1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
OR
___ 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 333-67435
CITIZENS FIRST CORPORATION
(Exact name of small business issuer as specified in its charter)
KENTUCKY 61-0912615
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1065 ASHLEY STREET
BOWLING GREEN, KENTUCKY 42103
(Address of principal executive offices) (Zip Code)
(270) 393-0700
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 X No ___
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class OUTSTANDING AT AUGUST 11, 2006
----- ------------------------------
Common Stock, no par value per share 943,463 shares
Transitional Small Business Disclosure Format: Yes ___ No X
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This Amendment No. 1 on Form 10-QSB/A (the"Amended Report") is being filed by
the Registrant to amend its Quartertly Report on Form 10-QSB for the period
ended June 30, 2006 filed with the Securities and Exchange Commission on
August 14, 2006 (the "Initial Report"). The Amended Report is being filed to
correct the Registrant's loan balance on the Consolidated Balance Sheet for the
period ended December 31, 2005 from $153,655, as reported to $155,612.
The Amended Report is also being filed to correct the amount of Origination of
Mortgage Loans Held for Sale reflected on the Registrant's Consolidated
Statements of Cash Flows included in the Initial Report for the periods ending
June 30, 2006 and June 20, 2005. Origination of Mortgage Loans Held for Sale
for the period ending June 30, 2006 should be $(11,502) and should be $(10,632)
for the peiod ending June 30, 2005. Other changes have also been made to be
consistent with the Company's other filings.
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CITIZENS FIRST CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS.........................................4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...14
ITEM 3 CONTROLS AND PROCEDURES.....................................25
PART II
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........26
ITEM 6 EXHIBITS....................................................27
SIGNATURES....................................................................28
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CITIZENS FIRST CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
ASSETS
Cash and due from banks ......................................... $ 4,315 $ 4,062
Federal funds sold .............................................. 11,810 11,681
--------- ---------
Cash and cash equivalents .................................. 16,125 15,743
Available-for-sale securities ................................... 12,690 12,058
Loans held for sale ............................................. 2,436 621
Loans, net of allowance of $1,881 and $1,957
at June 30, 2006 and December 31, 2005, respectively ........... 158,603 155,612
Premises and equipment .......................................... 8,610 7,608
Federal Home Loan Bank (FHLB) stock ............................. 663 615
Accrued interest receivable ..................................... 1,225 1,086
Deferred income taxes ........................................... 686 613
Goodwill ........................................................ 1,327 1,264
Other assets .................................................... 490 282
--------- ---------
Total assets ................................................ $ 202,855 $ 195,502
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ......................................... $ 15,866 $ 15,060
Savings, NOW and money market ................................ 49,257 55,612
Time ......................................................... 96,869 85,705
--------- ---------
Total deposits ............................................. 161,992 156,377
Securities sold under repurchase agreements .................... 3,711 2,920
FHLB advances .................................................. 15,396 14,500
Income taxes payable ........................................... -- 114
Accrued interest and other liabilities ......................... 1,116 1,633
--------- ---------
Total liabilities ........................................... 182,215 175,544
Shareholders' equity:
6.5% cumulative preferred stock, no par value; authorized .... 7,659 7,659
500 shares; issued and outstanding 250 shares at June 30, 2006
and at December 31, 2005, respectively
Common stock, no par value; authorized 5,000,000
shares; issued and outstanding 943,463 shares at June 30, ... 11,875 10,729
2006, and 893,643 shares at December 31, 2005,
Retained earnings ............................................ 1,775 1,920
Accumulated other comprehensive income (loss) ................ (669) (350)
--------- ---------
Total shareholders' equity .................................. 20,640 19,958
--------- ---------
Total liabilities and shareholders'equity .............. $ 202,855 $ 195,502
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CITIZENS FIRST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars In Thousands)
FOR THE THREE MONTHS ENDED JUNE 30:
2006 2005
---- ----
INTEREST INCOME
Loans, including fees ........................ $3,219 $2,524
Available-for-sale securities ................ 128 119
Federal funds sold ........................... 123 6
Dividends on FHLB stock ...................... 9 8
------ ------
Total interest and dividend income ........... 3,479 2,657
INTEREST EXPENSE
Deposits ..................................... 1,135 657
Securities sold under agreements to repurchase 20 9
FHLB advances ................................. 130 82
Federal funds purchased ....................... -- 11
------ ------
Total interest expense ....................... 1,285 759
------ ------
NET INTEREST INCOME ......................... 2,194 1,898
Provision for loan losses .................... -- 85
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .................... 2,194 1,812
NON-INTEREST INCOME
Service charges on deposit accounts .......... 189 213
Other service charges and fees ............... 32 40
Title insurance premiums and closing costs ... 14 15
Sale of mortgage loans ....................... 86 82
Lease income ................................. 53 5
Trust referral fees .......................... 7 6
------ ------
Total non-interest income ....................... 381 361
NON-INTEREST EXPENSES
Salaries and employee benefits ............... 889 690
Net occupancy expense ........................ 171 93
Equipment expense ............................ 123 94
Advertising .................................. 115 52
Professional fees ............................ 92 123
Data processing services ..................... 102 100
FDIC and other insurance ..................... 36 29
Franchise shares and deposit tax ............. 60 51
Postage and office supplies .................. 36 27
Telephone and other communication ............ 42 31
Other ........................................ 134 119
------ ------
Total non-interest expenses ............... 1,800 1,409
------ ------
INCOME BEFORE INCOME TAXES .................... 775 765
Provision for income tax ...................... 297 260
------ ------
NET INCOME .................................... $ 478 $ 505
Dividends declared and paid on preferred stock. (130) (130)
------ ------
Net income available to common shareholders.... $ 348 $ 375
====== ======
BASIC EARNINGS PER SHARE ....................... $ 0.37 $ 0.40
DILUTED EARNINGS PER SHARE ..................... $ 0.31 $ 0.33
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CITIZENS FIRST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
( Dollars In Thousands)
FOR THE SIX MONTHS ENDED JUNE 30:
2006 2005
----- ----
INTEREST INCOME
Loans, including fees .................................. $6,207 $4,804
Available-for-sale securities .......................... 249 239
Federal funds sold ..................................... 238 13
Dividends on FHLB stock ................................ 18 14
------ ------
Total interest and dividend income ..................... 6,712 5,070
INTEREST EXPENSE
Deposits ............................................... 2,153 1,239
Securities sold under agreements to repurchase ......... 27 17
FHLB advances ........................................... 252 148
Federal funds purchased ................................. -- 22
------ ------
Total interest expense ................................. 2,432 1,426
------ ------
NET INTEREST INCOME ...................................... 4,280 3,644
Provision for loan losses .............................. -- 120
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .............................. 4,280 3,524
------ ------
NON-INTEREST INCOME
Service charges on deposit accounts .................... 365 405
Other service charges and fees ......................... 52 74
Title insurance premiums and closings costs ............ 30 30
Sale of mortgage loans ................................. 141 165
Lease income ........................................... 105 10
Trust referral fees .................................... 8 9
------ ------
Total non-interest income .............................. 701 693
NON-INTEREST EXPENSES
Salaries and employee benefits ......................... 1,775 1,361
Net occupancy expense .................................. 309 181
Equipment expense ...................................... 222 188
Advertising ............................................ 169 111
Professional fees ...................................... 151 220
Data processing services ............................... 208 217
FDIC and other insurance ............................... 52 60
Franchise shares and deposit tax ....................... 116 102
Postage and office supplies ............................ 66 54
Telephone and other communication ...................... 71 62
Other .................................................. 234 213
------ ------
Total non-interest expenses ............................ 3,373 2,769
------ ------
INCOME BEFORE INCOME TAXES ............................... 1,608 1,448
Provision for income tax ................................. 581 493
------ ------
NET INCOME ............................................... $1,027 $ 955
Dividends declared and paid on preferred stock............ (258) (258)
------ ------
Net income available to common shareholders............. $ 769 $ 697
====== ======
BASIC EARNINGS PER SHARE ................................. $ 0.82 $ 0.74
DILUTED EARNINGS PER SHARE ............................... $ 0.67 $ 0.63
See accompanying notes to consolidated financial statements.
