##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
 Commission File Number: 0-32041
 
 Citizens First Bancorp, Inc.
 CITIZENS FIRST BANCORP, INC.
 
  Delaware
    
    38-3573582(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 525 Water Street, Port Huron, Michigan
    
    48060(Address of principal executive offices)
    
    (Zip Code)
 
 Common Stock, par value $0.01 per share
 o þ
 o þ
 þ o
 þ
  o  þ  o
 o þ
   Documents Incorporated by Reference




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##### 



TABLE OF CONTENTS
 INDEX
 PagePart I
    
    
    4Item 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    31Item 1B.
    
    Unresolved Staff Comments
    
    
    34Item 2.
    
    Properties
    
    
    34Item 3.
    
    Legal Proceedings
    
    
    34Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    34Part II
    
    
    34Item 5.
    
    Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    34Item 6.
    
    Selected Financial Data
    
    
    36Item 7.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    37Item 7A.
    
    Quantitative and Qualitative Disclosures about
Market Risk
    
    
    49Item 8.
    
    Financial Statements and Supplementary Data
    
    
    52Item 9.
    
    Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
    
    
    80Item 9A.
    
    Controls and Procedures
    
    
    80Item 9B.
    
    Other Information
    
    
    81Part III
    
    
    81Item 10.
    
    Directors and Executive Officers of the
Registrant
    
    
    81Item 11.
    
    Executive Compensation
    
    
    81Item 12.
    
    Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
    
    
    81Item 13.
    
    Certain Relationships and Related Transactions
    
    
    82Item 14.
    
    Principal Accountants Fees and Services
    
    
    82Part IV
    
    
    82Item 15
    
    Exhibits and Financial Statement Schedules
    
    
    82Signatures
    
    
    84Certifications of Chief Executive Officer and Chief Financial OfficerChange in Control Agreement2001 Change in Control AgreementChange in Control AgreementConsent of BDO Seidman, LLPSection 302 Certification of Chief Executive OfficerSection 302 Certification of Chief Financial OfficerSection 906 Certification of Chief Executive OfficerSection 906 Certification of Chief Financial Officer
  2




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3




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Part I
 
 Item 1. Business
 General
 www.cfsbank.com
    4




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Market Area
    OPERATING STRATEGY
  
    
    Operate as a community bank, expanding the services and products it offers, particularly
its commercial business products and deposit products to local municipalities and government
organizations.
    
    Provide excellent customer service and products by expanding delivery systems by using
new technology and expanding the capability of its customer call center through which
customers can receive various services via telephone.
    
    Invest in our employees through a variety of training programs to ensure our customers expectations are exceeded.
    
    Expand its trust services, specifically in the Oakland county market, by cross-selling benefits of the Trust Department.
    
    Continuously review technology requirements and enhancements to provide an excellent level of customer service.
    
    Reinvest in its communities.
    
    Continue to increase its emphasis on origination of quality commercial, commercial real
estate and consumer loans to increase the yields earned on its overall loan portfolio,
without incurring unacceptable credit risk.
    
    Increase originating automobile loans on a direct and indirect basis, at least in part by
increasing the number of vehicle dealers through which the Company finances automobile
purchases by consumers.
    
    Control credit risk by continuing to employ conservative underwriting standards to
minimize the level of problem assets.
 5




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##### Table of Contents




    
    Manage interest rate risk by continuing to emphasize an appropriate mix of investments
and loans and deposit products. For more information about the interest rate risk to which
the Company is exposed and about how the Company attempts to manage that risk, see Item 7A,
Quantitative and Qualitative Disclosures About Market Risk.
 COMPETITION
  Lending Activities
 General.
 
    
    the Companys current asset/liability strategy, which is to monitor and control the
financial position of the Company, including monitoring and controlling market risk such as
interest rate risk (For more information, see Item 7A, Quantitative and Qualitative
Disclosures About Market Risk);
    
    the demand for various types of loans;
    
    the supply of money available for lending purposes; and
    
    the rates offered by competitors.
  Loan Portfolio Analysis.
 6




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##### Table of Contents



At December 31,2005
    
    
    2004
    
    
    2003Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of TotalReal estate loans:One- to four-family
    
    $
    427,714
    
    
    
    29.71
    %
    
    $
    404,655
    
    
    
    33.50
    %
    
    $
    386,531
    
    
    
    40.99
    %Commercial and multi-family (1)
    
    
    418,314
    
    
    
    29.05
    %
    
    
    345,936
    
    
    
    28.64
    %
    
    
    241,097
    
    
    
    25.56
    %Residential construction
    
    
    82,328
    
    
    
    5.72
    %
    
    
    30,917
    
    
    
    2.56
    %
    
    
    24,996
    
    
    
    2.65
    %Home equity and lines of credit
    
    
    131,378
    
    
    
    9.12
    %
    
    
    113,202
    
    
    
    9.37
    %
    
    
    85,371
    
    
    
    9.05
    %Total real estate loans
    
    
    1,059,734
    
    
    
    73.60
    %
    
    
    894,710
    
    
    
    74.08
    %
    
    
    737,995
    
    
    
    78.25
    %Commercial loans
    
    
    271,436
    
    
    
    18.85
    %
    
    
    222,403
    
    
    
    18.41
    %
    
    
    127,686
    
    
    
    13.54
    %Consumer loans:Vehicles (2)
    
    
    84,189
    
    
    
    5.85
    %
    
    
    66,463
    
    
    
    5.50
    %
    
    
    59,392
    
    
    
    6.30
    %Other
    
    
    24,421
    
    
    
    1.70
    %
    
    
    24,184
    
    
    
    2.00
    %
    
    
    18,004
    
    
    
    1.91
    %Total consumer loans
    
    
    108,610
    
    
    
    7.54
    %
    
    
    90,647
    
    
    
    7.51
    %
    
    
    77,396
    
    
    
    8.21
    %Total loans
    
    
    1,439,780
    
    
    
    100.00
    %
    
    
    1,207,760
    
    
    
    100.00
    %
    
    
    943,077
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    13,546
    
    
    
    
    
    
    
    13,472
    
    
    
    
    
    
    
    11,664Net deferred loan fees
    
    
    1,198
    
    
    
    
    
    
    
    2,231
    
    
    
    
    
    
    
    2,212Net loans
    
    $
    1,425,036
    
    
    
    
    
    
    $
    1,192,057
    
    
    
    
    
    
    $
    929,201
 [Additional columns below]
 7




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##### Table of Contents



[Continued from above table, first column(s) repeated]
 At December 31,
    
    
    At March 31,2002
    
    
    2002Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of TotalReal estate loans:One- to four-family
    
    $
    414,939
    
    
    
    49.88
    %
    
    $
    385,765
    
    
    
    51.56
    %Commercial and multi-family (1)
    
    
    179,387
    
    
    
    21.57
    %
    
    
    144,817
    
    
    
    19.36
    %Residential construction
    
    
    21,822
    
    
    
    2.62
    %
    
    
    27,541
    
    
    
    3.68
    %Home equity and lines of credit
    
    
    72,724
    
    
    
    8.74
    %
    
    
    71,266
    
    
    
    9.52
    %Total real estate loans
    
    
    688,872
    
    
    
    82.82
    %
    
    
    629,389
    
    
    
    84.12
    %Commercial loans
    
    
    68,974
    
    
    
    8.29
    %
    
    
    45,966
    
    
    
    6.14
    %Consumer loans:Vehicles (2)
    
    
    61,386
    
    
    
    7.38
    %
    
    
    61,661
    
    
    
    8.24
    %Other
    
    
    12,583
    
    
    
    1.51
    %
    
    
    11,186
    
    
    
    1.50
    %Total consumer loans
    
    
    73,969
    
    
    
    8.89
    %
    
    
    72,847
    
    
    
    9.74
    %Total loans
    
    
    831,815
    
    
    
    100.00
    %
    
    
    748,202
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    11,082
    
    
    
    
    
    
    
    11,020Net deferred loan fees
    
    
    1,597
    
    
    
    
    
    
    
    1,618Net loans
    
    $
    819,136
    
    
    
    
    
    
    $
    735,564
 
 (1)
    
    Includes commercial construction loans which at December 31, 2005, December 31, 2004,
December 31, 2003, December 31, 2002, and March 31, 2002 totaled $57.2 million, $33.1 million,
$14.8 million, $12.6 million, and $9.9 million, respectively.(2)
    
    Includes loans secured by automobiles, motorcycles, campers and other recreational vehicles.  Maturity of Loan Portfolio.
 At December 31, 2005CommercialOne- to
    
    
    and
    
    
    
    
    
    
    Home EquityFour-Family
    
    
    Multi-Family
    
    
    Residential
    
    
    and Lines
    
    
    
    
    
    
    
    
    
    
    TotalReal estate
    
    
    Real estate
    
    
    Construction
    
    
    of Credit
    
    
    Commercial
    
    
    Consumer
    
    
    LoansAmounts due in:One year or less
    
    $
    6,423
    
    
    $
    114,799
    
    
    $
    19,043
    
    
    $
    8,461
    
    
    $
    155,381
    
    
    $
    19,198
    
    
    $
    323,305One year to five years
    
    
    57,881
    
    
    
    249,549
    
    
    
    20,224
    
    
    
    94,691
    
    
    
    104,352
    
    
    
    51,606
    
    
    
    578,303More than five years
    
    
    363,410
    
    
    
    53,966
    
    
    
    43,061
    
    
    
    28,226
    
    
    
    11,703
    
    
    
    37,806
    
    
    
    538,172Total amount due
    
    $
    427,714
    
    
    $
    418,314
    
    
    $
    82,328
    
    
    $
    131,378
    
    
    $
    271,436
    
    
    $
    108,610
    
    
    $
    1,439,780
 8




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Due After December 31, 2005Fixed
    
    
    Adjustable
    
    
    TotalReal estate loans:One- to four-family
    
    $
    82,091
    
    
    $
    345,623
    
    
    $
    427,714Commercial and multi-family
    
    
    313,654
    
    
    
    104,660
    
    
    
    418,314Residential construction
    
    
    54,838
    
    
    
    27,490
    
    
    
    82,328Home equity and lines of credit
    
    
    65,725
    
    
    
    65,653
    
    
    
    131,378Total real estate loans
    
    
    516,308
    
    
    
    543,426
    
    
    
    1,059,734Commercial loans
    
    
    63,408
    
    
    
    208,028
    
    
    
    271,436Consumer loans
    
    
    107,263
    
    
    
    1,347
    
    
    
    108,610Total loans
    
    $
    686,979
    
    
    $
    752,801
    
    
    $
    1,439,780
 TYPES OF LOANS
 Loan Concentrations.
 Terms of Loan Products That
May Give Rise to a Concentration of Credit Risk
 One- to Four-Family Residential Mortgage Loans
  9




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Commercial and Multi-Family Real Estate Loans
    10




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Residential Construction Loans .
   Home Equity and Lines of Credit
   Commercial Loans
  11




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Consumer Loans
      12




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LOANS TO ONE BORROWER
 LOAN APPROVAL PROCEDURES AND AUTHORITY
 LOAN ORIGINATIONS, PURCHASES AND SALES
   Loan Commitments.
 Loan Fees.
 13




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Nonperforming Assets and Delinquencies.
    Methodology for Determination of Loan Loss Allowance" th
  14




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##### Table of Contents



At December 31,
    
    
    At March 31,2005 (2)
    
    
    2004 (1)
    
    
    2003
    
    
    2002
    
    
    2002Nonperforming loans:Real estate
    
    $
    8,467
    
    
    $
    5,745
    
    
    $
    3,268
    
    
    $
    1,876
    
    
    $
    1,437Commercial
    
    
    12,094
    
    
    
    3,343
    
    
    
    195
    
    
    
    356
    
    
    
    295Consumer
    
    
    813
    
    
    
    1,543
    
    
    
    452
    
    
    
    182
    
    
    
    61Total
    
    
    21,374
    
    
    
    10,631
    
    
    
    3,915
    
    
    
    2,414
    
    
    
    1,793Real estate and other assets owned
    
    
    1,471
    
    
    
    1,032
    
    
    
    443
    
    
    
    353
    
    
    
    953Total nonperforming assets
    
    $
    22,845
    
    
    $
    11,663
    
    
    $
    4,358
    
    
    $
    2,767
    
    
    $
    2,746Total nonperforming loans as a
percentage of total loans
    
    
    1.48
    %
    
    
    0.88
    %
    
    
    0.42
    %
    
    
    0.29
    %
    
    
    0.24
    %Total nonperforming loans as a
percentage of total assets
    
    
    1.29
    %
    
    
    0.76
    %
    
    
    0.36
    %
    
    
    0.24
    %
    
    
    0.19
    %
 
 (1)
    
    The increase at December 31, 2004 from 2003 reflects the change in policy for
nonperforming loans to be classified as performing as discussed in our Form 10-K filing for
the fiscal year ended December 31, 2004.(2)
    
    The increase at December 31, 2005 in the Commercial Loan Portfolio reflects three
commercial loan relationships that were previously classified as watch credits by
management at December 31, 2004. These three loan relationships have either
deteriorated or have been placed under forbearance agreements by management. The Company
believes that the collateral attached to these relationships is adequate or that specific
reserves have been allocated to cover any potential impairment.   At December 31,
    
    
    At March 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2002Real estate loans:One- to four-family
    
    
    
    
    
    $
    265
    
    
    $
    2,506
    
    
    $
    1,575
    
    
    $
    1,161Commercial and multi-family
    
    
    
