EXHIBIT 13



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**[LOGO]**

**CITIZENS COMMUNITY
BANCORP, INC.**

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**TABLE OF CONTENTS**

|A Message from the Board of Directors             | 1 
|------------------------------------------------- | --
|Selected Consolidated Financial Information       | 2 
|Management's Discussion and Analysis of Financial |   
|Condition and Results of Operations               | 4 
|Consolidated Financial Statements                 | 22
|Stockholder Information                           | 66
|Corporate Information                             | 67

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> Growth that is sustainable, profitable, and well managed;
> 
> Strength that is derived not only from significant financial resources, but the
> operational capacities to fully leverage them; and
> 
> At all times, an awareness of the mutual benefits to customers and shareholders of
> our special ability to deliver superior customer service - a commitment that has
> distinguished, and will continue to distinguish, Citizens Community Federal from its
> competitors.

|/s/ Richard McHughRichard McHughChairman | /s/ James G. CooleyJames G. CooleyPresident, Chief Executive Officer   and Director
|---------------------------------------- | -----------------------------------------------------------------------------------

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**SELECTED CONSOLIDATED FINANCIAL INFORMATION**

|                                   | September 30, 
|---------------------------------- | --------------
|                                   | 2006          
|                                   | (In Thousands)
|Selected Financial Condition Data: |               
|Total assets                       | $283,990      
|Loans receivable, net              | 258,467       
|Other Interest-bearing deposits    | 959           
|Securities available for sale      | 782           
|Deposits                           | 186,711       
|Total borrowings                   | 61,200        
|Stockholders' equity(1)            | 30,082        

|                                               | Year Ended September 30,            
|---------------------------------------------- | ------------------------------------
|                                               | 2006                                
|                                               | (In Thousands)                      
|Selected Operations Data:                      |                                     
|Total interest income                          | $15,311                             
|Total interest expense                         | 7,221                               
|                                               | Net interest income                 
|Provision for loan losses                      | 251                                 
|Net interest income after provision for loan   |                                     
|                                               | losses                              
|Fees and service charges                       | 1,243                               
|Gain (loss) on sales of loans, mortgage-backed |                                     
|                                               | securities and investment securities
|Other non-interest income                      | 387                                 
|Total non-interest income                      | 1,657                               
|Total non-interest expense                     | 8,741                               
|Income before taxes                            | 755                                 
|Income tax provision(2)                        | 309                                 
|Net income                                     | $     446                           
|Basic and diluted earnings per share           | $    0.12                           

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|                                                                |                                      | September 30,
|--------------------------------------------------------------- | ------------------------------------ | -------------
|                                                                |                                      | 2006         
|Performance Ratios                                              |                                      |              
|Return on assets  (ratio of net income to average total assets) | 0.17%                                | 0.56%        
|Return on assets, net of tax(2)                                 | 0.17%                                | 0.56%        
|Return on equity (ratio of net income to average                |                                      |              
|                                                                | equity)                              | 1.50%        
|Return on equity, net of tax(2)                                 | 1.50%                                | 4.87%        
|Interest rate spread information                                |                                      |              
|                                                                | Average during period                | 3.28%        
|                                                                | End of period                        | 3.11%        
|Net interest margin                                             | 3.54%                                | 4.19%        
|Ratio of operating expense to average total assets              | 3.30%                                | 4.12%        
|Ratio of average interest-bearing assets to                     |                                      |              
|                                                                | average interest bearing liabilities | 1.09%        
|                                                                |                                      |              
|Quality Ratios                                                  |                                      |              
|Non-performing assets to total assets at end                    |                                      |              
|                                                                | of period                            | 0.63%        
|Allowance for loan losses to non-performing                     |                                      |              
|                                                                | loans                                | 60.07%       
|Allowance for loan losses to net loans                          | 0.32%                                | 0.37%        
|                                                                |                                      |              
|Capital Ratios                                                  |                                      |              
|Equity to total assets at end of period                         | 10.59%                               | 12.03%       
|Average equity to average assets                                | 11.26%                               | 11.40%       
|                                                                |                                      |              
|Other Data                                                      |                                      |              
|Number of full-service offices                                  | 12                                   | 12           

|(1) | Prior to March 29, 2004, Citizens Community Federal was a mutual institution whose equity was retained earnings, therefore, per share earnings prior to that
date are not meaningful.                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Until its conversion to a federally chartered mutual savings bank on December 10, 2001, Citizens Community Federal was a credit union, exempt from federal
and state income taxes.  Had Citizens Community Federal been subject to federal and state income taxes for the fiscal year ended September 30, 2002, income
tax expense would have been approximately $273,000 and net income would have been approximately $418,000.
|(3) | The formation of the Company was completed March 29, 2004, the date of closing of the initial public offering.  The basic and diluted EPS are presented for
the period March 29, 2004 through September 30, 2004.  The weighted average number of shares outstanding for this period was 3,038,769 for basic and diluted
EPS.                                                                                                   

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|                                            | **Years EndedSeptember 30,**
|------------------------------------------- | ----------------------------
|                                            | **2006**                    
|**Balance at Beginning**                    | $ 803                       
|**Other - Obtained through Merger**         | -                           
|**Provisions Charged to Operating Expense** | 251                         
|**Loans Charged Off**                       | (247)                       
|**Recoveries on Loans**                     | 28                          
|**Balance at End**                          | $ 835                       

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|                                   |                                 |                                    | Year Ended September 30, 
|---------------------------------- | ------------------------------- | ---------------------------------- | -------------------------
|                                   |                                 |                                    | 2006                     
|                                   |                                 |                                    | AverageOutstandingBalance
|                                   | (In Thousands)                 
|Interest-Earning Assets:           |                                 |                                    |                          
|                                   | Cash equivalents                | $    6,135                         | $     184                
|                                   | Loans receivable(1)             | 237,553                            | 15,664                   
|                                   | Other interest-bearing deposits | 1,153                              | 46                       
|                                   | Securities available for sale   | 1,478                              | 58                       
|                                   | Federal Home Loan Bank stock    | 2,280                              | 65                       
|                                   |                                 | Total interest-earning assets      | $248,599                 
|                                   |                                 |                                    |                          
|Interest-Bearing Liabilities:      |                                 |                                    |                          
|                                   | Savings accounts                | $  24,703                          | 167                      
|                                   | Demand accounts(2)              | 19,622                             | 28                       
|                                   | Money market accounts           | 26,623                             | 500                      
|                                   | CDs                             | 104,536                            | 4,126                    
|                                   | IRAs                            | 10,252                             | 361                      
|                                   | Federal Home Loan Bank advances | 42,500                             | 2,039                    
|                                   |                                 | Total interest-bearing liabilities | $228,237                 
|                                   |                                 |                                    |                          
|Net interest income                |                                 | $  8,796                           |                          
|Net interest rate spread           |                                 |                                    | 3.28%                    
|Net interest margin(3)             |                                 |                                    | 3.54%                    
|Average interest-earning assets to |                                 |                                    |                          
|                                   | average interest- liabilities   |                                    | 1.09x                    

|(1) | Calculated net of loan fees $(706) in 2006, $(54) in 2005 and $(1) in 2004, loan discounts, loans in process and allowance for losses on loans.                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes $13.8 million,  $14.4 million and $5.9 million of non-interest-bearing demand deposits during the years ended September 30, 2006, 2005 and 2004, respectively.
|(3) | Net interest income divided by interest-earning assets.                                                                                                                

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|                              |                                 |                                     | Year Ended September 30,2006 vs.  2005 | Year Ended September 30,2005 vs.  2004
|----------------------------- | ------------------------------- | ----------------------------------- | -------------------------------------- | --------------------------------------
|                              |                                 |                                     | Increase (Decrease)Due to              | TotalIncrease(Decrease)               
|                              |                                 |                                     | Volume                                 | Rate                                  
|                              |                                 |                                     | (In Thousands)                        
|Interest-earning assets:      |                                 |                                     |                                        |                                       
|                              | Loans receivable(1)             | $4,007                              | $ (106)                                | $3,901                                
|                              | Other                           | 132                                 | 4                                      | 136                                   
|                              |                                 |                                     |                                        |                                       
|                              |                                 | Total interest-earningassets        | $4,139                                 | $ (102)                               
|                              |                                 |                                     |                                        |                                       
|Interest-bearing liabilities: |                                 |                                     |                                        |                                       
|                              | Savings accounts                | $     62                            | $    (17)                              | 45                                    
|                              | Demand accounts                 | 11                                  | (13)                                   | (2)                                   
|                              | Money market accounts           | 38                                  | 29                                     | 67                                    
|                              | IRA accounts                    | 32                                  | 21                                     | 53                                    
|                              | Certificates of deposit         | 932                                 | 824                                    | 1,756                                 
|                              | Federal Home Loan
Bank advances | 673                                 | 637                                    | 1,310                                 
|                              |                                 |                                     |                                        |                                       
|                              |                                 | Total interest-bearing

liabilities | $1,748                                 | $1,481                                
|                              |                                 |                                     |                                        |                                       
|Net interest income           |                                 |                                     | $   808                                |                                       

|(1) | Calculated net of loan fees of $(706) in 2006, $(54) in 2005 and $(1) in 2004.
|--- | ------------------------------------------------------------------------------

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> originating first mortgage loans, with a clause allowing for payment on demand after
> a stated period of time,
> 
> originating shorter-term consumer loans,
> 
> originating prime-based home equity lines of credit,
> 
> managing our deposits to establish stable deposit relationships,
> 
> using Federal Home Loan Bank advances to align maturities and repricing terms, and
> 
> attempting to limit the percentage of long-term fixed-rate loans in our portfolio which
> do not contain a payable on demand clause.

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|Change in Interest Rates inBasis Points ("bp")(Rate Shock in Rates)(1) | Net Portfolio Value | Net Portfolio Value as % ofPresent Value of Assets
|---------------------------------------------------------------------- | ------------------- | --------------------------------------------------
|Amount                                                                 | Change              | Change                                            
|(Dollars in thousands)                                                
|                                                                       |                     |                                                   
|+300  bp                                                               | $14,290             | $(6,749)                                          
|+200  bp                                                               | 16,590              | (4,449)                                           
|+100  bp                                                               | 18,862              | (2,177)                                           
|0  bp                                                                  | 21,039              | ---                                               
|-100  bp                                                               | 23,005              | 1,966                                             
|-200  bp                                                               | 24,778              | 3,738                                             

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|Change in Interest Rates inBasis Points ("bp")(Rate Shock in Rates)(1) | Net Portfolio Value | Net Portfolio Value as % ofPresent Value of Assets
|---------------------------------------------------------------------- | ------------------- | --------------------------------------------------
|Amount                                                                 | Change              | Change                                            
|(Dollars in thousands)                                                
|                                                                       |                     |                                                   
|+300  bp                                                               | $17,011             | $(5,622)                                          
|+200  bp                                                               | 18,970              | (3,644)                                           
|+100  bp                                                               | 20,886              | (1,748)                                           
|0  bp                                                                  | 22,634              | ---                                               
|-100  bp                                                               | 23,823              | 1,189                                             
|-200  bp                                                               | 24,131              | 1,497                                             

