10-Q

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 September 30, 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)

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. Yes þ No o

     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 filer o           Accelerated filer þ           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 8,223,968 shares of common stock, par value $0.01 per share, outstanding as of November 2, 2007.

CITIZENS FIRST BANCORP, INC.
FORM 10-Q

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2007 (unaudited) and December 31, 2006		1
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2007 and 2006 (unaudited)		2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2007 and 2006 (unaudited)		3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006 (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		16
Item 4.	Controls and Procedures		16
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		16
Item 1a.	Rick Factors		17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		17
Item 3.	Defaults Upon Senior Securities		18
Item 4.	Submission of Matters to a Vote of Security Holders		18
Item 5.	Other Information		18
Item 6.	Exhibits		18
	Signatures		19
	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
Certification of Chief Executive Officer pursuant to Section 302
Certification of Chief Financial Officer pursuant to Section 302
Certification of Chief Executive Officer pursuant to U.S.C. Section 906
Certification of Chief Financial Officer pursuant to U.S.C. Section 906

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
	September 30,			December 31,
	2007			2006
ASSETS
Cash and due from depository institutions	$	29,605		$	24,722
Interest-bearing deposits in other depository institutions		123			101
Total cash and cash equivalents		29,728			24,823
Certificates of deposit		319			320
Securities available for sale, at fair value		123,119			62,149
Federal Home Loan Bank stock, at cost		22,014			19,360
Loans held for sale		4,160			2,097
Loans, less allowance for loan losses of $20,873 and $14,304 (Note 6)		1,542,864			1,582,411
Premises and equipment, net		43,922			43,265
Goodwill (Note 5)		9,814			9,814
Other intangible assets, net of amortization of $2,002 and $1,698 (Note 5)		2,398			2,702
Accrued interest receivable and other assets		45,661			28,201
Total assets	$	1,823,999		$	1,775,142
LIABILITIES
Deposits:
Noninterest-bearing	$	106,537		$	96,193
Interest-bearing		1,093,045			1,090,465
Total deposits		1,199,582			1,186,658
Federal Home Loan Bank advances		440,277			348,914
Federal funds purchased		—			51,095
Accrued interest payable and other liabilities		9,519			11,161
Total liabilities		1,649,378			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		95,162			94,818
Retained earnings		110,271			110,289
Accumulated other comprehensive loss		247			(422	)
Treasury stock, at cost (1,566,670 and 1,373,424 shares)		(29,390	)		(24,760	)
Deferred compensation obligation		4,001			3,583
Unearned compensation – ESOP		(5,765	)		(6,289	)
Total stockholders’ equity		174,621			177,314
Total liabilities and stockholders’ equity	$	1,823,999		$	1,775,142

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					Nine Months Ended
	September 30,					September 30,
	2007			2006		2007			2006
INTEREST INCOME
Loans, including fees	$	27,927		$	27,885	$	85,168		$	79,543
Federal funds sold and interest bearing deposits		17			27		32			98
Certificates of Deposit		2			—		10			—
Securities:
Tax-exempt		245			281		641			716
Taxable		1,310			848		2,783			2,623
Total interest income		29,501			29,041		88,634			82,980
INTEREST EXPENSE
Deposits		10,808			10,385		32,052			27,748
Short-term borrowings		430			823		1,857			2,663
FHLB advances		5,153			4,281		14,279			12,078
Total interest expense		16,391			15,489		48,188			42,489
NET INTEREST INCOME		13,110			13,552		40,446			40,491
PROVISION FOR LOAN LOSSES		7,556			605		9,306			2,185
NET INTEREST INCOME, after provision for loan losses		5,554			12,947		31,140			38,306
NONINTEREST INCOME
Service charges and other fees		971			664		2,677			1,901
Mortgage banking activities		595			506		1,826			1,515
Trust fee income		377			301		1,065			980
Loss on sale of securities available for sale		(31	)		—		(58	)		—
Other		197			43		414			224
Total noninterest income		2,109			1,514		5,924			4,620
NONINTEREST EXPENSE
Compensation, payroll taxes and employee benefits		5,448			5,669		17,489			17,321
Office occupancy and equipment		2,275			2,102		6,406			5,766
Advertising and business promotion		377			402		913			969
Stationery, printing and supplies		262			385		928			1,597
Data processing		22			2		63			683
Professional fees		1,069			1,115		3,272			3,047
Core deposit intangible amortization		101			119		304			358
Other		1,639			1,135		4,534			3,787
Total noninterest expense		11,193			10,929		33,909			33,528
INCOME, before federal income tax expense		(3,530	)		3,532		3,155			9,398
Federal income tax expense		(1,258	)		1,204		908			3,166
NET INCOME	$	(2,272	)	$	2,328	$	2,247		$	6,232
EARNINGS PER SHARE, BASIC	$	(0.29	)	$	0.29	$	0.28		$	0.78
EARNINGS PER SHARE, DILUTED	$	(0.29	)	$	0.29	$	0.28		$	0.78
DIVIDENDS PER SHARE	$	0.09		$	0.09	$	0.27		$	0.27

