10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________

FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended September 30, 2007          OR
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number:  001-33003

CITIZENS COMMUNITY BANCORP, INC.

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

Maryland	20-5120010
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2174 EastRidge Center, Eau Claire, Wisconsin	54701
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:  (715) 836-9994

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g)of the Act:	Common Stock, par value $0.01 per share
	(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES      NO   X  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES     NO    X  

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 by check mark whether disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.      X  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer       Accelerated filer        Non-accelerated filer     X  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES    NO    X  

The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average of the bid and asked price of such stock as of the last business day of the registrant's most recently completed second fiscal quarter, was $62,525,255.  (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.) 

As of December 20, 2007, there were issued and outstanding 7,118,205 shares of the Registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Part II of Form 10-K B Annual Report to Stockholders for the fiscal year ended September 30, 2007.

Part III of Form 10-K B Portions of the Proxy Statement for the 2008 Annual Meeting of Stockholders.

PART I

Item 1.                      Description of Business

General

Historically, Citizens Community Federal (the "Bank") was a federal credit union.   The Bank accepted deposits and made loans to members, who live, work or worship 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, the Bank 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 for credit unions.   As a federal savings bank, the Bank has expanded authority in structuring residential mortgage and consumer loans, and the ability to make commercial loans, although the Bank does not currently have any immediate plans to commence making commercial loans. In 2004, Citizens Community Federal reorganized into the mutual holding company form of organization.  The Bank is a federally chartered stock savings institution with 12 full service offices.

On July 1, 2005, Citizens Community Bancorp acquired Community Plus Savings Bank, Rochester Hills, Michigan, through a merger with and into Citizens Community Federal.  In accordance with the merger agreement, Citizens Community Bancorp issued 705,569 additional shares to Citizens Community MHC, based on the $9.25 million independently appraised value of Community Plus Savings Bank.  At June 30, 2005, Community Plus Savings Bank had total assets of $46.0 million and deposits and other liabilities of $41.8 million, prior to purchase accounting adjustments.

On October 31, 2006, Citizens Community MHC (the "MHC") completed its reorganization into stock form and Citizens Community Bancorp, Inc. (the "Company") succeeded to the business of Citizens Community Bancorp, the MHC's former stock holding company subsidiary.  Each outstanding share of common stock of the former mid-tier stock holding company (other than shares held by the MHC which were canceled) was converted into 1.91067 shares of common stock of the Company.  As part of the second-step mutual to stock conversion transaction, the Company sold a total of 5,290,000 shares to eligible depositors of the Bank in a subscription offering at $10.00 per share, including 341,501 shares purchased by the Bank's employee stock ownership plan with funds borrowed from the Company.

Citizens Community Bancorp, Inc. is incorporated under the laws of the State of Maryland to hold all of the stock of Citizens Community Federal.  Citizens Community Bancorp, Inc. is a unitary savings and loan holding company and is subject to regulation by the Office of Thrift Supervision (OTS).  Citizens Community Bancorp, Inc. has no significant assets other than all of the outstanding shares of common stock of Citizens Community Federal, the net proceeds of the reorganization it kept and its loan to the Citizens Community Bancorp, Inc. employee stock ownership plan.

At September 30, 2007, the Company had total assets of $386.1 million, total deposits of $207.7 million and stockholders' equity of $78.1 million. The Company and the Bank are examined and regulated by the OTS, its primary federal regulator.   The Company and the Bank are also regulated by the FDIC.   The Bank is required to have certain reserves set by the Federal Reserve Board and is a member of the Federal Home Loan Bank of Chicago, which is one of the 12 regional banks in the Federal Home Loan Bank System.

Forward Looking Statements

This document, including information incorporated by reference, contains forward-looking statements about the Company and its subsidiaries which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates, cost savings and funding advantages expected or anticipated to be realized by management.  Words such as "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify these forward-looking statements.  Forward-looking statements by the Company and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and the intentions of management and are not guarantees of future performance.  The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.

1

The important factors we discuss below, as well as other factors discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and identified in our filings with the SEC and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document:

· further developments in the Company's ongoing review of and efforts to resolve possible problem credit relationships, which could result in, among other things, further downgrades of aforementioned loans, additional provisions to the loan loss reserve and the incurrence of other material non-cash and cash charges;

· the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;

· the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;

· inflation, interest rate, market and monetary fluctuations;

· the timely development of and acceptance of our new products and services, and the perceived overall value of these products and services by users including the features, pricing and quality compared to competitors' products and services;

· the willingness of users to substitute our products and services for products and services of our competitors;

· the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance);

· the impact of technological changes;

· acquisitions;

· changes in consumer spending and saving habits; and

· our success at managing the risks detailed above.

The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.

Market Area

The Bank is a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve.  The Bank is headquartered in Eau Claire, Wisconsin, and has twelve retail offices primarily serving Eau Claire, Buffalo, Jackson, Sauk, Barron and Chippewa counties in Wisconsin; Blue Earth and Washington Counties in Minnesota; and Oakland and McComb counties in Michigan.  The geographic market area for loans and deposits is principally northwestern and central Wisconsin, Minnesota, and southeastern Michigan.

In all but Washington, Oakland and McComb counties, the economy is historically based in manufacturing, but has moved to a more service-oriented economy in the last four decades.  Median household income and per-capita income for this area are below the state and national averages, reflecting the lack of urban nature of the market and availability of high-paying white collar and technical jobs.  Washington, Oakland and McComb counties, all located in or near large metropolitan areas, have a more diverse economy.  Major employers in the Eau Claire market area include Chippewa Valley Technical College, Consumer Co-op Association and the University of Wisconsin-Eau Claire.  In the Mankato, Minnesota area, major employers include Minnesota State University, Immanuel Saint Joseph's Hospital and Taylor Corporation.  Anderson Windows, 3M and Imation are the largest employers in the Oakdale, Minnesota region.  In Michigan's Oakland and McComb counties, the largest employers are Delphi Automated Systems, Affinia Group and Spectrum Health Hospitals.

2

Competition

The Bank faces strong competition in originating real estate and other loans, and in attracting deposits.  Competition in originating real estate loans comes primarily from other savings institutions, commercial banks, credit unions and mortgage bankers.  Other savings institutions, commercial banks, credit unions and finance companies provide vigorous competition in consumer lending.

The Bank attracts deposits through its branch office system. Competition for those deposits is principally from other savings institutions, commercial banks and credit unions located in the same community, as well as mutual funds and other alternative investments.  The Bank competes for these deposits by offering superior service and a variety of deposit  accounts at competitive rates.  Based on branch deposit data provided by the FDIC at June  30, 2007, the Bank's share of deposits was approximately 9.94% in Eau Claire County and less than 2.64% in all other market area counties.

Internet Website

The Company maintains a Website at www.citizenscommunityfederal.net.  The information contained on that Website is not included as part of, or incorporated by reference into, this Annual Report on Form 10-K.  Citizens Community Bancorp, Inc. currently makes available on or through its Website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K or amendments to these reports. These materials are also available free of charge on the Securities and Exchange Commission's Website at www.sec.gov.

Selected Consolidated Financial Information

This information is incorporated by reference from pages 2 and 3 of the 2007 Annual Report to Stockholders attached hereto as Exhibit 13 ("Annual Report").

Yields Earned and Rates Paid

This information contained under the section captioned "Average Balances, Net Interest Income, Yields Earned and Rates Paid" is incorporated herein by reference from page 13 of the Annual Report.

Rate/Volume Analysis

This information is incorporated by reference from page 14 of the Annual Report.

Average Balance, Interest and Average Yields and Rates

This information contained under the section captioned "Average Balances, Net Interest Income, Yields Earned and Rates Paid" is incorporated herein by reference from page 13 of the Annual Report.

Lending Activities

General.  Citizens Community Federal's first mortgage loans currently being originated carry a fixed rate of interest.  First mortgage loans generally are long-term and amortize on a monthly basis with principal and interest due each month.  A majority of Citizens Community Federal's first mortgage loans also contain a payable-on-demand clause, which allows Citizens Community Federal to call the loan due after a stated period, usually between two and five years from origination.  Citizens Community Federal also has home equity loans in its portfolio, which have an interest rate that adjusts based on the prime rate.  At September 30, 2007, the net loan portfolio totaled $320.0 million, which constituted 82.9% of total assets.

Mortgage loans up to $500,000 and consumer loans may be approved at various levels by loan officers and senior management.  The President may approve loans up to our regulatory lending limit, along with recommendations from the Chief Financial Officer and the Executive Vice President.  Loans outside our general underwriting guidelines must be approved by the board of directors.  At September 30, 2007, our regulatory lending limit to any one borrower and the borrower's related entities was approximately $6.5 million.  The largest lending relationship to a single borrower or a group of related borrowers consisted of two loans to a single borrower with a total balance of $452,000. These loans were current as of September 30, 2007.

3

Loan Portfolio Composition.  The following table presents information concerning the composition of the Citizen Community Federal's loan portfolio in dollar amounts and in percentages (before deductions for allowances for loan losses) as of the dates indicated.

	At September 30,
	2007						2006						2005						2004						2003
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real Estate Loans:
One- to four-family first mortgages	$	177,281			55.3	%	$	156,235			60.3	%	$	136,647			62.5	%	$	89,841			58.8	%	$	71,108			57.5	%
Second mortgages		10,461			3.2			9,161			3.5			7,630			3.5			5,398			3.5			4,661			3.8
Multi-family and commercial		215			0.1			240			0.1			274			0.1			321			0.2			239			0.3
Total real estate loans		187,957			58.6			165,636			63.9			144,551			66.1			95,560			62.5			76,008			61.6
Consumer Loans:
Automobile (1)		27,168			8.5			24,445			9.4			25,980			11.9			25,808			16.9			26,905			21.7
Other secured personal loans (2)		100,966			31.5			64,384			24.9			43,460			19.			27,607			18.0			17,028			13.8
Unsecured personal loans (3)		4,610			1.4			4,774			1.8			4,743			2.2			3,955			2.6			3,633			2.9
Total consumer loans		132,744			41.4			93,603			36.1			74,183			33.9			57,370			37.5			47,566			38.4
Gross loans		320,701			100.0	%		259,239			100.0	%		218,734			100.0	%		152,930			100.0	%		123,574			100.0	%
Net deferred loan costs		252						63						-						-						-
Allowance for loan losses		(926	)					(835	)					(803	)					(554	)					(467	)
Total loans receivable, net	$	320,027					$	258,467					$	217,931					$	152,376					$	123,107

_______________

(1)	Includes both direct and indirect lending activities.
(2)	Includes both direct and indirect lending activities for personal items other than automobiles.
(3)	Includes only direct lending.

4

The following table shows the composition of Citizen Community Federal's loan portfolio by fixed- and adjustable-rate at the dates indicated.

	At September 30,
	2007						2006						2005						2004						2003
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
Fixed Rate Loans:	(Dollars in thousands)
Real estate
One- to four-family first mortgages(1)	$	170,127			53.0	%	$	148,211			57.0	%	$	128,300			58.7	%	$	89,841			58.8	%	$	71,108			57.5	%
Second mortgages		9,989			3.1			8,367			3.2			6,189			2.8			4,772			3.1			4,099			3.3
Multi-family and commercial		215			0.1			240			0.1			274			0.1			321			0.2			239			0.3
Total fixed-rate real estate loans		180,331			56.2			156,818			60.3			134,763			61.6			94,934			62.1			75,446			61.1
Consumer loans		132,744			41.4			93,603			36.3			74,183			33.9			57,370			37.5			47,566			38.5
Total fixed rate loans		313,075			97.6			250,421			96.6			208,946			95.5			152,304			99.6			123,012			99.6
Adjustable Rate Loans:
Real estate
One- to four-family first mortgages		7,154			2.2			8,024			3.1			8,347			3.8			---			---			---			---
Second mortgages		472			0.2			794			0.3			1,441			0.7			626			0.4			562			0.4
Multi-family and commercial		---			---			---			---			---			---			---			---			---			---
Total adjustable rate real estate loans		7,626			2.4			8,818			3.4			9,788			4.5			626			0.4			562			0.4
Consumer		---			---			---			---			---			---			---			---			---			---
Total adjustable rate loans		7,626			2.4			8,818			3.4			9,788			4.5			626			0.4			562			0.4
Total loans		320,701			100.0	%		259,239			100.0	%		218,734			100.0	%		152,930			100.0	%		123,574			100.0	%
Net deferred loan costs		252						63						---						---						---
Allowance for loan losses		(926	)					(835	)					(803	)					(554	)					(467	)
Total loans receivable, net	$	320,027					$	258,467					$	217,931					$	152,376					$	123,107

__________________

(1) Includes $144.5 million in 2007, $122.2 million in 2006, $102.9 million in 2005, $81.6 million in 2004 and $66.4 million in 2003 of loans with a payable on demand clause.

5

The following schedule illustrates the contractual maturity of Citizen Community Federal's loan portfolio at September 30, 2007.  Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due.  The schedule does not reflect the effects of possible prepayments or enforcement of due-on-demand clauses.

	Real Estate															Consumer
	One- to Four- Family First Mortgage(1)					Second Mortgage					Multi-Family and Commercial					Automobile					Secured Personal					Unsecured Personal					Total
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
2008(2)	$	301		6.33	%	$	893		8.76	%	$	135		7.25	%	$	847		8.71	%	$	2,445		8.11	%	$	2,496		14.56	%	$	7,117		10.43	%
2009		171		6.30			660		7.89			51		6.75			2,881		8.56			2,797		8.24			398		10.54			6,958		8.41
2010		227		6.64			1,342		7.99			---		---			5,987		8.96			5,069		8.38			852		10.40			13,477		8.70
2011-2012		932		6.38			3,031		8.61			---		---			13,232		8.96			18,639		8.50			820		11.04			36,654		8.68
2013-2014		2,385		6.06			984		8.99			29		6.50			1,899		7.67			11,469		7.82			6		---			16,772		7.62
2015-2029		51,899		6.11			3,287		8.25			---		---			2,322		8.27			60,523		7.79			38		---			118,069		7.07
2030 and  after		121,366		6.40			264		5.99			---		---			---		---			24		8.28			---		---			121,654		6.40
	$	177,281		6.31	%	$	10,461		8.35	%	$	215		7.03	%	$	27,168		8.76	%	$	100,966		7.97	%	$	4,610		12.72	%	$	320,701		7.20	%

_______________

(1)	Includes $144.5 million of loans with a payable on demand clause.
(2)	Includes home equity lines of credit, credit card loans, loans having no stated maturity and overdraft loans.

The total amount of loans due after September 30, 2007, which have predetermined interest rates is $313.4 million, while the total amount of loans due after such date which have floating or adjustable interest rates is $7.6 million.

6

First Mortgage Lending.  Citizens Community Federal focuses its lending efforts primarily on the origination of loans secured by first mortgages on owner-occupied, one- to four-family residences in our market area.  At September 30, 2007, one- to four-family residential mortgage loans totaled $177.3 million, or 55.3% of the gross loan portfolio.

For the year, mortgage originations increased primarily due to general increases in demand throughout all of our markets.

Citizens Community Federal generally underwrites its one- to four-family loans based on the applicant's employment and credit history, their debt to income ratio and the appraised value of the subject property.  Presently, Citizens Community Federal generally lends up to 80% of the appraised value for one- to four-family residential loans and up to 70% for non-owner occupied residential loans.  For loans used to purchase the property with a loan-to-value ratio in excess of 80%, Citizens Community Federal requires private mortgage insurance in order to reduce our exposure below 80%.  Properties securing one- to four-family loans are appraised by independent fee appraisers approved by the board of directors to the extent the loan exceeds $50,000.  In-house appraisals, prepared by persons other than the originating loan officer, may be used for loans of less than $50,000, or loans of less than $100,000 if the loan-to-value ratio is less than 50%.  Citizens Community Federal requires its borrowers to obtain evidence of clear title and hazard insurance, and flood insurance, if necessary.

Citizens Community Federal currently originates most of its one- to four-family mortgage loans on a fixed-rate basis.  Citizens Community Federal's pricing strategy for mortgage loans includes setting interest rates that benefit our asset/liability management strategies.  Our one- to four-family loans are not assumable.

Most mortgage loans include a payable-on-demand clause, which allows the loan to be called at any time after the demand date.  Citizens Community Federal has had no reason to utilize the clause over the past several years, because rates have been historically low during this period.  May 2000 was the last and only time the clause was utilized.  At that time, 13 loans, totaling $541,442, were called.  It is Citizens Community Federal's policy to write the majority of its real estate loans with a payable-on-demand clause.  The intent of the clause is to give Citizens Community Federal some ability to protect against sharp and prolonged interest rate increases and their impact on net interest margin.  The clause is not intended for responding to temporary interest rate fluctuations.  The following factors are considered in determining whether and when to utilize the clause: (1) a significant, prolonged increase in market rates of interest; (2) the liquidity needs of Citizens Community Federal; (3) Citizens Community Federal's desire to restructure its balance sheet; and (4) an unsatisfactory payment history, including delinquent real estate taxes.  Other factors considered include the remaining term of the loan (i.e., a shorter remaining term could justify not calling a loan with the same rate as a loan with a longer remaining term), other lending relationships, payment history and the equity position of the borrower.  When Citizens Community Federal determines to utilize the clause, we call loans with the lowest interest rates first.

The following trigger guidelines are used to determine whether to utilize the payable-on-demand clause:  (1) when rates available for six month investment certificates of deposit exceed the rate on loans eligible to be called under the payable-on-demand clause by more than 75 basis points; or (2) when local market rates of interest for real estate loans exceed the rate on existing loans with the payable-on-demand clause by 150 basis points.  If either of these triggers are reached, management has 12 months to utilize the clause and call loans, if management determines that doing so would be in the overall best interests of Citizens Community Federal.  The existence of the payable-on-demand clauses is not considered as a factor in determining our accounting policies for loan origination fees and costs, because we have only used the clause once in May 2000 with respect to 13 loans.

The demand date is set based on the loan-to-value ratio and other underwriting criteria, and is usually two to five years from the date of origination.  During the fiscal year ended September 30, 2007, Citizens Community Federal originated $32.1 million of one- to four-family loans that included the payable-on-demand clause.  Fixed-rate loans secured by one- to four-family residences have contractual maturities of up to 30 years, and are generally fully amortizing, with payments due monthly.

We recently implemented a mortgage banking operation. We utilize internal marketing efforts to originate real estate loans.  We fund these loans and sell them with servicing released in the secondary market to Countrywide Financial Corporation.  This generates additional loan fee income on the sale of loans. Our relationship with Countrywide Financial Corporation, like all of our relationships with outside vendors, is subject to periodic review to minimize risk and exposure to the Company. We cannot provide any assurances that this arrangement will continue in the future.

7

Second Mortgage Lending.  Citizens Community Federal also offers second mortgage loans and home equity lines of credit.  Home equity lines of credit totaled $461,000 and comprised 0.001% of the gross loan portfolio at September 30, 2007. These loans may be originated in amounts, together with the amount of the existing first mortgage, of up to 80% of the value of the property securing the loan.  A loan may go over 80% of the value of the property securing the loan if Citizens Community Federal holds the first mortgage.  Home equity lines of credit are originated with an adjustable rate of interest, based on the prime rate of interest plus a margin, fixed for the first year and adjustable monthly thereafter.  Home equity lines of credit have up to a 10-year draw period and require the payment of 1.5% of the outstanding loan balance per month during the draw period, which amount may be re-borrowed at any time during the draw period.  Once the draw period has lapsed, the payment is fixed based on the loan balance at that time.  At September 30, 2007, un-funded commitments on these lines of credit totaled $692,000.

Citizens Community Federal also offers second mortgage loans with a fixed rate of interest.  These loans may be amortized up to 15 years with a balloon payment at three, five or 10 years.  At September 30, 2007, fixed-rate second mortgage loans totaled $10.0 million, or 3.1% of the gross loan portfolio.

Consumer Lending.  At September 30, 2007, consumer and other loans totaled $132.7 million, or 41.4% of the gross loan portfolio.  Citizens Community Federal offers a variety of secured consumer loans, including new and used auto, motorcycle, boat and recreational vehicle loans, loans secured by savings deposits, and a limited amount of unsecured loans.  Citizens Community Federal originates consumer and other loans primarily in its market areas.  For fiscal 2007, consumer lending increased as a result of a strong loan demand throughout our branch system.

Citizens Community Federal originates secured loans on an indirect basis through its indirect dealer program.  These secured consumer loans consist of loans for a wide variety of products, including motorcycles, recreational vehicles, pianos, all-terrain vehicles, pools and spas.  An indirect dealer network is currently comprised of 529 active dealers with businesses located throughout Citizens Community Federal's market area.  In some instances, the participating dealer may receive a premium rate for the amount over our initial interest rate.  The loans are generally originated with terms from 36 to 60 months and carry fixed rates of interest.  Citizens Community Federal follows its internal underwriting guidelines in evaluating loans obtained through the indirect dealer program, including using credit scoring to approve loans.

Auto loans totaled $27.2 million at September 30, 2007, or 8.4% of gross loans.  Auto loans may be written for up to five years for a new car and four years for a used car with fixed rates of interest.  Loan-to-value ratios are up to 100% of the sales price for new autos and 100% of the retail value on used autos, based on a valuation from official used car guides.  In addition, Citizens Community Federal may, on occasion, originate secured auto loans in excess of 100% loan-to-value ratio based upon the credit quality of the borrower.  Auto loans also may be originated through Citizens Community Federal's indirect lending program.  Indirect auto loans are made using the same underwriting guidelines as auto loans originated directly by Citizens Community Federal.

Citizens Community Federal originates secured direct loans on a variety of collateral with terms varying from 36 to 60 months.  At September 30, 2007, Citizens Community Federal had secured direct consumer loans totaling $36.1 million, of which $19.4 million was for automobiles.  At September 30, 2007, the indirect lending portfolio totaled $92.1 million, of which $7.8 million was for automobiles.

Citizens Community Federal also originates unsecured consumer loans consisting primarily of credit card loans totaling $1.5 million at September 30, 2007, overdraft protection loans totaling $730,000 at September 30, 2007, and loans made through the Freedom Loan program.  The Freedom Loan program offers unsecured loans to consumers with a fixed rate of interest for a maximum term of 48 months for amounts not to exceed $20,000 per individual.  At September 30, 2007, loans originated through the Freedom Loan program totaled $2.3 million.

Consumer loans generally have shorter terms to maturity, which reduces Citizens Community Federal's exposure to changes in interest rates, and carry higher rates of interest than do one- to four-family residential mortgage loans.  In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities.

Consumer and other loans may entail greater risk than do one- to four-family residential mortgage loans, particularly in the case of consumer loans which are secured by rapidly depreciable assets, such as automobiles and recreational vehicles.  In these cases, any repossessed collateral for a defaulted loan may not provide an adequate

8

source of repayment of the outstanding loan balance.  As a result, consumer loan collections are dependent on the borrower's continuing financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Multi-family and Commercial Real Estate Lending.  We generally do not engage in this type of lending, but may consider doing so in the future.  However, as part of the acquisition of the Chippewa Falls branch on November 1, 2002, Citizens Community Federal obtained a nominal amount of multi-family and commercial real estate loans. At September 30, 2007, our two multi-family and commercial real estate loans totaled $215,000, or 0.1% of our loan portfolio.  In order to monitor the adequacy of cash flows on these loans, the borrower is requested or required to provide periodic financial information.