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|                                         | Six Monthsor Less                          | Over SixMonths toOne Year | Over Oneto ThreeYears | Over Threeto FiveYears | OverFiveYears | Total   
|---------------------------------------- | ------------------------------------------ | ------------------------- | --------------------- | ---------------------- | ------------- | --------
|                                         |                                            | (Dollars in Thousands)   
|                                         |                                            |                           |                       |                        |               |         
|Real estate mortgage loans               | $   30,411                                 | $  24,103                 | $   60,235            | $27,990                | $22,897       | $165,636
|Consumer loans                           | 41,916                                     | 27,739                    | 20,365                | 1,879                  | 1,704         | 93,603  
|Securities available for sale            | -                                          | -                         | 246                   | 236                    | 300           | 782     
|Other interest-bearing deposits          | 490                                        | 98                        | 371                   | -                      | -             | 959     
|Federal Home Loan Bank stock             | -                                          | -                         | -                     | 3,060                  | -             | 3,060   
|Cash equivalents(1)                      | 2,984                                      | -                         | -                     | -                      | -             | 2,984   
|Total interest-earning assets            | 75,801                                     | 51,940                    | 81,217                | 33,165                 | 24,964        | 267,024 
|                                         |                                            |                           |                       |                        |               |         
|Savings accounts                         | 2,498                                      | 2,498                     | 19,181                | 767                    | 32            | 24,976  
|Demand and money market                  | 3,999                                      | 6,087                     | 9,131                 | 2,283                  | 19,430        | 40,930  
|Certificates of deposit                  | 40,574                                     | 48,371                    | 30,383                | 1,477                  | --            | 120,805 
|Federal Home Loan Bank advances          | 51,108                                     | -                         | 10,092                | -                      | -             | 61,200  
|Total interest-bearing liabilities       | 98,179                                     | 56,956                    | 68,787                | 4,527                  | 19,462        | 247,911 
|                                         |                                            |                           |                       |                        |               |         
|Interest-earning assets less             |                                            |                           |                       |                        |               |         
|interest-bearing liabilities             | $ (22,378)                                 | $   (5,016)               | $   12,430            | $28,638                | $  5,502      | $19,113 
|                                         |                                            |                           |                       |                        |               |         
|Cumulative interest rate sensitivity gap | $ (22,378)                                 | $ (27,394)                | $ (14,964)            | $13,674                | $19,176       |         
|                                         |                                            |                           |                       |                        |               |         
|Cumulative interest rate gap as a        |                                            |                           |                       |                        |               |         
|                                         | percentage of assets at September
30, 2006 | (7.88)%                   | (9.65)%               | (5.27)%                | 4.81%         | 6.75%   
|                                         |                                            |                           |                       |                        |               |         
|Cumulative interest rate gap as a        |                                            |                           |                       |                        |               |         
|                                         | percentage of interest-earning assets      |                           |                       |                        |               |         
|                                         | at September 30, 2006                      | (8.38)%                   | (10.26)%              | (5.60)%                | 5.12%         | 7.18%   



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|Assets                                                                                                 | 2006           | 2005    
|------------------------------------------------------------------------------------------------------ | -------------- | --------
|                                                                                                       | (In Thousands)
|Cash and cash equivalents                                                                              | $6,170         | $9,265  
|Interest-bearing deposits                                                                              | 959            | 1,444   
|Securities available-for-sale (at fair value))                                                         | 782            | 2,088   
|Loans receivable - Net of allowance for loan losses of $835
   and $803 in 2006 and 2005, respectively | 258,467        | 217,931 
|Loans held for sale                                                                                    | 321            | 0       
|Federal Home Loan Bank stock - At cost                                                                 | 3,060          | 2,095   
|Office properties and equipment - Net                                                                  | 3,681          | 2,923   
|Accrued interest receivable                                                                            | 861            | 612     
|Intangible assets                                                                                      | 1,829          | 2,131   
|Goodwill                                                                                               | 5,466          | 5,466   
|Other assets                                                                                           | 2,394          | 1,752   
|                                                                                                      
|TOTAL ASSETS                                                                                           | $283,990       | $245,707
|                                                                                                      
|*Liabilities and Stockholders' Equity*                                                                 |                |         
|                                                                                                      
|Deposits                                                                                               | $186,711       | $177,469
|Federal Home Loan Bank advances                                                                        | 61,200         | 36,200  
|Other liabilities                                                                                      | 5,997          | 2,485   
|                                                                                                      
|Total liabilities                                                                                      | 253,908        | 216,154 
|                                                                                                      
|Preferred stock - Par value $.01:                                                                      |                |         
|Authorized - 1,000,000 shares    Issued and outstanding - 0 shares                                     |                |         
|Common stock - Par value $.01:                                                                         |                |         
|Authorized - 5,000,000 shares                                                                          |                |         
|Issued and outstanding - 3,747,319 shares                                                              | 37             | 37      
|Additional paid-in capital                                                                             | 18,833         | 18,780  
|Retained earnings                                                                                      | 12,792         | 12,536  
|Unearned ESOP shares                                                                                   | (894)          | (1,013) 
|Unearned compensation                                                                                  | (334)          | (389)   
|Accumulated other comprehensive loss                                                                   | (11)           | (4)     
|Treasury stock, at cost - 22,691 and 26,251 shares, respectively                                       | (341)          | (394)   
|                                                                                                      
|Total stockholders' equity                                                                             | 30,082         | 29,553  
|                                                                                                      
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                             | $283,990       | $245,707
|                                                                                                      

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|                                                    | 2006           | 2005    | 2004  
|--------------------------------------------------- | -------------- | ------- | ------
|                                                    | (In Thousands)
|Interest and dividend income:                       |                |         |       
|Interest and fees on loans                          | $14,958        | $11,709 | $9,544
|Interest on investments                             | 353            | 217     | 75    
|                                                   
|Total interest and dividend income                  | 15,311         | 11,926  | 9,619 
|                                                   
|Interest expense:                                   |                |         |       
|Interest on deposits                                | 5,182          | 3,263   | 2,804 
|Interest on FHLB advances                           | 2,039          | 719     | 85    
|                                                   
|Total interest expense                              | 7,221          | 3,982   | 2,889 
|                                                   
|Net interest income                                 | 8,090          | 7,934   | 6,730 
|Provision for loan losses                           | 251            | 414     | 396   
|                                                   
|Net interest income after provision for loan losses | 7,839          | 7,520   | 6,334 
|                                                   
|Noninterest income:                                 |                |         |       
|Service charges on deposit accounts                 | 981            | 832     | 784   
|Insurance commissions                               | 372            | 397     | 309   
|Loan fees and service charges                       | 262            | 329     | 259   
|Security gains                                      | 27             | 0       | 0     
|Other                                               | 15             | 463     | 17    
|                                                   
|Total noninterest income                            | 1,657          | 2,021   | 1,369 
|                                                   
|Noninterest expense:                                |                |         |       
|Salaries and related benefits                       | 4,978          | 4,688   | 3,986 
|Occupancy - Net                                     | 1,016          | 752     | 630   
|Office                                              | 767            | 668     | 546   
|Data processing                                     | 438            | 330     | 302   
|Amortization of core deposit intangible             | 302            | 96      | 24    
|Advertising                                         | 218            | 201     | 107   
|Other                                               | 1,022          | 1,071   | 728   
|                                                   
|Total noninterest expense                           | 8,741          | 7,806   | 6,323 
|                                                   
|Income before provision for income taxes            | 755            | 1,735   | 1,380 
|Provision for income taxes                          | 309            | 684     | 543   
|                                                   
|Net income                                          | $446           | $1,051  | $837  
|                                                   
|Basic earnings per share                            | $0.12          | $0.35   | $0.16 
|                                                   
|Diluted earnings per share                          | $0.12          | $0.35   | $0.16 
|                                                   

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|                                                             | Shares                        | Common Stock | AdditionalPaid-InCapital | RetainedEarnings | UnearnedESOPShares | UnearnedCompensation | AccumulatedOtherComprehensiveLoss | TreasuryStock | Totals 
|------------------------------------------------------------ | ----------------------------- | ------------ | ------------------------ | ---------------- | ------------------ | -------------------- | --------------------------------- | ------------- | -------
|                                                             | (In Thousands, Except Shares)
|Balance - September 30, 2003                                 | 0                             | $0           | $0                       | $10,990          | $0                 | $0                   | $0                                | $0            | $10,990
|Comprehensive income:                                        |                               |              |                          |                  |                    |                      |                                   |               |        
|Net income                                                   | 0                             | 0            | 0                        | 837              | 0                  | 0                    | 0                                 | 0             | 837    
|Sale of common stock - Unearned ESOP shares                  | 978,650                       | 10           | 9,038                    | 0                | 0                  | 0                    | 0                                 | 0             | 9,048  
|Common stock acquired by ESOP - 119,236 shares               | 0                             | 0            | 0                        | 0                | (1,192)            | 0                    | 0                                 | 0             | (1,192)
|Committed ESOP shares                                        | 0                             | 0            | 0                        | 0                | 59                 | 0                    | 0                                 | 0             | 59     
|Appreciation in fair value of ESOP shares charged to expense | 0                             | 0            | 12                       | 0                | 0                  | 0                    | 0                                 | 0             | 12     
|Capitalization of CCMHC                                      | 2,063,100                     | 20           | (20)                     | (100)            | 0                  | 0                    | 0                                 | 0             | (100)  
|Cash dividends ($.05 per share)                              | 0                             | 0            | 0                        | (49)             | 0                  | 0                    | 0                                 | 0             | (49)   
|                                                            
|Balance - September 30, 2004                                 | 3,041,750                     | 30           | 9,030                    | 11,678           | (1,133)            | 0                    | 0                                 | 0             | 19,605 
|Comprehensive income:                                        |                               |              |                          |                  |                    |                      |                                   |               |        
|Net income                                                   | 0                             | 0            | 0                        | 1,051            | 0                  | 0                    | 0                                 | 0             | 1,051  
|Net unrealized loss on available-for-sale securities         | 0                             | 0            | 0                        | 0                | 0                  | 0                    | (4)                               | 0             | (4)    
|Total comprehensive income                                   |                               |              |                          |                  |                    |                      |                                   |               | 1,047  
|Common stock issued due to merger                            | 705,569                       | 7            | 0                        | 0                | 0                  | 0                    | 0                                 | 0             | 7      
|Additional paid-in capital due to merger                     | 0                             | 0            | 9,759                    | 0                | 0                  | 0                    | 0                                 | 0             | 9,759  
|Common stock purchased - 59,637 shares                       | 0                             | 0            | 0                        | 0                | 0                  | 0                    | 0                                 | (895)         | (895)  
|Committed ESOP shares                                        | 0                             | 0            | 43                       | 0                | 120                | 0                    | 0                                 | 0             | 163    
|Common stock awarded for Recognition and Retirement Plan -   |                              
|33,386 shares                                                | 0                             | 0            | (52)                     | 0                | 0                  | (449)                | 0                                 | 501           | 0      
|Amortization of restricted stock                             | 0                             | 0            | 0                        | 0                | 0                  | 60                   | 0                                 | 0             | 60     
|Cash dividends ($.20 per share)                              | 0                             | 0            | 0                        | (193)            | 0                  | 0                    | 0                                 | 0             | (193)  
|                                                            
|Balance - September 30, 2005 (carried forward)               | 3,747,319                     | 37           | 18,780                   | 12,536           | (1,013)            | (389)                | (4)                               | (394)         | 29,553 

