Citizens First Bancorp 10-Q 2006 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

or

o 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

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed 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. Yesþ Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filero Accelerated filerþ Non-accelerated filero

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

     The Issuer had 8,423,414 shares of common stock, par value $0.01 per share, outstanding as of August 3, 2006.

CITIZENS FIRST BANCORP, INC.
FORM 10-Q

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at June 30, 2006 (unaudited) and December 31, 2005		1
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2006 and 2005 (unaudited)		2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2006 and 2005 (unaudited)		3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 (unaudited)		4
	Notes to Consolidated Financial Statements (unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		14
Item 4.	Controls and Procedures		14
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		15
Item 1a.	Rick Factors		15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		15
Item 3.	Defaults Upon Senior Securities		16
Item 4.	Submission of Matters to a Vote of Security Holders		16
Item 5.	Other Information		16
Item 6.	Exhibits		16
	Signatures		18
	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

PART 1 – FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Unaudited
	June 30,			December 31,
	2006			2005
ASSETS
Cash and due from depository institutions	$	22,049		$	38,217
Federal funds sold		282			2,029
Interest-bearing deposits in other depository institutions		92			7,345
Total cash and cash equivalents		22,423			47,591
Securities available for sale, at fair value		81,860			87,510
Federal Home Loan Bank stock, at cost		19,502			17,700
Loans held for sale (Note 8)		80,804			2,126
Loans — less allowance for loan losses of $13,953 and $13,546, (Note 6)		1,452,680			1,425,036
Premises and equipment, net		40,336			36,228
Goodwill (Note 5)		9,814			9,814
Other intangible assets, net of amortization of $1,459 and $1,221 (Note 5)		2,940			3,179
Accrued interest receivable and other assets		25,338			25,039
Total assets	$	1,735,697		$	1,654,223
LIABILITIES
Deposits:
Noninterest-bearing	$	98,559		$	112,609
Interest-bearing		1,043,142			959,586
Total deposits	$	1,141,701		$	1,072,195
Federal Home Loan Bank advances		343,999			346,500
Bank line of credit		—			3,950
Federal funds purchased		65,961			52,013
Accrued interest payable and other liabilities		11,663			10,995
Total liabilities	$	1,563,324		$	1,485,653
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $.01 par value, 20,000,000 shares authorized, 9,526,761 issued		95			95
Additional paid-in capital		94,414			93,848
Retained earnings		106,442			104,054
Accumulated other comprehensive loss		(1,047	)		(898	)
Treasury stock, at cost (1,368,064 and 1,364,561 shares)		(24,251	)		(24,653	)
Deferred compensation obligation		3,358			3,111
Unearned compensation – ESOP		(6,638	)		(6,987	)
Total stockholders’ equity	$	172,373		$	168,570
Total liabilities and stockholders’ equity	$	1,735,697		$	1,654,223

See accompanying notes to unaudited condensed consolidated financial statements.

1

CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Unaudited					Unaudited
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2006		2005			2006		2005
INTEREST INCOME
Loans, including fees	$	26,716	$	20,119		$	51,658	$	38,509
Federal funds sold and interest bearing deposits		48		52			71		88
Securities:
Tax-exempt		255		297			435		565
Taxable		825		1,044			1,775		1,830
Total interest income		27,844		21,512			53,939		40,992
INTEREST EXPENSE
Deposits		9,409		5,280			17,363		9,766
Short-term borrowings		765		395			1,840		770
FHLB advances		4,063		3,483			7,798		6,105
Total interest expense		14,237		9,158			27,001		16,641
NET INTEREST INCOME		13,607		12,354			26,938		24,351
PROVISION FOR LOAN LOSSES		710		780			1,580		1,260
NET INTEREST INCOME, after provision for loan losses		12,897		11,574			25,358		23,091
NONINTEREST INCOME
Service charges and other fees		636		540			1,237		1,112
Mortgage banking activities		495		530			1,009		997
Trust fee income		370		312			679		541
Other		73		(14	)		124		90
Total noninterest income		1,574		1,368			3,049		2,740
NONINTEREST EXPENSE
Compensation, payroll taxes and employee benefits		5,810		4,456			11,652		9,253
Office occupancy and equipment		1,834		1,545			3,664		3,073
Advertising and business promotion		381		448			567		821
Stationery, printing and supplies		686		504			1,212		926
Data processing		253		570			681		926
Professional fees		1,088		1,037			1,875		2,196
Core deposit intangible amortization		119		140			238		280
Other		1,506		1,223			2,652		2,364
Total noninterest expense		11,677		9,923			22,541		19,839
INCOME, before federal income tax expense		2,794		3,019			5,866		5,992
Federal income tax expense		934		874			1,962		1,839
NET INCOME	$	1,860	$	2,145		$	3,904	$	4,153
EARNINGS PER SHARE, BASIC	$	0.24	$	0.27		$	0.49	$	0.53
EARNINGS PER SHARE, DILUTED	$	0.23	$	0.27		$	0.49	$	0.52
DIVIDENDS PER SHARE	$	0.09	$	0.09		$	0.18	$	0.18

See accompanying notes to unaudited condensed consolidated financial statements.

