<PAGE>








                                  EXHIBIT 22.2

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


                            Citizen Community Bank's
                               1998 Annual Report

         CCB, Inc.
   Graphic logo omitted








                                                              1998 Annual Report

     Graphic omitted








                                 Graphic omitted





         Building

              Value

                  and a

                       Presence


                                                                 Graphic omitted











<PAGE>



About Citizens Community Bancorp, Inc.

         Citizens  Community  Bancorp,  Inc.  ("Citizens") is a one-bank holding
company,  established on May 24, 1995.  Citizens' two wholly-owned  subsidiaries
are Citizens  Community Bank of Florida ("Citizens Bank") and Citizens Financial
Corp. ("Citizens Financial"). Citizens Bank is a state-chartered commercial bank
which  provides  traditional   community  banking  services  through  its  three
full-service branch facilities strategically located in Marco Island and Naples,
Florida.  Citizens  offers  a broad  range  of  retail  and  commercial  banking
services,  including  a  variety  of  deposit  accounts  and loan  products  for
consumers and businesses.  Citizens Financial is a mortgage  origination company
operating in Southwest Florida. As part of its "customer first" pledge, Citizens
offers a courier service to commercial account customers.

         At December 31, 1998,  Citizens had $82.2 million in total consolidated
assets and $17.2 million in stockholders' equity.

Common Stock Prices and Dividends

         Although  there is no  established  public trading market for Citizens'
common  stock,  the brokerage  firm of A.G.  Edwards & Sons,  Inc.,  facilitates
trades of  Citizens'  common  stock in the  over-the-counter  market  with other
brokerage firms. The stock was originally  offered and sold in a public offering
in 1996 for $4.18 per share.  The  secondary  offering was  completed in 1998 at
$7.50 per share.  Citizens has never paid cash  dividends.  An 8% stock dividend
was issued on January 19, 1999. Future dividends,  if any, will be determined by
the Board of Directors.

         As of March 5,  1999,  Citizens  has 722  holders  of  record of common
stock.

Special Note Regarding Forward-Looking Statements

         This Annual Report contains  certain  forward-looking  statements which
represent management's  expectations or beliefs,  including, but not limited to,
statements   concerning  the  banking  industry  and  the  issuer's  operations,
performance,  financial  condition and growth. For this purpose,  any statements
contained  in this  Report that are not  statements  of  historical  fact may be
deemed to be forward-looking statements.  Without limiting the generality of the
foregoing,  words  such as "may,"  "will,"  "expect,"  "believe,"  "anticipate,"
"intend," "could," "should," "can," "estimate," or "continue" or the negative of
other  variations  thereof or  comparable  terminology  are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties,  certain of which are beyond management's  control, and
actual  results  may  differ  materially  depending  on a variety  of  important
factors, including competition,  general economic conditions,  potential changes
in interest rates, and changes in the value of real estate securing loans, among
other things.

Table of Contents

Financial Highlights .....................................................    1
Message to Shareholders ..................................................  2-3
Officers and Directors of Citizens .......................................    4
Officers and Directors of Citizens Bank ..................................    5
Selected Financial Data ..................................................    6
Management's Discussion and Analysis of
  Financial Condition and Results of Operations ..........................  7-19
Consolidated Financial Statements......................................... 20-37
Independent Auditors' Report .............................................   38
Corporate Information .....................................   Inside Back Cover

                                        2

<PAGE>



                              Financial Highlights

                   At December 31, or For the Year Then Ended
                (Dollars in thousands, except per share figures)

                Citizens Community Bancorp, Inc. and Subsidiaries


                                           1998         1997
                                           ----         ----
At Year End:

Assets ...............................   $ 82,226    $ 44,422
Loans, net ...........................     44,933      26,420
Securities ...........................      8,500       2,499
Deposits .............................     63,990      36,938
Stockholders' equity .................     17,225       6,771
Book value per share .................       4.99        3.99
Share outstanding (1) ................  3,455,039   1,697,354
Equity-to-assets ratio
Nonperforming
  assets-to-total assets ratio........      20.95%      15.24%
                                             NIL         NIL
For The Year:

Interest income ......................      4,129       2,523
Net earnings .........................        206         110
Basic earnings per share (1) .........        .08         .06
Diluted earning per share (1) ........        .08         .06
Return on average assets .............        .32%        .30%
Return on average equity .............       1.71%       1.72%
Average equity-to-average assets .....      18.91%      17.47%
Noninterest expenses to average assets       3.04%       3.45%

                                         Average Yield or Rate
                                            During the Year
                                                 Ended
                                              December 31,
                                              ------------

                                           1998         1997
                                           ----         ----
Yields and Rates:

Loan portfolio .......................       8.33%       9.32%
Securities ...........................       6.21        6.01
Other interest-earnings assets........       5.40        5.50
All interest-earnings assets .........       7.36        8.04
Total deposits .......................       4.36        4.54
Interest-rate spread (2) .............       3.00        3.50
Net interest margin (3) ..............       3.78        4.20
                                         ----

(1)      All share amounts  reflect the 2-for-1 stock split  effective  December
         15,  1997  and the 8% stock  dividend  to  stockholders  of  record  on
         December 31, 1998.

(2)      Average yield on all interest-earning  assets less average rate paid on
         all interest-bearing liabilities.

(3)      Net interest income dividend by average interest-earning assets.



                                   "Community"
                               is our Middle Name

                                        1

<PAGE>



                             MESSAGE TO SHAREHOLDERS



Graphic of
Richard Storm,
Jr.
Chairman of the
Board, President
and Chief
Executive Officer
Omitted

   Richard Storm, Jr.
   Chairman, Chief Executive
   Officer and President

   The year 1998  represents  the second  full year of  operations  of  Citizens
   Community  Bancorp,  Inc. and Citizens Community Bank. Our focus for the past
   year has been to  continue  to expand  our loan and  deposit  base to achieve
   levels  which  will  produce  certain  economies  of scale.  Our  significant
   accomplishments  for 1998  included  continued  strong growth in deposits and
   loans,  the raising of additional  capital in our second offering to fund our
   future  growth and the opening of our third  branch.  We were also pleased to
   pay shareholders an 8% stock dividend.


Financial Review

         Earnings - Net income for 1998 was  $205,854,  which is 87% higher than
our income for 1997. On a per share basis,  our earnings were $.08 per share for
1998  compared  to $.06 per share for the prior  year.  The per share  growth in
earnings  was smaller  than the  absolute  dollar  growth due  primarily  to the
additional shares  outstanding as a result of the stock sale we completed during
the summer of 1998.  The per share  earnings  have also been adjusted to reflect
the  2-for-1  stock  split which was  effective  December  1997 and the 8% stock
dividend which was granted in December 1998.

         Growth - For the year ended  December 31,  1998,  the Company had $82.2
million in total consolidated  assets.  Total deposits reached $63.9 million, up
$27.1 million or 73% from the end of the prior year. Similarly, loans were $44.9
million at December 31, 1998,  reflecting a growth of $18.5  million or 70% from
the prior year end.  The growth in  deposits  and  loans,  coupled  with our key
customer  products,  are important factors in building our core earnings.  As we
enter 1999,  both deposits and, in  particular,  loan growth will continue to be
our primary focus for improved profitability.

         Stockholders' equity significantly increased in 1998 from $10.5 million
to $17.2  million at year end. The increase was  primarily  from the sale of the
additional  shares of stock and the  exercise of the warrants  which  expired in
June of 1998. The additional  capital provides us with the leverage and strength
to grow with internally  generated customer  relationships and through potential
acquisitions of other financial  service  institutions as  opportunities  become
available.

         In  September  1998 we opened our third  office at 2375  Tamiami  Trail
North,  which we refer to as our  "Moorings  Office".  We  continue  to look for
opportunities  to acquire  or build  branch  sites  that will  expand our future
customer base and franchise value.

         Personnel - Over the past year,  our full-time and part-time  employees
increased  from  19 and 6,  respectively,  at  December  31,  1997  to 36 and 8,
respectively,  at the end of 1998.  We have  continued  to build  the  executive
management  team with the addition of three new members.  Jeffrey  Merwin joined
the bank as Executive Vice President and Chief Operating Officer in August 1998.
Jeff has ten years banking  experience in South Florida and is  responsible  for
our branch and deposit operations.


                                        2

<PAGE>



        James Schaffer joined our team in October 1998, as Senior Vice President
and Senior  Lender.  Jim's 20 years of experience in commercial  and real estate
lending will be  instrumental  in our plans to expand our loan production in the
local commercial real estate market.

        In March 1999, Gregory Smith joined the Company as Senior Vice President
and Chief Financial Officer of Citizens Community Bancorp,  Inc. and Senior Vice
President and Cashier of Citizens  Community  Bank.  Greg is a certified  public
accountant  with  24  years  of  experience,  most  of  which  was in  financial
institutions  in the South  Florida  area.  His  prior  merger  and  acquisition
experience will be an asset to us in of our future growth plans.

Our Strategy

         As we continue to face the  challenges of growth and building  earnings
into 1999,  we have also  dedicated  significant  resources and attention to the
issue of the year 2000 ("Y2K") computer problem.  Your management team and board
of directors  have placed a high  priority on insuring that all of the essential
functions of the Citizens  Community  Bank are compliant  with the challenge and
certainty  we all face  with the  arrival  of the new  millennium.  We have made
significant  progress  and are  confident  that  we are  prepared  to face  this
challenge. We also need your help and support as shareholders and customers! All
businesses and individuals need to be prepared since some temporary  disruptions
are likely.  It is  essential,  however,  that we do not  overreact  and cause a
problem that would otherwise be resolved without major disruptions.

         Our   foundation  is  stronger,   our  growth  is  continuing  and  new
opportunities are at hand. The community focus of our products, services, staff,
and directors are the  cornerstone of our Company.  More customers each day turn
away from the large,  distant,  and  impersonal  regional  banks where  customer
service is a thing of the past.

         "Community" is our middle name! Our deposit  products are extensive and
include  the "Money  Phone"  telephone  access to the deposit  accounts  and our
well-received  courier service.  For our loan customers,  we have an experienced
staff to offer  flexible  structuring  and fast  approvals  through  either  the
Citizens  Community  Bank  or  Citizens  Financial  Corporation,   our  mortgage
brokerage subsidiary specializing in commercial credits.

         Please  check  our  website  at  www.ccbank.com  for  copies  of  press
releases,  updated  stock price  quotes and more.  You may also find our link to
snap.com,  a useful tool for monitoring  your stock  portfolio.  We welcome your
e-mail questions or suggestions to help us serve you better.

         We appreciate  your continued  support of our progress  toward building
your future shareholder value.


                             /s/ Richard Storm, Jr.
                                 Richard Storm, Jr.
                                 Chairman of the Board
                                 President and Chief Executive Officer



                                        3

<PAGE>
Citizens Community Bancorp, Inc.


Standing left to right:

John G. Wolf
Stephen A. McLaughlin                             Graphic omitted
Louis J. Smith
Dennis J. Lynch


Sitting left to right:

Diane M. Beyer
Bruce G. Fedor (Officer)
Richard Storm, Jr.
James S. Hagedorn
Joel M. Cox, Sr.


<TABLE>
<CAPTION>

            DIRECTORS                                  OFFICERS
            ---------                                  --------
<S>                                                <C>
Diane M. Beyer                                     Diane M. Beyer
Human Resource Consultant                          Assistant Secretary

Joel M. Cox, Sr.                                   Robert J. David
V.P. - Cox Insurance Agency, Inc.                  Senior V.P.

Thomas B. Garrison                                 Bruce G. Fedor
Information Systems Consultant                     V.P./General Counsel and Secretary

James S. Hagedorn                                  Martina L. Hayward
Vice Chairman of the Board - Citizens              Assistant V.P./Administration
President - Waterside Development Corporation
                                                   Stephen A. McLaughlin
Dennis J. Lynch                                    Treasurer
President - Dennis J. Lynch and Associates
                                                   Michael A. Micallef, Jr.
Stephen A. McLaughlin                              Vice President
Senior V.P./Treasurer - Citizens
                                                   Gregory E. Smith
Louis J. Smith                                     Senior V.P./Chief Financial Officer
Owner - Pat's Hallmark Shop
                                                   Richard Storm, Jr.
Richard Storm, Jr.                                 Chairman of the Board/President &
Chairman of the Board/President &                  Chief Executive Officer
Chief Executive Officer - Citizens
President - Loanstar Capital, Inc.
President - Deer Run Properties, Inc.

John G. Wolf
Dentist
</TABLE>

                                        4


<PAGE>



Citizens Community Bank of Florida


Standing left to right:

Richard Storm, Jr.
Michael A. Micallef, Jr.                     Graphic omitted
Robert A. Marks


Sitting left to right:

Jamie B. Greusel
Amos D. Watson
Gerald F. Warnken
Diane M. Beyer
James S. Hagedorn
Joel M. Cox, Sr.