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
Nine months ended September 30, 2006
Balance, January 1, 2006	$	95	$	93,848	$	104,054		$	(898	)	$	(24,653	)	$	3,111	$	(6,987	)	$	168,570
Exercise of stock options				205								987								1,192
Purchase of treasury stock												(1,766	)							(1,766	)
Deferred compensation															790					790
Allocation of ESOP shares				503													523			1,026
Dividends paid ($.27 per share)						(2,275	)													(2,275	)
Net income						6,232														6,232
Change in net unrealized loss on securities available for sale, net of tax effect of $(153)									285											285
Total comprehensive income																				6,517
Balance, September 30, 2006	$	95	$	94,556	$	108,011		$	(613	)	$	(25,432	)	$	3,901	$	(6,464	)	$	174,054
Nine months ended September 30, 2007
Balance, January 1, 2007	$	95	$	94,818	$	110,289		$	(422	)	$	(24,760	)	$	3,583	$	(6,289	)	$	177,314
Exercise of stock options				18								100								118
Purchase of treasury stock (199,446 shares)												(4,730	)							(4,730	)
Deferred compensation															418					418
Allocation of ESOP shares				326													524			850
Dividends paid ($.27 per share)						(2,265	)													(2,265	)
Net income						2,247														2,247
Change in net unrealized loss on securities available for sale, net of tax effect of $(360)									669											669
Total comprehensive income																				2,916
Balance, September 30, 2007	$	95	$	95,162	$	110,271		$	247		$	(29,390	)	$	4,001	$	(5,765	)	$	174,621

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)

	Unaudited
	Nine Months Ended
	September 30,
	2007			2006
OPERATING ACTIVITIES
Net income	$	2,247		$	6,232
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		9,306			2,185
Deferred compensation and ESOP		1,268			1,816
Depreciation		2,457			2,076
Core deposit intangible amortization		304			358
Amortization of securities		326			204
Proceeds from sale of mortgage loans held for sale		98,967			85,082
Origination of mortgage loans held for sale		(101,088	)		(84,462	)
(Gain) loss on sale of mortgage loans		58			(187	)
(Gain) loss on sale of premises and equipment		(8	)		22
Loss on sale of securities available for sale		58			—
Changes in assets and liabilities:
Increase in accrued interest receivable and other assets		(25,374	)		(5,569	)
(Increase) decrease in accrued interest payable and other liabilities		(1,642	)		1,046
Net cash (used in) provided by operating activities		(13,121	)		8,803
LENDING AND INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale		18,101			13,655
Proceeds from sale of securities available for sale		15,951			—
Purchase of securities available for sale		(43,536	)		(1,489	)
Purchase of Federal Home Loan Bank stock		(2,654	)		(1,985	)
Proceeds from redemptions of Federal Home Loan Bank Stock		—			359
Net (increase) in loans		(16,341	)		(149,445	)
Proceeds from sale of other real estate owned, held for sale		3,296			—
Proceeds from sale of premises and equipment		27			23
Purchase of premises and equipment		(3,133	)		(9,018	)
Net cash used in lending and investing activities		(28,289	)		(147,900	)
DEPOSIT AND FINANCING ACTIVITIES
Net increase in deposits		12,924			106,601
Net increase (decrease) in federal funds purchased		(51,095	)		9,885
Proceeds from exercises of stock options		118			1,192
Repayment of line of credit		—			(3,950	)
Payment of dividends		(2,265	)		(2,275	)
Purchase of treasury stock		(4,730	)		(1,766	)
Repayment of FHLB advances		(45,578	)		(537,705	)
Proceeds from FHLB advances		136,941			542,900
Net cash provided by deposit and financing activities		46,315			114,882
NET CHANGE IN CASH AND CASH EQUIVALENTS		4,905			(24,215	)
CASH AND CASH EQUIVALENTS, beginning of period	$	24,823		$	47,591
CASH AND CASH EQUIVALENTS, end of period	$	29,728		$	23,376
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest		47,139			41,531
Federal income taxes		2,050			2,120
Supplemental noncash disclosure:
Transfers from loans to other real estate		4,258			1,299
Transfers from loans to loans held for sale		51,386			—

