##### Table of Contents



UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES            EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2001

OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES            
EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission File Number: 0-32041

CITIZENS FIRST BANCORP, INC.(Exact name of registrant as specified in its charter)

|                                                                                |  |                                                
|------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)         |  | 38-3573582
(I.R.S. Employer Identification No.)
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|525 Water Street, Port Huron, Michigan
(Address of principal executive offices) |  | 48060
(Zip Code)                               

Registrants telephone number, including area code: (810) 987-8300
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) YesX         No (2) YesX           No

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates was
$135.3 million, based upon the closing price of $14.20 as quoted on the Nasdaq
National Market on June 15, 2001. Solely for purposes of this calculation, the
shares held by the directors and officers of the registrant are deemed to be
held by affiliates.

As of June 15, 2001, the registrant had 9,526,761 shares of common stock
outstanding.





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TABLE OF CONTENTS



|                                  |                                                                                               |  |  |  |  |  |  | 
|--------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                           
|                                  | ITEM 1. BUSINESS                                                                             
|                                  | ITEM 2. PROPERTIES                                                                           
|                                  | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|Part II                          
|                                  | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                  | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                  | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                  | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                  | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|Part III                         
|                                  | ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  
|                                  | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                  | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                  | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                  | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|Part IV                          
|                                  | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.                   
|REPORT LETTER                    
|CONSOLIDATED FINANCIAL STATEMENTS
|                                  | BALANCE SHEET                                                                                
|                                  | STATEMENT OF INCOME                                                                          
|                                  | STATEMENT OF CHANGES IN EQUITY                                                               
|                                  | STATEMENT OF CASH FLOWS                                                                      
|                                  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   



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INDEX

|         |  |                                                                                       |  |      |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                       |  | Page |   
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|         |  | Part I                                                                               
|Item 1.  |  | Business                                                                              |  |      | 1  | 
|        
|        
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|        
|Item 2.  |  | Properties                                                                            |  |      | 31 | 
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|        
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|Item 3.  |  | Legal Proceedings                                                                     |  |      | 32 | 
|        
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|Item 4.  |  | Submission of Matters to a Vote of Securities Holders                                 |  |      | 32 | 
|        
|        
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|         |  | Part II                                                                              
|        
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|Item 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  |      | 32 | 
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|Item 6.  |  | Selected Financial Data                                                               |  |      | 33 | 
|        
|        
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|Item 7.  |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  |      | 35 | 
|        
|        
|        
|        
|Item 7A  |  | Quantitative and Qualitative Disclosure about Market Risk                             |  |      | 44 | 
|        
|        
|        
|        
|Item 8.  |  | Financial Statements and Supplementary Data                                           |  |      | 46 | 
|        
|        
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|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure  |  |      | 46 | 
|        
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|         |  | Part III                                                                             
|        
|        
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|Item 10. |  | Directors and Executive Officers of the Registrant                                    |  |      | 46 | 
|        
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|Item 11. |  | Executive Compensation                                                                |  |      | 47 | 
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|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  |      | 51 | 
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|        
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|Item 13. |  | Certain Relationships and Related Transactions                                        |  |      | 52 | 
|        
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|         |  | Part IV                                                                              
|        
|        
|        
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|Item 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |      | 52 | 





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##### Table of Contents






PART I




ITEM 1.  BUSINESS

General

Citizens First Bancorp, Inc. (the Company or Citizens First Bancorp)
was organized as a Delaware business corporation at the direction of Citizens
First Savings Bank (Citizens First or the Bank) in October 2000 to become
the holding company for Citizens First upon completion of the conversion from
the mutual to stock form of ownership. The Conversion was completed on March 7,
2001. In connection with the Conversion, the Company sold 8,821,075 shares of
its common stock, par value $0.01 per share (the Common Stock) at a purchase
price of $10 per share to depositors of the Bank in a subscription offering
raising approximately $85.1 in net conversion proceeds. In addition, the
Company issued an additional 705,686 shares, representing 8% of the shares sold
in the subscription offering, to Citizens First Foundation, a charitable
foundation established by the Bank. The Company has no significant assets,
other than all of the outstanding shares of the Bank and the portion of the net
proceeds it retained from its initial public offering, and no significant
liabilities. Management of the Company and the Bank are substantially similar
and the Company neither owns nor leases any property, but instead uses the
premises, equipment and furniture of the Bank. Accordingly, the information
set forth in this report, including the consolidated financial statements and
related financial data, relates primarily to the Bank.

Citizens First is regulated by the Michigan Office of Financial and
Insurance Services and the Federal Deposit Insurance Corporation. Citizens
Firsts deposits are insured to the maximum allowable amount by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation.
Citizens First has been a member of the Federal Home Loan Bank System since
1938.

Citizens First operates as a community-oriented financial institution,
specializing in the acceptance of retail deposits from the general public in
the areas surrounding its 14 full-service banking offices and using those
funds, together with funds generated from operations and borrowings, to
originate loans. The principal lending activity of Citizens First is the
origination of mortgage loans for the purpose of purchasing or refinancing one-
to four-family residential property. Citizens First also originates commercial
real estate loans, construction loans, commercial loans, automobile loans, home
equity loans and lines of credit and a variety of consumer loans. Citizens
First currently originates one- to four-family mortgage loans primarily for
sale in the secondary market, while generally retaining the servicing rights.
Citizens Firsts revenues are derived principally from the generation of
interest and fees on loans originated and, to a lesser extent, interest and
dividends on investments. Citizens Firsts primary sources of funds are
deposits, principal and interest payments on loans and investments and advances
from the Federal Home Loan Bank of Indianapolis.

Market Area

Citizens Firsts main office is in Port Huron, Michigan in St. Clair
County. Citizens Firsts primary deposit gathering and lending areas are
concentrated in and around the communities surrounding its 14 full-service
offices located in St. Clair, Sanilac, Huron and Lapeer Counties, Michigan.
However, Citizens First also makes some loans beyond these areas throughout
southeastern Michigan.

Port Huron, the population center for St. Clair county, is located
approximately sixty miles northeast of Detroit and sixty miles east of Flint.
St. Clair County, is bounded by the counties of Macomb to the south and west,
Lapeer to the west and Sanilac to the north. The eastern boundary of the
county is the St. Clair river and Canada. Almost half of the countys total
land area is rural and approximately one-third of the resident labor force
commutes to jobs outside of the county. As of 2000, St. Clair County had a
population of approximately 163,870, while the other three counties in its
primary market area had a population of approximately 169,730. The largest
employment sectors in this area are manufacturing, services, retail and
government. Citizens Firsts market area has a higher per capita median
household income when compared to Michigan and the United States.





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##### Table of Contents



Competition

Citizens First faces intense competition for the attraction of deposits
and origination of loans in its market area. Its most direct competition for
deposits has historically come from the several financial institutions
operating in Citizens Firsts market area and, to a lesser extent, from other
financial service companies, such as brokerage firms, credit unions and
insurance companies. Citizens Firsts competition for loans comes primarily
from financial institutions in its market area, and to a lesser extent from
other financial service providers, such as mortgage companies and mortgage
brokers. Additionally, competition for loans may increase due to the
increasing number of non-depository financial service companies entering the
mortgage market, such as insurance companies, securities companies and
specialty finance companies. Citizens First expects competition to increase in
the future as a result of legislative, regulatory and technological changes and
the continuing trend of consolidation in the financial services industry.
Technological advances, for example, have lowered barriers to market entry,
allowed banks to expand their geographic reach by providing services over the
Internet and made it possible for non-depository institutions to offer products
and services that traditionally have been provided by banks. The
Gramm-Leach-Bliley Act, which permits affiliation among banks, securities firms
and insurance companies, also has changed the competitive environment in which
Citizens First conducts business. Some of the institutions with which Citizens
First competes are significantly larger than Citizens First and, therefore,
have significantly greater resources. Competition for deposits and the
origination of loans could limit Citizens Firsts growth in the future.

Lending Activities

General.Citizens Firsts loans are subject to federal and state laws and
regulations. Interest rates charged by Citizens First on loans are affected
principally by Citizens Firsts current asset/liability strategy, the demand
for various types of loans, the supply of money available for lending purposes
and the rates offered by competitors. These factors are, in turn, affected by
general and economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.

2



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Loan Portfolio Analysis.The following table sets forth the composition
of Citizens Firsts loan portfolio in dollar amounts and as a percentage of the
portfolio at the dates indicated.

|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |       |        |          |                        |         |         |       |        |          |        |         |         |         |      |          |        |       |       |         |         |         |      |       |        |       | 
|------------------ | -------------------------------------------- | ---------------- | ----------------------- | ------- | ------------ | ------- | ---- | -------- | ------- | ----- | ------ | ------- | ------- | -------- | ---- | ------- | ------ | ----- | ------ | -------- | ---------------------- | ------- | ------- | ----- | ------ | -------- | ------ | ------- | ------- | ------- | ---- | -------- | ------ | ----- | ----- | ------- | ------- | ------- | ---- | ----- | ------ | ----- | 
|                   |                                              |                  |                         |         | At March 31, |        
|                   |                                              |                  |                         |         |              |        
|                   |                                              |                  |                         |         | 2001         |         |      | 2000     |         |       | 1999   |         |         | 1998     |      |         | 1997   |      
|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |      
|                   |                                              |                  |                         |         |              |         |      |          | Percent |       |        |         |         |          |      | Percent |        |       |        |          |                        |         | Percent |       |        |          |        |         |         | Percent |      |          |        |       |       |         | Percent |        
|                   |                                              |                  |                         |         | Amount       |         |      | of Total |         |       | Amount |         |         | of Total |      |         | Amount |       |        | of Total |                        |         | Amount  |       |        | of Total |        |         | Amount  |         |      | of Total |       
|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |       |        |          |                        |         |         |       |        |          |        |         |         |         |      |          |       
|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |       |        |          | (Dollars in thousands) |        
|Real estate loans:
|                  
|                  
|                  
|                  
|                   | One- to four-family                          |                  | $                       | 380,355 |              |         |      | 55.54    | %       |       | $      | 341,308 |         |          |      | 58.81   | %      |       | $      | 427,555  |                        |         |         | 70.83 | %      |          | $      | 399,616 |         |         |      | 71.58    | %      |       | $     | 363,142 |         |         |      | 72.93 | %     
|                  
|                  
|                  
|                  
|                   | Commercial
and multi-familyreal estate (1)   |                  |                         | 97,215  |              |         |      | 14.19    |         |       |        | 83,536  |         |          |      | 14.40   |        |       |        | 62,500   |                        |         |         | 10.36 |        |          |        | 42,805  |         |         |      | 7.67     |        |       |       | 31,713  |         |         |      | 6.37  |       
|                  
|                  
|                  
|                  
|                   | Residential construction                     |                  |                         | 32,732  |              |         |      | 4.78     |         |       |        | 24,750  |         |          |      | 4.26    |        |       |        | 31,040   |                        |         |         | 5.14  |        |          |        | 31,336  |         |         |      | 5.61     |        |       |       | 23,361  |         |         |      | 4.69  |       
|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |       |        |          |                        |         |         |       |        |          |        |         |         |        
|                   |                                              |                  | Total real estate loans |         |              | 510,302 |      |          |         | 74.51 |        |         |         | 449,594  |      |         |        | 77.47 |        |          |                        | 521,095 |         |       |        | 86.33    |        |         |         | 473,757 |      |          |        | 84.86 |       |         |         | 418,216 |      |       |        | 83.99 | 
|                  
|                  
|                  
|                  
|Consumer loans:   
|                  
|                  
|                  
|                  
|                   | Home equity loans and
lines of credit        |                  |                         | 69,449  |              |         |      | 10.14    |         |       |        | 56,991  |         |          |      | 9.82    |        |       |        | 42,417   |                        |         |         | 7.02  |        |          |        | 44,844  |         |         |      | 8.03     |        |       |       | 40,547  |         |         |      | 8.15  |       
|                  
|                  
|                  
|                  
|                   | Vehicles (2)                                 |                  |                         | 55,490  |              |         |      | 8.10     |         |       |        | 41,066  |         |          |      | 7.08    |        |       |        | 7,100    |                        |         |         | 1.18  |        |          |        | 5,329   |         |         |      | 0.96     |        |       |       | 4,127   |         |         |      | 0.83  |       
|                  
|                  
|                  
|                  
|                   | Mobile Homes                                 |                  |                         | 10,458  |              |         |      | 1.53     |         |       |        | 13,882  |         |          |      | 2.39    |        |       |        | 16,348   |                        |         |         | 2.71  |        |          |        | 21,361  |         |         |      | 3.82     |        |       |       | 27,309  |         |         |      | 5.48  |       
|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |       |        |          |                        |         |         |       |        |          |        |         |         |        
|                   |                                              |                  | Total consumer loans    |         |              | 135,397 |      |          |         | 19.77 |        |         |         | 111,939  |      |         |        | 19.29 |        |          |                        | 65,865  |         |       |        | 10.91    |        |         |         | 71,534  |      |          |        | 12.81 |       |         |         | 71,983  |      |       |        | 14.46 | 
|                  
|                  
|                  
|                  
|Commercial loans   |                                              |                  | 39,176                  |         |              |         | 5.72 |          |         |       | 18,824 |         |         |          | 3.24 |         |        |       | 16,638 |          |                        |         | 2.76    |       |        |          | 13,011 |         |         |         | 2.33 |          |        |       | 7,715 |         |         |         | 1.55 |      
|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |       |        |          |                        |         |         |       |        |          |        |         |         |        
|                   |                                              | Total loans      |                         |         | 684,875      |         |      |          | 100.00  | %     |        |         | 580,357 |          |      |         | 100.00 | %     |        |          | 603,598                |         |         |       | 100.00 | %        |        |         | 558,302 |         |      |          | 100.00 | %     |       |         | 497,914 |         |      |       | 100.00 | %    
|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |       |        |          |                        |         |         |       |        |          |        |         |         |         |      |          |        |       |      
|Less:             
|                  
|                  
|                  
|                  
|                   | Deferred loan origination fees
and discounts |                  |                         | 1,595   |              |         |      |          |         |       |        | 1,393   |         |          |      |         |        |       |        | 1,800    |                        |         |         |       |        |          |        | 1,882   |         |         |      |          |        |       |       | 1,824   |        
|                  
|                  
|                  
|                  
|                   | Allowance for loan losses                    |                  |                         | 10,831  |              |         |      |          |         |       |        | 10,461  |         |          |      |         |        |       |        | 11,161   |                        |         |         |       |        |          |        | 7,527   |         |         |      |          |        |       |       | 6,982   |        
|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |       |        |          |                        |         |         |       |        |          |        |         |         |         |     
|                   |                                              | Total loans, net |                         | $       | 672,449      |         |      |          |         |       |        | $       | 568,503 |          |      |         |        |       |        | $        | 590,637                |         |         |       |        |          |        | $       | 548,893 |         |      |          |        |       |       | $       | 489,108 |        
|                   |                                              |                  |                         |         |              |         |      |          |         |       |        |         |         |          |      |         |        |       |        |          |                        |         |         |       |        |          |        |         |         |         |     



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|(1) |  | Includes commercial construction loans which at March 31, 2001 and 2000
totaled $6.5 million and $9.6 million, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes loans secured by automobiles, motorcycles, campers and other
recreational vehicles.                                

3



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##### Table of Contents



Maturity of Loan Portfolio.The following table presents certain
information at March 31, 2001 regarding the dollar amount of loans maturing in
Citizens Firsts portfolio based on their contractual terms to maturity or
scheduled amortization, but does not include potential prepayments. Demand
loans, loans having no stated schedule of repayments and no stated maturity,
and overdrafts are reported as becoming due in one year or less. Loan balances
do not include undisbursed loan proceeds, net deferred loan origination costs
and allowance for loan losses.

|                |                                  |                  |   |                   |         |  |              |            |        |              |   |                |          |  |   |            |         |  |       |        |        |  |   |         |         | 
|--------------- | -------------------------------- | ---------------- | - | ----------------- | ------- |  | ------------ | ---------- | ------ | ------------ | - | -------------- | -------- |  | - | ---------- | ------- |  | ----- | ------ | ------ |  | - | ------- | ------- | 
|                |                                  |                  |   | At March 31, 2001 |        
|                |                                  |                  |   |                   |        
|                |                                  |                  |   |                   |         |  |              | Commercial |       
|                |                                  |                  |   | One- to           |         |  | and          |           
|                |                                  |                  |   | Four-             |         |  | Multi-Family |            |        | Residential  |   |                |          |  |   |            |         |  |       |        | Total  | 
|                |                                  |                  |   | Family            |         |  | Real Estate  |            |        | Construction |   |                | Consumer |  |   | Commercial |         |  | Loans |       
|                |                                  |                  |   |                   |         |  |              |            |        |              |   |                |          |  |   |            |         |  |       |       
|                |                                  |                  |   |                   |         |  |              |            |        |              |   | (In thousands) |         
|Amounts due in:
|               
|               
|               
|               
|                | One year or less                 |                  | $ | 1,545             |         |  | $            | 9,395      |        |              | $ | 32,732         |          |  | $ | 4,447      |         |  | $     | 19,930 |        |  | $ | 68,049  |        
|               
|               
|               
|               
|                | More than one year to five years |                  |   | 5,323             |         |  |              | 39,600     |        |              |   |               |          |  |   | 62,132     |         |  |       | 15,523 |        |  |   | 122,578 |        
|               
|               
|               
|               
|                | More than five years             |                  |   | 373,487           |         |  |              | 48,220     |        |              |   |               |          |  |   | 68,818     |         |  |       | 3,723  |        |  |   | 494,248 |        
|                |                                  |                  |   |                   |         |  |              |            |        |              |   |                |          |  |   |            |         | 
|                |                                  | Total amount due |   | $                 | 380,355 |  |              | $          | 97,215 |              |   | $              | 32,732   |  |   | $          | 135,397 |  |       | $      | 39,176 |  |   | $       | 684,875 | 
|                |                                  |                  |   |                   |         |  |              |            |        |              |   |                |          |  |   |            |         | 

Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less
than its contractual term because of prepayments. In addition, due-on-sale
clauses on loans generally give Citizens First the right to declare loans
immediately due and payable if, among other things, the borrower sells the real
property with the mortgage and the loan is not repaid. The average life of a
mortgage loan tends to increase, however, when current mortgage loan market
rates are substantially higher than rates on existing mortgage loans and,
conversely, tends to decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.

The following table sets forth, at March 31, 2001, the dollar amount of
loans contractually due after March 31, 2002, and whether such loans have fixed
interest rates or adjustable interest rates.

|                   |                                         |                         |         |                          |         |  |            |                |         |       |         |         |         | 
|------------------ | --------------------------------------- | ----------------------- | ------- | ------------------------ | ------- |  | ---------- | -------------- | ------- | ----- | ------- | ------- | ------- | 
|                   |                                         |                         |         | Due After March 31, 2002 |        
|                   |                                         |                         |         |                          |        
|                   |                                         |                         |         | Fixed                    |         |  | Adjustable |                |         | Total |        
|                   |                                         |                         |         |                          |         |  |            |                |         |       |        
|                   |                                         |                         |         |                          |         |  |            | (In thousands) |        
|Real estate loans:
|                  
|                  
|                  
|                  
|                   | One- to four-family                     |                         | $       | 83,609                   |         |  | $          | 295,201        |         |       | $       | 378,810 |        
|                  
|                  
|                  
|                  
|                   | Commercial and multi-family real estate |                         |         | 78,441                   |         |  |            | 9,379          |         |       |         | 87,820  |        
|                   |                                         |                         |         |                          |         |  |            |                |        
|                   |                                         | Total real estate loans |         |                          | 162,050 |  |            |                | 304,580 |       |         |         | 466,630 | 
|                  
|                  
|                  
|                  
|Consumer loans     |                                         |                         | 125,737 |                          |         |  | 5,213      |                |         |       | 130,950 |        
|                  
|                  
|                  
|                  
|Commercial loans   |                                         |                         | 9,149   |                          |         |  | 10,097     |                |         |       | 19,246  |        
|                   |                                         |                         |         |                          |         |  |            |                |        
|                   |                                         | Total loans             |         | $                        | 296,936 |  |            | $              | 319,890 |       |         | $       | 616,826 | 
|                   |                                         |                         |         |                          |         |  |            |                |        

One- to Four-Family Loans.Citizens Firsts primary lending activity is
the origination of loans secured by one- to four-family residences located in
its market area. Citizens First offers various types of adjustable-rate
mortgage loans and fixed-rate mortgage loans. At March 31, 2001, 46.4% of
Citizens Firsts residential mortgage loans had fixed interest rates and 53.6
had adjustable interest rates.

Citizens First originates fixed-rate fully amortizing loans with
maturities of 10, 15, 20 and 30 years. Management establishes the loan
interest rates based on market conditions, with consideration given to the type
of the loan and the quality and liquidity of the collateral securing the loan.
Citizens First offers mortgage loans that generally conform to Freddie Mac
guidelines, as well as jumbo loans, which currently are loans in amounts over
$275,000. Fixed-rate conforming loans are generally originated for sale in the
secondary market while primarily retaining the servicing rights. Citizens
First will underwrite one- to four-family owner-occupied residential mortgage
loans with a loan to value
4Table of Contentsratio of 97%, provided that private mortgage insurance will generally be required on
loans that exceed 80% of the lower of the appraised value or the purchase price
of the real estate. In limited instances, Citizens First will originate
loans with a loan to value ratio of 103% to sell in the secondary market,
with servicing released. Citizens First also offers a seven year balloon
mortgage loan, in which the borrower pays a fixed monthly payment for the
first seven years, at which point the entire balance of the loan becomes due.Citizens First currently also offers adjustable-rate mortgage loans, with
an interest rate based on the U.S. Treasury securities index, which adjust
annually after a one, three, five or seven year initial fixed period and with
terms of up to 30 years. The maximum amount by which the interest rate may be
increased or decreased on such loans is generally 2% per year and no more than
5% over the life of the loan. Additionally, Citizens First offers an
adjustable-rate loan where the borrower has the option to convert the loan to a
fixed rate after a predetermined period of time, without refinancing costs.Adjustable-rate mortgage loans help reduce Citizens Firsts exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs to be paid by the borrower due
to changed rates. During periods of rising interest rates the risk of default
on adjustable-rate mortgage loans increases as a result of repricing and the
increased payments required by the borrower. In addition, although
adjustable-rate mortgage loans help make Citizens Firsts asset base more
responsive to changes in interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate adjustment
limits. Because of these considerations, yields on adjustable-rate mortgage
loans may not be sufficient to offset increases in Citizens Firsts cost of
funds during periods of rising interest rates.Citizens First requires all properties securing its mortgage loans to be
appraised by an approved independent state-licensed appraiser. Citizens First
also requires that fire, casualty, title, hazard and, if appropriate, flood
insurance be maintained on most properties securing real estate loans made by
Citizens First.In an effort to provide financing for low- and moderate-income families,
Citizens First offers Federal Housing Authority and Veterans Administration
residential mortgage loans to qualified individuals with adjustable- and
fixed-rates of interest and terms of up to 30 years. Such loans are secured by
one- to four-family residential property and are underwritten using modified
underwriting guidelines.Residential Construction Loans.Citizens First originates construction
loans to individuals for the construction of one- to four-family residences.
Citizens Firsts residential construction loans generally provide for the
payment of interest only during the construction phase, which is usually
between six and twelve months. At the end of the construction phase, the loan
converts to a permanent mortgage loan. Loans can be made with a maximum loan
to value ratio of 95%, provided that the borrower obtains private mortgage
insurance on the loan if the loan balance exceeds 80% of the appraised value or
sales price, whichever is less, of the secured property. Citizens First will
also originate residential construction loans to builders with which Citizens
First has an established relationship. Construction loans to individuals are
generally made on the same terms as Citizens Firsts one- to four-family
mortgage loans. At March 31, 2001, the largest outstanding residential
construction loan commitment was for $1.5 million, all of which was
outstanding. This loan was performing according to its terms at March 31,
2001.Before making a commitment to fund a construction loan, Citizens First
requires an appraisal of the property by an independent licensed appraiser.
Citizens First also reviews and inspects each property before disbursement of
funds. Loan proceeds are disbursed after each stage of work is completed. The
final 10% of the loan is held until the house is completed.Construction lending generally involves a higher degree of risk than
single-family permanent mortgage lending because of the greater potential for
disagreements between borrowers and builders and the failure of builders to pay
subcontractors. Additional risk often exists because of the inherent
difficulty in estimating both a propertys value and the estimated cost of the
property. If the estimate of construction cost proves to be inaccurate,
Citizens First may be
5Table of Contentsrequired to advance funds beyond the amount originally
committed to protect the value of the property. If the estimate of value upon
completion proves to be inaccurate, Citizens First may be confronted with a
property whose value is insufficient to assure full repayment.Commercial and Multi-Family Real Estate Loans.Citizens First originates
commercial real estate loans that are generally secured by properties used for
business purposes such as small office buildings, industrial facilities or
retail facilities primarily located in Citizens Firsts primary market area,
under the direction of an experienced staff of commercial loan officers.
Citizens First also, to a lesser extent, originates multi-family loans that are
generally secured by five or more unit apartment buildings in Citizens Firsts
primary market area.Most of the commercial and multi-family loans originated by Citizens First
are fully amortizing loans with terms of up to twenty years. Generally, the
maximum loan-to-value ratio for such a loan is 80%. In reaching its decision
on whether to make a commercial or multi-family real estate loan, Citizens
First considers the net operating income of the property, the borrowers
expertise, credit history and profitability and the value of the underlying
property. In addition, with respect to commercial real estate rental
properties, Citizens First will also consider the term of the lease and the
quality of the tenants. Citizens First has generally required that the
properties securing these real estate loans have debt service coverage ratios
(the ratio of earnings before debt service to debt service) of between 1.10x
and 1.30x. Citizens First requires written appraisals prepared by a certified
independent appraiser of all properties securing commercial or multi-family
real estate loans greater than $250,000, or as required by FIRREA.
Additionally, environmental surveys are required prior to funding of certain
larger commercial real estate in excess of $1.0 million and may be required on
commercial real estate loans greater than $500,000 or where a risk of
contamination exists. At March 31, 2001, Citizens Firsts largest commercial
or multi-family real estate loan had an outstanding balance of $3.6 million.
The loan is secured by vacant land and was performing according to its terms at
March 31, 2001.Citizens First also makes construction loans for commercial development
projects, including multi-family, commercial properties, single-family
subdivisions and condominiums. These loans generally have an interest-only
phase during construction then convert to permanent financing. The permanent
mortgage loan must be approved at the time the initial approval is made.
Disbursement of funds are at the sole discretion of Citizens First and are
based on the progress of construction. The maximum loan to value ratio for
these loans depends upon the type of commercial development project being
undertaken, but generally will not exceed 80%. At March 31, 2001, the largest
outstanding commercial construction loan was $3.8 million. This loan was
performing according to its terms at March 31, 2001.Multi-family and commercial real estate lending affords Citizens First an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by these
properties usually are greater in amount and are more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
income producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. Citizens First
seeks to minimize these risks by generally limiting the maximum loan-to-value
ratio to 80% for commercial and multi-family real estate loans and by strictly
scrutinizing the financial condition of the borrower, the cash flow of the
project, the quality of the collateral and the management of the property
securing the loan.Consumer Loans.Citizens First offers a variety of consumer loans,
including home equity loans and lines of credit, automobile loans, mobile home
loans, other secured loans, collateral loans, personal loans and unsecured
loans.Citizens First offers home equity loans and lines of credit secured by
owner-occupied one- to four-family residences. At March 31, 2001, home equity
loans and lines of credit totaled $69.4 million, or 10.1% of Citizens Firsts
total loans and 51.3% of consumer loans. Additionally, at March 31, 2001, the
unadvanced amounts of home equity lines of credit totaled $12.8 million. The
underwriting standards employed by Citizens First for home equity loans and
lines of credit include a determination of the applicants credit history, an
assessment of the applicants ability to meet existing obligations and payments
on the proposed loan and the value of the collateral securing the loan. Home
equity
6Table of Contentsloans will not be made if the borrowers outstanding monthly debt
exceeds 40% of the borrowers gross monthly income. Loan to value ratios and
the maximum loan amounts vary depending on the amount of insurance coverage on
the underlying property. Generally, home equity loans are made with fixed
interest rates and with terms up to 15 years.Home equity lines of credit have adjustable rates of interest which are
indexed to the prime rate as reported in The Wall Street Journal. Generally,
the maximum combined loan-to-value ratio on home equity lines of credit is 85%
and loans may be made up to $500,000. A home equity line of credit may be
drawn down by the borrower for an initial period of five years from the date of
the loan agreement. During this period, the borrower has the option of paying,
on a monthly basis, either principal and interest or only the interest. If not renewed,
the borrower has to pay back the amount outstanding under the line of credit over a
term not to exceed 15 years, beginning at the end of the five year period.Citizens First offers fixed-rate automobile loans on a direct and indirect
basis with terms of up to 72 months. Citizens First will generally make such
loans up to 100% of the retail price for new cars and up to 90% of the retail
value as stated in the NADA Used Car Guide for used cars. The interest rates
offered depend on the age of the automobile, market conditions and current
interest rates.In March 1999, Citizens First commenced an indirect consumer lending
program, which is managed by an experienced consumer loan officer. Citizens
First originates automobile loans through approximately 31 automobile dealers
in its primary market area. These dealers provide Citizens First applications
to finance new and, to a lesser extent, used vehicles sold by their
dealerships. Citizens First has the opportunity to accept or reject each loan.
Generally, Citizens First pays a fee to the automobile dealer based on the
interest rate on the loan. This fee, or dealer reserve, is paid to the dealer
monthly. If a loan is paid off or charged off within a specified time period,
Citizens First is credited with 100% of the dealer reserve, which it may
withhold from the dealers account or credit against future payments to the
dealer. For fiscal 2001 and 2000, Citizens First originated $32.9 million and
$39.7 million of automobile loans, respectively, of which 89.0% and 90.0% were
originated indirectly. At March 31, 2001, Citizens First held $41.7 million of
indirect auto loans, or 6.1% of total loans and 30.8% of consumer loans.Citizens First also originates consumer loans secured by mobile homes.
Historically, such loans were primarily originated indirectly through dealer
relationships. However, in recent years management has decided to stop
originating such loans on an indirect basis, which has reduced the amount of
mobile home originations. As a result, mobile home loans have declined from
$33.3 million, or 7.6% of total loans and 45.7% of consumer loans to $10.4
million, or 1.5% of total loans and 7.7% of consumer loans at March 31, 2001.
Citizens First originates loans on new or used mobile homes (up to fifteen
years old) with terms ranging from seven to fifteen years and with fixed
interest rates. Citizens First generally will finance up to a maximum of 90%
of the purchase price of the mobile home unit or the retail value as stated in
the NADA book, whichever is less.Citizens First also originates consumer loans secured by boats,
motorcycles, campers and other recreational vehicles. These loans have fixed
interest rates and terms ranging from a maximum of five years to fifteen years
depending on the type of collateral securing the loan.Citizens First offers collateral loans, personal loans and unsecured
loans. Collateral loans are generally secured by a savings account or a
certificate of deposit. Personal loans generally have a borrowing capacity of
$5,000 and a maximum term of four years. Citizens First also makes unsecured
personal loans to individuals who have been homeowners for at least four years.
These loans will be made up to $10,000 with terms of up to seven years.Citizens First believes that it will benefit from the higher yields earned
on consumer loans and that the shorter duration of consumer loans will improve
Citizens Firsts interest rate risk position. However, consumer loans entail
greater risk than do residential mortgage loans, particularly in the case of
loans that are unsecured or secured by rapidly depreciating assets such as
automobiles. In these cases, any repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of
7Table of Contentsdamage, loss or depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on
the borrowers continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Citizens First expects that it will increase its allowance for loan losses as
its consumer loan portfolio grows by charging a provision for loan losses
against income.Commercial Loans.Citizens First, under the direction of an experienced
staff of commercial loan officers, makes commercial business loans primarily in
its market area to a variety of professionals, sole proprietorships and small
businesses. Citizens First offers a variety of commercial lending products,
including term loans for fixed assets, working capital, lines of credit and
loans with a single principal payment at maturity. Additionally, Citizens
First originates Small Business Administration guaranteed loans. Citizens
First offers secured commercial term loans, with terms of up to ten years
and the payment of which is dependent on future earnings. Business lines
of credit have adjustable rates of interest with terms of up to three years.
Loans that require a one-time payment of principal at its termination will be
originated on terms of up to three years provided the borrower is paying
interest at least semi-annually or up to one year if the borrower will pay all
of the interest due upon maturity. Business loans with variable rates of
interest are generally indexed to the prime rate as reported in The Wall Street
Journal. Citizens First also makes unsecured commercial loans. At March 31,
2001, such loans totaled $11.3 million, or 28.8% of commercial loans. At March
31, 2001, Citizens Firsts largest outstanding commercial loan was a $2.5
million unsecured line of credit. Additionally, at March 31, 2001, Citizens
Firsts largest outstanding commercial loan commitment was a $5.0 million line
of credit, secured by certificates of deposit. Both of these loans were
performing according to their terms at March 31, 2001.When making commercial business loans, Citizens First considers the
financial statements of the borrower, Citizens Firsts lending history with the
borrower, the debt service capabilities of the borrower, the projected cash
flows of the business, and the value of the collateral. Commercial business
loans are generally secured by a variety of collateral, primarily accounts
receivable, inventory and equipment, and are generally supported by personal
guarantees. Depending on the collateral used to secure the loans, commercial
loans are made in amounts of up to 100% of the value of the collateral securing
the loan.Unlike residential mortgage loans, which generally are made on the basis
of the borrowers ability to make repayment from his or her employment or other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial loans are of higher risk and typically are
made on the basis of the borrowers ability to make repayment from the cash
flow of the borrowers business. As a result, the availability of funds for
the repayment of commercial loans may depend substantially on the success of
the business itself. Further, any collateral securing such loans may
depreciate over time, may be difficult to appraise and may fluctuate in value.Loans to One Borrower.The maximum amount that Citizens First may lend to
one borrower is limited by regulation. At March 31, 2001, Citizens Firsts
regulatory limit on loans to one borrower was $14.2 million or $23.7 million
for loans approved by two-thirds of the Board of Directors. At that date,
Citizens Firsts largest amount of outstanding loans to one borrower, including
the borrowers related interests, was approximately $19.3 million and consisted
of twelve term loans and one construction loan. Additionally, at March 31,
2001, Citizens Firsts largest outstanding commitment to one borrower was
approximately $20.7 million, approximately $19.3 million of which was
outstanding, and consisted of twelve term loans and one construction loan. All
of these loans were performing according to their original terms at March 31,
2001.Loan Approval Procedures and Authority.Citizens Firsts lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by Citizens Firsts Board of Directors and
management.Residential real estate loans greater than $700,000 require the approval
of the Board of Directors. Additionally, various officers and underwriters of
Citizens First have been delegated authority to approve different types of real
estate
8Table of Contentsloans. The approval authorities range from the authority of certain
staff underwriters to approve residential mortgage loans up to $100,000 to the
authority of the President and Chief Executive Officer to approve any real
estate loan up to $700,000. The Senior Vice President, Retail Banking may
approve any type of loan up to $400,000. In addition, certain employees may
combine their authority to jointly approve a loan that exceeds their individual
lending authority.Consumer loans greater than $700,000 require the approval of the entire
Board of Directors. Additionally, various bank personnel have been delegated
authority to approve consumer loans. The President and Chief Executive Officer
may individually approve any consumer loan up to $700,000. The Senior Vice
President, Retail Banking may approve loans up to $400,000. The Vice
President, Consumer Loans may approve loans up to $100,000. Two assistant vice
presidents in the consumer loan department and the consumer department lenders
may each approve loans up to $50,000.All commercial and commercial real estate loans in excess of $3.0 million
require the approval of the Board of Directors. Commercial and commercial real
estate loans between $1.0 and $3.0 million require the approval of the
Directors Loan Committee, which consists of three directors, the President and
Chief Executive Officer and the Senior Vice President, Commercial Banking.
Commercial and commercial real estate loans between $500,000 and $1.0 million
require the approval of the Officers Credit Committee, which consists of the President
and Chief Executive Officer, the Senior Vice President, Commercial Banking,
certain commercial officers and other officers as designated. Additionally,
various bank personnel have been delegated authority to approve loans less than
$500,000. Officers may combine their authority to jointly approve a loan that
exceeds their individual lending authority.Loan Originations, Purchases and Sales.Citizens First lending activities
are conducted by its salaried and commissioned loan personnel and through its
relationship with dealers. Currently, Citizens First has contractual
relationships with approximately 38 vehicle dealers, approximately 31 of which
originate automobile loans for Citizens First. Citizens First underwrites and
funds such loans. These automobile dealers accounted for approximately 41.0%
and 45.0% of the consumer loans originated by Citizens First in fiscal 2001 and
2000, respectively. The automobile dealers are compensated based on the
interest rate on the loan offered. This fee, or dealer reserve, is paid to the
dealer monthly.Except in connection with its indirect automobile lending, Citizens First
relies on advertising, referrals from realtors and customers, and personal
contact by Citizens Firsts staff to generate loan originations. Citizens
First does not use loan correspondents or other third-parties to originate
loans. Citizens First generally does not purchase either participation
interests in loans or whole loans. Citizens Firsts ability to originate
adjustable-rate and fixed-rate loans is dependent upon the relative customer
demand for such loans, which is affected by the current and expected future
level of interest rates.Generally, all fixed-rate loans which conform to the underwriting
standards specified by Freddie Mac are originated for sale in the secondary
market to Freddie Mac, and to a lesser extent private investors. Additionally,
Citizens First was recently approved to sell loans in the secondary market to
Fannie Mae. To date, no loans have been sold to Fannie Mae. Citizens First
generally retains the servicing rights on the loans sold. Citizens First
currently has a best efforts contract with a third party, under which Citizens
First is not required to replace loans which fail to close for any reason.
Additionally, Citizens First has entered into forward contracts with Freddie
Mac in the past and at March 31, 2001, Citizens had outstanding forward
contracts to sell loans of approximately $7.9 million. Sales of loans are made
without recourse to Citizens First in the event of default by the borrower.
Citizens First generally originates adjustable-rate loans for its portfolio but
will from time to time sell such loans in the secondary market based on
prevailing market interest rate conditions, liquidity needs and Citizens
Firsts interest rate risk position.9Table of ContentsThe following table sets forth Citizens Firsts loan originations, sales
and principal repayments for the periods indicated:

