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FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Commission File No. 000-23277

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

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 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 required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]    No [   ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ].

     The approximate aggregate market value of registrant’s voting and non-voting common equity held by non-affiliates is $38,527,867 based on the most recent reported sale of registrant’s common stock on March 7, 2002 at a price of $12.25 per share. As of March 7, 2002 there were 4,161,459 shares of registrant’s common stock issued and outstanding, of which 3,145,132 were held by non-affiliates.

     DOCUMENTS INCORPORATED BY REFERENCE. Part III of this Form 10-K incorporates by reference portions of the definitive 2002 Annual Meeting Proxy Statement sent to the Company’s shareholders in connection with its April 16, 2002 Annual Meeting of Shareholders.

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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”), an Oregon Corporation and financial bank holding company, was formed in 1996 for the purpose of becoming the holding company of Citizens 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. The Company made its declaration only to be prepared to take advantage of any future business opportunities.

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 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 and the Board of Directors of the Company are identical.

The Company is authorized to issue up to 10,000,000 shares of common stock, no par value. The Company has registered 1,575,000 shares for issuance under its Dividend Reinvestment Plan, of which 152,624 shares had been issued thereunder as of December 31, 2001. As of

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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:

The long-term benefit to the Company of its cultural and its management style is consistent 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.

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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 a debit 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 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, in 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 the Bank had 120 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, paid sick leave, group life insurance, and a 401(A) plan.

Competition

At December 31, 2001, Citizens Bank was among the top 10 largest commercial banks headquartered in the State of Oregon as measured by the State of Oregon’s division of Finance and Corporate Securities. The Bank competes 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 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 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’ needs,

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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.

2001 Activities

On July 17, 2001 the Company authorized a program to repurchase 209,475 shares of its common stock. As of December 31, 2001, 84,191 shares had been repurchased. The number, timing and price of the repurchase is at the Company’s sole discretion.

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 refers to certain statutes and regulations affecting the banking industry. These references provide brief summaries only and are not intended to be complete. These references are qualified in their entirety by the referenced statutes and regulations. In addition, some statutes and regulations which apply to and regulate the operation of the banking industry

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might exist which are not referenced below. Changes in applicable statutes and regulations may have a material effect on the business of the Company and its subsidiary.

The earnings and growth of the Company and its subsidiary, Citizens Bank, as well as their existing and future business activities, are affected not only by general economic conditions, but also by the fiscal and monetary policies of the Federal government and its agencies, particularly the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Federal Reserve Board implements monetary policies (intended to curb inflation and combat recession) by its open-market operations in United States Government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements, and by varying the discount rates applicable to borrowings by banks from the Federal Reserve Bank. The actions of the Federal Reserve Board in these areas influence the growth of bank loans, investments and deposits, and also 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 conditions and monetary policies on interest rates will directly affect earnings. The nature and impact of any future changes in monetary policies cannot be predicted.

Despite 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 financial and non-financial institutions. Proposals to change the laws and regulations governing the operations and taxations of banks and other financial 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 of the significant areas of bank regulation, including significant federal legislation affecting state-chartered banks, are generally discussed below.

Federal Bank Holding Company Regulation

As a financial bank holding company, the Company is subject to the Bank Holding Company Act of 1956 (“BHCA”), as amended, which places the Company under the supervision of the Board of Governors of the Federal Reserve System (“FRB”). In general, the BHCA limits the business of bank holding companies to owning or controlling banks and engaging in other activities related to banking. Certain recent legislation commonly referred to as the Gramm-Leach-Bliley Financial Services Modernization Act (“GBLA”) was designed to expand opportunities for banks and bank holding companies.

FRB Regulation. The Company must obtain the approval of the FRB: (1) before acquiring direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, it would own or control, directly or indirectly, more than 5% of the voting shares of such a bank; (2) before merging or consolidating with another bank holding company; and (3) before acquiring substantially all of the assets of any additional banks.

