds and the price of our stock could be materially and adversely
impacted.




Item
1B.     Unresolved Staff Comments




None.




Item
2.        Description of
Properties




The
following table provides a list of the Bank's main and branch offices and
indicates whether the properties are owned or leased.




Location
            Owned
      or
              Leased
            Lease
      Expiration
              Date
            Net
      Book Value at
              September
      30, 2008
              (In
      Thousands)ADMINISTRATIVE
      OFFICES:
            Leased
            April
      30, 20122174
      EastRidge CenterEau
      Claire, WI 54701BRANCH
      OFFICES:Appleton
      Branch
            Leased
            January
      31, 20143701
      E. Calumet St.Appleton,
      WI  54915Black
      River Falls Branch
            Leased
            January
      31, 2014611
      Highway 54 E.Black
      River Falls, WI 54615Chippewa
      Falls Branch
            Owned
            N/A
            $346427
      W.  Prairie View RoadChippewa
      Falls, WI 54729Eastside
      Branch
            Owned
            N/A
            $3441028
      N.  Hillcrest ParkwayAltoona,
      WI 54720Fairfax
      Branch
            Owned
            N/A
            $762219
      Fairfax StreetAltoona,
      WI 54720Fond
      du Lac Branch
            Leased
            January
      31, 2014377
      N. Rolling Meadows Dr.Fond
      du Lac, WI  54936   27
  Location
              Owned
      or
                Leased
              Lease
      Expiration
                Date
              Net
      Book Value at
                September 30,
      2008
                (In
      Thousands)Mondovi
      Branch
              Leased
              June
      30, 2009695
      E.  Main StreetMondovi,
      WI 54755Oshkosh
      Branch
              Leased
              January
      31, 2014351
      S. Washburn St.Oshkosh,
      WI  54904Rice
      Lake Branch
              Leased
              May
      10, 20132501
      West Ave.Rice
      Lake, WI 54868Westside
      Branch
              Owned
              N/A
              $2872125
      Cameron StreetEau
      Claire, WI 54703Wisconsin
      Dells Branch
              Leased
              January
      31, 2014130
      Commerce St.Wisconsin
      Dells, WI 53965Lake
      Orion Branch(1)
              Leased
              February
      28, 2012688
      S.  Lapeer RoadLake
      Orion, MI 48362Rochester
      Hills Branch
              Owned
              N/A
              $510310
      West Tienken RoadRochester
      Hills, MI 48306Brooklyn
      Park Branch
              Leased
              January
      31, 20148000
      Lakeland Ave.Brooklyn
      Park, MN 55445Faribault
      Branch
              Leased
              January
      31, 2014150
      Western Ave.Faribault,
      MN 55021Hutchinson
      Branch
              Leased
              January
      31, 20141300
      Trunk Hwy. 15 SHutchinson,
      MN  55350Mankato
      Branch
              Leased
              October
      30, 20101410
      Madison AvenueMankato,
      MN 56001Oakdale
      Branch
              Leased
              September
      30, 20097035
      10th Street NorthOakdale,
      MN 55128Red
      Wing Branch
              Leased
              March
      3, 2013295
      Tyler Rd. SRed
      Wing, MN  55066Winona
      Branch
              Leased
              January
      31, 2014955
      Frontenac Dr.Winona,
      MN   55987


______________


(1)
              Effective
      March 1, 2007, Citizens Community Federal has a right to cancel this
      lease, with the cancellation to take effect 90 days after it exercises the
      right to cancel.




Item
3.   Legal Proceedings




In the
opinion of management, the Bank is not a party to any other pending claims or
lawsuits that are expected to have a material effect on the Bank's financial
condition or operations.  Periodically, there have been various claims
and lawsuits involving the Bank, mainly as a defendant, such as claims to
enforce liens, condemnation proceedings on properties in which the Bank holds
security interests, claims involving the making and servicing of real property
loans and other issues incident to the Bank's business.  Aside from
such pending claims and lawsuits, which are incident to the conduct of the
Bank's ordinary business, the Bank is not a party to any




28




material
pending legal proceedings that would have a material effect on the financial
condition or operations of the Bank.




Item
4.  Submission of Matters to a Vote of Security Holders




No
matters were submitted to a vote of security holders during the quarter ended
September 30, 2008.




PART
II




Item
5.  Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities




(a)
            The
      information contained in the section captioned "Stockholder Information"
      in the Annual Report, attached hereto as Exhibit 13, is incorporated
      herein by reference.




(b)
            Information
      regarding our equity compensation plans is included in Item 12 of this
      Form 10-K.




