UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

~~UNITED~~þ ~~STATES~~ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~SECURITIES~~For ~~AND~~the ~~EXCHANGE~~fiscal ~~COMMISSION Washington,~~year ~~D.C.~~ended ~~20549~~December 31, 2006

~~[X]~~o ~~ANNUAL~~TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the fiscal year ended December 31, 2001~~

~~[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~ For the transition period from ~~_______________~~ to ~~_____________~~

Commission File No. 000-23277

CITIZENS BANCORP/OR ~~(Name of registrant in its charter)~~

(Name of registrant in its charter)


Oregon (State of incorporation)		91-1841688 (I.R.S. Employer Identification No.)

275 Southwest Third Street
P. O. Box 30
Corvallis, Oregon 97339
(Address of principal executive offices)

Registrant’s telephone number: (541) 752-5161

Securities registered under Section 12(b) of the Exchange Act: none

Securities registered under Section 12(g) of the Exchange Act: common stock, no par value

Indicate by check mark ~~whether~~if ~~registrant has (1) 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~~is ~~required~~a towell-known ~~file~~seasoned ~~such~~issuer ~~reports),~~as ~~and~~defined ~~(2) has~~in ~~been subject to such~~Rule ~~filing~~405 ~~requirements~~of ~~for~~ the ~~past~~Securities ~~90 days~~Act. Yes ~~[X]~~ o No ~~[ ]~~þ

Indicate by check mark if ~~disclosure~~the ofregistrant ~~delinquent filers pursuant to Item 405 of Regulation S-K~~ is not ~~contained~~required ~~herein,~~to ~~and~~file ~~will~~reports ~~not be contained~~ to ~~the best~~Section 13 ~~of registrant’s knowledge, in definitive proxy~~ or ~~information statements~~ ~~incorporated~~Section by15(d) ~~reference in Part III~~ of ~~this~~the ~~Form 10-K~~Act. Yes oro ~~any~~No ~~amendment to~~þ ~~this Form 10-K. [ ].~~

~~The~~Indicate ~~approximate~~by ~~aggregate~~check ~~market~~mark ~~value~~whether of registrant’s ~~voting~~has ~~and non-voting~~(1) filed ~~common~~all ~~equity~~reports ~~held~~required byto ~~non-affiliates~~be isfiled ~~$38,527,867~~by Section 13 ~~based~~or on15(d) of the ~~most~~ ~~recent~~Securities ~~reported~~Exchange ~~sale~~Act of ~~registrant’s~~1934 ~~common~~during ~~stock~~the onpreceding ~~March~~12 7,months ~~2002~~(or ~~at a~~for ~~price~~such ofshorter ~~$12.25~~period ~~per~~that ~~share.~~the Asregistrant ofwas ~~March 7,~~required ~~2002~~to ~~there~~file ~~were~~such 4reports),~~161,459~~ ~~shares~~and of(2) has been ~~registrant’s~~subject ~~common~~to ~~stock~~such ~~issued~~filing ~~and~~requirements ~~outstanding,~~for ofthe ~~which~~past ~~3,145,132~~90 days. ~~were~~Yes ~~held by~~þ ~~non-affiliates.~~No o

~~DOCUMENTS~~Indicate ~~INCORPORATED~~by BYcheck ~~REFERENCE.~~mark ~~Part~~if ~~III~~disclosure of ~~this~~delinquent ~~Form 10-K incorporates~~filers bypursuant ~~reference~~to ~~portions~~Item 405 of ~~the~~Regulation S-K ~~definitive~~is ~~2002~~not ~~Annual~~contained ~~Meeting~~herein, ~~Proxy Statement~~and ~~sent~~will not be contained to the ~~Company~~best of registrant’s ~~shareholders~~knowledge, in definitive ~~connection~~proxy ~~with~~or ~~its~~information ~~April~~statements incorporated by reference in Part ~~16,~~III of this Form 10-K ~~2002~~or ~~Annual~~any ~~Meeting~~amendment ofto ~~Shareholders~~this Form 10-K. þ.

~~TABLE~~Indicate OFby ~~CONTENTS~~check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, as defined in Rule 12b-2 of the Act.

	DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION AND REPORT OF COMMITTEES
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV.
	ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
SIGNATURES
EXHIBIT INDEX
EX-21.1

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

~~Table~~Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the ~~Contents~~Exchange Act). Yes o No þ

There is no active trading market for the Registrant’s common stock. The Registrant’s common stock is not listed on any exchange or quoted on Nasdaq. The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2006 (the last business day of the most recently completed second quarter) was $67,257,540, based on the last sale of $16.90 per share on June 30, 2006.

As of February 22, 2007 there were 4,810,490 shares of registrant’s common stock issued and outstanding, of which 4,025,800 were held by non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE. Part III of this Form 10-K incorporates by reference portions of the definitive 2007 Annual Meeting Proxy Statement sent to the Company’s shareholders in connection with its April 17, 2007 Annual Meeting of Shareholders.

INDEX

			PAGE
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS				12
PART I
	ITEM 1 -	BUSINESS		12
	ITEM 2 -	PROPERTIES		15
	ITEM 1A -	RISK FACTORS		8
	ITEM 3 -	LEGAL PROCEEDINGS		16
	ITEM 1B -	UNRESOLVED STAFF COMMENTS		9
	ITEM 4 -	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		16
	ITEM 2 -	PROPERTIES		9
	ITEM 3 -	LEGAL PROCEEDINGS		10
	ITEM 4 -	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		10
PART II
	ITEM 5 -	MARKET FOR REGISTRANT’S COMMON EQUITY, ~~AND~~ RELATED ~~STOCKHOLDER~~SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES		1711
	ITEM 6 -	SELECTED FINANCIAL DATA		1914
	ITEM 7 -	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		2115
	ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		35
	ITEM 7A -	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		29
	ITEM 8 -	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		3932
	ITEM 9 -	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		7065
	ITEM 9A -	CONTROLS AND PROCEDURES		65
	ITEM 9B -	OTHER INFORMATION		65
PART III
	ITEM 10 -	DIRECTORS, ~~AND~~ EXECUTIVE OFFICERS OFAND ~~REGISTRANT~~CORPORATE GOVERNANCE		7065
	ITEM 11 -	EXECUTIVE COMPENSATION ~~AND REPORT OF COMMITTEES~~		7066
	ITEM 12 -	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED SHAREHOLDER MATTERS		7066
	ITEM 13 -	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE		7066
	ITEM 14 -	PRINCIPAL ACCOUNTANT FEES AND SERVICES		66
PART IV
	ITEM 14 -	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K		70
	ITEM 15 -	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		67
		SIGNATURES		72
Exhibit 21
		EXHIBIT INDEX		73
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

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

PART I

ITEM 1. BUSINESS

General

Citizens Bancorp (“the “Company” or “Bancorp”), an Oregon ~~Corporation~~corporation and financial bank ~~holding~~ holding company, was formed in 1996 for the purpose of becoming the holding company of Citizens Bank (the “Bank”). The Company is headquartered in Corvallis, Oregon. Its principal business activities are conducted through its full-service, commercial bank subsidiary, Citizens Bank. The Company provided the Federal Reserve Board of San Francisco its declaration to elect to become a financial holding company, pursuant to the Gramm-Leach-Bliley Financial Services Modernization Act (“GLBA”) of 1999, on February 15, 2000. The Company has no current plan to engage in any of the financial activities permissible for a financial holding company under ~~GLBA.~~Gramm-Leach-Bliley ~~The~~Financial ~~Company~~Services ~~made~~Modernization ~~its declaration only to be prepared to take advantage of any future business opportunities~~Act.

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

The Company is authorized to issue up to 10,000,000 shares of common stock, no par value. The Company ~~has~~operates ~~registered~~a ~~1,575,000 shares for issuance under its~~ Dividend Reinvestment Plan, ofunder which ~~152~~466,~~624~~598 shares ~~had~~have been issued ~~thereunder~~ as of December 31, ~~2001~~2006. As of December 31, 2006 there were a total of 4,733,644 shares of Company common stock issued and outstanding. Citizens Bank is the registered transfer agent for the Company’s common stock.

Citizens Bank was chartered October 1, 1957 by the State of Oregon as a commercial bank. Beginning with a single office in Corvallis, Citizens Bank has since expanded to an additional nine locations in the five counties of Benton, Linn, Lane, Yamhill, and Polk. Branches are located in the communities of Corvallis, Philomath, Albany, Junction City, McMinnville, Harrisburg, Dallas, and Springfield.

December 31, 2001 there were a total of 4,105,308 shares of the Company common stock issued and outstanding. Citizens Bank is the registered transfer agent for the Company’s common stock.

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

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

The Company’s primary goal is to improve shareholder value through increased earnings while maintaining a high level of safety and soundness. The Company is committed to independence and long-term performance strategies. As a result of its corporate culture, the Company continues to show good performance as evidenced by the five-year history of growth in the following selected areas:

(Thousands)	~~2001~~2006			~~2000~~2005			~~1999~~2004			~~1998~~2003			~~1997~~2002
Net Income	$	45,~~028~~459		$	35,~~612~~327		$	34,~~254~~352		$	35,~~840~~012		$	34,~~341~~858
Return on Average Equity		1311.7678	%		1312.7590	%		1311.2223	%		1714.6406	%		1715.5332	%
Return on Average Assets		1.4860	%		1.5258	%		1.3632	%		1.8359	%		1.7964	%
Average Equity to Average Assets		1013.7461	%		1112.0326	%		1011.2958	%		1011.3632	%		10.2173	%
Dividend Payout Ratio		3745.7622	%		4144.2564	%		4548.6494	%		3641.4882	%		3938.1132	%
Total Loans (net)	$	~~171~~250,~~196~~152		$	~~158~~230,~~920~~547		$	~~139~~210,~~123~~951		$	~~130~~185,~~707~~053		$	~~120~~178,~~269~~333
Total Deposits	$	~~231~~270,~~821~~610		$	~~200~~254,~~960~~083		$	~~194~~235,~~350~~482		$	~~188,~~235,759		$	~~161~~227,~~700~~363
Total Assets	$	~~278~~359,~~529~~029		$	~~244~~338,~~380~~900		$	~~239~~334,~~606~~588		$	~~233~~326,~~978~~269		$	~~200~~312,~~117~~639
Total Equity	$	2946,524		$	2742,~~063~~296		$	2438,~~342~~401		$	2235,~~585~~617		$	1932,~~411~~330

The long-term benefit to the Company of its cultural and ~~its~~ management style is ~~consistent~~controlled growth and development of the Bank over time. Management believes the Bank’s risk levels have been reduced because of the Bank’s expertise in loan, investment, operational, human resource, and technology management.

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

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

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

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

Deposit products include regular and “package” checking accounts, savings accounts, certificates of deposit, money market accounts, and IRA accounts. The Bank offers health savings accounts to customers with high deductible medical plans. The Bank has found this deposit product to be beneficial to the Bank and to the customer. In addition, the Bank actively markets its repurchase agreement product to corporate customers. The Bank offers a ~~debit~~check card, check guarantee card, ATM card as well as a MasterCard and VISA card as part of its retail banking services. The Bank operates a small residential mortgage loan origination department that originates loans and sells them into the secondary market. The Bank offers extended banking hours in selected locations as well as Saturday banking. ATM machines are also available at ~~ten (~~10) locations offering 24-hour ~~transaction~~ transaction services, including cash withdrawals, deposits, account transfers, and balance inquiries. The Bank also offers its customers a 24-hour automated telephone service that offers account transfers and balance inquiries.

The Bank, inoffers ~~a continuing effort to meet its customers’ needs, has successfully implemented~~ an on-line banking product. The on-line banking product offers services to both individuals and business account customers. Business customers have a comprehensive cash management option. All online users have the availability of the “bill payment” feature. The Bank expects to continually enhance its on-line banking product while maintaining its quality “people to people” customer service. The Bank’s on-line banking can be reached at www.CitizensEBank.com.

Employees

At December 31, ~~2001~~2006 the Bank had ~~120~~127 full-time equivalent employees. The Bank values its employees. They are actively engaged individually and as a team in contributing to the Bank’s realization of its culture and mission. None of the employees of the Bank are subject to a collective bargaining agreement. A number of benefit programs are available to eligible employees including group medical insurance plans, paid ~~vacation,~~time ~~paid sick leave~~off, group life insurance, and a 401(AK) plan.

Competition

At December 31, ~~2001~~2006, ~~Citizens~~the Bank was among the top 10 largest commercial banks headquartered in the State of Oregon as measured by the State of Oregon’s ~~division~~ Division of Finance and Corporate Securities. The Bank competes for business with other commercial banks as well as savings and loan associations, credit unions, mortgage companies, insurance companies, investment banks, securities brokerages and other non-bank financial service providers. Banking in the State of Oregon ~~has been~~ is substantially dominated by several very large banking institutions whose headquarters are not in Oregon. They include Wells Fargo Bank, US Bank, Key Bank, Washington Mutual Bank, and Bank of America. Together these large organizations hold a majority of the deposit and loan balances held by banks in the State of Oregon. ~~Citizens~~The Bank attempts to offset some of the advantages of these larger competitors through superior relationship building with the customer, better service, quicker response to the ~~customers~~customer’s needs, and local decision-making. We rely on the fact that many businesses and individuals within small Oregon communities want to see their money stay within the local economy, rather than see it used to fund loans in distant places.

2006 Activities

On January 13, 2006 the Bank completed the purchase of land, building, and equipment in Springfield, Oregon for approximately $1.3 million. The building is currently occupied by another financial institution which is leasing the building from the Bank for two years. At the end of the lease the current occupant will vacate the building. The Bank plans to move its Springfield branch from its current location, which it leases, to the new location in Springfield. The exact timing of the move has not been determined.

On July 1, 2006 the Bank implemented its check image product and outsourced its proof and capture system to Fiserve in Portland, Oregon. The Bank anticipates the expense related to the cost of these systems will be offset by the savings in personnel, equipment, postage and the shortening of clearing times for deposits. The Bank still offers its customers choices in how they wish to receive their bank statements; full truncation of checks, printed check images, or the return of their original checks. Customers can view check images through online banking or request a copy of an imaged check at any branch location.

~~and~~The ~~local~~Company ~~decision-making~~conducted a strategic planning initiative in September 2006. WeThe ~~rely~~initiative onbegan ~~the~~with a ~~fact~~survey ~~that~~of ~~many~~all ~~businesses~~lending officers, operations officers, branch managers, and executive officers to ~~individuals~~obtain ~~within~~their ~~small~~insights ~~Oregon~~and ~~communities~~suggestions ~~want~~for tothe ~~see~~future strategic goals of the Company. The board of directors discussed their ~~money~~future ~~stay~~vision ~~within~~for the Company and reviewed the survey from the management team. The board of directors then set three vital goals for the ~~local~~Company: ~~economy~~1) grow the Bank’s assets, 2) ~~rather~~continue ~~than~~to ~~see~~generate ita ~~used~~return to ~~fund~~the ~~loans~~shareholders inat ~~distant~~or ~~places~~above peer performance, 3) increase its commitment to the human resources of the Company. These goals are being communicated to the Company’s employees by the CEO. Action plans to implement strategies to attain these goals are being developed throughout the Company.

~~2001~~On ~~Activities~~October 17, 2006 the board of directors of the Bank approved management’s proposal of a new branch to be located in west Eugene, Oregon. The exact location of the branch is yet to be determined. The Bank is working with a realtor to locate property along highway 99W. A manager for the branch has been identified and will begin to call on prospective customers in 2007. Management anticipates opening the branch in the third or fourth quarter of 2007.

On ~~July~~December 1719, ~~2001~~2006, the Company ~~authorized~~declared a ~~program~~cash todividend ~~repurchase 209,475 shares~~ of ~~its~~$.52 ~~common~~per ~~stock.~~share Asto shareholders of record on December 3129, ~~2001~~2006, 84payable January 10,~~191~~ ~~shares~~2007. ~~had~~The ~~been repurchased~~higher dividend of $.52 ~~The~~per ~~number,~~share ~~timing~~as compared ~~and~~to ~~price~~$.50 ofin ~~the~~2005 ~~repurchase~~and is$.46 atin 2004, reflects the Company’s strong performance for the period ~~sole~~ending ~~discretion~~December 31, 2006.

The Bank opened its tenth branch in the community of Harrisburg, Oregon on July 31, 2001. The branch is located in a leased facility in the newly constructed Harrisburg Plaza, a multi-tenant shopping facility. The Bank anticipates the branch will support the financial needs of the community with its deposit and loan products. Harrisburg, with a population of 2,850, is a predominately agricultural community. The opening of this branch demonstrates the Company’s continued commitment to area farmers.

The Bank implemented a Supplemental Executive Retirement Plan (“SERP”) in October 2001 for a select group of management personnel. The retirement benefit provided by the SERP is designed to supplement the participating officer’s retirement benefits from social security. A prime purpose of the SERP is to encourage seasoned executives to remain in the Bank’s employment. The officers who participate in the SERP do not receive a contribution to the Company’s 401(a) plan. The vesting period for the SERP is spread over a ten-year period. Compensation expense related to the SERP totaled $23,000 in 2001. The SERP benefits may be funded by Bank-owned life insurance policies, which had a cash surrender value of $3,552,000 at December 31, 2001. Liabilities to the officers which will be accrued over their expected time to retirement were $23,000 at December 31, 2001.

On November 18, 2001, the Company’s board of directors elected Sidney (“Skip”) A. Huwaldt from McMinnville, Oregon, to serve as a director. Mr. Huwaldt fills the seat vacated by John Truax who chose not to stand for re-election to the board of directors on April 19, 2001. Mr. Huwaldt, 59, is a graduate of the University of Oregon and has been in the insurance business the majority of his work career. Mr. Huwaldt has lived and worked in McMinnville for many years. The Bank opened a branch in McMinnville in 1999, and believes Mr. Huwaldt will represent the Company’s interest in that area as well as its entire branch network. Mr. Huwaldt’s term as a director expires in April 2004.

SUPERVISION AND REGULATION

General

The following ~~generally~~discussion ~~refers~~describes toelements ~~certain~~of ~~statutes~~the ~~and~~extensive ~~regulations~~regulatory ~~affecting~~ framework applicable to the Company ~~banking~~and ~~industry~~the Bank. ~~These~~This ~~references~~regulatory ~~provide~~framework ~~brief~~is ~~summaries~~primarily ~~only~~designed ~~and~~for ~~are~~the protection of ~~not~~depositors, ~~intended~~federal todeposit beinsurance ~~complete.~~funds, ~~These~~and ~~references~~the ~~are~~banking ~~qualified~~system inas ~~their~~a ~~entirety~~whole, rather than byspecifically for the ~~referenced~~protection ~~statutes~~of ~~and regulations~~shareholders. InDue ~~addition,~~to ~~some~~the ~~statutes~~breadth ~~and~~of this regulatory framework, ~~regulations~~our ~~which~~costs ~~apply~~of compliance continue to ~~and~~increase ~~regulate~~in ~~the~~order ~~operation~~to ofmonitor ~~the~~and ~~banking~~satisfy ~~industry~~these requirements.

To the extent that this section describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. These statutes and regulations, as well as related policies, are subject to change by Congress, state legislatures and federal and state regulators. Changes in statutes, regulations or regulatory policies applicable to us, including interpretation or implementation thereof, could have a material effect on our business or operations.

Federal Bank Holding Company Regulation

General. As a financial bank holding company, the Company is subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), which places the Company under the supervision of the Federal Reserve. In general, the BHCA limits the business of bank holding companies to owning or controlling banks and engaging in other activities closely related to banking. The Company must file reports with and provide the Federal Reserve such additional information as it may require.

Holding Company Bank Ownership. The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve before (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares; (ii) acquiring all or substantially all of the assets of another bank or bank holding company; or (iii) merging or consolidating with another bank holding company.

Holding Company Control of Nonbanks. With some exceptions, the BHCA also prohibits a bank holding company from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities that, by statute or by Federal Reserve regulation or order, have been identified as activities closely related to the business of banking or of managing or controlling banks.

Transactions with Affiliates. Subsidiary banks of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to the holding company or its subsidiaries, on investments in their securities and on the use of their securities as collateral for loans to any borrower. These regulations and restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds for payment of dividends, interest and operational expenses.

Tying Arrangements. We are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services. For example, with certain exceptions, neither the Company nor its subsidiaries may condition an extension of credit to a customer on either (i) a requirement that the customer obtain additional services provided by us; or (ii) an agreement by the customer to refrain from obtaining other services from a competitor.

~~might~~Support ~~exist~~of ~~which~~Subsidiary ~~are~~Banks. ~~not~~Under ~~referenced~~Federal ~~below.~~Reserve ~~Changes~~policy, inthe ~~applicable~~Company ~~statutes~~is ~~and regulations~~expected ~~may~~to ~~have~~act as a ~~material~~source ~~effect~~of onfinancial and managerial strength to the ~~business~~Bank. ofThis means that the Company ~~and~~is required to commit, as necessary, resources to support the Bank. Any capital loans a bank holding company makes to its subsidiary banks are subordinate to deposits and to certain other indebtedness of those subsidiary banks.

~~The~~State ~~earnings~~Law ~~and~~Restrictions. ~~growth~~As ofan ~~the~~Oregon ~~Company and its subsidiary~~corporation, ~~Citizens Bank, as well as their existing and future business activities, are affected not only by general economic conditions, but also by~~ the ~~fiscal~~Company ~~and~~is ~~monetary~~subject ~~policies~~to ofcertain ~~the~~limitations ~~Federal government~~ and ~~its~~restrictions ~~agencies,~~under ~~particularly~~applicable ~~the~~Oregon ~~Board~~corporate ~~of Governors of the Federal Reserve System (the “Federal Reserve Board”)~~law. ~~The~~For ~~Federal~~example, ~~Reserve Board~~state ~~implements monetary policies (intended to curb inflation and combat~~law ~~recession)~~restrictions ~~by its open-market operations~~ in ~~United~~Oregon ~~States~~include ~~Government securities,~~limitations byand ~~adjusting~~restrictions ~~the~~relating ~~required~~to ~~level~~indemnification of ~~reserves for financial~~ ~~institutions~~directors, ~~subject~~distributions to ~~its reserve requirements~~shareholders, ~~and~~transactions byinvolving ~~varying~~directors, ~~the~~officers ~~discount rates~~or ~~applicable to borrowings by banks from the Federal Reserve Bank. The~~interested ~~actions~~shareholders, ofmaintenance ~~the Federal Reserve Board in these areas influence the growth~~ of ~~bank~~ ~~loans~~books, ~~investments~~records and ~~deposits~~minutes, and ~~also~~observance affect interest rates charged on loans and paid on deposits. As banking is a business which depends largely on interest rate differentials (in general, the difference between the interest rates received by the banks on loans extended to their customers and interest paid on customer deposits), the influence of ~~economic~~certain ~~conditions and monetary~~corporate ~~policies on interest rates will directly affect earnings~~formalities. ~~The nature and~~ ~~impact of any future changes in monetary policies cannot be predicted.~~

~~Despite~~Federal some recent legislative initiatives to reduce regulatory burdens, banking remains a highly regulated industry. Legislation enacted from time to time may increase the cost of doing business, limit or expand permissible activities, or affect the competitive balance between banks and ~~other~~State ~~financial and~~Regulation ~~non-financial institutions. Proposals to change the laws and regulations governing the operations and taxations~~ of ~~banks~~Citizens ~~and other financial~~Bank institutions are frequently made in Congress, in the Oregon State Legislature, and before various bank regulatory agencies. In addition, there continue to be proposals in Congress to restructure the banking system.

~~Some~~General. ofThe ~~the~~Bank ~~significant~~is ~~areas~~an ofOregon commercial bank ~~regulation~~with deposits insured by the FDIC. As a result, ~~including~~the ~~significant~~Bank ~~federal~~is subject to supervision and regulation by the Oregon Department of Consumer and ~~legislation~~Business ~~affecting~~Services ~~state-chartered~~and the FDIC. These agencies have the authority to prohibit banks, ~~are~~from ~~generally~~engaging in ~~discussed~~what ~~below~~they believe constitute unsafe or unsound banking practices.

Community Reinvestment. The Community Reinvestment Act of 1977 requires that, in connection with examinations of financial institutions within their jurisdiction, the Federal Reserve ~~Bank~~or ~~Holding~~the ~~Company~~FDIC ~~Regulation~~evaluate the record of the financial institution in meeting the credit needs of its local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of the institution. A bank’s community reinvestment record is also considered by the applicable banking agencies in evaluating mergers, acquisitions and applications to open a branch or facility.

AsInsider aCredit ~~financial~~Transactions. ~~bank~~Banks ~~holding~~are ~~company,~~also subject to certain restrictions imposed by the Federal ~~Company~~Reserve isAct ~~subject~~on extensions of credit to ~~the~~executive ~~Bank~~officers, ~~Holding~~directors, principal ~~Company~~shareholders ~~Act~~or any related interests of ~~1956~~such persons. Extensions of credit (~~“BHCA”~~i) must be made on substantially the same terms, asincluding ~~amended~~interest rates and collateral, ~~which~~and ~~places~~follow ~~the~~credit underwriting ~~Company~~procedures ~~under~~that are at least as stringent, as those prevailing at the time for ~~supervision~~comparable oftransactions ~~the~~with ~~Board~~persons ofnot ~~Governors~~covered ofabove ~~the~~and ~~Federal~~who ~~Reserve~~are ~~System~~not employees; and (~~“FRB”~~ii). must not Ininvolve ~~general,~~more than the ~~BHCA~~normal ~~limits~~risk ~~the~~of ~~business~~repayment ofor ~~bank~~present ~~holding~~other ~~companies~~unfavorable tofeatures. ~~owning~~Banks orare ~~controlling~~also ~~banks~~subject ~~and~~to ~~engaging~~certain inlending ~~other~~limits ~~activities~~and ~~related~~restrictions on overdrafts to ~~banking~~insiders. ~~Certain recent~~A ~~legislation~~violation ~~commonly~~of these ~~referred~~restrictions tomay asresult in the ~~Gramm-Leach-Bliley~~assessment ~~Financial Services~~of ~~Modernization~~substantial ~~Act~~civil ~~(“GBLA”)~~monetary ~~was~~penalties, ~~designed~~the imposition toof ~~expand~~a ~~opportunities~~cease ~~for banks~~and desist order, and ~~bank~~other ~~holding~~regulatory ~~companies~~sanctions.

~~FRB~~ Regulation. ~~The~~of ~~Company~~Management. ~~must~~Federal ~~obtain~~law ~~the~~(i) sets ~~approval~~forth ofcircumstances ~~the~~under ~~FRB:~~which ~~(1) before~~officers or ~~acquiring~~directors ~~direct~~of ora ~~indirect~~bank ~~ownership~~may orbe ~~control~~removed ofby ~~any~~the ~~voting~~institution’s ~~shares~~federal ofsupervisory ~~any~~agency; (ii) places ~~bank~~restraints ~~if,~~on ~~after~~lending ~~such~~by ~~acquisition,~~a itbank ~~would~~to ~~own~~its orexecutive ~~control~~officers, ~~directly~~directors, ~~or indirectly~~principal shareholders, ~~more~~and their ~~than~~related 5%interests; ofand ~~the~~(iii) prohibits ~~voting~~management ~~shares~~personnel of ~~such~~ a bank; ~~(2) before~~from serving as a ~~merging~~director or ~~consolidating~~in ~~with~~other management positions of another ~~bank~~financial ~~holding~~institution ~~company;~~whose ~~and~~assets ~~(3) before~~exceed a ~~acquiring~~specified ~~substantially~~amount ~~all~~or ofwhich ~~the~~has ~~assets~~an ofoffice ~~any~~within ~~additional~~a ~~banks~~specified geographic area.

Safety and Soundness Standards. Federal law imposes certain non-capital safety and soundness standards upon banks. These standards cover internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as the agency determines to be appropriate, and standards for asset quality, earnings and stock valuation. An institution that fails to meet these standards must develop a plan acceptable to its regulators, specifying the steps that the institution will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions.

Interstate Banking And Branching

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Interstate Act”) relaxed prior interstate branching restrictions under federal law by permitting nationwide interstate banking and branching under certain circumstances. Generally, bank holding companies may purchase banks in any state, and states may not prohibit these purchases. Additionally, banks are permitted to merge with banks in other states, as long as the home state of neither merging bank has opted out under the legislation. The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low-income area. Federal banking agency regulations prohibit banks from using their interstate branches primarily for deposit production and federal banking agencies have implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition.

Oregon has enacted “opting in” legislation in accordance with the Interstate Act provisions allowing banks to engage in interstate merger transactions, subject to certain “aging” requirements. Oregon restricts an out-of-state bank from opening de novo branches. However, once an out-of-state bank has acquired a bank within Oregon, either through conversion, merger, or assumption of all or substantially all of the bank’s Oregon deposit liabilities, the out-of-state bank may open additional branches within Oregon.

~~The~~Deposit ~~Company is required by the BHCA to file annual and quarterly reports and~~Insurance ~~such other reports as may be required from time to time by the FRB. In addition, the FRB conducts periodic examinations of the Company.~~

~~Support~~In ~~of Subsidiaries. Under FRB policy~~February 2006, athe ~~bank~~President ~~holding~~signed ~~company~~federal isdeposit ~~expected to~~insurance ~~act~~reform aslegislation. ~~a source of financial and managerial strength to, and commit~~The ~~resources~~legislation to(i) required ~~support, each of its subsidiaries. Any capital loans~~ the ~~Company makes~~FDIC to ~~its~~merge ~~subsidiary~~the ~~are~~Bank ~~subordinate~~Insurance toFund ~~deposits~~ and tothe ~~certain~~Savings ~~other~~Association ~~indebtedness~~Insurance ofFund ~~the~~into ~~subsidiary.~~a ~~The~~newly ~~Crime~~created ~~Control~~Deposit ~~Act~~Insurance ofFund, ~~1990~~which ~~provides~~was ~~that,~~ completed in 2006; (ii) increases the ~~event~~amount of adeposit ~~bank~~insurance ~~holding~~coverage ~~company’s~~for ~~bankruptcy,~~retirement ~~the~~accounts; ~~bankruptcy~~(iii) allows ~~trustee~~for ~~will~~deposit ~~assume~~insurance ~~any~~coverage ~~commitment~~on ~~the~~individual ~~bank~~accounts ~~holding~~to ~~company~~be ~~has~~indexed ~~made~~for toinflation astarting ~~federal~~in ~~bank~~2010; ~~regulatory~~(iv) provides ~~agency~~the toFDIC ~~maintain~~more ~~the~~flexibility ~~capital~~in ofsetting aand ~~subsidiary~~imposing ~~and~~deposit ~~this~~insurance ~~obligation~~assessments; and ~~will~~(v) provides beeligible ~~entitled~~institutions tocredits aon ~~priority~~future ~~of payment~~assessments.

~~Tying Arrangements.~~ The ~~Company~~Bank’s ~~and~~deposits ~~the subsidiary~~ are ~~prohibited~~currently ~~from engaging~~insured into ~~certain~~a ~~tie-in~~maximum ~~arrangements in connection with any extension~~ of ~~credit,~~ ~~sale or lease of property or furnishing of services. For example~~$100,000 ~~with certain~~per ~~exceptions,~~depositor ~~neither~~through the Deposit ~~Company~~Insurance ~~nor~~Fund. ~~its~~The ~~subsidiary~~Bank ~~may~~is ~~condition~~required ~~an extension of credit~~ to apay ~~customer~~deposit oninsurance ~~either~~premiums, ~~(1) a~~which ~~requirement~~are ~~that the customer~~assessed ~~obtain~~and ~~additional~~paid ~~services~~regularly. ~~provided~~The bypremium itamount oris ~~(2) an~~based ~~agreement~~upon bya ~~the~~risk ~~customer to~~classification ~~refrain~~system ~~from~~established ~~obtaining other services from a competitor. Until recently,~~by the ~~FRB~~FDIC. ~~extended~~Banks ~~its~~with ~~bank-tying~~higher ~~restrictions~~levels toof ~~bank~~capital ~~holding companies~~ and ~~their~~ ~~non-bank~~a ~~subsidiaries.~~low ~~However,~~degree ~~effective~~of ~~April 21,~~supervisory ~~1997,~~concern ~~the~~are ~~bank~~assessed ~~anti-tying~~lower ~~rules~~premiums ~~will~~than nobanks ~~longer~~with ~~apply~~lower tolevels ~~the~~of ~~non-bank~~capital ~~subsidiaries~~or of a ~~bank holding~~higher ~~company~~degree of supervisory concern.

~~State Law Restrictions. As a corporation chartered under the laws of the State~~Dividends of Oregon, the Company is also subject to certain limitations and restrictions under applicable Oregon corporate law. For example, these include limitations and restrictions relating to: indemnification of directors, distributions to shareholders, transactions involving directors, officers or interested shareholders, maintenance of books, records, and minutes, and observance of certain corporate formalities.

~~Securities~~The ~~Registration~~principal ~~and~~source ~~Reporting.~~of ~~The~~the Company’s cash is ~~subject~~from todividends received from the ~~registration~~ ~~and~~Bank, ~~reporting~~which ~~requirements~~are subject ofto ~~the~~government ~~Federal~~regulation ~~Securities~~and ~~Laws~~limitations. ~~The periodic~~Regulatory ~~reports,~~authorities ~~Proxy~~may ~~Statements,~~prohibit banks and bank ~~other~~holding ~~information~~companies ~~filed~~from bypaying ~~the~~dividends ~~Company with~~in ~~the~~a ~~Securities~~manner ~~and~~that ~~Exchange~~would ~~Commission~~constitute ~~(“SEC”)~~an ~~can~~unsafe beor ~~inspected~~unsound banking ~~and~~practice ~~copied~~ or ~~obtained~~would ~~from~~reduce the ~~Washington,~~amount ~~D.C.,~~of ~~office~~its ofcapital ~~the~~below ~~SEC.~~that Innecessary ~~addition,~~to ~~the~~meet minimum ~~securities~~applicable ~~issued~~regulatory bycapital ~~the~~requirements. ~~Company~~Oregon ~~are~~law ~~subject~~also tolimits ~~the~~a ~~registration~~bank’s ~~requirements of~~ability ~~the~~to ~~Securities~~pay dividends ~~Act~~that ofare ~~1933~~greater ~~and~~than ~~applicable~~the ~~state~~bank’s ~~securities~~retained ~~laws~~earnings ~~unless exceptions~~without toapproval ~~registrations~~of ~~are~~the ~~available~~Oregon Department.