<TABLE>
<CAPTION>

               DIRECTORS                                                           OFFICERS
               ---------                                                           --------

<S>                                                     <C>                                        <C>    
Diane M. Beyer                                          Jenni R. Davis                             Nancy A. Obrochta
Human Resource Consultant                               V.P./Branch Manager-Moorings               Assistant V.P./Loan Operations
                                                                                                   Manager
Joel M. Cox, Sr.                                        Bruce G. Fedor
V.P. - Cox Insurance Agency, Inc.                       Vice President                             Patricia V. Paris
                                                                                                   V.P./Branch Manager-East
Jamie B. Greusel                                        David E. Klein                             Trail
Attorney                                                Senior V.P. and Lending Officer
                                                                                                   Melissa R. Prickett
James S. Hagedorn                                       Jeffrey L. Merwin                          Assistant V.P./HR
President - Waterside Development                       Executive V.P./Chief Operating             Director/Marketing
Corporation                                             Officer/Compliance Officer                 Coordinator/Trainer
                                                        (Operations)
Robert A. Marks                                                                                    James F. Schaffer
V.P. Chairman of the Board - Citizens Bank              Michael A. Micallef, Jr.                   Senior V.P./Sr. Lender
Retired-Regional Manager                                President and CEO
Metropolitan Life Insurance Co.                                                                    Kim A. Shows
                                                        Jeffrey L. Miller                          Head Bookkeeper/Operations
Michael A. Micallef, Jr.                                Assistant V.P./Loan Officer                Officer
President and CEO  - Citizens Bank
                                                        Diana M. Newell                            Gregory E. Smith
Richard Storm, Jr.                                      V.P./Branch Manager-Marco                  Senior V.P./Cashier
Chairman of the Board - Citizens Bank
President - Loanstar Capital, Inc.
President - Deer Run Properties, Inc.

Gerald F. Warnken
President - Caldwell Banker, McFadden &
Spowls

Amos D. Watson
Real Estate Developer/Investor
</TABLE>

                                        5

<PAGE>

                             SELECTED FINANCIAL DATA

                   At December 31, or for the Year then Ended
                (Dollars in thousands, except per share figures)
<TABLE>
<CAPTION>



                                                                                    1998          1997         1996
                                                                                    ----          ----         ----
<S>                                     <C>                                      <C>          <C>         <C>      
At Year End:
Cash and cash equivalents.....................................................    $ 24,663       12,211       8,042
Securities....................................................................       8,500        2,499       2,240
Loans, net....................................................................      44,933       26,420      12,116
All other assets..............................................................       4,130        3,292       2,630
                                                                                    ------      -------      ------

         Total assets.........................................................    $ 82,226       44,422      25,028
                                                                                    ======       ======      ======

Deposit accounts..............................................................      63,990       36,938      17,885
All other liabilities.........................................................       1,011          713       1,179
Stockholders' equity..........................................................      17,225        6,771       5,964
                                                                                    ------       ------      ------

         Total liabilities and stockholders' equity...........................    $ 82,226       44,422      25,028
                                                                                    ======       ======      ======

For the Year:

Total interest income.........................................................       4,129        2,523         740
Total interest expense........................................................       2,009        1,208         283
                                                                                    ------       ------     -------

Net interest income...........................................................       2,120        1,315         457
Provision for loan losses.....................................................         162          153         145
                                                                                   -------      -------     -------

Net interest income after provision for loan losses...........................       1,958        1,162         312
                                                                                    ------       ------     -------

Noninterest income............................................................         341          273          70
Noninterest expenses..........................................................       1,935        1,260         915
                                                                                    ------       ------     -------

Earnings (loss) before income tax credit......................................         364          175        (533)
Income taxes (benefit)........................................................         158           65        (191)
                                                                                    ------      -------     -------

Net earnings (loss)...........................................................    $    206          110        (342)
                                                                                    ======       ======     =======

Basic earnings (loss) per share (1)...........................................   $     .08          .06        (.22)
                                                                                   =======       ======     =======

Diluted earnings (loss) per share (1).........................................         .08          .06        (.22)
                                                                                   =======       ======     =======

Ratios and Other Data:

Return on average assets......................................................         .32%         .30%     (2.71%)
Return on average equity......................................................        1.71%        1.72%    (10.35%)
Average equity to average assets..............................................       18.91%       17.47%      26.16%
Interest-rate spread during the period........................................        3.00%        3.50%       2.33%
Net yield on average interest-earning assets..................................        7.36%        8.04%       6.61%
Noninterest expenses to average assets........................................        3.04%        3.45%       7.24%
Ratio of average interest-earning assets to average
         interest-bearing liabilities.........................................        1.22         1.18        1.69
Nonperforming loans and foreclosed real estate as a percentage of
         total assets at end of year..........................................         NIL          NIL         NIL
Allowance for credit losses as a percentage
         of total loans at end of year........................................        1.02%        1.12%       1.18%
Total number of banking offices...............................................           3            2           1
Total shares outstanding at end of year (1)...................................   3,455,039    1,697,354   1,528,438
Book value per share at end of year...........................................      $ 4.99         3.99        3.91
</TABLE>

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

(1)      Share amounts  reflect the two-for-one  stock split effective  December
         15,  1997  and the 8% stock  dividend  to  stockholders  of  record  on
         December 31, 1998.



                                        6

<PAGE>



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


                                     General

Citizens  Community  Bancorp,  Inc.  ("Citizens")  owns 100% of the  outstanding
common  stock of Citizens  Community  Bank (the  "Citizens  Bank") and  Citizens
Financial  Corp.  ("Citizens   Financial")  and  Citizens  Mortgage  Corporation
(currently  inactive)   (Collectively  the  entities  are  referred  to  as  the
"Company").  Citizens was  organized  simultaneously  with Citizens Bank and its
primary  business is the  ownership  and operation of Citizens Bank and Citizens
Financial.  Citizens Bank is a Florida  state-chartered  commercial bank and its
deposits are insured by the Federal Deposit Insurance Corporation. Citizens Bank
opened for business on March 8, 1996, and provides  community  banking services,
through three banking offices,  to businesses and individuals in Collier County,
Florida.  Citizens  Financial  was formed and  commenced  business as a mortgage
broker in 1997.

                         Liquidity and Capital Resources

A  state-chartered  commercial  bank is  required  under  Florida  Law and  FDIC
regulations  to  maintain  a  liquidity  reserve  of at least  15% of its  total
transaction  accounts  and 8% of its total  nontransaction  accounts  subject to
certain restrictions.  The reserve may consist of cash-on-hand,  demand deposits
due from  correspondent  banks, and other investments and short-term  marketable
securities.

The Company's primary source of cash during the year ended December 31, 1998 was
from net deposit  inflows of $27.1 million and the sale of common stock of $10.2
million. Cash was used primarily to originate loans and purchase securities.  At
December 31, 1998, the Company had  outstanding  commitments to originate  loans
totaling $9.1 million,  commitments  to borrowers for available  lines of credit
totaling  $6.7  million  and time  deposits  maturing  in the next year of $13.6
million. At December 31, 1998,  Citizens Bank exceeded its regulatory  liquidity
requirements.

                           Regulation and Legislation

As a  state-chartered  commercial  bank,  Citizens  Bank is subject to extensive
regulation by the Florida  Department of Banking and Finance ("Florida DBF") and
the Federal Deposit Insurance Corporation ("FDIC").  Citizens Bank files reports
with the  Florida  DBF and the FDIC  concerning  its  activities  and  financial
condition,  in addition to obtaining regulatory approvals prior to entering into
certain  transactions  such as mergers with or  acquisitions  of other financial
institutions.  Periodic  examinations  are  performed by the Florida DBF and the
FDIC  to  monitor  Citizens  Bank's  compliance  with  the  various   regulatory
requirements.  Citizens and Citizens  Bank are also  subject to  regulation  and
examination by the Federal Reserve Board of Governors.

                              Year 2000 Compliance

We are acutely aware of the many areas affected by the Year 2000 computer issue,
as addressed by the Federal Financial Institutions Examination Council ("FFIEC")
in its  interagency  statement  which  provided an outline for  institutions  to
effectively manage the Year 2000 challenges.  A Year 2000 plan has been approved
by the Board of Directors which includes multiple phases, tasks to be completed,
and target dates for completion.  Issues  addressed  therein include  awareness,
assessment,  renovation,  validation,  implementation,  testing, and contingency
planning. See note 14 to the consolidated financial statements for more detailed
information.


                                        7

<PAGE>



                                   Credit Risk

Our primary  business is  providing  deposit  related  services  and making real
estate secured  commercial,  business and consumer loans. The lending activities
entail  potential  loan  losses,  the  magnitude of which depend on a variety of
economic  factors  affecting  borrowers  which are beyond our  control.  We have
instituted  underwriting  guidelines and credit review procedures to protect the
Company from avoidable  credit losses,  some losses will  inevitably  occur.  At
December  31, 1998 and 1997,  the Company had no  nonperforming  assets or loans
which were delinquent 90 days or more or were nonperforming.

The following table presents information regarding total allowance for losses as
well as the  allocation  of such  amounts  to the  various  categories  of loans
(dollars in thousands):
<TABLE>
<CAPTION>
                                                                                                  At December 31,
                                                                                      1998                  1997
                                                                              ---------------------------------------
                                                                                          Loans                 Loans
                                                                                           To                    To
                                                                                          Total                 Total
                                                                              Amount      Loans      Amount     Loans
                                                                              ------      -----      ------     -----

<S>                                                                            <C>          <C>       <C>         <C> 
               Commercial real estate loans............................        $ 315         48%     $   94        35%
               Residential real estate loans...........................           51         32          42        27
               Commercial loans........................................           68         11         117        29
               Consumer loans..........................................           19          9          45         9
                                                                                 ---       ----        ----      ----

               Total allowance for loan losses.........................        $ 453        100%      $ 298       100%
                                                                                 ===        ===         ===       ===

               Allowance for credit losses as a percentage
                  of the total loans outstanding.......................         1.02%                            1.12%
                                                                                ====                             ====
</TABLE>

                           Loan Portfolio Composition

Commercial  real estate loans and land loans comprise the largest group of loans
in our portfolio  amounting to approximately  $21.8 million, or 48% of the total
loan portfolio as of December 31, 1998.  Commercial real estate loans consist of
approximately  $19.4  million of loans  secured by  nonresidential  property and
approximately $2.4 million of loans secured by undeveloped land.

Residential  real estate loans comprise the second largest group of loans in our
loan portfolio, amounting to $14.6 million or 32% of the total loan portfolio as
of December 31, 1998, of which approximately 98% are first mortgage loans. As of
December 31, 1998,  consumer loans and savings  account loans,  amounted to $3.8
million or 9% of the total loan portfolio.

The following table sets forth the loan portfolio composition:
<TABLE>
<CAPTION>
                                                                                           At December 31,
                                                                                     1998                  1997
                                                                               --------------------------------------
                                                                                           % of                  % of
                                                                               Amount      Total    Amount      Total
                                                                               ------      -----    ------      -----
                                                                                                (In thousands)

<S>                                                                          <C>             <C>   <C>            <C>
         Commercial real estate........................................      $ 21,820         48%  $  9,423        35%
         Residential real estate.......................................        14,571         32      7,261        27
         Commercial....................................................         4,994         11      7,710        29
         Consumer......................................................         3,827          9      2,261         9
                                                                              -------       ----     ------     -----

                                                                               45,212        100%    26,655       100%
                                                                                             ===                  ===

         Add (subtract):
           Deferred costs (fees), net..................................           174                    63
           Allowance for loans losses..................................          (453)                 (298)
                                                                             --------               -------

         Loans, net....................................................      $ 44,933              $ 26,420
                                                                               ======                ======

</TABLE>

                                        8

<PAGE>



                                   Securities

The  securities  portfolio is  comprised  primarily  of U.S.  Government  agency
securities.  According to Financial Accounting Standards No. 115, the securities
portfolio must be categorized as either "held to maturity", "available for sale"
or "trading".  Securities held to maturity  represent those securities which the
Company  has  the  positive  intent  and  ability  to hold  to  maturity.  These
securities are carried at amortized  cost and were comprised of U.S.  Government
agency securities at December 31, 1998.  Securities available for sale represent
those  investments  which may be sold for various reasons  including  changes in
interest rates and liquidity  considerations.  These  securities are reported at
fair market value with unrealized  gains and losses being reported as a separate
component of stockholders  equity,  net of income taxes.  Trading securities are
held  primarily  for resale and are  recorded at their fair  values.  Unrealized
gains or losses on trading securities are included  immediately in earnings.  At
December  31,  1998 and 1997,  the  Company  had no  securities  categorized  as
available for sale or trading.

