<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


  [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934

                For the quarterly period ended September 30, 2001

  [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934


               For the transition period from __________ to __________

               Commission file number 000-23277


                                CITIZENS BANCORP
             (Exact name of registrant as specified in its charter)


               Oregon                             91-1841688
      (State of Incorporation)      (I.R.S. Employer Identification Number)


                           275 Southwest Third Street
                             Corvallis, Oregon 97339
                    (Address of principal executive offices)


                                 (541) 752-5161
              (Registrant's telephone number, including area code)

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


                               YES     X         NO
                                   --------         ------


    Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

    4,112,063 shares as of November 1, 2001, no par.


                                                                               1
<PAGE>

                                CITIZENS BANCORP
                                    FORM 10-Q
                               September 30, 2001
                                      INDEX


<TABLE>
<CAPTION>
                                                                                               Page
                                                                                            Reference
<S>                                                                                         <C>
PART I.

  ITEM 1. - FINANCIAL INFORMATION - UNAUDITED                                                    3

    Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000         3

    Condensed Consolidated Statements of Income for the nine months ended
    September 30, 2001 and 2000                                                                  4

    Condensed Consolidated Statements of Changes in Shareholders' Equity for the nine
    months ended September 30, 2001 and 2000                                                     5

    Condensed Consolidated Statements of Cash Flows for nine months ended
    September 30, 2001 and 2000                                                                  6

    Notes to Condensed Consolidated Financial Statements                                         7

  ITEM 2. - Management's Discussion and Analysis of Financial Condition and Results of
      Operations                                                                                 9

  ITEM 3. - Quantitative and Qualitative Disclosure about Market Risk                           14

PART II. - OTHER INFORMATION                                                                    15

  ITEM 1. - Legal Proceedings                                                                   15

  ITEM 2. - Changes in Securities                                                               15

  ITEM 3. - Defaults Upon Senior Securities                                                     15

  ITEM 4. - Submission of Matters to a Vote of Security Holders                                 15

  ITEM 5. - Other Information                                                                   15

  ITEM 6. - Exhibits and Reports on Form 8-K                                                    15

  SIGNATURES                                                                                    16
</TABLE>




                                                                               2
<PAGE>

                          PART I FINANCIAL INFORMATION

ITEM 1
CITIZENS BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)


<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,    DECEMBER 31,
                                                               2001            2000
<S>                                                        <C>              <C>
ASSETS
     Cash and due from banks                                 $  11,048       $  11,218
     Interest bearing deposits in banks                         17,510           5,444
     Securities available for sale                              54,450          50,575
     Securities held to maturity                                 9,542           8,304
     Federal Home Loan Bank stock                                  832             792
     Loans held for sale                                         1,847           1,136

     Loans                                                     167,989         159,294
     Allowance for credit losses                                (1,817)         (1,510)
                                                             ---------       ---------
     NET LOANS                                               $ 166,172       $ 157,784

     Premises and equipment                                      5,474           5,191
     Foreclosed real estate                                          0             205
     Accrued interest receivable                                 2,805           2,142
     Other assets                                                4,766           1,589

     TOTAL ASSETS                                            $ 274,446       $ 244,380
                                                             =========       =========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
     Deposits:
        Demand                                               $  35,605       $  31,629
        Savings and interest bearing demand                    112,701         105,183
        Time                                                    74,007          64,148
                                                             ---------       ---------
     TOTAL DEPOSITS                                          $ 222,313       $ 200,960

     Repurchase agreements                                      18,013          13,867
     Other borrowings                                            2,145               0
     Accrued interest payable                                      218             223
     Other liabilities                                           1,305           2,267

     TOTAL LIABILITIES                                       $ 243,994       $ 217,317
                                                             ---------       ---------

SHAREHOLDERS' EQUITY
     Common stock (no par value); authorized 10,000,000
     shares; Issued and outstanding:  2001 - 4,116,385;
     2000 - 4,137,630 shares;                                   19,907          20,085
     Retained earnings                                           9,826           6,971
     Accumulated other comprehensive income                        719               7
     TOTAL SHAREHOLDERS' EQUITY                              $  30,452       $  27,063
                                                             ---------       ---------

     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY              $ 274,446       $ 244,380
                                                             =========       =========
</TABLE>


See accompanying notes




                                                                               3
<PAGE>

CITIZENS BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousand, except per share amounts)


