##### 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, 2006
 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.
 
  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)
   Name of Each Exchange onTitle of Each Class
    
    Which RegisteredCommon Stock, par value
$0.01 per share
    
    NASDAQ Global Select Market
  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 IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    18Item 1B.
    
    Unresolved Staff Comments
    
    
    21Item 2.
    
    Properties
    
    
    21Item 3.
    
    Legal Proceedings
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Part IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    21Item 6.
    
    Selected Financial Data
    
    
    24Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    41Item 8.
    
    Financial Statements and Supplementary Data
    
    
    43Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    73Item 9A.
    
    Controls and Procedures
    
    
    73Item 9B.
    
    Other Information
    
    
    74Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    74Item 11.
    
    Executive Compensation
    
    
    74Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    75Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    75Item 14.
    
    Principal Accountant Fees and Services
    
    
    75Part IVItem 15
    
    Exhibits and Financial Statement Schedules
    
    
    75Signatures
    
    
    77Certifications of Chief Executive Officer and Chief Financial OfficerConsent of BDO Seidman, LLPRule 13a-14(a) Certifications of Chief Executive OfficerRule 13a-14(a) Certifications of Chief Financial OfficerSection 1350 Certifications of Chief Executive OfficerSection 1350 Certifications of Chief Financial Officer




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 GENERAL
 www.cfsbank.com
   GENERAL DEVELOPMENTS DURING MOST RECENT FISCAL YEAR
    1




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MARKET AREA AND COMPETITION
   st nd rd
   
    
    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 our trust services, specifically in Macomb and Oakland counties market, by
cross-selling benefits of the Asset Management and Trust Department;
    
    Continuously review technology requirements and enhancements to provide an excellent level of customer service;
    
    Reinvest in our communities and
    
    Continue to increase our emphasis on origination of quality commercial, commercial real
estate and consumer loans to increase the yields earned on our overall loan portfolio,
without incurring unacceptable credit risk.
 2




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##### Table of Contents



LENDING ACTIVITIES
 General.
 One- to Four-Family Residential Mortgage Loans
    Commercial and Multi-Family Real Estate Loans
  3




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Residential Construction Loans.
   Home Equity and Lines of Credit
   4




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Commercial Loans
    Consumer Loans
    5




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Loan Originations, Purchases and Sales
   Loan Commitments.
 6




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##### Table of Contents



Loan Fees.
  Real Estate Owned.
 Loan Portfolio Analysis.
 At December 31,2006
    
    
    2005
    
    
    2004Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of TotalReal estate loans:One- to four-family
    
    $
    513,139
    
    
    
    32.13
    %
    
    $
    427,714
    
    
    
    29.71
    %
    
    $
    404,655
    
    
    
    33.50
    %Commercial and multi-family (1)
    
    
    432,009
    
    
    
    27.05
    %
    
    
    418,314
    
    
    
    29.05
    %
    
    
    345,936
    
    
    
    28.64
    %Residential construction
    
    
    127,777
    
    
    
    8.00
    %
    
    
    82,328
    
    
    
    5.72
    %
    
    
    30,917
    
    
    
    2.56
    %Home equity and lines of credit
    
    
    137,112
    
    
    
    8.58
    %
    
    
    131,378
    
    
    
    9.12
    %
    
    
    113,202
    
    
    
    9.37
    %Total real estate loans
    
    
    1,210,037
    
    
    
    75.76
    %
    
    
    1,059,734
    
    
    
    73.60
    %
    
    
    894,710
    
    
    
    74.08
    %Commercial loans
    
    
    280,005
    
    
    
    17.53
    %
    
    
    271,436
    
    
    
    18.85
    %
    
    
    222,403
    
    
    
    18.41
    %Consumer loans:Vehicles (2)
    
    
    83,435
    
    
    
    5.22
    %
    
    
    84,189
    
    
    
    5.85
    %
    
    
    66,463
    
    
    
    5.50
    %Other
    
    
    23,820
    
    
    
    1.49
    %
    
    
    24,421
    
    
    
    1.70
    %
    
    
    24,184
    
    
    
    2.00
    %Total consumer loans
    
    
    107,255
    
    
    
    6.71
    %
    
    
    108,610
    
    
    
    7.54
    %
    
    
    90,647
    
    
    
    7.51
    %Total loans
    
    
    1,597,297
    
    
    
    100.00
    %
    
    
    1,439,780
    
    
    
    100.00
    %
    
    
    1,207,760
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    14,304
    
    
    
    
    
    
    
    13,546
    
    
    
    
    
    
    
    13,472Net deferred loan fees
    
    
    582
    
    
    
    
    
    
    
    1,198
    
    
    
    
    
    
    
    2,231Net loans
    
    $
    1,582,411
    
    
    
    
    
    
    $
    1,425,036
    
    
    
    
    
    
    $
    1,192,057
 [Additional columns below]
 7




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##### Table of Contents



[Continued from above table, first column(s) repeated]
 At December 31,2003
    
    
    2002Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of TotalReal estate loans:One- to four-family
    
    $
    386,531
    
    
    
    40.99
    %
    
    $
    414,939
    
    
    
    49.88
    %Commercial and multi-family (1)
    
    
    241,097
    
    
    
    25.56
    %
    
    
    179,387
    
    
    
    21.57
    %Residential construction
    
    
    24,996
    
    
    
    2.65
    %
    
    
    21,822
    
    
    
    2.62
    %Home equity and lines of credit
    
    
    85,371
    
    
    
    9.05
    %
    
    
    72,724
    
    
    
    8.74
    %Total real estate loans
    
    
    737,995
    
    
    
    78.25
    %
    
    
    688,872
    
    
    
    82.82
    %Commercial loans
    
    
    127,686
    
    
    
    13.54
    %
    
    
    68,974
    
    
    
    8.29
    %Consumer loans:Vehicles (2)
    
    
    59,392
    
    
    
    6.30
    %
    
    
    61,386
    
    
    
    7.38
    %Other
    
    
    18,004
    
    
    
    1.91
    %
    
    
    12,583
    
    
    
    1.51
    %Total consumer loans
    
    
    77,396
    
    
    
    8.21
    %
    
    
    73,969
    
    
    
    8.89
    %Total loans
    
    
    943,077
    
    
    
    100.00
    %
    
    
    831,815
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    11,664
    
    
    
    
    
    
    
    11,082Net deferred loan fees
    
    
    2,212
    
    
    
    
    
    
    
    1,597Net loans
    
    $
    929,201
    
    
    
    
    
    
    $
    819,136
 
 (1)
    
    Includes commercial construction loans which at December 31, 2006, December 31, 2005,
December 31, 2004, December 31, 2003, and December 31, 2002 totaled $ 56.6 million, $57.2
million, $33.1 million, $14.8 million, and $12.6 million, respectively.(2)
    
    Includes loans secured by automobiles, motorcycles, campers and other recreational vehicles. INVESTMENT SECURITIES ACTIVITIES
     8




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At December 31,2006
    
    
    2005
    
    
    2004Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    18,318
    
    
    $
    18,129
    
    
    $
    23,379
    
    
    $
    22,980
    
    
    $
    26,124
    
    
    $
    26,077Obligations of state and political subdivisions
    
    
    32,158
    
    
    
    32,026
    
    
    
    35,506
    
    
    
    35,418
    
    
    
    37,504
    
    
    
    37,889Corporate debt securities
    
    
    4,001
    
    
    
    3,948
    
    
    
    20,584
    
    
    
    20,476
    
    
    
    19,366
    
    
    
    19,294Mortgage-backed securities
    
    
    3,323
    
    
    
    3,271
    
    
    
    4,400
    
    
    
    4,323
    
    
    
    6,783
    
    
    
    6,694Total
    
    
    57,800
    
    
    
    57,374
    
    
    
    83,869
    
    
    
    83,197
    
    
    
    89,777
    
    
    
    89,954Equity securities
    
    
    5,000
    
    
    
    4,775
    
    
    
    5,000
    
    
    
    4,313
    
    
    
    5,002
    
    
    
    3,885Total securities available for sale
    
    $
    62,800
    
    
    $
    62,149
    
    
    $
    88,869
    
    
    $
    87,510
    
    
    $
    94,779
    
    
    $
    93,839
 DEPOSIT AND OTHER ACTIVITIES
 Deposit accounts
 9




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At December 31,2006
    
    
    2005
    
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateNoninterest bearing demand deposits
    
    $
    95,121
    
    
    
    0.00
    %
    
    $
    116,835
    
    
    
    0.00
    %
    
    $
    100,154
    
    
    
    0.00
    %Passbook and savings deposits
    
    
    111,027
    
    
    
    1.54
    
    
    
    96,198
    
    
    
    0.62
    
    
    
    99,781
    
    
    
    0.58Interest bearing demand deposits
    
    
    364,637
    
    
    
    3.01
    
    
    
    366,746
    
    
    
    2.02
    
    
    
    385,282
    
    
    
    1.02Time deposits under $100,000
    
    
    277,042
    
    
    
    4.28
    
    
    
    233,870
    
    
    
    3.66
    
    
    
    215,769
    
    
    
    3.05Time deposits $100,000 and over
    
    
    292,970
    
    
    
    4.67
    
    
    
    201,708
    
    
    
    3.37
    
    
    
    106,833
    
    
    
    2.98Total
    
    $
    1,140,797
    
    
    
    3.35
    %
    
    $
    1,015,357
    
    
    
    2.30
    %
    
    $
    907,819
    
    
    
    1.53
    %
 TRUST SERVICES
  PERSONNEL
  SUBSIDIARIES
  10




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##### Table of Contents



REGULATION AND SUPERVISION
 General
  Gramm-Leach-Bliley, USA Patriot and Bank Secrecy Acts
   Michigan Bank Regulation
   Business Activities.
 11




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Loans to One Borrower.
 Terms
of Loan Products That May Give Rise to a Concentration of Credit Risk
 Dividends.
 Branching Activities.
 Commissioner Assessments.
 Enforcement.
 Federal Regulation
 Capital Requirements.
 12




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Prompt Corrective Regulatory Action.
   Insurance of Deposit Accounts.
   Transactions with Related Parties.
 13




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##### Table of Contents



Standards for Safety and Soundness.
 Investment Activities.
 Mergers .
 Federal Statutory and Regulatory Provisions.
 Interstate Branching.
 Federal Enforcement.
 14




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Federal Home Loan Bank System
  Federal Reserve System
  Holding Company Regulation
    15




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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.
  Federal Securities Laws
  FEDERAL AND STATE TAXATION
 General.
 Bad Debt Reserves.
  16




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##### Table of Contents



Distributions.
  State Taxation
  Michigan State Taxation.
 Delaware State Taxation.
 FINANCIAL STATEMENTS
  ADDITIONAL INFORMATION
  17




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##### Table of Contents



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 and Nonperforming Loans
  Potential Problem Loans.
 Allowance for Loan Losses
 18