~~Control~~Capital ~~Transactions. The Change in Bank Control Act of 1978, as amended,~~Adequacy prohibits a person or group of persons from acquiring “control” of a bank holding company unless the FRB has been given 60 days prior written notice of the proposed acquisition, and within that time period, the FRB has not issued a notice disapproving the proposed acquisition, or extended for up to another 30 days the period during which such a disapproval may be issued. An acquisition may be made prior to the expiration of the disapproval period if the FRB issues written notice of its intent not to disapprove the action. Under a rebuttal resumption established by the FRB, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of

Regulatory Capital Guidelines. Federal bank regulatory agencies use capital adequacy guidelines in the examination and regulation of bank holding companies and banks. The guidelines are “risk-based,” meaning that they are designed to make capital requirements more sensitive to differences in risk profiles among banks and bank holding companies.

Tier I and Tier II Capital. Under the guidelines, an institution’s capital is divided into two broad categories, Tier I capital and Tier II capital. Tier I capital generally consists of common stockholders’ equity, surplus and undivided profits. Tier II capital generally consists of the allowance for loan losses, hybrid capital instruments, and subordinated debt. The sum of Tier I capital and Tier II capital represents an institution’s total capital. The guidelines require that at least 50% of an institution’s total capital consist of Tier I capital.

Risk-based Capital Ratios. The adequacy of an institution’s capital is gauged primarily with reference to the institution’s risk-weighted assets. The guidelines assign risk weightings to an institution’s assets in an effort to quantify the relative risk of each asset and to determine the minimum capital required to support that risk. An institution’s risk-weighted assets are then compared with its Tier I capital and total capital to arrive at a Tier I risk-based ratio and a total risk-based ratio, respectively. The guidelines provide that an institution must have a minimum Tier I risk-based ratio of 4% and a minimum total risk-based ratio of 8%.

Leverage Ratio. The guidelines also employ a leverage ratio, which is Tier I capital as a percentage of average total assets, less intangibles. The principal objective of the leverage ratio is to constrain the maximum degree to which a bank holding company may leverage its equity capital base. The minimum leverage ratio is 3%; however, for all but the most highly rated bank holding companies and for bank holding companies seeking to expand, regulators expect an additional cushion of at least 1% to 2%.

Prompt Corrective Action. Under the guidelines, an institution is assigned to one of five capital categories depending on its total risk-based capital ratio, Tier I risk-based capital ratio, and leverage ratio, together with certain subjective factors. The categories range from “well capitalized” to “critically undercapitalized.” Institutions that are “undercapitalized” or lower are subject to certain mandatory supervisory corrective actions.

In 2006, the federal banking agencies, including the FDIC and the Federal Reserve, provided notice of proposed rulemaking that would change the existing risk-based capital framework by enhancing its risk sensitivity. Whether such revisions are implemented or what effect they might have on us cannot be predicted at this time, but we do not expect our operations to be significantly impacted.

Regulatory Oversight and Examination

The Federal Reserve conducts periodic inspections of bank holding companies, which are performed both onsite and offsite. The supervisory objectives of the inspection program are to ascertain whether the financial strength of the bank holding company is being maintained on an ongoing basis and to determine the effects or consequences of transactions between a holding company or its non-banking subsidiaries and its subsidiary banks. For holding companies under $10 billion in assets, the inspection type and frequency varies depending on asset size, complexity of the organization, and the holding company’s rating at its last inspection.

~~securities~~Banks ~~registered~~are ~~under~~subject ~~Section 12~~to ofperiodic examinations by their primary regulators. Bank examinations have evolved from reliance on transaction testing in assessing a bank’s condition to a risk-focused approach. These examinations are extensive and cover the ~~Exchange~~entire ~~Act~~breadth ~~would~~of operations of the bank. Generally, safety and soundness examinations occur on an 18-month cycle for banks under $500 million in total assets that are well capitalized and without regulatory issues, and 12-months otherwise. Examinations alternate between the federal and state bank regulatory agency or may occur ~~circumstances~~on ~~set~~a ~~forth~~combined inschedule. The frequency of consumer compliance and CRA examinations is linked to the size ~~presumption~~of the institution and its compliance and CRA ratings at its most recent examinations. However, ~~constitute~~the examination authority of the ~~acquisition~~Federal Reserve and the FDIC allows them to examine supervised banks as frequently as deemed necessary based on the condition of the bank or as a ~~control~~result of certain triggering events.

InCorporate ~~addition,~~Governance ~~any~~and ~~“company”~~Accounting ~~would be required to obtain the approval of the FRB~~Legislation ~~under the BHCA before acquiring 25% (5% if the “company” is a bank holding company) or more of the outstanding shares of the Company, or obtain control over the Company.~~

~~Federal~~Sarbanes-Oxley ~~And~~Act ~~State~~of ~~Bank~~2002. ~~Regulation~~The Sarbanes-Oxley Act of 2002 (the “Act”) addresses, among other things, corporate governance, auditing and accounting, enhanced and timely disclosure of corporate information, and penalties for non-compliance. Generally, the Act (i) requires chief executive officers and chief financial officers to certify to the accuracy of periodic reports filed with the Securities and Exchange Commission (the “SEC”); (ii) imposes specific and enhanced corporate disclosure requirements; (iii) accelerates the time frame for reporting of insider transactions and periodic disclosures by public companies; (iv) requires companies to adopt and disclose information about corporate governance practices, including whether or not they have adopted a code of ethics for senior financial officers and whether the audit committee includes at least one “audit committee financial expert;” and (v) requires the SEC, based on certain enumerated factors, to regularly and systematically review corporate filings.

~~Oregon~~To ~~state-chartered~~deter ~~banks~~wrongdoing, ~~are~~the ~~subject~~Act (i) subjects bonuses issued to ~~primary~~top ~~regulation~~executives ~~and~~to ~~examination~~disgorgement if a byrestatement ~~the~~of ~~Oregon~~a ~~Department~~company’s offinancial ~~Consumer~~statements ~~and~~was ~~Business~~due ~~Services~~to ~~Division~~corporate ofmisconduct; ~~Finance~~(ii) prohibits an ~~and~~officer ~~Corporate~~or ~~Securities.~~director ~~The~~misleading ~~Bank~~or iscoercing ~~also~~an ~~subject~~auditor; to(iii) prohibits ~~supervision,~~insider trades during ~~examination,~~pension ~~and~~fund ~~regulation~~“blackout byperiods”; ~~certain~~(iv) imposes ~~federal~~new ~~banking~~criminal ~~agencies.~~penalties ~~The~~for ~~Bank~~fraud isand other wrongful ~~insured~~acts; and (tov) extends ~~applicable~~the ~~limits)~~period ~~by,~~during ~~and~~which ~~therefore~~certain issecurities ~~subject~~fraud tolawsuits ~~regulation~~can ~~by,~~be brought ~~the~~against ~~FDIC~~a company or its officers.

~~Applicable~~As ~~federal and state statutes and regulations governing~~ a ~~bank’s operations~~publicly ~~relate~~reporting company, ~~among~~we ~~other~~are ~~matters,~~subject to ~~capital~~the requirements, ~~required reserves~~of ~~against~~the ~~deposits,~~Act ~~investments,~~and ~~loans,~~related ~~legal lending limits, certain~~rules ~~interest~~and ~~rates~~regulations ~~payable,~~issued ~~mergers~~by ~~and~~the ~~consolidations,~~SEC. ~~borrowings,~~After ~~issuance of securities~~enactment, ~~payment~~we ofupdated ~~dividends~~our ~~(see~~policies ~~below),~~and ~~establishment~~procedures ~~of branches, and~~to ~~dealings~~comply with ~~affiliated~~the ~~persons.~~Act’s ~~The~~requirements ~~FDIC~~and ~~has~~have ~~authority~~found tothat ~~prohibit~~such ~~banks under~~compliance, ~~their~~including ~~supervision~~compliance ~~from~~with Section 404 ~~engaging~~of inthe ~~what~~Act ~~they~~relating ~~consider~~ to bemanagement ancontrol ~~unsafe and~~over ~~unsound~~financial ~~practice~~reporting, inhas ~~conducting~~resulted ~~their~~in significant ~~business.~~additional ~~Depository~~expense ~~institutions, such~~for as the ~~Bank,~~Company. ~~are~~We ~~affected~~anticipate ~~significantly~~that bywe ~~the~~will ~~actions~~continue ofto ~~the~~incur ~~FRB as it~~such ~~attempts~~additional toexpense ~~control the money supply and credit availability~~ in ~~order~~our ~~to influence~~ongoing ~~the economy~~compliance.

~~Dividends~~Anti-terrorism ~~paid by the Bank to the Company are a material source of all of the~~Legislation Company’s cash flow. Various federal and state statutory provisions limit the amount of dividends the Bank is permitted to pay to the Company without regulatory approval. FRB policy further limits the circumstances under which the bank holding companies may declare dividends. For example, a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality, and overall financial condition.

~~If,~~USA inPatriot ~~the~~Act ~~opinion~~of 2001. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, intended to combat terrorism, was renewed with certain amendments in 2006 (the ~~applicable~~“Patriot ~~federal~~Act”). ~~banking~~In ~~agency~~2006, acertain ~~depository~~provisions of the ~~institution~~Patriot ~~under~~Act ~~its~~were ~~jurisdiction~~made ispermanent ~~engaged~~and inother orsections iswere ~~about~~made subject to ~~engage~~extended “sunset” provisions. The Patriot Act, in anrelevant part, (i) prohibits banks from providing correspondent ~~unsafe~~accounts ordirectly ~~unsound~~to ~~practice~~foreign shell banks; (~~which,~~ii) imposes ~~depending~~due diligence requirements on ~~the~~banks opening or holding accounts for foreign financial ~~condition~~institutions ofor ~~the~~wealthy foreign individuals; (iii) ~~institution~~requires ~~could~~financial ~~include~~institutions ~~the~~to ~~payment~~establish ofan ~~dividends),~~anti-money-laundering ~~the~~compliance ~~agency~~program; ~~may~~and ~~require,~~(iv) ~~after~~eliminates ~~notice~~civil ~~and~~liability ~~hearing,~~for ~~that~~persons ~~such~~who ~~institution~~file ~~cease~~suspicious ~~and~~activity ~~desist~~reports. ~~from~~The ~~such~~Act also includes ~~practice.~~provisions Inproviding ~~addition~~the government with power to investigate terrorism, ~~the~~including ~~FRB~~expanded government ~~and~~access to bank account records. While the ~~FDIC~~Patriot ~~have~~Act ~~issued~~has ~~policy~~had ~~statements~~minimal affect on our ~~which~~record ~~provide~~keeping and reporting expenses, we do not believe that ~~insured~~the ~~banks~~renewal and ~~bank~~amendment ~~holding~~will ~~companies~~have ~~should generally~~a ~~pay~~material ~~dividends~~adverse ~~only~~effect ~~out~~on ofour ~~current~~business ~~operating~~or ~~earnings~~operations.

~~Under~~Financial ~~Oregon~~Services ~~law, the Oregon regulatory authorities have the authority to~~Modernization suspend payment of any dividend of an Oregon institution if it is determined that the payment would result in the stockholders’ equity in the institution, after payment of the dividend, to be inadequate for the safe and sound operation of the institution.

Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 brought about significant changes to the laws affecting banks and bank holding companies. Generally, the Act (i) repeals the historical restrictions on preventing banks from affiliating with securities firms, (ii) provides a uniform framework for the activities of banks, savings institutions and their holding companies; (iii) broadens the activities that may be conducted by national banks and banking subsidiaries of bank holding companies; (iv) provides an enhanced framework for protecting the privacy of consumer information and requires notification to consumers of bank privacy policies; and (v) addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions. Bank holding companies that qualify and elect to become financial holding companies can engage in a wider variety of financial activities than permitted under previous law, particularly with respect to insurance and securities underwriting activities.

Recent Legislation

Financial Services Regulator Relief Act of 2006. In October 2006, the President signed the Financial Services Regulatory Relief Act of 2006 into law (the “ Relief Act”). The Relief Act amends several existing banking laws and regulations, eliminates some unnecessary and overly burdensome regulations of depository institutions, and clarifies several existing regulations. The Relief Act, among other things, (i) authorizes the Federal Reserve Board to set reserve ratios; (ii) amends national banks regulations relating to shareholder voting and granting of dividends; (iii) amends several provisions relating to such issues as loans to insiders, regulatory applications, privacy notices, and golden parachute payments; and (iv) expands and clarifies the enforcement authority of federal banking regulators. While it is too soon to predict the impact this legislation will have on us, we do not expect that our business, expenses, or operations will be significantly impacted.

~~Federal~~Effects ~~law:~~Of ~~(1) sets~~Government ~~forth~~Monetary ~~circumstances under which officers or directors of~~Policy a bank may be removed by the institution’s federal supervisory agency; (2) places restraints on lending by a bank to its executive officers, directors, principal shareholders, and their related interests; and (3) prohibits management personnel of a bank from serving as a director or in other management positions of another financial institution whose assets exceed a specified amount or which has an office within a specified geographic area.

NoOur ~~person~~earnings ~~may~~and ~~acquire~~growth ~~“control”~~are ofaffected anot ~~bank~~only ~~unless~~by general economic conditions, but also by the fiscal ~~appropriate~~and monetary policies of the federal ~~agency~~government, particularly the Federal Reserve. The ~~has~~Federal ~~been~~Reserve ~~given~~implements ~~60 days~~national ~~prior~~monetary ~~written~~policy ~~notice~~for such purposes as curbing inflation and combating ~~within~~recession, ~~that~~but ~~time~~its ~~the~~open ~~agency~~market ~~has not~~operations ~~disapproved~~in U.S. government securities, control of the discount ~~acquisition.~~rate ~~Substantial~~applicable ~~monetary~~to ~~penalties~~borrowings ~~may~~from bethe ~~imposed for~~Federal ~~violation~~Reserve, and establishment of reserve requirements against certain deposits, influence the ~~change~~growth inof ~~control~~bank loans, investments and deposits, and also affect interest rates charged on loans or ~~other~~paid ~~provisions~~on deposits. The nature and impact of ~~banking~~future ~~laws~~changes in monetary policies and their impact on us cannot be predicted with certainty.

~~FDICIA~~Website Access to Reports

The ~~Federal~~Company ~~Deposit~~makes ~~Insurance~~available ~~Corporation~~free ~~Improvement Act~~ of ~~1991 (“FDICIA”) was enacted into law in late 1991. As required by FDICIA~~charge, ~~numerous~~all ~~regulations have~~periodic ~~been~~and ~~adopted~~current byreports ~~federal~~as ~~bank~~soon ~~regulatory~~as ~~agencies, including the~~reasonably ~~following:~~practicable ~~(1) federal~~after ~~bank~~such ~~regulatory~~material ~~authorities~~is ~~have~~electronically ~~established~~filed ~~five different capital levels for banks and~~with, asor afurnished ~~general matter, enable banks with higher capital levels~~ to ~~engage in a broader rage of activities; (2)~~ the ~~FRB has~~Securities ~~issued regulations requiring standardized disclosures with respect to~~and ~~interest~~Exchange ~~paid~~Commission ~~on deposits;~~ (3“SEC”) ~~the~~. ~~FDIC~~The ~~has~~Company’s ~~imposed~~website ~~restrictions~~address onis the acceptance of brokered deposits by weaker banks; (4) the FDIC has implemented risk-based insurance premiums; and (5) the FDIC has issued regulations requiring state-chartered banks to comply with certain restrictions with respect to equity investments and activities in which the banks act as a principalwww.citizensEbank.com

~~FDICIA~~ITEM ~~recapitalized the Bank Insurance Fund (“BIF”) and required the FDIC to maintain the BIF and Savings Association Insurance Fund (“SAIF”) at 1~~1A.~~25%~~ ~~of insured~~RISK ~~deposits by increasing deposit insurance premiums as necessary to~~FACTORS maintain such ratio. FDICIA also required federal bank regulatory authorities to prescribe, by December 1, 1998, (1) non-capital standards of safety and soundness; (2) operational and managerial standards for banks; (3) asset and earnings standards for banks and bank holding companies addressing such areas as classified assets, capital, and stock price, and (4) standards for compensation of executive officers and directors of banks. However, this provision was modified by recent legislation to allow federal regulatory agencies to implement these standards through either guidelines or regulations.

~~FIRREA~~In addition to the other information contained in this report, the following risks may affect the Company. If any of these risks occurs, our business, financial condition or operating results could be adversely affected.

~~The~~Management ~~Financial~~of ~~Institutions~~Growth. ~~Reform,~~Our ~~Recovery~~financial performance and ~~Enforcement~~profitability ~~Act~~will ofdepend ~~1989~~on our ~~(“FIRREA”)~~ability ~~became~~to ~~effective~~manage onrecent ~~August 9,~~and ~~1989.~~possible ~~Among~~future ~~other~~growth. ~~things,~~Although ~~this far-reaching~~management ~~legislation~~believes ~~(1) phased~~that init ~~significant~~has substantially ~~increases~~integrated in the ~~FDIC insurance~~business ~~premiums~~and ~~paid~~operations byof ~~commercial~~growth, ~~banks;~~there ~~(2) created~~can ~~two~~be ~~deposit~~no ~~insurance~~assurance that ~~pools~~unfore-seen ~~within~~issues ~~the~~relating ~~FDIC,~~to ~~one~~growth towill ~~insure~~not ~~commercial~~adversely ~~banks~~affect ~~and~~us. ~~savings~~In ~~bank~~addition, ~~deposits~~any future acquisitions and/or ~~the~~continued ~~other~~growth tomay ~~insure~~present ~~savings~~operating ~~association~~and ~~deposits;~~other ~~(3) for~~problems ~~the~~that ~~first~~could ~~time,~~have an ~~permitted~~adverse ~~bank~~effect ~~holding~~on ~~companies~~our tobusiness, ~~acquire~~financial ~~healthy~~condition ~~savings~~and ~~associations;~~results ~~(4)~~of operations. Accordingly, there ~~permitted~~can ~~commercial~~be ~~banks~~no assurance that ~~meet~~we ~~certain~~will ~~housing-related~~be ~~asset~~able ~~requirements~~ to ~~secure~~execute ~~advances~~our ~~and~~growth ~~other~~strategy ~~federal~~or ~~services~~maintain ~~from~~the ~~their~~level ~~local Federal Home~~of ~~Loan~~profitability ~~Banks;~~that ~~and~~we ~~(5) greatly~~have ~~enhanced~~recently ~~the regulators’ enforcement~~experienced.

Changes in Market Interest Rates. Our earnings are impacted by changing interest rates. Changes in interest rates impact the demand for new loans, the credit profile of existing loans, the rates received on loans and securities and rates paid on deposits and borrowings. The relationship between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, our interest rate spread could be expected to increase during times of rising interest rates and decrease during times of falling interest rates. With any further declines in interest rates, our ability to proportionately decrease the rates on our deposit sources may not be possible due to competitive pressures given our current exceptionally low cost of funds. This may result in a larger decrease in our interest rate spread. Although we believe our current level of interest rate sensitivity is reasonable, significant decreases in interest rates may have an adverse effect on our business, financial condition and results of operations. Should interest rates increase in 2007, our interest rate spread could be expected to improve once loans with floors float off their floor and investments are redeployed into higher yielding securities.

Geographic Factors. Economic conditions in the communities we serve could adversely affect our operations. As a result of community bank focus, our results depend largely upon economic and business conditions in our service areas. A deterioration in economic and business conditions in our market areas could have a material adverse impact on the quality of our loan portfolio, and the demand for our products and services, which in turn may have a material adverse effect on our results of operations. Further, a downturn in the national economy might further exacerbate local economic conditions. The extent of the future impact of these events on economic and business conditions cannot be predicted.

Competition. Competition may adversely affect our performance. The financial services business in our market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. We face competition both in attracting deposits and in making loans. We compete for loans principally through the interest rates and loan fees we charge and the efficiency and quality of services we provide. Increasing levels of competition in the banking and financial services businesses may reduce our market share or cause the prices we charge for our services to fall. Our results may differ in future periods depending upon the nature or level of competition.

Credit Risk. If a significant number of borrowers, guarantors and related parties fail to perform as required by the terms of their loans, we will sustain losses. A significant source of risk arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially adversely affect our results of operations.

In fact, the Federal Deposit Insurance Corporation issued a pronouncement alerting banks to their concern about banks with a heavy concentration of commercial real estate loans.

~~powers~~The byBank ~~removing~~has ~~procedural~~credit ~~barriers~~risk exposure, including off-balance sheet credit risk exposure, as disclosed in Notes 4 and ~~sharply~~10 ~~increasing~~to the ~~civil~~consolidated financial statements. The ultimate collectibility of a substantial portion of the loan portfolio is susceptible to changes in economic and market ~~criminal~~conditions ~~penalties~~in ~~for~~the ~~violating~~region. ~~statutes~~The Bank generally requires collateral on all real estate loans and typically ~~regulations~~maintains loan to value ratios of no greater than 70% to 80%.

~~Interstate~~The ~~Banking~~Bank ~~And~~has ~~Branching~~loan concentration in real estate, particularly in commercial real estate. These loans require additional evaluation, including, but not limited to industry, geographic, and collateral analysis. Commercial real estate is further broken down to reflect owner occupied and non-owner occupied properties. Any non-owner occupied category that is over 100% of Tier 1 capital is further analyzed as to the type of property being taken as collateral.

The ~~Riegle-Neal~~contractual ~~Interstate~~amounts ~~Banking and Branching Efficiency Act~~ of ~~1994~~credit ~~(the “Interstate~~related ~~Act”)~~financial ~~generally~~instruments ~~authorizes~~such ~~interstate~~as ~~branching~~commitments ~~and~~to ~~relaxes federal~~extend ~~law~~credit ~~restrictions~~and onletters ~~interstate~~of ~~banking.~~credit ~~Individual~~represent ~~states had~~ the ~~authority~~amounts ~~to “opt out”~~ of ~~certain~~potential ofaccounting ~~these~~loss ~~provisions.~~should ~~The~~the ~~Interstate Act allowed states to~~contract ~~enact~~be ~~“opting-in”~~fully ~~legislation~~drawn ~~that~~upon, ~~(i) permitted~~the ~~interstate~~customer ~~mergers within their own borders before June 1~~default, ~~1997,~~ and ~~(ii) permitted out-of-state banks to establish de novo branches within~~ the ~~state.~~value As of ~~September 29, 1996, bank holding companies could purchase banks in~~ any ~~state,~~existing ~~and~~collateral ~~states may not~~become ~~prohibit such purchases~~worthless. ~~Additionally,~~Letters ~~beginning~~of ~~June 1,~~credit ~~1997, banks~~ were ~~permitted~~ togranted ~~merge~~primarily ~~with banks in other states as long as the home state of neither merging bank has opted out. The Interstate Act requires regulators~~ to ~~consult~~ ~~with~~commercial ~~community organizations before permitting an interstate institution to close a branch in a low-income area~~borrowers.

~~Oregon,~~Marketability ~~effective~~of ~~February 27,~~Common ~~1995,~~Stock ~~enacted~~There ~~“opting~~is ~~in”~~no ~~legislation~~active ~~generally permitting~~market ~~interstate~~for ~~mergers,~~our ~~subject~~outstanding toshares, ~~certain~~and ~~restrictions.~~it is ~~Given~~unlikely that ~~Oregon~~ ~~permitted~~an ~~interstate~~established ~~banking~~market for aour ~~number~~shares ofwill ~~years,~~develop ~~this~~in ~~legislation~~the ~~was~~near future. We presently do not ~~expected~~intend to ~~have~~seek ~~profound~~listing ~~impact~~of the shares on ~~banking~~any insecurities ~~Oregon~~exchange, or onquotation on the ~~Company~~Nasdaq orinterdealer quotation system. It is not known whether significant trading activity will ~~the~~take ~~Bank’s~~place ~~operations~~for inseveral ~~particular~~years, if at all. Accordingly, our shares should be considered as a long-term investment.

~~CRA~~ITEM 1B. UNRESOLVED STAFF COMMENTS

The Community Reinvestment Act (the “CRA”) requires that, in connection with examinations of financial institutions within their jurisdiction, the Federal Reserve or the FDIC evaluate the records of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those banksNone. ~~Those factors are also considered in evaluating mergers, acquisitions,~~ ~~and applications to open a branch of facility.~~

~~Gramm-Leach-Bliley~~ITEM ~~Financial~~2. ~~Services Modernization Act~~PROPERTIES

The ~~Gramm-Leach-Bliley~~principal ~~Financial~~properties ~~Services~~of ~~Modernization Act (“GLBA”) was signed into law on November 12, 1999, and became effective March 11, 2000. The GLBA establishes~~ the ~~legal~~Company ~~ability~~ and ~~regulatory framework to banking organizations to provide broad-based financial services to meet~~ its ~~expanding~~subsidiary, ~~customer~~Citizens ~~needs. The~~Bank, ~~GLBA~~are ~~establishes~~comprised ~~three types~~ of ~~financial activities that are permissible for~~ banking ~~organizations: those that are financial in nature; those that are~~ ~~incidental~~facilities toowned ~~financial~~or ~~activity;~~leased ~~and~~by ~~those~~the ~~that are complimentary to financial activity~~subsidiary.

The ~~GLBA~~main ~~sets~~office ~~forth~~of athe ~~list~~Bank is located in the heart of ~~activities~~the ~~deemed~~business ~~financial~~and retail center in ~~nature~~Corvallis, Oregon. ~~Such activities~~The ~~include~~building ~~lending,~~was ~~exchanging,~~constructed ~~transferring,~~in ~~investing~~1977 ~~for~~and ~~others~~has approximately 30,000 ~~or safeguarding~~square ~~money~~feet orof ~~securities;~~space ~~insurance~~on two ~~underwriting~~levels above ground and ~~sales~~a ~~(brokerage) activities;~~full ~~investment~~basement. orThe ~~economic~~second ~~advisory~~floor ~~services;~~is ~~securitizations;~~occupied by the administrative ~~securities~~support ~~underwriting~~team, ~~and~~which ~~dealing~~includes ~~activities;~~the ~~all~~President/Chief ~~“closely~~Executive ~~related~~Officer, ~~to banking”~~the ~~activities~~Chief ~~previously~~Financial ~~approved~~Officer, the ~~for~~Chief ~~bank~~Operating ~~holding~~Officer, ~~companies~~the byChief Marketing Officer, the Chief Lending Officer, Administrative ~~Federal~~Assistants ~~Reserve~~and the Loan Service Center.

The first floor serves as the main banking office for the Bank. It is occupied by a manager, a lending staff, an operations staff, tellers, marketing officer, merchant services officer, new accounts staff, and mortgage department staff.

The basement is occupied by the Accounts Service Center. It includes a manager, two operations officers, proof and data processing staff, inventory, wire transfer, telephone, and courier staff. All of the Bank’s centralized functions, i.e., management, proof and data information, loan documentation, loan administration, cash services, mail services, accounting and human resources, occur in this building. The Bank owns this building.

The Bank operates ten (10) full service offices, of which six (6) are owned and four (4) are leased. These buildings range in size from 2,500 square feet to approximately 30,000 square feet. Their primary function and use is to provide banking service to the Bank’s customers. See the Contractual Obligations table for a summary of our lease requirements. The following sets forth certain information regarding the Bank’s office facilities.


Main Office	Junction City Office	East Albany Office (1)
275 SW Third Street	955 Ivy Street	2315 14^th Ave. SE
Corvallis, Oregon	Junction City, Oregon	Albany, Oregon

Circle Office (2)	Philomath Office	West Albany Office (3)
978 NW Circle Blvd.	1224 Main Street	2230 Pacific Blvd. SE
Corvallis, Oregon	Philomath, Oregon	Albany, Oregon

McMinnville Office	Harrisburg Office (4)	Dallas Office
455 NE Baker Street	230 North 3^rd Street	583 SE Jefferson
McMinnville, Oregon	Harrisburg, Oregon	Dallas, Oregon

Springfield Office (5)
2073 Olympic Street
Suite 100
Springfield, Oregon

Board; certain products offered overseas, such as travel agency services; and merchant banking/equity investment activities.

(1)		Mennonite Home, satellite office of the East Albany Branch. This limited facility is open to the large retirement/assisted living center for two hours Monday through Friday. Lease renewed on March 1, 2004 for a three-year term.

(2)		Premises leased under an original lease agreement dated May 1, 1970 and a supplemental lease agreement dated August 16, 1994. The lease expires January 31, 2020.

(3)		Ground lease under ground lease agreement dated May 29, 1998. The lease expires in year 2048.

(4)		Premises leased under a lease agreement dated May 4, 2001. The lease was renewed on May 4, 2006, with the right to renew for one additional period of five years.

(5)		Premises leased under a lease agreement dated June 1, 2003. The lease expires on May 31, 2008 with the right to renew for two additional periods of three years each.

InThe ~~general,~~Bank ~~these~~owns ~~expanded~~or ~~powers~~leases ~~are~~all ~~reserved~~of tothe ~~bank~~facilities ~~holding~~described ~~companies,~~above. toManagement ~~be known~~believes asthat ~~financial holding companies (“FHC”) and banks, where all depository~~the ~~institutions~~facilities ~~affiliated with them~~ are ~~well~~of ~~capitalized,~~sound ~~well managed based on applicable banking regulations~~construction, ~~and meet specified Community Reinvestment Act ratings. GLBA authorizes the Federal Reserve Bank and the United States Treasury,~~ in ~~cooperation~~good ~~with~~operating ~~one another~~condition, ~~to determine what additional activities~~ are ~~permissible~~appropriately asinsured ~~financial in nature. Such activities will require FHCs~~ and ~~banks to continue to satisfy applicable well capitalized and~~ ~~well~~are ~~managed~~adequately ~~requirements.~~equipped ~~Bank holding companies which do not qualify~~ for ~~FHC status~~carrying ~~are~~on ~~limited~~the tobusiness ~~non-banking~~of ~~activities~~the ~~deemed closely related to banking prior to GLBA~~Company.

ToOther ~~become a FHC, a declaration of intent to engage in activities permissible~~Properties for a FHC must be filed with the Federal Reserve Bank certifying that all requirements for eligibility have been met. The Company filed such a letter of intent with the Federal Reserve Board on February 15, 2000. At this time, the Company has no plans to expand into any of the activities approved under the GLBA, but may wish to do so in the future.

InThe ~~addition~~Bank toowns ~~the~~two ~~creation~~additional ofproperties. ~~FHCs,~~One ~~GLBA~~property ~~establishes~~is a ~~primacy~~commercial ofbuilding ~~oversight regulation~~on ofland ~~financial~~adjacent ~~service businesses by~~ to the ~~regulators~~Bank’s ~~routinely responsible~~McMinnville, ~~for~~Oregon ~~such activities and entities~~office. ~~This~~The ~~applies~~building ~~both~~is inbeing ~~allocating responsibility~~leased ~~for~~to ~~supervising~~a ~~different~~business ~~companies~~on ~~within~~ a ~~FHC~~ten ~~and in~~year ~~supervising~~lease ~~different~~that ~~activities~~commenced ~~within~~on ~~the~~January 1, ~~same company~~2003. ~~GLBA~~The ~~clarifies~~tenant ~~the regulation~~has by the ~~States~~option ofto ~~insurance~~renew ~~products sold by depository institutions, and repeals some of~~ the ~~exemptions~~lease for ~~banks under federal securities laws in~~two ~~relation~~successive toterms ~~securities offered by banks and the licensing~~ of ~~broker-dealers~~ten ~~and investments~~years each.

The ~~GLBA~~second ~~also~~property ~~changed~~was ~~the~~purchased ~~membership~~on ~~requirements~~January 13, to2006 ~~join~~and ~~the~~is ~~Federal~~located ~~Home~~in ~~Loan Bank~~Springfield, ~~(“FHLB”)~~Oregon ~~for~~on ~~banks~~the same ~~with~~street ~~$500 million~~as orthe ~~less~~Bank’s inleased ~~assets~~Springfield Office. The ~~GLBA~~building ~~defines a~~is ~~“community~~currently ~~financial~~being ~~institution”~~leased asto another afinancial ~~depository~~ institution ~~insured~~until ~~by the Federal Deposit Insurance Corporation (“FDIC”) with less than $500~~January ~~million~~2008. ~~in average~~At ~~total~~the ~~assets~~end ~~during~~of the ~~three~~lease ~~years~~term, ~~immediately proceeding~~ the ~~date~~current oftenant ~~the~~will ~~membership~~vacate ~~application~~the property. ~~These~~The ~~community~~Bank ~~financial~~plans ~~institutions will not be required~~ to ~~hold~~move atits ~~least~~current ~~10 percent~~Springfield ofOffice ~~their assets in residential mortgages in order~~ to ~~join~~this ~~the FHLB system~~building. The ~~section~~timing of the ~~GLBA~~move ~~will~~has not ~~affect~~been ~~the Company’s~~specifically ~~subsidiary, Citizens Bank, as it already holds membership in the FHLB~~determined.

~~The~~Management ~~GLBA~~believes ~~also~~that ~~adopts restrictions on financial institutions regarding~~ the ~~sharing~~ offacilities ~~customer~~are ~~non-public personal information with non-affiliated third parties unless the customer has had an opportunity to opt out~~ of ~~the disclosure.~~sound ~~The~~construction, ~~GLBA~~in ~~also~~good ~~imposes~~operating ~~periodic~~condition ~~disclosure requirements concerning financial institution policies~~ and ~~practices regarding data sharing with~~ ~~affiliated~~are ~~and~~appropriately ~~non-affiliated parties~~insured.

