##### Table of Contents



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, 2003

|       |  |                                                                                         
|------ |  | ----------------------------------------------------------------------------------------
|(    ) |  | 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/OR

(Exact name of registrant as specified in its charter)


|                                |  |                                                   
|------------------------------- |  | --------------------------------------------------
|Oregon
(State of Incorporation) |  | 91-1841688
(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 whether the Registrant is an accelerated filer as defined by
Exchange Act Rule 12b-2. YES (    ) NO ( X )

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

4,554,242 shares as of October 31, 2003, no par value.





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##### Table of Contents



CITIZENS BANCORP
FORM 10-Q
SEPTEMBER 30, 2003
INDEX

|                             |                                                                                                 |                                                                                                                            |  |        |           |  | 
|---------------------------- | ----------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- |  | ------ | --------- |  | 
|                             |                                                                                                 |                                                                                                                            |  |        | Page     
|                             |                                                                                                 |                                                                                                                            |  |        | Reference
|PART I.                      |                                                                                                 |                                                                                                                            |  |       
|                             | ITEM 1.  FINANCIAL INFORMATION  UNAUDITED                                                     |                                                                                                                            |  |        |          
|                             |                                                                                                 | Condensed Consolidated Balance Sheets as of September 30, 2003 and
December 31, 2002                                       |  |        | 1         | 
|                             |                                                                                                 | Condensed Consolidated Statements of Income for the three months and the
nine months ended September 30, 2003 and 2002     |  |        | 2         | 
|                             |                                                                                                 | Condensed Consolidated Statements of Changes in Shareholders Equity for
the nine months ended September 30, 2003 and 2002 |  |        | 3         | 
|                             |                                                                                                 | Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2003 and 2002                      |  |        | 4         | 
|                             |                                                                                                 | Notes to Consolidated Financial Statements                                                                                 |  |        | 5  8     | 
|                             | ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                            |  | 8  14 |          
|                             | ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk                             |                                                                                                                            |  | 14     |          
|                             | ITEM 4.  Controls and Procedures                                                               |                                                                                                                            |  | 14     |          
|PART II.  OTHER INFORMATION |                                                                                                 |                                                                                                                            |  |       
|                             | 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     |          





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TABLE OF CONTENTS



|                             |                                                                                              |                                                                      |  |  |  |  |  | 
|---------------------------- | -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | ITEM 1 CITIZENS BANCORP AND SUBSIDIARY                                                      
|                             |                                                                                              | CONDENSED CONSOLIDATED BALANCE SHEETS                               
|                             |                                                                                              | CONDENSED CONSOLIDATED STATEMENTS OF INCOME                         
|                             |                                                                                              | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
|                             |                                                                                              | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                             |                                                                                              | Notes to Consolidated Financial Statements                          
|                             | ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             | ITEM 3. QUANTITATIVE & QUALITATIVE ANALYSIS ABOUT MARKET RISK                               
|                             | ITEM 4. CONTROLS AND PROCEDURES                                                             
|PART II. OTHER INFORMATION  
|                             | ITEM 1. LEGAL PROCEEDINGS                                                                   
|                             | ITEM 2. CHANGES IN SECURITIES                                                               
|                             | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                     
|                             | ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                   
|                             | ITEM 5. OTHER INFORMATION                                                                   
|                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                    
|SIGNATURES                  
|EXHIBIT 31.1                
|EXHIBIT 31.2                
|EXHIBIT 32.1                
|EXHIBIT 32.2                



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##### Table of Contents






PART I FINANCIAL INFORMATION







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

|                                     |                                                                                                                                      |                                            |   |                    |         |                   |   |         |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | - | ------------------ | ------- | ----------------- | - | ------- | ------- | 
|                                     |                                                                                                                                      |                                            |   | September 30, 2003 |         | December 31, 2002
|Assets                               |                                                                                                                                      |                                            |   |                    |         |                   |   |        
|                                     | Cash and due from banks                                                                                                              |                                            | $ | 17,767             |         |                   | $ | 17,722  |        
|                                     | Interest bearing deposits in banks                                                                                                   |                                            |   | 21,704             |         |                   |   | 16,834  |        
|                                     | Securities available for sale                                                                                                        |                                            |   | 75,574             |         |                   |   | 74,178  |        
|                                     | Securities held to maturity                                                                                                          |                                            |   | 12,074             |         |                   |   | 11,037  |        
|                                     | Federal Home Loan Bank stock                                                                                                         |                                            |   | 391                |         |                   |   | 373     |        
|                                     | Loans held for sale                                                                                                                  |                                            |   | 978                |         |                   |   | 1,927   |        
|                                     | Loans, net                                                                                                                           |                                            |   | 184,134            |         |                   |   | 176,406 |        
|                                     | Premises and equipment                                                                                                               |                                            |   | 7,150              |         |                   |   | 5,948   |        
|                                     | Accrued interest receivable                                                                                                          |                                            |   | 2,182              |         |                   |   | 2,356   |        
|                                     | Cash surrender value of life insurance                                                                                               |                                            |   | 3,902              |         |                   |   | 3,769   |        
|                                     | Other assets                                                                                                                         |                                            |   | 2,418              |         |                   |   | 2,089   |        
|                                     |                                                                                                                                      |                                            |   |                    |         |                   |   |        
|                                     |                                                                                                                                      | Total assets                               |   | $                  | 328,274 |                   |   | $       | 312,639 | 
|                                     |                                                                                                                                      |                                            |   |                    |         |                   |   |        
|Liabilities and Shareholders Equity |                                                                                                                                      |                                            |   |                    |         |                   |   |        
|Liabilities                          |                                                                                                                                      |                                            |   |                    |         |                   |   |        
|                                     | Deposits:                                                                                                                            |                                            |   |                    |         |                   |   |         |        
|                                     |                                                                                                                                      | Demand, non-interest bearing               |   | $                  | 54,296  |                   |   | $       | 42,589  | 
|                                     |                                                                                                                                      | Savings and interest bearing demand        |   |                    | 140,848 |                   |   |         | 128,827 | 
|                                     |                                                                                                                                      | Time                                       |   |                    | 49,363  |                   |   |         | 55,947  | 
|                                     |                                                                                                                                      |                                            |   |                    |         |                   |   |        
|                                     | Total deposits                                                                                                                       |                                            |   | 244,507            |         |                   |   | 227,363 |        
|                                     | Repurchase agreements                                                                                                                |                                            |   | 45,679             |         |                   |   | 48,059  |        
|                                     | Other borrowings                                                                                                                     |                                            |   | 547                |         |                   |   | 1,871   |        
|                                     | Accrued interest payable                                                                                                             |                                            |   | 45                 |         |                   |   | 94      |        
|                                     | Other liabilities                                                                                                                    |                                            |   | 883                |         |                   |   | 2,922   |        
|                                     |                                                                                                                                      |                                            |   |                    |         |                   |   |        
|                                     |                                                                                                                                      | Total liabilities                          |   |                    | 291,661 |                   |   |         | 280,309 | 
|Shareholders Equity                 |                                                                                                                                      |                                            |   |                    |         |                   |   |        
|                                     | Common stock (no par value); authorized 10,000,000 shares;
Issued and outstanding: 2003  4,553,551 shares;
2002  4,084,210 shares; |                                            |   | 27,147             |         |                   |   | 19,459  |        
|                                     | Retained earnings                                                                                                                    |                                            |   | 9,343              |         |                   |   | 12,498  |        
|                                     | Accumulated other comprehensive income                                                                                               |                                            |   | 123                |         |                   |   | 373     |        
|                                     |                                                                                                                                      |                                            |   |                    |         |                   |   |        
|                                     |                                                                                                                                      | Total shareholders equity                 |   |                    | 36,613  |                   |   |         | 32,330  | 
|                                     |                                                                                                                                      | Total liabilities and shareholders equity |   | $                  | 328,274 |                   |   | $       | 312,639 | 
|                                     |                                                                                                                                      |                                            |   |                    |         |                   |   |        