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Environmental Risks
  Susceptibility to Changes in Regulation
  Interest Rate Risk
  Critical Accounting Policies
  Attraction and Retention of Key Personnel
  Dividend Payout Restrictions
  19




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##### 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
  20




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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, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  21




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Year Ended December 31, 20064th Quarter
    
    3rd Quarter
    
    2nd Quarter
    
    1st QuarterHigh
    
    $
    31.64
    
    
    $
    28.75
    
    
    $
    32.43
    
    
    $
    29.70Low
    
    $
    25.04
    
    
    $
    22.58
    
    
    $
    26.71
    
    
    $
    23.03Dividends Paid
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
 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
    22




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PERFORMANCE GRAPH
 
 Total Return Performance
 
  23




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ITEM 6. SELECTED FINANCIAL DATA
 DECEMBER 31,2006
    
    2005
    
    2004 (1)
    
    2003
    
    2002 (2)SELECTED CONSOLIDATED FINANCIAL DATA:
    
    (Dollars in thousands)Total assets
    
    $
    1,775,142
    
    
    $
    1,654,223
    
    
    $
    1,393,364
    
    
    $
    1,094,260
    
    
    $
    1,000,184Cash and cash equivalents
    
    
    24,823
    
    
    
    47,591
    
    
    
    27,937
    
    
    
    33,647
    
    
    
    40,356Securities available for sale
    
    
    62,149
    
    
    
    87,510
    
    
    
    93,839
    
    
    
    79,672
    
    
    
    100,382Loans, net
    
    
    1,582,411
    
    
    
    1,425,036
    
    
    
    1,192,057
    
    
    
    929,201
    
    
    
    819,136Deposits
    
    
    1,186,658
    
    
    
    1,072,195
    
    
    
    933,104
    
    
    
    748,531
    
    
    
    671,830FHLB advances
    
    
    348,914
    
    
    
    346,500
    
    
    
    232,209
    
    
    
    172,534
    
    
    
    173,003Stockholders equity
    
    
    177,314
    
    
    
    168,570
    
    
    
    162,894
    
    
    
    158,187
    
    
    
    148,155Real estate and other assets owned
    
    
    3,253
    
    
    
    1,471
    
    
    
    1,032
    
    
    
    443
    
    
    
    353Total nonperforming assets
    
    
    28,920
    
    
    
    22,845
    
    
    
    11,663
    
    
    
    4,358
    
    
    
    2,767
 YEAR
    
    
    
    
    
    
    NINE MONTHSENDED
    
    
    
    
    
    
    ENDEDDECEMBER 31,
    
    
    
    
    
    
    DECEMBER 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Total interest income
    
    $
    113,271
    
    
    $
    89,089
    
    
    $
    69,443
    
    
    $
    60,304
    
    
    $
    46,954Total interest expense
    
    
    58,440
    
    
    
    38,092
    
    
    
    25,627
    
    
    
    23,307
    
    
    
    20,129Net interest income
    
    
    54,831
    
    
    
    50,997
    
    
    
    43,816
    
    
    
    36,997
    
    
    
    26,825Provision for loan losses
    
    
    2,805
    
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440
    
    
    
    892Net interest income after provision for loan losses
    
    
    52,026
    
    
    
    48,607
    
    
    
    42,261
    
    
    
    35,557
    
    
    
    25,933Noninterest income
    
    
    6,010
    
    
    
    6,378
    
    
    
    5,425
    
    
    
    10,429
    
    
    
    5,763Noninterest expense
    
    
    44,430
    
    
    
    41,673
    
    
    
    35,257
    
    
    
    27,410
    
    
    
    17,670Income before income taxes
    
    
    13,606
    
    
    
    13,312
    
    
    
    12,429
    
    
    
    18,576
    
    
    
    14,026Income taxes
    
    
    4,504
    
    
    
    4,278
    
    
    
    4,200
    
    
    
    6,255
    
    
    
    4,842Net income
    
    $
    9,102
    
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321
    
    
    $
    9,184Earnings per share, basic
    
    
    1.14
    
    
    
    1.14
    
    
    
    1.04
    
    
    
    1.58
    
    
    
    1.14Dividends per share
    
    
    0.36
    
    
    
    0.36
    
    
    
    0.36
    
    
    
    0.34
    
    
    
    0.24
 YEAR
    
    
    
    
    
    NINE MONTHSENDED
    
    
    
    
    
    ENDEDDECEMBER 31,
    
    
    
    
    
    DECEMBER 31,PERFORMANCE RATIOS:
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Average yield on interest-earning assets
    
    
    6.89
    %
    
    
    6.15
    %
    
    
    5.64
    %
    
    
    6.08
    %
    
    
    6.52
    %Average rate paid on interest-bearing liabilities
    
    
    4.03
    
    
    
    3.09
    
    
    
    2.46
    
    
    
    2.78
    
    
    
    3.35Average interest rate spread
    
    
    2.86
    
    
    
    3.06
    
    
    
    3.18
    
    
    
    3.30
    
    
    
    3.17Net interest margin
    
    
    3.34
    
    
    
    3.52
    
    
    
    3.56
    
    
    
    3.73
    
    
    
    3.72Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    113.42
    
    
    
    117.45
    
    
    
    118.31
    
    
    
    118.32
    
    
    
    119.83Net interest income after provision
for loan losses to noninterest expense
    
    
    117.10
    
    
    
    116.64
    
    
    
    119.87
    
    
    
    129.72
    
    
    
    146.76Noninterest expense as a percent of average assets
    
    
    2.57
    
    
    
    2.73
    
    
    
    2.67
    
    
    
    2.57
    
    
    
    2.44Return on average assets
    
    
    0.53
    
    
    
    0.59
    
    
    
    0.62
    
    
    
    1.16
    
    
    
    1.26Return on average equity
    
    
    5.30
    
    
    
    5.44
    
    
    
    5.13
    
    
    
    8.06
    
    
    
    8.25Ratio of average equity to average assets
    
    
    9.93
    
    
    
    10.87
    
    
    
    12.15
    
    
    
    14.35
    
    
    
    15.24Dividend payout ratio
    
    
    33.32
    
    
    
    33.75
    
    
    
    37.24
    
    
    
    23.17
    
    
    
    22.95
 24




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##### Table of Contents



AT OR FOR THE YEAR ENDEDDECEMBER 31,2006
    
    2005
    
    2004
    
    2003
    
    2002Leverage capital ratio
    
    
    8.4
    %
    
    
    8.4
    %
    
    
    9.7
    %
    
    
    11.8
    %
    
    
    12.1
    %Total risk-based capital ratio
    
    
    10.6
    
    
    
    10.6
    
    
    
    12.8
    
    
    
    15.8
    
    
    
    19.5ASSET QUALITY RATIOS:Nonperforming loans as a percent of total loans
    
    
    1.61
    
    
    
    1.48
    
    
    
    0.88
    
    
    
    0.42
    
    
    
    0.29Nonperforming assets as a percent of total assets
    
    
    1.63
    
    
    
    1.38
    
    
    
    0.84
    
    
    
    0.40
    
    
    
    0.28Allowance for loan losses as a percent
of total loans
    
    
    0.90
    
    
    
    0.94
    
    
    
    1.12
    
    
    
    1.24
    
    
    
    1.33Allowance for loan losses as a percent of
nonperforming loans
    
    
    55.7
    
    
    
    63.4
    
    
    
    126.7
    
    
    
    297.9
    
    
    
    459.1Net loans charged-off to average loans
    
    
    0.13
    
    
    
    0.18
    
    
    
    0.08
    
    
    
    0.10
    
    
    
    0.10OTHERFull service banking centers and loan production offices at end of period
    
    
    25
    
    
    
    25
    
    
    
    20
    
    
    
    16
    
    
    
    15
 
 (1)
    
    The data for the years ended December 31, 2004 and thereafter includes the Metrobank
acquisition.(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. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 GENERAL.
 OVERVIEW
     25




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
    Potential Significant Impact on Financial Statements and Condition
   26




---



##### Table of Contents



COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2006 AND 2005
  
    
    a $157.4 million, or 11.0%, increase in loans, which is explained in more detail below,
    
    a $7.0 million, or 19.4%, 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 other
branches, the construction of 2 additional banking centers to take the place of an existing
loan center and our existing full service branch in Sanilac County and
    
    a $1.7 million, or 9.4%, 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.
  27




---



##### Table of Contents




    
    a $85.4 million, or 20.0%, increase in one-to four-family loans to $513.1 million and
    
    a $45.5 million, or 55.2%, increase in construction loans to $127.8 million.
   
    
    a $114.5 million, or 10.7%, increase in deposits from $1.1 billion at December 31, 2005
to $1.2 billion at December 31, 2006 and
    
    partially offset by a net decrease of $2.5 million, or 0.6%, in total net borrowings.
   
    
    a $16.2 million, or 16.3%, increase in savings accounts and
    
    a $135.6 million, or 27.2%, increase in certificates of deposit
    28




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##### Table of Contents



At December 31,2006
    
    
    2005 (2)
    
    
    2004 (1)
    
    
    2003
    
    
    2002Nonperforming loans:Real estate
    
    $
    13,400
    
    
    $
    8,467
    
    
    $
    5,745
    
    
    $
    3,268
    
    
    $
    1,876Commercial
    
    
    10,974
    
    
    
    12,094
    
    
    
    3,343
    
    
    
    195
    
    
    
    356Consumer
    
    
    1,293
    
    
    
    813
    
    
    
    1,543
    
    
    
    452
    
    
    
    182Total
    
    
    25,667
    
    
    
    21,374
    
    
    
    10,631
    
    
    
    3,915
    
    
    
    2,414Real estate and other assets owned
    
    
    3,253
    
    
    
    1,471
    
    
    
    1,032
    
    
    
    443
    
    
    
    353Total nonperforming assets
    
    $
    28,920
    
    
    $
    22,845
    
    
    $
    11,663
    
    
    $
    4,358
    
    
    $
    2,767Total nonperforming loans as a
percentage of total loans
    
    
    1.61
    %
    
    
    1.48
    %
    
    
    0.88
    %
    
    
    0.42
    %
    
    
    0.29
    %Total nonperforming loans as a
percentage of total assets
    
    
    1.45
    %
    
    
    1.29
    %
    
    
    0.76
    %
    
    
    0.36
    %
    
    
    0.24
    %
 
 (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 certain
commercial loan relationships that were previously classified as watch credits by
management at December 31, 2004. These 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 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Real estate loans:One- to four-family
    
    
    
    
    
    
    
    
    
    $
    265
    
    
    $
    2,506
    
    
    $
    1,575Commercial and multi-family
    
    
    
    
    
    
    
    
    
    
    728
    
    
    
    149
    
    
    
    Residential construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    762
    
    
    
    301Home equity and
lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    116Commercial loans
    
    $
    1,473
    
    
    $
    1,455
    
    
    
    2,948
    
    
    
    86
    
    
    
    356Consumer loans
    
    
    27
    
    
    
    4
    
    
    
    
    
    
    
