Edgar Filing: CITIZENS FIRST CORP

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2012

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: 001-33126

CITIZENS FIRST CORPORATION

(Exact name of registrant as specified in its charter)

Kentucky		61-0912615
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1065 Ashley Street, Bowling Green, Kentucky		42103
(Address of principal executive offices)		(Zip Code)

(270) 393-0700

(Registrant’s telephone number, including area code)

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 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.

1,968,777 shares of Common Stock, no par value, were outstanding at October 25, 2012.

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CITIZENS FIRST CORPORATION

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PART I – FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS	3

ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26

ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41

ITEM 4	CONTROLS AND PROCEDURES	42

PART II – OTHER INFORMATION

ITEM 6	EXHIBITS	43

SIGNATURES		45

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Part 1. Financial Information

Item 1. Financial Statements

Citizens First Corporation

Consolidated Balance Sheets

	(In Thousands, Except Share Data)
	September 30, 2012			December 31, 2011
	Unaudited
Assets
Cash and due from financial institutions	$	8,657		$	12,439
Federal funds sold	5,565			18,110
Cash and cash equivalents	14,222			30,549
Available-for-sale securities	47,826			50,718
Loans held for sale	—			180
Loans, net of allowance for loan losses of $5,968 and $5,865 at September 30, 2012 and December 31, 2011, respectively	299,796			288,487
Premises and equipment, net	11,595			11,849
Bank owned life insurance (BOLI)	7,522			7,324
Federal Home Loan Bank (FHLB) stock, at cost	2,025			2,025
Accrued interest receivable	1,807			1,858
Deferred income taxes	2,874			2,973
Goodwill	4,097			4,097
Core deposit intangible	1,082			1,346
Other real estate owned	259			637
Other assets	1,199			1,751
Total Assets	$	394,304		$	403,794
Liabilities
Deposits
Noninterest bearing	39,330			38,352
Savings, NOW and money market	100,245			116,968
Time	176,211			177,411
Total deposits	315,786			332,731
FHLB advances	30,000			25,000
Subordinated debentures	5,000			5,000
Accrued interest payable	240			275
Other liabilities	2,168			1,916
Total Liabilities	$	353,194		$	364,922
Stockholders’ Equity
6.5% cumulative preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $7,998; issued and outstanding 250 shares at September 30, 2012 and December 31, 2011, respectively	$	7,659		$	7,659
5.0% Series A cumulative preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $6,567; issued and outstanding 187 shares at September 30, 2012 and December 31, 2011 respectively	6,507			6,471
Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 1,968,777 shares at September 30, 2012 and December 31, 2011, respectively	27,072			27,072
Retained earnings (deficit)	(902		)	(2,706		)
Accumulated other comprehensive income	774			376
Total stockholders’ equity	$	41,110		$	38,872
Total liabilities and stockholders’ equity	$	394,304		$	403,794

See Notes to Unaudited Consolidated Financial Statements

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Citizens First Corporation
Unaudited Consolidated Statements of Operations

	Three months ended (In Thousands, Except Per Share Data)
	September 30, 2012		September 30, 2011
Interest and dividend income
Loans	$	4,384	$	3,959
Taxable securities	100		142
Non-taxable securities	165		182
Federal funds sold and other	32		30
Total interest and dividend income	4,681		4,313
Interest expense
Deposits	685		906
FHLB advances	114		79
Subordinated debentures	27		24
Short-term borrowings	—		2
Total interest expense	826		1,011
Net interest income	3,855		3,302
Provision for loan losses	300		300
Net interest income after provision for loan losses	3,555		3,002
Non-interest income
Service charges on deposit accounts	355		354
Other service charges and fees	138		118
Gain on sale of mortgage loans	64		90
Non-deposit brokerage fees	54		40
Lease income	68		68
BOLI income	66		69
Gain on sale of securities available-for-sale	—		13
Total non-interest income	745		752
Non-interest expenses
Salaries and employee benefits	1,406		1,240
Net occupancy expense	489		464
Advertising and public relations	92		84
Professional fees	158		225
Data processing services	225		183
Franchise shares and deposit tax	141		114
FDIC insurance	83		35
Core deposit intangible amortization	88		65
Postage and office supplies	40		47
Telephone and other communication	43		41
Other real estate owned expenses	5		21
Other	223		202
Total non-interest expenses	2,993		2,721
Income before income taxes	1,307		1,033
Provision for income taxes	366		263
Net income	$	941	$	770
Dividends and accretion on preferred stock	225		225
Net income available for common stockholders	$	716	$	545
Basic earnings per common share	$	0.36	$	0.27
Diluted earnings per common share	$	0.35	$	0.26
Comprehensive income, net of tax
Net income	941		770
Other comprehensive income
Reclassification adjustment for losses (gains) included in net income, net	—		(8		)
Change in unrealized gain (loss) on available for sale securities, net	208		378
Comprehensive income	$	1,149	$	1,140

