##### 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, 2008
 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. LOGO)

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
    
    NASDAQ Global Select Market$0.01 per share
  o þ
 o þ
  þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
   Documents Incorporated by Reference




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##### 



TABLE OF CONTENTS
 INDEX
 PagePart IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    21Item 1B.
    
    Unresolved Staff Comments
    
    
    30Item 2.
    
    Properties
    
    
    30Item 3.
    
    Legal Proceedings
    
    
    30Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31Part IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    31Item 6.
    
    Selected Financial Data
    
    
    33Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    34Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    55Item 8.
    
    Financial Statements and Supplementary Data
    
    
    59Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    97Item 9A.
    
    Controls and Procedures
    
    
    97Item 9B.
    
    Other Information
    
    
    98Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    98Item 11.
    
    Executive Compensation
    
    
    98Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    98Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    99Item 14.
    
    Principal Accountant Fees and Services
    
    
    99Part IVItem 15
    
    Exhibits and Financial Statement Schedules
    
    
    100Signatures
    
    
    101Certifications of Chief Executive Officer and Chief Financial OfficerEX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
    2




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 GENERAL
 www.cfsbank.com
   GENERAL DEVELOPMENTS DURING MOST RECENT FISCAL YEAR
   3




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Recognition and Presentation of
Other-Than-Temporary Impairments
   MARKET AREA AND COMPETITION
   4




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##### Table of Contents



st rd th rd
   
    
    Improve and maintain a high level of asset quality
    
    Aggressively manage our collection efforts, our nonperforming and other real estate
properties and align our already conservative lending policies to current and future
economic conditions
    
    Diversify our balance sheet through the presentation of new retail products along with
opportunities for expansion of wholesale loan and deposit products that are favorable to the
Bank
    
    Focus on the deployment of human capital
    
    Be aware of and review opportunities for expansion of our current branch network
    
    Strive for continuous improvement of service and operational efficiencies while
eliminating excess operational costs while focusing on optimal customer service, and
    
    Rapidly expand our products and service offering to all segments of our customer base.
 LENDING ACTIVITIES
 General.
 One- to Four-Family Residential Mortgage Loans
  5




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Commercial and Multi-Family Real Estate Loans
    Residential Construction Loans.
 6




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Home Equity and Lines of Credit
   Commercial Loans
   7




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Consumer Loans
      Loan Originations, Purchases and Sales
   8




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Loan Commitments.
 Loan Fees.
  Real Estate Owned. Accounting for Sales of Real Estate
 Loan Portfolio Analysis.
 9




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At December 31,2008
    
    
    2007
    
    
    2006Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of TotalReal estate loans:Construction (1)
    
    $
    138,389
    
    
    
    9.68
    %
    
    $
    165,330
    
    
    
    10.74
    %
    
    $
    196,711
    
    
    
    12.32
    %One-to four-family
    
    
    509,341
    
    
    
    35.62
    %
    
    
    553,615
    
    
    
    35.96
    %
    
    
    535,118
    
    
    
    33.53
    %Commercial
    
    
    412,077
    
    
    
    28.82
    %
    
    
    420,079
    
    
    
    27.29
    %
    
    
    249,015
    
    
    
    15.60
    %Home equity lines of credit
    
    
    67,778
    
    
    
    4.74
    %
    
    
    66,630
    
    
    
    4.33
    %
    
    
    74,665
    
    
    
    4.68
    %Total real estate loans
    
    
    1,127,585
    
    
    
    78.87
    %
    
    
    1,205,654
    
    
    
    78.31
    %
    
    
    1,055,509
    
    
    
    66.13
    %Commercial loans
    
    
    221,911
    
    
    
    15.52
    %
    
    
    238,918
    
    
    
    15.52
    %
    
    
    426,206
    
    
    
    26.70
    %Consumer loans
    
    
    80,248
    
    
    
    5.61
    %
    
    
    94,983
    
    
    
    6.17
    %
    
    
    114,419
    
    
    
    7.17
    %Total loans
    
    
    1,429,744
    
    
    
    100.00
    %
    
    
    1,539,555
    
    
    
    100.00
    %
    
    
    1,596,134
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    26,473
    
    
    
    
    
    
    
    21,464
    
    
    
    
    
    
    
    14,304Net deferred loan fees
    
    
    (49
    )
    
    
    
    
    
    
    (75
    )
    
    
    
    
    
    
    (582
    )Net loans
    
    $
    1,403,320
    
    
    
    
    
    
    $
    1,518,166
    
    
    
    
    
    
    $
    1,582,412
 [Continued from above table, first column(s) repeated]
 At December 31,2005
    
    
    2004Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of TotalReal estate loans:Construction (1)
    
    $
    137,173
    
    
    
    9.54
    %
    
    $
    61,748
    
    
    
    5.14
    %One-to four-family
    
    
    465,739
    
    
    
    32.40
    %
    
    
    451,110
    
    
    
    37.59
    %Commercial
    
    
    271,255
    
    
    
    18.87
    %
    
    
    293,733
    
    
    
    24.47
    %Home equity lines of credit
    
    
    80,038
    
    
    
    5.57
    %
    
    
    82,530
    
    
    
    6.88
    %Total real estate loans
    
    
    954,205
    
    
    
    66.39
    %
    
    
    889,121
    
    
    
    74.08
    %Commercial loans
    
    
    367,641
    
    
    
    25.58
    %
    
    
    216,676
    
    
    
    18.05
    %Consumer loans
    
    
    115,528
    
    
    
    8.04
    %
    
    
    94,382
    
    
    
    7.86
    %Total loans
    
    
    1,437,374
    
    
    
    100.00
    %
    
    
    1,200,179
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    13,546
    
    
    
    
    
    
    
    13,472Net deferred loan fees
    
    
    (1,198
    )
    
    
    
    
    
    
    (2,231
    )Net loans
    
    $
    1,425,026
    
    
    
    
    
    
    $
    1,188,938
 
 (1)
    
    Includes commercial construction loans which at December 31, 2008, 2007, 2006, 2005, and 2004
totaled $55.7, $48.1 million, $56.6 million, $57.2 million, and $33.1 million, respectively. INVESTMENT SECURITIES ACTIVITIES
  10




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11




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At December 31,2008
    
    
    2007
    
    
    2006Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueAvailable for sale:U.S. Treasury securities
    
    $
    508
    
    
    $
    560
    
    
    $
    510
    
    
    $
    525
    
    
    $
    512
    
    
    $
    509U.S. government agency obligations
    
    
    513
    
    
    
    529
    
    
    
    10,268
    
    
    
    10,272
    
    
    
    18,210
    
    
    
    18,025Obligations of state and political subdivisions
    
    
    8,982
    
    
    
    8,753
    
    
    
    29,709
    
    
    
    29,766
    
    
    
    32,158
    
    
    
    32,026Mortgage-backed securities:Issued or guaranteed by U.S. government
agencies
    
    
    17,957
    
    
    
    18,282
    
    
    
    7,520
    
    
    
    7,499
    
    
    
    2,907
    
    
    
    2,855Other mortgage-backed securities
    
    
    51,991
    
    
    
    46,207
    
    
    
    78,110
    
    
    
    79,202
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    1
    
    
    
    1
    
    
    
    7
    
    
    
    7
    
    
    
    12
    
    
    
    11Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,001
    
    
    
    3,948Total
    
    
    79,952
    
    
    
    74,332
    
    
    
    126,124
    
    
    
    127,271
    
    
    
    57,800
    
    
    
    57,374Equity securities
    
    
    
    
    
    
    
    
    
    
    5,002
    
    
    
    3,250
    
    
    
    5,000
    
    
    
    4,775Total securities available for sale
    
    $
    79,952
    
    
    $
    74,332
    
    
    $
    131,126
    
    
    $
    130,521
    
    
    $
    62,800
    
    
    $
    62,149Held to Maturity:Other mortgage-backed securities
    
    $
    233,735
    
    
    $
    179,160
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Asset-backed securities
    
    
    16,273
    
    
    
    13,482
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities held to maturity
    
    $
    250,008
    
    
    $
    192,642
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 DEPOSIT AND OTHER ACTIVITIES
 Deposit accounts
  12




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At December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateNoninterest bearing demand deposits
    
    $
    96,726
    
    
    
    0.00
    %
    
    $
    95,364
    
    
    
    0.00
    %
    
    $
    95,121
    
    
    
    0.00
    %Savings deposits
    
    
    119,316
    
    
    
    1.32
    
    
    
    114,046
    
    
    
    2.11
    
    
    
    111,027
    
    
    
    1.54Interest bearing demand deposits
    
    
    306,786
    
    
    
    1.70
    
    
    
    356,441
    
    
    
    3.15
    
    
    
    364,637
    
    
    
    3.01Time deposits under $100,000
    
    
    573,238
    
    
    
    4.42
    
    
    
    283,256
    
    
    
    4.64
    
    
    
    277,042
    
    
    
    4.28Time deposits $100,000 and over
    
    
    202,346
    
    
    
    3.64
    
    
    
    330,251
    
    
    
    5.03
    
    
    
    292,970
    
    
    
    4.67Total
    
    $
    1,298,412
    
    
    
    3.28
    %
    
    $
    1,179,358
    
    
    
    4.00
    %
    
    $
    1,140,797
    
    
    
    3.66
    %
 TRUST SERVICES
  PERSONNEL
  SUBSIDIARIES
  13




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REGULATION AND SUPERVISION
 General
  USA Patriot and Bank Secrecy Acts
  Michigan Bank Regulation
   Business Activities.
 Loans to One Borrower.
  14




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Terms of Loan Products That May Give Rise to a
Concentration of Credit Risk
 Dividends.
 Branching Activities.
 Commissioner Assessments.
 Enforcement.
 Federal Regulation
 Capital Requirements.
    15




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Prompt Corrective Regulatory Action.
  
    
    must cease paying dividends;
    
    is generally prohibited from paying management fees to a controlling person;
    
    must file and implement a capital restoration plan; and
    
    cannot accept, renew or roll over any brokered deposit. Effective yield on deposits
solicited by the Bank cannot be more than 75 basis points over local market yields for
comparable size and maturity deposits.
  
    
    cannot normally pay dividends or make capital contributions that would leave it
undercapitalized;
    
    cannot pay management fees to a controlling person if, after paying the fee, it would
be undercapitalized; and
    
    cannot accept, renew or roll over any brokered deposit unless the bank has applied for
and been granted a waiver by the FDIC. Waived banks are limited on rates they can pay.
   Insurance of Deposit Accounts
  16




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Transactions with Related Parties.
  Standards for Safety and Soundness.
 Investment Activities.
 Mergers .
 Federal Statutory and Regulatory Provisions.
 Interstate Branching.
 17




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Federal Enforcement.
 Temporary Liquidity Guarantee Program
 Federal Home Loan Bank System
  Federal Reserve System
  Holding Company Regulation
  18




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(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.
  Qualified Thrift Lender Test.
 Change in Bank Control Act.
  Federal Securities Laws
  FEDERAL AND STATE TAXATION
 General.
 19




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Bad Debt Reserves.
  Distributions.
  State Taxation
 Michigan State Taxation.
 
    
    An MBT Surcharge was added at the rate of 27.7% for tax years ending in 2008, and
23.4% for tax years ending 2009 and later, there is no limit or cap on the surcharge
for financial institutions; financial institutions authorized to exercise only trust
powers are not subject to the surcharge.
    
    All goodwill may be subtracted from the MBT base of a financial institution;
previously, only goodwill incurred due to transactions after July 1, 2007 was eligible
for deduction from the base.
    
    The deduction from the MBT base for U.S. and Michigan obligations was changed to one
based on an average daily balance of the asset instead of book value at year end.
    
    Financial institutions are now eligible to take the MBT compensation credit; for 2008,
this credit is computed as .296% of the taxpayers compensation in Michigan, subject to
limitation; for later years, the rate goes to .30%.
    
    On December 27, 2007, HB5125 was signed into law by Gov. Granholm. Under this act,
financial institutions now qualify for the MBT renaissance zone credit.
 Delaware State Taxation.
 20




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FINANCIAL STATEMENTS
  ADDITIONAL INFORMATION
  
 ITEM 1A. RISK FACTORS
  General Credit Risk and Nonperforming Loans
   
    
    the duration of the loan;
    
    credit risks of a particular borrower;
    
    changes in unemployment, economic and industry conditions; and
    
    in the case of a collateralized loan, the potential inadequacy of the value of the
collateral in the event of default, such as has resulted from the deterioration in
commercial and residential real estate values.
  21




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Interest Rate Risk
     Economic Conditions
   22




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
    
    Inability of our borrowers to make timely repayments of their loans, or decreases in
value of real estate collateral securing the payment of such loans resulting in
significant credit losses.
    
    Increased regulation of our industry, including heightened legal standards, and
regulatory requirements or expectations in connection with the Emergency Economic
Stabilization Act of 2008 (EESA) and the American Recovery and Reinvestment Act of 2009
(ARRA) or future legislation. Compliance with such regulation will likely increase our
costs
and may limit our ability to pursue business opportunities. In addition, compensation
restrictions associated with EESA, ARRA, or similar future legislation may affect our
ability to attract and retain key management personnel.
    
    Possible changes to bankruptcy laws could result in the loss of all or part of our
security interest in mortgage loans (so-called cramdown provisions) or other
foreclosure moratorium laws.
    