    328
    
    
    
    66Total
    
    $
    1,500
    
    
    $
    1,459
    
    
    $
    3,941
    
    
    $
    3,915
    
    
    $
    2,414Accruing loans 90 days
past due to total loans
    
    
    0.09
    %
    
    
    0.10
    %
    
    
    0.33
    %
    
    
    0.42
    %
    
    
    0.29
    %
   29




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##### Table of Contents



Year Ended
    
    
    Nine MonthsDecember 31,
    
    
    Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Allowance for loan losses, beginning of period
    
    $
    13,546
    
    
    $
    13,472
    
    
    $
    11,664
    
    
    $
    11,082
    
    
    $
    11,020Acquired in acquisition
    
    
    
    
    
    
    
    
    
    
    1,135
    
    
    
    
    
    
    
    Charged-off loans:Real estate
    
    
    (187
    )
    
    
    (367
    )
    
    
    (132
    )
    
    
    (15
    )
    
    
    (56
    )Commercial
    
    
    (687
    )
    
    
    (369
    )
    
    
    (270
    )
    
    
    (325
    )
    
    
    (548
    )Consumer
    
    
    (1,478
    )
    
    
    (1,873
    )
    
    
    (1,057
    )
    
    
    (755
    )
    
    
    (498
    )Total charged-off loans
    
    
    (2,352
    )
    
    
    (2,609
    )
    
    
    (1,459
    )
    
    
    (1,095
    )
    
    
    (1,102
    )Recoveries on loans previously charged-off:Real estate
    
    
    32
    
    
    
    20
    
    
    
    138
    
    
    
    
    
    
    
    1Commercial
    
    
    4
    
    
    
    
    
    
    
    167
    
    
    
    83
    
    
    
    29Consumer
    
    
    269
    
    
    
    273
    
    
    
    272
    
    
    
    154
    
    
    
    242Total recoveries
    
    
    305
    
    
    
    293
    
    
    
    577
    
    
    
    237
    
    
    
    272Net loans charged-off
    
    
    (2,047
    )
    
    
    (2,316
    )
    
    
    (882
    )
    
    
    (858
    )
    
    
    (830
    )Provision for loan losses
    
    
    2,805
    
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440
    
    
    
    892Allowance for loan losses, end of
period
    
    $
    14,304
    
    
    $
    13,546
    
    
    $
    13,472
    
    
    $
    11,664
    
    
    $
    11,082Net loans charged-off to average
interest-earning loans
    
    
    0.13
    %
    
    
    0.18
    %
    
    
    0.08
    %
    
    
    0.10
    %
    
    
    0.10
    %Allowance for loan losses to total loans
    
    
    0.90
    %
    
    
    0.94
    %
    
    
    1.12
    %
    
    
    1.24
    %
    
    
    1.33
    %Allowance for loan losses to nonperforming loans
    
    
    56
    %
    
    
    63
    %
    
    
    127
    %
    
    
    298
    %
    
    
    459
    %Net loans charged-off to allowance for loan losses
    
    
    14.31
    %
    
    
    17.10
    %
    
    
    6.55
    %
    
    
    7.36
    %
    
    
    7.49
    %Recoveries to charged-off loans
    
    
    12.97
    %
    
    
    11.23
    %
    
    
    39.55
    %
    
    
    21.64
    %
    
    
    24.68
    %
  30




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##### Table of Contents



At December 31,2006
    
    
    2005
    
    
    2004% of
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % ofAllowance
    
    
    
    
    
    
    
    
    
    
    Allowance
    
    
    
    
    
    
    
    
    
    
    Allowancein each
    
    
    
    
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    
    
    
    
    in eachCategory
    
    
    Percent
    
    
    
    
    
    
    Category
    
    
    Percent
    
    
    
    
    
    
    Category
    
    
    Percentto Total
    
    
    of Total
    
    
    
    
    
    
    to Total
    
    
    of Total
    
    
    
    
    
    
    to Total
    
    
    of TotalAmount
    
    
    Loans
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    LoansReal estate
    
    $
    6,697
    
    
    
    0.42
    %
    
    
    75.76
    %
    
    $
    5,952
    
    
    
    0.41
    %
    
    
    73.60
    %
    
    $
    6,270
    
    
    
    0.52
    %
    
    
    74.08
    %Commercial
    
    
    2,955
    
    
    
    0.19
    %
    
    
    17.53
    %
    
    
    2,855
    
    
    
    0.20
    %
    
    
    18.85
    %
    
    
    2,983
    
    
    
    0.25
    %
    
    
    18.41
    %Consumer
    
    
    4,396
    
    
    
    0.28
    %
    
    
    6.71
    %
    
    
    4,536
    
    
    
    0.32
    %
    
    
    7.54
    %
    
    
    3,689
    
    
    
    0.31
    %
    
    
    7.51
    %Unallocated
    
    
    256
    
    
    
    0.02
    %
    
    
    0.00
    %
    
    
    203
    
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    530
    
    
    
    0.04
    %
    
    
    0.00
    %Total allowance
for loan losses
    
    $
    14,304
    
    
    
    0.90
    %
    
    
    100.00
    %
    
    $
    13,546
    
    
    
    0.94
    %
    
    
    100.00
    %
    
    $
    13,472
    
    
    
    1.12
    %
    
    
    100.00
    %
 At December 31,2003
    
    
    2002% of
    
    
    
    
    
    
    
    
    
    
    % ofAllowance
    
    
    
    
    
    
    
    
    
    
    Allowancein each
    
    
    
    
    
    
    
    
    
    
    in eachCategory
    
    
    Percent
    
    
    
    
    
    
    Category
    
    
    Percentto Total
    
    
    of Total
    
    
    
    
    
    
    to Total
    
    
    of TotalAmount
    
    
    Loans
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    LoansReal estate
    
    $
    5,493
    
    
    
    0.58
    %
    
    
    78.25
    %
    
    $
    5,286
    
    
    
    0.64
    %
    
    
    82.82
    %Commercial
    
    
    1,922
    
    
    
    0.20
    %
    
    
    13.54
    %
    
    
    1,020
    
    
    
    0.12
    %
    
    
    8.29
    %Consumer
    
    
    3,527
    
    
    
    0.37
    %
    
    
    8.21
    %
    
    
    4,205
    
    
    
    0.51
    %
    
    
    8.89
    %Unallocated
    
    
    722
    
    
    
    0.08
    %
    
    
    0.00
    %
    
    
    571
    
    
    
    0.07
    %
    
    
    0.00
    %Total allowance
for loan losses
    
    $
    11,664
    
    
    
    1.24
    %
    
    
    100.00
    %
    
    $
    11,082
    
    
    
    1.33
    %
    
    
    100.00
    %
    31




---



##### Table of Contents



Year Ended December 31,2006
    
    
    2005
    
    
    2004Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateINTEREST EARNING ASSETS:Loans (1)
    
    $
    1,542,079
    
    
    $
    108,833
    
    
    
    7.06
    %
    
    $
    1,317,897
    
    
    $
    83,895
    
    
    
    6.37
    %
    
    $
    1,115,618
    
    
    $
    65,457
    
    
    
    5.87
    %Certificates of Deposits
    
    
    20
    
    
    
    2
    
    
    
    5.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment securities (2)
    
    
    79,644
    
    
    
    3,420
    
    
    
    4.29
    
    
    
    93,144
    
    
    
    4,287
    
    
    
    4.60
    
    
    
    97,104
    
    
    
    3,402
    
    
    
    3.50FHLB Stock
    
    
    19,241
    
    
    
    892
    
    
    
    4.64
    
    
    
    16,640
    
    
    
    662
    
    
    
    3.98
    
    
    
    11,325
    
    
    
    488
    
    
    
    4.31Federal funds sold
    
    
    1,952
    
    
    
    91
    
    
    
    4.66
    
    
    
    1,727
    
    
    
    60
    
    
    
    3.47
    
    
    
    3,718
    
    
    
    41
    
    
    
    1.10Interest earning deposits
    
    
    1,025
    
    
    
    33
    
    
    
    3.22
    
    
    
    18,125
    
    
    
    185
    
    
    
    1.02
    
    
    
    4,400
    
    
    
    55
    
    
    
    1.25Total interest earning assets
    
    
    1,643,961
    
    
    
    113,271
    
    
    
    6.89
    
    
    
    1,447,533
    
    
    
    89,089
    
    
    
    6.15
    
    
    
    1,232,165
    
    
    
    69,443
    
    
    
    5.64Noninterest earning assets
    
    
    87,805
    
    
    
    
    
    
    
    
    
    
    
    79,282
    
    
    
    
    
    
    
    
    
    
    
    88,034Total assets
    
    $
    1,731,766
    
    
    
    
    
    
    
    
    
    
    $
    1,526,815
    
    
    
    
    
    
    
    
    
    
    $
    1,320,199INTEREST BEARING LIABILITIES:Deposits:Savings
    
    $
    111,027
    
    
    $
    1,708
    
    
    
    1.54
    %
    
    $
    96,198
    
    
    $
    597
    
    
    
    0.62
    %
    
    $
    99,781
    
    
    $
    574
    
    
    
    0.58
    %NOW
    
    
    88,101
    
    
    
    604
    
    
    
    0.69
    
    
    
    94,693
    
    
    
    896
    
    
    
    0.95
    
    
    
    119,940
    
    
    
    747
    
    
    
    0.62Money market
    
    
    276,536
    
    
    
    10,352
    
    
    
    3.74
    
    
    
    272,053
    
    
    
    6,503
    
    
    
    2.39
    
    
    
    265,342
    
    
    
    3,787
    
    
    
    1.43Certificates of deposit
    
    
    570,012
    
    
    
    25,900
    
    
    
    4.54
    
    
    
    435,578
    
    
    
    15,186
    
    
    
    3.49
    
    
    
    322,602
    
    
    
    9,776
    
    
    
    3.03Total interest bearing deposits
    
    
    1,045,676
    
    
    
    38,564
    
    
    
    3.69
    
    
    
    898,522
    
    
    
    23,182
    
    
    
    2.58
    
    
    
    807,665
    
    
    
    14,884
    
    
    
    1.84Short-term borrowings
    
    
    64,404
    
    
    
    3,447
    
    
    
    5.35
    
    
    
    49,474
    
    
    
    2,007
    
    
    
    4.06
    
    
    
    30,663
    
    
    
    724
    
    
    
    2.36FHLB advances
    
    
    339,320
    
    
    
    16,429
    
    
    
    4.84
    
    
    
    284,449
    
    
    
    12,903
    
    
    
    4.54
    
    
    
    203,122
    
    
    
    10,019
    
    
    
    4.93Total interest bearing liabilities
    
    
    1,449,400
    
    
    
    58,440
    
    
    
    4.03
    
    
    
    1,232,445
    
    
    
    38,092
    
    
    
    3.09
    
    
    
    1,041,450
    
    
    
    25,627
    
    
    
    2.46Noninterest bearing deposits
    
    
    95,121
    
    
    