~~The~~ITEM ~~GLBA will be the subject of extensive rule making by federal banking regulators and others~~3. ~~The~~LEGAL ~~effects and/or benefits of the GLBA on the Company~~PROCEEDINGS ~~and its subsidiary Citizens Bank are unknown at this time.~~

As of the date of filing this Form 10K neither the Company nor its subsidiary were a party to any material legal proceedings. Further, management is not aware of any threatened or pending lawsuits or other proceedings against the Company or its subsidiary which, if determined adversely, would have a material effect on the business or financial position of either of them. The Company or the Bank may from time to time become a party to litigation in the ordinary course of business, such as debt collection litigation or through an appearance as a creditor in a bankruptcy case.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the year ended December 31, 2006, no matters were submitted to the Company’s security holders through the solicitation of proxies or otherwise.

~~The~~PART ~~Company provided the Federal Reserve Board of San Francisco its declaration~~II to elect to become a financial holding company, pursuant to the GLBA of 1999, on February 15, 2000. The Company received notice of approval from the Board of Governors of the Federal Reserve System on March 13, 2000. The Company has no current plan to engage in any of the financial activities permissible for a financial holding company under GLBA. The Company made its declaration only to be prepared to take advantage of any future business opportunities.

~~Capital~~ITEM ~~Adequacy~~5. ~~Requirements~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITES

~~The~~There ~~FRB,~~is no established market for the ~~FDIC~~Company’s common stock, and the ~~OCC~~stock ~~(collectively,~~is ~~the~~not ~~“Federal~~listed ~~Banking~~on ~~Agencies”)~~and ~~have~~does ~~established~~not ~~uniform~~trade ~~capital~~on ~~requirements~~or ~~for~~through ~~all~~any ~~commercial~~exchange ~~banks~~or quotation system. ~~Bank holding~~There ~~companies~~is ~~are~~no ~~also~~expectation ~~subject~~that toan established ~~certain~~market ~~minimum~~will ~~capital~~develop ~~requirements~~for the Company’s common stock. AAs the transfer agent for the ~~bank~~Company’s ~~that~~common ~~does~~stock, ~~not~~the ~~achieve~~Bank ~~and~~keeps ~~maintain~~an ~~required~~informal ~~capital~~record ~~levels~~of ~~may~~persons beexpressing ~~subject to~~an ~~supervisory~~interest ~~action~~in buying ~~through~~or selling the ~~issuance~~Company’s ofcommon astock ~~capital~~but ~~directive~~does tonot ~~ensure~~solicit ~~the~~buyers or sellers. The Bank also ~~maintenance~~keeps some informal records of ~~adequate~~prices ~~capital~~paid ~~levels.~~and Inreceived ~~addition,~~for ~~banks~~the ~~are~~Company’s ~~required~~common tostock by parties ~~meet~~which ~~certain~~provide ~~guidelines~~that ~~concerning~~information to the ~~maintenance~~Bank. ofNeither anthe ~~adequate~~Company ~~allowance~~nor ~~for~~the Bank does or will ~~loan~~recommend ~~and~~prices ~~lease~~for ~~losses~~the Company’s common stock.

~~The~~There ~~Federal~~were ~~Banking Agencies’ “risk-based” capital guidelines establish a systematic~~1,338 ~~analytical~~holders ~~framework~~of ~~that~~record ~~makes~~of ~~regulatory~~the ~~capital~~Company’s ~~requirements more~~no ~~sensitive~~par tovalue ~~differences~~common instock ~~risk~~as ~~profiles~~of ~~among banking organizations~~February 22, ~~takes off-balance sheet exposures into explicit account in assessing capital adequacy~~2007, and ~~minimizes~~an ~~disincentives~~estimated to61 ~~holding~~additional ~~liquid,~~beneficial ~~low-risk~~holders ~~assets.~~whose ~~The risk-based~~stock ~~ratio~~was isheld ~~determined~~in bystreet ~~allocating~~name ~~assets and specified off-balance~~by ~~sheet~~brokerage ~~commitments into several categories, with high levels of capital being required for the categories perceived as representing greater risk~~houses. The ~~risk weights~~last ~~assigned~~transaction toprice ~~assets and credit equivalent amounts~~ of ~~off-balance~~the ~~sheet items~~Company’s ~~are~~common ~~based~~stock ~~primarily on credit risk. Other types~~ of ~~exposure,~~which ~~such as interest rate, liquidity and funding risks, as well as asset quality problems, are not factored into~~ the ~~risk-based~~Company ~~ratio. Such risks, however, will be taken~~is ~~into~~aware ~~account~~was ~~in determining a final assessment of an organization’s capital adequacy~~$17.20 ~~Under~~per ~~these~~share ~~regulations~~on February 5, ~~banks were required to achieve a minimum total risk-based capital ratio of 8% and a minimum Tier 1 risk-based capital ratio of 4%~~2007.

The ~~Federal~~Company ~~Banking~~has ~~Agencies~~no ~~also~~formal ~~have~~dividend ~~adopted~~policy. ~~leverage~~The ~~ratio~~amount ~~standards~~of ~~that require~~any ~~commercial~~dividend ~~banks~~is todetermined ~~maintain~~by athe Company’s ~~minimum~~board ~~ratio~~ of ~~core~~directors ~~capital~~and todepends ~~total assets~~on (the ~~“Leverage~~amount ~~Ratio”)~~ of ~~3%.~~profits ~~Any~~generated ~~institution~~and ~~operating~~the ~~at or near this~~growth ~~level~~objectives isof ~~expected~~the toCompany ~~have~~and ~~well-diversified~~the ~~risk~~Bank, ~~including~~together nowith ~~undue~~other ~~interest rate~~factors ~~risk~~considered ~~exposure,~~by ~~excellent~~the ~~asset~~board ~~quality~~in ,its discretion. ~~high~~Under ~~liquidity~~Oregon ~~and~~law ~~good~~certain ~~earnings, and~~restrictions inon ~~general,~~the topayment beof adividends ~~strong~~apply. ~~banking~~Under ~~organization without any supervisory,~~these ~~financial~~restrictions, ora ~~operational~~bank ~~weaknesses~~ or ~~deficiencies.~~holding ~~Any~~company ~~institutions experiencing~~may ornot ~~anticipating~~declare ~~significant~~or ~~growth~~pay ~~would~~any bedividend ~~expected~~in toan ~~maintain~~amount greater ~~capital~~than ~~ratios,~~its ~~including~~retained ~~tangible~~earnings. ~~capital~~In ~~positions~~addition, ~~well~~applicable ~~above~~bank regulatory authorities have the ~~minimum~~power to ~~levels~~require ~~(e.g.,~~any anbank ~~additional~~to ~~cushion~~suspend the payment of atany ~~least~~and ~~100~~all todividends ~~200~~until ~~basis~~the ~~points,~~bank shall have complied ~~depending~~with ~~upon~~all ~~the~~requirements ~~particular~~that ~~circumstances~~may ~~and~~have ~~risk~~been ~~profile)~~imposed by such authorities.

~~Regulations~~The ~~adopted~~following bytable ~~the~~sets ~~Federal~~forth ~~Banking~~certain ~~Agencies~~transaction asprices ~~required~~per byshare ~~FDICIA~~for shares of the Company’s ~~impose~~common ~~even~~stock ~~more~~for ~~stringent~~the ~~capital~~periods ~~requirements~~shown. ~~The~~This ~~regulators~~information ~~require~~is ~~the OCC~~based ~~and~~solely ~~other~~on ~~Federal~~prices ~~Banking~~and ~~Agencies~~information reported to ~~take~~the ~~certain~~Bank ~~“prompt~~by ~~corrective action”~~those ~~when~~persons awhose ~~bank~~transactions ~~fails~~have come to ~~meet~~its ~~certain capital requirements~~attention. The reported ~~regulations~~prices ~~establish~~do ~~and~~not ~~define~~represent ~~five~~all ~~capital~~transactions ~~levels~~in atthe ~~which~~Company anand ~~institution~~the ~~is deemed~~Bank can give no assurances as to the beaccuracy ~~“well-capitalized,”~~of ~~“adequately~~the ~~capitalized,”~~reported ~~“undercapitalized,”~~prices or the completeness of this information. ~~significantly~~


	High		Low
2002	$	15.00	$	11.45
2003	$	18.50	$	12.49
2004	$	18.50	$	16.50
2005	$	20.00	$	16.00
2006	$	20.00	$	14.85

Per share information for the current and prior periods have been adjusted to reflect the effect of any stock dividends and stock splits.

The following table sets forth certain transaction prices per share for shares of the Company’s common stock for the quarterly periods shown. This information is subject to the qualifications set forth above.


	High		Low
2006
First quarter	$	19.00	$	17.00
Second quarter	$	17.50	$	15.00
Third quarter	$	16.90	$	15.00
Fourth quarter	$	20.00	$	14.85
2005
First quarter	$	17.50	$	16.50
Second quarter	$	18.00	$	16.00
Third quarter	$	20.00	$	17.00
Fourth quarter	$	19.45	$	17.95

~~undercapitalized” or “critically undercapitalized.” In order to be “well~~Five-~~capitalized,”~~year anStock ~~institution~~Performance ~~must maintain, at least 10% total risk-based~~Graph capital, 6% Tier 1 risk-based capital, and a 5% Leverage Ratio. Increasingly severe restrictions are imposed on the payment of dividends and mortgage fees, asset growth and other aspects of the operations of institutions that fall below the category of “adequately capitalized” (which requires at least 8% total risk-based capital, 4% Tier 1 risk-based capital, and a 4% Leverage Ratio).

~~Undercapitalized~~The ~~institutions~~following ~~are~~graph ~~required~~compares tothe ~~develop~~yearly ~~and~~cumulative ~~implement~~total ~~capital plans~~return ~~acceptable~~of toBancorp’s ~~the~~common ~~appropriate~~stock ~~federal~~during the ~~regulatory~~five ~~agency.~~years ~~Such~~ended ~~plans~~December 31, ~~must require~~2006 ~~that~~with ~~any~~the ~~company~~(i) SNL ~~that~~S&P ~~controls~~500 ~~the~~(ii) SNL ~~undercapitalized~~Bank ~~institution~~Index ~~must~~and (iii) SNL ~~provide~~Nasdaq ~~certain~~Bank ~~guarantees~~Index. ~~that~~This ~~the~~comparison ~~institution~~assumes ~~will~~$100 ~~comply~~was ~~with~~invested ~~the~~on ~~plan~~December 31, ~~until it~~2001 isin ~~adequately~~Bancorp’s common ~~capitalized.~~stock Asand ofthe ~~December 31,~~comparison ~~2000,~~groups. ~~the~~All ~~Bank~~of ~~was~~these ~~not subject~~cumulative toreturns ~~any~~are ~~regulatory~~computed ~~order,~~assuming ~~agreement,~~the reinvestment orof ~~directive~~dividends toat ~~meet~~the ~~and~~frequency ~~maintain~~with ~~a specific~~which ~~capital~~dividends ~~level~~were ~~for~~paid ~~any~~during ~~capital~~the ~~measure~~applicable years.

~~Under~~The ~~Oregon~~stock ~~law,~~performance andata ~~Oregon~~for ~~commercial~~Bancorp ~~bank~~is ~~may~~based ~~reduce~~solely ~~its~~on ~~paid-in~~prices ~~capital~~reported to Bancorp for specific ~~eliminate~~transactions orbetween ~~reduce~~buyers ~~deficits~~and insellers ~~retained~~who ~~earnings~~informed ~~arising~~Bancorp ~~from~~of ~~losses~~specific transactions. There was and is no established market for the common stock of Bancorp, orand inits common stock is not listed on ~~order~~any toexchange ~~redeem~~or ~~shares~~other trading or quotation system. ~~Prior~~Stock ~~approval~~performance ofdata for Bancorp may not represent all transactions in the ~~Oregon~~shares ~~Director~~traded isfor ~~required~~the periods in ~~either~~ ~~case~~question, and ~~may~~no assurance can be ~~refused~~given ifas to the ~~Oregon~~accuracy ~~Director~~of ~~determines~~reported ~~that~~prices as the ~~remaining~~ ~~paid-in~~prices ~~capital~~were ofnot ~~the~~independently ~~bank~~verified. ~~would~~The data beis ~~inadequate~~based on prices for ~~its~~actual ~~safe~~sales transactions only, and ~~sound~~ ~~operation~~excludes offers to buy or offers to sell.

The minimum ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as stand-by letters of credit) required by the FRB for bank-holding companies is 8%. At least one-half of the total capital must be Tier 1 capital; the remainder may consist of Tier 2 capital. The Company is also subject to minimum Leverage Ratio guidelines. These guidelines provide for a minimum Leverage Ratio of 3% for bank holding companies meeting certain specified criteria, including achievement of the highest supervisory rating. All other bank holding companies are required to maintain a Leverage Ratio which is at least 100 to 200 basis points higher (4% to 5%). These guidelines provide that banking organizations experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

In August of 1995, the Federal Banking Agencies adopted a final rule implementing the portion of Section 305 of FDICIA that requires the banking agencies to revise their risk-based capital standards to ensure that those standards take adequate account of interest rate risk. Effective September 1, 1995, when evaluating the capital adequacy of a bank, the Federal Banking Agencies’ examiners started considering exposure to declines in the economic value of a bank’s capital due to changes in interest rates. A bank may be required to hold additional capital for interest rate risk if it has a significant exposure or a weak interest rate risk management process. Concurrent with the publication of this final rule, the Federal Banking Agencies proposed for comment a joint policy statement describing the process the Federal Banking Agencies will use to measure and assess a bank’s interest rate risk.

This joint policy statement was superseded by an updated Joint Policy Statement in June of 1996. Any impact the joint final rules and the Joint Policy Statement may have on the Company or its subsidiary cannot be predicted at this time.

InEQUITY ~~addition,~~COMPENSATION ~~the~~PLAN ~~Federal Banking Agencies published a joint final rule on~~INFORMATION September 6, 1996, amending their respective risk-based capital standards to incorporate a measure for market risk to cover all positions located in an institution’s trading account and foreign exchange and commodity positions wherever located. This final rule, effective January 1, 1997, implements an amendment to the Basle Capital Accord that sets forth a supervisory framework for measuring market risk. The final rule effectively requires banks and bank holding companies with significant exposure to market risk to measure that risk using its own internal value-at-risk model, subject to the parameters of the final rule, and to hold a sufficient amount of capital to support the institution’s risk exposure.

~~Institutions~~The ~~subject~~following totable ~~this~~shows ~~final~~the ~~rule~~status ~~must be in compliance with it by January 1, 1998. This final rule applies to any bank or bank holding company, regardless~~ of ~~size,~~option ~~whose~~grants ~~trading~~under ~~activity~~the ~~equals~~Plan ~~10%~~as ~~or more~~ of ~~its total assets or amounts to $1~~December ~~billion or more. The Federal Banking Agencies may require an institution not otherwise subject to the final rule to comply with it for safety and soundness reasons and~~31, ~~under certain circumstances, also may~~2006: ~~exempt an institution otherwise subject to the final rule from compliance.~~

~~FDIC~~Equity ~~Insurance~~Compensation Plan Information

Generally, customer deposit accounts in banks are insured by the Federal Deposit Insurance Corporation (FDIC) for up to a maximum amount of $100,000. The FDIC has adopted a risk-based insurance assessment system. Under this system, depository institutions, such as the Bank with BIF-insured deposits, are required to pay an assessment to the BIF ranging from $.0 to $.27 per $100 of deposits based on the institution’s risk classification. On September 30, 1996, the Deposit Insurance Funds Act of 1996 (“Funds Act”) was enacted. The Funds Act provides, among other things, for the recapitalization of the SAIF through a special assessment on all depository institutions that hold SAIF-insured deposits. The one-time assessment is designed to place the SAIF at its 1.25 reserve ratio goal.

# of Securities to

Be Issued on

# of Securities Remaining

Exercise of

Weighted-Average

Available for Future Issuance

Outstanding

Exercise Price of

Under Plan (Excluding

Options

Outstanding Options

Securities in Column (a))

Plan Category

(a)

(b)

(c)

Equity Compensation Plans Approved by Security Holders

128,884

14.40

51,898

⁽¹⁾

Equity Compensation Plans Not Approved by Security Holders

-0-

Total

128,884

14.40

51,898

~~The Funds Act, for the three-year period beginning in 1997, subjects BIF-insured deposits to a Financing Corporation~~ (~~“FICO”) premium assessment on domestic deposits at one-fifth the premium rate (roughly~~ 1~~.3 basis points~~) ~~imposed~~ onIncludes ~~SAIF-imposed deposits (roughly~~ 6~~.5 basis points). In addition~~, ~~service~~933 ~~debt~~shares ~~funding~~issuable onunder ~~FICO bonds for~~ the ~~first~~1998 ~~half~~incentive ofstock ~~1997~~option ~~resulted~~plan ~~in BIF insured institutions paying .64 cents for each $100 of assessed deposits,~~ and ~~SAIF~~ ~~insured institutions paying 3.2 cents on each $100 of deposits. Beginning in the year 2000~~44,965 ~~BIF~~shares ~~insured~~issuable ~~institutions~~under ~~will be required to pay~~ the ~~FICO obligations~~1998 onstock abonus ~~pro-rata basis with all thrift institutions; annual assessments are expected to equal approximately 2~~plan.~~4 basis points until 2017, to be phased out completely by 2019.~~

~~Banking~~As ~~regulators~~of ~~are~~December 31, ~~empowered~~2006, ~~under~~there ~~the~~were ~~Funds~~4,733,644 ~~Act~~shares tooutstanding, ~~prohibit~~held ~~insured institutions~~by ~~and~~1,334 ~~their~~shareholders ~~holding companies from facilitating or encouraging the~~of ~~shifting~~record. ~~deposits~~As ~~from~~of ~~the~~February 22, ~~SAIF~~2007, tothere ~~the~~were ~~BIF~~1,338 inholders ~~order~~of toCitizens ~~avoid~~Bancorp ~~higher~~and ~~assessment~~4,810,490 shares ~~rates~~outstanding. ~~Accordingly~~Since December 31, ~~the FDIC recently proposed a rule that would~~2006, ~~if adopted as proposed~~75,179 ~~impose~~shares ~~entrance~~were ~~and~~issued ~~exit~~under ~~fees on depository institutions attempting to shift deposits from~~ the ~~SAIF~~Dividend ~~to the BIF as contemplated by the~~Reinvestment ~~Funds Act~~Plan. ~~The~~

Holders are determined on the basis of ownership. Each entity that owns one or more shares is determined to be a holder. Holders can be individuals, partnerships, corporations, trusts, or any entity that can legally hold assets. Two or more individuals together can also be a holder, such as a husband and wife or a parent and child.

The following sets forth, for the calendar years shown, the cash and stock dividends per share of common stock declared by the Company.


	Cash Dividend		Stock Dividend
2002	$	.41		—
2003	$	.46		10	%
2004	$	.46		—
2005	$	.50		—
2006	$	.52		—

Per share information for prior periods reflect the effects of the stock dividends.

Stock Repurchase Program. The Company operates a stock repurchase program that was approved by the board of directors. Under the program, the Company may repurchase shares of its common stock up to a maximum amount and at the price established by the Board.

On July 17, 2001, the board of directors of the Company approved the repurchase of 209,474 of its outstanding shares and on April 15, 2003 approved an additional 207,514 shares, for a total repurchase of 416,988 outstanding shares. Repurchases are made from time to time under the plan. The board’s authorization has no expiration date. Total shares available for repurchase under these plans are 215,811 shares at December 31, 2006. The following table provides information about repurchases of common stock.


	Shares repurchased		Cost of shares		Average cost
(Shares and dollars in thousands)	in period		repurchased		per share
Year ended 2001		84	$	869	$	10.32
Year ended 2002		83		973		11.74
Year ended 2003		12		173		13.83
Year ended 2006		22		353		16.31

Plan to date total		201	$	2,368	$	11.77

~~Funds~~ITEM ~~Act~~6. ~~also~~SELECTED ~~provides~~FINANCIAL ~~for the merger of the BIF and SAIF on January 1, 1999,~~DATA ~~only if no thrift institutions exist on that date.~~

The ~~risk~~following ~~classification~~selected isfinancial ~~based~~data onshould anbe ~~assignment~~read ofin ~~the~~conjunction institution by the FDIC to one of three capital groups and to one of three supervisory subgroups. The capital groups are “well capitalized,” “adequately capitalized,” and “undercapitalized.” The three supervisory subgroups are Group “A” (for financially sound institutions with ~~only a few minor weaknesses), Group “B” (for those institutions with weaknesses which, if uncorrected, could cause substantial deterioration of~~ the ~~institution~~Company’s ~~and increase risk to the deposit~~consolidated ~~insurance~~financial ~~fund),~~statements and ~~Group~~accompanying ~~“C”~~notes ~~(for~~presented ~~those institutions with a substantial probability of loss to the fund absent effective corrective action)~~herein.

~~Changes~~ (In ~~Banking~~thousands, ~~Laws~~except ~~And~~share ~~Regulations~~data)

The laws and regulations that affect banks and bank holding companies frequently undergo significant changes at the federal and state levels. Bills are introduced from time to time in the United States Congress that contain proposals to alter the structure, regulation, and competitive relationships of the nation’s financial institutions. Any changes in laws and regulations could have the effect of increasing or decreasing the cost of doing business, limiting or expanding permissible activities (including activities in the insurance and securities fields), or affecting the competitive balance among banks, savings associations, and other financial institutions. Such changes could also reduce the extent of federal deposit insurance, broaden the powers or the geographical range of operations of bank holding companies, alter the extent to which banks could engage in securities activities, alter the taxation of banks, bank holding companies and other financial services organizations, and change the structure and jurisdiction of various financial institution regulatory agencies. Such ongoing changes in laws and regulations, and the extent to which the business of the Company might be affected thereby, cannot be predicted with certainty.


							% increase
							(decrease)
Year ended December 31,	2006			2005			2006 to 2005			2004			2003			2002
EARNINGS
Total interest income	$	21,544		$	18,468			16.66	%	$	15,341		$	16,312		$	17,575
Total interest expense		5,088			3,017			68.64	%		1,667			2,082			3,322
Net interest income		16,456			15,451			6.50	%		13,674			14,230			14,253
Provision for credit losses		145			155			(6.45	%)		142			270			624
Net interest income after provision for credit losses		16,311			15,296			6.64	%		13,532			13,960			13,629
Total non-interest income		2,475			3,886			(36.31	%)		4,428			4,113			3,773
Total non-interest expense		10,386			11,154			(6.89	%)		11,199			10,203			9,793
Income before taxes		8,400			8,028			4.63	%		6,761			7,870			7,609
Income taxes		2,941			2,701			8.89	%		2,409			2,858			2,751
Net income	$	5,459		$	5,327			2.48	%	$	4,352		$	5,012		$	4,858
PER SHARE DATA (1)
Net income basic	$	1.15		$	1.12			2.68	%	$	0.94		$	1.10		$	1.07
Net income diluted		1.15			1.11			3.60	%		0.94			1.09			1.07
Cash dividends		0.52			0.50			4.00	%		0.46			0.46			0.41
Book value		9.83			9.06			8.50	%		8.31			7.82			7.20
PERIOD END BALANCES
Total assets	$	359,029		$	338,900			5.94	%	$	334,588		$	326,269		$	312,639
Net loans		250,152			230,547			8.50	%		210,951			185,053			178,333
Deposits		270,610			254,083			6.50	%		235,482			235,759			227,363
Repurchase agreements		35,586			36,590			(2.74	%)		55,446			50,907			48,059
Shareholders’ equity		46,524			42,296			10.00	%		38,401			35,617			32,330
PERFORMANCE RATIOS
Return on Average Assets		1.60	%		1.58	%					1.32	%		1.59	%		1.64	%
Return on Average Equity		11.78	%		12.90	%					11.23	%		14.06	%		15.32	%
Dividend Payout Ratio		45.22	%		44.64	%					48.94	%		41.82	%		38.32	%
Average Equity to Average Assets		13.61	%		12.26	%					11.75	%		11.32	%		10.73	%
Efficiency Ratio (2)		53.89	%		56.70	%					60.88	%		54.92	%		53.63	%


(1)		Per share amounts and the average number of shares outstanding have been restated for a stock dividend of 10% in 2003.

(2)		The efficiency ratio is computed by dividing total non-interest expenses by the total of net interest income and total non-interest income. Net interest income used in the calculation includes tax equivalent adjustments (at the federal statutory rate of 34%) related to income on securities and loans that are exempt from federal taxes.

ITEM 27. ~~PROPERTIES~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The ~~principal~~following ~~properties~~discussion is intended to provide a more comprehensive review of the Company’s operating results and ~~its~~financial ~~subsidiary,~~condition ~~Citizens~~than ~~Bank,~~can ~~are~~be obtained from reading the Consolidated ~~comprised~~Financial ofStatements ~~banking~~alone. ~~facilities~~The ~~owned~~discussion byshould be read in conjunction with the ~~subsidiary~~audited consolidated financial statements and the notes thereto included as part of this Form 10-K.

~~The~~Critical ~~main~~Accounting ~~office~~Policies ~~of Citizens Bank is located in the heart of the business~~ and ~~retail~~ ~~center in Corvallis, Oregon. The building was constructed in 1977 and~~Estimates has approximately 30,000 square feet of space on two levels above ground and a full basement. The second floor is occupied by the administrative support team, which includes the President/Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Chief Marketing Officer, the Chief Lending Officer, Administrative Assistants and the Loan Service Center.

~~The~~Our ~~first~~financial ~~floor~~statements ~~serves~~are asbased on the ~~main~~selection ~~banking~~and ~~office~~application ~~for~~of significant accounting policies which require management to make significant estimates and assumptions (see Note 1 to the consolidated ~~Bank~~financial statements). ItWe believe that the following is ~~occupied~~one of the more critical byjudgment aareas ~~manager,~~in athe ~~lending~~application ~~staff,~~of anour ~~operations~~accounting ~~staff,~~policies ~~tellers,~~that ~~marketing~~currently ~~officer, new~~affect ~~accounts~~our ~~staff,~~financial condition and ~~mortgage~~results ~~department~~of ~~staff~~operations.

Allowance for Credit Losses. The ~~basement~~allowance for credit losses is ~~occupied~~established bythrough ~~the~~a ~~Accounts~~provision for ~~Service~~credit ~~Center~~losses charged to operations. ItThe ~~includes~~allowance for credit losses is a significant estimate ~~manager,~~and ~~two~~management ~~operations~~and ~~officers,~~the ~~proof~~Board ~~and~~of ~~data~~Directors ~~processing~~regularly ~~staff,~~evaluate ~~inventory,~~its adequacy by considering a number ~~wire~~of ~~transfer~~factors, ~~telephone~~including, among other things, current loan grades and ~~courier~~delinquency ~~staff.~~trends, ~~All~~historical loss rates, changes in the composition of the ~~Bank’s~~loan ~~centralized functions~~portfolio, ~~i.e.~~overall portfolio quality, ~~management~~industry concentrations, ~~proof~~and current economic factors and ~~data~~the ~~information,~~effect ~~loan~~of ~~documentation,~~those factors on a borrower’s ~~loan~~repayment ~~administration,~~ability. ~~cash~~The ~~services,~~use ~~mail~~of ~~services,~~different ~~accounting~~estimates ~~and~~or ~~human~~assumptions could produce different provisions ~~resources~~for credit losses. In addition, ~~occur~~the inallowance ~~this~~for ~~building.~~credit ~~The~~losses ~~Bank~~is ~~owns~~also ~~this~~subject ~~building~~to regulatory supervision and examination.

~~The~~Securities ~~Bank~~Available ~~operates~~for ~~ten~~Sale. ~~(10) branches,~~Securities ofavailable ~~which~~for ~~five~~sale ~~(5) are~~consist ~~owned~~of ~~and~~debt ~~five~~securities ~~(5)~~that the ~~are~~Bank ~~leased.~~intends ~~These~~to ~~buildings~~hold ~~range~~for inan ~~size~~indefinite ~~from 2~~period,~~500~~ ~~square~~but ~~feet~~not necessarily to maturity. Such securities ~~approximately~~may ~~30,000~~be ~~square~~sold ~~feet.~~to ~~Their~~implement ~~primary~~the ~~function~~Bank’s asset/liability management strategies and ~~use~~in isresponse to ~~provide~~ ~~banking~~changes ~~service~~in tointerest ~~the~~rates ~~Bank’s~~and ~~customers~~similar factors. ~~The~~Securities ~~Bank~~available ~~has~~for asale ~~lease~~are onreported ~~the~~at ~~land on~~fair ~~which~~value. Unrealized gains and losses, net of the ~~West~~related ~~Albany~~deferred ~~branch~~tax iseffect, ~~located.~~are ~~The~~reported ~~aggregate~~as ~~monthly~~a ~~rental~~net amount in a separate component of shareholders’ equity entitled “accumulated other comprehensive ~~leased~~income ~~buildings~~(loss).” Realized gains and ~~land~~losses ison ~~$12~~securities available for sale,~~566~~ determined using the specific identification method, are included in earnings. ~~The~~Amortization ~~following~~of ~~sets~~premiums ~~forth~~and ~~certain~~accretion ~~information~~of ~~regarding~~discounts are recognized in interest income over the ~~Bank’s~~period ~~branch~~to ~~facilities~~maturity.

Main Office 275 SW Third Street Corvallis, Oregon	Junction City Office 955 Ivy Street Junction City, Oregon	East Albany Office 2315 14th Ave. SE Albany, Oregon
Circle Office(1) 978 NW Circle Blvd. Corvallis, Oregon	Philomath Office 1224 Main Street Philomath, Oregon	West Albany Office(4) 2230 Pacific Blvd. SE Albany, Oregon
University Office(2) 855 NW Kings Blvd. Corvallis, Oregon	Veneta Office(3) 88312 Territorial Road Veneta, Oregon	McMinnville Office 455 NE Baker Street McMinnville, Oregon
Harrisburg Office(5) 230 North 3rd Street Harrisburg, Oregon

Income Taxes. Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities, and are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Stock-Based Compensation

At December 31, 2006, the Company had a qualified incentive stock option plan. Prior to January 1, 2006, we accounted for this plan under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and other related interpretations as permitted by Statement of Financial Accounting Standards No.123, Accounting for Stock-Based Compensation (“Statement No. 123”). No stock-based compensation cost related to our employees was recognized in the consolidated statements of earnings for any period ending prior to January 1, 2006, as all options granted to our employees had exercise prices equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“Statement No. 123R”), using the modified prospective transition method. Compensation cost recognized during 2006 included cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of Statement No. 123. Results for prior periods have not been restated. There were no stock options granted during the periods ended December 31, 2006 and 2005.

Under the fair value recognition provisions of Statement No. 123R, stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite vesting period of the award. Consistent with the valuation method the Company used for disclosure-only purposes under provisions of Statement No. 123, the Company will use the Black-Scholes option pricing model for any future grants to estimate fair value under Statement No. 123R. The Black-Scholes model requires the use of employee exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, dividend yield, weighted average risk-free interest rate and weighted average expected life of the options. Compensation cost is recognized on a straight—line basis over the requisite vesting period.

Results of Operations for Years Ended December 31, 2006, 2005, and 2004.

Net Income. For the three years ended December 31, 2006, 2005, and 2004 the Company’s net income was $5.459 million, $5.327 million, and $4.352 million, respectively. 2006 net income increased $132 thousand or 2.5% as compared to 2005, which increased $975 thousand or 22.4% over 2004. The Company’s increased net income in 2006 resulted primarily from an increase in interest income on loans and investments.

	(1)		Premises leased under an original lease agreement dated May 1, 1970 and a supplemental lease agreement dated August 16, 1994. The lease expires January 1, 2020.
	(2)		Premises leased under a lease agreement dated August 1, 1998. The lease expires July 31, 2003.
	(3)		Premises leased under a supplemental lease agreement dated October 30, 1998. The lease expires on December 31, 2003 which the right to renew for two additional periods of five years each.
	(4)		Ground lease under ground lease agreement dated May 29, 1998. The lease expires in year 2048.
	(5)		Premises leased under a lease agreement dated May 4, 2001. The lease expires May 4, 2006, with the right to renew for two additional periods of five years each.

The Company’s increase in loan interest income for the period ending December 31, 2006 was primarily the result of increased loan rates as compared to the same period in 2005. Interest income on loans increased for the period ending on December 31, 2005 compared to the same period in 2004 primarily as a result of volume increases in the loan portfolio. Loan totals increased $19.7 million or 8.5% for the period ending December 31, 2006 as compared to the same period in 2005 which increased $19.6 million or 9.1% over 2004. The average rate earned on loans for 2006, 2005, and 2004 was 7.7%, 7.2%, and 6.8%, respectively. Management believes that the customer relationships developed by its experienced loan officers and increased market penetration contributed to the increase in loan volumes in 2006 and 2005.

OnThe ~~September 27,~~2006 ~~2000~~increase ~~Citizens~~in ~~Bank purchased~~ the ~~land~~investment ~~and~~portfolio ~~building~~income ~~located next to its Main Branch parking lot. The building, in poor condition,~~ was ~~demolished.~~ Atdue ~~this time, the Bank intends~~ to ~~use~~higher ~~the~~rates ~~land~~on assecurities ~~additional~~which ~~parking~~offset ~~for its customers. The Main Branch has grown its customer base substantially since~~ the ~~building~~lower ~~was~~volume ~~constructed~~of insecurities ~~1977~~as ~~with~~compared ~~no space~~ to ~~accommodate~~ the ~~need~~same ~~for~~period ~~additional~~in ~~parking~~2005. ~~The~~Maturing ~~improvements~~bonds ~~for the~~were ~~additional~~deployed ~~parking,~~to ~~which~~fund ~~added~~loan 10growth ~~new~~which ~~spaces,~~produced ~~were~~higher ~~completed in June 2001~~returns.