The following  table sets forth the carrying  value of the Company's  securities
portfolio:

<TABLE>
<CAPTION>
                                                                                                     At December 31,
                                                                                                   1998          1997
                                                                                                   ----          ----
                                                                                                     (In thousands)
<S>                                                                                             <C>             <C>  
     Securities held to maturity:
         U.S. Treasury securities.........................................................   $     -              250
         U.S. Government agency securities................................................        8,500         2,249
                                                                                                  -----         -----

                                                                                                $ 8,500         2,499
                                                                                                  =====         =====
</TABLE>

The following table sets forth, by maturity  distribution,  certain  information
pertaining to the securities held to maturity portfolio (dollars in thousands):
<TABLE>
<CAPTION>

                                                                           After One Year
                                                        One Year or Less    to Five Years               Total
                                                        ----------------    -------------               -----
                                               Carrying      Average    Carrying     Average     Carrying     Average
                                                Value         Yield      Value        Yield       Value        Yield
                                                -----         -----      -----        -----       -----        -----
<S>                                               <C>         <C>          <C>        <C>          <C>         <C>  
December 31, 1998:
     U.S. Government
         agency securities..................      $ -          -  %        $ 8,500    5.17%        $ 8,500     5.17%
                                                 ======      =====           =====    ====           =====     ====

December 31, 1997:
     U.S. Treasury securities...............      $ 250       6.04%      $    -       -   %       $    250     6.04%
     U.S. Government
         agency securities..................        749       5.80           1,500    6.00           2,249     5.93
                                                    ---                      -----                   -----

     Total..................................      $ 999       5.86%        $ 1,500    6.00%        $ 2,499     5.94%
                                                    ===       ====           =====    ====           =====     ====
</TABLE>


                                        9

<PAGE>



                         Regulatory Capital Requirements

All Banks are required to meet certain minimum regulatory capital  requirements.
These capital  requirements  are intended to promote safety and soundness in the
banking  industry and the  requirement  provide limits to the amount of assets a
bank may have in light of its capital structure.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  Citizens Bank to maintain  minimum amounts and ratios (set forth in the
table  below) of total and Tier I capital  (as  defined in the  regulations)  to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as  defined).  As of December 31, 1998,  Citizens  Bank meet all capital
adequacy requirements as set forth below:
<TABLE>
<CAPTION>

                                                                                                     To Be Well
                                                                                                     Capitalized
                                                                        Minimum                     for Purposes
                                                                       For Capital                 of Prompt and
                                                Actual              Adequacy Purposes:          Corrective Action:
                                                ------              ------------------          ------------------
                                       Amount            %          Amount          %           Amount            %
                                       ------            -          ------          -           ------            -
                                                                          (Dollars in thousands)
<S>                                  <C>               <C>         <C>              <C>         <C>              <C>  
     As of December 31, 1998:
         Total Capital (to Risk-
         Weighted Assets)........... $ 6,808           15.34%      $ 3,551          8.00%       $ 4,439          10.0%
         Tier I Capital (to Risk-
         Weighted Assets)...........   6,375           14.36         1,776          4.00          2,663          6.00
         Tier I Capital
         (to Average Assets)........   6,375           10.36         2,461          4.00          3,077          5.00

     As of December 31, 1997:
         Total Capital (to Risk-
         Weighted Assets)........... $ 4,643           17.67%      $ 2,102          8.00%       $ 2,627         10.00%
         Tier I Capital (to Risk-
         Weighted Assets)...........   4,354           16.57         1,051          4.00          1,576          6.00
         Tier I Capital
         (to Average Assets)........   4,354           10.67         1,633          4.00          2,041          5.00
</TABLE>

                                   Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from  interest-rate  risk inherent in
its lending and  deposit-taking  activities.  To that end,  management  actively
monitors and manages its interest-rate risk exposure.  The measurement of market
risk associated  with financial  instruments is meaningful only when all related
and offsetting on- and  off-balance-sheet  transactions are aggregated,  and the
resulting  net  positions are  identified.  Disclosures  about the fair value of
financial instruments,  which reflect changes in market prices and rates, can be
found in Note 6 of Notes to Consolidated Financial Statements.

Our primary objective in managing interest-rate risk is to maximize earnings and
minimize the potential  adverse  impact of changes in interest rates on Citizens
Bank's  net  interest   income  and  capital,   while  adjusting  the  Company's
asset-liability  structure  to  obtain  the  maximum  yield-cost  spread on that
structure. We rely primarily on our asset-liability structure to manage interest
rate risk.  However,  a sudden and  substantial  increase in interest  rates may
adversely  impact our earnings,  to the extent that the interest  earning assets
and  interest-bearing  liabilities do not change at the same speed,  to the same
extent, or on the same basis. We do not engage in securities trading activities.


                                       10

<PAGE>



                           Asset - Liability Structure

As part of its  asset and  liability  management,  the  Company  has  emphasized
establishing and implementing internal  asset-liability  decision processes,  as
well as communications  and control  procedures to aid in managing the Company's
asset and liability mix and to improve earnings. We believe that these processes
and procedures  provide the Company with better capital planning,  asset mix and
volume controls,  loan-pricing guidelines,  and deposit interest-rate guidelines
which should result in tighter controls and less exposure to interest-rate risk.

The matching of assets and  liabilities  may be analyzed by examining the extent
to which such assets and  liabilities  are  "interest-  rate  sensitive"  and by
monitoring  an  institution's  interest  rate  sensitivity  "gap."  An  asset or
liability is said to be interest-rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest-rate sensitivity
gap  is  defined  as  the  difference   between   interest-earning   assets  and
interest-bearing  liabilities  maturing or repricing within a given time period.
The gap ratio is computed by dividing  rate  sensitive  assets by interest  rate
sensitive liabilities. A gap ratio of 1.0% represents perfect matching. A gap is
considered  positive when the amount of  interest-rate  sensitive assets exceeds
interest-rate  sensitive  liabilities.  A gap is  considered  negative  when the
amount of interest-rate  sensitive liabilities exceeds  interest-rate  sensitive
assets. During a period of rising interest rates, a negative gap would adversely
affect net interest  income,  while a positive gap would generally  result in an
increase in net interest  income.  During a period of falling  interest rates, a
negative  gap would  result  in an  increase  in net  interest  income,  while a
positive gap would adversely affect net interest income.

In order to minimize the potential for adverse effects of material and prolonged
increases in interest rates on the results of  operations,  we monitor asset and
liability management policies to better match the maturities and repricing terms
of its interest-earning assets and interest-bearing  liabilities.  Such policies
have consisted  primarily of: (i) emphasizing the origination of adjustable-rate
loans;  (ii)  maintaining  a stable core deposit base;  and (iii)  maintaining a
significant portion of liquid assets (cash and short-term securities).


                                       11

<PAGE>



The   following   table  sets  forth   certain   information   relating  to  our
interest-earning  assets and  interest-bearing  liabilities at December 31, 1998
that are estimated to mature or are scheduled to reprice within the period shown
(dollars in thousands):
<TABLE>
<CAPTION>

                                                                 More
                                                                 Than         More
                                                                 Three      Than Six     More
                                                                 Months      Months    Than One
                                                      Three      to Six      to One     Year to     More Than
                                                     Months      Months       Year     Five Years   Five Years  Total
                                                     ------      ------       ----     ----------   ----------  -----
Mortgage, commercial and consumer loans (1):
<S>                                                <C>           <C>          <C>           <C>          <C>        <C>   
    Variable rate ..................               $ 13,916          736          754        8,648         581      24,635
    Fixed rate .....................                    742          635          605       16,530       2,065      20,577
                                                   --------     --------     --------     --------    --------    --------

         Total loans ...............                 14,658        1,371        1,359       25,178       2,646      45,212

Federal funds sold and securities
    purchased under agreements
    to resell ......................                 19,181         --           --           --          --        19,181
Securities (2) .....................                   --           --           --          8,500        --         8,500
                                                   --------     --------     --------     --------    --------    --------

         Total rate-sensitive assets                 33,839        1,371        1,359       33,678       2,646      72,893
                                                   --------     --------     --------     --------    --------    --------

Deposit accounts (3):
    NOW deposits ...................                 25,073         --           --           --          --        25,073
    Money-market deposits ..........                  4,011         --           --           --          --         4,011
    Savings deposits ...............                  8,235         --           --           --          --         8,235
    Time deposit ...................                  2,676        2,374        8,538        6,718        --        20,306
                                                   --------     --------     --------     --------    --------    --------

         Total rate-sensitive
             liabilities ...........                 39,995        2,374        8,538        6,718        --        57,625
                                                   ========     ========     ========     ========    ========    ========

GAP repricing differences ..........               $ (6,156)      (1,003)      (7,179)      26,960       2,646      15,268
                                                   ========     ========     ========     ========    ========    ========

Cumulative GAP .....................                 (6,156)      (7,159)     (14,338)      12,622      15,268
                                                   ========     ========     ========     ========    ========

Cumulative GAP/total assets ........                  (7.49%)      (8.71%)     (17.44%)       15.35%      18.57%
                                                   ========     ========     ========      ========    ========
</TABLE>



(1)      In preparing the table above, adjustable-rate loans are included in the
         period in which the interest  rates are next scheduled to adjust rather
         than in the  period  in which the loans  mature.  Fixed-rate  loans are
         scheduled, including repayment, according to their maturities.

(2)      Securities are scheduled through the maturity dates.

(3)      Money-market,   NOW,  and  savings   deposits  are  regarded  as  ready
         accessible  withdrawable accounts.  Time deposits are scheduled through
         the maturity dates.






                                       12

<PAGE>



The following table reflects the contractual  principal  repayments by period of
the Company's loan portfolio at December 31, 1998 (in thousands):
<TABLE>
<CAPTION>

                                               Commercial
                                                  Real                      Residential
         Years Ending                            Estate       Commercial      Mortgage      Consumer
         December 31,                             Loans         Loans          Loans          Loans             Total
         ------------                             -----         -----          -----          -----             -----
<S>                                            <C>              <C>           <C>             <C>              <C>   
           1999.............................    $ 3,570         2,161            183            227             6,141
           2000.............................      1,975           627            969            124             3,695
           2001.............................      6,168           212            620            286             7,286
           2002-2003........................      7,132         1,197            361            205             8,895
           2004-2005........................      1,007          -               -             -                1,007
           2006 and beyond..................      1,969           797         12,438          2,984            18,188
                                                 ------         -----         ------          -----            ------

           Total............................   $ 21,821         4,994         14,571          3,826            45,212
                                                 ======         =====         ======          =====            ======
</TABLE>

Of the $39.1  million  of loans due after  1999,  67% of such  loans  have fixed
interest rates and 33% have adjustable interest rates.

Scheduled  contractual  principal  repayments of loans do not reflect the actual
life of such assets.  The average life of loans is substantially less than their
average contractual terms due to prepayments.  In addition,  due-on-sale clauses
on loans  generally  give the Company the right to declare a  conventional  loan
immediately due and payable in the event, among other things,  that the borrower
sells the real property subject to the mortgage and the loan is not repaid.  The
average life of mortgage loans tends to increase, however, when current mortgage
loan rates are  substantially  higher than rates on existing mortgage loans and,
conversely,  decrease when rates on existing mortgages are substantially  higher
than current mortgage loan rates.

Origination,  Sale and Repayment of Loans. We generally  originate loans on real
estate located in our primary  geographical  lending area in Southwest  Florida.
Residential  mortgage loan  originations  are generated from  depositors,  other
existing  customers,  advertising  and  referrals  from real estate  brokers and
developers. The Company's residential mortgage loans generally are originated to
ensure  compliance with  documentation  and underwriting  standards which permit
their sale to the Federal National Mortgage Association ("Fannie Mae") and other
investors in the secondary market.

To a limited extent,  engaged in the sale of whole loans. The sale of fixed-rate
and variable loans have been utilized to provide  liquidity and funding  sources
for higher yielding loans.

The following table sets forth total loans originated, repaid and sold:

<TABLE>
<CAPTION>

                                                                                               Year Ended December 31,
                                                                                               -----------------------
                                                                                               1998              1997
                                                                                               ----              ----
                                                                                                     (In thousands)
<S>                                                                                          <C>                <C>   
      Originations:
         Commercial loans................................................................    $  2,964              756
         Commercial real estate loans....................................................      11,798            9,426
         Residential mortgage loans......................................................      10,785           13,897
         Consumer loans..................................................................       2,800            2,888
                                                                                               ------           ------

             Total loans originated......................................................      28,347           26,967

      Principal reductions...............................................................       9,225            7,887
      Loans sold.........................................................................         565            4,687
                                                                                              -------           ------

      Increase in total loans............................................................    $ 18,557           14,393
                                                                                               ======           ======
</TABLE>


                                       13

<PAGE>



Deposits and Other Sources of Funds

General. In addition to deposits, the sources of funds available for lending and
other business purposes include loan repayments, loan sales, and securities sold
under agreements to repurchase.  Loan repayments are a relatively  stable source
of funds,  while deposit  inflows and outflows are influenced  significantly  by
general interest rates and money-market conditions.  Borrowings may be used on a
short-term basis to compensate for reductions in other sources, such as deposits
at less  than  projected  levels  and are also used to fund the  origination  of
mortgage loans designated to be sold in the secondary markets.

Deposits.  Deposits are attracted principally from our primary geographic market
areas  in  Collier  County,  Florida.  We  offer a broad  selection  of  deposit
instruments  including  demand  deposit  accounts,  NOW accounts,  money- market
accounts,  regular savings  accounts,  term certificate  accounts and retirement
savings plans (such as IRA  accounts).  Certificate  of deposit rates are set to
encourage longer  maturities as cost and market  conditions will allow.  Deposit
account  terms vary,  with the  primary  differences  being the minimum  balance
required,  the time  period the funds must  remain on deposit  and the  interest
rate.  Deposit  interest  rates we set weekly based on a review of deposit flows
for the previous week, a survey of rates among  competitors  and other financial
institutions in Florida.  Commercial banking  relationships are emphasized in an
effort to increase demand deposits as a percentage of total deposits. We provide
a courier service to better serve its business customers.