Loan Originations and Repayments

Citizens Community Federal originates loans through marketing efforts and our existing and walk-in customers.  The ability to originate loans is dependent upon customer demand for loans in Citizens Community Federal's market areas.  Demand is affected by competition and the interest rate environment.  Since becoming a savings bank, Citizens Community Federal has significantly increased its origination of residential real estate loans.  During the past few years, Citizens Community Federal, like many other financial institutions, has experienced significant prepayments on loans due to the low interest rate environment prevailing in the United States.  In periods of economic uncertainty, the ability of financial institutions, including Citizens Community Federal, to originate or purchase large dollar volumes of real estate loans may be substantially reduced or restricted, with a resultant decrease in interest income. Citizens Community Federal does not engage in, nor have any exposure to, subprime lending.

At the start of fiscal 2007, we implemented a mortgage banking operation.  We originate these loans using our internal marketing efforts.  We fund these loans and sell them in the secondary market to Countrywide Financial Corporation with servicing released.  For fiscal 2007, we had originated loans totaling $1.2 million through this operation.  These loans have been subsequently sold in the secondary market. Our relationship with Countrywide Financial Corporation, like all of our relationships with outside vendors, is subject to periodic review to minimize risk and exposure to the Company. We cannot provide any assurances that this arrangement will continue in the future.

The following table shows the loan origination, purchase, sale and repayment activities of Citizens Community Federal for the periods indicated.

		Year ended September 30,
		2007		2006		2005
		(In thousands)
Originations by Type:
Real estate(1)		$	41,701	$	48,280	$	53,731
Non-real estate-consumer			91,447		70,286		55,010
Total loans originated			133,148		118,566		108,741
Loans obtained through merger			---		---		26,670
Repayments:
Principal repayments			71,512		77,564		69,405
Loans transferred to other
	real estate/collateral		174		434		203
Net increase(decrease)		$	61,462	$	40,568	$	65,803

______________

(1) Real estate loans include loans with a payable–on-demand feature of $32.1 million in fiscal 2007, $42.3 million in fiscal 2006 and $45.0 million in fiscal 2005.  Real estate loans also include home equity lines of credit of $349,000 for fiscal 2007, $125,000 for fiscal 2006 and $274,000 in fiscal 2005.

Asset Quality

Procedures.  When a borrower fails to make a payment on a mortgage loan on or before the due date, a late notice is mailed five days after the due date.  When the loan is 10 days past due, a loan officer will begin contacting the borrower by phone.  This process will continue until satisfactory payment arrangements have been made.  If the loan becomes two payments and ten days past due, a notice of right-to-cure default is sent.  If the loan becomes over

9

90 days delinquent, a drive-by inspection is done while further attempts to contact the borrower by phone are made.  After the loan is 120 days past due, and acceptable arrangements have not been made, Citizens Community Federal will generally refer the loan to legal counsel, with instructions to prepare a notice of intent to foreclose.  This notice allows the borrower up to 30 days to bring the loan current.  During this 30-day period, Citizens Community Federal will still attempt to contact the borrower to implement satisfactory payment arrangements.  If the loan becomes 150 days past due and satisfactory arrangements have not been made, foreclosure will be instituted.

For consumer loans a similar process is followed, with the initial written contact being made once the loan is five days past due.  Follow-up contacts are generally on an accelerated basis compared to the mortgage loan procedure.

Citizens Community Federal divides its loans into two categories, mortgage loans and non-mortgage loans.  For all loans in both categories, Citizens Community Federal employs a dual-loss reserve strategy.  First, using a running five-year history, all loans, excluding classified loans, are assigned an inherent loss reserve.  Next, each loan (mortgage and non-mortgage) that becomes over 61 days delinquent is reviewed by senior management.  In addition, Citizens Community Federal assesses several factors including negative change in income, negative change in collateral, negative change in employment and other characteristics.

The procedure for charging off consumer loans does not differentiate between the different types of consumer loans.  Citizens Community Federal's loan underwriting is based mainly on the borrowers' ability to pay, along with the value of the collateral.  All closed-end consumer loans are either charged off or recognized as a specific loss after they become delinquent 120 days.  All open-end consumer loans are charged off or recognized as a specific loss after they become delinquent 180 days.  Consumer loans with collateral are charged off or recognized as a specific loss down to collateral resale value less 10 percent if repossession of collateral is assured.

In lieu of charging off the entire balance, loans with non-real estate collateral may be written down to the value of the collateral, if repossession is assured and in process.  For open-end and closed-end loans secured by real estate, a current assessment of value will be made no later than 180 days past due.  Any outstanding loan balance in excess of the value of the property, less selling costs, is charged off.

Delinquent Loans.  The following table sets forth our loan delinquencies by type, number and amount at September 30, 2007.

	Loans Delinquent For:
	60-89 Days				90 Days and Over				Total Delinquent Loans
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in thousands)
Real estate		2	$	236		4	$	297		6	$	533
Consumer(1)		139		510		259		1,223		398		1,733
Total		141	$	746		263	$	1,520		404	$	2,266

__________

(1)           Includes credit card accounts.

Non-performing Assets.  The table below sets forth the amounts and categories of non-performing assets in our loan portfolio.  Loans are placed on non-accrual status when the loan becomes more than 90 days delinquent.  At all dates presented, we had no troubled debt restructurings which involve forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates.  Foreclosed assets owned include assets acquired in settlement of loans.

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	At September 30,
	2007			2006			2005			2004			2003
	(Dollars in thousands)
Non-Accruing Loans:
One- to four-family	$	297		$	406		$	207		$	300		$	162
Consumer(1)		1,223			984			462			397			400
Total		1,520			1,390			669			697			562
Foreclosed Assets:
One- to four-family		94			376			---			---			---
Consumer		29			13			32			---			---
Total		123			389			32			---			---
Total non-performing assets	$	1,643		$	1,779		$	701		$	697		$	562
Total as a percentage of total assets		0.43	%		0.63	%		0.29	%		0.43	%		0.43	%

___________

(1) Includes credit card accounts.

For the years ended September 30, 2007, and 2006, gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $101,900 and $52,400, respectively.  No amount was included in interest income on these loans for these periods.

Other Loans of Concern.  In addition to the non-performing assets set forth in the table above, as of September 30, 2007, there was also an aggregate of $758,000 of loans with respect to which known information about the possible credit problems of the borrowers have caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non-performing asset categories.  These loans are not considered "classified" due to their delinquency status; however, they are identified as "watch" loans.  They are not reserved for in the allowance for loan losses other than as part of the inherent portion.  These loans have been considered in management's determination of the adequacy of our allowance for loan losses.

Classified Assets.  OTS regulations provide for the classification of loans and other assets, such as debt and equity securities considered to be of lesser quality, as "substandard," "doubtful" or "loss."  An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected.  Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable."  Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When we classify problem assets as either substandard or doubtful, we may establish general allowances for loan losses in an amount deemed prudent by management and approved by the board of directors.  General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.  When we classify problem assets as "loss," we are required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount.  Our determination as to the classification of our assets and the amount of its valuation allowances is subject to review by the OTS and the FDIC, which may order the establishment of additional general or specific loss allowances.

In connection with the filing of our periodic reports with the OTS and in accordance with our classification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations.  On the basis of management's review of our assets, at September 30, 2007, Citizens Community Federal had classified $1.3 million of the loans in its portfolio as substandard, all of which was included in non-performing assets, $0 as doubtful and $0 as loss.  The total amount classified represented 1.66% of CCB's equity capital and 0.34% of assets at September 30, 2007.

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Provision for Loan Losses.  Citizens Community Federal recorded a provision for loan losses for the year ended September 30, 2007 of $470,000, compared to $251,000 for the year ended September 30, 2006 and $414,000 for the year ended September 30, 2005.  The provision for loan losses is charged to income to bring the allowance for loan losses to reflect probable incurred losses based on the factors discussed below under "Allowance for Loan Losses."  The provision for loan losses for the year ended September 30, 2007 was based on management's review of such factors which indicated that the allowance for loan losses reflected probable incurred losses in the loan portfolio as of the year ended September 30, 2007.

Allowance for Loan Losses.  Citizens Community Federal maintains an allowance for loan losses to absorb probable incurred losses in the loan portfolio.  The allowance is based on ongoing, quarterly assessments of the estimated probable incurred 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.

At September 30, 2007, the allowance for loan losses was $926,000, or 0.29%, of the total loan portfolio. Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, that may be susceptible to significant change.  In the opinion of management, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolios.

The following table sets forth an analysis of our allowance for loan losses.

	Year Ended September 30,
	2007			2006			2005			2004			2003
	(Dollars in Thousands)
Balance at beginning of period	$	835		$	803		$	554		$	467		$	349
Charge-offs:
One- to four-family		(83	)		(19	)		(24	)		---			(16	)
Consumer		(330	)		(228	)		(212	)		(342	)		(297	)
Total charge-offs		(413	)		(247	)		(236	)		(342	)		(313	)
Recoveries:
Consumer		34			28			31			33			25
Total recoveries		34			28			31			33			25
Net charge-offs		(379	)		(219	)		(205	)		(309	)		(288	)
Other-obtained through merger		---			---			40			---			---
Additions charged to operations		470			251			414			396			406
Balance at end of period	$	926		$	835		$	803		$	554		$	467
Ratio of allowance for loan losses to     net loans outstanding at     end of period		0.29	%		0.32	%		0.37	%		0.36	%		0.38	%
Ratio of net charge-offs during the     period to average loans outstanding     during the period		0.13	%		0.08	%		0.12	%		0.22	%		0.25	%
Ratio of net charge-offs during the     period to average non-performing     assets		22.15	%		17.66	%		28.37	%		49.05	%		49.23	%

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The distribution of our allowance for losses on loans at the dates indicated is summarized as follows:

	At September 30,
	2007							2006							2005
	Amount of Loan Loss Allowance		Loan Amounts by Category		Percent of Loans in Each Category to Total Loans			Amount of Loan Loss Allowance		Loan Amounts by Category		Percent of Loans in Each Category to Total Loans			Amount of Loan Loss Allowance		Loan Amounts by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in Thousands)
Real estate	$	64	$	187,957		59	%	$	52	$	165,636		64	%	$	59	$	144,551		66	%
Consumer		862		132,744		41			783		93,603		36			744		74,183		34
Unallocated		---		---		---			---		---		---			---		---		---
Total	$	926	$	320,701		100	%	$	835	$	259,239		100	%	$	803	$	218,734		100	%

	At September 30,
	2004							2003
	Amount of Loan Loss Allowance		Loan Amounts by Category		Percent of Loans in Each Category to Total Loans			Amount of Loan Loss Allowance		Loan Amounts by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in Thousands)
Real estate	$	61	$	95,560		62	%	$	9	$	75,769		61	%
Consumer		490		57,370		38			433		47,805		39
Unallocated		3		---		---			25		---		---
Total	$	554	$	152,930		100	%	$	467	$	123,574		100	%

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Investment Activities

Federally chartered savings institutions have the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, including callable agency securities, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements and federal funds.  Subject to various restrictions, federally chartered savings institutions may also invest their assets in investment grade commercial paper and corporate debt securities, and mutual funds whose assets conform to the investments that a federally chartered savings institution is otherwise authorized to make directly.

The chief financial officer has the basic responsibility for the management of our investment portfolio, subject to the direction and guidance of the ALM Committee.  The chief financial officer considers various factors when making decisions, including the marketability, maturity and tax consequences of the proposed investment.  The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

The general objectives of our investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low and to maximize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk.

In fiscal 2007, we utilized our expertise as a mortgage loan originator, selectively purchasing non-agency mortgage-backed securities ("MBS") that either met or exceeded our underwriting guidelines.  This strategy was  employed to complement consumer loan underwriting.  Strong loan demand in consumer lending required management of the structure of the balance sheet and compliance with the 35% consumer lending bucket cap.  Management chose to increase the asset base by purchasing AAA-rated MBSs funded by FHLB advances.  This allowed the Bank to continue making consumer loans.

The securities purchased are AAA-rated Jumbo Prime MBS, with an average loan-to-value ratio of 68.98% and an average FICO score of 741.  We have stayed within the Jumbo Prime sector, purchasing no Sub-Prime or Alt-A MBS to date.  Furthermore, while the bank has purchased hybrid ARM securities, we have refrained from purchasing any negative-amortization loans or option ARMs.  Finally, the MBS portfolio consists only of those assets that are Secondary Mortgage Enhancement Act of 1984 ("SMMEA") eligible, meaning that the MBS purchased are in one of the two highest rating categories and are first-lien mortgages only.

The following table sets forth the composition of Citizens Community Federal's investment securities and interest-bearing deposits at the dates indicated.

	At September 30,
	2007					2006					2005
	Book Value		% of Total			Book Value		% of Total			Book Value		% of Total
	(Dollars in Thousands)
Investment securities:
Federal Home Loan Bank stock	$	4,822		10.77	%	$	3,060		63.74	%	$	2,095		37.24	%
Interest-bearing deposits with banks		371		0.83			959		19.97			1,444		25.67
Mortgage-backed securities		39,592		88.40			782		16.29			946		16.81
Corporate notes		---		---			---		---			981		17.44
Mutual funds		---		---			---		---			160		2.84
	$	44,785		100.00	%	$	4,801		100.00	%	$	5,626		100.00	%

Sources of Funds

General.  Citizens Community Federal's sources of funds are deposits, borrowings, payment of principal and interest on loans, interest earned on or maturation of other investment securities and funds provided from operations.

Deposits.  Citizens Community Federal offers a variety of deposit accounts to both consumers and businesses having a wide range of interest rates and terms.  Deposits consist of savings accounts, money market

14

deposit accounts, demand accounts and certificates of deposit.  Citizens Community Federal solicits deposits primarily in its market areas and from financial institutions and has accepted a limited amount of brokered deposits.  At September 30, 2007, Citizens Community Federal had $4.3 million of brokered deposits.  We obtain these deposits from brokers when the rates requested are less than the amount we pay our retail customers.  The typical term for these brokered deposits are 12 to 18 months.  Our experience is that these are not volatile deposits subject to significant early withdrawal.  Citizens Community Federal primarily relies on competitive pricing policies, marketing and customer service to attract and retain these deposits.  Citizens Community Federal from time to time participates in an auction for brokered deposits to assist in finding the lowest cost deposits possible.  Citizens Community Federal constantly searches for the most cost-effective source of funds, either through brokered deposits, or through marketing our own rates to protect our margin and maintain our sales culture.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition.  The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand.  We have become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious.  We try to manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors.  Based on experience, management believes that Citizens Community Federal's deposits are relatively stable sources of funds.  Despite this stability, the ability to attract and maintain these deposits and the rates paid on them has been and will continue to be significantly affected by market conditions.

Deposit Flow

The following table sets forth deposit flows during the periods indicated.

	Year Ended September 30,
	2007			2006			2005
	(Dollars in Thousands)
Opening balance	$	186,711		$	177,469		$	127,976
Deposits assumed in merger		---			---			41,571
Net deposits		14,029			4,060			4,659
Interest credited		6,994			5,182			3,263
Ending balance	$	207,734		$	186,711		$	177,469
Net increase	$	21,023		$	9,242		$	49,493
Percent increase		11.3	%		5.2	%		38.7	%

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The following table sets forth the dollar amount of savings deposits in the various types of deposit programs we offered at the dates indicated.

	At September 30,
	2007					2006					2005
	Amount		Percent of Total			Amount		Percent of Total			Amount		Percent of Total
	(Dollars in Thousands)
Transaction Accounts and Savings Deposits:
Demand accounts	$	18,657		8.98	%	$	18,669		10.00	%	$	19,315		10.88	%
Savings accounts		22,855		13.06			24,975		13.38			27,193		17.09
Money market accounts		27,121		11.00			22,262		11.92			30,323		15.33
Total non-certificates		68,633		33.04			65,906		35.30			76,831		43.30
Certificates:
6-12 month		53,868		25.93			26,413		14.14			15,519		8.74
15-18 month		30,055		14.47			44,715		23.95			33,818		19.05
24-60 month		18,744		9.02			25,313		13.56			30,368		17.11
Anniversary		170		0.08			463		0.25			493		0.28
Institutional		26,378		12.70			14,796		7.92			12,415		7.00
Borrowers		---		---			---		---			1		0.01
IRA		9,886		4.76			9,105		4.88			8,024		4.51
Total certificates		139,101		66.96			120,805		64.70			100,638		56.70
Total Deposits	$	207,734		100.00	%	$	186,711		100.00	%	$	177,469		100.00	%

The following table shows rate and maturity information for Citizens Community Federal's certificates of deposit at September 30, 2007.

		0.00-1.99	%		2.00-3.99	%		4.00-5.99	%	Total		Percent of Total
	(Dollars in Thousands)
Certificate Accounts Maturing During the 12 Months Ended:
September 30, 2008	$	135		$	9,255		$	96,640		$	106,030		76.23	%
September 30, 2009		71			1,039			26,887			27,997		20.13
September 30, 2010		---			3			2,613			2,616		1.88
September 30, 2011		---			---			2,299			2,299		1.65
Thereafter		---			---			159			159		0.11
Total	$	206		$	10,297		$	128,598		$	139,101		100.0	%
Percent of total		0.15	%		7.40	%		92.45	%

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The following table indicates the amount of Citizens Community Federal's certificates of deposit by time remaining until maturity as of September 30, 2007.

	3 Months or Less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total
	(In thousands)
Certificates of deposit
less than $100,000	$	21,988	$	26,489	$	33,177	$	27,226	$	108,880
Certificates of deposit
of $100,000 or more		3,833		7,679		12,864		5,845		30,221
Total certificates of deposit	$	25,821	$	34,168	$	46,041	$	33,071	$	139,101

Borrowings.  Although deposits are our primary source of funds, Citizens Community Federal may utilize borrowings when they are a less costly source of funds and can be invested at a positive interest rate spread, when it desires additional capacity to fund loan demand or when they meet asset/liability management goals.  Borrowings consist of advances from the Federal Home Loan Bank of Chicago.  See Note 10 of the Notes to Consolidated Financial Statements.

Citizens Community Federal may obtain advances from the Federal Home Loan Bank of Chicago upon the security of certain of our mortgage loans and mortgage-backed and other securities.  These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features.  At September 30, 2007, Citizens Community Federal had $96.4 million in Federal Home Loan Bank advances outstanding and the ability to borrow an additional $38.6 million.  These advances were taken as a liquidity source to fund increasing loan demand and the purchase of investment securities.

Citizens Community Federal is authorized to borrow from the Federal Reserve Bank of Chicago's "discount window" after it has exhausted other reasonable alternative sources of funds, including Federal Home Loan Bank borrowings.  We have never borrowed from our Federal Reserve Bank.

The following table sets forth the maximum month-end balance and average balance of borrowings for the periods indicated.

	Year Ended September 30,
	2007		2006		2005
	(In Thousands)
Maximum Balance:
FHLB advances	$	96,446	$	61,200	$	36,200
Average Balance:
FHLB advances	$	48,643	$	48,700	$	24,850

The following table sets forth certain information as to Citizens Community Federal's borrowings at the dates indicated.

	At September 30,
	2007			2006			2005
	(Dollars in Thousands)
FHLB advances	$	96,446		$	61,200		$	36,200
Weighted average interest rate     of FHLB advances		5.19	%		5.52	%		4.09	%

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Subsidiary and Other Activities

As a federally chartered savings bank, Citizens Community Federal is permitted by OTS regulations to invest up to 2% of assets, or $7.7 million at September 30, 2007, in the stock of, or unsecured loans to, service corporation subsidiaries. Citizens Community Federal may invest an additional 1% of our assets in service corporations where such additional funds are used for inner-city or community development purposes.  Citizens Community Federal does not currently have any subsidiary service corporations.

Employees

At September 30, 2007, the Bank had a total of 85 full-time employees and 76 part-time employees.  Employees are not represented by any collective bargaining group.  Management considers its employee relations to be good.

REGULATION

Set forth below is a brief description of certain laws and regulations that are applicable to Citizens Community Bancorp, Inc. and Citizens Community Federal.  The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

Legislation is introduced from time to time in the United States Congress that may affect our operations.  In addition, the regulations governing Citizens Community Bancorp, Inc. and Citizens Community Federal may be amended from time to time by the OTS, the FDIC or the SEC, as appropriate.  Any such legislative or regulatory changes in the future could adversely affect our operations and financial condition.  No assurance can be given as to whether or in what form any such changes may occur.

Citizens Community Federal

Citizens Community Federal, as a federally chartered savings bank, is subject to regulation and oversight by the OTS extending to all aspects of its operations.  Citizens Community Federal also is subject to regulation and examination by the FDIC, which insures the deposits of Citizens Community Federal to the maximum extent permitted by law.  This regulation of Citizens Community Federal is intended for the protection of depositors and the insurance of accounts fund and not for the purpose of protecting stockholders.  As a federal savings bank, Citizens Community Federal is required to file periodic reports with the OTS and is subject to periodic examinations by the OTS.

OTS Regulation.  Our relationship with our depositors and borrowers is regulated to a great extent by federal laws and OTS regulations, especially in such matters as the ownership of savings accounts and the form and content of our mortgage requirements.  In addition, the branching authority of Citizens Community Federal is regulated by the OTS.  Citizens Community Federal is generally authorized to branch nationwide.

The investment and lending authority of Citizens Community Federal is prescribed by federal laws and regulations, and it is prohibited from engaging in any activities not permitted by such laws and regulations.  As a federal savings bank, Citizens Community Federal is required to meet a qualified thrift lender test.  This test requires Citizens Community Federal to have at least 65% of its portfolio assets, as defined by regulation, in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis.  In addition, Citizens may have no more than 35% of total assets in consumer loans, commercial paper and corporate debt securities  As an alternative, we may maintain 60% of the Bank's assets in those assets specified in Section 7701(a)(19) of the Internal Revenue Code.  Under either test, we are required to maintain a significant portion of our assets in residential-housing-related loans and investments.  Any institution that fails to meet the qualified thrift lender test becomes subject to certain restrictions on its operations and must convert to a national bank charter, unless it re-qualifies as, and thereafter remains, a qualified thrift lender.  If such an institution has not re-qualified or converted to a national bank within three years after the failure, it must divest of all investments and cease all activities not permissible for a national bank.  We were not subject to a similar requirement when we were a credit union and were not in compliance with this requirement at the time we became a federal savings bank.  As of September 30, 2007, Citizens Community Federal met this requirement with a qualified thrift lender percentage of 83.53.  In addition, at September 30, 2007, Citizens had 33.73% of its assets in consumer loans, commercial paper and corporate debt securities, in compliance with the limit.

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Under OTS regulations, Citizens Community Federal is subject to a lending limit for loans to one borrower or group of related borrowers.  This lending limit is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case the limit is increased to 25% of impaired capital and surplus).  At September 30, 2007, Citizens Community Federal's lending limit under this restriction was $6.5 million.  Our outstanding loans are in compliance with this lending limit.

The OTS's oversight of Citizens Community Federal includes reviewing its compliance with the customer privacy requirements imposed by the Gramm-Leach-Bliley Act of 1999 and the anti-money laundering provisions of the USA Patriot Act.  The Gramm-Leach-Bliley privacy requirements place limitations on the sharing of consumer financial information with unaffiliated third parties.  They also require each financial institution offering financial products or services to retail customers to provide such customers with its privacy policy and with the opportunity to "opt out" of the sharing of their personal information with unaffiliated third parties.  The USA Patriot Act significantly expands the responsibilities of financial institutions in preventing the use of the United States financial system to fund terrorist activities.  Its anti-money laundering provisions require financial institutions operating in the United States to develop anti-money laundering compliance programs and due diligence policies and controls to ensure the detection and reporting of money laundering.  These compliance programs are intended to supplement existing compliance requirements under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations.