OnThe ~~July 31,~~increase ~~2001,~~in ~~the~~average ~~Bank~~earning ~~opened~~assets ~~its tenth full service branch~~ in ~~Harrisburg, Oregon.~~2006 ~~The branch~~ is ~~located~~primarily reflected in aincreases ~~leased facility~~ in ~~the~~loan ~~newly constructed~~volumes. ~~Harrisburg~~Average ~~Plaza.~~yields ~~The~~on ~~Bank~~earning ~~anticipates~~assets ~~the~~for ~~branch~~2006, ~~will~~2005, ~~support the borrowing~~ and ~~deposit~~2004 ~~needs~~were of7.0%, ~~the~~6.1%, ~~Community in the areas of business~~ and ~~agriculture~~5.3%, respectively.

~~ITEM~~Interest Income. Interest income totaled $21.5 million for the year ended December 31, 2006, a 16.7% increase from the $18.5 million for 2005, which was a 20.4% decrease from the $15.3 million for 2004. ~~LEGAL~~The ~~PROCEEDINGS~~increase for the period ending December 31, 2006 as compared to the same period in 2005 was primarily a result of increased rates on loans and securities. The increase in interest income for the period ending December 31, 2005 as compared to the same period in 2004 was primarily due to volume increases in the loan portfolio. The increase in interest income on securities for the period ending December 31, 2006 as compared to 2005 was a result of the repricing of re-invested maturing securities into higher yielding bonds. The decrease of interest income on securities for the period ending December 31, 2005 compared to the same period in 2004 was a result of decreased rates on securities.

AsInterest ofExpense. Interest expense for the ~~date~~year ofended ~~filing~~December 31, ~~this~~2006 ~~Form~~was $5.1 ~~10K~~million, ~~neither~~a 68.6% increase from the ~~Company~~$3.0 million ~~nor~~expense ~~its~~for ~~subsidiary were~~2005, which was a ~~party~~81.0% todecrease ~~any~~over ~~material~~the ~~legal~~$1.7 million expense ~~proceedings~~for 2004. ~~Further,~~The ~~management~~increase isin ~~not aware~~interest ofexpense ~~any~~in ~~threatened~~2006 orresulted ~~pending~~primarily ~~lawsuits~~from orhigher ~~other~~interest rates ~~proceedings~~paid ~~against~~on ~~the Company~~deposits oras ~~its~~compared ~~subsidiary~~to ~~which,~~the ifsame ~~determined~~period ~~adversely,~~in ~~would~~2005 ~~have~~and a2004. ~~material~~The Company increased the ~~effect~~rates it paid on ~~the~~deposits ~~business~~in or2006 ~~financial~~as ~~position~~a result of ~~either~~increasing ofmarket ~~them~~rates. The Company orhas a very ~~the~~low ~~Bank~~cost ~~may~~of ~~from~~funds ~~time~~as compared to ~~time~~peer ~~become~~banks. aThe ~~party~~overall tocost ~~litigation~~of infunds, ~~the~~including ~~ordinary~~non-interest ~~course~~bearing ofdemand ~~business~~deposits, ~~such~~for asthe ~~debt~~years ~~collection~~ending ~~litigation~~2006, or2005, ~~through~~and an2004 ~~appearance~~was 1.7%, 1.0%, and .7% asrespectively. aManagement ~~creditor~~believes inits arelationship ~~bankruptcy~~style ~~case~~of banking and outstanding customer service contributes to its low funding cost.

~~ITEM~~Net Interest Income. Net interest income for the years 2006, 2005, and 2004 was $16.5 million, $15.5 million, and $13.7 million, respectively. Additionally, for the same periods beginning with 2006, net interest margins, on a tax equivalent basis, were 5.4%, 5.1%, ~~SUBMISSION~~and OF4.7%, ~~MATTERS~~respectively. TONet interest Aincome ~~VOTE~~increased OFfor ~~SECURITY~~the ~~HOLDERS~~period ending December 31, 2006 as compared to the same period in 2005 primarily due to rate increases on loans and securities that exceeded the interest expense increase in deposits from both rate and volume increases. Net interest income increased for the period ending December 31, 2005 as compared to the same period in 2004 primarily due to volume increases on both loans and securities that exceeded the interest expense increase in deposits from both rate and volume increases.

During the fourth quarter of the year ended December 31, 2001, no matters were submitted to the Company’s security holders through the solicitation of proxies or otherwise.

~~PART~~The IIfollowing table sets forth, for the periods indicated, interest income and interest expense with the resulting average yield or rate by category of average earning assets and average interest bearing liabilities.

~~ITEM~~Average 5.Balances ~~MARKET~~and ~~FOR~~Tax-Equivalent ~~REGISTRANT’S~~Net ~~COMMON~~Interest ~~EQUITY AND RELATED STOCKHOLDER MATTERS~~Margin

There is no established market for the Company’s common stock, and the stock is not listed on and does not trade on or through any exchange or quotation system. There is no expectation that an established market will develop for the Company’s common stock. As the transfer agent for the Company’s common stock, Citizens Bank keeps an informal record of persons expressing an interest in buying or selling the Company’s common stock and introduces prospective buyers and sellers. Citizens Bank also keeps some informal records of prices paid and received for the Company’s common stock by certain persons. Neither the Company nor Citizens Bank does or will recommend prices for the Company’s common stock.


Year Ended December 31,	2006									2005									2004
	Average			Int. Income			Avg. Rate			Average			Int. Income			Avg. Rate			Average			Int. Income			Avg. Rate
(In thousands)	Balance			(Expense)			Earned/ Paid			Balance			(Expense)			Earned/ Paid			Balance			(Expense)			Earned/ Paid
ASSETS
Loans (1)(2)(4)	$	244,835		$	18,838			7.69	%	$	230,196		$	16,565			7.20	%	$	194,168		$	13,142			6.77	%
Investment securities: (3)
Taxable		52,073			2,252			4.32	%		65,671			1,622			2.47	%		81,561			1,665			2.02	%
Tax-exempt (1)(5)		6,735			428			6.36	%		9,067			539			5.94	%		11,890			643			5.41	%
Total Investment Securities		58,808			2,680			4.56	%		74,738			2,161			2.89	%		93,451			2,308			2.45	%
Interest bearing deposits in banks, federal funds sold and other investments		7,067			313			4.43	%		3,726			79			2.12	%		7,677			117			1.52	%
Total earning assets		310,710			21,831			7.03	%		308,660			18,805			6.09	%		295,296			15,567			5.27	%
Cash and due from banks		14,636									14,918									21,095
Premises and equipment — net		8,505									7,416									7,765
Other assets		9,353									8,508									8,429
Allowance for credit losses		(2,823	)								(2,753	)								(2,792	)
Total	$	340,381								$	336,749								$	329,793
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Savings, MMDA, NOW	$	162,517			(2,572	)		1.58	%	$	157,243			(1,232	)		0.78	%	$	145,867			(387	)		0.27	%
Time		38,641			(1,314	)		3.40	%		38,630			(779	)		2.02	%		45,606			(577	)		1.27	%
Total interest- Bearing deposits		201,158			(3,886	)		1.93	%		195,873			(2,011	)		1.03	%		191,473			(964	)		0.50	%
Repurchase agreements		34,578			(1,048	)		3.03	%		40,947			(788	)		1.92	%		49,005			(684	)		1.40	%
Other borrowings		3,104			(155	)		4.98	%		5,835			(218	)		3.74	%		1,279			(19	)		1.49	%
Total interest-bearing liabilities		238,840			(5,089	)		2.13	%		242,655			(3,017	)		1.24	%		241,757			(1,667	)		0.69	%
Demand deposits		53,304									51,153									48,060
Other liabilities		1,899									1,649									1,238
Shareholders’ equity		46,338									41,292									38,738
Total	$	340,381								$	336,749								$	329,793
Net interest income (1)				$	16,742								$	15,788								$	13,900
Interest income as a % of avg. earning assets								7.03	%								6.09	%								5.27	%
Interest expense as a % of avg. earning assets								1.64	%								0.98	%								0.56	%
Net interest margin								5.39	%								5.12	%								4.70	%

The following table sets forth certain transaction prices per share for shares of the Company’s common stock for the periods shown. This information is based solely on prices and information reported to Citizens Bank by those persons whose transactions have come to its attention. The reported prices do not represent all transactions in the Company and Citizens Bank can give no assurances as to the accuracy of the reported prices or the completeness of this information.


(1)		Includes taxable equivalent adjustments related to income on securities and loans that are exempt from federal income taxes. The federal statutory rate was 34%.

(2)		For purposes of these calculations, nonaccrual loans are included in the average loan balance outstanding. Loan fees and late charges of $334, $322, and $373 are included in interest income for 2006, 2005 and 2004.

(3)		For purposes of computation of the average yield on investments available for sale, historical cost balances were utilized, therefore the yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity.

(4)		The non-tax effected average rate for loans for the periods ending December 31, 2006, 2005, and 2004 were 7.63%, 7.13% and 6.75%, respectively.

(5)		The non-tax effected average rate for tax-exempt securities for the periods ending December 31, 2006, 2005, and 2004 were 4.20%, 3.92%, and 3.61% respectively.

	High		Low
1997	$	15.00	$	9.00
1998	$	15.00	$	14.50
1999	$	17.50	$	12.90
2000	$	14.44	$	10.00
2001	$	14.50	$	9.75

Per share information for the current and prior periods reflect the effect of the stock dividends and stock splits.

	High		Low
2000
First quarter	$	14.44	$	12.00
Second quarter	$	12.95	$	10.00
Third quarter	$	11.45	$	10.00
Fourth quarter	$	12.00	$	11.37
2001
First quarter	$	11.90	$	10.50
Second quarter	$	11.25	$	10.00
Third quarter	$	11.40	$	9.75
Fourth quarter	$	14.50	$	11.70

~~Citizens~~The ~~Bank/Bancorp,~~following ~~Common~~table ~~Equity~~sets ~~Holding. As of December 31~~forth, ~~2001,~~on ~~there were~~a ~~4,105,308~~tax-equivalent ~~shares outstanding~~basis, ~~held~~a bysummary ~~917 shareholders~~ of ~~record.~~the Aschanges ofin net ~~March 7,~~interest ~~2002,~~income ~~there~~resulting ~~were~~from ~~941~~changes ~~holders~~in ofvolumes ~~Citizens Bancorp~~ and ~~4,161,459 shares outstanding~~rates. ~~Since~~Changes ~~December 31,~~not ~~2001,~~due ~~61,589~~solely ~~shares~~to ~~were~~volume ~~issued under the~~or ~~Dividend~~rate ~~Reinvestment~~changes ~~Plan,~~are 45allocated ~~shares~~to ~~issued~~volume ~~for~~and ~~exercised~~rate ~~stock~~in ~~options~~proportion ~~and 5,483~~to ~~shares~~the ~~were~~relationship ~~redeemed~~of bythe ~~Bancorp~~absolute dollar ~~under~~amounts of the ~~stock~~change ~~repurchase~~in ~~program~~each.

Holders are determined on the basis of ownership. Each entity that owns one or more shares is determined to be a holder. Holders can be individuals, partnerships, corporations, trusts, or any entity that can legally hold assets in the State of Oregon. Two or more individuals together can also be a holder, such as a husband and wife or a parent and child.


	2006 versus 2005								2005 versus 2004
	Increase (decrease)								Increase (decrease)
	Due to change in								Due to change in
	Average			Average		Net			Average			Average			Net
(in thousands)	Volume			Rate		Change			Volume			Rate			Change
INTEREST INCOME
Loans	$	229		$	2,044	$	2,273		$	2,672		$	751		$	3,423
Investment securities		(392	)		911		519			377			(524	)		(147	)
Interest-bearing deposits in banks, Federal funds sold, and other investments		(289	)		523		234			(74	)		36			(38	)
Total interest income		(452	)		3,478		3,026			2,975			263			3,238
INTEREST EXPENSE
NOW, MMDA & Savings deposits		40			1,300		1,340			28			817			845
Time deposits		—			535		535			(99	)		301			202
Repurchase agreements		(138	)		398		260			(125	)		229			104
Other borrowings		(224	)		161		(63	)		140			59			199
Total interest expense		(322	)		2,394		2,072			(56	)		1,406			1,350
Changes in net Interest income		($130	)	$	1,084	$	954		$	3,031			($1,143	)	$	1,888

The ~~Company~~following ~~has~~chart nofurther ~~formal~~reflects ~~dividend~~changes ~~policy.~~in ~~The~~average ~~amount~~balances ~~of any dividend is determined by the Bancorp Board of Directors~~ and ~~depends~~rates onfrom the ~~amount~~year ofended ~~profits generated and the growth objectives of the Company and the Bank~~December 31, ~~together~~ ~~with~~2005 ~~other~~to ~~factors considered by~~ the ~~Board~~year inended ~~its discretion. Under Oregon law certain restrictions on the payment of dividends apply. Under these restrictions~~December 31, ~~a bank or holding company may not declare or pay any dividend in an amount greater than its retained earnings~~2006.

The following sets forth, for the calendar years shown, the cash and stock dividends per share of common stock declared by Citizens Bancorp.


Increase (Decrease) In Average Balance:			Increase (Decrease) In Average Rate:
Loans	6.36	%	Loans	6.92	%
Investments	(21.31	%)	Investments	57.61	%
Fed funds sold and deposits in banks	89.67	%	Fed funds sold and deposits in banks	108.89	%
Total Earning Assets	0.66	%	Total Earning Assets	15.33	%
NOW, MMDA, Savings	3.35	%	NOW, MMDA, Savings	101.99	%
Time	0.03	%	Time	68.63	%
Repurchase Agreements	(15.55	%)	Repurchase Agreements	57.49	%
Other Borrowings	(46.80	%)	Other Borrowings	33.66	%
Total Int Bear Liabilities	(1.57	%)	Total Int Bear Liabilities	71.37	%

	Cash Dividend		Stock Dividend			Stock Split
1997	$	.32		5	%		—
1998	$	.34		—		2 for 1 stocksplit
1999	$	.36		5	%		—
2000	$	.36		—			—
2001	$	.37		—			—

The following chart further reflects changes in average balances and rates from the year ended December 31, 2004 to the year ended December 31, 2005.

Per share information for prior periods reflect the effects of the stock split and stock dividends.


Increase (Decrease) In Average Balance:			Increase (Decrease) In Average Rate:
Loans	18.56	%	Loans	6.32	%
Investments	(20.02	%)	Investments	17.07	%
Fed funds sold and deposits in banks	(51.47	%)	Fed funds sold and deposits in banks	39.12	%
Total Earning Assets	4.53	%	Total Earning Assets	15.57	%
NOW, MMDA, Savings	7.80	%	NOW, MMDA, Savings	195.31	%
Time	(15.30	%)	Time	59.39	%
Repurchase Agreements	(16.44	%)	Repurchase Agreements	37.88	%
Other Borrowings	356.22	%	Other Borrowings	151.50	%
Total Int Bear Liabilities	0.37	%	Total Int Bear Liabilities	80.31	%

~~ITEM~~Net 6Interest Income After Provision For Credit Losses. ~~SELECTED~~Net ~~FINANCIAL~~interest ~~DATA~~income after the provision for credit losses was $16.3 million at December 31, 2006, $15.3 million at December 31, 2005, and $13.5 million at December 31, 2004. Total provision for credit losses for the three years ending December 31, 2006 was $145,000, $155,000, and $142,000, respectively. The Company decreased the 2006 provision for credit losses based on its analysis of probable losses in the loan portfolio derived from the loan grading system and the loss analysis of impaired loans in 2006. Charge-offs of $24,000, $202,000, and $117,000 were realized in 2006, 2005, and 2004, respectively. Recoveries were $4,000, $7,000, and $0 during the same periods. Historically, the Company’s loan charge-off levels have been very low compared to its peers. Management will continue to monitor and analyze charge-off levels closely. Management’s assessment of the allowance for credit losses includes various factors such as delinquent and non-performing loans, historical analysis of credit loss experience, knowledge of the present and anticipated economic future of its market areas, and loan grades. Management believes the high quality of the loan portfolio reflects the Bank’s strong internal controls, excellent loan policy standards, experienced loan officers and conservative underwriting practices. Management believes the allowance for credit losses at December 31, 2006 of $2.9 million is adequate. The allowance for credit losses to total loans at December 31, 2006, 2005, and 2004 respectively was 1.14%, 1.18%, and 1.31%.

Non-Interest Income. Non-interest income was $2.5 million for the year ended December 31, 2006, a 36.3% decrease from $3.9 million in 2005, which was 12.2% lower than the $4.4 million in 2004. The decrease ~~following~~in ~~selected~~non-interest ~~financial~~income ~~data~~for ~~should~~the beperiod ~~read~~ending December 31, 2006 was due primarily to a decrease in ~~conjunction~~service ~~with~~charge and Bankcard income compared to the same periods in 2005 and 2004. The decrease in service charge income was primarily a result of the increase in the earnings credit on business accounts and a decrease in overdraft fees on deposit accounts as compared to the same periods in 2005 and 2004. As market rates have increased, the Company’s ~~consolidated~~has ~~financial~~increased ~~statements~~the earnings credit rate which offsets service charges on its business account product. Bankcard income decreased for the period ending December 31, 2006 as compared to the same periods in 2005 and ~~accompanying~~2004 as ~~notes~~the ~~presented~~Company transferred its merchant bankcard servicing rights in 2005 to Western States ~~herein~~Bankcard Association (which sold to Texas Independent Bank in 2006). Additionally, non-interest income for the period ended December 31, 2006 was lower as compared to the same periods in 2005 and 2004 as the Company had no gains on sales of assets in 2006 as compared to $92 thousand in 2005 and $291 thousand in 2004.

(In thousands, except share data)
							% increase
Year ended December 31,	2001			2000			(decrease)			1999			1998			1997
	2000 to 2001
EARNINGS
Total interest income	$	18,755		$	18,436			1.73	%	$	17,023		$	16,947		$	15,152
Total interest expense		5,674			6,241			(9.09	%)		6,046			5,917			5,286
Net interest income		13,081			12,195			7.27	%		10,977			11,030			9,866
Provision for credit losses		733			454			61.45	%		264			236			165
Net interest income after provision for credit losses		12,348			11,741			5.17	%		10,713			10,794			9,701
Total non-interest income		3,396			2,672			27.10	%		2,403			2,226			1,857
Total non-interest expense		9,181			8,587			6.92	%		8,079			7,153			6,194
Income before taxes		6,563			5,826			12.65	%		5,037			5,867			5,364
Income taxes		2,535			2,214			14.50	%		1,783			2,027			2,023
Net income	$	4,028		$	3,612			11.52	%	$	3,254		$	3,840		$	3,341
PER COMMON SHARE(1)
Net income	$	.97		$	.87			11.49	%	$	.79		$	.94		$	.83
Cash dividends		.37			.36			2.78	%		.36			.34			.32
Book value		7.19			6.54			9.94	%		5.90			5.53			4.81
PERIOD END BALANCES
Total assets	$	278,529		$	244,380			13.97	%	$	239,606		$	233,978		$	200,117
Net loans		171,196			158,920			8.50	%		139,123			130,707			120,269
Deposits		231,821			200,960			15.36	%		194,350			188,235			161,700
Repurchase agreements		14,580			12,651			15.25	%		13,425			16,299			14,086
Shareholders’ equity		29,524			27,063			9.09	%		24,342			22,585			19,411
PERFORMANCE RATIOS
Return on Average Assets		1.48	%		1.52	%					1.36	%		1.83	%		1.79	%
Return on Average Equity		13.76	%		13.75	%					13.22	%		17.64	%		17.53	%
Average Assets to Average Equity		10.74	%		11.03	%					10.29	%		10.36	%		10.21	%

Non-Interest Expense. Non-interest expenses consist primarily of employee salaries and benefits, occupancy, data processing, Bankcard services, office supplies, professional services and other non-interest expenses.

~~(1)~~Non-interest ~~Per~~expense ~~share~~was ~~amounts~~$10.4 million ~~and~~for the ~~average~~year ~~number~~ended ofDecember 31, ~~shares~~2006, ~~outstanding~~a ~~have~~decrease ~~been~~of ~~restated~~4.2% from ~~for~~$11.2 million ~~stock repurchase~~ in ~~2001~~2005, ~~stock~~which ~~dividends~~was a decrease of 5.4% or $.45 million in ~~1999~~2004. ~~and~~The 5%decreases infor the ~~1997~~periods ending December 31, 2006 as compared to the same periods in 2005 and 2004 were a ~~2-for-1~~result of ~~stock~~the ~~split~~decrease in ~~1998~~Bankcard expense as the Company transferred its merchant bankcard services to an outside vendor in 2005.

~~Selected~~At ~~Quarterly~~the ~~Financial~~end ~~Data~~of 2006, the Company employed 127 full time equivalent employees compared to 131 at the end of 2005 and 137 at the end of 2004. The increase in salary and employee benefits for the period ending 2006 as compared to 2005 and 2004 are the result of routine adjustments in employee salaries and benefits which was not offset by a lower number of full time equivalent employees in 2006 as compared to 2005 and 2004.

~~The~~Income ~~following~~Taxes. ~~table~~Income ~~sets~~tax ~~forth~~expense ~~the~~for ~~Company’s~~2006 ~~unaudited~~was ~~data~~$2.9 million ~~regarding operations~~or ~~for~~35.0% ~~each~~of ~~Quarter~~income ~~for~~before ~~2001~~taxes, ~~and~~2005 was ~~2000~~$2.7 million ~~This~~or ~~information,~~33.6% inof ~~the~~income ~~opinion of~~before ~~management~~taxes, ~~includes~~and ~~all~~2004 ~~normal~~was ~~recurring~~$2.4 million ~~adjustments~~or ~~necessary~~35.6% toof ~~state~~income ~~fairly~~before ~~the information set forth herein~~taxes.

Asset/Liability Management. The Company uses an asset/liability modeling system called ALX to estimate the degree of interest rate risk and market risk inherent in its mix of interest earning assets and interest bearing liabilities. The Company’s strategy is to keep a position that is very close to “balanced”. That is, the repricing of assets and liabilities would move much at the same rate. The Company’s profitability is dependent to a large extent on net interest income. The Company is slightly asset sensitive, meaning that if rates rise the Company’s net interest margin will increase, and if rates decline the margin will decrease.

Liquidity and Sources of Funds. The Company’s primary sources of funds for liquidity purposes are customer deposits, maturities of investment securities, sales of “available for sale” securities, loan repayments, short-term borrowings, advances on lines of credit from correspondent banks and from the Federal Home Loan Bank of Seattle, and the purchase of federal funds. The Company can anticipate the availability of funds from scheduled loan repayments, maturities of securities and from borrowed funds. Customer deposits and unscheduled payments of loans are influenced by the interest rate environment, the condition of the economy, competition, and other factors.

Deposits are a primary source of funds. At December 31, 2006, total deposits were $270.6 million, $254.1 million at December 31, 2005 and $235.5 million at December 31, 2004. The Company experienced a growth in demand deposits for the period ending December 31, 2006 of approximately $16.5 million or 6.5% as compared to the same period in 2005. Management believes the growth is a result of increasing penetration in its market areas due to a strong corporate culture of relationship banking.

The Company has securities sold under agreements to repurchase (REPOs) at December 31, 2006, 2005, and 2004 of $35.6 million, $36.6 million, and $55.4 million, respectively. REPOs represent an agreement between the Bank and a customer to collateralize funds deposited by the customer in an interest bearing repurchase sweep account. The Bank secures the REPO account with Government Agency Securities. In consideration of the funds deposited, the Bank transfers the security to the customer. The Bank agrees to repurchase the security on the next business day for the amount of the deposit plus simple interest on that amount calculated for one day at the rate established for REPO accounts as set by the Bank for that day. The funds provided by REPOs are considered borrowings, not deposits, and are not covered by FDIC insurance.

(In thousands, except share data)
2001 Quarters Ended,	Dec. 31		Sept. 30		June 30		March 31
EARNINGS
Total interest income	$	4,591	$	4,730	$	4,749	$	4,685
Total interest expense		1,097		1,408		1,528		1,641
Net interest income		3,494		3,322		3,221		3,044
Provision for credit losses		364		123		123		123
Net interest income after provision for credit losses		3,130		3,199		3,098		2,921
Total non-interest income		1,127		775		753		741
Total non-interest expense		2,365		2,286		2,292		2,238
Income before taxes		1,892		1,688		1,559		1,424
Income taxes		719		710		628		478
Net income	$	1,173	$	978	$	931	$	946
PER COMMON SHARE(1)
Basic	$	.28	$	.24	$	.22	$	.23
Diluted		.28		.24	$	.22		.23
Weighted average number of outstanding shares(1)		4,160,214		4,158,581		4,189,499		4,159,860

The following table is a summary of securities sold under repurchase agreement (REPO) for each of the last three years.

	2001 Quarters Ended,		Dec. 31			Sept. 30			June 30		March 31
		(Dollars in Thousands)
EARNINGS
		2006			2005			2004
Total interest income			$	4,796		$	4,743		$	4,473	$	4,424
Securities sold under agreement to repurchase:
Total interest expense				1,645			1,614			1,506		1,476
Average interest rate
Net interest income				3,151			3,129			2,967		2,948
At year end			2.4	%		2.1	%		1.7	%
Provision for credit losses				139			137			120		58
For the year			3.0	%		1.9	%		1.4	%
Net interest income after provision for credit losses				3,012			2,992			2,847		2,890
Average amount outstanding during the year		$	34,578		$	40,947		$	49,005
Total non-interest income				668			729			677		598
Maximum amount outstanding at any month end		$	37,023		$	56,015		$	55,446
Total non-interest expense				2,304			2,122			2,031		2,130
Amount outstanding at year end		$	35,586		$	36,590		$	55,446
Income before taxes				1,376			1,599			1,493		1,358
Income taxes				501			700			620		393
Net income			$	875		$	899		$	873	$	965
PER COMMON SHARE(1)
Basic			$	.21		$	.22		$	.21	$	.23
Diluted				.21			.22		$	.21		.23
Weighted average number of outstanding shares(1)				4,137,630			4,137,630			4,137,630		4,127,096

~~(1)~~Management ~~Adjusted~~anticipates tothat ~~reflect~~the ~~stock~~Company ~~repurchased~~will inrely ~~2001~~primarily on deposit growth, 2maturities ~~for~~of investment 1securities, ~~split~~sales inof ~~1998~~“available for sale securities,” and ~~stock~~loan ~~dividends~~repayments to meet its liquidity needs. Borrowings can be used to provide liquidity for short-term needs but it is the practice of 5%the inCompany ~~1999~~to attempt to fund long-term loans and 5%investments inwith ~~1997~~core deposits and earnings, not short-term borrowings. A limited amount of borrowings may be used on a long-term basis to fund lending activities and to match maturities or repricing intervals of assets.

The overall cost of funds, including non-interest demand deposits, was as follows for the years ended December 31:


COST OF FUNDS
2006	2005	2004
1.7%	1.0%	.7%

The average daily amount of deposits and rates paid on deposits is summarized for the periods indicated in the following table at December 31.


	2006					2005					2004
(In Thousands)	Amount $		Rate %			Amount $		Rate %			Amount $		Rate %
DEPOSITS
Demand	$	53,304		—		$	51,153		—		$	48,060		—
Interest-bearing demand	$	36,357		.66	%		36,683		.34	%		36,565		.16	%
Savings/MMDA	$	126,160		1.85	%		120,560		.92	%		109,302		.30	%
Time	$	38,641		3.40	%		38,630		2.02	%		45,606		1.27	%
Total	$	254,462				$	247,026				$	239,533

The following table indicates the amount of the Bank’s certificates of deposits with balances equal to or greater than $100,000 classified by time remaining until maturity as of December 31, 2006.


Maturity Period	Certificates of Deposit
(In Thousands)
3 months or less	$	5,975
3 months through 6 months		4,960
6 months through 12 months		3,710
Over 12 months		1,388
TOTAL	$	16,033

~~ITEM~~Contractual ~~7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Obligations

~~Results~~The offollowing ~~Operations~~table ~~for~~sets ~~Years~~forth ~~Ended~~the Company’s contractual obligations at December 31, ~~2001, 2000, and 1999~~2006.

Net Income. For the three years ended December 31, 2001, the Company’s net income was $4.028 million, $3.612 million, and $3.254 million, respectively. 2001 net income increased $.416 million or 11.5% as compared to 2000, which increased $.358 million or 11.0% over 1999. The Company’s increased net income in 2001 is primarily due to a decrease in interest expense, an increase in non-interest income and an increase in income from loans. The decrease in interest expense was directly related to the drastic reduction in interest rates by the Federal Reserve Bank over the last year. The increase in non-interest income was the result of fee income from increased production by the Bank’s mortgage department, an increase in service charges on deposit accounts associated with the growth in the number of customer relationships in 2001 and gain on the sale of available for sale securities. The increase in interest income was primarily a result of volume increases in the loan portfolio and interest on deposits in banks due to volume increases.


			Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating Leases (1-6)	$	1,717	$	140	$	204	$	152	$	1,221
Certificates of Deposit	$	40,516	$	34,323	$	5,162	$	1,031		—
Short-term Borrowings	$	37,489	$	37,489		—		—		—

~~The~~Operating ~~average rate on loans for 2001, 2000, and 1999 was 9.0%, 9.6%, and 9.3%,~~Leases respectively. The net decrease in the average loan yield was due to the reduction of market rates in 2001. Management believes that the customer relationships developed by its experienced loan officers contributed to the increase in loan volumes in 2001.

The decrease in the investment portfolio income was due to sales of securities to obtain a better yield/maturity mix and reinvestment of maturing securities in lower yielding securities as a result of the lower rate environment.

(1)		Mennonite Home, satellite office of the East Albany Branch. This limited facility is open to the large retirement/assisted living center for two hours Monday through Friday. Lease renewed on March 1, 2004 for $396 per month. Lease is renewable every three years.

(2)		Circle Branch building lease commenced August 16, 1994 and expires January 31, 2020. Current monthly lease is $3,196. Lease agreement has annual rent adjusted based on the United States Bureau of Labor Statistics Consumer Price Index.

(3)		West Albany Branch land lease dated May 29, 1998 for a term of fifty years. On each fifth annual anniversary date of the lease, rent is adjusted based on any increase in the Consumer Price Index. At no time will the rent decrease from the initial stated rent of $1,850 per month. Current monthly lease in $2,092.

(4)		Harrisburg Branch building lease commenced May 4, 2001 for a five-year term with the option to renew for two five-year terms. The lease was renewed for another 5 year term on May 4, 2006. The monthly lease is $1,050.

(5)		Springfield Branch building lease dated June 1, 2003 for a term of five years, expiring May 31, 2008. Monthly lease is $3,730 per month.

(6)		Building leased for storage purposes. Lease commenced on February 1, 2004 and expires on July 31, 2010 with an option to renew for two additional terms of five years. The rent will increase annually based upon the Consumer Price Index. The current monthly lease is $1,539.

~~Increases~~Capital inResources. ~~loan~~The ~~volumes~~Company ~~were~~is ~~the~~subject ~~primary~~to ~~reason~~various ~~for~~capital requirements administered by the federal ~~increase~~banking inagencies. ~~average~~Failure to meet minimum capital requirements can initiate certain ~~earning~~mandatory ~~assets~~and inpossibly ~~2001.~~additional ~~Average~~discretionary ~~yields~~actions onby ~~earning~~regulators ~~assets~~that ~~for~~if ~~2001~~undertaken, ~~2000~~could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines that involve quantitative measures of the Company’s assets, and certain ~~1999~~off-balance-sheet ~~were~~items ~~7.9%~~as calculated under regulatory accounting practices, ~~8.5%~~the Company’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and ~~7.9%,~~other ~~respectively~~factors.

~~Interest~~As ~~Income.~~of ~~Interest income totaled $18.8 million for the year ended~~ December 31, ~~2001~~2006, athe ~~1.7%~~most ~~increase~~recent ~~over~~notification from the ~~$18.4 million~~Bank’s ~~for 2000~~regulator, ~~which~~categorized ~~was~~the anBank ~~8.3%~~as ~~increase~~well-capitalized ~~over~~under the ~~$17.0 million~~applicable ~~for 1999~~regulations. ~~The~~To ~~2001~~be ~~increase~~categorized ~~was~~as “well ~~primarily~~capitalized”, ~~due~~the toCompany ~~increased~~must ~~loan~~maintain ~~volume,~~at ~~which~~least ~~offset~~10% ~~the~~total ~~impact~~risk ofbased ~~rate decreases~~capital, ~~during~~6% ~~the~~Tier ~~year,~~1 risk based capital and an5% ~~increase~~Tier in1 ~~balances~~leverage incapital. ~~interest~~There ~~bearing accounts~~are inno ~~banks.~~conditions ~~The~~or ~~increase~~events insince ~~2000~~that ~~was~~notification that ~~primarily~~management ~~due~~believes tohave ~~increased~~changed ~~loan volumes~~its category rating.

~~Interest~~Shareholders’ ~~Expense.~~equity ~~Interest~~increased ~~expense~~to ~~for~~$46.5 million ~~the~~at ~~year ended~~ December 31, ~~2001~~2006, ~~was~~from $42.3 million in 2005 and $38.4 million in 2004. The increase reflects net income of $5.75 million, aother ~~9.1%~~comprehensive income ~~decrease~~of ~~over~~$141 ~~the~~thousand, $61.21 million ~~expense~~from ~~for~~the ~~2000~~dividend reinvestment plan, ~~which~~$243 ~~was~~thousand in stock aoptions 3.exercised, $2% ~~increase~~thousand ~~over~~in ~~the~~stock grants, $~~6.0 million~~14 ~~expense~~thousand for ~~1999.~~the ~~The~~tax ~~2001~~benefit ~~decrease~~of ~~was~~disqualifying ~~due~~disposition toof ~~deposit~~stock ~~rate~~options, ~~decreases~~and ~~which~~$56 thousand from stock based compensation recognized in earnings. These increases were primarily offset ~~the~~by ~~increase~~a ~~resulting~~cash ~~from~~dividend ~~higher~~declared of $2.5 million and ~~levels~~stock repurchases of ~~deposits~~$353 thousand. The Company’s average shareholders’ equity, ~~while~~as ina ~~2000~~percentage of average assets, ~~deposit~~was ~~volumes~~13.6% ~~and~~for ~~overall~~the ~~rates~~year ~~remained constant~~ended December 31, ~~while~~2006, in12.3% ~~1999~~for ~~volumes~~the ~~were~~year upended December 31, 2005, and ~~rates~~11.8% ~~were~~for ~~down~~the year ended December 31, 2004.