|                             |                                           |                            |                                         |                         |         |                              |         |         |         |                |         |         |         |         |         | 
|---------------------------- | ----------------------------------------- | -------------------------- | --------------------------------------- | ----------------------- | ------- | ---------------------------- | ------- | ------- | ------- | -------------- | ------- | ------- | ------- | ------- | ------- | 
|                             |                                           |                            |                                         |                         |         | For the Year Ended March 31, |        
|                             |                                           |                            |                                         |                         |         |                              |        
|                             |                                           |                            |                                         |                         |         | 2001                         |         |         | 2000    |                |         | 1999    |        
|                             |                                           |                            |                                         |                         |         |                              |         |         |         |                |         |         |        
|                             |                                           |                            |                                         |                         |         |                              |         |         |         | (In thousands) |        
|Loans at beginning of period |                                           | $                          | 580,357                                 |                         |         | $                            | 603,598 |         |         | $              | 558,302 |        
|                            
|                            
|                            
|                            
|                             | Originations:                            
|                            
|                            
|                            
|                            
|                             |                                           | Real estate:              
|                            
|                            
|                            
|                            
|                             |                                           |                            | One- to four-family                     |                         |         | 185,227                      |         |         |         | 110,854        |         |         |         | 177,492 |        
|                            
|                            
|                            
|                            
|                             |                                           |                            | Commercial and multi-family real estate |                         |         | 42,203                       |         |         |         | 37,812         |         |         |         | 30,036  |        
|                            
|                            
|                            
|                            
|                             |                                           |                            | Residential construction                |                         |         | 39,838                       |         |         |         | 37,625         |         |         |         | 39,631  |        
|                             |                                           |                            |                                         |                         |         |                              |         |         |        
|                             |                                           |                            |                                         | Total real estate loans |         |                              | 267,268 |         |         |                | 186,291 |         |         |         | 247,159 | 
|                            
|                            
|                            
|                            
|                             |                                           | Consumer:                 
|                            
|                            
|                            
|                            
|                             |                                           |                            | Home equity loans and lines of credit   |                         |         | 28,280                       |         |         |         | 31,723         |         |         |         | 20,463  |        
|                            
|                            
|                            
|                            
|                             |                                           |                            | Vehicles                                |                         |         | 36,363                       |         |         |         | 43,732         |         |         |         | 6,291   |        
|                             |                                           |                            |                                         |                         |         |                              |         |         |        
|                             |                                           |                            |                                         | Total consumer loans    |         |                              | 64,643  |         |         |                | 75,455  |         |         |         | 26,754  | 
|                            
|                            
|                            
|                            
|                             |                                           | Commercial                 |                                         |                         | 41,229  |                              |         |         | 30,713  |                |         |         | 21,865  |        
|                             |                                           |                            |                                         |                         |         |                              |         |         |        
|                             |                                           |                            |                                         | Total loans originated  |         |                              | 373,140 |         |         |                | 292,459 |         |         |         | 295,778 | 
|                             |                                           |                            |                                         |                         |         |                              |         |         |        
|Deduct:                     
|                            
|                            
|                            
|                            
|                             | Principal loan repayments and prepayments |                            |                                         | 200,766                 |         |                              |         | 122,773 |         |                |         | 156,227 |        
|                            
|                            
|                            
|                            
|                             |                                           | Loan sales                 |                                         |                         | 67,856  |                              |         |         | 192,927 |                |         |         | 94,255  |        
|                             |                                           |                            |                                         |                         |         |                              |         |         |        
|                             |                                           |                            | Sub-total                               |                         |         | 268,622                      |         |         |         | 315,700        |         |         |         | 250,482 |        
|                             |                                           |                            |                                         |                         |         |                              |         |         |        
|Net loan activity            |                                           |                            | 104,518                                 |                         |         |                              | (23,241 | )       |         |                | 45,296  |        
|                             |                                           |                            |                                         |                         |         |                              |         |         |        
|                             |                                           | Loans at end of period (1) |                                         | $                       | 684,875 |                              |         | $       | 580,357 |                |         | $       | 603,598 |        
|                             |                                           |                            |                                         |                         |         |                              |         |         |        



---

|(1) |  | Loans at end of period include loans in process of $13.7 million, $11.4
million and $12.4 million for fiscal years 2001, 2000 and 1999,
respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

Loan Commitments.Citizens First issues loan commitments to its
prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
honored for up to 30 days from approval for residential real estate loans and
180 days on multi-family and commercial real estate loans. At March 31, 2001,
Citizens First had loan commitments and unadvanced loans and lines of credit
totaling $175.1 million. See note 12 of the notes to financial statements
included in this Form 10-K.

Loan Fees.In addition to interest earned on loans, Citizens First
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending
upon the volume and type of loans made and competitive conditions.

Citizens First charges loan origination fees, which are calculated as a
percentage of the amount borrowed, subject to a minimum amount. As required by
applicable accounting principles, loan origination fees, discount points and
certain loan origination costs are deferred and recognized over the contractual
remaining lives of the related loans on a level yield basis. At March 31,
2001, Citizens First had $1.6 million of net deferred loan fees.

Nonperforming Assets and Delinquencies.When a borrower fails to make a
required loan payment, Citizens First attempts to cure the deficiency by
contacting the borrower and seeking the payment. A late notice is mailed after
16 days of delinquency for residential mortgage loans. In most cases,
deficiencies are cured promptly. After that, Citizens First attempts to
contact the borrower by either telephone, letter or in person in order to
determine the cause
10Table of Contentsof the delinquency and to arrange for curing the default.
Generally, after the 90th day of delinquency, Citizens First commences
foreclosure proceedings under the terms of the security instrument and
applicable law.When a borrower on a consumer or commercial loan fails to make a required
loan payment, a late notice is mailed after 10 days of delinquency and Citizens
First follows up with a letter and a phone call to the borrower. Additional
contact and correspondence continues until the 90th day of delinquency at which
point Citizens First may take action to repossess the property securing the
loan.Management informs the Board of Directors monthly of the amount of loans
delinquent more than 60 days, all loans in foreclosure, and all foreclosed and
repossessed property that Citizens First owns.Citizens First ceases accruing interest on loans when principal or
interest payments are delinquent 90 days or more unless the loan is adequately
collateralized and in the process of collection. Once the accrual of interest
on a loan is discontinued, all interest previously accrued is reversed against
current period interest income once management determines that interest is
uncollectible.

|                                                          |             |                            |      |              |       |  |      |                        |       |      |      |     |      |  |      |      |       |  |      |     |     | 
|--------------------------------------------------------- | ----------- | -------------------------- | ---- | ------------ | ----- |  | ---- | ---------------------- | ----- | ---- | ---- | --- | ---- |  | ---- | ---- | ----- |  | ---- | --- | --- | 
|                                                          |             |                            |      | At March 31, |      
|                                                          |             |                            |      |              |      
|                                                          |             |                            |      | 2001         |       |  | 2000 |                        |       | 1999 |      |     | 1998 |  |      | 1997 |      
|                                                          |             |                            |      |              |       |  |      |                        |       |      |      |     |      |  |      |      |      
|                                                          |             |                            |      |              |       |  |      | (Dollars in thousands) |      
|Non-accruing loans:                                      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Real estate |                            | $    | 1,156        |       |  | $    | 954                    |       |      | $    | 157 |      |  | $    | 578  |       |  | $    | 187 |    
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Consumer    |                            |      | 220          |       |  |      | 64                     |       |      |      | 212 |      |  |      | 207  |       |  |      | 104 |    
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Commercial  |                            |      | 434          |       |  |      | 228                    |       |      |      | 495 |      |  |      | 576  |       |  |      | 390 |    
|                                                          |             |                            |      |              |       |  |      |                        |       |      |      |     |      |  |     
|                                                          |             | Total (1)                  |      |              | 1,810 |  |      |                        | 1,246 |      |      |     | 864  |  |      |      | 1,361 |  |      |     | 681 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Real estate owned (2)                                     |             |                            | 282  |              |       |  | 80   |                        |       |      | 75   |     |      |  | 75   |      |       |  |     |    
|                                                          |             |                            |      |              |       |  |      |                        |       |      |      |     |      |  |     
|                                                          |             | Total nonperforming assets |      | $            | 2,092 |  |      | $                      | 1,326 |      |      | $   | 939  |  |      | $    | 1,436 |  |      | $   | 681 | 
|                                                          |             |                            |      |              |       |  |      |                        |       |      |      |     |      |  |     
|Total nonperforming loans as a
percentage of total loans  |             |                            | 0.26 | %            |       |  | 0.21 | %                      |       |      | 0.14 | %   |      |  | 0.24 | %    |       |  | 0.14 | %  
|                                                         
|                                                         
|                                                         
|                                                         
|Total nonperforming loans as a
percentage of total assets |             |                            | 0.21 | %            |       |  | 0.17 | %                      |       |      | 0.13 | %   |      |  | 0.22 | %    |       |  | 0.12 | %  



---

|(1) |  | Total non-accruing loans equals total nonperforming loans.                                                                                       
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Real estate owned balances are shown net of related loss allowances and
include repossessed automobiles which at March 31, 2001, totaled $56,395.

Interest income that would have been recorded for the year ended March 31,
2001 had nonaccruing loans been current according to their original terms
amounted to approximately $27,000. Interest related to these loans was not
included in interest income for the year ended March 31, 2001.

11



---



##### Table of Contents



The following table sets forth the delinquencies in Citizens Firsts loan
portfolio as of the dates indicated.

|                                |                                       |       |   |                        |    |  |                   |     |     |            |   |    |                 |  |      |        |       |  |            |    |    |        |      |     |            |  |   |    |    |  |      |     |       | 
|------------------------------- | ------------------------------------- | ----- | - | ---------------------- | -- |  | ----------------- | --- | --- | ---------- | - | -- | --------------- |  | ---- | ------ | ----- |  | ---------- | -- | -- | ------ | ---- | --- | ---------- |  | - | -- | -- |  | ---- | --- | ----- | 
|                                |                                       |       |   | At March 31, 2001      |    |  | At March 31, 2000 |    
|                                |                                       |       |   |                        |    |  |                   |    
|                                |                                       |       |   | 60-89 Days             |    |  | 90 Days or More   |     |     | 60-89 Days |   |    | 90 Days or More | 
|                                |                                       |       |   |                        |    |  |                   |     |     |            |   |    |                 | 
|                                |                                       |       |   | Number                 |    |  | Principal         |     |     | Number     |   |    | Principal       |  |      | Number |       |  | Principal  |    |    | Number |      |     | Principal  | 
|                                |                                       |       |   | of                     |    |  | Balance of        |     |     | of         |   |    | Balance of      |  |      | of     |       |  | Balance of |    |    | of     |      |     | Balance of | 
|                                |                                       |       |   | Loans                  |    |  | Loans             |     |     | Loans      |   |    | Loans           |  |      | Loans  |       |  | Loans      |    |    | Loans  |      |     | Loans      | 
|                                |                                       |       |   |                        |    |  |                   |     |     |            |   |    |                 |  |      |        |       |  |            |    |    |        |      |     |            | 
|                                |                                       |       |   | (Dollars in thousands) |   
|Real Estate Loans:             
|                               
|                               
|                               
|                               
|                                | One- to four-family                   |       |   | 3                      |    |  | $                 | 271 |     |            |   | 13 |                 |  | $    | 1,156  |       |  |            | 7  |    |        | $    | 912 |            |  |   | 14 |    |  | $    | 954 |      
|                               
|                               
|                               
|                               
|                                | Residential construction              |       |   |                       |    |  |                   |    |     |            |   |   |                 |  |      |       |       |  |            | 2  |    |        |      | 197 |            |  |   |   |    |  |      |    |      
|                               
|                               
|                               
|                               
|Consumer Loans:                
|                               
|                               
|                               
|                               
|                                | Home equity loans and
lines of credit |       |   | 12                     |    |  |                   | 146 |     |            |   | 8  |                 |  |      | 109    |       |  |            | 3  |    |        |      | 30  |            |  |   |   |    |  |      |    |      
|                               
|                               
|                               
|                               
|                                | Vehicles                              |       |   | 6                      |    |  |                   | 104 |     |            |   | 9  |                 |  |      | 111    |       |  |            | 16 |    |        |      | 190 |            |  |   | 3  |    |  |      | 64  |      
|                               
|                               
|                               
|                               
|Commercial loans                |                                       |       |  |                        |    |  |                  |     |     |            | 2 |    |                 |  | 434  |        |       |  | 5          |    |    |        | 258  |     |            |  | 2 |    |    |  | 228  |    
|                                |                                       |       |   |                        |    |  |                   |     |     |            |   |    |                 |  |      |        |       |  |            |    |    |        |      |    
|                                |                                       | Total |   |                        | 21 |  |                   | $   | 521 |            |   |    | 32              |  |      | $      | 1,810 |  |            |    | 33 |        |      | $   | 1,587      |  |   |    | 19 |  |      | $   | 1,246 | 
|                                |                                       |       |   |                        |    |  |                   |     |     |            |   |    |                 |  |      |        |       |  |            |    |    |        |      |    
|Delinquent loans to
total loans |                                       |       |   |                        |    |  | 0.08              | %   |     |            |   |    |                 |  | 0.26 | %      |       |  |            |    |    |        | 0.27 | %   |            |  |   |    |    |  | 0.21 | %  
|                                |                                       |       |   |                        |    |  |                   |     |     |            |   |    |                 |  |      |        |       |  |            |    |    |        |      |     |            |  |   |   

|                                |                                       |       |   |                        |    |  |                 |     |       |        |   |    |            |  |      |     |     | 
|------------------------------- | ------------------------------------- | ----- | - | ---------------------- | -- |  | --------------- | --- | ----- | ------ | - | -- | ---------- |  | ---- | --- | --- | 
|                                |                                       |       |   | At March 31, 1999      |   
|                                |                                       |       |   |                        |   
|                                |                                       |       |   | 60-89 Days             |    |  | 90 Days or More |    
|                                |                                       |       |   |                        |    |  |                 |    
|                                |                                       |       |   | Number                 |    |  | Principal       |     |       | Number |   |    | Principal  | 
|                                |                                       |       |   | of                     |    |  | Balance of      |     |       | of     |   |    | Balance of | 
|                                |                                       |       |   | Loans                  |    |  | Loans           |     |       | Loans  |   |    | Loans      | 
|                                |                                       |       |   |                        |    |  |                 |     |       |        |   |    |            | 
|                                |                                       |       |   | (Dollars in thousands) |   
|Real Estate Loans:             
|                               
|                               
|                               
|                               
|                                | One- to four-family                   |       |   | 5                      |    |  | $               | 362 |       |        |   | 2  |            |  | $    | 157 |    
|                               
|                               
|                               
|                               
|                                | Residential construction              |       |   |                       |    |  |                 |    |       |        |   |   |            |  |      |    |    
|                               
|                               
|                               
|                               
|Consumer Loans:                
|                               
|                               
|                               
|                               
|                                | Home equity loans and
lines of credit |       |   |                       |    |  |                 |    |       |        |   |   |            |  |      |    |    
|                               
|                               
|                               
|                               
|                                | Vehicles                              |       |   | 25                     |    |  |                 | 320 |       |        |   | 11 |            |  |      | 212 |    
|                               
|                               
|                               
|                               
|Commercial loans                |                                       |       | 5 |                        |    |  | 495             |     |       |        | 5 |    |            |  | 495  |    
|                                |                                       |       |   |                        |    |  |                 |     |       |        |   |   
|                                |                                       | Total |   |                        | 35 |  |                 | $   | 1,177 |        |   |    | 18         |  |      | $   | 864 | 
|                                |                                       |       |   |                        |    |  |                 |     |       |        |   |   
|Delinquent loans to
total loans |                                       |       |   |                        |    |  | 0.19            | %   |       |        |   |    |            |  | 0.14 | %  
|                                |                                       |       |   |                        |    |  |                 |     |       |        |   |    |            | 

Real Estate Owned.
Real estate acquired by Citizens First as a result of
foreclosure and real estate acquired by deed-in-lieu of foreclosure is
classified as real estate owned until sold. Under Michigan law, there is
generally a six-month redemption period with respect to one- to four-family
residential properties during which the borrower has the right to repurchase
the property. When property is acquired it is recorded at the lower of its
cost, which is the unpaid principal balance of the loan plus foreclosure costs,
or fair market value at the date of foreclosure, establishing a new cost basis.
Holding costs and declines in fair value after acquisition of the property
result in charges against income. At March 31, 2001, Citizens First had
$282,000 in real estate owned, which consisted of two residential real estate
loans, one commercial real estate loan and repossessed automobiles.

Asset
Classification. Regulators have adopted various regulations and
practices regarding problem assets of savings institutions. Under such
regulations, examiners have authority to identify problem assets during
examinations and, if appropriate, require them to be classified.

12



---



##### Table of Contents



There are three classifications for problem assets: substandard, doubtful
and loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that
the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high possibility of loss. An
asset classified as loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. If an asset
or portion thereof is classified as loss, the insured institution establishes
specific allowances for loan losses for the full amount of the portion of the
asset classified as loss. All or a portion of general loan loss allowances
established to cover probable losses related to assets classified substandard
or doubtful can be included in determining an institutions regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not currently expose the insured
institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses are designated special
mention. Citizens First monitors special mention assets. Citizens Firsts
Asset/Liability Management Committee, which consists of the President and Chief
Executive Officer and three senior vice presidents, classifies assets on a
monthly basis based upon delinquency reports, real estate owned, asset review
summaries and assets brought to their attention by senior officers.

The following table sets forth the Banks classified assets at March 31,
2001.

|                   |                                       |       |   |        |   |  |           |    |    |             |        |   |                 |  |     |                        |     |        |           |    |   |       |     |       |           |  |   |   |   |  |       |     |       | 
|------------------ | ------------------------------------- | ----- | - | ------ | - |  | --------- | -- | -- | ----------- | ------ | - | --------------- |  | --- | ---------------------- | --- | ------ | --------- | -- | - | ----- | --- | ----- | --------- |  | - | - | - |  | ----- | --- | ----- | 
|                   |                                       |       |   | Loss   |   |  | Doubtful  |    |    | Substandard |        |   | Special Mention | 
|                   |                                       |       |   |        |   |  |           |    |    |             |        |   |                 | 
|                   |                                       |       |   | Number |   |  |           |    |    |             | Number |   |                 |  |     |                        |     | Number |           |    |   |       |     |       | Number    | 
|                   |                                       |       |   | of     |   |  | Principal |    |    | of          |        |   | Principal       |  |     | of                     |     |        | Principal |    |   | of    |     |       | Principal | 
|                   |                                       |       |   | Loans  |   |  | Balance   |    |    | Loans       |        |   | Balance         |  |     | Loans                  |     |        | Balance   |    |   | Loans |     |       | Balance   | 
|                   |                                       |       |   |        |   |  |           |    |    |             |        |   |                 |  |     |                        |     |        |           |    |   |       |     |       |           | 
|                   |                                       |       |   |        |   |  |           |    |    |             |        |   |                 |  |     | (Dollars in thousands) |    
|Real estate loans:
|                  
|                  
|                  
|                  
|                   | One- to four-family                   |       |   |       |   |  | $         |   |    |             |        |  |                 |  | $   |                       |     |        |           | 11 |   |       | $   | 1,156 |           |  |   |  |   |  | $     |    |      
|                  
|                  
|                  
|                  
|                   | Commercial and multi-family           |       |   |       |   |  |           |   |    |             |        |  |                 |  |     |                       |     |        |           |   |   |       |     |      |           |  |   | 2 |   |  |       | 376 |      
|                  
|                  
|                  
|                  
|Consumer loans:   
|                  
|                  
|                  
|                  
|                   | Home equity loans and
lines of credit |       |   |       |   |  |           |   |    |             |        |  |                 |  |     |                       |     |        |           | 5  |   |       |     | 62    |           |  |   |  |   |  |       |    |      
|                  
|                  
|                  
|                  
|                   | Vehicles                              |       |   | 2      |   |  |           | 17 |    |             |        |  |                 |  |     |                       |     |        |           | 12 |   |       |     | 159   |           |  |   |  |   |  |       |    |      
|                  
|                  
|                  
|                  
|                   | Other                                 |       |   |       |   |  |           |   |    |             |        |  |                 |  |     |                       |     |        |           | 12 |   |       |     | 124   |           |  |   |  |   |  |       |    |      
|                  
|                  
|                  
|                  
|Commercial loans   |                                       |       |  |        |   |  |          |    |    |             |       |   |                 |  | 142 |                        |     |        | 2         |    |   |       | 434 |       |           |  | 1 |   |   |  | 2,200 |    
|                   |                                       |       |   |        |   |  |           |    |    |             |        |   |                 |  |     |                        |     |        |           |    |   |       |     |      
|                   |                                       | Total |   |        | 2 |  |           | $  | 17 |             |        |   | 1               |  |     | $                      | 142 |        |           |    | 2 |       |     | $     | 1,935     |  |   |   | 3 |  |       | $   | 2,576 | 
|                   |                                       |       |   |        |   |  |           |    |    |             |        |   |                 |  |     |                        |     |        |           |    |   |       |     |      

Allowance for Loan Losses.In originating loans, the Bank recognizes that
losses will be experienced on loans and that the risk of loss will vary with,
among other things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan, general economic conditions and, in the
case of a secured loan, the quality of the security for the loan. The Bank
maintains an allowance for loan losses to absorb losses inherent in the loan
portfolio. The allowance for loan losses represents managements estimate of
probable losses based on information available as of the date of the financial
statements.

Citizen Firsts methodology for assessing the adequacy of its loan loss
allowance consists of management assessing the expected losses inherent in the
loan portfolio by first performing a detailed review of multi-family real
estate, commercial real estate and other loans with significant balances. Such
loans are assigned higher credit risk ratings upon their origination. A
detailed credit quality review is also performed for other loans which have
deteriorated below certain levels of credit risk or which have been classified
or identified as watch list loans. A specified loss allowance is attributed to
such reviewed loans. An appropriate level of loss allowance is then determined
for the remaining balance of the loan portfolio by applying estimated projected
loss factors to each specific type of loan category in the portfolio with
varying loss factors being applied to specific sub-categories of loans within
such broader categories. The estimated loss factors applied are primarily
determined by management based on recent loan loss
13Table of Contentsexperience, industry averages and trends in loan delinquencies and nonaccruals for each type of
loan. The determination of the estimated loss factors applied to each type of
loan is determined based on information known to management at such time and
projections by management based on such information and, therefore, actual loss
ratios experienced in the future could vary from those projected. After the
review yields an aggregate amount of loss allowance attributable to specific
loans and attributable the application of the loss factors to the remaining
balance of loans by type, management analyzes the adequacy of such combined
amount of loan loss allowance by considering other factors that may have an
impact on the performance of the loan portfolio, such as trends in real estate
and collateral values, trends and forecasts for the national and local economies and the
geographic dispersion of borrowers. Based on this analysis, management then
adjusts the overall allowance and may result in an unallocated portion of the
loan loss allowance. This necessity for the unallocated portion of the
allowance occurs because other factors affecting the determination of probable
losses inherent in the loan portfolio may exist which are not necessarily
captured by the application of estimated loss factors. Management also
considers industry norms and the expectations from rating agencies and banking
regulators in determining the adequacy of the allowance. The existence of an
unallocated portion of the loan loss allowance reflects managements view that
the allowance should have a margin that recognizes the imprecision underlying
the process of estimating expected credit losses and the adequacy of the loan
loss allowance. Determination of the probable losses inherent in the
portfolio, which are not necessarily captured by the allocated methodology
discussed above, involves the exercise of judgment. Recent factors which were
considered in the evaluation of the adequacy of Citizens Firsts unallocated
loan loss reserve include the relative lack of loss experience with indirect
automobile loans, and increases in commercial real estate, commercial and
construction loans. The unallocated reserve was $479,000 at March 31, 2001,
which represented 4.4% of the total allowance and 0.07% of total loans at March
31, 2001.At March 31, 2001, Citizens Firsts allowance for loan losses represented
1.58% of total loans and 598.40% of nonperforming loans as compared to 1.80%
and 839.57% at March 31, 2000. During fiscal 1999, in recognition of its
strategy of increasing multi-family real estate, commercial real estate,
commercial and consumer (particularly indirect automobile) loans, the overall
increase in the risk inherent in a loan portfolio with an increased amount of
such loans and the relative lack of loss experience with those types of loans,
management reevaluated its loan loss allowance methodology. As a result,
management determined to increase the loss factors it applied to its commercial
real estate, commercial and consumer loans and also determined that it should
maintain an overall loan loss allowance which would be at historically higher
levels as a percentage of total loans and which would be closer to the loan
loss allowance averages maintained by commercial banks operating in Michigan.
Based on the revised methodology, the loan loss allowance was increased to
$11.1 million or 1.85% of total loans at March 31, 1999 of which $2.1 million
was unallocated to any specific loan category. However, during fiscal 2000,
despite an increase in the aggregate balance of commercial and consumer loans,
non-accruing commercial and consumer loans decreased and commercial and
consumer loans experienced delinquencies at lower levels than were expected in
1999 which resulted in an overall reduction in the loan loss allowance in
fiscal 2000 to 1.65% of total loans. This level is consistent with
managements target range of 1.5% to 1.9% of total loans based on the current
composition of the portfolio and market and economic conditions. Although
management believes that it uses the best information available to establish
the allowance for loan losses, future adjustments to the allowance for loan
losses may be necessary and results of operations could be adversely affected
if circumstances differ substantially from the assumptions used in making the
determinations. Furthermore, while Citizens First believes it has established
its existing allowance for loan losses in conformity with generally accepted
accounting principles, there can be no assurance that regulators, in reviewing
Citizens Firsts loan portfolio, will not request Citizens First to increase
its allowance for loan losses. Any material increase in the allowance for loan
losses may adversely affect Citizens Firsts financial condition and results of
operations.
14Table of ContentsThe following table presents an analysis of Citizens Firsts allowance for
loan losses.

|                                                        |             |                         |        |                      |      |   |        |                        |      |      |          |      |      |   |        |      |      |   |          |      |      |  
|------------------------------------------------------- | ----------- | ----------------------- | ------ | -------------------- | ---- | - | ------ | ---------------------- | ---- | ---- | -------- | ---- | ---- | - | ------ | ---- | ---- | - | -------- | ---- | ---- | -
|                                                        |             |                         |        | Year Ended March 31, |     
|                                                        |             |                         |        |                      |     
|                                                        |             |                         |        | 2001                 |      |   | 2000   |                        |      | 1999 |          |      | 1998 |   |        | 1997 |     
|                                                        |             |                         |        |                      |      |   |        |                        |      |      |          |      |      |   |        |      |     
|                                                        |             |                         |        |                      |      |   |        | (Dollars in thousands) |     
|Allowance for loan losses,
beginning of year            |             | $                       | 10,461 |                      |      | $ | 11,161 |                        |      | $    | 7,527    |      |      | $ | 6,982  |      |      | $ | 6,380    |     
|                                                       
|                                                       
|                                                       
|                                                       
|Charged-off loans:                                     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Real estate |                         |        | (5                   | )    |   |        | (5                     | )    |      |          |     |      |   |        | (4   | )    |   |          | (31  | )   
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Consumer    |                         |        | (342                 | )    |   |        | (230                   | )    |      |          | (50  | )    |   |        | (187 | )    |   |          | (170 | )   
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Commercial  |                         |        | (142                 | )    |   |        |                       |      |      |          | (117 | )    |   |        |     |      |   |          |     |     
|                                                        |             |                         |        |                      |      |   |        |                        |      |      |          |      |      |   |       
|                                                        |             | Total charged-off loans |        |                      | (489 | ) |        |                        | (235 | )    |          |      | (167 | ) |        |      | (191 | ) |          |      | (201 | )
|                                                        |             |                         |        |                      |      |   |        |                        |      |      |          |      |      |   |       
|Recoveries on loans previously
charged off:            
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Real estate |                         |        |                     |      |   |        | 6                      |      |      |          |     |      |   |        | 1    |      |   |          |     |     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Consumer    |                         |        | 23                   |      |   |        | 12                     |      |      |          | 1    |      |   |        | 21   |      |   |          | 45   |     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Commercial  |                         |        | 56                   |      |   |        |                       |      |      |          |     |      |   |        |     |      |   |          |     |     
|                                                        |             |                         |        |                      |      |   |        |                        |      |      |          |      |      |   |       
|                                                        |             | Total recoveries        |        |                      | 79   |   |        |                        | 18   |      |          |      | 1    |   |        |      | 22   |   |          |      | 45   |  
|                                                        |             |                         |        |                      |      |   |        |                        |      |      |          |      |      |   |       
|Net loans charged-off                                   |             |                         | (410   | )                    |      |   | (217   | )                      |      |      | (166     | )    |      |   | (169   | )    |      |   | (156     | )   
|                                                       
|                                                       
|                                                       
|                                                       
|Provision for loan losses                               |             |                         | 780    |                      |      |   | (483   | )                      |      |      | 3,800    |      |      |   | 714    |      |      |   | 758      |     
|                                                        |             |                         |        |                      |      |   |        |                        |      |      |          |      |      |   |       
|Allowance for loan losses,
end of period                |             | $                       | 10,831 |                      |      | $ | 10,461 |                        |      | $    | 11,161   |      |      | $ | 7,527  |      |      | $ | 6,982    |     
|                                                        |             |                         |        |                      |      |   |        |                        |      |      |          |      |      |   |       
|Net loans charged-off to average
interest-earning loans |             |                         | 0.06   | %                    |      |   | 0.04   | %                      |      |      | 0.03     | %    |      |   | 0.03   | %    |      |   | 0.03     | %   
|                                                       
|                                                       
|                                                       
|                                                       
|Allowance for loan losses
to total loans                |             |                         | 1.58   | %                    |      |   | 1.80   | %                      |      |      | 1.85     | %    |      |   | 1.35   | %    |      |   | 1.40     | %   
|                                                       
|                                                       
|                                                       
|                                                       
|Allowance for loan losses to
nonperforming loans        |             |                         | 598.40 | %                    |      |   | 839.57 | %                      |      |      | 1,281.78 | %    |      |   | 553.06 | %    |      |   | 1,025.28 | %   
|                                                       
|                                                       
|                                                       
|                                                       
|Net loans charged-off to
allowance for loan losses      |             |                         | 3.79   | %                    |      |   | 2.07   | %                      |      |      | 1.49     | %    |      |   | 2.25   | %    |      |   | 2.23     | %   
|                                                       
|                                                       
|                                                       
|                                                       
|Recoveries to charge-offs                               |             |                         | 16.16  | %                    |      |   | 7.86   | %                      |      |      | 0.60     | %    |      |   | 11.52  | %    |      |   | 22.39    | %   

15



---



##### Table of Contents



The following table presents the approximate allocation of the allowance
for loan losses by loan category at the dates indicated. Management believes
that the allowance can be allocated by category only on an approximate basis.
The allocation of the allowance to each category is not indicative of future
losses and does not restrict the use of any of the allowance to absorb losses
in any category.

|            |                                 |   |                        |        |  |           |           |        |       |          |       |        |   |   |           |        |           |       | At March 31, |         
|----------- | ------------------------------- | - | ---------------------- | ------ |  | --------- | --------- | ------ | ----- | -------- | ----- | ------ | - | - | --------- | ------ | --------- | ----- | ------------ | --------
|            |                                 |   |                       
|            |                                 |   |                        |        |  |           | 2001      |        |       |          |       |        |   |   |           |        |           | 2000  |              |         
|            |                                 |   |                        |        |  |           |          
|            |                                 |   |                        |        |  |           | % of      |        |       | Percent  |       |        |   |   |           |        | % of      |       |              | Percent 
|            |                                 |   |                        |        |  |           | Allowance |        |       | of Loans |       |        |   |   |           |        | Allowance |       |              | of Loans
|            |                                 |   |                        |        |  |           | in each   |        |       | in Each  |       |        |   |   |           |        | in each   |       |              | in Each 
|            |                                 |   |                        |        |  |           | Category  |        |       | Category |       |        |   |   |           |        | Category  |       |              | Category
|            |                                 |   |                        |        |  |           | to Total  |        |       | to Total |       |        |   |   |           |        | to Total  |       |              | to Total
|            |                                 |   | Amount                 |        |  | Allowance |           |        | Loans |          |       | Amount |   |   | Allowance |        |           | Loans |              |         
|            |                                 |   |                        |        |  |           |           |        |       |          |       |        |   |   |           |        |           |       |              |         
|            |                                 |   | (Dollars in thousands) |       
|Real estate |                                 | $ | 5,425                  |        |  |           | 50.09     | %      |       |          | 74.51 | %      |   | $ | 5,717     |        |           |       | 54.65        | %       
|           
|           
|           
|           
|Consumer    |                                 |   | 4,082                  |        |  |           | 37.69     |        |       |          | 19.77 |        |   |   | 3,120     |        |           |       | 29.83        |         
|           
|           
|           
|           
|Commercial  |                                 |   | 845                    |        |  |           | 7.80      |        |       |          | 5.72  |        |   |   | 784       |        |           |       | 7.49         |         
|           
|           
|           
|           
|Unallocated |                                 |   | 479                    |        |  |           | 4.42      |        |       |          |      |        |   |   | 840       |        |           |       | 8.03         |         
|            |                                 |   |                        |        |  |           |           |        |       |          |       |        |   |   |           |        |           |       |              |         
|            | Total allowance
for loan losses |   | $                      | 10,831 |  |           |           | 100.00 | %     |          |       | 100.00 | % |   | $         | 10,461 |           |       |              | 100.00  
|            |                                 |   |                        |        |  |           |           |        |       |          |       |        |   |   |           |        |           |       |              |         

|            |                                 |   |        |       |  |           |           |        |       |          |                        |        |   |   |              |       |           |       |       |          |   |  |       |        |  
|----------- | ------------------------------- | - | ------ | ----- |  | --------- | --------- | ------ | ----- | -------- | ---------------------- | ------ | - | - | ------------ | ----- | --------- | ----- | ----- | -------- | - |  | ----- | ------ | -
|            |                                 |   |        |       |  |           |           |        |       |          |                        |        |   |   | At March 31, |      
|            |                                 |   |        |      
|            |                                 |   |        |       |  |           | 1998      |        |       |          |                        |        |   |   |              |       |           | 1997  |      
|            |                                 |   |        |       |  |           |          
|            |                                 |   |        |       |  |           | % of      |        |       | Percent  |                        |        |   |   |              |       | % of      |       |       | Percent  |  
|            |                                 |   |        |       |  |           | Allowance |        |       | of Loans |                        |        |   |   |              |       | Allowance |       |       | of Loans |  
|            |                                 |   |        |       |  |           | in each   |        |       | in Each  |                        |        |   |   |              |       | in each   |       |       | in Each  |  
|            |                                 |   |        |       |  |           | Category  |        |       | Category |                        |        |   |   |              |       | Category  |       |       | Category |  
|            |                                 |   |        |       |  |           | to Total  |        |       | to Total |                        |        |   |   |              |       | to Total  |       |       | to Total |  
|            |                                 |   | Amount |       |  | Allowance |           |        | Loans |          |                        | Amount |   |   | Allowance    |       |           | Loans |      
|            |                                 |   |        |       |  |           |           |        |       |          |                        |        |   |   |              |       |           |       |      
|            |                                 |   |        |       |  |           |           |        |       |          | (Dollars in thousands) |       
|Real estate |                                 | $ | 2,332  |       |  |           | 30.98     | %      |       |          | 83.68                  | %      |   | $ | 2,737        |       |           |       | 39.20 | %        |   |  | 82.92 | %     
|           
|           
|           
|           
|Consumer    |                                 |   | 1,430  |       |  |           | 19.00     |        |       |          | 12.81                  |        |   |   | 1,643        |       |           |       | 23.53 |          |   |  | 14.46 |       
|           
|           
|           
|           
|Commercial  |                                 |   | 646    |       |  |           | 8.58      |        |       |          | 3.51                   |        |   |   | 386          |       |           |       | 5.53  |          |   |  | 2.62  |       
|           
|           
|           
|           
|Unallocated |                                 |   | 3,119  |       |  |           | 41.44     |        |       |          |                       |        |   |   | 2,216        |       |           |       | 31.74 |          |   |  |      |       
|            |                                 |   |        |       |  |           |           |        |       |          |                        |        |   |   |              |       |           |      
|            | Total allowance
for loan losses |   | $      | 7,527 |  |           |           | 100.00 | %     |          |                        | 100.00 | % |   | $            | 6,982 |           |       |       | 100.00   | % |  |       | 100.00 | %
|            |                                 |   |        |       |  |           |           |        |       |          |                        |        |   |   |              |       |           |      

Securities Investment Activities

Under Michigan law and regulation, Citizens First has authority to
purchase a wide range of investment securities. As a result of federal banking
laws, however, financial institutions such as Citizens First may not engage as
principals in any activities that are not permissible for a national bank,
unless the Federal Deposit Insurance Corporation has determined that the
investments would not pose a significant risk to the Savings Association
Insurance Fund and Citizens First is in compliance with applicable capital
standards.