    
    
    
    728
    
    
    
    149
    
    
    
    
    
    
    
    Residential construction
    
    
    
    
    
    
    
    
    
    
    762
    
    
    
    301
    
    
    
    276Home equity and
lines of credit
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    116
    
    
    
    Commercial loans
    
    $
    1,455
    
    
    
    2,948
    
    
    
    86
    
    
    
    356
    
    
    
    295Consumer loans
    
    
    4
    
    
    
    
    
    
    
    328
    
    
    
    66
    
    
    
    61Total
    
    $
    1,459
    
    
    $
    3,941
    
    
    $
    3,915
    
    
    $
    2,414
    
    
    $
    1,793Accruing loans 90 days
past due to total loans
    
    
    0.10
    %
    
    
    0.33
    %
    
    
    0.42
    %
    
    
    0.29
    %
    
    
    0.24
    %
 Real Estate Owned.
 15




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Asset Classification.
  Allowance for Loan Losses.
 Potential Significant Impact on Financial Statements and Condition
 Methodology for Determination of Loan Loss Allowance
 16




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##### Table of Contents



Potential Problem Loans.
 Possible Future Adjustments to Loan Loss Allowance.
 17




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##### Table of Contents



Year Ended
    
    
    Nine Months
    
    
    Year EndedDecember 31,
    
    
    Ended December 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2002Allowance for loan losses, beginning of period
    
    $
    13,472
    
    
    $
    11,664
    
    
    $
    11,082
    
    
    $
    11,020
    
    
    $
    10,831Acquired in acquisition
    
    
    
    
    
    
    1,135
    
    
    
    
    
    
    
    
    
    
    
    Charged-off loans:Real estate
    
    
    (367
    )
    
    
    (132
    )
    
    
    (15
    )
    
    
    (56
    )
    
    
    (12
    )Commercial
    
    
    (369
    )
    
    
    (270
    )
    
    
    (325
    )
    
    
    (548
    )
    
    
    (291
    )Consumer
    
    
    (1,873
    )
    
    
    (1,057
    )
    
    
    (755
    )
    
    
    (498
    )
    
    
    (870
    )Total charged-off loans
    
    
    (2,609
    )
    
    
    (1,459
    )
    
    
    (1,095
    )
    
    
    (1,102
    )
    
    
    (1,173
    )Recoveries on loans previously charged-off:Real estate
    
    
    20
    
    
    
    138
    
    
    
    
    
    
    
    1
    
    
    
    Commercial
    
    
    
    
    
    
    167
    
    
    
    83
    
    
    
    29
    
    
    
    103Consumer
    
    
    273
    
    
    
    272
    
    
    
    154
    
    
    
    242
    
    
    
    263Total recoveries
    
    
    293
    
    
    
    577
    
    
    
    237
    
    
    
    272
    
    
    
    366Net loans charged-off
    
    
    (2,316
    )
    
    
    (882
    )
    
    
    (858
    )
    
    
    (830
    )
    
    
    (807
    )Provision for loan losses
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440
    
    
    
    892
    
    
    
    996Allowance for loan losses, end of
period
    
    $
    13,546
    
    
    $
    13,472
    
    
    $
    11,664
    
    
    $
    11,082
    
    
    $
    11,020Net loans charged-off to average
interest-earning loans
    
    
    0.18
    %
    
    
    0.08
    %
    
    
    0.10
    %
    
    
    0.10
    %
    
    
    0.11
    %Allowance for loan losses to total loans
    
    
    0.94
    %
    
    
    1.12
    %
    
    
    1.24
    %
    
    
    1.33
    %
    
    
    1.47
    %Allowance for loan losses to nonperforming loans (1)
    
    
    63
    %
    
    
    127
    %
    
    
    298
    %
    
    
    459
    %
    
    
    615
    %Net loans charged-off to allowance for loan losses
    
    
    17.10
    %
    
    
    6.55
    %
    
    
    7.36
    %
    
    
    7.49
    %
    
    
    7.32
    %Recoveries to charged-off loans
    
    
    11.23
    %
    
    
    39.55
    %
    
    
    21.64
    %
    
    
    24.68
    %
    
    
    31.20
    %
 
 (1)
    
    See explanation of this variance in the section labeled Nonperforming Assets and
Delinquencies above.  18




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##### Table of Contents



At December 31,2005
    
    
    2004
    
    
    2003% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofAllowance
    
    
    
    
    
    
    Allowance
    
    
    
    
    
    
    Allowancein each
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    in eachCategory
    
    
    
    
    
    
    Category
    
    
    
    
    
    
    Categoryto Total
    
    
    
    
    
    
    to Total
    
    
    
    
    
    
    to TotalAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansReal estate
    
    $
    5,952
    
    
    
    0.41
    %
    
    $
    6,270
    
    
    
    0.52
    %
    
    $
    5,493
    
    
    
    0.58
    %Commercial
    
    
    2,855
    
    
    
    0.20
    %
    
    
    2,983
    
    
    
    0.25
    %
    
    
    1,922
    
    
    
    0.20
    %Consumer
    
    
    4,536
    
    
    
    0.32
    %
    
    
    3,689
    
    
    
    0.31
    %
    
    
    3,527
    
    
    
    0.37
    %Unallocated
    
    
    203
    
    
    
    0.01
    %
    
    
    530
    
    
    
    0.04
    %
    
    
    722
    
    
    
    0.08
    %Total allowance
for loan losses
    
    $
    13,546
    
    
    
    0.94
    %
    
    $
    13,472
    
    
    
    1.12
    %
    
    $
    11,664
    
    
    
    1.24
    %
 Continued from above table, first column(s) repeated]
 At December 31,
    
    
    At March 31,2002
    
    
    2002% of
    
    
    
    
    
    
    % ofAllowance
    
    
    
    
    
    
    Allowancein each
    
    
    
    
    
    
    in eachCategory
    
    
    
    
    
    
    Categoryto Total
    
    
    
    
    
    
    to TotalAmount
    
    
    Loans
    
    
    Amount
    
    
    LoansReal estate
    
    $
    5,286
    
    
    
    0.64
    %
    
    $
    4,980
    
    
    
    0.67
    %Commercial
    
    
    1,020
    
    
    
    0.12
    %
    
    
    1,096
    
    
    
    0.15
    %Consumer
    
    
    4,205
    
    
    
    0.51
    %
    
    
    4,130
    
    
    
    0.55
    %Unallocated
    
    
    571
    
    
    
    0.07
    %
    
    
    814
    
    
    
    0.11
    %Total allowance
for loan losses
    
    $
    11,082
    
    
    
    1.33
    %
    
    $
    11,020
    
    
    
    1.47
    %
 Investment Securities Activities
    19




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##### Table of Contents



At December 31,2005
    
    
    2004
    
    
    2003Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    23,379
    
    
    $
    22,980
    
    
    $
    26,124
    
    
    $
    26,077
    
    
    $
    7,998
    
    
    $
    8,013Obligations of state and political subdivisions
    
    
    35,506
    
    
    
    35,418
    
    
    
    37,504
    
    
    
    37,889
    
    
    
    17,863
    
    
    
    18,611Corporate debt securities
    
    
    20,584
    
    
    
    20,476
    
    
    
    19,366
    
    
    
    19,294
    
    
    
    47,880
    
    
    
    48,263Mortgage-backed securities
    
    
    4,400
    
    
    
    4,323
    
    
    
    6,783
    
    
    
    6,694
    
    
    
    
    
    
    
    Total
    
    
    83,869
    
    
    
    83,197
    
    
    
    89,777
    
    
    
    89,954
    
    
    
    73,741
    
    
    
    74,887Equity securities
    
    
    5,000
    
    
    
    4,313
    
    
    
    5,002
    
    
    
    3,885
    
    
    
    5,002
    
    
    
    4,785Total securities available for sale
    
    $
    88,869
    
    
    $
    87,510
    
    
    $
    94,779
    
    
    $
    93,839
    
    
    $
    78,743
    
    
    $
    79,672
 20




---



##### Table of Contents



At December 31, 2005Due within
    
    Due in One Year
    
    Due in Five YearsOne Year
    
    to Five Years
    
    to Ten YearsWeighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedFair
    
    Average
    
    Fair
    
    Average
    
    Fair
    
    AverageValue
    
    Yield
    
    Value
    
    Yield
    
    Value
    
    YieldU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    5,982
    
    
    
    4.29
    %
    
    $
    16,998
    
    
    
    4.45
    %
    
    
    
    
    
    
    Obligations of state and political subdivisions
    
    
    1,951
    
    
    
    3.98
    %
    
    
    16,636
    
    
    
    4.16
    %
    
    $
    14,900
    
    
    
    4.09
    %Corporate debt securities
    
    
    10,156
    
    
    
    7.75
    %
    
    
    5,720
    
    
    
    0.07
    
    
    
    4,600
    
    
    
    0.08Total debt securities
    
    
    18,089
    
    
    
    6.20
    %
    
    
    39,354
    
    
    
    4.71
    %
    
    
    19,500
    
    
    
    5.01
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities available for sale
at fair value
    
    $
    18,089
    
    
    
    6.20
    %
    
    $
    39,354
    
    
    
    4.71
    %
    
    $
    19,500
    
    
    
    5.01
    %
 [Continued from above table, first column(s) repeated]
 At December 31, 2005Due in
    
    Mortgage-backedMore than Ten Years
    
    and Equity
    
    TotalWeighted
    
    
    
    
    
    
    
    
    
    WeightedFair
    
    Average
    
    Fair
    
    Fair
    
    AverageValue
    
    Yield
    
    Value
    
    Value
    
    YieldU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    22,980
    
    
    
    4.41
    %Obligations of state and political subdivisions
    
    $
    1,931
    
    
    
    4.48
    %
    
    
    
    
    
    
    35,418
    
    
    
    4.15
    %Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,476
    
    
    
    7.59
    %Total debt securities
    
    
    1,931
    
    
    
    4.48
    %
    
    
    
    
    
    
    78,874
    
    
    
    4.46
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    $
    4,323
    
    
    
    4,323
    
    
    
    6.09
    %Equity securities
    
    
    
    
    
    
    
    
    
    
    4,313
    
    
    
    4,313
    
    
    
    Total securities available for sale
at fair value
    
    $
    1,931
    
    
    
    4.48
    %
    
    $
    8,636
    
    
    $
    87,510
    
    
    
    4.32
    %
  21




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##### Table of Contents



Deposit Activities and Other Sources of Funds
 General
 Deposit accounts
   At December 31,2005
    
    
    2004
    
    
    2003Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateNoninterest bearing demand deposits
    
    $
    116,835
    
    
    
    0.00
    %
    
    $
    100,154
    
    
    
    0.00
    %
    
    $
    65,325
    
    
    
    0.00
    %Passbook and savings deposits
    
    
    96,198
    
    
    
    0.62
    
    
    
    99,781
    
    
    
    0.58
    
    
    
    73,351
    
    
    
    0.77Interest bearing demand deposits
    
    
    366,746
    
    
    
    2.02
    
    
    
    385,282
    
    
    
    1.02
    
    
    
    326,053
    
    
    
    1.32Time deposits under $100,000
    
    
    233,870
    
    
    
    3.66
    
    
    
    215,769
    
    
    
    3.05
    
    
    
    196,552
    
    
    
    3.50Time deposits $100,000 and over
    
    
    201,708
    
    
    
    3.37
    
    
    
    106,833
    
    
    
    2.98
    
    
    
    68,282
    
    
    
    2.39Total
    
    $
    1,015,357
    
    
    
    2.30
    %
    
    $
    907,819
    
    
    
    1.53
    %
    
    $
    729,563
    
    
    
    1.60
    %
 22




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##### Table of Contents



Three months or less
    
    $
    99,298Over 3 through 6 months
    
    
    27,245Over 6 through 12 months
    
    
    29,095Over 12 months
    
    
    46,832Total
    
    $
    202,470
 Borrowings.
   Year endedDecember 31,2005
    
    2004
    
    2003FHLB advancesAverage balance outstanding
    
    $
    284,449
    
    
    $
    203,122
    
    
    $
    172,596Maximum amount outstanding at any month-end during the period
    
    
    346,500
    
    
    
    232,209
    
    
    
    181,534Balance outstanding at end of period
    
    
    346,500
    
    
    
    232,209
    
    
    
    172,534Weighted average interest rate during the period
    
    
    4.54
    %
    
    
    4.93
    %
    
    
    5.39
    %Weighted average interest rate at end of period
    
    
    4.50
    %
    
    
    4.53
    %
    
    
    5.24
    %
 Trust Services
  Personnel
  Subsidiaries
  23




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##### Table of Contents



Additional Financial Information
   REGULATION AND SUPERVISION
 General
  Gramm-Leach-Bliley, USA Patriot and Bank Secrecy Acts
  24




---



##### Table of Contents



Michigan Bank Regulation
   Business Activities.
 Loans to One Borrower.
 Dividends.
 Branching Activities.
 Commissioner Assessments.
 25




---



##### Table of Contents



Enforcement.
 Federal Regulation
 Capital Requirements.
    Prompt Corrective Regulatory Action.
   26




---



##### Table of Contents



Insurance of Deposit Accounts.
   Transactions with Related Parties.
  Standards for Safety and Soundness.
 Investment Activities.
 Mergers .
 27




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##### Table of Contents



Federal Statutory and Regulatory Provisions.
 Interstate Branching.
 Federal Enforcement.
 Federal Home Loan Bank System
  Federal Reserve System
  Holding Company Regulation
  28




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##### Table of Contents



(1)
    
    the approval of interstate supervisory acquisitions by savings and loan holding companies and(2)
    
    the acquisition of a savings institution in another state if the laws of the state of the
target savings institution specifically permit such acquisitions. The states vary in the
extent to which they permit interstate savings and loan holding company acquisitions.
  QTL Test.
 Change in Bank Control Act.
  Regulatory and Legislative Change.
 29




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##### Table of Contents



Federal Securities Laws
   FEDERAL AND STATE TAXATION
 Federal Income Taxation
 General.
 Bad Debt Reserves.
  Distributions.
  30




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##### Table of Contents



State Taxation
  Delaware State Taxation.
 