~~Net~~As ~~Interest Income. Net~~ interest ~~income~~rates ~~for~~change, the ~~years~~value ~~2001,~~of ~~2000,~~the ~~and~~Bank’s ~~1999 was~~“available ~~$13.1 million,~~for ~~$12.2 million,~~sale” ~~and~~investment ~~$11.0 million~~portfolio, ~~respectively.~~which ~~Additionally,~~is ~~for~~reported ~~the~~at ~~same~~fair ~~periods beginning with 2001~~value, ~~net~~may ~~interest~~be ~~margins, on~~positively aor ~~tax~~negatively ~~equivalent~~impacted ~~basis,~~and ~~were~~therefore ~~5.5%,~~may ~~5.6%,~~cause ~~and~~an increase ~~5.1%,~~or ~~respectively.~~a ~~The decrease~~reduction in ~~the~~reported ~~net~~shareholders’ ~~interest~~equity. ~~margin~~Equity ~~from~~grew ~~2000~~at to10.0% ~~2001~~over ~~was primarily due to~~ the period ~~reduced~~between ~~average~~December 31, ~~rates~~2005 ~~earned on loans~~ and ~~investment~~December 31, ~~securities~~2006, ~~which~~while ~~had~~assets ~~a greater~~grew ~~impact~~by ~~than the reduced cost of deposits~~5.9% ~~The~~over ~~increase~~the insame ~~net interest~~period. ~~margin from 1999 to 2000 was~~

At December 31, 2006, the Company had no material commitments for capital expenditures that would negatively impact the Company’s capital position.

~~primarily~~The ~~due~~following totable indicates the ~~increased~~Company’s ~~average~~capital ~~interest~~adequacy ~~rate~~position onat ~~loans~~December 31, 2006 and ~~the~~at ~~increased~~December 31, ~~percentage~~2005 ofand ~~average~~compares ~~earning~~those ~~assets~~positions ~~represented~~to bycapital ~~loans~~adequacy ~~(68% versus 62%)~~requirements.

The following table sets forth, for the periods indicated, interest income and interest expense with the resulting average yield or rate by category of average earning assets and average interest bearing liabilities.


											To be Well Capitalized
						Capital					Under Prompt
						Adequacy					Corrective Action
	Actual					Purposes					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2006
Tier 1 capital (to average assets):
Bank		46,527		13.17	%		14,129		4.00	%	$	17,661		5.00	%
Tier 1 capital (to risk-weighted assets):
Bank		46,527		15.67			11,876		4.00			17,814		6.00
Total capital (to risk-weighted assets):
Bank		49,420		16.64			23,751		8.00			26,689		10.00
December 31, 2005
Tier 1 capital (to average assets):
Company	$	42,494		12.39	%	$	13,723		4.00	%		N/A		N/A
Bank		42,329		12.37			13,689		4.00		$	17,111		5.00	%
Tier 1 capital (to risk-weighted assets):
Company		42,494		15.57			10,914		4.00			N/A		N/A
Bank		42,329		15.56			10,882		4.00			15,984		6.00
Total capital (to risk-weighted assets):
Company		45,244		16.58			21,828		8.00			N/A		N/A
Bank		45,079		16.57			21,764		8.00			26,460		10.00

Average Balances and Tax-Equivalent Net Interest Margin
Year Ended December 31,			2001									2000									1999
									Avg. Rate									Avg. Rate									Avg. Rate
			Average			Int. Income			Earned/			Average			Int. Income			Earned/			Average			Int. Income			Earned/
(In thousands)			Balance			(Expense)			Paid			Balance			(Expense)			Paid			Balance			(Expense)			Paid
ASSETS
Loans(2)			$	167,842		$	15,075			8.98	%	$	151,164		$	14,470			9.57	%	$	135,032		$	12,614			9.34	%
Investment securities:
		Taxable		51,447			2,777			5.40	%		57,490			3,333			5.80	%		58,142			3,191			5.49	%
		Tax-exempt(1)		9,013			600			6.66	%		8,418			571			6.78	%		8,986			533			5.93	%
		Total Investment Securities		60,460			3,377			5.59	%		65,908			3,904			5.92	%		67,128			3,724			5.55	%
Interest bearing deposits in banks and federal funds sold				12,520			507			4.05	%		3,393			256			7.54	%		15,820			866			5.47	%
Total earning assets				240,822			18,959			7.87	%		220,465			18,630			8.45	%		217,980			17,204			7.87	%
Cash and due from banks				23,302									6,608									12,388
Premises and equipment - net				5,396									5,197									4,689
Other assets				4,761									7,185									5,707
Allowance for credit losses				(1,751	)								(1,302	)								(1,417	)
Total			$	272,530								$	238,153								$	239,377
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
	Savings, MMDA, NOW		$	108,234			(1,472	)		1.36	%	$	102,738			(2,163	)		2.11	%	$	92,835			(2,336	)		2.52	%
	Time			72,837			(3,712	)		5.10	%		62,103			(3,401	)		5.48	%		63,730			(2,865	)		4.50	%
		Total interest- Bearing deposits		181,071			(5,184	)		2.86	%		168,841			(5,564	)		3.30	%		156,565			(5,201	)		3.32	%
Repurchase agreements				16,002			(449	)		2.81	%		14,163			(527	)		3.72	%		15,935			(505	)		3.17	%
Other borrowings				1,170			(41	)		3.50	%		2,244			(150	)		6.73	%		5,603			(340	)		6.07	%
Total interest-bearing liabilities				198,243			(5,674	)		2.86	%		181,248			(6,241	)		3.44	%		178,103			(6,046	)		3.39	%
Demand deposits				32,062									29,264									33,565
Other liabilities				12,944									1,377									3,088
Shareholders’ equity				29,281									26,264									24,621
Total			$	272,530								$	238,153								$	239,377
Net interest income(1)						$	13,285								$	12,389								$	11,158
Interest income as a % of avg. earning assets										7.87	%								8.45	%								7.89	%
Interest expense as a % of avg. earning assets										2.36	%								2.83	%								2.77	%
Net interest margin										5.52	%								5.62	%								5.12	%

As of February 2006, the Federal Reserve Bank amended its rules relative to capital requirements for bank holding companies under $500 million in total assets. As a result, there are no longer regulatory capital requirements for the Company; therefore, the capital ratios are no longer reported.

(1)		Includes taxable equivalent adjustments related to income on securities that is exempt form federal income taxes. The federal statutory rate was 34%
(2)		For purposes of these calculations, nonaccrual loans are included in the average loan balance outstanding. Loan fees and late charges of $567, $423, and $486 are included in interest income for 2001, 2000 and 1999.

INVESTMENT PORTFOLIO

Investment Activities. The investment policy of the Company is established and monitored by the Board of Directors. The investment portfolio is structured to follow the guidelines contained within the policy which is designed to provide and maintain liquidity, generate a favorable return without incurring undo interest rate and credit risk and to complement the Bank’s lending activities. Certain securities are used to collateralize public fund deposits, Treasury Tax and loan deposits, and REPO deposit accounts. The policy establishes the guidelines for classifying securities as either held to maturity or available for sale. The policy permits investments in various types of liquid assets permissible under applicable regulation. These assets include U.S. Treasury obligations, securities of various federal agencies, certificates of deposits at FDIC insured banks, Federal Home Loan Bank (FHLB) certificates of deposits, federal funds, U.S. Agency mortgage backed securities, and bank qualified general obligation or revenue bonds issued from the State of Oregon or Washington.

At December 31, 2006, the Company’s portfolio totaled $51.7 million, primarily consisting of $46.2 million in U.S. agency securities available for sale and $5.5 million in state and municipal bonds held to maturity. The investment portfolio decreased $20.1 million or 28% from 2005, as the Company funded loan growth with called and matured investments. The composition of the portfolio at each respective date is presented in the following tables.

The following table sets forth, on a tax-equivalent basis, a summary of the changes in net interest income resulting from changes in volumes and rates. Changes not due solely to volume or rate changes are allocated to volume and rate in proportion to the relationship of the absolute dollar amounts of the change in each.


	At December 31,
	2006					2005					2004
	Carrying		Percent of			Carrying		Percent of			Carrying		Percent of
	Value		Total			Value		Total			Value		Total
	(Dollars in thousands)
Held-to-Maturity:
State and municipal securities	$	5,462		10.57	%	$	7,871		10.97	%	$	9,956		12.31	%
Available-for-Sale:
U.S. Government agency securities	$	46,204		89.43	%	$	63,863		89.03	%	$	70,947		87.69	%

Total Portfolio	$	51,666		100	%	$	71,734		100	%	$	80,903		100	%

	2001 versus 2000									2000 versus 1999
	Increase (decrease)									Increase (decrease)
	Due to change in									Due to change in
	Average			Average			Net			Average			Average			Net
	Volume			Rate			Change			Volume			Rate			Change
(in thousands)
INTEREST INCOME
Loans	$	1,533		$	(928	)	$	605		$	1,538		$	318		$	1,856
Investment securities		(296	)		(231	)		(527	)		(69	)		249			180
Interest-bearing deposits in banks and federal funds sold		416			(165	)		251			(854	)		244			(610	)
Total interest income		1,653			(1,324	)		329			615			811			1,426
INTEREST EXPENSE
Savings deposits		110			(801	)		(691	)		53			(226	)		(173	)
Time deposits		559			(248	)		311			318			218			536
Repurchase agreements		63			(141	)		(78	)		(60	)		82			22
Other borrowings		(55	)		(54	)		(109	)		(222	)		(32	)		(190	)
Total interest expense		677			(1,244	)		(567	)		89			116			195
Changes in net Interest income	$	976		$	(80	)	$	896		$	526		$	705		$	1,231

The following table sets forth the maturities and weighted average yields of the investment securities in the Company’s investment portfolio at December 31, 2006. The average yield shown for obligations of states and political subdivisions is not calculated on a tax-equivalent basis.

The following chart further reflects changes in average balances and rates from December 31, 2001 to December 31, 2000.


	Less Than					One to					Five to					Over
	One Year					Five Years					Ten Years					Ten Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield*
	(Dollars in thousands)
Held-to-Maturity:
State and municipal securities	$	1,172		4.16	%	$	3,331		4.53	%	$	959		4.30	%		—		—
Available-for-Sale:
U.S. Government agency securities	$	32,208		4.95	%	$	10,817		4.61	%	$	2,156		5.28	%	$	1,023		5.46	%

Total Portfolio	$	33,380		4.92	%	$	14,148		4.73	%	$	3,115		4.30	%	$	1,023		5.46	%

Increase (Decrease)			Increase (Decrease)
In Average Balance:			In Average Rate:
Loans	11.03	%	Loans	(6.17)%
Investments	(8.27	)%	Investments	(5.57)%
Fed Funds & Deposits	368.99	%	Loans	(46.29)%
Total Earning Assets	9.23	%	Total Earning Assets	(6.86)%
Savings, NOW, MMDA	5.35	%	Savings, NOW, MMDA	(35.55)%
Time	17.28	%	Time	(6.93)%
Repurchase Agreements	12.98	%	Repurchase Agreements	(24.46)%
Other Borrowings	(47.86	)%	Other Borrowings	(47.99)%
Total Int Bear	9.38	%	Total Int Bear	(16.86)%
Liabilities			Liabilities

*Yield information is computed using the effective yield on the security and does not give effect to changes in fair value that are reflected as a component of shareholders’ equity.

Lending and Credit Management. Interest on loans is the primary source of income for the Company. Net loans represented 69.7% of total assets as of December 31, 2006 as compared to 68.1% at December 31, 2005. The Bank’s goal is to serve the credit needs of the communities in which its offices are located. The primary focus for lending is small-to-medium sized businesses, professionals, senior citizens, and individuals. The Bank offers a broad base of loan products. A majority of the Bank’s loans are to customers located within the Bank’s service areas.

Although the risk of non-payment always exists, the type and level of risk changes with different types of loans. The primary source of repayment is the income generated by a business or by an individual. Loan risk is mitigated by lending to borrowers with proven credit histories and demonstrated ability to repay. Collateral provides an additional measure of security. The Bank manages risk in the loan portfolio through its loan policies, underwriting practices and continuing education for the lending professionals it employs.

Concentrations of credit are closely monitored to ensure an acceptable diversification of risk and to help insulate the portfolio from adverse economic conditions. Such factors as economic conditions, liquidity, future outlook and loan demand are considered.

Concentrations are reported quarterly to the board of directors.

Concentrations within the Bank’s loan portfolio (includes funded and unfunded) are defined as:

	•		Loans grouped by a common type of collateral, or product line, in excess of 150% of Bank’s Tier 1 capital, or

	•		Loans grouped by regulatory reporting definitions in excess of 150% of Bank’s Tier 1 capital, or

	•		Loans grouped by industry code (currently SIC codes) in excess of 150% of Bank’s Tier 1 capital, or

	•		Loans of a speculative nature in excess of 100% of Bank’s Tier 1 capital.

~~The~~Loan ~~following~~groups ~~table~~exceeding ~~further~~300% ~~reflects~~of ~~changes~~Bank’s inTier ~~average~~1 ~~balances~~capital (and ~~rates~~in ~~from~~particular commercial real estate ~~December 31~~loans) require additional evaluation, ~~2000~~including, but not limited to ~~December 31~~industry, ~~1999~~geographic, and collateral type analysis. Commercial real estate is further broken down to reflect owner occupied and non-owner occupied properties. Any non-owner occupied category that is over 100% of Tier 1 capital is further broken down as to type of property.

Increase (Decrease)		Increase (Decrease)
In Average Balance:		In Average Rate:
Loans Investments Fed Funds & Deposits Total Earning Assets Savings, NOW, MMDA Time Repurchase Agreements Other Borrowings Total Int Bear Liabilities	11.95% (1.82)% (78.55)% 1.14% 2.29% 10.65% (11.12)% (59.95)% 1.77%	Loans Investments Fed Funds & Deposits Total Earning Assets Savings, NOW, MMDA Time Repurchase Agreements Other Borrowings Total Int Bear Liabilities	2.46% 6.67% 37.84% 7.37% (9.44)% 7.45% 17.35% 10.87% 1.47%

The portfolio concentrations as of December 31, 2006 are as follows:

~~Net~~• ~~Interest~~Commercial ~~Income~~loans, ~~After~~funded ~~Provision~~and ~~For~~unfunded, ~~Credit~~represent ~~Losses.~~18% ~~Net~~of ~~interest~~the ~~income after~~Bank’s ~~provision~~portfolio ~~for~~and ~~credit~~125% ~~losses~~of ~~was~~Tier ~~$12.3 million~~1 ~~at December 31, 2001, $11~~capital.~~7 million~~ atThese ~~December 31,~~loans ~~2000,~~consist ~~and~~of ~~$10.7 million~~operating atlines ~~December 31,~~of ~~1999. Total provision for~~ credit ~~losses~~and ~~for~~non-real ~~the~~estate ~~three~~fixed ~~years~~asset ~~ending~~term ~~December 31,~~loans. ~~2001~~• ~~was $733,000,~~Agriculture ~~$454~~loans,~~000,~~ funded and ~~$264~~unfunded,~~000,~~ ~~respectively.~~represents ~~The~~11% ~~Company~~of ~~increased~~ the ~~provision~~ ~~for~~Bank’s ~~credit~~portfolio ~~losses~~and ~~based~~73% onof ~~its~~Tier ~~loan~~1 ~~loss~~capital. ~~reserve~~These ~~analysis~~loans consist of ~~the~~operating ~~loan portfolio~~loans ~~derived~~and ~~from~~non-real ~~the~~estate ~~loan~~fixed ~~grading~~asset ~~system~~term ~~and~~loans. ~~the~~In ~~loss~~addition ~~analysis~~to ~~of impaired~~these loans. ~~Recoveries~~we ~~were~~have ~~$4,000,~~agriculture ~~$63,000,~~real ~~and~~estate ~~$20,000~~loans inthat ~~2001,~~represent ~~2000, and~~5% ~~1999, respectively. Charge-offs~~ of ~~$101,000,~~the ~~$78,000,~~Bank’s portfolio and ~~$632,000~~38% ~~were realized~~of ~~during~~Tier ~~the~~1 ~~same periods~~capital. ~~Historically,~~These ~~the~~loans ~~Company’s~~are ~~loan~~for ~~charge-off levels~~land ~~have~~purchases ~~been~~and ~~very~~in ~~low~~some ~~compared~~cases to ~~its~~support ~~peers~~operating loans. ~~Management~~• ~~attributes~~Residential ~~part~~real ~~of the~~estate ~~increases~~loans, infunded ~~charge-offs~~and tounfunded, ~~what~~represents ~~would~~7% beof ~~expected~~the asBank’s aportfolio ~~result~~and 45% of ~~growth~~Tier ~~in the~~1 ~~loan portfolio~~capital. ~~More~~These ~~than~~loans ~~half~~include of1-4 ~~the~~family ~~increase~~first todeed ~~$632,000~~of intrust ~~1999~~and ~~was attributable~~first tomortgage aloans ~~single~~to ~~commercial loan~~consumers. ~~Management~~• ~~will~~Consumer ~~continue~~loans, tofunded ~~monitor~~ and ~~analyze~~unfunded, ~~charge-off~~represents ~~levels~~5% ~~closely.~~of ~~Management~~the Bank’s ~~assessment~~portfolio ofand ~~the allowance~~35% ~~for~~of ~~credit~~Tier ~~losses~~1 ~~includes~~capital. ~~various~~These ~~factors~~loans ~~such~~are asterm ~~current~~loans ~~delinquent~~ and ~~non-performing~~lines ~~loans, historical analysis~~ of credit ~~loss~~for ~~experience, knowledge~~consumer ofpurpose. ~~the~~These ~~present~~loans ~~and~~also ~~anticipated~~include ~~economic~~home ~~future~~equity lines of ~~the~~credit. ~~market~~• ~~area, and~~The ~~loan~~Bank’s ~~grades.~~largest ~~Management~~concentration ~~believes~~is ~~the~~in ~~quality~~commercial ofreal ~~the~~estate. ~~loan~~These ~~portfolio~~loans, ~~is outstanding~~funded ~~due~~and tounfunded, ~~strong~~represents ~~internal~~54% ~~controls,~~of ~~excellent~~the Bank’s loan ~~policy~~portfolio ~~standards, experienced~~and ~~loan~~369% ~~officers~~of ~~and~~Tier ~~conservative~~1 ~~underwriting~~capital. ~~practices~~$80.4 ~~Management believes~~million ~~the~~of ~~allowance~~these ~~for~~loans ~~credit~~are ~~losses~~owner atoccupied ~~December 31,~~which ~~2001~~represents 173% of ~~$2.~~Tier 1 ~~million is~~ ~~adequate.~~capital, ~~The~~and ~~allowance~~$87.2 ~~for~~million ~~credit~~are ~~losses~~in tonon-owner ~~total~~occupied ~~loans~~facilities atwhich ~~December 31, 2001,~~represent ~~2000,~~188% ~~and~~of ~~1999~~Tier ~~respectively was~~ 1~~.24%,~~ capital.~~95%, and .77%.~~

~~Non~~• Multi-~~Interest~~family; ~~Income.~~which ~~Non~~is all non-~~interest~~owner ~~income~~occupied, ~~was~~represents ~~$3.4 million~~12% ~~for~~of the ~~year~~commercial ~~ended December 31,~~real ~~2001,~~estate aportfolio ~~27.~~and 64% of Tier 1 capital. • RE lessor properties represents 15% ~~increase~~of ~~from~~the $2commercial real estate portfolio and 80% of Tier 1 capital.~~7 million~~ inApproximately ~~2000,~~41% ~~which~~is ~~was~~owner 11occupied and 59% is non-owner occupied.2 • Other real estate/finance represents 16% ~~higher~~ ~~than~~of the ~~$2.4 million~~commercial inreal ~~1999~~estate portfolio and 85% of Tier 1 capital. ~~These~~Approximately ~~increases~~44% ~~are~~is ~~due~~owner occupied and 56% is non-owner occupied. • Real estate to ~~increased~~ personal service ~~charges~~properties ~~resulting~~represents ~~from~~4% aof ~~new~~the ~~program~~commercial ~~implemented~~real inestate ~~2000,~~portfolio ~~customer~~and ~~fee income,~~21% ~~and~~of ~~Bankcard~~Tier ~~income,~~1 ~~which~~capital. Approximately 58% is ~~primarily~~owner aoccupied ~~function~~and of42% ~~increased~~is ~~volumes of~~non-owner ~~accounts~~occupied. ~~The~~• ~~increases~~Real ~~were~~estate ~~also~~to aprofessionals ~~result~~represents 6% of ~~gains~~the oncommercial ~~the~~real ~~sale~~estate portfolio and 31% of ~~securities~~ ~~available~~Tier ~~for~~1 ~~sale~~capital. Almost all of these properties are owner occupied. • Manufacture, construction, agri-Business, transportation and ~~increased~~wholesale ~~revenue~~properties ~~from~~each represent less than 5% of the ~~Bank’s~~commercial ~~mortgage loan~~real ~~origination~~estate ~~activities~~and less than 26% of Tier 1 capital. Majority of these loans are owner occupied.

~~Non-Interest~~At ~~Expense. Non-interest expenses consist primarily of employee salaries and benefits~~December 31, ~~occupancy,~~the ~~data~~following ~~processing,~~table ~~Bankcard~~sets ~~services,~~forth ~~office supplies,~~the ~~professional~~composition ~~services~~of ~~and~~the ~~other~~Bank’s ~~non-interest~~Loan ~~expenses.~~Portfolio ~~Overall~~by ~~increases~~type ~~are~~of aloan ~~result~~as of the ~~Company’s~~dates ~~increased~~indicated.


	2006						2005						2004						2003						2002
Type of Loan	Amount			%			Amount			%			Amount			%			Amount			%			Amount			%
Commercial	$	27,810			10.97	%	$	22,478			9.62	%	$	21,141			9.87	%	$	21,765			11.56	%	$	21,377			11.79	%
Agriculture		18,715			7.38	%		18,249			7.81	%		19,508			9.11	%		17,013			9.04	%		16,196			8.93	%
Real Estate Construction		16,647			6.58	%		11,049			4.73	%		8,200			3.83	%		6,586			3.50	%		15,474			8.53	%
1-4 Family		25,254			9.96	%		22,787			9.75	%		22,916			10.70	%		26,292			13.97	%		30,430			16.78	%
Multi-family		23,530			9.28	%		25,419			10.88	%		22,791			10.64	%		10,398			5.52	%		7,236			3.99	%
Commercial		120,614			47.59	%		116,180			49.70	%		102,623			47.91	%		93,594			49.72	%		82,202			45.33	%
Farmland		17,508			6.91	%		14,046			6.01	%		13,449			6.28	%		9,068			4.82	%		4,552			2.51	%
Consumer Loans		3,382			1.33	%		3,502			1.50	%		3,552			1.66	%		3,523			1.87	%		3,882			2.14	%

		253,460			100.00	%		233,710			100.00	%		214,180			100.00	%		188,239			100.00	%		181,349			100.00	%
Less Deferred fees		(433	)					(413	)					(439	)					(421	)					(470	)
Less Allowance		(2,875	)					(2,750	)					(2,790	)					(2,765	)					(2,546	)
	$	250,152					$	230,547					$	210,951					$	185,053					$	178,333

~~volume~~Interest income on loans is accrued daily on the principal balance outstanding. Generally, ~~management’s~~no interest ~~emphasis~~is accrued on ~~business~~loans ~~development~~deemed to be uncollectible, ~~start-up~~or ~~cost~~when ~~associated~~the principal or interest payment ~~with~~becomes 90 days past due, unless the ~~new~~loan ~~branch~~is well-secured and in ~~Harrisburg,~~the ~~marketing~~process of collection. At December 31, 2006 the Bank had two loans of approximately $187 thousand that was 90 days or more past due and ~~staff~~still ~~training~~accruing interest. Management anticipates these loans to be current in early 2007.

~~Non-interest~~The ~~expense~~following ~~was~~table ~~$9.2 million~~shows ~~for~~the contractual maturity of the ~~year~~Bank’s ~~ended~~gross loans at December 31, ~~2001~~2006. Loans having no stated schedule of repayments and no stated maturity, andemand loans, and overdrafts ~~increase~~are ofreported ~~$.6 million~~as ~~(6.9%)~~due ~~from~~in ~~the~~one year ~~ended~~or ~~December 31~~less. Loan balances do not include undisbursed loan proceeds, deferred ~~2000~~loan fees and discounts, ~~which~~and ~~was~~allowance for losses on loans. The table does not reflect anany ~~increase~~estimate of ~~$.5 million~~prepayments, ~~(6.3%)~~which ~~over~~significantly shorten the ~~period~~average ~~ended~~life ~~December 31,~~of ~~1999~~all loans and may cause the Bank’s actual repayment experience to differ from that shown below.

At the end of 2001, the Company employed 120 full time equivalent employees compared to 121 at the end of 2000 and 119 at the end of 1999. The decrease in 2001 was due to the timing of employment hiring. The increase in 2000 was due to hiring of two new officers, one in the mortgage department and one in marketing. The increase from 1999 to 2000 was primarily due to the staffing of two new branch offices opened in that year. The Company has continued to increase staff productivity through training, education, and hiring practices.


			After 1 year,		After 5 years,
			but before		but before
	Within 1 year		5 years		10 years		After 10 years		Total
	(In Thousands)
Commercial	$	9,087	$	14,574	$	2,413	$	1,736	$	27,810
Agriculture		14,904		3,420		391		—		18,715
Real Estate
Construction		6,265		5,603		—		4,779		16,647
1-4 Family		3,034		3,085		4,102		15,033		25,254
Multi-family		—		5,209		8,448		9,873		23,530
Commercial		5,739		5,106		33,124		76,645		120,614
Farmland		5,050		2,126		1,674		8,658		17,508
Consumer Loans		273		2,971		138		—		3,382

TOTAL	$	44,352	$	42,094	$	50,290	$	116,724	$	253,460

~~Income~~The ~~Taxes.~~following ~~Income~~table ~~tax~~sets ~~expense~~forth ~~for~~the ~~2001~~dollar ~~was~~amount ~~$2.5 million~~of orall ~~38.6%~~loans ofdue ~~income before~~one ~~taxes,~~year ~~2000~~or ~~was~~more ~~$2.2~~after December ~~million~~31, or2006, ~~38.0%~~which ofhave ~~income~~fixed ~~before~~interest ~~taxes,~~rates and ~~1999 was~~have ~~$1.8 million~~floating or ~~35.4%~~adjustable ofinterest ~~income before taxes~~rates.

Asset/Liability Management. The Company uses an asset/liability modeling system called ALX to estimate the degree of interest rate risk and market risk inherent in its mix of interest earning assets and interest bearing liabilities. The Company’s profitability is dependent to a large extent on net interest income. The Company is very slightly asset sensitive, meaning that interest earning assets mature or are otherwise subject to repricing at a slightly faster rate than interest bearing liabilities. A significant decrease in market rates could adversely impact the net earnings of the Company. In contrast, an inclining interest rate environment could have a positive affect on net interest income. The Company’s strategy is to keep a position that is very close to “balanced”. That is, the repricing of assets and liabilities would move much at the same rate. Because the current position is only slightly asset sensitive the net interest margin should increase slightly when rates increase and decrease slightly when rates fall.


			Floating or
	Fixed Rates		Adjustable Rates		Total
	(In Thousands)
Commercial	$	13,031	$	5,692	$	18,723
Agriculture		2,327		1,484		3,811
Real Estate
Construction		248		10,134		10,382
1-4 Family		11,218		11,002		22,220
Multi-family		8,850		14,680		23,530
Commercial		25,970		88,905		114,875
Farmland		1,635		10,823		12,458
Consumer Loans		587		2,522		3,109

TOTAL	$	63,866	$	145,242	$	209,108

~~Liquidity~~Credit ~~and~~Loss ~~Sources~~Allowance ofand ~~Funds~~Provision. The ~~Company’s~~allowance ~~primary sources of funds~~ for ~~liquidity~~ ~~purposes~~credit ~~are~~losses ~~customer~~has ~~deposits,~~been ~~maturities~~established ~~of investment securities,~~to ~~sales~~absorb oflosses ~~“available~~inherent ~~for~~in ~~sale”~~the ~~securities,~~ loan ~~repayments,~~portfolio ~~advances on lines of credit from correspondent banks~~ and ~~from~~is ~~the~~based ~~Federal~~on ~~Home~~continuing ~~Loan~~quarterly ~~Bank~~assessments of ~~Seattle,~~ ~~and~~ the ~~purchase~~estimated ofprobable ~~federal funds~~losses. The Company ~~can~~uses ~~anticipate~~several ~~the~~key ~~availability of~~factors ~~funds~~for ~~from~~assessing ~~scheduled~~the appropriateness ~~loan repayments, maturities~~ of ~~securities~~the ~~and from borrowed funds~~allowance. ~~Customer~~The ~~deposits~~key ~~and~~factors ~~unscheduled~~used ~~payments of loans~~ are: ~~influenced by the interest rate environment, the condition of the economy, competition, and other factors.~~

~~Deposits~~• ~~are~~The ause ~~primary source~~ of ~~new~~formulas ~~funds.~~for Atcalculating ~~December 31,~~the ~~2001,~~allowance ~~total deposits~~• ~~were~~Specific ~~$231.8 million,~~allowances ~~$201.0 million at December 31, 2000 and $194.4 million at December 31, 1999. The Company also had REPO’s (securities sold under agreements to repurchase)~~ for ~~the~~identified ~~periods~~problem ofloans ~~December 31,~~• ~~2001,~~Subjective ~~2000, and 1999 of $14.3 million, $12.7 million, and $13.4 million, respectively. The overall cost of funds was as follows:~~ calculations

COST OF FUNDS
2001	2000			1999
2.9%		3.4	%		3.4	%

Subjective calculations take into consideration such factors as:

	•		Existing economic and business conditions effecting our market areas

	•		Loan growth and concentrations

	•		Credit quality trends

	•		Recent loss experience

	•		Specific industry conditions in particular segments of the portfolio

	•		Interest rate environment

	•		Duration of the current business cycle

	•		Bank regulatory examination results

	•		Internal and external loan examinations

~~Management~~The ~~anticipates~~evaluation ~~that the Company will rely primarily on deposit growth, maturities~~ of ~~investment~~each ~~securities,~~factor ~~sales of “available for sale securities,”~~ and ~~loan~~the ~~repayments~~overall toallowance ~~meet~~is ~~its~~based ~~liquidity~~on ~~needs.~~a ~~Borrowings~~continuing ~~can~~assessment ~~be used to~~of ~~provide~~problem ~~liquidity for short-term~~loans, ~~needs~~historical ~~but~~loss itexperience, ~~is the practice of the Company to attempt to fund long-term loans~~ and ~~investments~~other ~~with~~factors, ~~core~~including ~~deposits~~regulatory and ~~earnings,~~ ~~not short-term borrowings~~economic. The ABank ~~limited~~considers ~~amount~~historical ofcharge-off ~~borrowings~~levels ~~may~~in ~~be used~~addition ~~on a long-term basis~~ to ~~fund~~existing ~~lending~~economic ~~activities~~conditions and other tofactors ~~match~~when ~~maturities~~establishing ~~or repricing~~the ~~intervals~~allowance offor ~~assets~~loan losses.

~~The~~It ~~average~~is ~~daily~~Bank ~~amount~~policy that once each quarter, Bank management makes recommendations to the Board regarding the adequacy of ~~deposits~~the Bank’s allowance for credit losses and ~~rates~~any ~~paid~~provision necessary to increase or decrease the allowance to the recommended level. Management’s recommendations are based on ~~deposits~~an isinternal ~~summarized~~loan review process to determine specific potential loss factors on classified ~~for~~loans, ~~the~~risk ~~periods~~factor ~~indicated~~of loan grades, historical loss factors derived from actual net charge-off experience, trends in non-performing loans, and other potential risks in the ~~following~~loan ~~table:~~portfolio such as industry concentration, the local economy, and the volume of loans.

	2001					2000					1999
(In Thousands)	Amount $		Rate %			Amount $		Rate %			Amount $		Rate %
DEPOSITS
Demand	$	32,062		—		$	29,264		—		$	33,565		—
Interest-bearing demand	$	25,647		.51	%	$	24,685		1.22	%	$	25,671		1.22	%
Savings	$	82,587		1.62	%	$	78,053		2.39	%	$	67,164		2.44	%
Time	$	72,837		5.10	%	$	62,103		5.48	%	$	63,730		5.09	%
Total	$	213,133				$	194,105				$	190,130

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

The ~~following~~formula ~~table~~allowance ~~indicates~~is calculated by applying loss factors to outstanding loans, in each case based on the internal risk grade of those loans or groups of loans. Changes in risk grades of both performing and nonperforming loans affect the amount of the calculated allowance. Loss factors are based on the Bank’s ~~certificates~~historical ofloss ~~deposits with~~experience ~~balances~~and ~~equal~~other topertinent ordata ~~greater~~and ~~than~~may ~~$100~~be adjusted for significant factors that,~~000~~ ~~classified~~in bymanagement’s ~~time~~judgment, ~~remaining until~~affect ~~maturity~~the ascollectability of ~~December 31,~~the ~~2001~~portfolio as of the evaluation date.

Maturity Period	Certificates of Deposit
In Thousands
3 months or less		13,733
3 months through 6 months		7,375
6 months through 12 months		6,296
Over 12 months		2,285
TOTAL	$	29,689

Specific allowances are established where management has identified significant conditions or circumstances related to a credit that management believes indicate the probability that a loss may be incurred in an amount different from the amount calculated by the formula method. At December 31, 2006, the Bank’s allowance for credit losses was $2.9 million, or 1.14% of total loans, and 177% of total non-performing assets, compared with an allowance for credit losses at December 31, 2005 of $2.8 million, or 1.18% of total loans, and 125% of non-performing assets. It is the opinion of management that the allowance for credit losses at December 31, 2006 of $2.9 million is adequate.