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, 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 nine months ended September 30, 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, Citizens First Mortgage, LLC, and Port Huron CDE, 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. Port Huron CDE, LLC is a limited liability company that will target real estate and business investments with a focus on health care, industrial, mixed use projects and shared community facilities. 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, such as leasing and/or selling our Other Real Estate Owned assets. Horizon Captial Management is a registered investment advisor with the state of Michigan. It provides clients with a quantatively driven smallcap offering and a total return global investment model. 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 (SFAS) 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 a 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 for the Company on January 1, 2008. The Company has not determined the impact of adopting SFAS No. 159 on its consolidated 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 as follows: (1) a requirement for an entity to include its own credit standing in the measurement of its liabilities; (2) a modification of the

5

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 the Company on January 1, 2008. The Company has not determined the impact of adopting SFAS No. 157 on its consolidated financial statements.

     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, but an entity may elect the “amortization method” or “fair value method” for subsequent balance sheet reporting periods. 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.

     In June 2007, the FASB ratified an Emerging Issues Task Force (EITF) consensus regarding Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards, which becomes effective for the Company January 1, 2008. This Issue states that tax benefits received on dividends paid to employees associated with their unvested stock compensation awards should be recorded in additional-paid-in-capital (APIC) for awards expected to vest. Currently, such dividends are a permanent tax deduction reducing the annual effective income tax rate. This Issue also requires that such tax benefits be reclassified between APIC and income tax expense in subsequent periods for any changes in forfeiture estimates. Tax benefits for dividends recorded to APIC would be available to absorb future stock compensation tax deficiencies. This Issue is to be applied prospectively to dividends declared in fiscal years beginning after December 15, 2007. Retrospective application of this Issue is prohibited. Management has not completed its review of this new guidance, but expects the effect upon implementation will not be material to the Company’s consolidated financial statements.

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) 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 is recognized based on the computed fair value of the options on the grant date. No options have been granted by the Company since May 17, 2005. The Company recognizes compensation expense related to restricted stock awards over the period the services are performed.

     At September 30, 2007, stock options outstanding had a weighted average remaining contractual life of 6.4 years. The following table summarizes stock options outstanding segregated by exercise price range and summarizes aggregate intrinsic value at September 30, 2007:

			Weighted Average
			Remaining			Aggregate
	Number		Contractual	Exercise		Intrinsic
Range of Exercise Prices	Outstanding		Life	Price		Value
$23.00 - $24.00		13,768	6.4 years		23.90			(1)
$19.00 - $19.99		78,834	7.5 years		19.93			(1)
$18.00 - $18.99		82,360	5.4 years		18.81			(1)
Total		174,962		$	19.72	$	—

(1) Tranche exercise price was below the closing price at September 29, 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.

6

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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007			2006		2007		2006
Net income	$	(2,272	)	$	2,328	$	2,247	$	6,232
Average number of common shares outstanding used to calculate basic earnings per common share		7,957,403			7,927,896		7,982,807		7,953,301
Effect of dilutive securities		—			20,729		1,094		30,700
Average number of common shares outstanding used to calculate diluted earnings per common share		7,957,403			7,948,625		7,983,901		7,984,001
Number of antidilutive stock options excluded from diluted earnings per share computation		92,602			—		13,768		—

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 September 30, 2007 and December 31, 2006 were $2.4 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.

NOTE 6 — LOANS

     Loans were as follows (in thousands):

	September 30,		December 31,
	2007		2006
Real estate loans:
One-to four-family	$	477,675	$	513,139
Commercial and multi-family		436,357		432,009
Residential construction		113,844		127,777
Home equity and lines of credit		136,244		137,112
		1,164,120		1,210,037
Commercial loans		306,164		280,005
Consumer loans:
Vehicles		67,475		83,435
Other		26,007		23,820
		93,482		107,255
Total loans		1,563,766		1,597,297
Less:
Allowance for loan losses		20,873		14,304
Net deferred loan fees		29		582
Net loans	$	1,542,864	$	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 commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the

7

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 $19.7 million and $8.8 million at September 30, 2007 and December 31, 2006, respectively. There were no contractual amounts outstanding of commercial letters of credit at September 30, 2007 or December 31, 2006.

     At September 30, 2007, the Company had outstanding commitments to originate loans of $312.8 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 $4.3 million and $3.9 million at September 30, 2007 and December 31, 2006, respectively. The fair value of forward contracts was insignificant at September 30, 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 audited 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.

