Edgar Filing: CITIZENS COMMUNITY BANCORP





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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-QSB

(Mark One)

/X/  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

/  /  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________ to __________

Commission file number__________________________



CITIZENS COMMUNITY BANCORP
(Exact name of small business issuer as specified in its charter)


United States(State or other jurisdiction of incorporation or organization)
20-0663325(IRS Employer Identification Number)

 

2174 EastRidge Center, Eau Claire, WI 54701(Address of principal executive offices)

 

715-836-9994Issuer's telephone number)

 

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 and 15(d) of the Exchange Act during
the past 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 /  / 

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each issuer's classes of common equity, as of the latest practicable date:

At April 30, 2005, there were 3,015,518 shares of issuer's common stock outstanding.

Transitional Small Business Disclosure Format (Check one):   Yes /  /      No  /X/


SEC2334 (1-04)
Persons who are to respond to the collection of information contained in this form are	not required to respond unless the form displays a currently valid OMB control number.




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CITIZENS COMMUNITY BANCORP

INDEX



Part I - FINANCIAL INFORMATION
Page
Number

 


Item 1.
Financial Statements

 



Consolidated Balance Sheets as of

March 31, 2005 and September 30, 2004
3

 



Consolidated Statements of Income

For the Three and Six Months Ended March 31, 2005 and 2004
4

 



Consolidated Statements of Cash Flow

For the Six Months ended March 31, 2005 and 2004
5

 



Consolidated Statements of Stockholders' Equity

For the Six Months ended March 31, 2005 and 2004
6

 



Notes to Condensed Consolidated Financial Statements
7

 


Item 2.
Management's Discussion and Analysis
10

 


Item 3.
Controls and Procedures
16

 

Part II - OTHER INFORMATION
17

 

SIGNATURES
19

 
EXHIBITS
20














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CITIZENS COMMUNITY BANCORP

Consolidated Balance Sheets

as of March 31, 2005 and September 30, 2004

   






Assets
March 31, 2005
(unaudited)
September 30, 2004
(audited)
   


Cash and cash equivalents
$    2,888,293 
$    4,768,007 
Loans receivable
170,349,036 
152,930,540 
Allowance for loan losses
(641,343)
(554,210)
     Loans receivable, net
169,707,693 
152,376,330 
Office properties and equipment - Net
2,218,231 
2,198,809 
Federal Home Loan Bank stock
1,200,000 
827,700 
Accrued interest receivable
515,704 
466,399 
Intangible assets
335,721 
348,486 
Other assets
      1,244,740 
         994,065 
TOTAL ASSETS
$178,110,382 
$161,979,796 
   


   


Liabilities and Equity
March 31, 2005
(unaudited)
September 30, 2004
(audited)
   


Liabilities:


  Deposits
$133,624,549 
$127,976,262 
  Federal Home Loan Bank advances
24,000,000 
13,500,000 
  Other Liabilities
      1,188,717 
         897,611 
Total Liabilities
  158,813,266 
  142,373,873 
   


Stockholders' Equity:


Common Stock
30,418 
30,418 
Additional Paid-in Capital
9,002,941 
9,029,696 
Retained Earnings
12,164,673 
11,678,549 
Treasury Stock
(393,742)
0 
Unearned ESOP Shares
(1,073,100)
(1,132,740)
Unearned Compensation
(434,074)
0 
Total Stockholders' Equity
    19,297,116 
    19,605,923 
TOTAL LIABILITIES AND EQUITY
$178,110,382 
$161,979,796 






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CITIZENS COMMUNITY BANCORP 
Consolidated Statements of Income
For the Three and Six Months Ended March 31, 2005 and 2004
(Unaudited)
 


Three Months Ended
Six Months Ended






March 31, 2005
March 31, 2004
March 31, 2005
March 31, 2004





Interest and Dividend Income:




   Interest and fees on loans
$2,718,624
$2,325,404
$5,353,499
$4,591,961
   Other interest and dividend income
21,090
20,981
43,378
39,461
Total interest and dividend income
2,739,714
2,346,385
5,396,877
4,631,422
Interest expense
862,164
722,892
1,648,821
1,471,998
Net Interest Income
1,877,550
1,623,493
3,748,056
3,159,424
Provision for loan losses
102,133
99,999
202,136
195,999
Net interest income after provision for loan losses
1,775,417
1,523,494
3,545,920
2,963,425





Noninterest Income:




   Service charges on deposit accounts
$   176,370
$   185,861
$   370,433
$   392,090
   Insurance commissions
97,905
83,912
196,660
146,216
   Loan fees and service charges
80,715
64,876
148,508
130,076
   Other
388,572
4,977
392,899
9,237
Total Noninterest Income
743,562
339,626
1,108,500
677,619





Noninterest expense:




   Salaries and related benefits
$1,121,223
$   986,593
$2,183,639
$1,911,302
   Occupancy - Net
188,925
170,883
349,893
315,377
   Office
147,289
134,002
299,869
280,600
   Data processing
77,466
78,352
154,528
153,848
   Other
341,465
187,194
684,215
371,889
Total noninterest expense
1,876,368
1,557,024
3,672,144
3,033,016