2

CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)

								Accumulated
			Additional					Other						Deferred		Unearned			Total
	Common		Paid-in		Retained			Comprehensive			Treasury			Compensation		Compensation			Stockholders’
	Stock		Capital		Earnings			Income (Loss)			Stock			Obligation		- ESOP			Equity
Six months ended June 30, 2005
Balance, January 1, 2005	$	95	$	93,409	$	98,068		$	(621	)	$	(23,004	)	$	2,632	$	(7,685	)	$	162,894
Exercise of stock options				1								7								8
Purchase of treasury stock												(768	)							(768	)
Deferred compensation															176					176
									��
Allocation of ESOP shares				220													349			569
Dividends paid ($.18 per share)						(1,528	)													(1,528	)
Net income						4,153														4,153
Change in net unrealized loss on securities available for sale, net of tax effect of $103									199											199
Total comprehensive income																				4,352
Balance, June 30, 2005	$	95	$	93,630	$	100,693		$	(422	)	$	(23,765	)	$	2,808	$	(7,336	)	$	165,703
Six months ended June 30, 2006
Balance, January 1, 2006	$	95	$	93,848	$	104,054		$	(898	)	$	(24,653	)	$	3,111	$	(6,987	)	$	168,570
Exercise of stock options				202								962								1,164
Purchase of treasury stock												(560	)							(560	)
Deferred compensation															247					247
Allocation of ESOP shares				364													349			713
Dividends paid ($.18 per share)						(1,516	)													(1,516	)
Net income						3,904														3,904
Change in net unrealized loss on securities available for sale, net of tax effect of $(80)									(149	)										(149	)
Total comprehensive income																				3,755
Balance, June 30, 2006	$	95	$	94,414	$	106,442		$	(1,047	)	$	(24,251	)	$	3,358	$	(6,638	)	$	172,373

See accompanying notes to unaudited condensed consolidated financial statements.

3

CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

	Unaudited
	Six Months Ended
	June 30,
	2006			2005
OPERATING ACTIVITIES
Net income	$	3,904		$	4,153
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,580			1,260
Deferred compensation and ESOP		960			745
Depreciation		1,326			1,136
Core deposit intangible amortization		238			280
Accretion of securities		282			506
Proceeds from sale of mortgage loans held for sale		54,333			50,195
Origination of mortgage loans held for sale		(132,881	)		(114,048	)
Gain on sale of mortgage loans		(130	)		(249	)
(Gain) loss on sale of premises and equipment		6			(72	)
Changes in assets and liabilities:
Increase in accrued interest receivable and other assets		(867	)		(2,793	)
Increase in accrued interest payable and other liabilities		668			429
Net cash provided by (used in) operating activities		(70,581	)		(58,458	)
LENDING AND INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale		6,628			10,113
Proceeds from sale of securities available for sale		—			95
Purchase of securities available for sale		(1,489	)		(10,370	)
Purchase of Federal Home Loan Bank stock		(1,802	)		(4,164	)
Net increase in loans		(28,575	)		(74,740	)
Proceeds from sale of premises and equipment		4			257
Purchase of premises and equipment		(5,444	)		(4,968	)
Net cash used in lending and investing activities		(30,678	)		(83,777	)
DEPOSIT AND FINANCING ACTIVITIES
Net increase in deposits		69,506			87,450
Net increase in federal funds purchased		13,948			2,862
Proceeds from exercises of stock options		1,164			8
Repayment of line of credit		(3,950	)		—
Payment of dividends		(1,516	)		(1,528	)
Purchase of treasury stock		(560	)		(768	)
Repayment of FHLB advances		(354,201	)		(9,525	)
Proceeds from FHLB advances		351,700			90,200
Net cash provided by deposit and financing activities		76,091			168,699
NET CHANGE IN CASH AND CASH EQUIVALENTS		(25,168	)		26,464
CASH AND CASH EQUIVALENTS,beginning of period		47,591			27,937
CASH AND CASH EQUIVALENTS,end of period	$	22,423		$	54,401
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest	$	26,633		$	16,282
Federal income taxes		1,360			1,600
Supplemental noncash disclosure:
Transfers from loans to other real estate		649			417

See accompanying notes to unaudited condensed consolidated financial statements.

4

CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 — BASIS OF FINANCIAL STATEMENT PRESENTATION

     The accompanying unaudited condensed consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with the 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 financial statements should be read in conjunction with the financial statements of Citizens First Bancorp, Inc. and Subsidiaries and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2005.

     All adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of financial position, results of operations and cash flows, have been made. The results of operations for the six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

     Certain amounts in the prior period’s financial statements have been reclassified to conform to the current period’s presentation.

NOTE 2 — PRINCIPLES OF CONSOLIDATION

     Citizens First Bancorp, Inc. (the “Bancorp”), a Delaware company, is the holding company for Citizens First Savings Bank (the “Bank”), a state-chartered savings bank headquartered in Port Huron, Michigan. The consolidated financial statements include the accounts of the Bancorp and its wholly owned subsidiary, the Bank (collectively referred to as the “Company”). The Bank also includes the accounts of its wholly owned subsidiaries, Metrobank Financial Services, Citizens First Mortgage, LLC and Metrobank Mortgage, LLC (collectively “Mortgage LLC’s”) and Citizens Financial Services, Inc. Citizens Financial Services, Inc. includes the accounts of its wholly owned subsidiary, CFS Insurance Agency. Citizens Financial Services, Inc. receives revenue from its subsidiary, which provides insurance services to individuals and small businesses in the Port Huron area. The Mortgage, LLC’s receive revenue from interest income on loans and sale of loans. All significant intercompany transactions and balances have been eliminated in consolidation.

NEW ACCOUNTING PRONOUNCEMENTS

     In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155,Accounting for Certain Hybrid Instruments, which is an amendment of SFAS No: 133 and 140. SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. The Statement also establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation and clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Adoption of this statement is not expected to have a material effect on results of operations or financial condition of the Company.

     In March 2006, the FASB issued SFAS No. 156,Accounting for Servicing of Financial Assets- an amendment of FASB Statement No. 140. SFAS No.156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in specific situations. Additionally, the servicing asset or servicing liability shall be initially measured at fair value; however, an entity may elect the “amortization method” or “fair value method” for subsequent balance sheet reporting periods. SFAS No.156 is effective as of an entity’s first fiscal year beginning after September 15, 2006. Early adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including interim financial statements, for any period of that fiscal year. Adoption of this statement is not expected to have a material effect on results of operations or financial condition of the Company.