    Further disruptions in the capital markets or other events including actions by rating
agencies and deteriorating investor expectations may result in an inability to borrow at
favorable terms or at all from other financial institutions.
 If Investment Securities we Own Suffer a Decline in Value Considered to be Other Than Temporary, we
May be Required to Record a Significant Charge to Earnings.
  Failure to Maintain Compliance with Regulatory Standards and Mandates Could Result in Adverse
Regulatory Action Against Us and Restrict Certain Activities.
  23




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We will Likely Need to Raise Additional Capital in the Near Future
  There Can be no Assurance That Recently Enacted Legislation Will Stabilize the U.S. Financial System.
  The Impact of Recently Enacted Legislation, in Particular the Emergency Economic Stabilization Act
Of 2008 and its Implementing Regulations, and Actions by the FDIC, Cannot be Predicted at This
Time.
  FDIC Deposit Insurance Assessments Will Increase, Possibly Materially, in the Future
  Our Ability to Attract and Retain Deposits and Other Funding Sources
   Increased Competition
  24




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External Events Affect on Goodwill and Intangible Assets
   The Company May Not Realize Its Deferred Income Tax Assets.
  The Companys Stock Price Can Be Volatile.
  25




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
    
    Actual or anticipated negative variations in quarterly results of operations;
    
    Negative recommendations by securities analysts;
    
    Poor operating and stock price performance of other companies that investors deem
comparable to us;
    
    News reports relating to negative trends, concerns and other issues in the financial
services industry;
    
    Negative perceptions in the marketplace regarding us and/or our competitors;
    
    New technology used, or services offered, by competitors;
    
    Significant acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments by or involving us or our competitors;
    
    Our failure to integrate acquisitions or realize anticipated benefits from
acquisitions;
    
    Adverse changes in government regulations; and
    
    Geopolitical conditions such as acts or threats of terrorism or military conflicts.
  Trading Volume Risks
  Our Common Stock May Not Continue To Be Listed On An Exchange.
   Our Common Stock Is Not An Insured Deposit.
  We May Be Adversely Affected By The Soundness Of Other Financial Institutions.
  26




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Environmental Risks
   Legal Risks
  Technological Advances
  Changes in Regulation
   27




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Changing Products and Services
   Dividend Payout Restrictions
    28




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Critical Tax and Accounting Policies
    Information Systems
  Internal Controls
   Attraction and Retention of Key Personnel
  Operational Risks
  Anti-Takeover Provisions
  29




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Severe Weather, Natural Disasters, Acts of War or Terrorism and Other External Events
    
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
  
    
    The Companys use of the word Citizens in its Oakland County operations would become
restricted on July 22, 2008 and entirely prohibited in Oakland County on and after
October 14, 2008.
    
    All claims for trademark infringement which CBC asserted, or which CBC could have
asserted, against Company in this case with respect to its use of the name Citizens in
the Michigan counties of Macomb, Lapeer, St. Clair, Sanilac and Huron would be dismissed
with prejudice.
    
    CBC was not awarded damages, attorney fees, or costs.
 30




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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
  Year Ended December 31, 20084th Quarter
    
    3rd Quarter
    
    2nd Quarter
    
    1st QuarterHigh
    
    $
    5.83
    
    
    $
    7.66
    
    
    $
    11.29
    
    
    $
    14.40Low
    
    $
    1.11
    
    
    $
    3.64
    
    
    $
    6.00
    
    
    $
    8.89Dividends Paid
    
    $
    
    
    
    $
    
    
    
    $
    0.09
    
    
    $
    0.09
 Year Ended December 31, 20074th Quarter
    
    3rd Quarter
    
    2nd Quarter
    
    1st QuarterHigh
    
    $
    20.13
    
    
    $
    22.38
    
    
    $
    24.07
    
    
    $
    31.14Low
    
    $
    12.00
    
    
    $
    16.01
    
    
    $
    20.30
    
    
    $
    22.00Dividends Paid
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
   31




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Total Number of Shares
    
    
    Maximum Number ofPurchased as Part of
    
    
    Shares that May Yet BeTotal Number of
    
    
    Average Price Paid per
    
    
    Publicly Announced
    
    
    Purchased Under thePeriod
    
    
    Shares Purchased
    
    
    Share
    
    
    Programs
    
    
    Program10/1/2008 to 10/31/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,09811/1/2008 to 11/30/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,09812/1/2008 to 12/31/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,098Totals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,098
 PERFORMANCE GRAPH
 
  32




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ITEM 6. SELECTED FINANCIAL DATA
 DECEMBER 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(Dollars in thousands)SELECTED CONSOLIDATED FINANCIAL DATA:Total assets
    
    $
    1,960,528
    
    
    $
    1,804,404
    
    
    $
    1,775,142
    
    
    $
    1,654,223
    
    
    $
    1,393,364Cash and cash equivalents
    
    
    63,464
    
    
    
    20,464
    
    
    
    24,823
    
    
    
    47,591
    
    
    
    27,937Securities available for sale
    
    
    74,332
    
    
    
    130,521
    
    
    
    62,149
    
    
    
    87,510
    
    
    
    93,839Securities held to maturity
    
    
    250,008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loans, net
    
    
    1,403,320
    
    
    
    1,518,091
    
    
    
    1,582,411
    
    
    
    1,425,036
    
    
    
    1,192,057Deposits
    
    
    1,294,503
    
    
    
    1,198,066
    
    
    
    1,186,658
    
    
    
    1,072,195
    
    
    
    933,104FHLB advances
    
    
    497,186
    
    
    
    384,541
    
    
    
    348,914
    
    
    
    346,500
    
    
    
    232,209Stockholders equity
    
    
    107,708
    
    
    
    170,203
    
    
    
    177,314
    
    
    
    168,570
    
    
    
    162,894Real estate and other assets owned
    
    
    21,857
    
    
    
    11,190
    
    
    
    3,253
    
    
    
    1,471
    
    
    
    1,032Total nonperforming assets
    
    
    112,578
    
    
    
    72,208
    
    
    
    30,368
    
    
    
    23,944
    
    
    
    12,676YEAR ENDEDDECEMBER 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Total interest income
    
    $
    118,055
    
    
    $
    117,112
    
    
    $
    113,271
    
    
    $
    89,089
    
    
    $
    69,443Total interest expense
    
    
    63,950
    
    
    
    64,570
    
    
    
    58,440
    
    
    
    38,092
    
    
    
    25,627Net interest income
    
    
    54,105
    
    
    
    52,542
    
    
    
    54,831
    
    
    
    50,997
    
    
    
    43,816Provision for loan losses
    
    
    36,201
    
    
    
    12,342
    
    
    
    2,805
    
    
    
    2,390
    
    
    
    1,555Net interest income after provision for loan losses
    
    
    17,904
    
    
    
    40,200
    
    
    
    52,026
    
    
    
    48,607
    
    
    
    42,261Noninterest income (loss) (1)
    
    
    (35,485
    )
    
    
    8,054
    
    
    
    5,879
    
    
    
    6,378
    
    
    
    5,425Noninterest expense (2)
    
    
    59,400
    
    
    
    46,136
    
    
    
    44,299
    
    
    
    41,673
    
    
    
    35,257Income (loss) before federal income tax expense (benefit)
    
    
    (76,981
    )
    
    
    2,118
    
    
    
    13,606
    
    
    
    13,312
    
    
    
    12,429Federal income tax expense (benefit)
    
    
    (18,553
    )
    
    
    248
    
    
    
    4,504
    
    
    
    4,278
    
    
    
    4,200Net income (loss)
    
    $
    (58,428
    )
    
    $
    1,870
    
    
    $
    9,102
    
    
    $
    9,034
    
    
    $
    8,229Earnings (loss) per share, basic
    
    
    (7.29
    )
    
    
    0.24
    
    
    
    1.14
    
    
    
    1.14
    
    
    
    1.04Dividends per share
    
    
    0.18
    
    
    
    0.36
    
    
    
    0.36
    
    
    
    0.36
    
    
    
    0.36YEARENDEDDECEMBER 31,2008
    
    2007
    
    2006
    
    2005
    
    2004PERFORMANCE RATIOS:Average yield on interest-earning assets
    
    
    6.22
    %
    
    
    6.92
    %
    
    
    6.89
    %
    
    
    6.15
    %
    
    
    5.64
    %Average rate paid on interest-bearing liabilities
    
    
    3.65
    
    
    
    4.28
    
    
    
    4.03
    
    
    
    3.09
    
    
    
    2.46Average interest rate spread
    
    
    2.57
    
    
    
    2.64
    
    
    
    2.86
    
    
    
    3.06
    
    
    
    3.18Net interest margin
    
    
    2.85
    
    
    
    3.10
    
    
    
    3.34
    
    
    
    3.52
    
    
    
    3.56Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    108.28
    
    
    
    112.25
    
    
    
    113.42
    
    
    
    117.45
    
    
    
    118.31Net interest income after provision
for loan losses to noninterest expense
    
    
    30.14
    
    
    
    87.13
    
    
    
    117.44
    
    
    
    116.64
    
    
    
    119.87Noninterest expense as a percent of average assets
    
    
    2.94
    
    
    
    2.57
    
    
    
    2.56
    
    
    
    2.73
    
    
    
    2.67Return (loss) on average assets
    
    
    (2.90
    )
    
    
    0.10
    
    
    
    0.53
    
    
    
    0.59
    
    
    
    0.62Return (loss) on average equity
    
    
    (36.22
    )
    
    
    1.05
    
    
    
    5.30
    
    
    
    5.44
    
    
    
    5.13Ratio of average equity to average assets
    
    
    8.00
    
    
    
    9.90
    
    
    
    9.93
    
    
    
    10.87
    
    
    
    12.15Dividend payout ratio
    
    
    
    
    
    
    161.28
    
    
    
    33.32
    
    
    
    33.75
    
    
    
    37.24
 33




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##### Table of Contents



AT OR FOR THE YEAR ENDEDDECEMBER 31,2008
    
    2007
    
    2006
    
    2005
    
    2004Leverage capital ratio
    
    
    5.0
    %
    
    
    8.4
    %
    
    
    8.4
    %
    
    
    8.4
    %
    
    
    9.7
    %Total risk-based capital ratio
    
    
    7.3
    
    
    
    10.6
    
    
    
    10.6
    
    
    
    10.6
    
    
    
    12.8ASSET QUALITY RATIOS:Nonperforming loans as a percent of total loans
    
    
    6.35
    
    
    
    3.96
    
    
    
    1.67
    
    
    
    1.34
    
    
    
    0.88Nonperforming assets as a percent of total assets
    
    
    5.74
    
    
    
    4.00
    
    
    
    1.63
    
    
    
    1.38
    
    
    
    0.84Allowance for loan losses as a percent
of total loans
    
    
    1.84
    
    
    
    1.39
    
    
    
    0.93
    
    
    
    0.85
    
    
    
    1.12Allowance for loan losses as a percent of
nonperforming loans
    
    
    29.2
    
    
    
    35.2
    
    
    
    55.7
    
    
    
    63.4
    
    
    
    126.7Net loans charged-off to average loans
    
    
    2.06
    
    
    
    0.33
    
    
    
    0.13
    
    
    
    0.18
    
    
    
    0.08OTHER:Full service banking centers and loan production offices at end of period
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    20
 
 (1)
    
    See further discussion regarding the 2008 $44.8 million other-than-temporary impairment on securities included in noninterest
income, under the captions Other-Than-Temporary Impairments and Noninterest Income under Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations.(2)
    
    See further discussion regarding the 2008 $9.8 million goodwill impairment charge included in noninterest expense,
 under the caption Noninterest Expense under Item 7, Managements Discussion and Analysis of
 Financial Condition and Results of Operations. 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 GENERAL.
 OVERVIEW
     CRITICAL ACCOUNTING POLICIES
  34




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##### Table of Contents



Potential Significant Impact on Financial Statements and Condition
   35




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##### Table of Contents



Accounting for Income Taxes Accounting for Uncertainty in Income Taxes
  36




---



##### Table of Contents



COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2008 AND 2007
  
    
    a $63.2 million net decrease in securities available for sale and securities held to
maturity, due primarily to maturities and sales from the portfolio as well as a $44.8
million write down in value due to other than temporary impairments in the securities
portfolio, and
    
    a $114.8 million, or 7.6%, decrease in loans as the current economic conditions have
resulted in a smaller pool of qualified borrowers, and the Bank has continued to sell
seasoned mortgages in its portfolio to Fannie Mae and Freddie Mac. As noted in the below
section titled Quality of Assets the Bank charged off loan balances totaling $31.2
million in 2008.
    37




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##### Table of Contents



Freddie Mac Preferred Stock Impairment.
     Non-Agency Collateralized Mortgage Obligations
 38




---



##### Table of Contents



Recognition and Presentation of Other-Than-Temporary Impairments
  
    
    a $43.7 million, or 7.9%, decrease in one-to four-family loans to $510.9 million, and
    
    a $26.9 million, or 16.3%, decrease in residential construction loans to $138.4
million.
    
    
    a $112.6 million, or 29.3%, increase in Federal Home Loan Bank advances to $497.2
million at December 31, 2008,
    
    Federal Reserve borrowings of $50.0 million at December 31, 2008 compared to no
outstanding borrowings at December 31, 2007, and
    
    an increase in deposits of $96.4 million, or 8.0%, to $1.295 billion at December 31,
2008 from $1.198 billion at December 31, 2007.
   39




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##### Table of Contents



At December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Nonperforming loans:Real estate
    
    $
    68,193
    
    
    $
    56,098
    
    
    $
    23,579
    
    
    $
    19,589
    
    
    $
    8,286Commercial
    
    
    22,016
    
    
    
    4,613
    
    
    
    2,781
    
    
    
    2,522
    
    
    
    2,365Consumer
    
    
    512
    
    
    
    307
    
    
    
    755
    
    
    
    362
    
    
    
    993Total
    
    
    90,721
    
    
    
    61,018
    
    
    
    27,115
    
    
    
    22,473
    
    
    
    11,644Real estate and other assets owned
    
    
    21,857
    
    
    
    11,190
    
    
    
    3,253
    
    
    
    1,471
    
    
    
    1,032Total nonperforming assets
    
    
    112,578
    
    
    
    72,208
    
    
    
    30,368
    
    
    
    23,944
    
    
    
    12,676Performing restructured loans
    
    
    5,719
    
    
    
    9,285
    
    
    
    
    
    
    
    
    
    
    
    Total nonperforming assets and
performing restructured loans
    
    $
    118,297
    
    
    $
    81,493
    
    
    $
    30,368
    
    
    $
    23,944
    
    
    $
    12,676Total nonperforming loans as a
percentage of total loans
    
    
    6.35
    %
    
    
    3.96
    %
    
    
    1.67
    %
    
    
    1.56
    %
    
    
    0.97
    %Total nonperforming assets and
performing restructured loans as a
percentage of total assets
    
    
    6.03
    %
    
    
    4.52
    %
    
    
    1.71
    %
    
    
    1.45
    %
    
    
    0.91
    %
 40




---



##### Table of Contents



At December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Real estate loans:One- to four-family
    
    
    
    
    
    $
    142
    
    
    $
    27
    
    
    $
    197
    
    
    $
    658Commercial and multi-family
    
    $
    352
    
    
    
    3,845
    
    
    
    526
    
    
    
    8
    
    
    
    728Residential construction
    
    
    
    
    
    
    1,027
    
    
    
    
    
    
    
    498
    
    
    
    Home equity and line of credit
    
    
    
