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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 March 31, 2007
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)
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
(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). Yes o No þ
The Issuer had 8,423,414 shares of common stock, par value $0.01 per share, outstanding as of May 4, 2007.
CITIZENS FIRST BANCORP, INC.
FORM 10-Q
FORM 10-Q
INDEX
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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)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
| Unaudited | ||||||||
| March 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
ASSETS | ||||||||
| Cash and due from depository institutions | $ | 18,744 | $ | 24,722 | ||||
| Federal funds sold | — | — | ||||||
| Interest-bearing deposits in other depository institutions | 62 | 101 | ||||||
| Total cash and cash equivalents | 18,806 | 24,823 | ||||||
| Certificates of deposit | 221 | 221 | ||||||
| Securities available for sale, at fair value | 61,807 | 62,248 | ||||||
| Federal Home Loan Bank stock, at cost | 19,360 | 19,360 | ||||||
| Loans held for sale | 5,044 | 2,097 | ||||||
| Loans, less allowance for loan losses of $14,490 and $14,304 (Note 6) | 1,602,596 | 1,582,411 | ||||||
| Premises and equipment, net | 43,346 | 43,265 | ||||||
| Goodwill (Note 5) | 9,814 | 9,814 | ||||||
| Other intangible assets, net of amortization of $1,799 and $1,698 (Note 5) | 2,601 | 2,702 | ||||||
| Accrued interest receivable and other assets | 28,803 | 28,201 | ||||||
| Total assets | $ | 1,792,398 | $ | 1,775,142 | ||||
LIABILITIES | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing | $ | 97,063 | $ | 96,193 | ||||
| Interest-bearing | 1,085,517 | 1,090,465 | ||||||
| Total deposits | 1,182,580 | 1,186,658 | ||||||
| Federal Home Loan Bank advances | 383,096 | 348,914 | ||||||
| Federal funds purchased | 33,919 | 51,095 | ||||||
| Accrued interest payable and other liabilities | 13,225 | 11,161 | ||||||
| Total liabilities | 1,612,820 | 1,597,828 | ||||||
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 | 94,988 | 94,818 | ||||||
| Retained earnings | 111,896 | 110,289 | ||||||
| Accumulated other comprehensive loss | (319 | ) | (422 | ) | ||||
| Treasury stock, at cost (1,366,899 and 1,373,424 shares) | (24,676 | ) | (24,760 | ) | ||||
| Deferred compensation obligation | 3,708 | 3,583 | ||||||
| Unearned compensation – ESOP | (6,114 | ) | (6,289 | ) | ||||
| Total stockholders’ equity | 179,578 | 177,314 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,792,398 | $ | 1,775,142 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
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CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
| Unaudited | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2007 | 2006 | |||||||
| INTEREST INCOME | ||||||||
| Loans, including fees | $ | 28,825 | $ | 24,942 | ||||
| Federal funds sold and interest bearing deposits | 8 | 23 | ||||||
| Certificates of Deposit | 3 | — | ||||||
| Securities: | ||||||||
| Tax-exempt | 177 | 180 | ||||||
| Taxable | 572 | 950 | ||||||
| Total interest income | 29,585 | 26,095 | ||||||
| INTEREST EXPENSE | ||||||||
| Deposits | 10,844 | 7,954 | ||||||
| Short-term borrowings | 622 | 1,075 | ||||||
| FHLB advances | 4,265 | 3,735 | ||||||
| Total interest expense | 15,731 | 12,764 | ||||||
| NET INTEREST INCOME | 13,854 | 13,331 | ||||||
| PROVISION FOR LOAN LOSSES | 1,259 | 870 | ||||||
| NET INTEREST INCOME, after provision for loan losses | 12,595 | 12,461 | ||||||
| NONINTEREST INCOME | ||||||||
| Service charges and other fees | 838 | 601 | ||||||
| Mortgage banking activities | 599 | 514 | ||||||
| Trust fee income | 329 | 309 | ||||||
| Other | (21 | ) | 82 | |||||
| Total noninterest income | 1,745 | 1,506 | ||||||
| NONINTEREST EXPENSE | ||||||||
| Compensation, payroll taxes and employee benefits | 5,865 | 5,842 | ||||||
| Office occupancy and equipment | 1,947 | 1,830 | ||||||