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|                                                                                              | Shares                        | Common Stock | AdditionalPaid-InCapital | RetainedEarnings | UnearnedESOPShares | UnearnedCompensation | AccumulatedOtherComprehensiveLoss | TreasuryStock | Totals 
|--------------------------------------------------------------------------------------------- | ----------------------------- | ------------ | ------------------------ | ---------------- | ------------------ | -------------------- | --------------------------------- | ------------- | -------
|                                                                                              | (In Thousands, Except Shares)
|Balance - September 30, 2005 (carried forward)                                                | 3,747,319                     | $37          | $18,780                  | $12,536          | $(1,013)           | $(389)               | $(4)                              | $(394)        | $29,553
|Comprehensive income:                                                                         |                              
|Net income                                                                                    | 0                             | 0            | 0                        | 446              | 0                  | 0                    | 0                                 | 0             | 446    
|Reclassification adjustment for net security gains      included in income, net of tax of $11 | 0                             | 0            | 0                        | 0                | 0                  | 0                    | (16)                              | 0             | (16)   
|Net unrealized loss on available-for-sale securities                                          | 0                             | 0            | 0                        | 0                | 0                  | 0                    | 9                                 | 0             | 9      
|Total comprehensive income                                                                    |                               |              |                          |                  |                    |                      |                                   |               | 439    
|Committed ESOP shares                                                                         | 0                             | 0            | 0                        | 0                | 119                | 0                    | 0                                 | 0             | 119    
|Appreciation in fair value of ESOP shares charged to expense                                  | 0                             | 0            | 64                       | 0                | 0                  | 0                    | 0                                 | 0             | 64     
|Common stock awarded for Recognition and                                                      |                              
|Retention Plan - 3,576 shares                                                                 | 0                             | 0            | (11)                     | 0                | 0                  | (43)                 | 0                                 | 54            | 0      
|16 shares of common stock purchased from Employee                                             |                               |              |                          |                  |                    |                      |                                   |               | 0      
|401(k) Retirement Plan                                                                        | 0                             | 0            | 0                        | 0                | 0                  | 0                    | 0                                 | (1)           | (1)    
|Amortization of restricted stock                                                              | 0                             | 0            | 0                        | 0                | 0                  | 98                   | 0                                 | 0             | 98     
|Cash dividends ($0.20 per share)                                                              | 0                             | 0            | 0                        | (190)            | 0                  | 0                    | 0                                 | 0             | (190)  
|                                                                                             
|Balance - September 30, 2006                                                                  | 3,747,319                     | $37          | $18,833                  | $12,792          | ($894)             | ($334)               | ($11)                             | ($341)        | $30,082
|                                                                                             

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|                                                                      | 2006           | 2005     | 2004    
|--------------------------------------------------------------------- | -------------- | -------- | --------
|                                                                      | (In Thousands)
|Increase (decrease) in cash and cash equivalents:                     |               
|Cash flows from operating activities:                                 |               
|Net income                                                            | $446           | $1,051   | $837    
|                                                                     
|Adjustments to reconcile net income to net cash provided by operating |               
|activities:                                                           |               
|Provision for depreciation                                            | 416            | 278      | 256     
|Provision for loan losses                                             | 251            | 414      | 396     
|Gain on sale of securities                                            | (27)           |          | 0       
|Amortization of purchase accounting adjustments                       | (76)           | (19)     | 0       
|Amortization of core deposit intangible                               | 302            | 95       | 24      
|Amortization of restricted stock                                      | 98             | 60       | 0       
|Provision (benefit) for deferred income taxes                         | (338)          | 104      | (124)   
|Net change in loans held for sale                                     | (321)          | 0        | 0       
|Federal Home Loan Bank stock dividends                                | (16)           | (54)     | (45)    
|ESOP contribution expense in excess of shares released                | 64             | 43       | 12      
|Increase in accrued interest receivable and other assets              | (891)          | (584)    | (287)   
|Increase in other liabilities                                         | 3,850          | 360      | 128     
|                                                                     
|Total adjustments                                                     | 3,312          | 697      | 360     
|                                                                     
|Net cash provided by operating activities                             | 3,758          | 1,748    | 1,197   
|                                                                     
|Cash flows from investing activities:                                 |               
|Proceeds from maturities of interest-bearing deposits                 | 492            | 363      | 0       
|Purchase of Federal Home Loan Bank stock                              | (949)          | (928)    | (112)   
|Proceeds from sale of securities available-for-sale                   | 1,325          | 0        | 0       
|Net increase in loans                                                 | (40,737)       | (39,271) | (28,959)
|Net capital expenditures                                              | (1,171)        | (235)    | (88)    
|Cash received for branch acquisition                                  | 0              | 13,172   | 6,970   
|                                                                     
|Net cash used in investing activities                                 | (41,040)       | (26,899) | (22,189)
|                                                                     

---

---

|                                                                     | 2006           | 2005    | 2004   
|-------------------------------------------------------------------- | -------------- | ------- | -------
|                                                                     | (In Thousands)
|Cash flows from financing activities:                                |               
|Increase in borrowings                                               | $25,000        | $22,700 | $9,800 
|Increase in deposits                                                 | 9,259          | 7,917   | 5,119  
|Payments to acquire treasury stock                                   | (1)            | (895)   | 0      
|Proceeds from sale of common stock                                   | 0              | 0       | 9,048  
|Formation of CCMHC                                                   | 0              | 0       | (100)  
|Loan to ESOP for purchase of common stock                            | 0              | 0       | (1,192)
|Reduction in unallocated shares held by ESOP                         | 119            | 119     | 60     
|Cash dividends paid                                                  | (190)          | (193)   | (49)   
|                                                                    
|Net cash provided by financing activities                            | 34,187         | 29,648  | 22,686 
|                                                                    
|Net increase (decrease) in cash and cash equivalents                 | (3,095)        | 4,497   | 1,694  
|Cash and cash equivalents at beginning                               | 9,265          | 4,768   | 3,074  
|                                                                    
|Cash and cash equivalents at end                                     | $6,170         | $9,265  | $4,768 
|                                                                    
|Supplemental cash flow information:                                  |                |         |        
|Cash paid during the year for:                                       |                |         |        
|Interest on deposits                                                 | $5,231         | $3,117  | $2,824 
|Interest paid on borrowings                                          | 2,028          | 729     | 74     
|Income taxes                                                         | 555            | 728     | 686    
|Supplemental schedule of noncash investing and financing activities: |                |         |        
|Loans transferred to foreclosed properties                           | $376           | $148    | $0     

|Loans               | $706  
|------------------- | ------
|Other assets        | 242   
|                   
|Assets acquired     | $948  
|                   
|
|Deposits assumed    | $7,895
|Other liabilities   | 23    
|                   
|
|Liabilities assumed | $7,918
|                   
|

---

---

|Note 1 | Summary of Significant Accounting Policies

Nature of Operations

Citizens Community Bancorp (the "Company") is a federally chartered holding company which owns all of the common stock of Citizens Community Federal (the "Bank").  The Company is a majority-owned subsidiary of CCMHC, a federally chartered mutual holding company.

On March 29, 2004, the Company completed a minority stock offering and sold 978,650 shares of common stock in a subscription offering at $10 per share, raising approximately $8.9 million, net of offering costs.

On October 31, 2006, the Company completed a second step conversion at which time Citizens Community Bancorp ceased to exist and Citizens Community Bancorp, Inc. became the new holding company for the Bank.  See Note 2 for further discussion.

The Bank is a federally chartered stock savings bank.  It operates its business from several banking offices located in Wisconsin, Minnesota, and Michigan.  The Bank is engaged in the business of attracting deposits from the general public and investing those deposits in residential and consumer loans.

Principles of Consolidation

The consolidated financial statements include the accounts of Citizens Community Bancorp and its wholly owned subsidiary, Citizens Community Federal.  All significant intercompany balances and transactions have been eliminated.  The accounting and reporting policies of the Company conform to generally accepted accounting principles (GAAP) and to the practices within the banking industry.

Use of Estimates in Preparation of Financial Statements

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from these estimates.

Cash and Cash Equivalents

For purposes of reporting cash flows in the consolidated financial statements, cash and cash equivalents include cash due from banks and interest-bearing deposits with original maturities of three months or less.
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 1 | Summary of Significant Accounting Policies (Continued)

Other Interest-Bearing Deposits

Other interest-bearing deposits mature within three years and are carried at cost, which approximates fair value.

Securities

Securities are classified as available for sale and are carried at fair value, with unrealized gains and losses reported in other comprehensive income.  Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the securities.

Declines in fair value of securities that are deemed to be other than temporary, if applicable, are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method.

Loans

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity, or payoff, generally are reported at their outstanding unpaid principal balances adjusted for charge-offs and the allowance for loan losses.  Interest on loans is accrued and credited to income based on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield over the life of the loan.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged to expense.  Loan losses are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely.  Subsequent recoveries, if any, are credited to the allowance.

Management regularly evaluates the allowance for loan losses using the Company's past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, current economic conditions, and other relevant factors.  This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change.
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 1 | Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

The allowance for loan losses consists of specific, general, and unallocated components.  The specific component relates to loans that are classified as doubtful, substandard, or special mention and includes allowances estimated for any impaired loans.  The general component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors.  An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses and reflects the margin or imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The allowance for loan losses includes specific allowances related to loans that have been judged to be impaired under current accounting standards.  A loan is impaired when, based on current information, it is probable that the Company will not collect all amounts
due in accordance with the contractual terms of the loan agreement.  Management determines whether a loan is impaired on a case-by-case basis, taking into consideration the payment status, collateral value, length and reason of any payment delays, the borrower's prior payment record, and any other relevant factors.  Large groups of smaller balance homogeneous loans, such as residential mortgage and consumer loans, are collectively evaluated in the allowance for loan losses analysis and are not subject to impairment analysis unless such loans have been subject to a restructuring agreement.  Specific allowances for impaired loans are based on discounted cash flows of expected future payments using the loan's initial effective interest rate or the fair value of the collateral if the loan is collateral dependent.

In addition, various regulatory agencies periodically review the allowance for loan losses.  These agencies may require additions to the allowance for loan losses based on their judgments of collectibility.

In management's judgment, the allowance for loan losses is maintained at a level that represents its best estimate of probable losses relating to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio.  While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate.  Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Federal Home Loan Bank Stock

The Bank owns stock in the Federal Home Loan Bank (FHLB).  FHLB stock is carried at cost which approximates fair value.  The Bank is required to hold the stock as a member of the FHLB system, and transfer of the stock is substantially restricted.  The stock is pledged as collateral for outstanding FHLB advances.
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 1 | Summary of Significant Accounting Policies (Continued)

Office Properties and Equipment

Office properties and equipment are stated at cost.  Maintenance and repair costs are charged to expense as incurred.  Gains or losses on disposition of office properties and equipment are reflected in income.  Depreciation is computed principally on the straight-line method and is based on the estimated useful lives of the assets, varying from 10 to 40 years for buildings and 3 to 10 years for equipment.

Intangible Assets and Goodwill

Intangible assets attributable to the value of core deposits acquired and the excess of purchase price over fair value of assets acquired (goodwill) are stated at cost less accumulated amortization.  Intangible assets are amortized on a straight-line basis over periods of seven to fifteen years.  Goodwill is not amortized.

The Company reviews intangible assets and goodwill for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  The evaluation includes assessing the estimated fair value of the intangible asset based on market prices for similar assets, where available, and the present value of the estimated future cash flows associated with the intangible asset.  Adjustments are recorded if it is determined that the benefit of the intangible asset has decreased.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis.  Subsequent to foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less cost to sell.  Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

Income Taxes

Deferred income taxes have been provided under the liability method.  Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax bases of assets and liabilities as measured by the current enacted tax rates which will be in effect when these differences are expected to reverse.  Provision (credit) for deferred taxes is the result of changes in the deferred tax assets and liabilities.