     The Michigan Single Business Tax, which expires December 31, 2007, was replaced by the Michigan Business Tax (MBT) in June, 2007. The MBT includes a provision for a Financial Institutions Tax (FIT), which applies to all banks, savings banks, holding companies and all their affiliated companies. The FIT is a tax on combined capital less United States and Michigan municipal obligations using a five-year average at a tax rate of 0.235%. The FIT base may also be reduced by goodwill acquired after July 1, 2007. The Company has not yet determined the impact of this tax on its consolidated financial condition or results of operations.

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.

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     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 September 30, 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, mortgage servicing rights and goodwill and intangibles.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2007 AND DECEMBER 31, 2006

     Summary. Total assets increased $48.9 million, or 2.75%, to $1.824 billion at September 30, 2007 from $1.775 billion at December 31, 2006, primarily due to an increase of $30.5 million, or 4.3% in the commercial loan portfolio and the purchase of $15.2 million in bank owned life insurance. Cash and due from depository institutions increased $4.9 million or 19.8%. Securities available for sale increased $61 million primarily due to a mortgage loan securitization by the Company of approximately $51.4 million of fixed and variable rate mortgage loans. The increase in total assets was partially offset by a decrease in consumer loans of $14.6 million. The consumer loan decrease is related to management’s decision in the third quarter of 2006 to reduce vehicle indirect lending due to the recent economic conditions of the State of Michigan.

     Total liabilities increased $51.6 million, or 3.23%, to $1.649 billion at September 30, 2007 from $1.598 billion at December 31, 2006. The primary reason for the increase was due to an increase of $91.4 million in FHLB advances, offset by a decrease in federal funds purchased of $51.1 million. Total deposits increased $12.9 million (discussed below). Based on our forecasted loan growth versus the recent retail deposit declines, management expects that FHLB advances, federal funds purchased 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.

     Portfolio Loans and Asset Quality. Nonperforming loans totaled $42.7 million at September 30, 2007 compared to $25.7 million at December 31, 2006, an increase of $17.0 million, or 66.3%. Correspondingly, nonperforming assets as a percentage of total assets increased to 2.34% at September 30, 2007 compared to 1.63% at December 31, 2006. As indicated by the table below, a majority of the increase in total nonperforming assets resulted from the increase in nonperforming real estate mortgage loans and other real estate owned. The increase in nonperforming real estate mortgage loans is primarily due to a rise in foreclosures reflecting both weak economic conditions and soft residential real estate values in many parts of Michigan. The Company does not hold any sub-prime loans in our loan portfolio.

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

	September 30,			December 31,
	2007			2006
Nonperforming loans:
Real estate	$	27,453		$	13,400
Commercial		13,184			10,974
Consumer		2,034			1,293
Total		42,671			25,667
Real estate and other assets owned		3,454			3,253
Total nonperforming assets	$	46,125		$	28,920
Total nonperforming loans as a percentage of total loans		2.73	%		1.61	%
Total nonperforming assets as a percentage of total assets		2.53	%		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):

	Three Months						Nine Months
	ended September 30,						ended September 30,
	2007			2006			2007			2006
Balance, beginning of period	$	14,327		$	13,953		$	14,304		$	13,546
Provision for loan losses		7,556			605			9,306			2,185
Charge-offs		(1,177	)		(375	)		(3,269	)		(1,725	)
Recoveries		167			95			532			272
Balance, end of period	$	20,873		$	14,278		$	20,873		$	14,278
Allowance for loan losses to total loans								1.33	%		0.90	%
Allowance for loans losses to nonperforming loans								48.92	%		57.33	%

     Deposits. Deposits increased $12.9 million, or 1.1%, from December 31, 2006 to $1.2 billion at September 30, 2007. The increase in interest bearing deposits of $2.6 million, or .24%, was primarily due to a increase of $81.1 million in public funds due to public entities depositing funds held for investment with the Company. This increase in interest bearing deposits was partially offset by a decrease of $23.8 million in brokered deposits due to maturity. In addition, customers with approximately $35.5 million in aggregate balances did not renew their products with the Company and $15.7 million in demand deposits were withdrawn by customers for general purposes. As mentioned in previous Filings, the Company approaches these types of customers with a disciplined focus on rates, service and quatity of our products and thus allowed the customers’ accounts to mature without renewal. This decrease was partially offset by an increase of $10.3 million, or 10.8%, in noninterest-bearing deposits. Deposit growth continues to be effected by general adverse economic conditions experienced in the State of Michigan.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2006

     Summary. Net income for the three months ended September 30, 2007 decreased $4.6 million, or 197.6%, to a net loss of $2.3 million from net income of $2.3 million in the same period in 2006. Net income for the nine months ended September 30, 2007 decreased $4.0 million, or 63.9%, to $2.2 million from $6.2 million in the same period in 2006. The decrease was primary due to an increase in the provision for loan losses of $7.1 million or 326%, for the nine months ended September 30, 2007 compared to the same

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period in 2006. During the nine months ended September 30, 2007, noninterest expense increased slightly by .63%, compared to the same period in 2006.