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The Company is required by the BHCA to file annual and quarterly reports and 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 of Subsidiaries. Under FRB policy, a bank holding company is expected to act as a source of financial and managerial strength to, and commit resources to support, each of its subsidiaries. Any capital loans the Company makes to its subsidiary are subordinate to deposits and to certain other indebtedness of the subsidiary. The Crime Control Act of 1990 provides that, in the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment the bank holding company has made to a federal bank regulatory agency to maintain the capital of a subsidiary and this obligation will be entitled to a priority of payment.

Tying Arrangements. The Company and the subsidiary 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 subsidiary may condition an extension of credit to a customer on either (1) a requirement that the customer obtain additional services provided by it or (2) an agreement by the customer to refrain from obtaining other services from a competitor. Until recently, the FRB extended its bank-tying restrictions to bank holding companies and their non-bank subsidiaries. However, effective April 21, 1997, the bank anti-tying rules will no longer apply to the non-bank subsidiaries of a bank holding company.

State Law Restrictions. As a corporation chartered under the laws of the State 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 Registration and Reporting. The Company is subject to the registration and reporting requirements of the Federal Securities Laws. The periodic reports, Proxy Statements, and other information filed by the Company with the Securities and Exchange Commission (“SEC”) can be inspected and copied or obtained from the Washington, D.C., office of the SEC. In addition, the securities issued by the Company are subject to the registration requirements of the Securities Act of 1933 and applicable state securities laws unless exceptions to registrations are available.

Control Transactions. The Change in Bank Control Act of 1978, as amended, 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

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securities registered under Section 12 of the Exchange Act would, under the circumstances set forth in the presumption, constitute the acquisition of control.

In addition, any “company” would be required to obtain the approval of the FRB 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 And State Bank Regulation

Oregon state-chartered banks are subject to primary regulation and examination by the Oregon Department of Consumer and Business Services Division of Finance and Corporate Securities. The Bank is also subject to supervision, examination, and regulation by certain federal banking agencies. The Bank is insured (to applicable limits) by, and therefore is subject to regulation by, the FDIC.

Applicable federal and state statutes and regulations governing a bank’s operations relate, among other matters, to capital requirements, required reserves against deposits, investments, loans, legal lending limits, certain interest rates payable, mergers and consolidations, borrowings, issuance of securities, payment of dividends (see below), establishment of branches, and dealings with affiliated persons. The FDIC has authority to prohibit banks under their supervision from engaging in what they consider to be an unsafe and unsound practice in conducting their business. Depository institutions, such as the Bank, are affected significantly by the actions of the FRB as it attempts to control the money supply and credit availability in order to influence the economy.

Dividends paid by the Bank to the Company are a material source of all of the 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, in the opinion of the applicable federal banking agency, a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the institution could include the payment of dividends), the agency may require, after notice and hearing, that such institution cease and desist from such practice. In addition, the FRB and the FDIC have issued policy statements which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings.

Under Oregon law, the Oregon regulatory authorities have the authority to 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.

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Federal law: (1) sets forth circumstances under which officers or directors of 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.

No person may acquire “control” of a bank unless the appropriate federal agency has been given 60 days prior written notice and within that time the agency has not disapproved the acquisition. Substantial monetary penalties may be imposed for violation of the change in control or other provisions of banking laws.

FDICIA

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) was enacted into law in late 1991. As required by FDICIA, numerous regulations have been adopted by federal bank regulatory agencies, including the following: (1) federal bank regulatory authorities have established five different capital levels for banks and, as a general matter, enable banks with higher capital levels to engage in a broader rage of activities; (2) the FRB has issued regulations requiring standardized disclosures with respect to interest paid on deposits; (3) the FDIC has imposed restrictions on 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 principal.

FDICIA recapitalized the Bank Insurance Fund (“BIF”) and required the FDIC to maintain the BIF and Savings Association Insurance Fund (“SAIF”) at 1.25% of insured deposits by increasing deposit insurance premiums as necessary to 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

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) became effective on August 9, 1989. Among other things, this far-reaching legislation (1) phased in significant increases in the FDIC insurance premiums paid by commercial banks; (2) created two deposit insurance pools within the FDIC, one to insure commercial banks and savings bank deposits and the other to insure savings association deposits; (3) for the first time, permitted bank holding companies to acquire healthy savings associations; (4) permitted commercial banks that meet certain housing-related asset requirements to secure advances and other federal services from their local Federal Home Loan Banks; and (5) greatly enhanced the regulators’ enforcement

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powers by removing procedural barriers and sharply increasing the civil and criminal penalties for violating statutes and regulations.