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CITIZENS FIRST CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
( Dollars In Thousands)
FOR THE SIX MONTHS ENDED JUNE 30:
2006 2005
---- ----
Balance January 1 ..................................... $ 19,958 $ 18,177
Net income 1,027 955
Issuance of common stock ............................ 82 105
Stock-based compensation 150 --
Payment of preferred dividends, $1031.19
per share for 2006 and 2005 ........................ (258) (258)
Other comprehensive income (loss), net of tax ....... (319) 140
-------- --------
Balance at end of period .............................. $ 20,640 $ 19,119
========= ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CITIZENS FIRST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars In Thousands)
FOR THE SIX MONTHS ENDED JUNE 30: 2006 2005
---- ----
Net income ................................... $ 1,027 $ 955
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available for
sale securities, net of income
taxes (benefits) of ($164) and $72,
arising during the period,
respectively ............................. (319) 140
------- -------
Comprehensive income ......................... $ 708 $ 1,095
======= =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CITIZENS FIRST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars In Thousands)
For the three months ended June 30: 2006 2005
---- ----
Net income ...................................... $ 478 $ 505
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available for sale
securities, net of income taxes (benefits) of
($101) and $144, arising during the period,
respectively ................................ (196) 279
----- -----
Comprehensive income .......................... $ 282 $ 784
===== =====
See accompanying notes to consolidated financial statements.
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CITIZENS FIRST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)
FOR THE SIX MONTHS ENDED JUNE 30: 2006 2005
---- ----
OPERATING ACTIVITIES:
Net income ...................................................... $ 1,027 $ 955
Items not requiring (providing) cash:
Depreciation and amortization .................................. 245 165
Stock-based compensation expense ............................... 150 --
Provision for loan losses ...................................... -- 120
Amortization of premiums and discounts on securities ........... 5 7
Deferred income taxes .......................................... -- 105
Sale of mortgage loans held for sale ........................... 9,829 10,954
Origination of mortgage loans for sale ......................... (11,502) (10,632)
Gains on sales of loans ........................................ (141) (165)
Losses (gains) on sale of other real estate owned .............. -- 7
FHLB stock dividends received .................................. (18) (13)
Changes in:
Interest receivable ............................................ (139) (86)
Income taxes receivable(payable) ............................... (73) 45
Other assets ................................................... (349) 53
Interest payable and other liabilities ......................... (220) (278)
-------- --------
Net cash from operating activities .................... (1,186) 1,237
INVESTING ACTIVITIES:
Net increase in loans ............................................ (2,851) (9,818)
Purchases of premises and equipment .............................. (1,246) (409)
Purchase of available-for-sale securities ........................ (1,356) --
Proceeds from maturities of available-for-sale securities ........ 234 437
Proceeds from sale of other real estate .......................... -- 265
Payment related to purchase of Commonwealth Mortgage ............. (309) (252)
Purchase of FHLB stock ........................................... (30) (3)
-------- --------
Net cash from investing activities ..................... (5,558) (9,780)
FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, money market, NOW, and (5,549) 807
savings accounts
Net increase in time deposits .................................... 11,164 9,291
Proceeds from FHLB advances ...................................... 12,000 1,000
Repayment of FHLB advances ....................................... (11,104) --
Net increase (decrease) in repurchase agreements ................. 791 (1,542)
Issuance of common stock ......................................... 82 21
Dividends paid on preferred stock ................................ (258) (259)
-------- --------
Net cash from financing activities ............................... 7,126 9,318
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. 382 775
Cash and cash equivalents, Beginning of year ..................... 15,743 4,080
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................... $ 16,125 $ 4,855
======== ========
Supplemental Cash Flows Information:
Interest paid .................................................... $ 2,393 $ 1,496
Income taxes paid ................................................ $ 585 $ 616
Loans transferred to other real estate ........................... $ 140 $ 265
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The accounting and reporting policies of Citizens First Corporation (the
"Company") and its subsidiary, Citizens First Bank, Inc. (the "Bank"), conform
to accounting principles generally accepted in the United States of America and
general practices within the banking industry. The consolidated financial
statements include the accounts of the Company and the Bank. All significant
intercompany transactions and accounts have been eliminated in consolidation.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's 2005 Annual Report on Form 10-KSB/A filed with the Securities and
Exchange Commission.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Estimates used in the preparation of the financial
statements are based on various factors including the current interest rate
environment and the general strength of the local economy. Changes in the
overall interest rate environment can significantly affect the Company's net
interest income and the value of its recorded assets and liabilities. Actual
results could differ from those estimates used in the preparation of the
financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been reflected in the accompanying unaudited financial
statements. Results of interim periods are not necessarily indicative of results
to be expected for the full year. Those adjustments consist only of normal
recurring adjustments. The consolidated balance sheet of the Company as of
December 31, 2005, has been derived from the audited consolidated balance sheet
of the Company as of that date.
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(2) STOCK OPTION PLANS
In 2002, the board of directors adopted the employee stock option plan, which
became effective upon the approval of the Company's shareholders at the annual
meeting in April 2003. The purpose of the plan is to afford key employees an
incentive to remain in the employ of the Company and its subsidiaries and to use
their best efforts on its behalf. 132,300 shares of Company common stock
have been reserved for issuance under the plan. Options expire after ten years,
and vest ratably over a three year period.
In 2003, the board of directors adopted the non-employee director stock option
plan for non-employee directors, which became effective subject to the approval
of the Company's shareholders at the annual meeting in April 2003. The purpose
of the plan is to assist the Company in promoting a greater identity
of interest between the Company's non-employee directors and shareholders, and
in attracting and retaining non-employee directors by affording them an
opportunity to share in the Company's future successes. 44,100 shares of common
stock have been reserved for issuance under the plan. Options granted expire
after ten years, and are immediately vested.