    
    
    
    
    
    
    
    
    116,835
    
    
    
    
    
    
    
    
    
    
    
    100,154Other noninterest bearing
liabilities
    
    
    15,353
    
    
    
    
    
    
    
    
    
    
    
    11,536
    
    
    
    
    
    
    
    
    
    
    
    18,225Total liabilities
    
    
    1,559,874
    
    
    
    
    
    
    
    
    
    
    
    1,360,816
    
    
    
    
    
    
    
    
    
    
    
    1,159,829Equity
    
    
    171,892
    
    
    
    
    
    
    
    
    
    
    
    165,999
    
    
    
    
    
    
    
    
    
    
    
    160,370Total liabilities and equity
    
    $
    1,731,766
    
    
    
    
    
    
    
    
    
    
    $
    1,526,815
    
    
    
    
    
    
    
    
    
    
    $
    1,320,199Net interest-earning assets
    
    $
    194,561
    
    
    
    
    
    
    
    
    
    
    $
    215,088
    
    
    
    
    
    
    
    
    
    
    $
    190,715Net interest income
    
    
    
    
    
    $
    54,831
    
    
    
    
    
    
    
    
    
    
    $
    50,997
    
    
    
    
    
    
    
    
    
    
    $
    43,816Interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    3.06
    %
    
    
    
    
    
    
    
    
    
    
    3.18
    %Net interest margin as a percentage
of interest-earning assets (4)
    
    
    
    
    
    
    
    
    
    
    3.34
    %
    
    
    
    
    
    
    
    
    
    
    3.52
    %
    
    
    
    
    
    
    
    
    
    
    3.56
    %Ratio of interest-earning assets
to interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    113.42
    %
    
    
    
    
    
    
    
    
    
    
    117.45
    %
    
    
    
    
    
    
    
    
    
    
    118.31
    %
 
 (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. 32




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##### Table of Contents



Year Ended December 31, 2006
    
    
    Year Ended December 31, 2005Compared to
    
    
    Compared toYear Ended December 31, 2005
    
    
    Year Ended December 31, 2004Increase (Decrease) Due to
    
    
    Increase (Decrease) Due toVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetINTEREST EARNING ASSETS:Loans
    
    $
    14,280
    
    
    $
    10,658
    
    
    $
    24,938
    
    
    $
    11,874
    
    
    $
    6,564
    
    
    $
    18,438Certificates of Deposits
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Investment securities
    
    
    (621
    )
    
    
    (246
    )
    
    
    (867
    )
    
    
    (139
    )
    
    
    1,024
    
    
    
    885FHLB stock
    
    
    103
    
    
    
    127
    
    
    
    230
    
    
    
    229
    
    
    
    (55
    )
    
    
    174Federal funds sold
    
    
    8
    
    
    
    23
    
    
    
    31
    
    
    
    (22
    )
    
    
    41
    
    
    
    19Interest earning deposits
    
    
    (175
    )
    
    
    23
    
    
    
    (152
    )
    
    
    172
    
    
    
    (42
    )
    
    
    130Total interest earning assets
    
    
    13,598
    
    
    
    10,584
    
    
    
    24,182
    
    
    
    12,114
    
    
    
    7,532
    
    
    
    19,646INTEREST BEARING LIABILITIES:Deposits:Savings
    
    $
    92
    
    
    $
    1,019
    
    
    $
    1,111
    
    
    $
    (21
    )
    
    $
    44
    
    
    $
    23NOW
    
    
    (62
    )
    
    
    (230
    )
    
    
    (292
    )
    
    
    (157
    )
    
    
    306
    
    
    
    149Money market
    
    
    107
    
    
    
    3,742
    
    
    
    3,849
    
    
    
    96
    
    
    
    2,620
    
    
    
    2,716Certificates of deposit
    
    
    4,687
    
    
    
    6,027
    
    
    
    10,714
    
    
    
    3,424
    
    
    
    1,986
    
    
    
    5,410Total interest bearing deposits
    
    
    4,824
    
    
    
    10,558
    
    
    
    15,382
    
    
    
    3,341
    
    
    
    4,957
    
    
    
    8,298Short-term borrowings
    
    
    606
    
    
    
    834
    
    
    
    1,440
    
    
    
    444
    
    
    
    839
    
    
    
    1,283FHLB advances
    
    
    2,489
    
    
    
    1,037
    
    
    
    3,526
    
    
    
    4,011
    
    
    
    (1,127
    )
    
    
    2,884Total interest bearing liabilities
    
    
    7,918
    
    
    
    12,430
    
    
    
    20,348
    
    
    
    7,797
    
    
    
    4,668
    
    
    
    12,465Increase (decrease) in net
interest income
    
    $
    5,679
    
    
    $
    (1,845
    )
    
    $
    3,834
    
    
    $
    4,317
    
    
    $
    2,864
    
    
    $
    7,181
 COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED 2006 AND 2005
    33




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34




---



##### Table of Contents



COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED 2005 AND 2004
           35




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   
    
    To originate mortgages and other new loans,
    
    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 certain branch offices and enhancements to out
information technology systems,
    
    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.
  36




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##### Table of Contents



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)
    
    $
    553,031
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    553,031Time deposits (2)
    
    
    489,379
    
    
    $
    81,462
    
    
    $
    71,474
    
    
    $
    17,089
    
    
    
    659,404FHLB advances (3)
    
    
    43,956
    
    
    
    271,325
    
    
    
    37,932
    
    
    
    38,277
    
    
    
    391,490Short-term borrowings
    
    
    51,095
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,095ESOP loan
    
    
    551
    
    
    
    1,245
    
    
    
    1,466
    
    
    
    4,900
    
    
    
    8,162Purchase obligations (4)
    
    
    809
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    809Noncancelable leases
    
    
    1,061
    
    
    
    2,106
    
    
    
    1,557
    
    
    
    1,613
    
    
    
    6,337Total
    
    $
    1,139,882
    
    
    $
    356,138
    
    
    $
    112,429
    
    
    $
    61,879
    
    
    $
    1,670,328
 Expiration by PeriodLess than
    
    
    1 to 3
    
    
    4 to 5
    
    
    After 5Other Commitments
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    8,620
    
    
    $
    209
    
    
    $
    
    
    
    $
    
    
    
    $
    8,829Commitments to
extend credit
    
    
    343,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343,286Total
    
    $
    351,906
    
    
    $
    209
    
    
    $
    
    
    
    $
    
    
    
    $
    352,115
 
 (1)
    
    Excludes interest.(2)
    
    Includes interest on both fixed and variable-rate obligations. Interest was calculated
using a weighted average yield based on the type of time deposit at December 31, 2006. The
contractual amounts to be paid on variable-rate obligations are affected by changes in
market interest rates. Future changes in market interest rates could have a material
impact on the contractual amounts to be paid.(3)
    
    Includes interest on both fixed and variable-rate FHLB advances. The interest
associated with variable-rate obligations is based upon interest rates in effect at
December 31, 2006. The contractual amounts to be paid on variable-rate obligations are
affected by changes in market interest rates. Future changes in market interest rates
could have a material impact on the contractual amounts to be paid.(4)
    
    Purchase obligations include capital expenditures for renovations of the interiors of
branch offices and estimated costs for upgrades to our information technology systems
expected to occur during 2007 as we continue to enhance our network to accommodate
expansion and growth.    37




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##### Table of Contents



Loan and Investment Maturities.
 At December 31, 2006CommercialOne- 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
    
    $
    1,907
    
    
    $
    106,217
    
    
    $
    62,307
    
    
    $
    4,898
    
    
    $
    137,634
    
    
    $
    2,462
    
    
    $
    315,425One year to five years
    
    
    8,943
    
    
    
    232,379
    
    
    
    8,635
    
    
    
    75,168
    
    
    
    124,318
    
    
    
    35,207
    
    
    
    484,650More than five years
    
    
    502,289
    
    
    
    93,413
    
    
    
    56,835
    
    
    
    57,046
    
    
    
    18,053
    
    
    
    69,586
    
    
    
    797,222Total amount due
    
    $
    513,139
    
    
    $
    432,009
    
    
    $
    127,777
    
    
    $
    137,112
    
    
    $
    280,005
    
    
    $
    107,255
    
    
    $
    1,597,297
   Due After December 31, 2006Fixed
    
    
    Adjustable
    
    
    TotalReal estate loans:One- to four-family
    
    $
    100,780
    
    
    $
    412,359
    
    
    $
    513,139Commercial and multi-family
    
    
    323,774
    
    
    
    108,235
    
    
    
    432,009Residential construction
    
    
    68,968
    
    
    
    58,809
    
    
    
    127,777Home equity and lines of credit
    
    
    76,141
    
    
    
    60,971
    
    
    
    137,112Total real estate loans
    
    
    569,663
    
    
    
    640,374
    
    
    
    1,210,037Commercial loans
    
    
    149,319
    
    
    
    130,686
    
    
    
    280,005Consumer loans
    
    
    107,155
    
    
    
    100
    
    
    
    107,255Total loans
    
    $
    826,137
    
    
    $
    771,160
    
    
    $
    1,597,297
 38




---



##### Table of Contents



At December 31, 2006Due 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
    
    $
    6,982
    
    
    
    4.21
    %
    
    $
    10,010
    
    
    
    4.69
    %
    
    $
    1,139
    
    
    
    4.77
    %Obligations of state and political subdivisions
    
    
    2,116
    
    
    
    3.81
    %
    
    
    20,469
    
    
    
    4.09
    %
    
    
    7,456
    
    
    
    4.11
    %Corporate debt securities
    
    
    3,948
    
    
    
    6.76
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total debt securities
    
    
    13,046
    
    
    
    4.92
    %
    
    
    30,479
    
    
    
    4.29
    %
    
    
    8,595
    
    
    
    4.20
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities available for sale
at fair value
    
    $
    13,046
    
    
    
    4.92
    %
    
    $
    30,479
    
    
    
    4.29
    %
    
    $
    8,595
    
    
    
    4.20
    %
 [Continued from above table, first column(s) repeated]
 At December 31, 2006Due 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,129
    
    
    
    4.54
    %Obligations of state and political subdivisions
    
    $
    1,983
    
    
    
    4.61
    %
    
    
    
    
    
    
    32,026
    
    
    
    4.15
    %Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,948
    
    
    
    6.76
    %Total debt securities
    
    
    1,983
    
    
    
    4.61
    %
    
    
    
    
    
    
    54,103
    
    
    
    4.64
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    $
    3,271
    
    
    
    3,271
    
    
    
    6.61
    %Equity securities
    
    
    
    
    
    
    
    
    
    
    4,775
    
    
    
    4,775
    
    
    
    Total securities available for sale
at fair value
    
    $
    1,983
    
    
    
    4.61
    %
    
    $
    8,046
    
    
    $
    62,149
    
    
    