<TABLE>
<CAPTION>
                                                       NINE MONTHS ENDED             THREE MONTHS ENDED
                                                          SEPTEMBER 30,                 SEPTEMBER 30,
                                                        2001            2000            2001            2000
<S>                                              <C>             <C>             <C>             <C>
INTEREST INCOME:
Loans                                            $    11,431     $    10,608     $     3,793     $     3,757
Interest on deposits and federal funds sold              382             168             145              54
Securities available for sale                          2,009           2,541             663             823
Securities held to maturity                              342             323             129             109
                                                 -----------     -----------     -----------     -----------
TOTAL INTEREST INCOME                            $    14,164     $    13,640     $     4,730     $     4,743

INTEREST EXPENSE:
Deposits                                               4,181           4,071           1,274           1,422
Borrowed funds                                            34             129              10              74
Repurchase agreements                                    362             396             124             118
                                                 -----------     -----------     -----------     -----------
TOTAL INTEREST EXPENSE                           $     4,577     $     4,596     $     1,408     $     1,614

NET INTEREST INCOME                              $     9,587     $     9,044     $     3,322     $     3,129

PROVISION FOR CREDIT LOSSES                             (369)           (315)           (123)           (137)

NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES                                           $     9,218     $     8,729     $     3,199     $     2,992

NON-INTEREST INCOME:
Service charges on deposit accounts                    1,145             911             378             355
Other                                                  1,124           1,093             397             374
                                                 -----------     -----------     -----------     -----------
TOTAL NON-INTEREST INCOME                        $     2,269     $     2,004     $       775     $       729

NON-INTEREST EXPENSE:
Salaries and employee benefits                         3,724           3,274           1,261           1,111
Occupancy and equipment                                  960             895             331             300
Other                                                  2,132           2,114             694             711
                                                 -----------     -----------     -----------     -----------
TOTAL NON-INTEREST EXPENSE                       $     6,816     $     6,283     $     2,286     $     2,122

INCOME BEFORE INCOME TAXES                       $     4,671     $     4,450     $     1,688     $     1,599
                                                 -----------     -----------     -----------     -----------
INCOME TAXES                                          (1,816)         (1,713)           (710)           (700)

NET INCOME                                       $     2,855     $     2,737     $       978     $       899
                                                 ===========     ===========     ===========     ===========

Per share data:
Basic and diluted earnings per share             $      0.68     $      0.63     $      0.24     $      0.22
Weighted average number of common
Shares outstanding                                 4,177,026       4,137,136       4,158,581       4,137,630
Return on Average Assets                               1.49%           1.53%           1.47%           1.50%
</TABLE>


See accompanying notes




                                                                               4
<PAGE>

CITIZENS BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)
(Dollars in Thousands)

<TABLE>
<CAPTION>
                                                Nine Months Ended September 30, 2001 and 2000
                                                ---------------------------------------------
                                                                                 Accumulated
                                            Number of                               Other
                                              Common       Common               Comprehensive
                                              Shares       Stock       Retained Income (Loss)
                                           Outstanding     Amount      Earnings     Total     Total
<S>                                        <C>            <C>          <C>      <C>          <C>
BALANCE, AT DECEMBER 31, 1999               4,124,091     $ 19,868     $ 4,850     $(375)    $24,343

COMPREHENSIVE INCOME:

Net Income                                         --           --       2,737        --       2,737

Other comprehensive income, net of tax:
  Unrealized gain on securities, net
  of reclassification adjustment                   --           --          --        82          82

COMPREHENSIVE INCOME                               --           --          --        --       2,819

Issuance of common stock                       13,539          217          --        --         217
                                            ---------     --------     -------     -----     -------

BALANCE, AT SEPTEMBER 30, 2000              4,137,630     $ 20,085     $ 7,587     $(293)    $27,379

BALANCE, AT DECEMBER 31, 2000               4,137,630     $ 20,085     $ 6,971     $   7     $27,063

COMPREHENSIVE INCOME:

Net Income                                         --           --       2,855        --       2,855

Other comprehensive income, net of tax:
  Unrealized gain on securities, net
  of reclassification adjustment                   --           --          --       712         712

COMPREHENSIVE INCOME                               --           --          --        --       3,567

Repurchase of common stock                    (73,114)        (747)                             (747)
Issuance of common stock                       51,869          569          --        --         569
                                            ---------     --------     -------     -----     -------