Interstate Banking And Branching

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”) generally authorizes interstate branching and relaxes federal law restrictions on interstate banking. Individual states had the authority to “opt out” of certain of these provisions. The Interstate Act allowed states to enact “opting-in” legislation that (i) permitted interstate mergers within their own borders before June 1, 1997, and (ii) permitted out-of-state banks to establish de novo branches within the state. As of September 29, 1996, bank holding companies could purchase banks in any state, and states may not prohibit such purchases. Additionally, beginning June 1, 1997, banks were permitted to merge 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 community organizations before permitting an interstate institution to close a branch in a low-income area.

Oregon, effective February 27, 1995, enacted “opting in” legislation generally permitting interstate mergers, subject to certain restrictions. Given that Oregon permitted interstate banking for a number of years, this legislation was not expected to have profound impact on banking in Oregon or on the Company or the Bank’s operations in particular.

CRA

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 banks. Those factors are also considered in evaluating mergers, acquisitions, and applications to open a branch of facility.

Gramm-Leach-Bliley Financial Services Modernization Act

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

The GLBA sets forth a list of activities deemed financial in nature. Such activities include lending, exchanging, transferring, investing for others, or safeguarding money or securities; insurance underwriting and sales (brokerage) activities; investment or economic advisory services; securitizations; securities underwriting and dealing activities; all “closely related to banking” activities previously approved for bank holding companies by the Federal Reserve

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

In general, these expanded powers are reserved to bank holding companies, to be known as financial holding companies (“FHC”) and banks, where all depository institutions affiliated with them are well capitalized, well managed based on applicable banking regulations, and meet specified Community Reinvestment Act ratings. GLBA authorizes the Federal Reserve Bank and the United States Treasury, in cooperation with one another, to determine what additional activities are permissible as financial in nature. Such activities will require FHCs and banks to continue to satisfy applicable well capitalized and well managed requirements. Bank holding companies which do not qualify for FHC status are limited to non-banking activities deemed closely related to banking prior to GLBA.

To become a FHC, a declaration of intent to engage in activities permissible 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.

In addition to the creation of FHCs, GLBA establishes a primacy of oversight regulation of financial service businesses by the regulators routinely responsible for such activities and entities. This applies both in allocating responsibility for supervising different companies within a FHC and in supervising different activities within the same company. GLBA clarifies the regulation by the States of insurance products sold by depository institutions, and repeals some of the exemptions for banks under federal securities laws in relation to securities offered by banks and the licensing of broker-dealers and investments.

The GLBA also changed the membership requirements to join the Federal Home Loan Bank (“FHLB”) for banks with $500 million or less in assets. The GLBA defines a “community financial institution” as a depository institution insured by the Federal Deposit Insurance Corporation (“FDIC”) with less than $500 million in average total assets during the three years immediately proceeding the date of the membership application. These community financial institutions will not be required to hold at least 10 percent of their assets in residential mortgages in order to join the FHLB system. The section of the GLBA will not affect the Company’s subsidiary, Citizens Bank, as it already holds membership in the FHLB.

The GLBA also adopts restrictions on financial institutions regarding the sharing of customer non-public personal information with non-affiliated third parties unless the customer has had an opportunity to opt out of the disclosure. The GLBA also imposes periodic disclosure requirements concerning financial institution policies and practices regarding data sharing with affiliated and non-affiliated parties.

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

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The Company provided the Federal Reserve Board of San Francisco its declaration 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 Adequacy Requirements

The FRB, the FDIC, and the OCC (collectively, the “Federal Banking Agencies”) have established uniform capital requirements for all commercial banks. Bank holding companies are also subject to certain minimum capital requirements. A bank that does not achieve and maintain required capital levels may be subject to supervisory action through the issuance of a capital directive to ensure the maintenance of adequate capital levels. In addition, banks are required to meet certain guidelines concerning the maintenance of an adequate allowance for loan and lease losses.

