Citizens First Bancorp 10-Q 2001 Q4 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended December 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	38-3573582
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
525 Water Street, Port Huron, Michigan	48060
(Address of principal executive offices)	(Zip Code)

(810) 987-8300

(Issuer’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changes since last report)

     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. Yes No

     The Issuer had 9,050,373 shares of common stock, par value $0.01 per share, outstanding as of February 11, 2002.

TABLE OF CONTENTS

Part I. Financial Information
Item 1. Financial Statements (unaudited)
	Consolidated Balance Sheets as of December 31, 2001 and March 31, 2001
	Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2001 and 2000
	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2001 and 2000
	Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K

CITIZENS FIRST BANCORP, INC.
FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of December 31, 2001 and March 31, 2001		1
	Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2001 and 2000		2
	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2001 and 2000		3
	Notes to Consolidated Financial Statements		4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		6
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		12
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings		13
Item 2.	Changes in Securities and Use of Proceeds		13
Item 3.	Defaults Upon Senior Securities		13
Item 4.	Submission of Matters to a Vote of Security Holders		13
Item 5.	Other Information		13
Item 6.	Exhibits and Reports on Form 8-K		13

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CITIZENS FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

					Unaudited
					At December 31,
					2001			At March 31, 2001
					(In thousands)
Assets
Cash and cash equivalents:
	Cash and due from depository institutions				$	13,676		$	5,671
	Interest-bearing deposits in other depository institutions					18,749			47,947
			Total cash and cash equivalents			32,425			53,618
	Securities available for sale					133,697			96,053
	Loans held for sale					1,310			1,964
	Loans — Net					719,554			672,449
	Federal Home Loan Bank stock					7,505			6,150
	Accrued interest receivable and other assets					17,858			16,240
	Premises and equipment — Net					9,793			9,392
			Total assets		$	922,142		$	855,866
Liabilities
	Deposits:
		Noninterest-bearing			$	30,357		$	19,266
		Interest-bearing				586,306			562,015
			Total deposits			616,663			581,281
	Federal Home Loan Bank advances					145,093			114,931
	Accrued interest and other liabilities					10,610			9,933
			Total liabilities			772,366			706,145
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 - 9,526,761 shares at December 31, 2001 and March 31, 2001					95			95
	Additional paid-in capital					92,210			92,111
	Unearned compensation — ESOP					(9,780	)		(10,479	)
	Retained earnings					73,716			66,605
	Accumulated other comprehensive income					997			1,389
	Common stock in treasury at cost (2001 - 476,388 shares)					(7,462	)		–
			Total stockholders’ equity			149,776			149,721
				Total liabilities and stockholders’ equity	$	922,142		$	855,866

See accompanying notes to unaudited consolidated financial statements.

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CITIZENS FIRST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME

				Unaudited				Unaudited
				Three Months Ended				Nine Months Ended
				December 31,				December 31,
				2001		2000		2001		2000
						(In thousands)
Interest Income:
	Loans			$	14,314	$	13,294	$	43,380	$	38,436
	Federal funds sold and other cash equivalents				117		200		1,063		861
	Securities:
		Tax-exempt			122		116		367		337
		Taxable			1,317		1,437		5,188		4,364
			Total interest income		15,870		15,047		49,998		43,998
Interest Expense
	Deposits				5,350		7,423		17,991		21,412
	FHLB advances				1,636		1,316		5,960		3,716
			Total interest expense		6,986		8,739		23,951		25,128
Net Interest Income —Before provision for loan losses					8,884		6,308		26,047		18,870
Provision for Loan Losses					249		86		747		192
Net Interest Income					8,635		6,222		25,300		18,678
Non-interest Income:
	Service charges and other fees				605		367		1,671		1,233
	Mortgage banking activities				1,024		300		1,180		768
	Gain on sale of securities				—		—		—		89
	Other				174		51		410		621
			Total non-interest income		1,803		718		3,261		2,711
Non-interest Expense:
	Compensation, payroll taxes and employee benefits				3,396		2,205		7,952		6,084
	Office occupancy and equipment				797		800		2,667		2,419
	Deposit insurance premiums				76		49		230		114
	Advertising and business promotion				112		181		450		412
	Stationery, printing and supplies				374		267		1,125		833
	Data processing				115		133		324		339
	Deposit statement preparation and collections				203		159		554		436
	Legal and audit fees				442		79		623		212
	State of Michigan taxes				131		82		275		223
	Appraisal fee				286		114		703		326
	Other				223		32		1,729		1,040
			Total non-interest expense		6,155		4,101		16,632		12,438
Income- Before federal income tax expense					4,283		2,839		11,929		8,951
Federal Income Tax Expense					1,479		427		4,056		2,410
Net Income				$	2,804	$	2,412	$	7,873	$	6,541