    
    
    
    370
    
    
    
    
    
    
    
    
    
    
    
    Commercial loans
    
    
    2,744
    
    
    
    1,443
    
    
    
    932
    
    
    
    756
    
    
    
    896Consumer loans
    
    
    
    
    
    
    54
    
    
    
    15
    
    
    
    
    
    
    
    Total
    
    $
    3,096
    
    
    $
    6,881
    
    
    $
    1,500
    
    
    $
    1,459
    
    
    $
    2,282Accruing loans 90 days
past due to total loans
    
    
    0.22
    %
    
    
    0.45
    %
    
    
    0.10
    %
    
    
    0.10
    %
    
    
    0.19
    %
     41




---



##### Table of Contents



Year EndedDecember 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Allowance for loan losses, beginning of period
    
    $
    21,464
    
    
    $
    14,304
    
    
    $
    13,546
    
    
    $
    13,472
    
    
    $
    11,664Acquired in acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,135Charged-off loans:Real estate
    
    
    (23,235
    )
    
    
    (2,508
    )
    
    
    (187
    )
    
    
    (367
    )
    
    
    (132
    )Commercial
    
    
    (7,141
    )
    
    
    (1,638
    )
    
    
    (687
    )
    
    
    (369
    )
    
    
    (270
    )Consumer
    
    
    (1,735
    )
    
    
    (1,740
    )
    
    
    (1,478
    )
    
    
    (1,873
    )
    
    
    (1,057
    )Total charged-off loans
    
    
    (32,111
    )
    
    
    (5,886
    )
    
    
    (2,352
    )
    
    
    (2,609
    )
    
    
    (1,459
    )Recoveries on loans previously charged-off:Real estate
    
    
    501
    
    
    
    65
    
    
    
    32
    
    
    
    20
    
    
    
    138Commercial
    
    
    135
    
    
    
    219
    
    
    
    4
    
    
    
    
    
    
    
    167Consumer
    
    
    283
    
    
    
    420
    
    
    
    269
    
    
    
    273
    
    
    
    272Total recoveries
    
    
    919
    
    
    
    704
    
    
    
    305
    
    
    
    293
    
    
    
    577Net loans charged-off
    
    
    (31,192
    )
    
    
    (5,182
    )
    
    
    (2,047
    )
    
    
    (2,316
    )
    
    
    (882
    )Provision for loan losses
    
    
    36,201
    
    
    
    12,342
    
    
    
    2,805
    
    
    
    2,390
    
    
    
    1,555Allowance for loan losses, end of
period
    
    $
    26,473
    
    
    $
    21,464
    
    
    $
    14,304
    
    
    $
    13,546
    
    
    $
    13,472Net loans charged-off to average
interest-earning loans
    
    
    2.06
    %
    
    
    0.33
    %
    
    
    0.34
    %
    
    
    0.18
    %
    
    
    0.08
    %Allowance for loan losses to total loans
    
    
    1.84
    %
    
    
    1.39
    %
    
    
    0.90
    %
    
    
    0.94
    %
    
    
    1.12
    %Allowance for loan losses to nonperforming loans
    
    
    29.18
    %
    
    
    35.18
    %
    
    
    52.75
    %
    
    
    60.28
    %
    
    
    115.70
    %Net loans charged-off to allowance for loan losses
    
    
    117.83
    %
    
    
    24.14
    %
    
    
    14.31
    %
    
    
    17.10
    %
    
    
    6.55
    %Recoveries to charged-off loans
    
    
    2.86
    %
    
    
    11.96
    %
    
    
    12.97
    %
    
    
    11.23
    %
    
    
    39.55
    %
  At December 31,2008
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % ofAllowance
    
    
    
    
    
    
    
    
    
    
    Allowance
    
    
    
    
    
    
    
    
    
    
    Allowancein each
    
    
    
    
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    
    
    
    
    in eachCategory
    
    
    %
    
    
    
    
    
    
    Category
    
    
    %
    
    
    
    
    
    
    Category
    
    
    %to Total
    
    
    of Total
    
    
    
    
    
    
    to Total
    
    
    of Total
    
    
    
    
    
    
    to Total
    
    
    of TotalAmount
    
    
    Loans
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    LoansReal estate
    
    $
    11,873
    
    
    
    0.83
    %
    
    
    78.97
    %
    
    $
    13,338
    
    
    
    0.87
    %
    
    
    74.34
    %
    
    $
    6,697
    
    
    
    0.42
    %
    
    
    75.76
    %Commercial
    
    
    11,210
    
    
    
    0.78
    %
    
    
    15.50
    %
    
    
    4,331
    
    
    
    0.28
    %
    
    
    19.99
    %
    
    
    2,955
    
    
    
    0.19
    %
    
    
    17.53
    %Consumer
    
    
    2,765
    
    
    
    0.19
    %
    
    
    5.53
    %
    
    
    3,785
    
    
    
    0.25
    %
    
    
    5.67
    %
    
    
    4,396
    
    
    
    0.28
    %
    
    
    6.71
    %Unallocated
    
    
    625
    
    
    
    0.04
    %
    
    
    0.00
    %
    
    
    10
    
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    256
    
    
    
    0.02
    %
    
    
    0.00
    %Total allowance
for loan losses
    
    $
    26,473
    
    
    
    1.84
    %
    
    
    100.00
    %
    
    $
    21,464
    
    
    
    1.39
    %
    
    
    100.00
    %
    
    $
    14,304
    
    
    
    0.90
    %
    
    
    100.00
    %
 42




---



##### Table of Contents



[Continued from above table, first column(s) repeated]
 At December 31,2005
    
    
    2004% of
    
    
    
    
    
    
    
    
    
    
    % ofAllowance
    
    
    
    
    
    
    
    
    
    
    Allowancein each
    
    
    
    
    
    
    
    
    
    
    in eachCategory
    
    
    Percent
    
    
    
    
    
    
    Category
    
    
    Percentto Total
    
    
    of Total
    
    
    
    
    
    
    to Total
    
    
    of TotalAmount
    
    
    Loans
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    LoansReal estate
    
    $
    5,952
    
    
    
    0.41
    %
    
    
    73.60
    %
    
    $
    6,270
    
    
    
    0.52
    %
    
    
    74.08
    %Commercial
    
    
    2,855
    
    
    
    0.20
    %
    
    
    18.85
    %
    
    
    2,983
    
    
    
    0.25
    %
    
    
    18.41
    %Consumer
    
    
    4,536
    
    
    
    0.32
    %
    
    
    7.54
    %
    
    
    3,689
    
    
    
    0.31
    %
    
    
    7.51
    %Unallocated
    
    
    203
    
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    530
    
    
    
    0.04
    %
    
    
    0.00
    %Total allowance
for loan losses
    
    $
    13,546
    
    
    
    0.94
    %
    
    
    100.00
    %
    
    $
    13,472
    
    
    
    1.12
    %
    
    
    100.00
    %
    43




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateINTEREST EARNING ASSETS:Loans (1)
    
    $
    1,512,308
    
    
    $
    92,266
    
    
    
    6.10
    %
    
    $
    1,584,317
    
    
    $
    111,795
    
    
    
    7.06
    %
    
    $
    1,542,079
    
    
    $
    108,833
    
    
    
    7.06
    %Certificates of deposits
    
    
    600
    
    
    
    16
    
    
    
    2.73
    
    
    
    287
    
    
    
    15
    
    
    
    5.23
    
    
    
    20
    
    
    
    2
    
    
    
    5.00Investment securities (2)
    
    
    341,439
    
    
    
    24,177
    
    
    
    7.08
    
    
    
    85,468
    
    
    
    4,256
    
    
    
    4.98
    
    
    
    79,644
    
    
    
    3,420
    
    
    
    4.29FHLB Stock
    
    
    29,757
    
    
    
    1,376
    
    
    
    4.62
    
    
    
    20,521
    
    
    
    920
    
    
    
    4.48
    
    
    
    19,241
    
    
    
    892
    
    
    
    4.64Federal funds sold
    
    
    11,722
    
    
    
    214
    
    
    
    1.83
    
    
    
    2,860
    
    
    
    121
    
    
    
    4.23
    
    
    
    1,952
    
    
    
    91
    
    
    
    4.66Interest earning deposits
    
    
    951
    
    
    
    22
    
    
    
    2.27
    
    
    
    114
    
    
    
    5
    
    
    
    4.39
    
    
    
    1,025
    
    
    
    33
    
    
    
    3.22Total interest earning assets
    
    
    1,896,777
    
    
    
    118,071
    
    
    
    6.22
    
    
    
    1,693,567
    
    
    
    117,112
    
    
    
    6.92
    
    
    
    1,643,961
    
    
    
    113,271
    
    
    
    6.89Noninterest earning assets
    
    
    120,322
    
    
    
    
    
    
    
    
    
    
    
    102,284
    
    
    
    
    
    
    
    
    
    
    
    87,805Total assets
    
    $
    2,017,099
    
    
    
    
    
    
    
    
    
    
    $
    1,795,851
    
    
    
    
    
    
    
    
    
    
    $
    1,731,766INTEREST BEARING LIABILITIES:Deposits:NOW
    
    $
    83,812
    
    
    $
    276
    
    
    
    0.33
    %
    
    $
    83,182
    
    
    $
    665
    
    
    
    0.80
    %
    
    $
    88,101
    
    
    $
    604
    
    
    
    0.69
    %Money market
    
    
    222,974
    
    
    
    4,936
    
    
    
    2.21
    
    
    
    273,259
    
    
    
    10,555
    
    
    
    3.86
    
    
    
    276,536
    
    
    
    10,352
    
    
    
    3.74Savings
    
    
    119,316
    
    
    
    1,569
    
    
    
    1.32
    
    
    
    114,046
    
    
    
    2,405
    
    
    
    2.11
    
    
    
    111,027
    
    
    
    1,708
    
    
    
    1.54Certificates of deposit
    
    
    775,584
    
    
    
    32,675
    
    
    
    4.21
    
    
    
    613,507
    
    
    
    29,767
    
    
    
    4.85
    
    
    
    570,012
    
    
    
    25,900
    
    
    
    4.54Total interest bearing deposits
    
    
    1,201,686
    
    
    
    39,456
    
    
    
    3.28
    
    
    
    1,083,994
    
    
    
    43,392
    
    
    
    4.00
    
    
    
    1,045,676
    
    
    
    38,564
    
    
    
    3.69Federal funds purchased
    
    
    1,549
    
    
    
    62
    
    
    
    3.99
    
    
    
    33,772
    
    
    
    1,901
    
    
    
    5.63
    
    
    
    64,404
    
    
    
    3,447
    
    
    
    5.35FHLB advances
    
    
    539,455
    
    
    
    24,416
    
    
    
    4.53
    
    
    
    390,926
    
    
    
    19,277
    
    
    
    4.93
    
    
    
    339,320
    
    
    
    16,429
    
    
    
    4.84Federal reserve borrowings
    
    
    9,030
    
    
    
    16
    
    
    
    0.18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest bearing liabilities
    
    
    1,751,720
    
    
    
    63,950
    
    
    
    3.65
    
    
    
    1,508,692
    
    
    
    64,570
    
    
    
    4.28
    
    
    
    1,449,400
    
    
    
    58,440
    
    
    
    4.03Noninterest bearing deposits
    
    
    96,726
    
    
    
    
    
    
    
    
    
    
    
    95,364
    
    
    
    
    
    
    
    
    
    
    
    95,121Other noninterest bearing
liabilities
    
    
    7,361
    
    
    
    
    
    
    
    
    
    
    
    13,949
    
    
    
    
    
    
    
    
    
    
    
    15,353Total liabilities
    
    
    1,855,807
    
    
    
    
    
    
    
    
    
    
    
    1,618,005
    
    
    
    
    
    
    
    
    
    
    
    1,559,874Equity
    
    
    161,292
    
    
    
    
    
    
    
    
    
    
    
    177,846
    
    
    
    
    
    
    
    
    
    
    
    171,892Total liabilities and equity
    
    $
    2,017,099
    
    
    
    
    
    
    
    
    
    
    $
    1,795,851
    
    
    
    
    
    
    
    
    
    
    $
    1,731,766Net interest-earning assets
    
    $
    145,057
    
    
    
    
    
    
    
    
    
    
    $
    184,875
    
    
    
    
    
    
    
    
    
    
    $
    194,581Net interest income
    
    
    
    
    
    $
    54,121
    
    
    
    
    
    
    
    
    
    
    $
    52,542
    
    
    
    
    
    
    
    
    
    
    $
    54,831Interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.57
    %
    
    
    
    
    
    
    
    
    
    
    2.64
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %Net interest margin as a
percentage
of interest-earning assets (4)
    
    
    
    
    
    
    
    
    
    
    2.85
    %
    
    
    
    
    
    
    
    
    
    
    3.10
    %
    
    
    
    
    
    
    
    
    
    
    3.34
    %Ratio of interest-earning assets
to interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    108.28
    %
    
    
    
    
    
    
    
    
    
    
    112.25
    %
    
    
    
    
    
    
    
    
    
    
    113.42
    %
 
 (1)
    
    Balances are net of deferred loan origination fees, undisbursed proceeds of
construction loans in process, and include nonperforming loans.(2)
    
    Securities 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. 44




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##### Table of Contents



Year Ended December 31, 2008
    
    
    Year Ended December 31, 2007Compared to
    
    
    Compared toYear Ended December 31, 2007
    
    
    Year Ended December 31, 2006Increase (Decrease) Due to
    
    
    Increase (Decrease) Due toVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetINTEREST EARNING ASSETS:Loans
    
    $
    (5,084
    )
    
    $
    (14,445
    )
    
    $
    (19,529
    )
    
    $
    2,982
    
    
    $
    (20
    )
    
    $
    2,962Certificates of deposits
    
    
    16
    
    
    
    (15
    )
    
    
    1
    
    
    
    13
    
    
    
    
    
    
    
    13Investment securities
    
    
    12,746
    
    
    
    7,175
    
    
    
    19,921
    
    
    
    250
    
    
    
    586
    
    
    
    836FHLB stock
    
    
    414
    
    
    
    42
    
    
    
    456
    
    
    
    59
    
    
    
    (31
    )
    
    
    28Federal funds sold
    
    
    375
    
    
    
    (282
    )
    
    
    93
    
    
    
    42
    
    
    
    (12
    )
    
    
    30Interest earning deposits
    
    
    37
    
    
    