We are subject to periodic examinations by the OTS.  During these examinations, the examiners may require Citizens Community Federal to provide for higher general or specific loan loss reserves, which can impact our capital and earnings.  As a federal savings bank, Citizens Community Federal is subject to a semi-annual assessment, based upon its total assets, to fund the operations of the OTS.

Transactions between Citizens Community Federal and its affiliates generally are required to be on terms as favorable to the institution as transactions with non-affiliates, and certain of these transactions, such as loans to an affiliate, are restricted to a percentage of Citizens Community Federal's capital.  In addition, Citizens Community Federal may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates.  Citizens Community Bancorp, Inc. is an affiliate of Citizens Community Federal.  Citizens Community Federal has entered into an expense allocation agreement and a tax allocation agreement with Citizens Community Bancorp, Inc. in order to meet these requirements.

The OTS has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits.  Any institution regulated by the OTS that fails to comply with these standards must submit a compliance plan.

The OTS has extensive enforcement authority over all savings associations and their holding companies, including, Citizens Community Federal and Citizens Community Bancorp, Inc. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions.  In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices.  Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OTS.  Except under certain circumstances, public disclosure of final enforcement actions by the OTS is required by law.

FDIC Regulation and Insurance of Accounts.  Citizens Community Federal's deposits are insured up to the applicable limits by the FDIC, and such insurance is backed by the full faith and credit of the United States Government.  As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions.  It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the deposit insurance fund.  The FDIC also has the authority to initiate enforcement actions against Citizens Community Federal and may terminate our deposit insurance if it determines that we have engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

Citizens Community Bancorp, Inc.

As a savings association holding company, Citizens Community Bancorp, Inc. is subject to regulation, supervision and examination by the OTS.  Applicable federal law and regulations limit the activities of Citizens Community Bancorp, Inc. and require the approval of the OTS for any acquisition or divestiture of a subsidiary,

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including another financial institution or holding company thereof.  Citizens Community Bancorp, Inc. is an affiliate of Citizens Community Federal, so its transactions with Citizens Community Federal are subject to regulatory limits and must be on terms as favorable to Citizens Community Federal as in transactions with non-affiliates.

If Citizens Community Federal fails the qualified thrift lender test Citizens Community Bancorp, Inc. must obtain the approval of the OTS prior to continuing after such failure, directly or through other subsidiaries, any business activity other than those approved for bank holding companies or their subsidiaries.  In addition, within one year of such failure Citizens Community Bancorp, Inc. must register as, and will become subject to, the restrictions applicable to bank holding companies.

Regulatory Capital Requirements

Capital Requirements for Citizens Community Federal.  Citizens Community Federal is required to maintain minimum levels of regulatory capital under OTS regulations.  These regulations established three capital standards, a tangible capital requirement, a leverage or core capital requirement and a risk-based capital requirement.  The OTS is also authorized to impose capital requirements in excess of these standards on a case-by-case basis.

The capital regulations require tangible capital of at least 1.5% of adjusted total assets, as defined by regulation.  Tangible capital generally includes common stockholders' equity and retained earnings, and certain noncumulative perpetual preferred stock and related earnings and excludes most intangible assets, which also are deducted from assets for purposes of calculating this capital ratio.  At September 30, 2007, Citizens Community Federal had tangible capital of $43.7 million, or 11.5% of adjusted total assets, which was approximately $38.0 million above the required level.

The capital standards require core or Tier 1 capital equal to at least 3.0% of adjusted total assets for the strongest institutions with the highest examination rating and 4.0% of adjusted total assets for all other institutions, unless the OTS requires a higher level based on the particular circumstances or risk profile of the institution.  Core capital generally consists of tangible capital, plus certain intangibles.  At September 30, 2007, Citizens Community Federal had $7.0 million of intangibles, $0 of which were included in core capital.  At September 30, 2007, Citizens Community Federal had core capital equal to $43.7 million, or 11.5% of adjusted total assets, which was $28.5 million above the required level of 4%.

The OTS also requires Citizens Community Federal to have total capital of at least 8.0% of risk-weighted assets.  Total capital consists of core or Tier 1 capital, as defined above, and Tier 2 capital, which consists of certain permanent and maturing capital instruments that do not qualify as Tier 1 capital and of the allowance for possible loan and lease losses up to a maximum of 1.25% of risk-weighted assets.  Tier 2 capital may be used to satisfy this risk-based requirement only to the extent of Tier 1 capital.  In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset.  The OTS is authorized to require Citizens Community Federal to maintain an additional amount of total capital to account for concentration of credit risk, level of interest rate risk, equity investments in non-financial companies and the risk of non-traditional activities.  At September 30, 2007, Citizens Community Federal had $246.8 million in risk-weighted assets and total capital of $44.4 million, or 18.0% of risk-weighted assets, which was $24.7 million above the required level.

The OTS is authorized and, under certain circumstances, required to take certain actions against savings banks that fail to meet these capital requirements, or that fail to maintain an additional capital ratio of Tier 1 capital of at least 4.0% of risk weighted-assets.  The OTS is generally required to take action to restrict the activities of an "under-capitalized institution," which is an institution with less than either a 4.0% core capital ratio, a 4.0% Tier 1 risked-based capital ratio or an 8.0% total risk-based capital ratio.  Any such institution must submit a capital restoration plan, and, until such plan is approved by the OTS, it may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions.  The OTS is authorized to impose the additional restrictions on under-capitalized institutions.

Any institution that fails to comply with its capital plan or has Tier 1 risk-based or core capital ratios of less than 3.0% or a total risk-based capital ratio of less than 6.0% is considered "significantly undercapitalized" and must be made subject to one or more additional specified actions and operating restrictions that may cover all aspects of its operations and may include a forced merger or acquisition of the institution.  An institution with tangible equity to total assets of less than 2.0% is "critically undercapitalized" and becomes subject to further mandatory restrictions

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on its.  The OTS generally is authorized to reclassify an institution into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.  The imposition by the OTS of any of these measures on Citizens Community Federal may have a substantial adverse effect on its operations and profitability.

Institutions with at least a 4.0% core capital ratio, a 4.0% Tier 1 risked-based capital ratio and an 8.0% total risk-based capital ratio are considered "adequately capitalized."  An institution is deemed a "well capitalized" institution if it has at least a 5% leverage capital ratio, a 6.0% Tier 1 risked-based capital ratio and an 10.0% total risk-based capital ratio.  At September 30, 2007, Citizens Community Federal was considered a "well capitalized" institution.

The OTS is also generally authorized to reclassify an institution into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.  The imposition by the OTS of any of these measures on Citizens Community Federal may have a substantial adverse effect on its operations and profitability.

Capital Requirements for Citizens Community Bancorp, Inc.  Citizens Community Bancorp, Inc. is not subject to any specific capital requirements.  The OTS, however, does expect Citizens Community Bancorp, Inc. to support Citizens Community Federal, including providing additional capital when Citizens Community Federal does not meet its capital requirements.  As a result of this expectation, the OTS regulates the ability of Citizens Community Federal to pay dividends to Citizens Community Bancorp, Inc.

Limitations on Dividends and Other Capital Distributions

OTS regulations impose various restrictions on savings institutions with respect to the ability of Citizens Community Federal to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.  Citizens Community Federal must file a notice or application with the OTS before making any capital distribution.  Citizens Community Federal generally may make capital distributions during any calendar year in an amount up to 100% of net income for the year to date plus retained net income for the two preceding years, so long as it is well-capitalized after the distribution.  If Citizens Community Federal, however, proposes to make a capital distribution when it does not meet its current minimum capital requirements (or will not following the proposed capital distribution) or that will exceed these net income limitations, it must obtain OTS approval prior to making such distribution.  The OTS may always object to any distribution based on safety and soundness concerns.

Citizens Community Bancorp, Inc. is not subject to OTS regulatory restrictions on the payment of dividends.  Dividends from Citizens Community Bancorp, Inc., however, may depend, in part, upon its receipt of dividends from Citizens Community Federal.  In addition, Citizens Community Federal may not make a distribution that would constitute a return of capital during the three-year term of the business plan submitted in connection with this mutual holding company reorganization and stock issuance.  No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized.

Federal Securities Law

The stock of Citizens Community Bancorp, Inc. is registered with the SEC under the Securities Exchange Act of 1934, as amended.  Citizens Community Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Securities Exchange Act of 1934.

Citizens Community Bancorp, Inc. stock held by persons who are affiliates of Citizens Community Bancorp, Inc. may not be resold without registration unless sold in accordance with certain resale restrictions.  Affiliates are generally considered to be officers, directors and principal stockholders.  If Citizens Community Bancorp, Inc. meets specified current public information requirements, each affiliate of Citizens Community Bancorp, Inc. will be able to sell in the public market, without registration, a limited number of shares in any three-month period.

The SEC and NASDAQ have adopted regulations and policies under the Sarbanes-Oxley Act of 2002 that apply to Citizens Community Bancorp, Inc. as a registered company under the Securities Exchange Act of 1934 and a NASDAQ-traded company.  The stated goals of these Sarbanes-Oxley requirements are to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties at publicly traded

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companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.  The SEC and NASDAQ Sarbanes-Oxley-related regulations and policies include very specific additional disclosure requirements and new corporate governance rules.  The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

TAXATION

Federal Taxation

General.  Citizens Community Bancorp, Inc., and Citizens Community Federal are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below.  The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to Citizens Community Bancorp, Inc. or Citizens Community Federal.  Prior to December 2001, Citizens Community Federal was a credit union and was not generally subject to corporate income tax.  The Company files consolidated federal tax returns with Citizens Community Federal.  Neither the Company nor Citizens Community Federal has been audited by the Internal Revenue Service during the past five years.

Method of Accounting.  For federal income tax purposes, Citizens Community Federal currently reports its income and expenses on the accrual method of accounting and uses a fiscal year ending on September 30 for filing its federal income tax return.

Minimum Tax.  The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, called alternative minimum taxable income.  The alternative minimum tax is payable to the extent such alternative minimum taxable income is in excess of the regular tax.  Net operating losses can offset no more than 90% of alternative minimum taxable income.  Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years.  Citizens Community Federal has not been subject to the alternative minimum tax, nor do we have any such amounts available as credits for carryover.

Net Operating Loss Carryovers.  A financial institution may carryback net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years.  This provision applies to losses incurred in taxable years beginning after August 6, 1997.  At September 30, 2007, Citizens Community Federal had no net operating loss carryforwards for federal income tax purposes.

Corporate Dividends-Received Deduction.  We have elected to file a consolidated return with Citizens Community Federal, dividends it receives from Citizens Community Federal will not be included as income to Citizens Community Bancorp, Inc.  The corporate dividends-received deduction is 100% or 80%, in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payer of the dividend.

State Taxation

Citizens Community Bancorp, Inc. and Citizens Community Federal are subject to the Wisconsin corporate franchise (income) tax, which is assessed at the rate of 7.9% of taxable income.  Wisconsin taxable income generally is the same as federal taxable income with certain adjustments.  Citizens Community Federal has branch offices in Minnesota and Michigan and, accordingly, is subject to state taxes in these states as well.  Neither the Company nor Citizens Community Federal has been audited by Wisconsin or any other state taxing authorities during the past five years.

As a Maryland corporation, Citizens Community Bancorp, Inc. is required to file an annual report with and pay an annual fee to the State of Maryland.

Executive Officers Who Are Not Directors

 The business experience for at least the past five years for each of our executive officers who do not serve as directors is set forth below.

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John Zettler.  Mr. Zettler is currently serving as Chief Financial Officer.  In his capacity as Senior Vice President, Mr. Zettler assists the President in all of his duties with primary responsibility for financial information and human resources activity of Citizens Community Federal.  Mr. Zettler joined Citizens Community Federal in 1980 and was named Senior Vice President in 1997.

Timothy J. Cruciani.  Mr. Cruciani is currently serving as Executive Vice President.  He joined Citizens Community Federal in 1989.  Mr. Cruciani oversees the operations of Citizens Community Federal.

Rebecca Johnson.  Ms. Johnson serves as Senior Vice President MIC/Accounting for Citizens Community Federal, a position she has held since 2002.  She directs all computer/data processing and accounting activities associated with Citizens Community Federal.  Ms. Johnson joined Citizens Community Federal in 1980.

Item 1A.   Risk Factors

An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included and incorporated by reference in this report. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment.

Risks Related to Our Business

Our loan portfolio possesses increased risk due to our substantial number of consumer loans.

Our consumer loans accounted for approximately $132.7 million, or 41%, of our total loan portfolio as of September 30, 2007, of which $27.2 million consisted of automobile loans, $101.0 million consisted of personal loans secured by other collateral and $4.6 million consisted of unsecured personal loans.  Generally, we consider these types of loans to involve a higher degree of risk compared to first mortgage loans on one- to four-family, owner-occupied residential properties.  As a result of our large portfolio of consumer loans, it may become necessary to increase the level of our provision for loan losses, which could hurt our profits.  Consumer loans generally entail greater risk than do one- to four-family residential mortgage loans, particularly in the case of loans that are secured by rapidly depreciable assets, such as automobiles.  In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance.  In addition, $7.8 million of our automobile loans and $84.3 million of our other secured consumer loans were indirect loans originated by or through third parties, which present greater risk than our direct lending products.  See "Lending Activities - Consumer Lending" and "Asset Quality."

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.

We make various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.  In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience and evaluate economic conditions.  Management recognizes that significant new growth in the loan portfolio and the refinancing of existing loans can result in completely new portfolios of unseasoned loans that may not perform in a historical or projected manner.  If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover actual losses, resulting in additions to our allowance.  Material additions to our allowance could decrease our net income.  Our allowance for loan losses was 0.29% of net loans, and 60.9% of non-performing loans at September 30, 2007.  Our regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize additional loan charge-offs.  Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities will have a material adverse effect on our financial condition and results of operations.  As of September 30, 2007, we believe that the current allowance reflects probable incurred credit losses in the portfolio.

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Rising interest rates may hurt our profits.

To be profitable we have to earn more interest on our loans and investments than we pay on our deposits and borrowings.  Interest rates have decreased in fiscal 2007 after rising in fiscal 2006.  If interest rates begin to rise again, our net interest income and the value of our assets could be reduced if interest paid on interest-bearing liabilities, such as deposits and borrowings, increases more quickly than interest received on interest-earning assets, such as loans and investments.  This is most likely to occur if short-term interest rates increase at a faster rate than long-term interest rates, which would cause income to go down.  In addition, rising interest rates may hurt our income, because they may reduce the demand for loans and the value of our securities.  A flat yield curve also may hurt our income, because it would reduce our ability to reinvest proceeds from loan and investment repayments at higher rates.  See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and Qualitative Disclosures About Market Risk" in the Annual Report, attached hereto as Exhibit 13.

During 2006 and 2007, interest rates on deposits had been increasing at a slightly faster pace than rates on loans, which reduced our net interest margin, return on assets and return on equity.  See "Selected Consolidated Financial Information and Other Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and Qualitative Disclosures About Market Risk" in the Annual Report, attached hereto as Exhibit 13.

If economic conditions deteriorate, our results of operations and financial condition could be adversely impacted as borrowers' ability to repay loans declines and the value of the collateral securing our loans decreases.

Our financial results may be adversely affected by changes in prevailing economic conditions, including decreases in real estate values, changes in interest rates that cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events.  In addition, we have a significant amount of real estate loans.  Accordingly, decreases in real estate values could adversely affect the value of collateral securing our loans.  Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans.  These factors could expose us to an increased risk of loan defaults and losses and have an adverse impact on our earnings.

We operate in a highly regulated environment and may be affected adversely by negative examination results and changes in laws and regulations.

Citizens Community Federal is subject to extensive regulation, supervision and examination by the OTS, our chartering authority, and by the Federal Deposit Insurance Corporation ("FDIC"), the insurer of our deposits.  Citizens Community Bancorp, Inc. is subject to regulation and supervision by the OTS.  This regulation and supervision governs the activities in which we may engage and are intended primarily for the protection of the deposit insurance fund administered by the FDIC and our depositors.  Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses.  Any change in this regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations and profitability.

Strong competition within our market areas may limit our growth and profitability.

Competition in the banking and financial services industry is intense.  In our market areas, we compete with numerous commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.  Some of our competitors have substantially greater resources and broader lending authority than we have, greater name recognition and market presence, which benefit them in attracting business, and offer certain services that we do not or cannot provide.  In addition, larger competitors may be able to price loans and deposits more aggressively than we do.  Our profitability depends upon our continued ability to successfully compete in our market areas.  The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest-earning assets.

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Our business is geographically concentrated in Wisconsin, Minnesota and Michigan and a downturn in economic conditions in these states could reduce our profits.

Most of our loans are to individuals located in Wisconsin, Minnesota and Michigan.  Any decline in the economy of these states could have an adverse impact on our earnings.  Decreases in local real estate values could adversely affect the value of property used as collateral.  Adverse changes in the economy also may have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings.

Item 1B.                      Unresolved Staff Comments

None.

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Item 2.                      Description of Properties

The following table provides a list of the Bank's main and branch offices and indicates whether the properties are owned or leased.

Location	Owned or Leased	Lease Expiration Date	Net Book Value at September 30, 2007 (In Thousands)
ADMINISTRATIVE OFFICES:	Leased	April 30, 2009	N/A
2174 EastRidge Center
Eau Claire, WI 54701
BRANCH OFFICES:
Westside Branch	Owned	N/A	$298
2125 Cameron Street
Eau Claire, WI 54703
Eastside Branch	Owned	N/A	$352
1028 N.  Hillcrest Parkway
Altoona, WI 54720
Fairfax Branch	Owned	N/A	$785
219 Fairfax Street
Altoona, WI 54720
Mondovi Branch	Leased	June 30, 2008	N/A
695 E.  Main Street
Mondovi, WI 54755
Rice Lake Branch	Leased	April 30, 2008	N/A
2462 S.  Main Street
Rice Lake, WI 54868
Chippewa Falls Branch	Owned	N/A	$361
427 W.  Prairie View Road
Chippewa Falls, WI 54729
Baraboo Branch	Owned(1)	N/A	$2
S. 2423 Highway 12
Baraboo, WI 53913
Black River Falls Branch	Owned(1)	N/A	$19
W. 9036 Highway 54 E.
Black River Falls, WI 54615
Mankato Branch	Leased	October 30, 2010	N/A
1410 Madison Avenue
Mankato, MN 56001
Oakdale Branch	Leased	September 30, 2009	N/A
7035 10th Street North
Oakdale, MN 55128
Lake Orion Branch(2)	Leased	February 28, 2012	N/A
688 S.  Lapeer Road
Lake Orion, MI 48362
Rochester Hills Branch	Owned	N/A	$546
310 West Tienken Road
Rochester Hills, MI 48306

______________

(1)	The building is owned and the land is leased.
(2)	Citizens Community Federal has a right to cancel this lease on or after March 1, 2007, with the cancellation to take effect 90 days after it exercises the right to cancel.

Item 3.                      Legal Proceedings

In the opinion of management, the Bank is not a party to any other pending claims or lawsuits that are expected to have a material effect on the Bank's financial condition or operations.   Periodically, there have been various claims and lawsuits involving the Bank, mainly as a defendant, such as claims to enforce liens,

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condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank's business.  Aside from such pending claims and lawsuits, which are incident to the conduct of the Bank's ordinary business, the Bank is not a party to any material pending legal proceedings that would have a material effect on the financial condition or operations of the Bank.

Item 4.                      Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the quarter ended September 30, 2007.

PART II

Item 5.                      Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a) The information contained in the section captioned "Stockholder Information" in the Annual Report, attached hereto as Exhibit 13, is incorporated herein by reference.

(b) Information regarding our equity compensation plans is included in Item 12 of this Form 10-K.

(c) Issuer Purchases of Equity Securities.  The following table summarizes the Company's stock repurchase activity for each month during the three months ended September 30 ,2007.  All shares repurchased during the three months ended September 30, 2007, were repurchased in the open market.

	(a) Total Number of Shares (or Units) Purchased	(b) Average Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under Plans or Programs
Period
Quarter ended September 30, 2007	---	N/A	---	$  ---

Item 6.                      Selected Financial Data

The information contained in the section captioned "Selected Consolidated Financial Information" in the Annual Report is incorporated herein by reference.

Item 7.                      Management's Discussion and Analysis of Financial Condition and Results of Operations

The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report is incorporated herein by reference.

Item 7A                      Quantitative and Qualitative Disclosures About Market Risk

The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and Qualitative Disclosures about Market Risk" in the Annual Report is incorporated herein by reference.

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Item 8.                      Financial Statements and Supplementary Data

Report From Independent Registered Accounting Firm*

(a)	Consolidated Balance Sheets as of September 30, 2007, and 2006*
(b)	Consolidated Statements of Income for the Years Ended September 30, 2007, 2006 and 2005*
(c)	Consolidated Statements of Changes in Stockholders' Equity For the Years Ended September 30, 2007, 2006 and 2005*
(d)	Consolidated Statements of Cash Flows For the Years Ended September 30, 2007, 2006 and 2005*
(e)	Notes to Consolidated Financial Statements*
____________
*	Contained in the Annual Report filed as an exhibit hereto and incorporated herein by reference.   All schedules have been omitted as the required information is either inapplicable or contained in the Consolidated Financial Statements or related Notes contained in the Annual Report.

Item 9.                      Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

No disclosure under this item is required.

Item 9A.                      Controls and Procedures

(a)           Evaluation of Disclosure Controls and Procedures

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 also is 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 or 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.

We performed an evaluation of the significant policies, controls and procedures of the Company and have concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed in the reports is accumulated and communicated to management in a timely manner and recorded, processed and summarized accurately.

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.  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 will, for the first time, be a required part of our annual report on Form 10-K for the fiscal year ending September 30, 2008.  In addition, our independent accountants must report on management's evaluation in the subsequent years.  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 2008 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.

Item 9B.                      Other Information

None.

28

PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

Directors

Information concerning the directors of the Company is incorporated herein by reference from the definitive proxy statement for the annual meeting of shareholder to be held February 21, 2008, a copy of which will be filed not later than 120 days after the close of the fiscal year.

Executive Officers

Information concerning the executive officers of the Company is incorporated herein by reference from the definitive proxy statement for the annual meeting of shareholders to be held February 21, 2008, except for information contained under the headings "Compensation Committee Report" and "Stock Performance Presentation," a copy of which will be field not later than 120 days after the close of the fiscal year.

Audit Committee Matters and Audit Committee Financial Expert

The Board of Directors of the Company has a standing Audit/Compliance Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act.  The members of that committee are Directors Westrate (Chairman), McHugh and Schilling, all of whom are considered independent under applicable Nasdaq listing standards.  The Board of Directors has determined that Mr. Schilling is an "audit committee financial expert" as defined in applicable SEC rules.  Additional information concerning the audit committee of the Company's Board of Directors is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held February 21, 2008, except for information contained under the headings "Compensation Committee Report," and "Report of the Audit/Compliance Committee," a copy of which will be filed not later than 120 days after the close of the fiscal year.

Section 16(a) Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's directors and executive officers, and persons who own more than 10% of the Company's common stock, file with the SEC initial reports of ownership and reports of changes in ownership of the Company's common stock.   Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.   To the Company's knowledge no late reports occurred during the fiscal year ended September 30, 2007.   All other Section 16(a) filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners were complied with.

Code of Ethics

The Company's code of conduct, adopted on October 31, 2006, is applicable to its principal executive officer, principal financial officer and principal accounting officer (as well as all other employees), does meet the definition of "code of ethics" set forth in Item 406 of SEC Regulation S-K.  A copy of this document is available free of charge by contacting John D. Zettler, our investor relations officer, at (715) 836-9994.  A copy of the Company's Code of Ethics is being filed with the SEC as Exhibit 14 to this Annual Report on Form 10-K for the fiscal year ending September 30, 2007.