The Federal Banking Agencies’ “risk-based” capital guidelines establish a systematic, analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures into explicit account in assessing capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. The risk-based ratio is determined by allocating assets and specified off-balance sheet commitments into several categories, with high levels of capital being required for the categories perceived as representing greater risk. The risk weights assigned to assets and credit equivalent amounts of off-balance sheet items are based primarily on credit risk. Other types of exposure, such as interest rate, liquidity and funding risks, as well as asset quality problems, are not factored into the risk-based ratio. Such risks, however, will be taken into account in determining a final assessment of an organization’s capital adequacy. Under these regulations, 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%.

The Federal Banking Agencies also have adopted leverage ratio standards that require commercial banks to maintain a minimum ratio of core capital to total assets (the “Leverage Ratio”) of 3%. Any institution operating at or near this level is expected to have well-diversified risk, including no undue interest rate risk exposure, excellent asset quality , high liquidity and good earnings, and in general, to be a strong banking organization without any supervisory, financial, or operational weaknesses or deficiencies. Any institutions experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions, well above the minimum levels (e.g., an additional cushion of at least 100 to 200 basis points, depending upon the particular circumstances and risk profile).

Regulations adopted by the Federal Banking Agencies as required by FDICIA impose even more stringent capital requirements. The regulators require the OCC and other Federal Banking Agencies to take certain “prompt corrective action” when a bank fails to meet certain capital requirements. The regulations establish and define five capital levels at which an institution is deemed to be “well-capitalized,” “adequately capitalized,” “undercapitalized,” significantly

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undercapitalized” or “critically undercapitalized.” In order to be “well-capitalized,” an institution must maintain, at least 10% total risk-based 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 institutions are required to develop and implement capital plans acceptable to the appropriate federal regulatory agency. Such plans must require that any company that controls the undercapitalized institution must provide certain guarantees that the institution will comply with the plan until it is adequately capitalized. As of December 31, 2000, the Bank was not subject to any regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure.

Under Oregon law, an Oregon commercial bank may reduce its paid-in capital to eliminate or reduce deficits in retained earnings arising from losses, or in order to redeem shares. Prior approval of the Oregon Director is required in either case, and may be refused if the Oregon Director determines that the remaining paid-in capital of the bank would be inadequate for its safe and sound operation.

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.

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In addition, the Federal Banking Agencies published a joint final rule on 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 subject to this final rule must be in compliance with it by January 1, 1998. This final rule applies to any bank or bank holding company, regardless of size, whose trading activity equals 10% or more of its total assets or amounts to $1 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, under certain circumstances, also may exempt an institution otherwise subject to the final rule from compliance.

FDIC Insurance

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.

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 on SAIF-imposed deposits (roughly 6.5 basis points). In addition, service debt funding on FICO bonds for the first half of 1997 resulted 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, BIF insured institutions will be required to pay the FICO obligations on a pro-rata basis with all thrift institutions; annual assessments are expected to equal approximately 2.4 basis points until 2017, to be phased out completely by 2019.

Banking regulators are empowered under the Funds Act to prohibit insured institutions and their holding companies from facilitating or encouraging the shifting deposits from the SAIF to the BIF in order to avoid higher assessment rates. Accordingly, the FDIC recently proposed a rule that would, if adopted as proposed, impose entrance and exit fees on depository institutions attempting to shift deposits from the SAIF to the BIF as contemplated by the Funds Act. The

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

The risk classification is based on an assignment of the 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 and increase risk to the deposit insurance fund), and Group “C” (for those institutions with a substantial probability of loss to the fund absent effective corrective action).

Changes In Banking Laws And Regulations

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.

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ITEM 2. PROPERTIES

The principal properties of the Company and its subsidiary, Citizens Bank, are comprised of banking facilities owned by the subsidiary.

The main office of Citizens Bank is located in the heart of the business and retail center in Corvallis, Oregon. The building was constructed in 1977 and 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 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, 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) branches, of which five (5) are owned and five (5) 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. The Bank has a lease on the land on which the West Albany branch is located. The aggregate monthly rental of leased buildings and land is $12,566. The following sets forth certain information regarding the Bank’s branch facilities.

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	(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.