    (20
    )
    
    
    17
    
    
    
    (29
    )
    
    
    1
    
    
    
    (28
    )Total interest earning assets
    
    
    8,504
    
    
    
    (7,545
    )
    
    
    959
    
    
    
    3,317
    
    
    
    524
    
    
    
    3,841INTEREST BEARING LIABILITIES:Deposits:NOW
    
    
    5
    
    
    
    (394
    )
    
    
    (389
    )
    
    
    (34
    )
    
    
    95
    
    
    
    61Money market
    
    
    (1,942
    )
    
    
    (3,676
    )
    
    
    (5,619
    )
    
    
    (123
    )
    
    
    326
    
    
    
    203Savings
    
    
    111
    
    
    
    (947
    )
    
    
    (836
    )
    
    
    46
    
    
    
    651
    
    
    
    697Certificates of deposit
    
    
    7,864
    
    
    
    (4,956
    )
    
    
    2,908
    
    
    
    1,976
    
    
    
    1,891
    
    
    
    3,867Total interest bearing deposits
    
    
    6,038
    
    
    
    (9,973
    )
    
    
    (3,936
    )
    
    
    1,865
    
    
    
    2,963
    
    
    
    4,828Federal funds purchased
    
    
    (1,814
    )
    
    
    (25
    )
    
    
    (1,839
    )
    
    
    (1,639
    )
    
    
    93
    
    
    
    (1,546
    )Borrowings
    
    
    7,324
    
    
    
    (2,169
    )
    
    
    5,155
    
    
    
    2,499
    
    
    
    349
    
    
    
    2,848Total interest bearing liabilities
    
    
    11,548
    
    
    
    (12,167
    )
    
    
    (620
    )
    
    
    2,725
    
    
    
    3,405
    
    
    
    6,130Increase (decrease) in net interest income
    
    $
    (3,044
    )
    
    $
    4,622
    
    
    $
    1,579
    
    
    $
    592
    
    
    $
    (2,881
    )
    
    $
    (2,289
    )
 COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED 2008 AND 2007
   45




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46




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##### Table of Contents



DelinquentPortfolio
    
    
    Loans
    
    
    NonaccrualBalance
    
    
    over 30 days
    
    
    LoansReal estate loans:Construction
    
    $
    138,389
    
    
    $
    6,970
    
    
    $
    30,147One-to four-family
    
    
    509,341
    
    
    
    28,922
    
    
    
    25,199Commercial
    
    
    412,077
    
    
    
    3,076
    
    
    
    8,986Home equity lines of credit
    
    
    67,778
    
    
    
    1,335
    
    
    
    3,509Total real estate loans
    
    
    1,127,585
    
    
    
    40,303
    
    
    
    67,841Commercial loans
    
    
    221,911
    
    
    
    4,399
    
    
    
    19,272Consumer loans
    
    
    80,248
    
    
    
    3,726
    
    
    
    512Total loans
    
    $
    1,429,744
    
    
    $
    48,428
    
    
    $
    87,625
 
 DelinquentPortfolio
    
    
    Loans
    
    
    NonaccrualBalance
    
    
    over 30 days
    
    
    LoansReal estate loans:Construction
    
    $
    165,330
    
    
    $
    8,724
    
    
    $
    30,786One-to four-family
    
    
    553,615
    
    
    
    27,850
    
    
    
    15,725Commercial
    
    
    420,079
    
    
    
    10,154
    
    
    
    3,276Home equity lines of credit
    
    
    66,630
    
    
    
    3,869
    
    
    
    926Total real estate loans
    
    
    1,205,654
    
    
    
    50,597
    
    
    
    50,713Commercial loans
    
    
    238,918
    
    
    
    7,047
    
    
    
    3,169Consumer loans
    
    
    94,983
    
    
    
    3,682
    
    
    
    254Total loans
    
    $
    1,539,555
    
    
    $
    61,326
    
    
    $
    54,136
   47




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##### Table of Contents



COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED 2007 AND 2006
      48




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##### 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 our
information technology systems;
    
    To fund any acquisitions if the opportunity arises;
    
    To pay dividends to its shareholders and
 49




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##### Table of Contents




    
    To fund repurchases of the Companys stock pursuant to common stock repurchase plans
approved by the Companys Board of Directors.
  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)
    
    $
    479,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    479,577Time deposits (2)
    
    
    359,124
    
    
    $
    160,043
    
    
    $
    113,045
    
    
    $
    182,714
    
    
    
    814,926FHLB advances (3)
    
    
    155,827
    
    
    
    142,074
    
    
    
    107,588
    
    
    
    91,697
    
    
    
    497,186Federal Reserve borrowings
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000ESOP loan
    
    
    648
    
    
    
    1,466
    
    
    
    1,726
    
    
    
    3,174
    
    
    
    7,014Purchase obligations (4)
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185Noncancelable leases
    
    
    1,053
    
    
    
    1,552
    
    
    
    1,285
    
    
    
    1,002
    
    
    
    4,892Total
    
    $
    1,046,414
    
    
    $
    305,135
    
    
    $
    223,644
    
    
    $
    278,587
    
    
    $
    1,853,780
 Expiration by PeriodLess than
    
    
    1 to 3
    
    
    4 to 5
    
    
    After 5Other Commitments
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    19,304
    
    
    $
    609
    
    
    
    
    
    
    
    
    
    
    $
    19,913Commitments to extend credit
    
    
    146,795
    
    
    
    37,761
    
    
    $
    19,919
    
    
    $
    8,534
    
    
    
    213,009Total
    
    $
    166,099
    
    
    $
    38,370
    
    
    $
    19,919
    
    
    $
    8,534
    
    
    $
    232,922
 
 (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, 2008. 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, 2008. 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 as we continue to enhance our network
to accommodate expansion and growth.  50




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##### Table of Contents



Loan and Investment Maturities.
 At December 31, 2008CommercialOne- to
    
    
    and
    
    
    
    
    
    
    Home EquityFour-Family
    
    
    Multi-Family
    
    
    Residential
    
    
    and Lines
    
    
    
    
    
    
    
    
    
    
    TotalReal estate
    
    
    Real estate
    
    
    Construction
    
    
    of Credit
    
    
    Commercial
    
    
    Consumer
    
    
    LoansAmounts due in:One year or less
    
    $
    6,441
    
    
    $
    122,136
    
    
    $
    52,070
    
    
    $
    12,738
    
    
    $
    123,056
    
    
    $
    7,049
    
    
    $
    323,490One year to five years
    
    
    32,913
    
    
    
    222,951
    
    
    
    24,316
    
    
    
    54,087
    
    
    
    83,370
    
    
    
    15,516
    
    
    
    433,153More than five years
    
    
    469,987
    
    
    
    66,990
    
    
    
    62,003
    
    
    
    953
    
    
    
    15,485
    
    
    
    57,683
    
    
    
    673,101Total amount due
    
    $
    509,341
    
    
    $
    412,077
    
    
    $
    138,389
    
    
    $
    67,778
    
    
    $
    221,911
    
    
    $
    80,248
    
    
    $
    1,429,744
   51




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##### Table of Contents



Due After December 31, 2008Fixed
    
    
    Adjustable
    
    
    TotalReal estate loans:One- to four-family
    
    $
    3,626
    
    
    $
    2,815
    
    
    $
    6,441Commercial and multi-family
    
    
    64,048
    
    
    
    58,088
    
    
    
    122,136Residential construction
    
    
    22,799
    
    
    
    29,271
    
    
    
    52,070Home equity and lines of credit
    
    
    132
    
    
    
    12,606
    
    
    
    12,738Total real estate loans
    
    
    90,605
    
    
    
    102,780
    
    
    
    193,385Commercial loans
    
    
    52,745
    
    
    
    70,311
    
    
    
    123,056Consumer loans
    
    
    2,058
    
    
    
    4,991
    
    
    
    7,049Total loans
    
    $
    145,408
    
    
    $
    178,082
    
    
    $
    323,490
  At December 31, 2008Due 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
    
    
    YieldAvailable for sale:U.S. Treasury securities
    
    
    
    
    
    
    
    
    
    $
    559
    
    
    
    4.88
    %
    
    
    
    
    
    
    U.S. government agency obligations
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    5.33
    %
    
    $
    433
    
    
    
    4.53
    %Obligations of state and political subdivisions
    
    $
    495
    
    
    
    3.43
    %
    
    
    2,540
    
    
    
    3.89
    %
    
    
    2,883
    
    
    
    4.20
    %Mortgage-backed securities:Issued or guaranteed by U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    1
    
    
    
    8.78
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities available for sale
at fair value
    
    $
    496
    
    
    
    3.44
    %
    
    $
    3,120
    
    
    
    4.08
    %
    
    $
    3,316
    
    
    
    4.24
    %Held to maturity:Other mortgage-backed securities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities held to maturity
at fair value
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
 52




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##### Table of Contents



[Continued from above table, first column(s) repeated]
 At December 31, 2008Due in
    
    
    Mortgage-backedMore than Ten Years
    
    
    and Equity
    
    
    TotalWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedFair
    
    
    Average
    
    
    Fair
    
    
    Fair
    
    
    AverageValue
    
    
    Yield
    
    
    Value
    
    
    Value
    
    
    YieldAvailable for sale:U.S. Treasury securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    559
    
    
    
    4.88
    %U.S. government agency obligations
    
    $
    76
    
    
    
    4.41
    %
    
    
    
    
    
    
    530
    
    
    
    4.54
    %Obligations of state and political subdivisions
    
    
    2,835
    
    
    
    4.86
    %
    
    
    
    
    
    
    8,753
    
    
    
    4.28
    %Mortgage-backed securities:Issued or guaranteed by U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    18,282
    
    
    
    18,282
    
    
    
    4.81
    %Other Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    46,207
    
    
    
    46,207
    
    
    
    5.66
    %Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    8.78
    %Total securities available for sale
at fair value
    
    $
    2,911
    
    
    
    4.85
    %
    
    $
    64,489
    
    
    $
    74,332
    
    
    
    5.27
    %Held to maturity:Other mortgage-backed securities:
    
    
    
    
    
    
    
    
    
    $
    179,160
    
    
    $
    179,160
    
    
    
    5.89
    %Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    13,482
    
    
    
    13,482
    
    
    
    5.42
    %Total securities held to maturity
at fair value
    
    $
    
    
    
    
    
    
    
    $
    192,642
    
    
    $
    192,642
    
    
    
    5.86
    %
  Deposit and Financing Activities
  Three months or less
    
    $
    50,511Over 3 through 6 months
    
    
    46,659Over 6 through 12 months
    
    
    33,733Over 12 months
    
    
    32,800Total
    
    $
    163,703
  53




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##### Table of Contents



Year endedDecember 31,2008
    
    2007
    
    2006FHLB advancesAverage balance outstanding
    
    $
    539,455
    
    
    $
    390,926
    
    
    $
    339,320Maximum amount outstanding at any month-end during the period
    
    
    621,728
    
    
    
    440,277
    
    
    
    358,299Balance outstanding at end of period
    
    
    497,186
    
    
    
    384,541
    
    
    
    348,914Weighted average interest rate during the period
    
    
    4.53
    %
    
    
    4.93
    %
    
    
    4.84
    %Weighted average interest rate at end of period
    
    
    4.23
    %
    
    
    4.84
    %
    
    
    4.82
    %Federal funds purchasedAverage balance outstanding
    
    $
    1,549
    
    
    $
    33,772
    
    
    $
    64,404Maximum amount outstanding at any month-end during the period
    
    
    5,251
    
    
    
    67,224
    
    
    
    107,531Balance outstanding at end of period
    
    
    
    
    
    
    42,564
    
    
    
    51,095Weighted average interest rate during the period
    
    
    3.99
    %
    
    
    5.63
    %
    
    
    5.35
    %Weighted average interest rate at end of period
    
    
    
    
    
    
    4.00
    %
    
    
    5.04
    %Federal Reserve Bank borrowingsAverage balance outstanding
    
    $
    9,030
    
    
    $
    
    
    
    $
    Maximum amount outstanding at any month-end during the period
    
    
    50,000
    
    
    
    
    
    
    
    Balance outstanding at end of period
    
    
    50,000
    
    
    
    
    
    
    
    Weighted average interest rate during the period
    
    
    0.18
    %
    
    
    
    
    
    
    Weighted average interest rate at end of period
    
    
    0.84
    %
    
    
    
    
    
    
    
    54




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      55




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##### Table of Contents




    
    The shape of the yield curve;
    
    The pricing characteristics of and pricing decisions regarding loans based on previous
rates charged by the Company;
    
    Changes in deposits and borrowings based on previous rates charged by the Company and
other competitive conditions;
    
    Reinvestments of cash flows from assets and liabilities based on current market interest
rates;
    
    The lack of any changes in the mix of assets and liabilities on the balance sheet;
    
    The degree to which certain assets and liabilities with similar maturities or periods to
repricing react to changes in market interest rates based on particular characteristics of
those assets and liabilities;
    
    Expected prepayment rates on loans and investments based on industry standards and the
current interest rate environment;
    
    Certificates of deposit and other deposit flows based on expected maturity dates, and
    
    Expected growth based on the Companys projections.
  Estimated Change in Annual Net Interest IncomeIncrease/(Decrease) in Market Interest
    
    At December 31, 2008 (Dollars in thousands)Rates in Basis Points (Rate Shock)
    
    Amount
    
    $ Change
    
    % Change300
    
    $
    54,647
    
    
    $
    4,611
    
    
    
    9.22
    %200
    
    
    53,452
    
    
    
    3,416
    
    
    
    6.83100
    
    
    52,003
    
    
    
    1,967
    
    
    
    3.93Static
    
    
    50,036
    
    
    
    
    
    
    
    -100
    
    
    50,368
    
    
    
    332
    
    
    
    0.66-200
    
    
    50,368
    
    
    
    n/m
    (1)
    
    
    -300
    
    
    50,368
    
    
    
    n/m
    (1)
    
    
    
 
 (1)
    
    Management believes that given the extremely low levels of interest rates at December 31,
2008, which includes a discount rate of 0.25% and short term treasury yields (less than 3 years)
being below 1%, that simulation for a decrease in interest rates of more than 100 basis points is
not practical or meaningful.   
    