    4.39
    %
  39




---



##### Table of Contents



Deposit and Financing Activities
  Three months or less
    
    $
    141,187Over 3 through 6 months
    
    
    61,077Over 6 through 12 months
    
    
    44,432Over 12 months
    
    
    94,738Total
    
    $
    341,434
  40




---



##### Table of Contents



Year endedDecember 31,2006
    
    2005
    
    2004FHLB advancesAverage balance outstanding
    
    $
    339,320
    
    
    $
    284,449
    
    
    $
    203,122Maximum amount outstanding at any month-end during the period
    
    
    358,299
    
    
    
    346,500
    
    
    
    232,209Balance outstanding at end of period
    
    
    348,914
    
    
    
    346,500
    
    
    
    232,209Weighted average interest rate during the period
    
    
    4.84
    %
    
    
    4.54
    %
    
    
    4.93
    %Weighted average interest rate at end of period
    
    
    4.82
    %
    
    
    4.50
    %
    
    
    4.53
    %Federal Funds PurchasedAverage balance outstanding
    
    $
    63,439
    
    
    $
    39,574
    
    
    $
    20,985Maximum amount outstanding at any month-end during the period
    
    
    107,531
    
    
    
    73,955
    
    
    
    45,527Balance outstanding at end of period
    
    
    51,095
    
    
    
    52,013
    
    
    
    45,527Weighted average interest rate during the period
    
    
    5.43
    %
    
    
    3.61
    %
    
    
    1.48
    %Weighted average interest rate at end of period
    
    
    5.04
    %
    
    
    4.32
    %
    
    
    2.50
    %
     
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   41




---



##### 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.
 42




---



##### Table of Contents



Estimated Change in Annual Net Interest IncomeIncrease/(Decrease) in Market Interest
    
    At December 31, 2006 (Dollars in thousands)Rates in Basis Points (Rate Shock)
    
    Amount
    
    $ Change
    
    % Change200
    
    $
    60,522
    
    
    $
    (376
    )
    
    
    -(0.62
    )%100
    
    
    60,768
    
    
    
    (130
    )
    
    
    (0.21
    )Static
    
    
    60,898
    
    
    
    
    
    
    
    -100
    
    
    60,626
    
    
    
    (272
    )
    
    
    (0.45
    )-200
    
    
    59,387
    
    
    
    (1,511
    )
    
    
    (2.48
    )
   
    
    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.
    
    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.
   
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
    Internal Control  Integrated Framework
 
 43




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control-Integrated Framework
      
 44




---



##### Table of Contents



December 31,2006
    
    
    2005ASSETSCash and due from depository institutions
    
    $
    24,722
    
    
    $
    38,217Federal funds sold
    
    
    
    
    
    
    2,029Interest-bearing deposits in other depository institutions
    
    
    101
    
    
    
    7,345Total cash and cash equivalents
    
    
    24,823
    
    
    
    47,591Certificates of Deposit
    
    
    320
    
    
    
    Securities available for sale, at fair value (Note 3)
    
    
    62,149
    
    
    
    87,510Federal Home Loan Bank stock, at cost
    
    
    19,360
    
    
    
    17,700Loans held for sale
    
    
    2,097
    
    
    
    2,126Loans, less allowance for loan losses of $14,304 and $13,546 (Note 4)
    
    
    1,582,411
    
    
    
    1,425,036Premises and equipment, net (Note 5)
    
    
    43,265
    
    
    
    36,228Goodwill (Note 2)
    
    
    9,814
    
    
    
    9,814Other intangible assets, net of amortization of $1,698 and $1,221 (Note 2)
    
    
    2,702
    
    
    
    3,179Accrued interest receivable and other assets (Notes 6 and 9)
    
    
    28,201
    
    
    
    25,039Total assets
    
    $
    1,775,142
    
    
    $
    1,654,223LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    96,193
    
    
    $
    112,609Interest-bearing (Note 7)
    
    
    1,090,465
    
    
    
    959,586Total deposits
    
    
    1,186,658
    
    
    
    1,072,195Federal Home Loan Bank advances (Note 8)
    
    
    348,914
    
    
    
    346,500Bank line of credit (Note 8)
    
    
    
    
    
    
    3,950Federal funds purchased (Note 8)
    
    
    51,095
    
    
    
    52,013Accrued interest payable and other liabilities (Note 10)
    
    
    11,161
    
    
    
    10,995Total liabilities
    
    
    1,597,828
    
    
    
    1,485,653COMMITMENTS 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
    
    
    94,818
    
    
    
    93,848Retained earnings
    
    
    110,289
    
    
    
    104,054Accumulated other comprehensive loss
    
    
    (422
    )
    
    
    (898
    )Treasury stock, at cost (1,373,424 and 1,364,561 shares)
    
    
    (24,760
    )
    
    
    (24,653
    )Deferred compensation obligation (Note 10)
    
    
    3,583
    
    
    
    3,111Unearned compensation  ESOP (Note 10)
    
    
    (6,289
    )
    
    
    (6,987
    )Total stockholders equity
    
    
    177,314
    
    
    
    168,570Total liabilities and stockholders equity
    
    $
    1,775,142
    
    
    $
    1,654,223
  45




---



##### Table of Contents



Year EndedDecember 31,2006
    
    
    2005
    
    
    2004INTEREST INCOMELoans, including fees
    
    $
    108,833
    
    
    $
    83,895
    
    
    $
    65,457Federal funds sold and interest bearing deposits
    
    
    124
    
    
    
    245
    
    
    
    96Certificates of Deposit
    
    
    2
    
    
    
    
    
    
    
    Securities:Tax-exempt
    
    
    992
    
    
    
    1,304
    
    
    
    917Taxable
    
    
    3,320
    
    
    
    3,645
    
    
    
    2,973Total interest income
    
    
    113,271
    
    
    
    89,089
    
    
    
    69,443INTEREST EXPENSEDeposits
    
    
    38,564
    
    
    
    23,182
    
    
    
    14,884Short-term borrowings
    
    
    3,447
    
    
    
    2,007
    
    
    
    724FHLB advances
    
    
    16,429
    
    
    
    12,903
    
    
    
    10,019Total interest expense
    
    
    58,440
    
    
    
    38,092
    
    
    
    25,627NET INTEREST INCOME
    
    
    54,831
    
    
    
    50,997
    
    
    
    43,816PROVISION FOR LOAN LOSSES (Note 4)
    
    
    2,805
    
    
    
    2,390
    
    
    
    1,555NET INTEREST INCOME, after provision for loan losses
    
    
    52,026
    
    
    
    48,607
    
    
    
    42,261NONINTEREST INCOMEService charges and other fees
    
    
    2,566
    
    
    
    2,512
    
    
    
    2,484Mortgage banking activities
    
    
    2,143
    
    
    
    2,816
    
    
    
    1,400Trust fee income
    
    
    1,312
    
    
    
    1,239
    
    
    
    801Gain on sale of securities available for sale
    
    
    
    
    
    
    
    
    
    
    468Other
    
    
    (11
    )
    
    
    (189
    )
    
    
    272Total noninterest income
    
    
    6,010
    
    
    
    6,378
    
    
    
    5,425NONINTEREST EXPENSECompensation, payroll taxes and employee benefits (Note 10)
    
    
    23,041
    
    
    
    19,502
    
    
    
    16,266Office occupancy and equipment
    
    
    7,998
    
    
    
    6,561
    
    
    
    5,652Advertising and business promotion
    
    
    1,402
    
    
    
    1,552
    
    
    
    1,913Stationery, printing and supplies
    
    
    1,968
    
    
    
    2,037
    
    
    
    1,761Data processing
    
    
    708
    
    
    
    1,887
    
    
    
    1,301Professional fees
    
    
    3,779
    
    
    
    4,232
    
    
    
    3,547Core deposit intangible amortization
    
    
    477
    
    
    
    561
    
    
    
    660Other
    
    
    5,057
    
    
    
    5,341
    
    
    
    4,157Total noninterest expense
    
    
    44,430
    
    
    
    41,673
    
    
    
    35,257INCOME, before federal income tax expense
    
    
    13,606
    
    
    
    13,312
    
    
    
    12,429Federal income tax expense (Note 9)
    
    
    4,504
    
    
    
    4,278
    
    
    
    4,200NET INCOME
    
    $
    9,102
    
    
    $
    9,034
    
    
    $
    8,229EARNINGS PER SHARE, BASIC
    
    $
    1.14
    
    
    $
    1.14
    
    
    $
    1.04EARNINGS PER SHARE, DILUTED
    
    $
    1.14
    
    
    $
    1.14
    
    
    $
    1.04
  46




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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, 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
    )
    
    
    168,570Allocation of ESOP shares
    
    
    
    
    
    
    696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    1,394Exercise of stock options
    
    
    
    
    
    
    274
    
    
    
    
    
    
    
    
    
    
    
    1,298
    
    
    
    
    
    
    
    
    
    
    
    1,572Deferred compensation and
stock awards earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    162Purchase of treasury stock
(53,779 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,567
    )
    
    
    
    
    
    
    
    
    
    
    (1,567
    )Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    472
    
    
    
    
    
    
    
    472Dividends paid ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    (2,867
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,867
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    9,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,102Change in net unrealized
loss on securities
available for sale, net of tax
effect of $256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,578BALANCE, December 31, 2006
    
    $
    95
    
    
    $
    94,818
    
    
    $
    110,289
    
    
    $
    (422
    )
    
    $
    (24,760
    )
    
    $
    3,583
    
    
    $
    (6,289
    )
    
    $
    177,314
  47




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##### Table of Contents



Year EndedDecember 31,2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    9,102
    
    
    $
    9,034
    
    
    $
    8,229Adjustments to reconcile net income to net cash provided by operating activities:Provision for deferred income taxes
    
    
    270
    
    
    
    1,392
    
    
    
    2,477Provision for loan losses
    
    
    2,805
    
    
    
    2,390
    
    
    
    1,555Deferred compensation and ESOP
    
    
    2,028
    
    
    
    1,720
    
    
    
    1,766Depreciation
    
    
    2,859
    
    
    
    2,355
    
    
    
    1,955Core deposit intangible amortization
    
    
    477
    
    
    
    561
    
    
    
    660Amortization of discounts on securities
    
    
    452
    
    
    
    691
    
    
    
    3,048Proceeds from sale of mortgage loans held for sale
    
    
    115,686
    
    
    
    175,126
    
    
    
    126,823Origination of mortgage loans held for sale
    
    
    (115,342
    )
    
    
    (176,484
    )
    
    
    (124,832
    )Gain on sale of mortgage loans
    
    
    (315
    )
    
    
    (576
    )
    
    
    (199
    )Gain on sale of securities available for sale
    
    
    
    
    
    
    
    
    
    
    (468
    )(Gain) loss on sale or disposal of premises and equipment
    
    
    106
    
    
    
    (59
    )
    
    
    144Changes in assets and liabilities, net of acquisition:Increase in accrued interest receivable and other assets
    
    
    (10,023
    )
    
    
    (6,039
    )
    