See accompanying notes to unaudited consolidated financial statements.

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CITIZENS FIRST SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

				Unaudited
				Nine Months Ended
				December 31,
				2001			2000
					(In thousands)
Cash flows from Operating Activities:
	Net income			$	7,873		$	6,541
	Adjustments to reconcile net income to net cash operating activities:
		Provision for deferred taxes			–			(200	)
		Provision for loan losses			747			192
		Depreciation			936			656
		Accretion			(309	)		(154	)
		Proceeds from sale of mortgage loans held for sale			148,008			18,739
		Origination of mortgage loans held for sale			(146,136	)		(15,839	)
		Loss on sale of mortgage loans			(1,218	)		(349	)
		Gain on sale of investment securities			–			(89	)
	Change in assets and liabilities:
		Increase in accrued interest receivable and other assets			(1,416	)		(2,852	)
		Increase in accrued interest payable and other liabilities			677			5,306
			Net cash provided by operating activities		9,162			11,951
Cash Flows From Investing Activities:
	Proceeds from maturities of securities available-for-sale				54,434			13,125
	Proceeds from sale of securities available-for-sale				8,058			13,000
	Purchase of FHLB stock				(1,355	)		(1,031	)
	Purchase of available-for-sale securities				(100,421	)		(14,007	)
	Net increase in loans				(47,852	)		(90,129	)
	Purchases of premises and equipment				(1,337	)		(825	)
			Net cash used in investing activities		(88,473	)		(79,867	)
Cash Flows from Financing Activities:
	Net increase in deposits				35,382			10,392
	Dividends paid				(762	)		–
	Purchase of treasury stock				(7,462	)		–
	Shares allocated under the ESOP				798			–
	Repayment of FHLB advances				(23,323	)		(2,398	)
	Proceeds from FHLB advances				53,485			49,900
			Net cash provided by financing activities		58,118			57,894
Net Decrease in Cash and Cash Equivalents					(21,193	)		(10,022	)
Cash and Cash Equivalents- Beginning of year					53,618			45,182
Cash and Cash Equivalents- End of year				$	32,425		$	35,160
Supplemental Disclosure of Cash Flow Information- Cash paid for:
	Interest			$	24,909		$	24,603
	Federal income taxes				4,390			1,370

     See accompanying notes to unaudited consolidated financial statements.

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CITIZENS FIRST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Summary of Significant Accounting Policies

     Stock Offering and Business

     Citizens First Bancorp, Inc. (the “Company”) was organized as a Delaware corporation at the direction of Citizens First Savings Bank (the “Bank”) in October 2000 to become the holding company for the Bank upon the completion of its 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, at a purchase price of $10 per share to depositors of the Bank in a subscription offering raising approximately $85.1 million in net conversion proceeds.

     The Bank, a state-chartered savings bank headquartered in Port Huron, Michigan, operates predominately in the mid-eastern portion of Michigan’s lower peninsula. The Bank’s primary services include accepting deposits, making 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, property improvement and automobile loans. The Bank is not dependent upon any single industry or customer.