The Company accounts for these plans under the recognition and measurement
principles of FASB Statement No. 123 Revised (SFAS 123R), Accounting for
Stock-Based Compensation, effective January 1, 2006. In 2005 and previous years,
these plans were measured under the recognition and measurement principles of
APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. Prior to 2006, no stock-based employee compensation cost was
reflected in net income, as all options granted under this plan had an exercise
price equal to the market value of the underlying common stock on the grant
date. The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value provisions of SFAS 123R for the
quarter ended June 30, 2005 and for the six months ended June 30, 2005.
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Dollars In Thousands, except per share data THREE MONTHS SIX MONTHS
------------ ----------
ENDED ENDED
June 30 June 30
----------- ----------
2005 2005
----------- ----------
Net income, as reported ................................ $ 505 $ 955
Less: Total stock-based employee compensation
cost determined under the fair
value based method, net of income taxes, not
expensed during the quarter ............................ 51 97
Pro forma net income ................................... $ 454 $ 858
Earnings per share:
Basic - as reported .................................... $ 0.40 $ 0.74
Basic - pro forma ...................................... $ 0.35 $ 0.64
Diluted - as reported .................................. $ 0.33 $ 0.63
Diluted - pro forma .................................... $ 0.30 $ 0.57
The fair value of options granted is estimated on the date of the grant using a
Black-Scholes option-pricing model with the following weighted-average
assumptions:
2006 2005
------ -------
Dividend yields .................................... 0% 0%
Volatility factors of expected market
price of common stock ............................. 21.39% 21.17%
Risk-free interest rates ........................... 4.58% 3.97%
Expected life of options ........................... 7 Years 6 Years
Weighted-average fair value of options
granted during the year ........................... $ 7.08 $ 4.69
o The dividend yield was estimated using historical dividends paid and
market value information for the Company's stock. An increase in
dividend yield will decrease compensation expense.
o The volatility was estimated using historical volatility for periods
approximating the expected option life.
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o The risk-free interest rate was developed using the U.S. Treasury yield
curve for periods equal to the expected life of the options on the
grant date. An increase in the risk-free interest rate will increase
stock compensation expense.
SFAS 123R requires the recognition of stock-based compensation for the number of
awards that are ultimately expected to vest. For the quarter end June 30, 2006,
compensation expense recorded was $104 thousand, and for the six months ended
June 30, 2006 was $150 thousand. As of June 30, 2006, unrecognized compensation
expense associated with stock options was $443 thousand which is expected to be
recognized over a weighted average period of 3 years. The following table
reflects the the effects of applying the provisions of this statement:
Dollars in Thousands, except per share data
EFFECT OF SFAS
AS REPORTED 123R PRO FORMA
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED JUNE 30 ENDED JUNE 30 ENDED JUNE 30
2006 2006 2006
--------------------------------------------
--------------------------------------------
Net income before income taxes $ 775 $104 $ 879
Provision for income tax 297 15 312
--------- ------ -------
Net income $ 478 $ 89 $ 567
======= ==== ======
Earnings per share:
Basic $ 0.37 $ 0.09 $ 0.46
Diluted $ 0.31 $ 0.06 $ 0.37
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Dollars in Thousands, except per share data
EFFECT OF SFAS
AS REPORTED 123R PRO FORMA
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30 ENDED JUNE 30
2006 2006 2006
--------------------------------------------
--------------------------------------------
Net income before income taxes $ 1,608 $150 $1,758
Provision for income tax 581 15 596
------- ------ -------
Net income $ 1,027 $135 $1,162
======= ==== ======
Earnings per share:
Basic $ 0.82 $ 0.14 $ 0.96
Diluted $ 0.67 $ 0.08 $ 0.75
A summary of the status of the plans at June 30, 2006 and 2005, and changes
during the periods then ended is presented below:
2006 2005
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-----------------------------------------------------------------
Outstanding, beginning of year ........ 100,383 $ 13.64 53,582 $ 12.86
Granted ............................... 48,300 18.97 50,715 13.75
Exercised ............................. -- -- (1,654) 12.67
Forfeited ............................. -- -- (1,433) 12.92
Expired ............................... -- -- -- --
Outstanding, end of period ............ 148,683 $ 15.38 101,210 $ 13.30
Options exercisable, end of period .... 57,915 $ 13.96 29,327 $ 13.15
The weighted average remaining term for outstanding stock options was 8.73 years
at June 30, 2006. The aggregate intrinsic value at June 30, 2006 was $725
thousand for stock options outstanding and $364 thousand for stock options
exercisable. The intrinsic value for stock options is calculated based on the
exercise price of the underlying awards and the market price of the Company's
common stock as of the reporting date.
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Options outstanding at June 30, 2006 were as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF EXERCISE NUMBER WEIGHTED-AVERAGE REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------------------------------------------------------------------------------------------------------
$12.15 4,410 7.92 years $12.15 4,410 $12.15
$12.16-$12.93 39,469 7.58 years $12.93 27,783 $12.93
$12.94 - $13.65 40,076 8.58 years $13.65 13,358 $13.65
$13.66 - $14.47 6,064 8.83 years $14.47 6,064 $14.47
$14.48 - $16.51 10,364 9.42 years $16.51 -
$16.52 - $18.82 42,000 9.67 years $18.82 -
$18.83 6,300 9.92 years $20.00 6,300 $20.00
(3) EARNINGS PER SHARE
All references to common shares and earnings per share have been restated to
reflect the stock dividends of 5% payable on May 30, 2005 and June 30, 2006,
respectively. There are no anti-dilutive stock options. Basic earnings per share
have been computed by dividing net income available for common shareholders by
the weighted-average number of common shares outstanding for the period. Diluted
earnings per share have been computed the same as basic earnings per share, and
assumes the conversion of outstanding vested stock options and convertible
preferred
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stock. The following table reconciles the basic and diluted earnings
per share computations for the quarters ending June 30, 2006 and 2005.