     In July 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109(FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

5

NOTE 3 — STOCK BASED COMPENSATION

     Under the Company’s stock-based incentive plan, the Company may grant restricted stock awards and options to its directors, officers, and employees for up to 476,338 and 1,429,014 shares of common stock, respectively. Prior to January 1, 2006, the Company accounted for stock awards and options under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations. The Company adopted the fair value recognition provisions of Statement of Financial Standards (SFAS) No. 123 (R),Share Based Payment effective January 1, 2006 using the modified-prospective transition method. SFAS No. 123(R),Share Based Payment, established a fair value method of accounting for stock options whereby compensation expense would be recognized based on the computed fair value of the options on the grant date. The Company recognizes compensation expense related to restricted stock awards over the period the services are performed. No options were granted during 2006. The Company determined that implementation of SFAS No. 123(R) did not have a material impact on the financial results of the Company. The Company has provided below pro forma disclosures of net income and earnings per share for the three and six months ended June 30, 2005, as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share data):

	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2005
Net income as reported	$	2,145		$	4,153
Deduct: Stock based employee compensation expense determined under fair-value based method, net of related tax effects		(562	)		(595	)
Pro forma net income	$	1,583		$	3,558
Earnings per share
Basic — as reported	$	0.27		$	0.53
Basic — pro forma	$	0.20		$	0.45
Diluted — as reported	$	0.27		$	0.52
Diluted — pro forma	$	0.20		$	0.45

     At June 30, 2006, stock options outstanding had a weighted average remaining contractual life of 7.8 years. The following table summarizes stock options outstanding segregated by exercise price range and summarizes aggregate intrinsic value at June 30, 2006:

			Weighted Average
			Remaining			Aggregate
	Number		Contractual	Exercise		Intrinsic
Range of Exercise Prices	Outstanding		Life	Price		Value
$23.00 - $24.00		20,401	7.7 years	$	23.90	$	57,327
$20.00 - $22.99		3,000	8.8 years		21.91		14,400
$19.00 - $19.99		86,603	8.8 years		19.93		587,168
$18.00 - $18.99		92,460	6.7 years		18.81		730,434
Total		202,464		$	19.85	$	1,389,329

NOTE 4 — EARNINGS PER SHARE

     Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period, including vested stock awards. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock awards and are determined using the treasury stock method. Treasury and unallocated ESOP shares are not considered outstanding for purposes of calculating basic or diluted earnings per share.

6

     Earnings per common share have been computed based on the following (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Net income	$	1,860	$	2,145	$	3,904	$	4,153
Average number of common shares outstanding used to calculate basic earnings per common share		7,920,966		7,889,172		7,933,668		7,901,875
Effect of dilutive securities		31,082		46,795		26,473		62,731
Average number of common shares outstanding used to calculate diluted earnings per common share		7,952,048		7,935,967		7,960,141		7,964,606
Number of antidilutive stock options excluded from diluted earnings per share computation		—		38,778		—		35,778

NOTE 5 — GOODWILL AND INTANGIBLES

     Goodwill at June 30, 2006 and December 31, 2005 was $9.8 million. Goodwill is at least reviewed annually for impairment. The Company completed this review during the fourth quarter of 2005 and determined that goodwill was not impaired.

     Net other intangible assets at June 30, 2006 and December 31, 2005 were $2.9 million and $3.2 million, respectively. These assets consist primarily of core deposit intangibles and amortization expense for the next five years is as follows: $477,000 in 2006, $405,000 in 2007 and $383,000 in 2008, 2009 and 2010, respectively.

NOTE 6 — LOANS

     Loans were as follows (in thousands):

	June 30,		December 31,
	2006		2005
Real estate loans:
One-to four-family	$	404,419	$	427,714
Commercial and multi-family		433,524		418,314
Residential construction		109,909		82,328
Home equity and lines of credit		134,856		131,378
		1,082,708		1,059,734
Commercial loans		274,504		271,436
Consumer loans:
Vehicles		83,752		84,189
Other		26,511		24,421
		110,263		108,610
Total loans		1,467,475		1,439,780
Less:
Allowance for loan losses		13,953		13,546
Net deferred loan fees		842		1,198
Net loans	$	1,452,680	$	1,425,036

7

NOTE 7 — OFF BALANCE SHEET ITEMS

     The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

     The total contractual amounts of standby letters of credit were $13.4 million and $9.1 million at June 30, 2006 and December 31, 2005, respectively. There were no contractual amounts outstanding of commercial letters of credit at June 30, 2006 or December 31, 2005.

     At June 30, 2006, the Company had outstanding commitments to originate loans of $337.3 million.

     The Company 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. Outstanding forward contracts to sell residential mortgage loans were approximately $3.3 million and $3.5 million at June 30, 2006 and December 31, 2005, respectively. The fair value of forward contracts was insignificant at June 30, 2006 and December 31, 2005.

NOTE 8 — SUBSEQUENT EVENT

     During the second quarter of 2006, the Company’s Asset/Liability Committee (ALCO) gave management the authority to sell up to $79 million in adjustable rate mortgages loans, servicing rights released, to fund growth and to provide liquidity. Management submitted pools of mortgage loans that had consistent terms and conditions to those of industry standards. Management agreed to sell approximately $75 million in mortgage loans, which are included in Loans Held for Sale on the balance sheet at June 30, 2006. The sale is expected to be finalized at the end of August and is expected to result in a net loss between $100,000 and $165,000, net of tax, based on the current interest rate environment. The funds received from this sale will provide liquidity and be used to pay off FHLB variable rate advances and fund higher yielding loans. Based on our projected growth in loan originations, management expects to replace the pool of loans before year end with loans that have more favorable yields based on the current interest rate environment.

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 for the periods presented and should be read in conjunction with the Company’s Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1. of this document.