Nomination Procedures

There have been no material changes to the procedures by which stockholders may recommend nominees to the Company's Board of Directors.

29

Item 11.                                Executive Compensation

Information concerning executive compensation is incorporated herein by reference from the definitive proxy statement for the annual meeting of shareholders to be held February 21, 2008, except for information contained under the headings "Compensation Committee Report" and "Stock Performance Presentation," a copy of which will be filed not later than 120 days after the close of the fiscal year.

Item 12.                                Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the definitive proxy statement for the annual meeting of shareholders to be held February 21, 2008, except for information contained under the headings "Compensation Committee Report" and "Stock Performance Presentation," a copy of which will be filed not later than 120 days after the close of the fiscal year.

The following table sets forth information as of September 30, 2007, with respect to compensation plans under which shares of common stock were issued.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options warrants and rights	Weighted-average exercise price of outstanding options warrants and rights	Number of Securities remaining available for future issuance under equity compensation plans
Equity Compensation Plans Approved By Security Holders	190,806(1)	$7.04(1)	89,413(1)
Equity Compensation Plans Not Approved By Security Holders	---	---	---

____________________

(1)   Reflects amounts after exchange ratio related to second-step offering.

Item 13.                                Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions is incorporated herein by reference from the definitive proxy statement for the annual meeting of shareholders to be held February 21, 2008, except for information contained under the headings "Compensation Committee Report" and "Stock Performance Presentation," a copy of which will be filed not later than 120 days after the close of the fiscal year.

30

PART IV

Item 14.                                Principal Accountant Fees and Services

Information concerning fees and services by our principal accountants is incorporated herein by reference from our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of the fiscal year.

Item 15.                                Exhibits and Financial Statement Schedules

(a)(1)           Financial Statements:

Part II, Item 8 is hereby incorporated by reference.

(a)(2)           Financial Statement Schedules:

All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable.

(a)(3)           Exhibits:

Regulation S-K Exhibit Number	Document				Reference to Prior Filing or Exhibit Number Attached Hereto
3(i)	Articles of Incorporation of the Registrant				*
3(ii)	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	*
			(vi)	Brian P. Ashley	***
		(e)	Tax Allocation Agreement		**
13	2007 Annual Report to Stockholders				13
14	Code of Conduct and Ethics				14
21	Subsidiaries of the Registrant				21
23	Consent of Auditors				23
31	Rule 13a-14(a)/15d-14(a) Certifications				31
32	Section 1350 Certifications				32

_______________________

*	Filed as exhibit to the Company's registration statement filed on June 30, 2007, (File No.333-135527) pursuant to Section 5 of the Securities Act of 1933.  All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K.
**	Filed as exhibit to Citizen Community Bancorp's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2004.
***	Filed as exhibit to Citizen Community Bancorp's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2005.

31

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) 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.

		CITIZENS COMMUNITY BANCORP, INC.
Date:	December 20, 2007	By:	/s/ James G. Cooley                                      James G. Cooley President and Chief Executive Officer (Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ Richard McHugh	December 20, 2007
	Richard McHugh Chairman of the Board
By:	/s/ James G. Cooley	December 20, 2007
	James G. Cooley President, Chief Executive Officer and Director (Principal Executive Officer)
By:	/s/ Thomas C. Kempen	December 20, 2007
	Thomas C. Kempen Vice Chairman of the Board
By:	/s/ Brian R. Schilling Brian R. Schilling Director and Treasurer	December 20, 2007
By:	/s/ Adonis E. Talmage	December 20, 2007
	Adonis E. Talmage Director and Secretary
By:	/s/ David B. Westrate	December 20, 2007
	David B. Westrate Director
By:	/s/ John D. Zettler	December 20, 2007
	John D. Zettler Senior Vice President and Chief Financial Officer (Principal Financial Officer)

32

Index to Exhibits

Regulation S-K Exhibit Number	Document
13	2007 Annual Report to Stockholders
14	Code of Conduct and Ethics
21	Subsidiaries of the Registrant
23	Consent of Auditors
31	Rule 13a-14(a)/15d-14(a) Certifications
32	Section 1350 Certifications

EX-13

TABLE OF CONTENTS

A Message from the Board of Directors                                                                                                                        1

Selected Consolidated Financial Information                                                                                                                2

Management's Discussion and Analysis of Financial

  Condition and Results of Operations                                                                                                                            4

Consolidated Financial Statements                                                                                                                                23

Stockholder Information                                                                                                                                                  62

Corporate Information                                                                                                                                                      64

FROM YOUR BOARD OF DIRECTORS

Dear Fellow Stockholders,

Despite challenges facing many banks, we’re pleased to report that the fundamental strength of Citizens Community Bancorp Inc.’s business model, employees and dedication to superior service, drove improved performance in 2007.

For Citizens, fiscal 2007 was unique. We successfully raised almost $53 million through our October 2006 public offering—helping support the Company’s future. With the financial flexibility to grow and prosper, our more than 47,000 customers and 161 employees can be assured that we’re well positioned for continued selective growth. In addition, we ended the year on a high note, delivering strong loan and income growth.

For the year ended September 30, 2007, Citizens Community Bancorp Inc.’s total assets increased by $102.1 million, or 36 percent, to $386.2 million. This growth was primarily due to a $61.7 million increase in loans receivable and a $38.8 million increase in investments, which consist of AAA-rated mortgage-backed securities.

In fiscal 2007 net income was $743,000, or $0.11 per diluted share, up 67 percent from net income of $446,000, or $0.06 per diluted share, for the prior year. The year-over-year gain was primarily due to an increase in net interest income.

Looking ahead, our strong capital position and history of organic growth, and expansion growth, bode well for the future. For fiscal 2008, our growth strategy will focus on three primary areas:

· Expansion in select locations that we believe offer excellent growth potential;

· A continued emphasis on increasing core deposits; and

· Rigorous management of our lending portfolio to minimize risk and maximize income.

Thank you for your belief in our vision and continued support.

[signature cut] [signature cut]

Richard McHugh James G. Cooley

Chairman President, Chief Executive Officer

    and Director

1

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The summary information presented below under "Selected Financial Condition Data" and "Selected Operations Data" for, and as of the end of, each of the years ended September 30 is derived from our audited financial statements.  The following information is only a summary and you should read it in conjunction with our financial statements and notes beginning on page 23.

	September 30,
	2007		2006		2005		2004		2003
	(In Thousands)
Selected Financial Condition Data:
Total assets	$	386,113	$	283,990	$	245,707	$	161,980	$	130,400
Loans receivable, net		320,027		258,467		217,931		152,376		123,107
Other interest-bearing deposits		371		959		1,444		---		---
Securities available for sale		39,592		782		2,088		---		---
Deposits		207,734		186,711		177,469		127,976		114,963
Total borrowings		96,446		61,200		36,200		13,500		3,700
Stockholders' equity(1)		78,149		30,082		29,553		19,606		10,991

	Year Ended September 30,
	2007		2006			2005			2004			2003
	(In Thousands)
Selected Operations Data:
Total interest income	$	19,346	$	15,311		$	11,926		$	9,619		$	8,880
Total interest expense		8,889		7,221			3,992			2,889			3,178
Net interest income		10,457		8,090			7,934			6,730			5,702
Provision for loan losses		470		251			414			396			406
Net interest income after provision for loan
losses		9,987		7,839			7,520			6,334			5,296
Fees and service charges		1,262		1,243			1,160			1,038			1,009
Gain (loss) on sales of loans, mortgage-backed
securities and investment securities		---		27			---			---			---
Other non-interest income		464		387			861			331			323
Total non-interest income		1,726		1,657			2,021			1,369			1,332
Total non-interest expense		10,522		8,741			7,806			6,323			5,641
Income before taxes		1,191		755			1,735			1,380			987
Income tax provision		448		309			684			543			390
Net income	$	743	$	446		$	1,051		$	837		$	597
Basic and diluted earnings per share		0.11		0.06	(2)	$	0.18	(2)	$	0.14	(2)	N/A(1)

(Footnotes on following page)

2

Selected Financial Ratios and Other Data

	September 30,
	2007			2006			2005			2004			2003
Performance Ratios
Return on assets (ratio of net income to average total assets)		0.22	%		0.17	%		0.56	%		0.57	%		0.49	%
Return on equity (ratio of net income to average
equity)		1.09	%		1.50	%		4.87	%		5.47	%		5.59	%
Interest rate spread information
Average during period		3.07	%		3.28	%		4.28	%		4.50	%		4.82	%
End of period		3.05	%		3.11	%		3.92	%		4.59	%		4.80	%
Net interest margin		3.77	%		3.54	%		4.19	%		4.70	%		4.90	%
Ratio of operating expense to average total assets		3.14	%		3.30	%		4.12	%		4.33	%		4.59	%
Ratio of average interest-bearing assets to
average interest-bearing liabilities		1.24	%		1.09	%		1.11	%		1.10	%		1.05	%
Quality Ratios
Non-performing assets to total assets at end
of period		0.43	%		0.63	%		0.29	%		0.43	%		0.43	%
Allowance for loan losses to non-performing
loans		60.92	%		60.07	%		118.26	%		79.51	%		82.92	%
Allowance for loan losses to net loans		0.29	%		0.32	%		0.37	%		0.36	%		0.38	%
Capital Ratios
Equity to total assets at end of period		20.24	%		10.59	%		12.03	%		12.10	%		8.43	%
Average equity to average assets		21.42	%		11.26	%		11.40	%		10.46	%		8.70	%
Other Data
Number of full-service offices		12			12			12			9			8

_________________

(1) Prior to March 29, 2004, Citizens Community Federal was a mutual institution whose equity was retained earnings, therefore, per share earnings prior to that date are not meaningful.

(2) The formation of the Company was completed March 29, 2004, the date of closing of the initial public offering.  The basic and diluted EPS are presented for the period March 29, 2004, through September 30, 2004.  The weighted average number of shares outstanding for this period was 3,038,769 for basic and diluted EPS.  Earnings per share were restated to reflect the impact of the second-step conversion and reorganization of the Company, which occurred October 31, 2006.

3

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Our results of operations depend primarily on our net interest income.  Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities and interest-bearing deposits with other financial institutions, and the interest we pay on our interest-bearing liabilities, consisting primarily of savings accounts, money market accounts, time deposits and borrowings.  Our results of operations are also affected by our provision for loan losses, non-interest income and non-interest expense.  Non-interest income consists primarily of service charges on deposit accounts, insurance commissions and loan fees.  Just prior to the start of fiscal 2007, we initiated a mortgage banking operation.  Loans originated in this operation are sold with servicing released.  This generates fee income on sales of loans Non-interest expense includes salaries and employee benefits, occupancy, equipment, data processing costs and deposit insurance premiums.  Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Evolution of Business Strategy

Citizens Community Bancorp, Inc. ("CCBI") is a Maryland chartered corporation established June 27, 2006, for the purpose of being the stock holding company of Citizens Community Federal upon the conversion of Citizens Community MHC from a mutual to a stock form of organization.  Today, public stockholders own 100% of Citizens Community Bancorp, Inc.  Citizens Community Federal is a wholly owned subsidiary of Citizens Community Bancorp, Inc.

On October 31, 2006, Citizens Community MHC (the "MHC") completed its reorganization into stock form and Citizens Community Bancorp, Inc. (the "Company") succeeded to the business of Citizens Community Bancorp, the MHC's former stock holding company subsidiary.  The outstanding shares of common stock of the former mid-tier stock holding company (other than shares held by the MHC which were canceled) were converted into 1,826,380 shares of common stock of the Company.  As part of the second-step mutual to stock conversion transaction, the Company sold a total of 5,290,000 shares to eligible depositors of the Bank in a subscription offering at $10.00 per share, including 341,501 shares purchased by the Bank's employee stock ownership plan with funds borrowed from the Company.

On March 29, 2004, Citizens Community Bancorp ("CCB") was formed as a federally chartered holding company for the purpose of acquiring all of the common stock of Citizens Community Federal concurrent with its reorganization and stock issuance plan.  In doing so, CCB became the majority-owned subsidiary of Citizens Community MHC, a federally chartered mutual holding company.

On July 1, 2005, Community Plus Savings Bank, Rochester Hills, Michigan, was acquired through a merger with and into Citizens Community Federal.  At June 30, 2005, Community Plus Savings Bank had total assets of $46.0 million and deposits and other liabilities of $41.8 million, prior to purchase accounting adjustments.

4

Historically, we were a federal credit union.  We accepted deposits and made loans to members, 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 for 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 Citizens Community Federal does not currently have any immediate plans to commence making commercial loans.

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.  In addition to 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.

Our current business strategy is to operate Citizens Community Federal as a well-capitalized, profitable and community-oriented savings bank dedicated to providing quality customer service.  We intend to make primarily one- to four-family residential and consumer loans.  Subject to capital requirements and our ability to continue to grow in a reasonable and prudent manner, we may open or acquire additional branches as opportunities arise.  One element of our business plan is to open branches in select locations that we believe offer growth potential.  There can be no assurances that we will successfully implement our strategy.

Comparison of Operating Results for the Year Ended September 30, 2007, and September 30, 2006

Overview.  Our results of operations depend primarily on the level of our net interest margin, our provision for loan losses, our non-interest income and our operating expenses.  Net interest income depends on the volume and rate associated with interest-earning assets and interest-bearing liabilities which result in net interest margin.  Net income increased by 66.6% to $743,000 for the year ended September 30, 2007, from $446,000 for the year ended September 30, 2006.  The increase was primarily due to an increase in net interest income, partially offset by an increase in operating expenses. Fiscal 2007 included a one-time, after-tax charge of $370,000 ($610,000 pre-tax) taken in the first quarter of fiscal 2007 related to agreements with two Citizens Community Federal executives who resigned.  Excluding the charge, the Company would have reported fiscal 2007 net income of $1,113,000, a 149.6% increase from the prior year.

Interest Income.  Total interest income increased by $4.0 million, or 26.1%, to $19.3 million for the year ended September 30, 2007, from $15.3 million for the year ended September

5

30, 2006.  The primary reason for the increase in interest income was the $48.1 million increase in the average outstanding balance of loans receivable from $237.6 million for the year ended September 30, 2006, to $285.7 million for the year ended September 30, 2007.  The increase was the result of loan originations exceeding repayments due to strong loan demand.  The yield in average loans receivable increased to 6.54% from 6.30%, reflecting higher yielding new loans replacing payoffs on loans with lower interest rates.  In addition, interest and dividend income increased as a result of an increase in investments.  These increases resulted in a fiscal year-to-date increase in interest income of $306,000, or 86.7% as interest income at September 30, 2007 was $659,000 compared to $353,000 for fiscal 2006.

Interest Expense.  Total interest expense increased $1.7 million, or 23.6%, to $8.9 million for the year ended September 30, 2007, from $7.2 million for the year ended September 30, 2006.  The increase in interest expense resulted from an increase in cost of both deposits and notes payable as a result of an increase in average deposits outstanding and an increase in advances from the Federal Home Loan Bank of Chicago.  Management used the FHLB advances as it sought the most cost-effective source to fund loan demand.  The use of borrowed funds helped to keep deposit yields lower than would have been necessary to attract the additional funding for loan demand through additional deposit growth.  In addition, mortgage-backed security investments ("MBS") were purchased with FHLB advances.  The average cost of interest-bearing liabilities increased from 3.16% for the year ended September 30, 2006, to 3.61% for the year ended September 30, 2007, reflecting generally higher market rates of interest in fiscal 2007, combined with maturing CDs with lower rates of interest renewing into higher current rates and the additional FHLB advances used to fund the MBS investments.

Net Interest Income.  Net interest income increased 29.6% to $10.5 million for the year ended September 30, 2007, from $8.1 million for the year ended September 30, 2006.  The average net interest spread for fiscal 2007 was 3.07%, a decrease of 21 basis points from the average interest spread for 2006 of 3.28%.  The average interest rate margin increased 23 basis points to 3.77% from 3.54%.  The net interest spread performance was a result of the cost of interest-bearing liabilities increasing at a faster pace than the increase in the yield on earning assets.  Contributing to the decrease in net interest spread was the MBS portfolio being funded through FHLB advances.  The spreads produced from leveraged investments result in consistently lower interest margins than the loans receivable portfolio, and as a result, the overall net interest spread was affected.  The increase in net margin was a result of the use of proceeds from the second step offering to initially pay down FHLB advances and was also used to pay down advances with higher rates.

Provision for Loan Losses.  Management establishes provisions for loan losses, which are charged to operations, at a level we believe reflects 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.

In fiscal 2007, we recorded a provision for loan losses of $470,000, compared to $251,000 in fiscal 2006.  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.  The allowance for loan losses as a percentage of loans receivable decreased to 0.29% at September 30, 2007, from 0.32% at September 30, 2006.  The level of the allowance is based on

6

estimates and the ultimate losses may vary from the estimates.  Non-performing assets were approximately $1.7 million at September 30, 2007, as compared to $1.8 million at September 30, 2006.

Non-performing assets at September 30, 2007, were 0.43% of total assets, compared to 0.63% of total assets at September 30, 2006.  Net charged-off loans were $378,000 for the year ended September 30, 2007, compared to $219,000 for the year ended September 30, 2006.  The allowance for loan losses as a percentage of non-performing loans was 60.9% at September 30, 2007, compared to 60.1% at September 30, 2006.  While net charged-off loans increased in fiscal 2007 from fiscal 2006, non-performing loans decreased during the same period.  Charge-offs and delinquencies remain low when compared to thrift industry averages.

Management assesses the allowance for loan losses on a quarterly 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.  In addition, various regulatory agencies, as an integral part of 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 September 30, 2007, was maintained at a level that represents management's best estimate of probable losses inherent in the loan portfolio, and such losses were both probable and reasonably estimable.

Non-Interest Income.  Total non-interest income remained unchanged at $1.7 million in fiscal 2007 and fiscal 2006 as all categories stayed relatively constant.

Non-Interest Expense.  Total non-interest expense for the year ended September 30, 2007, increased 20.7% to $10.5 million from $8.7 million for the year ended September 30, 2006.  The increase was primarily due to costs associated with the Company’s growth, including salary and benefits, the one-time charge detailed earlier, occupancy and professional services, and higher employee stock ownership plan (ESOP) expenses related to the second step conversion.

Income Tax Expense.  Income tax expense increased to $448,000, or 37.6% of income before income taxes, for the year ended September 30, 2007, from $309,000, or 40.9% of income before income taxes, for the year ended September 30, 2006.  The increase was a result of increased earnings.

Comparison of Operating Results for the Year Ended September 30, 2006, and September 30, 2005

Overview.  Our results of operations depend primarily on the level of our net interest margin, provision for loan losses, non-interest income and operating expenses.  Net interest income depends on the volume and rate associated with interest-earning assets and interest-bearing liabilities which result in net interest margin.  Net income decreased by 57.6% to $446,000 for the year ended September 30, 2006, from $1,051,000 for the year ended September 30, 2005.  The decrease was primarily a result of income generated in the prior year from the January 12, 2005, merger of PULSE-EFT and Discover Financial Services, and an increase in operating costs associated with the two Michigan offices acquired July 1, 2005, in Rochester

7

Hills and Lake Orion.  We were a stockholder and member of PULSE-EFT.  As a result of the merger, we received $448,000 in combined pre-tax income in fiscal 2005 from this one-time event.

Interest Income.  Total interest and dividend income increased by $3.4 million, or 28.6%, to $15.3 million for the year ended September 30, 2006, from $11.9 million for the year ended September 30, 2005.  The primary reason for the increase in interest income was the $60.8 million increase in the average outstanding balance of loans receivable from $176.8 million for the year ended September 30, 2005, to $237.6 million for the year ended September 30, 2006.  The increase was the result of loan originations exceeding repayments due to strong loan demand.  The yield in average loans receivable decreased to 6.30% from 6.62%, reflecting both the lower-yielding loan portfolio from the Michigan office acquired July 2005 and payoffs on higher-yielding loans being replaced by new loans with lower interest rates, primarily earlier in the fiscal year, and the result of longer-term rates used for pricing loan products lagging the increasing rates on deposits.

Interest Expense.  Total interest expense increased $3.2 million, or 80.0%, to $7.2 million for the year ended September 30, 2006, from $4.0 million for the year ended September 30, 2005.  The increase in interest expense resulted from an increase in cost of both deposits and notes payable as a result of an increase in average deposits outstanding and an increase in advances from the Federal Home Loan Bank of Chicago.  Management used the advances as it sought the most cost-effective source of funds.  The use of borrowed funds helped to keep deposit yields lower than would have been necessary to attract the additional funding for loan demand.  The average cost of interest-bearing liabilities increased from 2.40% for the year ended September 30, 2005, to 3.16% for the year ended September 30, 2006, reflecting generally higher market rates of interest in fiscal 2006.

Net Interest Income.  Net interest income increased 2.5% to $8.1 million for the year ended September 30, 2006, from $7.9 million for the year ended September 30, 2005.  The average net interest spread for fiscal 2006 was 3.28%, a decrease of 82 basis points from the average interest spread for 2005 of 4.10%.  The average interest rate margin decreased 79 basis points to 3.54% from 4.33%.  The net interest spread and net interest margin performance was a result of an increase in the average outstanding balance of loans receivable offset by a reduction in loan yield and an increase in interest expense.

Provision for Loan Losses.  We establish provisions for loan losses, which are 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.

In fiscal 2006, we recorded a provision for loan losses of $251,000, compared to $414,000 in fiscal 2005.  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.  The allowance for loan losses as a percentage of loans receivable decreased to 0.32% at September 30, 2006, from 0.37% at September 30, 2005.  The level of the allowance is based on estimates and the ultimate losses may vary from the estimates.  Non-performing assets were

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approximately $1.4 million at September 30, 2006, as compared to $701,000 at September 30, 2005.

Non-performing loans at September 30, 2006, were 0.49% of total assets, compared to 0.27% of total assets at September 30, 2005.  Net charged-off loans were $219,000 for the year ended September 30, 2006, compared to $205,000 for the year ended September 30, 2005.  The allowance for loan losses as a percentage of non-performing loans was 60.1% at September 30, 2006, compared to 120.0% at September 30, 2005.  Non-performing loans increased during fiscal 2006 compared to fiscal 2005, however charge-offs and delinquencies remained favorable when compared to thrift industry peer averages.

Management assesses the allowance for loan losses on a quarterly 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.  In addition, various regulatory agencies, as an integral part of 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 September 30, 2006, was maintained at a level that represented management's best estimate of probable losses inherent in the loan portfolio, and such losses were both probable and reasonably estimable.

Non-Interest Income.  Total non-interest income decreased $300,000 from $2.0 million in fiscal 2005 to $1.7 million in fiscal 2006, as a result of income generated from the January 12, 2005, merger of PULSE-EFT and Discover Financial Services, with no similar income generated in fiscal 2006.  We were a stockholder and member of PULSE-EFT.  As a result of the merger, we received $448,000 in pre-tax income in fiscal 2005.  Excluding the one-time gain from PULSE-EFT transaction, non-interest income increased $84,000 from the prior year as a result of increased service charges on deposit accounts.

Non-Interest Expense.  Total non-interest expense for the year ended September 30, 2006, increased 11.5% to $8.7 million from $7.8 million for the year ended September 30, 2005.  The increase was primarily due to the additional operating cost associated with the two Michigan offices acquired July 1, 2005.