| Advertising and business promotion | 227 | 186 | ||||||
| Stationery, printing and supplies | 359 | 526 | ||||||
| Data processing | 21 | 428 | ||||||
| Professional fees | 1,050 | 817 | ||||||
| Core deposit intangible amortization | 101 | 119 | ||||||
| Other | 1,210 | 1,146 | ||||||
| Total noninterest expense | 10,780 | 10,894 | ||||||
| INCOME, before federal income tax expense | 3,560 | 3,073 | ||||||
| Federal income tax expense | 1,195 | 1,028 | ||||||
| NET INCOME | $ | 2,365 | $ | 2,045 | ||||
| EARNINGS PER SHARE, BASIC AND DILUTED | $ | 0.29 | $ | 0.26 | ||||
| DIVIDENDS PER SHARE | $ | 0.09 | $ | 0.09 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
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CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
(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 | |||||||||||||||||||||||||
| Three months ended March 31, 2006 | ||||||||||||||||||||||||||||||||
Balance, January 1, 2006 | $ | 95 | $ | 93,848 | $ | 104,054 | $ | (898 | ) | $ | (24,653 | ) | $ | 3,111 | $ | (6,987 | ) | $ | 168,570 | |||||||||||||
| Exercise of stock options | 100 | 530 | 630 | |||||||||||||||||||||||||||||
| Purchase of treasury stock | (15 | ) | (15 | ) | ||||||||||||||||||||||||||||
| Deferred compensation | 117 | 117 | ||||||||||||||||||||||||||||||
| Allocation of ESOP shares | 167 | 175 | 342 | |||||||||||||||||||||||||||||
| Dividends paid ($.09 per share) | (759 | ) | (759 | ) | ||||||||||||||||||||||||||||
| Net income | 2,045 | 2,045 | ||||||||||||||||||||||||||||||
| Change in net unrealized loss on securities available for sale, net of tax effect of $14 | 26 | 26 | ||||||||||||||||||||||||||||||
| Total comprehensive income | 2,071 | |||||||||||||||||||||||||||||||
Balance, March 31, 2006 | $ | 95 | $ | 94,115 | $ | 105,340 | $ | (872 | ) | $ | (24,138 | ) | $ | 3,228 | $ | (6,812 | ) | $ | 170,956 | |||||||||||||
| Three months ended March 31, 2007 | ||||||||||||||||||||||||||||||||
Balance, January 1, 2007 | $ | 95 | $ | 94,818 | $ | 110,289 | $ | (422 | ) | $ | (24,760 | ) | $ | 3,583 | $ | (6,289 | ) | $ | 177,314 | |||||||||||||
| Exercise of stock options | 17 | 93 | 110 | |||||||||||||||||||||||||||||
| Purchase of treasury stock | (9 | ) | (9 | ) | ||||||||||||||||||||||||||||
| Deferred compensation | 125 | 125 | ||||||||||||||||||||||||||||||
| Allocation of ESOP shares | 153 | 175 | 328 | |||||||||||||||||||||||||||||
| Dividends paid ($.09 per share) | (758 | ) | (758 | ) | ||||||||||||||||||||||||||||
| Net income | 2,365 | 2,365 | ||||||||||||||||||||||||||||||
| Change in net unrealized loss on securities available for sale, net of tax effect of $55 | 103 | 103 | ||||||||||||||||||||||||||||||
| Total comprehensive income | 2,468 | |||||||||||||||||||||||||||||||
Balance, March 31, 2007 | $ | 95 | $ | 94,988 | $ | 111,896 | $ | (319 | ) | $ | (24,676 | ) | $ | 3,708 | $ | (6,114 | ) | $ | 179,578 | |||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(IN THOUSANDS)
| Unaudited | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2007 | 2006 | |||||||
OPERATING ACTIVITIES | ||||||||
| Net income | $ | 2,365 | $ | 2,045 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Provision for loan losses | 1,259 | 870 | ||||||
| Deferred compensation and ESOP | 453 | 459 | ||||||
| Depreciation | 779 | 642 | ||||||
| Core deposit intangible amortization | 101 | 119 | ||||||
| Amortization of securities | 199 | 153 | ||||||
| Proceeds from sale of mortgage loans held for sale | 30,412 | 24,847 | ||||||
| Origination of mortgage loans held for sale | (33,098 | ) | (25,247 | ) | ||||
| Gain on sale of mortgage loans | (261 | ) | (76 | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Increase in accrued interest receivable and other assets | (2,755 | ) | (2,179 | ) | ||||
| Increase in accrued interest payable and other liabilities | 2,064 | 184 | ||||||
| Net cash provided by operating activities | 1,518 | 1,817 | ||||||
LENDING AND INVESTING ACTIVITIES | ||||||||
| Proceeds from maturities of securities available for sale | 1,953 | 4,769 | ||||||