Advertising Costs

Advertising costs are expensed as incurred.
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 1 | Summary of Significant Accounting Policies (Continued)

Earnings Per Share

Basic earnings per share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.  The weighted average number of shares outstanding for 2006 and 2005 was 3,628,703 and 3,007,681 for basic EPS and 3,642,163 and 3,009,002 for diluted EPS, respectively.

The formation of the Company was completed on March 29, 2004, the date of the closing of the initial public offering.  The basic and diluted EPS are presented for the period March 29, 2004 through September 30, 2004.  The weighted average number of shares outstanding for this period was 3,038,769 for basic and diluted EPS.

As described in Note 2, on October 31, 2006, the Company completed a public offering associated with its second step conversion in which a total of 7,116,380 common shares were issued while each outstanding public share was converted into 1.91067 shares of the new holding company.  This transaction would have materially changed the number of common shares outstanding if this change had occurred before the end of the year.


Future Accounting Changes

In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123(R), Share-Based Payment, which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.  SFAS No. 123(R) requires that the cost of share-based payment transactions (including those with employees and nonemployees) be recognized in the financial statements.  SFAS No. 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity's shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity's shares or other equity instruments.

The Company adopted SFAS No. 123(R), as required, on October 1, 2006.  Note 1 discloses the effect on earnings had SFAS No. 123(R) been adopted in prior periods.  Since the statement was adopted using the modified- prospective method, the effect the adoption will have on the financial statements can be materially impacted by the number of options granted in future periods.

On October 10, 2006, the FASB issued FSP SAS 123(R)-5, Amendment of FSP FAS
123(R)-1, effective in the first reporting period beginning after October 10, 2006.  The FSP addresses circumstances whereby a modification of an instrument in connection with an equity restructuring could be considered a modification for purposes of applying FSP FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services Under FASB Statement No. 123(R).  The adoption of the provisions of this pronouncement will not have a material impact on the Company's financial position or results of operations.
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 1 | Summary of Significant Accounting Policies (Continued)

Future Accounting Changes (Continued)

On October 20, 2006, for FASB issued FSP FAS 123(R)-6, Technical Corrections of FASB Statement No. 123(R), effective in the first reporting period beginning after October 20, 2006.  The FSP issues clarification of certain disclosure and computation requirements associated with the implementation of SFAS 123(R).  The adoption of the provisions of this pronouncement will not have a material impact on the Company's financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections - a Replacement of APB Opinion No. 20 and SFAS No. 3.  SFAS No. 154 requires changes in accounting principles to be retrospectively applied to the prior periods presented in the financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  SFAS No. 154 is effective for accounting changes and error corrections that are made in fiscal years beginning after December 31, 2005.  SFAS No. 154 will not have a material impact on the Company's financial position or results of operations.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments - an amendment for FASB Statements No. 133 and 140.  SFAS No. 155 amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  SFAS No. 155 resolves issues addressed in Statement No. 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.  The Statement is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006.  SFAS No. 155 will not have a material impact on the Company's financial position or results of operation.

In March 2006, the FASB issued FASB No. 156, Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140.  SFAS No. 156 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities.  Statement No. 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006.  SFAS No. 156 will not have a material impact on the Company's financial position or results of operations.

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, Fair Value Measurements.  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The Company believes the adoption of this statement will not have a significant effect on the financial statements of the Company.
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 1 | Summary of Significant Accounting Policies (Continued)

Future Accounting Changes (Continued)

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans.  This statement amends SFAS No. 87, Employers' Accounting for Pensions, SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, and SFAS No. 132 (revised 2003), Employers' Disclosures About Pensions and Other Postretirement Benefits.  SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize gains or losses and prior service costs or credits that arise during the year but are not recognized as components of net periodic benefit cost under SFAS No. 87 as a component of other comprehensive income.  It also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.  SFAS No. 158 is generally effective for public companies as of the end of the fiscal year ending after December 15, 2006, and for nonpublic companies as of the end of the fiscal year ending after June 15, 2007.  The requirement to measure plan assets and benefit obligations as of the date of the fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008.  The Company believes the adoption of this statement will increase liabilities and decrease equity approximately $620 for the underfunded status of the plan, net of tax.

In September 2006, the Securities and Exchange Commission's office (SEC) announced Staff Accounting Bulletin No. 108 (SAB 108).  SAB 108 addresses how to quantify financial statement errors that arose in prior periods for purposes of assessing their materiality in the current period.  It requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality.  It clarifies that immaterial financial statement errors in a prior SEC filing can be corrected in subsequent filings without the need to amend the prior filing.  In addition, SAB 108 provides transitional relief for correcting errors that would have been considered immaterial before its issuance.  The adoption of SAB 108 will not have an impact on our consolidated financial position, results of operations, or cash flows.

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes.  This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.  FIN 48 prescribed a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  The adoption of this interpretation will not have a significant effect on the financial statements of the Company.
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 1 | Summary of Significant Accounting Policies (Continued)

Stock-Based Compensation

Accounting principles generally accepted in the United States encourage all entities to adopt a fair-value- based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.  At September 30, 2006, the rules also allow an entity to continue to measure compensation cost for those plans using the intrinsic-value-based method of accounting, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date over the amount an employee must pay to acquire the stock.  However, effective during the quarter ending December 31, 2006, this treatment will change to require all stock-based compensation to be reflected as income (refer to "Future Accounting Changes").

Citizens Community Bancorp follows the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and uses the "intrinsic value method" of recording stock-based compensation cost.  Because stock options are granted with an exercise price equal to fair value at the date of grant, no compensation expense is recorded.

The following table illustrates the effect of net income and earnings per share if the fair-value-based method had been applied to all outstanding and unvested awards in each year:
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                      | 2006           | 2005   | 2004 
| | ---------------------------------------------------- | -------------- | ------ | -----
| |                                                      | (In Thousands)
| | Net income, as reported                              | $446           | $1,051 | $837 
| | Deduct:                                              |                |        |      
| | Total stock-based employee compensation expense      |                |        |      
| | determined under the fair-value-based method for all |                |        |      
| | awards, net of related tax effects                   | 67             | 45     | 0    
| |                                                     
| | Pro forma net income                                 | $379           | $1,006 | $837 
| |                                                     
| | Earnings per share - Basic and diluted               |                |        |      
| | As reported:                                         |                |        |      
| | Basic                                                | $0.12          | $0.35  | $0.16
| | Diluted                                              | $0.12          | $0.35  | $0.16
| | Pro forma:                                           |                |        |      
| | Basic                                                | $0.10          | $0.33  | $0.16
| | Diluted                                              | $0.10          | $0.33  | $0.16

---

---

|Note 1 | Summary of Significant Accounting Policies (Continued)

Stock-Based Compensation (Continued)

The fair value of stock options granted in 2005 was estimated at the date of grant using the Black-Scholes methodology.  No options were granted in 2006 or in 2004.  The following assumptions were made in estimating the fair value for options granted for the year ended September 30, 2005:
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                        | 2005  
| | -------------------------------------- | ------
| | Dividend yield                         | 1.49% 
| | Risk-free interest rate                | 4.16% 
| | Weighted average expected life (years) | 10    
| | Expected volatility                    | 16.08%

| | The weighted average fair value of options at their grant date, using the assumptions shown above, was computed at $3.66 per share for options granted in 2005.

Off-Balance-Sheet Financial Instruments

In the ordinary course of business, the Bank has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and commitments under credit card arrangements.  Such financial instruments are recorded in the financial statements when they become payable.

Other Comprehensive Income

Other comprehensive income (loss) is shown on the consolidated statements of stockholders' equity.  The Company's accumulated other comprehensive income (loss) is comprised of the unrealized gain (loss) on securities available for sale, net of tax, and is shown on the consolidated statements of stockholders' equity.

Segment Information

The Company, through a branch network of its banking subsidiary, provides a full range of banking services in northern Wisconsin, Minnesota, and Michigan.

While the Company's chief decision makers monitor the revenue streams of various Company products and services, operations are managed and financial performance is evaluated on a companywide basis.  Accordingly, all of the Company's banking operations are considered by management to be aggregated in one reportable operating segment.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 1 | Summary of Significant Accounting Policies (Continued)

Rate Lock Commitments

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments).  Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives.  Rate lock commitments are recorded only to the extent of fees received since recording the estimated fair value of these commitments would not have a significant impact on the consolidated financial statements.  Fees received are subsequently included in the net gain or loss on the sale of loans.

Reclassifications

Certain prior year balances have been reclassified to conform to current year presentation.

Presentation

All footnote information is presented in thousands, except for per share amounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 2 | Merger

On July 1, 2005, the acquisition of Community Plus Savings Bank (CPSB) by the Company in a tax-free merger of CPSB with and into the Bank (the "Merger") was completed.  In accordance with the agreement, the Company issued 705,569 additional shares to CCMHC as determined under the agreement.  The primary objective of the merger was to provide additional liquidity and geographic growth opportunities for the Company.

The Merger was accounted for using the purchase method of accounting.  Accordingly, the results of operations of CPSB since the date of acquisition are included in the consolidated financial statements.

The purchase price to complete the Merger was $9.76 million. The purchase price of the Merger has been allocated to the assets acquired and liabilities assumed, using their fair values at the merger date.

Goodwill and other purchase accounting adjustments were recorded upon the consummation of the purchase acquisition where the purchase price exceeded the fair value of net assets acquired. The Bank recorded a core deposit intangible of $1,877, which is being amortized as indicated in Note 7. In addition, approximately $516 of expenses associated with the acquisition were capitalized. The computation of the purchase price and the allocation of the purchase price to the net assets of CPSB based on their fair values as of July 1, 2005, and the resulting goodwill follow.

---

---

|Note 2 | Merger(Continued)
|------ | -----------------

| | (In thousands, except per share amounts)                  | July 1, 2005
| | --------------------------------------------------------- | ------------
| |                                                          
| | Purchase price                                            |             
| | Company common stock issued                               | 705,569     
| | Average price per Company common share (1)                | $13.11      
| |                                                          
| |                                                           | $9,250      
| | Merger costs capitalized                                  | 516         
| |                                                          
| | Total purchase price                                      | $9,766      
| |                                                          
| | Net assets acquired:                                      |             
| | CPSB stockholders' equity                                 | $4,144      
| | Adjustments to reflect assets acquired at fair value:     |             
| | Investment securities                                     | (11)        
| | Loans receivable                                          | (456)       
| | Office properties and equipment                           | (82)        
| | Core deposit intangible                                   | 1,877       
| | Other assets                                              | (420)       
| |                                                          
| | Adjustments to reflect liabilities assumed at fair value: |             
| | Deposits                                                  | (50)        
| | Deferred income taxes                                     | (405)       
| | Pension liability                                         | (220)       
| | Other liabilities                                         | (77)        
| |                                                          
| | Net assets acquired at fair market value                  | 4,300       
| |                                                          
| | Goodwill resulting from Merger                            | $5,466      
| |                                                          

| | (1) | The value of the Company's common stock issued to CCMHC was based on the average closing bid price of the Company's common stock for the 20th through the 5th trading days prior to the July 1, 2005, closing date.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 2 | Merger(Continued)