Income Tax Expense.  Income tax expense decreased to $309,000, or 40.9% of income before income taxes, for the year ended September 30, 2006, from $684,000, or 39.4% of income before income taxes, for the year ended September 30, 2005.  The decrease was due to the decrease in income.

Comparison of Financial Condition at September 30, 2007, and September 30, 2006

Total Assets.  Our total assets as of September 30, 2007, were $386.1 million, compared to $284.0 million as of September 30, 2006.  The 2007 fiscal year increase of 36.0% was primarily due to a $61.7 million increase in loans receivable and a $38.8 million increase in investments.

Securities Available for Sale.  Securities available for sale increased from $782,000 on September 30, 2006, to $39.6 million on September 30, 2007.  We selectively purchased non-

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agency MBS that either met or exceeded our underwriting guidelines.  This strategy was employed to complement consumer loan underwriting.  Strong demand in consumer lending required managing the balance sheet’s structure to comply with the consumer lending limit imposed on federally chartered savings banks.  Management chose to increase the asset base by purchasing AAA-rated MBS funded by FHLB advances.  This strategy allowed us to continue making consumer loans within our regulatory limits.  The securities purchased are AAA-rated Jumbo Prime MBS, with an average loan-to-value ratio of 68.98% and an average FICO score of 741.  We have stayed within the Jumbo Prime sector, purchasing no Sub-Prime or Alt-A MBS.  Furthermore, while the Bank has purchased hybrid ARM securities, we have refrained from purchasing any negative amortization loans or option ARM securities.  Finally, the MBS portfolio consists only of those securities that are in one of the two highest-rating categories and are first-lien mortgages only.

FHLB Stock.  Federal Home Loan Bank stock increased from $3.1 million on September 30, 2006, to $4.8 million on September 30, 2007.  The increase was a result of required stock purchases to access additional FHLB borrowings.

Loans Receivable.  Loans increased by $61.5 million, or 23.7%, from $259.2 million as of September 20, 2006, to $320.7 million as of September 30, 2007.  At September 30, 2007, the loan portfolio was comprised of $188.0 million of loans secured by real estate, or 58.6% of total loans, and $132.7 million of consumer loans, or 41.4% of total loans.

At September 30, 2006, the loan portfolio mix included real estate loans of $165.6 million, or 63.9% of total loans, and consumer loans of $93.6 million, or 36.1% of total loans.  Loan production was strong throughout the Branch system.  A significant contributing factor to the loans receivable increase were the indirect consumer loans generated from our established dealer network, especially in our Michigan and Minnesota markets.  At September 30, 2007, indirect loans from our Minnesota and Michigan branches totaled $34.4 million and $24.4 million, respectively, compared with $11.1 million and $3.6 million at September 30, 2006.

Allowance for Loan Losses.  The following table is an analysis of the activity in the allowance for loan losses for the years ended September 30, 2007, and September 30, 2006.

	Year Ended September 30,
	2007			2006
Balance at Beginning	$	835		$	803
Provisions Charged to Operating Expense		470			251
Loans Charged Off		(413	)		(247	)
Recoveries on Loans		34			28
Balance at End	$	926		$	835

Office Properties and Equipment.  Total investment in office properties and equipment was $3.7 million on September 30, 2006, and $3.5 million on September 30, 2007, a decrease of $200,000, or 5.4%.  The decrease was a result of the depreciation of current equipment and properties, partially offset by modest additions to property and equipment.

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Deposits.  Deposits as of September 30, 2007, were $207.7 million, compared to $186.7 million as of September 30, 2006, an increase of $21.0 million, or 11.2%.  The fiscal 2007 growth came primarily from new certificates of deposit, money market accounts and checking accounts.  A deposit campaign was initiated in 2007 that generated 1,587 new checking accounts.  Management expects this program to continue in fiscal 2008.

Borrowed Funds.  Federal Home Loan Bank advances increased from $61.2 million on September 30, 2006, to $96.4 million on September 30, 2007, as a result of the need to utilize a funding source other than deposits to fund MBS investments and strong loan demand.

Stockholders' Equity.  Stockholders' equity increased $48.0 million to $78.1 million at September 30, 2007, from $30.1 million at September 30, 2006.  The increase for the period was primarily a result of the proceeds received from the second step conversion and reorganization and retained earnings.

Comparison of Financial Condition at September 30, 2006, and September 30, 2005

Total Assets.  Our total assets as of September 30, 2006, were $284.0 million, compared to $245.7 million as of September 30, 2005, an increase of 15.6%.  Assets increased primarily as a result of an increase in loans receivable. Contributing to the increase in loans was the continued growth of the Mankato and Oakdale, Minn. branches.

Cash and Cash Equivalents.  Cash and cash equivalents decreased from $9.3 million on September 30, 2005, to $6.2 million on September 30, 2006.  The decrease was a result of using cash to fund loan growth in the period.

Loans Receivable.  Loans increased by $40.6 million, or 18.6%, from $218.7 million as of September 20, 2005, to $259.3 million as of September 30, 2006.  At September 30, 2006, the loan portfolio was comprised of $165.6 million of loans secured by real estate, or 63.9% of total loans, and $93.6 million of consumer loans, or 36.1% of total loans.

At September 30, 2005, the loan portfolio mix included real estate loans of $144.5 million, or 66.1% of total loans, and consumer loans of $74.2 million, or 33.9% of total loans.  As noted above, a contributing factor to the loans receivable increase was the loan production at the Mankato and Oakdale, Minn. branches.  At September 30, 2006, loans receivable in our portfolio generated from our Mankato and Oakdale branches totaled $19.0 million and $20.5 million, respectively, compared to $11.2 million at Mankato and $11.6 million at Oakdale at September 30, 2005.

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Allowance for Loan Losses.  The following table is an analysis of the activity in the allowance for loan losses for the years ended September 30, 2006, and September 30, 2005.

	Year Ended September 30,
	2006			2005
Balance at Beginning	$	803		$	554
Other - Obtained through Merger					40
Provisions Charged to Operating Expense		251			414
Loans Charged Off		(247	)		(236	)
Recoveries on Loans		28			31
Balance at End	$	835		$	803

Office Properties and Equipment.  Total investment in office properties and equipment was $2.9 million on September 30, 2005, and $3.7 million on September 30, 2006, an increase of $800,000, or 27.6%.  The increase came primarily from the purchase of computer equipment and software totaling $800,000.  On September 9, 2005, we entered into a series of purchase agreements and software user agreements with Information Technology, Inc. for computer equipment and software.  The purchase was completed in March 2006.

Deposits.  Deposits as of September 30, 2006, were $186.7 million, compared to $177.5 million as of September 30, 2005, an increase of $9.2 million, or 5.2%.  The majority of the deposit growth came from the two Minnesota branch offices, as management sought the most cost-effective markets to attract deposits.

Borrowed Funds.  Federal Home Loan Bank advances increased from $36.2 million on September 30, 2005, to $61.2 million on September 30, 2006, as the need to fund strong loan demand increased.

Stockholders' Equity.  Stockholders' equity increased $529,000 to $30.1 million at September 30, 2006, from $29.6 million at September 30, 2005.  The increase was a result of net earnings for the period, partially offset by the payment of dividends and increases related to the accounting for the employee stock ownership, and management recognition and retention stock plans.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates.  Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at September 30.  No tax equivalent adjustments were made.  Non-accruing loans have been included in the table as loans carrying a zero yield.

	Year ended September 30,
	2007							2006							2005
	Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate
	(In Thousands)
Interest-Earning Assets:
Cash equivalents	$	5,953	$	167		2.81	%	$	6,135	$	184		3.00	%	$	5,489	$	134		2.44	%
Loans receivable(1)		285,668		19,713		6.90			237,553		15,664		6.59			176,802		11,763		6.65
Other interest-bearing deposits		567		30		5.29			1,153		46		3.99			215		8		3.72
Securities available for sale		9,487		379		3.99			1,478		58		3.92			522		21		4.02
Federal Home Loan Bank stock		3,115		83		2.66			2,280		65		2.85			1,345		54		4.01
Total interest-earning assets	$	304,790		20,372		6.68		$	248,599		16,017		6.44		$	184,373		11,980		6.50
Interest-Bearing Liabilities:
Savings accounts	$	22,858		218		0.95		$	24,703		167		0.68		$	15,877		122		0.77
Demand accounts(2)		19,283		28		0.15			19,622		28		0.14			13,346		30		0.22
Money market accounts		24,323		588		2.42			26,623		500		1.88			24,527		433		1.77
CDs		120,148		5,707		4.75			104,536		4,126		3.95			78,052		2,370		3.04
IRAs		10,876		453		4.17			10,252		361		3.52			9,316		308		3.31
Federal Home Loan Bank advances		48,643		1,895		3.90			42,500		2,039		4.80			25,140		729		2.90
Total interest-bearing liabilities	$	246,130		8,889		3.61		$	228,237		7,221		3.16		$	166,258		3,992		2.40
Net interest income			$	11,483						$	8,796						$	7,988
Net interest rate spread						3.07	%						3.28	%						4.10	%
Net interest margin(3)						3.77	%						3.54	%						4.33	%
Average interest-earning assets to average interest-bearing    liabilities				1.24x							1.09x							1.11x

_________________

(1)	Calculated net of loan fees of $(1,026,000) in 2007, $(706,000) in 2006 and $(54,000) in 2005, loan discounts, loans in process and allowance for losses on loans.
(2)	Includes $13.8 million, $13.8 million and $14.4 million of non-interest-bearing demand deposits during the years ended September 30, 2007, 2006 and 2005, respectively.
(3)	Net interest income divided by interest-earning assets.

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Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to:  (1) changes in volume, which are changes in volume multiplied by the old rate; and (2) changes in rate, which are changes in rate multiplied by the old volume.  Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

	Year Ended September 30, 2007 vs. 2006									Year Ended September 30, 2006 vs. 2005
	Increase (Decrease) Due to						Total Increase			Increase (Decrease) Due to					Total Increase
	Volume			Rate			(Decrease)			Volume		Rate			(Decrease)
	(In Thousands)
Interest-Earning Assets:
Loans receivable(1)	$	3,293		$	756		$	4,049		$	4,007	$	(106	)	$	3,901
Other		318			(12	)		306			132		4			136
Total interest-earning assets	$	3,611		$	744		$	4,355		$	4,139	$	(102	)		4,037
Interest-Bearing Liabilities:
Savings accounts	$	(12	)		63			51		$	62	$	(17	)		45
Demand accounts		---			---			---			11		(13	)		(2	)
Money market account		(46	)		134			88			38		29			67
IRA accounts		23			69			92			32		21			53
Certificates of deposit		669			912			1,581			932		824			1,756
Federal Home Loan Bank advances		271			(415	)		(144	)		673		637			1,310
Total interest-bearing liabilities	$	905		$	763			1,668		$	1,748	$	1,481			3,229
Net interest income							$	2,687							$	808

______________

(1)  Calculated net of loan fees of $(1,026,000) in 2007, $(706,000) in 2006 and $(54,000) in 2005.

Liquidity and Commitments

We are required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure a safe and sound operation.  Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans.  Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows.  Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.  At September 30, 2007, our liquidity ratio, which is our liquid assets as a percentage of net withdrawable savings deposits with a maturity of one year or less and current borrowings was 3.85%.

Citizens Community Federal's liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities.  Citizens Community Federal's primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans, and other short-term investments and funds provided from operations.  While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.  In addition, Citizens Community

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Federal invests excess funds in short-term, interest-earning assets, which provide liquidity to meet lending requirements.  Citizens Community Federal also generates cash through borrowings.  Citizens Community Federal utilizes Federal Home Loan Bank advances to leverage its capital base, and provide funds for its lending and investment activities, and to enhance its interest rate risk management.

Liquidity management is both a daily and long-term function of business management.  Excess liquidity is generally invested in short-term investments such as overnight deposits or certificates of deposit in other financial institutions.  On a longer-term basis, Citizens Community Federal maintains a strategy of investing in various lending products as described in greater detail under "Evolving Business Strategies."  Citizens Community Federal uses its sources of funds primarily to meet its ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, and to fund loan commitments.

At September 30, 2007, the total approved loan origination commitments outstanding amounted to $428,000.  At the same date, unused approved lines of credit to our customers were $2.7 million and certificates of deposit scheduled to mature in one year or less, totaled $106.0 million.

The average cost of deposits increased throughout fiscal 2006 and fiscal 2007.  Management's policy is to maintain deposit rates at levels that are competitive with other local financial institutions.  Based on the competitive rates and on historical experience, management believes that a significant portion of maturing deposits will remain with Citizens Community Federal.  In addition, Citizens Community Federal had the ability as of September 30, 2007, to borrow an additional $38.6 million from the Federal Home Loan Bank of Chicago as a funding source to meet commitments and for liquidity purposes.

Capital

Consistent with its goals to operate a sound and profitable financial organization, Citizens Community Federal actively seeks to maintain a "well-capitalized" institution in accordance with regulatory standards.  Total equity of Citizens Community Federal was $43.7 million at September 30, 2007, or 11.5% of total assets.  As of September 30, 2007, Citizens Community Federal exceeded all capital requirements of the Office of Thrift Supervision (OTS).  Citizens Community Federal's regulatory capital ratios at September 30, 2007, were as follows:  core capital 11.5%; Tier 1 risk-based capital, 17.7%; and total risk-based capital, 18.0%.  The regulatory capital requirements to be considered well capitalized are core capital of 5.0%, Tier 1 risk-based capital of 6.0% and risk-based capital of 10.0%, respectively.

Impact of Inflation

The consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States.  These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Our primary assets and liabilities are monetary in nature.  As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation.

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Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation.  In a period of rapidly rising interest rates, the liquidity and maturity structures of our assets and liabilities are critical to the maintenance of acceptable performance levels.

The principal effect of inflation, as distinct from levels of interest rates, on earnings is in the area of non-interest expense.  Such expense items as employee compensation, employee benefits, and occupancy and equipment costs may be subject to increases as a result of inflation.  An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made.  We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.

Stockholder Performance Presentation

Set forth below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on the Company's Common Shares against the cumulative total return of the NASDAQ Market Index and a Peer Group Index for the period since the Company's (and its predecessor's, Citizens Community Bancorp) common stock began trading. The issuers in the Peer Group Index were selected on a line-of-business basis by reference to SIC Code 414 - Regional-Midwest Banks, which is composed of sixty-one banks.  The presentation assumes $100 was invested on March 30, 2004, the first day of trading of Citizens Community Bancorp common stock, which succeeded to Citizens Community Bancorp, Inc. stock after the Reorganization.The chart assumes reinvestment of all dividends. Historical stock price is not necessarily indicative of future stock performance.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG

CITIZENS COMMUNITY BANCORP, INC., NASDAQ MARKET INDEX AND PEER GROUP INDEX

	03/30/2004	9/30/2004	9/30/2005	9/30/2006	9/30/2007
Citizens Community Bancorp, Inc.	$100.00	102.69	103.03	156.68	80.41
Peer Group Index	100.00	103.02	100.86	114.09	106.47
NASDAQ Market Index	100.00	95.54	108.69	115.14	137.59

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Recent Accounting Pronouncements

Future Accounting Changes

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities.  SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The Company believes the adoption of this statement will not have a significant effect on the financial statements of the Company.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans.  This statement amends SFAS No. 87, Employers' Accounting for Pensions; SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits; SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions; and SFAS No. 132 (revised 2003), Employers' Disclosures About Pensions and Other Postretirement Benefits.  SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multi-employer plan) as an asset or liability in its statement of financial position. It also requires an employer to recognize gains or losses and prior service costs or credits that arise during the year but are not recognized as components of net periodic benefit cost under SFAS No. 87 as a component of other comprehensive income.  Additionally, it requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.  SFAS No. 158 is effective for public companies as of the end of the fiscal year ending after December 15, 2006.  The requirement to measure plan assets and benefit obligations as of the date of the fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008.  The Company adopted this statement which resulted in an increase in liabilities and a decrease in equity of approximately $621 for the underfunded status of the plan, net of tax.

In September 2006, the Securities and Exchange Commission's office (SEC) announced Staff Accounting Bulletin No. 108 (SAB 108).  SAB 108 addresses how to quantify financial statement errors that arose in prior periods for purposes of assessing their materiality in the current period.  It requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality.  It clarifies that immaterial financial statement errors in a prior SEC filing can be corrected in subsequent filings without the need to amend the prior filing.  In addition, SAB 108 provides transitional relief for correcting errors that would have been considered immaterial before its issuance.  The adoption of SAB 108 will not have an impact on our consolidated financial position, results of operations, or cash flows.

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In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.  FIN 48 prescribed a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  FIN 48 is effective for fiscal years beginning after December 15, 2006, for public companies.  The Company believes the adoption of this interpretation will not have a significant effect on the financial statements of the Company.

Quantitative and Qualitative Disclosures About Market Risk

Our Risk When Interest Rates Change.  The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time.  Market interest rates change over time.  Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities.  The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

How We Measure Our Risk of Interest Rate Changes.  As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk.  In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.

In order to manage the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better align the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities.  These policies are implemented by the asset and liability management committee.  The asset and liability management committee is comprised of members of senior management.  The asset and liability management committee establishes guidelines for and monitors the volume and mix of assets, and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs.  The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk and profitability goals.  The asset and liability management committee generally meets on a weekly basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities, and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis.  At each meeting, the asset and liability management committee recommends strategy changes, as appropriate, based on this review.  The committee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the board of directors on a monthly basis.

In order to manage our assets and liabilities, and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we have focused our strategies on:

18

·           originating first mortgage loans, with a clause allowing for payment on demand after a stated period of time;

· originating shorter-term consumer loans;

· originating prime-based home equity lines of credit;

· managing our deposits to establish stable deposit relationships;

· using Federal Home Loan Bank advances to align maturities and repricing terms; and

· attempting to limit the percentage of long-term, fixed-rate loans in our portfolio which do not contain a payable-on-demand clause.

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the asset and liability management committee may determine to increase Citizens Community Federal's interest rate risk position somewhat in order to maintain its net-interest margin.

In light of our performance in fiscal 2006 and fiscal 2007, management believes our strategies have proven to be effective.  Credit quality continued to be strong with delinquency and charge-off ratios remaining low.  Interest rate risk, defined by net portfolio value (NPV), continued to show minimal risk.  By continuing to include our payment-on-demand clauses on our first mortgage loan originations, less than 10% of the Citizen Community Federal assets were represented by traditional fixed-rate mortgage loans with amortizations of 15 years or greater.

As of September 30, 2007, $144.5 million of our loans in portfolio included a payable-on-demand clause.  We have not utilized the demand clause since fiscal 2000 because, in management's view, it has not been appropriate.  Therefore, the clause has had no impact on our liquidity and overall financial performance for the periods presented.

As part of its procedures, the asset and liability management committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity.  Market value of portfolio equity is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by the board of directors of Citizens Community Federal.

The following table sets forth, at September 30, 2007, an analysis of Citizen Community Federal's interest rate risk as measured by the estimated changes in NPV resulting from instantaneous and sustained parallel shifts in the yield curve (up 300 basis points and down 200 basis points, measured in 100 basis point increments).  As of September 30, 2007, due to the current level of interest rates, the OTS no longer provides NPV estimates for decreases in interest rates greater than 200 basis points.

19

Change in Interest Rates in Basis Points ("bp") (Rate Shock in Rates)(1)	Net Portfolio Value			Net Portfolio Value as % of Present Value of Assets
	Amount	Change	Change	NPV Ratio	Change
(Dollars in thousands)
+300  bp	$36,641	$(7,080)	(16)%	10.01%	(148) bp
+200  bp	39,118	(4,603)	(11)	10.55	(95)
+100  bp	41,514	(2,207)	(5)	11.05	(44)
0  bp	43,721	---	---	11.50	---
-100  bp	45,442	1,721	4	11.81	32
-200  bp	46,445	2,724	6	11.96	46

    ___________

(1) Assumes an instantaneous uniform change in interest rates at all maturities.

For comparative purposes, the table below sets forth, at September 30, 2006, an analysis of Citizen Community Federal's interest rate risk as measured by the estimated changes in NPV resulting from instantaneous and sustained parallel shifts in the yield curve (up 300 basis points and down 200 basis points, measured in 100 basis point increments).  As of September 30, 2006, due to the current level of interest rates, the OTS no longer provides NPV estimates for decreases in interest rates greater than 200 basis points.

Change in Interest Rates in Basis Points ("bp") (Rate Shock in Rates)(1)	Net Portfolio Value			Net Portfolio Value as % of Present Value of Assets
	Amount	Change	Change	NPV Ratio	Change
(Dollars in thousands)
+300  bp	$14,290	$(6,749)	(32)%	5.41%	(226) bp
+200  bp	16,590	(4,449)	(21)	6.20	(147)
+100  bp	18,862	(2,177)	(10)	6.96	(71)
0  bp	21,039	---	---	7.66	---
-100  bp	23,005	1,966	9	8.29	62
-200  bp	24,778	3,738	18	8.83	116

     ___________

(1) Assumes an instantaneous uniform change in interest rates at all maturities.

The OTS uses certain assumptions in assessing the interest rate risk of savings associations.  These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others.

The assumptions used by management to evaluate the vulnerability of Citizens Community Federal's operations to changes in interest rates in the table above are utilized in, and set forth under, the gap table below.  Although management finds these assumptions reasonable, the interest rate sensitivity of Citizens Community Federal's assets and liabilities and the estimated effects of changes in interest rates on Citizens Community Federal's net interest income and market value of portfolio equity indicated in the above table could vary substantially if different assumptions were used or actual experience differs from such assumptions.

20

The following table summarizes the anticipated maturities or repricing of Citizens Community Federal's interest-earning assets and interest-bearing liabilities at September 30, 2007, based on the information and assumptions set forth below.

	Six Months or Less			Over Six Months to One Year			Over One to Three Years			Over Three to Five Years			Over Five Years			Total
	(Dollars in Thousands)
Real estate mortgage loans	$	34,208		$	27,724		$	68,816		$	31,665		$	25,544		$	187,957
Consumer loans		56,968			37,716			32,881			3,190			1,989			132,744
Securities available for sale		2,646			2,721			11,552			10,814			11,859			39,592
Other interest-bearing deposits		---			---			371			---			---			371
Federal Home Loan Bank stock		---			---			---			4,822			---			4,822
Cash equivalents(1)		6,354			---			---			---			---			6,354
Total interest-earning assets	$	100,176		$	68,161		$	113,620		$	50,491		$	39,392		$	371,840
Savings accounts		2,286			2,286			17,553			702			28			22,855
Demand and money market		6,780			6,780			10,170			2,543			19,505			45,778
Certificates of deposit		59,997			46,042			30,612			2,450			---			139,101
Federal Home Loan Bank advances		48,434			5,492			24,620			15,050			2,850			96,446
Total interest-bearing liabilities	$	117,497		$	60,600		$	82,955		$	20,745		$	22,383			304,180
Interest-earning assets less
interest-bearing liabilities	$	(17,321	)	$	7,561		$	30,665		$	29,746		$	17,009		$	67,660
Cumulative interest rate sensitivity gap	$	(17,321	)	$	(9,760	)	$	20,905		$	50,651		$	67,660
Cumulative interest rate gap as a percentage of assets at September 30, 2007		(4.49	)%		(2.53	)%		5.41	%		13.12	%		17.52	%
Cumulative interest rate gap as a  percentage of interest-earning assets at September 30, 2007		(4.66	)%		(2.62	)%		5.62	%		13.62	%		18.20	%

         __________________________

(1) Net of corporate checks issued of $4,612.

