##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2006
 o
    
    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
  Oregon
(State of Incorporation)
    
    91-1841688
(I.R.S. Employer Identification Number)
 
 
 þ o
  o o þ
 o þ
  Class
    
    Outstanding as of April 28, 2006Common Stock, no par value
    
    4,743,576




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##### 



PageReferencePART
I.  FINANCIAL INFORMATIONITEM 1.  FINANCIAL STATEMENTS  UNAUDITEDCondensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005
    
    
    1Condensed Consolidated Statements of Income for the three months ended March 31, 2006 and 2005
    
    
    2Condensed Consolidated Statements of Changes in Shareholders Equity for the three months ended March 31, 2006 and 2005
    
    
    3Condensed Consolidated Statements of Cash Flows for three months ended March 31, 2006 and 2005
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    57ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    813ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk
    
    
    14ITEM 4.  Controls and Procedures
    
    
    14PART II.  OTHER INFORMATIONITEM 1.  Legal Proceedings
    
    
    15ITEM 1A.  Risk FactorsITEM 2.  Changes in Securities, Use of Proceeds, and Issuer Purchase of Equity Securities
    
    
    15ITEM 3.  Defaults Upon Senior Securities
    
    
    15ITEM 4.  Submission of Matters to a Vote of Security Holders
    
    
    15ITEM 5.  Other Information
    
    
    15ITEM 6.  Exhibits
    
    
    15SIGNATURES
    
    
    16EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 ITEM 1
 March 31, 2006
    
    
    December 31, 2005(Unaudited)AssetsCash and due from banks
    
    $
    12,998
    
    
    $
    18,518Interest bearing deposits in banks
    
    
    4,028
    
    
    
    166Federal funds sold
    
    
    
    
    
    
    435Securities available for sale
    
    
    56,087
    
    
    
    63,863Securities held to maturity
    
    
    7,875
    
    
    
    7,871Federal Home Loan Bank stock
    
    
    905
    
    
    
    905Loans held for sale
    
    
    222
    
    
    
    548Loans, net
    
    
    233,443
    
    
    
    230,547Premises and equipment
    
    
    8,584
    
    
    
    7,456Accrued interest receivable
    
    
    1,878
    
    
    
    1,852Cash surrender value of life insurance
    
    
    4,295
    
    
    
    4,257Other assets
    
    
    2,430
    
    
    
    2,482Total assets
    
    $
    332,745
    
    
    $
    338,900Liabilities and Shareholders EquityLiabilitiesDeposits:Demand, non-interest bearing
    
    $
    50,507
    
    
    $
    56,608Savings and interest bearing demand
    
    
    161,033
    
    
    
    159,678Time
    
    
    37,452
    
    
    
    37,797Total deposits
    
    
    248,992
    
    
    
    254,083Repurchase agreements
    
    
    37,023
    
    
    
    36,590Other borrowings
    
    
    313
    
    
    
    1,878Accrued interest payable
    
    
    66
    
    
    
    62Other liabilities
    
    
    1,528
    
    
    
    3,991Total liabilities
    
    
    287,922
    
    
    
    296,604Shareholders EquityCommon stock (no par value); authorized 10,000,000 shares;Issued and
outstanding: 2006  4,740,273 shares;2005  4,670,386 shares;
    
    
    30,155
    
    
    
    28,938Retained earnings
    
    
    14,857
    
    
    
    13,606Accumulated other comprehensive loss
    
    
    (189
    )
    
    
    (248
    )Total shareholders equity
    
    
    44,823
    
    
    
    42,296Total liabilities and shareholders equity
    
    $
    332,745
    
    
    $
    338,900
  1




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##### Table of Contents



Three Months EndedMarch 31,2006
    
    
    2005Interest Income:Loans
    
    $
    4,245
    
    
    $
    3,812Interest bearing deposits
    
    
    46
    
    
    
    25Securities available for sale
    
    
    524
    
    
    
    402Securities held to maturitytax-exempt
    
    
    79
    
    
    
    94Other interest income
    
    
    2
    
    
    
    12Total interest income
    
    
    4,896
    
    
    
    4,345Interest Expense:Deposits
    
    
    762
    
    
    
    322Borrowed funds
    
    
    32
    
    
    
    8Repurchase agreements
    
    
    233
    
    
    
    258Total interest expense
    
    
    1,027
    
    
    
    588Net Interest Income
    
    
    3,869
    
    
    
    3,757Provision for credit losses
    
    
    (48
    )
    
    
    (33
    )Net interest income after provision for credit losses
    
    
    3,821
    
    
    
    3,724Non-interest Income:Service charges on deposit accounts
    
    
    332
    
    
    
    360Merchant bankcard
    
    
    
    
    
    
    387Gain on sale of asset
    
    
    
    
    