Dollars In Thousands, except per share data
QUARTER ENDED JUNE 30, 2006 QUARTER ENDED JUNE 30, 2005
------------------------------------- ----------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES PER SHARE SHARES PER SHARE
INCOME AMOUNT INCOME AMOUNT
------------------------------------- ----------------------------------------
BASIC EARNINGS PER SHARE
Net income .............. $ 478 $ 505
Less: Dividends on
preferred stock ........ (130) (130)
----------- ----------
Net income available
to common shareholders . 348 940,004 $ 0.37 375 938,325 $ 0.40
=========== ==========
EFFECT OF DILUTIVE
SECURITIES
Convertible preferred
stock ................. 130 568,890 568,890
Stock options ........... -- 31,974 130 2,990
----------- ----------- ----------- -----------
DILUTED EARNINGS PER
SHARE
Net income available to
common shareholders and
assumed conversions
$ 478 1,540,868 $ 0.31 $ 505 1,510,205 $ 0.33
=========== =========== =========== =========== ============= ==========
Dollars In Thousands, except per share data
SIX MONTHS ENDED JUNE 30, 2006 SIX MONTHS ENDED JUNE 30, 2005
------------------------------------- ----------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES PER SHARE SHARES PER SHARE
INCOME AMOUNT INCOME AMOUNT
------------------------------------- ----------------------------------------
BASIC EARNINGS PER SHARE
Net income .............. $ 1,027 $ 955
Less: Dividends on
preferred stock ....... (258) (258)
----------- --------
Net income available
to common shareholders . 769 939,169 $ 0.82 697 935,656 $ 0.74
=========== ========
EFFECT OF DILUTIVE
SECURITIES
Convertible preferred
stock ................. 258 568,890 258 568,890
Stock options ........... -- 31,371 -- 2,509
---------- ----------- --------- ---------
DILUTED EARNINGS PER
SHARE
Net income available to
common shareholders and
assumed conversions ... 1,027 1,539,430 $ 0.67 $ 955 1,507,055 $ 0.63
=========== =========== ========== ======== ========== =======
(4) COMMON STOCK DIVIDEND
On April 20, 2005, the Board of Directors of the Company declared a 5% stock
dividend on each share of common stock of the Corporation outstanding, payable
to the record holders of the common stock on April 29, 2005. The dividend was
issued and payable May 30, 2005 in the form of 0.05 share of common stock for
each one share of common stock outstanding on the record date. Any fractional
share of common stock which a shareholder would be entitled to receive was
rounded up to a whole share of common stock. A total of 42,584 shares of common
stock were issued as a result of the common stock dividend. On May 17, 2006, the
Board of Directors of the Company declared a second 5% stock dividend on each
share of common stock of the Corporation outstanding, payable to the
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recordholders of the common stock on May 31, 2006. The dividend was issued and
payable June 30, 2006. A total of 45,132 shares of common stock were issued as a
result of this common stock dividend.
(5) PENDING BUSINESS ACQUISITION- KENTUCKY BANKING CENTERS, INC.
On June 1, 2006, the Company entered into a definitive stock purchase agreement
with Farmers Capital Bank Corporation and Kentucky Banking Centers, Inc. to
purchase 100% of the outstanding stock of Kentucky Banking Centers. Kentucky
Banking Centers is a wholly-owned subsidiary of Farmers Capital Bank Corporation
of Frankfort, Kentucky.
According to the terms of the purchase agreement, Citizens First will pay
Farmers Capital $20.0 million dollars in cash for the shares of Kentucky Banking
Centers. The parties will also pursue the merger of Kentucky Banking Centers
into Citizens First Bank. The transaction is subject to approval by regulators
and other customary closing conditions. The purchase is expected to be completed
in the second half of 2006.
Kentucky Banking Centers, Inc. has three offices, located in Glasgow, Horse
Cave, and Munfordville, Kentucky. As of June 30, 2006, Kentucky Banking Centers
had total assets of $126.7 million, total loans (net of unearned income) of
$83.9 million, total deposits of $115.2 million, and shareholders' equity of
$9.2 million. The operating results of Kentucky Banking Centers are not included
herein.
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's discussion and analysis is included to provide the shareholders
with an expanded narrative of the Company's results of operations, changes in
financial condition, liquidity and capital adequacy. This narrative should be
reviewed in conjunction with the Company's consolidated financial statements and
notes thereto included in our 2005 Annual Report on Form 10-KSB/A filed with the
Securities and Exchange Commission.
FORWARD-LOOKING STATEMENTS
Citizens First Corporation (the "Company") may from time to time make written or
oral statements, including statements contained in this report, which may
constitute forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"). The words "may", "expect",
"anticipate", "intend", "consider", "plan", "believe", "seek", "should",
"estimate", and similar expressions are intended to identify such
forward-looking statements, but other statements may constitute forward-looking
statements. These statements should be considered subject to various risks and
uncertainties. Such forward-looking statements are made based upon management's
belief as well as assumptions made by, and information currently available to,
management pursuant to "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results may differ
materially from the results anticipated in forward-looking statements due to a
variety of factors. Such factors are described below and include, without
limitation, (i) unanticipated deterioration in the financial condition of
borrowers resulting in significant increases in loan losses and provisions for
those losses, (ii) increased competition with other financial institutions,
(iii) the inability of our bank subsidiary, Citizens First Bank, Inc. (the
"Bank") to attract and retain key management personnel, (iv) the lack of
sustained growth in the economy in the Bowling Green, Kentucky area, (v) rapid
fluctuations or unanticipated changes in interest rates, (vi) the inability of
the Bank to satisfy regulatory requirements and (vii) changes in the legislative
and regulatory environment. Many of such factors are beyond the Company's
ability to control or predict, and readers are cautioned not to put undue
reliance on such forward-looking statements. The Company does not intend to
update or reissue any forward-looking statements contained in this report as a
result of new information or other circumstances that may become known to the
Company.
RESULTS OF OPERATIONS
The Company reported net income for the three months ended June 30, 2006 of $478
thousand, or $0.37 and $0.31 per basic and diluted common share, respectively,
compared to net income of $505 thousand or $0.40 and $0.33 per basic and diluted
common share, respectively, for the three months ended June 30, 2005.
The Company reported net income of $1.0 million for the six months ended June
30, 2006, an increase of $72 thousand or 7.5% compared to $955 thousand reported
for the six months ended June 30, 2005. Basic and diluted net income per share
was $0.82 and $0.67 respectively for the current six months, compared to $0.74
and $0.63 for the six months ended June 30, 2005. During the first six months of
2006, the Company recorded $135 thousand net of taxes related to its stock
option programs. Under new accounting standards, these expenses are now required
to be recorded where as they were not required to be recorded for the first half
of 2005.
The return on average assets ("ROA") for the Company was 1.04% compared to 1.11%
for the previous year. Without the expense for the Company's stock option
programs in 2006, ROA would have been 1.18%. ROA for the Bank was 1.25% for the
period ended June 30, 2006 compared to 1.18% for the previous year.
NET INTEREST INCOME
Net interest income, the Company's principal source of earnings, is the
difference between the interest income generated by earning assets, such as
loans and securities, and the total interest cost of the deposits and borrowings
obtained to fund these assets. Factors that influence the level of net interest
income include the volume of earning assets and interest bearing liabilities,
yields earned and rates paid, the level of non-performing loans and non-earning
assets, and the amount of non-interest bearing deposits supporting earning
assets.
14
15
For the quarter ended June 30, 2006, net interest income was $2.2 million, an
increase of $296 thousand over net interest income of $1.9 million in 2005. The
increase in 2006 resulted primarily from the increase in interest rates, as well
as the growth in volume of loans and deposits. For the six months ended June 30,
2006, net interest income was $4.3 million on a tax-equivalent basis, an
increase of $645 thousand over net interest income of $3.6 million in 2005.
The net interest margin for the six months ended June 30, 2006 was 4.71%,
compared to 4.49% in 2005. This increase of 22 basis points is attributable to
the increase in the yield on interest-earning assets, primarily loans, rising
faster than the cost of interest bearing liabilities. The prime rate increased
2% from 6.25% at June 30, 2005 to 8.25% at June 30, 2006, which favorably
increased interest income on earning assets.