See accompanying notes

1



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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)

|                                                      |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |           | 
|----------------------------------------------------- | ------- | - | ----------------- | --------- | ------------------ | - | ------ | --------- | ---- | - | ----- | --------- |  | - | ----- | --------- | 
|                                                      |         |   | Nine Months Ended |           | Three Months Ended
|                                                      |         |   | September 30,     |           | September 30,     
|                                                      |         |   | 2003              |           | 2002               |   | 2003   |           | 2002
|Interest Income:                                      |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Loans                                                 |         | $ | 10,604            |           |                    | $ | 10,830 |           |      | $ | 3,537 |           |  | $ | 3,734 |          
|Interest bearing deposits                             |         |   | 106               |           |                    |   | 230    |           |      |   | 33    |           |  |   | 84    |          
|Securities available for sale                         |         |   | 1,304             |           |                    |   | 1,758  |           |      |   | 387   |           |  |   | 536   |          
|Securities held to maturity                           |         |   | 345               |           |                    |   | 347    |           |      |   | 126   |           |  |   | 126   |          
|Other interest income                                 |         |   | 50                |           |                    |   | 40     |           |      |   | 16    |           |  |   | 12    |          
|                                                      |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Total interest income                                 |         |   | 12,409            |           |                    |   | 13,205 |           |      |   | 4,099 |           |  |   | 4,492 |          
|Interest Expense:                                     |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Deposits                                              |         |   | 1,107             |           |                    |   | 2,229  |           |      |   | 306   |           |  |   | 675   |          
|Borrowed funds                                        |         |   | 6                 |           |                    |   | 13     |           |      |   | 2     |           |  |   | 4     |          
|Repurchase agreements                                 |         |   | 551               |           |                    |   | 333    |           |      |   | 149   |           |  |   | 168   |          
|                                                      |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Total interest expense                                |         |   | 1,664             |           |                    |   | 2,575  |           |      |   | 457   |           |  |   | 847   |          
|Net Interest Income                                   |         |   | 10,745            |           |                    |   | 10,630 |           |      |   | 3,642 |           |  |   | 3,645 |          
|Provision for credit losses                           |         |   | (221              | )         |                    |   | (314   | )         |      |   | (50   | )         |  |   | (167  | )        
|Net interest income after provision for credit losses |         |   | 10,524            |           |                    |   | 10,316 |           |      |   | 3,592 |           |  |   | 3,478 |          
|Non-interest Income:                                  |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Service charges on deposit accounts                   |         |   | 1,275             |           |                    |   | 1,198  |           |      |   | 451   |           |  |   | 408   |          
|Gain on sales of investments available for sale       |         |   | 163               |           |                    |   | 95     |           |      |   | 0     |           |  |   | 37    |          
|Merchant bankcard                                     |         |   | 937               |           |                    |   | 886    |           |      |   | 321   |           |  |   | 310   |          
|Other                                                 |         |   | 735               |           |                    |   | 647    |           |      |   | 243   |           |  |   | 262   |          
|                                                      |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Total non-interest income                             |         |   | 3,110             |           |                    |   | 2,826  |           |      |   | 1,015 |           |  |   | 1,017 |          
|Non-interest Expense:                                 |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Salaries and employee benefits                        |         |   | 4,285             |           |                    |   | 4,094  |           |      |   | 1,505 |           |  |   | 1,385 |          
|Occupancy and equipment                               |         |   | 957               |           |                    |   | 971    |           |      |   | 320   |           |  |   | 297   |          
|Merchant bankcard                                     |         |   | 777               |           |                    |   | 708    |           |      |   | 274   |           |  |   | 255   |          
|Other                                                 |         |   | 1,525             |           |                    |   | 1,420  |           |      |   | 518   |           |  |   | 462   |          
|                                                      |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Total non-interest expense                            |         |   | 7,544             |           |                    |   | 7,193  |           |      |   | 2,617 |           |  |   | 2,399 |          
|Income before income taxes                            |         |   | 6,090             |           |                    |   | 5,949  |           |      |   | 1,990 |           |  | $ | 2,096 |          
|                                                      |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Income taxes                                          |         |   | (2,215            | )         |                    |   | (2,160 | )         |      |   | (715  | )         |  |   | (750  | )        
|Net income                                            |         | $ | 3,875             |           |                    | $ | 3,789  |           |      | $ | 1,275 |           |  | $ | 1,346 |          
|                                                      |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Per share data:                                       |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|Basic and diluted earnings per share                  |         | $ | 0.85              |           |                    | $ | 0.84   |           |      | $ | 0.28  |           |  | $ | 0.30  |          
|Weighted average number of common
Shares outstanding: |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          
|                                                      | Basic   |   |                   | 4,557,359 |                    |   |        | 4,519,518 |      |   |       | 4,553,078 |  |   |       | 4,498,357 | 
|                                                      | Diluted |   |                   | 4,581,072 |                    |   |        | 4,525,581 |      |   |       | 4,592,104 |  |   |       | 4,504,223 | 
|Return on Average Assets                              |         |   | 1.62              | %         |                    |   | 1.74   | %         |      |   | 1.60  | %         |  |   | 1.77  | %        
|See accompanying notes                                |         |   |                   |           |                    |   |        |           |      |   |       |           |  |   |       |          