See Notes to Unaudited Consolidated Financial Statements

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Citizens First Corporation
Unaudited Consolidated Statements of Operations

	Nine months ended (In Thousands, Except Per Share Data)
	September 30, 2012			September 30, 2011
Interest and dividend income
Loans	$	12,863		$	11,857
Taxable securities	414			452
Non-taxable securities	490			543
Federal funds sold and other	97			98
Total interest and dividend income	13,864			12,950
Interest expense
Deposits	2,246			2,888
FHLB advances	314			233
Subordinated debentures	81			73
Short-term borrowings	—			5
Total interest expense	2,641			3,199
Net interest income	11,223			9,751
Provision for loan losses	1,120			825
Net interest income after provision for loan losses	10,103			8,926
Non-interest income
Service charges on deposit accounts	1,014			1,009
Other service charges and fees	400			351
Gain on sale of mortgage loans	219			215
Non-deposit brokerage fees	145			128
Lease income	203			193
BOLI income	198			204
Gain on sale of securities available-for-sale	55			74
Total non-interest income	2,234			2,174
Non-interest expenses
Salaries and employee benefits	4,229			3,746
Net occupancy expense	1427			1402
Advertising and public relations	260			252
Professional fees	451			510
Data processing services	675			531
Franchise shares and deposit tax	407			342
FDIC insurance	228			250
Core deposit intangible amortization	265			196
Postage and office supplies	149			126
Telephone and other communication	129			118
Other real estate owned expenses	156			159
Other	588			514
Total non-interest expenses	8,964			8,146
Income before income taxes	3,373			2,954
Provision for income taxes	897			740
Net income	$	2,476		$	2,214
Dividends and accretion on preferred stock	672			733
Net income available for common stockholders	$	1,804		$	1,481
Basic earnings per common share	$	0.92		$	0.75
Diluted earnings per common share	$	0.88		$	0.72
Comprehensive income, net of tax
Net income	2,476			2,214
Other comprehensive income
Reclassification adjustment for losses (gains) included in net income, net	(36		)	(49		)
Change in unrealized gain (loss) on available for sale securities, net	434			1,173
Comprehensive income	$	2,874		$	3,338

See Notes to Unaudited Consolidated Financial Statements

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Citizens First Corporation

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

In thousands, except share data

	Preferred Stock			Common Stock		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2011	$	16,245		$	27,072	$	(4,357	)	$	(651	)	$	38,309
Net income						2,214						2,214
Repayment of 63 shares Series A preferred stock	(2,212		)									(2,212		)
Accretion on Series A preferred stock	85					(85		)				—
Change in other comprehensive income, net									1,124			1,124
Dividend declared and paid on preferred stock						(648		)				(648		)
Balance, September 30, 2011	$	14,118		$	27,072	$	(2,876	)	$	473		$	38,787

	Preferred Stock		Common Stock		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income		Total
Balance, January 1, 2012	$	14,130	$	27,072	$	(2,706	)	$	376	$	38,872
Net income					2,476					2,476
Accretion on Series A preferred stock	36				(36		)			—
Change in other comprehensive income, net								398		398
Dividend declared and paid on preferred stock					(636		)			(636		)
Balance, September 30, 2012	$	14,166	$	27,072	$	(902	)	$	774	$	41,110

See Notes to Unaudited Consolidated Financial Statements

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Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows

	(In Thousands)
	September 30, 2012			September 30, 2011
Operating Activities
Net income	$	2,476		$	2,214
Items not requiring (providing) cash:
Depreciation and amortization	478			543
Provision for loan losses	1,120			825
Amortization of premiums and discounts on securities	257			157
Amortization of core deposit intangible	265			196
Deferred income taxes	(106		)	(207		)
Bank-owned life insurance	(198		)	(204		)
Proceeds from sale of mortgage loans held for sale	11,608			8,805
Origination of mortgage loans held for sale	(11,209		)	(8,438		)
Gains on sales of available-for- sale securities	(55		)	(74		)
Gains on sales of loans	(219		)	(215		)
Losses on sale of other real estate owned	121			139
Gain on sale premises and equipment	(12		)	(13		)
Changes in:
Interest receivable	51			(93		)
Other assets	551			552
Interest payable and other liabilities	217			351
Net cash provided by operating activities	$	5,345		4,538
Investing Activities
Loan originations and payments, net	(12,576		)	(551		)
Purchase of premises and equipment	(224		)	(235		)
Proceeds from maturities of available-for-sale securities	12,921			10,264
Proceeds from sales of available-for-sale securities	962			1,464
Purchase of branch	—			15,860
Proceeds from sales of other real estate owned	404			1,100
Purchase of available-for-sale securities	(10,590		)	(15,424		)
Proceeds from sales of premises and equipment	12			15
Net cash (used in) investing activities	(9,091		)	12,493
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts	(15,745		)	11,863
Net change in time deposits	(1,200		)	(3,993		)
Partial Repayment of TARP preferred stock	—			(2,212		)
Proceeds from FHLB advances	12,500			—
Repayment of FHLB advances	(7,500		)	—
Net change in fed funds purchased and repurchase agreements	—			(712		)
Dividends paid on preferred stock	(636		)	(648		)
Net cash provided by (used in) financing activities	(12,581		)	4,298
Increase in Cash and Cash Equivalents	(16,327		)	21,329
Cash and Cash Equivalents, Beginning of Year	30,549			14,811
Cash and Cash Equivalents, End of Quarter	$	14,222		$	36,140

Supplemental Cash Flows Information
Interest paid	$	2,676		$	3,264
Income taxes paid	$	560		$	505
Loans transferred to other real estate owned	$	147		$	684

See Notes to Unaudited Consolidated Financial Statements

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Citizens First Corporation

Notes to Unaudited Consolidated Financial Statements

Note 1 — Nature of Operations and Summary of Significant Accounting Policies

The accounting and reporting policies of Citizens First Corporation (the “Company”) and its subsidiary, Citizens First Bank, Inc. (the “Bank”), conform to U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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. Those adjustments consist only of normal recurring adjustments. Results of interim periods are not necessarily indicative of results to be expected for the full year. The consolidated balance sheet of the Company as of December 31, 2011 has been derived from the audited consolidated balance sheet of the Company as of that date.

Note 2 - Reclassifications

Certain reclassifications have been made to the consolidated financial statements of prior periods to conform to the current period presentation. These reclassifications do not affect net income or total shareholders’ equity as previously reported.

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Note 3 - Available-For-Sale Securities

The following table summarizes the amortized cost and fair value of the available-for sale securities portfolio at September 30, 2012 and December 31, 2011 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:

	(Dollars in Thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2012
U. S. government agencies and government sponsored entities	$	7,533	$	13	$	—		$	7,546
State and municipal	18,732		1,396		(8		)	20,120
Agency mortgage-backed securities: residential	18,521		539		—			19,060
Trust preferred security	1,866		—		(766		)	1,100
Total investment securities	$	46,652	$	1,948	$	(774	)	$	47,826
December 31, 2011
U. S. government agencies and government sponsored entities	$	11,555	$	27	$	(13	)	$	11,569
State and municipal	18,390		1,126		(2		)	19,514
Agency mortgage-backed securities: residential	18,337		305		(7		)	18,635
Trust preferred security	1,865		—		(865		)	1,000
Total investment securities	$	50,147	$	1,458	$	(887	)	$	50,718

The amortized cost and fair value of investment securities at September 30, 2012 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	September 30, 2012 (Dollars in Thousands)
	Available-For-Sale
	Amortized Cost		Fair Value
Due in one year or less	250		255
Due from one to five years	8,088		8,283
Due from five to ten years	11,103		11,754
Due after ten years	8,690		8,474
Agency mortgage-backed: residential	18,521		19,060

Total	$	46,652	$	47,826

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The following table summarizes the investment securities with unrealized losses at September 30, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2012:
State and municipal	876		(8		)	—		—			876		(8		)
Trust preferred security	—		—			1,100		(766		)	1,100		(766		)
Total temporarily impaired	$	876	$	(8	)	$	1,100	$	(766	)	$	1,976	$	(774	)

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2011:
U.S. government agencies and government sponsored entities	$	4,505	$	(13	)	$	—	$	—		$	4,505	$	(13	)
Agency mortgage backed securities - residential	2,569		(7		)	—		—			2,569		(7		)
State and municipal	304		(2		)	—		—			304		(2		)
Trust preferred security	—		—			1,000		(865		)	1,000		(865		)
Total temporarily impaired	$	7,378	$	(22	)	$	1,000	$	(865	)	$	8,378	$	(887	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities classified as available-for-sale are generally evaluated for OTTI under ASC Topic 320, “Investments - Debt and Equity Securities.”

In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

As of September 30, 2012, our securities portfolio consisted of $47.8 million fair value of securities, $2.0 million, or 3 securities, of which were in an unrealized loss position.