 ITEM 1A. RISK FACTORS
 Significant Competition from an Array of Financial Service Providers
  Economic Downturn
  
    
    Loan delinquencies may increase;
    
    Problem assets and foreclosures may increase;
    
    Demand for the products and services of the Company may decline; and
    
    Collateral (including real estate) for loans made by the Company may decline in value,
in turn reducing customers borrowing power, and making existing loans less secure.
 General Credit Risk
  Environmental Risks
  31




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##### Table of Contents



Susceptibility to Changes in Regulation
  Interest Rate Risk
   Attraction and Retention of Key Personnel
  Dividend Payout Restrictions
  32




---



##### Table of Contents



Anti-Takeover Provisions
  Operational Risks
  Information Systems
  Technological Advances
  Severe Weather, Natural Disasters, Acts Of War Or Terrorism and Other External Events
  Trading Volume Risks
  33




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##### Table of Contents



Our Common Stock Is Not An Insured Deposit
   
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 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 AND ISSUER PURCHASES
OF EQUITY SECURITIES
  34




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##### Table of Contents



Year Ended December 31, 20054th Quarter
    
    3rd Quarter
    
    2nd Quarter
    
    1st QuarterHigh
    
    $
    24.39
    
    
    $
    23.08
    
    
    $
    23.05
    
    
    $
    25.48Low
    
    $
    20.50
    
    
    $
    19.90
    
    
    $
    19.50
    
    
    $
    21.80Dividends Paid
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
 Year Ended December 31, 20044th Quarter
    
    3rd Quarter
    
    2nd Quarter
    
    1st QuarterHigh
    
    $
    26.40
    
    
    $
    25.83
    
    
    $
    24.47
    
    
    $
    24.40Low
    
    $
    23.01
    
    
    $
    20.53
    
    
    $
    20.80
    
    
    $
    21.80Dividends Paid
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    Total Number ofShares PurchasedTotal Number
    
    
    
    
    
    as Part of Publicly
    
    Remaining Shareof Shares
    
    Average Price
    
    Announced
    
    RepurchasePeriod
    
    Purchased
    
    Paid per Share
    
    Programs
    
    Authorization10/1/2005 to
10/31/2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227,04611/1/2005 to
11/30/2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227,04612/1/2005 to
12/31/2005
    
    
    29,834
    
    
    $
    23.25
    
    
    
    27,600
    
    
    
    199,446Total
    
    
    29,834
    
    
    $
    23.25
    
    
    
    27,600
    
    
    
    199,446
 35




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
 DECEMBER 31,
    
    MARCH 31,2005
    
    2004 (1)
    
    2003
    
    2002 (2)
    
    2002(Dollars in thousands)SELECTED CONSOLIDATED FINANCIAL DATA:Total assets
    
    $
    1,654,223
    
    
    $
    1,393,364
    
    
    $
    1,094,260
    
    
    $
    1,000,184
    
    
    $
    946,356Cash and cash equivalents
    
    
    47,591
    
    
    
    27,937
    
    
    
    33,647
    
    
    
    40,356
    
    
    
    57,926Securities available for sale
    
    
    87,510
    
    
    
    93,839
    
    
    
    79,672
    
    
    
    100,382
    
    
    
    118,547Loans, net
    
    
    1,425,036
    
    
    
    1,192,057
    
    
    
    929,201
    
    
    
    819,136
    
    
    
    735,564Deposits
    
    
    1,072,195
    
    
    
    933,104
    
    
    
    748,531
    
    
    
    671,830
    
    
    
    634,014FHLB advances
    
    
    346,500
    
    
    
    232,209
    
    
    
    172,534
    
    
    
    173,003
    
    
    
    151,415Stockholders equity
    
    
    168,570
    
    
    
    162,894
    
    
    
    158,187
    
    
    
    148,155
    
    
    
    151,440Real estate and other assets owned
    
    
    1,471
    
    
    
    1,032
    
    
    
    443
    
    
    
    353
    
    
    
    953Total nonperforming assets
    
    
    22,845
    
    
    
    11,663
    
    
    
    4,358
    
    
    
    2,767
    
    
    
    2,746
 YEAR
    
    
    NINE MONTHSENDED
    
    
    ENDED
    
    
    YEAR ENDEDDECEMBER 31,
    
    
    DECEMBER 31,
    
    
    MARCH 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2002Total interest income
    
    $
    89,089
    
    
    $
    69,443
    
    
    $
    60,304
    
    
    $
    46,954
    
    
    $
    66,347Total interest expense
    
    
    38,092
    
    
    
    25,627
    
    
    
    23,307
    
    
    
    20,129
    
    
    
    30,691Net interest income
    
    
    50,997
    
    
    
    43,816
    
    
    
    36,997
    
    
    
    26,825
    
    
    
    35,656Provision for loan losses
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440
    
    
    
    892
    
    
    
    996Net interest income after provision for loan losses
    
    
    48,607
    
    
    
    42,261
    
    
    
    35,557
    
    
    
    25,933
    
    
    
    34,660Noninterest income
    
    
    6,773
    
    
    
    5,438
    
    
    
    10,429
    
    
    
    5,763
    
    
    
    4,079Noninterest expense
    
    
    42,068
    
    
    
    35,270
    
    
    
    27,410
    
    
    
    17,670
    
    
    
    22,773Income before income taxes
    
    
    13,312
    
    
    
    12,429
    
    
    
    18,576
    
    
    
    14,026
    
    
    
    15,966Income taxes
    
    
    4,278
    
    
    
    4,200
    
    
    
    6,255
    
    
    
    4,842
    
    
    
    5,418Net income
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321
    
    
    $
    9,184
    
    
    $
    10,548Earnings per share, basic
    
    
    1.14
    
    
    
    1.04
    
    
    
    1.58
    
    
    
    1.14
    
    
    
    1.23Dividends per share
    
    
    0.36
    
    
    
    0.36
    
    
    
    0.34
    
    
    
    0.24
    
    
    
    0.16
 YEAR
    
    NINE MONTHSENDED
    
    ENDED
    
    YEAR ENDEDDECEMBER 31,
    
    DECEMBER 31,
    
    MARCH 31,2005
    
    2004
    
    2003
    
    2002
    
    2002PERFORMANCE RATIOS:Average yield on interest-earning assets
    
    
    6.15
    %
    
    
    5.64
    %
    
    
    6.08
    %
    
    
    6.52
    %
    
    
    7.49
    %Average rate paid on interest-bearing liabilities
    
    
    3.09
    
    
    
    2.46
    
    
    
    2.78
    
    
    
    3.35
    
    
    
    4.22Average interest rate spread
    
    
    3.06
    
    
    
    3.18
    
    
    
    3.30
    
    
    
    3.17
    
    
    
    3.27Net interest margin
    
    
    3.52
    
    
    
    3.56
    
    
    
    3.73
    
    
    
    3.72
    
    
    
    4.02Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    117.45
    
    
    
    118.31
    
    
    
    118.32
    
    
    
    119.83
    
    
    
    121.71Net interest income after provision
for loan losses to noninterest expense
    
    
    115.54
    
    
    
    119.82
    
    
    
    129.72
    
    
    
    146.76
    
    
    
    152.20Noninterest expense as a percent of average assets
    
    
    2.76
    
    
    
    2.67
    
    
    
    2.57
    
    
    
    2.44
    
    
    
    2.54Return on average assets
    
    
    0.59
    
    
    
    0.62
    
    
    
    1.16
    
    
    
    1.26
    
    
    
    1.16Return on average equity
    
    
    5.44
    
    
    
    5.13
    
    
    
    8.06
    
    
    
    8.25
    
    
    
    7.00Ratio of average equity to average assets
    
    
    10.87
    
    
    
    12.15
    
    
    
    14.35
    
    
    
    15.24
    
    
    
    16.49Dividend payout ratio
    
    
    33.75
    
    
    
    37.24
    
    
    
    23.17
    
    
    
    22.95
    
    
    
    14.10
 AT OR FOR THE YEAR ENDEDDECEMBER 31,
    
    DECEMBER 31,
    
    MARCH 31,2005
    
    2004
    
    2003
    
    2002
    
    2002Leverage capital ratio
    
    
    8.4
    %
    
    
    9.7
    %
    
    
    11.8
    %
    
    
    12.1
    %
    
    
    16.4
    %Total risk-based capital ratio
    
    
    10.6
    
    
    
    12.8
    
    
    
    15.8
    
    
    
    19.5
    
    
    
    22.0ASSET QUALITY RATIOS:Nonperforming loans as a percent of total loans
    
    
    1.48
    
    
    
    0.88
    
    
    
    0.42
    
    
    
    0.29
    
    
    
    0.24Nonperforming assets as a percent of total assets
    
    
    1.38
    
    
    
    0.84
    
    
    
    0.40
    
    
    
    0.28
    
    
    
    0.29Allowance for loan losses as a percent
of total loans
    
    
    0.94
    
    
    
    1.12
    
    
    
    1.24
    
    
    
    1.33
    
    
    
    1.47Allowance for loan losses as a percent of
nonperforming loans
    
    
    63.4
    
    
    
    126.7
    
    
    
    297.9
    
    
    
    459.1
    
    
    
    614.6Net loans charged-off to average loans
    
    
    0.18
    
    
    
    0.08
    
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.11OTHERFull service banking centers and loan production
offices at end of period
    
    
    25
    
    
    
    20
    
    
    
    16
    
    
    
    15
    
    
    
    15
 
 (1)
    
    The data for the years ended December 31, 2004 and thereafter include the Metrobank
acquisition. See the discussion under General section under Item 1 for further information.(2)
    
    Effective December 31, 2002, the Company changed its fiscal year end to December 31,
rather than on March 31. As a result, the tables report the nine month period ended December 31,
2002 and the year ended March 31, 2002. 36




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
            37




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38




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##### Table of Contents




    
    a $233.0 million, or 19.5%, increase in loans, which is explained in more detail below,
    
    a $5.6 million, or 18.1%, increase in premises and equipment, due to the purchase of
land for future branch expansion in the Companys market area, the remodeling of the
Companys main office and additional capital improvements as a result of remodeling of our
other branches, and 4 additional banking centers,
    
    a $19.7 million, or 70.4%, increase in cash and equivalents due to timing differences,
and
    
    a $4.2 million, or 30.8%, increase in Federal Home Loan Bank (FHLB) stock, due to
increased borrowings from the FHLB which, in turn, required an increased investment in FHLB
stock.
   
    
    a $72.4 million, or 20.9%, increase in commercial real estate loans to $418.3 million,
    
    a $49.0 million, or 22.0%, increase in commercial loans to $271.4 million,
    
    a $51.4 million, or 166.3%, increase in construction loans to $82.3 million,
    
    a $18.2 million, or 16.1%, increase in home equity loans and lines of credit to $131.4 million, and
    
    a $18.0 million, or a 19.8%, increase in consumer loans to $108.6 million primarily in vehicles loans.
   39




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##### Table of Contents




    
    a $139.1 million, or 14.9%, increase in deposits from $933.1 million at December 31,
2004 to $1.1 million at December 31, 2005, and
    
    a $114.7 million, or 39.9%, increase in borrowed funds to fund loan growth which
primarily consisted of a $114.3 million, or 49.2%, increase in FHLB advances from $232.2
million at December 31, 2004 to $346.5 million at December 31, 2005, partially offset by a
net decrease of $6.1 million, or 60.5%, in the bank line of credit.
  
    
    a $22.1 million, or 24.7%, increase in noninterest bearing deposits,
    
    a $16.6 million, or 6.5%, increase in money market accounts, and
    
    a $137.1 million, or 38.0%, increase in certificates of deposit, of which $41.5 million related to brokered deposits.
   Nonperforming Assets and Delinquencies
   40




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##### Table of Contents



Year Ended December 31,2005
    
    
    2004
    
    
    2003Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateINTEREST EARNING ASSETS:Loans (1)
    
    $
    1,317,897
    
    
    $
    83,895
    
    
    
    6.37
    %
    
    $
    1,115,618
    
    
    $
    65,457
    
    
    
    5.87
    %
    
    $
    874,377
    
    
    $
    55,905
    
    
    
    6.39
    %Investment securities (2)
    
    
    93,144
    
    
    
    4,287
    
    
    
    4.60
    
    
    
    97,104
    
    
    
    3,402
    
    
    
    3.50
    
    
    
    97,519
    
    
    
    3,706
    
    
    
    3.80FHLB Stock
    
    
    16,640
    
    
    
    662
    
    
    
    3.98
    
    
    
    11,325
    
    
    
    488
    
    
    
    4.31
    
    
    
    9,219
    
    
    
    368
    
    
    