    
    92Other
    
    
    258
    
    
    
    225Total non-interest income
    
    
    590
    
    
    
    1,064Non-interest Expense:Salaries and employee benefits
    
    
    1,715
    
    
    
    1,615Occupancy and equipment
    
    
    322
    
    
    
    323Merchant bankcard
    
    
    
    
    
    
    329Other
    
    
    473
    
    
    
    493Total non-interest expense
    
    
    2,510
    
    
    
    2,760Income before income tax expense
    
    
    1,901
    
    
    
    2,028Income tax expense
    
    
    650
    
    
    
    700Net income
    
    $
    1,251
    
    
    $
    1,328Comprehensive Income
    
    $
    1,310
    
    
    $
    1,140Earnings per share:Basic
    
    $
    0.26
    
    
    $
    0.29Diluted
    
    $
    0.26
    
    
    $
    0.28Weighted average number of common shares outstandingBasic
    
    
    4,731,754
    
    
    
    4,652,365Diluted
    
    
    4,824,147
    
    
    
    4,721,842Return on Average Assets
    
    
    1.49
    %
    
    
    1.60
    %
  2




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##### Table of Contents



Three Months Ended March 31, 2006 and 2005Number of
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    Common
    
    
    
    
    
    
    OtherShares
    
    
    Stock
    
    
    Retained
    
    
    ComprehensiveOutstanding
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance, at December 31, 2004
    
    
    4,620,250
    
    
    $
    28,163
    
    
    $
    10,612
    
    
    $
    (374
    )
    
    $
    38,401COMPREHENSIVE INCOME:Net Income
    
    
    
    
    
    
    
    
    
    
    1,328
    
    
    
    
    
    
    
    1,328Other comprehensive income, net of tax:Unrealized loss on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (188
    )
    
    
    (188
    )Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,140Issuance of common stock
    
    
    31,614
    
    
    
    549
    
    
    
    
    
    
    
    
    
    
    
    549Stock grants
    
    
    35
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Stock options exercised
    
    
    8,555
    
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    92Balance, at March 31, 2005
    
    
    4,660,454
    
    
    $
    28,805
    
    
    $
    11,940
    
    
    $
    (562
    )
    
    $
    40,183Balance, at December 31, 2005
    
    
    4,670,386
    
    
    $
    28,938
    
    
    $
    13,606
    
    
    $
    (248
    )
    
    $
    42,296COMPREHENSIVE INCOME:Net Income
    
    
    
    
    
    
    
    
    
    
    1,251
    
    
    
    
    
    
    
    1,251Other comprehensive income, net of tax:Unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    59Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,310Stock Based Compensation expense
recognized in earnings
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22Issuance of common stock
    
    
    64,951
    
    
    
    1,127
    
    
    
    
    
    
    
    
    
    
    
    1,127Stock grants
    
    
    30
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Stock options exercised
    
    
    4,906
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Balance, at March 31, 2006
    
    
    4,740,273
    
    
    $
    30,155
    
    
    $
    14,857
    
    
    $
    (189
    )
    
    $
    44,823
 3




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##### Table of Contents



Three Months EndedMarch 31,2006
    
    
    2005Cash Flows from Operating ActivitiesNet income
    
    $
    1,251
    
    
    $
    1,328Adjustments to reconcile net income to net
cash provided by operating activities:Provision for credit losses
    
    
    48
    
    
    
    33Depreciation and amortization
    
    
    (17
    )
    
    
    186Gains on sales of assets and investments available for sale
    
    
    
    
    
    
    (92
    )Originations of loans held for sale
    
    
    (1,686
    )
    
    
    (2,588
    )Proceeds of loans held for sale
    
    
    2,027
    
    
    
    2,612Gain on sale of loans
    
    
    (15
    )
    
    
    (24
    )(Increase) in accrued interest receivable
    
    
    (26
    )
    
    
    (178
    )Increase in accrued interest payable
    
    
    4
    
    
    
    6Other  net
    
    
    (175
    )
    
    
    (4
    )Stock based compensation expense
    
    
    22
    
    
    
    Net cash provided by operating activities
    
    
    1,433
    
    
    
    1,279Cash Flows from Investing ActivitiesNet (increase) decrease in interest bearing deposits in banks
    
    
    (3,862
    )
    
    
    6,494Net decrease in federal funds sold
    
    
    435
    
    
    
    5,787Proceeds from maturities of available for sale securities
    
    
    10,000
    
    
    
    6,000FHLB stock redeemed
    
    
    
    
    
    
    14Purchases of securities available for sale
    
    
    (1,995
    )
    
    
    (5,039
    )Increase in loans made to customers, net of principal collections
    
    
    (2,910
    )
    
    
    (11,103
    )Purchases of premises and equipment
    
    
    (1,259
    )
    