     Net Interest Income. Net interest income, before provision for loan losses, for the three months ended September 30, 2007 totaled $13.1 million, a decrease of $442,000, or 3.2% as compared to $13.6 million for the same period in the prior year. Net interest income, before provision for loan losses, for the nine months ended September 30, 2007 totaled $40.45 million, a decrease of .11%, as compared to $40.49 million for the same period in the prior year. Due to the competitive nature in attracting new deposits, market rates for deposits increased at a faster rate than market lending rates during the three and nine months ended September 30, 2007 as evidenced by the average rate on interest bearing liabilities as noted in the tables below. The increased costs of attracting new and maintaining current deposits and an increase in the cost of borrowings to fund loan growth along with the increase in nonaccrual loans compressed net interest margin, which fell 14 basis points from 3.22% to 3.08% for the three months ended September 30, 2007 and fell 12 basis points to 3.20% from 3.33% as compared to the same period last year.

     The following tables present an analysis of net interest margin for the three and nine month periods ending September 30, 2007 and 2006 (in thousands).

	For the Three Months Ended September 30,
	2007							2006
					Average							Average
	Average		Revenue/		Yield/			Average		Revenue/		Yield/			Change in Net Interest Income
	Balance		Cost		Rate			Balance		Cost		Rate			Volume			Yield/Rate			Net
Assets
Loans (1)	$	1,564,724	$	27,927		7.08	%	$	1,567,463	$	27,885		7.06	%	$	(48	)	$	90		$	42
Certificates of deposit		319		2		2.49	%		—		—		—
Securities (2):
Taxable		69,630		1,086		6.19	%		48,872		629		5.11	%		265			192			457
Tax-exempt		27,746		245		3.50	%		30,499		281		3.66	%		(25	)		(11	)		(36	)
Federal funds sold		2,828		19		2.67	%		1,900		22		4.59	%		11			(14	)		(3	)
Federal Home Loan Bank stock		20,899		222		4.21	%		19,364		219		4.49	%		17			(14	)		3
Interest earning deposits		50		—		0.00	%		191		5		10.39	%		(4	)		(1	)		(5	)
Total interest-earning assets		1,686,196		29,501		6.94	%		1,668,289		29,041		6.91	%		216			242			460
Noninterest-earning assets		119,215							87,669
Total assets	$	1,805,411						$	1,755,958
Liabilities
Deposits:
Savings	$	112,544	$	601		2.12	%	$	112,812	$	455		1.60	%	$	(1	)	$	147		$	146
NOW		79,401		158		0.79	%		83,688		148		0.70	%		(8	)		18			10
Money market		308,253		3,069		3.95	%		282,202		2,735		3.85	%		251			83			334
Certificates of deposit		573,523		6,980		4.83	%		593,840		7,047		4.71	%		(239	)		172			(67	)
Total interest bearing deposits		1,073,721		10,808		3.99	%		1,072,542		10,385		3.84	%		3			420			423
Short-term borrowings		29,224		430		5.84	%		56,634		823		5.77	%		(395	)		2			(393	)
FHLB advances		412,880		5,153		4.95	%		345,713		4,281		4.91	%		824			48			872
Total interest-bearing liabilities		1,515,825		16,391		4.29	%		1,474,889		15,489		4.17	%		432			470			902
Non-interest bearing deposits		97,712							92,864
Other Noninterest-bearing liabilities		13,435							15,651
Total liabilities		1,626,972							1,583,404
Stockholders’ equity		178,439							172,554
Total liabilities and stockholders’ equity	$	1,805,411						$	1,755,958
Net interest-earning assets	$	170,371						$	193,400
Net interest income			$	13,110						$	13,552										$	(442	)
Interest rate spread (3)						2.65	%						2.74	%
Net interest margin as a percentage of interest-earning assets (4)						3.08	%						3.22	%
Ratio of interest-earning assets to interest-bearing liabilities						111.24	%						113.11	%