(c)
            Issuer
      Purchases of Equity Securities.  The following table summarizes
      the Company's stock repurchase activity for each month during the three
      months ended September 30, 2008.  All shares repurchased during
      the three months ended September 30, 2008, were repurchased in the open
      market.




(a)
              Total
      Number of Shares (or Units) Purchased
            (b)
              Average
      Paid per Share (or Unit)
            (c)
              Total
      Number of Shares (or Units) Purchased as part of Publicly Announced Plans
      or Programs
            (d)
              Maximum
      Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be
      Purchased Under Plans or ProgramsPeriod
      ended July 31, 2008
            ---
            ---
            ---
            141,020Period
      ended August 31, 2008
            ---
            ---
            ---
            141,020Period
      ended September 30, 2008
            ---
            ---
            ---
            141,020Total
      for quarter ended September 30, 2008
            ---
            ---
            ---
            141,020





Subsequent
to September 30, 2008, a new stock repurchase plan was approved.  The
Company announced its intention to repurchase an additional 10% of its
outstanding shares in the open market, or in privately negotiated
transactions.  These shares will be purchased from time to time over a
six-month period ending May 5, 2009, depending on market
conditions.




Item
6.  Selected Financial Data




The
information contained in the section captioned "Selected Consolidated Financial
Information" in the Annual Report is incorporated herein by
reference.




Item
7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations




The
information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Annual Report
is incorporated herein by reference.




Item
7A  Quantitative and Qualitative Disclosures About Market
Risk




The
information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Quantitative and
Qualitative Disclosures about Market Risk" in the Annual Report is
incorporated herein by reference.






29






Item
8.   Financial Statements and Supplementary Data




Report
From Independent Registered Accounting Firm*




(a)
            Consolidated
      Balance Sheets as of September 30, 2008, and 2007*(b)
            Consolidated
      Statements of Income for the Years Ended September 30, 2008, 2007 and
      2006*(c)
            Consolidated
      Statements of Changes in Stockholders' Equity For the Years Ended
      September 30, 2008, 2007 and 2006*(d)
            Consolidated
      Statements of Cash Flows For the Years Ended September 30, 2008, 2007 and
      2006*(e)
            Notes
      to Consolidated Financial Statements*____________*
            Contained
      in the Annual Report filed as an exhibit hereto and incorporated
      herein by reference.  All schedules have been omitted as
      the required information is either inapplicable or contained in the
      Consolidated Financial Statements or related Notes contained in the Annual
      Report.








Item
9.  Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure




No
disclosure under this item is required.




Item
9A.   Controls and Procedures




(a)           Evaluation
of Disclosure Controls and Procedures




An
evaluation of the Company's disclosure controls and procedures (as defined in
Rule13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as
of September 30, 2008, was carried out under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, and
several other members of our senior management.  Our Chief Executive
Officer concluded that our disclosure controls and procedures as currently in
effect are effective in ensuring that the information required to be disclosed
in the reports the Company files or submits under the Exchange Act is (i)
accumulated and communicated to our management (including the Chief Executive
Officer and Chief Financial Officer) in a timely manner, and (ii) recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.  There have been no changes in our internal
controls over financial reporting (as defined in Rule 13a-15(f) under the Act)
that occurred during the year ended September 30, 2008, that has materially
effected, or is reasonably likely to materially affect, our internal control
over financial reporting.





We intend to
continually review and evaluate the design and effectiveness of the Company's
disclosure controls and procedures and to improve the Company's controls and
procedures over time and to correct any deficiencies that we may discover in the
future.  The goal is to ensure that senior management has timely
access to all material financial and non-financial information concerning the
Company's business.  While we believe the present design of the
disclosure controls and procedures is effective to achieve its goal, future
events affecting its business may cause the Company to modify its disclosure
controls and procedures.





The Company
does not expect that its disclosure controls and procedures will prevent all
error and all fraud.  A control procedure, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control procedure are met.  Because of the
inherent limitations in all control procedures, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected.  These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or
mistake.  Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control.  The design of any control procedure also is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate.  Because of the
inherent limitations in a cost-effective control procedure, misstatements due to
error or fraud may occur and not be detected.




30


Management's
Report on Internal Control Over Financial Reporting




The
management of Citizens Community Bancorp, Inc. is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f).  The Company's internal
control over financial reporting is a process designed to provide reasonable
assurance to the Company's management and board of directors regarding the
reliability of financial reporting and the preparation of the financial
statements for external purposes in accordance with accounting principles
generally accepted in the United States of America.




The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the Company are being made only
in accordance with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial statements.