The following table sets forth for the six months ended June 30, 2006, and 2005,
respectively, information regarding average balances of assets and liabilities
as well as the total dollar amounts of interest income from average
interest-earning assets and interest expense on average interest-bearing
liabilities and average yields and costs. Such yields and costs for the periods
indicated are derived by dividing income or expense by the average balances of
assets or liabilities, respectively, for the periods presented.
15
16
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
(Dollars In Thousands)
SIX MONTHS ENDED JUNE 30, 2006 2005
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
Earning assets:
Federal funds sold .................... $ 10,202 $ 238 4.70% $ 1,017 $ 14 2.74%
Available-for-sale securities ......... 12,690 258 4.10% 12,707 239 3.79%
Federal Home Loan Bank stock .......... 634 18 5.73% 587 13 4.81%
Loans, net (1) ........................ 160,272 6,207 7.81% 149,357 4,804 6.49%
------- -------- ------- --------
Total earning assets ............... 183,797 6,721 7.37% 163,668 5,070 6.25%
Non-earning assets ...................... 14,551 10,082
-------- -------
TOTAL ASSETS ............................. $198,348 $173,750
======== =========
Interest-bearing Liabilities:
Interest-bearing transaction accounts . $ 48,688 $ 294 1.22% $ 50,332 $ 251 1.01%
Savings accounts ...................... 3,098 18 1.17% 3,143 11 0.71%
Time deposits ......................... 92,164 1,841 4.03% 67,851 977 2.90%
------- -------- -------- -----
Total interest-bearing deposits ... 143,950 2,153 3.01% 121,326 1,239 2.06%
Federal funds purchased ............... 3 -- -- 1,474 22 3.01%
Securities sold under repurchase
agreements ......................... 3,416 27 1.59% 3,928 17 0.87%
FHLB borrowings ....................... 13,342 252 3.81% 13,066 148 2.28%
------- ------- -------- -----
Total interest-bearing liabilities . 160,710 2,432 3.05% 139,794 1,426 2.06%
Non-interest bearing deposits ......... 15,822 14,169
Other liabilities ..................... 1,321 1,053
------- --------
Total liabilities ........................ 177,854 155,016
Shareholders' equity ..................... 20,494 18,734
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $198,348 $173,750
======== ========
Net interest income ...................... $ 4,289 $ 3,644
Net interest spread 4.32% 4.19%
Net interest margin (2) 4.71% 4.49%
Return on average assets 1.04% 1.11%
Return on average equity 10.11% 10.28%
Equity to assets ratio 10.33% 10.78%
(1) Average loans include nonperforming loans. Interest income
includes interest and fees on loans, but does not
include interest on loans 90 days or more past due.
(2) Net interest income as a percentage of average interest-earning assets.
16
17
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on net
interest income of the Company for the six months ended June 30, 2006 and 2005.
Information is provided with respect to (1) effects on interest income
attributable to changes in volume (changes in volume multiplied by prior rate)
and (2) effects on interest income attributable to changes in rate (changes in
rate multiplied by prior volume). Changes attributable to the combined input of
volume and rate have been allocated proportionately to the changes due to volume
and the changes due to rate.
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, 2006 vs. 2005
VARIANCE ATTRIBUTED TO
RATE VOLUME NET
Interest-earning assets: (tax-equivalent basis)
Federal funds sold ............................. $ 98 $ 126 $ 224
Available-for-sale-securities .................. 19 -- 19
FHLB stock ..................................... 4 1 5
Loans, net ..................................... 1,052 351 1,403
------- ------- -------
Total net change in income on earning assets .. 1,173 478 1,651
Interest-bearing liabilities:
Interest-bearing transaction accounts .......... 51 (8) 43
Savings accounts ............................... 7 -- 7
Time deposits .................................. 514 350 864
Federal funds purchased ........................ -- (22) (22)
Securities sold under
repurchase agreements .......................... 12 (2) 10
FHLB borrowings ................................ 101 3 104
------- ------- -------
Total net change in expense on interest-bearing
liabilities .................................. 685 321 1,006
------- ------- -------
Net Change in net interest income .................. $ 488 $ 157 $ 645
======= ======= =======
PROVISION FOR LOAN LOSSES
No provision for loan losses was deemed necessary in 2006 resulting in a
decrease of $85 thousand and $120 thousand respectively in the quarterly and
year-to-date comparisons. The decision not to record a provision expense is
attributed to continued improvement in the credit quality of the Company's loan
portfolio, including a decline in classified loans, and stable loan growth. Non-
performing loans totaled $687 thousand at June 30, 2006 compared to
$769 thousand at June 30, 2005. Non-performing loans to total loans ratio was
0.43% and 0.49% at June 30, 2006 and 2005, respectively. Management continues to
evaluate the risks within the loan portfolio and emphasize collection efforts.
NON-INTEREST INCOME
Non-interest income for the three months ended June 30, 2006 and 2005,
respectively, was $381 thousand and $361 thousand, an increase of $20 thousand
or 5.5%. Income from service charges on deposit accounts decreased $24 thousand,
or 11.3%, to $189 thousand during the second quarter of 2006 from $213 thousand
for the second quarter of 2005. The volume of fees collected on non-sufficient
fund charges decreased from the previous year, offsetting an increase in other
service charge fees.
Non-interest income for the six months ended June 30, 2006 and 2005,
respectively, was $701 thousand and $693 thousand, an increase of $8 thousand or
1.2%. Service charges on deposit accounts represent over half of the
Company's non-interest income for both six-month time periods, and declined due
to a decrease in non-sufficient fund charges on customer overdrafts. Income from
mortgage banking decreased due to lower volumes as interest
17
18
rates increased for mortgage loans. Lease income increased substantially
compared to 2005 since the building from which the lease income is obtained was
acquired in the third quarter of 2005.
The following table shows the detailed components of non-interest income for the
six months ended June 30, 2006 as compared to June 30, 2005:
INCREASE
( Dollars In Thousands) JUNE 30, 2006 JUNE 30, 2005 (DECREASE)
------------- ------------- ----------
Service charges on deposit accounts $365 $405 $(40)
Other service charges and fees .... 28 36 (8)
Gain on the sale of mortgage
loans held for sale ............... 141 165 (24)
Title premium fees ................ 25 22 3
Title closing fees ................ 5 8 (3)
Trust referral fees ............... 8 9 (1)
Lease income ...................... 105 10 95
Other income ...................... 24 38 (14)
---- ---- ----
$701 $693 $ 8
==== ==== ====
NON-INTEREST EXPENSE
Non-interest expense was $1.8 million in the second quarter of 2006, up from
$1.4 million in the same quarter of 2005, an increase of $391 thousand or 27.8%.
An increase in salary and employee benefit expense of $199 thousand, due
primarily to an increase in full time employees and employee stock option
expense, coupled with an increase of $43 thousand in non-employee stock option
expense, accounted for significant variances compared to the same period in
2005.