    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.
 56




---



##### Table of Contents




    
    Changes in interest rates could also affect the volume and profitability of the
Companys lending operations.
   Fair Value of Financial Instruments
  Fair Value Measurements
      57




---



##### Table of Contents



Recognition and Presentation of
Other-Than-Temporary Impairments
 58




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
    Internal Control  Integrated Framework
 
 
 59




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control over
Financial Reporting
 
 Internal Control-Integrated Framework
        
 
 60




---



##### Table of Contents



December 31,2008
    
    
    2007ASSETSCash and due from depository institutions
    
    $
    20,826
    
    
    $
    20,434Interest-bearing deposits in other depository institutions
    
    
    42,638
    
    
    
    30Total cash and cash equivalents
    
    
    63,464
    
    
    
    20,464Certificates of deposit
    
    
    1,571
    
    
    
    320Securities available for sale, at fair value (Note 3)
    
    
    74,332
    
    
    
    130,521Securities held to maturity, at book value (Note 3)
    
    
    250,008
    
    
    
    Federal Home Loan Bank stock, at cost
    
    
    31,087
    
    
    
    22,014Loans held for sale
    
    
    4,310
    
    
    
    4,139Loans, less allowance for loan losses of $26,473 and $21,464 (Note 4)
    
    
    1,403,320
    
    
    
    1,518,091Premises and equipment, net (Note 5)
    
    
    42,777
    
    
    
    43,879Goodwill (Note 2)
    
    
    
    
    
    
    9,814Other intangible assets, net of amortization of $2,486 and $2,104 (Note 2)
    
    
    1,914
    
    
    
    2,296Accrued interest receivable and other assets (Notes 6 and 9)
    
    
    87,745
    
    
    
    52,866Total assets
    
    $
    1,960,528
    
    
    $
    1,804,404LIABILITIESDeposits:Noninterest-bearing (Note 7)
    
    $
    85,828
    
    
    $
    90,343Interest-bearing (Note 7)
    
    
    1,208,675
    
    
    
    1,107,723Total deposits
    
    
    1,294,503
    
    
    
    1,198,066Federal Home Loan Bank advances (Note 8)
    
    
    497,186
    
    
    
    384,541Federal Reserve borrowings (Note 8)
    
    
    50,000
    
    
    
    Federal funds purchased (Note 8)
    
    
    
    
    
    
    42,564Accrued interest payable and other liabilities (Note 10)
    
    
    11,131
    
    
    
    9,030Total liabilities
    
    
    1,852,820
    
    
    
    1,634,201STOCKHOLDERS 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 shares issued
    
    
    95
    
    
    
    95Additional paid-in capital
    
    
    95,041
    
    
    
    95,195Retained earnings
    
    
    49,235
    
    
    
    109,144Accumulated other comprehensive loss
    
    
    (3,653
    )
    
    
    (394
    )Treasury stock, at cost (1,882,138 and 1,584,820 shares)
    
    
    (31,541
    )
    
    
    (31,438
    )Deferred compensation obligation (Note 10)
    
    
    3,424
    
    
    
    3,192Unearned compensation  ESOP (Note 10)
    
    
    (4,893
    )
    
    
    (5,591
    )Total stockholders equity
    
    
    107,708
    
    
    
    170,203Total liabilities and stockholders equity
    
    $
    1,960,528
    
    
    $
    1,804,404
  61




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##### Table of Contents



Year EndedDecember 31,2008
    
    
    2007
    
    
    2006INTEREST INCOMELoans, including fees
    
    $
    92,266
    
    
    $
    111,795
    
    
    $
    108,833Federal funds sold and interest bearing deposits
    
    
    219
    
    
    
    126
    
    
    
    124Certificates of deposit
    
    
    16
    
    
    
    15
    
    
    
    2Securities:Tax-exempt
    
    
    735
    
    
    
    874
    
    
    
    992Taxable
    
    
    24,819
    
    
    
    4,302
    
    
    
    3,320Total interest income
    
    
    118,055
    
    
    
    117,112
    
    
    
    113,271INTEREST EXPENSEDeposits
    
    
    39,457
    
    
    
    43,392
    
    
    
    38,564Federal reserve and short-term borrowings
    
    
    77
    
    
    
    1,901
    
    
    
    3,447FHLB advances
    
    
    24,416
    
    
    
    19,277
    
    
    
    16,429Total interest expense
    
    
    63,950
    
    
    
    64,570
    
    
    
    58,440NET INTEREST INCOME
    
    
    54,105
    
    
    
    52,542
    
    
    
    54,831PROVISION FOR LOAN LOSSES (Note 4)
    
    
    36,201
    
    
    
    12,342
    
    
    
    2,805NET INTEREST INCOME, after provision for loan losses
    
    
    17,904
    
    
    
    40,200
    
    
    
    52,026NONINTEREST INCOME (LOSS)Service charges and other fees
    
    
    3,161
    
    
    
    3,499
    
    
    
    2,566Mortgage banking activities
    
    
    3,327
    
    
    
    2,387
    
    
    
    2,143Trust fee income
    
    
    1,452
    
    
    
    1,462
    
    
    
    1,312Other than temporary impairments on securities (Note 3)
    
    
    (44,798
    )
    
    
    
    
    
    
    Gain (loss) on sale of securities available for sale
    
    
    (152
    )
    
    
    68
    
    
    
    Gain on sale of securities held to maturity (Note 3)
    
    
    590
    
    
    
    
    
    
    
    Other
    
    
    935
    
    
    
    638
    
    
    
    (142
    )Total noninterest income (loss)
    
    
    (35,485
    )
    
    
    8,054
    
    
    
    5,879NONINTEREST EXPENSECompensation, payroll taxes and employee benefits (Note 10)
    
    
    20,924
    
    
    
    22,723
    
    
    
    23,041Office occupancy and equipment
    
    
    9,148
    
    
    
    9,045
    
    
    
    7,998Advertising and business promotion
    
    
    727
    
    
    
    1,472
    
    
    
    1,402Stationery, printing and supplies
    
    
    1,265
    
    
    
    1,309
    
    
    
    1,968Data processing
    
    
    83
    
    
    
    85
    
    
    
    708Professional fees
    
    
    4,593
    
    
    
    4,419
    
    
    
    3,779Core deposit intangible amortization
    
    
    383
    
    
    
    405
    
    
    
    477Goodwill impairment (Note 2)
    
    
    9,814
    
    
    
    
    
    
    
    Nonperforming asset cost
    
    
    6,503
    
    
    
    1,342
    
    
    
    38Other
    
    
    5,960
    
    
    
    5,336
    
    
    
    4,888Total noninterest expense
    
    
    59,400
    
    
    
    46,136
    
    
    
    44,299INCOME (LOSS), before federal income tax expense (benefit)
    
    
    (76,981
    )
    
    
    2,118
    
    
    
    13,606Federal income tax expense (benefit) (Note 9)
    
    
    (18,553
    )
    
    
    248
    
    
    
    4,504NET INCOME (LOSS)
    
    $
    (58,428
    )
    
    $
    1,870
    
    
    $
    9,102EARNINGS (LOSS) PER SHARE, BASIC
    
    $
    (7.29
    )
    
    $
    0.24
    
    
    $
    1.14EARNINGS (LOSS) PER SHARE, DILUTED
    
    $
    (7.29
    )
    
    $
    0.24
    
    
    $
    1.14
  62




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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, 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
    )
    
    
    177,314Allocation of ESOP shares
    
    
    
    
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    1,057Exercise of stock options
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    118Deferred compensation and stock
awards earned
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    856
    
    
    
    
    
    
    
    
    
    
    
    856Purchase of treasury stock
(392,546 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,634
    )
    
    
    
    
    
    
    
    
    
    
    (7,634
    )Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391
    )
    
    
    
    
    
    
    (391
    )Dividends paid ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    (3,015
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,015
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    1,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,870Change in net unrealized loss
on securities
available for sale, net of tax
effect of $14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,898BALANCE, December 31, 2007
    
    
    95
    
    
    
    95,195
    
    
    
    109,144
    
    
    
    (394
    )
    
    
    (31,438
    )
    
    
    3,192
    
    
    
    (5,591
    )
    
    
    170,203Allocation of ESOP shares
    
    
    
    
    
    
    (184
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    514Stock based compensation
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Deferred compensation and stock
awards earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    

    
    
    
    
    
    
    
    
    (103
    )Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    232Dividends paid ($0.18 per share)
    
    
    
    
    
    
    
    
    
    
    (1,481
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,481
    )Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    (58,428
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,428
    )Change in net unrealized loss
on securities
available for sale, net of tax
effect of ($9,597)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,630
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,630
    )Less reclassification
adjustment for other-
than-temporary impairment
charge and
realized loss on sale of
securities available for
sale included in net loss, net
of tax effect of $7,918
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,371
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,371Total comprehensive (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,058
    )BALANCE, December 31, 2008
    
    $
    95
    
    
    $
    95,041
    
    
    $
    49,235
    
    
    $
    (3,653
    )
    
    $
    (31,541
    )
    
    $
    3,424
    
    
    $
    (4,893
    )
    
    $
    107,708
  63




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##### Table of Contents



Year EndedDecember 31,2008
    
    
    2007
    
    
    2006OPERATING ACTIVITIESNet income (loss)
    
    $
    (58,428
    )
    
    $
    1,870
    
    
    $
    9,102Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Provision (benefit) for deferred income taxes
    
    
    (13,477
    )
    
    
    (509
    )
    
    
    132Provision for loan losses
    
    
    36,201
    
    
    
    12,342
    
    
    
    2,805Deferred compensation and ESOP
    
    
    673
    
    
    
    1,522
    
    
    
    2,028Depreciation
    
    
    3,387
    
    
    
    3,322
    
    
    
    2,859Goodwill impairment
    
    
    9,814
    
    
    
    
    
    
    
    Core deposit intangible amortization
    
    
    383
    
    
    
    405
    
    
    
    477Amortization (accretion) of discounts on securities
    
    
    (2,011
    )
    
    
    377
    
    
    
    452Proceeds from sale of mortgage loans held for sale
    
    
    180,831
    
    
    
    183,082
    
    
    
    115,686Origination of mortgage loans held for sale
    
    
    (180,640
    )
    
    
    (185,279
    )
    
    
    (115,342
    )(Gain) loss on sale of mortgage loans
    
    
    (362
    )
    
    
    155
    
    
    
    (315
    )Loss on impairment of securities available for sale
    
    
    23,137
    
    
    
    
    
    
    
    Loss on sale of securities available for sale
    
    
    152
    
    
    
    68
    
    
    
    Loss on impairment of securities held to maturity
    
    
    21,661
    
    
    
    
    
    
    
    Gain on sale of securities held to maturity
    
    
    (590
    )
    
    
    
    
    
    
    (Gain) loss on sale or disposal of premises and equipment
    
    
    (10
    )
    
    
    (8
    )
    
    
    106Changes in assets and liabilities:Increase in accrued interest receivable and other assets
    
    
    (3,958
    )
    
    
    (26,108
    )
    
    
    (9,885
    )Increase decrease in accrued interest payable and other liabilities
    
    
    2,101
    
    
    
    (2,131
    )
    
    
    166Net cash provided by (used in) operating activities
    
    
    18,864
    
    
    
    (10,892
    )
    
    
    8,271LENDING AND INVESTING ACTIVITIESProceeds from maturities of securities available for sale
    
    
    19,727
    
    
    
    21,056
    
    
    
    28,148Proceeds from sale of securities available for sale
    
    
    22,304
    
    
    
    52,059
    
    
    
    Purchase of securities available for sale
    
    
    (13,588
    )
    
    
    (91,049
    )
    
    
    (2,508
    )Proceeds from maturities of securities held to maturity
    
    
    22,986
    
    
    
    
    
    
    
    Proceeds from sale of securities held to maturity
    
    
    9,331
    
    
    
    
    
    
    
    Purchase of securities held to maturity
    
    
    (301,866
    )
    
    
    
    
    
    
    Purchase of certificates of deposit
    
    
    (1,251
    )
    
    
    
    
    
    
    (319
    )Purchase of Federal Home Loan Bank stock
    
    
    (9,073
    )
    
    
    (2,654
    )
    
    
    (2,354
    )Proceeds from sale of Federal Home Loan Bank stock
    
    
    
    
    
    
    
    
    
    
    694Purchase of Bank Owned Life Insurance
    
    
    
    
    
    
    (15,371
    )
    
    
    Net decrease (increase) in loans
    
    
    58,031
    
    
    
    14,870
    
    
    
    (155,969
    )Proceeds from sale of other real estate owned, held for sale
    
    
    4,773
    
    
    
    3,577
    
    
    
    2,124Proceeds from sale of premises and equipment
    
    
    267
    
    
    
    27
    
    
    
    23Purchases of premises and equipment
    
    
    (2,542
    )
    
    
    (3,955
    )
    
    
    (10,025
    )Net cash used in lending and investing activities
    
    
    (190,901
    )
    
    
    (21,440
    )
    
    
    (140,186
    )
 64




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##### Table of Contents



[Continued from above table]
 Year EndedDecember 31,2008
    
    
    2007
    
    
    2006DEPOSIT AND FINANCING ACTIVITIESNet increase in deposits
    
    
    96,437
    
    
    
    11,408
    
    
    
    114,463Net decrease in short term borrowings
    
    
    (42,564
    )
    
    
    (8,531
    )
    
    
    (918
    )Net increase in FRB borrowings
    
    
    50,000
    
    
    
    
    
    
    
    Proceeds from exercises of stock options
    
    
    
    
    
    
    118
    
    
    
    1,572Repayment of line of credit
    
    
    
    
    
    
    
    
    
    
    (3,950
    )Repayment of FHLB advances
    
    
    (338,597
    )
    
    
    (114,314
    )
    
    
    (698,906
    )Proceeds from FHLB advances
    
    
    451,242
    
    
    
    149,941
    
    
    
    701,320Purchase of treasury stock
    
    
    
    
    
    
    (7,634
    )
    
    
    (1,567
    )Payment of dividends
    
    
    (1,481
    )
    
    
    (3,015
    )
    
    
    (2,867
    )Net cash provided by deposit and financing activities
    
    
    215,037
    
    
    
    27,973
    
    
    
    109,147NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    43,000
    
    
    
    (4,359
    )
    
    
    (22,768
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    20,464
    
    
    
    24,823
    
    
    
    47,591CASH AND CASH EQUIVALENTS, end of period
    
    $
    63,464
    
    
    $
    20,464
    
    
    $
    24,823SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for:Interest
    
    $
    64,984
    
    
    $
    63,451
    
    
    $
    56,984Federal income taxes
    
    
    