Because of
its inherent limitations, internal controls over financial reporting may not
prevent or detect misstatements.  All internal control systems, no
matter how well designed, have inherent limitations, including the possibility
of human error and the circumvention of overriding
controls.  Accordingly, even effective internal control over financial
reporting can provide only reasonable assurance with respect to financial
statement preparation.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




Our
management assessed the effectiveness of the Company’s internal control over
financial reporting as of September 30, 2008.  In making this
assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.  Based on our assessment, we believe that, as of
September 30, 2008, the Company's internal control over financial reporting was
effective based on those criteria.




This annual
report does not include an attestation of our independent public accounting firm
regarding internal controls over financial reporting.  Management's
report was not subject to attestation by our independent public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.




Date:  December
      23, 2008
            By:
            /s/
      James G.
      Cooley
              James
      G. Cooley
              President
              (Principal
      Executive Officer)Date:  December
      23, 2008
            
            /s/
      John D.
      Zettler
              John
      D. Zettler
              Senior
      Vice President and Chief Financial Officer
              (Principal
      Financial and Accounting Officer)







Item
9B.                      Other
Information




None.




31


PART
III




Item
      10.
            Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange Act




Directors




Information
concerning the directors of the Company is incorporated herein by reference from
the definitive proxy statement for the annual meeting of shareholders to be held
February 26, 2009, a copy of which will be filed not later than 120 days after
the close of the fiscal year.




Executive
Officers




Information
concerning the executive officers of the Company is incorporated herein by
reference from the definitive proxy statement for the annual meeting of
shareholders to be held February 26, 2009, except for information contained
under the headings "Compensation Committee Report" and "Stock Performance
Presentation," a copy of which will be filed not later than 120 days after the
close of the fiscal year.




Audit
Committee Matters and Audit Committee Financial Expert





The Board
of Directors of the Company has a standing Audit/Compliance Committee, which has
been established in accordance with Section 3(a)(58)(A) of the Exchange
Act.  The members of that committee are Directors Westrate (Chairman),
McHugh and Schilling, all of whom are considered independent under applicable
Nasdaq listing standards.  The Board of Directors has determined that
Mr. Schilling is an "audit committee financial expert" as defined in applicable
SEC rules.  Additional information concerning the audit committee of
the Company's Board of Directors is incorporated herein by reference from the
Company's definitive proxy statement for its Annual Meeting of Stockholders to
be held February 26, 2009, except for information contained under the headings
"Compensation Committee Report," and "Report of the Audit/Compliance Committee,"
a copy of which will be filed not later than 120 days after the close of the
fiscal year.




Section
16(a) Compliance




Section
16(a) of the Securities Exchange Act of 1934 requires that the Company's
directors and executive officers, and persons who own more than 10% of the
Company's common stock, file with the SEC initial reports of ownership and
reports of changes in ownership of the Company's common
stock.  Officers, directors and greater than 10% shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.  To the Company's knowledge no late reports
occurred during the fiscal year ended September 30, 2008.  All other
Section 16(a) filing requirements applicable to our executive officers,
directors and greater than 10% beneficial owners were complied
with.




Code
of Ethics




The
Company's Code of Business Conduct and Ethics, adopted on October 31, 2006, is
applicable to its principal executive officer, principal financial officer and
principal accounting officer (as well as all other employees), does meet the
definition of "code of ethics" set forth in Item 406 of SEC Regulation
S-K.  A copy of this document is available free of charge by
contacting John D. Zettler, our investor relations officer, at (715)
836-9994.  A copy of the Company's Code of Business Conduct and Ethics
is being filed with the SEC as Exhibit 14 to this Annual Report on Form 10-K for
the fiscal year ending September 30, 2008.




Nomination
Procedures




There
have been no material changes to the procedures by which stockholders may
recommend nominees to the Company's Board of Directors.




32


Item
11.               Executive
Compensation




Information
concerning executive compensation is incorporated herein by reference from the
definitive proxy statement for the annual meeting of shareholders to be held
February 26, 2009, except for information contained under the headings
"Compensation Committee Report" and "Stock Performance Presentation," a copy of
which will be filed not later than 120 days after the close of the fiscal
year.




Item
12.               Security
Ownership of Certain Beneficial Owners and Management and Related


Stockholder Matters




Information
concerning security ownership of certain beneficial owners and management is
incorporated herein by reference from the definitive proxy statement for the
annual meeting of shareholders to be held February 26, 2009, except for
information contained under the headings "Compensation Committee Report" and
"Stock Performance Presentation," a copy of which will be filed not later than
120 days after the close of the fiscal year.




The
following table sets forth information as of September 30, 2008, with respect to
compensation plans under which shares of common stock were issued.