On September 27, 2000 Citizens Bank purchased the land and building located next to its Main Branch parking lot. The building, in poor condition, was demolished. At this time, the Bank intends to use the land as additional parking for its customers. The Main Branch has grown its customer base substantially since the building was constructed in 1977 with no space to accommodate the need for additional parking. The improvements for the additional parking, which added 10 new spaces, were completed in June 2001.

On July 31, 2001, the Bank opened its tenth full service branch in Harrisburg, Oregon. The branch is located in a leased facility in the newly constructed Harrisburg Plaza. The Bank anticipates the branch will support the borrowing and deposit needs of the Community in the areas of business and agriculture.

ITEM 3. LEGAL PROCEEDINGS

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, 2001, no matters were submitted to the Company’s security holders through the solicitation of proxies or otherwise.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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.

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.

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

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Citizens Bank/Bancorp, Common Equity Holding. As of December 31, 2001, there were 4,105,308 shares outstanding, held by 917 shareholders of record. As of March 7, 2002, there were 941 holders of Citizens Bancorp and 4,161,459 shares outstanding. Since December 31, 2001, 61,589 shares were issued under the Dividend Reinvestment Plan, 45 shares issued for exercised stock options and 5,483 shares were redeemed by Bancorp under the stock repurchase program.

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.

The Company has no formal dividend policy. The amount of any dividend is determined by the Bancorp Board of Directors and depends on the amount of profits generated and the growth objectives of the Company and the Bank, together with other factors considered by the Board in its discretion. Under Oregon law certain restrictions on the payment of dividends apply. Under these restrictions, a bank or holding company may not declare or pay any dividend in an amount greater than its retained earnings.

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

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the Company’s consolidated financial statements and accompanying notes presented herein.

(1)

Per share amounts and the average number of shares outstanding have been restated for stock repurchase in 2001, stock dividends of 5% in 1999 and 5% in 1997, and a 2-for-1 stock split in 1998.

Selected Quarterly Financial Data

The following table sets forth the Company’s unaudited data regarding operations for each Quarter for 2001 and 2000. This information, in the opinion of management, includes all normal recurring adjustments necessary to state fairly the information set forth herein.

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(1)

Adjusted to reflect stock repurchased in 2001, 2 for 1 split in 1998, and stock dividends of 5% in 1999 and 5% in 1997.

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

Results of Operations for Years Ended December 31, 2001, 2000, and 1999.

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.

The average rate on loans for 2001, 2000, and 1999 was 9.0%, 9.6%, and 9.3%, 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.

Increases in loan volumes were the primary reason for the increase in average earning assets in 2001. Average yields on earning assets for 2001, 2000, and 1999 were 7.9%, 8.5%, and 7.9%, respectively.

Interest Income. Interest income totaled $18.8 million for the year ended December 31, 2001, a 1.7% increase over the $18.4 million for 2000, which was an 8.3% increase over the $17.0 million for 1999. The 2001 increase was primarily due to increased loan volume, which offset the impact of rate decreases during the year, and an increase in balances in interest bearing accounts in banks. The increase in 2000 was primarily due to increased loan volumes.

Interest Expense. Interest expense for the year ended December 31, 2001 was $5.7 million, a 9.1% decrease over the $6.2 million expense for 2000, which was a 3.2% increase over the $6.0 million expense for 1999. The 2001 decrease was due to deposit rate decreases which offset the increase resulting from higher levels of deposits, while in 2000, deposit volumes and overall rates remained constant, while in 1999 volumes were up and rates were down.

Net Interest Income. Net interest income for the years 2001, 2000, and 1999 was $13.1 million, $12.2 million, and $11.0 million, respectively. Additionally, for the same periods beginning with 2001, net interest margins, on a tax equivalent basis, were 5.5%, 5.6%, and 5.1%, respectively. The decrease in the net interest margin from 2000 to 2001 was primarily due to the reduced average rates earned on loans and investment securities, which had a greater impact than the reduced cost of deposits. The increase in net interest margin from 1999 to 2000 was

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primarily due to the increased average interest rate on loans, and the increased percentage of average earning assets represented by loans (68% versus 62%).

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.

(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.

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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.