Citizens Firsts Board of Directors has the overall responsibility for
Citizens Firsts investment portfolio. The Board of Directors has authorized
the Investment Committee of the Board of Directors to execute the investment
strategies as prescribed by the Board of Directors. The Board of Directors
also receives a monthly portfolio report. The Investment Committee is
authorized to delegate investment and compliance duties to an Investment
consultant and/or Investment Manager. The Investment Manager is authorized to
make investment decisions consistent with Citizens Firsts investment policy
and the recommendations of Citizens Firsts Investment Committee and is
primarily responsible for daily investment activities.

16



---



##### Table of Contents



The primary objectives of Citizens Firsts investment portfolio are to
provide liquidity necessary to meet day-to-day, cyclical and long-term
requirements for funds; to invest funds not currently needed to fulfill loan
demands; and provide a flow of dependable earnings with minimum risk arising
from potential changes in interest rates or from concentration of investments
in a particular issuer or sector. Investment decisions are based upon Citizens
Firsts cash and borrowed funds position; the quality, maturity, stability, and
earnings of loans; the nature and stability of deposits; and Citizens Firsts
excess capital.

Under Citizens Firsts investment policy, the investment portfolio is to
be composed of investments in marketable obligations in the form of bonds,
notes, or debentures which are salable under ordinary circumstances with
reasonable promptness at fair value. Citizens Firsts investment policy
prohibits investment in stock of any corporation or securities which are
convertible into stock at the option of the issuer. The policy also prohibits
investments in futures, options, private placements, collateralized mortgage
obligations and derivatives. Debt securities authorized for investment by the
investment policy include U.S. Treasury securities; government agency
securities; corporate securities; municipal securities; certificates of
deposit; bankers acceptances; demand obligations; repurchase agreements; and
commercial paper.

The investment policy provides that all bonds, when purchased, must be of
investment grade as determined by at least one nationally recognized securities
rating organization and generally must carry a rating of A/Mig2 or better or
the equivalent or A1/P1 for commercial paper. Citizens Firsts investment
policy limits investments in non-U.S. Treasury securities to no more than five
percent of the value of the investment portfolio for any one issue and ten
percent of the value of the investment portfolio for any one issuer. Also, the
total amount of investment securities of the issuer may not exceed twenty
percent of Citizens Firsts capital, surplus, and subordinated notes and
debentures.

Generally accepted accounting principles require that securities be
categorized as either held to maturity, trading securities or available
for sale, based on managements intent as to the ultimate disposition of each
security. Debt securities may be classified as held to maturity and reported
in financial statements at amortized cost only if the reporting entity has the
positive intent and ability to hold those securities to maturity. Securities
that might be sold in response to changes in market interest rates, changes in
the securitys prepayment risk, increases in loan demand, or other similar
factors cannot be classified as held to maturity. Debt and equity securities
held for current resale are classified as trading securities. These
securities are reported at fair value, and unrealized gains and losses on the
securities would be included in earnings. Citizens First does not currently
use or maintain a trading account. Debt and equity securities not classified
as either held to maturity or trading securities are classified as
available for sale. These securities are reported at fair value, and
unrealized gains and losses on the securities are excluded from earnings and
reported, net of deferred taxes, as a separate component of equity. Citizens
First currently classifies all of its securities as available for sale.

At March 31, 2001, Citizens First did not own any securities, other than
U.S. Government and agency securities, that had an aggregate book value in
excess of 10% of Citizens Firsts stockholders equity at that date.
17Table of ContentsThe following table sets forth certain information regarding the amortized
cost and fair value of Citizens Firsts securities at the dates indicated.

|                                      |                                                           |  |              |         |  |       |   |         |           |  |                |        |  |  |           |        |  |       |   |       |  |  |   |       | 
|------------------------------------- | --------------------------------------------------------- |  | ------------ | ------- |  | ----- | - | ------- | --------- |  | -------------- | ------ |  |  | --------- | ------ |  | ----- | - | ----- |  |  | - | ----- | 
|                                      |                                                           |  | At March 31, |        
|                                      |                                                           |  |              |        
|                                      |                                                           |  | 2001         |         |  | 2000  |   |         | 1999      | 
|                                      |                                                           |  |              |         |  |       |   |         |           | 
|                                      |                                                           |  | Amortized    |         |  | Fair  |   |         | Amortized |  |                | Fair   |  |  | Amortized |        |  | Fair  |  
|                                      |                                                           |  | Cost         |         |  | Value |   |         | Cost      |  |                | Value  |  |  | Cost      |        |  | Value |  
|                                      |                                                           |  |              |         |  |       |   |         |           |  |                |        |  |  |           |        |  |       |  
|                                      |                                                           |  |              |         |  |       |   |         |           |  | (In thousands) |       
|Debt securities available-for-sale:  
|                                     
|                                     
|                                     
|                                     
|                                      | Obligations of U.S. Treasury and
U.S. government agencies |  | $            | 39,818  |  |       | $ | 40,898  |           |  | $              | 47,255 |  |  | $         | 47,150 |  |       | $ | 2,003 |  |  | $ | 2,003 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Obligations of state and political subdivisions           |  |              | 10,804  |  |       |   | 11,339  |           |  |                | 3,612  |  |  |           | 3,630  |  |       |   |      |  |  |   |      | 
|                                     
|                                     
|                                     
|                                     
|                                      | Corporate Securities                                      |  |              | 43,326  |  |       |   | 43,816  |           |  |                | 43,663 |  |  |           | 43,508 |  |       |   |      |  |  |   |      | 
|                                      |                                                           |  |              |         |  |       |   |         |           |  |                |        |  |  |           |        |  |      
|                                      | Total                                                     |  |              | 93,948  |  |       |   | 96,053  |           |  |                | 94,530 |  |  |           | 94,288 |  |       |   | 2,003 |  |  |   | 2,003 | 
|                                      |                                                           |  |              |         |  |       |   |         |           |  |                |        |  |  |           |        |  |      
|Equity securities available-for-sale:
|                                     
|                                     
|                                     
|                                     
|                                      | Federal Home Loan Bank stock                              |  |              | 6,150   |  |       |   | 6,150   |           |  |                | 5,119  |  |  |           | 5,119  |  |       |   | 4,546 |  |  |   | 4,546 | 
|                                      |                                                           |  |              |         |  |       |   |         |           |  |                |        |  |  |           |        |  |      
|                                      | Total equity securities
available-for-sale                |  |              | 6,150   |  |       |   | 6,150   |           |  |                | 5,119  |  |  |           | 5,119  |  |       |   | 4,546 |  |  |   | 4,546 | 
|                                      |                                                           |  |              |         |  |       |   |         |           |  |                |        |  |  |           |        |  |      
|                                      | Total debt and equity securities                          |  | $            | 100,098 |  |       | $ | 102,203 |           |  | $              | 99,649 |  |  | $         | 99,407 |  |       | $ | 6,549 |  |  | $ | 6,549 | 
|                                      |                                                           |  |              |         |  |       |   |         |           |  |                |        |  |  |           |        |  |      

The following table sets forth Citizens Firsts securities activities for
the periods indicated.

|            |                                                  |  |                              |         |   |      |   |        |      |  |   |        |  
|----------- | ------------------------------------------------ |  | ---------------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|            |                                                  |  | For the Year Ended March 31, |        
|            |                                                  |  |                              |        
|            |                                                  |  | 2001                         |         |   | 2000 |   |        | 1999 | 
|            |                                                  |  |                              |         |   |      |   |        |      | 
|Securities:
|           
|           
|           
|           
|            | Securities, beginning of period (1)              |  | $                            | 99,407  |   |      | $ | 6,549  |      |  | $ | 12,469 |  
|           
|           
|           
|           
|            | Purchases                                        |  |                              | 49,537  |   |      |   | 95,860 |      |  |   | 824    |  
|           
|           
|           
|           
|            | Sales                                            |  |                              | (15,516 | ) |      |   |       |      |  |   | (6,542 | )
|           
|           
|           
|           
|            | Maturities                                       |  |                              | (33,858 | ) |      |   | (3,000 | )    |  |   | (200   | )
|           
|           
|           
|           
|            | Increase (decrease) in net premium               |  |                              | 286     |   |      |   | 240    |      |  |   | (2     | )
|           
|           
|           
|           
|            | Increase (decrease) in unrealized gain           |  |                              | 2,347   |   |      |   | (242   | )    |  |   |       |  
|            |                                                  |  |                              |         |   |      |   |        |     
|            | Net increase (decrease) in investment
securities |  |                              | 2,796   |   |      |   | 92,834 |      |  |   | (5,920 | )
|            |                                                  |  |                              |         |   |      |   |        |     
|            | Securities, end of period                        |  | $                            | 102,203 |   |      | $ | 99,407 |      |  | $ | 6,549  |  
|            |                                                  |  |                              |         |   |      |   |        |     



---

|(1) |  | Includes securities available-for-sale including those transferred from
held-to-maturity concurrently with the adoption of SFAS No. 133 in the
period ended March 31, 2000.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18



---



##### Table of Contents



The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of Citizens Firsts
debt securities as of March 31, 2001.

|                               |                              |                                         |          |                                |       |                        |        |      |               |          |      |          |        |               |         |   |          |      |      |  
|------------------------------ | ---------------------------- | --------------------------------------- | -------- | ------------------------------ | ----- | ---------------------- | ------ | ---- | ------------- | -------- | ---- | -------- | ------ | ------------- | ------- | - | -------- | ---- | ---- | -
|                               |                              |                                         |          |                                |       | At March 31, 2001      |       
|                               |                              |                                         |          |                                |       |                        |       
|                               |                              |                                         |          |                                |       |                        |        |      |               |          |      |          |        | More than One |        
|                               |                              |                                         |          |                                |       |                        |        |      |               |          |      |          |        | Year          |        
|                               |                              |                                         |          |                                |       | One Year or Less       |        |      | to Five Years |         
|                               |                              |                                         |          |                                |       |                        |        |      |               |         
|                               |                              |                                         |          |                                |       |                        |        |      |               | Weighted |      |          |        |               |         |   | Weighted |     
|                               |                              |                                         |          |                                |       | Carrying               |        |      | Average       |          |      | Carrying |        |               | Average |  
|                               |                              |                                         |          |                                |       | Value                  |        |      | Yield         |          |      | Value    |        |               | Yield   |  
|                               |                              |                                         |          |                                |       |                        |        |      |               |          |      |          |        |               |         |  
|                               |                              |                                         |          |                                |       | (Dollars in thousands) |       
|Available-for-sale securities:
|                              
|                              
|                              
|                              
|                               |                              | Municipal securities (1)                |          | $                              |      |                        |        |      |              | %        |      | $        | 1,541  |               |         |   | 7.38     | %   
|                              
|                              
|                              
|                              
|                               |                              | Obligations of the U.S.                
|                              
|                              
|                              
|                              
|                               |                              |                                         | Treasury |                                |       | 8,088                  |        |      |               | 6.51     |      |          |        | 5,071         |         |   |          | 6.43 |     
|                              
|                              
|                              
|                              
|                               |                              | Obligations of U.S.
government agencies |          |                                | 8,042 |                        |        |      | 6.56          |          |      |          | 19,697 |               |         |   | 7.12     |     
|                              
|                              
|                              
|                              
|                               |                              | Other investments                       |          |                                | 5,762 |                        |        |      | 7.00          |          |      |          | 29,824 |               |         |   | 7.32     |     
|                              
|                              
|                              
|                              
|                               | Federal Home Loan
Bank stock |                                         |          | 6,150                          |       |                        |        | 8.00 |               |          |      |         |        |               |         |  |         
|                               |                              |                                         |          |                                |       |                        |        |      |               |          |      |          |        |              
|                               |                              |                                         |          | Total securities
at fair value |       | $                      | 28,042 |      |               |          | 6.95 | %        |        | $             | 56,133  |   |          |      | 7.17 | %
|                               |                              |                                         |          |                                |       |                        |        |      |               |          |      |          |        |              

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                               |                              |                                         |          |                                |       |                        |        |   |               |          |      |          |       |   |         |   |          |          |      |       |         |        |         |          |      |      |      |  
|------------------------------ | ---------------------------- | --------------------------------------- | -------- | ------------------------------ | ----- | ---------------------- | ------ | - | ------------- | -------- | ---- | -------- | ----- | - | ------- | - | -------- | -------- | ---- | ----- | ------- | ------ | ------- | -------- | ---- | ---- | ---- | -
|                               |                              |                                         |          |                                |       | At March 31, 2001      |       
|                               |                              |                                         |          |                                |       |                        |       
|                               |                              |                                         |          |                                |       | More than Five         |       
|                               |                              |                                         |          |                                |       | Years                  |        |   | More than Ten |         
|                               |                              |                                         |          |                                |       | to Ten Years           |        |   | Years         |          |      | Total    |      
|                               |                              |                                         |          |                                |       |                        |        |   |               |          |      |          |      
|                               |                              |                                         |          |                                |       |                        |        |   |               | Weighted |      |          |       |   |         |   | Weighted |          |      |       |         |        |         | Weighted |     
|                               |                              |                                         |          |                                |       | Carrying               |        |   | Average       |          |      | Carrying |       |   | Average |   |          | Carrying |      |       | Average |       
|                               |                              |                                         |          |                                |       | Value                  |        |   | Yield         |          |      | Value    |       |   | Yield   |   |          | Value    |      |       | Yield   |       
|                               |                              |                                         |          |                                |       |                        |        |   |               |          |      |          |       |   |         |   |          |          |      |       |         |       
|                               |                              |                                         |          |                                |       | (Dollars in thousands) |       
|Available-for-sale securities:
|                              
|                              
|                              
|                              
|                               |                              | Municipal securities (1)                |          | $                              | 7,879 |                        |        |   | 7.80          | %        |      | $        | 1,919 |   |         |   | 7.98     | %        |      | $     | 11,339  |        |         |          | 7.77 | %   
|                              
|                              
|                              
|                              
|                               |                              | Obligations of the U.S.                
|                              
|                              
|                              
|                              
|                               |                              |                                         | Treasury |                                |       |                       |        |   |               |         |      |          |       |  |         |   |          |         |      |       |         | 13,159 |         |          |      | 6.48 |     
|                              
|                              
|                              
|                              
|                               |                              | Obligations of U.S.
government agencies |          |                                |      |                        |        |   |              |          |      |          |      |   |         |   |         |          |      |       | 27,739  |        |         |          | 6.96 |     
|                              
|                              
|                              
|                              
|                               |                              | Other investments                       |          |                                | 3,749 |                        |        |   | 6.73          |          |      |          | 4,481 |   |         |   | 6.61     |          |      |       | 43,816  |        |         |          | 7.15 |     
|                              
|                              
|                              
|                              
|                               | Federal Home Loan
Bank stock |                                         |          |                               |       |                        |        |  |               |          |      |         |       |   |         |  |          |          |      | 6,150 |         |        |         | 8.00     |     
|                               |                              |                                         |          |                                |       |                        |        |   |               |          |      |          |       |   |         |   |         
|                               |                              |                                         |          | Total securities
at fair value |       | $                      | 11,628 |   |               |          | 7.46 | %        |       | $ | 6,400   |   |          |          | 7.02 | %     |         | $      | 102,203 |          |      |      | 7.13 | %
|                               |                              |                                         |          |                                |       |                        |        |   |               |          |      |          |       |   |         |   |         



---

|(1) |  | Weighted average yield data for municipal securities is presented on a
tax equivalent basis based on an assumed tax rate of 34%.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

Deposit Activities and Other Sources of Funds

General. Deposits are the major external source of funds for Citizens
Firsts lending and other investment activities. In addition, Citizens First
generates funds internally from loan principal repayments and prepayments and
maturing securities. Scheduled loan repayments are a relatively stable source
of funds, while deposit inflows, outflows and loan prepayments are influenced
significantly by general interest rates and money market conditions. Citizens
First may use borrowings from the Federal Home Loan Bank of Indianapolis to
compensate for reductions in the availability of funds from other sources.
Currently, Citizens First has no other borrowing arrangements aside from the
Federal Home Loan Bank.

Deposit Accounts. Nearly all of Citizens Firsts depositors reside in
Michigan. Citizens First offers a wide variety of deposit accounts with a
range of interest rates and terms. Citizens Firsts deposit accounts consist
of a variety of savings accounts, checking and NOW accounts, certificates of
deposit, individual retirement accounts and money market accounts. The
maturities of Citizens Firsts certificate of deposit accounts range from seven
days to six years. Deposit account terms vary with the principal differences
being the minimum balance deposit, early withdrawal penalties, limits on the
number of transactions and the interest rate. Citizens First reviews its
deposit mix on a monthly basis and its pricing weekly.

In October 1999, Citizens First began offering a wide range of commercial
deposit products and checking accounts to cities, towns and municipal school
districts located within Citizens Firsts primary market area. At March 31,
2001, Citizens First was working with approximately 12 municipalities. At
March 31, 2001, these entities accounted for approximately $24.0 million of
Citizens Firsts certificate of deposits and $2.0 million of Citizens Firsts
NOW accounts. Such municipal and governmental deposits tend to be more
interest rate sensitive than other consumer deposit accounts and are typically
subject to competitive bidding processes. Additionally, the balance of such
deposit accounts tend to fluctuate more than consumer deposit accounts due to
the budgeting and tax collection timing of the municipal entity. Accordingly,
such municipal deposits tend to be more volatile than consumer deposits and no
assurance can be made that Citizens First will be able to maintain the levels
of such accounts in future periods.

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##### Table of Contents



Citizens First believes it is competitive in the interest rates it offers
on its deposit products. Citizens First determines the rates paid based on a
number of factors, including rates paid by competitors, Citizens Firsts need
for funds and cost of funds, borrowing costs and movements of market interest
rates. Citizens First does not utilize brokers to obtain deposits and at March
31, 2001 had no brokered deposits.

In the unlikely event Citizens First is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before
any payment is made to Citizens First Bancorp as the sole stockholder of
Citizens First.

The following table presents the deposit activity of Citizens First for
the periods indicated:

|                                             |  |                              |         |   |      |   |         |      |  |   |         | 
|-------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | 
|                                             |  | For the Year Ended March 31, |        
|                                             |  |                              |        
|                                             |  | 2001                         |         |   | 2000 |   |         | 1999 | 
|                                             |  |                              |         |   |      |   |         |      | 
|Beginning balance                            |  | $                            | 601,008 |   |      | $ | 526,840 |      |  | $ | 503,445 | 
|                                            
|                                            
|                                            
|                                            
|Increase (decrease) before interest credited |  |                              | (47,184 | ) |      |   | 50,698  |      |  |   | 1,505   | 
|                                            
|                                            
|                                            
|                                            
|Interest credited                            |  |                              | 27,457  |   |      |   | 23,470  |      |  |   | 21,890  | 
|                                             |  |                              |         |   |      |   |         |      | 
|Net (decrease) increase                      |  |                              | (19,727 | ) |      |   | 74,168  |      |  |   | 23,395  | 
|                                             |  |                              |         |   |      |   |         |      | 
|Ending balance                               |  | $                            | 581,281 |   |      | $ | 601,008 |      |  | $ | 526,840 | 
|                                             |  |                              |         |   |      |   |         |      | 

At March 31, 2001, Citizens First had $67.8 million in certificate
accounts in amounts of $100,000 or more maturing as follows:

|                         |       |   |                        |        |  |      |          |      | 
|------------------------ | ----- | - | ---------------------- | ------ |  | ---- | -------- | ---- | 
|                         |       |   |                        |        |  |      | Weighted |     
|                         |       |   |                        |        |  |      | Average  |     
|Maturity Period          |       |   | Amount                 |        |  | Rate |         
|                         |       |   |                        |        |  |      |         
|                         |       |   | (Dollars in thousands) |       
|Three months or less     |       | $ | 35,697                 |        |  |      | 5.90     | %   
|                        
|                        
|                        
|                        
|Over 3 through 6 months  |       |   | 7,636                  |        |  |      | 5.93     |     
|                        
|                        
|                        
|                        
|Over 6 through 12 months |       |   | 9,079                  |        |  |      | 5.95     |     
|                        
|                        
|                        
|                        
|Over 12 months           |       |   | 15,350                 |        |  |      | 6.61     |     
|                         |       |   |                       
|                         | Total |   | $                      | 67,762 |  |      |          | 6.07 | 
|                         |       |   |                       

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##### Table of Contents



The following table presents by various rate categories, the amount of
certificates of deposit outstanding at the dates indicated and the periods to
maturity of the certificates of deposit outstanding at March 31, 2001.

|                         |               |                             |   |                                        |         |              |        |        |        |          |   |                        |       |  |   |        |        |  |      |         |         |      |   |         |         |  |   |         |         | 
|------------------------ | ------------- | --------------------------- | - | -------------------------------------- | ------- | ------------ | ------ | ------ | ------ | -------- | - | ---------------------- | ----- |  | - | ------ | ------ |  | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                         |               |                             |   | Period to Maturity from March 31, 2001 |         | At March 31, |        |        |        |          |  
|                         |               |                             |   |                                        |         |              |        |        |       
|                         |               |                             |   | Less                                   |         |              | One    |        |        | Two      |   |                        | Over  | 
|                         |               |                             |   | than One                               |         |              | to Two |        |        | to Three |   |                        | Three | 
|                         |               |                             |   | Year                                   |         |              | Years  |        |        | Years    |   |                        | Years |  |   | 2001   |        |  | 2000 |         |         | 1999 |  
|                         |               |                             |   |                                        |         |              |        |        |        |          |   |                        |       |  |   |        |        |  |      |         |         |      |  
|                         |               |                             |   |                                        |         |              |        |        |        |          |   | (Dollars in thousands) |      
|Certificates of deposit:
|                        
|                        
|                        
|                        
|                         | 0 to 2.00%    |                             | $ | 320                                    |         |              | $      |       |        |          | $ |                       |       |  | $ |       |        |  | $    | 320     |         |      | $ | 4,562   |         |  | $ | 1       |        
|                        
|                        
|                        
|                        
|                         | 2.01 to 4.00% |                             |   | 16,957                                 |         |              |        | 469    |        |          |   | 3                      |       |  |   |       |        |  |      | 17,429  |         |      |   | 22,020  |         |  |   |        |        
|                        
|                        
|                        
|                        
|                         | 4.01 to 5.00% |                             |   | 25,917                                 |         |              |        | 2,770  |        |          |   | 1,432                  |       |  |   | 2,538  |        |  |      | 32,657  |         |      |   | 53,981  |         |  |   | 128,932 |        
|                        
|                        
|                        
|                        
|                         | 5.01 to 6.00% |                             |   | 65,975                                 |         |              |        | 7,529  |        |          |   | 2,936                  |       |  |   | 9,614  |        |  |      | 86,054  |         |      |   | 162,295 |         |  |   | 79,831  |        
|                        
|                        
|                        
|                        
|                         | 6.01 to 7.00% |                             |   | 108,105                                |         |              |        | 33,208 |        |          |   | 2,490                  |       |  |   | 26,129 |        |  |      | 169,932 |         |      |   | 81,732  |         |  |   | 53,730  |        
|                        
|                        
|                        
|                        
|                         | 7.01 to 8.00% |                             |   | 273                                    |         |              |        | 5,578  |        |          |   |                       |       |  |   | 2,565  |        |  |      | 8,416   |         |      |   | 73      |         |  |   | 67      |        
|                        
|                        
|                        
|                        
|                         | Over 8.00%    |                             |   |                                       |         |              |        |       |        |          |   |                       |       |  |   |       |        |  |      |        |         |      |   |        |         |  |   | 51      |        
|                         |               |                             |   |                                        |         |              |        |        |        |          |   |                        |       |  |   |        |        |  |      |         |        
|                         |               | Total certificates
accounts |   | $                                      | 217,547 |              |        | $      | 49,554 |          |   | $                      | 6,861 |  |   | $      | 40,846 |  |      | $       | 314,808 |      |   | $       | 324,663 |  |   | $       | 262,612 | 
|                         |               |                             |   |                                        |         |              |        |        |        |          |   |                        |       |  |   |        |        |  |      |         |        

Borrowings.
Citizens First has the ability to use advances from the
Federal Home Loan Bank of Indianapolis to supplement its supply of lendable
funds and to meet deposit withdrawal requirements. The Federal Home Loan Bank
of Indianapolis functions as a central reserve bank providing credit for
savings banks and certain other member financial institutions. As a member of
the Federal Home Loan Bank of Indianapolis, Citizens First is required to own
capital stock in the Federal Home Loan Bank of Indianapolis and is authorized
to apply for advances on the security of the capital stock and certain of its
mortgage loans and other assets, principally securities that are obligations
of, or guaranteed by, the U.S. Government or its agencies, provided certain
creditworthiness standards have been met. Advances are made under several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At March 31, 2001,
Citizens First had the ability to borrow a total of approximately $315.5
million from the Federal Home Loan Bank of Indianapolis, of which $114.9
million was borrowed at such date.

The following table presents certain information regarding Citizens
Firsts borrowed funds at or for the periods ended on the dates indicated:

|                                                      |                                                               |  |                      |         |   |      |   |        |      |  |   |        |  
|----------------------------------------------------- | ------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                      |                                                               |  | Year Ended March 31, |        
|                                                      |                                                               |  |                      |        
|                                                      |                                                               |  | 2001                 |         |   | 2000 |   |        | 1999 | 
|                                                      |                                                               |  |                      |         |   |      |   |        |      | 
|Federal Home Loan Bank advances
and other borrowings:
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Average balance outstanding                                   |  | $                    | 90,345  |   |      | $ | 72,675 |      |  | $ | 48,151 |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Maximum amount outstanding at any month-end
during the period |  |                      | 115,004 |   |      |   | 97,370 |      |  |   | 54,267 |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Balance outstanding at end of period                          |  |                      | 114,931 |   |      |   | 70,502 |      |  |   | 54,267 |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Weighted average interest rate during the period              |  |                      | 6.34    | % |      |   | 5.94   | %    |  |   | 6.30   | %
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Weighted average interest rate end of period                  |  |                      | 6.35    | % |      |   | 6.08   | %    |  |   | 5.91   | %

Personnel

As of March 31, 2001, Citizens First had 215 full-time employees and 15
part-time employees, none of whom is represented by a collective bargaining
unit. Citizens First believes its relationship with its employees is good.

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##### Table of Contents



Trust Services

Established in 1999, Citizens First maintains the Asset Management and
Trust Department which provides trust and investment services to individuals,
partnerships, corporations and institutions and also acts as a fiduciary of
estates and conservatorships and as a trustee under various wills, trusts and
other plans. The trust department allows the Bank to provide investment
opportunities and fiduciary services to both current and prospective customers.
Consistent with Citizens Firsts operating strategy, Citizens First will
continue to emphasize the growth of its trust service operations to grow assets
and increase fee-based income. Citizens First has implemented several policies
governing the practices and procedures of the trust department, including
policies relating to maintaining confidentiality of trust records, investment
of trust property, handling conflicts of interest, and maintaining
impartiality. At March 31, 2001, the trust department managed 158 accounts
with aggregate assets of $63.0 million, of which the largest relationship
totaled $24.0 million, or 38.1% of the trust departments total assets.

Subsidiaries

Citizens Financial Services, Inc.Citizens Financial Services, Inc.,
formerly 525 Riverside Corporation, was established in 1974 as a service
corporation. Although Citizens Financial Services previously participated in
real estate development currently it only has an investment in the stock of a
life insurance company and acts as the parent corporation for CFS Appraisal
Company, CFS Survey L.L.C. and CFS Title Agency, which together provide a wide
range of service for customers of Citizens First. CFS Appraisal Company,
established in 1995, primarily handles appraisal business for Citizens First
and on occasion, for third parties. CFS Survey L.L.C., was established in 1999
to complete mortgage survey reports for Citizens First. CFS Title Agency was
established in 1998 as a joint venture between Citizens First and Lawyers Title
Insurance Agency, a Virginia corporation, to provide title insurance for
customers of Citizens First. Citizens Financial Services also offers through
its insurance agency, CFS Insurance Agency, a variety of life insurance and
annuity products and may in the future offer other personal insurance products
through an affiliation arrangement with a third party insurance agency. At
March 31, 2001, Citizens Financial Services had assets totaling $1.5 million.
For the years ended March 31, 2001 and March 31, 2000, Citizens Financial
Services had generated net income after taxes of $206,000 and $167,000,
respectively.