    3.99Federal funds sold
    
    
    1,727
    
    
    
    60
    
    
    
    3.47
    
    
    
    3,718
    
    
    
    41
    
    
    
    1.10
    
    
    
    2,513
    
    
    
    67
    
    
    
    2.67Interest earning deposits
    
    
    18,125
    
    
    
    185
    
    
    
    1.02
    
    
    
    4,400
    
    
    
    55
    
    
    
    1.25
    
    
    
    8,043
    
    
    
    258
    
    
    
    3.21Total interest earning assets
    
    
    1,447,533
    
    
    
    89,089
    
    
    
    6.15
    
    
    
    1,232,165
    
    
    
    69,443
    
    
    
    5.64
    
    
    
    991,671
    
    
    
    60,304
    
    
    
    6.08Noninterest earning assets
    
    
    79,282
    
    
    
    
    
    
    
    
    
    
    
    88,034
    
    
    
    
    
    
    
    
    
    
    
    73,880Total assets
    
    $
    1,526,815
    
    
    
    
    
    
    
    
    
    
    $
    1,320,199
    
    
    
    
    
    
    
    
    
    
    $
    1,065,551INTEREST BEARING LIABILITIES:Deposits:Savings
    
    $
    96,198
    
    
    $
    597
    
    
    
    0.62
    %
    
    $
    99,781
    
    
    $
    574
    
    
    
    0.58
    %
    
    $
    73,351
    
    
    $
    567
    
    
    
    0.77
    %NOW
    
    
    94,693
    
    
    
    896
    
    
    
    0.95
    
    
    
    119,940
    
    
    
    747
    
    
    
    0.62
    
    
    
    85,368
    
    
    
    904
    
    
    
    1.06Money market
    
    
    272,053
    
    
    
    6,503
    
    
    
    2.39
    
    
    
    265,342
    
    
    
    3,787
    
    
    
    1.43
    
    
    
    240,685
    
    
    
    3,808
    
    
    
    1.58Certificates of deposit
    
    
    435,578
    
    
    
    15,186
    
    
    
    3.49
    
    
    
    322,602
    
    
    
    9,776
    
    
    
    3.03
    
    
    
    264,834
    
    
    
    8,717
    
    
    
    3.29Total interest bearing deposits
    
    
    898,522
    
    
    
    23,182
    
    
    
    2.58
    
    
    
    807,665
    
    
    
    14,884
    
    
    
    1.84
    
    
    
    664,238
    
    
    
    13,996
    
    
    
    2.11Short-term borrowings
    
    
    49,474
    
    
    
    2,007
    
    
    
    4.06
    
    
    
    30,663
    
    
    
    724
    
    
    
    2.36
    
    
    
    1,300
    
    
    
    3
    
    
    
    0.23FHLB advances
    
    
    284,449
    
    
    
    12,903
    
    
    
    4.54
    
    
    
    203,122
    
    
    
    10,019
    
    
    
    4.93
    
    
    
    172,596
    
    
    
    9,308
    
    
    
    5.39Total interest bearing liabilities
    
    
    1,232,445
    
    
    
    38,092
    
    
    
    3.09
    
    
    
    1,041,450
    
    
    
    25,627
    
    
    
    2.46
    
    
    
    838,134
    
    
    
    23,307
    
    
    
    2.78Noninterest bearing deposits
    
    
    116,835
    
    
    
    
    
    
    
    
    
    
    
    100,154
    
    
    
    
    
    
    
    
    
    
    
    65,325Other noninterest bearing
liabilities
    
    
    11,536
    
    
    
    
    
    
    
    
    
    
    
    18,225
    
    
    
    
    
    
    
    
    
    
    
    10,789Total liabilities
    
    
    1,360,816
    
    
    
    
    
    
    
    
    
    
    
    1,159,829
    
    
    
    
    
    
    
    
    
    
    
    914,248Equity
    
    
    165,999
    
    
    
    
    
    
    
    
    
    
    
    160,370
    
    
    
    
    
    
    
    
    
    
    
    152,862Total liabilities and equity
    
    $
    1,526,815
    
    
    
    
    
    
    
    
    
    
    $
    1,320,199
    
    
    
    
    
    
    
    
    
    
    $
    1,067,110Net interest-earning assets
    
    $
    215,088
    
    
    
    
    
    
    
    
    
    
    $
    190,715
    
    
    
    
    
    
    
    
    
    
    $
    153,537Net interest income
    
    
    
    
    
    $
    50,997
    
    
    
    
    
    
    
    
    
    
    $
    43,816
    
    
    
    
    
    
    
    
    
    
    $
    36,997Interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    3.06
    %
    
    
    
    
    
    
    
    
    
    
    3.18
    %
    
    
    
    
    
    
    
    
    
    
    3.30
    %Net interest margin as a percentage
of interest-earning assets (4)
    
    
    
    
    
    
    
    
    
    
    3.52
    %
    
    
    
    
    
    
    
    
    
    
    3.56
    %
    
    
    
    
    
    
    
    
    
    
    3.73
    %Ratio of interest-earning assets
to interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    117.45
    %
    
    
    
    
    
    
    
    
    
    
    118.31
    %
    
    
    
    
    
    
    
    
    
    
    118.32
    %
 
 (1)
    
    Balances are net of deferred loan origination fees, undisbursed proceeds of
construction loans in process, and include nonperforming loans.(2)
    
    Securities available for sale are not on a tax equivalent basis.(3)
    
    Net interest rate spread represents the difference between the weighted average yield
on interest-earning assets and the weighted average cost of interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income as a percentage of average
interest-earning assets. 41




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##### Table of Contents



Year Ended December 31, 2005
    
    
    Year Ended December 31, 2004Compared to
    
    
    Compared toYear Ended December 31, 2004
    
    
    Year Ended December 31, 2003Increase (Decrease) Due to
    
    
    Increase (Decrease) Due toVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetINTEREST EARNING ASSETS:Loans
    
    $
    11,874
    
    
    $
    6,564
    
    
    $
    18,438
    
    
    $
    15,415
    
    
    $
    (5,863
    )
    
    $
    9,552Investment securities
    
    
    (139
    )
    
    
    1,024
    
    
    
    885
    
    
    
    (16
    )
    
    
    (288
    )
    
    
    (304
    )FHLB stock
    
    
    229
    
    
    
    (55
    )
    
    
    174
    
    
    
    84
    
    
    
    36
    
    
    
    120Federal funds sold
    
    
    (22
    )
    
    
    41
    
    
    
    19
    
    
    
    32
    
    
    
    (58
    )
    
    
    (26
    )Interest earning deposits
    
    
    172
    
    
    
    (42
    )
    
    
    130
    
    
    
    (117
    )
    
    
    (86
    )
    
    
    (203
    )Total interest earning assets
    
    
    12,114
    
    
    
    7,532
    
    
    
    19,646
    
    
    
    15,399
    
    
    
    (6,260
    )
    
    
    9,139INTEREST BEARING LIABILITIES:Deposits:Savings
    
    $
    (21
    )
    
    $
    44
    
    
    $
    23
    
    
    $
    204
    
    
    $
    (197
    )
    
    $
    7NOW
    
    
    (157
    )
    
    
    306
    
    
    
    149
    
    
    
    366
    
    
    
    (523
    )
    
    
    (157
    )Money market
    
    
    96
    
    
    
    2,620
    
    
    
    2,716
    
    
    
    390
    
    
    
    (411
    )
    
    
    (21
    )Certificates of deposit
    
    
    3,424
    
    
    
    1,986
    
    
    
    5,410
    
    
    
    1,901
    
    
    
    (842
    )
    
    
    1,059Total interest bearing deposits
    
    
    3,341
    
    
    
    4,957
    
    
    
    8,298
    
    
    
    2,861
    
    
    
    (1,973
    )
    
    
    888Short-term borrowings
    
    
    444
    
    
    
    839
    
    
    
    1,283
    
    
    
    68
    
    
    
    653
    
    
    
    721FHLB advances
    
    
    4,011
    
    
    
    (1,127
    )
    
    
    2,884
    
    
    
    1,646
    
    
    
    (935
    )
    
    
    711Total interest bearing liabilities
    
    
    7,797
    
    
    
    4,668
    
    
    
    12,465
    
    
    
    4,575
    
    
    
    (2,255
    )
    
    
    2,320Increase (decrease) in net interest income
    
    $
    4,317
    
    
    $
    2,864
    
    
    $
    7,181
    
    
    $
    10,825
    
    
    $
    (4,005
    )
    
    $
    6,819
 42




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##### Table of Contents



PercentIncreaseYear Ended
    
    
    (Decrease)December 31,
    
    
    2005
    
    
    20042005
    
    
    2004
    
    
    2003
    
    
    vs. 2004
    
    
    vs. 2003INTEREST INCOMELoans, including fees
    
    $
    83,895
    
    
    $
    65,457
    
    
    $
    55,905
    
    
    
    28.2
    %
    
    
    17.1
    %Federal funds sold and interest bearing deposits
    
    
    245
    
    
    
    96
    
    
    
    325
    
    
    
    155.2
    %
    
    
    -70.5
    %Securities:Tax-exempt
    
    
    1,304
    
    
    
    917
    
    
    
    485
    
    
    
    42.2
    %
    
    
    89.1
    %Taxable
    
    
    3,645
    
    
    
    2,973
    
    
    
    3,589
    
    
    
    22.6
    %
    
    
    -17.2
    %Total interest income
    
    
    89,089
    
    
    
    69,443
    
    
    
    60,304
    
    
    
    28.3
    %
    
    
    15.2
    %INTEREST EXPENSEDeposits
    
    
    23,182
    
    
    
    14,884
    
    
    
    13,996
    
    
    
    55.8
    %
    
    
    6.3
    %Short-term borrowings
    
    
    2,007
    
    
    
    724
    
    
    
    3
    
    
    
    177.2
    %
    
    
    (1
    )FHLB advances
    
    
    12,903
    
    
    
    10,019
    
    
    
    9,308
    
    
    
    28.8
    %
    
    
    7.6
    %Total interest expense
    
    
    38,092
    
    
    
    25,627
    
    
    
    23,307
    
    
    
    48.6
    %
    
    
    10.0
    %NET INTEREST INCOME
    
    
    50,997
    
    
    
    43,816
    
    
    
    36,997
    
    
    
    16.4
    %
    
    
    18.4
    %PROVISION FOR LOAN LOSSES
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440
    
    
    
    53.7
    %
    
    
    8.0
    %NET INTEREST INCOME, after provision for loan losses
    
    
    48,607
    
    
    
    42,261
    
    
    
    35,557
    
    
    
    15.0
    %
    
    
    18.9
    %NONINTEREST INCOMEService charges and other fees
    
    
    2,512
    
    
    
    2,484
    
    
    
    3,235
    
    
    
    1.1
    %
    
    
    -23.2
    %Mortgage banking activities
    
    
    2,816
    
    
    
    1,400
    
    
    
    6,051
    
    
    
    101.1
    %
    
    
    -76.9
    %Trust fee income
    
    
    1,239
    
    
    
    801
    
    
    
    631
    
    
    
    54.7
    %
    
    
    26.9
    %Gain (loss) on sale of securities available for sale
    
    
    
    
    
    
    468
    
    
    
    (46
    )
    
    
    -100.0
    %
    
    
    (1
    )Other
    
    
    206
    
    
    
    285
    
    
    
    558
    
    
    
    -27.7
    %
    
    
    -48.9
    %Total noninterest income
    
    
    6,773
    
    
    
    5,438
    
    
    
    10,429
    
    
    
    24.6
    %
    
    
    -47.9
    %NONINTEREST EXPENSECompensation, payroll taxes and employee benefits
    
    
    19,502
    
    
    
    16,266
    
    
    
    13,192
    
    
    
    19.9
    %
    
    
    23.3
    %Office occupancy and equipment
    
    
    6,561
    
    
    
    5,652
    
    
    
    4,191
    
    
    
    16.1
    %
    
    
    34.9
    %Advertising and business promotion
    
    
    1,552
    
    
    
    1,913
    
    
    
    1,228
    
    
    
    -18.9
    %
    
    
    55.8
    %Stationery, printing and supplies
    
    
    2,037
    
    
    
    1,761
    
    
    
    1,472
    
    
    
    15.7
    %
    
    
    19.6
    %Data processing
    
    
    1,887
    
    
    
    1,301
    
    
    
    487
    
    
    
    45.0
    %
    
    
    167.2
    %Professional fees
    
    
    4,232
    
    
    
    3,547
    
    
    
    2,143
    
    
    
    19.3
    %
    
    
    65.5
    %Core deposit intangible amortization
    
    
    561
    
    
    
    660
    
    
    
    
    
    
    
    -15.0
    %
    
    
    100.0
    %Other
    
    
    5,736
    
    
    
    4,170
    
    
    
    4,697
    
    
    
    37.6
    %
    
    
    -11.2
    %Total noninterest expense
    
    
    42,068
    
    
    
    35,270
    
    
    
    27,410
    
    
    
    19.3
    %
    
    
    28.7
    %INCOME, before federal income tax expense
    
    
    13,312
    
    
    
    12,429
    
    
    
    18,576
    
    
    
    7.1
    %
    
    
    -33.1
    %Federal income tax expense
    
    
    4,278
    
    
    
    4,200
    
    
    
    6,255
    
    
    
    1.9
    %
    
    
    -32.9
    %NET INCOME
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321
    
    
    