The following  table shows the  distribution  of, and certain other  information
relating to deposit accounts by type (dollars in thousands):
<TABLE>
<CAPTION>

                                                                                    At December 31,
                                                                   ---------------------------------------------------
                                                                           1998                       1997
                                                                           ----                       ----
                                                                                 % of                         % of
                                                                   Amount       Deposits       Amount        Deposits
                                                                   ------       --------       ------        --------
<S>                                                               <C>             <C>            <C>            <C>    
         Noninterest-bearing demand deposits..................  $    6,365          9.95%       $   3,153         8.54%
         NOW deposits.........................................      25,073         39.18           15,462        41.86
         Money-market deposits................................       4,011          6.27            1,302         3.52
         Savings deposits.....................................       8,235         12.87              839         2.27
                                                                   -------        ------         --------       ------

                  Subtotal....................................      43,684         68.27           20,756        56.19
                                                                    ------        ------           ------       ------

         Time deposits:
                  2.00% - 3.99%...............................         265           .41             -            -
                  4.00% - 4.99%...............................       3,093          4.83            1,101         2.98
                  5.00% - 5.99%...............................      11,952         18.68            8,221        22.26
                  6.00% - 6.99%...............................       4,996          7.81            6,860        18.57
                                                                   -------       -------           ------       ------

         Total time deposits (1)..............................      20,306         31.73           16,182        43.81
                                                                    ------        ------           ------       ------

         Total deposit........................................    $ 63,990        100.00%        $ 36,938       100.00%
                                                                    ======        ======           ======       ======
</TABLE>
------------------------


(1)      Includes  individual  retirement  accounts ("IRAs") totaling $1,514,387
         and  $611,000  at December  31, 1998 and 1997,  all of which are in the
         form of time deposits.

Jumbo time deposits ($100,000 and over) mature as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                                      At December 31,
                                                                                                      ---------------
                                                                                                      1998        1997
                                                                                                      ----        ----

<S>                                                                                                <C>           <C>  
         Due three months or less...........................................................       $   825         872
         Due over three months to six months................................................           409         411
         Due over six months to one year....................................................         2,399       1,831
         Due over one year..................................................................         1,809         905
                                                                                                     -----      ------

                                                                                                   $ 5,442       4,019
                                                                                                     =====       =====
</TABLE>

                                       14

<PAGE>

                              Results of Operations

Our operating results depend primarily on its net interest income,  which is the
difference  between  interest  income on  interest-earning  assets and  interest
expense on interest-bearing  liabilities,  consisting primarily of deposits. Net
interest  income  is  determined  by the  difference  between  yields  earned on
interest-earning   assets  and  rates  paid  on   interest-bearing   liabilities
("interest-rate spread") and the relative amounts of interest-earning assets and
interest-bearing   liabilities.   Our   interest-rate   spread  is  affected  by
regulatory,  economic,  and competitive  factors that influence  interest rates,
loan demand, and deposit flows. In addition,  our net earnings are also affected
by the level of nonperforming  loans and foreclosed real estate,  as well as the
level of our noninterest income, and noninterest expenses,  such as salaries and
employee benefits, occupancy and equipment costs and income taxes.

The following table sets forth, for the periods indicated, information regarding
(i)  the  total   dollar   amount  of   interest   and   dividend   income  from
interest-earning  assets and the resultant  average yield; (ii) the total dollar
amount of interest  expense on  interest-bearing  liabilities  and the resultant
average costs; (iii) net  interest/dividend  income;  (iv) interest rate spread;
(v) net interest margin; and (vi) the ratio of average  interest-earning  assets
to average interest-bearing  liabilities.  Average balances are based on average
daily balances (dollars in thousands).
<TABLE>
<CAPTION>

                                                 1998                         1997                         1996
                                  -----------------------------------------------------------------------------------------
                                              Interest  Average             Interest  Average             Interest  Average
                                  Average        and     Yield/   Average     and      Yield/   Average    and       Yield/
                                  Balance    Dividends   Rate     Balance  Dividends     Rate   Balance  Dividends     Rate
                                  -------    ---------   ----     -------  ---------     ----   -------  ---------     ----
<S>                                <C>           <C>      <C>   <C>            <C>      <C>     <C>            <C>    <C>  
Interest-earning assets:
     Loans.......................  $ 35,329      2,944    8.33% $  20,537      1,914    9.32%   $ 3,842        323    8.39%
     Securities..................     7,670        476    6.21      2,346        141    6.01      2,052        119    5.78
     Other interest-earning
         assets (1)..............    13,131        709    5.40      8,516        468    5.50      5,306        298    5.62
                                     ------     ------    ----    -------      -----             ------        ---    ----

         Total interest-earning
           assets................    56,130      4,129    7.36     31,399      2,523    8.04     11,200        740    6.61
                                                 -----                         -----                           ---

Noninterest-earning assets.......     7,420                         5,157                         1,443
                                   --------                        ------                        ------

         Total assets............  $ 63,550                      $ 36,556                      $ 12,643
                                     ======                        ======                        ======

Interest-bearing liabilities:
     Demand, money-market and
         NOW deposits............    24,316        827    3.40     14,195        517    3.64      4,087        148    3.62
     Savings.....................     2,432         85    3.50        573         17    3.01        163          5    2.99
     Time deposits...............    19,302      1,097    5.68     11,704        664    5.67      2,296        124    5.39
     Other.......................    -           -         -          125         10    8.00         66          6    9.42
                                    -------   --------            -------     ------           --------      -----

         Total interest-bearing
           liabilities...........    46,050      2,009    4.36     26,597      1,208    4.54      6,612        283    4.28
                                                 -----                         -----                           ---

Noninterest-bearing liabilities..     5,484                         3,571                         2,724
Stockholders' equity.............    12,016                         6,388                         3,307
                                     ------                        ------                        ------

         Total liabilities and
           stockholders' equity..  $ 63,550                      $ 36,556                      $ 12,643
                                     ======                        ======                        ======

Net interest/dividend income.....            $ 2,120                       $ 1,315                         $ 457
                                               =====                         =====                           ===

Interest-rate spread (2).........                         3.00%                         3.50%                         2.33%
                                                          ====                          ====                          ====

Net interest margin (3)..........                         3.78%                         4.20%                         4.08%
                                                          ====                          ====                          ====

Ratio of average interest-earning
     assets to average interest-
     bearing liabilities.........      1.22                          1.18               1.69
                                       ====                          ====               ====
</TABLE>

(1)      Includes interest-bearing deposits and federal funds sold.
(2)      Interest-rate  spread  represents  the  difference  between the average
         yield   on   interest-earning   assets   and   the   average   cost  of
         interest-bearing liabilities.
(3)      Net  interest   margin  is  net  interest  income  divided  by  average
         interest-earning assets.


                                       15

<PAGE>



Rate/Volume Analysis

The following table sets forth certain information regarding changes in interest
income and  interest  expense for the periods  indicated.  For each  category of
interest-earning  assets  and  interest-bearing   liabilities,   information  is
provided  on  changes  attributable  to (1)  changes  in  rate  (change  in rate
multiplied by prior volume),  (2) changes in volume (change in volume multiplied
by prior  rate) and (3) changes in  rate-volume  (change in rate  multiplied  by
change in volume).
<TABLE>
<CAPTION>

                                                                                         Year Ended December 31,
                                                                                              1998 vs. 1997
                                                                                       --------------------------
                                                                                       Increase (Decrease) Due to
                                                                                       --------------------------
                                                                                                      Rate/
                                                                                  Rate    Volume     Volume     Total
                                                                                  ----    ------     ------     -----
                                                                                              (In thousands)
<S>                                                                              <C>        <C>        <C>      <C>  
Interest earning assets:
    Loans....................................................................    $(203)     1,379      (146)    1,030
    Securities...............................................................        5        320        10       335
    Other interest-earning assets............................................       (9)       254        (4)      241
                                                                                  ----     ------      ----     -----

      Total..................................................................     (207)     1,953      (140)    1,606
                                                                                   ---      -----       ---     -----

Interest-bearing liabilities:
    Deposits:
      Demand, money-market and NOW deposits..................................      (34)       368       (24)      310
      Savings................................................................        3         56         9        68
      Time deposits..........................................................        1        430         2       433
      Other..................................................................      -          (10)      -         (10)
                                                                                 -----      -----     -----    ------

      Total..................................................................      (30)       844       (13)      801
                                                                                   ---      -----       ---     -----

Net change in net interest income............................................    $(177)     1,109      (127)      805
                                                                                   ===      =====       ===     =====

                                                                                          Year Ended December 31,
                                                                                              1997 vs. 1996
                                                                                       --------------------------
                                                                                       Increase (Decrease) Due to
                                                                                       --------------------------
                                                                                                      Rate/
                                                                                  Rate     Volume    Volume     Total
                                                                                                 (In thousands)
Interest earning assets:
    Loans....................................................................     $ 35      1,401       155     1,591
    Securities...............................................................        5         17       -          22
    Other interest-earning assets............................................       (6)       180        (4)      170
                                                                                   ---      -----      ----     -----

      Total..................................................................       34      1,598       151     1,783
                                                                                    --      -----       ---     -----

Interest-bearing liabilities:
    Deposits:
      Demand, money-market and NOW deposits..................................        1        366         2       369
      Savings................................................................       -          12       -          12
      Time deposits..........................................................        7        507        26       540
      Other..................................................................       (1)         6        (1)        4
                                                                                   ---     ------       ---   -------

      Total..................................................................        7        891        27       925
                                                                                   ---      -----       ---    ------

Net change in net interest income............................................     $ 27        707       124       858
                                                                                    ==     ======       ===    ======
</TABLE>


                                       16

<PAGE>



Comparison of Years Ended December 31, 1998 and 1997


    General.  Net earnings for the year ended December 31, 1998 were $205,854 or
      $.08 per basic and diluted share compared to net earnings $109,506 or $.06
      per basic and diluted  share for the year ended  December 31,  1997.  This
      improvement  in net operating  results was primarily due to an increase in
      net  interest  income  and  noninterest  income,  partially  offset  by an
      increase  in  noninterest  expenses,  all as a  result  of  growth  of the
      Company.

    Interest Income and Expense.  Interest income increased by $1.6 million from
      $2.5 million for the year ended  December 31, 1997 to $4.1 million for the
      year ended December 31, 1998.  Interest  income on loans increased to $2.9
      million from $1.9  million due an increase in the average  loan  portfolio
      balance  for the year  ended  December  31,  1998,  partially  offset by a
      decrease  in the  weighted-average  yield to 8.33% for 1998 from 9.32% for
      1997.  Interest on securities  increased to $.5 million due to an increase
      in the average  securities  balance in 1998, as well as an increase in the
      average  yield  from  6.01% in 1997 to 6.21%  in 1998.  Interest  on other
      interest-earning  assets  increased  to $.7  million  primarily  due to an
      increase in average other interest-earning assets only partially offset by
      a decrease in the weighted-average yield earned on those assets.

      Interest  expense  increased  to $2.0 million in 1998 from $1.2 million in
      1997.  Interest expense increased due to the growth in average deposits in
      1998, partially offset by a decrease in the weighted-average  rate paid on
      deposits.

    Provision  for Loan  Losses.  The  provision  for loan losses was charged to
      earnings to bring the total  allowance  to a level deemed  appropriate  by
      management and is based upon historical experience, the volume and type of
      lending  conducted  by the  Company,  industry  standards,  the amounts of
      nonperforming  loans,  general economic  conditions,  particularly as they
      relate to market areas, and other factors related to the collectibility of
      the Company's loan portfolio.  Management  believes that the allowance for
      loan losses of $453,211 is adequate at December 31, 1998.

    Noninterest  Income.  Noninterest  income increased from $273,102 in 1997 to
      $341,397  in 1998  primarily  due to higher  service  charges  on  deposit
      accounts in 1998 compared to 1997.

    Noninterest Expense. Total noninterest expense increased to $1.9 million for
      the year  ended  December  31,  1998  compared  to $1.3  million  in 1997,
      primarily  due to  increases  in employee  compensation  and  benefits and
      occupancy and equipment  expense  resulting from the opening of additional
      offices in 1997 and 1998.  All other  operating  expenses  also  increased
      primarily due to the overall growth of the Company.

    Income Taxes.  The income tax provision  was $157,893 (an effective  rate of
      43.4%) for 1998  compared  to a $66,000 (an  effective  rate of 37.6%) for
      1997.


                                       17

<PAGE>



Comparison of Years Ended December 31, 1997 and 1996


    General.  Net earnings for the year ended December 31, 1997 were $109,506 or
      $.06 per basic and  diluted  share  compared to a net loss  $(342,295)  or
      $(.22) per basic and diluted  share for the year ended  December 31, 1996.
      This improvement in net operating results was primarily due to an increase
      in net interest  income and  noninterest  income,  partially  offset by an
      increase in  noninterest  expenses,  all resulting from growth of Citizens
      Bank.

    Interest Income and Expense.  Interest income increased by $1.8 million from
      $.7 million for the year ended  December  31, 1996 to $2.5 million for the
      year ended  December 31, 1997.  Interest  income on loans  increased  $1.6
      million due an increase in the average loan portfolio balance,  as well as
      an  increase  in the  weighted-average  yield  earned  on  loans  in 1998.
      Interest on securities increased $22,000 due to an increase in the average
      securities  balance in 1997,  as well as an increase in the average  yield
      from 5.78% in 1996 to 6.01% in 1997.  Interest  on other  interest-earning
      assets  increased  $170,000  primarily  due to an  increase in the average
      balance of other interest-earning assets in 1997.