     Basis of Financial Statement Presentation

     The accompanying unaudited consolidated interim financial statement have been prepared in conformity with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements of the Company and the notes thereto included in the Company’s annual report on Form 10-K for the year ended March 31, 2001.

     The consolidated financial statements include the accounts of the Company, the Bank and the Bank’s 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 individual and small businesses in the Port Huron area. All significant intercompany transactions and balances have been eliminated in the consolidation. In preparing the consolidated financial statements, 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.

     All adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of financial position, results of operation and cash flows, have been made. The results of operations for the three and nine months ended December 31, 2001 are not necessarily indicative of the results that may be expected for another quarterly period or for a full year.

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(2) Earnings Per Share

     Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential shares had been issued. At December 31, 2001, the Company had no outstanding dilutive securities such as stock options or restricted stock. Earnings per share data for the period prior the Bank’s conversion on March 7, 2001 is not presented as the Bank was a mutual savings bank with no stock outstanding. Allocated and committed to be released ESOP shares are considering outstanding for earnings per share calculation based on debt service payments. Other ESOP shares are excluded from earnings per share calculation.

     The weighted-average shares and earnings per share for the three and nine months ended December 31, 2001 are detailed in the table below.

	For the		For the
	Three Months Ended		Nine Months Ended
	December 31,		December 31,
	2001		2001
Average common shares outstanding		9,188,749		9,387,877
Less: Unallocated ESOP shares		711,331		711,331
Shares used in the earnings per share calculation		8,477,418		8,676,546
Net income	$	2,804	$	7,873
Basic Earnings Per Share	$	0.33	$	0.91

(3) Recent Accounting Pronouncements

     During June 2001, SFAS No. 142 “Goodwill and Other Intangible Assets” was issued. This Statement provides accounting and reporting standards for goodwill. SFAS No. 142 is effective for periods occurring after March 31, 2002. Management is currently evaluating the impact of adopting this Statement on the consolidated financial statements and does not anticipate any impact.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following analysis discusses changes in the financial condition and results of operations of the Company at and for the three and nine months ended December 31, 2001 and 2000 and should be read in conjunction with the Bank’s Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this document.

Forward-Looking Statements

     This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies, and expectations of the Company and the Bank. These forward-looking statements are generally identified by the 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 its operations and its 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 and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Bank’s market area and changes in relevant 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. Except as required by applicable law and regulation, the Company and the Bank do not undertake, and specifically disclaim 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 the statements or to reflect the occurrence of anticipated or unanticipated events.

Comparison of Financial Condition at December 31, 2001 and March 31, 2001

     Total assets increased $66.3 million, or 7.7%, from $855.9 million at March 31, 2001 to $922.1 million at December 31, 2001. Net loans increased $47.1 million, or 7.0%, to $719.6 million from $672.4 million at March 31, 2001, primarily due to a $25.4 million, or 64.8%, increase in commercial loans due to expansion of commercial and industrial lending relationships and a $12.6 million, or 38.6%, increase in residential construction loans. The increase in net loans was also due to a $7.9 million, or 11.4% increase in home equity lines of credit, a $8.9 million, or 9.1%, increase in commercial real estate due to several new commercial real estate projects and a $2.9 million, or 5.3%, increase in automobile loans. These increases were offset by a $6.1 million, or 1.6%, decrease in residential one- to four-family loans due to sales of longer term fixed rate loans to third parties and a $4.1 million, or 39.5%, decrease in consumer loans due to continued reduction of mobile home loan balances and customer loan consolidation. Investment securities increased $37.6 million from $96.1 million at March 31, 2001, to $133.7 million at December 31, 2001. The increase in investment securities primarily resulted from the investment of deposits and FHLB borrowings in taxable municipal and corporate bonds. Cash decreased by $21.2 million, or 39.5%, as those funds were used to fund loan growth. Citizens First’s net loans to assets ratio at December 31, 2001 was 78.0% compared to 78.6% at March 31, 2001.