BALANCE, AT SEPTEMBER 30, 2001              4,116,385     $ 19,907     $ 9,826     $ 719     $30,452
</TABLE>


See accompanying notes




                                                                               5
<PAGE>

CITIZENS BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited), (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                              -----------------
                                                                                 SEPTEMBER 30,
                                                                              2001           2000
<S>                                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                              $  2,855       $  2,737
  Adjustments to reconcile net income to net
   Cash provided by operating activities:
    Provision for credit losses                                                369            315
    Depreciation and amortization                                              477            457
    Stock dividends received                                                   (40)           (38)
    (Increase) decrease in accrued interest receivable                        (663)          (649)
    Increase (decrease) in accrued interest payable                             (5)            21
    Other                                                                     (100)          (571)
                                                                          --------       --------
  NET CASH PROVIDED BY OPERATING ACTIVITIES                               $  2,893       $  2,272

CASH FLOWS FROM INVESTING ACTIVITIES
  Net (increase) decrease in interest bearing deposits in banks            (12,066)        (1,767)
  Proceeds from maturities of available for sale securities                 21,000         11,000
  Proceeds from sales of available for sale securities                           0          2,000
  Proceeds from maturities of securities held to maturity                      550            455
  Purchases of securities available for sale                               (23,758)        (6,964)
  Purchases of securities held to maturity                                  (1,777)          (496)
  Increase in loans made to customers, net of principal collections         (9,477)       (15,222)
  Purchases of premises and equipment and other                               (511)          (419)
  Purchase of officer's life insurance                                      (3,000)             0
                                                                          --------       --------
  NET CASH PROVIDED BY INVESTING ACTIVITIES                                (29,039)      $(11,413)
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in deposits                                                  21,353          3,547
  Net increase (decrease) in repurchase agreements and other
  borrowings                                                                 6,291         (1,814)
  Payment of dividends, net of dividends reinvested                           (921)        (1,268)
  Repurchase of common stock                                                  (747)             0
                                                                          --------       --------
  NET CASH USED IN FINANCING ACTIVITIES                                     25,976       $    465

  NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS                      $   (170)      $ (8,676)

CASH AND DUE FROM BANKS
  Beginning of period                                                       11,218         17,990

  END OF PERIOD                                                           $ 11,048       $  9,314
                                                                          ========       ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Interest paid                                                              4,582          4,575
  Income taxes paid                                                          1,280          1,575
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
  Foreclosed real estate acquired in settlement of loans                         0            205
  Fair value adjustment of securities available for sale, net of tax           712             82
  Issuance of common stock through dividend reinvestment plan                  569            217
</TABLE>


See accompanying notes




                                                                               6
<PAGE>

CITIZENS BANCORP
Notes to Condensed Consolidated Financial Statements (unaudited)

1.  BASIS OF PRESENTATION

    The interim condensed consolidated financial statements include the accounts
    of Citizens Bancorp ("Bancorp"), a bank holding company and its wholly owned
    subsidiary, Citizens Bank ("Bank") after elimination of intercompany
    transactions and balances. Substantially all activity of Citizens Bancorp is
    conducted through its subsidiary bank.

    The interim financial statements are unaudited but have been prepared in
    accordance with generally accepted accounting principles for interim
    condensed financial information and with instructions to form 10-Q.
    Accordingly, the condensed interim financial statements do not include all
    of the information and footnotes required by generally accepted accounting
    principles. In the opinion of management, all adjustments (consisting only
    of normal recurring accruals) necessary for a fair presentation for the
    interim periods included herein have been made.

    The interim condensed consolidated financial statements should be read in
    conjunction with the December 31, 2000 consolidated financial statements,
    including notes there to, included in Bancorp's 2000 Annual Report to
    shareholders. Operating results for the nine months ended September 30, 2001
    are not necessarily indicative of the results anticipated for the year
    ending December 31, 2001.

2.  USE OF ESTIMATES IN THE PREPARATION OF FINANCIALS

    The preparation of financial statements, in conformity with general
    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.

3.  SHAREHOLDERS EQUITY AND NET INCOME PER COMMON SHARE

    The Board of Directors declared a $.36 per share dividend to Bancorp
    shareholders of record on December 19, 2000, payable on January 12, 2001.
    Through the Dividend Reinvestment Plan (DRIP) 51,869 shares were purchased
    at a price of $10.96 per share. The DRIP resulted in an increase of shares
    outstanding from 4,137,630 to 4,189,499.