REGULATION AND SUPERVISION

General

As a savings and loan holding company, Citizens First Bancorp is required
by federal law to file reports with, and otherwise comply with, the rules and
regulations of the Office of Thrift Supervision. Citizens First is a
Michigan-chartered state savings bank and a member of the Federal Home Loan
Bank System and, with respect to deposit insurance, of the Savings Association
Insurance Fund managed by the Federal Deposit Insurance Corporation. The
Commissioner of the Michigan Office of Financial and Insurance Services and/or
the Federal Deposit Insurance Corporation conduct periodic examinations to test
Citizens Firsts safety and soundness and compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation, the Michigan
Office of Financial and Insurance Services or the U.S. Congress, could have a
material adverse impact on Citizens First Bancorp, Citizens First and their
operations. Certain of the regulatory requirements applicable to Citizens
First and to Citizens First Bancorp are referred to below or elsewhere in this
Form 10-K. The description of statutory provisions and regulations applicable
to savings institutions and their holding companies included in this Form 10-K
does not
22Table of Contentspurport to be a complete description of such statutes and regulations
and their effects on Citizens First and Citizens First Bancorp.Michigan Bank RegulationMichigan savings banks are regulated and supervised by the Commissioner of
the Michigan Office of Financial and Insurance Services. Michigan-chartered
savings banks are subject to annual examination by the Michigan Commissioner
either with or without notice. The approval of the Michigan Commissioner is
required for certain activities for a savings bank to merge with another
institution, to reorganize, to issue stock or to undertake many other
activities.Certain powers that Michigan-chartered savings banks can exercise under
the law are summarized below.Business Activities.The activities of state savings banks are governed
by state law and regulations. These laws and regulations delineate the nature
and extent of the investments and activities in which state institutions may
engage. In particular, many types of lending authority for state institutions
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institutions capital or assets.Loans to One Borrower.Michigan law provides that stock savings banks may
not provide loans or extensions of credit to a person in excess of 15% of the
capital and surplus of the stock savings bank. The limit, however, may be
increased to 25% of capital and surplus if approval of two-thirds of the banks
board of directors is granted. If the Michigan Commissioner determines that
the interests of a group of more than one person, co-partnership, association
or corporation are so interrelated that they should be considered as a unit for
the purpose of extending credit, the total loans and extensions of credit of
that group shall be combined. At March 31, 2001, Citizens First did not have
any loans with one borrower that exceeded its regulatory limit.A number of loans are exempted from the above limitations. They include
among others loans on commercial paper, loans to financial institutions, and
loans secured by bonds, notes and certificates of indebtedness.Dividends.Dividends may be paid out of a Michigan-chartered savings
banks net income then on hand after deducting all debts. A Michigan savings
bank may only pay dividends on its common stock if the savings bank has a
surplus amounting to not less than 20% of its capital after the payment of the
dividend. If a bank has a surplus less than the amount of its capital, it may
not declare or pay any dividend until an amount equal to at least 10% of net
income for the preceding one-half year (in the case of quarterly or semi-annual
dividends) or at least 10% of net income of the preceding two consecutive
half-year periods (in the case of annual dividends) has been transferred to
surplus. A savings bank with the approval of the Michigan Commissioner and by
a vote of shareholders owning 2/3 of the stock entitled to vote may increase
its capital stock by a declaration of a stock dividend on the capital stock. A
savings bank may pay dividends on its preferred stock at a rate as may be
applicable without limitation. Federal law may affect also affect the ability
of a Michigan savings bank to pay dividends, as described below.Branching Activities.Michigan savings banks, such as Citizens First,
have the authority under Michigan law to establish branches anywhere in the
State of Michigan, subject to receipt of all required regulatory approvals
(including the approval of the Michigan Banking Commissioner and the Federal
Deposit Insurance Corporation).Commissioner Assessments.Michigan savings banks are required to pay
supervisory fees to the Michigan Commissioner to fund the operations of the
Michigan Banking Commissioner. The amount of supervisory fees paid by a bank
is based upon a formula involving the banks total assets, as reported to the
Michigan Commissioner. The assessments for the fiscal year ended March 31,
2001 totalled $42,000.Enforcement.Under Michigan law, the Michigan Commissioner has broad
enforcement authority over state chartered banks and, under certain
circumstances, affiliated parties, insiders, and agents. If a Michigan savings
bank
23Table of Contentsdoes not operate in accordance with the regulations, policies and
directives of the Michigan Commissioner or is engaging, has engaged, or is
about to engage in an unsafe or unsound practice in conducting the business of
the bank, the Michigan Commissioner may issue and serve upon the bank a notice
of charges with respect to the practice or violation. The Michigan
Commissioners enforcement authority includes: cease and desist orders,
receivership, conservatorship, removal and suspension of officers and
directors, assessment of monetary penalties, emergency closures, liquidation,
and the power to issue orders and declaratory rulings to enforce the Savings
Bank Act provisions.Federal RegulationCapital Requirements.Under Federal Deposit Insurance Corporation
regulations, federally-insured state-chartered banks that are not members of
the Federal Reserve System (state non-member banks), such as Citizens First,
are required to comply with minimum leverage capital requirements. For an
institution determined by the Federal Deposit Insurance Corporation to not be
anticipating or experiencing significant growth and to be in general a strong
banking organization, rated composite 1 under the Uniform Financial
Institutions Ranking System (the rating system) established by the Federal
Financial Institutions Examination Council, the minimum capital leverage
requirement is a ratio of Tier 1 capital to total assets of 3%. For all other
institutions, the minimum leverage capital ratio is not less than 4%. Tier 1
capital is the sum of common stockholders equity, noncumulative perpetual
preferred stock (including any related surplus) and minority investments in
certain subsidiaries, less intangible assets (except for certain servicing
rights and credit card relationships).Citizens First must also comply with the Federal Deposit Insurance
Corporation risk-based capital guidelines. Risk-based capital ratios are
determined by allocating assets and specified off-balance sheet items to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
being required for the categories perceived as representing greater risk. For
example, under the Federal Deposit Insurance Corporations risk-weighting
system, cash and securities backed by the full faith and credit of the U.S.
Government are given a 0% risk weight, loans secured by one- to four-family
residential properties generally have a 50% risk weight and commercial loans
have a risk weighting of 100%.State non-member banks must maintain a minimum ratio of total capital to
risk-weighted assets of at least 8%, of which at least one-half must be Tier 1
capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary
capital items, which include allowances for loan losses in an amount of up to
1.25% of risk-weighted assets, cumulative preferred stock, a portion of the net
unrealized gain on equity securities and other capital instruments.The Federal Deposit Insurance Corporation has adopted a regulation
providing it will take into account the exposure of a banks capital and
economic value to changes in interest rate risk in assessing a banks capital
adequacy.Prompt Corrective Regulatory Action.Federal law requires, among other
things, that federal banking authorities take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institutions degree of undercapitalization. Generally, an institution that
has a ratio of total capital to risk weighted assets of less than 8%, a ratio
of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of
core capital to total assets of less than 4% (3% or less for institutions with
the highest examination rating) is considered to be undercapitalized. An
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be significantly undercapitalized and an institution that has a
tangible capital to assets ratio equal to or less than 2% is deemed to be
critically undercapitalized. Subject to a narrow exception, the Federal
Deposit Insurance Corporation is required to appoint a receiver or conservator
for an institution that is critically undercapitalized. The regulation also
provides that a capital restoration plan must be filed with the Federal Deposit
Insurance Corporation within 45 days of the date an institution receives notice
that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The Federal Deposit Insurance Corporation
could also take
24Table of Contentsany one of a number of discretionary supervisory actions,
including the issuance of a capital directive and the replacement of senior
executive officers and directors.Federal law generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. The Federal Deposit Insurance Corporation may prevent an
insured bank from paying dividends if the bank is in default of payment of any
assessment due to the Federal Deposit Insurance Corporation. In addition, the
Federal Deposit Insurance Corporation may prohibit the payment of dividends by
a bank, if such payment is determined, by reason of the financial condition of
the bank, to be an unsafe and unsound banking practice.Insurance of Deposit Accounts.Citizens First is a member of the Savings
Association Insurance Fund. The Federal Deposit Insurance Corporation
maintains a risk-based assessment system by which institutions are assigned to
one of three categories based on their capitalization and one of three
subcategories based on examination ratings and other supervisory information.
An institutions assessment rate depends upon the categories to which it is
assigned. Assessment rates for insured institutions are determined
semiannually by the Federal Deposit Insurance Corporation and currently range
from zero basis points for the healthiest institutions to 27 basis points for
the riskiest.In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation to recapitalize the predecessor to the Savings Association
Insurance Fund. Beginning January 1, 2000, these assessments were shared by
the Savings Association Insurance Fund and the Bank Insurance Fund members.
During calendar 2000, these assessments approximated 2.07 basis points.The Federal Deposit Insurance Corporation has authority to increase
insurance assessments. A significant increase in Savings Association Insurance
Fund insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of Citizens First. Management cannot
predict what insurance assessment rates will be in the future.Transactions with Related Parties.Citizens Firsts authority to engage
in transactions with affiliates (e.g., any company that controls or is under
common control with an institution, including Citizens First Bancorp and its
non-savings institution subsidiaries) is limited by federal law. Federal law
places quantitative restrictions on such transactions and imposes specified
collateral requirements for certain transactions. The purchase of low quality
assets from affiliates is generally prohibited. Transactions with affiliates
must be on terms and under circumstances that are at least as favorable to the
institution as those prevailing at the time for comparable transactions with
non-affiliated companies.Citizens Firsts authority to extend credit to executive officers,
directors and 10% shareholders (insiders), as well as entities such persons
control, is also governed by federal law. Among other restrictions, such loans
are generally required to be made on terms substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk
of repayment.Standards for Safety and Soundness.The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. The guidelines address internal
controls and information systems, internal audit system, credit underwriting,
loan documentation, interest rate risk exposure, asset growth, asset quality,
earnings and compensation, and fees and benefits. If the appropriate federal
banking agency determines that a savings institution fails to meet any standard
prescribed by the guidelines, the agency may require the institution to submit
an acceptable plan to achieve compliance with the standard.25Table of ContentsInvestment Activities.Since the enactment of the Federal Deposit
Insurance Corporation Improvement Act, all state-chartered Federal Deposit
Insurance Corporation insured banks, including savings banks, have generally
been limited to activities as principal and equity investments of the type and
in the amount authorized for national banks, notwithstanding state law. The
Federal Deposit Insurance Corporation Improvement Act and the Federal Deposit
Insurance Corporation permit exceptions to these limitations. For example, the
Federal Deposit Insurance Corporation is authorized to permit such institutions
to engage in state authorized activities or investments that do not meet this
standard (other than direct equity investments) for institutions that meet all
applicable capital requirements if it is determined that such activities or
investments do not pose a significant risk to the Savings Association Insurance
Fund.Interstate Branching.Beginning June 1, 1997, federal law permitted the
responsible federal banking agencies to approve merger transactions between
banks located in different states, regardless of whether the merger would be
prohibited under the law of the two states. The law also permitted a state to
opt in to the provisions of the Interstate Banking Act before June 1, 1997,
and permitted a state to opt out of the provisions of the Interstate Banking
Act by adopting appropriate legislation before that date. Michigan did not
opt out of the provisions of the Interstate Banking Act. Accordingly,
beginning June 1, 1997, a Michigan savings bank, such as Citizens First, could
acquire an institution by merger in a state other than Michigan unless the
other state had opted out. The Interstate Banking Act also authorizes de
novobranching into another state if the host state enacts a law expressly
permitting out of state banks to establish such branches within its borders.Federal Enforcement.The Federal Deposit Insurance Corporation has
primary federal enforcement responsibility over state non-member banks, such as
Citizens First, and has the authority to bring actions against the institution
and all institution-affiliated parties, including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate
in wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers and/or directors to institution
of receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day,
or even $1 million per day in especially egregious cases. Federal law also
establishes criminal penalties for certain violations.Federal Home Loan Bank SystemCitizens First is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. Citizens
First, as a member of the Federal Home Loan Bank of Indianapolis, is required
to acquire and hold shares of capital stock in that Federal Home Loan Bank in
an amount at least equal to 1.0% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year, or 1/20 of its advances (borrowings) from the Federal Home Loan
Bank, whichever is greater. Citizens First was in compliance with this
requirement with an investment in Federal Home Loan Bank stock at March 31,
2001 of $6.2 million.Federal Reserve SystemThe Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally
provide that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $42.8 million or less (subject to adjustment
by the Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $42.8 million, the reserve requirement is $1.284
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $42.8
million. The first $5.5 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. Citizens First complies with the foregoing requirements.
26Table of ContentsHolding Company RegulationFederal law allows a state savings bank that qualifies as a Qualified
Thrift Lender, discussed below, to elect to be treated as a savings
association for purposes of the savings and loan holding company provisions of
the Home Owners Loan Act. Such election allows its holding company to be
regulated as a savings and loan holding company by the Office of Thrift
Supervision rather than as a bank holding company by the Federal Reserve Board.
Citizens First has made such election and is regulated as a savings and loan
holding company within the meaning of the Home Owners Loan Act. As such,
Citizens First Bancorp is registered with the Office of Thrift Supervision and
has adhered to the Office of Thrift Supervisions regulations, reporting
requirements and examination and enforcement authority. Among other things,
this authority permits the Office of Thrift Supervision to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
institution.Citizens First Bancorp is a nondiversified unitary savings and loan
holding company within the meaning of federal law. Unitary savings and loan
holding companies not existing or applied for before May 4, 1999, such as
Citizens First Bancorp, are restricted to activities permissible for financial
holding companies under the law or for multiple savings and loan holding
companies. A financial holding company may engage in activities that are
financial in nature, incidental to financial activities or complementary to a
financial activity. A multiple savings and loan holding company is generally
limited to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the
Office of Thrift Supervision, and certain additional activities authorized by
Office of Thrift Supervision regulation.A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of
a depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire
savings institutions, the Office of Thrift Supervision considers the financial
and managerial resources and future prospects of the holding company and
institution involved, the effect of the acquisition on the risk to the deposit
insurance funds, the convenience and needs of the community and competitive
factors.The Office of Thrift Supervision may not approve any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (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.Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary institutions as previously described. Citizens First must notify
the Office of Thrift Supervision 30 days before declaring any dividend to
Citizens First Bancorp. In addition, the financial impact of a holding company
on its subsidiary institution is a matter that is evaluated by the Office of
Thrift Supervision and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.QTL Test.To be regulated as a savings and loan holding company by the
Office of Thrift Supervision (rather than as a bank holding company by the
Federal Reserve Board), Citizens First must qualify as a Qualified Thrift
Lender. To qualify as a Qualified Thrift Lender, Citizens First must either
qualify as a domestic building and loan association under the Internal
Revenue Code or maintain at least 65% of its portfolio assets (total assets
less: (1) specified liquid assets up to 20% of total assets; (2) intangibles,
including goodwill; and (3) the value of property used to conduct business) in
certain qualified thrift investments (primarily residential mortgages and
related investments, including certain mortgage-backed securities) in at least
9 months out of each 12 month period.
27Table of ContentsA savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of March 31, 2001, Citizens First met the qualified thrift
lender test.Change in Bank Control Act.The acquisition of 10% or more of the
outstanding common stock of Citizens First Bancorp may trigger the provisions
of the Change in Bank Control Act. The Change in Bank Control Act generally
requires persons (including companies) who at any time intend to acquire
control of a savings and loan holding company to provide 60 days prior written
notice and certain financial and other information to the Office of Thrift
Supervision. The statute and underlying regulations authorize the Office of
Thrift Supervision to disapprove a proposed acquisition on certain specified
grounds.Under certain circumstances, a similar filing may be necessary with the
Federal Deposit Insurance Corporation prior to the acquisition of indirect
control of Citizens First.Regulatory and Legislative Change.Citizens First and Citizens First
Bancorp are extensively regulated and supervised. Regulations, which affect
Citizens First on a daily basis, may be changed at any time, and the
interpretation of the relevant law and regulations may also change because of
new interpretations by the authorities who interpret those laws and
regulations. Any change in the regulatory structure or the applicable statutes
or regulations, whether by the State, of Michigan, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation or the U.S. Congress,
could have a material impact on Citizens First Bancorp, Citizens First, its
operations or the conversion.Federal Securities LawsCitizens First Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act for the
registration of the common stock to be issued in the conversion. Upon
completion of the conversion, Citizens First Bancorps common stock will be
registered with the Securities and Exchange Commission under the Securities
Exchange Act. Citizens First Bancorp will then have to observe the
information, proxy solicitation, insider trading restrictions and other
requirements under the Securities Exchange Act.The registration under the Securities Act of shares of the common stock to
be issued in the conversion does not cover the resale of those shares. Shares
of the common stock purchased by persons who are not affiliates of Citizens
First Bancorp may be resold without registration. The resale restrictions of
Rule 144 under the Securities Act govern shares purchased by an affiliate of
Citizens First Bancorp. As defined under Rule 144, an affiliate of Citizens
First Bancorp is a person that directly or indirectly controls, is controlled
by, or is under common control with Citizens First Bancorp. Generally,
executive officers and directors will be considered affiliates of Citizens
First Bancorp. If Citizens First Bancorp meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of Citizens
First Bancorp which complies with the other conditions of Rule 144 (including
those that require the affiliates sale to be aggregated with those of other
persons) would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (1)
1% of the outstanding shares of Citizens First Bancorp or (2) the average
weekly volume of trading in such shares during the preceding four calendar
weeks. Provision may be made in the future by Citizens First Bancorp to permit
affiliates to have their shares registered for sale under the Securities Act
under specific circumstances.28Table of ContentsFEDERAL AND STATE TAXATIONFederal Income TaxationGeneral.Citizens First Bancorp and Citizens First intend to report their
income on a fiscal year basis using the accrual method of accounting. The
federal income tax laws apply to Citizens First Bancorp and Citizens First in
the same manner as to other corporations with some exceptions, including
particularly Citizens Firsts reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to
Citizens First or Citizens First Bancorp. Citizens Firsts federal income tax
returns have been either audited or closed under the statute of limitations
through tax year 1995. For its 2001 tax year, Citizens Firsts maximum federal
income tax rate was 34%.Bad Debt Reserves.For fiscal years beginning before December 31, 1996,
thrift institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans, generally secured by interests in real
property improved or to be improved, under the percentage of taxable income
method or the experience method. The reserve for nonqualifying loans was
computed using the experience method.Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and required savings institutions to recapture or
take into income certain portions of their accumulated bad debt reserves.
Approximately $6.6 million of Citizens Firsts accumulated bad debt reserves
would not be recaptured into taxable income unless Citizens First makes a
non-dividend distribution to Citizens First Bancorp as described below.Distributions.If Citizens First makes non-dividend distributions to
Citizens First Bancorp, they will be considered to have been made from Citizens
Firsts unrecaptured tax bad debt reserves, including the balance of its
reserves as of December 31, 1988, to the extent of the non-dividend
distributions, and then from Citizens Firsts supplemental reserve for losses
on loans, to the extent of those reserves, and an amount based on the amount
distributed, but not more than the amount of those reserves, will be included
in Citizens Firsts taxable income. Non-dividend distributions include
distributions in excess of Citizens Firsts current and accumulated earnings
and profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of Citizens Firsts current or accumulated earnings and
profits will not be so included in Citizens Firsts taxable
income.The amount of additional taxable income triggered by a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Therefore, if Citizens
First makes a non-dividend distribution to Citizens First Bancorp,
approximately one and one-half times the amount of the distribution not in
excess of the amount of the reserves would be includable in income for federal
income tax purposes, assuming a 34% federal corporate income tax rate.
Citizens First does not intend to pay dividends that would result in a
recapture of any portion of its bad debt reserves.State TaxationThe State of Michigan imposes a Single Business Tax (the SBT), which is
an annual value-added tax imposed on the privilege of doing business in the
state. Every person with business activity in Michigan is subject to the tax.
Most organizations exempt from federal income tax are also exempt from the SBT.
The major components of the SBT are compensation, depreciation and federal
taxable income, increased by net operating losses, if any, utilized in arriving
at federal taxable income. For tax years beginning before 2000, the SBT base
is decreased by the cost of depreciable tangible assets acquired during the
year. For tax years beginning after 1999, an investment tax credit is claimed
for the acquisition of depreciable tangible assets. Effective January 1, 1999,
the SBT rate is 2.2% and will be phased out during a 23-year period.29Table of ContentsDelaware State Taxation.As a Delaware holding company not earning income
in Delaware, the Company is exempted from Delaware Corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.30Table of Contents
ITEM 2. PROPERTIESCitizens First currently conducts its business through its main office
located in Port Huron, Michigan, and thirteen other full-service banking
offices, all of which it owns. Citizens First also operates ATM machines at
six other locations.

|                                                  |       |  |          |  |  |                 |                |       | 
|------------------------------------------------- | ----- |  | -------- |  |  | --------------- | -------------- | ----- | 
|                                                  |       |  |          |  |  |                 | Net Book Value |      
|                                                  |       |  |          |  |  |                 | of Property    |      
|                                                  |       |  | Original |  |  | or Leasehold    |               
|                                                  |       |  | Year     |  |  | Improvements at |               
|Location                                          |       |  | Acquired |  |  | March 31, 2001  |               
|                                                  |       |  |          |  |  |                 |               
|                                                  |       |  |          |  |  |                 | (In thousands) |      
|Main/Executive Office:                            |       |  |          |  |  |                 |                |      
|525 Water Street
Port Huron, Michigan 48060       |       |  | 1978     |  |  | $               | 2,163          |      
|                                                 
|                                                 
|                                                 
|                                                 
|Branch Offices:                                  
|                                                 
|                                                 
|                                                 
|                                                 
|1527 Hancock
Port Huron, Michigan 48060           |       |  | 1971     |  |  |                 | 88             |      
|                                                 
|                                                 
|                                                 
|                                                 
|48 S. Elk Street Sandusky, Michigan 48471         |       |  | 1972     |  |  |                 | 69             |      
|                                                 
|                                                 
|                                                 
|                                                 
|123 N. Port Crescent
Bad Axe, Michigan 48413      |       |  | 1973     |  |  |                 | 99             |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|270 Clinton Avenue
St. Clair, Michigan 48079      |       |  | 1974     |  |  |                 | 127            |      
|                                                 
|                                                 
|                                                 
|                                                 
|301 Summer Street
Algonac, Michigan 48001         |       |  | 1975     |  |  |                 | 132            |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|380 N. Cedar Street
Imlay City, Michigan 48444    |       |  | 1975     |  |  |                 | 86             |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|2015 Gratiot Boulevard
Marysville, Michigan 48040 |       |  | 1976     |  |  |                 | 99             |      
|                                                 
|                                                 
|                                                 
|                                                 
|3136 Lapeer Road
Port Huron, Michigan 48060       |       |  | 1976     |  |  |                 | 136            |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|37 N. Howard
Croswell, Michigan 48422             |       |  | 1980     |  |  |                 | 52             |      
|204 S. Huron
Harbor Beach, Michigan 48441         |       |  | 1980     |  |  |                 | 57             |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|210 S. Parker
Marine City, Michigan 48039         |       |  | 1987     |  |  |                 | 202            |      
|                                                 
|                                                 
|                                                 
|                                                 
|807 S. Main Street
Lapeer, Michigan 48446         |       |  | 1993     |  |  |                 | 304            |      
|                                                 
|                                                 
|                                                 
|                                                 
|4778 24th Avenue
Fort Gratiot, Michigan 48060     |       |  | 1998     |  |  |                 | 1,083          |      
|                                                 
|                                                 
|                                                 
|                                                 
|Other Properties:                                
|                                                 
|                                                 
|                                                 
|                                                 
|550 Water Street
Port Huron, Michigan 48060(1)    |       |  | 1986     |  |  |                 | 50             |      
|                                                 
|                                                 
|                                                 
|                                                 
|555 Water Street
Port Huron, Michigan 48060(2)    |       |  | 1998     |  |  |                 | 850            |      
|                                                 
|                                                 
|                                                 
|                                                 
|500 Water Street
Port Huron, Michigan 48060(3)    |       |  | 2000     |  |  |                 | 348            |      
|                                                  |       |  |          |  |  |                 |               
|                                                  | Total |  |          |  |  |                 | $              | 5,945 | 
|                                                  |       |  |          |  |  |                 |               



---

|(1) |  | The property consists of a drive-up ATM facility.                            
|--- |  | -----------------------------------------------------------------------------
|   
|(2) |  | The property houses Citizens Firsts trust and financial services
operations.
|   
|(3) |  | The property consists of a drive-up banking center.                          

31



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##### Table of Contents






ITEM  3. LEGAL
PROCEEDINGS

Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on properties
in which the Bank holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Banks
business. The Company is not a party to any pending
legal proceedings that it believes would have a material adverse effect on
the financial condition or operations of the Company.




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




None.

PART II




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

The common stock has been quoted on the Nasdaq National Market under the
symbol CTZN since March 7, 2001. As of June 15, 2001, the Company had
approximately 1,308 holders of record. The high and low bid information for
the quarter ended March 31, 2001 was $13.563 and $12.813, respectively.

As of March 31, 2001, the Company had not declared any dividends. The
Board of Directors of the Company has authority to declare dividends, subject
to statutory and regulatory requirements. In the future, the Board of
Directors intends to consider a policy of paying cash or stock dividends on the
common stock. However, no decision has been made with respect to the amount or
frequency of any dividend payments. Declarations of dividends by the Board of
Directors, if any, will depend upon a number of factors, including investment
opportunities available to the Company or the Bank, capital requirements,
regulatory limitations, the Companys and the Banks financial condition and
results of operations, tax considerations and general economic conditions. No
assurances can be given, however, that any dividends will be paid or, if
commenced, will continue to be paid. The Company is subject to the
requirements of Delaware law, which generally limits dividends to an amount
equal to the excess of the net assets of the Company (the amount by which total
assets exceed total liabilities) over its statutory capital or, if there is no
excess, to its net profits for the current and/or immediately preceding fiscal
year.

32



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##### Table of Contents






ITEM  6.  SELECTED
FINANCIAL DATA

The selected consolidated financial and other data of Citizens First set
forth below is derived in part from, and should be read in conjunction with,
the Consolidated Financial Statements of Citizens First and Notes thereto
presented elsewhere in this Form 10-K.

|                                      |                                   |                            |   |              |       |  |      |         |       |      |                |         |      |  |   |         |       |  |   |         |     | 
|------------------------------------- | --------------------------------- | -------------------------- | - | ------------ | ----- |  | ---- | ------- | ----- | ---- | -------------- | ------- | ---- |  | - | ------- | ----- |  | - | ------- | --- | 
|                                      |                                   |                            |   | At March 31, |      
|                                      |                                   |                            |   |              |      
|                                      |                                   |                            |   | 2001         |       |  | 2000 |         |       | 1999 |                |         | 1998 |  |   | 1997    |      
|                                      |                                   |                            |   |              |       |  |      |         |       |      |                |         |      |  |   |         |      
|                                      |                                   |                            |   |              |       |  |      |         |       |      | (In thousands) |         |      |  |   |         |      
|Selected Consolidated Financial Data:
|                                     
|                                     
|                                     
|                                     
|                                      | Total assets                      |                            | $ | 855,866      |       |  | $    | 741,570 |       |      | $              | 645,756 |      |  | $ | 605,951 |       |  | $ | 552,386 |    
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and cash equivalents         |                            |   | 53,618       |       |  |      | 45,182  |       |      |                | 16,264  |      |  |   | 21,184  |       |  |   | 28,226  |    
|                                     
|                                     
|                                     
|                                     
|                                      | Loans, net (1)                    |                            |   | 672,449      |       |  |      | 568,503 |       |      |                | 590,637 |      |  |   | 548,893 |       |  |   | 489,108 |    
|                                     
|                                     
|                                     
|                                     
|                                      | Securities available-for-sale (2) |                            |   | 96,053       |       |  |      | 99,407  |       |      |                | 6,549   |      |  |   | 12,469  |       |  |   | 6,464   |    
|                                     
|                                     
|                                     
|                                     
|                                      | Deposits                          |                            |   | 581,281      |       |  |      | 601,008 |       |      |                | 526,840 |      |  |   | 503,445 |       |  |   | 457,540 |    
|                                     
|                                     
|                                     
|                                     
|                                      | FHLB advances                     |                            |   | 114,931      |       |  |      | 70,502  |       |      |                | 54,267  |      |  |   | 41,610  |       |  |   | 41,800  |    
|                                     
|                                     
|                                     
|                                     
|                                      | Total equity                      |                            |   | 149,721      |       |  |      | 63,259  |       |      |                | 57,513  |      |  |   | 55,138  |       |  |   | 47,410  |    
|                                     
|                                     
|                                     
|                                     
|                                      | Real estate owned, net            |                            |   | 282          |       |  |      | 80      |       |      |                | 75      |      |  |   | 75      |       |  |   |        |    
|                                     
|                                     
|                                     
|                                     
|                                      |                                   | Total nonperforming assets |   |              | 2,029 |  |      |         | 1,326 |      |                |         | 939  |  |   |         | 1,436 |  |   |         | 681 | 

|                         |                            |                                                     |   |                              |        |  |      |        |        |      |                |        |        |  |   |        |        |  |   |        |        | 
|------------------------ | -------------------------- | --------------------------------------------------- | - | ---------------------------- | ------ |  | ---- | ------ | ------ | ---- | -------------- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                         |                            |                                                     |   | For the Year Ended March 31, |       
|                         |                            |                                                     |   |                              |       
|                         |                            |                                                     |   | 2001                         |        |  | 2000 |        |        | 1999 |                |        | 1998   |  |   | 1997   |       
|                         |                            |                                                     |   |                              |        |  |      |        |        |      |                |        |        |  |   |        |       
|                         |                            |                                                     |   |                              |        |  |      |        |        |      | (In thousands) |        |        |  |   |        |       
|Selected Operating Data:
|                        
|                        
|                        
|                        
|                         | Total interest income      |                                                     | $ | 60,517                       |        |  | $    | 51,928 |        |      | $              | 49,764 |        |  | $ | 46,222 |        |  | $ | 40,594 |       
|                        
|                        
|                        
|                        
|                         | Total interest expense     |                                                     |   | 34,112                       |        |  |      | 27,063 |        |      |                | 26,240 |        |  |   | 25,095 |        |  |   | 21,926 |       
|                         |                            |                                                     |   |                              |        |  |      |        |        |      |                |        |        |  |  
|                         |                            | Net interest income                                 |   |                              | 26,405 |  |      |        | 24,865 |      |                |        | 23,524 |  |   |        | 21,127 |  |   |        | 18,668 | 
|                        
|                        
|                        
|                        
|                         | Provision for loan losses  |                                                     |   | 780                          |        |  |      | (483   | )      |      |                | 3,800  |        |  |   | 714    |        |  |   | 757    |       
|                         |                            |                                                     |   |                              |        |  |      |        |        |      |                |        |        |  |  
|                         |                            | Net interest income after provision
for loan losses |   |                              | 25,625 |  |      |        | 25,348 |      |                |        | 19,724 |  |   |        | 20,413 |  |   |        | 17,911 | 
|                        
|                        
|                        
|                        
|                         | Noninterest income:       
|                        
|                        
|                        
|                        
|                         |                            | Net gain on sale of securities                      |   |                              | 89     |  |      |        |       |      |                |        | 6,082  |  |   |        | 859    |  |   |        |       | 
|                        
|                        
|                        
|                        
|                         |                            | Other                                               |   |                              | 3,179  |  |      |        | (314   | )    |                |        | 3,949  |  |   |        | 2,324  |  |   |        | 2,199  | 
|                        
|                        
|                        
|                        
|                         | Noninterest expense        |                                                     |   | 24,742                       |        |  |      | 16,248 |        |      |                | 22,612 |        |  |   | 14,718 |        |  |   | 15,607 |       
|                         |                            |                                                     |   |                              |        |  |      |        |        |      |                |        |        |  |  
|                         | Income before income taxes |                                                     |   | 4,151                        |        |  |      | 8,786  |        |      |                | 7,143  |        |  |   | 8,878  |        |  |   | 4,503  |       
|                        
|                        
|                        
|                        
|                         | Income taxes               |                                                     |   | 965                          |        |  |      | 2,880  |        |      |                | 539    |        |  |   | 2,669  |        |  |   | 1,619  |       
|                         |                            |                                                     |   |                              |        |  |      |        |        |      |                |        |        |  |  
|                         |                            | Net income                                          |   | $                            | 3,186  |  |      | $      | 5,906  |      |                | $      | 6,604  |  |   | $      | 6,209  |  |   | $      | 2,884  | 
|                         |                            |                                                     |   |                              |        |  |      |        |        |      |                |        |        |  |  

(See footnotes on next page)

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|                                              |                                                                                                        |  |                                    |        |   |      |    |        |      |  |    |          |   |  |      |        |   |  |    |          |  
|--------------------------------------------- | ------------------------------------------------------------------------------------------------------ |  | ---------------------------------- | ------ | - | ---- | -- | ------ | ---- |  | -- | -------- | - |  | ---- | ------ | - |  | -- | -------- | -
|                                              |                                                                                                        |  | At or For the Year Ended March 31, |       
|                                              |                                                                                                        |  |                                    |       
|                                              |                                                                                                        |  | 2001                               |        |   | 2000 |    |        | 1999 |  |    | 1998     |   |  | 1997 |       
|                                              |                                                                                                        |  |                                    |        |   |      |    |        |      |  |    |          |   |  |      |       
|Selected Operating Ratios and Other Data (3):
|                                             
|                                             
|                                             
|                                             
|Performance Ratios:                          
|                                             
|                                             
|                                             
|                                             
|                                              | Average yield on interest-
earning assets (4)                                                          |  |                                    | 7.78   | % |      |    | 7.97   | %    |  |    | 7.87     | % |  |      | 7.79   | % |  |    | 7.90     | %
|                                             
|                                             
|                                             
|                                             
|                                              | Average rate paid on interest-bearing
liabilities                                                      |  |                                    | 4.77   |   |      |    | 4.44   |      |  |    | 4.62     |   |  |      | 4.75   |   |  |    | 4.75     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Average interest rate spread (5)                                                                       |  |                                    | 3.01   |   |      |    | 3.53   |      |  |    | 3.25     |   |  |      | 3.04   |   |  |    | 3.15     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Net interest margin (6)                                                                                |  |                                    | 3.40   |   |      |    | 3.82   |      |  |    | 3.72     |   |  |      | 3.56   |   |  |    | 3.43     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Ratio of interest-earning assets to
interest-bearing liabilities                                       |  |                                    | 108.68 |   |      |    | 106.90 |      |  |    | 111.30   |   |  |      | 112.25 |   |  |    | 111.08   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Net interest income after provision
for loan losses to noninterest expense                             |  |                                    | 103.57 |   |      |    | 156.01 |      |  |    | 87.23    |   |  |      | 138.69 |   |  |    | 114.76   |  
|                                             
|                                             
|                                             
|                                             
|                                              | Noninterest expense as a percent of
average assets                                                     |  |                                    | 3.04   |   |      |    | 2.35   |      |  |    | 3.46     |   |  |      | 2.38   |   |  |    | 2.86     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Return on average assets                                                                               |  |                                    | 0.39   |   |      |    | 0.85   |      |  |    | 1.01     |   |  |      | 1.01   |   |  |    | 0.53     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Return on average equity                                                                               |  |                                    | 4.15   |   |      |    | 9.35   |      |  |    | 12.29    |   |  |      | 12.11  |   |  |    | 6.32     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Ratio of average equity to
average assets                                                              |  |                                    | 9.42   |   |      |    | 9.11   |      |  |    | 8.23     |   |  |      | 8.30   |   |  |    | 8.35     |  
|                                             
|                                             
|                                             
|                                             
|Regulatory Capital Ratios:                   
|                                             
|                                             
|                                             
|                                             
|                                              | Leverage capital ratio                                                                                 |  |                                    | 16.7   |   |      |    | 8.50   |      |  |    | 8.80     |   |  |      | 8.30   |   |  |    | 7.40     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Risk-based capital ratio                                                                               |  |                                    | 24.4   |   |      |    | 13.10  |      |  |    | 14.20    |   |  |      | 13.50  |   |  |    | 12.20    |  
|                                             
|                                             
|                                             
|                                             
|Asset Quality Ratios:                        
|                                             
|                                             
|                                             
|                                             
|                                              | Nonperforming loans and troubled
debt restructurings as a percent
of total loans (7)                   |  |                                    | 0.26   |   |      |    | 0.22   |      |  |    | 0.14     |   |  |      | 0.24   |   |  |    | 0.14     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Nonperforming assets and troubled
debt restructurings as a percent
of total assets (8)                 |  |                                    | 0.21   |   |      |    | 0.18   |      |  |    | 0.15     |   |  |      | 0.24   |   |  |    | 0.12     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Allowance for loan losses as a percent
of total loans                                                  |  |                                    | 1.58   |   |      |    | 1.80   |      |  |    | 1.85     |   |  |      | 1.35   |   |  |    | 1.40     |  
|                                             
|                                             
|                                             
|                                             
|                                              | Allowance for loan losses as a percent of
nonperforming loans and troubled debt
restructurings (1) (7) |  |                                    | 598.40 |   |      |    | 839.57 |      |  |    | 1,281.78 |   |  |      | 553.06 |   |  |    | 1,025.28 |  
|                                             
|                                             
|                                             
|                                             
|                                              | Net loans charged-off to average
interest-earning loans                                                |  |                                    | 0.06   |   |      |    | 0.04   |      |  |    | 0.03     |   |  |      | 0.03   |   |  |    | 0.03     |  
|                                             
|                                             
|                                             
|                                             
|Full service offices at end of period         |                                                                                                        |  | 14                                 |        |   |      | 14 |        |      |  | 14 |          |   |  | 13   |        |   |  | 13 |         



---

|(1) |  | Loans, net, represents gross loans receivable net of the allowance for
loan losses, loans in process and deferred loan origination fees. The
allowance for loan losses at March 31, 2001, 2000, 1999, 1998 and 1997 was
$10.8 million, $10.4 million, $11.2 million, $7.5 million and $7.0
million, respectively.                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Citizens First adopted SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities, during fiscal 1994. Concurrently with the
adoption of SFAS No. 133 in March of 2000, all held-to-maturity
investments were transferred to available-for-sale classification.                                                                         
|   
|(3) |  | Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average daily balances during the indicated periods.                                                                                                                                                         
|   
|(4) |  | Calculations of yield for 2001, 2000 and 1999 are presented on a taxable
equivalent basis using the combined Federal and state income tax rate of
34% for 2001, 2000 and 1999.                                                                                                                                                                                
|   
|(5) |  | The average interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.                                                                                                                                                       
|   
|(6) |  | The net interest margin represents net interest income as a percent of
average interest-earning assets.                                                                                                                                                                                                                                                       
|   
|(7) |  | Nonperforming loans consist of all nonaccrual loans and all other loans
90 days or more past due. It is the policy of the Bank to cease accruing
interest on loans 90 days or more past due (unless the loan principal and
interest are determined by management to be fully secured and in the
process of collection) and to charge off all accrued interest.
|   
|(8) |  | Nonperforming assets consist of nonperforming loans, other repossessed
assets and real estate owned.                                                                                                                                                                                                                                                          

34



---



##### Table of Contents






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

General

Managements discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this
section should be read in conjunction with the consolidated financial
statements and accompanying notes contained in this report.Forward-Looking StatementsThis Annual Report on Form 10-K contains certain forward-looking
statements which are based on certain assumptions and describe future plans,
strategies and expectations of the Company. These forward-looking statements
are generally identified by use of the words believe, expect, intend,
anticipate, estimate, project, or similar expressions. The Companys
ability to predict results or the actual effect of future plans or strategies
is inherently uncertain. Factors which could have a material adverse effect on
the operations of the Company and the subsidiaries include, but are not limited
to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Companys market area and accounting principles and guidelines. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. The
Company does not undertake   and specifically disclaims any obligation   to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.Operating StrategyCitizens First is an independent, community-oriented savings bank,
delivering quality customer service and offering a wide range of deposit, loan
and investment products to its customers. In recent years, Citizens Firsts
strategy has been to enhance profitability through controlled balance sheet
growth and broader diversification of its loan products and portfolio.
Beginning in 1995, Citizens First determined that it would originate all of its
fixed-rate one- to four-family loans for sale. Also, during that time,
Citizens First emphasized the origination of residential, commercial real
estate loans, home equity loans, automobile and other consumer loans,
increasing sources of noninterest income and by improving operating
efficiencies while managing its capital position and limiting its credit and
interest rate risk exposure. To accomplish these objectives, Citizens First
has sought to:
        
        Operate as a full service community bank by expanding the
services and products it offers, particularly its commercial
business products and deposit products offered to local
municipalities and government organizations.
        
        Provide superior customer service and innovative products by
expanding delivery systems through the use of new technology,
increasing the functionality of its ATM network and expanding the
capability of its call center.
        
        Increase fee income by broadening non-depository product
offerings and services, including expansion of its trust services,
and expanding the offering of insurance products through its current
insurance agency subsidiary and a future potential affiliation with
another insurance agency.35Table of Contents
        
        Restructure its balance sheet and loan portfolio composition
by generally selling fixed-rate one- to four-family mortgage loans
and retaining adjustable-rate loans to better position itself for
changes in market interest rates.
        
        Continue to increase its emphasis on high quality commercial,
commercial real estate and consumer loans to increase the yields
earned on its overall loan portfolio, without incurring unacceptable
credit risk.
        
        Increase its consumer lending presence by originating
automobile loans on a direct and indirect basis.
        
        Control credit risk by continuing to employ conservative
underwriting standards to minimize the level of new problem assets.
        