    9.8
    %
    
    
    -33.2
    %EARNINGS PER SHARE, BASIC
    
    $
    1.14
    
    
    $
    1.04
    
    
    $
    1.58
    
    
    
    9.6
    %
    
    
    -34.2
    %EARNINGS PER SHARE, DILUTED
    
    $
    1.14
    
    
    $
    1.04
    
    
    $
    1.57
    
    
    
    9.6
    %
    
    
    -33.8
    %
 
 (1)
    
    Percent change is greater than 1,000% and therefore is not listed for presentation
purposes 43




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44




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45




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

    To originate mortgages and other new loans,
 46




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##### Table of Contents




    
    To fund withdrawals of deposits and to pay interest on deposits,
    
    To fund takedowns on loan commitments and letters of credit,
    
    To invest in securities, including FHLB stock,
    
    To pay principal and interest on its borrowings,
    
    To fund any capital expenditures, which, for the upcoming fiscal year, are expected to
include renovation of the interiors of the remaining branch offices that began in 2004,
    
    To fund any acquisitions if the opportunity arises,
    
    To pay dividends to its shareholders, and
    
    To fund repurchases of the Companys stock pursuant to common stock repurchase plans
approved by the Companys Board of Directors from time to time, which repurchase plans are
described in detail below.
     Payments Due by PeriodLess than
    
    
    1 to 3
    
    
    4 to 5
    
    
    After 5Contractual Obligations
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalDeposits without a stated maturity (1)
    
    $
    574,177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    574,177Time deposits (2)
    
    
    351,455
    
    
    $
    109,410
    
    
    $
    37,311
    
    
    $
    14,123
    
    
    
    512,299FHLB advances (3)
    
    
    142,793
    
    
    
    149,062
    
    
    
    56,335
    
    
    
    32,461
    
    
    
    380,651Short-term borrowings
    
    
    55,963
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,963ESOP loan
    
    
    507
    
    
    
    1,148
    
    
    
    1,351
    
    
    
    5,663
    
    
    
    8,669Purchase obligations (4)
    
    
    5,004
    
    
    
    1,275
    
    
    
    750
    
    
    
    1,650
    
    
    
    8,679Noncancelable leases
    
    
    852
    
    
    
    1,585
    
    
    
    640
    
    
    
    261
    
    
    
    3,338Total
    
    $
    1,130,751
    
    
    $
    262,480
    
    
    $
    96,387
    
    
    $
    54,158
    
    
    $
    1,543,776
 Expiration by PeriodLess than
    
    
    1 to 3
    
    
    4 to 5
    
    
    After 5Other Commitments
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    9,062
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,062Commitments to
extend credit
    
    
    410,330
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410,330Total
    
    $
    419,392
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    419,392
 47




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48




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      49




---



##### Table of Contents




    
    the shape of the yield curve;
    
    the pricing characteristics of and pricing decisions regarding loans based on previous rates charged by the Company;
    
    changes in deposits and borrowings based on previous rates charged by the Company and other competitive conditions;
    
    reinvestments of cash flows from assets and liabilities based on current market interest rates;
    
    the lack of any changes in the mix of assets and liabilities on the balance sheet;
    
    the degree to which certain assets and liabilities with similar maturities or periods to
repricing react to changes in market interest rates based on particular characteristics of
those assets and liabilities;
    
    expected prepayment rates on loans and investments based on industry standards and the
current interest rate environment;
    
    certificates of deposit and other deposit flows based on expected maturity dates; and
    
    expected growth based on the Companys projections.
  Estimated Change in Annual Net Interest IncomeIncrease/(Decrease) in Market Interest
    
    At December 31, 2005 (Dollars in thousands)Rates in Basis Points (Rate Shock)
    
    Amount
    
    
    $ Change
    
    
    % Change200
    
    $
    62,109
    
    
    $
    2,435
    
    
    
    4.08
    %100
    
    
    60,234
    
    
    
    560
    
    
    
    0.94Static
    
    
    59,674
    
    
    
    
    
    
    
    -100
    
    
    59,639
    
    
    
    (35
    )
    
    
    (0.06
    )-200
    
    
    58,483
    
    
    
    (1,191
    )
    
    
    (2.00
    )
   
    
    Although certain assets may have similar maturities or repricing characteristics, they
may react in different degrees to changes in interest rates.
    
    The interest rates on certain types of assets and liabilities may fluctuate in advance
of changes in market interest rates, while interest rates on other types of assets and
liabilities may lag behind changes in market interest rates.
    
    Certain assets, such as adjustable-rate and residential mortgage loans, have features
that restrict changes in interest rates on a short-term basis and over the life of the
asset.
    
    In the event of a change in interest rates, expected rates of repayments on loans and
early withdrawals from time deposits could deviate significantly from those assumed in
calculating the table.
 50




---



##### Table of Contents




    
    If interest rates increased, it is also possible that the increased mortgage payments
required of certain borrowers could result in an increase in delinquencies and defaults.
    
    Changes in interest rates could also affect the volume and profitability of the
Companys lending operations.
   51




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal Control 
Integrated Framework
 
  
 Report of Independent Registered Public Accounting Firm
 
 Internal Control-Integrated Framework
  52




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53




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##### Table of Contents



December 31,2005
    
    
    2004ASSETSCash and due from depository institutions
    
    $
    38,217
    
    
    $
    27,937Federal funds sold
    
    
    2,029
    
    
    
    Interest-bearing deposits in other depository institutions
    
    
    7,345
    
    
    
    Total cash and cash equivalents
    
    
    47,591
    
    
    
    27,937Securities available for sale, at fair value (Note 3)
    
    
    87,510
    
    
    
    93,839Federal Home Loan Bank stock, at cost
    
    
    17,700
    
    
    
    13,536Loans held for sale
    
    
    2,126
    
    
    
    192Loans, less allowance for loan losses of $13,546 and $13,472 (Note 4)
    
    
    1,425,036
    
    
    
    1,192,057Premises and equipment, net (Note 5)
    
    
    36,228
    
    
    
    30,680Goodwill (Note 2)
    
    
    9,814
    
    
    
    9,814Other intangible assets, net of amortization of $1,221 and $660 (Note 2)
    
    
    3,179
    
    
    
    3,740Accrued interest receivable and other assets (Notes 6 and 9)
    
    
    25,039
    
    
    
    21,569Total assets
    
    $
    1,654,223
    
    
    $
    1,393,364LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    111,503
    
    
    $
    89,416Interest-bearing (Note 7)
    
    
    960,692
    
    
    
    843,688Total deposits
    
    
    1,072,195
    
    
    
    933,104Federal Home Loan Bank advances (Note 8)
    
    
    346,500
    
    
    
    232,209Bank line of credit (Note 8)
    
    
    3,950
    
    
    
    10,000Federal funds purchased (Note 8)
    
    
    52,013
    
    
    
    45,527Accrued interest payable and other liabilities (Note 10)
    
    
    10,995
    
    
    
    9,630Total liabilities
    
    
    1,485,653
    
    
    
    1,230,470COMMITMENTS AND CONTINGENCIES (Notes 10 and 13)STOCKHOLDERS EQUITY (Notes 11, 12 and 15)Preferred stock, $.01 par value; 1,000,000 shares authorized,
no shares issued and outstanding
    
    
    
    
    
    
    Common
stock, $.01 par value; 20,000,000 shares authorized, 9,526,761 issued

    
    
    95
    
    
    
    95Additional paid-in capital
    
    
    93,848
    
    
    
    93,409Retained earnings
    
    
    104,054
    
    
    
    98,068Accumulated other comprehensive loss
    
    
    (898
    )
    
    
    (621
    )Treasury stock, at cost (1,364,561 and 1,278,891 shares)
    
    
    (24,653
    )
    
    
    (23,004
    )Deferred compensation obligation (Note 10)
    
    
    3,111
    
    
    
    2,632Unearned compensation  ESOP (Note 10)
    
    
    (6,987
    )
    
    
    (7,685
    )Total stockholders equity
    
    
    168,570
    
    
    
    162,894Total liabilities and stockholders equity
    
    $
    1,654,223
    
    
    $
    1,393,364
  54




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##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004
    
    
    2003INTEREST INCOMELoans, including fees
    
    $
    83,895
    
    
    $
    65,457
    
    
    $
    55,905Federal funds sold and interest bearing deposits
    
    
    245
    
    
    
    96
    
    
    
    325Securities:Tax-exempt
    
    
    1,304
    
    
    
    917
    
    
    
    485Taxable
    
    
    3,645
    
    
    
    2,973
    
    
    
    3,589Total interest income
    
    
    89,089
    
    
    
    69,443
    
    
    
    60,304INTEREST EXPENSEDeposits
    
    
    23,182
    
    
    
    14,884
    
    
    
    13,996Short-term borrowings
    
    
    2,007
    
    
    
    724
    
    
    
    3FHLB advances
    
    
    12,903
    
    
    
    10,019
    
    
    
    9,308Total interest expense
    
    
    38,092
    
    
    
    25,627
    
    
    
    23,307NET INTEREST INCOME
    
    
    50,997
    
    
    
    43,816
    
    
    
    36,997PROVISION FOR LOAN LOSSES (Note 4)
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440NET INTEREST INCOME, after provision for loan losses
    
    
    48,607
    
    
    
    42,261
    
    
    
    35,557NONINTEREST INCOMEService charges and other fees
    
    
    2,512
    
    
    
    2,484
    
    
    
    3,235Mortgage banking activities
    
    
    2,816
    
    
    
    1,400
    
    
    
    6,051Trust fee income
    
    
    1,239
    
    
    
    801
    
    
    
    631Gain (loss) on sale of securities available for sale
    
    
    
    
    
    
    468
    
    
    
    (46
    )Other
    
    
    206
    
    
    
    285
    
    
    
    558Total noninterest income
    
    
    6,773
    
    
    
    5,438
    
    
    
    10,429NONINTEREST EXPENSECompensation, payroll taxes and employee benefits (Note 10)
    
    
    19,502
    
    
    
    16,266
    
    
    
    13,192Office occupancy and equipment
    
    
    6,561
    
    
    
    5,652
    
    
    
    4,191Advertising and business promotion
    
    
    1,552
    
    
    
    1,913
    
    
    
    1,228Stationery, printing and supplies
    
    
    2,037
    
    
    
    1,761
    
    
    
    1,472Data processing
    
    
    1,887
    
    
    
    1,301
    
    
    
    487Professional fees
    
    
    4,232
    
    
    
    3,547
    
    
    
    2,143Core deposit intangible amortization
    
    
    561
    
    
    
    660
    
    
    
    Other
    
    
    5,736
    
    
    
    4,170
    
    
    
    4,697Total noninterest expense
    
    
    42,068
    
    
    
    35,270
    
    
    
    27,410INCOME, before federal income tax expense
    
    
    13,312
    
    
    
    12,429
    
    
    
    18,576Federal income tax expense (Note 9)
    
    
    4,278
    
    
    
    4,200
    
    
    
    6,255NET INCOME
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321EARNINGS PER SHARE, BASIC
    
    $
    1.14
    
    
    $
    1.04
    
    
    $
    1.58EARNINGS PER SHARE, DILUTED
    
    $
    1.14
    
    
    $
    1.04
    
    
    $
    1.57
  55




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Deferred
    
    
    UnearnedCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Compensation
    
    
    Compensation -Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Obligation
    
    
    ESOP
    
    
    TotalBALANCE, December 31, 2002
    
    $
    95
    
    
    $
    92,528
    
    
    $
    83,044
    
    
    $
    322
    
    
    $
    (20,342
    )
    
    $
    1,590
    
    
    $
    (9,082
    )
    
    $
    148,155Allocation of ESOP shares
    
    
    
    
    
    
    383
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    699
    
    
    
    1,082Purchase of treasury stock
(69,697 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,445
    )
    
    
    
    
    
    
    
    
    
    
    (1,445
    )Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    464
    
    
    
    
    
    
    
    464Dividends paid ($0.34 per share)
    
    
    
    
    
    
    
    
    
    
    (2,681
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,681
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    12,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,321Change in net unrealized gain
on securities available for
sale, net of tax effect of $150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,612BALANCE, December 31, 2003
    
    
    95
    
    
    
    92,911
    
    
    
    92,684
    
    
    
    613
    
    
    
    (21,787
    )
    
    
    2,054
    
    
    
    (8,383
    )
    
    
    158,187Allocation of ESOP shares
    
    
    
    
    
    
    490
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    1,188Exercise of stock options
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    93Purchase of treasury stock
(56,649 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,302
    )
    
    
    
    
    
    
    
    
    
    
    (1,302
    )Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    578
    
    
    
    
    
    
    
    578Dividends paid ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    (2,845
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,845
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    8,229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,229Change in net unrealized
loss on securities
available for sale, net of tax
effect of $(636)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,234
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,234
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,995BALANCE, December 31, 2004
    
    
    95
    
    
    
    93,409
    
    
    
    98,068
    
    
    
    (621
    )
    
    
    (23,004
    )
    
    
    2,632
    
    
    
    (7,685
    )
    
    
    162,894Allocation of ESOP shares
    
    
    
    
    
    
    430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    1,128Exercise of stock options
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    130Deferred
compensation and stock
awards earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    113Purchase of treasury stock
(85,670 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,883
    )
    
    
    
    
    
    
    
    
    