Income before provision for income tax
642,611
306,096
982,276
608,028
Provision for income taxes
258,705
120,843
398,286
240,106





Net income
$   383,906
$   185,253
$   583,990
$   367,922





Basic and diluted earnings per share
$0.13
NA
$0.20
NA








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CITIZENS COMMUNITY BANCORP


Consolidated Statements of Cash Flows

For the Six Months ended March 2005 and 2004





March 31, 2005
(unaudited)
March 31, 2004
(unaudited)
Increase (decrease) in cash and cash equivalents:


Cash flows from operating activities:


     Net Income
$   583,990
$   367,922
Adjustments to reconcile net income to net cash provided 


by operating activities:


     Provision for depreciation
123,051
130,395
     Provision for loan losses
202,136
195,999
     Amortization of core deposit intangible
12,765
11,565
     Amortization of Restricted Stock
14,968
0
     Federal Home Loan Bank stock dividends
(23,900)
(22,700)
     ESOP contribution expense in excess of shares released
25,327
0
     Increase (decrease) in accrued interest receivable and other assets
(299,979)
(103,642)
     Increase in other liabilities
291,105
45,892
          Total adjustments
345,473
257,509
Net cash provided by operating activities
929,463
625,431
Cash flows from investing activities:


     Purchase of Federal Home Loan Bank stock
(348,400)
0
     Net increase in loans
(17,533,499)
(9,981,743)
     Capital expenditures
(142,474)
(57,165)
     Cash received for branch acquisition
0
6,970,198
Net cash used in investing activities
(18,024,373)
(3,068,710)
Cash flows from financing activities:


     Increase (decrease) in Borrowings
10,500,000
(3,700,000)
     Increase (decrease) in deposits
5,648,288
(2,676,439)
     Purchase 59,618 shares of common stock for RRP
(894,866)
0
     Proceeds from sale of common stock
0
9,166,656
     Formation of CCMHC
0
(100,000)
     Loan to ESOP for purchase of common stock
0
(1,192,360)
     Reduction in unallocated shares held by ESOP
59,640
0
     Cash dividends paid
(97,866)
0
Net cash provided by financing activities
15,215,196
1,497,857
Net increase (decrease) in cash and cash equivalents
(1,879,714)
(945,422)
Cash and cash equivalents at beginning
4,768,007
3,074,024
Cash and cash equivalents at end
$2,888,293
$2,128,602








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CITIZENS COMMUNITY BANCORP
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the Six Months ended March 31, 2005 and 2004
(UNAUDITED)





Six Months Ended March 31, 2005
Shares
Common
Stock
Treasury 
Stock
Capital
Surplus
Retained
Earnings
Unearned
ESOP
Shares

Unearned
Compensation
Total

Balance - Beginning of period
3,041,750
$30,418 
$           0 
$9,029,696 
$11,678,549 
$(1,132,740)
$           0 
$19,605,923 

Comprehensive Income:









Net Income




583,990 


583,990 

Other Comprehensive Income




0 


0 

Total Comprehensive Income




583,990 


583,990 

   









59,618 Shares of Common Stock purchased

    for Recognition and Retention Plan


(894,866)




(894,866)

Committed ESOP shares



25,327 

59,640 

84,967 

33,386 Shares of Common Stock Awarded for 

    Recognition and Retention Plan


501,124 
(52,082)


(449,042)
0 

Amortization of Restricted Stock






14,968 
14,968 

Cash dividends ($0.05 per share)
                
              
                 
                   
       (97,866)
                    
                
       (97,866)

Balance - End of Period
3,041,750
$30,418 
$(393,724)
$9,002,941 
$12,164,673 
$(1,073,100)
$(434,074)
$19,297,116 







Six Months Ended March 31, 2004
Shares

Common
Stock
Treasury
Stock
Capital
Surplus
Retained
Earnings
Unearned
ESOP
Shares
Total
Balance - Beginning of period
0
$         0
$     0
$                0 
$10,990,936
$               0
$10,990,936 
Comprehensive Income:







Net Income




367,922

367,922 
Other Comprehensive Income




0

0 
Total Comprehensive Income




367,922

367,922 
   







Sale of Common Stock
978,650
9,787

9,156,869 


9,166,656 
119,236 shares of common stock 

    acquired by ESOP





(1,192,360)
(1,192,360)
Committed ESOP shares





0 
0 

Capitalization of CCMHC
2,063,100
20,631

(20,631)
(100,000)

(100,000)
Cash dividends ($0.05 per share)
                
             
         
                   
                     
                    
                   
Balance - End of Period
3,041,750
$30,418
$     0
$9,136,238 
$11,258,858 
$(1,192,360) 
$19,233,154








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CITIZENS COMMUNITY BANCORP




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)




NOTE 1 -Organization




The financial statements of Citizens Community Federal included herein have been included by Citizens
Community Bancorp (the "Company") pursuant to the rules and regulations of the Securities and Exchange
Commission.  The Company is a successor to Citizens Community Federal as a result of a regulatory restructuring
into a mutual holding company form, which was effective on March 29, 2004.  The restructuring included the
capitalization of the Company, the sale of 978,650 shares of its common stock, including 119,236 shares to the
Company's employee stock ownership plan (ESOP), the issuance of 2,063,100 shares to the Citizens Community
Mutual Holding Company and the acquisition by the Company of all of the shares of Citizens Community Federal. 
The ESOP borrowed $1,192,360 from the Company to purchase 119,236 shares of the Company's stock.