        Manage interest rate risk by emphasizing investments in
shorter-term loans and investment securities.Comparison of Financial Condition at March 31, 2001 and 2000Total assets increased $114.3 million, or 15.4%, to $855.9 million at
March 31, 2001 from $741.6 million at March 31, 2000, primarily due to a $103.9
million, or 18.3%, increase in loans and a $8.4 million, or 18.7%, increase in
cash and cash equivalents, which was offset, in part by a $3.7 million decrease
in loans held for sale. The increase in cash and cash equivalents primarily
reflects the investment of proceeds from the conversion of the Bank to a stock
institution in March 2001 into deposits in other depository institutions, which
increased $13.2 million, and short-term securities, which increased by $1.8
million. Citizens Firsts net loans to assets ratio at March 31, 2000 was
76.7% compared to 91.5% at March 31, 1999. The increase in loans was due
primarily to a $39.0 million increase in one-to-four family loans to $380.4
million. Commercial real estate loans increased $13.7 million to $97.2
million, home equity loans increased $12.5 million to $69.5 million, vehicle
loans, which include automobiles, mobile homes and other recreational vehicles,
increased $14.4 million to $55.5 million and commercial loans increased $20.4
million to $39.2 million. Accrued interest receivable increased $2.9 million,
or 22.4%, to $16.2 million at March 31, 2001 from $13.3 million at March 31,
2000.Total liabilities increased $27.8 million, or 4.1%, from $678.3 million at
March 31, 2000 to $706.1 million at March 31, 2001. The increase was primarily
due to a $44.4 million, or 63.0%, increase in Federal Home Loan Bank advances
to $114.9 million at March 31, 2001 from $70.5 million at March 31, 2000 used
to fund loan growth. The increase in advances was due primarily to a decrease
in other funds available to fund loans. While average total deposits increased
from $536.6 million in 2000 to $625.2 million in 2001, the increase was the
result of funds from subscribers during the stock conversion. Regular savings
accounts grew $3.2 million to $89.4 million, NOW accounts grew $5.7 million to
$71.5 million due primarily to growth in business deposit accounts, Money
market deposit accounts declined $7.3 million to $98.7 million and certificates
of deposit increased $87.0 million to $365.6 million primarily due to an
increase in short-term public entity and municipality deposits.Nonperforming assets totaled $2.1 million at March 31, 2001 compared to
$1.3 million at March 31, 2000, an increase of $766,000, or 57.8%. This
increase was primarily due to a $206,000 increase in nonaccruing commercial
loans, a $202,000 increase in nonaccruing one- to four-family loans, a $156,000
increase in nonaccruing consumer loans and a $202,000 increase in real estate
owned.Total equity was $149.7 million at March 31, 2001 compared to $63.3
million at March 31, 2000, an increase of $86.5 million, or 136.7% due to the
offering and issuance of 9,526,761 shares of stock providing $81.7 million, net
income of $3.2 million and $1.6 million in net unrealized gains in the
securities portfolio.36Table of ContentsComparison of Operating Results for the Years Ended March 31, 2001 and 2000Net Income.Net income decreased $2.7 million, or 46.1%, to $3.2 million
for 2001 from $5.9 million for the previous year, primarily due to a
contribution of 705,686 shares of stock, valued at $7.1 million, to fund the
creation of Citizens First Foundation, a tax-exempt charitable foundation.
Also contributing to this decrease was a $1.3 million increase in the provision
for loan loss from a credit of $483,000 in 2000 to $780,000 in 2001. This
decrease was offset by a reduction in the federal expense for 2001 due to a
$2.9 million deferred tax benefit from the contribution of Citizens First
Bancorp stock to Citizens First Foundation and by a $3.3 million increase in
mortgage banking activities from a loss of $2.3 million in 2000 due to the
one-time sale of a $130.8 million pool of one-to-four family residential
mortgage loans to Freddie Mac to a gain of $955,000 in 2001. The combined
income impact in 2001 of the nonrecurring transactions related to the
contribution to the foundation was approximately $4.7 million. Notwithstanding
such transaction, net income would have been $7.8 million, which represents a
$1.9 million, or  .2%, increase from net income of $5.9 million for 2001.Net Interest Income.Net interest income increased by $1.5 million, or
6.2%, to $26.4 million for 2001 from $24.9 million for 2000. Total interest
income rose $8.6 million, or 16.5%, to $60.5 million for 2001 from $51.9
million for 2000, offset in part by an $5.6 million, or 5.6%, increase in
retail deposit interest expense to $28.4 million for 2001 from $22.7 million
for 2000 and a $1.4 million increase in other interest expense to $5.7 million
for 2001 from $4.3 million in 2000.The increase in interest income was primarily due to a $126.4 million
increase in the average balance of interest earning assets, which primarily
consisted of a $64.8 million, or 260.0%, increase in the average balance of
investment securities, due to the investment of the proceeds from the $130.8
million loan sale in 2000, and a $59.5, or 10.1%, increase in the average
balance of loans. A 163 basis point increase in the average yield on
investment securities also contributed to this increase due to investments
purchased with proceeds from the loan sale in 2000. These increases were
offset by a 20 basis point reduction in the average yield on loans primarily
due to refinancings because of lower market interest rates.The increase in interest expense of $7.1 million was primarily due to a
$88.6 million increase in the average balance of retail deposits and a $17.7
million, or 24.3%, increase in average Federal Home Loan Bank advances, coupled
with a 32 basis point rate increase on certificates of deposit from 5.28% for
2000 to 5.60% for 2001, attributable to a higher market interest rate
environment. The additional advances were used to fund loan growth.Provision for Loan Losses.The provision for loan losses increased $1.3
million, or 261.5%, from a credit of $483,000 for fiscal 2000 to a $780,000
provision for fiscal 2001. The addition to the allowance for loan losses for
fiscal 2001 reflects managements determination to maintain the overall loan
loss allowance in consideration of its applied methodology, the assessment of
the increase in non-accruing loans and the actual growth in the loan portfolio.
Even though the increase in non-accruing one- to four-family loans was partly
offset by the better than anticipated performance of commercial real estate,
commercial and consumer loans, management felt the increased provision was
warranted and considered the increasing origination of those types of loans,
which, despite better than expected performance, bear a higher degree of risk
than one- to four-family loans. Despite the increased provision, the loan loss
allowance as a percentage of total loans decreased from 1.80% at March 31, 2000
to 1.58% at March 31, 2001. The allowance for loan losses as a percentage of
nonperforming loans decreased from 839.6% at March 31, 2000 to 598.4% at March
31, 2001.Noninterest Income.Noninterest income increased by $3.6 million, or
1,140.8%, from a loss of $314,000 in 2000 to $3.3 million in 2001. The increase
was primarily due to a $3.3 million increase in income to mortgage banking
activities of $955,000 in 2001 from a $2.3 million loss in 2000 partly due to
the $4.5 million loss on the sale of a pool of $130.8 million in mortgage loans
in December 1999. Service charge fees increased $291,000, or 21.9%, from $1.3
million in 2000 to $1.6 million in 2001, primarily because of the introduction
of a debit card.37Table of ContentsNoninterest
Expense. Noninterest expense increased $8.5 million, or
52.3%, to $24.7 million for 2001, compared to $16.3 million for 2000, primarily
due to the $6.9 million, or 4,940.7%, increase in contributions after the
formation of the Citizens First Foundation. Excluding that contribution,
noninterest expense increased $1.4 million, or 8.8%, from $16.3 million for
fiscal 2000 to $17.7 million for fiscal 2001. The increase was primarily due to
a $936,000, or 12.0%, increase in compensation and benefit expense, a $437,000, or 15.1%, increase in
office occupancy and equipment expense due to the purchase of additional space
and remodeling costs, a $117,000, or 24.5% increase in statement processing
expense offset by a $191,000, or 62.2% decrease in deposit insurance expense
and $141,000, or 25.7%, decrease in professional fees.Income
Taxes. Income taxes for the year ended March 31, 2001 were
$965,000, a decrease of $1.9 million, or 66.5%, from $2.9 million for the year
ended March 31, 2000. The effective tax rates for 2001 and 2000 were 23.3% and
32.8%, respectively. The lower effective tax rate in 2001 was partially
attributable to a contribution deduction due to the contribution of Citizens
First Bancorp stock in connection with the establishment of Citizens First
Foundation. Under the Internal Revenue Code, Citizens First may only deduct up
to 10% of its consolidated taxable income before the charitable contribution in
any one year. The excess of the deductible amount will be deductible over each
of the five succeeding taxable years, subject to a 10% limitation each year.Comparison of Operating Results for
the Years Ended March 31, 2000 and 1999Net
Income. Net income decreased $698,000, or 10.6%, to $5.9 million for
2000 from $6.6 million for the previous year, primarily due to a normalization
in federal tax provisions from year to year due to a $2.3 million deferred tax
benefit from the contribution of appreciated Freddie Mac stock to Citizens
First Savings Charitable Foundation in 1999. Also contributing to this
decrease was a decrease in noninterest income of $10.3 million, or 103.1%, due
to a decrease of $6.1 million in gains on appreciated securities and a decrease
of $1.1 million in gains on the sale of our investment in a mobile home park.
The securities gain in 1999 represented the excess of the market value of the
contributed securities over the cost basis of the securities at the date of
transfer. The combined income impact in 1999 of the non-recurring transactions
related to the contribution to the foundation including the gain on appreciated
securities of $6.1 million, contribution expense of $6.2 million and
non-taxable treatment of the gain generating a tax benefit of $2.0 million was
approximately $1.9 million. A $3.5 million loss from a $130.8 million loan
sale in December 1999 in connection with the balance sheet restructuring also
contributed to the decrease. These decreases were offset by a credit of
$483,000 to the allowance for loan losses and a $6.4 million, or 28.1%,
decrease in noninterest expense to $16.2 million for 2000 from $22.6 million
for 1999. This decrease was a result of the contribution expense taken in 1999
from the establishment of the charitable foundation.Net Interest
Income. Net interest income increased by $1.3 million, or
5.7%, to $24.9 million for 2000 from $23.5 million for 1999. Total interest
income rose $2.2 million, or 4.4%, to $51.9 million for 2000 from $49.8 million
for 1999, offset in part by an $823,000, or 3.14%, increase in interest expense
to $27.1 million for 2000 from $23.5 million for 1999. The increase in
interest income was primarily due to a $22.7 million increase in the average
balance of investment securities and an $11.7 million increase in the average
balance of interest-earning deposits, as the funds from the loan sale were
invested. A 28 basis point increase in the average yield of loans from 7.98%
for 1999 to 8.26% for 2000 also contributed to the increase in net interest
income. These increases were offset by a $13.4 million decrease in the average
balance of loans due to the loan sales in December 1999 and a 99 basis point
decrease in the average yield of investment securities as the proceeds from the
loan sales were invested in lower-yielding shorter-term government agency and
treasury obligations and corporate funds. The increase in interest expense of
$823,000 was primarily due to a $24.5 million increase in the average balance
of Federal Home Loan Bank advances, mainly offset by a 37 basis point rate
decrease on certificates of deposit from 5.65% for 1999 to 5.28% for 2000,
attributable to a lower market interest rate environment. The additional
advances were used to fund loan growth.Provision for
Loan Losses. The provision for loan losses decreased $4.3
million, or 112.7%, from a provision of $3.8 million for fiscal 1999 to a
$483,000 credit for fiscal 2000. The adjustment to the allowance for loan
losses and corresponding credit for fiscal 2000 reflects managements
determination to decrease the overall loan loss allowance38Table of Contentsin consideration of the decrease in the loan portfolio due to the sale of a $130.8 million pool of
fixed-rate, one- to four-family loans which occurred in December 1999, and the
better than expected loss experience for commercial real estate, commercial and
consumer loans. Those factors supporting a decreased allowance were partly
offset by loan growth and by the increase in non-accruing one- to four-family
loans. Even though the increase in non-accruing one- to four-family loans was
partly offset by the better than anticipated performance of commercial real
estate, commercial and consumer loans, management considered the increasing
origination of those types of loans, which, despite better than expected
performance, bear a higher degree of risk than one- to four-family loans.
Because of continuing loan originations, total loans decreased
by only $23.2 million from $603.6 million at March 31, 1999 to $580.3
million at March 31, 2000, despite the sale of the pool of loans. As a result,
the loan loss allowance as a percentage of total loans remained stable,
decreasing from 1.85% at March 31, 1999 to 1.80% at March 31, 2000. The
allowance for loan losses as a percentage of nonperforming loans decreased from
1,281% at March 31, 1999 to 839% at March 31, 2000.The amount of the decrease in the allowance for loan losses for fiscal
2000 reflects managements assessment of loss experience during fiscal 2000 of
its commercial real estate, commercial and consumer loans that it believed in
1999 would have experienced greater losses and delinquencies than actually
occurred during fiscal 2000. During fiscal 1999, in recognition of its
strategy of increasing multi-family real estate, commercial real estate,
commercial and consumer (particularly indirect automobile) loans, the overall
increase in the risk inherent in a loan portfolio with an increased amount of
those types of loans, which generally bear a higher degree of risk than one- to
four-family loans, and the relative lack of loss experience with those types of
loans, management reevaluated its loan loss allowance methodology. As a
result, management determined to increase the loss factors it applied to these
types of loans and also determined that it should maintain an overall loan loss
allowance which would be at historically higher levels as a percentage of total
loans and which would be closer to the loan loss allowance averages maintained
by commercial banks operating in Michigan. Based on the revised methodology,
the loan loss allowance was increased to $11.1 million, or 1.85% of total loans
at March 31, 1999. However, during fiscal 2000, despite an increase in the
aggregate balance of commercial real estate, commercial and consumer loans,
non-accruing commercial and consumer loans decreased and commercial and
consumer loans experienced delinquencies at lower levels than were expected in
1999.Noninterest Income.For 2000 noninterest income decreased by $10.3
million, or 103.1% from $10.0 million in 1999 to a loss of $314,000 in 2000.
The decrease was primarily due to a $6.1 million decrease in gains on
appreciated securities from the formation of the Citizens First Savings
Charitable Foundation and a $1.1 million decrease in gains from the sale of an
investment in a mobile home park which occurred in 1999. Citizens First also
had a $3.5 million, or 295.3%, decrease in noninterest income due to a $4.5
million loss on the sale of a pool of $130.8 million in mortgage loans in
December 1999. These loans were sold at market prices to Freddie Mac to assist
in reorganizing the balance sheet, manage interest rate risk, and provide
liquidity and funding for other lending activities. The substantial majority
of the proceeds from the sale of such loans was invested in investment grade
securities with shorter maturities than the loans sold and utilized for the
origination of consumer loans. Loan sale proceeds were also used to repay FHLB
borrowings at such time. The loss on the sale resulted primarily from the
market value of the pool of such loans being lower due to higher market
interest rates at the time of the sale than the interest rates on such pool of
loans. This sale was an unusual sale, not associated with loan sales which
occur in the normal course of business. Citizens First generally does not sell
loans from its portfolio and generally only originates one- to four-family
mortgage loans with maturities or repricing periods of 15 years or more for
sale and sells such loans at the time of origination. The decreases in
noninterest income due to the loss on the loan sale and decrease in gains on
appreciated securities were offset, in part, by an increase in service charge
fees which increased $290,000, or 17.0%, due to increased volume, primarily in
commercial deposit accounts.Noninterest Expense.Noninterest expense decreased $6.4 million, or
28.1%, to $16.2 million for 2000, compared to $22.6 million for 1999, primarily
due to the $6.1 million, or 97.8%, decrease in contributions after the
formation of the Citizens First Savings Charitable Foundation. Excluding that
contribution, noninterest expense decreased $125,000, or 0.8% from $16.4
million for fiscal 1999 to $16.2 million for fiscal 2000. The decrease was
primarily due to a $646,000, or 18.3%, decrease in office occupancy and
equipment expense due to a $600,000 write-off related to obsolete or missing
equipment. The increased reorganization expenses in 1999 was primarily due to
39Table of Contentsequipment purchases made in connection with the reorganization and the
write-off of outdated equipment. A $305,000, or 39.5%, decrease in appraisal
fees due to a decrease in mortgage loan application volume also contributed to
this decrease. These decreases were offset by a $620,000, or 8.7%, increase in
compensation and benefits expense.Income Taxes.Income taxes for the year ended March 31, 2000 were $2.9
million, an increase of $2.3 million, or 434.3%, from $539,000 for the year
ended March 31, 1999. The effective tax rates for 2000 and 1999 were 32.8% and
7.6%, respectively. The lower effective tax rate in 1999 was partially
attributable to a contribution deduction of appreciated Freddie Mac securities
in connection with the establishment of Citizens First Savings Charitable
Foundation. Under the Internal Revenue Code, Citizens First may only deduct up
to 10% of its consolidated taxable income before the charitable
contribution in any one year. The excess of the deductible amount will be
deductible over each of the five succeeding taxable years, subject to a 10%
limitation each year.40Table of ContentsAverage Balances, Interest and Average Yields/CostThe following table presents certain information for the years indicated
regarding average balances of assets and liabilities, as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and the resulting
average yields and costs. The yields and costs for the years indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the years presented. Average balances were
derived from monthly balances.For the Fiscal Years Ended March 31,2001
        
        
        2000Average
        
        
        
        
        
        
        
        
        
        
        AverageAverage
        
        
        
        
        
        
        Yield/
        
        
        Average
        
        
        
        
        
        
        Yield/Balance
        
        
        Interest
        
        
        Rate
        
        
        Balance
        
        
        Interest
        
        
        Rate(Dollars in thousands)Interest earning assets:Loans (1)
        
        $
        651,084
        
        
        $
        52,491
        
        
        
        8.06
        %
        
        $
        591,549
        
        
        $
        48,839
        
        
        
        8.26
        %Securities (2)
        
        
        89,742
        
        
        
        6,080
        
        
        
        6.77
        
        
        
        24,928
        
        
        
        1,281
        
        
        
        5.14Federal Home Loan Bank stock
        
        
        5,651
        
        
        
        345
        
        
        
        6.11
        
        
        
        5,586
        
        
        
        326
        
        
        
        5.84Federal funds sold
        
        
        1,193
        
        
        
        64
        
        
        
        5.37
        
        
        
        2,928
        
        
        
        151
        
        
        
        5.16Interest-earning deposits
        
        
        30,056
        
        
        
        1,537
        
        
        
        5.11
        
        
        
        26,345
        
        
        
        1,331
        
        
        
        5.05Total interest-earning assets
        
        
        777,726
        
        
        
        60,517
        
        
        
        7.78
        
        
        
        651,336
        
        
        
        51,928
        
        
        
        7.97Noninterest-earning assets
        
        
        37,420
        
        
        
        
        
        
        
        
        
        
        
        41,492Total assets
        
        $
        815,146
        
        
        
        
        
        
        
        
        
        
        $
        692,828Interest-bearing liabilities:Deposits:Savings accounts
        
        $
        89,418
        
        
        
        2,136
        
        
        
        2.38
        
        
        $
        86,199
        
        
        
        2,053
        
        
        
        2.38NOW accounts
        
        
        71,453
        
        
        
        1,440
        
        
        
        2.02
        
        
        
        65,765
        
        
        
        1,305
        
        
        
        1.98Money market accounts
        
        
        98,709
        
        
        
        4,338
        
        
        
        4.38
        
        
        
        105,954
        
        
        
        4,669
        
        
        
        4.41Certificates of deposit
        
        
        365,663
        
        
        
        20,471
        
        
        
        5.60
        
        
        
        278,680
        
        
        
        14,718
        
        
        
        5.28Total deposits
        
        
        625,243
        
        
        
        28,387
        
        
        
        4.54
        
        
        
        536,598
        
        
        
        22,745
        
        
        
        4.24Federal Home Loan Bank advances
        
        
        90,348
        
        
        
        5,725
        
        
        
        6.34
        
        
        
        72,675
        
        
        
        4,318
        
        
        
        5.94Total interest-bearing liabilities
        
        
        715,591
        
        
        
        34,112
        
        
        
        4.77
        
        
        
        609,273
        
        
        
        27,063
        
        
        
        4.44Noninterest-bearing deposits
        
        
        17,567
        
        
        
        
        
        
        
        
        
        
        
        13,669Other noninterest-bearing liabilities
        
        
        5,196
        
        
        
        
        
        
        
        
        
        
        
        6,735Total liabilities
        
        
        738,353
        
        
        
        
        
        
        
        
        
        
        
        629,677Equity
        
        
        76,792
        
        
        
        
        
        
        
        
        
        
        
        63,151Total liabilities and equity
        
        $
        815,146
        
        
        
        
        
        
        
        
        
        
        $
        692,828Net interest-earning assets
        
        $
        62,134
        
        
        
        
        
        
        
        
        
        
        $
        42,063Net interest income
        
        
        
        
        
        $
        26,405
        
        
        
        
        
        
        
        
        
        
        $
        24,865Interest rate spread (3)
        
        
        
        
        
        
        
        
        
        
        3.01
        %
        
        
        
        
        
        
        
        
        
        
        3.53
        %Net interest margin as a percentage
of interest-earning assets (4)
        
        
        
        
        
        
        
        
        
        
        3.40
        %
        
        
        
        
        
        
        
        
        
        
        3.82
        %Ratio of interest-earning assets
to interest-bearing liabilities
        
        
        
        
        
        
        
        
        
        
        108.68
        %
        
        
        
        
        
        
        
        
        
        
        106.90
        %[Additional columns below][Continued from above table, first column(s) repeated]For the Fiscal Years Ended March 31,1999AverageAverage
        
        
        
        
        
        
        Yield/Balance
        
        
        Interest
        
        
        Rate(Dollars in thousands)Interest earning assets:Loans (1)
        
        $
        604,987
        
        
        $
        48,255
        
        
        
        7.98
        %Securities (2)
        
        
        2,204
        
        
        
        135
        
        
        
        6.13Federal Home Loan Bank stock
        
        
        5,583
        
        
        
        342
        
        
        
        6.13Federal funds sold
        
        
        5,097
        
        
        
        289
        
        
        
        5.67Interest-earning deposits
        
        
        14,647
        
        
        
        743
        
        
        
        5.07Total interest-earning assets
        
        
        632,518
        
        
        
        49,764
        
        
        
        7.87Noninterest-earning assets
        
        
        20,569Total assets
        
        $
        653,087Interest-bearing liabilities:Deposits:Savings accounts
        
        $
        83,027
        
        
        
        1,929
        
        
        
        2.32NOW accounts
        
        
        60,037
        
        
        
        1,228
        
        
        
        2.05Money market accounts
        
        
        110,257
        
        
        
        4,969
        
        
        
        4.51Certificates of deposit
        
        
        266,843
        
        
        
        15,080
        
        
        
        5.65Total deposits
        
        
        520,164
        
        
        
        23,206
        
        
        
        4.46Federal Home Loan Bank advances
        
        
        48,151
        
        
        
        3,034
        
        
        
        6.30Total interest-bearing liabilities
        
        
        568,315
        
        
        
        26,240
        
        
        
        4.62Noninterest-bearing deposits
        
        
        11,065Other noninterest-bearing liabilities
        
        
        19,978Total liabilities
        
        
        599,358Equity
        
        
        53,729Total liabilities and equity
        
        $
        653,087Net interest-earning assets
        
        $
        64,203Net interest income
        
        
        
        
        
        $
        23,524Interest rate spread (3)
        
        
        
        
        
        
        
        
        
        
        3.25
        %Net interest margin as a percentage
of interest-earning assets (4)
        
        
        
        
        
        
        
        
        
        
        3.72
        %Ratio of interest-earning assets
to interest-bearing liabilities
        
        
        
        
        
        
        
        
        
        
        111.30
        %(1)
        
        Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include nonperforming loans.(2)
        
        Includes investment securities available-for-sale and held-to-maturity.(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.41Table of ContentsRate/Volume AnalysisThe following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Citizens Firsts interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume); and (iii) the net change (the sum
of the prior columns). The changes attributable to the combined impact of
volume and rate have been allocated on a proportional basis between changes in
rate and volume.

|                                          |                              |                                    |                                    |        |                        |       |       |                |       |       |       |                     |       |       |       |       |        |        |        |        |       |       |       |       |       |       |  
|----------------------------------------- | ---------------------------- | ---------------------------------- | ---------------------------------- | ------ | ---------------------- | ----- | ----- | -------------- | ----- | ----- | ----- | ------------------- | ----- | ----- | ----- | ----- | ------ | ------ | ------ | ------ | ----- | ----- | ----- | ----- | ----- | ----- | -
|                                          |                              |                                    |                                    |        | Year Ended             |       |       | Year Ended     |      
|                                          |                              |                                    |                                    |        | March 31, 2001         |       |       | March 31, 2000 |      
|                                          |                              |                                    |                                    |        | Compared to            |       |       | Compared to    |      
|                                          |                              |                                    |                                    |        | Year Ended             |       |       | Year Ended     |      
|                                          |                              |                                    |                                    |        | March 31, 2000         |       |       | March 31, 1999 |      
|                                          |                              |                                    |                                    |        |                        |       |       |                |      
|                                          |                              |                                    |                                    |        | Increase (Decrease)    |       |       |                |       |       |       | Increase (Decrease) |      
|                                          |                              |                                    |                                    |        | Due to                 |       |       |                |       |       |       | Due to              |      
|                                          |                              |                                    |                                    |        |                        |       |       |                |       |       |       |                     |      
|                                          |                              |                                    |                                    |        | Rate                   |       |       | Volume         |       |       | Net   |                     |       | Rate  |       |       | Volume |        |        | Net    |      
|                                          |                              |                                    |                                    |        |                        |       |       |                |       |       |       |                     |       |       |       |       |        |        |        |        |      
|                                          |                              |                                    |                                    |        | (Dollars in thousands) |      
|Interest-earning assets:                 
|                                         
|                                         
|                                         
|                                         
|                                          | Loans                        |                                    | $                                  | (1,266 | )                      |       | $     | 4,918          |       |       | $     | 3,652               |       |       | $     | 1,656 |        |        | $      | (1,072 | )     |       | $     | 584   |      
|                                         
|                                         
|                                         
|                                         
|                                          | Securities                   |                                    |                                    | 1,468  |                        |       |       | 3,331          |       |       |       | 4,799               |       |       |       | (246  | )      |        |        | 1,392  |       |       |       | 1,146 |      
|                                         
|                                         
|                                         
|                                         
|                                          | Federal Home Loan Bank
stock |                                    |                                    | 15     |                        |       |       | 4              |       |       |       | 19                  |       |       |       | (16   | )      |        |        |       |       |       |       | (16   | )    
|                                         
|                                         
|                                         
|                                         
|                                          | Federal funds sold           |                                    |                                    | 3      |                        |       |       | (90            | )     |       |       | (87                 | )     |       |       | (15   | )      |        |        | (123   | )     |       |       | (138  | )    
|                                         
|                                         
|                                         
|                                         
|                                          | Interest-earning deposits    |                                    |                                    | 19     |                        |       |       | 187            |       |       |       | 206                 |       |       |       | (5    | )      |        |        | 593    |       |       |       | 588   |      
|                                          |                              |                                    |                                    |        |                        |       |       |                |       |       |       |                     |       |       |       |       |        |       
|                                          |                              |                                    | Total interest-earning
assets      |        |                        | 239   |       |                |       | 8,350 |       |                     |       | 8,589 |       |       |        | 1,374  |        |        |       | 790   |       |       |       | 2,164 |  
|                                          |                              |                                    |                                    |        |                        |       |       |                |       |       |       |                     |       |       |       |       |        |       
|Interest-bearing liabilities:            
|                                         
|                                         
|                                         
|                                         
|                                          | Deposits:                   
|                                         
|                                         
|                                         
|                                         
|                                          |                              | Savings accounts                   |                                    |        | 8                      |       |       |                | 77    |       |       |                     | 85    |       |       |       | 50     |        |        |        | 74    |       |       |       | 124   |      
|                                         
|                                         
|                                         
|                                         
|                                          |                              | NOW accounts                       |                                    |        | 22                     |       |       |                | 113   |       |       |                     | 135   |       |       |       | (40    | )      |        |        | 117   |       |       |       | 77    |      
|                                         
|                                         
|                                         
|                                         
|                                          |                              | Money market accounts              |                                    |        | (12                    | )     |       |                | (319  | )     |       |                     | (331  | )     |       |       | (106   | )      |        |        | (194  | )     |       |       | (300  | )    
|                                         
|                                         
|                                         
|                                         
|                                          |                              | Certificates of deposit            |                                    |        | 1,159                  |       |       |                | 4,594 |       |       |                     | 5,753 |       |       |       | (1,031 | )      |        |        | 669   |       |       |       | (362  | )    
|                                          |                              |                                    |                                    |        |                        |       |       |                |       |       |       |                     |       |       |       |       |        |       
|                                          |                              |                                    | Total deposits                     |        |                        | 1,177 |       |                |       | 4,465 |       |                     |       | 5,642 |       |       |        | (1,127 | )      |        |       | 666   |       |       |       | (461  | )
|                                         
|                                         
|                                         
|                                         
|                                          |                              | FHLB advances and other
borrowings |                                    |        | 357                    |       |       |                | 1,050 |       |       |                     | 1,407 |       |       |       | (261   | )      |        |        | 1,545 |       |       |       | 1,284 |      
|                                          |                              |                                    |                                    |        |                        |       |       |                |       |       |       |                     |       |       |       |       |        |       
|                                          |                              |                                    | Total interest-bearing
liabilities |        |                        | 1,534 |       |                |       | 5,515 |       |                     |       | 7,049 |       |       |        | (1,388 | )      |        |       | 2,211 |       |       |       | 823   |  
|                                          |                              |                                    |                                    |        |                        |       |       |                |       |       |       |                     |       |       |       |       |        |       
|Increase(decrease) in net
interest income |                              | $                                  | (1,295                             | )      |                        | $     | 2,835 |                |       | $     | 1,540 |                     |       | $     | 2,762 |       |        | $      | (1,421 | )      |       | $     | 1,341 |      
|                                          |                              |                                    |                                    |        |                        |       |       |                |       |       |       |                     |       |       |       |       |        |       

Liquidity and Capital Resources

Liquidity is the ability to meet current and future short-term financial
obligations. Citizens First further defines liquidity as the ability to have
funds available to respond to the needs of depositors and borrowers as well as
maintaining the flexibility to take advantage of investment opportunities.
Citizens Firsts primary sources of funds consist of deposit inflows, loan
repayments, maturities and sales of investment securities and borrowings from
the Federal Home Loan Bank. While maturities and scheduled amortization of
loans and securities are predictable sources of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition.

Liquidity management is both a daily and long-term responsibility of
management. Citizens First adjusts its investments in liquid assets based upon
managements assessment of (1) expected loan demand, (2) expected deposit
42Table of Contentsflows, (3) yields available on interest-earning deposits and securities, and
(4) the objectives of its asset/liability management program. Excess liquid assets
are invested generally in interest-earning overnight deposits and short- and
intermediate-term U.S. Government and agency obligations.Citizens Firsts most liquid assets are cash and short-term investments
(securities maturing in one year or less). The levels of these assets are
dependent on Citizens Firsts operating, financing, lending and investing
activities during any given period. At March 31, 2001, cash and short-term
investments totaled $53.6 million and available-for-sale securities totaled
$102.2 million. In addition, at March 31, 2001, Citizens First had the ability
to borrow a total of approximately $315.5 million from the Federal Home Loan
Bank of Indianapolis. On that date, Citizens First had advances outstanding of
$114.9 million.The primary investing activities of Citizens First are the origination of
loans and the purchase of securities. In fiscal 2001, Citizens First
originated $373.1 million of loans and purchased $49.5 million of securities.
In fiscal 2000, Citizens First originated $292.5 million of loans and purchased
$95.9 million of securities. In fiscal 1999, Citizens First originated $295.8
million of loans and purchased $824,000 of securities.Citizens First originates fixed-rate loans conforming to Freddie Mac
guidelines generally for sale in the secondary market. The proceeds of such
sales provide funds for both additional lending and liquidity to meet current
obligations. In December 1999, Citizens First sold $130.8 million of mortgage
loans for the purpose of reorganizing the balance sheet, managing interest rate
risk and providing liquidity. This transaction was unusual and management does
not have any current plans to engage in another loan sale of such magnitude.Financing activities consist primarily of activity in deposit accounts and
Federal Home Loan Bank advances. Citizens First experienced a net decrease in
total deposits of $19.7 million and an increase of $74.2 million and $23.4
million for fiscal 2001, 2000 and 1999, respectively. Deposit flows are
affected by the overall level of interest rates, the interest rates and
products offered by Citizens First and its local competitors and other factors.
Citizens First generally manages the pricing of its deposits to be competitive
and to increase core deposit relationships. Occasionally, Citizens First
offers promotional rates on certain deposit products in order to attract
deposits. In fiscal 2001, 2000 and 1999 Federal Home Loan Bank advances
increased $44.4 million, $16.2 million and $2.7 million, respectively.At March 31, 2001, Citizens First had outstanding commitments to originate
loans of $175.1 million, $131.4 million of which had fixed interest rates.
These loans are to be secured by properties located in its market area.
Citizens First anticipates that it will have sufficient funds available to meet
its current loan commitments. Loan commitments have, in recent periods, been
funded through liquidity or through Federal Home Loan Bank borrowings.
Certificates of deposit that are scheduled to mature in one year or less from
March 31, 2001 totaled $189.7 million. Management believes, based on past
experience, that a significant portion of those deposits will remain with
Citizens First. Based on the foregoing, Citizens First considers its liquidity
and capital resources sufficient to meet its outstanding short-term and
long-term needs.Citizens First is subject to various regulatory capital requirements
administered by the Federal Deposit Insurance Corporation including a
risk-based capital measure. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-weighted assets by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. At March 31, 2001, Citizens First exceeded all of its regulatory
capital requirements. Citizens First is considered well capitalized under
regulatory guidelines. See note 11 of the notes to the financial statements.The capital from the conversion significantly increased liquidity and
capital resources. Over time, the initial level of liquidity will be reduced
as net proceeds from the stock offering are used for general corporate
purposes, including the funding of lending activities. Citizens Firsts
financial condition and results of operations will be enhanced by the capital
from the conversion, resulting in increased net interest-earning assets and net
income. However, due to
43Table of Contentsthe large increase in equity resulting from the capital injection, return on
equity will be adversely impacted until that capital can be effectively
deployed at market rates, a goal that may take a number of years to achieve.Impact of New Accounting StandardsAccounting for Derivative Instruments and Hedging Activities.Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, issued in June 1998 (as amended by SFAS
No. 137), standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. The Statement
requires entities to carry all derivative instruments in the statement of
financial position at fair value. The accounting for changes in the fair
value, gains and losses, of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and, if so, on
the reasons for holding it. If certain conditions are met, entities may elect
to designate a derivative instrument as a hedge of exposures to changes in fair
value, cash flows or foreign currencies. The statement was adopted by Citizens
First during fiscal year 2000 and did not have a material effect on the
consolidated financial position or results of operations.Accounting For Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.During September of 2000, Statement of
Financial Accounting Standards (SFAS) No. 140 was issued replacing SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This Statement provided accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on a financial-components approach that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished. In addition,
this Statement requires certain disclosures regarding securitized financial
assets. SFAS No. 140 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after March 31, 2001.
Management is currently evaluating the impact of adopting this Statement on the
consolidated financial statements and does not anticipate a material impact.Effect of Inflation and Changing PricesThe consolidated financial statements and related financial data presented
in this report have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars, without considering the
change in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of the Banks
operations. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institutions performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management of Interest Rate Risk and Market Risk Analysis

Qualitative Aspects of Market Risk.Citizens Firsts most significant
form of market risk is interest rate risk. The principal objectives of
Citizens Firsts interest rate risk management are to evaluate the interest
rate risk inherent in certain balance sheet accounts, determine the level of
risk appropriate given Citizens Firsts business strategy, operating
environment, capital and liquidity requirements and performance objectives, and
manage the risk consistent with the Board of Directors approved guidelines.
Citizens First has an Asset/Liability Management Committee, responsible for
reviewing its asset/liability policies and interest rate risk position, which
meets monthly and reports trends and interest rate risk position to the Board
of Directors quarterly. The extent of the movement of interest rates is an
uncertainty that could have a negative impact on the earnings of Citizens
First.
44Table of ContentsCitizens Firsts assets include a large amount of fixed-rate mortgage
loans. This exposes Citizens First to the risk that during periods of rising
interest rates, Citizens Firsts interest expense will increase faster than its
interest income. In recent years, Citizens First has used the following
strategies to manage interest rate risk: (1) emphasizing the origination of
adjustable-rate loans and the sale of longer-term, fixed-rate loans; (2)
emphasizing shorter term consumer loans; (3) maintaining a high quality
portfolio of short to intermediate term securities; (4) maintaining high levels
of liquidity; and (5) using Federal Home Loan Bank advances to better structure
the maturities of its interest rate sensitive liabilities. Citizens First uses
forward sales contracts to protect the value of residential mortgage loans that
are being underwritten or warehoused for future sale to investors in the
secondary market. Adverse market interest rate changes, between the time that
a customer
receives a rate-lock commitment and when the fully-funded mortgage loan is
sold to an investor, can erode the value of that mortgage. Therefore, Citizens
First enters into forward sales contracts to mitigate the interest rate risk
associated with the origination and sale of mortgage loans. Citizens First
accepts credit risk in forward sales contracts to the extent of nonperformance
by a counterparty, in which case Citizens First would be compelled to sell the
mortgages to another party at the current market price. The credit exposure of
forward sales contracts represents the aggregate value of contracts with a
positive fair value. More recently, Citizens First has used some of its excess
liquidity to increase its loan portfolio. As liquidity is reduced, Citizens
Firsts sensitivity to interest rate movements is expected to increase.Quantitative Aspects of Market Risk.Citizens First uses a simulation
model to measure the potential change in net interest income, incorporating
various assumptions regarding the shape of the yield curve, the pricing
characteristics of loans, deposits and borrowings, prepayments on loans and
securities and changes in balance sheet mix. The table below sets forth, as of
March 31, 2000 estimated net interest income and the estimated changes in
Citizens Firsts net interest income for the next twelve month period which may
result given instantaneous changes in market interest rates of 200 basis points
up and down.

|                |  |  |                   |                                |  |        |   |        |        |   |  |       |   | 
|--------------- |  |  | ----------------- | ------------------------------ |  | ------ | - | ------ | ------ | - |  | ----- | - | 
|                |  |  |                   | Estimated Change in Annual Net | 
|Increase/       |  |  | Interest Income   |                               
|(Decrease)      |  |  |                   |                               
|in Market       |  |  | At March 31, 2000 |                               
|Interest Rates  |  |  |                   |                               
|in Basis Points |  |  |                   |                                |  |        | $ |        |        | % | 
|(Rate Shock)    |  |  | Amount            |                                |  | Change |   |        | Change |  
|                |  |  |                   |                                |  |        |   |        |        |  
|                |  |  |                   | (Dollars in thousands)         | 
|200             |  |  | $                 | 29,452                         |  |        | $ | 440    |        |   |  | 1.51  | %
|               
|               
|               
|               
|100             |  |  |                   | 29,451                         |  |        |   | 439    |        |   |  | 1.51  |  
|               
|               
|               
|               
|Static          |  |  |                   | 29,012                         |  |        |   |       |        |   |  |      |  
|               
|               
|               
|               
|(100)           |  |  |                   | 28,085                         |  |        |   | (927   | )      |   |  | (3.20 | )
|               
|               
|               
|               
|(200)           |  |  |                   | 26,520                         |  |        |   | (2,492 | )      |   |  | (8.59 | )

The above table indicates that in the event of a sudden and sustained
decline in prevailing market interest rates, Citizens Firsts net interest
income would be expected to decrease.