    
    (1,883
    )Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    479Dividends paid ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    (3,048
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,048
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    9,034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,034Change in net unrealized
loss on securities
available for sale, net of tax
effect of $(143)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (277
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (277
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,757BALANCE, December 31, 2005
    
    $
    95
    
    
    $
    93,848
    
    
    $
    104,054
    
    
    $
    (898
    )
    
    $
    (24,653
    )
    
    $
    3,111
    
    
    $
    (6,987
    )
    
    $
    168,570
  56




---



##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004
    
    
    2003OPERATING ACTIVITIESNet income
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321Adjustments to reconcile net income to net cash from operating activities:Provision for deferred income taxes
    
    
    468
    
    
    
    2,477
    
    
    
    617Provision for loan losses
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440Deferred compensation and ESOP
    
    
    1,720
    
    
    
    1,766
    
    
    
    1,546Depreciation
    
    
    2,355
    
    
    
    1,955
    
    
    
    1,320Core deposit intangible amortization
    
    
    561
    
    
    
    660
    
    
    
    Amortization of securities
    
    
    691
    
    
    
    3,048
    
    
    
    213Proceeds from sale of mortgage loans held for sale
    
    
    175,126
    
    
    
    126,823
    
    
    
    324,960Origination of mortgage loans held for sale
    
    
    (176,484
    )
    
    
    (124,832
    )
    
    
    (322,407
    )Gain on sale of mortgage loans
    
    
    (576
    )
    
    
    (199
    )
    
    
    (2,980
    )(Gain) loss on sale of securities available for sale
    
    
    
    
    
    
    (468
    )
    
    
    46(Gain) loss on sale or disposal of premises and equipment
    
    
    (59
    )
    
    
    144
    
    
    
    31Changes in assets and liabilities, net of acquisition:(Increase) in accrued interest receivable and other assets
    
    
    (3,795
    )
    
    
    (3,508
    )
    
    
    (3,255
    )Increase in accrued interest payable and other liabilities
    
    
    1,365
    
    
    
    2,636
    
    
    
    7,812Net cash from operating activities
    
    
    12,796
    
    
    
    20,286
    
    
    
    21,664LENDING AND INVESTING ACTIVITIESProceeds from maturities of securities available for sale
    
    
    15,493
    
    
    
    20,365
    
    
    
    48,867Proceeds from sale of securities available for sale
    
    
    95
    
    
    
    63,289
    
    
    
    25,990Purchase of securities available for sale
    
    
    (10,370
    )
    
    
    (63,898
    )
    
    
    (53,964
    )Purchase of Federal Home Loan Bank stock
    
    
    (4,164
    )
    
    
    (3,792
    )
    
    
    (236
    )Acquisition, net of cash acquired (Note 2)
    
    
    
    
    
    
    (24,398
    )
    
    
    Net increase in loans
    
    
    (235,369
    )
    
    
    (162,466
    )
    
    
    (111,505
    )Proceeds from sale of premises and equipment
    
    
    282
    
    
    
    4
    
    
    
    Purchases of premises and equipment
    
    
    (8,126
    )
    
    
    (7,225
    )
    
    
    (9,631
    )Net cash used for lending and investing activities
    
    
    (242,159
    )
    
    
    (178,121
    )
    
    
    (100,479
    )DEPOSIT AND FINANCING ACTIVITIESNet increase in deposits
    
    
    139,091
    
    
    
    49,977
    
    
    
    76,701Net increase in federal funds purchased
    
    
    6,486
    
    
    
    36,527
    
    
    
    Proceeds from exercises of stock options
    
    
    130
    
    
    
    93
    
    
    
    Proceeds from line of credit
    
    
    1,000
    
    
    
    10,000
    
    
    
    Repayment of line of credit
    
    
    (7,050
    )
    
    
    
    
    
    
    Repayment of FHLB advances
    
    
    (153,854
    )
    
    
    (52,325
    )
    
    
    (8,469
    )Proceeds from FHLB advances
    
    
    268,145
    
    
    
    112,000
    
    
    
    8,000Purchase of treasury stock
    
    
    (1,883
    )
    
    
    (1,302
    )
    
    
    (1,445
    )Payment of dividends
    
    
    (3,048
    )
    
    
    (2,845
    )
    
    
    (2,681
    )Net cash from deposit and financing activities
    
    
    249,017
    
    
    
    152,125
    
    
    
    72,106NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    19,654
    
    
    
    (5,710
    )
    
    
    (6,709
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    27,937
    
    
    
    33,647
    
    
    
    40,356CASH AND CASH EQUIVALENTS, end of period
    
    $
    47,591
    
    
    $
    27,937
    
    
    $
    33,647SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for:Interest
    
    $
    36,691
    
    
    $
    25,901
    
    
    $
    23,508Federal income taxes
    
    
    3,600
    
    
    
    4,410
    
    
    
    4,995
  57




---



##### Table of Contents



58




---



##### Table of Contents



nonperforming nonaccrual
       59




---



##### Table of Contents



Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
 60




---



##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321Deduct: Total stock option-based employee compensation
expense determined under fair value-based method,
net of related tax effects
    
    
    (749
    )
    
    
    (130
    )
    
    
    (85
    )Pro forma net income
    
    $
    8,285
    
    
    $
    8,099
    
    
    $
    12,236Earnings per shareBasic  as reported
    
    $
    1.14
    
    
    $
    1.04
    
    
    $
    1.58Basic  pro forma
    
    $
    1.05
    
    
    $
    1.03
    
    
    $
    1.57Diluted  as reported
    
    $
    1.14
    
    
    $
    1.04
    
    
    $
    1.57Diluted  pro forma
    
    $
    1.04
    
    
    $
    1.02
    
    
    $
    1.56
  Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Dividend yield
    
    
    1.57
    %
    
    
    1.56
    %
    
    
    1.60
    %Expected life
    
    
    8
    years
    
    
    8
    years
    
    
    8
    yearsExpected volatility
    
    
    28.98
    %
    
    
    16.55
    %
    
    
    22.00
    %Risk-free interest rate
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
   61




---



##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Net income
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321Average number of common shares outstanding
used to calculate basic earnings per common share
    
    
    7,901,860
    
    
    
    7,890,482
    
    
    
    7,810,422Effect of dilutive securities
    
    
    38,863
    
    
    
    37,901
    
    
    
    32,743Average number of common shares outstanding
used to calculate diluted earnings per
common share
    
    
    7,940,723
    
    
    
    7,928,383
    
    
    
    7,843,165Number of antidilutive stock options excluded from diluted earnings
per share computation
    
    
    34,696
    
    
    
    38,754
    
    
    
    
   Share Based Payment Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees Employers Accounting for Stock Ownership Plans
 The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments
 Terms of Loan Products That May Give Rise to
a Concentration of Credit Risk
  62




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##### Table of Contents



December 31, 2005Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    23,379
    
    
    
    
    
    
    $
    399
    
    
    $
    22,980Obligations of state and political
subdivisions
    
    
    35,506
    
    
    $
    151
    
    
    
    239
    
    
    
    35,418Corporate debt securities
    
    
    20,584
    
    
    
    
    
    
    
    108
    
    
    
    20,476Equity securities available for sale
    
    
    5,000
    
    
    
    
    
    
    
    687
    
    
    
    4,313Mortgage-backed securities
    
    
    4,400
    
    
    
    6
    
    
    
    83
    
    
    
    4,323Total securities available for sale
    
    $
    88,869
    
    
    $
    157
    
    
    $
    1,516
    
    
    $
    87,510
 December 31, 2004U.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    26,124
    
    
    $
    103
    
    
    $
    150
    
    
    $
    26,077Obligations of state and political
subdivisions
    
    
    37,504
    
    
    
    537
    
    
    
    152
    
    
    
    37,889Corporate debt securities
    
    
    19,366
    
    
    
    1
    
    
    
    73
    
    
    
    19,294Equity securities available for sale
    
    
    5,002
    
    
    
    
    
    
    
    1,117
    
    
    
    3,885Mortgage-backed securities
    
    
    6,783
    
    
    
    15
    
    
    
    104
    
    
    
    6,694Total securities available for sale
    
    $
    94,779
    
    
    $
    656
    
    
    $
    1,596
    
    
    $
    93,839
  63




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##### Table of Contents



December 31, 2005Amortized
    
    
    FairCost
    
    
    ValueDue within one year or less
    
    $
    18,174
    
    
    $
    18,089Due after one year through five years
    
    
    39,804
    
    
    
    39,354Due after five years through ten years
    
    
    19,566
    
    
    
    19,500Due after ten years
    
    
    1,925
    
    
    
    1,931Total
    
    
    79,469
    
    
    
    78,874Mortgage-backed securities
    
    
    4,400
    
    
    
    4,323Equity securities available for sale
    
    
    5,000
    
    
    
    4,313Total
    
    $
    88,869
    
    
    $
    87,510
   64




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##### Table of Contents



December, 31 2005Less than Twelve Months
    
    
    Over Twelve MonthsUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    183
    
    
    $
    11,074
    
    
    $
    216
    
    
    $
    11,905Obligations of state and political
subdivisions
    
    
    160
    
    
    
    14,128
    
    
    
    79
    
    
    
    5,588Corporate debt securities
    
    
    1
    
    
    
    520
    
    
    
    107
    
    
    
    3,499Equity securities available for sale
    
    
    
    
    
    
    
    
    
    
    687
    
    
    
    4,315Mortgage-backed securities
    
    
    10
    
    
    
    889
    
    
    
    73
    
    
    
    2,966Total
    
    $
    354
    
    
    $
    26,611
    
    
    $
    1,162
    
    
    $
    28,273
 December, 31 2004Less than Twelve Months
    
    
    Over Twelve MonthsUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    150
    
    
    $
    10,639
    
    
    
    
    
    
    
    Obligations of state and political
subdivisions
    
    
    132
    
    
    
    7,172
    
    
    $
    20
    
    
    $
    1,848Corporate debt securities
    
    
    73
    
    
    
    4,193
    
    
    
    
    
    
    
    Equity securities available for sale
    
    
    
    
    
    
    
    
    
    
    1,117
    
    
    
    3,885Mortgage-backed securities
    
    
    100
    
    
    
    6,675
    
    
    
    4
    
    
    
    566Total
    
    $
    455
    
    
    $
    28,679
    
    
    $
    1,141
    
    
    $
    6,299
  65




---



##### Table of Contents



December 31,2005
    
    
    2004Real estate loans:One-to four-family
    
    $
    427,714
    
    
    $
    404,655Commercial and multi-family
    
    
    418,314
    
    
    
    345,936Residential construction
    
    
    82,328
    
    
    
    30,917Home equity and lines of credit
    
    
    131,378
    
    
    
    113,2021,059,734
    
    
    
    894,710Commercial loans
    
    
    271,436
    
    
    
    222,403Consumer loans:Vehicles
    
    
    84,189
    
    
    
    66,463Other
    
    
    24,421
    
    
    
    24,184108,610
    
    
    
    90,647Total loans
    
    
    1,439,780
    
    
    
    1,207,760Less:Allowance for loan losses
    
    
    13,546
    
    
    
    13,472Net deferred loan fees
    
    
    1,198
    
    
    
    2,231Net loans
    
    $
    1,425,036
    
    
    $
    1,192,057
   Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Balance, beginning of period
    
    $
    13,472
    
    
    $
    11,664
    
    
    $
    11,082Allowance from acquisition
    
    
    
    
    
    
    1,135
    
    
    
    Provision for loan losses
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440Charge-offs
    
    
    (2,609
    )
    
    
    (1,459
    )
    
    
    (1,095
    )Recoveries
    
    
    293
    
    
    
    577
    
    
    
    237Balance, end of period
    
    $
    13,546
    
    
    $
    13,472
    
    
    $
    11,664
  December 31,2005
    
    
    2004Impaired loans without a valuation allowance
    
    $
    9,569
    
    
    $
    Impaired loans with a valuation allowance
    
    
    2,290
    
    
    
    2,653Total impaired loans
    
    $
    11,859
    
    
    $
    2,653Valuation allowance related to impaired loans
    
    $
    600
    
    
    $
    420Total nonperforming loans
    
    $
    21,374
    
    
    $
    10,631
 66




---



##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Average investment in impaired loans
    
    $
    7,256
    
    
    $
    3,065
    
    
    $
    257Interest income recognized on impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    Interest income recognized on a cash basis
on impaired loans
    
    $
    36
    
    
    $
    
    
    
    $
    
   December 31,2005
    
    
    2004Land
    
    $
    8,626
    
    
    $
    6,650Office buildings
    
    
    28,926
    
    
    
    23,276Furniture, fixtures, and equipment
    
    
    15,523
    
    
    
    14,064Construction in process
    
    
    2,153
    
    
    
    3,635Total premises and equipment
    
    
    55,228
    
    
    
    47,625Less accumulated depreciation
    
    
    (19,000
    )
    
    
    (16,945
    )Net carrying amount
    
    $
    36,228
    
    
    $
    30,680
   2006
    
    $
    8522007
    
    
    8362008
    
    
    7492009
    
    
    4282010
    
    
    212Thereafter
    
    
    261Total
    
    $
    3,338
    67




---



##### Table of Contents



December 31,2005
    
    
    2004
    
    
    2003Annual constant prepayment speed
    
    
    7.87
    %
    
    
    10.22
    %
    
    
    13.46
    %Weighted average life (in months)
    
    
    264
    
    
    
    257
    
    
    
    269Discount rate
    
    
    8.50
    %
    
    
    7.50
    %
    
    
    7.25
    %
  Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Balance, beginning of period
    