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CITIZENS BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS EQUITY
(Unaudited)
(Dollars in Thousands)

|                                        |                               |  |                                               |   |        |   |             |   |               |   |        |   |  |   |     |      |   |   |        |      |  
|--------------------------------------- | ----------------------------- |  | --------------------------------------------- | - | ------ | - | ----------- | - | ------------- | - | ------ | - |  | - | --- | ---- | - | - | ------ | ---- | -
|                                        |                               |  | Nine Months Ended September 30, 2003 and 2002 |   |        |   |            
|                                        |                               |  | Number of                                     |   |        |   | Accumulated |   |               |   |       
|                                        |                               |  | Common                                        |   | Common |   |             |   |               |   | Other  |   |  |   |    
|                                        |                               |  | Shares                                        |   | Stock  |   | Retained    |   | Comprehensive |   |        |   | 
|                                        |                               |  | Outstanding                                   |   | Amount |   | Earnings    |   | Income (Loss) |   | Total 
|Balance, at December 31, 2001           |                               |  | 4,105,308                                     |   |        | $ | 19,785      |   |               | $ | 9,478  |   |  | $ | 261 |      |   | $ | 29,524 |     
|COMPREHENSIVE INCOME:                   |                               |  |                                               |   |        |   |             |   |               |   |        |   |  |   |     |      |   |   |        |     
|Net Income                              |                               |  |                                              |   |        |   |            |   |               |   | 3,789  |   |  |   |    |      |   |   | 3,789  |     
|Other comprehensive income, net of tax: |                               |  |                                               |   |        |   |             |   |               |   |        |   |  |   |     |      |   |   |        |     
|                                        | Unrealized gain on securities |  |                                               |  |        |   |             |  |               |   |        |  |  |   |     | 131  |   |   |        | 131  |  
|Comprehensive Income                    |                               |  |                                              |   |        |   |            |   |               |   |       |   |  |   |    |      |   |   | 3,920  |     
|Issuance of common stock                |                               |  | 61,589                                        |   |        |   | 644         |   |               |   |       |   |  |   |    |      |   |   | 644    |     
|Repurchase of common stock              |                               |  | (82,811                                       | ) |        |   | (972        | ) |               |   |       |   |  |   |    |      |   |   | (972   | )   
|Stock options exercised                 |                               |  | 45                                            |   |        |   | 1           |   |               |   |       |   |  |   |    |      |   |   | 1      |     
|                                        |                               |  |                                               |   |        |   |             |   |               |   |        |   |  |   |     |      |   |   |        |     
|Balance, at September 30, 2002          |                               |  | 4,084,131                                     |   |        | $ | 19,458      |   |               | $ | 13,267 |   |  | $ | 392 |      |   | $ | 33,117 |     
|Balance, at December 31, 2002           |                               |  | 4,084,210                                     |   |        | $ | 19,459      |   |               | $ | 12,498 |   |  | $ | 373 |      |   | $ | 32,330 |     
|COMPREHENSIVE INCOME:                   |                               |  |                                               |   |        |   |             |   |               |   |        |   |  |   |     |      |   |   |        |     
|Net Income                              |                               |  |                                              |   |        |   |            |   |               |   | 3,875  |   |  |   |    |      |   |   | 3,875  |     
|Other comprehensive income, net of tax: |                               |  |                                               |   |        |   |             |   |               |   |        |   |  |   |     |      |   |   |        |     
|                                        | Unrealized loss on securities |  |                                               |  |        |   |             |  |               |   |        |  |  |   |     | (250 | ) |   |        | (250 | )
|Comprehensive Income                    |                               |  |                                              |   |        |   |            |   |               |   |       |   |  |   |    |      |   |   | 3,625  |     
|Issuance of common stock                |                               |  | 66,065                                        |   |        |   | 804         |   |               |   |       |   |  |   |    |      |   |   | 804    |     
|Repurchase of common stock              |                               |  | (12,536                                       | ) |        |   | (173        | ) |               |   |        |   |  |   |     |      |   |   | (173   | )   
|Stock options exercised                 |                               |  | 2,290                                         |   |        |   | 27          |   |               |   |        |   |  |   |     |      |   |   | 27     |     
|Stock dividend  10%                    |                               |  | 413,522                                       |   |        |   | 7,030       |   |               |   | (7,030 | ) |  |   |    |      |   |   |        |     
|                                        |                               |  |                                               |   |        |   |             |   |               |   |        |   |  |   |     |      |   |   |        |     
|Balance, at September 30, 2003          |                               |  | 4,553,551                                     |   |        | $ | 27,147      |   |               | $ | 9,343  |   |  | $ | 123 |      |   | $ | 36,613 |     