The difference between repricing assets and liabilities for a specific period is referred to as the gap.  An excess of repriceable assets over liabilities is referred to as a positive gap.  An excess of repriceable liabilities over assets is referred to as a negative gap.  The cumulative gap is the summation of the gap for all periods to the end of the period for which the cumulative gap is being measured.

Assets and liabilities scheduled to reprice are included in the period in which the rate is next scheduled to adjust rather than in the period in which the assets or liabilities are due.  Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization, as adjusted to take into account estimated prepayments based on OTS prepayment tables.  No effect is given to the payable-on-demand clause in certain mortgage loans originated by Citizens Community Federal.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table.  For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates.  Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on

21

other types may lag behind changes in market rates.  Additionally, a limited amount of our assets have features which restrict changes in interest rates on a short-term basis and over the life of the asset.  Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table.

Critical Accounting Policies

There are certain accounting policies that we have established which require us to use our judgment.  The only critical accounting policy, in addition to the policies included in Note 1, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements, is as follows:

Allowance for Loan Losses.  Establishing the amount of the allowance for loan losses requires the use of our judgment.  We evaluate our assets at least quarterly, and review their risk components as part of that evaluation.  If we misjudge a major component and experience a loss, it will likely affect our earnings.  In addition, by the very nature of the determination of the allowance, developments as to particular loans can affect year-to-year provision amounts.  We consistently challenge ourselves in the review of the risk components to identify any changes in trends and their cause.

22

Independent Auditor’s Report

Board of Directors

Citizens Community Bancorp, Inc.

Eau Claire, Wisconsin

We have audited the accompanying consolidated balance sheets of Citizens Community Bancorp, Inc. and Subsidiary as of September 30, 2007 and 2006, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended September 30, 2007.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Citizens Community Bancorp, Inc. and Subsidiary as of September 30, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2007, in conformity with accounting principles generally accepted in the United States.

/s/ Wipfli LLP

Wipfli LLP

December 6, 2007

Eau Claire, Wisconsin

23

Citizens Community Bancorp, Inc.

and Subsidiary             

        
Consolidated Balance Sheets      

September 30, 2007 and 2006         

Assets	2007			2006
	(In Thousands)
Cash and cash equivalents	$	6,354		$	6,170
Interest-bearing deposits		371			959
Securities available-for-sale `		39,592			782
Loans receivable - Net of allowance for loan losses of $926 and
$835 in 2007 and 2006, respectively		320,027			258,467
Loans held for sale		0			321
Federal Home Loan Bank stock - At cost		4,822			3,060
Office properties and equipment - Net		3,460			3,681
Accrued interest receivable		1,397			861
Intangible assets		1,528			1,829
Goodwill		5,466			5,466
Other assets		3,096			2,394
TOTAL ASSETS	$	386,113		$	283,990
Liabilities and Stockholders’ Equity
Deposits	$	207,734		$	186,711
Borrowed funds		96,446			61,200
Other liabilities		3,784			5,997
Total liabilities		307,964			253,908
Preferred stock - Par value $.01:
Authorized - 0 shares in 2007 and 1,000,000 shares in 2006
Issued and outstanding - 0 shares outstanding in 2007 and 2006
Common stock - Par value $.01:
Authorized - 20,000,000 shares in 2007 and 5,000,000 shares in 2006
Issued and outstanding - 7,118,205 shares in 2007 and 3,747,319
shares in 2006		71			37
Additional paid-in capital		69,934			18,833
Retained earnings		12,420			12,792
Unearned ESOP shares		(3,877	)		(894	)
Unearned compensation		(207	)		(334	)
Accumulated other comprehensive loss		(192	)		(11	)
Treasury stock, at cost - 0 and 22,691shares, respectively		0			(341	)
Total stockholders’ equity		78,149			30,082
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	386,113		$	283,990

See accompanying notes to consolidated financial statements.

24

Citizens Community Bancorp, Inc.

and Subsidiary             

        
Consolidated Statements of Income      

September 30, 2007, 2006, and 2005         

	2007		2006			2005
	(In Thousands)
Interest and dividend income:
Interest and fees on loans	$	18,687	$	14,958		$	11,709
Interest on investments		659		353			217
Total interest and dividend income		19,346		15,311			11,926
Interest expense:
Interest on deposits		6,994		5,182			3,263
Interest on borrowed funds		1,895		2,039			719
Total interest expense		8,889		7,221			3,982
Net interest income		10,457		8,090			7,934
Provision for loan losses		470		251			414
Net interest income after provision for loan losses		9,987		7,839			7,520
Noninterest income:
Service charges on deposit accounts		980		981			832
Insurance commissions		450		372			397
Loan fees and service charges		282		262			329
Security gains		0		27			0
Other		14		15			463
Total noninterest income		1,726		1,657			2,021
Noninterest expense:
Salaries and related benefits		6,026		4,978			4,688
Occupancy - Net		1,143		1,016			752
Office		836		767			668
Data processing		452		438			330
Amortization of core deposit intangible		301		302			96
Advertising		161		218			201
Professional fees		690		314			424
Other		913		708			647
Total noninterest expense		10,522		8,741			7,806
Income before provision for income taxes		1,191		755			1,735
Provision for income taxes		448		309			684
Net income	$	743	$	446		$	1,051
Basic earnings per share	$	0.11	$	0.06	*	$	0.18	*
Diluted earnings per share	$	0.11	$	0.06	*	$	0.18	*

See accompanying notes to consolidated financial statements.

* Earnings per share were restated to reflect the impact of the second-step conversion and reorganization of the Company, which occurred October 31, 2006.

25

Citizens Community Bancorp, Inc.

and Subsidiary             

        
Consolidated Statements of Changes in Stockholders’ Equity      

Years Ended September 30, 2007, 2006, and 2005         

																	Accumulated
					Additional						Unearned						Other
			Common		Paid-In			Retained			ESOP			Unearned			Comprehensive			Treasury
	Shares		Stock		Capital			Earnings			Shares			Compensation			Loss			Stock			Totals
	(In Thousands, Except Shares)
Balance - September 30, 2004		3,041,750	$	30	$	9,030		$	11,678		$	(1,133	)	$	0		$	0		$	0		$	19,605
Comprehensive income:
Net income		0		0		0			1,051			0			0			0			0			1,051
Net unrealized loss on available-for-sale       securities - Net of tax		0		0		0			0			0			0			(4	)		0			(4	)
Total comprehensive income																								1,047
Common stock issued due to merger`		705,569		7		0			0			0			0			0			0			7
Additional paid-in capital due to merger		0		0		9,759			0			0			0			0			0			9,759
Common stock purchased - 59,637 shares		0		0		0			0			0			0			0			(895	)		(895	)
Committed ESOP shares		0		0		43			0			120			0			0			0			163
Common stock awarded for Recognition and      Retirement Plan - 33,386 shares		0		0		(52	)		0			0			(449	)		0			501			0
Amortization of restricted stock		0		0		0			0			0			60			0			0			60
Cash dividends ($.20 per share)		0		0		0			(193	)		0			0			0			0			(193	)
Balance - September 30, 2005		3,747,319		37		18,780			12,536			(1,013	)		(389	)		(4	)		(394	)		29,553

26

Citizens Community Bancorp, Inc.

and Subsidiary             

        
Consolidated Statements of Changes in Stockholders’ Equity      

Years Ended September 30, 2007, 2006, and 2005         

																	Accumulated
					Additional						Unearned						Other
			Common		Paid-In			Retained			ESOP			Unearned			Comprehensive			Treasury
	Shares		Stock		Capital			Earnings			Shares			Compensation			Gain/(Loss)			Stock			Totals
	(In Thousands, Except Shares)
Balance - September 30, 2005 (brought forward)		3,747,319	$	37	$	18,780		$	12,536		$	(1,013	)	$	(389	)	$	(4	)	$	(394	)	$	29,553
Comprehensive income:
Net income		0		0		0			446			0			0			0			0			446
Reclassification adjustment for net security gains   included in income, net of tax of $11		0		0		0			0			0			0			(16	)		0			(16	)
Net unrealized gain on available-for-sale      securities - Net of tax		0		0		0			0			0			0			9			0			9
Total comprehensive income																								439
Committed ESOP shares		0		0		0			0			119			0			0			0			119
Appreciation in fair value of ESOP shares         charged to expense		0		0		64			0			0			0			0			0			64
Common stock awarded for Recognition and
Retention Plan - 3,576 shares		0		0		(11	)		0			0			(43	)		0			54			0
16 shares of common stock purchased      from Employee																								0
401(k) Retirement Plan		0		0		0			0			0			0			0			(1	)		(1	)
Amortization of restricted stock		0		0		0			0			0			98			0			0			98
Cash dividends ($0.20 per share)		0		0		0			(190	)		0			0			0			0			(190	)
Balance - September 30, 2006		3,747,319		37		18,833			12,792			(894	)		(334	)		(11	)		(341	)		30,082

27

Citizens Community Bancorp, Inc.

and Subsidiary             

        
Consolidated Statements of Changes in Stockholders’ Equity  (Continued)    

Years Ended September 30, 2007, 2006, and 2005         

																		Accumulated
						Additional						Unearned						Other
				Common		Paid-In			Retained			ESOP			Unearned			Comprehensive			Treasury
	Shares			Stock		Capital			Earnings			Shares			Compensation			Gain (Loss)			Stock			Totals
	(In Thousands, Except Shares)
Balance - September 30, 2006 (brought forward)		3,747,319		$	37	$	18,833		$	12,792		$	(894	)	$	(334	)	$	(11	)	$	(341	)	$	30,082
Adjustment to initially apply FASB      Statement No. 158 - Net of tax		0			0		0			0			0			0			(621	)					(621	)
Comprehensive income:
Net income		0			0		0			743			0			0			0			0			743
Pension curtailment - Net of tax		0			0		0			0			0			0			75			0			75
Amortization of unrecognized prior service costs
and netgains/losses - Net of tax		0			0		0			0			0			0			262			0			262
Net unrealized gain on available-for-sale     securities - Net of tax		0			0		0			0			0			0			103						103
Total comprehensive income																									1,183
Sale of common stock (net of CCMHC      shares reissued)		3,369,061			34		51,204			0			0			0			0			0			51,238
Unearned shares held by ESOP		0			0		0			0			(3,415	)		0			0			0			(3,415	)
Stock option expense		0			0		75			0			0			0			0			0			75
Committed ESOP shares		0			0		0			0			432			0			0			0			432
Appreciation in fair value of ESOP shares      charged to expense		0			0		76			0			0			0			0			0			76
Cancellation of treasury stock		0			0		(341	)		0			0			0			0			341			0
Dissolution of CCMHC		0			0		92			0			0			0			0			0			92
Cancellation of unvested restricted stock		(2,733	)		0		(37	)		0			0			37			0			0			0
Stock options exercised		4,558			0		32			0			0			0			0			0			32
Amortization of restricted stock		0			0		0			0			0			90			0						90
Cash dividends ($0.20 per share)		0			0		0			(1,115	)		0			0			0			0			(1,115	)
Balance - September 30, 2007		7,118,205		$	71	$	69,934		$	12,420		$	(3,877	)	$	(207	)	$	(192	)	$	0		$	78,149

See accompanying notes to consolidated financial statements.

28

Citizens Community Bancorp, Inc.

and Subsidiary             

        
Consolidated Statements of Cash Flows      

Years Ended September 30, 2007, 2006, and 2005         

	2007			2006			2005
	(In Thousands)
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income	$	743		$	446		$	1,051
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Securities discount accretion		(17	)		0			0
Provision for depreciation		493			416			278
Provision for loan losses		470			251			414
Gain on sale of securities		0			(27	)		0
Amortization of purchase accounting adjustments		(68	)		(76	)		(19	)
Amortization of core deposit intangible		301			302			95
Amortization of restricted stock		90			98			60
Provision for stock options		75			0			0
Provision (benefit) for deferred income taxes		(230	)		(338	)		104
Net change in loans held for sale		321			(321	)		0
Federal Home Loan Bank stock dividends		0			(16	)		(54	)
ESOP contribution expense in excess of shares released		76			64			43
Increase in accrued interest receivable and other assets		(967	)		(891	)		(584	)
Increase (decrease) in other liabilities		(2,497	)		3,850			360
Total adjustments		(1,953	)		3,312			697
Net cash provided by (used in) operating activities		(1,210	)		3,758			1,748
Cash flows from investing activities:
Proceeds from maturities of interest-bearing deposits		588			492			363
Sale of Federal Home Loan Bank stock		496			0			0
Purchase of Federal Home Loan Bank stock		(2,258	)		(949	)		(928	)
Purchase securities available for sale		(39,219	)		0			0
Proceeds from maturities of securities available for sale		583			0			0
Proceeds from sale of securities available for sale		0			1,325			0
Net increase in loans		(62,074	)		(40,737	)		(39,271	)
Net capital expenditures		(272	)		(1,171	)		(235	)
Cash received for branch acquisition		0			0			13,172
Net cash used in investing activities		(102,156	)		(41,040	)		(26,899	)

29

Citizens Community Bancorp, Inc.

and Subsidiary             

        
Consolidated Statements of Cash Flows  (Continued)    

Years Ended September 30, 2007, 2006, and 2005         

	2007			2006			2005
	(In Thousands)
Cash flows from financing activities:
Net increase in borrowings	$	35,246		$	25,000		$	22,700
Increase in deposits		21,040			9,259			7,917
Payments to acquire treasury stock		0			(1	)		(895	)
Proceeds from sale of common stock		51,238			0			0
Dissolution of CCMHC		92			0			0
Stock options exercised		32			0			0
Loan to ESOP for purchase of common stock		(3,415	)		0			0
Reduction in unallocated shares held by ESOP		432			119			119
Cash dividends paid		(1,115	)		(190	)		(193	)
Net cash provided by financing activities		103,550			34,187			29,648
Net increase (decrease) in cash and cash equivalents		184			(3,095	)		4,497
Cash and cash equivalents at beginning		6,170			9,265			4,768
Cash and cash equivalents at end	$	6,354		$	6,170		$	9,265
Supplemental cash flow information:
Cash paid during the year for:
Interest on deposits	$	6,994		$	5,231		$	3,117
Interest paid on borrowings		1,757			2,028			729
Income taxes		806			555			728
Supplemental schedule of noncash investing and financing activities:
Loans transferred to foreclosed properties	$	94		$	376		$	148

The fair value of noncash assets acquired and liabilities assumed in the merger with Community Plus Savings Bank were $52,238 and $42,570, respectively.  Approximately 706,000 shares of common stock valued at $9,250 were issued in connection with this merger.

See accompanying notes to consolidated financial statements.

30

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 1 Summary of Significant Accounting Policies Nature of Operations   Citizens Community Bancorp, Inc.  (the “Company”) is a federally chartered holding company which owns all of the common stock of Citizens Community Federal (the "Bank").  The Bank operates as a full service savings bank with primary markets in, but not limited to, Wisconsin, Minnesota, and Michigan.  It is engaged in the business of attracting deposits from the general public and investing those deposits in residential and consumer loans.   On October 31, 2006, a second-step conversion was completed, and as a result, the Company was formed.  Prior to the second-step conversion, Citizens Community Bancorp was a majority-owned subsidiary of CCMHC, a federally chartered mutual holding company.  See Note 2 for further discussion.   Principles of Consolidation   The consolidated financial statements include the accounts of Citizens Community Bancorp, Inc. and its wholly owned subsidiary, Citizens Community Federal.  All significant intercompany balances and transactions have been eliminated.  The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States and to the practices within the banking industry.   Use of Estimates in Preparation of Financial Statements   The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from these estimates.   Cash and Cash Equivalents   For purposes of reporting cash flows in the consolidated financial statements, cash and cash equivalents include cash due from banks and interest-bearing deposits with original maturities of three months or less.

31

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 1 Summary of Significant Accounting Policies (Continued)   Other Interest-Bearing Deposits   Other interest-bearing deposits mature within three years and are carried at cost, which approximates fair value.   Securities   Securities are classified as available for sale and are carried at fair value, with unrealized gains and losses reported in other comprehensive income.  Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the securities.   Declines in fair value of securities that are deemed to be other than temporary, if applicable, are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method.   Loans   Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans.  Interest on loans is accrued and credited to income based on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield over the life of the loan.   Allowance for Loan Losses   The allowance for loan losses is established through a provision for loan losses charged to expense.  Loan losses are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely.  Subsequent recoveries, if any, are credited to the allowance.   Management regularly evaluates the allowance for loan losses using the Company's past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, current economic conditions, and other relevant factors.  This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change.

32

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 1 Summary of Significant Accounting Policies (Continued)   Allowance for Loan Losses (Continued)   The allowance for loan losses consists of specific, general, and unallocated components.  The specific component relates to loans that are classified as doubtful, substandard, or special mention and includes allowances estimated for any impaired loans.  The general component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors.  An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses and reflects the margin or imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.   The allowance for loan losses includes specific allowances related to loans that have been judged to be impaired under current accounting standards.  A loan is impaired when, based on current information, it is probable that the Company will not collect all amounts due in accordance with the contractual terms of the loan agreement.  Management determines whether a loan is impaired on a case-by-case basis, taking into consideration the payment status, collateral value, length and reason of any payment delays, the borrower's prior payment record, and any other relevant factors.  Specific allowances for impaired loans are based on discounted cash flows of expected future payments using the loan's initial effective interest rate or the fair value of the collateral if the loan is collateral dependent.   In addition, various regulatory agencies periodically review the allowance for loan losses.  These agencies may require additions to the allowance for loan losses based on their judgments of collectibility.   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.  While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions.   Loans Held for Sale   Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate.  Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.   Federal Home Loan Bank Stock   The Bank owns stock in the Federal Home Loan Bank (FHLB).  FHLB stock is carried at cost which approximates fair value.  The Bank is required to hold the stock as a member of the FHLB system, and transfer of the stock is substantially restricted.  The stock is pledged as collateral for outstanding FHLB advances.

33

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 1 Summary of Significant Accounting Policies (Continued)   Office Properties and Equipment   Office properties and equipment are stated at cost.  Maintenance and repair costs are charged to expense as incurred.  Gains or losses on disposition of office properties and equipment are reflected in income.  Depreciation is computed principally on the straight-line method and is based on the estimated useful lives of the assets, varying from 10 to 40 years for buildings and 3 to 10 years for equipment.   Intangible Assets and Goodwill   Intangible assets attributable to the value of core deposits acquired and the excess of purchase price over fair value of assets acquired (goodwill) are stated at cost less accumulated amortization.  Intangible assets are amortized on a straight-line basis over periods of seven to fifteen years.  Goodwill is not amortized.   The Company reviews intangible assets and goodwill for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  The evaluation includes assessing the estimated fair value of the intangible asset based on market prices for similar assets, where available, and the present value of the estimated future cash flows associated with the intangible asset.  Adjustments are recorded if it is determined that the benefit of the intangible asset has decreased.   Foreclosed Assets   Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis.  Subsequent to foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less cost to sell.  Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.   Income Taxes   Deferred income taxes have been provided under the liability method.  Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities as measured by the current enacted tax rates which will be in effect when these differences are expected to reverse.  Provision (credit) for deferred taxes is the result of changes in the deferred tax assets and liabilities.   Advertising Costs   Advertising costs are expensed as incurred.

34

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 1 Summary of Significant Accounting Policies (Continued)   Off-Balance-Sheet Financial Instruments   In the ordinary course of business, the Bank has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and commitments under credit card arrangements.  Such financial instruments are recorded in the financial statements when they become payable.   Other Comprehensive Income (Loss)   The Company's accumulated other comprehensive income (loss) is comprised of the unrealized gain (loss) on securities available for sale and prior service costs, and net gain and loss required to be recognized under FAS No. 158, net of tax, and is shown on the consolidated statements of stockholders' equity.   Segment Information   The Company, through a branch network of its banking subsidiary, provides a full range of banking services in northern Wisconsin, Minnesota, and Michigan.   While the Company’s chief decision makers monitor the revenue streams of various Company products and services, operations are managed and financial performance is evaluated on a companywide basis.  Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment.   Rate Lock Commitments   The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments).  Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives.  Rate lock commitments are recorded only to the extent of fees received since recording the estimated fair value of these commitments would not have a significant impact on the consolidated financial statements.  Fees received are subsequently included in the net gain or loss on the sale of loans.   Stock-Based Compensation   Effective October 1, 2006, the Company adopted SFAS No. 123 (R), Share-Based Payment, which requires the Company to measure all employee stock-based compensation awards using a fair value method and to record such expense in its consolidated financial statements.   The Company accounts for employee stock compensation plans using the fair-value-based method of accounting.  Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is also the vesting period.

35

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 1 Summary of Significant Accounting Policies (Continued)   Stock-Based Compensation (Continued)   Pursuant to SFAS No. 123 disclosure requirements, pro forma net income and basic and diluted earnings per share are presented below as if compensation cost for stock options was determined under the fair value method and amortized to expense over the options' vesting periods for each year.

	Year Ended
	September 30,
	2006		2005
	(In Thousands)
Net income, as reported	$	446	$	1,051
Deduct:
Total stock-based employee compensation expense
determined under the fair-value-based method for all awards,
net of related tax effects		67		45
Pro forma net income	$	379	$	1,006
Earnings per share - Basic and diluted
As reported:
Basic	$	0.12	$	0.35
Diluted	$	0.12	$	0.35
Pro forma:
Basic	$	0.10	$	0.33
Diluted	$	0.10	$	0.33

NOTE 1 Presentation   All footnote information is presented in thousands, except for per share amounts.   Recent Accounting Changes   In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

36

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 1 Summary of Significant Accounting Policies (Continued)   This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities.  SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The Company believes the adoption of this statement will not have a significant effect on the financial statements of the Company.   In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans.  This statement amends SFAS No. 87, Employers' Accounting for Pensions; SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits; SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions; and SFAS No. 132 (revised 2003), Employers' Disclosures About Pensions and Other Postretirement Benefits.  SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize gains or losses and prior service costs or credits that arise during the year but are not recognized as components of net periodic benefit cost under SFAS No. 87 as a component of other comprehensive income.  It also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.  SFAS No. 158 is effective for public companies as of the end of the fiscal year ending after December 15, 2006.  The requirement to measure plan assets and benefit obligations as of the date of the fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008.  The Company adopted this statement which resulted in an increase in liabilities and a decrease in equity of approximately $621 for the underfunded status of the plan, net of tax.   In September 2006, the Securities and Exchange Commission's office (SEC) announced Staff Accounting Bulletin No. 108 (SAB 108).  SAB 108 addresses how to quantify financial statement errors that arose in prior periods for purposes of assessing their materiality in the current period.  It requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality.  It clarifies that immaterial financial statement errors in a prior SEC filing can be corrected in subsequent filings without the need to amend the prior filing.  In addition, SAB 108 provides transitional relief for correcting errors that would have been considered immaterial before its issuance.  The adoption of SAB 108 will not have an impact on our consolidated financial position, results of operations, or cash flows.

37

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 1

Summary of Significant Accounting Policies (Continued) In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.  FIN 48 prescribed a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  FIN 48 is effective for fiscal years beginning after December 15, 2006, for public companies.  The adoption of this interpretation will not have a significant effect on the financial statements of the Company.