    On July 16, 2001 the Board of Directors approved a program to repurchase
    shares of Bancorp common stock. The Bancorp Board of Directors authorized
    repurchases by Bancorp of shares of Bancorp common stock not to exceed a
    total aggregate repurchase amount of 5% of outstanding shares. The
    repurchases shall continue to be made from time to time in the year 2001 and
    continuing thereafter at Bancorp's discretion. The repurchases shall be made
    in open market purchases, privately negotiated transactions or otherwise.
    Bancorp shall repurchase the shares from time to time at prices which it
    deems reasonable given market conditions at the time of repurchase. There is
    no guarantee that any shareholder's shares will be purchased at any
    particular price.

    All per share amounts have been restated to retroactively reflect stock
    dividends and stock splits previously reported.

4.  CONTINGENCIES

    Unfunded loan commitments totaled $22.8 million as of September 30, 2001 and
    $28.4 million as of December 31, 2000.




                                                                               7
<PAGE>

5.  ACCOUNTING CHANGES

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
    Accounting for Derivative Instruments and Hedging Activities. This statement
    establishes accounting and reporting standards for derivative instruments,
    including certain derivative instruments embedded in other contracts
    (collectively referred to as derivatives) and for hedging activities. This
    statement was adopted by the Company in 2001 but had no effect on the
    Company's financial statements since the Bank does not invest in derivative
    instruments or engage in hedging activities.






                                                                               8
<PAGE>

ITEM 2


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

In addition to historical information, this report contains certain "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. This statement is included for the purpose of availing
Bancorp the protection of the safe harbor provisions of this Act. The forward
looking statements contained in this report are subject to factors, risks and
uncertainties that may cause actual results to differ materially from those
projected. Factors that might result in such material difference include, but
are not limited to economic conditions, the regulatory environment, rapidly
changing technology, new legislation, competitive factors, the interest rate
environment and the overall condition of the banking industry. Forward looking
statements can be identified by such words as "estimate", "believe", "expect",
"intend", "anticipate", "should", "may", "will", or other similar words or
phrases. Although Bancorp believes that the expectations reflected in such
forward looking statements are reasonable, it can give no assurances that such
expectations will prove to have been correct. Readers are therefore cautioned
not to place undue reliance on such forward looking statements, which reflect
management's analysis only as of the date of the statement. Bancorp does not
intend to update these forward looking statements other than in its periodic
filings under applicable security laws.

OVERVIEW

Citizens Bank ("the Bank") was chartered October 1, 1957 (charter #333) by the
State of Oregon as a commercial bank. Since its beginning with a single office
in Corvallis, Citizens Bank has expanded to an additional nine locations in the
four counties of Benton, Linn, Lane, and Yamhill. Branches are located in the
communities of Corvallis, Philomath, Albany, Junction City, Veneta, McMinnville
and Harrisburg.

The Bank recently opened a new full service branch located in the community of
Harrisburg, Oregon. The new Harrisburg branch is the ninth branch for the Bank.
The new branch opened July 31, 2001 in a leased facility in the newly
constructed Harrisburg Plaza. The Bank anticipates the branch will support the
borrowing and deposit needs of the community in the areas of business and
agriculture.

Citizens Bancorp ("Bancorp"), an Oregon Corporation and financial holding
company, was formed in 1996 for the purpose of becoming the holding company of
Citizens Bank. Bancorp is headquartered in Corvallis, Oregon. Its principal
business activities are conducted through its full-service, commercial bank
subsidiary, Citizens Bank.

Bancorp operates through a two-tiered corporate structure. At the holding
company level the affairs of Bancorp are overseen by a Board of Directors
elected by the shareholders of Bancorp at the annual meeting of shareholders.
The business of the Bank is overseen by a Board of Directors elected by Bancorp,
the sole owner of the Bank. As of the date of this Form 10-Q the respective
members of the Board of Directors of the Bank and the Board of Directors of
Bancorp are identical.

Bancorp's culture focuses on the tenets of collaborative leadership, branch
autonomy, assertive business development, a positive working environment, a
commitment to the community, outstanding customer service, and relationship
banking. Management believes that a healthy culture together with a progressive
management style will result in constantly improved shareholder value.

Bancorp's primary goal is to improve shareholder value through increased
earnings while maintaining a high level of safety and soundness. Bancorp is
committed to independence and long-term performance strategies.