See accompanying notes

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

|                                                                     |                                                                                   |                                                    |   |                   |      |      |   |         |      |  
|-------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------- | - | ----------------- | ---- | ---- | - | ------- | ---- | -
|                                                                     |                                                                                   |                                                    |   | Nine Months Ended
|                                                                     |                                                                                   |                                                    |   | September 30,    
|                                                                     |                                                                                   |                                                    |   | 2003              |      | 2002
|Cash Flows from Operating Activities                                 |                                                                                   |                                                    |   |                   |      |      |   |        
|                                                                     | Net income                                                                        |                                                    | $ | 3,875             |      |      | $ | 3,789   |     
|                                                                     | Adjustments to reconcile net income to net
Cash provided by operating activities: |                                                    |   |                   |      |      |   |         |     
|                                                                     |                                                                                   | Provision for credit losses                        |   |                   | 221  |      |   |         | 314  |  
|                                                                     |                                                                                   | Depreciation and amortization                      |   |                   | 428  |      |   |         | 449  |  
|                                                                     |                                                                                   | Gains on sales of securities available for sale    |   |                   | (163 | )    |   |         | (95  | )
|                                                                     |                                                                                   | Stock dividends received                           |   |                   | (18  | )    |   |         | (26  | )
|                                                                     |                                                                                   | (Increase) decrease in accrued interest receivable |   |                   | 174  |      |   |         | (368 | )
|                                                                     |                                                                                   | (Decrease) in accrued interest payable             |   |                   | (49  | )    |   |         | (108 | )
|                                                                     |                                                                                   | Other                                              |   |                   | (325 | )    |   |         | (579 | )
|                                                                     |                                                                                   |                                                    |   |                   |      |      |   |        
|                                                                     | Net cash provided by operating activities                                         |                                                    |   | 4,143             |      |      |   | 3,376   |     
|Cash Flows from Investing Activities                                 |                                                                                   |                                                    |   |                   |      |      |   |        
|                                                                     | Net increase in interest bearing deposits in banks                                |                                                    |   | (4,870            | )    |      |   | (5,769  | )   
|                                                                     | Proceeds from maturities of available for sale securities                         |                                                    |   | 69,300            |      |      |   | 21,835  |     
|                                                                     | Proceeds from sales of available for sale securities                              |                                                    |   | 7,179             |      |      |   | 6,534   |     
|                                                                     | Proceeds from maturities of securities held to maturity                           |                                                    |   | 440               |      |      |   | 330     |     
|                                                                     | Purchases of securities available for sale                                        |                                                    |   | (78,560           | )    |      |   | (41,834 | )   
|                                                                     | Purchases of securities held to maturity                                          |                                                    |   | (1,467            | )    |      |   | (1,362  | )   
|                                                                     | Increase in loans made to customers, net of principal collections                 |                                                    |   | (6,954            | )    |      |   | (7,814  | )   
|                                                                     | Purchases of premises and equipment and other                                     |                                                    |   | (1,426            | )    |      |   | (747    | )   
|                                                                     |                                                                                   |                                                    |   |                   |      |      |   |        
|                                                                     | Net cash used in investing activities                                             |                                                    |   | (16,358           | )    |      |   | (28,827 | )   
|Cash Flows from Financing Activities                                 |                                                                                   |                                                    |   |                   |      |      |   |        
|                                                                     | Net increase in deposits                                                          |                                                    |   | 17,144            |      |      |   | 1,948   |     
|                                                                     | Net increase (decrease) in repurchase agreements and other borrowings             |                                                    |   | (3,704            | )    |      |   | 26,726  |     
|                                                                     | Payment of dividends, net of dividends reinvested                                 |                                                    |   | (1,034            | )    |      |   | (877    | )   
|                                                                     | Repurchase of common stock                                                        |                                                    |   | (173              | )    |      |   | (972    | )   
|                                                                     | Exercise of stock options                                                         |                                                    |   | 27                |      |      |   | 1       |     
|                                                                     |                                                                                   |                                                    |   |                   |      |      |   |        
|                                                                     | Net cash provided by financing activities                                         |                                                    |   | 12,260            |      |      |   | 26,826  |     
|                                                                     | Net (decrease) increase in cash and due from banks                                |                                                    | $ | 45                |      |      | $ | 1,375   |     
|Cash and Due from Banks                                              |                                                                                   |                                                    |   |                   |      |      |   |        
|                                                                     | Beginning of period                                                               |                                                    |   | 17,722            |      |      |   | 15,054  |     
|                                                                     | End of period                                                                     |                                                    | $ | 17,767            |      |      | $ | 16,429  |     
|                                                                     |                                                                                   |                                                    |   |                   |      |      |   |        
|Supplemental Disclosure of Cash Flow Information                     |                                                                                   |                                                    |   |                   |      |      |   |        
|                                                                     | Interest paid                                                                     |                                                    |   | 1,713             |      |      |   | 2,683   |     
|                                                                     | Income taxes paid                                                                 |                                                    |   | 2,238             |      |      |   | 2,025   |     
|Supplemental Schedule of Non-cash Investing and Financing Activities |                                                                                   |                                                    |   |                   |      |      |   |        
|                                                                     | Fair value adjustment of securities available for sale, net of tax                |                                                    |   | (250              | )    |      |   | 131     |     
|                                                                     | Issuance of common stock through dividend reinvestment plan                       |                                                    |   | 804               |      |      |   | 644     |     

See accompanying notes

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CITIZENS BANCORP
Notes to 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 accounting principles generally accepted in the United
States of America 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
accounting principles generally accepted in the United States of America.
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, 2002 consolidated financial statements,
including notes there to, included in Bancorps 2002 Annual Report to
shareholders. The results of operations for the nine months ended
September 30, 2003, are not necessarily indicative of the results which
may be obtained for the full year ending December 31, 2003.                                                                                                                                                                                                         



|2. |  | USE OF ESTIMATES IN THE PREPARATION OF FINANCIALS
|-- |  | -------------------------------------------------



| |  |  | The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported
amount 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 ten percent (10%) stock dividend to
Bancorp shareholders of record on July 14, 2003, payable on July 28, 2003.
All per share amounts in this report have been retroactively restated for
the effect of this stock dividend.                                                                      
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Board of Directors declared a $.41 per share dividend ($.45 per share
before the restatement for the July 2003 stock dividend) to Bancorp
shareholders of record on November 19, 2002, payable on January 10, 2003.
Through the Dividend Reinvestment Plan (DRIP), 66,065 shares were
purchased at a price of $12.18 per share.
|
| |  |  | Basic earnings per share are based on the average number of common shares
outstanding, assuming no dilution. Diluted earnings per common share are
computed assuming the exercise of stock options.                                                                                                                                