Unaudited pro forma condensed combined financial information

The following unaudited pro forma condensed combined financial information presents the results of operations of CPSB had the Merger taken place at the beginning of the year.
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (In thousands, except per share amounts) | 2005   | 2004  
| | ---------------------------------------- | ------ | ------
| |                                         
| | Net interest income                      | $9,028 | $8,563
| | Noninterest income                       | 2,173  | 1,406 
| | Provision for loan losses                | 427    | 409   
| | Other noninterest expense                | 9,260  | 8,132 
| | Income before income taxes               | 1,514  | 1,428 
| | Net income                               | 920    | 870   
| |                                         
| | Basic and diluted earnings per share     | $0.28  | N/A   
|

|Note 3 | Cash and Cash Equivalents

In the normal course of business, the Bank maintains cash and due from bank balances with correspondent banks which routinely exceed insured amounts.  Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100.  The Bank monitors the financial condition of correspondent banks and believes credit risk is minimal.
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 4 | Securities


The amortized cost and estimated fair value of securities, with gross unrealized gains and losses at September 30, follows:                                                                                                                                                                                                                                                  

| |                                     | AmortizedCost  | GrossUnrealizedGains | GrossUnrealizedLosses | EstimatedFair Value
| | ----------------------------------- | -------------- | -------------------- | --------------------- | -------------------
| |                                     | (In Thousands)
| | 2006                                |                |                      |                       |                    
| | Securities Available for Sale:      |                |                      |                       |                    
| | Debt securities:                    |                |                      |                       |                    
| | Mortgage-related securities         | $796           | $0                   | $14                   | $782               
| |                                    
| | Total securities available for sale | $796           | $0                   | $14                   | $782               
| |                                    

---

---

|Note 4 | Securities (Continued)
|------ | ----------------------

| |                                     | AmortizedCost  | GrossUnrealizedGains | GrossUnrealizedLosses | EstimatedFair Value
| | ----------------------------------- | -------------- | -------------------- | --------------------- | -------------------
| |                                     | (In Thousands)
| | 2005                                |                |                      |                       |                    
| | Securities Available for Sale:      |                |                      |                       |                    
| | Debt securities:                    |                |                      |                       |                    
| | Corporate securities                | $1,000         | $0                   | $19                   | $981               
| | Mortgage-related securities         | $952           | $0                   | $6                    | $946               
| | Mutual funds                        | $142           | $19                  | $0                    | $161               
| |                                    
| | Total securities available for sale | $2,094         | $19                  | $25                   | $2,088             
| |                                    

| | The following tables show the fair value and gross unrealized losses of securities with unrealized losses at September 30, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2006                        | Less than 12 Months | 12 Months or More | Total    
| | --------------------------- | ------------------- | ----------------- | ---------
| | Descriptionof Securities    | FairValue           | UnrealizedLosses  | FairValue
| |                             | (In Thousands)     
| | Mortgage-related securities | $0                  | $0                | $782     
| |                            
| | Total temporarily impaired  |                    
| | securities                  | $0                  | $0                | $782     
| |                            
| | 2005                        |                    
| | Corporate securities        | $981                | $19               | $0       
| | Mortgage-related securities | 608                 | 6                 | 0        
| |                            
| | Total temporarily impaired  |                    
| | securities                  | $1,589              | $25               | $0       
| |                            

---

---

|Note 4 | Securities (Continued)


At September 30, 2006, three securities have unrealized losses with aggregate depreciation of 1.8% from the Company's amortized cost basis.  The unrealized losses relate principally to the increase in interest rates and are not due to changes in the financial condition of the issuer.  When analyzing an issuer's financial condition, management considers whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, and industry analysts' reports.  Since management has the ability to hold securities until the foreseeable future for securities available for sale, no declines are deemed to be other than temporary.

The following is a summary of amortized cost and estimated fair value of debt securities by contractual maturity, as of September 30, 2006.  Contractual maturities will differ from expected maturities for mortgage-related securities because borrowers may have the right to call or prepay obligations without penalties:
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                             | Available for Sale
| | --------------------------- | ------------------
| |                             | AmortizedCost     
| |                             | (In Thousands)    
| | Mortgage-related securities | $796              
| |                            
| | Total                       | $796              
| |                            

| | Following is a summary of the proceeds from sales of securities available for sale, as well as gross gains and losses for the years ended September 30:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                  | 2006           | 2005 | 2004
| | -------------------------------- | -------------- | ---- | ----
| |                                  | (In Thousands)
| | Proceeds from sale of securities | $1,325         | $0   | $0  
| | Gross gains on sales             | 27             | 0    | 0   

---

---

|Note 5 | Loans

The composition of loans at September 30 follows:
|------ | --------------------------------------------------------

| |                                 | 2006           | 2005    
| | ------------------------------- | -------------- | --------
| |                                 | (In Thousands)
| | Real estate loans:              |               
| | First mortgages--1- to 4-family | $156,235       | $136,647
| | Multifamily and commercial      | 240            | 274     
| | Second mortgages                | 9,161          | 7,630   
| |                                
| | Total real estate loans         | 165,636        | 144,551 
| |                                
| | Consumer loans:                 |               
| | Automobile                      | 24,445         | 25,980  
| | Secured personal                | 64,384         | 43,460  
| | Unsecured personal              | 4,774          | 4,743   
| |                                
| | Total consumer loans            | 93,603         | 74,183  
| |                                
| | Gross loans                     | 259,239        | 218,734 
| | Allowance for loan losses       | (835)          | 803     
| | Net deferred loan costs         | 63             | 0       
| |                                
| | Loans receivable, net           | $258,467       | $217,931
| |                                

| | The aggregate amount of nonperforming loans was $1,390 and $669, at September 30, 2006 and 2005, respectively.  Nonperforming loans are those which are contractually past due more than 90 days as to interest or principal payments, on a nonaccrual of interest status, or loans the terms of which have been renegotiated to provide a reduction or deferral of interest or principal.  If interest on those loans had been accrued, such income would have been $52, $36, and $38 in 2006, 2005, and 2004, respectively.  No loans were considered impaired in 2006 and 2005.

Directors, officers, principal stockholders, and employees of the Company, including their families and firms in which they are principal owners, are considered to be related parties.  Substantially all loans to directors and executive officers were made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others and, in the opinion of management, did not involve more than the normal risk of collectibility or present other unfavorable features.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 5 | Loans (Continued)

Activity in related-party loans for the years ended September 30 2006 and 2005 is as follows:
|------ | ----------------------------------------------------------------------------------------------------------------

| |                                 | 2006           | 2005
| | ------------------------------- | -------------- | ----
| |                                 | (In Thousands)
| | Loans outstanding, October 1    | $62            | $80 
| | New Loans                       | 26             | 16  
| | Repayments                      | (42)           | (34)
| |                                
| | Loans outstanding, September 30 | $46            | $62 
| |                                

| | An analysis of the activity in the allowance for loan losses at September 30 follows:
| | -------------------------------------------------------------------------------------

| |                                                        | 2006           | 2005  | 2004 
| | ------------------------------------------------------ | -------------- | ----- | -----
| |                                                        | (In Thousands)
| | Balance at beginning                                   | $803           | $554  | $467 
| | Provisions charged to operating expense                | 251            | 414   | 396  
| | Allowance for loan losses obtained through bank merger | 0              | 40    | 0    
| | Loans charged off                                      | (247)          | (236) | (342)
| | Recoveries on loans                                    | 28             | 31    | 33   
| |                                                       
| | Balance at end                                         | $835           | $803  | $554 
| |                                                       

|Note 6 | Office Properties and Equipment

Office properties and equipment at September 30 consists of the following:
|------ | -----------------------------------------------------------------------------------------------------------

| |                                       | 2006           | 2005  
| | ------------------------------------- | -------------- | ------
| |                                       | (In Thousands)
| | Land                                  | $613           | $613  
| | Buildings                             | 2,997          | 2,485 
| | Furniture, equipment, and vehicles    | 3,225          | 2,549 
| | Subtotals                             | 6,835          | 5,647 
| | Less - Accumulated depreciation       | 3,154          | 2,724 
| |                                      
| | Office properties and equipment - Net | $3,681         | $2,923
| |                                      

| | Depreciation charged to operating expense totaled $416, $278, and $256 for the years ended September 30, 2006, 2005, and 2004, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 7 | Intangible Assets

The carrying amount of the core deposit intangible at September 30 is as follows:
|------ | ----------------------------------------------------------------------------------------------------

| |                      | 2006           | 2005   | 2004
| | -------------------- | -------------- | ------ | ----
| |                      | (In Thousands)
| | Balance at beginning | $2,131         | $349   | $155
| | Capitalized          | 0              | 1,877  | 217 
| | Amortization         | (302)          | (95)   | (24)
| |                     
| | Balance at end       | $1,829         | $2,131 | $348
| |                     

|       | Estimated future amortization expense for amortizing core deposit intangible is $302 annually.                                                                                                                                                                                                                                  
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 8 | Goodwill

Goodwill resulting from an acquisition in 2005 was approximately $5,466 as of September 30, 2006 and 2005.  The Company tested for impairment during the fourth quarter and determined there was no impairment of goodwill during 2006 or 2005.  No amortization or impairment expense was recognized in 2006 or 2005.
|Note 9 | Deposits

The composition of deposits at September 30 follows:                                                                                                                                                                                                                                                                  

| |                                      | 2006           | 2005    
| | ------------------------------------ | -------------- | --------
| |                                      | (In Thousands)
| | Non-interest-bearing demand deposits | $13,785        | $14,413 
| | Interest-bearing demand deposits     | 4,884          | 4,902   
| | Savings accounts                     | 24,975         | 27,193  
| | Money market accounts                | 22,262         | 30,323  
| | Certificate accounts                 | 120,805        | 100,638 
| |                                     
| | Total deposits                       | $186,711       | $177,469
| |                                     

---

---

|
|
|

| |                                  | 2006           | 2005   | 2004  
| | -------------------------------- | -------------- | ------ | ------
| |                                  | (In Thousands)
| | Interest-bearing demand deposits | $28            | $30    | $31   
| | Savings accounts                 | 167            | 147    | 115   
| | Money market accounts            | 500            | 433    | 389   
| | Certificate accounts             | 4,487          | 2,653  | 2,269 
| |                                 
| | Totals                           | $5,182         | $3,263 | $2,804
| |                                 

| | The aggregate amount of time deposit accounts with individual balances greater than $100 was $20,012 and $21,409 at September 30, 2006 and 2005, respectively.

At September 30, 2006, the scheduled maturities of certificate accounts are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |            | (In Thousands)
| | ---------- | --------------
| | 2007       | $88,945       
| | 2008       | 20,267        
| | 2009       | 10,116        
| | 2010       | 1,474         
| | After 2010 | 3             
| |           
| | Total      | $120,805      
| |           

| | Deposits from directors, executive officers, principal shareholders and their affiliates, totaled $1,071 as of September 30, 2006.
| | ----------------------------------------------------------------------------------------------------------------------------------

---

---

|
|
|

| |                                 | 2006                   | 2005   
| | ------------------------------- | ---------------------- | -------
| |                                 | Rates                  | Amount 
| |                                 | (Dollars In Thousands)
| | Federal Home Loan Bank (FHLB):  |                       
| | Fixed rate, fixed term advances | 4.70-5.53%             | $10,092
| | Adjustable rate advances        | 5.62%                  | 51,108 
| |                                
| | Totals                          |                        | $61,200
| |                                

| | The following is a summary of scheduled maturities of fixed term borrowed funds as of September 30, 2006:
| | ---------------------------------------------------------------------------------------------------------

| |       | WeightedAverageRate | TotalAmount   
| | ----- | ------------------- | --------------
| |       |                     | (In Thousands)
| | 2007  | 4.70%               | $4,750        
| | 2008  | 5.31%               | 5,342         
| |      
| | Total |                     | $10,092       
| |      

| | Actual maturities may differ from the scheduled principal maturities due to call options on the various advances.