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	For the Nine Months Ended September 30,
	2007							2006
					Average							Average
	Average		Revenue/		Yield/			Average		Revenue/		Yield/			Change in Net Interest Income
	Balance		Cost		Rate			Balance		Cost		Rate			Volume			Yield/Rate			Net
Assets									273
Loans (1)	$	1,584,790	$	85,168		7.19	%	$	1,522,829	$	79,543		6.98	%	$	1,081		$	4,544		$	5,625
Certificates of deposit		271		10		4.93	%		—		—		—
Securities (2):
Taxable		55,633		2,100		5.05	%		52,397		1,963		5.01	%		41			96			137
Tax-exempt		28,615		641		2.99	%		31,000		716		3.09	%		(18	)		(57	)		(75	)
Federal funds sold		1,596		30		2.51	%		2,038		69		4.53	%		(5	)		(34	)		(39	)
Federal Home Loan Bank stock		20,356		683		4.49	%		19,153		660		4.61	%		14			9			23
Interest earning deposits		49		2		5.46	%		639		29		6.07	%		(9	)		(18	)		(27	)
Total interest-earning assets		1,691,310		88,634		7.01	%		1,628,056		82,980		6.81	%		1,103			4,541			5,654
Noninterest-earning assets		107,206							87,974
Total assets	$	1,798,516						$	1,716,030
Liabilities
Deposits:
Savings	$	114,187	$	1,725		2.02	%	$	110,634	$	1,190		1.44	%	$	13		$	522		$	535
NOW		82,697		533		0.86	%		88,708		413		0.62	%		(9	)		129			120
Money market		275,389		7,851		3.81	%		281,379		7,815		3.71	%		(56	)		92			36
Certificates of deposit		588,880		21,943		4.98	%		554,163		18,330		4.42	%		384			3,229			3,613
Total interest bearing deposits		1,061,153		32,052		4.04	%		1,034,884		27,748		3.58	%		332			3,972			4,304
Short-term borrowings		43,096		1,857		5.76	%		67,365		2,663		5.29	%		(321	)		(485	)		(806	)
FHLB advances		404,126		14,279		4.72	%		334,623		12,078		4.83	%		839			1,362			2,201
Total interest-bearing liabilities		1,508,375		48,188		4.27	%		1,436,872		42,489		3.95	%		850			4,849			5,699
Non-interest bearing deposits		96,831							93,165
Other Noninterest-bearing liabilities		14,342							15,036
Total liabilities		1,619,548							1,545,073
Stockholders’ equity		178,968							170,957
Total liabilities and stockholders’ equity	$	1,798,516						$	1,716,030
Net interest-earning assets	$	182,935						$	191,184
Net interest income			$	40,446						$	40,491										$	(45	)
Interest rate spread (3)						2.74	%						2.86	%
Net interest margin as a percentage of interest-earning assets (4)						3.20	%						3.33	%
Ratio of interest-earning assets to interest-bearing liabilities						112.13	%						113.31	%

(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 nine months ended September 30, 2007 were $7.6 million and $9.3 million as compared to $605,000 and $2.2 million for the same period in the prior year, respectively. 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. In order to accurately depict the actual loss inherent in a loan relationship, a determination is made by reviewing a non-performing loan for collateral sufficiency. This entails utilizing any relevant appraisal values and discounting said values for market deterioration, time value of liquidation period, and liquidation costs. Standard discount factors are applied to maintain consistency and reflect current market and economic conditions. The resulting discounted values are reviewed, and adjusted if necessary, every six months. Those factors are 10% for liquidation expense (6% broker commission and 4% other) and a selling period of 2 years for builder direct (speculative) homes and 4 years for vacant land, discounted at current mortgage rates. These factors are consistent with best estimates of current market conditions and within acceptable regulatory parameters.

     The provision for loan losses increased by $7.0 million for the three months ended September 30, 2007 compared to the same period last year as a result of an increase in nonperforming loans from 1.61% of the total loan portfolio at the end of 2006 to 2.73% at the end of the third quarter of 2007. The combined effects of the critical issues involving the mortgage market nationally, Michigan’s

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economic conditions including a decline in Michigan’s residential real estate values along with the third highest rate of unemployment in the nation, impacted the Company’s performance in the third quarter and are the reasons for the increase in our nonperforming loans. Michigan’s unemployment is currently above 7.0%, St. Clair County’s unemployment stands at 9.1% and local unemployment in Port Huron is 12.8%. With respect to these factors, an additional $6.875 million provision was recorded to strengthen the allowance for potential loan losses, thereby increasing the allowance from .90% of total loans to 1.33% of total loans based upon our detailed analysis of the allowance for loan losses performed at September 30, 2007. The allowance for loan losses as a percentage of nonperforming loans decreased from 55.7% at December 31, 2006 to 48.9% at September 30, 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 which could be realized depending on future changes in market conditions. Based on our analysis, we believe that the allowance for loan losses is sufficient to cover potential losses at September 30, 2007.