Proceeds from the stock offering, net of the ESOP loan of $1,192,360, totaled $7,974,296.  $4,533,328 was used to
purchase 100% (3,041,750 shares) of Citizens Community Federal stock and $3,340,968 was retained by the
Company for short-term investments and general corporate purposes.  The restructuring included a series of
transactions by which the corporate structure of Citizens Community Federal was converted from a mutual savings
bank to the mutual holding company form of ownership.  Upon completion, Citizens Community Federal became a
federal stock savings bank subsidiary of Citizens Community Bancorp.  Citizens Community Bancorp is a majority-owned subsidiary of Citizens Community MHC.  Members of Citizens Community Federal became members of
Citizens Community MHC and continue to have the same voting rights in Citizens Community MHC as they had in
Citizens Community Federal.  Citizens Community MHC owns 67.83% or 2,063,100 shares of the common stock of
Citizens Community Bancorp and the remaining 32.17% of the stock was sold to the public.





The consolidated income of the Company is principally from the income of the Bank.  The Bank originates
residential and consumer loans and accepts deposits from customers primarily in Wisconsin and Minnesota.  The
Bank acquired a branch in Mankato, Minnesota in November of 2003 and opened a new branch office in Oakdale,
Minnesota on October 1, 2004.  The Bank is subject to competition from other financial institutions and non-financial institutions providing financial products.  Additionally, the Bank is subject to the regulations of certain
regulatory agencies and undergoes periodic examination by those regulatory agencies.




NOTE 2 - PRINCIPLES OF CONSOLIDATION




The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiary, Citizens Community Federal.  All significant inter-company accounts and transactions have been
eliminated.











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The accompanying unaudited consolidated financial statements of Citizens Community Bancorp have been prepared
in accordance with accounting principles generally accepted in the United States for interim financial information
and with the instructions to Form 10-QSB.  Accordingly, they do not include all of the information and footnotes 
required by accounting principles generally accepted in the United States for complete financial statements.  In the
opinion of Management, all adjustments (consisting of normal recurring adjustments) considered necessary for the
fair presentation have been included.  Operating results for the three and six months ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year ending September 30, 2005.  Certain
information and footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been condensed or omitted.




NOTE  3 - STOCK AWARD PLANS




In February 2005, the 2004 Recognition and Retention Plan was approved by the Company's shareholders.  The plan
provides for the grant of  up to 59,618 shares.  At March 31, 2005, 33,386 restricted shares had been granted under
this plan.  Restricted shares are issued at no cost to the employee and have a five-year vesting period.  The fair value
of the restricted shares on the date of issue was $13.45 per share.  Compensation expenses related to these awards
was $14,968 for the three and six months ended March 31, 2005.




In February 2005, the 2004 Stock Option and Incentive Plan was approved by the Company's shareholders.  The
plan provides for the grant of nonqualified and incentive stock options, and stock appreciation rights.  The total number
of shares available for future grants at March 31, 2005 under the plan was 149,046.  At March 31, 2005, 105,827
options had been granted under this plan at a weighted average exercise price of $13.45 per share.  Options vest
over a five-year period.  Unexercised nonqualified stock options expire in 15 years and unexercised incentive stock
options expire in 10 years.  None of the options granted were vested, exercised, or forfeited during the period and
all options granted remain outstanding at March 31, 2005.




NOTE 4 -  STOCK-BASED COMPENSATION




The Company accounts for stock-based employee compensation using the intrinsic value method prescribed under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations.  Accordingly, the Company would record compensation expense if the quoted market price on the
date of grant exceeds the exercise price.  Compensation expense for stock options is calculated as the number of
options granted multiplied by the amount the market price exceeds the exercise price.  For options with a vesting
period, the expense, if applicable, is recognized over the vesting period.  Compensation expense is recognized
immediately for options that are fully vested on the date of grant.  The Company has not recognized any stock
option related employee compensation expense during the three and six months ended March 31, 2005 and 2004.




If the company had elected to recognize compensation expense for its employee stock-based compensation plans
based on the fair values at the grant dates, consistent with the methodology prescribed by SFAS No. 123,
"Accounting for Stock-Based Compensation", net earnings and earnings per share would have been reported as
follows:
















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Three months ended

Six months ended


March 31,
2005
March 31,
2004
March 31,
2005
March 31,
2004
Net Earnings:
   As Reported
$383,906
$185,253
$583,990
$367,922
  Additional compensation cost under the

    fair value method, net of related tax effects
$ 11,144 
             0
$   11,144
0
   Pro forma
$372,762
$185,253
$572,846
$367,922

Basic Earnings Per Share:
  As Reported
$      0.13
$       N.A.
$       0.20
$     N.A.
   Pro forma
        0.13
         N.A.
         0.20
      N.A.
Diluted Earnings Per Share:
  As reported 
$      0.13
$       N.A.
$       0.20
$    N.A.
  Pro forma
        0.13
         N.A.
         0.20
      N.A.