    
    (5,384
    )Increase in accrued interest payable and other liabilities
    
    
    166
    
    
    
    1,365
    
    
    
    2,636Net cash provided by operating activities
    
    
    8,271
    
    
    
    11,476
    
    
    
    18,410LENDING AND INVESTING ACTIVITIESProceeds from maturities of securities available for sale
    
    
    28,148
    
    
    
    15,493
    
    
    
    20,365Proceeds from sale of securities available for sale
    
    
    
    
    
    
    95
    
    
    
    63,289Purchase of securities available for sale
    
    
    (2,508
    )
    
    
    (10,370
    )
    
    
    (63,898
    )Purchase of certificates of deposits
    
    
    (319
    )
    
    
    
    
    
    
    Purchase of Federal Home Loan Bank stock
    
    
    (2,354
    )
    
    
    (4,164
    )
    
    
    (3,792
    )Proceeds from sale of Federal Home Loan Bank stock
    
    
    694
    
    
    
    
    
    
    
    Acquisition, net of cash acquired (Note 2)
    
    
    
    
    
    
    
    
    
    
    (24,398
    )Net increase in loans
    
    
    (155,969
    )
    
    
    (234,335
    )
    
    
    (161,454
    )Proceeds from sale of other real estate owned, held for sale
    
    
    2,124
    
    
    
    286
    
    
    
    864Proceeds from sale of premises and equipment
    
    
    23
    
    
    
    282
    
    
    
    4Purchases of premises and equipment
    
    
    (10,025
    )
    
    
    (8,126
    )
    
    
    (7,225
    )Net cash used in lending and investing activities
    
    
    (140,186
    )
    
    
    (240,839
    )
    
    
    (176,245
    )DEPOSIT AND FINANCING ACTIVITIESNet increase in deposits
    
    
    114,463
    
    
    
    139,091
    
    
    
    49,977Net increase/(decreases) in federal funds purchased
    
    
    (918
    )
    
    
    6,486
    
    
    
    36,527Proceeds from exercises of stock options
    
    
    1,572
    
    
    
    130
    
    
    
    93Proceeds from line of credit
    
    
    
    
    
    
    1,000
    
    
    
    10,000Repayment of line of credit
    
    
    (3,950
    )
    
    
    (7,050
    )
    
    
    Repayment of FLAB advances
    
    
    (698,906
    )
    
    
    (153,854
    )
    
    
    (52,325
    )Proceeds from FLAB advances
    
    
    701,320
    
    
    
    268,145
    
    
    
    112,000Purchase of treasury stock
    
    
    (1,567
    )
    
    
    (1,883
    )
    
    
    (1,302
    )Payment of dividends
    
    
    (2,867
    )
    
    
    (3,048
    )
    
    
    (2,845
    )Net cash provided by deposit and financing activities
    
    
    109,147
    
    
    
    249,017
    
    
    
    152,125NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (22,768
    )
    
    
    19,654
    
    
    
    (5,710
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    47,591
    
    
    
    27,937
    
    
    
    33,647CASH AND CASH EQUIVALENTS, end of period
    
    $
    24,823
    
    
    $
    47,591
    
    
    $
    27,937SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for:Interest
    
    $
    56,984
    
    
    $
    36,691
    
    
    $
    25,901Federal income taxes
    
    
    3,620
    
    
    
    3,600
    
    
    
    4,410Transfers of loans to other real estate owned
    
    
    4,211
    
    
    
    1,034
    
    
    
    1,012
  48




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49




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##### Table of Contents



50




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##### Table of Contents



51




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##### Table of Contents



Accounting for Stock Issued to Employees Share Based Payment
 Year EndedDecember 31,2005
    
    
    2004Net income, as reported
    
    $
    9,034
    
    
    $
    8,229Deduct: Total stock option-based employee compensation
expense determined under fair value-based method,
net of related tax effects
    
    
    (749
    )
    
    
    (130
    )Pro forma net income
    
    $
    8,285
    
    
    $
    8,099Earnings per shareBasic  as reported
    
    $
    1.14
    
    
    $
    1.04Basic  pro forma
    
    $
    1.05
    
    
    $
    1.03Diluted  as reported
    
    $
    1.14
    
    
    $
    1.04Diluted  pro forma
    
    $
    1.04
    
    
    $
    1.02
 52




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##### Table of Contents



Year EndedDecember 31,2006 (1)
    
    2005
    
    2004Dividend yield
    
    
    
    
    
    
    1.57
    %
    
    
    1.56
    %Expected life
    
    
    
    
    
    8 years
    
    8 yearsExpected volatility
    
    
    
    
    
    
    28.98
    %
    
    
    16.55
    %Risk-free interest rate
    
    
    
    
    
    
    4.00
    %
    
    
    4.00
    %
 
 (1)
    
    No stock options were issued during 2006.    Year EndedDecember 31,2006
    
    
    2005
    
    
    2004Net income
    
    $
    9,102
    
    
    $
    9,034
    
    
    $
    8,229Average number of common shares outstanding
used to calculate basic earnings per common share
    
    
    7,977,415
    
    
    
    7,901,860
    
    
    
    7,890,482Effect of dilutive securities
    
    
    20,146
    
    
    
    38,428
    
    
    
    37,901Average number of common shares outstanding
used to calculate diluted earnings per
common share
    
    
    7,997,561
    
    
    
    7,940,288
    
    
    
    7,928,383Number of antidilutive stock options excluded from diluted earnings
per share computation
    
    
    
    
    
    
    34,696
    
    
    
    38,754
   Share-Based Payment
 53




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##### Table of Contents



Accounting for Servicing of Financial Assets- an
amendment of FASB Statement No. 140
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109
 Fair Value Measurements
  The Fair value Option for Financial
Assets and Financial Liabilities.
    54




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##### Table of Contents



December 31, 2006Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    18,318
    
    
    $
    6
    
    
    $
    195
    
    
    $
    18,129Obligations of state and political
subdivisions
    
    
    32,158
    
    
    
    89
    
    
    
    221
    
    
    
    32,026Corporate debt securities
    
    
    4,001
    
    
    
    
    
    
    
    53
    
    
    
    3,948Equity securities available for sale
    
    
    5,000
    
    
    
    
    
    
    
    225
    
    
    
    4,775Mortgage-backed securities
    
    
    3,323
    
    
    
    5
    
    
    
    57
    
    
    
    3,271Total securities available for sale
    
    $
    62,800
    
    
    $
    100
    
    
    $
    751
    
    
    $
    62,149
 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
  55




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##### Table of Contents



December 31, 2006Amortized
    
    
    FairCost
    
    
    ValueDue within one year or less
    
    $
    13,160
    
    
    $
    13,046Due after one year through five years
    
    
    30,741
    
    
    
    30,479Due after five years through ten years
    
    
    8,601
    
    
    
    8,595Due after ten years
    
    
    1,975
    
    
    
    1,983Total
    
    
    54,477
    
    
    
    54,103Equity securities available for sale
    
    
    5,000
    
    
    
    4,775Mortgage-backed securities
    
    
    3,323
    
    
    
    3,271Total
    
    $
    62,800
    
    
    $
    62,149
  56




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##### Table of Contents



December, 31 2006Less than Twelve Months
    
    
    Over Twelve MonthsUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueU.S.
Treasury securities and obligations of U.S. government
corporations and agencies
    
    $
    3
    
    
    $
    509
    
    
    $
    192
    
    
    $
    16,990Obligations of state and political subdivisions
    
    
    9
    
    
    
    4,525
    
    
    
    212
    
    
    
    15,413Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    3,947Equity securities available for sale
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    4,775Mortgage-backed securities
    
    
    
    
    
    
    11
    
    
    
    57
    
    
    
    2,390Total
    
    $
    12
    
    
    $
    5,045
    
    
    $
    739
    
    
    $
    43,515
 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
  57




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##### Table of Contents



December 31,2006
    
    
    2005Real estate loans:One-to four-family
    
    $
    513,139
    
    
    $
    427,714Commercial and multi-family
    
    
    432,009
    
    
    
    418,314Residential construction
    
    
    127,777
    
    
    
    82,328Home equity and lines of credit
    
    
    137,112
    
    
    
    131,3781,210,037
    
    
    
    1,059,734Commercial loans
    
    
    280,005
    
    
    
    271,436Consumer loans:Vehicles
    
    
    83,435
    
    
    
    84,189Other
    
    
    23,820
    
    
    
    24,421107,255
    
    
    
    108,610Total loans
    
    
    1,597,297
    
    
    
    1,439,780Less:Allowance for loan losses
    
    
    14,304
    
    
    
    13,546Net deferred loan fees
    
    
    582
    
    
    
    1,198Net loans
    
    $
    1,582,411
    
    
    $
    1,425,036
   Year EndedDecember 31,2006
    
    
    2005
    
    
    2004Balance, beginning of period
    
    $
    13,546
    
    
    $
    13,472
    
    
    $
    11,664Allowance from acquisition
    
    
    
    
    
    
    
    
    
    
    1,135Provision for loan losses
    
    
    2,805
    
    
    
    2,390
    
    
    
    1,555Charge-offs
    
    
    (2,352
    )
    
    
    (2,609
    )
    
    
    (1,459
    )Recoveries
    
    
    305
    
    
    
    293
    
    
    
    577Balance, end of period
    
    $
    14,304
    
    
    $
    13,546
    
    
    $
    13,472
 58




---



##### Table of Contents



December 31,2006
    
    
    2005Impaired loans without a valuation
    
    $
    6,280
    
    
    $
    9,569Impaired loans with a valuation allowance
    
    
    4,694
    
    
    
    2,290Total impaired loans
    
    $
    10,974
    
    
    $
    11,859Valuation allowance related to impaired
    
    $
    619
    
    
    $
    600Total nonperforming loans
    
    $
    25,667
    
    
    $
    21,374
 Year EndedDecember 31,2006
    
    
    2005
    
    
    2004Average investment in impaired loans
    
    $
    7,925
    
    
    $
    7,256
    
    
    $
    3,065Interest income recognized on impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    Interest income recognized on a cash basis
on impaired loans
    
    $
    105
    
    
    $
    36
    
    
    $
    
   December 31,2006
    
    
    2005Land
    
    $
    9,824
    
    
    $
    7,943Office buildings
    
    
    33,656
    
    
    
    29,609Furniture, fixtures, and equipment
    
    
    16,387
    
    
    
    15,523Construction in process
    
    
    1,250
    
    
    
    2,153Total premises and equipment
    
    
    61,117
    
    
    
    55,228Less accumulated depreciation
    
    
    (17,852
    )
    
    
    (19,000
    )Net carrying amount
    
    $
    43,265
    
    
    $
    36,228
   2007
    
    $
    1,0612008
    
    
    1,0532009
    
    
    1,0532010
    
    
    8472011
    
    
    710Thereafter
    
    
    1,613Total
    
    $
    6,337
 59




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##### Table of Contents



December 31,2006
    
    2005
    
    2004Annual constant prepayment speed
    
    
    10.98
    %
    
    
    7.87
    %
    
    
    10.22
    %Weighted average life (in months)
    