Note 2

Second-Step Conversion On October 31, 2006, a second-step conversion was completed in which Citizens Community MHC converted to stock form.  Through this transaction, Citizens Community Bancorp (CCB) ceased to exist and was replaced by Citizens Community Bancorp, Inc. (CCB, Inc.) as the holding company for the Bank.  A total of 5,290,000 shares of common stock was sold in the offering at $10 per share through which CCB, Inc. received proceeds of $51,238 net of offering costs of $1,662.  CCB, Inc. also contributed $25,619 or approximately 50% of the net proceeds to the Bank in the form of a capital contribution.  CCB, Inc. lent $3,415 to the Bank’s employee stock ownership plan, and the plan used those funds to acquire 341,501 shares of common stock at $10 per share. As part of the conversion, outstanding public shares of CCB were exchanged for 1.91067 shares of CCB, Inc., the new holding company of Citizens Community Federal.  The exchange resulted in an additional 1,826,380 of outstanding shares of CCB, Inc. for a total of 7,116,380 outstanding shares.  Treasury stock held was cancelled as of that date. At the time of closing of the conversion on October 31, 2006, approximately $49,485, less offering expenses, became capital of CCB, Inc.

38

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 3	Cash and Cash Equivalents In the normal course of business, the Bank maintains cash and due from bank balances with correspondent banks which routinely exceed insured amounts.  Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100.  The Bank monitors the financial condition of correspondent banks and believes credit risk is minimal.
Note 4	Securities The amortized cost and estimated fair value of securities, with gross unrealized gains and losses at September 30, follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(In Thousands)
2007
Securities Available for Sale:
Debt securities:
Mortgage-related securities	$	39,450	$	150	$	8	$	39,592

		Gross	Gross
	Amortized	Unrealized	Unrealized	Estimated
	Cost	Gains	Losses	Fair Value
	(In Thousands)
2006
Securities Available for Sale:
Debt securities:
Mortgage-related securities	$796	$0	$14	$782

39

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 4 Securities (Continued)   The following tables show the fair value and gross unrealized losses of securities with unrealized losses at September 30, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	Less than 12 Months				12 Months or More				Total
Description	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
of Securities	Value		Losses		Value		Losses		Value		Losses
	(In Thousands)
2007
Mortgage-related securities	$	0	$	0	$	655	$	8	$	655	$	8
Total temporarily impaired
securities	$	0	$	0	$	655	$	8	$	655	$	8

2006
Mortgage-related securities	$	0	$	0	$	782	$	14	$	782	$	14
Total temporarily impaired
securities	$	0	$	0	$	782	$	14	$	782	$	14

At September 30, 2007, three securities have unrealized losses with aggregate depreciation of less than 1% of the Company’s amortized cost basis.  The unrealized losses relate principally to the increase in interest rates and are not due to changes in the financial condition of the issuer.  When analyzing an issuer’s financial condition, management considers whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, and industry analysts’ reports.  Since management has the ability to hold securities until the foreseeable future for securities available for sale, no declines are deemed to be other than temporary.

Following is a summary of the proceeds from sales of securities available for sale, as well as gross gains and losses for the years ended September 30:

	2007		2006		2005
	(In Thousands)
$	0	$	1,325	$	0
	0		27		0

No securities were pledged by the Company as of September 30, 2007 and 2006.

40

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 5 Loans   The composition of loans at September 30 follows:

	2007			2006
	(In Thousands)
Real estate loans:
First mortgages--1- to 4-family	$	177,281		$	156,235
Multifamily and commercial		215			240
Second mortgages		10,461			9,161
Total real estate loans		187,957			165,636
Consumer loans:
Automobile		27,168			24,445
Secured personal		100,966			64,384
Unsecured personal		4,610			4,774
Total consumer loans		132,744			93,603
Gross loans		320,701			259,239
Allowance for loan losses		(926	)		(835	)
Net deferred loan costs		252			63
Loans receivable, net	$	320,027		$	258,467

The aggregate amount of nonperforming loans was $1,520 and $1,390 at September 30, 2007 and 2006, respectively.  Nonperforming loans are those which are contractually past due more than 90 days as to interest or principal payments, on a nonaccrual of interest status, or loans the terms of which have been renegotiated to provide a reduction or deferral of interest or principal.  If interest on those loans had been accrued, such income would have been $102, $52, and $36, in 2007, 2006, and 2005, respectively.  No loans were considered impaired in 2007 and 2006.

Directors, officers, principal stockholders, and employees of the Company, including their families and firms in which they are principal owners, are considered to be related parties.  Substantially all loans to directors and executive officers were made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others and, in the opinion of management, did not involve more than the normal risk of collectibility or present other unfavorable features.

41

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 5 Loans (Continued)   Activity in related-party loans for the years ended September 30, 2007 and 2006, is as follows:

	2007			2006
	(In Thousands)
Loans outstanding, October 1	$	46		$	62
New loans		0			26
Repayments		(19	)		(42	)
Loans outstanding, September 30	$	27		$	46

An analysis of the activity in the allowance for loan losses at September 30 follows:

		2007			2006			2005
	(In Thousands)
Balance at beginning		$	835		$	803		$	554
Provisions charged to operating expense			470			251			414
Allowance for loan losses obtained through bank merger			0			0			40
Loans charged off			(413	)		(247	)		(236	)
Recoveries on loans			34			28			31
Balance at end		$	926		$	835		$	803

Note 6 Office Properties and Equipment   Office properties and equipment at September 30 consists of the following:

	2007		2006
	(In Thousands)
Land	$	613	$	613
Buildings		3,007		2,997
Furniture, equipment, and vehicles		3,487		3,225
Subtotals		7,107		6,835
Less - Accumulated depreciation		3,647		3,154
Office properties and equipment - Net	$	3,460	$	3,681

Depreciation charged to operating expense totaled $493, $416, and $278, for the years ended September 30, 2007, 2006, and 2005, respectively.

42

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 7 Intangible Assets   The carrying amount of the core deposit intangible at September 30 is as follows:

	2007			2006			2005
	(In Thousands)
Balance at beginning	$	1,829		$	2,131		$	349
Capitalized		0			0			1,877
Amortization		(301	)		(302	)		(95	)
Balance at end	$	1,528		$	1,829		$	2,131

Estimated future amortization expense for amortizing core deposit intangible is $301 annually.

Note 8 Goodwill   Goodwill resulting from an acquisition in 2005 was $5,466 as of September 30, 2007 and 2006.  The Company tested for impairment during the fourth quarter and determined there was no impairment of goodwill during 2007 or 2006.

Note 9 Deposits   The composition of deposits at September 30 follows:

	2007		2006
	(In Thousands)
Non-interest-bearing demand deposits	$	13,783	$	13,785
Interest-bearing demand deposits		4,874		4,884
Savings accounts		22,855		24,975
Money market accounts		27,121		22,262
Certificate accounts		139,101		120,805
Total deposits	$	207,734	$	186,711

43

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 9 Deposits (Continued)   Interest expense on deposits for the years ended September 30 was as follows:

	2007		2006		2005
	(In Thousands)
Interest-bearing demand deposits	$	28	$	28	$	30
Savings accounts		218		167		147
Money market accounts		588		500		433
Certificate accounts		6,160		4,487		2,653
Totals	$	6,994	$	5,182	$	3,263

The aggregate amount of time deposit accounts with individual balances greater than $100,000 was $30,221 and $20,012 at September 30, 2007 and 2006, respectively.

At September 30, 2007, the scheduled maturities of certificate accounts are as follows:

	(In Thousands)
2008	$106,030
2009	27,997
2010	2,616
2011	2,299
After 2011	159
Total	$139,101

Deposits from directors, executive officers, principal shareholders and their affiliates, totaled $446 as of September 30, 2007.

44

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 10 Borrowed Funds   Borrowed funds consist of the following at September 30:

	2007					2006
	Rates			Amount		Rates			Amount
	(Dollars in Thousands)
Federal Home Loan Bank (FHLB):
Fixed rate, fixed term advances		4.84-5.48	%	$	53,087		4.70-5.53	%	$	10,092
Adjustable rate advances		5.09	%		43,359		5.62	%		51,108
Totals				$	96,446				$	61,200

The following is a summary of scheduled maturities of fixed-term borrowed funds as of September 30, 2007:

	Weighted
	Average			Total
	Rate			Amount
				(In Thousands)
2008		5.15	%	$	17,337
2009		5.15	%		13,250
2010		5.15	%		4,600
2011		5.25	%		6,050
2012		5.23	%		9,000
After 2012		5.41	%		2,850
Total				$	53,087

Actual maturities may differ from the scheduled principal maturities due to call options on the various advances.

The Company has a master contract agreement with the Federal Home Loan Bank that provides for borrowing up to the maximum of 75% of the book value of the Company's qualifying one- to four-family residential real estate loans.  The FHLB provides both fixed and floating rate advances.  Floating rates are tied to short-term market rates of interest, such as London InterBank Offered Rate (LIBOR), federal funds, or treasury bill rates.  Advances with call provisions permit the FHLB to request payment beginning on the call date and quarterly thereafter.  FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity.  FHLB advances are also secured by FHLB stock owned by the Company at September 30, 2007 and 2006, respectively.

45

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 11 Income Taxes   The components of the provision for income taxes are as follows:

	2007			2006			2005
				(In Thousands)
Current tax expense:
Federal	$	580		$	509		$	491
State		98			138			89
Total current tax expense		678			647			580
Deferred tax expense (benefit):
Federal		(190	)		(261	)		98
State		(40	)		(77	)		6
Total deferred tax expense (benefit)		(230	)		(338	)		104
Total provision for income taxes	$	448		$	309		$	684

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities.  The major components of net deferred tax asset (liability) at September 30 are as follows:

	2007			2006
	(In Thousands)
Deferred tax assets:
Mutual savings bank conversion costs	$	11		$	21
Director/officer compensation plans		1,148			749
Wisconsin net operating loss carryforwards		0			9
Allowance for loan losses		169			80
Net unrealized loss on securities available for sale		0			3
Purchase accounting adjustments		119			145
Deferred tax assets		1,447			1,007
Deferred tax liabilities:
Deferred loan costs		(64	)		(25	)
Office properties and equipment		(84	)		(40	)
Federal Home Loan Bank stock		(68	)		(80	)
Prepaids		(81	)		(28	)
Core deposit intangible		(494	)		(605	)
Net unrealized gain on securities available for sale		(50	)		0
Other		(16	)		(10	)
Deferred tax liabilities		(857	)		(788	)
Net deferred tax asset (liability)	$	590		$	219

46

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 11 Income Taxes (Continued)   A summary of the sources of differences between income taxes at the federal statutory rate and the provision for income taxes for the years ended September 30 follows:

	2007					2006					2005
			Percent					Percent					Percent
			of Pretax					of Pretax					of Pretax
	Amount		Income			Amount		Income			Amount		Income
	(Dollars in Thousands)
Tax expense at statutory rate	$	405		34.00	%	$	257		34.0	%	$	590		34.0	%
Increase in taxes resulting from state taxes		43		3.60	%		52		6.9	%		94		5.4	%
Total provision for income taxes	$	448		37.6	%	$	309		40.9	%	$	684		39.4	%

Note 12 Retirement Plans   401(k) Plan   The Company sponsors a 401(k) profit sharing plan that covers substantially all employees.  Employees may make pretax voluntary contributions to the plan which are matched in part by the Company.  Employer matching contributions to the plan were $84, $83, and $74, for 2007, 2006, and 2005, respectively.   Supplemental Executive and Director Retirement Plan   The Company maintains an unfunded Supplemental Executive Retirement Plan (SERP) providing retirement benefits for key employees designated by the Board of Directors.  Benefits under the SERP generally are based on the key employees' years of service and compensation during the years preceding retirement.  The Company also maintains an unfunded Directors' Retirement Plan.  The benefit amounts are determined by individual director agreements.

47

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 12 Retirement Plans (Continued)   The components of the SERP and Directors' Retirement plans' cost at September 30 are summarized as follows:

	2007		2006		2005
	(In Thousands)
Beginning accrued benefit cost	$	1,613	$	1,220	$	686
Service cost		64		86		64
Interest cost		148		137		110
Expected return on plan assets		0		0		0
Amortization of prior service costs		117		156		135
Unrecognized net loss		0		14		4
Net periodic benefit cost		329		393		313
Additional costs associated with merger		0		0		221
Curtailment		207		0		0
Ending accrued benefit cost	$	2,149	$	1,613	$	1,220

48

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 12 Retirement Plans (Continued)   The following table sets forth the change in projected benefit obligation and change in plan assets, funded status of the SERP and Directors' Retirement plans, and net liability recognized in the Company's balance sheet at September 30:

	2007			2006			2005
	(In Thousands)
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	2,646		$	2,613		$	1,734
Service cost		64			86			64
Interest cost		148			137			110
Plan amendments/effect of merger		0			0			481
Actuarial loss		(124	)		(190	)		224
Benefits paid		(107	)		0			0
Projected benefit obligation, end of year	$	2,627		$	2,646		$	2,613
Change in plan assets:
Plan assets at fair value, beginning of year	$	0		$	0		$	0
Actual return on plan assets		0			0			0
Company contributions		0			0			0
Benefits paid		0			0			0
Plan assets at fair value, end of year	$	0		$	0		$	0

49

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 12 Retirement Plans (Continued)   Weighted average assumptions used in determining the benefit obligation and net pension costs as of September 30 are as follows:

	2007			2006			2005
Benefit obligation actuarial assumptions:
Discount rate		6.00	%		5.75	%		5.25	%
Rate of compensation increase		5.00	%		5.00	%		5.00	%
Net pension cost actuarial assumption:
Discount rate		5.75	%		5.25	%		6.00	%
Expected long-term rate of return on plan assets	N/A			N/A			N/A
Rate of compensation increase		5.00	%		5.00	%		5.00	%

Estimated future benefit payments as of September 30, 2007, which reflect expected future service, as appropriate, are as follows:

	(In Thousands)
2008	$	0
2009		40
2010		47
2011		49
2012		112
2013 - 2017		1,325

Employee Stock Ownership Plan

The Board of Directors approved an Employee Stock Ownership Plan (ESOP) that became effective March 29, 2004.  The Plan is designed to provide eligible employees the advantage of ownership of Company stock.  Employees are eligible to participate in the Plan after reaching age twenty-one, completing one year of service, and working at least one thousand hours of consecutive service during the year.  Contributions are allocated to eligible participants on the basis of compensation.

50

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 12 Retirement Plans (Continued)   The ESOP borrowed $1,192 from the Company to finance the purchase of 227,821 shares in connection with the initial public offering.  The loan is payable in annual installments over ten years at an annual interest rate equal to 5%.   The ESOP borrowed $3,415 from the Company to finance the purchase of 341,501 shares in connection with the second-step conversion.  The loan is payable in annual installments over ten years at an annual interest rate of 4.9%.   The loans can be prepaid without penalty.  Loan payments are principally funded by cash contributions from the Company, subject to federal tax law limits.   Shares used as collateral to secure the loan are released and available for allocation to eligible employees as the principal and interest on the loan are paid.  Eligible employees must obtain a year of service and be 21 years old.  Employees become fully vested in their ESOP account after five years of service.  Dividends on unallocated shares are generally applied toward payment of the loan.  ESOP shares committed to be released are considered outstanding in determining earnings per share.   Contribution expense to the ESOP is based on the fair value (average stock price) of the shares scheduled to be released, and totaled $508 in 2007.  One-tenth of the shares are scheduled to be released each year.  The cost of all unallocated shares held by the ESOP has been reflected in the consolidated balance sheets as a reduction to equity.   The ESOP shares as of September 30, 2007, were as follows:

Allocated		67,962
Committed to be released		56,934
Unallocated		444,046
Estimated fair value of unallocated shares held (In Thousands)	$	4,196

Note 13 Leases   The Company leases certain branch facilities and its administrative offices under operating leases.  Rent expense under these operating leases was $302, $316, and $248 for the years ended September 30, 2007, 2006, and 2005, respectively.

51

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 13 Leases   Future minimum lease payments by year and in aggregate under the original terms of the noncancelable operating leases consist of the following:

	(In Thousands)
2008	$	267
2009		223
2010		91
2011		44
Thereafter		17
Total	$	642

Note 14 Stock-Based Compensation Plans   Recognition and Retention Plans   On February 4, 2005, shareholders approved the Citizens Community Bancorp, Inc. 2004 Recognition and Retention Plan (Recognition Plan) which authorized the Board of Directors to award up to 113,910 shares of common stock.  On February 4, 2005, and November 5, 2005, the Board of Directors granted 63,789 and 6,833 shares, respectively.  The market value of the shares awarded at the grant date amounted to $449 and $42, respectively, and has been recognized in the accompanying balance sheet as unearned stock-based compensation.  The market value of the shares awarded is being recognized as compensation expense ratably over the five-year vesting period.  During fiscal year 2007, 4,557 shares were forfeited.  There were no forfeited shares for fiscal years 2006 and 2005.  Compensation expense related to the Recognition Plan was $90, $98, and $60 for the years ended September 30, 2007, 2006, and 2005, respectively.   Stock Option Plan   In February 2005, the 2004 stock option and incentive plan was approved by Citizens Community Bancorp, Inc.'s shareholders.  The plan provides for the grant of nonqualified and incentive stock options.  The plan provides for the grant of options for up to 284,778 shares.  At September 30, 2007, 202,197 options had been granted under this plan at a weighted average exercise price of $7.04 per share.  Exercised options will be satisfied by the issuance of previously unissued shares or treasury stock.  Options vest over a five-year period.  Unexercised nonqualified stock options expire in 15 years and unexercised incentive stock options expire in 10 years.  The fair value of stock options granted in 2005 was estimated at the date of grant using the Black-Scholes methodology.  No options were granted in 2007 or

52

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 14 Stock-Based Compensation Plans (Continued)   Stock Option Plan (Continued)   in 2006.  The following assumptions were made in estimating the fair value for options granted for the year ended September 30, 2005.

	2005
Dividend yield		1.49	%
Risk-free interest rate		4.16	%
Weighted average expected life (years)		10
Expected volatility		16.08	%

The weighted average fair value of options at their grant date, using the assumptions shown above, was computed at $3.66 per share.  Total compensation expense of $75 was recognized during 2007.  As of September 30, 2007, there was $264 total unrecognized compensation cost related to the nonvested share-based compensation arrangement, which is expected to be recognized over the next three years.

	2007				2006
			Weighted				Weighted
	Option		Average		Option		Average
	Shares		Price		Shares		Price
Outstanding - Beginning of year		202,197	$	7.04		202,197	$	7.04
Options forfeited		6,833				0
Options exercised		4,558				0
Outstanding - End of Year		190,806	$	7.04		202,197	$	7.04
Exercisable at September 30, 2007								69,489
Weighted average fair value of options granted							$	3.66
Available for future grant at year-end								89,413

53

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 14 Stock-Based Compensation Plans (Continued)   The following table summarizes information about Plan awards outstanding at September 30, 2007:

Options Outstanding
		Weighted Average	Weighted Average
Number Outstanding		Remaining Contractual Life	Exercise Price
	119,606	7.42 years	$	7.04
	71,200	12.42 years	$	7.04

Note 15 Earnings Per Share   Basic and diluted earnings per share data are based on the weighted-average numbers of common shares outstanding during each period.  Diluted earnings per share are further adjusted for potential common shares that were dilutive and outstanding during the period.  Potential common shares consist of stock options outstanding under the incentive plan.  The dilutive effect of potential common shares is computed using the treasury stock method.  All stock options are assumed to be 100% vested for purposes of the earnings per share computations.  The computation of earnings per share for the years ended September 30, 2007, 2006, and 2005, are as follows:

	2007			2006	*		2005	*
Weighted average shares outstanding		6,709,115		6,933,254			5,746,686
Effect of dilutive stock options outstanding		25,834		25,718			2,524
Diluted weighted average shares outstanding		6,734,949		6,958,972			5,749,210
Basic earnings per share	$	0.11	$	0.06		$	0.18
Diluted earnings per share	$	0.11	$	0.06		$	0.18

* Earnings per share was restated to reflect the impact of the second-step conversion and reorganization of the Company which occurred on October 31, 2006.

54

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 16 Commitments and Contingencies   Financial Instruments with Off-Balance-Sheet Risk   The Company’s financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk, and liquidity risk.  These commitments and contingent liabilities are commitments to extend credit.   A summary of the Company’s commitments and contingent liabilities at September 30 follows:

	2007		2006
	(In Thousands)
Commitments to extend credit - Fixed rate 6.99 - 9.50%
in 2007 and 7.0% - 8.00% in 2006	$	428	$	500
Unused lines of credit:
Real estate equity advance plan (REAP)		692		1,193
Kwik cash and lines of credit		2,049		1,823
MasterCard and VISA credit cards		4,721		4,829
Totals	$	7,890	$	8,345

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  A portion of the commitments is expected to be drawn upon, thus representing future cash requirements.  Management evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer.  Collateral held varies but may include real estate and personal property.  Substantial amounts of unsecured personal loans are granted by the Company.  However, ongoing credit evaluations of customers are performed.

Concentration of Credit Risk

The majority of the Company’s loans and commitments have been granted to customers in the Company’s local market areas.  The concentrations of credit by type are set forth in Note 5.  Management believes the diversity of the various economies will prevent significant losses in the event of an economic downturn.

Contingencies

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.

55

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 17 Capital Requirements   The Bank is subject to various regulatory capital requirements administered by the federal agencies.  Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.   Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets.  It is management’s opinion as of September 30, 2007, that the Bank meets all capital adequacy requirements.   As of September 30, 2007, the most recent notification from the Office of Thrift Supervision categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action.  To be categorized as well-capitalized, the Bank must maintain minimum net worth ratios as set forth in the table.  There are no conditions or events since that notification that management believes have changed the Bank’s category.   The Bank’s actual and regulatory capital amounts and ratios are presented in the following table:

												To Be Well-
												Capitalized Under
						For Capital						Prompt Corrective
	Actual					Adequacy Purposes						Actions Provisions
	Amount		Ratio			Amount			Ratio			Amount			Ratio
	(Dollars in Thousands)
September 30, 2007
Total risk-based capital (to risk-weighted assets)	$	44,416		18.00	%	$	19,757	>		8.00	%	$	24,696	>		10.00	%
Tier 1 capital (to risk- weighted assets)	$	43,709		17.70	%	$	9,878	>		4.00	%	$	14,817	>		6.00	%
Tier 1 capital (to adjusted total assets)	$	43,709		11.50	%	$	15,161	>		4.00	%	$	18,952	>		5.00	%
Tangible capital (to tangible assets)	$	43,709		11.50	%	$	5,685	>		1.50	%	N/A			N/A
September 30, 2006
Total risk-based capital (to risk-weighted assets)	$	20,428		11.00	%	$	14,920	>		8.00	%	$	18,650	>		10.00	%
Tier 1 capital (to risk- weighted assets)	$	19,761		10.60	%	$	7,460	>		4.00	%		11,190	>		6.00	%
Tier 1 capital (to adjusted total assets)	$	19,761		7.20	%	$	10,943	>		4.00	%	$	13,679	>		5.00	%
Tangible capital (to tangible assets)	$	19,761		7.20	%	$	4,104	>		1.50	%	N/A			N/A

56

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 18 Fair Values of Financial Instruments   Current accounting standards require that the Company disclose estimated fair values for its financial instruments.  Fair value estimates, methods, and assumptions for the Company’s financial instruments are summarized below.   Cash and Cash Equivalents   The carrying values approximate the fair values for these assets.   Interest-Bearing Deposits   The carrying values approximate the fair values for these assets.   Securities Available for Sale   Fair values are based on quoted market prices, where available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.   Loans   Fair value is estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as residential mortgage and consumer.  The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity using market discount rates reflecting the credit and interest rate risk inherent in the loan.  The estimate of maturity is based on the Company’s repayment schedules for each loan classification.   The methodology in determining fair value of nonaccrual loans is to average them into the blended interest rate at 0% interest.  This has the effect of decreasing the carrying amount below the risk-free rate amount and therefore, discounts the estimated fair value.   Impaired loans are measured at the estimated fair value of the expected future cash flows at the loan’s effective interest rate or the fair value of the collateral for loans which are collateral dependent.  Therefore, the carrying values of impaired loans approximate the estimated fair values for these assets.   Federal Home Loan Bank Stock   Fair value for the Federal Home Loan Bank stock is based on its redeemable (carrying) value, since the market for this stock is restricted.   Deposits   The fair value of deposits with no stated maturity, such as demand deposits, savings accounts, and money market accounts, is the amount payable on demand at the reporting date.  The fair value of certificate accounts is calculated by using discounted cash flows applying interest rates currently being offered on similar certificates.