| Purchase of securities available for sale | (1,553 | ) | (514 | ) | ||||
| Purchase of Federal Home Loan Bank stock | — | (1,802 | ) | |||||
| Net increase in loans | (19,552 | ) | (69,958 | ) | ||||
| Proceeds from sale of other real estate owned, held for sale | 206 | 106 | ||||||
| Proceeds from sale of premises and equipment | — | 4 | ||||||
| Purchase of premises and equipment | (860 | ) | (1,942 | ) | ||||
| Net cash used in lending and investing activities | (19,806 | ) | (69,337 | ) | ||||
DEPOSIT AND FINANCING ACTIVITIES | ||||||||
| Net increase/(decrease) in deposits | (4,078 | ) | 68,035 | |||||
| Net increase/(decrease) in federal funds purchased | (17,176 | ) | 18,569 | |||||
| Proceeds from exercises of stock options | 110 | 630 | ||||||
| Repayment of line of credit | — | (3,950 | ) | |||||
| Payment of dividends | (758 | ) | (759 | ) | ||||
| Purchase of treasury stock | (9 | ) | (15 | ) | ||||
| Repayment of FHLB advances | (1,818 | ) | (135,661 | ) | ||||
| Proceeds from FHLB advances | 36,000 | 107,100 | ||||||
| Net cash provided by deposit and financing activities | 12,271 | 53,949 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (6,017 | ) | (13,571 | ) | ||||
CASH AND CASH EQUIVALENTS,beginning of period | 24,823 | 47,591 | ||||||
CASH AND CASH EQUIVALENTS,end of period | $ | 18,806 | $ | 34,020 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | 14,723 | $ | 12,510 | ||||
| Federal income taxes | — | 340 | ||||||
| Supplemental noncash disclosure: | ||||||||
| Transfers from loans to other real estate | 1,892 | 512 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(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, 2006.
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 three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.
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, Citizens Financial Services, Inc., Citizens First Mobile Services, LLC and Citizens First Mortgage, LLC. Citizens Financial Services, Inc. includes the accounts of its wholly owned subsidiary, CFS Insurance Agency. Citizens Financial Services, Inc. receives revenue from its subsidiary, CFS Insurance Agency, which provides insurance services to individuals and small businesses in the Port Huron area. Citizens First Mortgage, LLC receives revenue from interest income on loans and the sale of loans. The Bancorp owns 100% of Coastal Equity Partners, L.L.C., established in 2006, whose primary purpose is to own and operate real estate activities. All significant intercompany transactions and balances have been eliminated in consolidation.
NEW ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159).SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. SFAS No. 159’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of Statement No. 157. The Company did not early adopt SFAS No. 159. The Company has not determined the impact of adopting SFAS No. 159 will have on its financial statements.
In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements. SFAS No. 157 enhances existing guidance for measuring assets and liabilities using fair value. Prior to the issuance of SFAS No. 157, guidance for applying fair value was incorporated in several accounting pronouncements. SFAS No. 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy. While SFAS No. 157 does not add any new fair value measurements, it does change current practice. Changes to practice include: (1) a requirement for an entity to include its own credit standing in the measurement of its liabilities; (2) a modification of the transaction price presumption; (3) a prohibition on the use of block discounts when valuing large blocks of securities for broker-dealers and investment companies; and (4) a requirement to adjust the value of restricted stock for the effect of the restriction even if the restriction lapses within one year. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has not determined the impact of adopting SFAS No. 157 will have on its financial statements.