The ~~following~~Bank’s ~~table~~allowance isincorporates athe ~~summary~~results of ~~securities~~measuring ~~sold~~impaired ~~under~~loans ~~repurchase~~as ~~agreement~~provided in the Statement of Financial Accounting Standards (~~REPO~~“SFAS”) No. 114, “Accounting by Creditors for Impairment ~~each~~of a Loan”, and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures”. These accounting standards prescribe the ~~last~~measurement, ~~three~~income recognition ~~years~~and guidelines concerning impaired loans.

(Dollars in Thousands)
		2001			2000			1999
Securities sold under agreement to repurchase:
Average interest rate
	At year end		1.8	%		3.3	%		3.3	%
	For the year		2.8	%		3.7	%		3.2	%
Average amount outstanding during the year		$	17,172		$	14,163		$	15,935
Maximum amount outstanding at any month end		$	19,070		$	15,433		$	18,124
Amount outstanding at year end		$	14,580		$	12,651		$	13,425

During the Bank’s regular loan review procedures, a loan is considered to be impaired when it is probable that it will be unable to collect all amounts due according to contractual terms of the loan agreement. A loan is usually not considered to be impaired during a period of minimal delay. Such period is generally defined as less than 90 days past due. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or as a practical expedient, at the loan’s observable market price or the fair market value of collateral if the collateral is dependent. Impaired loans are currently measured at the lower of cost or fair value. Impaired loans are charged to the allowance when management believes, following collection efforts and collateral position, that the borrower’s financial condition is such that collection of principal is not probable. Management continues to pursue collection after a loan is charged off until all possibilities for collection have been exhausted. Impaired loans totaled $1,436,000, $2,073,000, and $6,190,000 at December 31, 2006, 2005 and 2004, respectively. (See Note 4 to the consolidated financial statements for more information on impaired loans.)

~~Capital Resources.~~ The ~~Company~~following istable ~~subject~~represents tothe ~~various~~composition ~~capital~~of ~~requirements administered by~~ the ~~federal~~allowance ~~banking~~for ~~agencies.~~credit ~~Failure~~loss toat ~~meet minimum capital~~December 31: ~~requirements can initiate certain~~


	2006					2005					2004					2003					2002
			% of Total					% of Total					% of Total					% of Total					% of Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Commercial	$	315		11	%	$	279		10	%	$	275		10	%	$	320		12	%	$	299		12	%
Agriculture		212		7	%		227		8	%		254		9	%		250		9	%		227		9	%
Real Estate
Construction		189		7	%		138		5	%		108		4	%		96		3	%		217		9	%
1-4 Family		286		10	%		208		9	%		236		11	%		320		12	%		325		13	%
Multifamily		267		9	%		235		11	%		297		11	%		153		5	%		101		4	%
Commercial		1,368		48	%		1,446		50	%		1338		48	%		1,374		50	%		1,158		45	%
Farmland		199		7	%		175		6	%		174		6	%		133		5	%		64		2	%
Consumer		39		1	%		42		1	%		108		1	%		119		4	%		155		6	%

	$	2,875		100	%	$	2,750		100	%	$	2,790		100	%	$	2,765		100	%	$	2,546		100	%

~~mandatory~~The ~~and~~following ~~possibly~~table ~~additional~~represents ~~discretionary~~information ~~actions~~with byrespect ~~regulators~~to that if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines that involve quantitative measures of the Company’s assets, and certain offnon-~~balance-sheet~~performing ~~items~~loans ~~as calculated under regulatory accounting practices, the Company’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings,~~ and other ~~factors.~~assets at December 31:

As of December 31, 2001, the most recent notification from the Bank’s regulator, categorized the Bank as well-capitalized under the applicable regulations. To be categorized as “well capitalized”, the Company must maintain at least 10% total risk based capital, 6% Tier 1 risk based capital and 5% Tier 1 leverage capital. There are no conditions or events since that notification that management believes have changed its category rating.


	2006			2005			2004			2003			2002
Loans on non-accrual status	$	1,436		$	2,073		$	6,190		$	2,164		$	130
Accruing loans past due greater than 90 days		187			122			0			12			0

Total non-performing loans		1,623			2,195			6,190			2,176			130
Foreclosed real estate		—			—			—			476			—

Total non-performing assets	$	1,623		$	2,195		$	6,190		$	2,652		$	130

Allowance for credit losses	$	2,875		$	2,750		$	2,790		$	2,765		$	2,546
Allowance for credit losses/non-performing assets		177	%		125	%		45	%		104	%		1958	%
Non-performing loans/total loans		0.64	%		0.94	%		2.90	%		1.16	%		0.07	%
Non-performing assets/total assets		0.45	%		0.65	%		1.85	%		0.81	%		0.04	%

~~Shareholders’~~The ~~equity~~Company ~~increased~~has toa ~~$29.5 million~~policy atthat ~~December 31,~~places ~~2001,~~loans ~~from $27.1 million~~on innonaccrual ~~2000~~status ~~and~~after ~~$24.3~~they become 90 ~~million~~days inpast ~~1999.~~due unless ~~This~~the ~~increase~~loan ~~reflects~~is ~~net income~~well ofsecured ~~$4.0 million,~~and ~~other~~in ~~comprehensive~~the ~~income~~process of $collection.~~3 million~~ ~~and~~The ~~$.6~~Company may place loans that ~~million~~are ~~from~~not ~~the~~contractually ~~dividend~~past ~~reinvestment~~due ~~plan.~~or ~~These~~that ~~increases~~are ~~were~~fully ~~primarily offset~~collateralized byon nonaccrual status as a management ~~cash~~tool ~~dividend~~to ~~declared~~actively ofoversee specific loans. Loans on nonaccrual status at December 31, 2006 were approximately $1.54 million, ~~and~~ $2.91 million ~~for~~at ~~shares repurchased.~~December 31, ~~The Company’s shareholder average equity~~2005, asand a$6.2 million ~~percentage of~~at ~~average assets~~December 31, ~~was 10~~2004.7% ~~for~~For the year ~~ended~~ending December 31, ~~2001~~2006, ~~11.0%~~the ~~for~~gross ~~the~~income that would have been ~~year~~included ~~ended~~in ~~December 31,~~loan ~~2000~~interest income, was approximately $414 thousand had non-accrual loans been current in their original terms and 10outstanding throughout the period.3% There was no interest on non-accrual loans included in income for the ~~year~~years ~~ended~~ending ~~December 31~~2006, ~~1999~~2005, and 2004.

AsTwo ~~interest~~agricultural ~~rates~~loan ~~change,~~relationships ~~the~~constitute ~~value~~$1.3 million of the ~~Bank’s~~$1.4 million ~~“available~~in ~~for sale”~~non-accrual ~~investment~~status ~~portfolio~~as of December 31, ~~which~~2006. isOne ~~reported~~of atthe ~~fair~~agriculture ~~value~~loans, ~~may~~with bea ~~positively~~balance orof about $292 ~~negatively~~thousand, ~~impacted~~is ~~and~~fully ~~therefore~~secured ~~may~~by ~~cause~~real anestate. ~~increase~~The orfarm aoperation ~~reduction~~is ~~in reported~~going ~~shareholders’~~through ~~equity~~a Chapter 12 bankruptcy procedure. ~~Equity~~The ~~grew~~Company atis 9fully secured and does not expect a loss.1% ~~over~~The second agriculture relationship consists of two loans; one in the ~~period~~amount ~~between~~of approximately $625 thousand ~~December 31,~~which ~~2000~~is fully secured by agriculture real estate and ~~December~~the other loan is approximately $426 thousand has a 90% Farm Service Agency (FSA) 31guarantee, ~~2001~~but no other collateral support. The Company is exposed on the second loan in the amount of $42 thousand, ~~while~~but ~~assets~~expects ~~grew~~to byget ~~14.0%~~paid in full over the ~~same~~next ~~period~~18 to 24 months through normal farming operating cash flow. The remaining $93 thousand in non-accrual is a loan on a residential house that is adequately secured by real estate and a foreclosure sale has been set for April 30, 2007. The Company expects no loss on this transaction.

AtThe Company is not aware of any loans continuing to accrue interest at December 31, ~~2001,~~2006 ~~the~~that represent ~~Company~~or ~~had~~result nofrom ~~material~~trends ~~commitment~~or ~~for~~uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources. Material credits about ~~expenditures~~which management is aware of any information that would ~~negatively~~raise ~~impact~~serious doubts as to the ~~Company’s~~ability ~~capital~~of such ~~position~~borrowers to comply with the loan repayment terms, have been fully reserved in the allowance for credit losses.

~~The~~Applicable ~~following~~regulations ~~table~~require ~~indicates~~that each bank review and classify its assets on a regular basis. In addition, in connection with examinations of banks, regulatory examiners have authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. Substandard assets have one or more defined weaknesses and are characterized by the ~~Company’s~~distinct ~~capital~~possibility ~~adequacy~~that ~~position~~the atbank will sustain some loss ~~December 31~~if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, ~~2000~~conditions and atvalues ~~December 31~~questionable, ~~1999~~and there is a high possibility of loss. An asset classified as loss is considered uncollectible and ~~compares~~of ~~those~~such ~~positions~~little value that continuance as an asset of the bank is not warranted. When a bank classifies problem assets as either substandard or doubtful, it is required to establish general allowances for credit ~~capital~~losses ~~adequacy~~in ~~requirements~~an amount deemed prudent by management. These allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities and the risks associated with particular problem assets. When a bank classifies problem assets as loss, it charges off the balance of the asset against the allowance for credit losses. Assets which do not currently expose the bank to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated as special mention. The Bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the FDIC and the State Banking Division which can order the establishment of additional loss allowances.

	Citizens Bancorp
						For Capital
(in thousands)	Actual					Adequacy Purposes
As of December 31, 2001:	Amount		Ratio			Amount		Ratio
Total Risk-Based Capital (to Risk-Weighted Assets)	$	31,259		16.19	%	$	15,472		>8	%
Tier 1 Capital (to Risk-Weighted Assets)	$	29,113		15.08	%	$	7,736		>4	%
Tier 1 Capital (to average Total Assets)	$	29,113		10.48	%	$	11,153		>4	%

As of December 31, 2000:
Total Risk-Based Capital (to Risk-Weighted Assets)	$	28,025	16.67	%	$	13,450	>8	%
Tier 1 Capital (to Risk-Weighted Assets)	$	26,515	15.77	%	$	6,725	>4	%
Tier 1 Capital (to average Total Assets)	$	26,515	10.96	%	$	9,678	>4	%

The aggregate amounts of the Bank’s classified loans (as determined by the Bank), and of the Bank’s allowances for credit losses at the dates indicated, were as follows at December 31:

Shareholders equity increased to $29.5 million at December 31, 2001 from $27.1 million in 2000 and $24.3 million in 1999.


	2006		2005		2004		2003		2002
	(In thousands)
Loss	$	—	$	—	$	—	$	—	$	—
Doubtful	$	—	$	—	$	—	$	—	$	—
Substandard	$	2,234	$	1,898	$	2,003	$	2,382	$	2,133
Special mention	$	2,171	$	3,238	$	6,740	$	6,990	$	7,161

Total	$	4,405	$	5,136	$	8,743	$	9,372	$	9,294

Allowance for credit losses	$	2,875	$	2,750	$	2,790	$	2,765	$	2,546

~~INVESTMENT~~The ~~PORTFOLIO~~Bank’s classified assets decreased by $.8 million at December 31, 2006, primarily as a result of a $336 thousand increase in loans classified as substandard and a $1.1 million decrease in loans classified as special mention.

~~The~~Special ~~following~~Mention ~~table~~loans ~~shows~~are ~~Investments~~loans ~~Held~~that are currently protected, but have the potential to ~~Maturity~~deteriorate to a Substandard rating. The borrower’s financial performance many be inconsistent or below forecast, creating the possibility of liquidity problems and shrinking debt service coverage. The primary source of repayment is still good but there is increasing reliance on collateral or guarantor support. Collectability of the loan is not yet in jeopardy, but there is concern about the timeliness of repayment. Assets in this category are not adversely classified and currently do not expose the Bank to sufficient risk to warrant a substandard classification.

	In Thousands
	Outstanding Balance at December 31,
	2001
	Estimated Fair Value		Amortized Cost		% of Portfolio
Obligations of States and Political Subdivisions		10,244		10,051		15.0	%
TOTAL	$	10,244	$	10,051		15.0	%

Substandard loans are unacceptable business or individual loans with the normal repayment in jeopardy. The loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. There are well defined weaknesses that jeopardize the repayment of the debt.

	In Thousands
	Outstanding Balance at December 31,
	2000
	Estimated Fair Value		Amortized Cost		% of Portfolio
Obligations of States and Political Subdivisions		8,335		8,304		14.10	%
TOTAL	$	8,335	$	8,304		14.10	%

	In Thousands
	Outstanding Balance at December 31,
	1999
	Estimated Fair Value		Amortized Cost		% of Portfolio
Federal Agency Obligations		487		485		.71	%
Obligations of States and Political Subdivisions		7,720		7,937		11.61	%
TOTAL	$	8,207	$	8,422		12.32	%

The following table sets forth the maturities and weighted average yields of securities held to maturity at December 31, 2001.

IN THOUSANDS

				After 1 year, but			After 5 years, but
Amount	Within 1 year			before 5 years			before 10 years			After 10 years
Obligations of States and Political Subdivisions		431			4,999			4,372			249
TOTAL	$	431		$	4,999		$	4,372		$	249
Weighted Average Yield*
Obligations of States and Political Subdivisions		6.74	%		6.23	%		6.76	%		6.82	%
TOTAL		6.74	%		6.23	%		6.76	%		6.82	%

* Yield on tax exempt obligations have computed on a tax equivalent basis of 34%

The following tables show Investments Available for Sale.

	In Thousands
	Outstanding Balance at December 31,
	2001
	Estimated Fair Value		Amortized Cost		% of Portfolio
U.S. Treasury Securities	$	15,854	$	15,641		23.67	%
Federal Agency Obligations		41,078		40,863		61.33	%
TOTAL	$	56,932	$	56,504		85.00	%

	In Thousands
	Outstanding Balance at December 31,
	2000
	Estimated Fair Value		Amortized Cost		% of Portfolio
U.S. Treasury Securities	$	24,617	$	24,578		41.81	%
Federal Agency Obligations		25,958		25,985		44.09	%
TOTAL	$	50,575	$	50,563		85.90	%

	In Thousands
	Outstanding Balance at December 31,
	1999
	Estimated Fair Value		Amortized Cost		% of Portfolio
U.S. Treasury Securities	$	30,485	$	30,711		44.60	%
Federal Agency Obligations		29,452		29,900		43.08	%
TOTAL	$	60,678	$	61,352		87.68	%

The following table sets forth the contractual maturities and weighted average yields of securities available for sale.

			After 1 year, but		After 5 years, but
Amount	Within 1 year		before 5 years		before 10 years		After 10 years
U.S. Treasury Securities	$	8,654	$	7,200		0		0
Federal Agency Obligations		4,015		37,063		0		0
TOTAL	$	12,669	$	44,263	$	0	$	0

Investments Available For Sale

				After 1 year, but			After 5 years, but
	Within 1 Year			before 5 years			before 10 years			After 10 years
Weighted Average Yield*
U.S. Treasury Securities		5.36	%		3.90	%		0			0
Federal Agency Obligations		5.74	%		4.05	%		0			0
TOTAL		5.52	%		4.02	%		0	%		0	%

* Yield information is computed using amortized cost balances and does not give effect to changes in fair value that are reflected as a component of shareholders equity.

Lending and Credit Management. Interest on loans is the primary source of income for the Company. Net loans represented 61.5% of total assets as of December 31, 2001 as compared to 65.0% at December 31, 2000. The Bank’s goal is to serve the credit needs of the communities in which its offices are located. The primary focus for lending is small-to-medium sized businesses, professionals, and individuals. The Bank offers a broad base of loan products. Substantially all of the Bank’s loans are to customers located within the Bank’s service areas.

At December 31, the following table sets forth the composition of the Bank’s Loan Portfolio by type of loan as of the dates indicated.

			2001					2000					1999					1998					1997
Type of Loan			Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
Commercial			$	22,589		13	%	$	29,088		18	%	$	26,520		19	%	$	26,234		20	%	$	23,507		20	%
Agriculture				14,727		8	%		14,816		9	%		13,875		10	%		12,402		9	%		10,992		9	%
Real Estate
	Construction			17,885		10	%		8,651		5	%		7,352		5	%		7,900		6	%		5,459		4	%
		1-4 Family		29,667		17	%		30,202		19	%		29,776		20	%		31,390		24	%		34,625		28	%
		Other		85,024		49	%		73,505		46	%		59,537		43	%		50,421		38	%		42,142		35	%
Consumer				4,061		3	%		4,710		3	%		3,718		3	%		4,393		3	%		5,423		4	%
Total Loans			$	173,953				$	160,972				$	140,778				$	132,740				$	122,148
Less Deferred Loan Fees				<611>					<542>					<584>					<614>					<678>
Less Allowance for Credit Losses				<2,146>					<1,510>					<1,071>					<1,419>					<1,201>
Net Loans			$	171,196		100	%	$	158,920		100	%	$	139,123		100	%	$	130,707		100	%	$	120,269		100	%

Interest income on loans is accrued daily on the principal balance outstanding. Generally, no interest is accrued on loans deemed to be uncollectible, or when the principal or interest payment becomes 90 days past due. At December 31, 2001 the Bank had $330 in loans that were 90 days or more past due and still accruing interest because in management’s judgment the loans were well secured and in the process of collection.

The following table shows the contractual maturity of the Bank’s gross loans at December 31, 2001. Loans having no stated schedule of repayments and no stated maturity, demand loans, and overdrafts are reported as due in one year or less. Loan balances do not include undisbursed loan proceeds, deferred loan fees and discounts, and allowance for losses on loans. The table does not reflect any estimate of prepayments, which significantly shorten the average life of all loans and may cause the Bank’s actual repayment experience to differ from that shown below.

		In Thousands
				After 1 year, but		After 5 years, but
		Within 1 year		before 5 years		before 10 years		After 10 years
Commercial		$	8,779	$	12,581	$	719	$	510
Agriculture			12,576		1,360		523		268
Real Estate Construction			7,226		4,101		1,355		5,203
	1-4 Family		2,290		3,388		5,842		18,147
	Other		5,259		4,700		20,040		55,025
Consumer			966		2,714		312		69
TOTAL		$	37,096	$	28,844	$	28,791	$	79,222

The following table sets forth the dollar amount of all loans due one year or more after December 31, 2001, which have fixed interest rates and have floating or adjustable interest rates.

		In Thousands
		Fixed Rates		Floating or Adjustable Rates
Commercial		$	8,536	$	5,274
Agriculture			1,113		1,038
Real Estate
	Construction		837		9,822
	1-4 Family		10,511		16,866
	Other		22,371		57,394
Consumer			2,109		986
TOTAL		$	45,477	$	91,380

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

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

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

For the years ended December 31, 1999 through 2001, the Company charged $264,000, $454,000, and $733,000, respectively, to its provision for credit losses.

It is the opinion of management that the allowance for credit loss at December 31, 2001 of $2.1 million is adequate.

The following table represents information with respect to non-performing loans and other assets:

	2001			2000			1999			1998			1997
Loans on non-accrual status	$	703		$	1,117		$	654		$	173		$	0
Loans past due greater than 90 days		330			2			73			447			438
Total non-performing loans		1,033			1,119			727			620			438
Other real estate owned		0			205			0			0			240
Total non-performing assets	$	1,033		$	1,324		$	727		$	620		$	678
Allowance for loan losses	$	2,146		$	1,510		$	1,071		$	1,419		$	1,201
Allowance for loan losses/non-performing assets		208	%		114	%		147	%		229	%		177	%
Non-performing loans/total loans		.60	%		.70	%		.51	%		.47	%		.36	%
Non-performing assets/total assets		.37	%		.54	%		.30	%		.27	%		.34	%

Interest income which would have been realized on non-accrual loans was not significant to the accompanying consolidated financial statements. In addition loans past due 90 days or more and still accruing interest were not significant to the accompanying consolidated financial statements.

The Company has a policy that places loans on nonaccrual status after they become 90 days past due unless the loan is well secured and in the process of collection. The Company may place loans that are not contractually past due or that are fully collateralized on nonaccrual status as a management tool to actively oversee specific loans. Loans on nonaccrual status at December 31, 2001 were approximately $703,000, $1,117,000 at December 31, 2000, and $654,000 at December 31, 1999.

The Company is not aware of any loans continuing to accrue interest at December 31, 2001 that represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources. Material credits about which management is aware of any information that would raise serious doubts as to the ability of such borrowers to comply with the loan repayment terms, have been fully reserved in the allowance for credit losses.

The following table summarizes transactions in the allowance for credit losses and details the charge-offs, recoveries, and net credit losses by loan category for the last five years.

			IN THOUSANDS
		2006				2005				2004				2003				2002
			2001				2000				1999				1998				1997
		(In Thousands)
Allowance At Beginning of Period:		$	$2,750	~~1,510~~		$	$2,790	~~1,071~~		$	$2,765	~~1,419~~		$	$2,546	~~1,201~~		$	$2,146	~~1,038~~
Provision for Credit Losses			145	~~733~~			155	~~454~~			142	~~264~~			270	~~236~~			624	~~165~~
CHARGE-OFFS:
Commercial			0	41			94	24			39	~~560~~			15	28			105	0
Agriculture			0	0			0	0			0	0			0	0			0	0
Real Estate			0	0			0	0			0	0			0	0			0	0
Construction	~~Construction~~		0	0			0	0			0	0			0	0			0	0
1-4 Family	~~1-4 Family~~		0	31			97	0			0	61			22	0			76	0
	Other			0				1				0				0				0
Multi-family			0				0				52				0				0
Consumer				29				53				11				4				2
Commercial			0				0				0				0				0
Total Charge-Offs:			$	101			$	78			$	632			$	32			$	2
Farmland			0				0				0				0				0
RECOVERIES:
Other			0				0				0				0				0
Commercial				2				63				1				14				0
Consumer			24				11				26				17				56
Agriculture				0				0				0				0				0
Total Charge-Offs:		$	24			$	202			$	117			$	54			$	237
Real Estate				0				0				0				0				0
RECOVERIES:
	Construction			0				0				0				0				0
Commercial			0				7				0				1				6
	1-4 Family			0				0				0				0				0
Agriculture			0				0				0				0				0
	Other			0				0				0				0				0
Real Estate			0				0				0				0				0
Consumer				2				0				19				0				0
Construction			0				0				0				0				0
TOTAL RECOVERIES			$	4			$	63			$	20			$	14			$	0
1-4 Family			0				0				0				0				6
Net Recoveries (Charge-Offs)				<97>				<15>				<612>				<18>				<2>
Multi-family			0				0				0				0				0
Balance At End Of Period			$	2,146			$	1,510			$	1,071			$	1,419			$	1,201
Commercial			0				0				0				0				0
Ratio of Net Charge-Offs to Avg. Loans Outstanding				.06	%			.01	%			.45	%			.01	%			.00	%
Farmland			0				0				0				0				0
Other			0				0				0				0				0
Consumer			4				0				0				2				1
Total Recoveries		$	4			$	7			$	0			$	3			$	13
Net Recoveries (Charge-Offs)			<20>				<195>				<117>				<51>				<224>
Balance At End Of Period		$	2,875			$	2,750			$	2,790			$	2,765			$	2,546
Ratio of Net Charge-Offs to Avg. Loans Outstanding			0.01	%			0.08	%			0.06	%			0.03	%			0.13	%

Allocation of Allowance for Credit Losses. The Company does not normally allocate the allowance for credit losses to specific loan categories. An allocation to the major categories is made below for presentation purposes. This allocation process does not necessarily measure anticipated future credit losses; rather it seeks to measure the Bank’s assessment on a quarterly basis the perceived credit loss exposure and the impact of current and anticipated economic conditions. The following table is the allocation for the last five years:

		2001					2000					1999					1998					1997
				% of					% of					% of					% of					% of
				Total					Total					Total					Total					Total
		Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Commercial		$	333		13	%	$	271		18	%	$	203		19	%	$	283		20	%	$	240		20	%
Agriculture			515		8	%		136		9	%		108		10	%		129		9	%		108		9	%
Real Estate Construction			134		10	%		91		5	%		53		5	%		85		6	%		48		4	%
	1-4 Family		234		17	%		272		19	%		214		20	%		340		24	%		336		28	%
	Other		845		49	%		695		46	%		460		43	%		539		38	%		421		35	%
Consumer			85		3	%		45		3	%		33		3	%		43		3	%		48		4	%
		$	2,146		100	%	$	1,510		100	%	$	1,071		100	%	$	1,419		100	%	$	1,201		100	%

In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS No. 114, “Accounting by Creditors for Impairment of a Loan” and in October 1996 issued SFAS No. 118,” “Accounting by Creditors for Impairment of a Loan-Income Recognition Disclosures, an amendment to SFAS No. 114.” The Bank measures impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, at the loan’s observable market price or the fair market value of the collateral if the loan is collateral dependent. The Bank excludes loans that are currently measured at fair value or at lower of cost or fair value, and certain large groups of smaller balance homogeneous loans that are collectively measured for impairment. At December 31, 2001 and 2000, the Bank’s impaired loans totaled $704,000 and $1,117,000 respectively.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Asset-Liability Management and Interest Rate Sensitivity

The Company’s results of operations are largely dependent on its ability to manage net interest income. The principal purpose of asset-liability management is to manage the Bank’s sources and uses of funds under various interest rate and economic conditions in order to stabilize net income and minimize risk.

The Bank analyzes its interest rate risk by simulation modeling and by traditional interest rate gap analysis. The model analyzes the Bank’s current position and anticipated future results based on assumptions and estimations that management deems reasonable, although actual results may vary substantially.

The main component of asset-liability management is the management of the Bank’s interest rate sensitivity and market risk. Interest-rate sensitivity is defined as the volatility in earnings resulting from changes in interest rates and/or the mismatch of repricing intervals between assets and liabilities. The Bank’s management attempts to manage its assets and liabilities to maximize earnings growth by minimizing the effects of changing market rates, asset and liability mix, and prepayment trends. This is a “balanced position” strategy which lessens the volatility in interest income. Management actively manages the relationship between its interest rate sensitive assets and interest rate sensitive liabilities.

3529

If assets and liabilities do not mature or reprice simultaneously, and in equal amounts, a gap is present and exposure to interest rate risk exists. An interest rate sensitivity gap occurs when there is a different amount of rate sensitive assets than rate sensitive liabilities scheduled to reprice over the same period of time. The gap is considered positive when rate sensitive assets exceed rate sensitive liabilities, and negative when rate sensitive liabilities exceed rate sensitive assets. During a period of rising interest rates, a negative gap would generally tend to adversely impact net interest income while a positive gap would generally tend to result in an increase in net interest income. During a period of declining interest rates, a negative gap would generally tend to result in increased net interest income, while a positive gap would generally tend to adversely affect net interest income.

The following table sets forth the interest rate sensitivity of the Bank’s assets and liabilities over various contracted repricing periods and maturities as of December 31, ~~2001~~2006. Certain shortcomings are inherent in the traditional gap analysis presented in the table. For instance, although certain assets and liabilities may have similar repricing periods or maturities, historically they have been proven to react in different timings and degree to changes in market interest rates. Additionally, loan repayments and early withdrawals of certificates of deposits could cause the interest sensitivities to vary from those which appear in the table. The following table is based on contracted loan repricing periods and maturities where as previous loan tables in this document are based only on contracted maturities.

December 31, 2001 (in thousands)
			0 - 3			3 - 6			6 - 12			1 - 5			Over 5
			months			months			months			years			years			Total
INTEREST EARNING - ASSETS
		Interest Bearing Deposits		11,717			—			—			—			—			11,717
		Loans		14,923			9,663			12,510			28,844			108,013			173,953
		Investments		4,865			1,190			7,891			49,262			4,621			66,983
TOTAL INTEREST - EARNING ASSETS			$	31,505		$	10,853		$	20,401		$	78,106		$	112,634		$	253,499
INTEREST BEARING - LIABILITIES
	Demand Deposits			40,533			—			—			—			—			40,533
	Savings Deposits			118,331			—			—			—			—			118,331
	Time Deposits			29,910			19,844			14,403			8,791			9			72,957
	REPO’S			14,298			—			—			—			—			14,298
	Other Borrowings			282			—			—			—			—			282
TOTAL INTEREST-BEARING LIABILITIES			$	203,354		$	19,844		$	14,403		$	8,791		$	9		$	246,401
			$	(171,849	)	$	(8,991	)	$	5,998		$	69,315		$	112,625		$	7,098
CUMULATIVE INTEREST RATE SENSITIVITY GAP			$	(171,849	)	$	(180,840	)	$	(174,843	)	$	(105,528	)	$	7,098
CUMULATIVE GAP AS A PERCENT OF ASSETS				(61.7	)%		(64.9	)%		(62.8	)%		(37.9	)%		2.5	%

DECEMBER 31, 2006 (In thousands)

On a straight gap measurement of interest rate sensitivity, the Company is asset sensitive. Using the financial model with historical timings and degree of market rate change effecting the components of the balance sheet, the Company is very slightly asset sensitive. The Company will see little effect on its equity in either a rising or declining interest rate environment based on


				90 days			1 year			6 years
	Within			to			to			to			Over 15
	90 days			12 months			5 years			15 years			Years			Total
INTEREST EARNING ASSETS
Interest Bearing Deposits and Federal Funds Sold	$	21,049			—			—			—			—		$	21,049
Loans		65,724			15,773			96,221			51,920			20,514			250,152
Investments		10,981			22,399			14,147			4,139			—			51,666

TOTAL INTEREST EARNING ASSETS	$	97,754		$	38,172		$	110,368		$	56,059		$	20,514		$	322,867
INTEREST BEARING LIABILITIES
Demand Deposits	$	58,514			—			—			—			—		$	58,514
NOW, Savings & Money Market Deposits		171,580			—			—			—			—			171,580
Time Deposits		16,862			19,106			4,548			—			—			40,516
REPO’S		35,587			—			—			—			—			35,587
Other Borrowings		1,902			—			—			—			—			1,902

TOTAL INTEREST BEARING LIABILITIES	$	284,445		$	19,106		$	4,548		$	—		$	—		$	308,099
	$	(186,691	)	$	19,066		$	105,820		$	56,059		$	20,514		$	14,768
CUMULATIVE INTEREST RATE SENSITIVITY GAP	$	(186,691	)	$	(167,625	)	$	(61,805	)	$	(5,746	)	$	14,768

CUMMULATIVE GAP AS A PERCENT OF		-57.82	%		-51.92	%		-19.14	%		-1.78	%		4.57	%
TOTAL EARNING ASSETS

36On a straight gap measurement of interest rate sensitivity, the Company is asset sensitive. Using the financial model with historical timings and degree of market rate change affecting the components of the balance sheet, the Company is slightly asset sensitive. The Company will see little effect on its equity in either a rising or declining interest rate environment based on the balance sheet as of December 31, 2006. Management strives to maintain a balanced interest sensitivity position.

the balance sheet as of December 31, 2001. Management strives to maintain a balanced interest sensitivity position.

The Company sensitivity to gains or losses in future earnings due to hypothetical increases or decreases in the Fed Funds rate as measured by its financial model are as follows.

Increase in	Net Interest			Decrease in		Net Interest
	Net Interest
Interest Rates	Margin Change			Interest Rates		Margin Change
Change in Interest Rates	Income
+1%	$	39,000			–1%	$	(84,000	)
-300 Basis points	$	(1,537	)
+2%	$	77,000			–2%	$	(167,000	)
-200 Basis points	$	(1,025	)
-100 Basis points	$	(512	)
+300 Basis points	$	792
+200 Basis points	$	528
+100 Basis points	$	264

~~Rate~~At ~~increases~~December 31, ~~will~~2006, ~~generally~~the ~~increase~~Company was slightly asset sensitive, meaning that the Company’s ~~equity~~net interest margin (“NIM”) may increase slightly if rates rise and decrease if rates fall. In a rising rate environment, ~~while~~management anticipates that its deposit liability rates will increase at a slower rate due to the company’s mix of deposits, high liquidity, and pricing strategies, which should ~~decreases~~result ~~will~~in ~~generally~~an ~~reduce~~increase ~~equity~~in NIM. For the year ending December 31, 2006, the Company’s cost of funds was 1.7%.

~~Factors That May Affect Future Results of Operations. In addition to the other~~30 ~~information contained in this report, the following risks may affect the Company. If any of these risks occurs, our business, financial condition or operating results could be adversely affected.~~

1. Growth and Management. Our financial performance and profitability will depend on our ability to manage recent and possible future growth. Although management believes that it has substantially integrated the business and operations of recent acquisitions, there can be no assurance that unforeseen issues relating to the acquisitions will not adversely affect us. In addition, any future acquisitions and continued growth may present operating and other problems that could have an adverse effect on our business, financial condition and results of operations. Accordingly, there can be no assurance that we will be able to execute our growth strategy or maintain the level of profitability that we have recently experienced.

2. Changes in Market Interest Rates. Our earnings are impacted by changing interest rates. Changes in interest rates impact the demand for new loans, the credit profile of existing loans, the rates received on loans and securities and rates paid on deposits and borrowings. The relationship between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, our interest rate spread could be expected to increase during times of rising interest rates and, conversely, to decline during times of falling interest rates. With any further declines in interest rates, our ability to proportionately decrease the rates on our deposit sources may not be possible due to competitive pressures. This may result in a larger decrease in our interest rate spread. Although we believe our current level of interest rate sensitivity is reasonable, significant decreases in interest rates may have an adverse effect on our business, financial condition and results of operations. Should interest rates increase in 2002, our interest rate spread could be expected to improve.