      Interest expense increased to $1.2 million in 1997 compared to $.3 million
      in 1996.  Interest  expense  increased  due to an  increase in the average
      deposits  as well as an  increase  in the  weighted-average  rate  paid on
      deposits for the year ended December 31, 1997 compared to 1996.

    Provision  for Loan  Losses.  The  provision  for loan losses was charged to
      earnings to bring the total  allowance  to a level deemed  appropriate  by
      management and is based upon historical experience, the volume and type of
      lending  conducted  by the  Company,  industry  standards,  the amounts of
      nonperforming  loans,  general economic  conditions,  particularly as they
      relate to market areas, and other factors related to the collectibility of
      the Company's loan portfolio.  Management  believes that the allowance for
      loan losses of $298,000 is adequate at December 31, 1997.

    Noninterest  Income.  Noninterest  income  increased from $70,000 in 1996 to
      $273,000  in 1997  primarily  because  of gains  from the sale of loans of
      $68,000 in 1997 with no corresponding amount in 1996 and increased service
      charges and fees in 1997 compared to 1996.

    Noninterest  Expense.  Total noninterest  expense increased $345,000 for the
      year ended December 31, 1997 compared to 1996,  primarily due to increases
      in  employee  compensation  and  benefits of  $310,000  due to  additional
      employees.  All other operating  expenses  increased  primarily due to the
      overall growth of the Company.

    Income Taxes.  The income tax  provision  was $66,000 for 1997 compared to a
      credit of  $(191,000)  for 1996.  The  effective  tax rates were 37.6% and
      35.8% for 1997 and 1996, respectively.



                                       18

<PAGE>


                     Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in
accordance with generally  accepted  accounting  principles,  which requires the
measurement of financial  position and operating  results in terms of historical
dollars,  without  considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies,  substantially all
of the assets and  liabilities  of the  Company  are  monetary  in nature.  As a
result,  interest  rates  have  a  more  significant  impact  on  the  Company's
performance  than the effects of general levels of inflation.  Interest rates do
not  necessarily  move in the same  direction  or in the same  magnitude  as the
prices of goods and  services,  since such prices are affected by inflation to a
larger extent than interest rates.

                         Future Accounting Requirements

Financial Accounting  Standards 133 - Accounting for Derivative  Investments and
Hedging Activities requires companies to record derivatives on the balance sheet
as assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those  derivatives  would be accounted for depending on
the use of the  derivatives and whether they qualify for hedge  accounting.  The
key criterion  for hedge  accounting  is that the hedging  relationship  must be
highly  effective in achieving  offsetting  changes in fair value or cash flows.
The  Company  will be  required to adopt this  Statement  January 1, 2000.  This
Statement is not expected to have a material impact on the Company.

                           Selected Quarterly Results

Selected quarterly results of operations for the four quarters ended December 31
are as follows (in thousands, except share amounts:
<TABLE>
<CAPTION>

                                                   1998                                          1997
                                ----------------------------------------       ---------------------------------------
                                 Fourth     Third      Second     First         Fourth     Third      Second   First
                                Quarter     Quarter   Quarter    Quarter       Quarter    Quarter    Quarter   Quarter
                                -------     -------   -------    -------       -------    -------    -------   -------

<S>                              <C>        <C>        <C>          <C>          <C>        <C>        <C>       <C>
Interest income............      $ 982      1,142      1,075        931          804        696        589       434
Interest expense...........        484        528        534        464          380        345        264       218
Net interest income                498        614        541        467          424        351        325       216
Provision for loan
   losses..................         54         37         15         56           15         36         42        60
Earnings before
   income taxes............         61        165        105         39           79         57         30         9
Net earnings...............          9        103         70         24           51         34         19         6
Basic earnings per
   common share (1)                  -        .03        .04        .01          .03        .02        .02       .01
Diluted earnings per
   common share (1)                  -        .03        .03        .01          .03        .02        .02       .01
Cash dividends declared
   per common share                  -         -          -            -          -          -         -          -

</TABLE>

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

(1)      All per share  information  presented  reflects the 1998 stock dividend
         and the 1997 stock split.


                                       19

<PAGE>

                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                                                                                At December 31,
                                                                                                ---------------
                                                                                            1998              1997
                                                                                            ----              ----
<S>                                                                                    <C>                 <C>       
    Assets

Cash and due from banks.............................................................. $   5,481,992         3,153,577
Federal funds sold and securities purchased under agreements to resell...............    19,181,095         9,057,000
                                                                                         ----------        ----------

              Cash and cash equivalents..............................................    24,663,087        12,210,577

Securities held to maturity..........................................................     8,499,968         2,498,614
Restricted securities, Federal Home Loan Bank stock, at cost                                127,100              -
Loans, net of allowance for loan losses of $453,211 and $298,000.....................    44,932,943        26,420,149
Premises and equipment, net..........................................................     3,549,924         2,845,997
Accrued interest receivable and other assets.........................................       453,104           308,152
Deferred income taxes................................................................          -              138,043
                                                                                     ----------------    ------------

              Total assets...........................................................  $ 82,226,126        44,421,532
                                                                                         ==========        ==========

    Liabilities and Stockholders' Equity

Liabilities:
    Demand deposits..................................................................     6,365,180         3,153,135
    Savings and NOW deposits.........................................................    33,307,881        16,300,813
    Money-market deposits............................................................     4,010,998         1,302,296
    Time deposits....................................................................    20,306,399        16,182,123
                                                                                         ----------        ----------

              Total deposits.........................................................    63,990,458        36,938,367

    Official checks..................................................................       697,458           473,521
    Deferred income taxes............................................................        19,850            -
    Accrued interest payable and other liabilities...................................       293,832           238,886
                                                                                        -----------      ------------

              Total liabilities......................................................    65,001,598        37,650,774
                                                                                         ----------        ----------

Commitments and contingency (Note 6 and 14)

Stockholders' Equity:
    Preferred stock, $.01 value; 2,000,000 shares authorized,
         none issued or outstanding..................................................        -                 -
    Common stock, $.01 par value; 8,000,000 shares authorized,
         3,455,039 and 1,571,624 shares issued and outstanding.......................        34,550            15,716
    Additional paid-in capital.......................................................    19,158,862         7,010,515
    Accumulated deficit..............................................................    (1,968,884)         (255,473)
                                                                                         ----------       -----------

              Total stockholders' equity.............................................    17,224,528         6,770,758
                                                                                         ----------        ----------

              Total liabilities and stockholders' equity.............................  $ 82,226,126        44,421,532
                                                                                         ==========        ==========

</TABLE>


See Accompanying Notes to Consolidated Financial Statements.



<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                              1998           1997              1996
                                                                              ----           ----              ----
Interest income:
<S>                                                                      <C>               <C>                <C>    
   Loans...............................................................  $ 2,943,598       1,913,828          322,538
   Securities..........................................................      476,060         140,545          118,531
   Other interest-earning assets.......................................      709,403         468,404          298,727
                                                                          ----------      ----------          -------

         Total interest income.........................................    4,129,061       2,522,777          739,796
                                                                           ---------       ---------          -------

Interest expense:
   Deposits............................................................    2,009,177       1,197,823          276,691
   Other...............................................................        -               9,573            6,182
                                                                           ---------       ---------         --------

         Total interest expense........................................    2,009,177       1,207,396          282,873
                                                                           ---------       ---------          -------

Net interest income....................................................    2,119,884       1,315,381          456,923

Provision for loan losses..............................................      161,711         153,000          145,000
                                                                           ---------      ----------          -------

         Net interest income after provision for loan losses...........    1,958,173       1,162,381          311,923
                                                                           ---------       ---------          -------

Noninterest income:
   Gain on sale of loans...............................................        -              68,476             -
   Service charges and fees............................................      280,970         176,974           57,412
   Other...............................................................       60,427          27,652           12,297
                                                                            --------         -------           ------

         Total noninterest income......................................      341,397         273,102           69,709
                                                                          ----------       ---------          -------

Noninterest expenses:
   Compensation and  benefits..........................................      899,761         641,693          332,124
   Occupancy and equipment.............................................      330,474         167,755          153,548
   Advertising.........................................................      104,710          31,917           20,491
   Organizational expenses.............................................       -               -               100,079
   Professional fees...................................................       42,347          18,108           35,257
   Office supplies.....................................................       68,767          30,120           68,982
   Data processing.....................................................       77,744          62,195           33,765
   Other...............................................................      412,020         308,232          170,681
                                                                             -------         -------          -------

         Total noninterest expenses....................................    1,935,823       1,260,020          914,927
                                                                           ---------       ---------          -------

Earnings (loss) before income taxes (benefit)..........................      363,747         175,463         (533,295)

         Income taxes (benefit)........................................      157,893          65,957         (191,000)
                                                                          ----------      ----------          -------

Net earnings (loss)....................................................  $   205,854         109,506         (342,295)
                                                                           =========       =========          =======

Earnings (loss) per share:

         Basic.........................................................$         .08             .06             (.22)
                                                                         ===========     ===========       ==========

         Diluted.......................................................$         .08             .06             (.22)
                                                                         ===========     ===========       ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.


<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Equity

                  Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>


                                                                  Common Stock
                                                                  ------------
                                                               Number                Additional                         Total
                                               Preferred        of                     Paid-In      Accumulated     Stockholders'
                                                 Stock         Shares      Amount      Capital       Deficit           Equity
                                                 -----         ------      ------      -------       -------           ------
<S>                                            <C>            <C>            <C>       <C>           <C>              <C>       
Balance at December 31, 1995...............    $ 21,000        -             -           -            (22,684)          (1,684)

Redemption of 210 shares of
     preferred stock.......................     (21,000)       -             -           -               -             (21,000)

Issuance of shares of common stock
     $9.00 per share ......................        -          707,610       7,076     6,322,086          -           6,329,162

Net loss...................................        -           -             -           -           (342,295)        (342,295)
                                              --------- -------------   -----------  ----------     ---------       ----------

Balance at December 31, 1996...............        -          707,610       7,076     6,322,086      (364,979)       5,964,183

Issuance of shares of common stock at
     $9.00.................................        -           77,452         774       689,545          -             690,319

Two-for-one stock split on
     December 15, 1997.....................        -          785,062       7,851        (7,851)         -                -

Issuance of common stock at $4.50                  -          1,500            15         6,735          -               6,750

Net earnings...............................        -             -           -             -          109,506          109,506
                                             ---------- -------------    ----------------------    ----------       ----------

Balance at December 31, 1997...............        -        1,571,624      15,716     7,010,515      (255,473)       6,770,758

Sale of shares of common stock at
     $7.50 per share ......................        -        1,000,000      10,000     7,413,256          -           7,423,256

Issuance of shares of common
     stock to holders of warrants                  -          625,513       6,255     2,808,553          -           2,814,808

Stock options exercised....................        -            2,000          20         9,832          -               9,852

Stock dividend.............................        -          255,902       2,559     1,916,706    (1,919,265)           -

Net earnings...............................        -             -           -             -          205,854          205,854
                                            ----------- -------------   -----------------------    ----------      -----------

Balance at December 31, 1998...............$       -        3,455,039      34,550    19,158,862    (1,968,884)      17,224,528
                                             ===========    =========      ======    ==========     =========       ==========
</TABLE>


See Accompanying Notes to Consolidated Financial Statements.

<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>


                                                                                     Year Ended December 31,
                                                                              1998             1997           1996
                                                                              ----             ----           ----
<S>                                                                      <C>               <C>           <C>      
Cash flows from operating activities:
    Net earnings (loss)..................................................$    205,854         109,506      (342,295)
    Adjustments to reconcile net earnings (loss) to net cash provided
      by (used in) operating activities:
        Depreciation.....................................................     191,670          82,818        73,610
        Provision for loan losses........................................     161,711         153,000       145,000
        Provision (credit) for deferred income taxes.....................     157,893          65,957      (191,000)
        Amortization of loan fees, premiums and discounts................    (103,785)       (148,005)      (19,340)
        (Increase) decrease in accrued interest receivable and
           other assets..................................................    (144,952)       (175,746)       14,592
        Loans originated for sale........................................    (565,000)     (4,687,283)         -
        Proceeds from sale of loans originated for sale                       565,000       4,755,759          -
        Gain on sale of loans............................................        -            (68,476)         -
        Increase in accrued interest payable and other liabilities.......      54,946         165,352        24,503
                                                                             --------      ----------       -------

               Net cash provided by (used in) operating activities.......     523,337         252,882      (294,930)
                                                                              -------      -----------     ---------

Cash flows from investing activities:
    Purchases of securities held to maturity............................. (13,499,095)     (1,750,000)   (5,220,309)
    Purchase of Federal Home Loan Bank stock.............................    (127,100)         -               -
    Maturities of securities held to maturity............................   7,500,000       1,500,000     3,000,000
    Net increase in loans................................................ (18,572,979)    (14,317,557)  (12,261,552)
    Purchase of premises and equipment...................................    (895,597)       (635,675)   (1,163,961)
                                                                          -----------     -----------      ----------

               Net cash used in investing activities..................... (25,594,771)    (15,203,232)  (15,645,822)
                                                                           ----------      ----------    ----------

Cash flows from financing activities:
    Net increase in demand, savings, NOW and money-market
        deposits.........................................................  22,927,815       9,301,625      11,454,619
    Net increase in time deposits........................................   4,124,276       9,751,638       6,430,485
    Net increase (decrease) in official checks...........................     223,937        (106,182)        579,703
    Repayment of advances from organizers................................      -               -             (239,000)
    Redemption of preferred stock........................................      -               -              (21,000)
    Sales of common stock................................................  10,247,916         697,069       6,329,162
    Repayment of mortgage payable........................................         -          (525,000)       (593,806)
                                                                         ---------------  -----------     -----------

               Net cash provided by financing activities................   37,523,944      19,119,150      23,940,163
                                                                           ----------      ----------      ----------

Net increase in cash and cash equivalents................................  12,452,510       4,168,800       7,999,411

Cash and cash equivalents at beginning of year...........................  12,210,577       8,041,777          42,366
                                                                           ----------      ----------    ------------

Cash and cash equivalents at end of year.................................$ 24,663,087      12,210,577       8,041,777
                                                                           ==========      ==========      ==========

Supplemental disclosure of cash flow information:
     Cash paid during the year for:
        Interest.........................................................$  1,952,818       1,093,507         233,273
                                                                           ==========      ==========      ==========

        Income taxes.....................................................$          -            -            -
                                                                           =============== ==========      ===========

    Noncash transactions-
        Issuance of mortgage payable for acquisition of property.........$          -            -            525,000
                                                                           =============== ==========      ===========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.