57

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 18 Fair Values of Financial Instruments (Continued)   Borrowed Funds   The fair value of borrowed funds is estimated using discounted cash flows based on the Bank’s current incremental borrowing rates for similar borrowing arrangements.   Accrued Interest   The carrying amount of accrued interest approximates its fair value.   Off-Balance-Sheet Instruments   The fair value of commitments would be estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present creditworthiness of the customers.  Since this amount is immaterial, no amounts for fair value are presented.   The carrying amount and estimated fair value of financial instruments at September 30 were as follows:

	2007				2006
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	6,354	$	6,354	$	6,170	$	6,170
Interest-bearing deposits		371		371		959		959
Securities available for sale		39,592		39,592		782		782
Loans held for sale		0		0		321		321
Loans receivable		320,027		311,642		258,467		250,966
FHLB stock		4,822		4,822		3,060		3,060
Accrued interest receivable		1,397		1,397		861		861
Financial liabilities:
Deposits		207,734		208,282		186,711		186,688
Borrowed funds		96,446		101,230		61,200		60,386
Accrued interest payable		402		402		264		264

58

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 18

Fair Values of Financial Instruments (Continued) Limitations Fair value estimates are made at a specific time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.  Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Significant assets and liabilities that are not considered financial assets or liabilities include premises and equipment, other assets, and other liabilities. In addition, the tax ramifications related to the realization of the unrealized gains or losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Note 19

Condensed Parent Company Only Financial Statements The following condensed balance sheets as of September 30, 2007 and 2006, and condensed statements of income and cash flows for each of the years in the three-year period ended September 30, 2007, for Citizens Community Bancorp, Inc. should be read in conjunction with the consolidated financial statements and the notes thereto.

Balance Sheets

September 30, 2007 and 2006

Assets	2007		2006
	(In Thousands)
Cash and cash equivalents	$	23,630	$	2,088
Investment in subsidiary		50,510		27,045
Note receivable - ESOP		4,009		949
TOTAL ASSETS	$	78,149	$	30,082
Stockholders' Equity
TOTAL STOCKHOLDERS' EQUITY	$	78,149	$	30,082

59

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 19 Condensed Parent Company Only Financial Statements (Continued)

Statements of Income

Years Ended September 30, 2007, 2006, and 2005

	2007			2006			2005
	(In Thousands)
Income - Interest and dividends	$	240		$	89		$	103
Expenses - Other		292			132			160
Income before provision for income taxes and equity in
undistributed net income of subsidiary		(52	)		(43	)		(57	)
Benefit for income taxes		(43	)		(6	)		(23	)
Loss before equity in undistributed net income of subsidiary		(9	)		(37	)		(34	)
Equity in undistributed net income of subsidiary		752			483			1,085
Net income	$	743		$	446		$	1,051

60

Citizens Community Bancorp, Inc.

and Subsidiary             

Notes to Consolidated Financial Statements         

Note 19 Condensed Parent Company Only Financial Statements (Continued)

Statements of Cash Flows

Years Ended September 30, 2007, 2006, and 2005

	2007			2006			2005
	(In Thousands)
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income	$	743		$	446		$	1,051
Provision for stock options		75			0			0
Adjustments to reconcile net income to net cash
provided by operating activities - Equity in
undistributed income of subsidiary		(752	)		(483	)		(1,085	)
Net cash provided by (used in) operating activities		66			(37	)		(34	)
Cash flows from investing activities:
Investment in subsidiary		(25,619	)		0			0
Loan to ESOP		(3,415	)		0			0
Principal received on ESOP loan		355			102			97
Net cash provided by (used in) investing activities		(28,679	)		102			97
Cash flows from financing activities:
Sale of common stock		51,238			0			0
Stock options exercised		32			0			0
Purchase of treasury stock		0			(1	)		(895	)
Cash dividends paid		(1,115	)		(190	)		(193	)
Net cash provided by (used in) financing activities		50,155			(191	)		(1,088	)
Net increase (decrease) in cash and cash equivalents		21,542			(126	)		(1,025	)
Cash and cash equivalents at beginning		2,088			2,214			3,239
Cash and cash equivalents at end	$	23,630		$	2,088		$	2,214
Supplemental cash flow information:
Cash received during the year for income taxes	$	43		$	6		$	23

61

CITIZENS COMMUNITY BANCORP, INC.

STOCKHOLDER INFORMATION

ANNUAL MEETING

The annual meeting of stockholders of Citizens Community Bancorp, Inc. will be held at our branch office in Chippewa Falls, located at 427 West Prairie View Road, Chippewa Falls, Wisconsin, 54729, on February 21, 2008, at 4:00 p.m. local time.

STOCK LISTING

Citizens Community Bancorp, Inc. common stock is traded on the Nasdaq Global Market under the symbol "CZWI."

PRICE RANGE OF COMMON STOCK

	HIGH	LOW	DIVIDENDS
Fiscal 2007
First Quarter	$20.00	$  9.65	$0.05
Second Quarter	$  9.78	$  9.33	$0.05
Third Quarter	$  9.55	$  8.75	$0.05
Fourth Quarter	$  9.54	$  8.04	$0.05
Fiscal 2006
First Quarter	$13.20	$10.30	$0.05
Second Quarter	$14.25	$12.90	$0.05
Third Quarter	$18.39	$13.75	$0.05
Fourth Quarter	$21.15	$17.65	$0.05
Fiscal 2005
First Quarter	$15.50	$12.90	$0.05
Second Quarter	$15.50	$13.00	$0.05
Third Quarter	$14.75	$12.75	$0.05
Fourth Quarter	$13.00	$12.50	$0.05

The stock price information set forth in the table above was provided by the Yahoo Finance System.  This information relates to Citizens Community Bancorp Inc.'s predecessor, Citizens Community Bancorp, whose common stock began trading on March 29, 2004.  This information does not reflect the 1.91067 exchange of Citizens Community Bancorp shares into shares of Citizens Community Bancorp, Inc.  The closing price of Citizens Community Bancorp, Inc. common stock on December 20, 2007 was $8.70.

At December 20, 2007, there were 7,118,205 shares of Citizens Community Bancorp, Inc. common stock outstanding (including unallocated ESOP shares) and there were 461 holders of record.

Our cash dividend payout policy is continually reviewed by management and the board of directors.  We intend to continue our policy of paying quarterly dividends; however, these payments will depend on a number of factors, including capital requirements, regulatory limitations, our financial condition, results of operations and the Bank's ability to pay dividends.  

62

We rely significantly upon dividends from the Bank to accumulate earnings for payment of cash dividends to the stockholders.

STOCKHOLDERS AND GENERAL INQUIRIES

TRANSFER AGENT

Citizens Community Bancorp, Inc. files an annual report with the Securities and Exchange Commission on Form 10-K and three quarterly reports on Form 10-Q.  Copies of these forms are available by request.  Requests, as well as inquiries from stockholders, analysts and others seeking information about Citizens Community Bancorp, Inc. should be directed to John D. Zettler, Senior Vice President and Chief Financial Officer, at 2174 EastRidge Center, Eau Claire, WI 54701, telephone (715) 836-9994. www.citizenscommunityfederal.net

Stockholders should direct inquiries concerning their stock, change of name, address or ownership; report lost certificates or consolidate accounts to our transfer agent at 1-800-368-5948 or write: Registrar and Transfer Co. 10 Commerce Drive Cranford, NJ  07016 1-(800) 368-5948

ANNUAL AND OTHER REPORTS

A copy of our Annual Report on Form 10-K for the year ended September 30, 2007, as filed with the Securities and Exchange Commission, may be obtained without charge by contacting John D. Zettler, Citizens Community Bancorp, 2174 EastRidge Center, Eau Claire, Wisconsin  54701.

63

CITIZENS COMMUNITY BANCORP, INC.

CORPORATE INFORMATION

Citizens Community Bancorp, Inc. Board of Directors		Citizens Community Federal Officers
Richard McHugh, Chairman Thomas C. Kempen, Vice Chairman Brian R. Schilling Donna E. Talmage David B. Westrate James G. Cooley		James G. Cooley, President and Chief Executive Officer John D. Zettler, Senior Vice President and    Chief Financial Officer Timothy J. Cruciani, Executive Vice President Rebecca Johnson, SeniorVice President,    MIC/Accounting
Citizens Community Federal Locations:
Administrative Offices 2174 EastRidge Center Eau Claire, WI 54701 Branch Offices: Westside Branch 2125 Cameron Street Eau Claire, WI 54703 East Branch 1028 N. Hillcrest Parkway Altoona, WI 54720 Fairfax Branch 219 Fairfax Street Altoona, WI 54720	Mondovi Branch 695 E. Main Street Mondovi, WI 54755 Rice Lake Branch 2462 S. Main Street Rice Lake, WI 54868 Chippewa Falls Branch 427 W. Prairie View Road Chippewa Falls, WI 54729 Baraboo Branch S2423 Highway 12 Baraboo, WI 53913 Black River Falls Branch W9036 Highway 54 E. Black River Falls, WI 54615		Michigan Offices: Rochester Hills Branch 310 W. Tienken Road Rochester Hills, MI  48306 Lake Orion Branch 688 S. Lapeer Road Lake Orion, MI  48362 Minnesota Offices: Mankato Branch 1410 Madison Avenue Mankato, MN 56001 Oakdale Branch 7035 10th Street North Oakdale, MN  55128
Independent Auditors Wipfli, LLP 3703 Oakwood Hills Pkwy Eau Claire, WI  54703
Special Counsel Silver, Freedman & Taff, L.L.P. 3299 K Street, N.W. Suite 100 Washington, D.C.  20007

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EX-14

CITIZENS COMMUNITY BANCORP, INC.

CODE OF BUSINESS CONDUCT

AND ETHICS

PART I

OVERVIEW

Purpose of the Code

This Code of Business Conduct and Ethics (“Code”) is intended to deter wrongdoing and promote:

· Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

· Full, fair, accurate, timely and understandable disclosure in documents the Corporation files with, or submits to, the SEC and in all public communications made by the Corporation;

· Compliance with applicable governmental laws, rules and regulations;

· Prompt internal reporting to designated persons of violations of the Code; and

· Accountability for adherence to the Code.

Application of the Code

The Code applies to all Citizens Community Bancorp, Inc. (the “Corporation”) directors and employees, including subsidiary and affiliate employees.  The Code applies to all employee decisions and activities within the scope of employment, or when representing the Corporation in any capacity.  A copy of the Code will be given to new employees.  Following review of the Code, new employees will be asked to sign a written confirmation that they have reviewed the Code in its entirety, and agree to adhere to its provisions.  Existing employees will be asked to review the Code annually.  All Corporation officers and directors should be familiar with the requirements of the Code, and should encourage employees to apply the Code to their daily activities and decisions, and to seek guidance from the appropriate individuals when additional information or explanation is needed.

Copies of the Code may be obtained from several sources, including the Corporation’s website, your immediate supervisor or any management official.

Obtaining Guidance

If you need additional explanation regarding a particular provision of the Code, or if you need guidance in a specific situation, including whether a conflict or potential conflict of interest may exist, please contact your immediate supervisor.  If you are uncomfortable speaking to your immediate supervisor, or if you require additional guidance after having consulted with your supervisor, you are encouraged to contact the following individual:

Timothy J. Cruciani

Citizens Community Bancorp, Inc.

2174 Eastridge Center

Eau Claire, Wisconsin   54701

office:       (715) 836-9994 ext. 118

cell:           (715) 828-3822

e-mail:       TCruc@citizenscommunityfederal.net

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Reporting Violations of the Code

Any known or suspected violation of the Code, including actions or failures to act, must be promptly reported to your supervisor or the person listed above.  This includes violations or possible violations involving you, another employee (including officers) or a director.  Any violation of law, rule or regulation applicable to the Corporation and/or corporate policy is also a violation of this Code.  Violations of the Code may result in disciplinary action including, in severe situations, immediate termination of employment.

Concerns regarding questionable accounting, internal accounting controls or auditing matters may be directed to Dave Westrate at (715) 828-1178 by leaving a confidential message.

All concerns or complaints will be promptly investigated and appropriate action taken.  Results of the investigation will be documented in a report to the Board of Directors in order to ensure a fair process is utilized in determining whether a violation of the Code has occurred.  No person expressing concerns or complaints will be subject to any disciplinary or other adverse action by the Corporation absent a knowingly false report.  All concerns or complaints may be made anonymously and will remain confidential.  Please provide sufficient information to allow us to properly investigate your concerns.  The Corporation will retain a record of all concerns and complaints, and the results of its investigations, for five years.

PART II

PRINCIPLES AND STANDARDS OF CONDUCT

One of the most valued assets of the Corporation is its reputation for integrity as determined by the personal conduct of its directors, officers and staff, and how that conduct may be perceived by the public.  The ethical management of both personal and business affairs is most important to all directors and employees in order to avoid situations that might lead to a conflict, or even suspicion of a conflict, between personal interest and responsibility to the Corporation.  Your position should never be used directly or indirectly for private gain, for advancement of personal interests or to obtain favors or benefits for oneself, customers, or suppliers.

The following is a statement of policy regarding standards of conduct expected from directors and employees of the Corporation and its affiliates in their treatment of confidential information, personal investments, gifts and fees, and outside activities.

Confidential and Insider Information

Confidentiality is a fundamental principle of the financial services business.  In the course of performing your duties, you may acquire confidential information.  Confidential information includes all non-public information that might be of use to competitors or harmful to the Corporation or its customers, if disclosed.  Confidential information, in any form, obtained through business or personal contacts with customers, prospective customers, suppliers, or other employees shall be used solely for the Corporation's purposes.  Information reflecting favorably or adversely upon the current or future value of any business enterprise should not be used in any manner for personal gain or for advantage to a third party.  This information must not be revealed to unauthorized persons or discussed with others within the Corporation unless their duties require this information.  The use of confidential information submitted to us through any source about one customer to further the private interests of another customer is unethical and may be illegal.

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Some specific examples of confidential information include:

· The identity of customers and potential customers and their personal, business and financial information;

· Non-public business and financial information of the Corporation; personal information regarding any employee of the Corporation;

· Personal or non-public business information regarding any supplier, vendor or agent of the Corporation;

· Information related to, including the identity of, potential candidates for mergers and acquisitions;

· Information regarding the Corporation’s sales strategies, plans or proposals;

· Information related to computer software programs, whether proprietary or standard;

· Information related to documentation systems, information databases, customized hardware or other information systems and technological developments;

· Manuals, processes, policies, procedures, compositions, opinion letters, ideas, innovations, inventions, formulas and other proprietary information belonging to the Corporation or related to the Corporation’s activities;

· Security information, including without limitation, policies and procedures, passwords, personal identification numbers (PINs) and electronic access keys;

· Communications by, to and from regulatory agencies; and

· Certain communications with or from attorneys for the Corporation, whether internal or external.

This caution on confidential information does not preclude releasing certain customer information when authorized by the customer or to the government when appropriate.  The guidance of the Chief Executive Officer should be sought in all such cases.  Disclosure of confidential information to attorneys, accountants and other professionals working on behalf of the Corporation, as well as regulatory examiners, may also be appropriate.

Personal Investments and Financial Affairs

Directors and employees of the Corporation, like any other individuals, may make personal investments in corporate stock, real estate, etc.  Such investments, however, shall not be made as a result of confidential information that is also material inside information obtained through your position with the Corporation.  Particular care should be taken with original or new stock issues.  Confidential information about the Corporation and its customers and suppliers acquired by directors and employees in the course of their duties is to be used solely for the Corporation's purposes, and not as a basis for personal investment by directors and employees or their immediate families.  In making personal investments, all directors and

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employees should be guided by a keen awareness of potential conflict.  In addition, personal investments should not influence a director's or employee's judgment or action in the conduct of the Corporation’s business.

It is expected that all directors and employees will conduct their personal financial affairs in a manner that will not reflect adversely upon the Corporation or on their personal standing in the community.

Material Inside Information

Generally, material inside information is defined as any information that is confidential in nature, and that a reasonable investor would likely consider important in deciding whether to buy, sell, or hold the Corporation’s stock. The following types of information, if not generally known or publicly disclosed, should be considered material inside information and treated according to the provisions of this Code:

· Proposals or plans for mergers and acquisitions;

· Earnings estimates or results, whether for the month, quarter or year;

· Changes in dividends;

· Significant new product innovation, development or implementation;

· Major litigation, adverse regulatory proceeding or material threat of either event;

· Significant operational issues, including changes in non-performing assets;

· Significant expansion of operations, whether geographic or otherwise, or the curtailment of current or future planned operations; and

· Any other information which, if known, would likely influence the decisions of investors.

Gifts and Fees

It is illegal for anyone to offer or promise anything of value to an employee, officer, director or agent of a financial institution with the intent to influence or reward the person in connection with any business or transaction of the financial institution.  It is also illegal for an employee, officer, director or agent of a financial institution to solicit or accept anything of value from any person intending to be influenced or rewarded in connection with any business or transaction of the financial institution.

No employee or director of the Corporation shall accept anything of value from a customer of the Corporation or a vendor to the Corporation other than the following:

1. Gifts based on a family relationship or gifts of a reasonable value based on a personal relationship where that relationship is the obvious motivating factor for the gift;

2. Advertising or promotional material with a value of less than $100;

     3.     Gifts with a value of less than $100 related to commonly recognized events such as a promotion, religious holiday, wedding or retirement;

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4. Acceptance of customary hospitality (business luncheons, dinners, golf outings, ball games, etc.) where it is directly related to Corporation activities and provided that the expense would be paid for by the Corporation if not paid for by another party.  Any entertainment beyond that scope or of a frequent nature (more than twice a year by the same party) must be pre-authorized by the Chief Executive Officer;

5. Discounts or rebates on merchandise or services that do not exceed those available to other customers of the merchant; or

6. Awards for recognition of service or accomplishment from civic, charitable, educational or religious organizations.

If an employee or director receives or anticipates receiving a benefit from a Corporation customer or vendor and is unsure whether acceptance of the gift is in compliance with this policy, a written disclosure should be made to the Chief Executive Officer.  The Board of Directors may approve the acceptance of the benefit if the acceptance is otherwise consistent with this policy.

Directors, employees and their immediate families should never borrow personally from customers or suppliers unless these entities are engaged directly in the lending business, and then only under normal conditions with respect to interest rates, terms, security, and repayment programs that are available to any borrower.

Outside Activities

Outside activities that might constitute a conflict of interest or interfere with performance, or compromise a director's or employee’s position, are to be avoided.  Employee activities such as full-time outside employment; the rendering of investment, legal or accounting services; membership on corporate boards of directors; seeking of an elective political position; or appointment to government bodies should be reviewed and approved by the Chief Executive Officer prior to such undertakings.  As in the past, we continue to encourage active participation on the part of directors, officers and employees in service clubs and organizations fostering the betterment of the community, and the active use of various social memberships in maintaining a proper image of our organization within the community.

Compliance with Laws, Rules and Regulations

All directors and employees of the Corporation are required to comply with the requirements of this Code, all policies of the Corporation and applicable laws, rules and regulations.  Directors and employees must also comply with the procedures implementing and effectuating the Corporation’s policies.  Failure to comply with the Corporation’s policies and procedures may result in disciplinary action including, in severe situations, immediate termination of employment.

Accounting Practices

All employees are expected to observe and comply with generally accepted accounting principles, the system of internal controls and disclosure controls and procedures established by the Corporation requiring that corporate books and records accurately and fairly reflect in reasonable detail the financial condition and results of operations of the Corporation.  Corporation policies are intended to promote full, fair, accurate, timely and understandable disclosure in reports and documents filed with or submitted to the SEC and in the

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Corporation’s public statements.  In furtherance of these requirements, employees must practice the following:

1. No false, misleading or artificial entries shall be made on corporate books, records and reports for any reason.

2. No undisclosed or unrecorded corporate funds or assets shall be established for any purpose.

3. No payments from corporate funds or other assets shall be approved or be made with the intention or understanding that any part of such payment will be used for any purpose other than that described by the documents supporting the payment.  All payments must be supported with appropriately approved purchase orders, invoices or receipts, expense reports or other customary documents, all in accordance with established policy.

PART III

ADMINISTRATION AND WAIVERS

Administration

This Code will be administered and monitored by Timothy J. Cruciani.  General questions and requests for additional information on this Code should be directed to him at the telephone number or e-mail address in Part I.

Waivers

Any requests for waivers of the Code for employees who are not executive officers should be directed through your supervisor to the Chief Executive Officer.  Requests for waivers for directors and executive officers should be directed to the Board of Directors through the Corporate Secretary.  Only a majority of the Board of Directors may waive the applicability of the Code for a director or executive officer.  Any waiver granted to directors or executive officers, including the principal accounting officer, and the reasons for granting the waiver, and any change in the Code applicable to directors and executive officers, including the principal accounting officer, must be promptly disclosed to the public as required by law or the Nasdaq Stock Market.

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EX-21

EXHIBIT 21

Parent
Citizens Community Bancorp, Inc.
Subsidiaries (a)	Percentage of Ownership	Jurisdiction or State of Incorporation
Citizens Community Federal	100%	Federal

___________________________

(a)           The operation of the Company's wholly owned subsidiaries is included in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report.

EX-23.1

EXHIBIT 23.1

[LETTERHEAD OF WIPFLI, LLP]

CONSENT OF INDEPENDENT AUDITORS

Citizens Community Bancorp, Inc.

Eau Claire, Wisconsin

We consent to the incorporation by reference of our report dated December 6, 2007, with respect to the consolidated financial statements of Citizens Community Bancorp, Inc. for the year ended September 30, 2007, included in this annual report on Form 10-K, in the Registration Statement on Form S-8 pertaining to the Citizens Community Bancorp, Inc. 2004 Recognition and Retention Plan (File No. 333-128252) in the Registration Statement Form S-8 pertaining to the Citizens Community Bancorp, Inc. 2004 Stock Option and Incentive Plan (File No. 333-127996).

/s/ Wipfli, LLP

Wipfli, LLP

Eau Claire, Wisconsin

December 20, 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, James G. Cooley, certify that:

1)	I have reviewed this annual report on Form 10-K of Citizens Community Bancorp, Inc.;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5)	I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

  Date:   December 20, 2007   By:     /s/ James G. Cooley                                    James G. Cooley President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, John D. Zettler, certify that:

1)	I have reviewed this annual report on Form 10-K of Citizens Community Bancorp, Inc.;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5)	I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

  Date:   December 20, 2007   By:     /s/ John D. Zettler                                                      John D. Zettler Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32

EXHIBIT 32

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies in his capacity as an officer of Citizens Community Bancorp, Inc. (the "Company") that the Annual Report of the Company on Form 10-K for the fiscal year ended September  30, 2007 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.

  Date:   December 20, 2007   By:     /s/ James G. Cooley                                                James G. Cooley President and Chief Executive Officer (Principal Executive Officer)

Date:	December 20, 2007	By:	/s/ John D. Zettler
			John D. Zettler Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)