FORWARD-LOOKING STATEMENTS. The Company may from time to time make written or oral forward-looking statements. These forward-looking statements may be contained in the Company’s Annual Report to Stockholders, in the Company’s Form 10-K filed with the Securities and Exchange Commission (the “SEC”), in other filings with the SEC and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, including revenue creation, lending origination, operating efficiencies, loan sales, charge-offs, loan loss allowances and provisions, growth opportunities, interest rates, acquisition and divestiture opportunities, capital and other expenditures and synergies, efficiencies, cost savings and funding and other advantages expected to be realized from various activities. The words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “predict,” “continue” and similar expressions are intended to identify forward-looking statements.

     Forward-looking statements include statements with respect to the Company’s beliefs, plans, strategies, objectives, goals, expectations, anticipations, estimates or intentions that are subject to significant risks or uncertainties or that are based on certain assumptions. Future results and the actual effect of plans and strategies are inherently uncertain, and actual results could differ materially from those anticipated in the forward-looking statements, depending upon various important factors, risks or uncertainties. Those factors, many of which are subject to change based on various other factors, including factors beyond the Company’s control, and other factors, including others discussed in the Company’s Annual Report to Stockholders, the Company’s Form 10-K, other factors identified in the Company’s other filings with the SEC, as well as other factors identified by management from time to time, could have a material adverse effect on the Company and its operations or cause its financial performance to differ materially from the plans, objectives, expectations, estimates or intentions expressed in the Company’s forward-looking statements. The impact of technological changes implemented by the Company and the Bank and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers. In this regard, the Company began in-house item processing, and in-house core processing during March 2006, and June 2006, respectively.

8

OVERVIEW. The Company currently operates as a community-oriented financial institution that accepts deposits from the general public in the communities surrounding its 24 full-service banking centers. The deposited funds, together with funds generated from operations and borrowings, are used by the Company to originate loans. The Company’s principal lending activity is the origination of mortgage loans for the purchase or refinancing of one-to-four family residential properties. The Company also originates commercial and multi-family real estate loans, construction loans, commercial loans, automobile loans, home equity loans and lines of credit, and a variety of other consumer loans.

CRITICAL ACCOUNTING POLICIES. As of June 30, 2006, there have been no material changes in the disclosures regarding critical accounting policies as disclosed in the Company’s Form 10-K for the year ended December 31, 2005. The Company’s critical accounting policies are described in the financial section of its 2005 Annual Report. Management believes its critical accounting policies relate to the Company’s securities, allowance for loan losses, its valuation of mortgage servicing rights and goodwill and intangibles.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2006 AND DECEMBER 31, 2005

     Summary.Total assets increased $81.5 million, or 4.9% to $1.736 billion at June 30, 2006 from $1.654 billion at December 31, 2005, primarily due to the increase in real estate portfolio and held for sale mortgage loans of $83.0 million, or 16.2%. A significant amount of the real estate mortgage growth was due an increase in the volume of adjustable rate mortgages.

     Total liabilities increased $77.7 million, or 5.2%, from $1.486 billion at December 31, 2005 to $1.563 billion at June 30, 2006. Total deposits increased $69.5 million, or 6.5%, from December 31, 2005, primarily due to an increase of $48.7 million in brokered deposits, supplemented by our increased efforts to attract new deposits in the Oakland and Macomb counties. At June 30, 2006, brokered deposits totaled $90.2 million or 7.9% of total deposits. Based on our forecasted loan growth versus the expected deposit growth, management expects that FHLB advances and/or brokered deposits will increase in subsequent periods, depending on which borrowing opportunity makes the most economic sense upon analyzing maturity and repricing data and balancing interest rate risk in a rising rate environment.

     Portfolio Loans and Asset Quality.Nonperforming loans totaled $19.1 million at June 30, 2006 compared to $21.4 million at December 31, 2005, a decrease of $2.3 million, or 10.6%. Correspondingly, nonperforming assets as a percentage of total assets decreased to 1.18% at June 30, 2006 compared to 1.38% at December 31, 2005. As indicated by the table below, a majority of the decrease was in real estate loans, driven by an influx of payments received on previously classified nonperforming loans, successful selling of foreclosed property and continuous efforts in resolving delinquency issues with our customers.

     The following table sets forth information regarding nonperforming assets (in thousands):

	June 30,			December 31,
	2006			2005
Nonperforming loans:
Real estate	$	6,974		$	8,467
Commercial		11,468			12,094
Consumer		666			813
Total		19,108			21,374
Real estate and other assets owned		1,413			1,471
Total nonperforming assets	$	20,521		$	22,845
Total nonperforming loans as a percentage of total loans		1.30	%		1.48	%
Total nonperforming assets as a percentage of total assets		1.18	%		1.38	%

     The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes

9

available. The allowance is increased by provisions charged to operations and reduced by net charge-offs. The following table sets forth activity in the allowance for loan losses for the interim periods (in thousands):

	Three Months						Six Months
	ended June 30,						ended June 30,
	2006			2005			2006			2005
Balance, beginning of period	$	13,960		$	13,705		$	13,546		$	13,472
Provision for loan losses		710			780			1,580			1,260
Charge-offs		(815	)		(669	)		(1,350	)		(971	)
Recoveries		98			101			177			156
Balance, end of period	$	13,953		$	13,917		$	13,953		$	13,917
Allowance for loan losses to total loans								0.95	%		1.09	%
Allowance for loans losses to nonperforming loans								73.02	%		91.52	%

     Deposits.Deposits increased $69.5 million, or 6.5%, from December 31, 2005 to $1.142 billion at June 30, 2006. The increase of $83.6 million, or 8.7%, in interest bearing deposits was primarily due to an increase in brokered deposits of $48.7 million, or 117.1%, to $90.2 million at June 30, 2006 due to various promotions of these types of deposits implemented during the quarter, supplemented by a net increase of $21.8 million of certificates of deposits. Additionally, passbook and savings account deposits increased $16.5 million, or 16.7%, to $115.7 million at June 30, 2006, primarily due to an increase of deposits held from municipalities and other public entities. These increases were partially offset by a decrease in NOW accounts of $4.3 million, or 4.8%, some of which is attributable to the various promotions in other types of deposit accounts.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2006 and 2005