For purposes of the pro forma disclosures above, the weighted average fair value per stock option granted was
$3.66.  The fair value was estimated using the Black-Scholes option-pricing model with the following weighted
average assumptions: (1) annual volatility factor of 16%, (2) risk-free interest rate of 4.16%, (3) expected dividend
yield of 1.5% and (4) expected option term of ten years.




NOTE 5 - EARNINGS PER SHARE




Basic and diluted earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period, excluding unallocated shares of the Employee Stock
Ownership Plan (ESOP).  The weighted average number of shares outstanding was 2,935,997 for the three months
ended March 31, 2005, and 2,933,200 for the six months ended March 31, 2005.  Earnings per share of $0.13 were
reported for the three months ended March 31, 2005, and $0.20 for the six months ended March 31, 2005.    Earnings
per share data does not apply to the prior year period since Citizens Community Federal was a mutual savings bank with
no stock outstanding. 




NOTE 6 - NEW ACCOUNTING PRONOUNCEMENTS




In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123(R), "Share-Based Payment." 
This Statement is a revision to SFAS 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees."  SFAS 123(R) requires the recognition of the cost of employee
services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  The
cost will be recognized over the period during which an employee is required to provide service in exchange for the
award.  No compensation cost is recognized for equity instruments for which employees do not render the required
service period.  The Statement is effective for the Company beginning in the second quarter of fiscal year 2006.  While
the Company is still in the process of evaluating the effect of SFAS No. 123(R) on the financial statements, Note 4 does
disclose the effect on earnings had SFAS No. 123(R) been adopted in prior periods.  Since the statements will be
adopted using the modified-prospective method, the effect the adoption will have on the financial statements can be
materially impacted by the number of options granted in future periods.















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ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL


                  CONDITION AND RESULTS OF OPERATIONS




GENERAL




Citizens Community Bancorp (the "Company") was capitalized as a result of an initial public offering related to the
mutual holding company reorganization as  explained in Note 1 to the unaudited consolidated financial statements,
effective March 29, 2004.  The Company is the mid-tier holding company for Citizens Community Federal.  The
Company is chartered under federal law and owns 100% of the stock of Citizens Community Federal (the "Bank").   
The Company directs Citizens Community Federal's business activities.




In February 2005, the Recognition and Retention Plan was approved by the Company's stockholders.  The plan
provided for the grant of up to 59,618 shares.  At March 31, 2005, 33,386 restricted shares had been granted under
the Plan.  The Company purchased the 59,618 shares in the open market on February 28, 2005 and March 9, 2005.




The following discussion focuses on the consolidated financial condition of the Company and subsidiary as of
March 31, 2005 and the consolidated results of operations for the three and six months ended March 31, 2005,
compared to the same period in 2004.  This discussion should be read in conjunction with the interim condensed
consolidated financial statements and notes thereto included with this report.




Historically, we were a federal credit union.  We accepted deposits and made loans to members, who were the
people who lived, worked or worshiped in the Wisconsin counties of Chippewa and Eau Claire, and parts of Pepin,
Buffalo and Trempealeau.  In addition, this included businesses and other entities located in these counties, and
members and employees of the Hocak Nation.  In December 2001, we converted to a federal mutual savings bank in
order to better serve our customers and the local community through the broader lending ability of a federal savings
bank, and to expand our customer base beyond the limited field of membership permitted to credit unions.  As a
federal savings bank, we have expanded authority in structuring residential mortgage and consumer loans, and the
ability to make commercial loans, although the Bank does not have any immediate plans to increase commercial
lending.




We have utilized this expanded lending authority to significantly increase our ability to market one -to four-family
residential lending.  Most of these loans are originated through our internal marketing efforts and our existing and
walk-in customers.  We typically do not rely on real estate brokers and builders to help us generate loan
originations.




In order to differentiate ourselves from our competitors, we have stressed the use of personalized branch-oriented
customer service.  Rather than building additional electronic means for our customers to conduct banking, we have
structured operations around a branch system that is staffed with knowledgeable and well-equipped employees.  A
key to ensuring a high level of quality customer service is our ongoing commitment to training all levels of our staff.








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CRITICAL ACCOUNTING POLICIES




Allowance for Loan Losses.  The allowance for loan losses is established through a provision for loan losses
charged to expense.  Loans are charged against the allowance for loan losses when management believes the
collectibility of the principal is unlikely.