    
    (6
    )Proceeds from sale of premises and equipment
    
    
    
    
    
    
    172Net cash provided by (used in) investing activities
    
    
    409
    
    
    
    2,319Cash Flows from Financing ActivitiesNet decrease in deposits
    
    
    (5,091
    )
    
    
    (337
    )Net decrease in repurchase agreements and other borrowings
    
    
    (1,132
    )
    
    
    (2,663
    )Payment of dividends, net of dividends reinvested
    
    
    (1,206
    )
    
    
    (1,576
    )Exercised stock options
    
    
    67
    
    
    
    92Net cash (used in) financing activities
    
    
    (7,362
    )
    
    
    (4,484
    )Net decrease in cash and due from banks
    
    
    (5,520
    )
    
    
    (886
    )Cash and Due from BanksBeginning of period
    
    
    18,518
    
    
    
    13,562End of period
    
    $
    12,998
    
    
    $
    12,676Supplemental Disclosure of Cash Flow InformationInterest paid
    
    $
    1,023
    
    
    $
    582Income taxes paid
    
    
    100
    
    
    
    90Supplemental Schedule of Non-cash Investing and Financing ActivitiesFair value adjustment of securities available for sale, net of tax
    
    
    59
    
    
    
    (188
    )Issuance of common stock through dividend reinvestment plan
    
    
    1,127
    
    
    
    549Stock grants
    
    
    1
    
    
    
    1
  4




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5




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Weighted Average
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Remaining
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in thousands)Stock options outstanding, December 31, 2005
    
    
    151,651
    
    
    $
    14.17Granted
    
    
    
    
    
    
    Exercised
    
    
    (4,906
    )
    
    $
    13.73Forfeited
    
    
    (720
    )
    
    $
    17.35Stock options outstanding, March 31, 2006
    
    
    146,025
    
    
    $
    14.17
    
    
    
    6.81
    
    
    $
    467Stock options exercisable March 31, 2006
    
    
    105,026
    
    
    $
    13.36
    
    
    
    6.27
    
    
    $
    409
  Weighted Average
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Remaining
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in thousands)Stock options outstanding, December 31, 2004
    
    
    172,541
    
    
    $
    14.11Granted
    
    
    
    
    
    
    Exercised
    
    
    (8,555
    )
    
    $
    10.84Forfeited
    
    
    (847
    )
    
    $
    16.42Stock options outstanding, March 31, 2005
    
    
    163,139
    
    
    $
    14.07
    
    
    
    7.75
    
    
    $
    524Stock options exercisable March 31, 2005
    
    
    85,579
    
    
    $
    12.66
    
    
    
    6.67
    
    
    $
    378
   (dollars in thousands)
    
    Three Months EndedMarch 31, 2005Net income, as reported
    
    $
    1,328Less total stock-based employee compensation expense
determined under fair value based methods for all
qualifying awards
    
    
    (32
    )Pro forma net income
    
    $
    1,296Earnings per share:Basic  as reported
    
    $
    0.29Basic  pro forma
    
    $
    0.28Diluted  as reported
    
    $
    0.28Diluted  pro forma
    
    $
    0.27
   6




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(dollars in thousands)
    
    Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    1,251
    
    
    $
    1,328Weighed
average shares outstanding  basic
    
    
    4,732
    
    
    
    4,652$
    0.26
    
    
    $
    0.29Incremental shares arising from stock-based compensation
    
    
    92
    
    
    
    70Weighted
average shares outstanding  diluted
    
    
    4,824
    
    
    
    4,722Diluted net income per common share
    
    $
    0.26
    
    
    $
    0.28
          7




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ITEM 2
 
   .
         8




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##### Table of Contents



March 31, 2006
    
    
    December 31, 2005
    
    
    March 31, 2005Commercial
    
    $
    23,702
    
    
    $
    22,478
    
    
    $
    22,154Agriculture
    
    
    17,284
    
    
    
    18,249
    
    
    
    22,706Real EstateConstruction
    
    
    11,055
    
    
    
    11,049
    
    
    
    6,4511-4 Family
    
    
    23,691
    
    
    
    22,787
    
    
    
    24,788Multi-family
    
    
    28,350
    
    
    
    25,419
    
    
    
    29,029Commercial
    
    
    116,520
    
    
    
    116,180
    
    
    
    101,204Farmland
    
    
    13,304
    
    
    
    14,046
    
    
    
    15,526Consumer Loans
    
    
    2,719
    
    
    
    3,502
    
    
    
    3,296236,625
    
    
    
    233,710
    
    
    
    225,154Less: net deferred loan fees
    
    
    (387
    )
    
    
    (413
    )
    
    
    (432
    )Total Loans
    
    
    236,238
    
    
    
    233,297
    
    
    