    
    
    
    2,950
    
    
    
    3,960Supplemental noncash disclosure:Transfers of loans to other real estate owned
    
    
    20,539
    
    
    
    13,732
    
    
    
    4,211Loan securitization
    
    
    
    
    
    
    50,840
    
    
    
    
  
     65




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66




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67




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68




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##### Table of Contents



Share Based Payment
 
 Accounting for Sales of Real Estate
 69




---



##### Table of Contents



Year EndedDecember 31,2008
    
    2007 (1)
    
    2006 (1)Dividend yield
    
    
    2.41
    %
    
    
    
    
    
    
    Expected life
    

    8.01 years
    
    
    
    
    
    
    Expected volatility
    
    
    40.89
    %
    
    
    
    
    
    
    Risk-free interest rate
    
    
    3.54
    %
    
    
    
    
    
    
    
 
 (1)
    
    No stock options were granted during 2007 or 2006.    Year EndedDecember 31,2008
    
    
    2007
    
    
    2006Net income (loss) (000s)
    
    $
    (58,428
    )
    
    $
    1,870
    
    
    $
    9,102Average number of common shares outstanding
used to calculate basic earnings (loss) per common share
    
    
    8,015,865
    
    
    
    7,805,310
    
    
    
    7,977,415Effect of dilutive securities
    
    
    
    
    
    
    1,823
    
    
    
    20,146Average number of common shares outstanding
used to calculate diluted earnings (loss) per
common share
    
    
    8,015,865
    
    
    
    7,807,133
    
    
    
    7,997,561Number of antidilutive stock options excluded from diluted earnings
per share computation
    
    
    157,647
    
    
    
    13,693
    
    
    
    
   Fair Value Measurements
 70




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##### Table of Contents



Effective Date of
FASB Statement No. 157 Determining the Fair Value of a Financial Asset When
the Market for That Asset Is Not Active
  The Fair Value Option for Financial Assets and
Financial Liabilities .
 Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards
  71




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Disclosures About Derivative Instruments and
Hedging Activities  an Amendment of FASB Statement No. 133. Accounting for Derivative Instruments and Hedging Activities,
 Determination of the Useful Life of
Intangible Assets. Goodwill and Other Intangible Assets
  
    
    FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments. This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, to require disclosures in the body or in the accompanying notes of its
summarized financial information for interim reporting periods and in its financial
statements for annual reporting periods the fair value of all financial instruments for
which it is practicable to estimate that value, whether recognized or not recognized in the
balance sheet. This FSP also amends APB opinion No. 28, Interim Financial Reporting, to
require entities to disclose the methods and significant assumptions used to estimate the
fair value of financial instruments and describe changes in methods and significant
assumptions, in both interim and annual financial statements. This
FSP is effective for
interim reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity may early adopt this FSP only if it also
elects to early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly,and FSP FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments. The Company has
not yet determined if it will early adopt this FSP for its first
quarter ended March 31, 2009.
    
    FSP FAS 157-4. This FSP provides additional guidance for estimating fair value in
accordance with SFAS No. 157, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on identifying
circumstances that indicate a transaction is not orderly. This FSP emphasizes that even
if there has been a significant decrease in the volume and level of activity for the asset
or liability and regardless of the valuation technique(s) used, the objective of a fair
value measurement remains the same. Fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement date under
current market conditions. This FSP amends SFAS No. 157 to require that a reporting
entity: (1) disclose in interim and annual periods the inputs and valuation technique(s)
used to measure fair value and a discussion of changes in valuation techniques and related
inputs, if any, during the period, and (2) define major categoryfor equity securities and
debt securities to be major security typesas described in paragraph 19 of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities(as amended by FSP FAS
115-2 and FAS 124-2). This FSP is effective for interim reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.
If a reporting entity elects to adopt early either FSP FAS 115-2 and FAS 124-2 or FSP FAS
107-1 and APB 28-1, the reporting entity also is required to adopt early this FSP.
Additionally, if the reporting entity elects to adopt early this FSP, FSP FAS 115-2 and FAS
124-2 also must be adopted early. Revisions resulting from a change in valuation technique
or its application shall be accounted for as a change in accounting estimate according to
paragraph 19 of SFAS No. 154, Accounting Changes and Error
Corrections. The Company plans to early adopt this FSP for its
first quarter ended March 31, 2009. Management has not completed its
review of this FSP, thus has not yet determined its impact on the
Companys consolidated financial statements.
    
    FSP FAS 115-2 and FAS 124-2. The objective of an other-than-temporary impairment
analysis under existing U.S. generally accepted accounting principles (GAAP) is to
determine whether the holder of an investment in a debt or equity security for
 72




---



##### Table of Contents



which changes in fair value are not regularly recognized in earnings (such as securities
classified as held-to-maturity or available-for-sale) should recognize a loss in earnings
when the investment is impaired. An investment is impaired if the fair value of the
investment is less than its amortized cost basis. This FSP amends the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary impairments on debt
and equity securities in the financial statements. Specifically, the recognition guidance
in this FSP applies to debt securities classified as available-for-sale and
held-to-maturity that are subject to other-than-temporary impairment guidance within SFAS
No. 115, FSP FAS 115-1 and FAS 124-1, FSP EITF 99-20-1, Amendments to the Impairment
Guidance of EITF Issue No. 99-20,and AICPA Statement of Position 03-3, Accounting for
Certain Loans or Debt Securities Acquired in a Transfer.This FSP
does not amend existing
recognition and measurement guidance related to other-than-temporary impairments on equity
securities. Among other provisions, this FSP requires entities to
split other-than-temporary impairment charges between credit losses
(i.e., the loss based on the entitys estimate of the decrease
in cash flows, including those that result from expected voluntary
prepayments), which are charged to earnings, and the remainder of the
impairment charge (non-credit component) to other comprehensive
income, net of applicable income taxes. An entity shall disclose information for interim and annual periods that
enables users of its financial statements to understand the types of available-for-sale and
held-to-maturity debt and equity securities held, including information about investments
in an unrealized loss position for which an other-than-temporary impairment has or has not
been recognized. In addition, for interim and annual periods, an entity shall disclose
information that enables users of financial statements to understand the reasons that a
portion of an other-than-temporary impairment of a debt security was not recognized in
earnings and the methodology and significant inputs used to calculate the portion of the
total other-than-temporary impairment that was recognized in earnings. This FSP shall be
effective for interim reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. If an entity elects to adopt early
either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1, the entity also is required to adopt
early this FSP. Additionally, if an entity elects to adopt early this FSP, it is required
to adopt FSP FAS 157-4. For debt securities held at the beginning of the interim period of
adoption for which an other-than-temporary impairment was previously recognized, if an
entity does not intend to sell and it is not more likely than not that the entity will be
required to sell the security before recovery of its amortized cost basis (after
considering the guidance in paragraphs 1926 of this FSP), the entity shall recognize the
cumulative effect of initially applying this FSP as an adjustment to the opening balance of
retained earnings with a corresponding adjustment to accumulated other comprehensive
income. In the period of adoption, an entity shall provide the disclosures required by SFAS
No. 154, for changes in accounting principles. The Company plans
to early adopt this FSP for its first quarter ended March 31, 2009
and, based on its intent to not sell the securities prior to
recovery, estimates it will record a cumulative effective adjustment
amounting to $21.4 million as of January 1, 2009.
     73




---



##### Table of Contents



December 31, 2008Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable for sale:U.S. Treasury securities
    
    $
    508
    
    
    $
    52
    
    
    
    
    
    
    $
    560U.S. government agency obligations
    
    
    513
    
    
    
    20
    
    
    $
    4
    
    
    
    529Obligations of state and political subdivisions
    
    
    8,982
    
    
    
    13
    
    
    
    242
    
    
    
    8,753Mortgage-backed securities:Issued or guaranteed by U.S. government agencies
    
    
    17,957
    
    
    
    333
    
    
    
    8
    
    
    
    18,282Other mortgage-backed securities
    
    
    51,991
    
    
    
    
    
    
    
    5,784
    
    
    
    46,207Asset-backed securities
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Total securities available for sale
    
    $
    79,952
    
    
    $
    418
    
    
    $
    6,038
    
    
    $
    74,332Held to maturity:Other mortgage-backed securities
    
    $
    233,735
    
    
    $
    
    
    
    $
    54,575
    
    
    $
    179,160Asset-backed securities
    
    
    16,273
    
    
    
    
    
    
    
    2,791
    
    
    
    13,482Total securities held to maturity
    
    $
    250,008
    
    
    $
    
    
    
    $
    57,366
    
    
    $
    192,642
 December 31, 2007Available for sale:U.S. Treasury securities
    
    $
    510
    
    
    $
    15
    
    
    
    
    
    
    $
    525U.S. government agency obligations
    
    
    10,268
    
    
    
    19
    
    
    $
    15
    
    
    
    10,272Obligations of state and political subdivisions
    
    
    29,709
    
    
    
    139
    
    
    
    82
    
    
    
    29,766Mortgage-backed securities:Issued or guaranteed by U.S. government agencies
    
    
    7,520
    
    
    
    47
    
    
    
    68
    
    
    
    7,499Other mortgage-backed securities
    
    
    78,110
    
    
    
    1,449
    
    
    
    357
    
    
    
    79,202Asset-backed securities
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Total
    
    
    126,124
    
    
    
    1,669
    
    
    
    522
    
    
    
    127,271Equity securities
    
    
    5,002
    
    
    
    
    
    
    
    1,752
    
    
    
    3,250Total securities available for sale
    
    $
    131,126
    
    
    $
    1,669
    
    
    $
    2,274
    
    
    $
    130,521
  74




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##### Table of Contents



December 31, 2008Amortized
    
    
    FairCost
    
    
    ValueDue within one year or less
    
    $
    496
    
    
    $
    497Due after one year through five years
    
    
    3,080
    
    
    
    3,120Due after five years through ten years
    
    
    3,400
    
    
    
    3,316Due after ten years
    
    
    3,028
    
    
    
    2,911Total
    
    
    10,004
    
    
    
    9,843Mortgage-backed securities
    
    
    319,956
    
    
    
    257,131Total
    
    $
    329,960
    
    
    $
    266,974
  75




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##### Table of Contents



December, 31 2008Less than Twelve Months
    
    
    Over Twelve MonthsUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueAvailable for sale:U.S. Treasury securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. government agency obligations
    
    $
    4
    
    
    $
    126
    
    
    
    
    
    
    
    Obligations of state and political subdivisions
    
    
    242
    
    
    
    7,146
    
    
    
    
    
    
    
    Mortgage-backed securities:Issued or guaranteed by U.S. government agencies
    
    
    8
    
    
    
    18,282
    
    
    
    
    
    
    
    Other Mortgage-backed securities
    
    
    5,784
    
    
    
    14,129
    
    
    
    
    
    
    
    Total securities available for sale
    
    $
    6,038
    
    
    $
    39,683
    
    
    $
    
    
    
    $
    Held to maturity:Other Mortgage-backed securities
    
    
    54,575
    
    
    
    179,160Asset-backed securities
    
    
    2,791
    
    
    
    13,482
    
    
    
    
    
    
    
    Total securities held to maturity
    
    $
    57,366
    
    
    $
    192,642
    
    
    $
    
    
    
    $
    
 December, 31 2007Less than Twelve Months
    
    
    Over Twelve MonthsAvailable for sale:U.S. Treasury securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. government agency obligations
    
    
    
    
    
    
    
    
    
    $
    15
    
    
    $
    7,014Obligations of state and political subdivisions
    
    $
    63
    
    
    $
    4,398
    
    
    
    19
    
    
    
    5,929Mortgage-backed securities:Issued or guaranteed by U.S. government agencies
    
    
    45
    
    
    
    3,073
    
    
    
    23
    
    
    
    1,837Other Mortgage-backed securities
    
    
    357
    
    
    
    31,994
    
    
    
    
    
    
    
    Total
    
    
    465
    
    
    
    39,465
    
    
    
    57
    
    
    
    14,780Equity securities
    
    
    
    
    
    
    
    
    
    
    1,752
    
    
    
    3,250Total securities available for sale
    
    $
    465
    
    
    $
    39,465
    
    
    $
    1,809
    
    
    $
    18,030
   76




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##### Table of Contents



December 31, 2008Amortized
    
    
    FairName of Issuer
    
    Cost
    
    
    ValueCredit Suisse First Boston Mortgage Securities Corp
    
    $
    13,728
    
    
    $
    13,140Countrywide Alternative Loan Trust
    
    
    65,350
    
    
    
    49,243First Horizon Alternative Mortgage Securities Trust
    
    
    31,665
    
    
    
    23,010Goldman Sachs Mortgage Securities Corp
    
    
    27,452
    
    
    
    20,833IndyMac IMSC Mortgage Loan Trust
    
    
    15,112
    
    
    
    10,392UBS MASTR Alternative Loan Trust
    
    
    14,640
    
    
    
    11,469PHH Alternative Mortgage Trust
    
    
    13,223
    
    
    
    10,278RFC Residential Accredit Loans Inc.
    
    
    45,662
    
    
    
    43,067IndyMac Residential Asset Securitization Trust
    
    
    16,379
    
    
    
    12,753Washington Mutual Mortgage Securities Corp.
    