The long-term benefit to Bancorp of its cultural and management style is
consistent growth and development of the Bank over time. Risk levels have been
greatly reduced because of expertise in loan, investment, operational, and human
resource management.

Bancorp's primary market focus is to provide commercial bank services to
businesses, professionals, and individuals. Bancorp emphasizes the development
of meaningful customer relationships and a high level of service. Its employees
are well-trained banking professionals who are committed to these objectives.




                                                                               9
<PAGE>

The Bank offers deposit accounts, safe-deposit boxes, consumer loans, commercial
loans, agricultural loans, and commercial and residential real estate loans.
Commercial loans include operating lines of credit, equipment and real estate
financing, capital needs, and other traditional financing products.

The Bank has a growing emphasis in financing farm operations, equipment, and
property. The Bank has also emphasized loans to professionals with its
professional line of credit products.

The Bank's loan portfolio has some concentrations in real estate secured loans,
primarily commercial properties.

Deposit products include regular and "package" checking accounts, savings
accounts, certificates of deposit, money market accounts, and IRA accounts.

The Bank offers debit cards, check guarantee cards, ATM cards as well as
MasterCard and VISA cards as part of its retail banking services. The Bank also
operates a small residential mortgage loan origination department that
originates loans and sells them into the secondary market. The Bank offers
extended banking hours in selected locations as well as Saturday banking. ATM
machines are also available at nine (9) locations offering 24-hour transaction
services, including cash withdrawals, deposits, account transfers, and balance
inquiries. The Bank also offers its customers a 24-hour automated telephone
services that offers account transfers and balance inquiries. The Bank's on-line
banking product offers services to both individuals and business account
customers. Business customers have a comprehensive cash management option. All
online users have the availability of the "bill payment" feature. The Bank
expects to continually enhance its on-line banking product while maintaining its
quality "people to people" customer service. Citizens on-line banking can be
reached at www.CitizensEBank.com.

Bancorp reported net income of $978,000 in the third quarter ended September 30,
2001, or $.24 per common share, an increase of 8.8 percent from the third
quarter net income of $899,000 in 2000 or $.22 per common share. For the first
nine months of 2001, Bancorp earned $2,855,000, or $.68 per common share, an
increase of 4.3 percent from the nine month 2000 earnings of $2,737,000 or $.63
per common share. The net increase is primarily attributable to an increase in
interest income from loans due to the growth in total loans.

LOAN PORTFOLIO

The composition of the loan portfolio was as follows (in thousands):

<TABLE>
<CAPTION>
                                        September 30, 2001  December 31, 2000
                                        ------------------  -----------------
<S>                                     <C>                 <C>
Commercial                                  $  27,418           $  29,088
Agriculture                                    17,683              14,816
Real Estate
  Construction                                 12,297               8,651
  1-4 Family                                   26,761              29,066
  Other                                        79,131              73,505
Consumer Loans                                  5,246               4,710
                                            ---------           ---------
                                              168,536             159,836

Less:  net deferred loan fees                    (547)               (542)

TOTAL LOANS                                 $ 167,989           $ 159,294

Less:  allowance for credit losses             (1,817)             (1,510)

                                            ---------           ---------
NET LOANS                                   $ 166,172           $ 157,784
                                            =========           =========
</TABLE>




                                                                              10
<PAGE>

Transactions in the allowance for credit losses were as follows for the nine
months ended September 30, 2001:

<TABLE>
<CAPTION>
                                            2001              2000
                                         -------           -------
<S>                                      <C>               <C>
Balance at beginning of period           $ 1,510           $ 1,071
Provision charged to operations              369               315
Loans recovered                                4                62
Loans charged off                            (66)              (33)
                                         -------           -------
Balance at end of period                 $ 1,817           $ 1,415
                                         =======           =======
</TABLE>

It is the policy of the Bank to place loans on nonaccrual after they become 90
days past due unless the loans are well secured and in the process of
collection. The Bank may place loans that are not contractually past due or that
are deemed fully collateralized on nonaccrual status as a management tool to
actively oversee specific loans.

Loans on nonaccrual status as of September 30, 2001 and December 31, 2000 were
approximately $546,000 and $1,117,000 respectively. Loans past due 90 days or
more on which the Bank continued to accrue interest were approximately $227,000
at September 30, 2001 and $0 at December 31, 2000. There were no loans with
modified terms as of September 30, 2001.