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|                                                   |            |             |            |               |        |        |           |           |  |  |   |      | 
|-------------------------------------------------- | ---------- | ----------- | ---------- | ------------- | ------ | ------ | --------- | --------- |  |  | - | ---- | 
|                                                   |            |             | Net Income |               | Shares |        | Per Share
|Dollars
in thousands, except for per share amounts |            | (Numerator) |            | (Denominator) |        | Amount
|Nine months ended September 30, 2003               |            |             |            |               |        |        |           |           |  |  |   |     
|Basic earnings per share:                          |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Net Income |             | $          | 3,875         |        |        |           | 4,557,359 |  |  | $ | 0.85 | 
|Effect of dilutive securities:                     |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Options    |             |            |              |        |        |           | 23,713    |  |  |   | -0-  | 
|Diluted earnings per share:                        |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Net Income |             | $          | 3,875         |        |        |           | 4,581,072 |  |  | $ | 0.85 | 
|Nine months ended September 30, 2002               |            |             |            |               |        |        |           |           |  |  |   |     
|Basic earnings per share:                          |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Net Income |             | $          | 3,789         |        |        |           | 4,519,518 |  |  | $ | 0.84 | 
|Effect of dilutive securities:                     |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Options    |             |            |              |        |        |           | 6,063     |  |  |   | -0-  | 
|Diluted earnings per share:                        |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Net Income |             | $          | 3,789         |        |        |           | 4,525,581 |  |  | $ | 0.84 | 

|                                                   |            |             |            |               |        |        |           |           |  |  |   |      | 
|-------------------------------------------------- | ---------- | ----------- | ---------- | ------------- | ------ | ------ | --------- | --------- |  |  | - | ---- | 
|                                                   |            |             | Net Income |               | Shares |        | Per Share
|Dollars
in thousands, except for per share amounts |            | (Numerator) |            | (Denominator) |        | Amount
|Three months ended September 30, 2003              |            |             |            |               |        |        |           |           |  |  |   |     
|Basic earnings per share:                          |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Net Income |             | $          | 1,275         |        |        |           | 4,553,078 |  |  | $ | 0.28 | 
|Effect of dilutive securities:                     |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Options    |             |            |              |        |        |           | 9,026     |  |  |   | -0-  | 
|Diluted earnings per share:                        |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Net Income |             | $          | 1,275         |        |        |           | 4,592,104 |  |  | $ | 0.28 | 
|Three months ended September 30, 2002              |            |             |            |               |        |        |           |           |  |  |   |     
|Basic earnings per share:                          |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Net Income |             | $          | 1,346         |        |        |           | 4,498,357 |  |  | $ | 0.30 | 
|Effect of dilutive securities:                     |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Options    |             |            |              |        |        |           | 5,866     |  |  |   | -0-  | 
|Diluted earnings per share:                        |            |             |            |               |        |        |           |           |  |  |   |     
|                                                   | Net Income |             | $          | 1,346         |        |        |           | 4,504,223 |  |  | $ | 0.30 | 

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|4. |  | STOCK-BASED COMPENSATION
|-- |  | ------------------------



| |  |  | The Company has a stock-based employee compensation plan. The Company
applies the recognition and measurement principles of APB No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, no stock-based compensation cost is reflected in net income
as all options granted under this plan had an exercise price equal to the
market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock-Based Compensationto stock based
employee compensation.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 |                                                                                                          |      |                   |      |   |   |       |      |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------- | ---- | ----------------- | ---- | - | - | ----- | ---- | -
|                                                 |                                                                                                          |      | Nine Months Ended
|                                                 |                                                                                                          |      | September 30,    
|(Dollars in thousands, except per share amounts) |                                                                                                          | 2003 |                   | 2002
|Net income, as reported                          |                                                                                                          | $    | 3,875             |      |   | $ | 3,789 |     
|                                                 | Less total stock-based compensation expense determined
under fair value method for all qualifying awards |      |                   | (98  | ) |   |       | (77  | )
|Pro forma net income                             |                                                                                                          | $    | 3,777             |      |   | $ | 3,712 |     
|Earnings per share:                              |                                                                                                          |      |                   |      |   |   |       |     
|Basic and diluted:                               |                                                                                                          |      |                   |      |   |   |       |     
|                                                 | As reported                                                                                              |      | $                 | 0.85 |   |   | $     | 0.84 |  
|                                                 | Pro forma                                                                                                |      | $                 | 0.83 |   |   | $     | 0.82 |  

|                                                 |                                                                                                          |      |                    |      |   |   |       |      |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------- | ---- | ------------------ | ---- | - | - | ----- | ---- | -
|                                                 |                                                                                                          |      | Three Months Ended
|                                                 |                                                                                                          |      | September 30,     
|(Dollars in thousands, except per share amounts) |                                                                                                          | 2003 |                    | 2002
|Net income, as reported                          |                                                                                                          | $    | 1,275              |      |   | $ | 1,346 |     
|                                                 | Less total stock-based compensation expense determined
under fair value method for all qualifying awards |      |                    | (33  | ) |   |       | (26  | )
|Pro forma net income                             |                                                                                                          | $    | 1,242              |      |   | $ | 1,320 |     
|Earnings per share:                              |                                                                                                          |      |                    |      |   |   |       |     
|Basic and diluted:                               |                                                                                                          |      |                    |      |   |   |       |     
|                                                 | As reported                                                                                              |      | $                  | 0.28 |   |   | $     | 0.30 |  
|                                                 | Pro forma                                                                                                |      | $                  | 0.27 |   |   | $     | 0.29 |  