     Non-accrual loans increased $212,000, or 11.7%, to $2.0 million at December 31, 2001 from $1.8 million at March 31, 2001. This was primarily due to an increase in non-accruing one- to four-family real estate and commercial loans. Management believes the increase in non-accruing assets is the result of recent world events and a lingering economic downturn. Non-performing assets increased to

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$2.8 million, or 0.31% of total assets, at December 31, 2001, as compared to $2.1 million or 0.24% at March 31, 2001 due to the increase in non-accruing loans and an increase in other real estate owned.

     The following table sets forth information regarding non-accrual loans and real estate owned.

			At December 31, 2001			At March 31, 2001
			(Dollars in thousands)
Non-accruing loans:
	Real estate		$	1,408		$	1,156
	Consumer			129			220
	Commercial			485			434
		Total (1)		2,022			1,810
	Real estate owned (2)			806			282
		Total non-performing assets	$	2,828		$	2,092
Total non-performing loans as a percentage of total loans				0.28	%		0.26	%
Total non-performing loans as a percentage of total assets				0.22	%		0.21	%

(1)	Total non-accruing loans equal total non-performing loans.
(2)	Real estate owned balances are shown net of related loss allowances and include repossessed automobiles which totaled $157,829 and $56,395 at December 31, 2001 and March 31, 2001, respectively.

     The allowance for loan losses was $11.2 million at December 31, 2001, or 1.53% of total loans as compared to 1.58% of total loans at March 31, 2001. The following table sets forth activity in the allowance for loan losses for the periods set forth in the table.

	At or For the Nine Months
	Ended December 31,
	2001			2000
	(Dollars in thousands)
Allowance for loan losses, beginning or period	$	10,831		$	10,461
Charged-off loans		580			1,574
Recoveries		226			1,455
Net charge-offs		354			119
Provision for loan losses		747			192
Allowance for loan losses, end of period	$	11,224		$	10,534
Allowance for loan losses to total loans		1.53	%		1.56	%
Allowance for loan losses to nonperforming loans		555.09	%		383.90	%

     Total liabilities increased by $66.3 million, or 9.4%, to $772.4 million at December 31, 2001 from $706.1 million at March 31, 2001. Total deposits increased $35.4 million from $581.3 million at March 31, 2001, to $616.7 million at December 31, 2001, primarily due to an increase of $47.9 million or 52.4%, in money market deposit accounts primarily as a result of customers moving balances to short term deposit instruments. Also contributing to the growth was a $1.8 million, or 2.5% increase in NOW accounts to $71.5 million. Regular savings accounts decreased $8.1 million, or 9.5%, to $77.9 million and certificates of deposit decreased $17.2 million, or 5.5%, as customers attempted to invest in higher-yielding investments due to the lower yields due to the low interest rate environment. Over the first nine months of fiscal 2002, FHLB borrowings increased $30.2 million, or 26.2%, to $145.1 million in order to

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take advantage of the low rates being offered. Such funds were primarily invested in loans and investments.

     Stockholders’ equity was $149.78 million at December 31, 2001 compared to $149.72 million at March 31, 2001, an increase of $55,000, due to accumulated net income of $7.9 million accompanied by a $798,000 increase from the release of unallocated ESOP shares, offset by $762,000 for second quarter dividends, a $392,000 decrease in accumulated other comprehensive income from the unrealized gain on securities and the $7.5 million effect of the repurchase of 476,388 shares.

Comparison of Operating Results for the Three Months Ended December 31, 2001 and 2000

     Net Income.Net income increased $392,000, or 16.3%, to $2.8 million for the three months ended December 31, 2001 from $2.4 million for the same period in 2000, primarily due to an increase of $1.0 million, or 7.7%, in interest on loans, a $1.7 million, or 20.1%, decrease in interest expense and a $1.1 million, or 151%, increase in non-interest income. These increases were offset by a $197,000, or 11.2%, decrease in income from securities and a $2.1 million, or 50.1%, increase in non-interest expense.