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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. Adoption of this Statement was required as of the beginning of the first fiscal year that began after September 15, 2006. The adoption of SFAS No. 156 effective January 1, 2007 did not have a material effect on the consolidated financial statements of the Company. In addition, the Company has elected the amortization method for subsequent balance sheet reporting.
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. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (R),Share Based Paymentusing the modified-prospective transition method. SFAS No. 123(R) 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. No options were granted since the second quarter 2005. The Company recognizes compensation expense related to restricted stock awards over the period the services are performed.
At March 31, 2007, stock options outstanding had a weighted average remaining contractual life of 7.1 years. The following table summarizes stock options outstanding segregated by exercise price range and summarizes aggregate intrinsic value at March 31, 2007:
| Weighted Average | ||||||||||||||||
| Remaining | Aggregate | |||||||||||||||
| Number | Contractual | Exercise | Intrinsic | |||||||||||||
| Range of Exercise Prices | Outstanding | Life | Price | Value | ||||||||||||
| $23.00 - $24.00 | 13,847 | 6.9 years | $ | 23.90 | (1 | ) | ||||||||||
| $20.00 - $22.99 | 2,400 | 8.1 years | 21.91 | $ | 2,088 | |||||||||||
| $19.00 - $19.99 | 79,094 | 8.0 years | 19.93 | 225,418 | ||||||||||||
| $18.00 - $18.99 | 82,560 | 6.0 years | 18.81 | 327,763 | ||||||||||||
| Total | 177,901 | $ | 19.75 | $ | 555,269 | |||||||||||
| (1) | Tranche exercise price was below the closing price at March 30, 2007, the last business day of the quarter. |
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.
Earnings per common share have been computed based on the following (in thousands, except per share data):
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| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2007 | 2006 | |||||||
| Net income | $ | 2,365 | $ | 2,045 | ||||
| Average number of common shares outstanding used to calculate basic earnings per common share | 8,031,322 | 7,903,485 | ||||||
| Effect of dilutive securities | 15,220 | 22,695 | ||||||
| Average number of common shares outstanding used to calculate diluted earnings per common share | 8,046,542 | 7,926,180 | ||||||
| Number of antidilutive stock options excluded from diluted earnings per share computation | — | — | ||||||
NOTE 5 – GOODWILL AND INTANGIBLES
Goodwill in the amount of $9.8 million and core deposit intangibles were recorded for the January 9, 2004 acquisition of Metro Bancorp, Inc. Net core deposit intangible assets at March 31, 2007 and December 31, 2006 were $2.6 million and $2.7 million, respectively. Amortization expense for the next 5 years is as follows: $405,000 in 2007, and $383,000 in 2008, 2009, 2010 and 2011, respectively. Annually, the core deposit intangible is evaluated for impairment by comparing the total dollar value of deposits purchased in 2004 to the amount remaining as of the testing date. Based on our analysis in the 4th quarter 2006, no impairment of the identifiable intangible asset has occurred.
NOTE 6 — LOANS
Loans were as follows (in thousands):
| March 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
| Real estate loans: | ||||||||
| One-to four-family | $ | 514,800 | $ | 513,139 | ||||
| Commercial and multi-family | 425,865 | 432,009 | ||||||
| Residential construction | 123,202 | 127,777 | ||||||
| Home equity and lines of credit | 135,536 | 137,112 | ||||||
| 1,199,403 | 1,210,037 | |||||||
| Commercial loans | 316,397 | 280,005 | ||||||
| Consumer loans: | ||||||||
| Vehicles | 78,148 | 83,435 | ||||||
| Other | 23,276 | 23,820 | ||||||
| 101,424 | 107,255 | |||||||
| Total loans | 1,617,224 | 1,597,297 | ||||||
| Less: | ||||||||
| Allowance for loan losses | 14,490 | 14,304 | ||||||
| Net deferred loan fees | 138 | 582 | ||||||
| Net loans | $ | 1,602,596 | $ | 1,582,411 | ||||
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
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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 $7.8 million and $8.8 million at March 31, 2007 and December 31, 2006, respectively. There were no contractual amounts outstanding of commercial letters of credit at March 31, 2007 or December 31, 2006.