Computation of prospective effects of hypothetical interest rate changes
are based on a number of assumptions including the level of market interest
rates, the degree to which certain assets and liabilities with similar
maturities or periods to repricing react to changes in market interest rates,
the expected prepayment rates on loans and investments, the degree to which
early withdrawals occur on certificates of deposit and other deposit flows. As
a result, these computations should not be relied upon as indicative of actual
results. Further, the computations do not reflect any actions that management
may undertake in response to changes in interest rates.

The notional and estimated fair value of forward sales contracts used to manage
risk positions associated with residential mortgage loans were as follows:

45



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##### Table of Contents



|               |  |                |        |            |  |   |    | 
|-------------- |  | -------------- | ------ | ---------- |  | - | -- | 
|               |  | Notional       |        | Estimated  | 
|               |  | Amount         |        | Fair Value | 
|               |  |                |        |            | 
|               |  | (In thousands) |       
|March 31, 2001 |  | $              | 7,890  |            |  | $ | 49 | 
|              
|              
|              
|              
|March 31, 2000 |  | $              | 880    |            |  | $ | 5  | 
|              
|              
|              
|              
|March 31, 1999 |  | $              | 19,500 |            |  | $ | 39 | 

Forward sales contracts as of March 31, 2001 have settlement dates of less
than 90 days. The weighted average settlement interest rate for these
contracts was 6.81%.




ITEM  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

For the Company's Consolidated Financial Statements, see index on page 55.







ITEM 9.  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL               DISCLOSURE

None.

PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Citizens First Bancorps Board of Directors consists of five persons
divided into three classes, each of which contains approximately one third of
the Board. The following persons are the current directors of Citizens First
Bancorp:

|                         |  |              |      | 
|------------------------ |  | ------------ | ---- | 
|Name                     |  | Term Expires |     
|                         |  |              |     
|Marshall J. Campbell     |  |              | 2003 | 
|                        
|                        
|                        
|                        
|Ronald W. Cooley         |  |              | 2002 | 
|                        
|                        
|                        
|                        
|Christopher A. Kellerman |  |              | 2003 | 
|                        
|                        
|                        
|                        
|Larry J. Moeller, Sr.    |  |              | 2002 | 
|                        
|                        
|                        
|                        
|Timothy D. Regan         |  |              | 2001 | 

Information regarding the directors is provided below. Unless otherwise
stated, each person has held his current occupation for the last five years.
Ages presented are as of March 31, 2001.

Marshall J. Campbellis the President and Chief Executive Officer of
Marshall E. Campbell Company, Inc., a wholesale distributor of industrial and
electrical products. Mr. Campbell is also Chairman of the Board of Directors
of the Company. Mr. Campbell served as a director of Commercial & Savings Bank
of St. Clair for nine years and as a director of its holding company, Seaway
Financial Corporation, for three years prior to their sale in 1997. Mr.
Campbell also serves as a trustee of Blue Water Health Systems, Inc., the
parent corporation of Port Huron Hospital, on whose board he served from 1989
until 1999. Mr. Campbell has also previously served as a trustee to the Port
Huron School District and was President of the Board of Education. Age 50.
Director since 1997.

Ronald W. Cooleyis a real estate developer and broker. Mr. Cooley is the
principal owner of Cooley Enterprises, a real estate development firm, and a
former owner of OConnor Realty, a real estate brokerage, both of which operate
in the Port Huron, Michigan area. Mr. Cooley has served as a Board member and
president of the Port Huron/Marysville Chamber of Commerce, Councilman for the
City of Marysville and was member of the Board of Directors of a commercial
bank located in Port Huron. He is currently an advisory trustee for the St.
Clair County Community Foundation. Age 54. Director since 2001.

46



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##### Table of Contents



Christopher A. Kellerman is the President and a Director of the Star Oil
Company, Inc., a gas and oil distributor located in Port Huron, Michigan. Age
58. Director since 1997.

Larry J. Moeller, Sr. has served as President and Chief Executive Officer
of Citizens First since 1998 and as a Director since 1992. Prior to joining
Citizens First, Mr. Moeller worked in the Port Huron Area School District for
31 years, including serving as Superintendent of Schools from 1980 until 1997.
Mr. Moeller has also been appointed by the Governor to serve on the Education
Commission for the State, the State Chapter II Federal Advisory Commission, the
Michigan State Tenure Commission and the Michigan Public School Employee
Retirement System Board. Age 56.

Timothy D. Regan has served as Senior Vice President/Controller of
Citizens First since 1988 and has been employed by Citizens First since 1983.
Mr. Regan has also served as Secretary of Citizens First since 1988. Mr. Regan
is Mr. Cutlers brother-in-law. Age 39. Director since 2001.

Executive Officers Who are Also Not Directors

The executive officers of Citizens First are elected annually by the Board
of Directors and serve at the Boards discretion. Below is information
regarding the executive officers of Citizens First who are not also directors.
Unless otherwise stated, each executive officer has held his or her current
position for at least the last five years. Ages presented are as of March 31,
2001.

J. Stephen Armstrong has served as Senior Vice President, Commercial
Banking of Citizens First since 1999 and has been employed by Citizens First
since 1995. Age 49.

Randy J. Cutler has served as Senior Vice President, Retail Banking and
Branch Operations of Citizens First since 1985 and has been employed by
Citizens First since 1977. Mr. Cutler is Mr. Regans brother-in-law. Age 45.

B. Scott Nill has served as Vice President, Human Resources and Planning
of Citizens First since 1998. Prior to joining Citizens First, Mr. Nill was
the chief executive officer of I.M.P.A.C.T. Corporation, a center for human
resources located in Port Huron, Michigan for seven years. Age 49.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the
Companys executive officers and directors, and persons who own more than 10%
of any registered class of the Companys equity securities, to file reports of
ownership and changes in ownership with the SEC. Executive officers, directors
and greater than 10% stockholders are required by regulation to furnish the
Company with copies of all Section 16(a) reports they file.

Based solely on its review of the copies of the reports it has received
and written representations provided to the Company from the individuals
required to file the reports, the Company believes that each of its executive
officers and directors has complied with applicable reporting requirements for
transactions in Company common stock during the fiscal year ended March 31,
2001, with the exception of a late and subsequently amended Form 3 filed by
William G. Oldford, Jr., Vice President of the Bank.




ITEM 11. EXECUTIVE
COMPENSATION

Directors Compensation

Fees.Non-employee directors of Citizens First receive an annual retainer
of $6,000 for membership on the Board of Directors. In addition, non-employee
directors each receive $400 for each board meeting attended and $300 for each
committee meeting attended. Each committee chairman receives $400 for each
committee meeting they attend. Additionally, as Chairman of the Board, Mr.
Campbell has temporarily assumed Mr. Moeller's responsibilities while Mr. Moeller
is on a leave of absence. For these additional
services, and in lieu of the above retainer and board fees, Mr.
Campbell receives a monthly stipend equivalent to the base salary of
the President and CEO. Mr. Campbells stipend has been deferred (see Deferred Fee
Arrangements below), and the deferred amounts were used to buy Citizens First
Bancorp shares.

47



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##### Table of Contents



Deferred Fee Arrangements.Citizens First entered into deferred fee
arrangements with all six of its directors to encourage continuity of service
on the Board. These arrangements provide that a director may establish a
deferral account and elect on an annual basis to defer up to 100% of Board
remuneration. Upon the directors attainment of age 70 and 10 years of
service, Citizens First pays the balance of the directors deferral account,
either in a lump sum or in monthly installments, as elected by the director.
Upon a change in control of Citizens First, followed by a termination of
service, each director will be entitled to receive the balance of the deferral
account in either one lump sum payment or in monthly installments over a length
of time determined by the director. The deferred fee arrangements also provide
the payments of deferral amounts in the case of disability or death. If a
director terminates service due to disability, Citizens First will pay the
director the deferral account balance as of the termination, in a lump sum or
in monthly installments. If the director dies during active service on the
Board of Directors, the directors beneficiary will receive the directors
deferral account balance in the form previously elected by the director (lump
sum or monthly installments). Deferred amounts are held in a Rabbi Trust
maintained by Citizens First which was amended to permit participants to
purchase Citizens First Bancorp stock in the conversion or thereafter with
deferred funds. As of March 31, 2001, Citizens First had accrued $1.3 million
in liabilities under its deferred fee arrangements with directors.

Summary Compensation Table.The following information is furnished for
the President and Chief Executive Officer and all other officers who received a
salary and bonus of $100,000 or more during the year ended March 31, 2001.

|                      |                                           |      |                         |      |        |   |         |           |  |   |                  |         |  |                  |   |   |           |   |       |       | 
|--------------------- | ----------------------------------------- | ---- | ----------------------- | ---- | ------ | - | ------- | --------- |  | - | ---------------- | ------- |  | ---------------- | - | - | --------- | - | ----- | ----- | 
|                      |                                           |      | Annual Compensation (1) |     
|                      |                                           |      |                         |     
|                      |                                           |      | Fiscal                  |      |        |   |         |           |  |   |                  |         |  | Other Annual     |   |   | All Other |  
|Name and Position     |                                           | Year |                         |      | Salary |   |         | Bonus (2) |  |   | Compensation (3) |         |  | Compensation (4) |  
|                      |                                           |      |                         |      |        |   |         |           |  |   |                  |         |  |                  |  
|Larry J. Moeller, Sr. |                                           |      | 2001                    |      |        | $ | 267,000 |           |  | $ | 146,850          |         |  |                  |  |   |           | $ | 1,333 |      
|                     
|                     
|                     
|                     
|                      | President and Chief Executive Officer     |      |                         | 2000 |        |   |         | 256,500   |  |   |                  | 142,075 |  |                  |   |  |           |   |       | 1,440 | 
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|Randy J. Cutler       |                                           |      | 2001                    |      |        |   | 87,300  |           |  |   | 35,000           |         |  |                  |  |   |           |   | 1,786 |      
|                     
|                     
|                     
|                     
|                      | Senior Vice President, Retail Banking     |      |                         | 2000 |        |   |         | 92,830    |  |   |                  | 29,000  |  |                  |   |  |           |   |       | 1,765 | 
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|Timothy D. Regan      |                                           |      | 2001                    |      |        |   | 81,000  |           |  |   | 40,000           |         |  |                  |  |   |           |   | 1,603 |      
|                     
|                     
|                     
|                     
|                      | Senior Vice President, Controller         |      |                         | 2000 |        |   |         | 81,915    |  |   |                  | 26,000  |  |                  |   |  |           |   |       | 1,558 | 
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|J. Stephen Armstrong  |                                           |      | 2001                    |      |        |   | 75,000  |           |  |   | 30,625           |         |  |                  |  |   |           |   | 1,475 |      
|                     
|                     
|                     
|                     
|                      | Senior Vice President, Commercial Banking |      |                         | 2000 |        |   |         | 71,800    |  |   |                  | 23,000  |  |                  |   |  |           |   |       | 1,522 | 



---

|(1) |  | Compensation information for the fiscal year ended March 31, 1999 has
been omitted as Citizens First was neither a public company nor a
subsidiary of a public company at that time.                                                                                                                                                                                                                                                                   
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Fiscal year 2001 bonuses consisted of: (1) $146,850, $24,588, $22,275
and $20,625 for Messrs. Moeller, Cutler, Regan and Armstrong,
respectively, for services performed in fiscal 2001; and (2) $0, $10,412,
$17,725 and $10,000 for Messrs. Moeller, Cutler, Regan and Armstrong,
respectively, for services performed in connection with the Banks
conversion from mutual to stock form and the Companys initial public
offering on March 7, 2001.
|   
|(3) |  | Does not include the aggregate amount of perquisites and other personal
benefits, which was less than $50,000 or 10% of the total annual salary
and bonus reported.                                                                                                                                                                                                                                                                                    
|   
|(4) |  | Consists of employer contribution to 401(k) plan.                                                                                                                                                                                                                                                                                                                                                                                                      

48



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##### Table of Contents



Employment
Agreements. Citizens First has an existing employment agreement with
Larry J. Moeller, Sr., to serve as President of Citizens First. The
employment agreement provides that Mr. Moellers base salary
will be reviewed periodically. Mr. Moellers current base salary
under the employment agreement is $267,000. In addition to the base
salary, the employment agreement provides for participation in fringe
benefits applicable to executive personnel, social and business
memberships commensurate with the office of the president, and
reimbursement for business and business travel expenses.

Currently, there is
no employment agreement between Citizens First Bancorp and Mr.
Moeller.

Change in Control
Agreements. Citizens First entered into change in control agreements
with four senior officers who were not covered by an employment
agreement. Each change in control agreement has a term of three years
and is renewable on an annual basis.  The change in control
agreements provide that if involuntary termination, other than for
cause, or voluntary termination (upon the occurrence of circumstances
specified in the agreements) follows a change in control of Citizens
First and Citizens First Bancorp, the officers would be entitled to
receive a severance payment equal to three times their average annual
compensation (as described in the agreements) for the five most
recent taxable years. Citizens First would also continue to pay for
the officers health and welfare benefits coverage for
thirty-six months following termination. If any of the officers were
not receiving health or disability coverage at the time of such
termination, he could elect to receive such coverage at any time
during the thirty-six month period, for the remainder of that
period.

Pension Plan.Citizens First participates in a multiple-employer defined
benefit pension plan known as the Financial Institutions Retirement Fund.
Generally, salaried employees of Citizens First become members of the pension
plan upon the completion of one year of service. Citizens First makes annual
contributions to the Financial Institutions Retirement Fund sufficient to fund
retirement benefits for its employees, as determined in accordance with a
formula set forth in the plan document. Participants generally become vested
in their accrued benefits under the pension plan after completing five years of
service. Participants are automatically vested at age sixty-five regardless of
completed years of employment. In general, accrued benefits under the pension
plan, including normal retirement benefits and reduced benefits payable upon
early retirement or disability, are based on an individuals years of benefit
service (as

49



---



##### Table of Contents



described in the plan document) and the average of the
participants highest five years salary. The pension plan also provides lump
sum death benefits for participants who die while in active service and after
retirement. For participants who die while in active service, the death
benefit is equal to one hundred percent of the last twelve months salary, plus
an additional ten percent of salary for each year of service, up to a maximum
of 300% of salary after 20 or more years of service. The lump sum retirement
death benefit is twelve times the participants annual retirement benefit, less
the sum of any payments received by the participant before death.

The following table indicates the annual retirement benefits that would be
payable under the pension plan upon retirement at age 65 to a participant
electing to receive his pension benefit in the standard form of benefit,
assuming various specified levels of plan compensation and various specified
years of credited service. Under the Internal Revenue Code, maximum annual
benefits under the pension plan are limited to $127,273 per year and annual
compensation for calculation purposes is limited to $170,000 per year for the
2001 calendar year.

|               |         |   |                  |        |    |  |   |        |  |  |    |        |  |     |   |        |  |  |   |         | 
|-------------- | ------- | - | ---------------- | ------ | -- |  | - | ------ |  |  | -- | ------ |  | --- | - | ------ |  |  | - | ------- | 
|               |         |   | Years of Service |       
|Average Annual |         |   |                 
|Compensation   |         | 5 |                  |        | 10 |  |   | 15     |  |  | 20 |        |  | 30+ |  
|               |         |   |                  |        |    |  |   |        |  |  |    |        |  |     |  
|$              | 50,000  |   | $                | 5,000  |    |  | $ | 10,000 |  |  | $  | 15,000 |  |     | $ | 20,000 |  |  | $ | 30,000  | 
|              
|              
|              
|              
|               | 75,000  |   |                  | 7,500  |    |  |   | 15,000 |  |  |    | 22,500 |  |     |   | 30,000 |  |  |   | 45,000  | 
|              
|              
|              
|              
|               | 100,000 |   |                  | 10,000 |    |  |   | 20,000 |  |  |    | 30,000 |  |     |   | 40,000 |  |  |   | 60,000  | 
|              
|              
|              
|              
|               | 125,000 |   |                  | 12,500 |    |  |   | 25,000 |  |  |    | 37,500 |  |     |   | 50,000 |  |  |   | 75,000  | 
|              
|              
|              
|              
|               | 150,000 |   |                  | 15,000 |    |  |   | 30,000 |  |  |    | 45,000 |  |     |   | 60,000 |  |  |   | 90,000  | 
|              
|              
|              
|              
|               | 170,000 |   |                  | 17,000 |    |  |   | 34,000 |  |  |    | 51,000 |  |     |   | 68,000 |  |  |   | 102,000 | 

Supplemental Executive Retirement Plan.Citizens First currently has a
supplemental executive retirement plan agreement with Mr. Moeller. Upon Mr.
Moellers disability or death, Citizens First has agreed to pay Mr. Moeller or
his beneficiaries the sum of $94,000 per year for ten years. Upon Mr.
Moellers retirement, Citizens First will pay him, or his beneficiary(ies),
$94,000 per year for twenty years. In exchange for Citizens Firsts promises
under this agreement, Mr. Moeller has agreed not to render services, directly
or indirectly, or to otherwise engage in any competing business in St. Clair
County, Michigan without the prior consent of Citizens First. Citizens Firsts
commitments under this supplemental executive retirement plan agreement are
binding upon successors to Citizens First.

Citizens First maintains an additional supplemental executive retirement
plan to provide benefits to eligible individuals (those designated by the Board
of Directors of Citizens First or its affiliates) that cannot be provided under
the employee stock ownership plan and the 401(k) Plan as a result of the
limitations imposed by the Internal Revenue Code, but that would have been
provided under the employee stock ownership plan and the 401(k) Plan but for
such limitations. In addition to providing for benefits lost under
tax-qualified plans as a result of limitations imposed by the Internal Revenue
Code, the plan also provides supplemental benefits to designated individuals
upon a change of control before the complete scheduled repayment of the
employee stock ownership plan loan. Generally, upon such an event, the
supplemental executive retirement plan will provide the individual with a
benefit equal to what the individual would have received under the employee
stock ownership plan had he or she remained employed throughout the term of the
employee stock ownership plan loan, less the benefits actually provided under
the employee stock ownership plan on behalf of such individual. An
individuals benefits under the supplemental executive retirement plan will
generally become payable upon retirement in accordance with the employee stock
ownership plan or the 401(k) Plan, or upon the change in control of Citizens
First or Citizens First Bancorp with regard to supplemental stock ownership
benefit. The Board of Directors has designated Mr. Moeller as a participant in
the supplemental executive retirement plan.

Citizens First may utilize a grantor trust in connection with the
supplemental executive retirement plan in order to set funds aside with which
to ultimately pay benefits under the plan. The assets of the grantor trust
would be subject to the claims of Citizens Firsts general creditors in the
event of Citizens Firsts insolvency until paid to the individual according to
the terms of the supplemental executive retirement plan.
50Table of Contents
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT(a)
        
        Security Ownership of Certain Beneficial OwnersThe following table provides information as of June 1, 2001, with respect
to persons known by the Company to be the beneficial owners of more than 5% of
the Companys outstanding common stock. A person may be considered to own any
shares of common stock over which he or she has, directly or indirectly, sole
or shared voting or investing power.

|                                                                      |  |                  |         |                   |  |  |     |  
|--------------------------------------------------------------------- |  | ---------------- | ------- | ----------------- |  |  | --- | -
|                                                                      |  | Number of Shares |         | Percent of Common | 
|Name and Address                                                      |  | Owned            |         | Stock Outstanding | 
|
|                                                                      |  |                  |         |                   | 
|Citizens First Savings Bank Employee Stock Ownership Plan             |  |                  | 762,140 |                   |  |  | 8.0 | %
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|525 Water Street
Port Huron, Michigan 48060                          
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Citizens First Foundation
525 Water Street
Port Huron, Michigan 48060 |  |                  | 705,686 |                   |  |  | 7.4 | %



| | (b) |  | Security Ownership of Management
| | --- |  | --------------------------------

The following table provides information about the shares of Company
common stock that may be considered to be owned by each director of the
Company, by the executive officers named in the Summary Compensation Table and
by all directors and executive officers of the Company as a group as of June 1,
2001. A person may be considered to own any shares of common stock over which
he or she has, directly or indirectly, sole or shared voting or investment
power. Unless otherwise indicated, each of the named individuals has sole
voting and investment power with respect to the shares shown.

|                                                            |  |           |         |     |                 |  |     |  
|----------------------------------------------------------- |  | --------- | ------- | --- | --------------- |  | --- | -
|                                                            |  | Number of |         |     | Percent of      | 
|                                                            |  | Shares    |         |     | Common Stock    | 
|Name                                                        |  | Owned     |         |     | Outstanding (1) | 
|                                                            |  |           |         |     |                 | 
|J. Stephen Armstrong                                        |  |           | 7,333   |     |                 |  | *   |  
|                                                           
|                                                           
|                                                           
|                                                           
|Marshall J. Campbell                                        |  |           | 78,526  | (2) |                 |  | *   |  
|                                                           
|                                                           
|                                                           
|                                                           
|Ronald W. Cooley                                            |  |           | 50,000  | (3) |                 |  | *   |  
|                                                           
|                                                           
|                                                           
|                                                           
|Randy J. Cutler                                             |  |           | 11,130  |     |                 |  | *   |  
|                                                           
|                                                           
|                                                           
|                                                           
|Christopher A. Kellerman                                    |  |           | 20,050  |     |                 |  | *   |  
|                                                           
|                                                           
|                                                           
|                                                           
|Larry J. Moeller, Sr.                                       |  |           | 25,000  |     |                 |  | *   |  
|                                                           
|                                                           
|                                                           
|                                                           
|Timothy D. Regan                                            |  |           | 20,005  | (4) |                 |  | *   |  
|                                                           
|                                                           
|                                                           
|                                                           
|All Executive Officers and Directors as a Group (8 persons) |  |           | 221,472 |     |                 |  | 2.3 | %



---

|*   |  | Represents less than 1% of shares outstanding                                             
|--- |  | ------------------------------------------------------------------------------------------
|   
|(1) |  | Based on 9,526,761 shares of Company common stock outstanding as of June
15, 2001.        
|   
|(2) |  | Includes 25,000 shares held by Mr. Campbells spouse.                                     
|   
|(3) |  | Includes 25,000 shares held by a partnership in which Mr. Cooley was a
one-third interest.
|   
|(4) |  | Includes 5,000 shares held by Mr. Regans spouse.                                         



| | (c) |  | Management of Citizens First Bancorp knows of no
arrangements, including any pledge by any person of securities of
Citizens First Bancorp, the operation of which may at a subsequent
date result in a change in control of the registrant.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents









ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, must not involve more than
the normal risk of repayment or present other unfavorable features.
Notwithstanding this rule, federal regulations permit Citizens First to make
loans to executive officers and directors at reduced interest rates if the loan
is made under a benefit program generally available to all other employees and
does not give preference to any executive officer or director over any other
employee.

Citizens First offers all employees, officers and members of the Board who
have completed two years of continuous full-time employment and who satisfy the
general underwriting standards of Citizens First, mortgage loans with interest
rates of 0.50% below the current interest rates in effect. However, the
discounted rate is never less than Citizens Firsts cost of funds nor greater
than the rate paid for similar loans paid by customers. This reduced rate is
available only on the borrowers primary residence and only once every five
years. Additionally, such borrowers receive a reduced service charge and all
application and appraisal fees are waived. If the individual leaves the employ
of Citizens First, the loan rate reverts to the contract rate in effect at the
time the loan was originated.

Additionally, Citizens First offers all employees, officers and members of
the Board who have completed one year of continuous full-time employment and
who satisfy the general underwriting standards of Citizens First, consumer
loans with interest rates of 0.50% below the current interest rates in effect.
However, the discounted rate is never less than Citizens Firsts cost of funds
nor greater than the rate paid for similar loans paid by customers.
Additionally, such borrowers receive a reduced service charge and all
application and appraisal fees are waived. If the individual leaves the employ
of Citizens First, the loan rate reverts to the contract rate in effect at the
time the loan was originated.

In addition, loans made to a director or executive officer in an amount
that, when aggregated with the amount of all other loans to the person and his
or her related interests, are in excess of the greater of $25,000 or 5% of
Citizens Firsts capital and surplus, up to a maximum of $500,000, must be
approved in advance by a majority of the disinterested members of the Board of
Directors.

PART IV




ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.



|    |  |     |  |                                                                                                                                                                                                |  |  |                                                                                               
|--- |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ----------------------------------------------------------------------------------------------
|(a) |  | (1) |  | Financial Statements                                                                                                                                                                          
|   
|    |  |     |  |                                                                                                                                                                                               |  |  | Independent Auditors Report                                                                  
|    |  |     |  |                                                                                                                                                                                               |  |  | Consolidated Balance Sheets as of March 31, 2001 and 2000                                     
|    |  |     |  |                                                                                                                                                                                               |  |  | Consolidated Statements of Income or the Years Ended March 31, 2001, 2000 and 1999            
|    |  |     |  |                                                                                                                                                                                               |  |  | Consolidated Statements of Changes in Equity for the Years Ended March 31, 2001, 2000 and 1999
|    |  |     |  |                                                                                                                                                                                               |  |  | Consolidated Statements of Cash Flows for the Years Ended March 31, 2001, 2000, and 1999      
|    |  |     |  |                                                                                                                                                                                               |  |  | Notes to Consolidated Financial Statements                                                    
|   
|    |  | (2) |  | Financial Statement Schedules                                                                                                                                                                 
|   
|    |  |     |  | All financial statement schedules are omitted because they
are not required or applicable, or the required information
is shown in the consolidated financial statements or the
notes thereto.

52



---



##### Table of Contents





|(3) |  | Exhibits
|--- |  | --------

|     |  |                                                                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Amended Plan of Conversion (including the Amended and Restated Articles
of Incorporation and Stock Bylaws of Citizens First Savings Bank) (1)
|    
|    
|    
|    
|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)                                                                    
|    
|    
|    
|    
|21.0 |  | Subsidiary Information is incorporated herein by reference to Part I, Item 1,
Business - Subsidiary Activities                             



---

|(1) |  | Incorporated herein by reference into
this document from the Exhibits to Form S-1,
Registration Statement and amendments thereto, initially
filed on November 3, 2000, Registration No. 333-49234.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)  Reports on Form 8-K

None.

53



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                    |  |                                                                                                                   
|------------------- |  | ------------------------------------------------------------------------------------------------------------------
|                    |  | Citizens First Bancorp, Inc.                                                                                      
|                   
|Date:
June 21, 2001 |  | By:/s/ Marshall J. Campbell
   Marshall J. Campbell
   Chairman of the Board and
   Acting Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.

|                                                |  |                                                                                        |  |              
|----------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | -------------
|-s- Marshall J. Campbell
Marshall J. Campbell   |  | Chairman of the Board and Acting
Chief Executive Officer
(principal executive officer) |  | June 21, 2001
|                                               
|                                               
|                                               
|                                               
|-s- Timothy D. Regan
Timothy D. Regan           |  | Secretary, Treasurer
and Director (principal
accounting and financial officer)         |  | June 21, 2001
|                                               
|                                               
|                                               
|                                               
|-s- Larry J. Moeller, Sr.
Larry J. Moeller, Sr. |  | President, Chief Executive Officer
and Director                                        |  | June 21, 2001
|                                               
|                                               
|                                               
|                                               
|-s- Ronald W. Cooley                            |  | Director                                                                               |  | June 21, 2001
|                                               
|                                               
|                                               
|                                               
|Ronald W. Cooley                               
|                                               
|                                               
|                                               
|                                               
|-s- Christopher A. Kellerman                    |  | Director                                                                               |  | June 21, 2001
|                                               
|                                               
|                                               
|                                               
|Christopher A. Kellerman                       

54



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

|                                  |                                            |  |          |          | 
|--------------------------------- | ------------------------------------------ |  | -------- | -------- | 
|                                  |                                            |  | Contents |         
|                                  |                                            |  |          |         
|Report Letter                     |                                            |  | F-1      |         
|                                 
|                                 
|                                 
|                                 
|Consolidated Financial Statements
|                                 
|                                 
|                                 
|                                 
|                                  | Balance Sheet                              |  |          | F-2      | 
|                                 
|                                 
|                                 
|                                 
|                                  | Statement of Income                        |  |          | F-3      | 
|                                 
|                                 
|                                 
|                                 
|                                  | Statement of Changes in Equity             |  |          | F-4      | 
|                                 
|                                 
|                                 
|                                 
|                                  | Statement of Cash Flows                    |  |          | F-5      | 
|                                 
|                                 
|                                 
|                                 
|                                  | Notes to Consolidated Financial Statements |  |          | F-6-F-28 | 

55



---



##### Table of Contents






Independent Auditors Report

To the Board of Directors
Citizens First Bancorp, Inc. and Subsidiary
Port Huron, Michigan

We have audited the accompanying consolidated balance sheet of Citizens First
Bancorp, Inc. and subsidiary as of March 31, 2001 and 2000 and the related
consolidated statements of income, changes in equity, and cash flows for the
three years ended March 31, 2001, 2000, and 1999. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Citizens First Bancorp, Inc. and subsidiary as of March 31, 2001 and 2000 and
the consolidated results of their operations and their cash flows for the three
years ended March 31, 2001, 2000, and 1999 in conformity with generally accepted
accounting principles.





Auburn Hills, Michigan
May 18, 2001

F-1



---



##### Table of Contents









Citizens First Bancorp, Inc. and Subsidiary

---

Consolidated Balance Sheet
(000s omitted)

|                                                      |                                                                   |                                                             |                                            |         |          |         |         |        |         |         | 
|----------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- | ------- | ------ | ------- | ------- | 
|                                                      |                                                                   |                                                             |                                            |         | March 31 |        
|                                                      |                                                                   |                                                             |                                            |         |          |        
|                                                      |                                                                   |                                                             |                                            |         | 2001     |         |         | 2000   |        
|                                                      |                                                                   |                                                             |                                            |         |          |         |         |        |        
|Assets                                               
|                                                     
|                                                     
|                                                     
|                                                     
|Cash
and Cash Equivalents                            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cash and due from depository institutions                         |                                                             | $                                          | 5,671   |          |         | $       | 5,194  |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest-bearing deposits in other depository institutions        |                                                             |                                            | 47,947  |          |         |         | 34,788 |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Federal funds sold                                                |                                                             |                                            |        |          |         |         | 5,200  |        
|                                                      |                                                                   |                                                             |                                            |         |          |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   |                                                             | Total cash and cash equivalents            |         |          | 53,618  |         |        |         | 45,182  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Securities available for sale (Note 3)                |                                                                   |                                                             | 96,053                                     |         |          |         | 94,288  |       
|                                                     
|                                                     
|                                                     
|                                                     
|Loans held for sale (Note 4)                          |                                                                   |                                                             | 1,964                                      |         |          |         | 5,740   |       
|                                                     
|                                                     
|                                                     
|                                                     
|Loans  Net (Note 5)                                  |                                                                   |                                                             | 672,449                                    |         |          |         | 568,503 |       
|                                                     
|                                                     
|                                                     
|                                                     
|Federal Home Loan Bank stock                          |                                                                   |                                                             | 6,150                                      |         |          |         | 5,119   |       
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued interest receivable and other assets (Note 9) |                                                                   |                                                             | 16,240                                     |         |          |         | 13,270  |       
|                                                     
|                                                     
|                                                     
|                                                     
|Premises and equipment  Net (Note 6)                 |                                                                   |                                                             | 9,392                                      |         |          |         | 9,468   |       
|                                                      |                                                                   |                                                             |                                            |         |          |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   |                                                             | Total assets                               |         | $        | 855,866 |         |        | $       | 741,570 | 
|                                                      |                                                                   |                                                             |                                            |         |          |         |        
|Liabilities and Stockholders Equity                 
|                                                     
|                                                     
|                                                     
|                                                     
|Liabilities                                          
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Deposits:                                                        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   | Noninterest-bearing                                         |                                            | $       | 19,266   |         |         | $      | 15,867  |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   | Interest-bearing (Note 7)                                   |                                            |         | 562,015  |         |         |        | 585,141 |        
|                                                      |                                                                   |                                                             |                                            |         |          |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   |                                                             | Total deposits                             |         |          | 581,281 |         |        |         | 601,008 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Federal Home Loan Bank advances (Note 8)                          |                                                             |                                            | 114,931 |          |         |         | 70,502 |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accrued interest and other liabilities                            |                                                             |                                            | 9,933   |          |         |         | 6,801  |        
|                                                      |                                                                   |                                                             |                                            |         |          |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   |                                                             | Total liabilities                          |         |          | 706,145 |         |        |         | 678,311 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Stockholders Equity                                 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Preferred stock  $.01 par value; Authorized  1,000,000 shares 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   | No shares issued and outstanding                            |                                            |         |         |         |         |        |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Common stock  $.01 par value; Authorized  20,000,000 shares   
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   | Issued and outstanding  9,526,761 shares at March 31, 2001 |                                            |         | 95       |         |         |        |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Additional paid-in capital                                        |                                                             |                                            | 92,111  |          |         |         |       |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Unearned compensation  ESOP (Note 10)                            |                                                             |                                            | (10,479 | )        |         |         |       |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Retained earnings                                                 |                                                             |                                            | 66,605  |          |         |         | 63,419 |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accumulated other comprehensive income (loss)                     |                                                             |                                            | 1,389   |          |         |         | (160   | )      
|                                                      |                                                                   |                                                             |                                            |         |          |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   |                                                             | Total stockholders equity                 |         |          | 149,721 |         |        |         | 63,259  | 
|                                                      |                                                                   |                                                             |                                            |         |          |         |        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                   |                                                             | Total liabilities and stockholders equity |         | $        | 855,866 |         |        | $       | 741,570 | 
|                                                      |                                                                   |                                                             |                                            |         |          |         |        

See Notes to Consolidated Financial Statements.