    $
    3,938
    
    
    $
    3,820
    
    
    $
    1,939Net mortgage servicing rights acquired in
acquisition
    
    
    
    
    
    
    662
    
    
    
    Amount capitalized
    
    
    1,258
    
    
    
    1,118
    
    
    
    3,063Amortization
    
    
    1,010
    
    
    
    1,662
    
    
    
    2,459Change in valuation reserve
    
    
    (68
    )
    
    
    
    
    
    
    1,277Balance, end of period
    
    $
    4,118
    
    
    $
    3,938
    
    
    $
    3,820Valuation allowance:Balance, beginning of period
    
    
    
    
    
    
    
    
    
    $
    1,277Additions
    
    $
    68
    
    
    
    
    
    
    
    Reductions
    
    
    
    
    
    
    
    
    
    
    1,277Balance, end of period
    
    $
    68
    
    
    $
    
    
    
    $
    
   December 31,2005
    
    
    2004Passbook and savings deposits
    
    $
    99,171
    
    
    $
    97,448NOW accounts
    
    
    91,184
    
    
    
    129,573Money market variable rate accounts
    
    
    272,319
    
    
    
    255,716Time deposits
    
    
    498,018
    
    
    
    360,951Total
    
    $
    960,692
    
    
    $
    843,688
 68




---



##### Table of Contents



2006
    
    $
    346,7822007
    
    
    62,0902008
    
    
    38,8852009
    
    
    14,6722010
    
    
    22,327Thereafter
    
    
    13,262Total
    
    $
    498,018
      2006
    
    $
    140,1862007
    
    
    45,3952008
    
    
    89,9192009
    
    
    21,6022010
    
    
    25,868Thereafter
    
    
    23,530Total
    
    $
    346,500
    Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Current tax expense
    
    $
    3,810
    
    
    $
    1,723
    
    
    $
    5,638Deferred tax expense
    
    
    468
    
    
    
    2,477
    
    
    
    617Total income tax expense
    
    $
    4,278
    
    
    $
    4,200
    
    
    $
    6,255
 69




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##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Income tax at statutory rates (1)
    
    $
    4,659
    
    
    $
    4,350
    
    
    $
    6,502Increase (decrease) resulting from:Change in contribution carry forward reserve
    
    
    300
    
    
    
    450
    
    
    
    Tax-exempt interest expense
    
    
    (470
    )
    
    
    (432
    )
    
    
    (218
    )Other
    
    
    (211
    )
    
    
    (168
    )
    
    
    (29
    )Total income tax expense
    
    $
    4,278
    
    
    $
    4,200
    
    
    $
    6,255
 
 (1)
    
    35% in 2005, 2004 and 2003  December 31,2005
    
    
    2004Deferred income tax assets:Allowance for loan losses
    
    $
    4,741
    
    
    $
    3,859Contribution carry forward
    
    
    1,210
    
    
    
    1,461Deferred loan fees
    
    
    
    
    
    
    17Employee benefit obligations
    
    
    2,372
    
    
    
    2,025Net unrealized loss on securities
available for sale
    
    
    462
    
    
    
    320Other
    
    
    367
    
    
    
    615Total deferred income tax assets
    
    
    9,152
    
    
    
    8,297Deferred income tax liabilities:Original issue discount
    
    
    498
    
    
    
    275Investment in subsidiary
    
    
    537
    
    
    
    341Deferred loan fees
    
    
    185
    
    
    
    Accumulated depreciation
    
    
    1,402
    
    
    
    1,022Net unrealized gain on securities
available for sale
    
    
    
    
    
    
    Accumulated accretion
    
    
    49
    
    
    
    Core deposit intangible
    
    
    1,113
    
    
    
    1,309Other
    
    
    764
    
    
    
    720Total deferred income tax liabilities
    
    
    4,548
    
    
    
    3,667Deferred income tax asset
    
    
    4,604
    
    
    
    4,630Valuation allowance
    
    
    (750
    )
    
    
    (450
    )Net deferred income tax asset
    
    $
    3,854
    
    
    $
    4,180
  70




---



##### Table of Contents



Year EndingDecember 31,
    
    Amount2006
    
    $
    5072007
    
    
    5512008
    
    
    5972009
    
    
    6482010
    
    
    703Thereafter
    
    
    5,663Total
    
    $
    8,669
  71




---



##### Table of Contents



December 31,2005
    
    
    2004Allocated
    
    
    254,046
    
    
    
    203,237Unallocated
    
    
    508,094
    
    
    
    558,903Total
    
    
    762,140
    
    
    
    762,140
    Year Ended December 31,2005
    
    
    2004
    
    
    2003Beginning of period
    
    
    72,562
    
    
    
    68,817
    
    
    
    69,367Granted
    
    
    27,209
    
    
    
    6,245
    
    
    
    1,150Forfeited
    
    
    6,597
    
    
    
    2,500
    
    
    
    1,700Exercised
    
    
    
    
    
    
    
    
    
    
    Outstanding, end of period
    
    
    93,174
    
    
    
    72,562
    
    
    
    68,817
     72




---



##### Table of Contents



Year Ended December 31,2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding, beginning of period
    
    
    186,264
    
    
    $
    20.00
    
    
    
    170,800
    
    
    $
    18.95
    
    
    
    23,100
    
    
    $
    19.85Options granted during the period
    
    
    90,016
    
    
    
    19.96
    
    
    
    42,113
    
    
    
    23.90
    
    
    
    147,700
    
    
    
    18.81Options forfeited
    
    
    12,991
    
    
    
    20.26
    
    
    
    22,169
    
    
    
    19.58
    
    
    
    
    
    
    
    Options exercised
    
    
    6,230
    
    
    
    21.84
    
    
    
    4,480
    
    
    
    18.81
    
    
    
    
    
    
    
    Outstanding, end of period
    
    
    257,059
    
    
    $
    19.93
    
    
    
    186,264
    
    
    $
    20.00
    
    
    
    170,800
    
    
    $
    18.95Options exercisable, end of year
    
    
    254,059
    
    
    
    
    
    
    
    46,790
    
    
    
    
    
    
    
    23,100Weighted-average fair value of options granted
during the period
    
    $
    6.80
    
    
    
    
    
    
    $
    5.70
    
    
    
    
    
    
    $
    5.29
  Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life

    
    Price
    
    
    Exercisable
    
    
    Price$23.00 - $24.00
    
    
    34,696
    
    
    8.2 years
    
    $
    23.90
    
    
    
    34,696
    
    
    
    23.90$20.00 - $21.00
    
    
    3,000
    
    
    9.3 years
    
    $
    21.91
    
    
    
    
    
    
    
    $19.00 - $20.00
    
    
    106,123
    
    
    9.4 years
    
    $
    19.93
    
    
    
    106,123
    
    
    $
    19.93$18.00 - $19.00
    
    
    113,240
    
    
    7.2 years
    
    $
    18.81
    
    
    
    113,240
    
    
    $
    18.81Outstanding, end of year
    
    

257,059
    
    


    
    $
    20.00
    
    
    

254,059
    
    
    $
    19.97
     73




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##### Table of Contents



For CapitalActual
    
    
    Adequacy Purposes
    
    
    To Be Well CapitalizedRatio
    
    
    
    
    
    
    
    
    
    
    Ratio
    
    
    
    
    
    
    
    
    
    
    RatioAmount
    
    
    (Percent)
    
    
    Amount
    
    
    
    
    
    
    (Percent)
    
    
    Amount
    
    
    
    
    
    
    (Percent)December 31, 2005Total Capital to Risk
Weighted Assets:
    
    $
    148,607
    
    
    
    10.6
    %
    
    $
    112,200
    
    
    
    3
    
    
    
    8.0
    %
    
    $
    140,300
    
    
    
    3
    
    
    
    10.0
    %Tier 1 Capital to Risk
Weighted Assets:
    
    
    135,061
    
    
    
    9.6
    %
    
    
    56,100
    
    
    
    3
    
    
    
    4.0
    %
    
    
    84,200
    
    
    
    3
    
    
    
    6.0
    %Tier 1 Capital to
Average Assets:
    
    
    135,061
    
    
    
    8.4
    %
    
    
    48,300
    
    
    
    3
    
    
    
    3.0
    %
    
    
    80,500
    
    
    
    3
    
    
    
    5.0
    %December 31, 2004Total Capital to Risk
Weighted Assets:Citizens First Savings Bank
    
    $
    125,475
    
    
    
    12.8
    %
    
    $
    78,700
    
    
    
    3
    
    
    
    8.0
    %
    
    $
    98,400
    
    
    
    3
    
    
    
    10.0
    %Tier 1 Capital to Risk
Weighted Assets:Citizens First Savings Bank
    
    
    113,539
    
    
    
    11.5
    %
    
    
    39,400
    
    
    
    3
    
    
    
    4.0
    %
    
    
    59,000
    
    
    
    3
    
    
    
    6.0
    %Tier 1 Capital to
Average Assets:Citizens First Savings Bank
    
    
    113,539
    
    
    
    9.7
    %
    
    
    35,200
    
    
    
    3
    
    
    
    3.0
    %
    
    
    58,600
    
    
    
    3
    
    
    
    5.0
    %
 
 (1)
    
    The December 31, 2005 information reflects the merger of Metrobank into Citizens First Savings Bank
(see Note 2). The December 31, 2004 information is only for Citizens First Savings Bank since at
December 31, 2004, Citizens First Savings Bank and Metrobank were separately chartered savings
banks.        74




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##### Table of Contents



December 31,2005
    
    
    2004Commercial and stand-by letters of credit
    
    $
    9,062
    
    
    $
    6,387Unused lines of credit
    
    
    270,829
    
    
    
    168,162Commitments to originate loans or to refinance
existing loans:Real estate
    
    
    88,180
    
    
    
    50,142Commercial
    
    
    42,997
    
    
    
    28,881Consumer
    
    
    8,324
    
    
    
    4,919Total commitments to extend credit
    
    $
    419,392
    
    
    $
    258,491
   Guarantors Accounting and Disclosure Requirements for
Guarantees
      75




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##### Table of Contents



December 31, 2005
    
    
    December 31, 2004Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    $
    47,591
    
    
    $
    47,591
    
    
    $
    27,937
    
    
    $
    27,937Securities available for sale
    
    
    87,510
    
    
    
    87,510
    
    
    
    93,839
    
    
    
    93,839Federal Home Loan Bank stock
    
    
    17,700
    
    
    
    17,700
    
    
    
    13,536
    
    
    
    13,536Loans held for sale
    
    
    2,126
    
    
    
    2,126
    
    
    
    192
    
    
    
    192Loans
    
    
    1,425,036
    
    
    
    1,434,473
    
    
    
    1,192,057
    
    
    
    1,193,719Accrued interest receivable
    
    
    7,911
    
    
    
    7,911
    
    
    
    5,666
    
    
    
    5,666Financial liabilities:Deposits
    
    
    1,072,195
    
    
    
    1,011,395
    
    
    
    933,104
    
    
    
    934,343Federal Home Loan Bank advances
    
    
    346,500
    
    
    
    343,055
    
    
    
    232,209
    
    
    
    237,039Bank line of credit
    
    
    3,950
    
    
    
    3,950
    
    
    
    10,000
    
    
    
    10,000Federal funds purchased
    
    
    52,013
    
    
    
    52,013
    
    
    
    45,527
    
    
    
    45,527Accrued interest payable
    
    
    2,255
    
    
    
    2,255
    
    
    
    853
    
    
    
    853
            76




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##### Table of Contents



December 31,2005
    
    
    2004ASSETSCash at subsidiary bank
    
    $
    709
    
    
    $
    877Securities available for sale
    
    
    20,771
    
    
    
    18,483Commercial real estate loans
    
    
    
    
    
    
    4,675Investment in subsidiaries
    
    
    147,976
    
    
    
    144,188Deferred taxes and other assets
    
    
    4,345
    
    
    
    5,648Total assets
    
    $
    173,801
    
    
    $
    173,871LIABILITIESBank line of credit
    
    $
    3,950
    
    
    $
    10,000Accrued expenses and other liabilities
    
    
    1,281
    
    
    
    977Total liabilities
    
    
    5,231
    
    
    
    10,977STOCKHOLDERS EQUITY
    
    
    168,570
    
    
    
    162,894TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    173,801
    
    
    $
    173,871
 77




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##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Income:Interest on loans
    
    $
    362
    
    
    $
    207
    
    
    $
    571Interest on investments
    
    
    1,517
    
    
    
    382
    
    
    
    213Dividends from subsidiaries
    
    
    5,000
    
    
    
    20,500
    
    
    
    5,450Other
    
    
    
    
    
    
    166
    
    
    
    14Total income
    
    
    6,879
    
    
    
    21,255
    
    
    
    6,248Expense:Interest on short term borrowings
    
    
    (466
    )
    
    
    (361
    )
    
    
    Other
    
    
    (1,320
    )
    
    
    (1,152
    )
    
    
    (861
    )Income, before income taxes and equity in
undistributed net income of subsidiaries
    
    
    5,093
    
    
    
    19,742
    
    
    
    5,387Income tax benefit (expense)
    
    
    (273
    )
    
    
    256
    
    
    
    139Income, before equity in undistributed net income
of subsidiaries
    
    
    4,820
    
    
    
    19,998
    
    
    
    5,526Equity in
undistributed net income (loss) of subsidiaries
    
    
    4,214
    
    
    