At March 31, 2007, the Company had outstanding commitments to originate loans of $333.6 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 $4.1 million and $3.9 million at March 31, 2007 and December 31, 2006, respectively. The fair value of forward contracts was insignificant at March 31, 2007 and December 31, 2006.
NOTE 8 - INCOME TAXES
Effective January 1, 2007, the Company adopted FIN No. 48,Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (the Interpretation). This Interpretation provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. The initial adoption of this Interpretation had no impact on the Company’s financial statements. Based upon our calculations, the Company does not have any amount of unrecognized tax benefits, including accrued interest, as of January 1, 2007.
The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions.
The Company’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Income.
The Company’s federal income tax returns are open and subject to examination from the 2005 tax return year and forward, as the Company was recently audit in 2006 for the tax year ended December 31, 2004. The Company’s various state income tax returns are generally open from the 2002 and later tax return years based on individual state statute of limitations.
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.
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 along with a loan production office in Ft. Myers, Florida. 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 March 31, 2007, 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, 2006. The Company’s critical accounting policies are described in the Management’s Discussion and Analysis and financial sections of its 2006 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 MARCH 31, 2007 AND DECEMBER 31, 2006
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Summary.Total assets increased $17.3 million, or 1.0% to $1.792 billion at March 31, 2007 from $1.775 billion at December 31, 2006, primarily due to an increase of $30.3 million, or 4.3% in the commercial loan portfolio. A significant amount of the commercial loan growth was due to an increase in the volume generated from our experienced commercial loan officers located in the Macomb and Oakland county markets. The increase in total assets was partially offset by a decrease of cash and due from depository institutions of $6.0 million and a decrease in consumer loans of $5.8 million. The consumer loan decrease is related to management’s decision to reduce indirect lending due to the recent economic conditions of the State of Michigan and the performance of these types of credits.
Total liabilities increased $15.0 million, or 0.94%, to $1.613 billion at March 31, 2007 from $1.598 billion at December 31, 2006. The primary reason for the increase was due to an increase of $34.2 million in FHLB advances, partially offset by a decrease in Fed Funds purchased of $17.2 million. At March 31, 2007, brokered deposits totaled $78.1 million or 6.6% 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 after analyzing maturity and repricing data and balancing interest rate risk. Total deposits decreased $4.1 million, or 0.3%, from December 31, 2006, primarily due to a decrease of $10.6 million in money market accounts, offset by a increase in certificate of deposits of $7.9 million mostly attributed to municipalities and other public entities.
Portfolio Loans and Asset Quality.Nonperforming loans totaled $27.1 million at March 31, 2007 compared to $25.7 million at December 31, 2006, an increase of $1.4 million, or 5.6%. Correspondingly, nonperforming assets as a percentage of total assets increased to 1.76% at March 31, 2007 compared to 1.63% at December 31, 2006. Additionally and as expected, our trend in nonperforming assets is similar to our peers’ trends who are located in the State of Michigan. As indicated by the table below, a majority of the increase in total nonperforming assets resulted from the increase in real estate and other assets owned and nonperforming real estate loans. The Company does not hold any sub-prime loans in our loan portfolio. These assets are continuously monitored, have been under the management of our experienced special asset team and workout plans are in place to mitigate any potential losses. As previously mentioned, the economic conditions of the State of Michigan are a primary cause for the increase in nonperforming assets. Our underwriting standards are more thoroughly discussed in the Company’s Form 10-K. We expect nonperforming assets to remain flat or increase slightly over the next several months as economic data for our market areas continue to exhibit underperforming results. Additionally, we have been proactive in managing our Other Real Estate Owned (OREO) portfolio using the recently formed Coastal Equity Partners subsidiary. The Company has allocated resources to this subsidiary to allow successful management over the real estate activities, which may include leasing or selling OREO properties to the highest bidder.