F-2



---



##### Table of Contents






Citizens First Bancorp, Inc. and Subsidiary

---

Consolidated Statement of Income
(000s omitted)

|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |        |        |        |     |        |  | 
|----------------------------------------------------- | ------------------------------------------------------------ | ---------- | ------------------------------- | ------ | ----- | ------------------- | ------ | ------ | ----- | ------ | ------ | ------ | --- | ------ |  | 
|                                                      |                                                              |            |                                 |        |       | Year Ended March 31 |       
|                                                      |                                                              |            |                                 |        |       |                     |       
|                                                      |                                                              |            |                                 |        |       | 2001                |        |        | 2000  |        |        | 1999   |    
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |        |        |        |    
|Interest Income                                      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Loans                                                        |            | $                               | 52,491 |       |                     | $      | 48,839 |       |        | $      | 48,255 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Federal funds sold and other cash equivalents                |            |                                 | 1,601  |       |                     |        | 1,257  |       |        |        | 847    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Securities:                                                 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                              | Tax-exempt |                                 |        | 61    |                     |        |        | 17    |        |        |        |    |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                              | Taxable    |                                 |        | 6,364 |                     |        |        | 1,815 |        |        |        | 662 |       
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                              |            | Total interest income           |        |       | 60,517              |        |        |       | 51,928 |        |        |     | 49,764 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Interest Expense                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Deposits                                                     |            |                                 | 28,387 |       |                     |        | 22,745 |       |        |        | 23,206 |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | FHLB advances                                                |            |                                 | 5,725  |       |                     |        | 4,318  |       |        |        | 3,034  |    
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                              |            | Total interest expense          |        |       | 34,112              |        |        |       | 27,063 |        |        |     | 26,240 | 
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Net
Interest Income Before provision for loan losses |                                                              |            | 26,405                          |        |       |                     | 24,865 |        |       |        | 23,524 |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Provision for Loan Losses(Note 5)                     |                                                              |            | 780                             |        |       |                     | (483   | )      |       |        | 3,800  |       
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |        |        |        |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Net Interest Income                                   |                                                              |            | 25,625                          |        |       |                     | 25,348 |        |       |        | 19,724 |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Noninterest Income (Loss)                            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Service charges and other fees                               |            |                                 | 1,622  |       |                     |        | 1,331  |       |        |        | 1,158  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Mortgage banking activities                                  |            |                                 | 955    |       |                     |        | (2,307 | )     |        |        | 1,181  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Gain on sale of investment securities                        |            |                                 | 89     |       |                     |        |       |       |        |        |       |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Gain on sale of investment property                          |            |                                 |       |       |                     |        |       |       |        |        | 1,065  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Gain on contributed investment securities (Note 2)           |            |                                 |       |       |                     |        |       |       |        |        | 6,082  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other                                                        |            |                                 | 602    |       |                     |        | 662    |       |        |        | 545    |    
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                              |            | Total noninterest income (loss) |        |       | 3,268               |        |        |       | (314   | )      |        |     | 10,031 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Noninterest Expenses                                 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Compensation, payroll taxes, and employee benefits (Note 10) |            |                                 | 8,735  |       |                     |        | 7,799  |       |        |        | 7,179  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Office occupancy and equipment                               |            |                                 | 3,330  |       |                     |        | 2,893  |       |        |        | 3,539  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Deposit insurance premiums                                   |            |                                 | 116    |       |                     |        | 307    |       |        |        | 365    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Advertising and business promotion                           |            |                                 | 519    |       |                     |        | 554    |       |        |        | 483    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Stationery, printing, and supplies                           |            |                                 | 1,147  |       |                     |        | 1,018  |       |        |        | 932    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Data processing                                              |            |                                 | 448    |       |                     |        | 476    |       |        |        | 492    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Deposit statement preparation and collections                |            |                                 | 595    |       |                     |        | 478    |       |        |        | 451    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Legal and audit fees                                         |            |                                 | 408    |       |                     |        | 549    |       |        |        | 672    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | State of Michigan taxes                                      |            |                                 | 312    |       |                     |        | 192    |       |        |        | 453    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Contributions (Note 2)                                       |            |                                 | 7,057  |       |                     |        | 140    |       |        |        | 6,239  |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Appraisal fee                                                |            |                                 | 483    |       |                     |        | 468    |       |        |        | 773    |    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other                                                        |            |                                 | 1,592  |       |                     |        | 1,374  |       |        |        | 1,034  |    
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                              |            | Total noninterest expenses      |        |       | 24,742              |        |        |       | 16,248 |        |        |     | 22,612 | 
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Income Before federal income tax expense             |                                                              |            | 4,151                           |        |       |                     | 8,786  |        |       |        | 7,143  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Federal Income Tax Expense(Note 9)                    |                                                              |            | 965                             |        |       |                     | 2,880  |        |       |        | 539    |       
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Net Income                                            |                                                              | $          | 3,186                           |        |       | $                   | 5,906  |        |       | $      | 6,604  |       
|                                                      |                                                              |            |                                 |        |       |                     |        |        |       |       

See Notes to Consolidated Financial Statements.



F-3



---



##### Table of Contents






Citizens First Bancorp, Inc. and Subsidiary

---

Consolidated Statement of Changes in Equity
(000s omitted)

|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |   |       |        |             |   |         |        |   |       | 
|------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | - | -------------------------- | - | ------ | - | ------ | ------- | ---------- | - | ------------ | -------- |  | -------- | ------ | ----- | ------------- | - | ----- | ------ | ----------- | - | ------- | ------ | - | ----- | 
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |   |       |        | Accumulated |  
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         | Additional |   |              | Unearned |  |          |        |       |               |   | Other |       
|                                                                                                              |                                                                                              |   |                            |   | Common |   |        | Paid-in |            |   | Compensation |          |  | Retained |        |       | Comprehensive |  
|                                                                                                              |                                                                                              |   |                            |   | Stock  |   |        | Capital |            |   | ESOP         |          |  | Earnings |        |       | Income (Loss) |   |       | Total  |            
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |   |       |        |            
|Balance April 1, 1998                                                                                        |                                                                                              | $ |                           |   |        | $ |       |         |            | $ |             |          |  | $        | 50,909 |       |               | $ | 4,229 |        |             | $ | 55,138  |       
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Comprehensive income:                                                                                        
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Net income                                                                                   |   |                            |  |        |   |        |        |            |   |              |         |  |          |        | 6,604 |               |   |       |       |             |   |         | 6,604  |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Change in net unrealized loss on securities available for sale  Net of tax effect of $2,179 |   |                            |  |        |   |        |        |            |   |              |         |  |          |        |      |               |   |       | (4,229 | )           |   |         | (4,229 | )
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |   |       |        |             |   |        
|                                                                                                              |                                                                                              |   | Total comprehensive income |   |        |   |        |         |            |   |              |          |  |          |        |       |               |   |       |        |             |   |         |        |   | 2,375 | 
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Balance March 31, 1999                                                                                       |                                                                                              |   |                           |   |        |   |       |         |            |   |             |          |  |          | 57,513 |       |               |   |      |        |             |   | 57,513  |       
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Comprehensive income:                                                                                        
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Net income                                                                                   |   |                            |  |        |   |        |        |            |   |              |         |  |          |        | 5,906 |               |   |       |       |             |   |         | 5,906  |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Change
in net unrealized loss on securities available for sale  Net of tax effect of $82    |   |                            |  |        |   |        |        |            |   |              |         |  |          |        |      |               |   |       | (160   | )           |   |         | (160   | )
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |   |       |        |             |   |        
|                                                                                                              |                                                                                              |   | Total comprehensive income |   |        |   |        |         |            |   |              |          |  |          |        |       |               |   |       |        |             |   |         |        |   | 5,746 | 
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Balance March 31, 2000                                                                                       |                                                                                              |   |                           |   |        |   |       |         |            |   |             |          |  |          | 63,419 |       |               |   | (160  | )      |             |   | 63,259  |       
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Issuance
of common stock in connection with Banks
conversion from mutual to stock-owned bank holding company |                                                                                              |   | 95                         |   |        |   | 92,111 |         |            |   | (10,479      | )        |  |          |       |       |               |   |      |        |             |   | 81,727  |       
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Comprehensive income:                                                                                        
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Net income                                                                                   |   |                            |  |        |   |        |        |            |   |              |         |  |          |        | 3,186 |               |   |       |       |             |   |         | 3,186  |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Change
in net unrealized gain on securities available for sale  Net of tax effect of $798   |   |                            |  |        |   |        |        |            |   |              |         |  |          |        |      |               |   |       | 1,549  |             |   |         | 1,549  |  
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |   |       |        |             |   |        
|                                                                                                              |                                                                                              |   | Total comprehensive income |   |        |   |        |         |            |   |              |          |  |          |        |       |               |   |       |        |             |   |         |        |   | 4,735 | 
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Balance March 31, 2001                                                                                       |                                                                                              | $ | 95                         |   |        | $ | 92,111 |         |            | $ | (10,479      | )        |  | $        | 66,605 |       |               | $ | 1,389 |        |             | $ | 149,721 |       
|                                                                                                              |                                                                                              |   |                            |   |        |   |        |         |            |   |              |          |  |          |        |       |               |  

See Notes to Consolidated Financial Statements.



F-4



---



##### Table of Contents






Citizens First Bancorp, Inc. and Subsidiary

---

Consolidated Statement of Cash Flows
(000s omitted)

|                                                                |                                                                            |                                                                  |                                                                       |                                           |         |                     |          |         |          |        |         |         |         |        |         |  
|--------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------- | ------- | ------------------- | -------- | ------- | -------- | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         | Year Ended March 31 |         
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         |                     |         
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         | 2001                |          |         | 2000     |        |         | 1999    |        
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         |                     |          |         |          |        |         |         |        
|Cash Flows from Operating Activities                           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Net income                                                                 |                                                                  | $                                                                     | 3,186                                     |         |                     | $        | 5,906   |          |        | $       | 6,604   |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Adjustments to reconcile net income to net cash from operating activities:
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Provision for deferred taxes                                     |                                                                       |                                           | 2,899   |                     |          |         | 900      |        |         |         | (2,296  | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Provision for loan losses                                        |                                                                       |                                           | 780     |                     |          |         | (483     | )      |         |         | 3,800   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Depreciation                                                     |                                                                       |                                           | 1,161   |                     |          |         | 888      |        |         |         | 870     |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | (Accretion) amortization                                         |                                                                       |                                           | (197    | )                   |          |         |         |        |         |         | 1       |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Proceeds from sale of mortgage loans held for sale               |                                                                       |                                           | 68,437  |                     |          |         | 188,848  |        |         |         | 94,233  |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Origination of mortgage loans held for sale                      |                                                                       |                                           | (64,080 | )                   |          |         | (186,257 | )      |         |         | (98,009 | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | (Gain) loss on sale of mortgage loans                            |                                                                       |                                           | (581    | )                   |          |         | 4,196    |        |         |         | (574    | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Gain on sale of investment securities                            |                                                                       |                                           | (89     | )                   |          |         |         |        |         |         |        |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Gain on sale of investment property                              |                                                                       |                                           |        |                     |          |         |         |        |         |         | (1,065  | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Gain on charitable contribution of securities available for sale |                                                                       |                                           |        |                     |          |         |         |        |         |         | (6,082  | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Charitable contribution of securities available for sale         |                                                                       |                                           |        |                     |          |         |         |        |         |         | 6,217   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Charitable contributions of company stock                        |                                                                       |                                           | 7,057   |                     |          |         |         |        |         |         |        |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            | Changes in assets and liabilities:                              
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            |                                                                  | Increase in accrued interest receivable and other assets              |                                           |         | (5,869              | )        |         |          | (3,320 | )       |         |         | (1,270 | )      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            |                                                                  | Increase (decrease) in accrued interest payable and other liabilities |                                           |         | 2,334               |          |         |          | (336   | )       |         |         | 3,556  |        
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         |                     |          |         |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            |                                                                  |                                                                       | Net cash provided by operating activities |         |                     | 15,038   |         |          |        | 10,342  |         |         |        | 5,985   |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Cash Flows from Investing Activities                           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Proceeds from maturities of securities available for sale                  |                                                                  |                                                                       | 33,858                                    |         |                     |          | 3,000   |          |        |         | 201     |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Proceeds from sale of securities available for sale                        |                                                                  |                                                                       | 15,516                                    |         |                     |          |        |          |        |         |        |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Purchase of FHLB stock                                                     |                                                                  |                                                                       | (1,031                                    | )       |                     |          | (573    | )        |        |         | (824    | )      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Purchase of available-for-sale securities                                  |                                                                  |                                                                       | (48,506                                   | )       |                     |          | (95,527 | )        |        |         |        |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Net (increase) decrease in loans                                           |                                                                  |                                                                       | (104,726                                  | )       |                     |          | 22,617  |          |        |         | (45,544 | )      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Purchases of premises and equipment                                        |                                                                  |                                                                       | (1,085                                    | )       |                     |          | (1,344  | )        |        |         | (790    | )      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Loan to employee stock ownership plan                                      |                                                                  |                                                                       | (10,479                                   | )       |                     |          |        |          |        |         |        |        
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         |                     |          |         |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            |                                                                  |                                                                       | Net cash used in investing activities     |         |                     | (116,453 | )       |          |        | (71,827 | )       |         |        | (46,957 | )
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Cash Flows from Financing Activities                           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Net increase (decrease) in deposits                                        |                                                                  |                                                                       | (19,727                                   | )       |                     |          | 74,168  |          |        |         | 23,395  |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Repayment of FHLB advances                                                 |                                                                  |                                                                       | (18,571                                   | )       |                     |          | (15,800 | )        |        |         | (14,600 | )      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Proceeds from FHLB advances                                                |                                                                  |                                                                       | 63,000                                    |         |                     |          | 32,035  |          |        |         | 27,257  |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Net proceeds from issuance of common stock                                 |                                                                  |                                                                       | 85,149                                    |         |                     |          |        |          |        |         |        |        
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         |                     |          |         |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                            |                                                                  |                                                                       | Net cash provided by financing activities |         |                     | 109,851  |         |          |        | 90,403  |         |         |        | 36,052  |  
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         |                     |          |         |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Net Increase (Decrease) in Cash and Cash Equivalents            |                                                                            |                                                                  | 8,436                                                                 |                                           |         |                     | 28,918   |         |          |        | (4,920  | )      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Cash
and Cash Equivalents Beginning of year                    |                                                                            |                                                                  | 45,182                                                                |                                           |         |                     | 16,264   |         |          |        | 21,184  |        
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         |                     |          |         |          |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Cash
and Cash Equivalents End of year                          |                                                                            | $                                                                | 53,618                                                                |                                           |         | $                   | 45,182   |         |          | $      | 16,264  |        
|                                                                |                                                                            |                                                                  |                                                                       |                                           |         |                     |          |         |          |       
|Supplemental
Disclosure of Cash Flow Information Cash paid for
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Interest                                                                   |                                                                  | $                                                                     | 33,182                                    |         |                     | $        | 26,689  |          |        | $       | 26,290  |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Federal income taxes                                                       |                                                                  |                                                                       | 3,425                                     |         |                     |          | 1,650   |          |        |         | 3,700   |        

See Notes to Consolidated Financial Statements.

F-5



---



##### Table of Contents






Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 1  Summary of Significant Accounting Policies



| |  | The accounting and reporting policies of Citizens First Bancorp,
Inc. and subsidiary conform to generally accepted accounting
principles. Management is required to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could
differ from those estimates and assumptions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Basis of Presentation and Principles of
Consolidation Citizens
First Bancorp, Inc. (the Company) is a Delaware Corporation and
the holding company for Citizens First Savings Bank (the Bank),
a state-chartered savings bank headquartered in Port Huron,
Michigan. The 2001 consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, the
Bank. The Bank also includes the accounts of its wholly owned
subsidiary, Citizens Financial Services, Inc. Citizens Financial
Services, Inc. includes the accounts of its wholly owned
subsidiaries, CFS Insurance Agency, CFS Appraisal, and CFS
Survey. Citizens Financial Services, Inc. receives revenue from
its three subsidiaries, which provide appraisal, survey, and
insurance services to individuals and small businesses in the
Port Huron area. All significant intercompany transactions and
balances have been eliminated in consolidation.
|
| |  | On March 7, 2001, the Company acquired the Bank. Prior to that
time, the Bank existed as a mutual savings bank. In connection
with the conversion, the Company issued an aggregate of 9,526,761
shares of its common stock, of which 8,821,075 shares were sold
at a purchase price of $10 per share. At that time, 705,686
shares of stock were donated to Citizens First Foundation, a
charitable foundation established by the Company. The net
offering proceeds, after expenses of $3.1 million, totaled $85.1
million.                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Nature of Operations The Company operates predominately in the
mideastern portion of Michigans lower peninsula. The Banks
primary services include accepting deposits, making commercial,
consumer, and mortgage loans, and engaging in mortgage banking
activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The Banks loan portfolio is concentrated in residential
first-mortgage loans, commercial and commercial real-estate
loans, and property improvement loans. The Bank is not dependent
upon any single industry or customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



F-6



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 1  Summary of Significant Accounting Policies (Continued)



| |  | Securities Securities are classified as held to maturity when
management has the intent and ability to hold them to maturity.
Held-to-maturity securities are reported at amortized cost. All
other securities are classified as available for sale and are
reported at fair value, with unrealized gains and losses, net of
related deferred income taxes included in equity as a component
of accumulated other comprehensive income. Federal Home Loan Bank
stock is considered a restricted investment security and is
carried at cost.                                                                                      
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Loan Interest and Fee Income Loans are generally reported at
the principal amount outstanding, net of unearned income.
Nonrefundable loan origination fees and certain direct loan
origination costs are deferred and included in interest income
over the term of the related loan as a yield adjustment.                                                                                                                                                                                                                                                                                                                       
|
| |  | Interest on loans is accrued and credited to income based on the
principal amount outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an
indication that the borrower may be unable to meet payments as
they become due. Upon such discontinuance, all unpaid interest
accrued is reversed. Interest income is subsequently recognized
only to the extent of cash payments received. Interest accruals
are generally resumed when all delinquent principal and/or
interest has been brought current or the loan becomes both well
secured and in the process of collection.
|
| |  | Allowance for Loan Losses The allowance for loan losses is
maintained at a level considered by management to be adequate to
absorb losses inherent in existing loans and loan commitments.
The adequacy of the allowance is based on evaluations that take
into consideration such factors as prior loss experience, changes
in the nature and volume of the portfolio, overall portfolio
quality, loan concentrations, specific impaired or problem loans
and commitments, and current economic conditions that may affect
the borrowers ability to pay.                                                                       
|
| |  | Federal Home Loan Bank Stock The Bank is required to maintain
an investment in the stock of the Federal Home Loan Bank of
Indianapolis (FHLB) in an amount equal to at least 1 percent of
the unpaid principal balances of the Banks residential mortgage
loans or .3 percent of its total assets, whichever is greater.
Purchases and sales of stock are made directly with the FHLB at
par value.                                                                                                                                                                                                                             
|
| |  | Investment in Joint Venture Citizens Financial Services, Inc.
participated in two joint ventures, both of which were sold
during fiscal 1999. The joint ventures were involved in real
estate developments and were accounted for under the equity
method of accounting. Although the ownership percentages varied,
the operating agreements of the joint ventures specified that net
income be allocated evenly between the participants.                                                                                                                                                                                       



F-7



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 1  Summary of Significant Accounting Policies (Continued)



| |  | Premises and Equipment Premises and equipment are carried at
cost, less accumulated depreciation. Depreciation is computed on
a straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the
terms of their respective leases or the estimated useful lives of
the improvements, whichever is shorter.                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Other Real Estate Other real estate includes properties
acquired through foreclosure or a deed in lieu of foreclosure.
Other real estate is recorded in other assets at the lower of its
cost, the amount of the loan balance plus unpaid accrued interest
at foreclosure, or the current estimated fair value less selling
costs. Any write-down of the loan balance to estimated fair value
when the property is foreclosed is charged to the allowance for
loan losses. Subsequent market write-downs, operating expenses,
and gains or losses on disposition of other real estate are
charged or credited to other operating expense.                                                                                                                               
|
| |  | Income Taxes Deferred tax assets and liabilities are recognized
for temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.                                                                                                                                                                                                                        
|
| |  | Mortgage Banking Activities The Bank routinely sells to
investors its originated residential mortgage loans. The mortgage
loans serviced for others are not included in the consolidated
statement of financial condition. Loans serviced for others were
approximately $283,900,000 and $293,700,000 at March 31, 2001 and
2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | When the Bank acquires mortgage servicing rights through the
origination of mortgage loans and sells those loans with
servicing rights retained, it allocates the total cost of the
mortgage loans to the mortgage servicing rights based on their
relative fair value. Capitalized mortgage servicing rights are
amortized as a reduction of servicing fee income in proportion
to, and over the period of, estimated net servicing income by use
of a method that approximates the level-yield method. Capitalized
mortgage servicing rights are periodically evaluated for
impairment. If impairment is identified, the amount of impairment
is charged to earnings with the establishment of a valuation
allowance against the capitalized mortgage servicing rights.



F-8



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 1  Summary of Significant Accounting Policies (Continued)

|                                                 |          |   |                |       |  |      |       |       | 
|------------------------------------------------ | -------- | - | -------------- | ----- |  | ---- | ----- | ----- | 
|                                                 |          |   | 2001           |       |  | 2000 |      
|                                                 |          |   |                |       |  |      |      
|                                                 |          |   | (000s omitted) |      
|                                                
|Carrying value  Beginning of year               |          | $ | 2,805          |       |  | $    | 1,519 |      
|                                                
|                                                
|                                                
|                                                
|Originated mortgage servicing rights capitalized |          |   | 365            |       |  |      | 1,465 |      
|                                                
|                                                
|                                                
|                                                
|Amortization of mortgage servicing rights        |          |   | (416           | )     |  |      | (179  | )    
|                                                 |          |   |                |       |  |     
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                 | Subtotal |   |                | 2,754 |  |      |       | 2,805 | 
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|Impairment valuation allowance                   |          |   | (200           | )     |  |      |      |      
|                                                 |          |   |                |       |  |     
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|Carrying value  End of year                     |          | $ | 2,554          |       |  | $    | 2,805 |      
|                                                 |          |   |                |       |  |     



| |  | The fair value of mortgage servicing rights approximates its
carrying value. The impairment valuation allowance increased
$200,000 during the year ended March 31, 2001. There was no
activity in the impairment valuation allowance for the year ended
March 31, 2000.                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the last quarter of fiscal year 2000, the Bank sold one group
of loans with a gross loan value of approximately $130,000,000 to
increase liquidity and to fund future operations. The Bank
realized a net loss of approximately $4,500,000 from this sale.                                                                                                                                                                                                                                                                
|
| |  | Off-balance-sheet Instruments Used for
Risk Management Purposes The Bank uses forward contracts as part of its mortgage banking
activities. Forward contracts provide for the delivery of
financial instruments at a specified future date and at a
specified price or yield. Forward contracts are accounted for on
a fair value basis. As a result, the fair value of these
instruments is recorded in the consolidated balance sheet with
both realized and unrealized gains and losses recognized in
noninterest income.
|
| |  | Pension Costs Pension costs are charged to salaries and
employee benefits expense as earned and are funded consistent
with the requirements of federal laws and regulations.                                                                                                                                                                                                                                                                                                                                                
|
| |  | Postretirement Benefits Postretirement benefits are recognized
in the consolidated financial statements over the period earned
by the employees.                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Statement of Cash Flows For purposes of reporting cash flows,
the Bank considers cash and cash equivalents to include cash and
amounts due from depository institutions, trust demand notes, and
federal funds sold. Generally, federal funds are sold for one-day
periods.                                                                                                                                                                                                                                                 



F-9



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 1  Summary of Significant Accounting Policies (Continued)



| |  | Other Comprehensive Income Accounting principles generally
require that recognized revenue, expenses, gains, and losses be
included in net income. Certain changes in assets and
liabilities, however, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate
component in the equity section of the balance sheet. Such items,
along with net income, are components of comprehensive income.                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Accumulated other comprehensive income at March 31, 2001, 2000,
and 1999 is comprised solely of unrealized gains and losses on
available-for-sale securities, net of applicable income taxes.
During 1999, the change in net unrealized gains on securities
includes reclassification adjustments of $4,014,000 for gains
included in income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Earnings per Share Basic earnings per share represents income
available to common stockholders divided by the weighted-average
number of common shares outstanding during the period. Earnings
per share data for the period from March 7, 2001 (the date of
conversion) to March 31, 2001 is not meaningful due to the
shortness of the period and, accordingly, has not been presented.
Earnings per share data does not apply to the periods prior to
the conversion, since the Bank was a mutual savings bank with no
stock outstanding.                                                                                                                                                                                                                                                                                
|
| |  | Employee Stock Ownership Plan (ESOP) Compensation expense is
recognized as ESOP shares are committed to be released. Allocated
and committed to be released ESOP shares are considered
outstanding for earnings per share calculation based on debt
service payments. Other ESOP shares are excluded from earnings
per share calculation. Dividends declared on allocated ESOP
shares are charged to retained earnings. Dividends declared on
unallocated ESOP shares are used to satisfy debt service. The
value of unearned shares to be allocated to ESOP participants for
future services not yet performed is reflected as a reduction of
stockholders equity.                                                                                                                                                        
|
| |  | Derivative Instruments and Hedging Activities SFAS No. 133
requires all derivative instruments to be recorded on the balance
sheet at estimated fair value. Changes in the fair value of
derivative instruments are to be recorded each period either in
current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction
and, if it is, on the type of hedge transaction. SFAS No. 133 was
adopted by the Bank during fiscal year 2000 and accordingly,
forward contracts used in mortgage banking activities are now
accounted for on a fair value basis. Previously, these forward
contracts were accounted for at settlement. The adoption of SFAS
No. 133 did not have a material effect on the consolidated
financial position or results of operations.



F-10



---



##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 1  Summary of Significant Accounting Policies (Continued)



| |  | Recent Accounting Pronouncements During September 2000, SFAS
No. 140 was issued, replacing SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement provided accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on a financial-components
approach that focuses on control. Under that approach, after a
transfer of financial assets, an entity recognizes the financial
and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. In
addition, this Statement requires certain disclosures regarding
securitized financial assets. SFAS No. 140 is effective for
transfers and servicing of financial assets and extinguishment of
liabilities occurring after March 31, 2001. Management is
currently evaluating the impact of adopting this Statement on the
consolidated financial statements and does not anticipate a
material impact.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Trust Assets Trust assets held in a fiduciary or agent capacity
are not included in the accompanying consolidated balance sheet
because they are not assets of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Reclassifications Certain amounts in the prior years
consolidated financial statements have been reclassified to
conform to the current years presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Note 2  Charitable Foundation



| |  | The Bank created a charitable foundation in 1998. The Bank
contributed its shares of Freddie Mac stock to the foundation in
1999 and 1998. The Bank transferred approximately $6,217,000 of
the stock to the foundation in 1999. The gain on the
contributions of the stock and related contribution expense was
recognized in the March 31, 1999 consolidated financial
statements. The Bank contributed $140,000 during fiscal year 2000
to cover taxes incurred by the foundation.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Concurrent with the conversion, the Company created the Citizens
First Foundation. The Company funded the foundation with Citizens
First Bancorp, Inc. common stock equal to 8 percent of the shares
sold in the conversion. A total of 705,686 shares were
transferred to the foundation. The contribution expense was
recognized in the March 31, 2001 consolidated financial
statements.                                                                                          



F-11



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 3  Securities



| |  | The amortized cost and estimated market value of
available-for-sale securities are as follows (000s omitted):
| |  | -------------------------------------------------------------------------------------------------------------

|                                                |                                           |                                     |        |           |        |  |            |       |       |            |       |   |        |           |        |        |        | 
|----------------------------------------------- | ----------------------------------------- | ----------------------------------- | ------ | --------- | ------ |  | ---------- | ----- | ----- | ---------- | ----- | - | ------ | --------- | ------ | ------ | ------ | 
|                                                |                                           |                                     |        | 2001      |       
|                                                |                                           |                                     |        |           |       
|                                                |                                           |                                     |        |           |        |  |            | Gross |       |            | Gross |   |        | Estimated |       
|                                                |                                           |                                     |        | Amortized |        |  | Unrealized |       |       | Unrealized |       |   | Market |          
|                                                |                                           |                                     |        | Cost      |        |  | Gains      |       |       | Losses     |       |   | Value  |          
|                                                |                                           |                                     |        |           |        |  |            |       |       |            |       |   |        |          
|U.S. Treasury securities and obligations of    
|                                               
|                                               
|                                               
|                                               
|                                                | U.S. government corporations and agencies |                                     | $      | 39,818    |        |  | $          | 1,080 |       |            | $     |  |        |           | $      | 40,898 |       
|                                               
|                                               
|                                               
|                                               
|Obligations of state and political subdivisions |                                           |                                     | 10,804 |           |        |  | 535        |       |       |            |      |   |        |           | 11,339 |       
|                                               
|                                               
|                                               
|                                               
|Corporate securities                            |                                           |                                     | 43,326 |           |        |  | 833        |       |       |            | 343   |   |        |           | 43,816 |       
|                                                |                                           |                                     |        |           |        |  |            |       |       |            |       |   |       
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                                |                                           | Total available-for-sale securities |        | $         | 93,948 |  |            | $     | 2,448 |            |       | $ | 343    |           |        | $      | 96,053 | 
|                                                |                                           |                                     |        |           |        |  |            |       |       |            |       |   |       

|                                                |                                           |                                     |        |           |        |  |            |       |    |            |       |     |        |           |        |        |        | 
|----------------------------------------------- | ----------------------------------------- | ----------------------------------- | ------ | --------- | ------ |  | ---------- | ----- | -- | ---------- | ----- | --- | ------ | --------- | ------ | ------ | ------ | 
|                                                |                                           |                                     |        | 2000      |       
|                                                |                                           |                                     |        |           |       
|                                                |                                           |                                     |        |           |        |  |            | Gross |    |            | Gross |     |        | Estimated |       
|                                                |                                           |                                     |        | Amortized |        |  | Unrealized |       |    | Unrealized |       |     | Market |          
|                                                |                                           |                                     |        | Cost      |        |  | Gains      |       |    | Losses     |       |     | Value  |          
|                                                |                                           |                                     |        |           |        |  |            |       |    |            |       |     |        |          
|U.S. Treasury securities and obligations of    
|                                               
|                                               
|                                               
|                                               
|                                                | U.S. government corporations and agencies |                                     | $      | 47,255    |        |  | $          |      |    |            | $     | 105 |        |           | $      | 47,150 |       
|                                               
|                                               
|                                               
|                                               
|Obligations of state and political subdivisions |                                           |                                     | 3,612  |           |        |  | 18         |       |    |            |      |     |        |           | 3,630  |       
|                                               
|                                               
|                                               
|                                               
|Corporate securities                            |                                           |                                     | 43,663 |           |        |  |           |       |    |            | 155   |     |        |           | 43,508 |       
|                                                |                                           |                                     |        |           |        |  |            |       |    |            |       |     |       
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                                |                                           | Total available-for-sale securities |        | $         | 94,530 |  |            | $     | 18 |            |       | $   | 260    |           |        | $      | 94,288 | 
|                                                |                                           |                                     |        |           |        |  |            |       |    |            |       |     |       



| |  | Proceeds from sales of securities were $15,516,000, $0, and $0
for the fiscal years ended March 31, 2001, 2000, and 1999,
respectively.                                           
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | With the adoption of SFAS No. 133 during fiscal year 2000, the
Bank transferred securities with a cost and market value of
$2,003,000 from held-to-maturity to available-for-sale.



F-12



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 3  Securities (Continued)



| |  | The amortized cost and estimated market value of
available-for-sale securities by contractual maturity are shown
below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties (000s
omitted):
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       |       |   |           |        |  |              |        |        | 
|-------------------------------------- | ----- | - | --------- | ------ |  | ------------ | ------ | ------ | 
|                                       |       |   | 2001      |       
|                                       |       |   |           |       
|                                       |       |   | Amortized |        |  | Estimated    |       
|                                       |       |   | Cost      |        |  | Market Value |       
|                                       |       |   |           |        |  |              |       
|Due in one year or less                |       | $ | 21,494    |        |  | $            | 21,892 |       
|                                      
|                                      
|                                      
|                                      
|Due in one year through five years     |       |   | 54,854    |        |  |              | 56,133 |       
|                                      
|                                      
|                                      
|                                      
|Due after five years through ten years |       |   | 11,305    |        |  |              | 11,628 |       
|                                      
|                                      
|                                      
|                                      
|Due after ten years                    |       |   | 6,295     |        |  |              | 6,400  |       
|                                       |       |   |           |        |  |             
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                       | Total |   | $         | 93,948 |  |              | $      | 96,053 | 
|                                       |       |   |           |        |  |             

Note 4  Mortgage Banking Activities



| |  | The Bank routinely sells to investors its originated residential
mortgage loans. All fixed rate residential mortgages recently
originated or financed are identified as held for sale. They are
accounted for at the lower of cost or market on an aggregate
basis. Loans held for sale are as follows (000s omitted):
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 |       |   |       |       |  |      |       |       | 
|------------------------------------------------ | ----- | - | ----- | ----- |  | ---- | ----- | ----- | 
|                                                 |       |   | 2001  |       |  | 2000 |      
|                                                 |       |   |       |       |  |      |      
|Loans held for sale                              |       | $ | 1,969 |       |  | $    | 5,886 |      
|                                                
|                                                
|                                                
|                                                
|Allowance for lower of cost or market adjustment |       |   | (5    | )     |  |      | (146  | )    
|                                                 |       |   |       |       |  |     
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                 | Total |   | $     | 1,964 |  |      | $     | 5,740 | 
|                                                 |       |   |       |       |  |     



| |  | The Bank had outstanding forward contracts to sell mortgage loans
of approximately $7,890,000 and $880,000 at March 31, 2001 and
2000, respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



F-13



---



##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 5  Loans



| |  | Balances of loans are as follows (000s omitted):
| |  | ------------------------------------------------

|                                      |                                          |             |         |        |         |   |         |        |         | 
|------------------------------------- | ---------------------------------------- | ----------- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                      |                                          |             |         | 2001   |         |   | 2000    |       
|                                      |                                          |             |         |        |         |   |         |       
|One- to four-family mortgage          |                                          | $           | 380,355 |        |         | $ | 341,308 |       
|                                     
|                                     
|                                     
|                                     
|Commercial real estate                |                                          |             | 97,215  |        |         |   | 71,611  |       
|                                     
|                                     
|                                     
|                                     
|Construction                          |                                          |             | 32,732  |        |         |   | 24,750  |       
|                                     
|                                     
|                                     
|                                     
|Home equity loans and lines of credit |                                          |             | 69,449  |        |         |   | 56,991  |       
|                                     
|                                     
|                                     
|                                     
|Automobile                            |                                          |             | 55,490  |        |         |   | 41,066  |       
|                                     
|                                     
|                                     
|                                     
|Other consumer                        |                                          |             | 10,458  |        |         |   | 13,882  |       
|                                     
|                                     
|                                     
|                                     
|Commercial                            |                                          |             | 39,176  |        |         |   | 30,749  |       
|                                      |                                          |             |         |        |         |  
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Total loans |         |        | 684,875 |   |         |        | 580,357 | 
|                                     
|                                     
|                                     
|                                     
|Less:                                
|                                     
|                                     
|                                     
|                                     
|                                      | Allowance for loan losses                |             |         | 10,831 |         |   |         | 10,461 |        
|                                     
|                                     
|                                     
|                                     
|                                      | Deferred loan origination and other fees |             |         | 1,595  |         |   |         | 1,393  |        
|                                      |                                          |             |         |        |         |  
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Net loans   |         | $      | 672,449 |   |         | $      | 568,503 | 
|                                      |                                          |             |         |        |         |  



| |  | Related parties, including senior officers and directors of the
Bank, had loans totaling approximately $4,952,000 and $2,963,000
at March 31, 2001 and 2000, respectively. For the years ended
March 31, 2001 and 2000, $2,967,000 and $852,000 of new loans
were made and repayments totaled $978,000 and $958,000,
respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Activity in the allowance for loan losses was as follows (000s
omitted):                                                                                                                                                                                                                                                          

|                            |  |      |        |   |      |   |        |      |  |   |        |  
|--------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                            |  | 2001 |        |   | 2000 |   |        | 1999 | 
|                            |  |      |        |   |      |   |        |      | 
|Balance  Beginning of year |  | $    | 10,461 |   |      | $ | 11,161 |      |  | $ | 7,527  |  
|                           
|                           
|                           
|                           
|Provision for loan losses   |  |      | 780    |   |      |   | (483   | )    |  |   | 3,800  |  
|                           
|                           
|                           
|                           
|Net charge-offs             |  |      | (410   | ) |      |   | (217   | )    |  |   | (166   | )
|                            |  |      |        |   |      |   |        |      | 
|Balance  End of year       |  | $    | 10,831 |   |      | $ | 10,461 |      |  | $ | 11,161 |  
|                            |  |      |        |   |      |   |        |      | 



F-14



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 5  Loans (Continued)



| |  | The recorded investment in impaired loans at March 31, 2001 and
2000 was $434,000 and $303,000, respectively, for which there was
a specific allowance of $245,000 and $0, respectively, for the
loan losses. The average recorded investment in impaired loans
during 2001 and 2000 was $181,000 and $92,000, respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 6  Premises and Equipment



| |  | Premises and equipment were as follows (000s omitted):
| |  | ------------------------------------------------------

|                                   |                              |   |        |        |  |      |        |        | 
|---------------------------------- | ---------------------------- | - | ------ | ------ |  | ---- | ------ | ------ | 
|                                   |                              |   | 2001   |        |  | 2000 |       
|                                   |                              |   |        |        |  |      |       
|Land                               |                              | $ | 1,711  |        |  | $    | 1,711  |       
|                                  
|                                  
|                                  
|                                  
|Office buildings                   |                              |   | 10,569 |        |  |      | 9,848  |       
|                                  
|                                  
|                                  
|                                  
|Furniture, fixtures, and equipment |                              |   | 6,504  |        |  |      | 6,140  |       
|                                   |                              |   |        |        |  |     
|                                   | Total premises and equipment |   |        | 18,784 |  |      |        | 17,699 | 
|                                  
|                                  
|                                  
|                                  
|Less accumulated depreciation      |                              |   | (9,392 | )      |  |      | (8,231 | )     
|                                   |                              |   |        |        |  |     
|                                   | Net carrying amount          |   | $      | 9,392  |  |      | $      | 9,468  | 
|                                   |                              |   |        |        |  |     