    (11,769
    )
    
    
    6,795Net income
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321
 78




---



##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004
    
    
    2003OPERATING ACTIVITIESNet income
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321Adjustments to reconcile net income to net cash
from operating activities:(Gain) loss on sale of investments
    
    
    
    
    
    
    (109
    )
    
    
    80Amortization (accretion) of securities
    
    
    213
    
    
    
    (868
    )
    
    
    3Equity in
undistributed net income (loss) of subsidiaries
    
    
    (3,788
    )
    
    
    11,769
    
    
    
    (6,795
    )Deferred compensation and ESOP
    
    
    1,720
    
    
    
    1,766
    
    
    
    1,546(Increase) decrease in accrued interest receivable and other assets
    
    
    1,081
    
    
    
    (1,451
    )
    
    
    Increase (decrease) in accrued interest payable and other liabilities
    
    
    (403
    )
    
    
    358
    
    
    
    171Net cash from operating activities
    
    
    7,857
    
    
    
    19,694
    
    
    
    7,326INVESTING ACTIVITIESPurchase of Metrobank
    
    
    
    
    
    
    (30,000
    )
    
    
    Proceeds from sale or maturity of investments
    
    
    8,521
    
    
    
    4,572
    
    
    
    4,631Purchase of investments
    
    
    (10,370
    )
    
    
    (8,775
    )
    
    
    Net (increase) decrease in loans
    
    
    4,675
    
    
    
    588
    
    
    
    (2,288
    )Purchase of land
    
    
    
    
    
    
    
    
    
    
    (123
    )Net cash from (used for) investing activities
    
    
    2,826
    
    
    
    (33,615
    )
    
    
    2,220FINANCING ACTIVITIESProceeds from exercises of stock options
    
    
    130
    
    
    
    93
    
    
    
    Proceeds from line of credit
    
    
    1,000
    
    
    
    10,000
    
    
    
    Repayment of line of credit
    
    
    (7,050
    )
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    (1,883
    )
    
    
    (1,302
    )
    
    
    (1,445
    )Payment of dividends
    
    
    (3,048
    )
    
    
    (2,845
    )
    
    
    (2,681
    )Net cash from (used for) financing activities
    
    
    (10,851
    )
    
    
    5,946
    
    
    
    (4,126
    )NET CHANGE IN CASH AT SUBSIDIARY BANK
    
    
    (168
    )
    
    
    (7,975
    )
    
    
    5,420CASH, beginning of period
    
    
    877
    
    
    
    8,852
    
    
    
    3,432CASH, end of period
    
    $
    709
    
    
    $
    877
    
    
    $
    8,852
 79




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##### Table of Contents



For the Three-month Periods EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    TotalInterest income
    
    $
    19,480
    
    
    $
    21,511
    
    
    $
    23,187
    
    
    $
    24,911
    
    
    $
    89,089Interest expense
    
    
    7,483
    
    
    
    9,157
    
    
    
    10,085
    
    
    
    11,367
    
    
    
    38,092Net interest income
    
    
    11,997
    
    
    
    12,354
    
    
    
    13,102
    
    
    
    13,544
    
    
    
    50,997Provision for loan losses
    
    
    480
    
    
    
    780
    
    
    
    560
    
    
    
    570
    
    
    
    2,390Noninterest income
    
    
    1,389
    
    
    
    1,473
    
    
    
    2,187
    
    
    
    1,724
    
    
    
    6,773Noninterest expense
    
    
    9,933
    
    
    
    10,028
    
    
    
    10,860
    
    
    
    11,247
    
    
    
    42,068Income, before federal income tax expense
    
    
    2,973
    
    
    
    3,019
    
    
    
    3,869
    
    
    
    3,451
    
    
    
    13,312Federal income tax expense
    
    
    965
    
    
    
    874
    
    
    
    1,386
    
    
    
    1,053
    
    
    
    4,278Net income
    
    $
    2,008
    
    
    $
    2,145
    
    
    $
    2,483
    
    
    $
    2,398
    
    
    $
    9,034Earnings per share, basic
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    0.32
    
    
    $
    0.31
    
    
    $
    1.14Earnings per share, diluted
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    0.31
    
    
    $
    0.30
    
    
    $
    1.14
 For the Three-month Periods EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    TotalInterest income
    
    $
    16,570
    
    
    $
    17,069
    
    
    $
    17,614
    
    
    $
    18,190
    
    
    $
    69,443Interest expense
    
    
    6,148
    
    
    
    6,255
    
    
    
    6,369
    
    
    
    6,855
    
    
    
    25,627Net interest income
    
    
    10,422
    
    
    
    10,814
    
    
    
    11,245
    
    
    
    11,335
    
    
    
    43,816Provision for loan losses
    
    
    90
    
    
    
    198
    
    
    
    470
    
    
    
    797
    
    
    
    1,555Noninterest income
    
    
    1,409
    
    
    
    1,640
    
    
    
    798
    
    
    
    1,591
    
    
    
    5,438Noninterest expense
    
    
    8,858
    
    
    
    9,338
    
    
    
    8,226
    
    
    
    8,848
    
    
    
    35,270Income, before federal income tax expense
    
    
    2,883
    
    
    
    2,918
    
    
    
    3,347
    
    
    
    3,281
    
    
    
    12,429Federal income tax expense
    
    
    999
    
    
    
    972
    
    
    
    1,142
    
    
    
    1,087
    
    
    
    4,200Net income
    
    $
    1,884
    
    
    $
    1,946
    
    
    $
    2,205
    
    
    $
    2,194
    
    
    $
    8,229Earnings per share, basic
    
    $
    0.24
    
    
    $
    0.25
    
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    1.04Earnings per share, diluted
    
    $
    0.24
    
    
    $
    0.25
    
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    1.04
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  80




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##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
 
   
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
   
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  81




---



##### Table of Contents



Equity Compensation Plan Information
 Number of securitiesremaining availableNumber of securities
    
    
    
    
    
    
    for future issuanceto be issued upon
    
    
    Weighted-average
    
    
    under equityexercise of outstanding
    
    
    exercise price of
    
    
    compensation plansoptions, warrants,
    
    
    outstanding options,
    
    
    (excluding securitiesand rights
    
    
    warrants and rights
    
    
    in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    257,059
    
    
    $
    20.00
    
    
    
    1,199,705Total
    
    
    257,059
    
    
    $
    20.00
    
    
    
    1,199,705
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Financial Statements
 Pages in Form 10-KREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRMS
    
    page 52CONSOLIDATED FINANCIAL STATEMENTSBalance Sheets
    
    page 54Statements of Income
    
    page 55Statements of Changes in Stockholders Equity
    
    page 56Statements of Cash Flows
    
    page 57Notes to Consolidated Financial Statements
    
    page 58
 Financial Statement Schedules
  82




---



##### Table of Contents



Exhibits
 3.1
    
    Certificate of Incorporation of Citizens First Bancorp, Inc. (1)3.2
    
    Bylaws of Citizens First Bancorp, Inc. (1)4.0
    
    Draft Stock Certificate of Citizens First Bancorp, Inc. (1)10.1
    
    Form of Citizens First Savings Bank Employee Severance Compensation
Plan (1)10.2
    
    Form of Citizens First Savings Bank Supplemental Executive Retirement
Plan (1)10.3
    
    Form of Citizens First Savings Bank Directors Deferred Fee Agreement
(1)10.4
    
    Employment Agreement between Citizens First Bancorp, Inc. and
Marshall J. Campbell (5)10.5
    
    Change in Control Agreement between Citizens First Savings Bank and
Randy J. Cutler (2)10.6
    
    Change in Control Agreement between Citizens First Savings Bank and
Timothy D. Regan (2)10.7
    
    Change in Control Agreement between Citizens First Savings Bank and
J. Stephen Armstrong (2)10.8
    
    Change in Control Agreement between Citizens First Savings Bank and
Douglas E. Brandewie10.9
    
    Change in Control Agreement between Citizens First Savings Bank and
William G. Oldford, Jr.10.10
    
    Change in Control Agreement between Citizens First Savings Bank and
Richard Stafford10.11
    
    Citizens First Bancorp, Inc. 2001 Stock-Based Incentive Plan (3)10.12
    
    Amended and Restated Management Restricted Stock Purchase Plan (4)10.13
    
    Amended and Restated Executive Stock Ownership Plan (4)21.0
    
    Subsidiary Information is incorporated herein by reference to Part I,
Item 1, Business  Subsidiary Activities23.1
    
    Consent of BDO Seidman, LLP31.1
    
    Rule 13a-14(a) Certifications of Chief Executive Officer31.2
    
    Rule 13a-14(a) Certifications of Chief Financial Officer32.1
    
    Section 1350 Certifications of Chief Executive Officer32.2
    
    Section 1350 Certifications of Chief Financial Officer
 
 (1)
    
    Incorporated by reference into this document from the Exhibits to the Form S-1, Registration
Statement and amendments thereto, initially filed with the Securities and Exchange Commission on
November 3, 2000, Registration No. 333-49234.(2)
    
    Incorporated by reference into this document from the Exhibits to the Form 10-Q as filed with
the Securities and Exchange Commission on August 14, 2001 (Registration No. 0-32041).(3)
    
    Incorporated by reference into this document from the Appendix to the Proxy Statement as filed
with the Securities and Exchange Commission on September 30, 2001.(4)
    
    Incorporated by reference into this document from the Appendix to the Proxy Statement as filed
with the Securities and Exchange Commission on April 21, 2003.(5)
    
    Incorporated by reference into this document from the Exhibits to Registrants Form 10-K filed
with the Securities and Exchange Commission on July 1, 2001 (Registration No. 0-32041) 83




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##### Table of Contents



SIGNATURES
  Citizens First Bancorp, Inc.Date: March 23, 2006
    By:
    /s/ Marshall J. CampbellMarshall J. CampbellChairman of the Board,
President and Chief
Executive Officer  /s/ Marshall J. Campbell

Marshall J. Campbell
    
    Chairman of the Board, President
and Chief Executive Officer
(principal executive officer)
    
    March 23, 2006/s/ Timothy D. Regan

Timothy D. Regan
    
    Secretary, Treasurer
and Director (principal
accounting and financial
officer)
    
    March 23, 2006/s/ Ronald W. Cooley

Ronald W. Cooley
    
    Director
    
    March 23, 2006/s/ Walid Demashkieh

Walid Demashkieh
    
    Director
    
    March 23, 2006/s/ Christopher A. Kellerman

Christopher A. Kellerman
    
    Director
    
    March 23, 2006
 84




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##### Table of Contents



Exhibit Index
 3.1
    
    Certificate of Incorporation of the Citizens First Bancorp, Inc. (1)3.2
    
    Bylaws of the Citizens First Bancorp, Inc. (1)4.0
    
    Draft Stock Certificate of the Citizens First Bancorp, Inc. (1)10.1
    
    Form of the Citizens First Savings Bank Employee Severance Compensation
Plan (1)10.2
    
    Form of the Citizens First Savings Bank Supplemental Executive Retirement
Plan (1)10.3
    
    Form of the Citizens First Savings Bank Directors Deferred Fee Agreement
(1)10.4
    
    Employment Agreement between the Citizens First Bancorp, Inc. and
Marshall J. Campbell (5)10.5
    
    Change in Control Agreement between the Citizens First Savings Bank and
Randy J. Cutler (2)10.6
    
    Change in Control Agreement between the Citizens First Savings Bank and
Timothy D. Regan (2)10.7
    
    Change in Control Agreement between the Citizens First Savings Bank and
J. Stephen Armstrong (2)10.8
    
    Change in Control Agreement between the Citizens First Savings Bank and
Douglas E. Brandewie10.9
    
    Change in Control Agreement between Citizens First Savings Bank and
William G. Oldford, Jr.10.10
    
    Change in Control Agreement between Citizens First Savings Bank and
Richard Stafford10.11
    
    Citizens First Bancorp, Inc. 2001 Stock-Based Incentive Plan (3)10.12
    
    Amended and Restated Management Restricted Stock Purchase Plan (4)10.13
    
    Amended and Restated Executive Stock Ownership Plan (4)21.0
    
    Subsidiary Information is incorporated herein by reference to Part I,
Item 1, Business  Subsidiary Activities23.1
    
    Consent of BDO Seidman, LLP31.1
    
    Rule 13a-14(a) Certifications of Chief Executive Officer31.2
    
    Rule 13a-14(a) Certifications of Chief Financial Officer32.1
    
    Section 1350 Certifications of Chief Executive Officer32.2
    
    Section 1350 Certifications of Chief Financial Officer
 
 (1)
    
    Incorporated by reference into this document from the Exhibits to the Form S-1, Registration
Statement and amendments thereto, initially filed with the Securities and Exchange Commission on
November 3, 2000, Registration No. 333-49234.(2)
    
    Incorporated by reference into this document from the Exhibits to the Form 10-Q as filed with
the Securities and Exchange Commission on August 14, 2001 (Registration No. 0-32041).(3)
    
    Incorporated by reference into this document from the Appendix to the Proxy Statement as filed
with the Securities and Exchange Commission on September 30, 2001.(4)
    
    Incorporated by reference into this document from the Appendix to the Proxy Statement as filed
with the Securities and Exchange Commission on April 21, 2003.(5)
    
    Incorporated by reference into this document from the Exhibits to Registrants Form 10-K filed
with the Securities and Exchange Commission on July 1, 2001 (Registration No. 0-32041) 85