For the six months ended June 30, 2006 and 2005, respectively, non-interest
expense was $3.4 million and $2.8 million, an increase of $604 thousand, or
21.8%. An increase in salary and employee benefit expense of $414 thousand, due
primarily to an increase in full time equivalent employees and employee stock
option expense, was the largest variance comparing the first half of 2006 to
2005. Occupancy expenses increased $128 thousand, or 70.7% due to the purchase
of the corporate headquarters in the third quarter of 2005 which was placed into
service in March of 2006.
The increases (decreases) in expense by major categories are as follows for the
six months ended June 30, 2006 as compared to June 30, 2005:
(In Thousands) INCREASE
JUNE 30, 2006 JUNE 30, 2005 (DECREASE)
------------- ------------- ----------
Salaries and employee benefits .. $1,775 $1,361 $414
Net occupancy expense ........... 309 181 128
Equipment expense ............... 222 188 34
Advertising ..................... 169 111 58
Professional fees ............... 151 220 (69)
Data processing services ........ 208 217 (9)
FDIC and other insurance ........ 52 60 (8)
Franchise shares and deposit tax 116 102 14
Postage and office supplies ..... 66 54 12
Telephone and other communication 71 62 9
Other operating expenses ........ 234 213 21
------ ------ ------
$3,373 $2,769 $ 604
====== ====== ======
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INCOME TAXES
Income tax expense has been calculated based on the Company's expected annual
rate for 2006. During the second quarter of 2006, income tax expense totaled
$297 thousand compared to $260 thousand for the same period of 2005. For the
first half of 2006, income tax expense totaled $581 thousand, compared to $493
thousand during the same period of 2005. Deferred tax liabilities and assets are
recognized for the tax effects of differences between the financial statement
and tax bases of assets and liabilities. The effective tax rate for 2006 was
38.4% compared to 34.0% for 2005. The increase is related to the compensation
expense for employee stock options, which is not deductible for income tax
purposes.
BALANCE SHEET REVIEW
OVERVIEW
Total assets at June 30, 2006 were $202.9 million, up from $195.5 million at
December 31, 2005, and up $23.3 million or 13.0%, from $179.6 million at June
30, 2005. Loans increased $3.9 million or 2.5%, from $156.6 million at June 30,
2005 to $160.5 million at June 30, 2006. Deposits at June 30, 2006 were $162.0
million, an increase of $21.4 million or 15.2% compared to $140.6 million at
June 30, 2005.
Stockholders' equity of $20.6 million equaled 10.17% of total assets as of June
30, 2006. The Company's annualized return on average equity was 10.11% for the
six months ending June 30, 2006 compared to an annualized return of 10.28% for
the six months ending June 30, 2005.
LOANS
For the second quarter of 2006, total loans averaged $161.9 million compared to
$152.9 million for the second quarter of 2005, an increase of 5.9%. Total loans
averaged $160.3 million for the first six months of 2006, compared to $149.4
million for the same period in 2005, an increase of 7.3%. At June 30, 2006,
loans totaled $160.5 million, compared to $156.6 million at June 30, 2005, an
increase of 2.5%. The Company experienced moderate loan growth in its market
area throughout the first half of the year, with particular strength in middle
market commercial loans. Commercial real estate loans, residential real estate
loans and consumer loans were stable to slightly declining during the first six
months of 2006. The following table presents a summary of the loan portfolio by
category:
Dollars In Thousands
JUNE 30, 2006 DECEMBER 31, 2005 JUNE 30, 2005
------------- ----------------- -------------
Commercial and agricultural $ 47,503 $ 41,671 $ 44,667
Commercial real estate .... 59,143 60,971 56,732
Residential real estate ... 44,352 45,108 44,672
Consumer .................. 9,486 9,819 10,483
-------- -------- --------
$160,484 $157,569 $156,554
======== ======== ========
Substantially all of the Company's loans are to customers located in the
Bowling Green-Warren County area and in the Franklin-Simpson County area. As of
June 30, 2006 the Company's 20 largest credit relationships consisted of loans
and loan commitments ranging from $1.5 million to $4.5 million. The aggregate
amount of these credit relationships was $42.4 million.
The following table sets forth the maturity distribution and interest rate
sensitivity of the loan portfolio as of June 30, 2006. Maturities are based on
contractual terms. The Company's policy is to specifically review and approve
all loans renewed; loans are not automatically rolled over.
19
20
LOAN MATURITIES AND RATE SENSITIVITY
JUNE 30, 2006
Dollars In Thousands
Three months or less ............ $ 99,267
Over three through twelve months 16,288
Over one year through three years 19,081
Over three through five years ... 21,761
Over five through fifteen years . 2,671
Over fifteen years .............. 1,416
--------
Total ........................ $160,484
========
ASSET QUALITY AND THE ALLOWANCE FOR LOAN LOSSES
Asset quality is considered by management to be of primary importance, and the
Company employs a full-time internal credit review person to monitor adherence
to the lending policy as approved by the board of directors. We use a year round
internal credit review to assess a minimum of 30% of our loan portfolio.
Management is required to address any criticisms raised during the loan review
and to take appropriate actions where warranted.
The allowance for loan losses represents management's estimate of probable
credit losses incurred in the loan portfolio. Determining the amount of the
allowance for loan losses is considered a critical accounting estimate because
it requires significant judgment and the use of estimates related to the amount
and timing of expected future cash flows on impaired loans, estimated losses on
loans based on historical loss experience, and consideration of current economic
trends and conditions, all of which may be susceptible to significant change.
Loans are placed on a non-accrual basis when principal or interest is past due
90 days or more and the loan is not adequately collateralized and is in the
process of collection, or when, in the opinion of management, principal or
interest is not likely to be paid in accordance with the terms of the
obligation. Consumer loans are charged off after 120 days of delinquency unless
adequately secured and in the process of collection. Non-accrual loans are not
reclassified as accruing until principal and interest payments are brought
current and future payments appear reasonably certain. Loans are categorized as
restructured if the original interest rate, repayment terms, or both were
restructured due to deterioration in the financial condition of the borrower.
However, restructured loans that demonstrate performance under the restructured
terms and that yield a market rate of interest may be removed from restructured
status in the year following the restructure.
Non-performing loans are defined as non-accrual loans, loans accruing but past
due 90 days or more, and restructured loans. Non-performing assets are defined
as non-performing loans, other real estate owned and repossessed assets. The
following table sets forth selected asset quality ratios for the periods
indicated.
(Dollars in Thousands)
JUNE 30, 2006 DECEMBER 31, 2005 JUNE 30, 2005
------------- ----------------- -------------
Non-performing loans ............................ $ 687 $ 257 $ 769
Non-performing assets ........................... 856 257 769
Allowance for loan losses ....................... 1,881 1,957 1,891
Non-performing assets to total loans ............ 0.53% 0.16% 0.49%
Non-performing assets to total assets ........... 0.42% 0.13% 0.43%
Net charge-offs to average total loans .......... 0.05% (0.28)% (0.03)%
Allowance for loan losses to non-performing loans 273.80% 761.48% 245.87%
Allowance for loan losses to total loans ........ 1.17% 1.24% 1.21%
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21
The non-performing loans at June 30, 2006 consisted of $464 thousand of non-
accrual loans, $203 thousand of a loan secured by real estate in the process of
collection, and $20 thousand of consumer loans. Of the non-accrual loans, $220
thousand is secured by real estate and $153 thousand is fully guaranteed by the
Small Business Administration. Other non-performing assets include $140
thousand in other real estate and $29 thousand in repossessed equipment and
vehicles.