     Summary. Net income for the three months ended June 30, 2006 decreased $285,000, or 13.3% to $1.9 million from $2.1 million compared the same period in 2005. Net income for the six months ended June 30, 2006 decreased $248,000, or 6.4%, to $3.9 million from $4.2 million for six months ended June 30, 2005. These decreases were primarily due to an increase of $7.6 million, or 77.8% in the cost of deposits for the six months ended June 30, 2006 compared to the same period in 2005. Compensation and employee benefits expense also increased $1.4 million, or 30.4% and $2.4 million, or 25.9% for the three and six months ended June 30, 2006. These increases are in correlation with an increase of 42 employees compared to the six months ended June 30, 2005.

     Net Interest Income. Net interest income, before provision for loan losses, for the six months ended June 30, 2006 totaled $26.9 million, an increase of 10.6% as compared to $24.4 million for the same period in the prior year. Net interest income, before provision for loan losses, for the three months ended June 30, 2006 totaled $13.6 million, an increase of 10.1% as compared to $12.4 million for the same period in the prior year. Due to the competitive nature in attracting new deposits, offering rates increased at a faster rate than market lending rates during the three and six months ended June 30, 2006 as compared to the previous period, as evidenced by the average rate on interest bearing liabilities as noted in the tables below. The increased costs of attracting new deposits, an increase in the cost of borrowings and the brokered deposits costs to fund loan growth continued to compress net interest margin, which fell 16 basis points to 3.34% for the three month period and 18 basis points to 3.38% for the six month period ended June 30, 2006 compared to the same periods in 2005. As a result, management expects continued compression in net interest margin while net interest income is expected to increase slightly due to loan volume through the end of 2006. Management has elected to move the Company into a more neutral interest rate sensitivity position. As of June 30, 2006 and forecasting one year in the future, a 200 basis point increase in rates results in a .90% increase in net interest income and a 200 basis point decrease in rates results in a 3.6% decrease in net interest income.

     As discussed in Note 8 above, the expected mortgage loan sale of $75 million may have a negative impact on net interest margin in the short term, until we replace these loans with higher yielding loans.

     The following tables present an analysis of net interest margin for the three and six month periods ending June 30, 2006 and 2005 (in thousands).

10

	For the Three Months Ended June 30,
	2006							2005							Change in Net Interest Income
					Average							Average
	Average		Revenue/		Yield/			Average		Revenue/		Yield/
	Balance		Cost		Rate			Balance		Cost		Rate			Volume			Yield/Rate			Net
Assets
Loans (1)	$	1,527,452	$	26,716		7.02	%	$	1,293,565	$	20,119		6.24	%	$	3,649		$	2,948		$	6,597
Securities (2):
Taxable		51,850		597		4.62	%		64,812		892		5.52	%		(179	)		(116	)		(295	)
Tax-exempt		31,221		255		3.28	%		31,385		297		3.80	%		(2	)		(40	)		(42	)
Federal funds sold		3,045		35		4.61	%		1,040		12		4.63	%		23			(0	)		23
Federal Home Loan Bank stock		19,502		229		4.71	%		16,607		152		3.67	%		27			50			77
Interest earning deposits		1,530		12		3.15	%		7,997		40		2.01	%		(32	)		4			(28	)
Total interest-earning assets		1,634,600		27,844		6.83	%		1,415,406		21,512		6.10	%		3,485			2,847			6,332
Noninterest-earning assets		91,037							79,480
Total assets	$	1,725,637						$	1,494,886
Liabilities
Deposits:
Savings	$	113,312	$	421		1.49	%	$	97,164	$	136		0.56	%	$	23		$	262		$	285
NOW		87,727		138		0.63	%		87,087		336		1.55	%		2			(200	)		(198	)
Money market		276,238		2,515		3.65	%		264,276		1,245		1.89	%		57			1,213			1,270
Certificates of deposit		565,672		6,335		4.49	%		416,160		3,563		3.43	%		1,282			1,490			2,772
Total interest bearing deposits		1,042,949		9,409		3.62	%		864,687		5,280		2.45	%		1,364			2,765			4,129
Short-term borrowings		61,457		765		4.99	%		36,043		395		4.40	%		280			90			370
FHLB advances		336,722		4,063		4.84	%		309,104		3,483		4.52	%		312			268			580
Total interest-bearing liabilities		1,441,128		14,237		3.96	%		1,209,834		9,158		3.04	%	$	1,955		$	3,124		$	5,079
Non-interest bearing deposits		98,433							112,386
Other Noninterest-bearing liabilities		14,923							8,049
Total liabilities		1,554,484							1,330,269
Stockholders’ equity		171,153							164,617
Total liabilities and stockholders’ equity	$	1,725,637						$	1,494,886
Net interest-earning assets	$	193,472						$	205,572
Net interest income			$	13,607						$	12,354										$	1,253
Interest rate spread (3)						2.87	%						3.06	%
Net interest margin as a percentage of interest-earning assets (4)						3.34	%						3.50	%
Ratio of interest-earning assets to interest-bearing liabilities						113.43	%						116.99	%