    
    260
    
    
    
    264
    
    
    
    257Discount rate
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    7.50
    %
  Year EndedDecember 31,2006
    
    
    2005
    
    
    2004Balance, beginning of period
    
    $
    4,118
    
    
    $
    3,938
    
    
    $
    3,820Net mortgage servicing rights acquired in acquisition
    
    
    
    
    
    
    
    
    
    
    662Amount capitalized
    
    
    1,061
    
    
    
    1,258
    
    
    
    1,118Amortization
    
    
    941
    
    
    
    1,010
    
    
    
    1,662Change in valuation reserve
    
    
    43
    
    
    
    (68
    )
    
    
    Balance, end of period
    
    $
    4,281
    
    
    $
    4,118
    
    
    $
    3,938Valuation allowance:Balance, beginning of period
    
    $
    68
    
    
    
    
    
    
    
    Additions
    
    
    
    
    
    $
    68
    
    
    
    Reductions
    
    
    (43
    )
    
    
    
    
    
    
    Balance, end of period
    
    $
    25
    
    
    $
    68
    
    
    $
    
   December 31,2006
    
    
    2005Passbook and savings deposits
    
    $
    115,362
    
    
    $
    99,171NOW accounts
    
    
    91,587
    
    
    
    90,078Money market variable rate accounts
    
    
    249,889
    
    
    
    272,319Time deposits
    
    
    633,627
    
    
    
    498,018Total
    
    $
    1,090,465
    
    
    $
    959,586
 60




---



##### Table of Contents



2007
    
    $
    483,2002008
    
    
    41,9562009
    
    
    20,5792010
    
    
    45,9962011
    
    
    25,258Thereafter
    
    
    16,638Total
    
    $
    633,627
      2007
    
    $
    42,5002008
    
    
    143,6082009
    
    
    103,0552010
    
    
    25,0002011
    
    
    7,274Thereafter
    
    
    27,477Total
    
    $
    348,914
  61




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##### Table of Contents



Year EndedDecember 31,2006
    
    
    2005
    
    
    2004Current tax expense
    
    $
    4,234
    
    
    $
    2,886
    
    
    $
    1,723Deferred tax expense
    
    
    270
    
    
    
    1,392
    
    
    
    2,477Total income tax
    
    $
    4,504
    
    
    $
    4,278
    
    
    $
    4,200
  Year EndedDecember 31,2006
    
    
    2005
    
    
    2004Income tax at statutory rates
    
    $
    4,762
    
    
    $
    4,659
    
    
    $
    4,350Increase (decrease) resulting from:Change in
contribution carry forward reserve
    
    
    (81
    )
    
    
    300
    
    
    
    450Tax-exempt interest expense
    
    
    (365
    )
    
    
    (470
    )
    
    
    (432
    )Other
    
    
    188
    
    
    
    (211
    )
    
    
    (168
    )Total income tax expense
    
    $
    4,504
    
    
    $
    4,278
    
    
    $
    4,200
 62




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##### Table of Contents



December 31,2006
    
    
    2005Deferred income tax assets:Allowance for loan losses
    
    $
    4,397
    
    
    $
    4,077Contribution carry forward
    
    
    
    
    
    
    1,124Employee benefit obligations
    
    
    2,743
    
    
    
    2,209Net
unrealized loss on securities available for sale
    
    
    
    
    
    
    462Other
    
    
    505
    
    
    
    366Total deferred income tax assets
    
    
    7,645
    
    
    
    8,238Deferred income tax liabilities:Original issue discount
    
    
    545
    
    
    
    498Investment in subsidiary
    
    
    661
    
    
    
    537Deferred loan fees
    
    
    401
    
    
    
    185Accumulated depreciation
    
    
    2,110
    
    
    
    1,412Net
unrealized gain on securities available for sale
    
    
    221
    
    
    
    Core deposit intangible
    
    
    946
    
    
    
    1,113Other
    
    
    784
    
    
    
    813Total deferred income tax liabilities
    
    
    5,668
    
    
    
    4,558Deferred income tax asset
    
    
    1,977
    
    
    
    3,680Valuation allowance
    
    
    
    
    
    
    (750
    )Net deferred income tax asset
    
    $
    1,977
    
    
    $
    2,930
      63




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##### Table of Contents



Accounting for Deferred Compensation
Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested
  Year EndingDecember 31,
    
    Amount2007
    
    $
    5512008
    
    
    5972009
    
    
    6482010
    
    
    7032011
    
    
    763Thereafter
    
    
    4,900Total
    
    $
    8,162
  64




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##### Table of Contents



December 31,2006
    
    2005Allocated
    
    
    304,855
    
    
    
    254,046Unallocated
    
    
    457,285
    
    
    
    508,094Total
    
    
    762,140
    
    
    
    762,140
    Year Ended December 31,2006
    
    2005
    
    2004Beginning of period
    
    
    87,900
    
    
    
    72,562
    
    
    
    68,817Granted
    
    
    5,000
    
    
    
    27,209
    
    
    
    6,245Vested
    
    
    (5,274
    )
    
    
    (5,274
    )
    
    
    Forfeited
    
    
    
    
    
    
    (6,597
    )
    
    
    (2,500
    )Nonvested, end of period
    
    
    87,626
    
    
    
    87,900
    
    
    
    72,562
     65




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##### Table of Contents



Year Ended December 31,2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004Weighted
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    AggregateExercise
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    IntrinsicShares
    
    
    Price
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    Value
    
    
    Shares
    
    
    Price
    

ValueOutstanding, beginning of period
    
    
    257,059
    
    
    $
    20.00
    
    
    
    
    
    
    
    186,264
    
    
    $
    20.00
    
    
    
    
    
    
    
    170,800
    
    
    $
    18.95Options granted during the period (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,016
    
    
    
    19.96
    
    
    
    
    
    
    
    42,113
    
    
    
    23.90Options forfeited
    
    
    3,756
    
    
    
    20.61
    
    
    
    
    
    
    
    12,991
    
    
    
    20.26
    
    
    
    
    
    
    
    22,169
    
    
    
    19.58Options exercised
    
    
    70,031
    
    
    
    28.39
    
    
    
    
    
    
    
    6,230
    
    
    
    21.84
    
    
    
    
    
    
    
    4,480
    
    
    
    18.81Outstanding, end of period
    
    
    183,272
    
    
    $
    19.77
    
    
    $
    2,010,494
    
    
    
    257,059
    
    
    $
    20.00
    
    
    $
    917,701
    
    
    
    186,264
    
    
    $
    20.00
    
    $
    778,584Options exercisable, end of year
    
    
    180,872
    
    
    $
    19.74
    
    
    $
    1,989,592
    
    
    
    254,059
    
    
    $
    19.97
    
    
    $
    914,612
    
    
    
    46,790
    
    
    $
    19.32
    
    $
    227,399Weighted-average fair value of options granted
during the period
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    6.80
    
    
    
    
    
    
    
    
    
    
    $
    5.70
 
 (1)
    
    No stock options were granted during 2006.    Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$23.00 - $24.00
    
    
    15,306
    
    
    7.2 years
    
    $
    23.90
    
    
    
    15,306
    
    
    $
    23.90$20.00 - $21.00
    
    
    2,400
    
    
    8.3 years
    
    $
    21.91
    
    
    
    
    
    
    
    $19.00 - $20.00
    
    
    80,346
    
    
    8.2 years
    
    $
    19.93
    
    
    
    80,346
    
    
    $
    19.93$18.00 - $19.00
    
    
    85,220
    
    
    6.2 years
    
    $
    18.81
    
    
    
    85,220
    
    
    $
    18.81Outstanding, end of year
    
    
    183,272
    
    
    
    
    
    
    $
    19.77
    
    
    
    180,872
    
    
    $
    19.74
     66




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##### Table of Contents



For CapitalActual
    
    Adequacy Purposes
    
    To Be Well CapitalizedRatio
    
    
    
    
    
    
    
    
    
    Ratio
    
    
    
    
    
    
    
    
    
    RatioAmount
    
    (Percent)
    
    Amount
    
    
    
    
    
    (Percent)
    
    Amount
    
    
    
    
    
    (Percent)December 31, 2006Total Capital to RiskWeighted Assets:
    
    $
    161,746
    
    
    
    10.6
    %
    
    $
    121,700
    

    
    
    >

    
    
    
    8.0
    %
    
    $
    152,100
    
    
    
    >
    
    
    
    10.0
    %Tier 1 Capital to RiskWeighted Assets:
    
    
    147,385
    
    
    
    9.7
    %
    
    
    60,800
    
    
    
    >
    
    
    
    4.0
    %
    
    
    91,300
    
    
    
    >
    
    
    
    6.0
    %Tier 1 Capital toAverage Assets:
    
    
    147,385
    
    
    
    8.4
    %
    
    
    52,800
    
    
    
    >
    
    
    
    4.0
    %
    
    
    88,000
    
    
    
    >
    
    
    
    5.0
    %December 31, 2005Total Capital to RiskWeighted Assets:
    
    $
    148,607
    
    
    
    10.6
    %
    
    $
    112,200
    
    
    
    >
    
    
    
    8.0
    %
    
    $
    140,300
    
    
    
    >
    
    
    
    10.0
    %Tier 1 Capital to RiskWeighted Assets:
    
    
    135,061
    
    
    
    9.6
    %
    
    
    56,100
    
    
    
    >
    
    
    
    4.0
    %
    
    
    84,200
    
    
    
    >
    
    
    
    6.0
    %Tier 1 Capital toAverage Assets:
    
    
    135,061
    
    
    
    8.4
    %
    
    
    48,300
    
    
    
    >
    
    
    
    3.0
    %
    
    
    80,500
    
    
    
    >
    
    
    
    5.0
    %
        67




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##### Table of Contents



December 31,2006
    
    
    2005Commercial and stand-by letters of credit
    
    $
    8,829
    
    
    $
    9,062Unused lines of credit
    
    
    244,690
    
    
    
    270,829Commitments to originate loans or to refinance
existing loans:Real estate
    
    
    49,837
    
    
    
    88,180Commercial
    
    
    44,266
    
    
    
    42,997Consumer
    
    
    4,493
    
    
    
    8,324Total commitments to extend credit
    
    $
    352,115
    
    
    $
    419,392
   Guarantors Accounting and Disclosure
Requirements for Guarantees,
      68




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##### Table of Contents



December 31, 2006
    
    December 31, 2005Carrying
    
    Estimated
    
    Carrying
    
    EstimatedValue
    
    Fair Value
    
    Value
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    $
    24,823
    
    
    $
    24,823
    
    
    $
    47,591
    
    
    $
    47,591Securities available for sale
    
    
    62,149
    
    
    
    62,149
    
    
    
    87,510
    
    
    
    87,510Federal Home Loan Bank stock
    
    
    19,360
    
    
    