     Net Interest Income.Net interest income increased by $2.6 million, or 40.8%, to $8.9 million for the third fiscal quarter from $6.3 million for the same period last year. Total interest income rose $823,000, or 5.5%, to $15.9 million for the third fiscal quarter from $15.0 million for the same period in 2000 primarily due to a $1.0 million, or 7.7%, increase in interest income on loans because of a larger average balance of loans, particularly higher-yielding commercial loans, offset by a $197,000, or 11.2%, decrease in interest income from securities, due to lower average rates during the period. The increase in interest income was accompanied by a $1.8 million, or 20.1%, decrease in total interest expense primarily due to a $2.1 million, or 27.9%, decrease in interest expense on deposits from $7.4 million at December 31, 2000 to $5.3 million at December 31, 2001 largely due to the rate decreases over the period. Interest expense on Federal Home loan Bank borrowings increased $320,000, or 24.3%, due to an increase in the average balance of borrowings, offset by lower average rates.

     Provision for Loan Losses.The provision for loan losses increased $163,000 to $249,000 for the three months ended December 31, 2001 from $86,000 for the same period in 2000. The addition to the allowance for loan losses for 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 portfolios. 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 considering the increased origination of those types of loans, which, despite better than expected performance, bear a higher degree of risk than one- to four-family loans. As a result of such loan growth, commercial real estate, commercial and consumer loans represented 32.1% of total loans at December 31, 2001 as compared to 29.3% of total loans at December 31, 2000. The allowance for loan losses as a percentage of nonperforming loans decreased from 598.4% at March 31, 2001 to 555.1% at December 31, 2001.

     Management believes that, based on information available at December 31, 2001, the Company’s allowance for loan losses was sufficient to cover losses inherent in its loan portfolio at that time. However, no assurances can be given that the Company’s level of allowances for loan losses will be sufficient to cover future loan losses incurred by the Company or that future adjustments to the allowance for loan losses will be necessary if economic or other conditions differ substantially from the economic and other conditions used by management to determine the current level of the allowance for loan losses. In addition, various regulators, as a part of their examination processes, periodically review the

8

Company’s allowance for loan losses. Such agencies may require the Company to make additional provisions for estimated loan losses based upon judgments different than those of management.

     Non-interest Income.Non-interest income increased by $1.1 million, or 151.1%, from $718,000 in 2000 to $1.8 million in 2001 primarily due to a $724,000 increase in mortgage banking activities partially as a result of a $375,000 decrease to the valuation allowance for mortgage servicing assets. Service charges and other fees increased $238,000, or 64.9%, primarily due to additional fees charged to retail deposit accountholders as a result of a change in retail deposit products earlier this fiscal year. Other non-interest income increased $123,000, or 241.2%, primarily due to a one-time gain on the sale of repossessed assets and additional income from debit cards due to the continued promotion of that product.

     Non-interest Expense.Non-interest expense increased $2.1 million, or 50.1%, to $6.2 million for the three months ended December 31, 2001, compared to $4.1 million for the same period in 2000, primarily due to a $1.2 million, or 54.0%, increase in employee compensation and benefits partially due to the accrual for the employee stock ownership plan and a $105,000 increase in accruals for deferred compensation plans accounted for using the present value method of accounting. Due to recent reductions in rate assumptions, management has deemed it necessary to increase these accruals to reflect current obligations. The accrual for the supplemental retirement plan agreement with retired President Larry J. Moeller, Sr. was $1.1 million at the end of December 2001 as a result of a $150,000 addition to the accrual during the third fiscal quarter of 2002. Also contributing to this increase was a $363,000, or 459.5%, increase in legal and audit fees, primarily due to increased costs of becoming a public company, a $172,000, or 150.9%, increase in appraisal fees due to increased lending volume, a $191,000, or 597%, increase in other expenses due to increased insurance premiums and organizational dues and a $107,000, or 40.1% increase in stationery and supplies.