The Bank considers loans secured by real estate and all consumer loans to be large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment.  The allowance for credit losses attributed to
these loans is established via a process that estimates the probable losses inherent in the portfolio, based upon
various analyses.  These include historical delinquency and credit loss experience and the current aging of the
portfolio, together with analyses that reflect current trends and conditions.  Management also considers overall
portfolio indicators including historical credit losses, delinquent, non-performing and classified loans, and trends in
volumes and term of loans; an evaluation of overall credit quality and the credit process, including lending policies
and procedures, and economic, geographical, and other environmental factors.  In management's judgment, the
allowance for loan losses is maintained at a level that represents its best estimate of probable losses relating to
specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio.




Financial Condition




Total Assets.  Total assets of the Company as of March 31, 2005 were $178.1 million, compared to $162.0 million as
of September 30, 2004, an increase of  $16.1 million, or 10.0%.  Assets increased primarily as a result of an increase
in loans receivable. Contributing to the increase was the continued growth of the Mankato, Minnesota branch and the
opening of the Oakdale, Minnesota branch. 




Cash and Cash Equivalents.  Cash and cash equivalents decreased from $4.8 million on September 30, 2004 to $2.9
million on March 31, 2005, as cash was used to help fund new loan originations along with increased deposits and
borrowings.  The detail of the change in cash and cash equivalents can be seen on the Consolidated Statements of
Cash Flows.




Loans Receivable.   Loans increased by $17.4 million, or 11.4%, from $152.9 million as of September 30, 2004 to
$170.3 million as of March 31, 2005.  Our growth has been primarily in real estate lending, which has resulted in a
change in our loan portfolio mix.  At March 31, 2005, the loan portfolio included $109.3 million or 64.2% of loans
secured by real estate, $60.9 million or 35.8% of consumer loans and commercial loans of $106,000, or less than 1%
of total loans.




At September 30, 2004, the loan portfolio included real estate loans of $95.4 million or 62.4% of total loans, consumer
loans of $57.4 million or 37.5% of total loans and commercial loans of $115,000, less than 1% of total loans.  




Although our consumer loan portfolio continues to grow, our real estate loan portfolio is growing at a faster pace.  As
noted, a contributing factor to the loans receivable increase was the loan production at the Mankato and Oakdale,
Minnesota branches.  At March 31, 2005 loans receivable were $7.8 million at Mankato and $6.2 million at Oakdale,
compared to $4.6 million at Mankato and $1.8 million at Oakdale at September 30, 2004.







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Allowance for Loan Losses.Based on loss estimates described in "Critical Accounting Policies - Allowance for Loan
Losses," Management's evaluation of these factors resulted in an allowance for loan losses of $641,343 or .38 % of total
loans at March 31, 2005, compared to $554,210, or .36 % of total loans as of September 30, 2004.




The provisions for loan losses are the amounts required to maintain the allowance for loan losses at a level deemed
necessary by management after taking into consideration charge-offs and recoveries and the quality of the remaining
portfolio.  The provisions for loan losses for the six months ended March 31, 2005 and 2004 were $202,136 and
$195,999, respectively.  The provisions for loan losses for the three months ended March 31, 2005 and 2004 were
$102,133 and $99,999.  During the three months ended March 31, 2005, we incurred $57,263 in net charge-offs,
compared to $76,924 in net charge-offs during the same period in 2004.  During the six months ended March 31, 2005,
we incurred $115,003 in net charge-offs, compared to $155,689 for the same period ended March 31, 2004. 
Management recognizes that these are estimates of inherent losses in the process and the actual losses could be different
from the current estimates.  




Office Properties and Equipment.  Total investment in office properties and equipment was $2.2 million on September
30, 2004 and remained $2.2 million on March 31, 2005.




Deposits.  Deposits as of March 31, 2005 were $133.6 million, compared to $128.0 million as of September 30, 2004,
an increase of $5.6 million, or 4.4 %.  The majority of the deposit growth came from the two Minnesota branch offices,
as our marketing efforts have been concentrated there.




Borrowed Funds.  Federal Home Loan Bank advances increased from $13.5 million at September 30, 2004 to $24
million on March 31, 2005, as the need to fund strong loan demand increased.




Liquidity and Asset Liability Management.  The Company must maintain an adequate liquidity position in order to
respond to the short-term demand for funds caused by withdrawals from deposit accounts, extensions of credit and for
payments of operating expenses.  Maintaining this position of adequate liquidity is accomplished through the
management of a combination of liquid assets;  those which can be converted into cash and access to additional sources
of funds.  Primarily, liquid assets of the Company are cash and due from interest bearing deposits and maturing loans. 
Loans from the Federal Home Loan Bank system represent the Company's primary source of immediate additional
liquidity, and were maintained at a level needed to meet needs.  Assets and liabilities are maintained to provide the
proper balance between liquidity, safety and profitability.  This monitoring process is done on a continuing basis.  The
Company manages its interest rate sensitive assets and liabilities on a daily basis to lessen the impact of interest rate
change. As part of managing liquidity, the Company monitors its maturing deposits and maturing loans, loan to deposit
ratio, competitor's rates and the cost to borrow funds versus attract deposits.  The Company manages its rate sensitivity
position to avoid wide swings in margins and to minimize risk.  The Company's management believes its liquidity
sources are adequate to meet its operating needs. 