<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       December 31, 1998 and 1997 and for each the Years In the Three-Year
                         Period Ended December 31, 1998


(1)  Summary of Significant Accounting Policies

    Organization. Citizens Community Bancorp, Inc. ("Citizens") was incorporated
        on May 24, 1995.  Citizens owns 100% of the outstanding  common stock of
        Citizens  Community Bank of Florida ("Citizens Bank") Citizens Financial
        Corp.   ("Citizens   Financial")  and  Citizens   Mortgage   Corporation
        (currently  inactive).   Citizens  was  organized   simultaneously  with
        Citizens Bank and its primary business is the ownership and operation of
        Citizens  Bank  and  Citizens  Financial.  Citizens  Bank  is a  Florida
        state-chartered  commercial  bank and its  deposits  are  insured by the
        Federal Deposit Insurance Corporation. Citizens Bank opened for business
        on March 8, 1996 and provides  community  banking services to businesses
        and individuals  predominantly in Collier County, Florida.  Collectively
        the  entities  are referred to as the  "Company."  The Company  operates
        predominantly in one reportable industry segment: banking.

    Basis of Presentation. The accompanying consolidated financial statements of
        the Company include the accounts of Citizens, Citizens Bank and Citizens
        Financial.  All significant  intercompany accounts and transactions have
        been eliminated in consolidation. The accounting and reporting practices
        of the Company conform to generally accepted  accounting  principles and
        to general practices within the banking industry.

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

    Securities Held to Maturity.  United States  government  treasury and agency
        securities for which the Company has the positive  intent and ability to
        hold to maturity are  reported at cost,  adjusted  for  amortization  of
        premiums and  accretion of discounts  which are  recognized  in interest
        income using the interest method over the period to maturity.

    Loans Held for Sale.  Mortgage loans originated and intended for sale in the
        secondary  market are carried at the lower of cost or  estimated  market
        value in the  aggregate.  At December  31, 1998 and 1997,  there were no
        loans held for sale.

    Loans  Receivable.  Loans  receivable  that  management  has the  intent and
        ability to hold for the foreseeable  future or until maturity or pay-off
        are   reported  at  their   outstanding   principal   adjusted  for  any
        charge-offs,  the  allowance  for loan losses,  and any deferred fees or
        costs on  originated  loans and  unamortized  premiums or  discounts  on
        purchased loans.

        Loan  origination  fees  and  certain  direct   origination   costs  are
        capitalized  and recognized as an adjustment of the yield of the related
        loan.

        The  accrual of  interest on impaired  loans is  discontinued  when,  in
        management's  opinion,  the borrower  may be unable to meet  payments as
        they become  due.  When  interest  accrual is  discontinued,  all unpaid
        accrued interest is reversed. Interest income is subsequently recognized
        only to the extent cash payments are received.

                                                                     (continued)



<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(1)  Summary of Significant Accounting Policies, Continued
    Loans Receivable,  Continued.  The allowance for loan losses is increased by
        charges to income and  decreased  by  charge-offs  (net of  recoveries).
        Management's  periodic  evaluation  of the adequacy of the  allowance is
        based on the  Company's  past loan loss  experience,  known and inherent
        risks  in  the  portfolio,   adverse  situations  that  may  affect  the
        borrower's  ability  to repay,  the  estimated  value of any  underlying
        collateral, and current economic conditions.

    Premises  and  Equipment.  Premises  and  equipment  are stated at cost less
    accumulated   depreciation.   Depreciation   expense  is   computed  on  the
    straight-line basis over the estimated useful life of each type of asset.

    Stock-Based  Compensation.  Statement of Financial  Accounting Standards No.
        123,  "Accounting  for  Stock-Based   Compensation"   ("Statement  123")
        establishes  a "fair value" based method of accounting  for  stock-based
        compensation  plans and  encourages all entities to adopt that method of
        accounting for all of their employee stock compensation plans.  However,
        it also allows an entity to continue  to measure  compensation  cost for
        those  plans  using the  intrinsic  value  based  method  of  accounting
        prescribed  by APB  Opinion  No.  25,  "Accounting  for Stock  Issued to
        Employees"  ("Opinion 25"). The Company has elected to follow Opinion 25
        and  related  interpretations  in  accounting  for  its  employee  stock
        options.  Statement 123 requires the disclosure of proforma net earnings
        and earnings per share  determined  as if the Company  accounted for its
        employee stock options under the fair value method of that Statement.

    Income Taxes. Deferred tax assets and liabilities are reflected at currently
        enacted income tax rates  applicable to the period in which the deferred
        tax assets or  liabilities  are  expected to be realized or settled.  As
        changes  in tax laws or rates  are  enacted,  deferred  tax  assets  and
        liabilities are adjusted through the provision for income taxes.

    Off-Balance-Sheet  Instruments.  In the  ordinary  course of  business,  the
        Company  has  entered  into   off-balance-sheet   financial  instruments
        consisting of commitments to extend credit.  Such financial  instruments
        are recorded in the financial statements when they are funded.

    Advertising.  The Company expenses all media advertising as incurred.

    FairValues of Financial  Instruments.  The following methods and assumptions
        were  used  by the  Company  in  estimating  fair  values  of  financial
        instruments disclosed herein:

        Cash  and  Cash  Equivalents.  The  carrying  amounts  of cash  and cash
        equivalents approximate their fair value.

        Securities  Held to Maturity.  Fair values for  securities  are based on
        quoted market prices,  where available.  If quoted market prices are not
        available,  fair values are based on quoted  market prices of comparable
        instruments.

                                                                     (continued)



<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(1)  Summary of Significant Accounting Policies, Continued
    Fair Values of Financial Instruments, Continued.
        Loans.  For  variable-rate  loans that  reprice  frequently  and have no
        significant  change in credit  risk,  fair  values are based on carrying
        values.  Fair values for certain fixed-rate  mortgage (e.g.  one-to-four
        family  residential),  commercial  real estate and commercial  loans are
        estimated  using  discounted  cash flow  analyses,  using interest rates
        currently  being  offered for loans with  similar  terms to borrowers of
        similar credit quality.

        Deposit  Liabilities.   The  fair  values  disclosed  for  demand,  NOW,
        money-market  and  savings  deposits  are, by  definition,  equal to the
        amount  payable on demand at the reporting date (that is, their carrying
        amounts). Fair values for fixed-rate time deposits are estimated using a
        discounted cash flow  calculation  that applies interest rates currently
        being  offered on these  accounts to a schedule of  aggregated  expected
        monthly maturities on time deposits.

        Accrued Interest.  The carrying amounts of accrued interest  approximate
        their fair values.

        Off-Balance-Sheet Instruments. Fair values for off-balance-sheet lending
        commitments  are based on fees  currently  charged to enter into similar
        agreements,  taking into account the remaining  terms of the  agreements
        and the counterparties' credit standing.

    Earnings Per Share. Basic earnings per share is computed on the basis of the
        weighted-average  number of common shares outstanding.  Diluted earnings
        per share is  computed  based on the  weighted-average  number of shares
        outstanding plus the effect of outstanding stock options, computed using
        the treasury stock method.

    Future  Accounting  Requirements.   Financial  Accounting  Standards  133  -
        Accounting for Derivative  Investments and Hedging  Activities  requires
        companies  to  record  derivatives  on the  balance  sheet as  assets or
        liabilities,  measured at fair  value.  Gains or losses  resulting  from
        changes  in the  values  of those  derivatives  would be  accounted  for
        depending  on the use of the  derivatives  and whether  they qualify for
        hedge  accounting.  The key criterion  for hedge  accounting is that the
        hedging  relationship  must be highly effective in achieving  offsetting
        changes in fair value or cash  flows.  The  Company  will be required to
        adopt this  Statement  effective  January 1, 2000.  Management  does not
        anticipate  that  this  Statement  will  have a  material  impact on the
        Company.

(2)  Securities Held to Maturity
    Securities have been  classified  as held to maturity,  in  accordance  with
        management's  intent.  The  carrying  amount  of  securities  and  their
        approximate fair values are as follows:
<TABLE>
<CAPTION>

                                                     Amortized         Unrealized          Unrealized          Fair
                                                         Cost            Gains               Losses            Value
                                                         ----            -----               ------            -----
         December 31, 1998:
<S>                                                 <C>                     <C>              <C>              <C>      
              U.S. Government agencies.........     $ 8,499,968             2,565             -               8,502,533
                                                                        =========             =====           =========

         December 31, 1997:
              U.S. Treasuries..................         249,786                56              -                249,842
              U.S. Government agencies.........       2,248,828               -               (1,410)         2,247,418
                                                                        ---------         ----------          ---------

                                                    $ 2,498,614                56             (1,410)         2,497,260
                                                      =========          ========             =====           =========
</TABLE>

    There were no sales of securities in 1998, 1997 or 1996.
                                                                     (continued)



<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(2)  Securities Held to Maturity, Continued
    The scheduled maturities of securities at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
                                                                                              Amortized        Fair
                                                                                               Cost            Value
                                                                                               ----            -----
<S>                                                                                           <C>            <C>      

              Due in one or less.......................................................... $      -              -
              Due after one through five years.............................................   8,499,968      8,502,533
                                                                                              ---------      ---------

                                                                                            $ 8,499,968      8,502,533
                                                                                              =========      =========

(3)  Loans
    The components of loans are as follows:

                                                                                                 At December 31,
                                                                                                 ---------------
                                                                                             1998              1997
                                                                                             ----              ----

              Commercial real estate....................................................   $ 21,820,359     9,422,955
              Residential real estate...................................................     14,570,558     7,260,686
              Commercial................................................................      4,993,954     7,710,001
              Consumer..................................................................      3,827,444     2,261,622
                                                                                             ----------    ----------

                                                                                             45,212,315    26,655,264

              Add (Subtract):
                Deferred costs (fees), net..............................................        173,839        62,885
                Allowance for loan losses...............................................       (453,211)     (298,000)
                                                                                            -----------   -----------

              Loans, net................................................................   $ 44,932,943    26,420,149
                                                                                             ==========      ==========

    An analysis of the change in the allowance for loan losses follows:

                                                                                      Year Ended December 31,
                                                                                      -----------------------
                                                                                1998            1997             1996
                                                                                ----            ----             ----

              Beginning balance..............................................  $ 298,000        145,000          -
              Loans charged-off..............................................     (6,500)         -              -
              Provision for loan losses......................................    161,711        153,000       145,000
                                                                                 -------        -------       -------

                                                                               $ 453,211        298,000       145,000
                                                                                 =======        =======       =======
</TABLE>

    The Company had no impaired loans in 1998, 1997 or 1996.

                                                                     (continued)

<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(4)  Premises and Equipment
    A summary of premises and equipment follows:

<TABLE>
<CAPTION>

                                                                                               At December 31,
                                                                                               ---------------
                                                                                            1998             1997
                                                                                            ----             ----
<S>                                                                                     <C>                 <C>      
              Land..................................................................    $   931,056           931,056
              Bank premises.........................................................      2,092,525         1,581,383
              Furniture, fixtures and equipment.....................................        807,727           442,775
                                                                                         ----------         ---------

                  Total, at cost....................................................      3,831,308         2,955,214

                  Less accumulated depreciation.....................................        281,384           109,217
                                                                                         ----------        ----------

                  Premises and equipment, net.......................................    $ 3,549,924         2,845,997
                                                                                          =========         =========
</TABLE>

(5)  Deposits
    The  aggregate  amount  of time  deposits  with a  minimum  denomination  of
         $100,000,  was approximately  $5,442,000 and $4,019,000 at December 31,
         1997 and 1996, respectively.

    A schedule of maturities of certificates of deposit follows:
<TABLE>
<CAPTION>
              Year Ending
              December 31,                                                                 Amount
              ------------                                                                 ------
<S>               <C>                                                                  <C>         
                  1999..............................................................   $ 13,588,264
                  2000..............................................................      5,423,757
                  2001..............................................................      1,090,695
                  2002..............................................................         -
                  2003 and thereafter...............................................        203,683
                                                                                       ------------
                                                                                       $ 20,306,399
                                                                                       ============
                                                                     (continued)
</TABLE>








<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6) Financial Instruments
    The  Company is a party to financial instruments with off-balance-sheet risk
         in the normal  course of  business to meet the  financing  needs of its
         customers. These financial instruments are commitments to extend credit
         and  may  involve,   to  varying   degrees,   elements  of  credit  and
         interest-rate  risk in excess of the amount  recognized  in the balance
         sheet. The contract amounts of these instruments  reflect the extent of
         involvement the Company has in these financial instruments.