     Income Taxes.Income taxes for the three months ended December 31, 2001 were $1.5 million, an increase of $1.1 million, or 246.4%, from $427,000 for the three months ended December 31, 2000 due to the recapture of a $500,000 valuation allowance for a prior year charitable contribution deduction carryover in 2000. The effective tax rates for 2001 and 2000 were 34.5% and 15.0%, respectively.

Comparison of Operating Results for the Nine Months Ended December 31, 2001 and 2000

     Net Income.Net income increased $1.3 million, or 20.4%, to $7.9 million for the nine months ended December 31, 2001 from $6.5 million for the previous year, primarily due to an increase of $4.9 million, or 12.9%, in interest on loans, a $854,000, or 18.2%, increase in income from securities, a $1.2 million, or 4.7%, decrease in interest expense and a $550,000, or 20.3% increase in non-interest income. These increases were offset by a $555,000 increase in the provision for loan losses and a $4.2 million, or 33.7%, increase in non-interest expense.

     Net Interest Income.Net interest income increased by $7.2 million, or 38.0%, to $26.0 million for the nine months ended December 31, 2001 from $18.9 million for the same period last year. Total interest income rose $6.0 million, or 13.6%, to $50.0 million from $44.0 million for the nine-month period primarily due to a $4.9 million, or 12.9%, increase from interest income on loans and a $854,000, or 18.2%, increase in interest on securities, due primarily to higher average balances. Interest expense on deposits decreased $3.4 million, or 16.0%, primarily due to rate decreases during the period and interest expense on Federal Home Loan Bank borrowings increased $2.2 million, or 60.4%, due to an increase in the average balance of outstanding borrowings, offset by lower average rates.

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     Provision for Loan Losses.The provision for loan losses increased $555,000, from a provision of $192,000 for 2000 to a $747,000 provision for 2001. The addition to the allowance for loan losses for 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 growth in the loan portfolios. 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 considering the increased origination of those types of loans, which, despite better than expected performance, bear a higher degree of risk than one- to four-family loans.

     Non-interest Income.Non-interest income increased $550,000, or 20.3%, from $2.7 million in 2000 to $3.3 million in 2001 primarily due to a $438,000 increase in service charges and other fees due to additional fees charged to retail deposit accountholders as a result of a change in retail deposit products, an increase of $412,000, or 53.6%, in income from mortgage banking activities as a result of a partial recovery of the valuation allowance for mortgage servicing assets, offset by a decrease of $211,000, or 34.0%, in other non-interest income.

     Non-interest Expense.Non-interest expense increased $4.2 million, or 33.7%, to $16.6 million for the nine months ended December 31, 2001, compared to $12.4 million for the same period in 2000, primarily due to a $1.9 million, or 30.7%, increase in employee compensation and benefits due to the accrual for the employee stock ownership plan and present value adjustments for deferred compensation plans, a $689,000, or 66.3%, increase in other expenses due to consulting fees for maximizing the space at the bank branches and corporate office, a technology study with a focus on core processing and operational efficiency and a compensation study, a $411,000, or 193.9%, increase in legal and audit fees due to the additional costs associated with being a public company and a $377,000, or 115.5%, increase in appraisal fees due to increased loan application volume. Also contributing to the increase was a $248,000, or 10.3%, increase in office occupancy expenses due to the write down of outdated equipment and the expenses related to the renovation and remodeling of a branch offices, a $292,000, or 35.1%, increase in stationery and supplies largely due to costs associated with becoming a public company, public reporting expenses and additional costs related to compliance with recent regulatory changes regarding consumer privacy and the Bank’s change in retail deposit products, a $118,000, or 27.1% increase in deposit statement preparation expenses and a $116,000 or 101.8% increase in deposit insurance premiums due to deposit growth.