     The Company has never participated in, nor does the Company carry, any sub-prime residential mortgages or securities backed by these loans on its books. In the construction and development portfolio of approximately $183.5 million, or 11.7% of total loans, the Company has four residential builders with high quality developments, known as builder direct loans that have experienced sales well below previous expectations. The Company’s residential mortgages and builder direct loans were valued properly at the time of origination in accordance with the Company’s conservative loan policies. In 2006, the Company significantly reduced new investments in the builder direct portion of the construction and development portfolio. The builder direct portion of that portfolio is equal to 3.53% of the total loan portfolio. For the purpose of reducing our concentration of risk, the Company plans to reduce overall investment in the construction and development portfolio to less than 90% of total capital. The Company’s commercial and multi-family and general commercial loan portfolio, 59% of which is secured by real estate, currently has total delinquencies over 30 days representing only 1.86% of the total loan portfolio while the consumer loan portfolio has total delinquencies over 30 days representing 0.51% of the total loan portfolio. Both of these portfolios are performing as expected and are comparable to peer. The Company has implemented creative and aggressive programs in the residential mortgage and construction and development portfolios designed to limit our credit risk, to assist our customers that have been affected by the economic conditions in Michigan and who face the potential of losing their home without the assistance of the Company.

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

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For the Period Ending
December 31, 2006

			Delinquent
	Portfolio		Loans		Nonaccrual
	Balance		over 30 days		Loans
Real estate loans:
One-to four-family	$	513,139		35,861		7,325
Commercial and multi-family		432,009		18,962		7,575
Residential construction		127,777		19,232		6,075
Home equity and lines of credit		137,112		2,462		555
		1,210,037		76,517		21,530
Commercial loans		280,005		20,752		3,399
Consumer loans:
Vehicles		83,435		3,847		497
Other		23,820		565		241
		107,255		4,412		738
Total loans		1,597,297		101,681		25,667

For the Period Ending
September 30, 2007

			Delinquent
	Portfolio		Loans		Nonaccrual
	Balance		over 30 days		Loans
Real estate loans:
One-to four-family		477,675		28,297		14,624
Commercial and multi-family		436,357		9,538		10,233
Residential construction		113,844		18,176		12,829
Home equity and lines of credit		136,244		3,086		1,697
		1,164,120		59,097		39,383
Commercial loans		306,164		6,428		2,951
Consumer loans:
Vehicles		67,475		2,274		188
Other		26,007		632		149
		93,482		2,906		337
Total loans		1,563,766		68,431		42,671

     Noninterest Income. Noninterest income for the three and nine months ended September 30, 2007 increased 39.3% to $2.1 million, and 28.2% to $5.9 million compared to $1.5 million and $4.6 million, respectively, for the same periods in the prior year. The increase was mainly attributable to an increase in service charges and other fees of $776,000, or 40.8%, and an increase in mortgage banking activities of $311,000, or 20.5%, for the nine months ended September 30, 2007 over the same period in the prior year. The increase in service charges and other fees is a result of our efforts to enhance our available products to customers and revising our service charges on value added products over the last several months. Sales of mortgage loans for the nine months ended September 30, 2007, net of the $51.4 million mortgage loan sale which is discussed below and contributed approximately $50,000 in additional noninterest income, increased by 28.1% in terms of principal balance compared to the nine months ended September 30, 2006.

     Noninterest Expense. Noninterest expense for the three and nine months ended September 30, 2007 increased 2.4% to $11.2 million and 1.1% to $33.9 million compared to $10.9 million and $33.5 million, respectively, for the same time periods in the prior year. The increase was primarily due to a $640,000 increase in office occupancy and equipment, primarily as a result of an increase in

14

depreciation expense, and an increase in professional fees of $225,000. Our compensation and employee benefits expenses increased $168,000 compared to the nine months ended September 30, 2006. The additional investments in human capital has allowed us to successfully complete the integration of our in-house core processing and item processing functions, thus reducing data processing expenses. We expect noninterest expense to remain flat or increase slightly over the next several months. These increases were offset by a decrease of $620,000 in data processing fees and a $669,000 decrease in stationary, printing and supplies for the nine months ended September 30, 2007 compared to the same period in the prior year. These decreases are primarily a result of the integration of in-house core processing and item processing functions completed in the last quarter of 2006.

     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, borrowings from its correspondent banks 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 nine months ended September 30, 2007, the Company originated $393.5 million of loans and purchased $94.4 million of securities and in fiscal 2006, originated $592.8 million of loans and purchased $1.5 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 September 30, 2007, cash and short-term investments totaled $29.7 million and securities classified as available for sale totaled $123.1 million.