The Company has a master contract agreement with the Federal Home Loan Bank that provides for borrowing up to the maximum of 75% of the book value of the Company's qualifying one- to four-family residential real estate loans.  The FHLB provides both fixed and floating rate advances.  Floating rates are tied to short-term market rates of interest, such as London InterBank Offered Rate (LIBOR), federal funds, or treasury bill rates.  Advances with call provisions permit the FHLB to request payment beginning on the call date and quarterly thereafter.  FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity.  FHLB advances are also secured by FHLB stock owned by the Company at September 30, 2006 and 2005, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|
|
|

| |                                      | 2006           | 2005 | 2004 
| | ------------------------------------ | -------------- | ---- | -----
| |                                      | (In Thousands)
| | Current tax expense:                 |                |      |      
| | Federal                              | $509           | $491 | $525 
| | State                                | 138            | 89   | 142  
| |                                     
| | Total current tax expense            | 647            | 580  | 667  
| |                                     
| | Deferred tax expense (benefit):      |                |      |      
| | Federal                              | (261)          | 98   | (99) 
| | State                                | (77)           | 6    | (25) 
| |                                     
| | Total deferred tax expense (benefit) | (338)          | 104  | (124)
| |                                     
| | Total provison for income taxes      | $309           | $684 | $543 
| |                                     

| | Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities.  The major components of net deferred tax asset (liability) at September 30 are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                            | 2006           | 2005  
| | ------------------------------------------ | -------------- | ------
| |                                            | (In Thousands)
| | Deferred tax assets:                       |                |       
| | Mutual savings bank conversion costs       | $21            | $49   
| | Director/officer compensation plans        | 749            | 569   
| | Wisconsin net operating loss carryforwards | 9              | 0     
| | Allowance for loan losses                  | 80             | 0     
| | Net asset fair value adjustments           | 148            | 175   
| |                                           
| | Deferred tax assets                        | 1,007          | 793   
| |                                           
| | Deferred tax liabilities:                  |                |       
| | Deferred loan costs                        | (25)           | 0     
| | Office properties and equipment            | (40)           | (63)  
| | Allowance for loan losses                  | 0              | (24)  
| | Federal Home Loan Bank stock               | (80)           | (74)  
| | Prepaids                                   | (28)           | (40)  
| | Core deposit - Intangible                  | (605)          | (714) 
| | Other                                      | (10)           | (2)   
| |                                           
| | Deferred tax liabilities                   | (788)          | (917) 
| |                                           
| | Net deferred tax asset (liability)         | $219           | ($124)
| |                                           

---

---

|
|
|

| |                                              | 2006                   | 2005                   | 2004  
| | -------------------------------------------- | ---------------------- | ---------------------- | ------
| |                                              | Amount                 | Percentof PretaxIncome | Amount
| |                                              | (Dollars In Thousands)
| | Tax expense at statutory rate                | $257                   | 34.0%                  | $590  
| | Increase in taxes resulting from state taxes | 52                     | 6.9%                   | 94    
| |                                             
| | Total provision for income taxes             | $309                   | 40.9%                  | $684  
| |                                             

|
|
|

---

---

|
|
|

| |                                         | 2006           | 2005   | 2004
| | --------------------------------------- | -------------- | ------ | ----
| |                                         | (In Thousands)
| | Beginning accrued benefit cost          | $1,220         | $686   | $414
| |                                        
| | Service cost                            | 86             | 64     | 57  
| | Interest cost                           | 137            | 110    | 95  
| | Expected return on plan assets          | 0              | 0      | 0   
| | Amortization of prior service costs     | 156            | 135    | 120 
| | Unrecognized net loss                   | 14             | 4      | 0   
| |                                        
| | Net periodic benefit cost               | 393            | 313    | 272 
| | Additional costs associated with merger | 0              | 221    | 0   
| |                                        
| | Ending accrued benefit cost             | $1,613         | $1,220 | $686
| |                                        

---

---

|
|
|

| |                                                        | 2006           | 2005     | 2004    
| | ------------------------------------------------------ | -------------- | -------- | --------
| |                                                        | (In Thousands)
| | Change in benefit obligation:                          |                |          |         
| | Projected benefit obligation, beginning of year        | $2,613         | $1,734   | $1,360  
| | Service cost                                           | 86             | 64       | 57      
| | Interest cost                                          | 137            | 110      | 95      
| | Plan amendments/effect of merger                       | 0              | 481      | 0       
| | Actuarial loss                                         | (190)          | 224      | 222     
| | Benefits paid                                          | 0              | 0        | 0       
| |                                                       
| | Projected benefit obligation, end of year              | $2,646         | $2,613   | $1,734  
| |                                                       
| | Change in plan assets:                                 |                |         
| | Plan assets at fair value, beginning of year           | $0             | $0       | $0      
| | Actual return on plan assets                           | 0              | 0        | 0       
| | Company contributions                                  | 0              | 0        | 0       
| | Benefits paid                                          | 0              | 0        | 0       
| |                                                       
| | Plan assets at fair value, end of year                 | $0             | $0       | $0      
| |                                                       
| | Net liability recognized in balance sheet:             |                |          |         
| | Funded status of the plan, end of year                 | ($2,646)       | ($2,613) | ($1,734)
| | Unrecognized prior service costs                       | 795            | 951      | 826     
| | Unrecognized actuarial net loss (gain)                 | 238            | 442      | 222     
| |                                                       
| | Net liability recognized in balance sheet, end of year | ($1,613)       | ($1,220) | ($686)  
| |                                                       
| | Amounts recognized in consolidated balance sheets:     |                |          |         
| | Accrued benefit liability                              | ($2,204)       | ($2,036) | ($1,279)
| | Intangible asset                                       | 591            | 816      | 593     
| |                                                       
| | Net amount recognized                                  | ($1,613)       | ($1,220) | ($686)  
| |                                                       

---

---

|
|
|

| |                                                  | 2006  | 2005  | 2004 
| | ------------------------------------------------ | ----- | ----- | -----
| | Benefit obligation actuarial assumptions:        |       |       |      
| | Discount rate                                    | 5.75% | 5.25% | 6.00%
| | Rate of compensation increase                    | 5.00% | 5.00% | 5.00%
| | Net pension cost actuarial assumption:           |       |       |      
| | Discount rate                                    | 5.25% | 6.00% | 7.00%
| | Expected long-term rate of return on plan assets | N/A   | N/A   | N/A  
| | Rate of compensation increase                    | 5.00% | 5.00% | 5.00%

| | Estimated future benefit payments as of September 30, 2006, which reflect expected future service, as appropriate, are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------

| |            | (In Thousands)
| | ---------- | --------------
| | 2007       | $6            
| | 2008       | 28            
| | 2009       | 40            
| | 2010       | 47            
| | 2011       | 49            
| | Thereafter | 1,293         

| | Employee Stock Ownership Plan

The Board of Directors approved an Employee Stock Ownership Plan (ESOP) that became effective March 29, 2004.  The Plan is designed to provide eligible employees the advantage of ownership of Company stock.  Employees are eligible to participate in the Plan after reaching age twenty-one, completing one year of service, and working at least one thousand hours of consecutive service during the year.  Contributions are allocated to eligible participants on the basis of compensation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|
|
|

| | Allocated                                                      | 20,866 
| | -------------------------------------------------------------- | -------
| | Committed to be released                                       | 11,924 
| | Unallocated                                                    | 86,446 
| |                                                               
| | Total shares held by ESOP                                      | 119,236
| |                                                               
| | Estimated fair value of unallocated shares held (In Thousands) | $1,840 
| |                                                               

|
|
|

---

---

|Note 13 | Leases (Continued)
Future minimum lease payments by year and in aggregate under the original terms of the noncancelable operating leases consist of the following:
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |            | (In Thousands)
| | ---------- | --------------
| | 2007       | $217          
| | 2008       | 237           
| | 2009       | 246           
| | 2010       | 134           
| | 2011       | 40            
| | Thereafter | 36            
| |           
| | Total      | $910          
| |           

|Note 14 | Stock-Based Compensation Plans

Recognition and Retention Plans

On February 4, 2005, shareholders approved the Citizens Community Bancorp 2004 Recognition and Retention Plan (Recognition Plan) which authorized the Board of Directors to award up to 59,618 shares of common stock.  On February 4, 2005, and November 5, 2005, the Board of Directors granted 33,386 and 3,576 shares, respectively.  The market value of the shares awarded at the grant date amounted to $449 and $42, respectively, and has been recognized in the accompanying balance sheet as unearned stock-based compensation.  The market value of the shares awarded is being recognized as compensation expense ratably over the five-year vesting period.  During fiscal years 2006 and 2005, no shares were forfeited.  Compensation expense related to the Recognition Plan was $98 and $60 for the years ended September 30, 2006 and 2005, respectively.

Stock Option Plan

On February 4, 2005, shareholders approved the Citizens Community Bancorp 2004 Stock Option and Incentive Plan (Option Plan) which authorized the Board of Directors to grant up to 149,046 shares of common stock.  On February 4, 2005, the Board of Directors granted 105,827 options to buy stock under the Option Plan at an exercise price of $13.45, the fair value of the stock on that date.  The options vest ratably over a five-year period.

Unexercised, nonqualified stock options expire in 15 years and unexercised, incentive stock options expire in 10 years.  None of the options granted were vested, exercised, or forfeited during the years ended September 30, 2006 and 2005, and all options granted remain outstanding at year-end.
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

|Note 14 | Stock-Based Compensation Plans(Continued)


Stock Option Plan (Continued)

Activity for the year ended September 30 is summarized in the following table.
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                | 2006         | 2005                
| | ---------------------------------------------- | ------------ | --------------------
| |                                                | OptionShares | WeightedAveragePrice
| |                                               
| | Outstanding - Beginning of year                | 105,827      | $13.45              
| | Options granted                                | 0            | 0                   
| |                                               
| | Outstanding - End of Year                      | 105,827      | $13.45              
| |                                               
| | Exercisable at September 30, 2006              | 21,165      
| | Weighted average fair value of options granted | $3.66       
| | Available for future grant at year-end         | 43,219      

| | The following table summarizes information about Plan awards outstanding at September 30, 2006:
| | -----------------------------------------------------------------------------------------------

| | Options Outstanding and Exercisable
| | -----------------------------------
| | Number Outstanding                 
| | 68,562                             
| | 37,265                             

---

---

|Note 15 | Earnings Per Share

Basic and diluted earnings per share data are based on the weighted-average numbers of common shares outstanding during each period.  Diluted earnings per share are further adjusted for potential common shares that were dilutive and outstanding during the period.  Potential common shares consist of stock options outstanding under the incentive plan.  The dilutive effect of potential common shares is computed using the treasury stock method.  All stock options are assumed to be 100% vested for purposes of the earnings per share computations.  The computation of earnings per share for the years ended September 30, 2006, 2005, and 2004, are as follows:
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                              | 2006      | 2005      | 2004     
| | -------------------------------------------- | --------- | --------- | ---------
| | Weighted average shares outstanding          | 3,628,703 | 3,007,681 | 3,038,769
| | Effect of dilutive stock options outstanding | 13,460    | 1,321     | 0        
| |                                             
| | Diluted weighted average shares outstanding  | 3,642,163 | 3,009,002 | 3,038,769
| |                                             
| | Basic earnings per share                     | $0.12     | $0.35     | $0.16    
| |                                             
| | Diluted earnings per share                   | $0.12     | $0.35     | $0.16    
| |                                             

|Note 16 | Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk

The Company's financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk, and liquidity risk.  These commitments and contingent liabilities are commitments to extend credit.