Off-Balance Sheet Liabilities.  The Company has financial instruments with off-balance sheet risk.  These instruments
include unused commitments for credit cards, lines of credit, overdraft protection and home equity lines of credit, as
well as commitments to extend credit.  As of March 31, 2005, the Company has $5.4 million in unused commitments
compared to $5.5 million in unused commitments as of September 30, 2004.








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Capital Resources.  Capital ratios applicable to the Bank as of March 31, 2005 and September 30, 2004 were as follows:




Capital Ratios




Actual
For Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt Corrective
Action Provisions

Amount
Ratio
Amount
Ratio
Amount
Ratio
As of March 31, 2005  (Unaudited)






  






       Total capital (to risk weighted assets)
$16,076,000
13.4%
$9,590,000 
≥ 8.0%
$11,987,000 
≥ 10.0%
    






       Tier 1 capital (to risk weighted assets)
$15,592,000
13.0%
$4,795,000 
≥ 4.0%
$7,192,000 
≥ 6.0%
   






       Tier 1 capital (to adjusted total assets)
$15,592,000
8.8%
$7,111,000 
≥ 4.0%
$8,888,000 
≥ 5.0%







        Tangible capital (to tangible assets)
$15,592,000
8.8%
   $2,667,000 
≥ 1.5%
NA   
NA   
   






As of September 30, 2004






    






    Total capital (to risk weighted assets)
$15,281,000
14.0%
$8,749,000 
≥ 8.0%
$10,936,000 
≥ 10.0%
   






    Tier 1 capital (to risk weighted assets)   
$14,870,000
13.6%
$4,374,480 
≥ 4.0%
$6,562,000 
≥ 6.0%
   






     Tier 1 capital (to adjusted total assets)
$14,870,000
9.2%
$6,469,000 
≥ 4.0%
$8,086,000 
≥ 5.0%
   






    Tangible capital (to tangible assets)
$14,870,000
9.2%
$2,426,000 
≥ 1.5%
NA   
NA   





Management intends to maintain capital levels in the well-capitalized category established by regulatory authorities. 
The Bank was categorized as "well-capitalized" under the regulatory framework for capital adequacy as of March
31, 2005 and September 30, 2004.




Results of Operation




Overview.  For the quarter ended March 31, 2005, the Company continued to see strong loan demand and continued
growth trends.  The two Minnesota branch offices showed continued strong growth.  Loan quality remained strong with
a decline in loan delinquency and loan charge offs.  Interest rates on deposits increased at a faster pace than the rates
on loans.  Real estate rates actually declined for several weeks during the quarter, as deposit rates increased.  Increased
loan growth and fee income helped to offset the decline in interest spread.










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Net Income.  For the three months ended March 31, 2005, the Company reported net income of $383,906, an increase
of 107.2%, compared to net income of $185,253 for the three months ended March 31, 2004.  Net income was $583,990
for the six months ended March 31, 2005, as compared to net income of $367,922 for the same period in 2004, an
increase of 58.7%. The increase for both periods came primarily as a result of income generated from the January 12,
2005 merger of PULSE-EFT and Discover Financial Services.  Since the Company was a stockholder and member of
PULSE-EFT, it received $384,467 in pre-tax income in the second quarter of fiscal 2005 and anticipates a final payment
of $47,766 in the third quarter.




Total Interest Income.  Total interest and dividend income increased by $393,329 for the three-month period ended
March 31, 2005, to $2.7 million from $2.3 million for the same period in 2004.  Total interest income increased by
$765,455 for the six-month period ended March 31, 2005 to 5.4 million from $4.6 million for the same period ended
March 31, 2004.  The increase was a result of an increase in the average balance of loans receivable.


The yield on loans receivable in both periods decreased from 7.15% for the three- month period ended March 31,2004
to 6.64% for the three-month period ended March 31, 2005, and decreased from 7.14% for the six month period ended
March 31, 2004 to 7.05% for the six month period ended March 31, 2005, reflecting the decrease in market rates of
interest.




Net Interest Income.  Net interest income before provision for loan losses increased by $254,057 for the three-month
period ended March 31, 2005, to $1.9 million compared to $1.6 million for the same period in 2004.  Total net interest
income increased by $588,632 for the six month period ended March 31, 2005, to $3.7 million from $3.2 million for
the same period ended March 31, 2004.The increase in net interest income was due to increased loan volume and an
increase in the balance of loans receivable offsetting the increase in interest expense and the decrease in average loan
yield.  




Interest Expense.  The interest expense increased by $139,272 in the three-month period ended March 31, 2005, from
$722,892 for the same period in 2004.  The interest expense increased by $176,823 for the six-month period ended
March 31, 2005, from $1.5 million for the same period ended March 31, 2004. 