Loans that exhibit probable or observed credit weaknesses are subject to
individual review. Where appropriate, reserves are allocated to individual loans
based on management's estimate of the borrower's ability to repay the loan given
the availability of collateral, other sources of cash flow and legal options
available to the Company. Included in the review of individual loans are those
that are impaired as provided in SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." The Company evaluates the collectibility of both
principal and interest when assessing the need for a loss accrual. Historical
loss rates are applied to other loans not subject to reserve allocations. These
historical loss rates may be adjusted for significant factors that, in
management's judgment, reflect the impact of any current conditions on loss
recognition. Factors which management considers in the analysis include the
effects of the national and local economies, trends in the nature and volume of
loans (delinquencies, charge-offs and nonaccrual loans), changes in mix, asset
quality trends, risk management and loan administration, changes in internal
lending policies and credit standards, and examination results from bank
regulatory agencies and the Company's internal credit examiners.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars In Thousands)
JUNE 30, 2006 JUNE 30, 2005
------------- -------------
Balance, beginning of year ........................ $ 1,957 $ 1,721
Provision for loan losses ......................... -- 120
Amounts charged off: ..............................
Commercial ..................................... (73) (4)
Commercial real estate ......................... -- --
Residential real estate ........................ (28) (62)
Consumer ....................................... (13) (13)
------- -------
Total loans charged off: .................... (114) (79)
Recoveries of amounts previously charged off:
Commercial ..................................... 37 119
Commercial real estate ......................... -- --
Residential real estate ........................ -- 10
Consumer ....................................... 1 --
------- -------
Total recoveries ............................ 38 129
Net (charge-offs) recoveries ...................... (76) 50
------- -------
Balance at end of period .......................... $ 1,881 $ 1,891
======= =======
The following table sets forth the breakdown of the allowance for loan losses by
loan category at the dates indicated. This allocation is not intended to suggest
how actual losses may occur.
ALLOCATION OF ALLOWANCE FOR LOAN LOSS
(Dollars In Thousands)
JUNE 30, 2006 DECEMBER 31, 2005
% ALLOWANCE % ALLOWANCE
TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
Residential real estate $ 554 0.35% $ 582 0.37%
Consumer and other loans 162 0.10% 164 0.10%
Commercial 518 0.32% 548 0.35%
Commercial real estate 613 0.38% 624 0.40%
Unallocated 34 0.02% 39 0.02%
----- ----- ------- -----
Total allowance for loan losses $ 1,881 1.17% $ 1,957 1.24%
======= ===== ======= =====
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22
The Company believes that the reserve of $1.9 million was adequate, to absorb
probable incurred credit losses associated with the loan portfolio at June 30,
2006. Although the Company believes it uses the best information available to
make allowance provisions, future adjustments, which could be material, may be
necessary if the assumptions used to determine the allowance, differ from future
loan performance.
SECURITIES
Securities are all classified as available for sale, and averaged $12.69 million
for the first six months of 2006, a decrease of $(18) thousand over the average
of $12.71 million for the same period for 2005. The table below presents the
carrying value of securities by major category.
CARRYING VALUE OF AVAILABLE FOR SALE SECURITIES
(Dollars In Thousands)
JUNE 30, DECEMBER 31, JUNE 30,
2006 2005 2005
---- ---- ----
U.S. Government agencies ......... $ 8,353 $ 8,641 $ 8,838
Mortgage-backed securities ....... 3,058 3,417 3,819
Municipal securities ............. 1,279 -- --
------ ------- -------
Total available for sale securities $12,690 $12,058 $12,657
======= ======= =======
The amortized cost and fair values of securities available for sale as of
June 30, 2006 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
(Dollars in thousands)
Amortized Fair
cost value
--------- -----
Due within one year...........................$ - $ -
Due after one year through five years.......... 2,000 1,944
Due after five years through ten years......... 7,570 7,188
Due after ten years............................ 4,134 3,558
------------- --------
$ 13,704 $ 12,690
================ ===========
DEFERRED TAX ASSETS
The Company has a net deferred tax asset of $686 thousand. The Company evaluates
this asset on a quarterly basis. To the extent the Company believes it is more
likely than not that it will not be utilized, the Company will establish a
valuation allowance to reduce its carrying amount to the amount it expects to be
realized. At June 30, 2006, no valuation allowance has been established against
the outstanding deferred tax asset. The deferred tax asset will be utilized as
the Company is profitable or as the Company carries back tax losses to periods
in which it paid income taxes. The estimate of the realizable amount of this
asset is a critical accounting policy.
DEPOSITS
Total deposits averaged $161.9 million in the second quarter of 2006, an
increase of $23.6 million or 17.1% from the comparable 2005 quarter average of
$138.3 million. As of June 30, 2006, total deposits were $162.0 million,
compared to total deposits of $156.4 million at December 31, 2005, while total
deposits at June 30, 2005 were $140.6 million.
Total deposits averaged $159.8 million during 2006, an increase of $24.3 million
or 17.9% compared to $135.5 million in 2005. Time deposits of $100,000 or more
totaled $35.3 million at June 30, 2006 compared to $19.9 million at June 30,
2005. Interest expense on time deposits of $100,000 or more was $548 thousand
for the first six months of 2006,
22
23
compared to $275 thousand for the first six months of 2005. The following table
shows the maturities of time deposits as of June 30, 2006, December 31, 2005 and
June 30, 2005:
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
Dollars In Thousands
JUNE 30, 2006 DECEMBER 31, 2005 JUNE 30, 2005
------------- ----------------- -------------
Three months or less ......... $ 7,874 $ 5,366 $ 3,779
Over three through six months 9,525 2,770 5,921
Over six through twelve months 8,058 7,784 4,898
Over one year through three .. 9,315 11,600 3,885
years
Over three years.............. 575 2,030 1,377
------- ------- ------
Total ..................... $35,347 $29,550 $19,860
======= ======== ========
LIQUIDITY, OTHER BORROWINGS AND CAPITAL RESOURCES
LIQUIDITY. To maintain a desired level of liquidity, the Company has several
sources of funds available. The Company primarily relies upon net inflows of
cash from financing activities, supplemented by net inflows of cash from
operating activities, to provide cash used in its investing activities. As is
typical of most banking companies, significant financing activities include
issuance of common stock, deposit gathering, and the use of short-term borrowing
facilities, such as federal funds purchased and repurchase agreements. The
Company's primary investing activities include purchases of securities and loan
originations, offset by maturities, prepayments and sales of securities, and
loan payments.