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	For the Six Months Ended June 30,
	2006							2005							Change in Net Interest Income
					Average							Average
	Average		Revenue/		Yield/			Average		Revenue/		Yield/
	Balance		Cost		Rate			Balance		Cost		Rate			Volume			Yield/Rate			Net
Assets
Loans (1)	$	1,500,512	$	51,658		6.94	%	$	1,258,779	$	38,509		6.17	%	$	3,729		$	9,420		$	13,149
Securities (2):
Taxable		54,160		1,334		4.97	%		65,141		1,544		4.78	%		(131	)		(79	)		(210	)
Tax-exempt		31,250		435		2.81	%		29,868		565		3.81	%		13			(143	)		(130	)
Federal funds sold		2,107		47		4.50	%		1,687		28		3.35	%		4			15			19
Federal Home Loan Bank stock		19,047		441		4.67	%		15,581		286		3.70	%		32			123			155
Interest earning deposits		1,864		24		2.60	%		6,806		60		1.78	%		(22	)		(14	)		(36	)
Total interest-earning assets		1,608,940		53,939		6.76	%		1,377,862		40,992		6.00	%		3,624			9,323			12,947
Noninterest-earning assets		87,126							78,697
Total assets	$	1,696,066						$	1,456,559
Liabilities
Deposits:
Savings	$	109,545	$	735		1.35	%	$	98,045	$	277		0.57	%	$	16		$	442		$	458
NOW		91,218		265		0.59	%		101,780		483		0.96	%		(25	)		(193	)		(218	)
Money market		280,968		5,079		3.65	%		254,876		2,505		1.98	%		129			2,445			2,574
Certificates of deposit		534,325		11,284		4.26	%		399,144		6,501		3.28	%		1,108			3,675			4,783
Total interest bearing deposits		1,016,056		17,363		3.45	%		853,845		9,766		2.31	%		1,229			6,368			7,597
Short-term borrowings		72,731		1,840		5.10	%		41,922		770		3.70	%		285			785			1,070
FHLB advances		329,077		7,798		4.78	%		277,041		6,105		4.44	%		578			1,115			1,693
Total interest-bearing liabilities		1,417,864		27,001		3.84	%		1,172,808		16,641		2.86	%	$	2,091		$	8,269		$	10,360
Non-interest bearing deposits		93,316							109,624
Other Noninterest-bearing liabilities		14,728							9,355
Total liabilities		1,525,908							1,291,787
Stockholders’ equity		170,158							164,772
Total liabilities and stockholders’ equity	$	1,696,066						$	1,456,559
Net interest-earning assets	$	191,076						$	205,054
Net interest income			$	26,938						$	24,351										$	2,587
Interest rate spread (3)						2.92	%						3.14	%
Net interest margin as a percentage of interest-earning assets (4)						3.38	%						3.56	%
Ratio of interest-earning assets to interest-bearing liabilities						113.48	%						117.48	%

(1)	Balances are net of deferred loan origination fees, undisbursed proceeds of construction loans in process, and include nonperforming loans.
(2)	Securities available for sale are not on a tax equivalent basis.
(3)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(4)	Net interest margin represents net interest income as a percentage of average interest-earning assets.

     Provision for Loan Losses. The provisions for loan losses for the three and six months ended June 30, 2006 were $710,000 and $1.6 million, respectively, as compared to $780,000 and $1.3 million for the same period in the prior year. The changes in the provision for loan losses is thoroughly reviewed and is the result of management’s analysis of the loan loss allowance, current and forecasted economic conditions in the regional markets where we conduct business and historical charge off rates in the overall loan portfolio. Reserves were provided in line with the loan growth and actual net charge offs. The loan loss allowance as a percentage of total loans increased slightly from 0.94% at December 31, 2005 to 0.95% at June 30, 2006, due to loan growth and the amount provided during 2006. The allowance for loan losses as a percentage of nonperforming loans increased from 63.4% at December 31, 2005 to 73.02% at June 30, 2006 as a result of the decrease in nonperforming loans compared to the increase in the allowance for loan losses. The allowance for loan

12

losses analysis includes inherent losses in the loan portfolio. Based on our analysis, we believe that the allowance for loan losses is sufficient to cover potential losses at June 30, 2006.

     Management considers its allowance for loan losses to be one of its critical accounting policies. Management reviews the allowance for loan losses on a monthly basis and establishes a provision based on actual and estimated losses inherent in the portfolio. Because the estimates and assumptions underlying the Company’s allowance for loan losses are inherently uncertain, different estimates and assumptions could require a material increase in the allowance for loan losses. Any material increase in the allowance for loan losses could have a material adverse effect on the Company’s net income and results of operations.

     Noninterest Income. Noninterest income for the three and six months ended June 30, 2006 increased 15.1% to $1.6 million and 11.3% to $3.1 million compared to $1.4 million and $2.7 million, respectively, for the same periods in the prior year. Trust fees continue to provide additional income as expected, growing $58,000 and $138,000 for the three and six months ended June 30, 2006, respectively. Management expects trust fees to continue to be accretive to noninterest income as trust activity continues to expand throughout our branch network.

     As further discussed in Note 8 under Item 1 of this Report, we expect that the loss on mortgage loan sales from this particular transaction to be between $100,000 and $165,000, net of tax. Management and ALCO continue to monitor and review the Company’s loan portfolio to ensure profitable returns on loans without compromising credit quality.

     Noninterest Expense. Noninterest expense for the three and six months ended June 30, 2006 increased 17.7% to $11.7 million and 13.6% to $22.5 million compared to $9.9 million and $19.8 million, respectively, for the same time periods in the prior year. Compensation, payroll taxes and employee benefits increased by $1.4 million for the three months ended June 30, 2006 and $2.4 million for the six months ended June 30, 2006 compared to the same time periods in the prior year. This increase was primarily due to additions in staff for the new banking centers in Lapeer and Macomb counties and staff needed as a result of bringing core and item processing in-house. We expect compensation expense to remain high as compared to last year as a result of the investments in our sales force while we grow the business and take advantage of the additional capacity we have created. We expect a return of $2.5 million over the next 5 years as a result of the move to in-house core and item processing that, to a portion of which, should be realized beginning the third quarter of this year. Office occupancy expense increased $289,000 and $591,000 for the three and six months ended June 30, 2006, respectively, due to additional banking centers and newly remodeled existing offices. These increases in noninterest expense were offset by decreases for the six months ended June 30, 2006 in professional fees of $321,000 compared to the same time period in the prior year. The decrease in professional fees was a result of continued efficiencies implemented by and between management and our consultants and auditors as we continue to operate in the third year under the internal control provisions of the SOX act. We expect professional fees to remain flat or increase slightly through the end of 2006 due to various initiatives that we continue to implement to enhance shareholder value and customer service.