    The Company's  exposure to credit loss in the event of nonperformance by the
    other party to the financial  instrument for commitments to extend credit is
    represented by the contractual amount of those instruments. The Company uses
    the  same   credit   policies   in  making   commitments   as  it  does  for
    on-balance-sheet instruments.

    Commitments to extend credit are agreements to lend to a customer as long as
    there  is no  violation  of  any  condition  established  in  the  contract.
    Commitments  generally  have  fixed  expiration  dates or other  termination
    clauses and may require  payment of a fee. Since some of the commitments are
    expected to expire without being drawn upon, the total commitment amounts do
    not necessarily  represent future cash  requirements.  The Company evaluates
    each customer's  credit  worthiness on a case-by-case  basis.  The amount of
    collateral  obtained if deemed  necessary by the Company  upon  extension of
    credit is based on management's credit evaluation of the counterparty.

    The estimated fair values of the financial  instruments  were as follows (in
thousands):
<TABLE>
<CAPTION>

                                                                  At December 31, 1998         At December 31, 1997
                                                                  --------------------         --------------------
                                                                 Carrying        Fair         Carrying           Fair
                                                                  Amount         Value          Amount           Value
                                                                  ------         -----          ------           -----
<S>                                                              <C>              <C>            <C>            <C>   
         Financial assets:
              Cash and cash equivalents.....................     $ 24,663         24,663         12,211         12,211

              Securities held to maturity...................        8,500          8,503          2,499          2,497

              Loans receivable..............................       44,933         45,353         26,420         26,681

              Accrued interest receivable...................          351            351            220            220

         Financial liabilities:

              Deposit liabilities...........................       63,990         64,252         36,938         37,053
</TABLE>

    A    summary of the amounts of the Company's  financial  instruments,  which
         approximates  market value with off-balance  sheet risk at December 31,
         1998 follows (in thousands):
<TABLE>
<CAPTION>

<S>                                                                                         <C>    
              Unfunded loan commitments at variable rates.............................      $ 9,110
                                                                                              =====

              Available lines of credit...............................................      $ 6,703
                                                                                              =====
</TABLE>

                                                                     (continued)

<PAGE>

                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(7)  Credit Risk
    The  Company  grants  the  majority  of its  loans to  borrowers  throughout
         Collier County,  Florida.  Although the Company has a diversified  loan
         portfolio,  a significant  portion of its  borrowers'  ability to honor
         their  contracts  is  dependent  upon the  economy in  Collier  County,
         Florida.

(8)  Income Taxes
    The income tax provision consisted of the following:
<TABLE>
<CAPTION>

                                                                                        Year Ended December 31,
                                                                                        -----------------------
                                                                                    1998           1997        1996
                                                                                    ----           ----        ----
              Deferred:
<S>                                                                               <C>              <C>        <C>      
                  Federal.........................................................$ 134,815        56,317     (163,000)
                  State...........................................................  23,078          9,640      (28,000)
                                                                                   -------         ------      -------

                     Total deferred provision (credit)............................$ 157,893        65,957     (191,000)
                                                                                    =======        ======      =======
</TABLE>

    The  reasons for the  differences  between the statutory  federal income tax
         rate and the effective tax rate are summarized as follows:
<TABLE>
<CAPTION>

                                                              1998                 1997                   1996
                                                        ------------------------------------------------------------
                                                                    % of                 % of                 % of
                                                                   Pretax                Pretax               Pretax
                                                        Amount   Earnings      Amount  Earnings       Amount    Loss
                                                        ------   --------      ------  --------       ------    ----
         Income tax expense (benefit) at statutory
<S>                                                  <C>            <C>      <C>         <C>       <C>         <C>    
              Federal income tax rate............    $ 123,674      34.0%    $ 59,657    34.0%     $(181,320)  (34.0)%
         Increase (decreases) resulting from:
              State taxes, net of federal tax
                  benefit........................       15,231       4.2        6,362     3.6        (18,480)   (3.4)
              Other..............................       18,988       5.2          (62)    -            8,800     1.6
                                                       -------      ----     --------  ------      ---------   -----

                                                     $ 157,893      43.4%    $ 65,957    37.6%     $(191,000) (35.8%)
                                                       =======      ====       ======    ====        =======   ====
</TABLE>

                                                                     (continued)





<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(8)  Income Taxes, Continued
    The tax  effects  of  temporary  differences  that give rise to  significant
    portions  of the  deferred  tax  assets and  deferred  tax  liabilities  are
    presented below.
<TABLE>
<CAPTION>

                                                                                                At December 31,
                                                                                             1998            1997
                                                                                             ----            ----
<S>                                                                                       <C>               <C>    
              Deferred tax assets:
                  Allowance for loan losses...........................................    $  58,867          -
                  Contributions.......................................................        2,111           1,451
                  Net operating loss carryforward.....................................        -             154,500
                  Organization and start-up costs.....................................       23,536          33,753
                                                                                            -------         -------

                    Total deferred tax asset..........................................       84,514         189,704
                                                                                            -------         -------

              Deferred tax liabilities:
                  Depreciation........................................................       46,117          25,522
                  Accrual to cash adjustment..........................................       58,247          24,154
                  Allowance for loan losses...........................................       -                1,985
                                                                                         ----------         -------

                    Total deferred tax liabilities....................................      104,364          51,661
                                                                                            -------         -------

                    Net deferred income tax asset (liability).........................    $ (19,850)        138,043
                                                                                            =======         =======
</TABLE>

(9)  Stock Options
    The  Company has established  two Stock Option plans,  one for directors and
         one for officers  and  employees.  A total of 459,000  shares of common
         stock has been  reserved for the plans.  At December  31, 1998,  92,159
         shares remain available for grant.
<TABLE>
<CAPTION>

                                                                                  Range
                                                                                 of Per     Weighted-
                                                                      Number      Share      Average      Aggregate
                                                                      of          Option    Per Share      Option
                                                                      Shares     Price        Price        Price
                                                                      ------     -----        -----        -----
<S>                                                                  <C>      <C>    <C>       <C>        <C>      
              Outstanding at December 31, 1995....................      -     $      -         -              -
              Options granted.....................................    55,080         4.17      4.17         229,684
                                                                    --------                              ---------

              Outstanding at December 31, 1996....................    55,080         4.17      4.17         229,684
              Options granted.....................................   135,000    4.17-5.56      4.80         648,090
              Options terminated..................................   (13,600)        4.17      4.17         (56,700)
              Options exercised...................................    (8,640)        4.17      4.17         (36,000)
                                                                     -------                              ---------

              Outstanding at December 31, 1997....................   167,840    4.17-5.56      4.68         785,074
              Options granted.....................................   268,812    6.48-9.25      7.56       2,033,513
              Options terminated..................................   (67,651)   4.67-9.26      5.46        (369,576)
              Options exercised...................................    (2,160)   4.67-5.21      4.59          (9,920)
                                                                    --------                            -----------

              Outstanding at December 31, 1998....................   366,841  $ 4.17-9.26      6.65       2,439,091
                                                                     =======    =========      ====       =========
</TABLE>

    The  weighted-average  remaining  contractual life of the outstanding  stock
         options at  December  31,  1998 and 1997 was 100 months and 114 months,
         respectively.

                                                                     (continued)






<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(9)  Stock Options, Continued
    These options are exercisable as follows:

               Year Ending

                     1999.........................................   133,079
                     2000.........................................    81,227
                     2001.........................................    62,327
                     2002.........................................    57,477
                     2003.........................................    32,731
                                                                     -------

                                                                     366,841
                                                                     =======

    FASB Statement 123 requires proforma information  regarding net earnings and
       earnings per share.  This proforma  information has been determined as if
       the Company had accounted  for its employee  stock options under the fair
       value method of that statement and is as follows:
<TABLE>
<CAPTION>

                                                                                      Year Ended December 31,
                                                                                      -----------------------
                                                                                  1998          1997         1996
                                                                                  ----          ----         ----

               Net earnings (loss):
<S>                                                                             <C>           <C>          <C>      
                     As reported................................................$ 205,854     109,506      (342,295)
                                                                                  =======     =======       =======

                     Proforma...................................................$ 106,098      97,605      (342,295)
                                                                                  =======     =======       =======

               Basic earnings (loss) per share:
                     As reported................................................$         .08       .06        (.22)
                                                                                  =====================  ==========

                     Proforma ..................................................$         .04       .06        (.22)
                                                                                  =====================  ==========

               Diluted earnings (loss) per share:
                     As reported................................................$        .08       .06         (.22)
                                                                                  ====================   ==========

                     Proforma...................................................$        .04       .06         (.22)
                                                                                  ====================   ==========
</TABLE>

    The fair value of each option grant is  estimated on the date of grant using
       the minimum value method with the following assumptions:
<TABLE>
<CAPTION>

                                                                                         Year Ended December 31,
                                                                                    1998         1997          1996
                                                                                    ----         ----          ----
<S>                                                                                   <C>          <C>           <C>
               Risk-free interest rate...........................................      5%           6%            6%
               Dividend yield....................................................     - %        -   %           - %
               Expected life in years............................................     10           10            10
</TABLE>

                                                                     (continued)



<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(10)  Earnings Per Share ("EPS")
    Thefollowing is a  reconciliation  of the numerators and denominators of the
       basic and diluted earnings per share computations.
<TABLE>
<CAPTION>

                                                         For the Year Ended December 31,
                               ----------------------------------------------------------------------------------------------------
                                          1998                        1997                           1996
                               ----------------------------------------------------------------------------------------------------
                                        Weighted- Per                Weighted-   Per                 Weighted-  Per
                                         Average Share                Average   Share                Average   Share
                               Earnings  Shares  Amount    Earnings   Shares    Amount     Earnings  Shares    Amount
                               --------  ------  ------    --------   ------    ------     --------  ------    ------
<S>                          <C>       <C>       <C>     <C>        <C>         <C>       <C>        <C>        <C>   
     Basic EPS:
         Net earnings
          available to
          common
          stockholders...... $ 205,854 2,597,330 $ .08   $ 109,506  1,697,354   $ .06     $(342,295) 1,553,206  $(.22)
                                                  ====                            ===                             ===

     Effect of dilutive
       securities-
         Incremental shares
          from assumed
          exercise of
          options ..........              44,602                           -                               -
                                       ---------                  ---------------                  ---------

     Diluted EPS:
         Net earnings
          available to
          common
          stockholders
          and assumed
          conversions....... $ 205,854 2,641,932 $ .08   $ 109,506  1,697,354   $ .06     $(342,295) 1,553,206  $(.22)
                               ======= =========   ===     =======  =========     ===       ======= =========     ===
</TABLE>

(11)  Stockholders' Equity
     The Board of Directors approved the split of the Company's common shares on
         a two-for-one basis effective  December 15, 1997 and to pay an 8% stock
         dividend to  stockholders of record on December 31, 1998. The stock was
         issued on January 19, 1999.  All share  amounts  reflect this split and
         stock dividend.

     Citizens Bank is subject to certain restrictions on the amount of dividends
         that it may declare without prior regulatory approval.  At December 31,
         1998, Citizens Bank had no amounts available for dividends.

     During 1998,  the  Company  sold  1,000,000  shares of common  stock for an
         aggregate of $7,500,000.  The Company  incurred  $76,744 of expenses as
         related to the sale of stock,  which were  deducted  from the  proceeds
         received.

     During 1996,  the  Company  sold  707,610  shares  of  common  stock for an
         aggregate  of  $6,368,490.  The  Company  incurred  $39,328 in offering
         expenses  relating to their  public  offering  of the common  stock and
         warrants  which were  deducted from the proceeds  received.  During the
         initial  offering  period,  shares  were  offered  in units with a unit
         consisting  of one share of common stock and one warrant.  Each warrant
         entitles the holder thereof to purchase one share of additional  common
         stock for $4.17 per share  during the 24 month  period  ending June 16,
         1998.  There were 723,600 warrants issued and, as of December 31, 1998,
         all warrants had been exercised or expired.

                                                                     (continued)


<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(12) Profit Sharing Plan
     During 1998,  the Company began  sponsoring a Section 401(k) profit sharing
         plan. The profit sharing plan is available to all employees electing to
         participate   after   meeting   certain   age  and  length  of  service
         requirements.  Expense  related to the Company's  contributions  to the
         profit  sharing  plan  included  in  the  accompanying's   consolidated
         statements  of  earnings  was  approximately  $3,000 for the year ended
         December 31, 1998.

(13) Regulatory Matters
     Citizens and  Citizens  Bank are  subject  to  various  regulatory  capital
         requirements  administered  by  various  regulatory  banking  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
         Company's financial  statements.  Under capital adequacy guidelines and
         the regulatory  framework for prompt corrective  action,  Citizens Bank
         must  meet  specific  capital  guidelines  that  involve   quantitative
         measures  of  Citizens   Bank's   assets,   liabilities,   and  certain
         off-balance-sheet  items  as  calculated  under  regulatory  accounting
         practices.  Citizens Bank's 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 Citizens Bank to maintain minimum amounts and ratios (set forth
         in the table  below) of total and Tier I  capital  (as  defined  in the
         regulations)  to risk-  weighted  assets  (as  defined),  and of Tier I
         capital  (as  defined)  to  average  assets  (as  defined).  Management
         believes,  as of December 31, 1998,  that the Company meets all capital
         adequacy requirements to which it is subject.