INVESTMENT SECURITIES

The amortized cost and estimated fair value of the investment securities held by
the Bank, including unrealized gains and losses, at September 30, 2001 and
December 31, 2000, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                      Amortized   Estimated    Unrealized
September 30, 2001                                       Cost     Fair Value   Gain, net
                                                      ---------   ----------   ----------
<S>                                                   <C>         <C>           <C>
AVAILABLE FOR SALE
U.S. Treasury Securities
  (Including securities of government agencies
  and corporations)                                    $53,271      $54,450      $1,179

 Held to Maturity
 Obligations of States and Political Subdivisions      $ 9,542      $ 9,874      $  332
</TABLE>

<TABLE>
<CAPTION>
                                                      Amortized   Estimated    Unrealized
December 31, 2000                                        Cost     Fair Value   Gain, net
                                                      ---------   ----------   ----------
<S>                                                   <C>         <C>           <C>
AVAILABLE FOR SALE
U.S. Treasury Securities
  (Including securities of government
  agencies and corporations)                           $50,563      $50,575      $   12

HELD TO MATURITY
Obligations of States and Political Subdivisions       $ 8,304      $ 8,336      $   32
</TABLE>

MATERIAL CHANGES IN FINANCIAL CONDITION

At September 30, 2001 total assets increased 12.3% or approximately $30.1
million from total assets at December 31, 2000. Major components of the change
in total assets were:

     -  $8.7 million increase in total loans
     -  $5.1 million increase in investments
     -  $11.9 million increase in cash and cash equivalents
     -  $21.3 million increase in total deposits

The increase in loans was primarily a result of the emphasis on increased
business development by the Bank's loan officers and marketing of the Bank's
personalized loan services. Total loans increased from $159.3 million at
December 31, 2000 to $168.0 million for the nine-month period ending September
30, 2001. An increase of $8.7 million or 5.5 percent.




                                                                              11
<PAGE>

The increase in investments was a result of the growth in deposits being
deployed to the investment portfolio and loans. The timing of the maturities in
the investment portfolio are determined by using the Bank's asset/liability
model.

At September 30, 2001 and December 31, 2000 the Bank kept its liquid funds in an
interest bearing demand account held at the Federal Home Loan Bank of Seattle
(FHLB). The balance at the FHLB at September 30, 2001 was $17.5 million. This
account balance can fluctuate widely on a day to day basis.

The Bank experienced a net increase in total deposits to $222.3 million at
September 30, 2001 from $201.0 million at December 31, 2000 which represents an
increase of $21.3 million or 10.6 percent. The net increase in total deposits
was the result of an overall increase in the number of account relationships and
increases in the balances in demand and interest-bearing deposits. The increase
in new account relationships is a result of the Bank's business development
activities.

Long-term borrowings from the FHLB are from time to time utilized to fund and
match large long-term commercial loans. As of September 30, 2001 the Bank
currently had no borrowings from the FHLB.

Other borrowings consist of the Bank's participation in the Federal Reserve's
Treasury Tax and Loan (TT&L) note program. At September 30, 2001 and December
31, 2000 the balance of the Federal Reserve TT&L note was $2,145,000 and $0
respectively.

MATERIAL CHANGES IN RESULTS OF OPERATIONS

The Company reported net income of approximately $2,855,000 or $.68 net income
per common share, for the nine months ended September 30, 2001, compared to net
income of approximately $2,737,000 or $.63 net income per common share, for the
same period in 2000. This represents an increase in net income of 4.3 percent.
Net income for the quarter ended September 30, 2001, was approximately $978,000
or $.24 net income per common share, compared to net income of approximately
$899,000, or $.22 net income per common share, for the same period in 2000. This
represents an increase in net income of 8.8 percent. The increase during these
periods were primarily attributable to strong growth in the Bank's loan
portfolio resulting in an increase in net interest income.

Total interest income increased approximately $524,000 or 3.8 percent for the
nine months and decreased $13,000 for the three months ended September 30, 2001
as compared to the same periods in 2000. The increase for the nine-month period
was primarily the result of an increase in loan volume compared to the same
periods in 2000 and an increase in the amount of deposits earning interest held
at the Federal Home Loan Bank. The decrease of $13,000 or .27 percent for the
three month period ending September 30, 2001 as compared to the same period in
2000 was the result of a decrease in interest income on loans and on investments
held for sale. The decrease is directly related to the overall decrease in
market interest rates.