LIQUIDITY AND CAPITAL RESOURCES

     Liquidity is the ability to meet current and future financial obligations, including 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. The Company’s primary sources of funds consist of deposit inflows, loan repayments, sales of loans in the secondary market, maturities and sales of investment securities, borrowings from the FHLB, and more recently, brokered deposits. 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. The Company 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.

     The Company’s primary investing activities are the origination of loans and the purchase of securities. In the six months ended June 30, 2006, the Company originated $511.9 million of loans and purchased $1.5 million of securities and in fiscal 2005, originated $847.1 million of loans and purchased $10.4 million of securities.

     The Company’s most liquid assets are cash and short-term investments. The levels of these assets are dependent on the Company’s operating, financing, lending and investing activities during any given period. At June 30, 2006, cash and short-term investments totaled $22.4 million and securities classified as available for sale totaled $81.9 million.

     The Company originates fixed-rate mortgage loans conforming to Freddie Mac and Fannie Mae 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.

13

Sales of fixed-rate mortgage loans were $54.3 million and $175.1 million for the six months ended June 30, 2006 and year ended December 31, 2005, respectively. Additionally, please refer to Note 8 under Item 1 of this Report for further discussion regarding the pool of mortgages held for sale of $75 million and the expected loss on sale between $100,000 and $165,000, net of tax, expected to occur in the third quarter of 2006. The Company expects to replace this sale with higher yielding loans prior to year end 2006.

     Financing activities consist primarily of activity in deposit accounts, overnight borrowings from our correspondent banks, FHLB advances and brokered deposits. Year to date, the Company experienced a net increase in total deposits of $69.5 million, verses a net increase of $139.0 million during the fiscal year ended December 31, 2005. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by the Company and its local competitors and other factors. The Company generally manages the pricing of its deposits to be competitive and to increase core deposit relationships, and occasionally offers promotional rates on certain deposit products in order to attract deposits. However, as previously discussed, the Company continues to seek new customers in markets where competition is extremely fierce and, therefore, net interest margin continues to compress.

     The Company has the ability to borrow a total of approximately $542.4 million, $133.4 million from its correspondent banks and $409.0 million from the FHLB, of which $66.0 million and $344.0 million were outstanding at June 30, 2006, respectively. Included in the total amount of available borrowings from its correspondent banks is a bank line-of-credit in the amount of $25.0 million, of which $0 was outstanding at June 30, 2006.

     At June 30, 2006, the Company had outstanding commitments to originate loans of $337.3 million, of which $76.6 million had fixed interest rates. The Company believes 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 FHLB borrowings. More recently, the Company has selected various brokers to originate brokered deposits in the open market. The brokered deposit relationships provide additional liquidity to fund the gap between growth in our loan portfolio and overall business and increases in deposits from customers. There are occasions, depending on the market, when the all-in interest rate costs of brokered deposits are lower than other available funding sources. Management evaluates which funding source is less expensive to manage our interest rate risk depending on the funding need. Certificates of deposit that are scheduled to mature in one year or less as of June 30, 2006 totaled $391.0 million. Management believes, based on past experience, that a significant portion of those deposits will remain with the Company. Based on the foregoing, the Company considers its liquidity and capital resources sufficient to meet its outstanding short-term and long-term needs.

     The Bank 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 June 30, 2006, the Bank exceeded all of the regulatory capital requirements and is considered “well capitalized” under regulatory guidelines.

     The primary sources of funding for the Company are maturities of investment securities and, to a lesser extent, earnings on investments, deposits held by the Company and borrowings from its correspondent banks. These funds have been used to pay dividends, repurchase the Company’s common stock and pay general corporate expenses. The Bancorp may utilize future dividend payments from its subsidiary Bank as an additional funding source. The Bank’s ability to pay dividends and other capital distributions to the Bancorp is generally limited by the Michigan Banking Commissioner and Federal Deposit Insurance Corporation. Additionally, the Michigan Banking Commissioner and Federal Deposit Insurance Corporation may prohibit the payment of dividends by the Bank to the Bancorp, which is otherwise permissible by regulation for safety and soundness reasons.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Management has elected to move the Company into a more neutral interest rate sensitivity position. The table below sets forth, as of June 30, 2006, estimated net interest income and the estimated changes in the Company’s net interest income for the next twelve month period that could occur as a result of instantaneous changes in market interest rates of 100 and 200 basis points:

	Estimated Change in Annual Net Interest Income
	At June 30, 2006 (Dollars in thousands)
Increase/(Decrease) in Market Interest
Rates in Basis Points (Rate Shock)	Amount		$ Change			% Change
200	$	52,521	$	470			0.90	%
100		51,989		(62	)		(0.12	)
Static		52,051		—			—
-100		52,892		841			1.62
-200		53,923		1,872			3.60

     Except as otherwise indicated above, there have been no material changes in the quantitative and qualitative disclosures about market risks as disclosed in the Company’s Form 10-K for the year ended December 31, 2005.

Item 4. CONTROLS AND PROCEDURES

     The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, the officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in bringing to their attention on a timely basis, material information required to be included in the Company’s periodic filings under the Exchange Act.

     Disclosure controls and procedures are designed to ensure information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure

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controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer, the Chief Financial Officer (Principal Financial Officer) and the Controller and Assistant Treasurer (Principal Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.