The increase for both periods was a result of an increase in deposit growth and an increase in the cost of interest-bearing
liabilities.  The cost of borrowed funds increased from $21,942 for the three-month period ended March 31, 2004 to
$128,119 for the same period in 2005. The cost of borrowed funds increased $29,250 for the six-month period ended
March 31, 2004 to $192,871 for the same period ended March 31, 2005.  The increase was primarily a result of
utilization of advances from the Federal Home Loan Bank of Chicago to fund increased loan demand as management
sought the most cost-effective source of funds. The use of borrowed funds was more cost effective than obtaining
additional deposits at a higher cost.




Provision for Loan Losses.  We establish the provision for loan losses, which is charged to operations, at a level
management believes will reflect probable incurred credit losses in the loan portfolio.  In evaluating the level of the
allowance for loan losses, management considers the types of loans and the amount of loans in the loan portfolio,
historical loss experience, adverse situations that may affect the borrower's ability to repay, estimated value of any
underlying collateral, and prevailing economic conditions.  Based on our evaluation of these factors, we made provisions
of $102,133 and $99,999 for the three months ended March 31, 2005 and March 31, 2004, respectively.  For the six-month period ended March 31, 2005, we made provisions of $202,136 compared to provisions of $195,999 for the same
period a year ago. The provisions for fiscal 2005 are primarily a result of the loan growth for the three to six month
periods.  This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as
more information becomes available, or as future events change.  We used the same methodology and generally similar
assumptions in assessing the loan allowance for both periods.







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The level of the allowance is based on estimates and the ultimate losses may vary from the estimates.  Management
assesses the allowance for loan losses on a monthly basis and makes provisions for loan losses as necessary in order
to maintain the allowance.  While management uses available information to recognize losses on loans, future loan loss
provisions may be necessary based on changes in economic conditions or changes in individual account conditions. 
In addition, various regulatory agencies, as an integral part in their examination process, periodically review the
allowance for loan losses and may require us to recognize additional provisions based on their judgment of information
available to them at the time of their examination.  The allowance for loan losses as of March 31, 2005 is maintained
at a level that represents management's best estimate of probable losses inherent in the loan portfolio.




Non-Interest Income.  Total non-interest income was $743,562 for the three months ended March 31, 2005, compared
to $339,626 for the same period in 2004.  Total non-interest income for the six-month period ended March 31, 2005
was $1,108,500, compared to $677,619 for the six month period ended March 31, 2004.  The increase came primarily
from the merger of PULSE -EFT with Discover, and the subsequent income it generated for the Company, as a
stockholder of PULSE-EFT, in the second quarter of fiscal 2005.




Non-Interest Expense.  Non-interest expense increased from $1.6 million to $1.9 million for the three months ended
March 31, 2005.  Non-interest expense increased from $3.0 million for the six-month period ended March 31, 2004 to
$3.7 million for the same period in 2005.  The increase was due to the additional operating costs associated with the
Mankato branch office and the Oakdale branch office, normal salary increases and the cost associated with compliance
with the Sarbanes-Oxley Act of 2002, Section 404-Management's Assessment of Internal Controls.




Forward-Looking Statements.   This report contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  We
intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Reform Act of 1995, and are including this statement for purposes of these safe
harbor provisions.  "Forward-looking statements", which are based on certain assumptions and describe future plans,
strategies and expectations of Citizens Community Bancorp may be identified by the use of words such as "believe,"
"expect," "anticipate," "should," "planned," "estimated," and "potential."  Examples of forward-looking statements
include, but are not limited to, estimates with respect to our financial condition, results of operation and business that
are subject to various factors which could cause actual results to differ materially from these estimates and most other
statements that are not historical in nature.  These factors include, but are not limited to, general and local economic
conditions, changes in interest rates, deposit flows, demand for mortgage, consumer and other loans, real estate values,
competition, changes in accounting principles, policies, or guidelines, changes in legislation or regulation, and other
economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products
and services. These risks and uncertainties should be considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements.  Further information concerning Citizens Community Bancorp and
its business, including additional factors that could materially affect our financial results, is included in our filings with
the Securities and Exchange Commission.

















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ITEM 3.     CONTROLS AND PROCEDURES




An evaluation of the Company's disclosure controls and procedures (as defined in Section 13(a)-15(e) under the
Securities Exchange Act of 1934 (the "Act") as of March 31, 2005 was carried out under the supervision and with
the participation of the Chief Executive Officer and Chief Financial Officer and several other members of our
senior management.  The Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2005,
the Company's disclosure controls and procedures were effective in ensuring that the information required to be
disclosed by the Company in the reports the Company files or submits under the Act is (i) accumulated and
communicated to management (including the Chief Executive Officer and Chief Financial Officer) in a timely
manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules
and forms.  There have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Act) that occurred during the quarter ended March 31, 2005 that have materially affected, or are
reasonably likely to materially effect, our internal controls over financial reporting.




The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud.  A
control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control procedure are met.  Because of the inherent limitations in all control procedures, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected.  These inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the control.  The design of any control procedure is also based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies and procedures may deteriorate.  Because of the inherent
limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.




Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and annually report on their
systems of internal control over financial reporting.  In addition, our independent accountants must report on
management's evaluation.  We are in the process of evaluating, documenting and testing our system of internal
control over financial reporting to provide the basis for our report that is anticipated to be a required part of our
annual report on Form 10-KSB for the fiscal year ending September 30, 2006.  Due to the ongoing evaluation and
testing of our internal controls, there can be no assurance that if any control deficiencies are identified they will be
remediated before the end of the 2006 fiscal year, or that there may not be significant deficiencies or material
weaknesses that would be required to be reported.  In addition, we expect the evaluation process and any required
remediation, if applicable, to increase our accounting, legal and other costs and divert management resources from
core business operations.  















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PART II - OTHER INFORMATION






Item 1.
LEGAL PROCEEDINGS
      

In the normal course of business, the Company occasionally becomes involved in various legal
proceedings.  In the opinion of management, any liability from such proceedings would not have a
material adverse effect on the business or financial condition of the Company.
      
Item 2.
CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF
EQUITY SECURITIES
      

The following table summarizes our share repurchase activity during the three months ended
March 31, 2005.




Period

Total
Number of

Shares


Purchased

Average 

Price Paid

per Share

Total Number of

Shares Purchased as

Part of Publicly


Announced Plans

Maximum Number

of Shares That May

Yet be Purchased


Under the Plan

January 1, 2005 through

    January 31, 2005
NA
NA
NA
NA
February 1, 2005 through

    February 28, 2005
26,000
$15.01
26,000
33,618
March 1, 2005 through


    March 31, 2005
33,618
$15.01
33,618
0
   Total
59,618
$15.01
59,618
0





Item 3. 
 DEFAULTS UPON SENIOR SECURITIES
      

Not applicable
      
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
      

At the Annual Meeting of Shareholders, dated February 4, 2005, four items of business were
voted upon:  The nominees to serve on the Board of Directors for terms to expire in the year 2008;
the adoption of the Citizens Community Bancorp 2004 Stock Option and Incentive Plan; the
adoption of the Citizens Community Bancorp 2004 Recognition and Retention Plan; and the
ratification of the appointment of Wipfli, LLP as independent auditors for the Company for the
fiscal year ending September 30, 2005.  Results of the voting were as follows:




Election of Directors
      

FOR
WITHHOLD

      
Richard McHugh 
98.9%
1.1%

      
Thomas C. Kempen
99.0% 
1.0%

      

2004 Stock Option and Incentive Plan (voting by minority stockholders)
      
FOR
AGAINST
ABSTAIN
NON-VOTE

      
61.9%
16.6%    
0.3%      
17.2%

      

2004 Recognition and Retention Plan (voting by minority stockholders)
      
FOR
AGAINST
ABSTAIN
NON-VOTE

      
59.8%
18.8%    
0.3%      
17.2%

      
      
In addition, the MHC, which holds 67.83% of the outstanding shares, voted all its shares in favor of both proposals.
      

Ratification of Auditors
      
FOR
AGAINST
ABSTAIN


      
99.3%
0.6%      
0.1% 












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Item 5.  
 OTHER INFORMATION
      

As described in the Company's Form 8-K filing, on January 6, 2005 an agreement and plan of merger has been announced between the Company and Community Plus Savings Bank, a federally chartered mutual savings bank based in Rochester Hills, Michigan.
      
Item 6. 
EXHIBITS 
      

See Exhibit List.
      







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SIGNATURES




             In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.








CITIZENS COMMUNITY BANCORP
 
 
Date:
May 11, 2005

By:
/s/ James G. Cooley

James G. Cooley


President and Chief Executive Officer
Date:
May 11, 2005

By: 
/s/ John Zettler


John Zettler


Chief Financial Officer









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Regulation S–B

Exhibit Number
Document	
Reference to
Prior Filing
or Exhibit Number

Attached Hereto	
3(i)
Certificate of Incorporation of the Registrant
*
3(ii)
Amended Bylaws of the Registrant
**
10
Material contracts:


 
(a)
Registrant's 2004 Stock Option Plan
***


(b)
Registrant's 2004 Recognition and Retention Plan
***


(c)
Employment Agreements:




(i)
James G. Cooley
 *



(ii)
Johnny W. Thompson
 *



(iii)
John D. Zettler
 *

 
  
(iv)
Timothy J. Cruciani
 *



(v)
Rebecca Johnson
 *


(e)
Tax Allocation Agreement
**
11
Statement Regarding Computation of Per Share Earnings
11
13
2004 Annual Report to Stockholders
Not Required
14
Code of Conduct and Ethics
**
21
Subsidiaries of the Registrant
**
23
Consent of Auditors
Not Required
31
Rule 13a–14(a)/15d–14(a) Certifications
31
32
Section 1350 Certifications
32


_______________________


 * 
Filed as exhibit to the Company's Form SB–2 registration statement filed on December 29, 2003 (File No.333–111588)   pursuant
to Section 5 of the Securities Act of 1933.

**
Filed as exhibit to the Company's Form 10-KSB filed with the SEC on December 29, 2004.

***
Filed as exhibit to the Company's Definitive Proxy Materials filed with the SEC on December 23, 2004.




























20
End.