|5. |  | CONTINGENCIES
|-- |  | -------------



| |  |  | Unfunded loan commitments totaled $34.9 million as of September 30, 2003
and $34.2 million as of December 31, 2002.
| |  |  | -------------------------------------------------------------------------------------------------------------------



|6. |  | RECENT ACCOUNTING PRONOUNCEMENTS
|-- |  | --------------------------------



| |  |  | In January 2003, the FASB issued interpretation No. 46, Consolidation of
Variable Interest Entities. This interpretation requires a variable
interest entity to be consolidated by the primary beneficiary of that
entity. The consolidation requirements of this interpretation apply
immediately to variable interest entities created after January 31, 2003,
and apply to existing entities for the first fiscal year or interim period
beginning after June 15, 2003. Certain disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when
the variable interest entity was established. This Statement did not have
a material impact on the Companys financial condition or results of
operations.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset
in some circumstances). Such instruments may have been previously
classified as equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after
June 15, 2003. The Company does not anticipate that adoption of this
standard will have a significant effect on its reported equity




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 ten locations in the
five counties of Benton, Linn, Lane, Polk, and Yamhill. Branches are located
in the communities of Corvallis, Philomath, Albany, Junction City, Veneta,
McMinnville, Harrisburg, Dallas, and Springfield (which opened on August 18,
2003).

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.

At the July 15, 2003 Board of Directors meeting, the Board declared a 10% stock
dividend to shareholders of record on July 14, 2003, payable on July 28, 2003.
All per share information in this report has been retroactively restated to
reflect the effect of this stock dividend.

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.

8



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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.

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.
The Bank also operates a small residential mortgage loan origination department
that originates loans and sells them into the secondary market.

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, and ATM cards as well as credit
cards as part of its retail banking services.

The Bank offers extended banking hours in selected locations as well as
Saturday banking. ATM machines are also available at eleven (11) 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 service 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 $1,275,000 in the third quarter ended September
30, 2003, or $.28 per common share, a decrease of 5.3% from the third quarter
net income of $1,346,000 in 2002 or $.30 per common share. For the first nine
months of 2003, Bancorp earned $3,875,000, or $.85 per common share, an
increase of 2.3% from the nine month 2002 earnings of $3,789,000 or $.84 per
common share. The net increase is primarily attributed to the decrease in
interest expense on deposits.

9



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##### Table of Contents



LOAN PORTFOLIO

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

|                                  |              |   |                    |         |                   |   |         |        | 
|--------------------------------- | ------------ | - | ------------------ | ------- | ----------------- | - | ------- | ------ | 
|                                  |              |   | September 30, 2003 |         | December 31, 2002
|Commercial                        |              | $ | 23,364             |         |                   | $ | 21,377  |       
|Agriculture                       |              |   | 18,925             |         |                   |   | 16,196  |       
|Real Estate                       |              |   |                    |         |                   |   |         |       
|                                  | Construction |   |                    | 13,138  |                   |   |         | 15,474 | 
|                                  | 1-4 Family   |   |                    | 26,994  |                   |   |         | 28,503 | 
|                                  | Other        |   |                    | 101,483 |                   |   |         | 93,990 | 
|Consumer Loans                    |              |   | 3,398              |         |                   |   | 3,882   |       
|                                  |              |   |                    |         |                   |   |         |       
|                                  |              |   | 187,302            |         |                   |   | 179,422 |       
|Less: net deferred loan fees      |              |   | (424               | )       |                   |   | (470    | )     
|Total Loans                       |              |   | 186,878            |         |                   |   | 178,952 |       
|Less: allowance for credit losses |              |   | (2,744             | )       |                   |   | (2,546  | )     
|                                  |              |   |                    |         |                   |   |         |       
|Net Loans                         |              | $ | 184,134            |         |                   | $ | 176,406 |       
|                                  |              |   |                    |         |                   |   |         |       

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

|                                |  |      |       |      |  |   |       |  
|------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                                |  | 2003 |       | 2002
|                                |  |      |       |     
|Balance at beginning of period  |  | $    | 2,546 |      |  | $ | 2,146 |  
|Provision charged to operations |  |      | 221   |      |  |   | 314   |  
|Loans recovered                 |  |      | 3     |      |  |   | 9     |  
|Loans charged off               |  |      | (26   | )    |  |   | (108  | )
|                                |  |      |       |      |  |   |       |  
|Balance at end of period        |  | $    | 2,744 |      |  | $ | 2,361 |  
|                                |  |      |       |      |  |   |       |  

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 non-accrual status as of September 30, 2003 and December 31, 2002 were
approximately $1,447,000 and $130,000 respectively. Loans past due 90 days or
more on which the Bank continued to accrue interest were approximately $1,000
at September 30, 2003 and $0 at December 31, 2002. There were no loans with
modified terms as of September 30, 2003. Non-performing assets (defined as
loans on non-accrual status and loans past due 90 days or more) are deemed by
management to have adequate collateral or have specific reserves set aside to
cover potential losses.

Three loans constitute the majority of approximately $1,447,000 in non-accrual
status as of September 30, 2003. One loan of approximately $502,000 is a farm
loan. The loan is not past due but management is working with the borrower to
have the loan refinanced out of the bank or the farm sold or liquidated.
Management deemed it prudent that the loan be on non-accrual status during the
workout. In managements estimation the collateral value is sufficient to cover
the debt. The second loan of approximately $522,000 is a farm loan that is
being restructured into a three-year pay out. Management anticipates the loan
will cash flow and will be paid out at the end of the term. In managements
estimation the value of the collateral supports the debt. The third loan in the
approximate amount of $372,000 is commercial real estate. Management is
beginning foreclosure procedures against the borrowers property, which the
bank holds as collateral. The appraisal value of the real estate supports the
outstanding debt.