     No significant change in the Company’s internal controls over financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

     Any control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system inherently has limitations, and the benefits of controls must be weighed against their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Therefore, no evaluation of a cost-effective system of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

     Periodically, there have been various claims and lawsuits involving the Company, such as claims to enforce liens, condemnation proceedings on properties in which the Company holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Company’s business. Neither the Company or its subsidiaries are a party to any pending legal proceedings that management believes would have a material adverse effect on the financial condition or operations the Company.

Item 1a. Risk Factors

     As of June 30, 2006, there have been no material changes in the discussion pertaining to risk factors as disclosed in the Company’s Form 10-K for the year ended December 31, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

     The Company entered into deferred fee agreements with certain directors of the Company at various times during 2001 and 2002. Pursuant to these arrangements, directors may defer fees payable to them by the Company, which fees are used to purchase deferred compensation stock units. A director has the right to change or revoke his or her deferral election, but such revocation becomes effective at the beginning of the Company’s subsequent calendar year. No director has revoked his or her deferral election to date. Upon a director’s termination of service with the Board, each stock unit is to be settled on a one-for-one basis in shares of the Company’s common stock. Pursuant to these arrangements, the Company issued to directors during the second quarter 592 deferred compensation stock units for the aggregate consideration of approximately $15,800, which included board fees. All transactions were effected on the last business day of each month. The stock units issued pursuant to these arrangements have not been registered under the Securities Act of 1933 in reliance upon the exemption provided by Section 4(2) thereof.

     On March 28, 2002, Marshall J. Campbell, our Chief Executive Officer, and the Company entered into our Executive Stock Ownership Plan Agreement, pursuant to which Mr. Campbell is entitled to receive deferred compensation units convertible into the Registrant’s common stock. Under this Agreement, as subsequently amended and restated, each vested deferred compensation unit is convertible into one share of common stock of the Company upon Mr. Campbell’s death, retirement, termination of employment with the Company, or if the Agreement is terminated by our Board of Directors on or after the date on which Mr. Campbell’s deferred compensation units become vested, which is January 31, 2007 (or earlier upon Mr. Campbell’s death, disability or certain changes of control). Pursuant to that Agreement, the Company awarded 1,903 deferred compensation units to Mr. Campbell on May 8, 2006. These transactions were not registered under the Federal Securities Laws, but were made in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933.

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Issuer Purchases of Equity Securities by the Issuer

     On October 1, 2002, the Company announced a share repurchase program authorizing the repurchase of up to 428,701 shares of the Company’s outstanding common stock. All share repurchases under the Company’s share repurchase program are transacted in the open market and are within the scope of Rule 10b-18, which provides a safe harbor for purchases in a given day if an issuer of equity securities satisfies the manner, timing, price and volume conditions of the rule when purchasing its own common shares in the open market. The following table summarizes the Company’s share repurchase activity for the three months ended June 30, 2006.

								Maximum Number of
						Total Number of		Shares that May Yet
	Total Number					Shares Purchased as		Be Purchased Under
	of Shares			Average Price		Part of Publicly		the Plans or
Period	Purchased			Paid per Share		Announced Programs		Programs
4/1/2006 to 4/30/2006		—			—		—		199,446
5/1/2006 to 5/31/2006		3,000		$	28.15		—		199,446
6/1/2006 to 6/30/2006		17,000		$	27.68		—		199,446
Total		20,000	(1)	$	27.75		—		199,446

(1) All 20,000 shares repurchased during the quarter were credited to a rabbi trust used to fund the Company’s obligations under the director deferred fee agreements.

Item 3. Defaults Upon Senior Securities.

     None.

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

     The annual meeting of the shareholders of the Company was held on May 25, 2006. The results of the vote were as follows:

1. The following individual was elected as a director for a three (3) year term:

	VOTES FOR		VOTES WITHHELD
Marshall J. Campbell		7,166,708		382,575
Christopher A. Kellerman		7,344,776		205,047

     Directors Walid Demashkieh, M.D.,Timothy D. Regan and Ronald W. Cooley did not stand for election at the most recent annual meeting, and their terms continued after the meeting. As reported by the Company on Form 8-K on July 10, 2006, Mr. Regan resigned from the Company’s Board of Directors effective July 3, 2006. Also effective as of that date and reported in the Company’s Form 8-K, the remaining Board of Directors authorized the expansion of its membership from five to six directors and, upon the recommendation of the Nominating Committee, appointed Gerald R. Bouchard and Robert L. Patterson to fill the vacancies created by Mr. Regan’s resignation and the newly created directorship.

2. The ratification of the appointment of BDO Seidman, LLP as independent auditors of Citizens First Bancorp, Inc. for the fiscal year ended December 31, 2006:

FOR		AGAINST		ABSTAIN
	7,518,876		73,710		3

Item 5. Other Information.

     None.

Item 6. Exhibits

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Exhibit No.	Description
3.1	Certificate of Incorporation of Citizens First Bancorp, Inc. (1)
3.2	Bylaws of Citizens First Bancorp, Inc. (1)
31	Rule 13a-14(a)/15d-14(a) Certifications
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Section 1350 Certifications
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

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CONFORMED

SIGNATURES

     Pursuant to the requirements 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.
Dated: August 3, 2006	By:	/s/ Marshall J. Campbell
		Marshall J. Campbell
		President and Chief Executive Officer
		(Principal Executive Officer)
Dated: August 3, 2006	By:	/s/ Timothy D. Regan
		Timothy D. Regan
		Secretary, Treasurer and Director
		(Principal Financial and Accounting Officer)

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Exhibit Index

Exhibit No.	Description
3.1	Certificate of Incorporation of Citizens First Bancorp, Inc. (1)
3.2	Bylaws of Citizens First Bancorp, Inc. (1)
31	Rule 13a-14(a)/15d-14(a) Certifications
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Section 1350 Certifications
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

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