A summary of the Company's commitments and contingent liabilities at September 30 follows:
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                       | 2006           | 2005  
| | ----------------------------------------------------- | -------------- | ------
| |                                                       | (In Thousands)
| | Commitments to extend credit - Fixed rate 7.0% - 8.0% |               
| | in 2006 and 6.0% - 7.00% in 2005                      | $500           | $611  
| | Unused lines of credit:                               |                |       
| | Real estate equity advance plan (REAP)                | 1,193          | 825   
| | Kwik cash and lines of credit                         | 1,823          | 1,734 
| | MasterCard and VISA credit cards                      | 4,829          | 4,956 
| |                                                      
| | Totals                                                | $8,345         | $8,126
| |                                                      

---

---

|Note 16 | Commitments and Contingencies (Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  A portion of the commitments is expected to be drawn upon, thus representing future cash requirements.  Management evaluates each customer's creditworthiness on a case-by-case basis.  The amount of collateral obtained upon extension of credit is based on management's credit evaluation of the customer.  Collateral held varies but may include real estate and personal property.  Substantial amounts of unsecured personal loans are granted by the Company.  However, ongoing credit evaluations of customers are performed.

Concentration of Credit Risk

The majority of the Company's loans and commitments have been granted to customers in the Company's local market areas.  The concentrations of credit by type are set forth in Note 5.  Management believes the diversity of the various economies will prevent significant losses in the event of an economic downturn.

Contingencies

In the normal course of business, the Company occasionally becomes involved in various legal proceedings.  In the opinion of management, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 17 | Capital Requirements

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets.  It is management's opinion as of September 30, 2006, that the Bank meets all capital adequacy requirements.                                                                                                                                                                                                                                                                                       

---

---

|Note 17 | Capital Requirements (Continued)

As of September 30, 2006, the most recent notification from the Office of Thrift Supervision categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action.  To be categorized as well-capitalized, the Bank must maintain minimum net worth ratios as set forth in the table.  There are no conditions or events since that notification that management believes have changed the Bank's category.

The Bank's actual and regulatory capital amounts and ratios are presented in the following table:
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Actual
   For CapitalAdequacy Purposes
   To Be Well-Capitalized UnderPrompt CorrectiveActions ProvisionsAmount
   Ratio
   Amount
   Ratio
   Amount
   Ratio(Dollars in Thousands)September 30, 2006Total capital (to risk-weighted assets)
    $20,428
    11.0%
    $14,920
    >   8.0%
    $18,650
    > 10.0%Tier 1 capital (to risk-weighted assets)
    $19,761
    10.6%
    N/A
    N/A
    11,190
    >  6.0%Tier 1 capital (to adjusted total assets)
    $19,761
    7.2%
    $10,943
    >  4.0%
    $13,679
    >  5.0%Tangible capital (to tangible assets)
    $19,761
    7.2%
    $4,104
    >  1.5%
    N/A
    N/ASeptember 30, 2005Total capital (to risk-weighted assets)
    $19,318
    12.6%
    $12,259
    >  8.0%
    $15,323
    > 10.0%Tier 1 capital (to risk-weighted assets)
    $18,693
    12.2%
    N/A
    N/A
    $9,194
    >  6.0%Tier 1 capital (to adjusted total assets)
    $18,693
    7.9%
    $9,495
    >  4.0%
    $11,869
    >  5.0%Tangible capital (to tangible assets)
    $18,693
    7.9%
    $3,561
    >  1.5%
    N/A
    N/A |                        |                              | Actual                                                          | For CapitalAdequacy Purposes | To Be Well-Capitalized UnderPrompt CorrectiveActions Provisions |         |  | Amount | Ratio | Amount | Ratio | Amount | Ratio |  |  | (Dollars in Thousands) |  | September 30, 2006 |  |  | Total capital (to risk-weighted assets) | $20,428 | 11.0% | $14,920 | >   8.0% | $18,650 | > 10.0% |  | Tier 1 capital (to risk-weighted assets) | $19,761 | 10.6% | N/A | N/A | 11,190 | >  6.0% |  | Tier 1 capital (to adjusted total assets) | $19,761 | 7.2% | $10,943 | >  4.0% | $13,679 | >  5.0% |  | Tangible capital (to tangible assets) | $19,761 | 7.2% | $4,104 | >  1.5% | N/A | N/A |  | September 30, 2005 |  | Total capital (to risk-weighted assets) | $19,318 | 12.6% | $12,259 | >  8.0% | $15,323 | > 10.0% |  | Tier 1 capital (to risk-weighted assets) | $18,693 | 12.2% | N/A | N/A | $9,194 | >  6.0% |  | Tier 1 capital (to adjusted total assets) | $18,693 | 7.9% | $9,495 | >  4.0% | $11,869 | >  5.0% |  | Tangible capital (to tangible assets) | $18,693 | 7.9% | $3,561 | >  1.5% | N/A | N/A
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------- | ---------------------------- | --------------------------------------------------------------- | ---------------------------- | --------------------------------------------------------------- | ------- |  | ------ | ----- | ------ | ----- | ------ | ----- |  |  | ---------------------- |  | ------------------ |  |  | --------------------------------------- | ------- | ----- | ------- | -------- | ------- | ------- |  | ---------------------------------------- | ------- | ----- | --- | --- | ------ | ------- |  | ----------------------------------------- | ------- | ---- | ------- | ------- | ------- | ------- |  | ------------------------------------- | ------- | ---- | ------ | ------- | --- | --- |  | ------------------ |  | --------------------------------------- | ------- | ----- | ------- | ------- | ------- | ------- |  | ---------------------------------------- | ------- | ----- | --- | --- | ------ | ------- |  | ----------------------------------------- | ------- | ---- | ------ | ------- | ------- | ------- |  | ------------------------------------- | ------- | ---- | ------ | ------- | --- | ---
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Actual                 | For CapitalAdequacy Purposes | To Be Well-Capitalized UnderPrompt CorrectiveActions Provisions
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Amount                 | Ratio                        | Amount                                                          | Ratio                        | Amount                                                          | Ratio  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | (Dollars in Thousands)
| | September 30, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                       
| | Total capital (to risk-weighted assets)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $20,428                | 11.0%                        | $14,920                                                         | >   8.0%                     | $18,650                                                         | > 10.0%
| | Tier 1 capital (to risk-weighted assets)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | $19,761                | 10.6%                        | N/A                                                             | N/A                          | 11,190                                                          | >  6.0%
| | Tier 1 capital (to adjusted total assets)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $19,761                | 7.2%                         | $10,943                                                         | >  4.0%                      | $13,679                                                         | >  5.0%
| | Tangible capital (to tangible assets)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $19,761                | 7.2%                         | $4,104                                                          | >  1.5%                      | N/A                                                             | N/A    
| | September 30, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Total capital (to risk-weighted assets)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $19,318                | 12.6%                        | $12,259                                                         | >  8.0%                      | $15,323                                                         | > 10.0%
| | Tier 1 capital (to risk-weighted assets)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | $18,693                | 12.2%                        | N/A                                                             | N/A                          | $9,194                                                          | >  6.0%
| | Tier 1 capital (to adjusted total assets)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $18,693                | 7.9%                         | $9,495                                                          | >  4.0%                      | $11,869                                                         | >  5.0%
| | Tangible capital (to tangible assets)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $18,693                | 7.9%                         | $3,561                                                          | >  1.5%                      | N/A                                                             | N/A    

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|Note 18 | Fair Values of Financial Instruments

Current accounting standards require that the Company disclose estimated fair values for its financial instruments.  Fair value estimates, methods, and assumptions for the Company's financial instruments are summarized below.

Cash and Cash Equivalents

The carrying values approximate the fair values for these assets.

Interest-Bearing Deposits

The carrying values approximate the fair values for these assets.

Securities Available for Sale

Fair values are based on quoted market prices, where available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans

Fair value is estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as residential mortgage and consumer.  The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity using market discount rates reflecting the credit and interest rate risk inherent in the loan.  The estimate of maturity is based on the Company's repayment schedules for each loan classification.

The methodology in determining fair value of nonaccrual loans is to average them into the blended interest rate at 0% interest.  This has the effect of decreasing the carrying amount below the risk-free rate amount and, therefore, discounts the estimated fair value.

Impaired loans are measured at the estimated fair value of the expected future cash flows at the loan's effective interest rate or the fair value of the collateral for loans which are collateral dependent.  Therefore, the carrying values of impaired loans approximate the estimated fair values for these assets.

Federal Home Loan Bank Stock

Fair value for the Federal Home Loan Bank stock is based on its redeemable (carrying) value, since the market for this stock is restricted.

Deposits

The fair value of deposits with no stated maturity, such as demand deposits, savings accounts, and money market accounts, is the amount payable on demand at the reporting date.  The fair value of certificate accounts is calculated by using discounted cash flows applying interest rates currently being offered on similar certificates.
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|Note 18 | Fair Values of Financial Instruments (Continued)

Federal Home Loan Bank Advances

The fair value of FHLB advances is estimated using discounted cash flows based on the Bank's current incremental borrowing rates for similar borrowing arrangements.

Accrued Interest

The carrying amount of accrued interest approximates its fair value.

Off-Balance-Sheet Instruments

The fair value of commitments would be estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present creditworthiness of the customers.  Since this amount is immaterial, no amounts for fair value are presented.

The carrying amount and estimated fair value of financial instruments at September 30 were as follows:
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                               | 2006           | 2005              
| | ----------------------------- | -------------- | ------------------
| |                               | CarryingAmount | EstimatedFairValue
| |                               | (In Thousands)
| | Financial assets:            
| | Cash and cash equivalents     | $6,170         | $6,170            
| | Interest-bearing deposits     | 959            | 959               
| | Securities available for sale | 782            | 782               
| | Loans held for sale           | 321            | 321               
| | Loans receivable              | 258,467        | 250,966           
| | FHLB stock                    | 3,060          | 3,060             
| | Accrued interest receivable   | 861            | 861               
| | Financial liabilities:       
| | Deposits                      | 186,711        | 186,688           
| | FHLB advances                 | 61,200         | 60,386            
| | Accrued interest payable      | 264            | 264               

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|Note 18 | Fair Values of Financial Instruments (Continued)

Limitations

Fair value estimates are made at a specific time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.  Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Significant assets and liabilities that are not considered financial assets or liabilities include premises and equipment, other assets, and other liabilities.

In addition, the tax ramifications related to the realization of the unrealized gains or losses can have a significant effect on fair value estimates and have not been considered in the estimates.                                             
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 19 | Subsequent Event

On October 31, 2006, a second step conversion was completed in which Citizens Community MHC converted to stock form.  Through this transaction, CCB ceased to exist and was replaced by Citizens Community Bancorp, Inc. (CCB, Inc.) as the holding company for the Bank.  A total of 5,290,000 shares of common stock were sold in the offering at $10 per share through which CCB, Inc. received proceeds of $51,254 net of offering costs of $1,646.  CCB, Inc. will contribute $25,627 or approximately 50% of the net proceeds to the Bank in the form of a capital contribution.  CCB, Inc. lent $3,415 to the Bank's employee stock ownership plan and the ESOP used those funds to acquire 341,501 shares of common stock at $10 per share.