3. Geographic Factors. Economic conditions in the communities we serve could adversely affect our operations. As a result of community bank focus, our results depend largely upon economic and business conditions in our service areas. A deterioration in economic and business conditions in our market areas could have a material adverse impact on the quality of our loan portfolio, and the demand for our products and services, which in turn may have a material adverse effect on our results of operations. Further, a downturn in the national economy might further exacerbate local economic conditions. The extent of the future impact of these events on economic and business conditions cannot be predicted.

~~4. Regulation. We are subject to government regulation that could limit or~~Contents restrict our activities, which in turn could adversely impact our operations. The financial services industry is regulated extensively. Federal and state regulation is designed primarily to protect the deposit insurance funds and consumers, and not to benefit our shareholders. These regulations can sometimes impose significant limitations on our operations. In addition, these regulations are constantly evolving and may change significantly over time. Significant new laws or changes in existing laws or repeal of existing laws may cause our results to differ materially. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions for us.

5. Competition. Competition may adversely affect our performance. The financial services business in our market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. We face competition both in attracting deposits and in making loans. We compete for loans principally through the interest rates and loan fees we charge and the efficiency and quality of services we provide. Increasing levels of competition in the banking and financial services businesses may reduce our market share or cause the prices we charge for our services to fall. Our results may differ in future periods depending upon the nature or level of competition.


Report of Independent Registered Public Accounting Firm			32

Consolidated Financial Statements

Consolidated Balance Sheets			33

Consolidated Statements of Income			34

Consolidated Statements of Shareholders’ Equity			35-36

Consolidated Statements of Cash Flows			37-38

Notes to Consolidated Financial Statements			39-64

~~6. Credit Risk. If a significant number of borrowers, guarantors and related~~31 parties fail to perform as required by the terms of their loans, we will sustain losses. A significant source of risk arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially adversely affect our results of operations.

~~ITEM~~Report 8.of ~~FINANCIAL~~Independent ~~STATEMENTS~~Registered ~~AND~~Public ~~SUPPLEMENTARY~~Accounting ~~DATA~~Firm

The following audited consolidated financial statements and related documents are set forth in this Annual Report on Form 10-K on the pages indicated:

	Pages
Report of Independent Certified Public Accountants		40
Consolidated Balance Sheets		42
Consolidated Statements of Income		43
Consolidated Statements of Shareholders’ Equity		44
Consolidated Statements of Cash Flows		46
Notes to Consolidated Financial Statements		48

Independent Auditor’s Report

Board of Directors
Citizens Bancorp
Corvallis, Oregon

We have audited the ~~accompanying~~ consolidated balance ~~sheet~~sheets of Citizens Bancorp and Subsidiary as of December 31, ~~2001~~2006 and 2005, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the ~~year~~three ~~then~~years in the period ended December 31, 2006. These ~~consolidated~~ financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these ~~consolidated~~ financial statements based on our ~~audit~~audits.

We conducted our ~~audit~~audits in accordance with ~~auditing~~the standards ~~generally~~of ~~accepted in~~ the ~~United~~Public ~~States~~Company ofAccounting ~~America~~Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ~~consolidated~~ financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in ~~the~~ ~~consolidated~~ 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 ~~audit~~audits ~~provides~~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 Bancorp and Subsidiary as of December 31, 2006 ~~2001~~and 2005, and the results of their operations and their cash flows for each of the ~~year~~three ~~then~~years in the period ended December 31, 2006, in conformity with ~~accounting principles~~U.S. generally accepted ~~in the United States of America~~accounting principles.

~~/s/~~As ~~McGladrey~~discussed &in ~~Pullen~~Note 1 to the financial statements, ~~LLP~~the Bank adopted the provisions of the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, in fiscal year 2006.

~~Tacoma~~Seattle, Washington ~~January~~March 1119, ~~2002~~2007

4032

~~Independent~~Consolidated ~~Auditor’s~~Balance ~~Report~~Sheets (Dollars in Thousands)

~~Board of Directors~~ Citizens Bancorp and Subsidiary ~~Corvallis~~December 31, ~~Oregon~~2006 and 2005

We have audited the accompanying consolidated balance sheet of Citizens Bancorp and Subsidiary as of December 31, 2000, and the related consolidated statements of income, shareholders’ equity and cash flows for the years ended December 31, 2000 and 1999. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


	2006			2005
Assets
Cash and due from banks	$	17,227		$	18,518
Interest bearing deposits in banks		11,709			166
Federal funds sold		9,340			435
Securities available for sale		46,204			63,863
Securities held to maturity (fair value $5,542 and $8,012)		5,462			7,871
Federal Home Loan Bank stock, at cost		905			905
Loans held for sale		53			548
Loans		253,027			233,297
Allowance for credit losses		2,875			2,750
Net loans		250,152			230,547
Premises and equipment		8,439			7,455
Accrued interest receivable		2,112			1,852
Cash value of life insurance		4,416			4,257
Other assets		3,010			2,483
Total assets	$	359,029		$	338,900
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Demand, non-interest bearing	$	58,514		$	56,608
Savings and interest-bearing demand		171,580			159,678
Time		40,516			37,797
Total deposits		270,610			254,083
Short-term borrowings		37,489			38,468
Accrued interest payable		100			62
Other liabilities		4,306			3,991
Total liabilities		312,505			296,604
Commitments and Contingencies		—			—
Shareholders’ Equity
Common stock (no par value); authorized 10,000,000 shares; issued and outstanding: 2006 4,733,644 shares; 2005 4,670,386 shares		30,027			28,938
Retained earnings		16,604			13,606
Accumulated other comprehensive income (loss)		(107	)		(248	)
Total shareholders’ equity		46,524			42,296
Total liabilities and shareholders’ equity	$	359,029		$	338,900

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 Bancorp and Subsidiary as of December 31, 2000, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999, in conformity with accounting principles generally accepted in the United States of America.

/s/ Knight Vale & Gregory PLLC

Tacoma, Washington January 11, 2001

Consolidated Balance Sheets

Citizens Bancorp and Subsidiary December 31, 2001 and 2000

			2001		2000
Assets
	Cash and due from banks		$	15,054	$	11,218
	Interest bearing deposits at other financial institutions			11,717		5,444
	Securities available for sale			56,932		50,575
	Securities held to maturity (fair value $10,244 and $8,335)			10,051		8,304
	Federal Home Loan Bank stock, at cost			846		792
	Loans			173,342		160,430
	Allowance for credit losses			2,146		1,510
	Net loans			171,196		158,920
	Premises and equipment			5,464		5,191
	Foreclosed real estate			—		205
	Accrued interest receivable			2,087		2,142
	Cash value of life insurance			3,552		—
	Other assets			1,630		1,589
	Total assets		$	278,529	$	244,380
Liabilities and Shareholders’ Equity
Liabilities
	Deposits:
		Demand	$	40,533	$	31,629
		Savings and interest-bearing demand		118,331		105,183
		Time		72,957		64,148
	Total deposits			231,821		200,960
	Short-term borrowings			14,580		13,867
	Accrued interest payable			209		223
	Other liabilities			2,395		2,267
	Total liabilities			249,005		217,317
Shareholders’ Equity
	Common stock (no par value); authorized 10,000,000 shares; issued and outstanding: 2001 - 4,105,308 shares; 2000 - 4,137,630 shares			19,785		20,085
	Retained earnings			9,478		6,971
	Accumulated other comprehensive income			261		7
	Total shareholders’ equity			29,524		27,063
	Total liabilities and shareholders’ equity		$	278,529	$	244,380

See notes to consolidated financial statements.

4233

Consolidated Statements of Income (Dollars in Thousands, Except Per Share Amounts)

Citizens Bancorp and Subsidiary Years Ended December 31, ~~2001~~2006, ~~2000~~2005 and ~~1999~~2004

				2001				2000				1999
		2006				2005				2004
Interest Income
Interest and Dividend Income
Loans	~~Loans~~	$	18,687	$	~~15,075~~	$	16,411	$	~~14,470~~	$	13,142	$	~~12,614~~
Federal funds sold and deposits in banks	~~Federal funds sold and deposits in banks~~		309		~~507~~		75		~~256~~		114		~~866~~
Securities:	~~Securities:~~
Taxable		~~Taxable~~	2,252		~~2,777~~		1,622		~~3,333~~		1,665		~~3,191~~
Tax-exempt		~~Tax-exempt~~	282		~~396~~		356		~~377~~		417		~~352~~
	Total interest income				18,755				18,436				17,023
Other			14				4				3
Interest Expense
Total interest and dividend income			21,544				18,468				15,341
	Deposits				5,184				5,564				5,201
Interest Expense
	Short-term borrowings				490				657				555
Deposits			3,885				2,011				964
	Long-term borrowings				- -				20				290
Short-term borrowings			1,203				1,006				703
Total interest expense	~~Total interest expense~~		5,088		~~5,674~~		3,017		~~6,241~~		1,667		~~6,046~~
Net interest income	~~Net interest income~~		16,456		~~13,081~~		15,451		~~12,195~~		13,674		~~10,977~~
Provision for Credit Losses			145		~~733~~		155		~~454~~		142		~~264~~
Net interest income after provision for credit losses	~~Net interest income after provision for credit losses~~		16,311		~~12,348~~		15,296		~~11,741~~		13,532		~~10,713~~
Non-Interest Income
Service charges on deposit accounts	~~Service charges on deposit accounts~~		1,258		~~1,558~~		1,438		~~1,247~~		1,707		~~1,048~~
	Gains on sales of securities available for sale				306				- -				- -
Gains on sales of securities available for sale, net			—				—				24
	BankCard income				1,204				1,157				1,047
Earnings on life insurance policies			159				156				164
	Other				328				268				308
BankCard income			455				1,715				1,719
	Total non-interest income				3,396				2,672				2,403
Mortgage department income			52				96				89
Non-Interest Expense
Gain on sale of assets			—				92				291
	Salaries and employee benefits				4,974				4,527				4,281
Other			551				389				434
	Occupancy				704				643				623
Total non-interest income			2,475				3,886				4,428
	Furniture and equipment				732				703				599
Non-Interest Expense
	BankCard expense				944				940				864
Salaries and employee benefits			6,846				6,606				6,435
	Other				1,827				1,774				1,712
Occupancy			838				803				854
	Total non-interest expense				9,181				8,587				8,079
Furniture and equipment			567				590				609
	Income before income taxes				6,563				5,826				5,037
BankCard expense			77				1,332				1,378
Income Taxes					2,535				2,214				1,783
Other			2,058				1,823				1,923
	Net income			$	4,028			$	3,612			$	3,254
Total non-interest expense			10,386				11,154				11,199
Earnings Per Share
Income before income taxes			8,400				8,028				6,761
	Basic and diluted			$	.97			$	.87			$	.79
Income Taxes			2,941				2,701				2,409
Net income		$	5,459			$	5,327			$	4,352
Earnings Per Share
Basic		$	1.15			$	1.12			$	0.94
Diluted			1.15				1.11				0.94

See notes to consolidated financial statements.

4334

Consolidated Statements of Shareholders’ Equity (Dollars in Thousands)

Citizens Bancorp and Subsidiary Years Ended December 31, ~~2001~~2006, ~~2000~~2005 and ~~1999~~2004

												Accumulated			~~Accumulated~~
		Shares of		~~Shares of~~								Other			~~Other~~
		Common		~~Common~~	Common		~~Common~~	Retained			~~Retained~~	Comprehensive			~~Comprehensive~~
		Stock		~~Stock~~	Stock		~~Stock~~	Earnings			~~Earnings~~	Income (loss)			~~Income (Loss)~~	Total			~~Total~~
Balance at December 31, 1998					3,891,137		$	16,069			$	6,271			$	245			$	22,585
Balance at December 31, 2003			4,554,242			27,155			8,385				77				35,617
Comprehensive income:
Net income		~~Net income~~	—		~~- -~~	—		~~- -~~	4,352			~~3,254~~	—			~~- -~~	4,352			~~3,254~~
Other comprehensive income, net of tax:		~~Other comprehensive income, net of tax:~~
Change in fair value of securities available for sale			~~Change in fair value of securities available for sale~~—		~~- -~~	—		~~- -~~	—			~~- -~~	(451	)		~~(620~~	)(451	)		~~(620~~	)
Comprehensive income	~~Comprehensive income~~																3,901			~~2,634~~
5% stock dividend					196,385			3,191				(3,191	)			- -				- -
Cash dividend reinvestment ($15.52 per share)			61,727			958			—				—				958
Cash dividend reinvestment ($16.60 per share)					36,569			608				- -				- -				608
Cash dividends declared ($.46 per share)			—			—			(2,125	)			—				(2,125	)
Cash dividends declared ($.36 per share)					- -			- -				(1,485	)			- -				(1,485	)
Stock Options exercised			4,091			46			—				—				46
	Balance at December 31, 1999				4,124,091			19,868				4,849				(375	)			24,342
Stock grants			190			4			—				—				4
Comprehensive income:
Balance at December 31, 2004			4,620,250		$	28,163		$	10,612			$	(374	)		$	38,401
		Net income			- -			- -				3,612				- -				3,612
Comprehensive income:
		Other comprehensive income, net of tax:
Net income			—			—			5,327				—				5,327
			Change in fair value of securities available for sale		- -			- -				- -				382				382
Other comprehensive income, net of tax:
	Comprehensive income																			3,994
Change in fair value of securities available for sale			—			—			—				126				126
Cash dividend reinvestment ($16.08 per share)					13,539			217				- -				- -				217
Comprehensive income																	5,453
Cash dividends declared ($.36 per share)					- -			- -				(1,490	)			- -				(1,490	)
Cash dividend reinvestment ($17.37 per share)			31,614			549			—				—				549
	Balance at December 31, 2000				4,137,630			20,085				6,971				7				27,063
Cash dividends declared ($.50 per share)			—			—			(2,333	)			—				(2,333	)
Options exercised			18,432			211			—				—				211
Stock grants			90			2			—				—				2
Income tax benefit from stock options exercised						13											13
Balance at December 31, 2005			4,670,386		$	28,938		$	13,606			$	(248	)		$	42,296

(continued) See notes to consolidated financial statements.

~~See notes to consolidated financial statements.~~35

Consolidated Statements of Shareholders’ Equity (concluded) (Dollars in Thousands)

Citizens Bancorp and Subsidiary Years Ended December 31, ~~2001~~2006, ~~2000~~2005 and ~~1999~~2004

														Accumulated			~~Accumulated~~
		Shares of			~~Shares of~~									Other			~~Other~~
		Common			~~Common~~	Common			~~Common~~	Retained			~~Retained~~	Comprehensive			~~Comprehensive~~
		Stock			~~Stock~~	Stock			~~Stock~~	Earnings			~~Earnings~~	Income (loss)			~~Income (Loss)~~	Total			~~Total~~
Balance at December 31, 2000						4,137,630			$	20,085			$	6,971			$	7			$	27,063
Balance at December 31, 2005			4,670,386			$	28,938			$	13,606			$	(248	)		$	42,296
Comprehensive income:
Net income		~~Net income~~	—			~~- -~~	—			~~- -~~	5,459			~~4,028~~	—			~~- -~~	5,459			~~4,028~~
Other comprehensive income, net of tax:		~~Other comprehensive income, net of tax:~~
Change in fair value of securities available for sale			~~Change in fair value of securities available for sale~~—			~~- -~~	—			~~- -~~	—			~~- -~~	141			~~254~~	141			~~254~~
Comprehensive income		~~Comprehensive income~~																	5,600			~~4,282~~
Cash dividend reinvestment ($10.97 per share)						51,869				569				- -				- -				569
Cash dividend reinvestment ($17.35 per share)			64,951				1,127				—				—				1,127
Cash dividends declared ($.37 per share)						- -				- -				(1,521	)			- -				(1,521	)
Cash dividends declared ($.52 per share)			—				—				(2,461	)			—				(2,461	)
Stock repurchased			(21,640	)		~~(84,191~~	)(353	)		~~(869~~	)—			~~- -~~	—			~~- -~~	(353	)		~~(869~~	)
	Balance at December 31, 2001					4,105,308			$	19,785			$	9,478			$	261			$	29,524
Options exercised			19,827				243				—				—				243
Stock grants			120				2				—				—				2
Stock based compensation recognized in earnings			—				56				—				—				56
Income tax benefit from stock options exercised			—				14				—				—				14
Balance at December 31, 2006			4,733,644			$	30,027			$	16,604			$	(107	)		$	46,524

See notes to consolidated financial statements.

4536

Consolidated Statements of Cash Flows (Dollars in Thousands)

Citizens Bancorp and Subsidiary Years Ended December 31, 2001, 2000 and 1999


Citizens Bancorp and Subsidiary
Years Ended December 31, 2006, 2005 and 2004	2006			2005			2004
Cash Flows from Operating Activities
Net income	$	5,459		$	5,327		$	4,352
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		145			155			142
Depreciation and amortization		495			498			514
Originations of loans held for sale		(9,763	)		(11,971	)		(13,996	)
Proceeds of loans held for sale		10,347			11,533			14,120
Gain on sales of loans		(89	)		(110	)		(124	)
Deferred income tax (benefit)		289			45			100
Gains on sales of assets and securities available for sale		—			(92	)		(24	)
Gains on sales of foreclosed real estate		—			—			50
Gain on sale of branch		—			—			(291	)
Earnings on life insurance policies		(159	)		(156	)		(164	)
Stock dividends received		—			(2	)		(16	)
Net (accretion) amortization of bond premium and discount		(648	)		84			486
(Increase) decrease in interest receivable		(260	)		(31	)		63
Increase (decrease) in interest payable		38			28			(9	)
Stock based compensation expense		56			—			—
Other — net		24			551			301
Net cash provided by operating activities		5,934			5,859			5,504
Cash Flows from Investing Activities
Net (increase) decrease in federal funds sold		(8,905	)		5,352			(5,787	)
Net (increase) decrease in interest bearing deposits in banks		(11,543	)		6,827			(4,812	)
Activity in securities available for sale:
Sales		—			—			30,846
Maturities, prepayments and calls		55,500			35,451			46,900
Purchases		(36,978	)		(28,258	)		(69,735	)
Activity in securities held to maturity:
Maturities, prepayments and calls		2,425			2,100			2,420
Purchases		—			—			(452	)
Purchase of Federal Home Loan Bank stock		—			(292	)		(212	)
Redemption of Federal Home Loan Bank stock		—			14			—
Increase in loans made to customers, net of principal collections		(19,762	)		(19,743	)		(25,634	)
Purchases of premises and equipment		(1,493	)		(436	)		(667	)
Proceeds from sales of premises and equipment		—			172			6
Investment in state tax credits		(715	)		(648	)		—
Net cash provided by (used in) investing activities		(21,471	)		539			(27,127	)
Cash Flows from Financing Activities
Net increase in deposits		16,527			18,601			33
Net increase (decrease) in short-term borrowings		(979	)		(18,691	)		5,444
Exercise of stock options		243			211			46
Cash dividends paid		(1,206	)		(1,576	)		(1,137	)
Repurchase of common stock		(353	)		—			—
Tax benefit from stock options exercised		14			13			—
Net cash provided by (used in) financing activities		14,246			(1,442	)		4,386
Net increase (decrease) in cash and due from banks		(1,291	)		4,956			(17,237	)
Cash and Due from Banks
Beginning of year		18,518			13,562			30,799
End of year	$	17,227		$	18,518		$	13,562

				2001			2000			1999
Cash Flows from Operating Activities
	Net income			$	4,028		$	3,612		$	3,254
	Adjustments to reconcile net income to net cash provided by operating activities:
			Provision for credit losses		733			454			264
			Depreciation and amortization		684			622			487
			Deferred income tax (benefit)		(194	)		122			77
			Gains on sales of securities available for sale		(306	)		- -			- -
			Gain on sale of foreclosed real estate		(133	)		- -			- -
			Stock dividends received		(54	)		(51	)		(52	)
			(Increase) decrease in interest receivable		55			(110	)		(179	)
			Increase (decrease) in interest payable		(14	)		16			(20	)
			Other		154			(222	)		97
	Net cash provided by operating activities				4,953			4,443			3,928
Cash Flows from Investing Activities
	Net (increase) decrease in interest bearing deposits in banks				(6,273	)		(2,574	)		20,537
	Activity in securities available for sale:
		Sales			7,978			2,001			4,983
		Maturities, prepayments and calls			37,000			22,000			25,630
		Purchases			(50,773	)		(13,990	)		(41,581	)
	Activity in securities held to maturity:
		Maturities, prepayments and calls			550			605			2,590
		Purchases			(2,283	)		(496	)		(1,303	)
	Increase in loans made to customers, net of principal collections				(13,078	)		(18,876	)		(10,312	)
	Purchases of premises and equipment				(860	)		(544	)		(2,276	)
	Proceeds from sales of foreclosed real estate				365			- -			- -
	Additions to foreclosed real estate				(27	)		- -			- -
	Purchase of life insurance				(3,500	)		- -			- -
	Other				- -			- -			6
	Net cash used in investing activities				(30,901	)		(11,874	)		(1,726	)
Cash Flows from Financing Activities
	Net increase in deposits				30,861			6,610			6,115
	Net increase (decrease) in short-term borrowings				713			(1,710	)		(1,067	)
	Repayment of long-term borrowings				- -			(2,973	)		(1,238	)
	Cash dividends paid				(921	)		(1,268	)		(793	)
	Repurchase of common stock				(869	)		- -			- -
	Net cash provided by financing activities				29,784			659			3,017
	Net increase (decrease) in cash and due from banks				3,836			(6,772	)		5,219
Cash and Due from Banks
	Beginning of year				11,218			17,990			12,771
	End of year			$	15,054		$	11,218		$	17,990

(continued)
See notes to consolidated financial statements.

~~(continued)~~37

See notes to consolidated financial statements.

Consolidated Statements of Cash Flows (concluded) (Dollars in Thousands)

Citizens Bancorp and Subsidiary Years Ended December 31, ~~2001~~2006, ~~2000~~2005 and ~~1999~~2004

				2001				2000				1999
		2006				2005				2004
Supplemental Disclosures of Cash Flow Information
Interest paid	~~Interest paid~~	$	5,050	$	~~5,688~~	$	2,989	$	~~6,226~~	$	1,676	$	~~6,065~~
Income taxes paid	~~Income taxes paid~~		2,910		~~2,661~~		2,720		~~2,185~~		2,385		~~1,705~~
Supplemental Disclosures of Non-Cash Investing and Financing Activities
Fair value adjustment of securities available for sale, net of tax	~~Fair value adjustment of securities available for sale, net of tax~~	$	141	$	~~254~~	$	126	$	~~382~~		($451	)	~~($620~~	)
	Stock dividend				- -				- -				3,191
Dividend reinvestment			1,127				549				958
	Dividend reinvestment				569				217				608
Financed sale of foreclosed real estate			—				—				394
	Foreclosed real estate acquired in settlement of loans				- -				(205	)			- -
Stock grants			2				2				4

See notes to consolidated financial statements.

4738

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Citizens Bancorp (the Company) and its wholly owned subsidiary, Citizens Bank (the Bank). All significant intercompany transactions and balances have been eliminated.

Nature of Operations

The Company is a financial holding company which operates primarily through its subsidiary, the Bank. The Bank operates ten branches located in Benton, Lane, Polk, Yamhill and Linn Counties in western Oregon. The Bank provides loan and deposit services to customers who are predominately small- and medium-sized businesses in western Oregon.

Interest Bearing Deposits in Banks

Interest bearing deposits in banks are invested on a daily basis and have next day availability.

Consolidated Financial Statement Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted ~~accounting~~in ~~principles~~the United States of America and practices within the banking industry. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, as of the date of the balance sheet, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses and the valuation of deferred tax assets and foreclosed real estate.

Certain prior year amounts have been reclassified, with no change to shareholders’ equity or net income, to conform to the ~~2001~~ 2006 presentation. All dollar amounts, except per share information, are stated in thousands.

Bank Owned Life Insurance

The Company has bank-owned life insurance policies (“BOLI”) on certain executives. The Company purchased single premium BOLI policies. The premiums are recorded at their cash surrender values. Changes in cash surrender are included in non-interest income.

Securities Available for Sale

Securities available for sale consist of debt securities that the Bank intends to hold for an indefinite period, but not necessarily to maturity. Such securities may be sold to implement the Bank’s asset/liability management strategies and in response to changes in interest rates and similar factors. Securities available for sale are reported at fair value. Unrealized gains and losses, net of the related deferred tax effect, are reported as a net amount in a separate component of shareholders’ equity entitled “accumulated other comprehensive income (loss).” Realized gains and losses on securities available for sale, determined using the specific identification method, are included in earnings. Amortization of premiums and accretion of discounts are recognized in interest income over the period to maturity.

(continued)

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary

Note 1 — Summary of Significant Accounting Policies (continued)

Securities Held to Maturity

Debt securities for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized in interest income over the period to maturity.

Declines in the fair value of individual securities available for sale and held to maturity below their cost that are other than temporary result in write-downs of the individual securities to their fair value. Such write-downs are included in earnings as realized losses.

~~Loans~~Federal Home Loan Bank Stock

~~Loans~~The ~~are~~Bank’s ~~stated~~investment in Federal Home Loan Bank (“FHLB”) stock is carried at ~~the~~cost, ~~amount~~which approximates fair value. As a member of ~~unpaid~~the ~~principal~~FHLB system, ~~reduced~~the byBank ~~net~~is ~~deferred~~required to maintain a ~~loan~~minimum ~~origination~~level ~~fees~~of ~~and~~investment anin ~~allowance~~FHLB ~~for~~stock. ~~credit~~At ~~losses~~December 31, 2006, the Bank met its minimum required investment. ~~Interest~~The onBank ~~loans~~may isrequest redemption at par value of any FHLB stock in excess of the ~~accrued~~minimum ~~daily~~required ~~based~~investment; onhowever, stock redemptions are at the ~~principal~~discretion ~~amount~~of ~~outstanding~~the FHLB.

~~Generally the accrual of interest on loans is discontinued when, in~~39 management’s opinion, the borrower may be unable to meet payments as they become due or when they are past due 90 days as to either principal or interest, unless they are well secured and in the process of collection. When interest accrual is discontinued, all unpaid accrued interest is reversed against current income. If management determines that the ultimate collectibility of principal is in doubt, cash receipts on nonaccrual loans are applied to reduce the principal balance.

LoanTable origination and commitment fees and certain direct loan origination costs are deferred and amortized as an adjustment of the yield of the related loan. Contents

~~Allowance~~Notes ~~for~~to ~~Credit~~Consolidated ~~Losses~~Financial Statements

~~The~~Citizens ~~allowance~~Bancorp ~~for credit losses is maintained at a level considered adequate to provide for estimated losses on existing loans based on evaluating known~~ and ~~inherent~~ ~~risks in the loan portfolio. The allowance is reduced by loans~~Subsidiary ~~charged off~~December 31, ~~and~~2006 ~~increased by provisions charged to earnings~~ and ~~recoveries on~~2005 loans previously charged off. The allowance is based on management’s periodic, systematic evaluation of factors underlying the quality of the loan portfolio, including changes in the size and composition of the loan portfolio, the estimated value of any underlying collateral, internal loan grades, actual loan loss experience, current economic conditions, and detailed analysis of individual loans for which full collectibility may not be assured. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. While management uses the best information available to make its estimates, future adjustments to the allowance may be necessary if there is a significant change in economic conditions.

~~When~~Note ~~available~~1 ~~information~~— ~~confirms~~Summary ~~that specific loans or portions thereof are uncollectible, these amounts are charged off against the allowance for credit losses. The existence~~ of ~~some~~Significant orAccounting ~~all~~Policies ~~of the following criteria will generally~~(continued) confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not evidenced the ability or intent to bring the loan current; the Bank has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement.

Federal Home Loan Bank Stock (concluded)

The Bank, as a member of the FHLB, has entered into credit arrangements with the FHLB under which authorized borrowings are collateralized by the Bank’s FHLB stock as well as loans or other instruments which may be pledged. At December 31, 2006 maximum available FHLB borrowings were $31,104,000. At December 31, 2006 the Bank had no borrowings from the FHLB.

Advertising

Costs for advertising and marketing are expensed as incurred.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for credit losses, and any deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method.

(continued)

4940

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 1 — Summary of Significant Accounting Policies (continued)

~~Allowance~~Loans ~~for~~Receivable ~~Credit Losses~~ (concluded)

~~When~~Because ~~management~~some ~~determines~~loans ~~that~~may itnot ~~is probable that a borrower will~~ be ~~unable to~~repaid ~~repay~~in ~~all amounts due according to the terms of the loan agreement~~full, ~~including~~ ~~scheduled~~an ~~interest~~allowance ~~payments,~~for ~~the~~credit ~~loan~~losses is ~~considered impaired~~recorded. ~~Factors~~ ~~considered by management in determining impairment include payment~~An ~~status,~~allowance ~~collateral~~for ~~value,~~credit ~~and~~losses ~~the~~is ~~probability~~a ofvaluation ~~collecting~~allowance ~~scheduled~~for ~~principal and~~probable ~~interest~~incurred ~~payments~~credit ~~when due~~losses. ~~Loans that experience insignificant payment~~The ~~delays~~allowance ~~and~~for ~~payment~~credit ~~shortfalls~~losses ~~are~~is ~~generally~~increased ~~not~~by ~~classified~~a asprovision ~~impaired. Management~~for ~~determines~~credit ~~the~~losses ~~significance~~charged ofto ~~payment~~expense ~~delays~~ and ~~payment shortfalls~~ ondecreased aby ~~case~~charge-~~by-case~~offs ~~basis,~~(net ~~taking into consideration all~~ of ~~the~~recoveries). ~~circumstances surrounding~~The ~~the~~allowance ~~loan~~is ~~and~~based ~~the~~on ~~borrower~~ongoing, ~~including~~quarterly assessments ~~the length~~ of the ~~delay,~~probable ~~the reasons for the delay, the borrower’s prior payment record,~~ and ~~the~~estimable ~~amount~~losses ~~of shortfall~~inherent in ~~relation to~~ the ~~principal~~loan ~~and interest owed~~portfolio. The ~~amount of~~Company’s ~~impairment~~methodology isfor ~~measured~~assessing ~~based on~~ the ~~present~~appropriateness ~~value~~ of ~~expected future cash flows discounted at~~ the ~~loan’s~~allowance ~~effective~~consists ~~interest rate or, when the primary source~~ of ~~repayment~~ isseveral ~~provided~~key ~~by real estate collateral~~elements, which atinclude the ~~fair~~formula ~~value~~allowance ofand ~~the collateral~~specific ~~less estimated selling costs~~allowances.

The ~~ultimate~~formula portion of the general credit loss allowance is established by applying a loss percentage factor to the different loan types. The allowances are provided based on Management’s continuing evaluation of the pertinent factors underlying the quality of the loan portfolio, including changes in the size and composition of the loan portfolio, actual loan loss experience, current economic conditions, geographic concentrations, seasoning of the loan portfolio, specific industry conditions, and the duration of the current business cycle. The recovery of ~~all~~the carrying value of loans is susceptible to future market ~~factors~~ conditions beyond the ~~Bank~~Company’s control., ~~These~~which ~~factors~~ may result in losses or recoveries differing ~~significantly~~ from those provided. ~~for~~Specific allowances are established in cases where Management has identified significant conditions or circumstances related to a loan that Management believes indicate the ~~financial~~probability ~~statements~~that a loss has been incurred. Impaired loans consist of loans receivable that are not expected to be repaid in accordance with their contractual terms and are measured using the fair value of the collateral. Smaller balance loans are excluded from this analysis.

The ultimate recovery of all loans is susceptible to future market factors beyond the Company’s control. These factors may result in losses or recoveries differing significantly from those provided in the consolidated financial statements. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

Interest income on loans is accrued over the term of the loans based upon the principal outstanding. The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent that cash payments are received until, in management’s judgment, the borrower has the ability to make contractual interest and principal payments, in which case the loan is returned to accrual status.

Mortgage Banking Activities

Mortgage loans originated and intended for sale in the secondary market are reported as loans held for sale and are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized in a valuation allowance by charges to income.

All loans held for sale are sold into the secondary market, with the servicing released; accordingly, the Company does not service any third-party loans.

Foreclosed Real Estate

Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are initially recorded at the lower of cost or fair value of the properties less estimated costs of disposal. Any write-down to fair value at the time of transfer to foreclosed real estate is charged to the allowance for credit losses. Properties are evaluated regularly to ensure that the recorded amounts are supported by their current fair values. Any subsequent reductions in carrying values are charged to income.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the ~~Bank~~Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the ~~Bank~~Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

(continued)

5041

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 1 — Summary of Significant Accounting Policies (continued)

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation, which is computed on the straight-line method over the estimated useful lives of the assets which range from three to thirty-nine years. Leasehold improvements are amortized over the term of the lease or the estimated useful life of the improvement, whichever is less. Gains or losses on dispositions are reflected in earnings.

Assets are reviewed for impairment when events indicate that their carrying value may not be recoverable. If management determines impairment exits, the assets are reduced with an offsetting charge to expense.

Income Taxes

Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities, and are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. ~~The~~Deferred ~~deferred~~ tax ~~provision~~assets ~~represents~~are ~~the~~reduced ~~difference~~by a valuation allowance ~~between~~when, in the ~~net~~opinion ~~deferred~~of ~~tax~~management, ~~asset/liability~~it atis ~~the~~more ~~beginning~~likely ~~and~~than ~~end~~not that some portion or all of the ~~year~~deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Cash Equivalents and Cash Flows

~~The~~For ~~Company~~purposes ~~considers~~of ~~all~~presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption “Cash and due from banks.” ~~and~~Cash ~~“Interest~~flows from interest bearing deposits in banks”, toloans, bedeposits, ~~cash~~and short-term ~~equivalents~~borrowings are reported net.

The ~~Bank~~Company maintains its cash in depository institution accounts which, at times, may exceed federally insured limits. The ~~Bank~~Company has not experienced any losses in such accounts.