INVESTMENT SECURITIES

The amortized cost and estimated book value of the investment securities held
by the Bank, including unrealized gains and losses, at September 30, 2003 and
December 31, 2002, are as follows (in thousands):

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|                                                                                        |  |                |        |                      |  |                      |        |  |  |  |      |  | 
|--------------------------------------------------------------------------------------- |  | -------------- | ------ | -------------------- |  | -------------------- | ------ |  |  |  | ---- |  | 
|September 30, 2003                                                                      |  | Amortized Cost |        | Estimated Fair Value |  | Unrealized Gain, net
|                                                                                        |  |                |        |                      |  |                     
|Available for Sale                                                                      |  |                |        |                      |  |                      |        |  |  |  |      | 
|U.S. Treasury Securities
(Including securities of government agencies
And corporations) |  |                |        |                      |  |                      |        |  |  |  |      | 
|Total                                                                                   |  | $              | 75,372 |                      |  | $                    | 75,574 |  |  |  | $202 | 
|Held to Maturity                                                                        |  |                |        |                      |  |                      |        |  |  |  |      | 
|Obligations of States and Political Subdivisions                                        |  | $              | 12,074 |                      |  | $                    | 12,685 |  |  |  | $611 | 

|                                                                                        |  |                |        |                      |  |                      |        |  |  |  |      | 
|--------------------------------------------------------------------------------------- |  | -------------- | ------ | -------------------- |  | -------------------- | ------ |  |  |  | ---- | 
|December 31, 2002                                                                       |  | Amortized Cost |        | Estimated Fair Value |  | Unrealized Gain, net
|                                                                                        |  |                |        |                      |  |                     
|Available for Sale                                                                      |  |                |        |                      |  |                      |        |  |  |  |      | 
|U.S. Treasury Securities
(Including securities of government agencies
and corporations) |  |                |        |                      |  |                      |        |  |  |  |      | 
|Total                                                                                   |  | $              | 73,566 |                      |  | $                    | 74,178 |  |  |  | $612 | 
|Held to Maturity                                                                        |  |                |        |                      |  |                      |        |  |  |  |      | 
|Obligations of States and Political Subdivisions                                        |  | $              | 11,037 |                      |  | $                    | 11,571 |  |  |  | $534 | 

MATERIAL CHANGES IN FINANCIAL CONDITION

Changes in the balance sheet for the nine months ended September 30, 2003
include an increase in total assets, primarily in loans and interest bearing
deposits in banks. The increase in liabilities was primarily in non-interest
demand deposits and savings and interest bearing demand deposits.

At September 30, 2003, total assets increased 5.0% or approximately $15.6
million over total assets at December 31, 2002. Major components of the change
in assets were:



| |  |  | $4.9 million increase in interest bearing deposits in banks
| | - |  | -----------------------------------------------------------
|
| |  |  | $1.4 million increase in securities available for sale     
|
| |  |  | $7.7 million increase in net loans                         

Loans were generally made to customers within the Companys market area. The
increases were primarily funded by proceeds from increased deposits.

The Company experienced an increase in demand non-interest bearing deposits and
savings and interest bearing demand deposits and a decrease in time
certificates of deposits and repurchase agreements during the nine months ended
September 30, 2003, specifically as follows:



| |  |  | $11.7 million increase in demand, non-interest bearing deposits
| | - |  | ---------------------------------------------------------------
|
| |  |  | $12.0 million increase in savings and interest bearing demand  
|
| |  |  | $6.6 million decrease in time certificates of deposits         
|
| |  |  | $2.4 million decrease in repurchase agreements                 

Management believes the overall growth in deposits is a result of continuing
penetration into existing and expanded market areas as a result of its emphasis
on customer service and its relationship style of banking. The increase in
demand, non-interest-bearing deposits is primarily attributable to one
depository institution account temporarily holding larger than normal balances
of approximately $10,000,000. The decrease in repurchase agreements was the
result of overall lower customer balances in their repurchase accounts at
quarter end. These balances are short-term in nature and fluctuate daily,
depending on customers cash positions. The change from December 31, 2002
balances is considered routine. The decrease in time certificates of deposits
was a result of managements decision not to pay above-market rates for time
deposits in competition with other financial institutions when liquidity was
well within its established asset-liability management guidelines.

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MATERIAL CHANGES IN RESULTS OF OPERATIONS

The Company reported net income of approximately $3,875,000 or $.85 per common
share, for the nine months ended September 30, 2003, compared to net income of
approximately $3,789,000 or $.84 per common share, for the same period in 2002.
This represents an increase in net income of 2.3%. Net income for the quarter
ended September 30, 2003, was approximately $1,275,000 or $.28 net income per
common share, compared to net income of approximately $1,346,000, or $.30 per
common share, for the same period in 2002. This represents a decrease in net
income of 5.3%.

Total interest income decreased approximately $796,000 or 6.0% for the nine
months and $393,000 or 8.8% for the three months ended September 30, 2003 as
compared to the same periods in 2002. These decreases for both the nine-month
and three-month periods were primarily the result of the overall decrease in
market rates from the comparable periods in 2002, which offset the earnings on
increased levels of investments, interest bearing deposit accounts and loans.

Total interest expense decreased approximately $911,000 or 35.4% for the nine
months and $390,000 or 46.1% for the three months ended September 30, 2003 as
compared to the same periods in 2002. The decrease in interest expense on
deposits for these periods was the result of lower interest rates paid
resulting from overall market rate decreases compared to the same periods in
2002. The effect of the rate decrease was greater than interest expense related
to increased levels of deposits. Interest expense on repurchase agreements for
the nine months ending September 30, 2003 increased as a result of increased
balances in the related underlying accounts and the number of account
relationships from the comparable periods in 2002, which was greater than the
effect of the lower rates paid during the periods. The decrease in interest
expense on repurchase agreements for the three-month period ending September
30, 2003 was a result of lower balances in the related underlying accounts and
a lower overall rate of interest paid.

Net interest income for the nine months ended September 30, 2003 was up
$115,000 or 1.1% and down $3,000 or .1% for the three month period ended
September 30, 2003 from the comparable periods in 2002. For the nine-month
period the increase was a result of the average rate differences on interest
bearing liabilities exceeding the rate differences on interest earning assets.
The decrease in the three-month period ended September 30, 2003 was a result of
the decrease in interest income due to overall lower market rates as compared
to the same period in 2002.