The following table sets forth information regarding nonperforming assets (in thousands):
| March 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
| Nonperforming loans: | ||||||||
| Real estate | $ | 14,352 | $ | 13,400 | ||||
| Commercial | 10,888 | 10,974 | ||||||
| Consumer | 1,875 | 1,293 | ||||||
| Total | 27,115 | 25,667 | ||||||
| Real estate and other assets owned | 4,432 | 3,253 | ||||||
| Total nonperforming assets | $ | 31,547 | $ | 28,920 | ||||
| Total nonperforming loans as a percentage of total loans | 1.68 | % | 1.61 | % | ||||
| Total nonperforming assets as a percentage of total assets | 1.76 | % | 1.63 | % | ||||
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 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):
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| Three Months | ||||||||
| ended March 31, | ||||||||
| 2007 | 2006 | |||||||
| Balance, beginning of period | $ | 14,304 | $ | 13,546 | ||||
| Provision for loan losses | 1,259 | 870 | ||||||
| Charge-offs | (1,272 | ) | (535 | ) | ||||
| Recoveries | 199 | 79 | ||||||
| Balance, end of period | $ | 14,490 | $ | 13,960 | ||||
| Allowance for loan losses to total loans | 0.90 | % | 0.92 | % | ||||
| Allowance for loans losses to nonperforming loans | 53.44 | % | 75.56 | % | ||||
Deposits.Deposits decreased $4.1 million, or 0.3%, from December 31, 2006 to $1.183 billion at March 31, 2007. The decrease in interest bearing deposits of $5.0 million, or 0.5%, was primarily due to a decrease of $10.6 million in money market accounts. This decrease was partially offset by an increase of $7.9 million, or 1.3%, in certificates of deposits due to various promotions of these types of deposits implemented during the quarter and an increase of deposits held from municipalities and other public entities.
COMPARISON OF OPERATING RESULTS FOR THE THREE PERIODS ENDED MARCH 31, 2007 AND 2006
Summary. Net income for the three months ended March 31, 2007 increased $320,000, or 15.7% to $2.4 million from $2.045 million compared the same period in 2006. The increase was primarily due to an increase of net interest income after provision for loan losses of $134,000 over the same period last year. Additionally, noninterest income increased $269,000, primarily due to an increase in service charges and other fees. During the three months ended March 31, 2007, noninterest expense decreased by $114,000 as compared to the same period last year.
Net Interest Income. Net interest income, before provision for loan losses, for the three months ended March 31, 2007 totaled $13.9 million, an increase of 3.9% as compared to $13.3 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 months ended March 31, 2007 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 and an increase in the cost of borrowings to fund loan growth has continued to compress net interest margin, which fell 10 basis points to 3.31% at March 31, 2007 as compared to 3.41% for March 31, 2006.
The following tables present an analysis of net interest margin for the three month periods ending March 31, 2007 and 2006 (in thousands).
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| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||
| 2007 | 2006 | Change in Net Interest Income | ||||||||||||||||||||||||||||||||||
| Average | Average | |||||||||||||||||||||||||||||||||||
| Average | Revenue/ | Yield/ | Average | Revenue/ | Yield/ | |||||||||||||||||||||||||||||||
| Balance | Cost | Rate | Balance | Cost | Rate | Volume | Yield/Rate | Net | ||||||||||||||||||||||||||||
| ok | ok | ok | ||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
| Loans (1) | $ | 1,606,950 | $ | 28,825 | 7.27 | % | $ | 1,473,573 | $ | 24,942 | 6.86 | % | $ | 2,287 | $ | 1,596 | $ | 3,883 | ||||||||||||||||||
| Certificates of deposit | 285 | 3 | 4.27 | % | ||||||||||||||||||||||||||||||||
| Securities (2): | ||||||||||||||||||||||||||||||||||||