Total interest expense decreased approximately $19,000 or .41 percent for the
nine months and $206,000 or 12.8 percent for the three months ended September
30, 2001 as compared to the same periods in 2000. The decreases in interest
expense for these periods were the result of lower interest rates paid on
deposits resulting from overall market rate decreases.

Total non-interest income increased approximately $265,000 or 13.2% for the nine
months and $46,000 or 6.3 percent for the three months ended September 30, 2001
as compared to the same periods in 2000. The primary increases were a result of
an increase in overdraft fees as a result of the new bounce protection overdraft
program on individual checking accounts and the growth of service charge income
due to volume increases in deposit accounts.

Total non-interest expense increased $533,000 or 8.5 percent for the nine months
and $164,000 or 7.7 percent for the three months ended September 30, 2001, as
compared to the same periods in 2000. Non-interest expense increased as a result
of routine adjustments in staff salaries, expenses associated with technology
enhancements, products, occupancy, and expenses relative to the opening of the
new Harrisburg branch.

CREDIT LOSS PROVISION

The Bank maintains an allowance for credit losses on loans that occur from time
to time as an incidental part of




                                                                              12
<PAGE>

the business of banking. Loans are charged against this allowance for credit
losses which is adjusted periodically to reflect changing loan volumes, risk
potential in the portfolio and general economic conditions. Additions to the
allowance for credit losses are made through a charge against income.

During the first nine months ended September 30, 2001, the Bank funded the
allowance for credit losses $369,000 from operations as compared to $315,000 for
the same nine month period in 2000. For the three month period ended September
30, 2001, the Bank funded the allowance for credit losses $123,000 as compared
to $137,000 for the same three month period in 2000. The increase in the Bank's
monthly provision for credit losses is primarily in correlation to the growth in
the loan portfolio.

The provision for credit losses represents charges made to operating expenses to
maintain an appropriate allowance for credit losses. Management considers
various factors in establishing an appropriate allowance. These factors include
an assessment of the financial condition of the borrower, a determination of the
borrower's ability to service the debt from cash flow, a conservative assessment
of the value of the underlying collateral, the condition of the specific
industry of the borrower, the economic health of the local community, a
comprehensive analysis of the levels and trends of loan types, and a review of
past due and classified loans.

It is Bank policy that once each quarter, Bank management makes recommendations
to the Board regarding the adequacy of the Bank's allowance for credit losses
and the amount of the provision that should be charged against earnings for the
next three months. Management's recommendations are based on an internal loan
review process to determine specific potential loss factors on classified loans,
risk factor of loan grades, historical loss factors derived from actual net
charge-off experience, trends in non-performing loans and other potential risks
in the loan portfolio such as industry concentration, the local economy and the
volume of loans.

Management uses a loan grading system wherein loan officers assign a risk grade
to each of their loans at inception and at intervals based on receipt of
financial information, renewal, or when there is an indication that a credit may
have improved or weakened. The risk grades in the loan portfolio are used in
determining a factor that is used in analyzing the adequacy of the allowance for
credit losses.

The Bank's policy is to charge off loans when, in management's opinion, the loan
or a portion of the loan is deemed uncollectible following a concerted
collection effort. Management continues to pursue collection after a loan is
charged-off until all possibilities for collection have been exhausted.

LIQUIDITY AND CAPITAL RESOURCES

Bancorp's subsidiary, the Bank, has adopted policies to maintain a relatively
liquid position to enable it to respond to changes in the Bank's financial
environment. Generally, the Bank's major sources of liquidity are customer
deposits, sales and maturities of securities, the use of borrowing lines with
correspondent banks including Federal Home Loan bank borrowings, loan repayments
and net cash provided by operating activities.

The analysis of liquidity should also include a review of the changes that
appear in the consolidated statement of cash flows for the first nine months of
2001. The statement of cash flows includes operating, investing and financing
categories. Operating activities include net income which is adjusted for
non-cash items and increases or decreases in cash due to certain changes in
assets and liabilities. Investing activities consist primarily of both proceeds
from maturities and purchases of securities, and the net growth in loans.
Financing activities present the cash flows associated with the Bank's deposit
accounts.

Management believes that the Bank's existing sources of liquidity will enable
the Bank to fund its requirements in the normal course of business.