    224,722Less: allowance for credit losses
    
    
    (2,795
    )
    
    
    (2,750
    )
    
    
    (2,712
    )Net Loans
    
    $
    233,443
    
    
    $
    230,547
    
    
    $
    222,010
  2006
    
    
    2005Balance at beginning of period
    
    $
    2,750
    
    
    $
    2,790Provision charged to operations
    
    
    48
    
    
    
    33Loans recovered
    
    
    0
    
    
    
    0Loans charged off
    
    
    (3
    )
    
    
    (111
    )Balance at end of period
    
    $
    2,795
    
    
    $
    2,712
   9




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Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedMarch 31, 2006
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable for SaleU.S. Government and Agency SecuritiesTotal
    
    $
    56,397
    
    
    $
    0
    
    
    ($
    310
    )
    
    $
    56,087Held to MaturityState and Municipal SecuritiesTotal
    
    $
    7,875
    
    
    $
    96
    
    
    ($
    4
    )
    
    $
    7,967
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedDecember 31, 2005
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable for SaleU.S. Government and Agency SecuritiesTotal
    
    $
    64,269
    
    
    $
    92
    
    
    ($
    406
    )
    
    $
    63,863Held to MaturityState and Municipal SecuritiesTotal
    
    $
    7,871
    
    
    $
    146
    
    
    ($
    5
    )
    
    $
    8,012
    -
    
    $5.5 million decrease in cash and due from banks or (29.8%)-
    
    $3.9 million increase in interest bearing deposits in banks or 2326%-
    
    $7.8 million decrease in securities available for sale or (12.2%)-
    
    $2.9 million increase in net loans or 1.3%-
    
    $1.1 increase in premises and equipment or 15.1%
   10




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-
    
    $6.1 million decrease in demand deposits or (10.8%)-
    
    $1.4 million increase in savings and interest bearing deposits or .9%-
    
    $.345 million decrease in time certificates of deposits or (.9%)-
    
    $.433 million increase in repurchase agreements or 1.2%-
    
    $1.9 million decrease in other borrowings or (83.3%)-
    
    $2.5 million decrease in other liabilities, primarily due to the
payment of the cash dividend to shareholders or (61.7%)
           11




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12




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March 31, 2006
    
    
    December 31, 2005Adequately
    
    
    Well
    
    
    
    
    
    
    Adequately
    
    
    WellCapitalized
    
    
    Capitalized
    
    
    
    
    
    
    Capitalized
    
    
    CapitalizedRatio
    
    
    Standards
    
    
    Standards
    
    
    Ratio
    
    
    Standards
    
    
    StandardsTier 1 Leverage CapitalCompany
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    12.39
    %
    
    
    4
    %
    
    
    5
    %Bank
    
    
    13.39
    %
    
    
    4
    %
    
    
    5
    %
    
    
    12.37
    %
    
    
    4
    %
    
    
    5
    %Tier 1 Risk Based CapitalCompany
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    15.57
    %
    
    
    4
    %
    
    
    6
    %Bank
    
    
    16.31
    %
    
    
    4
    %
    
    
    6
    %
    
    
    15.56
    %
    
    
    4
    %
    
    
    6
    %Total Risk Based CapitalCompany
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    16.58
    %
    
    
    8
    %
    
    
    10
    %Bank
    
    
    17.33
    %
    
    
    8
    %
    
    
    10
    %
    
    
    16.57
    %
    
    
    8
    %
    
    
    10
    %
 13




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##### Table of Contents



a)
    
    Evaluation of Disclosure Controls and Procedures:An evaluation of the Companys disclosure
controls and procedures (as defined in Section 13(a)-15(e) and 15d-15(e)) of the Securities
Exchange Act of 1934 was carried out under the supervision and with the participation of the
Companys Chief Executive Officer, Chief Financial Officer and several other members of the
Companys senior management as of the end of the period covered by this quarterly report. The
Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures as currently in effect are effective in ensuring that the
information required to be disclosed by the Company in the reports it files or submits under
the Act is (1) accumulated and communicated to the Companys management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (2) recorded,
processed, summarized and reported within the time periods specified in the SECs rules and
forms.
 b)
    
    Changes in Internal Controls:There were no significant changes in the Companys internal
controls or in other factors that could significantly affect the Companys internal controls
subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in
such controls requiring corrective actions. As a result, no corrective actions were taken.
 14




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PART II. OTHER INFORMATION
 
   
   
  
 
   
   
   
   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.
 
 15




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##### Table of Contents



Date:  May 12,
2006
    By:
    /s/ William V. HumphreysWilliam V. HumphreysPresident and
Chief Executive Officer Date:  May 12, 2006
    By:
    /s/ Lark E. WyshamLark E. WyshamExecutive Vice President and
Chief Financial Officer 16