| Taxable | 40,127 | 326 | 3.29 | % | 56,469 | 738 | 5.30 | % | (217 | ) | (195 | ) | (412 | ) | ||||||||||||||||||||||
| Tax-exempt | 30,268 | 177 | 2.37 | % | 31,280 | 180 | 2.33 | % | (6 | ) | 3 | (3 | ) | |||||||||||||||||||||||
| Federal funds sold | 446 | 6 | 5.46 | % | 1,169 | 11 | 3.82 | % | (7 | ) | 2 | (5 | ) | |||||||||||||||||||||||
| Federal Home Loan Bank stock | 19,360 | 246 | 5.15 | % | 18,591 | 212 | 4.62 | % | 9 | 25 | 34 | |||||||||||||||||||||||||
| Interest earning deposits | 72 | 2 | 11.27 | % | 2,198 | 12 | 2.21 | % | (12 | ) | 2 | (10 | ) | |||||||||||||||||||||||
| Total interest-earning assets | 1,697,508 | 29,585 | 7.07 | % | 1,583,280 | 26,095 | 6.68 | % | 2,055 | 1,432 | 3,490 | |||||||||||||||||||||||||
| Noninterest-earning assets | 79,016 | 83,215 | ||||||||||||||||||||||||||||||||||
| Total assets | $ | 1,776,524 | $ | 1,666,495 | ||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||
| Deposits: | ||||||||||||||||||||||||||||||||||||
| Savings | $ | 113,057 | $ | 541 | 1.94 | % | $ | 105,777 | $ | 314 | 1.20 | % | $ | 22 | $ | 205 | $ | 227 | ||||||||||||||||||
| NOW | 89,219 | 204 | 0.93 | % | 94,709 | 128 | 0.55 | % | (8 | ) | 84 | 76 | ||||||||||||||||||||||||
| Money market | 258,497 | 2,467 | 3.87 | % | 285,698 | 2,563 | 3.64 | % | (248 | ) | 152 | (96 | ) | |||||||||||||||||||||||
| Certificates of deposit | 630,608 | 7,632 | 4.91 | % | 502,978 | 4,949 | 3.99 | % | 1,273 | 1,410 | 2,683 | |||||||||||||||||||||||||
| Total interest bearing deposits | 1,091,381 | 10,844 | 4.03 | % | 989,162 | 7,954 | 3.26 | % | 1,040 | 1,850 | 2,890 | |||||||||||||||||||||||||
| Short-term borrowings | 44,764 | 622 | 5.64 | % | 84,006 | 1,075 | 5.19 | % | (509 | ) | 56 | (453 | ) | |||||||||||||||||||||||
| FHLB advances | 353,286 | 4,265 | 4.90 | % | 321,433 | 3,735 | 4.71 | % | 375 | 155 | 530 | |||||||||||||||||||||||||
| Total interest-bearing liabilities | 1,489,431 | 15,731 | 4.28 | % | 1,394,601 | 12,764 | 3.71 | % | 906 | 2,061 | 2,967 | |||||||||||||||||||||||||
| Non-interest bearing deposits | 83,557 | 88,198 | ||||||||||||||||||||||||||||||||||
| Other Noninterest-bearing liabilities | 15,021 | 14,533 | ||||||||||||||||||||||||||||||||||
| Total liabilities | 1,588,009 | 1,497,332 | ||||||||||||||||||||||||||||||||||
| Stockholders’ equity | 178,564 | 169,163 | ||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,766,573 | $ | 1,666,495 | ||||||||||||||||||||||||||||||||
| Net interest-earning assets | $ | 208,077 | $ | 188,679 | ||||||||||||||||||||||||||||||||
| Net interest income | $ | 13,854 | $ | 13,331 | $ | 523 | ||||||||||||||||||||||||||||||
| Interest rate spread (3) | 2.79 | % | 2.97 | % | ||||||||||||||||||||||||||||||||
| Net interest margin as a percentage of interest-earning assets (4) | 3.31 | % | 3.41 | % | ||||||||||||||||||||||||||||||||
| Ratio of interest-earning assets to interest-bearing liabilities | 113.97 | % | 113.53 | % | ||||||||||||||||||||||||||||||||
| (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 provision for loan losses for the three months ended March 31, 2007 was $1.3 million as compared to $870,000 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 an increase in actual net charge offs of $617,000 over the same period last year. The loan loss allowance as a percentage of total loans remained unchanged at 0.90% at March 31, 2007 and December 31, 2006, based upon our detailed analysis of the allowance for loan losses performed at March 31, 2007. The allowance for loan losses as a percentage of nonperforming loans decreased from 55.7% at December 31, 2006 to 53.4% at March 31, 2007 as a result of the increase in nonperforming loans compared to the increase in the allowance for loan losses. The allowance for loan loss analysis includes potential losses in the loan portfolio. Based on our analysis, we believe that the allowance for loan losses is sufficient to cover potential losses at March 31, 2007 ..