    19,360
    
    
    
    17,700
    
    
    
    17,700Loans held for sale
    
    
    2,097
    
    
    
    2,112
    
    
    
    2,126
    
    
    
    2,126Loans
    
    
    1,582,411
    
    
    
    1,549,764
    
    
    
    1,425,036
    
    
    
    1,434,473Accrued interest receivable
    
    
    10,891
    
    
    
    10,891
    
    
    
    7,911
    
    
    
    7,911Financial liabilities:Deposits
    
    
    1,186,658
    
    
    
    1,094,859
    
    
    
    1,072,195
    
    
    
    1,011,395Federal Home Loan Bank advances
    
    
    348,914
    
    
    
    349,311
    
    
    
    346,500
    
    
    
    343,055Bank line of credit
    
    
    
    
    
    
    
    
    
    
    3,950
    
    
    
    3,950Federal funds purchased
    
    
    51,095
    
    
    
    51,095
    
    
    
    52,013
    
    
    
    52,013Accrued interest payable
    
    
    3,711
    
    
    
    3,711
    
    
    
    2,255
    
    
    
    2,255
           69




---



##### Table of Contents



December 31,2006
    
    
    2005ASSETSCash at subsidiary bank
    
    $
    9,134
    
    
    $
    709Securities available for sale
    
    
    4,777
    
    
    
    20,771Investment in subsidiaries
    
    
    159,764
    
    
    
    147,976Deferred taxes and other assets
    
    
    4,204
    
    
    
    4,345Total assets
    
    $
    177,879
    
    
    $
    173,801LIABILITIESBank line of credit
    
    $
    
    
    
    $
    3,950Accrued expenses and other liabilities
    
    
    565
    
    
    
    1,281Total liabilities
    
    
    565
    
    
    
    5,231STOCKHOLDERS EQUITY
    
    
    177,314
    
    
    
    168,570TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    177,879
    
    
    $
    173,801
 70




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##### Table of Contents



Year EndedDecember 31,2006
    
    
    2005
    
    
    2004Income:Interest on loans
    
    
    
    
    
    $
    362
    
    
    $
    207Interest on investments
    
    $
    1,247
    
    
    
    1,517
    
    
    
    382Dividends from subsidiaries
    
    
    
    
    
    
    5,000
    
    
    
    20,500Other
    
    
    42
    
    
    
    
    
    
    
    166Total income
    
    
    1,289
    
    
    
    6,879
    
    
    
    21,255Expense:Interest on short term borrowings
    
    
    (45
    )
    
    
    (466
    )
    
    
    (361
    )Other
    
    
    (1,227
    )
    
    
    (1,320
    )
    
    
    (1,152
    )Income, before income taxes and equity in
undistributed net income of subsidiaries
    
    
    17
    
    
    
    5,093
    
    
    
    19,742Income tax benefit (expense)
    
    
    (329
    )
    
    
    (273
    )
    
    
    256Income (loss), before equity in
undistributed net income
of subsidiaries
    
    
    (312
    )
    
    
    4,820
    
    
    
    19,998Equity in undistributed net income (loss) of
subsidiaries
    
    
    9,414
    
    
    
    4,214
    
    
    
    (11,769
    )Net income
    
    $
    9,102
    
    
    $
    9,034
    
    
    $
    8,229
 71




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##### Table of Contents



Year EndedDecember 31,2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    9,102
    
    
    $
    9,034
    
    
    $
    8,229Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    (109
    )Amortization (accretion) of securities
    
    
    270
    
    
    
    213
    
    
    
    (868
    )Equity in undistributed net income (loss) of subsidiaries
    
    
    (11,788
    )
    
    
    (3,788
    )
    
    
    11,769Deferred compensation and ESOP
    
    
    2,028
    
    
    
    1,720
    
    
    
    1,766(Increase) decrease in accrued interest receivable and other assets
    
    
    (115
    )
    
    
    1,081
    
    
    
    (1,451
    )Increase (decrease) in accrued interest payable and other liabilities
    
    
    (716
    )
    
    
    (403
    )
    
    
    358Net cash provided by (used in) operating activities
    
    
    (1,219
    )
    
    
    7,857
    
    
    
    19,694INVESTING ACTIVITIESPurchase of Metrobank
    
    
    
    
    
    
    
    
    
    
    (30,000
    )Proceeds from sale or maturity of investments
    
    
    16,456
    
    
    
    8,521
    
    
    
    4,572Purchase of investments
    
    
    
    
    
    
    (10,370
    )
    
    
    (8,775
    )Net decrease in loans
    
    
    
    
    
    
    4,675
    
    
    
    588Net cash provided by (used in) investing activities
    
    
    16,456
    
    
    
    2,826
    
    
    
    (33,615
    )FINANCING ACTIVITIESProceeds from exercises of stock options
    
    
    1,572
    
    
    
    130
    
    
    
    93Proceeds from line of credit
    
    
    
    
    
    
    1,000
    
    
    
    10,000Repayment of line of credit
    
    
    (3,950
    )
    
    
    (7,050
    )
    
    
    Purchase of treasury stock
    
    
    (1,567
    )
    
    
    (1,883
    )
    
    
    (1,302
    )Payment of dividends
    
    
    (2,867
    )
    
    
    (3,048
    )
    
    
    (2,845
    )Net cash provided by (used in) financing activities
    
    
    (6,812
    )
    
    
    (10,851
    )
    
    
    5,946NET CHANGE IN CASH AT SUBSIDIARY BANK
    
    
    8,425
    
    
    
    (168
    )
    
    
    (7,975
    )CASH, beginning of period
    
    
    709
    
    
    
    877
    
    
    
    8,852CASH, end of period
    
    $
    9,134
    
    
    $
    709
    
    
    $
    877
 72




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##### Table of Contents



For the Three-month Periods EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    TotalInterest income
    
    $
    26,095
    
    
    $
    27,844
    
    
    $
    29,041
    
    
    $
    30,291
    
    
    $
    113,271Interest expense
    
    
    12,764
    
    
    
    14,237
    
    
    
    15,489
    
    
    
    15,950
    
    
    
    58,440Net interest income
    
    
    13,331
    
    
    
    13,607
    
    
    
    13,552
    
    
    
    14,341
    
    
    
    54,831Provision for loan losses
    
    
    870
    
    
    
    710
    
    
    
    605
    
    
    
    620
    
    
    
    2,805Noninterest income
    
    
    1,476
    
    
    
    1,574
    
    
    
    1,486
    
    
    
    1,474
    
    
    
    6,010Noninterest expense
    
    
    10,864
    
    
    
    11,677
    
    
    
    10,901
    
    
    
    10,988
    
    
    
    44,430Income, before federal income tax expense
    
    
    3,073
    
    
    
    2,794
    
    
    
    3,532
    
    
    
    4,207
    
    
    
    13,606Federal income tax expense
    
    
    1,028
    
    
    
    934
    
    
    
    1,204
    
    
    
    1,338
    
    
    
    4,504Net income
    
    $
    2,045
    
    
    $
    1,860
    
    
    $
    2,328
    
    
    $
    2,869
    
    
    $
    9,102Earnings per share, basic
    
    $
    0.26
    
    
    $
    0.24
    
    
    $
    0.29
    
    
    $
    0.36
    
    
    $
    1.14Earnings per share, diluted
    
    $
    0.26
    
    
    $
    0.23
    
    
    $
    0.29
    
    
    $
    0.36
    
    
    $
    1.14
 For the Three-month Periods EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    TotalInterest income
    
    $
    19,480
    
    
    $
    21,512
    
    
    $
    23,186
    
    
    $
    24,911
    
    
    $
    89,089Interest expense
    
    
    7,483
    
    
    
    9,158
    
    
    
    10,085
    
    
    
    11,366
    
    
    
    38,092Net interest income
    
    
    11,997
    
    
    
    12,354
    
    
    
    13,101
    
    
    
    13,545
    
    
    
    50,997Provision for loan losses
    
    
    480
    
    
    
    780
    
    
    
    560
    
    
    
    570
    
    
    
    2,390Noninterest income
    
    
    1,372
    
    
    
    1,368
    
    
    
    2,114
    
    
    
    1,524
    
    
    
    6,378Noninterest expense
    
    
    9,916
    
    
    
    9,923
    
    
    
    10,786
    
    
    
    11,048
    
    
    
    41,673Income, 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
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 73




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##### Table of Contents



ITEM 9A. CONTROLS AND PROCEDURES
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
 Internal Control  Integrated Framework Internal Control Integrated Framework,
   
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 ITEM 11. EXECUTIVE COMPENSATION
  74




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##### Table of Contents



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  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
    
    
    183,272
    
    
    
    $  19.77
    
    
    
    1,203,917Total
    
    
    183,272
    
    
    
    $  19.77
    
    
    
    1,203,917
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Financial Statements
 75




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##### Table of Contents



Pages in Form 10-KREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
    
    page 43CONSOLIDATED FINANCIAL STATEMENTSBalance Sheets
    
    page 45Statements of Income
    
    page 46Statements of Changes in Stockholders Equity
    
    page 47Statements of Cash Flows
    
    page 48Notes to Consolidated Financial Statements
    
    page 49 - 72
 Financial Statement Schedules
   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. Brandewie (6)10.9
    
    Change in Control Agreement between Citizens First Savings Bank and
William G. Oldford, Jr. (6)10.10
    
    Change in Control Agreement between Citizens First Savings Bank and
Richard Stafford (6)10.11
    
    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)(6)
    
    Incorporated by reference into this document from the Exhibits to the Form 10-K as filed with
the Securities and Exchange Commission on March 23, 2006 (Registration No. 0-32041). 76




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##### Table of Contents



SIGNATURES
  Citizens First Bancorp, Inc.Date: March 14, 2007
    
    By:
    
    /s/ Marshall J. Campbell

Marshall J. CampbellChairman of the Board,President and ChiefExecutive Officer
  /s/ Marshall J. Campbell

Marshall J. Campbell
    
    Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
    
    March 14, 2007/s/ Timothy D. Regan

Timothy D. Regan
    
    Secretary, Treasurer (principal
accounting and financial
officer)
    
    March 14, 2007/s/ Ronald W. Cooley

Ronald W. Cooley
    
    Director
    
    March 14, 2007/s/ Gerald Bouchard

Gerald Bouchard
    
    Director
    
    March 14, 2007/s/ Walid Demashkieh

Walid Demashkieh
    
    Director
    
    March 14, 2007/s/ Robert Patterson

Robert Patterson
    
    Director
    
    March 14, 2007
 77




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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. Brandewie (6)10.9
    
    Change in Control Agreement between Citizens First Savings Bank and
William G. Oldford, Jr. (6)10.10
    
    Change in Control Agreement between Citizens First Savings Bank and
Richard Stafford (6)10.11
    
    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)(6)
    
    Incorporated by reference into this document from the Exhibits to the Form 10-K as filed with
the Securities and Exchange Commission on March 23, 2006 (Registration No. 0-32041). 78