Note 7  Deposits



| |  | Interest-bearing deposit balances are summarized as follows (000s
omitted):
| |  | ---------------------------------------------------------------------------

|                  |                                     |                        |   |         |         |  |      |         |         | 
|----------------- | ----------------------------------- | ---------------------- | - | ------- | ------- |  | ---- | ------- | ------- | 
|                  |                                     |                        |   | 2001    |         |  | 2000 |        
|                  |                                     |                        |   |         |         |  |      |        
|Interest-bearing:
|                 
|                 
|                 
|                 
|                  | Passbook and savings deposits       |                        | $ | 86,032  |         |  | $    | 88,049  |        
|                 
|                 
|                 
|                 
|                  | NOW accounts                        |                        |   | 69,752  |         |  |      | 65,865  |        
|                 
|                 
|                 
|                 
|                  | Money market variable rate accounts |                        |   | 91,423  |         |  |      | 106,564 |        
|                 
|                 
|                 
|                 
|                  | Certificates of deposit             |                        |   | 314,808 |         |  |      | 324,663 |        
|                  |                                     |                        |   |         |         |  |     
|                  |                                     | Total interest-bearing |   | $       | 562,015 |  |      | $       | 585,141 | 
|                  |                                     |                        |   |         |         |  |     



| |  | Certificates of deposit individually exceeding $100,000 were
approximately $67,762,000 and $84,580,000 at March 31, 2001 and
2000, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------



F-15



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 7  Deposits (Continued)



| |  | Scheduled annual maturities of certificates of deposit were as
follows at March 31, 2001 (000s omitted):
| |  | --------------------------------------------------------------------------------------------------------

|                         |       |   |         |         | 
|------------------------ | ----- | - | ------- | ------- | 
|1-12 months              |       | $ | 217,547 |        
|                        
|                        
|                        
|                        
|13-24 months             |       |   | 49,554  |        
|                        
|                        
|                        
|                        
|25-36 months             |       |   | 6,861   |        
|                        
|                        
|                        
|                        
|37-48 months             |       |   | 22,120  |        
|                        
|                        
|                        
|                        
|49-60 months             |       |   | 11,736  |        
|                        
|                        
|                        
|                        
|61 months and thereafter |       |   | 6,990   |        
|                         |       |   |        
|                         | Total |   | $       | 314,808 | 
|                         |       |   |        

Note 8  Federal Home Loan Bank Advances



| |  | Advances from the Federal Home Loan Bank consist of fixed rate
advances that bear interest at rates ranging from 4.96 percent to
7.31 percent payable monthly. The advances are collateralized by
approximately $478,000,000 and $456,000,000 of mortgage loans and
investment securities as of March 31, 2001 and 2000,
respectively, under a blanket collateral agreement.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The advances are subject to prepayment penalties subject to the
provisions and conditions of the credit policy of the Federal
Home Loan Bank. Future maturities of the advances are as follows
at March 31, 2001 (000s omitted):                                                                                                                                            

|                    |      |       |        |        |         | 
|------------------- | ---- | ----- | ------ | ------ | ------- | 
|Years Ending        |      |       |        |       
|March 31            |      |       | Amount |       
|                    |      |       |       
|                    | 2002 |       | $      | 45,216 |        
|                   
|                   
|                   
|                   
|                    | 2003 |       |        | 18,663 |        
|                   
|                   
|                   
|                   
|                    | 2004 |       |        | 5,715  |        
|                   
|                   
|                   
|                   
|                    | 2005 |       |        | 21,196 |        
|                   
|                   
|                   
|                   
|                    | 2006 |       |        | 5,758  |        
|                   
|                   
|                   
|                   
|2007 and thereafter |      |       | 18,383 |       
|                    |      |       |        |       
|                    |      | Total |        | $      | 114,931 | 
|                    |      |       |        |       



F-16



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 9  Federal Income Taxes



| |  | The consolidated provision for federal income taxes consisted of
the following (000s omitted):
| |  | ----------------------------------------------------------------------------------------------

|                               |                          |   |        |     |  |      |       |       |      |   |        |     | 
|------------------------------ | ------------------------ | - | ------ | --- |  | ---- | ----- | ----- | ---- | - | ------ | --- | 
|                               |                          |   | 2001   |     |  | 2000 |       |       | 1999 |  
|                               |                          |   |        |     |  |      |       |       |      |  
|Current tax expense            |                          | $ | 3,864  |     |  | $    | 1,980 |       |      | $ | 2,835  |    
|                              
|                              
|                              
|                              
|Deferred tax expense (benefit) |                          |   | (2,899 | )   |  |      | 900   |       |      |   | (2,296 | )  
|                               |                          |   |        |     |  |      |       |       |     
|                               | Total income tax expense |   | $      | 965 |  |      | $     | 2,880 |      |   | $      | 539 | 
|                               |                          |   |        |     |  |      |       |       |     



| |  | Federal income tax expense differed from the amounts computed by
applying the statutory income tax rate of 34 percent to income
before federal income tax expense as a result of the following
(000s omitted):
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |                               |                          |       |      |     |   |       |      |       |      |       |        |     | 
|----------------------------------- | ----------------------------- | ------------------------ | ----- | ---- | --- | - | ----- | ---- | ----- | ---- | ----- | ------ | --- | 
|                                    |                               |                          |       | 2001 |     |   | 2000  |      |       | 1999 |      
|                                    |                               |                          |       |      |     |   |       |      |       |      |      
|Statutory rates                     |                               | $                        | 1,411 |      |     | $ | 2,987 |      |       | $    | 2,429 |       
|                                   
|                                   
|                                   
|                                   
|Increase (decrease) resulting from:
|                                   
|                                   
|                                   
|                                   
|                                    | Nontaxable gain               |                          |       |     |     |   |       |     |       |      |       | (1,852 | )  
|                                   
|                                   
|                                   
|                                   
|                                    | Change in valuation allowance |                          |       | (500 | )   |   |       |     |       |      |       |       |    
|                                   
|                                   
|                                   
|                                   
|                                    | Other                         |                          |       | 54   |     |   |       | (107 | )     |      |       | (38    | )  
|                                    |                               |                          |       |      |     |   |       |      |      
|                                    |                               | Total income tax expense |       | $    | 965 |   |       | $    | 2,880 |      |       | $      | 539 | 
|                                    |                               |                          |       |      |     |   |       |      |      



F-17



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 9  Federal Income Taxes (Continued)



| |  | The net deferred tax asset was comprised of the following
temporary differences (000s omitted):
| |  | -----------------------------------------------------------------------------------------------

|                          |                                                      |  |                                |       |       |       |   |       |       |       | 
|------------------------- | ---------------------------------------------------- |  | ------------------------------ | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                          |                                                      |  |                                |       | 2001  |       |   | 2000  |      
|                          |                                                      |  |                                |       |       |       |   |       |      
|Deferred tax assets:     
|                         
|                         
|                         
|                         
|                          | Allowance for loan losses                            |  | $                              | 3,539 |       |       | $ | 3,264 |      
|                         
|                         
|                         
|                         
|                          | Contribution carryover                               |  |                                | 3,554 |       |       |   | 1,594 |      
|                         
|                         
|                         
|                         
|                          | Depreciation                                         |  |                                | 276   |       |       |   | 212   |      
|                         
|                         
|                         
|                         
|                          | Deferred loan fees                                   |  |                                | 371   |       |       |   | 268   |      
|                         
|                         
|                         
|                         
|                          | Employee benefits                                    |  |                                | 1,575 |       |       |   | 1,254 |      
|                         
|                         
|                         
|                         
|                          | Net unrealized loss on available-for-sale securities |  |                                |      |       |       |   | 82    |      
|                         
|                         
|                         
|                         
|                          | Other                                                |  |                                | 91    |       |       |   | 209   |      
|                          |                                                      |  |                                |       |       |       |  
|                          |                                                      |  | Total deferred tax assets      |       | 9,406 |       |   |       | 6,883 |      
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                          | Less valuation allowance                             |  |                                |      |       |       |   | (500  | )    
|                          |                                                      |  |                                |       |       |       |  
|                          |                                                      |  | Net deferred tax assets        |       | 9,406 |       |   |       | 6,383 |      
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|Deferred tax liabilities:
|                         
|                         
|                         
|                         
|                          | Original issue discount                              |  |                                | 803   |       |       |   | 788   |      
|                         
|                         
|                         
|                         
|                          | Mortgage servicing rights                            |  |                                | 935   |       |       |   | 954   |      
|                         
|                         
|                         
|                         
|                          | Installment sale                                     |  |                                | 196   |       |       |   | 215   |      
|                         
|                         
|                         
|                         
|                          | Net unrealized gain on available-for-sale securities |  |                                | 716   |       |       |   |      |      
|                         
|                         
|                         
|                         
|                          | Other                                                |  |                                | 445   |       |       |   | 216   |      
|                          |                                                      |  |                                |       |       |       |  
|                          |                                                      |  | Total deferred tax liabilities |       |       | 3,095 |   |       |       | 2,173 | 
|                          |                                                      |  |                                |       |       |       |  
|                          |                                                      |  | Net deferred tax asset         |       | $     | 6,311 |   |       | $     | 4,210 | 
|                          |                                                      |  |                                |       |       |       |  



| |  | The Bank has not recognized a deferred tax liability for tax bad
debt reserves of approximately $6,600,000 that existed at
December 31, 1987, because it is not expected that this temporary
difference will reverse in the foreseeable future.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-18



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 10  Employee Benefits



| |  | Defined Benefit Pension Plan- The Bank is a participant in the
multiple-employer Financial Institutions Retirement Fund (FIRF
or the Plan), which covers substantially all of its officers
and employees. The Plan, for all full-time employees with one
year of service, provides benefits based on basic compensation
and years of service. The Banks contributions are determined by
FIRF and generally represent the normal cost of the Plan.
Specific Plan assets and accumulated benefit information for the
Banks portion of the Plan are not available. Under the Employee
Retirement Income Security Act of 1974 (ERISA), a contributor to
a multiemployer pension plan may be liable in the event of
complete or partial withdrawal for the benefit payments
guaranteed under ERISA. The Bank has no present intention to
withdraw from the Plan. The Bank was fully funded in the Plan as
of March 31, 2001. The expense of the Plan allocated to the Bank
for the years ended March 31, 2001, 2000, and 1999 amounted to
$0.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Defined Contribution Plan- The Company has a qualified savings
plan under Section 401(k) of the Internal Revenue Code. The Plan
covers all employees who have completed at least one year of
service. Eligible employees may contribute up to 15 percent of
their annual compensation, subject to certain maximums
established by the Internal Revenue Service. The Company will
match up to 50 percent of the first 4 percent of the employees
compensation deferred each year. The Company made matching
contributions for the fiscal years 2001 and 2000 of
approximately $66,300 and $68,500, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Supplemental Employee Retirement Plan- In 2000, the Bank
entered into an agreement to provide salary continuation
supplemental payments at retirement to its president. The
agreement is currently unfunded. The amount recorded under the
agreement, as determined by accruing the benefit over the
expected work life of its president, totaled approximately
$950,000 and $635,000 at March 31, 2001 and 2000, respectively.
The expense associated with the agreement was $315,000 and
$615,000 for the years ended March 31, 2001 and 2000,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Other Benefits- The Bank has entered into deferred fee
arrangements with certain of its directors. The amounts deferred
under the arrangements are transferred into a trust. At March
31, 2001 and 2000, the Bank had recorded $1,269,000 and
$888,000, respectively, as an asset with a corresponding
liability in the consolidated balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



F-19



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 10  Employee Benefits (Continued)



| |  | Employee Stock Ownership Plan- Effective January 1, 2001, the
Bank implemented an employee stock ownership plan (ESOP). The
ESOP covers all employees with more than one year of service who
have completed at least 1,000 hours of service and who have
attained the age of 21. As part of the conversion, the Company
provided a loan to the ESOP, which was used to purchase 762,120
shares of the Companys outstanding stock in the open market.
The loan bears interest equal to the prime rate at the time of
conversion and provides for the repayment of principal over the
15-year term of the loan. The scheduled maturities of the loan
as of March 31, 2001 are as follows (000s omitted):
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |      |       |        |     |        | 
|------------------- | ---- | ----- | ------ | --- | ------ | 
|Years Ending        |      |       |       
|March 31            |      |       | Amount |    
|                    |      |       |       
|                    | 2002 |       | $      | 304 |       
|                   
|                   
|                   
|                   
|                    | 2003 |       |        | 396 |       
|                   
|                   
|                   
|                   
|                    | 2004 |       |        | 431 |       
|                   
|                   
|                   
|                   
|                    | 2005 |       |        | 469 |       
|                   
|                   
|                   
|                   
|                    | 2006 |       |        | 510 |       
|                   
|                   
|                   
|                   
|2007 and thereafter |      |       | 8,369  |    
|                    |      |       |        |    
|                    |      | Total |        | $   | 10,479 | 
|                    |      |       |        |    



| |  | The Company has committed to make contributions to the ESOP
sufficient to support debt service of the loan. The loan is
secured by the shares purchased, which are held in a suspense
account for the allocation among the participants as the loan is
paid. Total compensation expense applicable to the ESOP amounted
to $0 for the year ended March 31, 2001.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Shares held by the ESOP include the following at March 31, 2001:                                                                                                                                                                                                                                                                                                

|                          |       |  |         |         | 
|------------------------- | ----- |  | ------- | ------- | 
|Allocated                 |       |  |        |        
|                         
|                         
|                         
|                         
|Committed to be allocated |       |  |        |        
|                         
|                         
|                         
|                         
|Unallocated               |       |  | 762,120 |        
|                          |       |  |        
|                          | Total |  |         | 762,120 | 
|                          |       |  |        



| |  | The fair value of these shares was approximately $10,145,700 at
March 31, 2001.
| |  | -------------------------------------------------------------------------------



F-20



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 11  Regulatory Matters



| |  | The Bank is subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve
quantitative measures of assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject
to qualitative judgments by regulators about components, risk
weightings, and other factors, and the regulators can lower
classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios, which are shown in the table below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | As of March 31, 2001 and 2000, the most recent notification from
the Banks regulators categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To
be categorized as well capitalized, minimum capital amounts and
ratios must be maintained as shown in the following table. There
are no conditions or events since that notification that
management believes have changed the Banks capital category.                                                                                                                                                                                                                             
|
| |  | At March 31, 2001 and 2000, consolidated actual capital levels
and minimum required levels were as follows (000s omitted):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                |                                    |                  |   |         |         |  |                   |      |      |                        |   |             |        |   |   |  |       |  |  |        |     |   |   |        |        |   |       |  |  |  |  |     |      |  
|--------------- | ---------------------------------- | ---------------- | - | ------- | ------- |  | ----------------- | ---- | ---- | ---------------------- | - | ----------- | ------ | - | - |  | ----- |  |  | ------ | --- | - | - | ------ | ------ | - | ----- |  |  |  |  | --- | ---- | -
|                |                                    |                  |   |         |         |  |                   |      |      |                        |   | For Capital |       
|                |                                    |                  |   | Actual  |         |  | Adequacy Purposes |      |      | To be Well Capitalized |  
|                |                                    |                  |   |         |         |  |                   |      |      |                        |  
|                |                                    |                  |   | Amount  |         |  | Ratio             |      |      | Amount                 |   |             |        |   |   |  | Ratio |  |  | Amount |     |   |   |        |        |   | Ratio | 
|                |                                    |                  |   |         |         |  |                   |      |      |                        |   |             |        |   |   |  |       |  |  |        |     |   |   |        |        |   |       | 
|March 31, 2001:
|               
|               
|               
|               
|                | Total capital (to risk-           
|               
|               
|               
|               
|                |                                    | weighted assets) |   | $       | 105,400 |  |                   |      | 17.4 | %                      |   | $           | 48,600 |   | > |  |       |  |  |        | 8.0 | % |   | $      | 60,800 |   | >     |  |  |  |  |     | 10.0 | %
|               
|               
|               
|               
|                | Tier 1 capital (to risk-          
|               
|               
|               
|               
|                |                                    | weighted assets) |   | $       | 103,100 |  |                   |      | 17.0 | %                      |   | $           | 24,300 |   | > |  |       |  |  |        | 4.0 | % |   | $      | 36,500 |   | >     |  |  |  |  |     | 6.0  | %
|               
|               
|               
|               
|                | Tier 1 capital (to average assets) |                  | $ | 103,100 |         |  |                   | 12.2 | %    |                        | $ | 25,300      |        | > |   |  |       |  |  | 3.0    | %   |   | $ | 42,200 |        | > |       |  |  |  |  | 5.0 | %   
|               
|               
|               
|               
|March 31, 2000:
|               
|               
|               
|               
|                | Total capital (to risk-           
|               
|               
|               
|               
|                |                                    | weighted assets) |   | $       | 69,100  |  |                   |      | 14.3 | %                      |   | $           | 38,600 |   | > |  |       |  |  |        | 8.0 | % |   | $      | 48,300 |   | >     |  |  |  |  |     | 10.0 | %
|               
|               
|               
|               
|                | Tier 1 capital (to risk-          
|               
|               
|               
|               
|                |                                    | weighted assets) |   | $       | 63,000  |  |                   |      | 13.1 | %                      |   | $           | 19,300 |   | > |  |       |  |  |        | 4.0 | % |   | $      | 28,900 |   | >     |  |  |  |  |     | 6.0  | %
|               
|               
|               
|               
|                | Tier 1 capital (to average assets) |                  | $ | 63,000  |         |  |                   | 8.5  | %    |                        | $ | 22,200      |        | > |   |  |       |  |  | 3.0    | %   |   | $ | 37,000 |        | > |       |  |  |  |  | 5.0 | %   



F-21



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 12  Off-balance-sheet Risk Commitments and Contingencies



| |  | Off-balance-sheet Risk- The Bank is party to financial
instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and
forward contracts to sell mortgage loans. These instruments
involve, to varying degrees, elements of credit and interest
rate risk that are not recognized in the consolidated balance
sheet.                                                                                                                                                                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Commitments to extend credit are agreements to lend to a
customer as long as there are no violations of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Fees from issuing these commitments to extend
credit are recognized over the period to maturity. Since a
portion of the commitments is expected to expire without being
drawn upon, the total commitments do not necessarily represent
future cash requirements. The Bank evaluates each customers
creditworthiness on a case-by-case basis. The amount of
collateral obtained upon extension of credit is based on
managements credit evaluation of the customer.
|
| |  | Exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to
extend credit and financial guarantees written is represented by
the contractual amount of those items. The Bank generally
requires collateral to support such financial instruments in
excess of the contractual amount of those instruments.                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Forward contracts are used to manage risk positions associated
with mortgage origination activities. Substantially all forward
contracts mature within 90 days of origination. Forward
contracts are traded in the over-the-counter markets and do not
have standardized terms. Counterparties to the Banks forward
contracts are primarily U.S. government agencies and brokers and
dealers in mortgage-backed securities. In the event the
counterparty is unable to meet contractual obligations, the Bank
may be exposed to selling mortgage loans at prevailing market
prices. There were no counterparty default losses on forward
contracts during the years ended March 31, 2001 and 2000.                                     



F-22



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 12  Off-balance-sheet Risk Commitments and Contingencies (Continued)



| |  | A summary of the notional or contractual amounts of financial
instruments with off-balance-sheet risk at year end follows
(000s omitted):
| |  | -----------------------------------------------------------------------------------------------------------------------------------------

|                                               |                 |            |                                    |  |         |         |        |      |        |         | 
|---------------------------------------------- | --------------- | ---------- | ---------------------------------- |  | ------- | ------- | ------ | ---- | ------ | ------- | 
|                                               |                 |            |                                    |  | 2001    |         |        | 2000 |       
|                                               |                 |            |                                    |  |         |         |        |      |       
|Letters of credit                              |                 | $          | 230                                |  |         | $       | 700    |     
|                                              
|                                              
|                                              
|                                              
|Unused lines of credit                         |                 |            | 38,300                             |  |         |         | 28,200 |     
|                                              
|                                              
|                                              
|                                              
|Commitments to originate loans or to refinance
|                                              
|                                              
|                                              
|                                              
|                                               | existing loans:
|                                              
|                                              
|                                              
|                                              
|                                               |                 | Mortgage   |                                    |  | 110,700 |         |        |      | 51,500 |        
|                                              
|                                              
|                                              
|                                              
|                                               |                 | Consumer   |                                    |  | 5,300   |         |        |      | 6,900  |        
|                                              
|                                              
|                                              
|                                              
|                                               |                 | Commercial |                                    |  | 20,600  |         |        |      | 23,100 |        
|                                               |                 |            |                                    |  |         |        
|                                               |                 |            | Total commitments to extend credit |  | $       | 175,130 |        |      | $      | 110,400 | 
|                                               |                 |            |                                    |  |         |        



| |  | The Bank had $7,890,000 and $880,000 in forward contracts to
sell mortgage loans for the years ended March 31, 2001 and 2000,
respectively.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------

Note 13  Fair Values of Financial Instruments



| |  | Fair Values of Financial Instruments- The carrying amounts and
estimated fair values of the Banks financial instruments are
presented below. Certain assets, the most significant being
premises and equipment and the deposit base and other customer
relationship intangibles, do not meet the definition of a
financial instrument and are excluded from this disclosure.
Accordingly, this fair value information is not intended to, and
does not, represent Citizens First Savings Bank and subsidiarys
underlying value. Many of the assets and liabilities subject to
the disclosure requirements are not actively traded, requiring
fair values to be estimated by management. These estimates
necessarily involve the use of judgment about a wide variety of
factors, including, but not limited to, relevancy of market
prices of comparable instruments, expected future cash flows,
and appropriate discount rates.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-23



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 13  Fair Values of Financial Instruments (Continued)



| |  | The carrying amounts and estimated fair values of financial
instruments were as follows (000s omitted):
| |  | -------------------------------------------------------------------------------------------------------

|                       |                               |  |          |         |  |            |   |         |          |  |   |            |  |  |   |         | 
|---------------------- | ----------------------------- |  | -------- | ------- |  | ---------- | - | ------- | -------- |  | - | ---------- |  |  | - | ------- | 
|                       |                               |  | 2001     |         |  | 2000       |  
|                       |                               |  |          |         |  |            |  
|                       |                               |  | Carrying |         |  | Estimated  |   |         | Carrying |  |   | Estimated  | 
|                       |                               |  | Amount   |         |  | Fair Value |   |         | Amount   |  |   | Fair Value | 
|                       |                               |  |          |         |  |            |   |         |          |  |   |            | 
|Financial assets:     
|                      
|                      
|                      
|                      
|                       | Cash and cash equivalents     |  | $        | 53,618  |  |            | $ | 53,618  |          |  | $ | 45,182     |  |  | $ | 45,182  | 
|                      
|                      
|                      
|                      
|                       | Securities available for sale |  |          | 96,053  |  |            |   | 96,053  |          |  |   | 94,288     |  |  |   | 94,288  | 
|                      
|                      
|                      
|                      
|                       | Loans held for sale           |  |          | 1,964   |  |            |   | 1,964   |          |  |   | 5,740      |  |  |   | 5,740   | 
|                      
|                      
|                      
|                      
|                       | Loans in portfolio            |  |          | 672,449 |  |            |   | 676,635 |          |  |   | 568,503    |  |  |   | 552,926 | 
|                      
|                      
|                      
|                      
|                       | FHLB stock                    |  |          | 6,150   |  |            |   | 6,150   |          |  |   | 5,119      |  |  |   | 5,119   | 
|                      
|                      
|                      
|                      
|                       | Accrued interest receivable   |  |          | 5,339   |  |            |   | 5,339   |          |  |   | 3,315      |  |  |   | 3,315   | 
|                      
|                      
|                      
|                      
|Financial liabilities:
|                      
|                      
|                      
|                      
|                       | Deposits                      |  |          | 581,281 |  |            |   | 584,234 |          |  |   | 601,008    |  |  |   | 599,695 | 
|                      
|                      
|                      
|                      
|                       | FHLB advances                 |  |          | 114,931 |  |            |   | 115,385 |          |  |   | 70,502     |  |  |   | 70,223  | 
|                      
|                      
|                      
|                      
|                       | Advance payments by borrowers |  |          | 1,774   |  |            |   | 1,774   |          |  |   | 1,725      |  |  |   | 1,725   | 
|                      
|                      
|                      
|                      
|                       | Accrued interest payable      |  |          | 1,895   |  |            |   | 1,895   |          |  |   | 965        |  |  |   | 965     | 



| |  | The terms and short-term nature of certain assets and
liabilities result in their carrying amount approximating fair
value. These include cash and due from banks, interest-bearing
deposits in banks, federal funds sold, and accrued interest
receivable and payable. The following methods and assumptions
were used by the Bank to estimate the fair value of the
remaining classes of financial instruments:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Mortgages held for sale are valued at the lower of aggregate
cost or market value primarily as determined using quoted market
prices.                                                                                                                                                                                                                                                                            
|
| |  | Securities are valued based on quoted market prices, where
available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable
instruments.                                                                                                                                                                                                                        
|
| |  | For variable rate loans that reprice frequently, fair values are
based on carrying amounts, as adjusted for estimated credit
losses. The fair values for other loans are estimated using
discounted cash flow analyses and employ interest rates
currently being offered for loans with similar terms to
borrowers of similar credit quality.                                                                    



F-24



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 13  Fair Values of Financial Instruments (Continued)



| |  | The fair values of demand deposits, savings accounts, and money
market deposits are, by definition, equal to the amount payable
on demand. The fair values of fixed rate time deposits are
estimated by discounting cash flows using interest rates
currently being offered on certificates with similar maturities.                                                                                                                                                                                                            
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The fair value of the Banks fixed rate long-term debt is based
on quoted market prices or, in the absence of quoted market
prices, discounted cash flows using rates for similar debt with
the same maturities. The fair value of variable rate notes is
based on their carrying amount.                                                                                                                                                                                                                                       
|
| |  | The fair value of loan commitments and standby letters of
credit, valued on the basis of fees currently charged for
commitments for similar loan terms to new borrowers with similar
credit profiles, is not considered material.                                                                                                                                                                                                                                                                                               
|
| |  | The fair value of off-balance-sheet financial instruments used
for risk management purposes, which consists solely of forward
contracts extending from 45-90 days to sell mortgage loans, is
estimated by obtaining quotes from brokers and U.S. government
agencies or by cash flow analysis comparing forward with current
rates. The notional amount of forward contracts at March 31,
2001 and 2000 was $7,890,000 and $880,000, respectively. The
carrying amount is $0. The fair value of these contracts is not
material.



F-25



---



##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 14  Parent-only Financial Statements



| |  | The following represents the condensed financial statements of
Citizens First Bancorp, Inc. (Parent) only. The Parent-only
financial information should be read in conjunction with the
Companys consolidated financial statements.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The condensed balance sheet at March 31, 2001 is as follows
(000s omitted):                                                                                                                                                           

|                                     |                                 |              |         |         |         | 
|------------------------------------ | ------------------------------- | ------------ | ------- | ------- | ------- | 
|Assets                              
|                                    
|                                    
|                                    
|                                    
|                                     | Cash at subsidiary bank         |              | $       | 28,307  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Securities available for sale   |              |         | 14,285  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Investment in subsidiary        |              |         | 104,651 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred taxes and other assets |              |         | 2,478   |        
|                                     |                                 |              |         |        
|                                     |                                 | Total assets |         | $       | 149,721 | 
|                                     |                                 |              |         |        
|Liabilities and Stockholders Equity |                                 | $            | 149,721 |        
|                                     |                                 |              |         |        



| |  | The condensed statement of operations for the year ended March
31, 2001 is as follows (000s omitted):
| |  | -----------------------------------------------------------------------------------------------------

|                               |                                              |                      |        |        |        |  
|------------------------------ | -------------------------------------------- | -------------------- | ------ | ------ | ------ | -
|Operating income               |                                              | $                    |       |       
|                              
|                              
|                              
|                              
|Operating expense              |                                              |                      | (7,057 | )     
|                               |                                              |                      |       
|                               | Loss  Before income taxes and equity in    
|                              
|                              
|                              
|                              
|                               |                                              | income of subsidiary |        |        | (7,057 | )
|                              
|                              
|                              
|                              
|Income tax benefit             |                                              |                      | 2,400  |       
|                               |                                              |                      |       
|                               | Loss  Before equity in income of subsidiary |                      |        | (4,657 | )     
|                              
|                              
|                              
|                              
|Equity in income of subsidiary |                                              |                      | 7,843  |       
|                               |                                              |                      |       
|                               | Net income                                   |                      | $      | 3,186  |       
|                               |                                              |                      |       



F-26



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 14  Parent-only Financial Statements (Continued)



| |  | The condensed statement of cash flows for the year ended March
31, 2001 is as follows (000s omitted):
| |  | -----------------------------------------------------------------------------------------------------

|                                                        |                                                      |                       |                                                  |                                       |   |        |         |  
|------------------------------------------------------- | ---------------------------------------------------- | --------------------- | ------------------------------------------------ | ------------------------------------- | - | ------ | ------- | -
|Cash Flows from Operating Activities                   
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Net income                                           |                       | $                                                | 3,186                                 |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Adjustments to reconcile net income to net cash from
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                      | operating activities:
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                      |                       | Equity in income of subsidiary                   |                                       |   | (7,843 | )      
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                      |                       | Provision for deferred taxes                     |                                       |   | (2,400 | )      
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                      |                       | Charitable contributions in the form of Citizens
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                      |                       |                                                  | First Bancorp, Inc. common stock      |   |        | 7,057   |  
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        |                                                      |                       | Net change in other assets                       |                                       |   | (78    | )      
|                                                        |                                                      |                       |                                                  |                                      
|                                                        |                                                      |                       |                                                  | Net cash used in operating activities |   |        | (78     | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Cash Flows from Investing Activities                   
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Purchase of investments                              |                       |                                                  | (14,285                               | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Loan to employee stock ownership plan                |                       |                                                  | (10,479                               | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Investments in Citizens First Savings Bank           |                       |                                                  | (32,000                               | )
|                                                        |                                                      |                       |                                                  |                                      
|                                                        |                                                      |                       |                                                  | Net cash used in investing activities |   |        | (56,764 | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Cash Flows from Financing Activities- Net proceeds from
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | conversion                                           |                       |                                                  | 85,149                                |  
|                                                        |                                                      |                       |                                                  |                                      
|Net Increase in Cash and Cash Equivalents               |                                                      |                       | 28,307                                           |                                      
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Cash and Cash Equivalents- Beginning of year            |                                                      |                       |                                                 |                                      
|                                                        |                                                      |                       |                                                  |                                      
|Cash and Cash Equivalents- End of year                  |                                                      | $                     | 28,307                                           |                                      
|                                                        |                                                      |                       |                                                  |                                      



F-27



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##### Table of Contents



Citizens First Bancorp, Inc. and Subsidiary

---

Notes to Consolidated Financial Statements
March 31, 2001, 2000, and 1999

Note 15  Quarterly Results of Operations (Unaudited)



| |  | The following table summarizes the Companys quarterly results
for the fiscal years ended March 31, 2001 and 2000 (000s
omitted):
| |  | ---------------------------------------------------------------------------------------------------------------------------------

|                                  |  |                                    |        |  |               |   |        |              |  |   |           |  |  |   |        |  
|--------------------------------- |  | ---------------------------------- | ------ |  | ------------- | - | ------ | ------------ |  | - | --------- |  |  | - | ------ | -
|                                  |  | For the Three-month Periods Ending |       
|                                  |  |                                    |       
|                                  |  | June 30,                           |        |  | September 30, |   |        | December 31, |  |   | March 31, | 
|                                  |  | 2000                               |        |  | 2000          |   |        | 2000         |  |   | 2001      | 
|                                  |  |                                    |        |  |               |   |        |              |  |   |           | 
|Interest income                   |  | $                                  | 14,018 |  |               | $ | 14,933 |              |  | $ | 15,047    |  |  | $ | 16,519 |  
|                                 
|                                 
|                                 
|                                 
|Interest expense                  |  |                                    | 7,727  |  |               |   | 8,662  |              |  |   | 8,739     |  |  |   | 8,984  |  
|                                  |  |                                    |        |  |               |   |        |              |  |   |           | 
|Net interest income               |  |                                    | 6,291  |  |               |   | 6,271  |              |  |   | 6,308     |  |  |   | 7,535  |  
|                                 
|                                 
|                                 
|                                 
|Provision for losses on loans     |  |                                    |       |  |               |   | 106    |              |  |   | 86        |  |  |   | 588    |  
|                                 
|                                 
|                                 
|                                 
|Other income                      |  |                                    | 1,118  |  |               |   | 875    |              |  |   | 718       |  |  |   | 557    |  
|                                 
|                                 
|                                 
|                                 
|Other expenses                    |  |                                    | 4,181  |  |               |   | 4,156  |              |  |   | 4,101     |  |  |   | 12,304 |  
|                                  |  |                                    |        |  |               |   |        |              |  |   |           | 
|Income (loss) before income taxes |  |                                    | 3,228  |  |               |   | 2,884  |              |  |   | 2,839     |  |  |   | (4,800 | )
|                                 
|                                 
|                                 
|                                 
|Federal income taxes              |  |                                    | 1,143  |  |               |   | 840    |              |  |   | 427       |  |  |   | (1,445 | )
|                                  |  |                                    |        |  |               |   |        |              |  |   |           | 
|Net income (loss)                 |  | $                                  | 2,085  |  |               | $ | 2,044  |              |  | $ | 2,412     |  |  | $ | (3,355 | )
|                                  |  |                                    |        |  |               |   |        |              |  |   |           | 
|Basic earnings per share          |  |                                    | N/A    |  |               |   | N/A    |              |  |   | N/A       |  |  |   | N/A    |  

|                                  |  |                                    |        |  |               |   |        |              |  |   |           |   |  |   |        |  
|--------------------------------- |  | ---------------------------------- | ------ |  | ------------- | - | ------ | ------------ |  | - | --------- | - |  | - | ------ | -
|                                  |  | For the Three-month Periods Ending |       
|                                  |  |                                    |       
|                                  |  | June 30,                           |        |  | September 30, |   |        | December 31, |  |   | March 31, |  
|                                  |  | 1999                               |        |  | 1999          |   |        | 1999         |  |   | 2000      |  
|                                  |  |                                    |        |  |               |   |        |              |  |   |           |  
|Interest income                   |  | $                                  | 12,001 |  |               | $ | 12,814 |              |  | $ | 13,485    |   |  | $ | 13,628 |  
|                                 
|                                 
|                                 
|                                 
|Interest expense                  |  |                                    | 6,197  |  |               |   | 6,697  |              |  |   | 6,853     |   |  |   | 7,316  |  
|                                  |  |                                    |        |  |               |   |        |              |  |   |           |  
|Net interest income               |  |                                    | 5,804  |  |               |   | 6,117  |              |  |   | 6,632     |   |  |   | 6,312  |  
|                                 
|                                 
|                                 
|                                 
|Provision for losses on loans     |  |                                    |       |  |               |   |       |              |  |   | (84       | ) |  |   | (399   | )
|                                 
|                                 
|                                 
|                                 
|Other income (loss)               |  |                                    | 947    |  |               |   | 810    |              |  |   | (2,503    | ) |  |   | 432    |  
|                                 
|                                 
|                                 
|                                 
|Other expenses                    |  |                                    | 3,793  |  |               |   | 3,828  |              |  |   | 4,254     |   |  |   | 4,373  |  
|                                  |  |                                    |        |  |               |   |        |              |  |   |           |  
|Income (loss) before income taxes |  |                                    | 2,958  |  |               |   | 3,099  |              |  |   | (41       | ) |  |   | 2,770  |  
|                                 
|                                 
|                                 
|                                 
|Federal income taxes              |  |                                    | 970    |  |               |   | 1,015  |              |  |   | 1         |   |  |   | 894    |  
|                                  |  |                                    |        |  |               |   |        |              |  |   |           |  
|Net income (loss)                 |  | $                                  | 1,988  |  |               | $ | 2,084  |              |  | $ | (42       | ) |  | $ | 1,876  |  
|                                  |  |                                    |        |  |               |   |        |              |  |   |           |  
|Basic earnings per share          |  |                                    | N/A    |  |               |   | N/A    |              |  |   | N/A       |   |  |   | N/A    |  



F-28