As part of the conversion, outstanding public shares of CCB were exchanged for 1.91067 shares of CCB, Inc., the new holding company of Citizens Community Federal.  The exchange resulted in an additional 1,826,380 of outstanding shares of CCB, Inc. for a total of 7,116,380 outstanding shares.  Treasury stock held was cancelled.

The Company had stock subscriptions totaling $504 at September 30, 2006, pending completion of the conversion and stock offering.  At the time of closing of the conversion on October 31, 2006, approximately $49,485, less offering expenses, became capital of CCB, Inc, after return of all over-subscription funds.  The following table summarizes the pro forma impact of the conversion and stock offering results on the Company's September 30, 2006 balance sheet.

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---

|Note 19 | Subsequent Event  (Continued)
|------- | -----------------------------

| | Actual and Pro Forma Consolidated Balance SheetsSeptember 30, 2006  
| | --------------------------------------------------------------------
| |                                                                     
| | Assets                                                              
| | Cash and cash equivalents (1)                                       
| | Interest-bearing deposits                                           
| | Securities available-for-sale (at fair value)                       
| | Loans receivable - Net of allowance for loan losses                 
| | Loans held for sale                                                 
| | Federal Home Loan Bank stock - At cost                              
| | Office properties and equipment - Net                               
| | Accrued interest receivable                                         
| | Intangible assets                                                   
| | Goodwill                                                            
| | Other assets                                                        
| | TOTAL ASSETS                                                        
| | Liabilities and Stockholders' Equity                                
| | Deposits (2)                                                        
| | Federal Home Loan Bank advances                                     
| | Other liabilities (3)                                               
| | Total liabilities                                                   
| | Common stock and additional paid-in capital (4)                     
| | Retained earnings                                                   
| | Unearned ESOP shares (5)                                            
| | Unearned compensation                                               
| | Accumulated other comprehensive loss                                
| | Treasury stock, at cost - 22,691 and 26,251 shares, respectively (4)
| | Total stockholders' equity                                          
| | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          

| | (1) | Pro forma balance reflects the net proceeds from stock sales of $45.1 million and $93,000 of capital received through the merger of Citizens Community MHC (CCMHC) into the Bank.                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Pro forma balance sheet reflects approximately $2.2 million of deposit balances withdrawn to purchase shares in the stock offering.                                                                                                                                                                                                                                                                                
| | (3) | Pro forma balance reflects utilization of $.5 million of subscriptions to purchase shares in the stock offering.                                                                                                                                                                                                                                                                                                   
| | (4) | Pro forma balances reflect additional capital from deposits, subscriptions, and ESOP purchase of $2.2 million, $47.3 million, and $3.4 million, respectively.  An additional $93,000 of capital was received through the merger of CCMHC into the Bank.  These additions to capital were offset by stock offering expenses of approximately $1.6 million.  Treasury stock held at September 30, 2006 was cancelled.
| | (5) | Pro forma balance reflects of the addition of $3.4 million of unearned shares purchased by the ESOP during the stock offering.                                                                                                                                                                                                                                                                                     

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|Note 20 | Condensed Parent Company Only Financial Statements
|------- | --------------------------------------------------

| | The following condensed balance sheets as of September 30, 2006 and 2005, and condensed statements of income and cash flows for each of the years in the three-year period ended September 30, 2006 for Citizens Community Bancorp should be read in conjunction with the consolidated financial statements and the notes thereto.
Balance SheetsSeptember 30, 2006 and 2005
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Assets                     | 2006           | 2005   
| | -------------------------- | -------------- | -------
| |                            | (In Thousands)
| | Cash and cash equivalents  | $2,088         | $2,214 
| | Investment in subsidiary   | 27,045         | 26,288 
| | Note receivable - ESOP     | 949            | 1,051  
| |                           
| | TOTAL ASSETS               | $30,082        | $29,553
| |                           
| | Stockholders' Equity       |               
| | TOTAL STOCKHOLDERS' EQUITY | $30,082        | $29,553
| |                           

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---

|Note 20 | Condensed Parent Company Only Financial Statements (Continued)
|------- | --------------------------------------------------------------

| | Statements of IncomeYears Ended September 30, 2006, 2005, and 2004
| | ------------------------------------------------------------------

| |                                                              | 2006           | 2005   | 2004
| | ------------------------------------------------------------ | -------------- | ------ | ----
| |                                                              | (In Thousands)
| | Income - Interest and dividends                              | $89            | $103   | $62 
| | Expenses - Other                                             | 132            | 160    | 29  
| |                                                             
| | Income before provision for income taxes and equity in       |                |        |     
| | undistributed net income of subsidiary                       | (43)           | (57)   | 33  
| | Benefit for income taxes                                     | (6)            | (23)   | 11  
| |                                                             
| | Loss before equity in undistributed net income of subsidiary | (37)           | (34)   | 22  
| | Equity in undistributed net income of subsidiary             | 483            | 1,085  | 815 
| |                                                             
| | Net income                                                   | $446           | $1,051 | $837
| |                                                             

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|Note 20 | Condensed Parent Company Only Financial Statements (Continued)
|------- | --------------------------------------------------------------

| | Statements of Cash FlowsYears Ended September 30, 2006, 2005, and 2004
| | ----------------------------------------------------------------------

| |                                                                                                                                             | 2006           | 2005    | 2004   
| | ------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | -------
| |                                                                                                                                             | (In Thousands)
| | Increase (decrease) in cash and cash equivalents:                                                                                           |                |         |        
| | Cash flows from operating activities:                                                                                                       |                |         |        
| | Net income                                                                                                                                  | $446           | $1,051  | $837   
| | Adjustments to reconcile net income to net cash
      provided by operating activities - Equity in
      undistributed income of subsidiary | (483)          | (1,085) | (816)  
| |                                                                                                                                            
| | Net cash used in operating activities                                                                                                       | (37)           | (34)    | 21     
| |                                                                                                                                            
| | Cash flows from investing activities:                                                                                                       |                |         |        
| | Investment in subsidiary                                                                                                                    | 0              | 0       | (4,533)
| | Loan to ESOP                                                                                                                                | 0              | 0       | (1,192)
| | Principal received on ESOP loan                                                                                                             | 102            | 97      | 44     
| |                                                                                                                                            
| | Net cash provided by (used in) investing activities                                                                                         | 102            | 97      | (5,681)
| |                                                                                                                                            
| | Cash flows from financing activities:                                                                                                       |                |         |        
| | Sale of common stock                                                                                                                        | 0              | 0       | 9,048  
| | Formation of CCMHC                                                                                                                          | 0              | 0       | (100)  
| | Purchase of treasury stock                                                                                                                  | (1)            | (895)   | 0      
| | Cash dividends paid                                                                                                                         | (190)          | (193)   | (49)   
| |                                                                                                                                            
| | Net cash provided by (used in) financing activities                                                                                         | (191)          | (1,088) | 8,899  
| |                                                                                                                                            
| | Net increase (decrease) in cash and cash equivalents                                                                                        | (126)          | (1,025) | 3,239  
| | Cash and cash equivalents at beginning                                                                                                      | 2,214          | 3,239   | 0      
| |                                                                                                                                            
| | Cash and cash equivalents at end                                                                                                            | $2,088         | $2,214  | $3,239 
| |                                                                                                                                            
| | Supplemental cash flow information:                                                                                                         |                |         |        
| | Cash received during the year for income taxes                                                                                              | $6             | $23     | $11    

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|               | HIGH   | LOW    | DIVIDENDS
|-------------- | ------ | ------ | ---------
|Fiscal 2004    |        |        |          
|Second Quarter | $13.50 | $12.10 | $    --  
|Third Quarter  | $13.25 | $11.25 | $0.05    
|Fourth Quarter | $12.75 | $11.80 | $0.05    
|               |        |        |          
|Fiscal 2005    |        |        |          
|First Quarter  | $15.50 | $12.90 | $0.05    
|Second Quarter | $15.50 | $13.00 | $0.05    
|Third Quarter  | $14.75 | $12.75 | $0.05    
|Fourth Quarter | $13.00 | $12.50 | $0.05    
|               |        |        |          
|Fiscal 2006    |        |        |          
|First Quarter  | $13.20 | $10.30 | $0.05    
|Second Quarter | $14.25 | $12.90 | $0.05    
|Third Quarter  | $18.39 | $13.75 | $0.05    
|Fourth Quarter | $21.15 | $17.65 | $0.05    

|******STOCKHOLDERS AND GENERAL INQUIRIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | **TRANSFER AGENT**                                                                                                                                                                                                                                                                 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Citizens Community Bancorp, Inc. files an annual
report with the Securities and Exchange Commission
on Form 10-K and three quarterly reports on Form 10-Q.  Copies of these forms are available by request.
Requests, as well as inquiries from stockholders,
analysts and others seeking information about Citizens
Community Bancorp, Inc. should be directed to John
D. Zettler, Senior Vice President and Chief Financial
Officer, at 2174 EastRidge Center, Eau Claire, WI
54701, telephone (715) 836-9994.www.citizenscommunityfederal.net |  | Stockholders should direct inquiries concerning
their stock, change of name, address or ownership;
report lost certificates or consolidate accounts to
our transfer agent at 1-800-368-5948 or write:Registrar and Transfer Co.10 Commerce DriveCranford, NJ  070161-(800) 368-5948

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|******Citizens Community Bancorp**

**Board of Directors**                                                                         | **** | **Citizens Community Federal****Officers**                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Richard McHugh, *Chairman*
Thomas C. Kempen, *Vice Chairman*
Brian R. Schilling
Donna E. Talmage
David B. Westrate
James G. Cooley |      | James G. Cooley, *President and Chief Executive Officer*
John D. Zettler, *Senior Vice President/Chief Financial**Officer*
Timothy J. Cruciani, *Executive Vice President*
Johnny W. Thompson, *Senior Vice President/Chief**Administrative Officer*
Rebecca Johnson, *Vice President MIC/Accounting*
Brian Ashley, *Senior Vice President*
|**Citizens Community Federal Locations:**                                                                                          |      |                                                                                                                                                                                                                                                                                                                                            

|*Administrative Offices*2174 EastRidge Center
Eau Claire, WI 54701414 Main Street
Rochester Hills, MI  48307*Branch Offices:***Westside Branch**
2125 Cameron Street
Eau Claire, WI 54703**East Branch**
1028 N. Hillcrest Parkway
Altoona, WI 54720**Fairfax Branch**
219 Fairfax Street
Altoona, WI 54720 |  | **Mondovi Branch**695 E. Main Street
Mondovi, WI 54755**Rice Lake Branch**
2462 S. Main Street
Rice Lake, WI 54868**Chippewa Falls Branch**
427 W. Prairie View Road
Chippewa Falls, WI 54729**Baraboo Branch**
S2423 Highway 12
Baraboo, WI 53913**Black River Falls Branch**
W9036 Highway 54 E.
Black River Falls, WI 54615 |  | *Michigan Offices:***Rochester Hills Branch**
310 W. Tienken Road
Rochester Hills, MI  48306**Lake Orion Branch**
688 S. Lapeer Road
Lake Orion, MI  48362*Minnesota Offices:***Mankato Branch**
1410 Madison Avenue
Mankato, MN 56001**Oakdale Branch**
7035 10th Street North
Oakdale, MN  55128
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|**Independent Auditors**Wipfli, LLP
3703 Oakwood Hills Pkwy.
Eau Claire, WI  54703                      |  | 
|------------------------------------------------------------------------------------------------------- |  | 
|**Special Counsel**
Silver, Freedman & Taff, L.L.P.
1700 Wisconsin Avenue, N.W.
Washington, D.C.  20007 |  | 

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