    
    13,369
    
    
    
    9,039Total
    
    $
    256,580
    
    
    $
    203,224
 Freddie Mac Preferred Stock Impairment.
     Non-Agency Collateralized Mortgage Obligations
 77




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##### Table of Contents



Recognition and Presentation of Other-Than-Temporary Impairments
 Sale of Held to Maturity Investment.
 Accounting for Certain Investments in Debt and Equity
Securities
 78




---



##### Table of Contents



December 31,2008
    
    
    2007Real estate loans:One-to four-family
    
    $
    509,341
    
    
    $
    553,615Commercial and multi-family
    
    
    412,077
    
    
    
    420,079Residential construction
    
    
    138,389
    
    
    
    165,330Home equity and lines of credit
    
    
    67,778
    
    
    
    66,6301,127,585
    
    
    
    1,205,654Commercial loans
    
    
    221,911
    
    
    
    238,918Consumer loans
    
    
    80,248
    
    
    
    94,983Total loans
    
    
    1,429,744
    
    
    
    1,539,555Less:Allowance for loan losses
    
    
    26,473
    
    
    
    21,464Net deferred loan fees
    
    
    (49
    )
    
    
    (75
    )Net loans
    
    $
    1,403,320
    
    
    $
    1,518,166
   Year EndedDecember 31,2008
    
    
    2007
    
    
    2006Balance, beginning of period
    
    $
    21,464
    
    
    $
    14,304
    
    
    $
    13,546Provision for loan losses
    
    
    36,201
    
    
    
    12,342
    
    
    
    2,805Charge-offs
    
    
    (32,111
    )
    
    
    (5,886
    )
    
    
    (2,352
    )Recoveries
    
    
    919
    
    
    
    704
    
    
    
    305Balance, end of period
    
    $
    26,473
    
    
    $
    21,464
    
    
    $
    14,304
  December 31,2008
    
    
    2007Impaired loans without a valuation allowance
    
    $
    26,451
    
    
    $
    3,467Impaired loans with a valuation allowance
    
    
    17,800
    
    
    
    29,916Total impaired loans
    
    $
    44,251
    
    
    $
    33,383Valuation allowance related to impaired loans
    
    $
    9,394
    
    
    $
    6,790Total nonperforming loans
    
    $
    90,721
    
    
    $
    61,018
 79




---



##### Table of Contents



Year EndedDecember 31,2008
    
    
    2007
    
    
    2006Average investment in impaired loans
    
    $
    38,817
    
    
    $
    4,874
    
    
    $
    7,925Interest income recognized on impaired loans
    
    $
    1,176
    
    
    $
    
    
    
    $
    
   December 31,2008
    
    
    2007Land
    
    $
    9,796
    
    
    $
    10,031Office buildings
    
    
    35,804
    
    
    
    34,310Furniture, fixtures, and equipment
    
    
    20,507
    
    
    
    19,131Construction in process
    
    
    827
    
    
    
    1,558Total premises and equipment
    
    
    66,934
    
    
    
    65,030Less accumulated depreciation
    
    
    (24,157
    )
    
    
    (21,151
    )Net carrying amount
    
    $
    42,777
    
    
    $
    43,879
   2009
    
    $
    1,0532010
    
    
    8432011
    
    
    7092012
    
    
    6402013
    
    
    645Thereafter
    
    
    1,002Total
    
    $
    4,892
     December 31,2008
    
    2007
    
    2006Annual constant prepayment speed
    
    
    14.14
    %
    
    
    14.11
    %
    
    
    10.98
    %Weighted average life (in months)
    
    
    268
    
    
    
    267
    
    
    
    260Discount rate
    
    
    8.00
    %
    
    
    9.00
    %
    
    
    8.50
    %
 80




---



##### Table of Contents



Year EndedDecember 31,2008
    
    
    2007
    
    
    2006Balance, beginning of period
    
    $
    4,669
    
    
    $
    4,281
    
    
    $
    4,118Amount capitalized
    
    
    2,404
    
    
    
    1,781
    
    
    
    1,061Amortization
    
    
    (1,524
    )
    
    
    (1,363
    )
    
    
    (941
    )Change in valuation reserve
    
    
    (103
    )
    
    
    (30
    )
    
    
    43Balance, end of period
    
    $
    5,446
    
    
    $
    4,669
    
    
    $
    4,281Valuation allowance:Balance, beginning of period
    
    $
    55
    
    
    $
    25
    
    
    $
    68Additions
    
    
    155
    
    
    
    45
    
    
    
    Reductions
    
    
    (52
    )
    
    
    (15
    )
    
    
    (43
    )Balance, end of period
    
    $
    158
    
    
    $
    55
    
    
    $
    25
   December 31,2008
    
    
    2007Noninterest DDA
    
    $
    85,828
    
    
    $
    90,343NOW accounts
    
    
    202,307
    
    
    
    198,335Passbook and savings deposits
    
    
    102,077
    
    
    
    115,638Money market variable rate accounts
    
    
    89,365
    
    
    
    106,329Time deposits
    
    
    814,926
    
    
    
    687,421Total
    
    $
    1,294,503
    
    
    $
    1,198,066
  2008
    
    $
    359,1242009
    
    
    73,0872010
    
    
    86,9562011
    
    
    22,1792012
    
    
    90,866Thereafter
    
    
    182,714Total
    
    $
    814,926
     81




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##### Table of Contents



2009
    
    $
    155,8272010
    
    
    99,4952011
    
    
    42,5792012
    
    
    46,1482013
    
    
    61,440Thereafter
    
    
    91,697Total
    
    $
    497,186
     Year EndedDecember 31,2008
    
    
    2007
    
    
    2006Current tax
expense (benefit)
    
    $
    (4,202
    )
    
    $
    757
    
    
    $
    4,372Deferred tax expense (benefit)
    
    
    (19,551
    )
    
    
    (509
    )
    
    
    132Deferred tax expense-change in valuation allowance
    
    
    5,200
    
    
    
    
    
    
    
    Total income tax expense (benefit)
    
    $
    (18,553
    )
    
    $
    248
    
    
    $
    4,504
  Year EndedDecember 31,2008
    
    
    2007
    
    
    2006Income tax (benefit) at statutory rates
    
    $
    (26,173
    )
    
    $
    720
    
    
    $
    4,762Increase (decrease) resulting from:Tax-exempt interest expense
    
    
    (574
    )
    
    
    (361
    )
    
    
    (365
    )Goodwill
    
    
    3,337Change in valuation allowance
    
    
    5,200
    
    
    
    
    
    
    
    Other
    
    
    (343
    )
    
    
    (111
    )
    
    
    188Total income tax expense (benefit)
    
    $
    (18,553
    )
    
    $
    248
    
    
    $
    4,585
 82




---



##### Table of Contents



December 312008
    
    
    2007Deferred income tax assets:Allowance for loan losses
    
    $
    9,001
    
    
    $
    7,512Employee benefit obligations
    
    
    2,029
    
    
    
    2,311Other than tempory impairment on securities
    
    
    13,597
    
    
    
    Net unrealized loss on securities available for sale
    
    
    1,967
    
    
    
    203Net operating loss carryforward
    
    
    2,931
    
    
    
    Non accrual interest
    
    
    741
    
    
    
    158Other real estate expense
    
    
    1,009
    
    
    
    Alternative minimum tax
    
    
    371Other
    
    
    308
    
    
    
    383Total deferred income tax assets
    
    
    31,954
    
    
    
    10,567Deferred income tax liabilities:Original issue discount
    
    
    1,131
    
    
    
    1,394Mortgage servicing rights
    
    
    1,852
    
    
    
    1,634Accumulated depreciation
    
    
    3,305
    
    
    
    2,825Core deposit intangible
    
    
    651
    
    
    
    804Other
    
    
    1,058
    
    
    
    1,268Total deferred income tax liabilities
    
    
    7,997
    
    
    
    7,925Net deferred income tax asset before valuation allowance23,957
    
    
    
    2,642Valuation allowance
    
    
    (5,200
    )
    
    
    Net deferred income tax asset
    
    $
    18,757
    
    
    $
    2,642
     Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust
and Invested
 83




---



##### Table of Contents



Year EndingDecember 31,
    
    Amount2009
    
    $
    6482010
    
    
    7032011
    
    
    7632012
    
    
    8282013
    
    
    898Thereafter
    
    
    3,174Total
    
    $
    7,014
   2008
    
    
    2007Allocated
    
    
    406,473
    
    
    
    355,664Unallocated
    
    
    355,667
    
    
    
    406,476Total
    
    
    762,140
    
    
    
    762,140
    Year Ended December 31,2008
    
    2007
    
    2006Beginning of period
    
    
    78,503
    
    
    
    89,626
    
    
    
    87,900Granted
    
    
    275,000
    
    
    
    7,651
    
    
    
    7,000Vested
    
    
    (13,024
    )
    
    
    (16,974
    )
    
    
    (5,274
    )Forfeited
    
    
    (5,500
    )
    
    
    (1,800
    )
    
    
    Nonvested, end of period
    
    
    334,979
    
    
    
    78,503
    
    
    
    89,626
 84




---



##### Table of Contents



Year Ended December 31,2008
    
    
    
    
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    
    
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    AggregateExercise
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    IntrinsicShares
    
    
    Price
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    ValueOutstanding,
beginning of period
    
    
    174,887
    
    
    $
    19.71
    
    
    
    
    
    
    
    183,272
    
    
    $
    19.77
    
    
    
    
    
    
    
    257,059
    
    
    $
    20.00Options granted
during the period
(1)
    
    
    34,000
    
    
    
    9.37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options forfeited
    
    
    (17,240
    )
    
    
    20.44
    
    
    
    
    
    
    
    (2,975
    )
    
    
    21.80
    
    
    
    
    
    
    
    (3,756
    )
    
    
    20.61Options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,410
    )
    
    
    20.38
    
    
    
    
    
    
    
    (70,031
    )
    
    
    28.39Outstanding, end of
period
    
    
    191,647
    
    
    $
    17.81
    
    
    $
    
    
    
    
    174,887
    
    
    $
    19.71
    
    
    $
    
    
    
    
    183,272
    
    
    $
    19.77
    
    
    $
    2,010,494Options
exercisable, end of
year
    
    
    157,647
    
    
    $
    19.63
    
    
    $
    
    
    
    
    174,887
    
    
    $
    19.71
    
    
    $
    
    
    
    
    180,872
    
    
    $
    19.74
    
    
    $
    1,989,592Weighted-average
fair value of
options
granted
during the period
    
    $
    9.37
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    
 
 (1)
    
    No stock options were granted during 2007 and 2006.   85




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$23.00 - $24.00
    
    
    11,103
    
    
    5.2 years
    
    $
    23.90
    
    
    
    11,103
    
    
    $
    23.90$19.00 - $20.00
    
    
    65,744
    
    
    5.6 years
    
    
    19.92
    
    
    
    65,744
    
    
    
    19.92$18.00 - $19.00
    
    
    80,800
    
    
    4.2 years
    
    
    18.81
    
    
    
    80,800
    
    
    
    18.81$13.00 - $14.00
    
    
    3,000
    
    
    9.2 years
    
    
    13.95
    
    
    
    
    
    
    
    $9.00 - $10.00
    
    
    25,000
    
    
    9.3 years
    
    
    9.29
    
    
    
    
    
    
    
    $7.00 - $8.00
    
    
    5,000
    
    
    9.4 years
    
    
    7.52
    
    
    
    
    
    
    
    $6.00 - $7.00
    
    
    1,000
    
    
    9.5 years
    
    
    6.82
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    191,647
    
    
    
    
    
    
    $
    17.81
    
    
    
    157,647
    
    
    $
    19.63
     For CapitalActual
    
    Adequacy Purposes
    
    To Be Well CapitalizedRatio
    
    
    
    
    
    Ratio
    
    
    
    
    
    RatioAmount
    
    (Percent)
    
    Amount
    
    (Percent)
    
    Amount
    
    (Percent)December 31, 2008Total Capital to Risk
Weighted Assets:
    
    $
    118,507
    
    
    
    7.3
    %
    
    $
    130,500
    3
    
    
    8.0
    %
    
    $
    163,200
    3
    
    
    10.0
    %Tier 1 Capital to Risk
Weighted Assets:
    
    
    99,258
    
    
    
    6.1
    %
    
    
    65,300
    3
    
    
    4.0
    %
    
    
    97,900
    3
    
    
    6.0
    %Tier 1 Capital to
Average Assets:
    
    
    99,258
    
    
    
    5.0
    %
    
    
    80,100
    3
    
    
    4.0
    %
    
    
    100,200
    3
    
    
    5.0
    %December 31, 2007Total Capital to Risk
Weighted Assets:
    
    $
    158,626
    
    
    
    10.5
    %
    
    $
    120,500
    3
    
    
    8.0
    %
    
    $
    150,600
    3
    
    
    10.0
    %Tier 1 Capital to Risk
Weighted Assets:
    
    
    140,038
    
    
    
    9.3
    %
    
    
    60,300
    3
    
    
    4.0
    %
    
    
    90,400
    3
    
    
    6.0
    %Tier 1 Capital to
Average Assets:
    
    
    140,038
    
    
    
    7.8
    %
    
    
    71,600
    3
    
    
    4.0
    %
    
    
    89,500
    3
    
    
    5.0
    %
  86




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##### Table of Contents



December 31,2008
    
    
    2007Commercial and stand-by letters of credit
    
    $
    19,913
    
    
    $
    19,441Unused lines of credit
    
    
    145,792
    
    
    
    190,617Commitments to originate loans or to refinance
existing loans:Real estate
    
    
    64,166
    
    
    
    46,190Commercial
    
    
    2,030
    
    
    
    32,598Consumer
    
    
    1,021
    
    
    
    2,560Total commitments to extend credit
    
    $
    232,922
    
    
    $
    291,406
  87




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##### Table of Contents



December 31, 2008
    
    December 31, 2007Carrying
    
    Estimated
    
    Carrying
    
    EstimatedValue
    
    Fair Value
    
    Value
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    $
    63,464
    
    
    $
    63,464
    
    
    $
    20,464
    
    
    $
    20,464Certificates of deposit
    
    
    1,570
    
    
    
    1,570
    
    
    
    320
    
    
    
    320Securities available for sale
    
    
    74,332
    
    
    
    74,332
    
    
    
    130,521
    
    
    
    130,521Securities held to maturity
    
    
    250,008
    
    
    
    192,642
    
    
    
    
    
    
    
    Federal Home Loan Bank stock
    
    
    31,087
    
    
    
    31,087
    
    
    
    22,014
    
    
    
    22,014Loans held for sale
    
    
    4,310
    
    
    
    4,310
    
    
    
    4,139
    
    
    
    4,139Loans
    
    
    1,403,320
    
    
    
    1,423,463
    
    
    
    1,518,091
    
    
    
    1,539,905Accrued interest receivable
    
    
    9,893
    
    
    
    9,893
    
    
    
    10,306
    
    
    
    10,306Financial liabilities:Deposits
    
    
    1,294,503
    
    
    
    1,313,617
    
    
    
    1,198,066
    
    
    
    1,175,388Federal Home Loan Bank advances and FRB borrowings
    
    
    547,186
    
    
    
    507,101
    
    
    
    384,541
    
    
    
    394,468Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    42,564
    
    
    
    42,564Accrued interest payable
    
    
    3,796
    
    
    
    3,796
    
    
    
    4,830
    
    
    
    4,830
 88




---



##### Table of Contents



Fair Value Measurements,
 89




---



##### Table of Contents



Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantBalance at
    
    
    Identical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsInvestment securities available for sale
    