     The Company originates fixed-rate mortgage loans conforming to 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 $150.3 million and $107.8 million for the nine months ended September 30, 2007 and year ended December 31, 2006, respectively. During the second quarter of the current period, the Company sold, without recourse, approximately $51.4 million of fixed and variable rate mortgage loans. These mortgage loans were securitized by Fannie Mae (Investor) as Mortgage Backed Securities, of which the Company purchased $50.8 million. The Company retained the servicing rights of these mortgage loans and will remit an average guarantee fee of 30 basis points to the Investor over the life of the securities. The effect of the transaction improved the overall liquidity position of the Company due to the rebalancing of our balance sheet. The effect of this transaction on earnings was immaterial.

     Financing activities consist primarily of activity in deposit accounts, public funds, overnight borrowings from our correspondent banks, FHLB advances and brokered deposits. Year to date, the Company experienced a net increase in total deposits of $12.9 million for the nine months ended September 30, 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.

     The Company has the ability to borrow a total of approximately $663.0 million, $160.0 million from its correspondent banks and $503.0 million from the FHLB, of which $0 and $440.3 million were outstanding at September 30, 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 September 30, 2007.

     At September 30, 2007, the Company had outstanding commitments to originate loans of $312.8 million, of which $68.9 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

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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 September 30, 2007 totaled $316.4 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 September 30, 2007, the Bank exceeded all of the regulatory capital requirements and is considered “well capitalized” under regulatory guidelines.

     The sources of funds as described above 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 September 30, 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.

     On March 7, 2007, Citizens Republic Bancorp filed a lawsuit in the United States District Court for the Eastern District of Michigan challenging the ability of the Company to operate under its trade name in the Michigan Counties of Oakland and Macomb Counties. There have been no material developments in this matter since the date the action was filed. 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.

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Item 1a. Risk Factors

     As of September 30, 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 in turn 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 third quarter 643 deferred compensation stock units for the aggregate consideration of approximately $11,550. 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.

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. During the quarter ended September 30, 2007, the Company’s authorization to repurchase shares under the existing repurchase program expired. The following table summarizes the Company’s share repurchase activity for the three months ended September 30, 2007.

					Total Number of		Maximum Number
					Shares Purchased		of Shares that May
					as Part of Publicly		Yet Be Purchased
	Total Number of		Average Price Paid		Announced		Under the Plans or
Period	Shares Purchased		per Share		Programs		Programs
7/1/2007 to 7/31/2007		—		—		—		96,446
8/1/2007 to 8/31/2007		93,710	$	18.47		93,710		2,736
9/1/2007 to 9/30/2007		2,736	$	19.48		2,736		—
Total		96,446	$	18.98		96,446		—

     The Company announced that at its October 25, 2007 regular meeting, the Board of Directors approved the repurchase of up to 5%, or 411,198 shares, of the Company’s common stock. The repurchases, which will be conducted through open market purchases or privately negotiated transactions, will be made from time to time at the Company’s discretion depending on market conditions and other factors. The source of funding for any repurchases will be from the Company’s available working capital, and it is intended that such repurchased shares will be held in treasury. All repurchases will be made in accordance with applicable regulations of the Securities and Exchange Commission. The Board of Directors may suspend, modify or cancel the repurchase program at any time without notice.

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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

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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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: November 8, 2007	By:	/s/ Marshall J. Campbell
		Marshall J. Campbell
		President and Chief Executive Officer (Principal Executive Officer)
Dated: November 8, 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)
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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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Marshall J. Campbell, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Citizens First Bancorp, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2007

/s/ Marshall J. Campbell  

Marshall J. Campbell, 

Chief Executive Officer 

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EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Timothy D. Regan, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Citizens First Bancorp, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2007

/s/ Timothy D. Regan  

Timothy D. Regan, 

Chief Financial Officer 

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EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Citizens First Bancorp, Inc., (the “Company”) on Form 10-Q for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marshall J. Campbell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as enacted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

/s/ Marshall J. Campbell                         

Marshall J. Campbell
Chief Executive Officer
November 8, 2007

*    A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Citizens First Bancorp, Inc. and will be retained by Citizens First Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Citizens First Bancorp, Inc., (the “Company”) on Form 10-Q for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy D. Regan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as enacted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

/s/ Timothy D. Regan                          

Timothy D. Regan
Chief Financial Officer
November 8, 2007

*    A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Citizens First Bancorp, Inc. and will be retained by Citizens First Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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