     Income Taxes.Income taxes for the nine months ended December 31, 2001 were $4.1 million, an increase of $1.7 million, or 68.3%, from $2.4 million for the nine months ended December 31, 2000 due to the recapture of a $500,000 valuation allowance for a prior year charitable contribution deduction carryover in 2000. The effective tax rates for 2001 and 2000 were 34% and 26.9%, respectively

Liquidity and Capital Resources

     Liquidity is the ability to meet current and future financial obligations of a short-term nature. 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

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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 flows, (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 December 31, 2001, cash and short-term investments totaled $32.4 million and securities classified as available-for-sale totaled $133.7 million. In addition, at December 31, 2001, Citizens First had the ability to borrow a total of approximately $225.6 million from the Federal Home Loan Bank of Indianapolis. On that date, Citizens First had advances outstanding of $145.1 million.

     The primary investing activities of Citizens First are the origination of loans and the purchase of securities. In the first nine months of fiscal 2002, Citizens First originated $343.7 million of loans and purchased $101.8 million 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 of securities.

     Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. Citizens First experienced a net increase in total deposits of $35.4 million for the first nine months of fiscal 2002, a net decrease of $19.7 for fiscal 2001 and a net increase of $74.2 for fiscal 2000. 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 the first nine months of fiscal 2002, Federal Home Loan Bank advances increased $30.1 million. During fiscal 2001 and 2000, Federal Home Loan Bank advances increased $44.4 million and $16.2 million, respectively.

     At December 31, 2001, Citizens First had outstanding commitments to originate loans of $143.5 million, $44.8 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 December 31, 2001 totaled $199.0 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

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balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2001, Citizens First exceeded all of its regulatory capital requirements. Citizens First is considered “well capitalized” under regulatory guidelines.

     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 continued to be used for general corporate purposes, including the funding of lending activities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     As of December 31, 2001, there have been no material changes in the quantitative and qualitative disclosures about market risks since the report in the Company’s Form 10-K for the year ended March 31, 2001.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

     Periodically, there have been various claims and lawsuits involving Citizens First Bancorp and Citizens First Savings Bank, such as claims to enforce liens, condemnation proceedings on properties in which Citizens First Savings Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to Citizens First Savings Bank’s business. Citizens First Bancorp 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 Citizens First Bancorp.

Item 2. Changes in Securities and Use of Proceeds.

     Not applicable.

Item 3. Defaults Upon Senior Securities.

     None.

Item 4. Submission of Matters to a Vote of Security Holders.

     None.

Item 5. Other Information.

     Dr. Walid Demashkieh was appointed to the Company’s board of directors, effective February 4, 2002. Dr. Demashkieh will join the Company’s audit committee as a third independent director. The audit committee consists of three outside independent directors in accordance with all applicable regulatory and governing body listing standards. There are no inside directors serving on the audit committee. Dr. Demashkieh is a long-time resident of the Port Huron area and a well-respected member of the local business community. He serves as the Chairman of the Board of Trustees of the Port Huron Hospital and is a member of its audit committee.

Item 6. Exhibits and Reports on Form 8-K (§249.308 of this Chapter).

(a)	Exhibits
2.1	Plan of Conversion for Citizens First Savings Bank (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	Form of Stock Certificate for Citizens First Bancorp, Inc. (1)
(1)	Incorporated by reference into this document from the Exhibits filed with the Registration Statement on Form S-1, and any amendments thereto, Registration No. 333-49234.
(b)	Reports on Form 8-K
	On December 14, 2001, the Company filed an 8-K to announce under Item 5 that it had completed the repurchase of 5% of its outstanding shares of common stock. The press release announcing the completion of the repurchase was filed by exhibit.

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SIGNATURES

     Pursuant to the requirements of the Securities and 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.
Dated: February 14, 2002	By:	/s/  Marshall J. Campbell
		Marshall J. Campbell President and Chief Executive Officer (principal executive officer)
Dated: February 14, 2002	By:	/s/ Timothy D. Regan
		Timothy D. Regan Secretary, Treasurer and Director (principal financial and accounting officer)

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