    $
    74,332
    
    
    $
    559
    
    
    $
    27,566
    
    
    $
    46,207Derivative financial instruments
    
    
    425
    
    
    
    
    
    
    
    
    
    
    
    425$
    74,757
    
    
    $
    559
    
    
    $
    27,566
    
    
    $
    46,632
 Investment Securities Available for Sale.
 90




---



##### Table of Contents



Derivative Financial Instruments
   
 Unrealized Gainsor (Losses) forJanuary 1,
    
    
    
    
    
    
    Purchases, Sales,
    
    
    
    
    
    
    
    
    
    
    Level 3 Assets2008
    
    
    Total Realized
    
    
    Other
    
    
    Net Transfers In
    
    
    December 31,
    
    
    Outstanding atBeginning
    
    
    and Unrealized
    
    
    Settlements and
    
    
    and/or (out) of
    
    
    2008 Ending
    
    
    December 31,Balance
    
    
    Gains or (Losses)
    
    
    Issuances, Net
    
    
    Level 3 (1)
    

    
    Balance
    
    
    2008Assets:Investment securities available
for sale
    
    $
    
    
    
    $
    (24,732
    )
    
    $
    (9,937
    )
    
    $
    80,876
    
    
    $
    46,207
    
    
    $
    (5,784
    )Derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    425
    
    
    
    
    
    
    
    425
    
    
    
    $
    
    
    
    $
    (24,732
    )
    
    $
    (9,512
    )
    
    $
    80,876
    
    
    $
    46,632
    
    
    $
    (5,784
    )
 
 (1)
    
    Transfers in or out are based on the carrying amount of the security at the
beginning of the period.   91




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##### Table of Contents



Quoted Prices in
    
    
    Significant
    
    
    SignificantBalance at
    
    
    Active Markets
    
    
    Observable
    
    
    Unobservable
    
    
    Net Gains/(Losses)December 31,
    
    
    for Identical
    
    
    Inputs
    
    
    Inputs
    
    
    for the Year Ended2008
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    December 31, 2008Assets:Mortgage servicing rights (1)
    
    $
    5,446
    
    
    $
    
    
    
    $
    
    
    
    $
    5,446
    
    
    $
    (158
    )Impaired loans
    
    
    34,856
    
    
    
    
    
    
    
    25,643
    
    
    
    9,213
    
    
    
    (33,255
    )Investment securities held to maturity (2)
    
    
    49,960
    
    
    
    
    
    
    
    
    
    
    
    49,960
    
    
    
    (21,661
    )$
    (33,413
    )
 
 (1)
    
    Mortgage servicing rights with a prior carrying value of $5,604,000 were written
down to their impaired fair value of $5,446,000. Fair value is determined on a tranche-by-tranche
basis. All remaining tranches within the Companys portfolio are valued at levels above carrying
value.(2)
    
    Certain non-agency collateralized mortgage obligations classified as investment
securities held to maturity, with a prior carrying value of $71,621,000, were written down to their
impaired fair value of $49,960,000. For more information regarding the Companys
other-than-temporary impairment analysis on its investment securities portfolio refer to Note 3 to
the Companys Financial Statements under Item 8 of this report. Mortgage Servicing Rights
 Mortgage Loans Held For Sale
 Impaired Loans. Accounting by Creditors
for Impairment of a Loan
 Investment Securities Held to Maturity.
 92




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93




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##### Table of Contents



December 31,2008
    
    
    2007ASSETSCash at subsidiary bank
    
    $
    439
    
    
    $
    249Securities available for sale
    
    
    
    
    
    
    3,250Investment in subsidiaries
    
    
    107,347
    
    
    
    157,580Deferred taxes and other assets
    
    
    19,685
    
    
    
    9,500Total assets
    
    $
    127,471
    
    
    $
    170,579LIABILITIESAccrued expenses and other liabilities
    
    $
    19,763
    
    
    $
    376Total liabilities
    
    
    19,763
    
    
    
    376STOCKHOLDERS EQUITY
    
    
    107,708
    
    
    
    170,203TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    127,471
    
    
    $
    170,579
 94




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##### Table of Contents



Year EndedDecember 31,2008
    
    
    2007
    
    
    2006Income:Interest on investments
    
    $
    92
    
    
    $
    254
    
    
    $
    1,247Other than temporary impairments on securities (Note 3)
    
    
    (4,806
    )
    
    
    
    
    
    
    Loss on sale of securities available for sale
    
    
    (173
    )
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    42Total income (loss)
    
    
    (4,887
    )
    
    
    254
    
    
    
    1,289Expenses:Interest on short term borrowings
    
    
    
    
    
    
    29
    
    
    
    45Other
    
    
    1,478
    
    
    
    1,473
    
    
    
    1,227Income (loss), before income tax expense (benefit) and
equity in undistributed net income (loss) of subsidiaries
    
    
    (6,365
    )
    
    
    (1,248
    )
    
    
    17Income tax benefit (expense)
    
    
    (3,458
    )
    
    
    43
    
    
    
    (329
    )Income/Loss, before equity in undistributed net income
(loss) of subsidiaries
    
    
    (9,823
    )
    
    
    (1,205
    )
    
    
    (312
    )Equity in undistributed net income (loss) of subsidiaries
    
    
    (48,605
    )
    
    
    3,075
    
    
    
    9,414Net income (loss)
    
    $
    (58,428
    )
    
    $
    1,870
    
    
    $
    9,102
 95




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##### Table of Contents



Year EndedDecember 31,2008
    
    
    2007
    
    
    2006OPERATING ACTIVITIESNet income
(loss)
    
    $
    (58,428
    )
    
    $
    1,870
    
    
    $
    9,102Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Provision for deferred income taxes
    
    
    
    
    
    
    
    
    
    
    Amortization of securities
    
    
    
    
    
    
    
    
    
    
    270Loss on impairment of securities available for sale
    
    
    4,806
    
    
    
    
    
    
    
    Loss on sale of securities available for sale
    
    
    173
    
    
    
    
    
    
    
    Equity in undistributed net income (loss) of subsidiaries
    
    
    45,222
    
    
    
    3,220
    
    
    
    (11,788
    )Deferred compensation and ESOP
    
    
    673
    
    
    
    1,522
    
    
    
    2,028(Increase) decrease in accrued interest receivable and other assets
    
    
    (10,185
    )
    
    
    (5,222
    )
    
    
    (115
    )Increase (decrease) in accrued interest payable and other liabilities
    
    
    19,387
    
    
    
    256
    
    
    
    (716
    )Net cash provided by (used in) operating activities
    
    
    1,648
    
    
    
    1,646
    
    
    
    (1,219
    )INVESTING ACTIVITIESProceeds from sale or maturity of investments
    
    
    23
    
    
    
    
    
    
    
    16,456Net cash provided by  investing activities
    
    
    23
    
    
    
    
    
    
    
    16,456FINANCING ACTIVITIESProceeds from exercises of stock options
    
    
    
    
    
    
    118
    
    
    
    1,572Repayment of line of credit
    
    
    
    
    
    
    
    
    
    
    (3,950
    )Purchase of treasury stock
    
    
    
    
    
    
    (7,634
    )
    
    
    (1,567
    )Payment of dividends
    
    
    (1,481
    )
    
    
    (3,015
    )
    
    
    (2,867
    )Net cash used in financing activities
    
    
    (1,481
    )
    
    
    (10,531
    )
    
    
    (6,812
    )NET CHANGE IN CASH AT SUBSIDIARY BANK
    
    
    190
    
    
    
    (8,885
    )
    
    
    8,425CASH, beginning of period
    
    
    249
    
    
    
    9,134
    
    
    
    709CASH, end of period
    
    $
    439
    
    
    $
    249
    
    
    $
    9,134
 96




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##### Table of Contents



For the Three-month Periods EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    TotalInterest income
    
    $
    29,058
    
    
    $
    31,074
    
    
    $
    29,946
    
    
    $
    27,977
    
    
    $
    118,055Interest expense
    
    
    16,699
    
    
    
    16,342
    
    
    
    15,722
    
    
    
    15,187
    
    
    
    63,950Net interest income
    
    
    12,359
    
    
    
    14,732
    
    
    
    14,224
    
    
    
    12,790
    
    
    
    54,105Provision for loan losses
    
    
    1,131
    
    
    
    12,250
    
    
    
    19,469
    
    
    
    3,351
    
    
    
    36,201Noninterest income (loss)
    
    
    1,985
    
    
    
    3,242
    
    
    
    (2,963
    )
    
    
    (41,987
    )
    
    
    (39,723
    )Noninterest expense
    
    
    11,100
    
    
    
    12,053
    
    
    
    12,038
    
    
    
    19,971
    
    
    
    55,162Income (loss), before federal income tax expense (benefit)
    
    
    2,113
    
    
    
    (6,329
    )
    
    
    (20,246
    )
    
    
    (52,519
    )
    
    
    (76,981
    )Federal income tax expense (benefit)
    
    
    515
    
    
    
    (2,237
    )
    
    
    (5,382
    )
    
    
    (11,449
    )
    
    
    (18,553
    )Net income (loss)
    
    $
    1,598
    
    
    $
    (4,092
    )
    
    $
    (14,864
    )
    
    $
    (41,070
    )
    
    $
    (58,428
    )Earnings (loss) per share, basic
    
    $
    0.24
    
    
    $
    (0.53
    )
    
    $
    (1.92
    )
    
    $
    (5.14
    )
    
    $
    (7.29
    )Earnings (loss) per share, diluted
    
    $
    0.24
    
    
    $
    (0.53
    )
    
    $
    (1.92
    )
    
    $
    (5.14
    )
    
    $
    (7.29
    )
 For the Three-month Periods EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    TotalInterest income
    
    $
    29,586
    
    
    $
    29,547
    
    
    $
    29,501
    
    
    $
    28,478
    
    
    $
    117,112Interest expense
    
    
    15,731
    
    
    
    16,066
    
    
    
    16,391
    
    
    
    16,382
    
    
    
    64,570Net interest income
    
    
    13,855
    
    
    
    13,481
    
    
    
    13,110
    
    
    
    12,096
    
    
    
    52,542Provision for loan losses
    
    
    1,259
    
    
    
    491
    
    
    
    7,556
    
    
    
    3,036
    
    
    
    12,342Noninterest income
    
    
    1,826
    
    
    
    1,989
    
    
    
    2,109
    
    
    
    1,236
    
    
    
    7,160Noninterest expense
    
    
    10,862
    
    
    
    11,854
    
    
    
    11,193
    
    
    
    11,333
    
    
    
    45,242Income, before federal income tax expense (benefit)
    
    
    3,560
    
    
    
    3,125
    
    
    
    (3,530
    )
    
    
    (1,037
    )
    
    
    2,118Federal income tax expense (benefit)
    
    
    1,195
    
    
    
    971
    
    
    
    (1,258
    )
    
    
    (660
    )
    
    
    248Net income (loss)
    
    $
    2,365
    
    
    $
    2,154
    
    
    $
    (2,272
    )
    
    $
    (377
    )
    
    $
    1,870Earnings (loss) per share, basic
    
    $
    0.29
    
    
    $
    0.27
    
    
    $
    (0.29
    )
    
    $
    (0.05
    )
    
    $
    0.24Earnings (loss) per share, diluted
    
    $
    0.29
    
    
    $
    0.27
    
    
    $
    (0.29
    )
    
    $
    (0.05
    )
    
    $
    0.24
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9AControls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Managements Report on Internal Control Over Financial Reporting
 Internal Control  Integrated Framework Internal Control  Integrated Framework,
  1. Other-than-temporary impairment of the CMO portfolio
  97




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##### Table of Contents



2. Controls within the Financial Reporting Close and the Form 10-K preparation process
  Remediation Plan
  
    
    We will establish formal and consistent policies and procedures for the determination of
potential OTTI associated with our CMOs. Such will require that key assumptions and
methodologies be subject to a periodic, independent review.
    
    The process for the preparation of our periodic reports, including our Form 10-K, will
be directly overseen by our CFO. Appropriate and experienced resources will be dedicated to
the external financial reporting process.
    
    Our Audit Committee will monitor these remediation efforts and may direct additional
measures as deemed appropriate.
 Attestation Report of the Registered Public Accounting Firm
  Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Equity Compensation Plan Information
 98




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##### Table of Contents



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
    
    
    191,647
    
    
    $
    17.81
    
    
    
    1,210,347Total
    
    
    191,647
    
    
    $
    17.81
    
    
    
    1,210,347
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  99




---



##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Financial Statements
 Pages in Form 10-KREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
    
    page 60CONSOLIDATED FINANCIAL STATEMENTSBalance Sheets
    
    page 61Statements of Income
    
    page 62Statements of Changes in Stockholders Equity
    
    page 63Statements of Cash Flows
    
    page 64Notes to Consolidated Financial Statements
    
    page 65
 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)10.14
    
    Amended and Restated Employee Stock Purchase Plan (7)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
 100




---



##### Table of Contents



(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 May 10, 2007 (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).(7)
    
    Incorporated by reference into this document from the Exhibits to the Form S-8 as filed with
the Securities and Exchange Commission on February 29, 2008 (Registration No. 0-32041). 
 SIGNATURES
  Citizens First Bancorp, Inc.Date: April 15, 2009
    By:
    /s/ Marshall J. CampbellMarshall J. CampbellChairman of the Board,

President and Chief
Executive Officer  /s/ Marshall J. Campbell

Marshall J. Campbell
    
    Chairman of the Board, President

and Chief Executive Officer
(principal executive officer)
    
    April 15, 2009/s/ Timothy D. Regan

Timothy D. Regan
    
    Secretary, Treasurer

(principal accounting and financial
officer)
    
    April 15, 2009/s/ Ronald W. Cooley

Ronald W. Cooley
    
    Director
    
    April 15, 2009/s/ Gerald Bouchard

Gerald Bouchard
    
    Director
    
    April 15, 2009/s/ Walid Demashkieh

Walid Demashkieh
    
    Director
    
    April 15, 2009/s/ Janice U. Whipple

Janice U. Whipple
    
    Director
    
    April 15, 2009/s/ Daniel G Lockwood, CPA

Daniel G. Lockwood, CPA
    
    Director
    
    April 15, 2009/s/ Bethany A. Belanger

Bethany A. Belanger
    
    Director
    
    April 15, 2009
 101




---



##### 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 May 10, 2007 (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). 102