Fair ~~Values~~Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating the fair ~~values~~value of financial instruments disclosed in these consolidated financial statements:

Cash and ~~Short-Term~~Due ~~Instruments~~From ~~The~~Banks, ~~carrying~~Interest ~~amounts~~Bearing ofDeposits ~~cash~~in ~~and~~Banks ~~short-term instruments approximate their fair value. Securities Available for Sale~~ and ~~Held to Maturity Fair values for securities are based on quoted market prices.~~ Federal ~~Home~~Funds ~~Loan Bank Stock~~ Sold The carrying ~~value~~amounts of ~~Federal~~cash, ~~Home~~interest ~~Loan~~bearing ~~Bank~~deposits ~~stock~~in ~~approximates~~banks, ~~its~~and federal funds sold approximate their fair value.

Securities Available for Sale and Held to Maturity
Fair values for securities are based on quoted market prices.

Federal Home Loan Bank Stock
The carrying value of Federal Home Loan Bank stock approximates its fair value.

Loans
For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable. Fair values of loans held for sale are based or their estimated market price.

Deposit Liabilities
The fair value of deposits with no stated maturity date is included at the amount payable on demand. Fair values for fixed rate certificates of deposits are estimated using a discounted cash flow calculation based on interest rates currently offered on similar certificates.

(continued)

5142

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 1 — Summary of Significant Accounting Policies (continued)

Fair ~~Values~~Value of Financial Instruments (concluded)

Loans For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable. Deposit Liabilities The fair values disclosed for demand deposits are, by definition, equal to the amounts payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable rate, fixed term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation based on interest rates currently being offered on similar certificates. Short-Term ~~and Long-Term~~ Borrowings The carrying amounts of repurchase agreements and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. Accrued Interest The carrying amounts of accrued interest approximate their fair values. Off-Balance Sheet Instruments The fair value of commitments to extend credit and standby letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the customers.

Accrued Interest
The carrying amounts of accrued interest approximate their fair values.

Off-Balance-Sheet Instruments
The fair value of commitments to extend credit and standby letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the customers. Since the majority of the Company’s off-balance-sheet instruments consist of non-fee producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value.

Earnings Per Share

Basic earnings per share exclude dilution and are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options under the Company’s stock option ~~plans~~plan. InStock ~~2001~~options excluded from the calculation of diluted earnings per share because they are antidilutive, ~~2000~~represented 34,937 and ~~1999~~37,475 ~~the~~shares ~~options~~in ~~did~~2006 ~~not~~and ~~have a~~2005, ~~dilutive~~respectively. ~~effect~~There onwere ~~earnings~~no ~~per~~shares ~~share~~excluded in 2004.

Stock-Based Compensation

~~The~~In 1999, the Company ~~accounts~~adopted a qualified incentive stock option plan that allows for grants of incentive stock~~-based~~ ~~awards~~options to certain employees. ~~using~~The ~~the~~plan ~~intrinsic value~~authorized ~~method,~~a intotal ~~accordance~~of ~~with~~181,460 ~~APB~~shares Nofor options. 25 For each stock option grant, ~~Accounting~~the ~~for~~Board ~~Stock~~of ~~Issued~~Directors todetermines and approves option ~~Employees.~~exercise ~~Accordingly~~prices, nonumbers ~~compensation~~of ~~expense~~options ~~has~~granted, ~~been~~vesting ~~recognized~~periods inand ~~the~~expiration dates. Cash was not ~~financial~~used ~~statements~~to ~~for~~settle ~~employee~~any ~~stock~~equity ~~arrangements~~instruments previously granted. ~~However,~~The ~~the~~Company ~~required~~issues shares from authorized ~~pro~~but ~~forma~~unissued ~~disclosures~~shares ofupon the ~~effects~~exercise of ~~all~~stock options. ~~granted~~The onCompany ordoes ~~after~~not ~~January~~currently expect to 1,repurchase ~~1995~~shares ~~have~~from ~~been~~any ~~provided~~source into ~~accordance~~satisfy ~~with~~such ~~SFAS~~obligations ~~No. 123,~~under ~~Accounting~~its ~~for Stock-Based~~stock ~~Compensation~~option plan.

On January 1, 2006, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004) that requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors.

SFAS No. 123(R) supersedes the Company’s previous accounting under the provisions of SFAS No. 123, Accounting for Stock-Based Compensation. As permitted by SFAS No. 123, the Company measured compensation cost for options in accordance with Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, no accounting recognition was given to these prior stock options granted at fair market value until they were exercised. Upon exercise, net proceeds, including tax benefits realized, were credited to equity.

SFAS No. 123(R) requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of income. The Company has adopted the accelerated method for graded vested options which recognizes compensation expense for each vesting tranche over its vesting period.

The Company uses the Black-Scholes option-pricing model to value stock options. The Black-Scholes model requires the use of employee exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, dividend yield, weighted average risk-free interest rate, and weighted average expected life of the options. There were no options granted during the periods ended December 31, 2006 and 2005.

(continued)

5243

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 1 — Summary of Significant Accounting Policies (continued)

Stock-Based Compensation (concluded)

The Company adopted SFAS No. 123(R) using the modified prospective transition method, which requires adoption as of January 1, 2006, the first day of the Company’s 2006 fiscal year. In accordance with the modified prospective transition method, the Company’s consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) for the period ended December 31, 2006 totaled $56 thousand, no tax benefit was realized, and related to currently vesting employee stock options that were granted in prior years. At December 31, 2006, unrecognized stock-based compensation totaled $26 thousand. These costs are expected to be recognized over a weighted average period of 14 months.

As required under SFAS 123(R), the reported net income and earnings per share for the periods ended December 31, 2005 and 2004 have been presented below to reflect the impact had the Company been required to recognize compensation cost based on the fair value at the grant date for stock options. The pro forma amounts are as follows.


(dollars in thousands except per share amounts)	2005			2004
Net income, as reported	$	5,327		$	4,352
Less total stock-based employee compensation expense determined under fair value based methods for all qualifying awards		(129	)		(183	)

Pro forma net income	$	5,198		$	4,169

Earnings per share:
Basic — as reported	$	1.12		$	0.94
Basic — pro forma	$	1.10		$	0.90
Diluted — as reported	$	1.11		$	0.94
Diluted — pro forma	$	1.09		$	0.90

The Company’s stock compensation plan is more fully described in Note 13.

New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109”. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return. FIN 48 is effective beginning in the first quarter of fiscal year 2007. Management has determined that the provisions of FIN 48 will not materially impact the Company’s result of operations or financial condition.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. This Statement does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. This Statement is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. The Company does not expect that the adoption of this Statement will have a material impact on its financial position, results of operation and cash flows.

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary
December 31, 2006 and 2005

Note 1 — Summary of Significant Accounting Policies (concluded)

~~Recent~~New Accounting Pronouncements (concluded)

~~SFAS~~In ~~No.~~September ~~133~~2006, the Securities and Exchange Commission (SEC) announced “Staff Accounting Bulletin ~~for~~No. 108” ~~Derivative~~(SAB ~~Instruments~~108). ~~and~~SAB ~~Hedging~~108 ~~Activities,~~addresses how to quantify financial statement errors that ~~became~~arose ~~effective~~in ~~and~~prior ~~was~~periods ~~adopted~~for bypurposes of assessing their materiality in the ~~Bank~~current ~~effective~~period. ~~January~~It requires analysis of misstatements using both an income statement (rollover) 1,approach ~~2001.~~and ~~The~~a balance ~~Bank~~sheet ~~does~~(iron ~~not~~curtain) ~~engage~~approach in ~~hedging~~assessing ~~activities,~~materiality. ~~nor~~It ~~did~~clarifies itthat ~~have~~immaterial ~~any~~financial statement ~~derivatives~~errors atin a prior SEC filing can be corrected in subsequent filings without the need to ~~December 31,~~amend ~~2001~~the orprior ~~2000~~filing. ~~The~~In ~~adoption~~addition, ofSAB ~~SFAS~~108 ~~No. 133~~provides ~~had~~transitional norelief ~~effect~~for oncorrecting ~~the~~errors ~~Bank’s~~that ~~financial~~would ~~position~~have orbeen ~~results~~considered ofimmaterial ~~operations~~before asits ofissuance. orSAB 108 was effective for the year ~~ended~~ ended December 31, ~~2001~~2006. The adoption of SAB 108 did not have an impact on the Company’s accompanying consolidated financial statements.

In ~~June 2001~~February 2007, the ~~Financial~~FASB ~~Accounting~~issued ~~Standards Board adopted Financial Accounting Standards Nos. 141, Business Combinations, and 142, Goodwill and Other Intangible Assets.~~ SFAS No. ~~141 requires that all business combinations entered into after June 30~~159, ~~2001~~“The beFair ~~accounted~~Value Option for ~~under~~Financial ~~the~~Assets ~~purchase~~and Financial ~~method~~Liabilities”. SFAS No. ~~142~~159 ~~addresses~~provides ~~how~~entities ~~goodwill~~with ~~and~~an ~~other~~option ~~intangible~~to ~~assets~~report ~~should~~certain ~~be accounted for after they have been initially recorded in the~~ financial statements. Goodwill arising from business combinations prior to the effective date of this standard will no longer be amortized, starting in 2002, but will be subject to annual tests for impairment. Other identifiable intangible assets, and ~~certain~~liabilities ~~unidentifiable~~at ~~intangible~~fair ~~assets~~value ~~arising~~— ~~from~~with ~~certain acquisitions,~~changes ~~will~~in ~~continue~~fair tovalue bereported ~~amortized~~in ~~using~~earnings ~~the~~— ~~same lives~~ and ~~methods.~~ Inrequires ~~June~~additional ~~2001,~~disclosures ~~the~~related ~~FASB~~to ~~also~~an ~~issued~~entity’s ~~SFAS~~election ~~No. 143,~~to ~~Accounting~~use ~~for~~fair ~~Asset Retirement~~value ~~Obligations~~reporting. ~~This statement addresses financial accounting and~~It ~~reporting~~also ~~for~~requires ~~obligations~~entities ~~associated~~to ~~with~~display the ~~retirement~~fair value of ~~tangible~~those ~~long-lived~~ assets and ~~the~~liabilities ~~associated~~for ~~asset~~which ~~retirement costs. This statement is effective~~the ~~for~~entity ~~all~~has ~~fiscal~~elected ~~years~~to ~~beginning~~use ~~after~~fair ~~June 15,~~value ~~2002.~~on Inthe ~~August~~face ~~2001~~of the ~~FASB issued~~balance sheet. SFAS No. ~~144,~~159 ~~Accounting for the Impairment or Disposal of Long-Lived Assets. The statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement~~ is effective ~~for~~ for fiscal years beginning after ~~December~~November 15, ~~2001~~2007. The Company ~~does~~is ~~not~~currently ~~anticipate that~~evaluating the ~~adoption~~impact that of SFAS ~~Nos~~No. 159 ~~141,~~may ~~142, 143 and 144 will~~ have ~~a material effect~~ on its ~~financial~~future ~~position~~consolidated orfinancial ~~results of operations~~statements.

~~Note~~In 2September 2006, the FASB ratified the consensuses reached by the Emerging Issues Task Force (the Task Force) on Issue No. 06-5 (EITF 06-5) Accounting for the Purchases of Life Insurance — Determining ~~Restricted~~the ~~Assets~~Amount that Could be Realized in Accordance with FASB Technical Bulletin No. 85-4 (FTB 85-4). FTB 85-4 indicates that the amount of the asset included in the balance sheet for life insurance contracts within its scope should be “the amount that could be realized under the insurance contract as of the date of the statement of financial position.” Questions arose in applying the guidance in FTB 85-4 related to whether “the amount that could be realized” should consider 1) any additional amounts included in the contractual terms of the insurance policy other than the cash surrender value and 2) the contractual ability to surrender all of the individual-life policies (or certificates in a group policy) at the same time. EITF 06-5 determined that “the amount that could be realized” should 1) consider any additional amounts included in the contractual terms of the policy and 2) assume the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). Any amount that is ultimately realized by the policy holder upon the assumed surrender of the final policy (or final certificate in a group policy) shall be included in the “amount that could be realized.” An entity should apply the provisions of EITF 06-5 through either a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or a change in accounting principle through retrospective application to all prior periods. The provisions of EITF 06-5 are effective for fiscal years beginning after December 15, 2007. Management has not yet completed its evaluation of the impact that EITF 06-5 may have on the Company.

~~Federal~~In ~~Reserve~~September 2006, ~~Board~~the ~~regulations~~FASB ~~require~~ratified ~~that~~the consensuses reached by the ~~Bank~~Task ~~maintain~~Force ~~reserves~~on inIssue No. 06-4 ~~the~~(EITF ~~form~~06-4) Accounting for Deferred Compensation and Postretirement Benefit Aspects of ~~cash~~Endorsement Split-Dollar onLife ~~hand~~Insurance Arrangements. A question arose when an employer enters into an endorsement split-dollar life insurance arrangement related to whether the employer should recognize a liability for the future benefits or premiums to be provided to the employee. EITF 06-4 indicates that an employer should recognize a liability for future benefits and ~~deposit~~that ~~balances~~a liability ~~with~~for the ~~Federal~~benefit ~~Reserve~~obligation ~~Bank~~has not been settled through the purchase of an endorsement type policy. An entity should apply the provisions of EITF 06-4 either through a change in accounting principle through a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption or a change in accounting principle through retrospective application to all prior periods. The ~~amounts~~provisions of ~~such~~EITF ~~balances~~06-4 are effective for ~~the~~fiscal years beginning ~~ended~~after December 3115, ~~2001~~2007. ~~and~~Management ~~2000~~has not yet completed its evaluation of the impact ~~were~~that ~~approximately~~EITF ~~$2,482~~06-4 ~~and~~may ~~$1,468,~~have ~~respectively~~on the Company.

5345

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 2 — Restricted Assets

Federal Reserve Board regulations require that the Bank maintain reserves in the form of cash on hand and deposit balances with the Federal Reserve Bank, based on percentage of deposits. The amounts of such balances for the years ended December 31, 2006 and 2005 were approximately $635 and $2,736, respectively.

Note 3 — Securities

Securities have been classified according to management’s intent. The ~~carrying amount~~amortized cost of securities and their approximate fair ~~values~~value were as follows:

					Gross	~~Gross~~		Gross	~~Gross~~
		Amortized	~~Amortized~~		Unrealized	~~Unrealized~~		Unrealized	~~Unrealized~~			Fair	~~Fair~~
		Cost	~~Cost~~		Gains	~~Gains~~		Losses	~~Losses~~			Value	~~Value~~
Securities Available for Sale
December 31, 2001
December 31, 2006
U.S. Government and agency securities	~~U.S. Government and agency securities~~	$	$46,379	~~56,504~~	$	$39	~~579~~		($214	~~($151~~)	)	$	$46,204	~~56,932~~
December 31, 2000
December 31, 2005
U.S. Government and agency securities	~~U.S. Government and agency securities~~	$	$64,269	~~50,563~~	$	$—	93		($406	~~($81~~)	)	$	$63,863	~~50,575~~
Securities Held to Maturity
December 31, 2001
December 31, 2006
State and municipal securities	~~State and municipal securities~~	$	$5,462	~~10,051~~	$	$80	~~212~~	$	—	~~($19~~	)	$	$5,542	~~10,244~~
December 31, 2000
December 31, 2005
State and municipal securities	~~State and municipal securities~~	$	$7,871	~~8,304~~	$	$146	71		($5	~~($40~~)	)	$	$8,012	~~8,335~~

~~The~~Unrealized ~~contractual~~losses ~~maturities~~and offair ~~securities~~value, ~~held~~aggregated toby ~~maturity~~investment category and ~~available~~length ~~for~~of time that ~~sale~~individual atsecurities have been in a continuous unrealized loss position, as of December 31, ~~2001~~2006 and 2005 are summarized as follows:

			Held to Maturity						Available for Sale
		Less than 12 Months						12 Months or More						Total
			Amortized			Fair			Amortized			Fair
		Fair			Unrealized			Fair			Unrealized			Fair		Unrealized
			Cost			Value			Cost			Value
		Value			Losses			Value			Losses			Value		Losses
Due in one year or less			$	431		$	436		$	12,456		$	12,669
December 31, 2006
Due from one year to five years				4,999			5,122			44,048			44,263
Securities available for sale:
Due from five to ten years				4,372			4,439			- -			- -
U.S. Government and agency securities		$	30,262		$	(145	)	$	8,930		$	(69	)	$	39,192	$	(214	)
Due after ten years				249			247			- -			- -
December 31, 2005
	Total		$	10,051		$	10,244		$	56,504		$	56,932
Securities held to maturity:
State and municipal securities		$	—		$	—		$	677		$	(5	)	$	677	$	(5	)
Securities available for sale:
U.S. Government and agency securities		$	28,202		$	(70	)	$	35,661		$	(336	)	$	63,863	$	(406	)

The Company has evaluated these securities and has determined that the decline in the value is temporary. The decline in value is not related to any company or industry specific event. Despite the unrealized loss position of these securities, management has concluded, as of December 31, 2006 that these investments are not other-than-temporarily impaired. This assessment was based on the following factors: i) the length of time and the extent to which the market value has been less than cost; ii) the financial condition and near-term prospects of the issuer; iii) the intent and ability of the Company to retain its investment in a security for a period of time sufficient to allow for any anticipated recovery in market value; and iv) general market conditions which reflect prospects for the economy as a whole, including interest rates and sector credit spreads.

(continued)

5446

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 3 — Securities (concluded)

~~Securities~~The ~~carried~~contractual atmaturities ~~approximately~~of ~~$35,290~~securities atheld ~~December 31,~~to ~~2001~~maturity and ~~$27,684~~available for sale at December 31, ~~2000 were pledged to secure public deposits and repurchase~~ ~~agreements,~~2006 ~~and~~are ~~for~~as ~~other purposes required or permitted by law.~~follows:

Gross realized gains on sales of securities available for sale were $306 and $1 for the years ended December 31, 2001 and 1999, respectively. There were no gross realized gains or losses in 2000.


	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	1,172	$	1,175	$	32,375	$	32,208
Due from one year to five years		3,331		3,382		10,834		10,817
Due from five to ten years		959		985		2,138		2,156
Due over ten years		—		—		1,032		1,023
Total	$	5,462	$	5,542	$	46,379	$	46,204

Securities carried at approximately $46,048 at December 31, 2006 and $49,032 at December 31, 2005 were pledged to secure public deposits and repurchase agreements, and for other purposes required or permitted by law.

Gross realized gains on sales of securities available for sale were $42 for the year ended December 31, 2004. There were no gross gains realized for the years ending December 31, 2006 and 2005. There were no gross losses realized in the years ending December 31, 2006 or 2005 and $18 in gross losses in 2004.

Note 4 — Loans

Loans at December 31 consist of the following:

				2001				2000
		2006				2005
Agriculture		$	18,715	$	~~14,727~~	$	18,249	$	~~14,816~~
Commercial			27,810		~~22,589~~		22,478		~~29,088~~
Real estate:
Residential 1-4 family	~~Residential 1-4 family~~		25,254		~~29,667~~		22,787		~~30,202~~
Construction	~~Construction~~		16,647		~~17,885~~		11,049		~~8,651~~
	Commercial and other				85,024				73,505
Commercial			120,614				116,180
Consumer					4,061				4,710
Farmland			17,508				14,046
					173,953				160,972
Multi-family			23,530				25,419
Less net deferred loan origination fees					611				542
Consumer			3,382				3,502
		Total loans		$	173,342			$	160,430
			253,460				233,710
Less net deferred loan origination fees			433				413
Total loans		$	253,027			$	233,297

Changes in the allowance for credit losses for the years ended December 31 are as follows:

		2001			2000			1999
Balance at beginning of year		$	1,510		$	1,071		$	1,419
Provision for credit losses			733			454			264
Charge-offs			(101	)		(78	)		(632	)
Recoveries			4			63			20
	Net charge-offs		(97	)		(15	)		(612	)
	Balance at end of year	$	2,146		$	1,510		$	1,071

(continued)

5547

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 4 — Loans (concluded)

~~Following~~Changes isin athe ~~summary~~allowance offor ~~information~~credit ~~pertaining~~losses tofor ~~impaired~~the ~~loans~~years ended December 31 are as follows:

			2001			2000			1999
		2006			2005			2004
December 31
Balance at beginning of year		$	2,750		$	2,790		$	2,765
	Impaired loans without a valuation allowance		$	632		$	1,001		$	499
Provision for credit losses			145			155			142
	Impaired loans with a valuation allowance			72			116			65
Charge-offs			(24	)		(202	)		(117	)
	Total impaired loans		$	704		$	1,117		$	564
Recoveries			4			7			—
	Valuation allowance related to impaired loans		$	34		$	42		$	59
Net charge-offs			(20	)		(195	)		(117	)
Years Ended December 31
Balance at end of year		$	2,875		$	2,750		$	2,790
	Average investment in impaired loans		$	463		$	686		$	477
	Interest income recognized on a cash basis on impaired loans			—			—			—

At December 31, ~~2001,~~2006 ~~there~~and ~~were~~2005, nothe ~~commitments~~Company ~~to lend additional funds to borrowers whose loans~~ had ~~been modified. Loans 90 days and over past due still~~ non-accruing ~~interest~~loans ~~were~~of approximately $~~330~~1,436 $2 and $~~73 at December 31~~2, ~~2001~~073, ~~2000 and 1999,~~ respectively.

~~Certain~~Following ~~related~~is ~~parties~~a ofsummary ~~the Company, principally Company directors, their associates and key officers, were loan customers~~ of ~~the~~information ~~Bank~~pertaining into ~~the~~impaired ~~ordinary course of business during 2001 and 2000. Total~~ loans ~~outstanding~~ at December 31~~, 2001 and 2000 to key officers and directors were $4,654 and $4,531,~~: ~~respectively. During 2001, advances totaled $1,678 and repayments totaled $1,555 on these loans.~~

Note 5 — Premises and Equipment


	2006		2005		2004
December 31
Impaired loans without a valuation allowance	$	385	$	666	$	4,906
Impaired loans with a valuation allowance		1,051		1,407		1,284
Total impaired loans	$	1,436	$	2,073	$	6,190
Valuation allowance related to impaired loans	$	42	$	101	$	206
Years Ended December 31
Average investment in impaired loans	$	1,450	$	1,908	$	3,525
Interest income recognized on a cash basis on impaired loans		—		—		—

~~The components of premises and equipment at December 31 are as follows:~~48

		2001		2000
Land and buildings		$	7,065	$	6,557
Furniture and equipment			2,561		2,620
Construction in progress			143		41
			9,769		9,218
Less accumulated depreciation and amortization			4,305		4,027
	Total premises and equipment	$	5,464	$	5,191

(continued)

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 5 — Premises and Equipment

The ~~Bank~~components ~~leases~~of ~~branch~~ premises ~~under~~and ~~operating~~equipment ~~leases which expire~~ at ~~various dates through January~~December 31, ~~2020.~~are ~~Rental~~as ~~expense for leased premises was $147,~~follows: ~~$138 and $134 for 2001, 2000 and 1999, respectively, which is included in occupancy expense.~~


	2006		2005
Land and buildings	$	10,480	$	9,830
Furniture and equipment		2,539		2,563
Remodel in progress		42		217
		13,061		12,610
Less accumulated depreciation and amortization		4,622		5,155
Total premises and equipment	$	8,439	$	7,455

The Bank leases branch premises under operating leases which expire at various dates through January 31, 2020. Rental expense for leased premises was $160, $168 and $205 for 2006, 2005 and 2004, respectively, which is included in occupancy expense.

Minimum net rental commitments under noncancellable leases having an original or remaining term of more than one year for future years ending December 31 are as follows:

2002	$	118
2007	$	140
2003		98
2008		109
2004		53
2009		95
2005		53
2010		85
2006		53
2011		67
Thereafter		1,~~222~~221
Total minimum payments required	$	1,~~597~~717

Certain leases contain renewal options from five to ten years and escalation clauses based on increases in property taxes and other costs.

Note 6 — Deposits

The composition of deposits at December 31 is as follows:

			2001			2000
		2006			2005
Demand deposits, non-interest bearing		$	$58,514	~~40,533~~	$	$56,608	~~31,629~~
NOW and money market accounts			157,689	~~105,937~~		144,302	~~92,196~~
Savings deposits			13,891	~~12,394~~		15,376	~~12,987~~
Time certificates, $100,000 or more			16,033	~~29,689~~		15,134	~~22,440~~
Other time certificates			24,483	~~43,268~~		22,663	~~41,708~~
Total	~~Total~~	$	$270,610	~~231,821~~	$	$254,083	~~200,960~~

Scheduled maturities of certificates of deposit for future years ending December 31 are as follows:

2002	$	63,383
2007	$	34,323
2003		7,426
2008		4,421
2004		1,305
2009		741
2005		590
2010		290
2006		244
2011		741
2007		9
	$	40,516
	$	72,957

5749

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 7 — Short-Term Borrowings

Securities sold under agreements to repurchase, federal funds purchased, and treasury tax and loan deposits represent short-term borrowings with maturities which do not exceed 90 days. The following is a summary of such short-term borrowings for the years ended December 31:

			2001				2000
		2006				2005				2004
Average balance during the year		$	$37,682	~~17,172~~		$	$46,782	~~16,407~~		$	50,284
Average interest rate during the year			3.19	~~2.8~~%	%		2.15	~~4.1~~%	%		1.40	%
Maximum month-end balance during the year		$	45,509	~~19,070~~		$	57,112	~~17,864~~		$	57,159
Balance at December 31:
	Securities sold under agreement to repurchase			14,580				13,867
Securities sold under agreements to repurchase		$	35,586			$	36,590			$	55,446
Other	~~Other~~	$	1,903	~~282~~		$	1,878	~~1,216~~		$	1,713
Weighted average interest rate at December 31			2.47	~~1.8~~%	%		1.92	~~3.9~~%	%		2.16	%

Note 8 — ~~Long-Term~~Employee ~~Borrowings~~Benefits

The Bank’s ~~has~~401(k) aprofit ~~line~~sharing ofplan ~~credit~~covers ~~with~~substantially ~~the~~all ~~Federal~~employees ~~Home~~who ~~Loan~~have ~~Bank~~completed one year or more of ~~Seattle~~service. Contributions to the 401(~~FHLB~~k) plan consist of employer contributions (up to ~~totaling~~a ~~15%~~maximum of ~~assets,~~15% of ~~which~~employee $2salaries),~~973~~ ~~was~~which ~~used~~are at ~~December 31,~~the ~~1999.~~discretion ~~All~~of the Board of Directors. Total contributions by the ~~borrowings~~Bank ~~were~~to ~~repaid~~this ~~during~~plan ~~2000.~~in No2006, ~~new~~2005, ~~borrowings~~and ~~occurred~~2004 inwere ~~2001~~$382, $435, and $385, respectively.

~~Note~~The 9Company —has ~~Employee~~a ~~Benefits~~discretionary bonus plan for all employees. The amount of the bonus paid is determined at the end of the year by the Board of Directors. The Company paid bonuses of $408, $370 and $302 for the years ended December 31, 2006, 2005 and 2004, respectively.

~~The~~Note ~~Bank~~9 ~~has~~— aIncome ~~401(a) profit sharing plan covering substantially all employees~~Taxes who have completed one year or more of service. Contributions to the 401(a) profit sharing plan consist of employer contributions (up to a maximum of 15% of employee salaries), which are at the discretion of the Board of Directors. Total contributions by the Bank to this plan in 2001, 2000 and 1999 were $377, $360 and $335, respectively.

~~The~~Income ~~Company~~taxes ~~has~~are acomprised ~~discretionary bonus plan for all employees. The amount~~ of ~~the~~ ~~bonus paid is determined at~~ the ~~end~~following ~~of the year by the Board of Directors. The Company paid bonuses of $240, $170 and $156~~ for the years ended December 31~~, 2001, 2000 and 1999, respectively.~~:


	2006		2005		2004
Current:
Federal	$	2,522	$	2,478	$	1,860
State		130		178		449
Deferred tax expense (benefit)		289		45		100
Total income taxes	$	2,941	$	2,701	$	2,409

(continued)

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 109 — Income Taxes (concluded)

Income taxes are comprised of the following for the years ended December 31:

		2001			2000		1999
Current:
	Federal	$	2,251		$	1,711	$	1,386
	State		478			381		320
Deferred (benefit)			(194	)		122		77
	Total income taxes	$	2,535		$	2,214	$	1,783

The following is a reconciliation between the statutory and the effective federal income tax rates for the years ended December 31:

			2001								2000								1999
		2006								2005								2004
						Percent	~~Percent~~							Percent	~~Percent~~							Percent	~~Percent~~
						of Pre-tax	~~of Pre-tax~~							of Pre-tax	~~of Pre-tax~~							of Pre-tax	~~of Pre-tax~~
		Amount	~~Amount~~			Income	~~Income~~			Amount	~~Amount~~			Income	~~Income~~			Amount	~~Amount~~			Income	~~Income~~
Income tax at statutory rates		$	$2,940	~~2,297~~			35.0	~~35.0~~%	%	$	$2,810	~~2,039~~			35.0	~~35.0~~%	%	$	$2,366	~~1,763~~			35.0	~~35.0~~%	%
Increase (decrease) resulting from:
Tax-exempt income	~~Tax-exempt income~~		(210	~~(114~~)	)		(2.5	~~(1.7~~)	)		(222	~~(113~~)	)		(2.8	~~(1.9~~)	)		(161	~~(105~~)	)		(2.3	~~(2.1~~)	)
	State income taxes, net of federal income tax effect			317				4.8				253				4.3				211				4.2
State income taxes, net of tax effect			358				4.3				350				4.4				299				4.4
	Other			35				.5				35				.6				(86	)			(1.7	)
Earnings on life insurance policies			(62	)			(.7	)			(53	)			(.7	)			(56	)			(.8	)
	Total income tax expense		$	2,535				38.6	%		$	2,214				38.0	%		$	1,783				35.4	%
Other			(85	)			(1.0	)			(184	)			(2.3	)			(39	)			(.5	)
Total income tax expense		$	2,941				35.1	%		$	2,701				33.6	%		$	2,409				35.8	%

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31 are:

			2001				2000			1999
		2006				2005
Deferred Tax Assets
Allowance for credit losses	~~Allowance for credit losses~~	$	$1,064	~~789~~		$	$1,017	~~589~~		$	~~475~~
Deferred compensation	~~Deferred compensation~~		422	30			322	33			~~- -~~
	Other			1				4			54
Oregon Tax Credits			816				510
	Unrealized loss on securities available for sale			- -				- -			299
Other			163				135
	Total deferred tax assets			820				626			828
Unrealized loss on securities available for sale			68				158
Deferred Tax Liabilities
Total deferred tax assets			2,533				2,142
	Accumulated depreciation			(4	)			(15	)		(42	)
Deferred Tax Liabilities
	Deferred income			(133	)			(122	)		(120	)
Accumulated depreciation			(171	)			(161	)
	Unrealized gain on securities available for sale			(167	)			(5	)		- -
Deferred income			(185	)			(177	)
	Total deferred tax liabilities			(304	)			(142	)		(162	)
Other			(177	)			(140	)
	Net deferred tax assets		$	516			$	484		$	666
Total deferred tax liabilities			(533	)			(478	)
Net deferred tax assets		$	2,000			$	1,664

59In 2006 and 2005, the Company purchased Oregon state income tax credits in the amount of $981 and $867 for a cost of $715 and $648, respectively, of which $524 and$214 were used in 2006 and 2005 to reduce current state income tax payable.

Net deferred tax assets are included in other assets on the consolidated balance sheets.

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 1110 — Commitments and Contingencies

The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. A summary of the Bank’s commitments at December 31 is as follows:

			2001			2000
		2006			2005
Commitments to extend credit:
Real estate secured	~~Real estate secured~~	$	$7,791	~~2,140~~	$	$9,489	~~1,058~~
Other	~~Other~~		59,775	~~23,787~~		49,064	~~27,330~~
Total commitments to extend credit	~~Total commitments to extend credit~~	$	$67,566	~~25,927~~	$	$58,553	~~28,388~~
Standby letters of credit		$	$3,302	~~2,537~~	$	$3,472	~~2,518~~

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank’s experience has been that approximately 7050% of loan commitments are drawn upon by customers. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, and income-producing commercial properties.

The Bank has ~~agreements~~a credit facility with ~~commercial~~the ~~banks~~Federal ~~for~~Home ~~lines~~Loan Bank of ~~credit~~Seattle (FHLB) totaling ~~$9,000,~~ ~~none~~15% of assets. ~~which~~There ~~was~~were ~~used~~no borrowings outstanding at December 31, ~~2001~~2006 ~~and~~or ~~2000~~2005.

The Bank has agreements with commercial banks for lines of credit totaling $24,500, of which $12 were used at December 31, 2006. There were no borrowings used at December 31, 2005.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above, and is required in instances where the Bank deems necessary.

Because of the nature of its activities, the Company is subject to various pending and threatened legal actions which arise in the ordinary course of business. In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on the financial position of the Company.

6052

Notes to Consolidated Financial Statements

Citizens Bancorp and Subsidiary December 31, 2006 and 2005

Note 1211 — Significant Concentrations of Credit Risk

Most of the Bank’s business activity is with customers located in the ~~State~~state of Oregon. Investments in state and municipal securities involve governmental entities primarily within the ~~State~~states of Oregon and Washington. Loans are generally limited, by state banking regulations, to 15% of the Bank’s shareholder’s equity, excluding accumulated other comprehensive income (loss) , for loans not fully secured by a first lien on real estate, and 25% for loans fully secured by a first lien on real estate.

~~Note~~The 13Bank —has ~~Cash~~credit ~~Dividend~~risk ~~Reinvestment~~exposure, ~~Plan~~including off-balance sheet credit risk exposure, as disclosed

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

LoanTable origination and commitment fees and certain direct loan origination costs are deferred and amortized as an adjustment of the yield of the related loan. Contents

Filing Compare · CITIZENS BANCORP/OR