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 in the portfolio. Because the estimates and assumptions underlying the Company’s allowance for loan losses are 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 also have a material adverse effect on the Company’s net income and results of operations.
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Noninterest Income. Noninterest income for the three months ended March 31, 2007 increased $239,000, or 18.2%, to $1.8 million compared to $1.5 million, respectively, for the same period in the prior year. The increase was mainly attributable to an increase of service charges and other fees of $237,000, or 39.4%, over the same period in the prior year. The Company is in the process of reviewing the performance of our investment securities portfolio. We expect to sell certain investment securities during the next few months at a potential net loss and use the proceeds from the sales to invest in securities that appear to perform better in the current interest rate environment. Management recognizes the existing and future opportunities of recent financial institution consolidations and will execute a plan to take advantage of these events to increase our core customer base.
Noninterest Expense. Noninterest expense for the three months ended March 31, 2007 decreased 1.3% to $10.8 million compared to $10.9 million, respectively, for the same time periods in the prior year. The decrease was primarily from a $407,000 reduction in the cost of data processing, offset by an increase of $263,000 in professional fees. As discussed in previous Filings, we have invested a significant amount of resources, in employees and capital expenditures, over the last 2 years. As evidenced by the decrease in noninterest expense over the previous same quarter, these investments are paying off, not only in financial measurements, but in the way we service our customers and employees. We expect noninterest expense to remain flat or increase slightly over the next several months.
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 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 three months ended March 31, 2007, the Company originated $134.1 million of loans and purchased $1.6 million of securities and in fiscal 2006, originated $530.9 million of loans and purchased $2.5 million of securities.
The Asset/Liability Committee is in the process of evaluating our mortgage loan portfolio. Over the next few months the Company plans to securitize approximately $27 million of fixed-rate mortgage loans and retain the securities as investment instruments. The primary purposes is to provide liquidity. The affect to earnings is expected to be minimal.
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 March 31, 2007, cash and short-term investments totaled $18.8 million and securities classified as available for sale totaled $61.8 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. Sales of fixed-rate mortgage loans were $30.4 million and $107.8 million for the three months ended March 31, 2007 and year ended December 31, 2006, respectively.
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 decrease in total deposits of $4.1 million for the three months ended March 31, verses a net increase of $114.5 million during the fiscal year ended December 31, 2006. 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 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. The Company continues to seek new customers in our recently expanded markets of Macomb and Oakland counties.
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The Company has the ability to borrow a total of approximately $598.8 million, $144.1 million from its correspondent banks and $454.7 million from the FHLB, of which $33.9 million and $383.1 million were outstanding at March 31, 2007, 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 March 31, 2007.
At March 31, 2007, the Company had outstanding commitments to originate loans of $333.6 million, of which $89.1 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. The Company has relationships with various brokers to originate brokered deposits in the open market. Brokered deposits 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 March 31, 2007 totaled $498.3 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 March 31, 2007, 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
As of March 31, 2007, 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, 2006.
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 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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The Company was recently served with a lawsuit filed by Citizens Republic Bancorp which challenges the ability of the Company to use its trade name in Oakland and Macomb Counties in the State of Michigan. Since the lawsuit was only recently filed, minimal activity has occurred in the case. The Company will vigorously defend its right to use its trade name which it has used for several decades and properly perfected with the U.S. Trademark Office.
Additionally, 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 March 31, 2007, 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, 2006.
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 first quarter 395 deferred compensation stock units for the aggregate consideration of approximately $9,000, 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.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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) | |
| 10 | Employment Agreement between Citizens First Bancorp, Inc. and Marshall J. Campbell | |
| 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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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: May 9, 2007 | By: | /s/ Marshall J. Campbell | ||
| Marshall J. Campbell | ||||
| President and Chief Executive Officer (Principal Executive Officer) | ||||
| Dated: May 9, 2007 | 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) | |
| 10 | Employment Agreement between Citizens First Bancorp, Inc. and Marshall J. Campbell | |
| 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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