Total non-interest income increased approximately $284,000 or 10.0% for the
nine months and decreased $2,000 or .2% for the three months ended September
30, 2003 as compared to the same periods in 2002. The primary increases for the
nine months ending September 30, 2003 were due to the gain on sale of
securities available for sale, an increase in merchant bankcard income, an
increase in the mortgage department fee income, and service charges on deposit
accounts resulting from increases in volume and customer relationships. The
decrease for the three-month period was due primarily to a decrease in gains on
securities available for sale.

Total non-interest expense increased $351,000 or 4.9% for the nine months and
increased $218,000 or 9.1% for the three months ended September 30, 2003, as
compared to the same periods in 2002. Non-interest expense increased for the
nine months ending September 30, 2003 as a result of routine adjustments in
staff salaries, costs associated with the new branch in Springfield, and
expenses associated with technology enhancements, products and occupancy. For
the three-month period ended September 30, 2003, non-interest expense increased
primarily due to overall cost associated with the two new branches in Dallas
and Springfield as compared to the same period in 2002.

CREDIT LOSS PROVISION

The Bank maintains an allowance for credit losses on loans that occur from time
to time as an incidental part of the business of banking. The allowance is
increased by provisions charged to earnings and by recoveries on loans
previously charged off, and is reduced by loan charge offs.

During the first nine months ended September 30, 2003, the Bank funded the
allowance for credit losses $221,000 from operations as compared to $314,000
for the same nine-month period of 2002. For the three month period ending
September 30, 2003, the Bank funded the allowance for credit losses $50,000 as
compared to $167,000 for the same three month period in 2002. The Bank
decreased the provision for credit losses for the nine-month and the three
month periods in 2003 as compared to the same periods in 2002 based on its
analysis of delinquencies,

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loan types, loan classifications, and other factors affecting the loan
portfolio at September 30, 2003.

The Bank experienced $26,000 in credit losses and $3,000 in recoveries for the
nine months ended
September 30, 2003 and $99,000 in net losses for the same period ended
September 30, 2002. Historically, the Banks loan charge-off levels have been
very low compared to its peers. Management believes that the allowance for
credit losses at September 30, 2003 of $2,744,000 or 1.46% of total loans is
adequate.

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.

Bank management makes recommendations to the Board regarding the adequacy of
the Banks allowance for credit losses at quarter end 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 condensed consolidated statement of cash flows for the first nine
months of 2003. The statement of cash flows includes operating, investing and
financing categories. Operating activities include net income that 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 and repurchase agreements.

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, 2003, shareholders equity totaled $36,613,000 as compared
to $32,330,000 at December 31, 2002, an increase of 13.2%. 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 October 31, 2003 Bancorps issued
and outstanding shares totaled 4,554,242, so the maximum number of shares
issuable under the Incentive Stock Option Plan was 182,170 on that date. As of
October 31, 2003, options for 127,305 shares had been granted, options for
3,105 shares exercised, and options for 8,270 shares expired under this Plan.

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 October 31,
2003 Bancorps issued and outstanding shares totaled 4,554,242, so the maximum
number of shares

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##### Table of Contents



issuable under the Stock Bonus Plan was 45,542 on that date. As of October 31,
2003, no stock had been issued under this Plan.

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

|                                |  |             |    |             |  |                    |     |                   |  |  |        |  |  |  |        | 
|------------------------------- |  | ----------- | -- | ----------- |  | ------------------ | --- | ----------------- |  |  | ------ |  |  |  | ------ | 
|                                |  |             |    |             |  |                    |     |                   |  | 
|                                |  | Adequately  |    | Well        |  |                   
|                                |  | Capitalized |    | Capitalized |  | Bancorp           
|                                |  | Standards   |    | Standards   |  | September 30, 2003 |     | December 31, 2002
|Tier 1 Leverage Ratio           |  |             | 4% |             |  |                    | 5%  |                   |  |  | 11.48% |  |  |  | 10.25% | 
|Tier 1 Risk Based Capital Ratio |  |             | 4% |             |  |                    | 6%  |                   |  |  | 16.24% |  |  |  | 15.24% | 
|Total Risk Based Capital Ratio  |  |             | 8% |             |  |                    | 10% |                   |  |  | 17.47% |  |  |  | 16.46% | 




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 liability sensitive, meaning that interest
bearing liabilities mature or reprice more quickly than interest earning assets
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 may 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, 2002.




ITEM 4. CONTROLS AND PROCEDURES

Based on their most recent evaluation which was completed within 90 days of the
filing of this Form 10-Q, the Companys Chief Executive Officer and Chief
Financial Officer believe the Companys disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) are effective. There were not
any significant changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

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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

| |  |  |      |  |  |                                                                                                                                               
| |  |  | ---- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 31.1 |  |  | Certification of the Chief Executive Officer pursuant
to Section 302 of the Sarbanes Oxley Act of 2002.                                       
| |  |  |      |  |  |                                                                                                                                               
| |  |  | 31.2 |  |  | Certification of the Chief Financial Officer pursuant
to Section 302 of the Sarbanes Oxley Act of 2002.                                       
| |  |  |      |  |  |                                                                                                                                               
| |  |  | 32.1 |  |  | Chief Executive Officer certification pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
| |  |  |      |  |  |                                                                                                                                               
| |  |  | 32.2 |  |  | Chief Financial Officer certification pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.



| |                        
| | -----------------------
| | (b) Reports on Form 8-K



| |     
| | ----
| | None

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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 13, 2003 |  |     |  | /s/ William V. Humphreys
|                        |  |     |  |                         
|                        |  | By: |  | William V. Humphreys    
|                        |  |     |  | President and           
|                        |  |     |  | Chief Executive Officer 

|                        |  |     |  |                             
|----------------------- |  | --- |  | ----------------------------
|Date:
November 13, 2003 |  |     |  | /s/ Lark E. Wysham          
|                        |  |     |  |                             
|                        |  | By: |  | Lark E. Wysham              
|                        |  |     |  | Executive Vice President and
|                        |  |     |  | Chief Financial Officer     

16