OTHER BORROWINGS. The Bank utilizes Federal Home Bank of Cincinnati (FHLB)
advances for funding and liability management. The advances are collateralized
by a blanket agreement of eligible 1-4 family residential mortgage loans. Rates
vary based on the term to repayment, and are summarized below as of June 30,
2006:
Dollars In Thousands
TYPE MATURITY RATE (1) AMOUNT
---- -------- -------- ------
Fixed Rate May 2, 2007 4.19% $3,000
Fixed Rate October 27, 2008 4.83% 500
Fixed Rate January 31, 2007 5.02% 1,000
Fixed Rate February 9, 2007 5.07% 896
Variable Rate January 31, 2007 5.45% 2,000
Variable Rate January 31, 2007 5.75% 1,000
Variable Rate June 27, 2007 5.45% 1,000
Variable Rate June 27, 2007 5.75% 1,000
Variable Rate September 28, 2006 5.46% 5,000
-----
Total $15,396
=======
(1) As of June 30, 2006.
At June 30, 2006, the Bank had available collateral to borrow an additional $3.1
million from the FHLB.
In 2005, the Company executed a credit agreement from another bank for operating
capital and general corporate purposes. The line has a total availability of
$3.0 million, matures August 12, 2006, and bears interest at New York Prime with
interest payable monthly. The credit agreement is secured by the Bank's common
stock. As of June 30, 2006, the line had not been drawn upon.
At June 30, 2006, the Company had established Federal Funds lines of credit
totaling $16.5 million with three correspondent banks. No amounts were drawn as
of June 30, 2006.
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Securities sold under repurchase agreements mature in one business day. The rate
paid on these accounts is variable at the Bank's discretion and is based on a
tiered balance calculation. Information regarding federal funds purchased and
securities sold under repurchase agreements as of June 30, 2006, is presented
below.
REPURCHASE AGREEMENTS
Dollars in thousands JUNE 30,
2006
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS:
Balance at period end $3,711
Weighted average rate at period end 2.72%
Average balance during the six months ended June 30, 2006 3,416
Weighted average rate for the six months ending June 30, 2006 1.63%
during the year
Maximum month-end balance 4,090
CAPITAL RESOURCES. The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have
a material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the
Bank must meet specific capital guidelines that involve quantitative measures of
the Company's and the Bank's assets, liabilities and certain off-balance sheet
items as calculated under the regulatory accounting practices. The Company's and
the Bank's capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
Tier I capital to risk-weighted assets and to total assets.
The Company's capital ratios (calculated in accordance with regulatory
guidelines) were as follows:
JUNE 30, 2006 DECEMBER 31, 2005 JUNE 30, 2005
TIER I RISK-BASED CAPITAL RATIO 10.04% 9.91% 9.51%
Regulatory minimum............. 4.00% 4.00% 4.00%
"Well-capitalized" minimum .... N/A N/A N/A
TOTAL RISK-BASED CAPITAL RATIO 13.01% 13.27% 13.21%
Regulatory minimum ............ 8.00% 8.00% 8.00%
"Well-capitalized" minimum . N/A N/A N/A
TIER I LEVERAGE RATIO.......... 8.47% 8.40% 8.29%
Regulatory minimum............. 4.00% 4.00% 4.00%
"Well-capitalized" minimum .... N/A N/A N/A
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The Bank's capital ratios (calculated in accordance with regulatory guidelines)
were as follows:
JUNE 30, 2006 DECEMBER 31, 2005 JUNE 30, 2005
TIER I RISK-BASED CAPITAL RATIO 11.86% 11.87% 11.64%
Regulatory minimum 4.00% 4.00% 4.00%
"Well-capitalized" minimum 6.00% 6.00% 6.00%
TOTAL RISK-BASED CAPITAL RATIO 12.98% 13.09% 12.88%
Regulatory minimum 8.00% 8.00% 8.00%
"Well-capitalized" minimum 10.00% 10.00% 10.00%
TIER I LEVERAGE RATIO 10.00% 10.06% 10.11%
Regulatory minimum 4.00% 4.00% 4.00%
"Well-capitalized" minimum 5.00% 5.00% 5.00%
At June 30, 2006, December 31, 2005 and June 30, 2005, the Company and the Bank
were categorized as "well capitalized" under the regulatory framework for prompt
corrective action. The Company's total risk-based ratio declined slightly while
all other capital ratios improved generally as the percentage increase in
capital outweighed the percentage increase of assets.
ITEM 3. CONTROLS AND PROCEDURES
The Registrant's Chief Executive Officer and Chief Financial Officer have
reviewed and evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of the end of the period covered by this report, and have
concluded that the Registrant's disclosure controls and procedures were adequate
and effective to ensure that all material information required to be disclosed
in this annual report has been made known to them in a timely fashion.
There were no significant changes in the Registrant's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the Chief Executive Officer and Chief Financial Officers evaluation, nor
were there any signigicant deficiencies or material weaknesses in the controls
which required corrective action.
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PART II.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 18,
2006. The following directors were elected to three year terms, ending
in 2009, with the vote totals as shown:
VOTES FOR VOTES WITHHELD
--------- --------------
Jerry E. Baker 734,642 38,830
Mary D. Cohron 735,167 38,305
Floyd H. Ellis 722,095 51,377
John J. Kelly, III 727,345 46,127
The terms of office of the following directors of Citizens First
Corporation continued after the Annual Meeting:
NAME TERM EXPIRES IN
---- ---------------
Billy J. Bell 2007
John C. Desmarais 2007
Joe B. Natcher 2007
Jack Sheidler 2007
Barry D. Bray 2008
Sarah Glenn Grise 2008
Chris B. Guthrie 2008
John T. Perkins 2008
Wilson Stone 2008
There were no broker nonvotes on any of the items voted on at the
Annual Meeting.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
2 Stock Purchase Agreement by and among Citizens First Corporation,
Farmers Capital Bank Corporation and Kentucky Banking Centers, Inc.
dated June 1, 2006 (incorporated by reference to Exhibit 2 of the
Registrant's Form 8-K filed June 7, 2006.)
3.1 Restated Articles of Incorporation of Citizens First Corporation,
as amended (incorporated by reference to Exhibit 3.1 of
the Company's Registration Statement on Form SB-2 (No. 333-103238)).
3.2 Articles of Amendment to Amended and Restated Articles of Incorporation
of Citizens First Corporation (incorporated by reference to Exhibit 3.
3 of the Registrant's Form 10-QSB dated June 30, 2004).
3.3 Amended and Restated Bylaws of Citizens First Corporation (incorporated
by reference to Exhibit 3 of the Registrant's Form 8-K filed April 24,
2006).
4.1 Restated Articles of Incorporation of Citizens First Corporation, as
amended (see Exhibit 3.1).
4.2 Articles of Amendment to Amended and Restated Articles of
Incorporation of Citizens First Corporation (see Exhibit 3.2).
4.3 Amended and Restated Bylaws of Citizens First Corporation (see Exhibit
3.3).
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.
32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350.
32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CITIZENS FIRST CORPORATION
Date: November 14, 2006 /s/ Mary D. Cohron
------------------
Mary D. Cohron
President and Chief Executive Officer
(Principal Executive Officer)
November 14, 2006 /s/ Steve Marcum
-----------------
Steve Marcum
Executive Vice-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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