     As  of December 31, 1998, the most recent  notification from the regulatory
         authorities  categorized  Citizens Bank as well  capitalized  under the
         regulatory framework for prompt corrective action. To be categorized as
         well capitalized  Citizens Bank must maintain minimum total risk-based,
         Tier I  risk-based,  and Tier I  leverage  ratios  as set  forth in the
         table.  There are no conditions or events since that  notification that
         management  believes  have  changed  Citizens  Bank's   categorization.
         Citizens  Bank's  actual  capital  amounts  and  percentages  are  also
         presented in the table (dollars in thousands).
<TABLE>
<CAPTION>

                                                                                                  To Be Well
                                                                                               Capitalized Under
                                                                      Minimum                   the Provisions
                                                                     For Capital                 of Prompt and
                                               Actual             Adequacy Purposes:           Corrective Action
                                               ------             ------------------           -----------------
                                       Amount            %        Amount           %          Amount            %
                                       ------            -        ------           -          ------            -
<S>                                   <C>              <C>       <C>              <C>        <C>              <C>   
     As of December 31, 1998:
         Total Capital (to Risk-
         Weighted Assets)..........   $ 6,808          15.34%    $ 3,551          8.00%      $ 4,439          10.00%
         Tier I Capital (to Risk-
         Weighted Assets)..........     6,375          14.36       1,776          4.00         2,663           6.00
         Tier I Capital
         (to Average Assets).......     6,375          10.36       2,461          4.00         3,077           5.00

     As of December 31, 1997:
         Total Capital (to Risk-
         Weighted Assets)..........   $ 4,643          17.67%    $ 2,102          8.00%      $ 2,627          10.00%
         Tier I Capital (to Risk-
         Weighted Assets)..........     4,354          16.57       1,051          4.00         1,576           6.00
         Tier I Capital
         (to Average Assets).......     4,354          10.67       1,633          4.00         2,041           5.00
</TABLE>

                                                                     (continued)


<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(13) Parent  Company  Only  Financial  Information   Citizens's   unconsolidated
     financial information is as follows:
<TABLE>
<CAPTION>


                            Condensed Balance Sheets
                                 (In thousands)
                                                                                                     At December 31,
                                                                                                     ---------------
                                                                                                    1998         1997
                                                                                                    ----         ----
<S>                                                                                              <C>             <C>  
                  Assets
              Cash.............................................................................  $    131          271
              Securities purchased under agreements to resell..................................     8,705         -
              Loans receivable.................................................................     2,036        1,261
              Investment in subsidiaries.......................................................     6,456        4,458
              Premises and equipment, net......................................................      -             785
              Other assets.....................................................................        12         -
                                                                                                  -------     -----

                  Total assets.................................................................  $ 17,340        6,775
                                                                                                   ======        =====

                  Liabilities and Stockholders' Equity

              Liabilities......................................................................       115            4
              Stockholders' equity.............................................................    17,225        6,771
                                                                                                   ------        -----

                  Total liabilities and stockholders' equity...................................  $ 17,340        6,775
                                                                                                   ======        =====
</TABLE>

<TABLE>
<CAPTION>

                       Condensed Statements of Operations
                                 (In thousands)

                                                                                             Year Ended December 31,
                                                                                          1998        1997        1996
                                                                                          ----        ----        ----

<S>                                                                                       <C>         <C>         <C>
              Revenues..............................................................      $ 416        162          69
              Expenses..............................................................       (106)      (138)        (78)
                                                                                            ---        ---         ---

                  Income (loss) before income (loss) of subsidiaries
                    and income taxes................................................        310         24          (9)
                  Income (loss) of subsidiaries.....................................         11         94        (333)
                                                                                           ----       ----         ---

                  Income before income taxes........................................        321        118        (342)

                  Income taxes......................................................        115          8         -
                                                                                            ---       ----       ---

                  Net income (loss).................................................      $ 206        110        (342)
                                                                                            ===        ===         ===
</TABLE>

                                                                     (continued)




<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(13)  Parent Company Only Financial Information, Continued


                       Condensed Statements of Cash Flows
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                             Year Ended December 31,
                                                                                            1998      1997        1996
                                                                                            ----      ----        ----
<S>                                                                                    <C>          <C>         <C>  
         Cash flows from operating activities:
              Net earnings (loss).................................................... $     206        110        (342)
              Adjustments to reconcile net earnings (loss) to net cash provided
                by operating activities:
                  Equity in undistributed (earnings) loss of subsidiaries............        11        (94)        333
                  (Increase) decrease in other assets................................       (12)        23         137
                  Increase (decrease) in other liabilities...........................       111         (5)        (40)
                  Depreciation.......................................................        15         17           3
                                                                                       --------     ------    --------

                  Net cash provided by operating activities..........................       331         51          91
                                                                                        -------     ------     -------

         Cash flows from investing activities:
              Securities purchased under agreements to resell........................    (8,705)      -           -
              Purchase of property and equipment, net of transfer to subsidiary......      (467)       (48)        446
              Net increase in loans receivable.......................................      (775)      (600)       (661)
                                                                                         ------     ------     -------

                  Net cash (used in) provided by investing activities................    (9,947)      (648)       (215)
                                                                                          -----      ------     ------

         Cash flows from financing activities:
              Repayment of mortgage note payable.....................................      -          (525)       (594)
              Net proceeds from issuance of common stock.............................    10,248        697       6,329
              Retirement of preferred stock..........................................      -          -            (21)
              Repayment of advances from organizers..................................      -          -           (239)
              Investment in subsidiary...............................................      (772)      (617)     (4,080)
                                                                                         ------     ------       -----

                  Net cash provided by (used in) financing activities................     9,476       (445)      1,395
                                                                                         ------     -------     -----

         Net (decrease) increase in cash.............................................      (140)    (1,042)      1,271

         Cash and cash equivalents at beginning of the year..........................       271      1,313          42
                                                                                        -------      -----      ------

         Cash and cash equivalents at end of year....................................  $    131        271       1,313
                                                                                         ======      =====       =====
</TABLE>

(14) Year 2000 Issues
    The  Company is acutely  aware of the many areas  affected  by the Year 2000
         computer  issue and has  formed a Year 2000  committee  that is charged
         with  oversight of completing  the Year 2000 project on a timely basis.
         Citizens Bank also has a Year 2000 committee which is actively involved
         in managing the Year 2000 computer  challenges,  following the guidance
         provided by its  regulatory  bodies and  documented in the  interagency
         statements  issued by the Federal  Financial  Institutions  Examination
         Council  ("FFIEC").  Citizens  Bank has a Year  2000  Technology  Plan,
         approved by the Board of Directors,  which  includes  multiple  phases,
         tasks to be completed and target dates for completion. Issues addressed
         therein  include   awareness,   assessment,   renovation,   validation,
         implementation, testing and contingency planning.


                                                                     (continued)

<PAGE>



                CITIZENS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(14) Year 2000 Issues, Continued
    Citizens Community Bank routinely upgrades and purchases technology advanced
         software and hardware on a continual  basis.  All future  purchases and
         upgrades will be Year 2000 compliant.  Citizens has determined that the
         cost of making  modifications  to correct any Year 2000 issues will not
         substantially affect reported operating results.

    Citizens's main service  provider  considers the awareness phase of its Year
         2000 Project to be substantially  complete from an internal standpoint.
         Their  assessment  phase  of its Year  2000  Project  is  substantially
         complete for internal mission critical systems.

    The  testing phase of Citizens's main service provider  involves the testing
         of various internal and external mission critical systems.  The service
         provider is into its testing phase of testing its internal and external
         mission critical systems and services with Year 2000 date  information.
         The service provider plans to substantially complete testing of mission
         critical systems and services by June 30, 1999.

    Citizens also  recognizes the importance of determining if its borrowers are
         preparing  for the  Year  2000  problem  in a  timely  manner  to avoid
         deterioration   of  the  loan  portfolio  solely  due  to  this  issue.
         Significant  relationships have been identified and questionnaires have
         been  completed to assess the inherent  risks.  Deposit  customers have
         received statement stuffers and informational  material in this regard.
         Citizens  plans to be prepared on a one-on-one  basis with  significant
         borrowers  who have  been  identified  as  having  high  Year 2000 risk
         exposure.  Citizens  stresses the  importance of  determining  that its
         major  depositors and borrowers are ready to face the Year 2000 problem
         in order to avoid difficulties surrounding the issue. Citizens plans to
         continue in its effects to be active in informing  its customers of the
         Year 2000 issue.

    Citizens has developed a  contingency  plan relative to the Year 2000 issues
         which  addresses  a "worst  case  scenario."  The plan  covers  various
         options for handling interruptions of the internal and external mission
         critical  systems and services.  Citizens,  for example,  has developed
         plans for meeting  unusually  high  demands for cash  generated  by the
         publicity surrounding the Year 2000 issue. The Contingency Plan will be
         continuously  monitored to incorporate and address various  operational
         elements as needed.  Furthermore,  Citizens's  contingency  plan covers
         systems  which can be  handled  manually  on an interim  basis.  Should
         outside  service  providers not be able to provide  compliant  systems,
         Citizens  will  terminate  those  relationships  and  transfer to other
         vendors.



<PAGE>


                          Independent Auditors' Report



Board of Directors
Citizens Community Bancorp, Inc.
Marco Island, Florida:

We have  audited  the  accompanying  consolidated  balance  sheets  of  Citizens
Community  Bancorp,  Inc. and Subsidiaries  (the "Company") at December 31, 1998
and 1997,  and the related  consolidated  statements of  operations,  changes in
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period  ended   December  31,  1998.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of the Company at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the  three-year  period ended  December  31,  1998,  in
conformity with generally accepted accounting principles.





HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 29, 1999


<PAGE>

Corporate Information





             Corporate               650  East  Elkcam   Circle, Marco   Island,
            Headquarters             Florida 34145 (941) 389-1800



                                     The  Annual  Meeting  of the  Stockholders
               Annual                will be held at the Olde  Marco  Inn,  100
               Meeting               Palm Street,  Marco Island,  Florida 34145
                                     at 10:00 a.m., April 20, 1999.



                                     Citizens Community Bancorp, Inc. is subject
                                     to the  informational  requirements  of the
                                     Securities   Exchange   Act  of  1934,   as
                                     amended,   and,  in  accordance  therewith,
                                     files  electronically  with the  Securities
                                     and  Exchange   Commission   ("Commission")
              Available              through the  Commission's  Electronic  Data
            Information              Gathering Analysis and Retrieval  ("EDGAR")
                                     system, reports, proxy statements and other
                                     information which may also be inspected and
                                     copied at the public  reference  facilities
                                     maintained  by the  Commission at 450 Fifth
                                     Street,  N.W.,  Washington,  D.C. 20549 and
                                     3475 Lenox Road, N.E., Suite 1000, Atlanta,
                                     GA 30326-1232.  Copies of such material may
                                     also be  reviewed on the  Commission's  Web
                                     Site, http://www.sec.gov.

                                     Copies of Forms 10-KSB and 10-QSB, as filed
                                     with   the    Securities    and    Exchange
                                     Commission,   may  also  be   obtained   by
                                     stockholders,  without charge, upon written
                                     request  to Mr.  Gregory  E. Smith - Senior
                                     Vice  President/Chief   Financial  Officer,
                                     Citizens Community Bancorp,  Inc., 650 East
                                     Elkcam Circle, Marco Island, Florida 34145,
                                     telephone  number (941) 389-1800  Extension
                                     280.

           Transfer Agent            Registrar and Transfer Company
                and                  10 Commerce Drive
             Registrar               Cranford, NJ  07016
                                     (800) 368-5948

                                     Igler & Dougherty, P.A.
         Corporate Counsel           1501 Park Avenue East
                                     Tallahassee, Florida 32301
                                     (850) 878-2411

                                     Hacker, Johnson, Cohen & Grieb, P.A.
                                     Certified Public Accountants
            Independent              500 North Westshore Boulevard
              Auditors               Suite 1000
                                     Tampa, Florida 33609
                                     (813) 286-2424







                                       39

<PAGE>


                        Citizens Community Bancorp, Inc.

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


                              650 E. Elkcam Circle
                           Marco Island, Florida 34145
                                 (941) 389-1800
                                 www.ccbank.com


                  Reasons the community banks with us. . . . .

              * A locally-owned community bank * Decisions made on
              site * Personal service * Consistent customer-officer
            relationships * Courier services for commercial accounts
                            * Convenient office hours
                      * Interest-bearing checking accounts




                               Citizens Community
                                 Bank of Florida





                                          650 E. Elkcam Circle
Main Office                               Marco Island, Florida
                                          34145
                                          (941) 389-1800

Moorings                                  2375 Tamiami Trial
Branch                                    North
                                          Naples, Florida  34103
                                          (941) 430-1775

East Trail                                5101 Tamiami Trail
Branch                                    Naples, Florida  34113
                                          (941) 775-0748



                                                         Logo graphic
                                                           omitted





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