Equity
Compensation Plan Information




Plan
      Category
            Number
      of securities to
              be
      issued upon exercise
              of
      outstanding options
              warrants
      and rights
            Weighted-average
              exercise
      price of
              outstanding
      options
              warrants
      and rights
            Number
      of Securities
              remaining
      available for
              future
      issuance under
              equity
      compensation plansEquity
      Compensation Plans Approved By Security Holders
            185,110_
      (1)
            $7.04(1)
            519,255(1)Equity
      Compensation Plans Not Approved By Security Holders
            ---
            ---
            ---


____________________


(1)  Reflects
amounts after exchange ratio related to second-step offering.





Item
13.               Certain
Relationships and Related Transactions




Information
concerning certain relationships and related transactions is incorporated herein
by reference from the definitive proxy statement for the annual meeting of
shareholders to be held February 26, 2009, except for information contained
under the headings "Compensation Committee Report" and "Stock Performance
Presentation," a copy of which will be filed not later than 120 days after the
close of the fiscal year.









33


PART
IV




Item
14.                                Principal
Accountant Fees and Services




Information
concerning fees and services by our principal accountants is incorporated herein
by reference from our definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders, a copy of which will be filed not later than 120 days after the
close of the fiscal year.




Item
15.                                Exhibits
and Financial Statement Schedules




(a)(1)                      Financial
Statements:




Part II, Item 8 is hereby incorporated
by reference.




(a)(2)                      Financial
Statement Schedules:




All financial statement schedules have
been omitted as the information is not required under the related instructions
or is not applicable.




(a)(3)                      Exhibits:




Regulation
      S-K
              Exhibit
      Number
            Document
            Reference
      to
              Prior
      Filing
              or
      Exhibit Number
              Attached
      Hereto3(i)
            Articles
      of Incorporation of the Registrant
            *3(ii)
            Bylaws
      of the Registrant
            *10
            Material
      contracts:(a)
            Registrant's
      2004 Stock Option Plan
            **(b)
            Registrant's
      2004 Recognition and Retention Plan
            **(c)
            Employment
      Agreements:(i)
            James
      G. Cooley
            *(iii)
            John
      D. Zettler
            *(iv)
            Timothy
      J. Cruciani
            *(v)
            Rebecca
      Johnson
            *(e)
            Tax
      Allocation Agreement
            **13
            2008
      Annual Report to Stockholders
            1314
            Code
      of Conduct and Ethics
            1421
            Subsidiaries
      of the Registrant
            2123
            Consent
      of Auditors
            2331
            Rule
      13a-14(a)/15d-14(a) Certifications
            3132
            Section
      1350 Certifications
            32


_______________________


*
              Filed
      as exhibit to the Company's registration statement filed on June 30, 2007,
      (File No.333-135527) pursuant to Section 5 of the Securities Act of
      1933.  All of such previously filed documents are hereby
      incorporated herein by reference in accordance with Item 601 of Regulation
      S-K.**
              Filed
      as exhibit to Citizen Community Bancorp's Annual Report on Form 10-KSB for
      the fiscal year ended September 30, 2004.***
              Filed
      as exhibit to Citizen Community Bancorp's Annual Report on Form 10-KSB for
      the fiscal year ended September 30,
2005.





34


SIGNATURES





Pursuant
to the requirements of section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





CITIZENS
      COMMUNITY BANCORP, INC.Date:
              December
      23, 2008
              
              By:
              /s/ James G.
      Cooley
                James
      G. Cooley
                President
      and Chief Executive Officer
                (Duly
      Authorized Representative)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.








By:
            /s/ Richard
      McHugh
              Richard
      McHugh
              Chairman
      of the Board
            
            December
      23, 2008By:
            /s/ James G.
      Cooley
              James
      G. Cooley
              President,
      Chief Executive Officer and Director
              (Principal
      Executive Officer)
            
            December
      23, 2008By:
            /s/ Thomas C.
      Kempen
              Thomas
      C. Kempen
              Vice
      Chairman of the Board
            
            December
      23, 2008By:
            /s/ Brian R.
      Schilling
              Brian
      R. Schilling
              Director
      and Treasurer
            
            December
      23, 2008By:
            /s/ David B.
      Westrate
              David
      B. Westrate
              Director
            
            December
      23, 2008By:
            /s/ John D.
      Zettler
              John
      D. Zettler
              Senior
      Vice President and Chief Financial Officer
              (Principal
      Financial Officer)
            
            December
      23, 2008





35


Index
to Exhibits





Regulation
      S-K
              Exhibit
      Number
            Document13
            2008
      Annual Report to Stockholders14
            Code
      of Conduct and Ethics21
            Subsidiaries
      of the Registrant23
            Consent
      of Auditors31
            Rule
      13a-14(a)/15d-14(a) Certifications32
            Section
      1350 Certifications