As of September 30, 2001, shareholders' equity totaled $30,452,000 as compared
to $27,063,000 at December 31, 2000, an increase of 12.5%. This increase in
equity was primarily due to the Company's net income.

The total number of shares of Bancorp's common stock that may be issued upon the
exercise of all options granted under the Incentive Stock Option Plan may not
exceed in the aggregate four percent (4%) of Bancorp's issued and outstanding
shares of common stock. As of November 1, 2001 Bancorp's issued and outstanding
shares totaled 4,112,063, so the maximum number of shares issuable under the
Incentive Stock Option Plan was 164,483 on that date. As of November 1, 2001,
options for 46,000 shares had been granted and none exercised




                                                                              13
<PAGE>

under this Plan. The exercise price of all options granted exceeded the average
market price of the Company's stock for the periods ended September 30, 2001 and
2000.

The total number of shares of Bancorp's common stock that may be issued under
the Stock Bonus Plan may not exceed in the aggregate one percent (1%) of
Bancorp's issued and outstanding shares of common stock. As of November 1, 2001
Bancorp's issued and outstanding shares totaled 4,112,063, so the maximum number
of shares issuable under the Stock Bonus Plan was 41,120 on that date. As of
November 1, 2001 no stock had been issued under this Plan.

Capital ratios for the Company were as follows as of the dates indicated:

<TABLE>
<CAPTION>
                                      Adequately      Well                   Bancorp
                                     Capitalized  Capitalized     September 30,     December 31,
                                      Standards    Standards          2001              2000
<S>                                  <C>          <C>             <C>               <C>
Tier 1 Leverage Ratio                     4%           5%             11.08%           10.96%
Tier 1 Risk Based Capital Ratio           4%           6%             15.67%           15.77%
Total Risk Based Capital Ratio            8%          10%             16.63%           16.67%
</TABLE>

ITEM 3. QUANTITATIVE & QUALITATIVE ANALYSIS ABOUT MARKET RISK

Interest rate, credit, and operations risks are the most significant market
risks impacting the Bank's performance. The Bank relies on loan review, prudent
loan underwriting standards and an adequate allowance for credit losses to
mitigate credit risk.

The Bank uses an asset/liability management simulation model to measure interest
rate risk. The model quantifies interest rate risk through simulating forecasted
net interest income over a 12 month time period under various rate scenarios, as
well as monitoring the change in the present value of equity under the same rate
scenarios. The present value of equity is defined as the difference between the
market value of current assets less current liabilities. By measuring the change
in the present value of equity under different rate scenarios, management is
able to identify interest rate risk that may not be evident in simulating
changes in forecasted net interest income.

The Bank is currently slightly asset sensitive, meaning that interest earning
assets mature or reprice more quickly than interest-bearing liabilities in a
given period. An increase or decrease in market rates of interest will not
materially impact net interest income.

It should be noted that the simulation model does not take into account future
management actions that could be undertaken if there were a change in actual
market interest rate during the year. Also, certain assumptions are required to
perform modeling simulations that my have significant impact on the results.
These include assumptions regarding the level of interest rates and balance
changes on deposit products that do not have stated maturities. These
assumptions have been developed through a combination of industry standards and
future expected pricing behavior. The model also includes assumptions about
changes in the composition or mix of the balance sheet. The results derived from
the simulation model could vary significantly by external factors such as
changes in the prepayment assumptions, early withdrawals of deposits and
competition. Management has assessed these risks and believes that there has
been no material change since December 31, 2000.




                                                                              14
<PAGE>

                                  PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

             None

ITEM 2.  CHANGES IN SECURITIES

             None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

             None

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

             None

ITEM 5.  OTHER INFORMATION

             None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

             None

         (b) Reports on Form 8-K

             A Form 8-K was filed by the Registrant during the third quarter of
             2001. The Form 8-K related to the merger of the Registrant's
             certifying CPA firm with another CPA firm. No financial statements
             were filed with the Form 8-K. The date of the report on Form 8-K
             was September 7, 2001.




                                                                              15
<PAGE>

                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                      Date:  November 1, 2001      /s/ William V. Humphreys
                                                   -----------------------------
                                               By: William V. Humphreys
                                                   President and
                                                   Chief Executive Officer


                      Date:  November 1, 2001      /s/ Lark E. Wysham
                                                   -----------------------------
                                               By: Lark E. Wysham
                                                   Senior Vice President and
                                                   Chief Financial Officer





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