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All rated securities are investment grade. For those that are not rated, the financial condition has been evaluated and no adverse conditions were identified related to repayment. Declines in fair value are a function of rate differences in the market and market illiquidity. The Company does not intend or is not expected to be required to sell these securities before recovery of their amortized cost basis.

The Company’s unrealized losses relate primarily to its investment in a single trust preferred security. The security is a single-issuer trust preferred that is not rated. While market conditions have allowed some increase in the fair market value of the trust preferred security at September 30, 2012, a full recovery has not yet occurred. No impairment charge is being taken as no loss of principal or interest is anticipated. All principal and interest payments are being received as scheduled. On a quarterly basis, we evaluate the creditworthiness of the issuer, a bank holding company with operations in the state of Kentucky. Based on the issuer’s continued profitability and well-capitalized position, we do not deem that there is credit loss. The decline in fair value is primarily attributable to illiquidity affecting these markets and not the expected cash flows of the individual securities. We have evaluated the financial condition and near term prospects of the issuer and expect to fully recover our cost basis. This security continues to pay interest as agreed and future payments are expected to be made as agreed. This security is not considered to be other-than-temporarily impaired.

Note 4 - Loans and Allowance for Loan Losses

Categories of loans include:

	(Dollars in Thousands)
	September 30, 2012			December 31, 2011

Commercial	$	52,960		$	58,853
Commercial real estate:
Construction	11,775			13,720
Other	154,121			130,300
Residential real estate	79,646			83,486
Consumer:
Auto	3,435			3,998
Other	3,827			3,995
Total loans	305,764			294,352
Less allowance for loan losses	(5,968		)	(5,865		)
Net loans	$	299,796		$	288,487

The following table sets forth an analysis of our allowance for loan losses for the three months ending September 30, 2012 and 2011.

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	(Dollars In Thousands)
September 30, 2012	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	2,055		$	2,737		$	805		$	70		$	232	$	5,899
Provision for loan losses	17			384			(122		)	(4		)	25		300
Loans charged-off	(190		)	(15		)	(37		)	(1		)	—		(243		)
Recoveries	5			—			5			2			—		12
Total ending allowance balance	$	1,887		$	3,106		$	651		$	67		$	257	$	5,968

	(Dollars In Thousands)
September 30, 2011	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	2,209		$	1,706		$	826		$	147		$	327		$	5,215
Provision for loan losses	137			150			50			7			(44		)	300
Loans charged-off	(325		)	(194		)	(86		)	(17		)	—			(622		)
Recoveries	1			—			32			6			—			39
Total ending allowance balance	$	2,022		$	1,662		$	822		$	143		$	283		$	4,932

The following table sets forth an analysis of our allowance for loan losses for the nine months ending September 30, 2012 and 2011.

	(Dollars In Thousands)
September 30, 2012	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	2,667		$	1,986		$	858		$	81		$	273		$	5,865
Provision for loan losses	(295		)	1,219			219			(7		)	(16		)	1,120
Loans charged-off	(490		)	(100		)	(445		)	(14		)	—			(1,049		)
Recoveries	5			1			19			7			—			32
Total ending allowance balance	$	1,887		$	3,106		$	651		$	67		$	257		$	5,968

	(Dollars In Thousands)
September 30, 2011	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	3,212		$	901		$	605		$	200		$	83	$	5,001
Provision for loan losses	(692		)	955			387			(25		)	200		825
Loans charged-off	(512		)	(194		)	(207		)	(44		)	—		(956		)
Recoveries	14			—			37			12			—		62
Total ending allowance balance	$	2,022		$	1,662		$	822		$	143		$	283	$	4,932

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The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of September 30, 2012 and December 31, 2011. As of September 30, 2012 and December 31, 2011, accrued interest receivable of $1.5 million and $1.6 million, respectively, are not considered significant and therefore not included in the recorded investment in loans presented in the following tables. Net deferred loan fees of $164,000 and $96,000, respectively, are included in the following tables.

	(Dollars In Thousands)
September 30, 2012	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,253	$	2,427	$	23	$	15	$	—	$	3,718
Collectively evaluated	634		679		628		52		257		2,250
Total ending allowance balance	$	1,887	$	3,106	$	651	$	67	$	257	$	5,968
Loans:
Individually evaluated for impairment	$	3,910	$	8,195	$	591	$	21	$	—	$	12,717
Collectively evaluated	49,050		157,701		79,055		7,241		—		293,047
Total ending loans balance	$	52,960	$	165,896	$	79,646	$	7,262	$	—	$	305,764

	(Dollars In Thousands)
December 31, 2011	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,738	$	973	$	310	$	6	$	—	$	3,027
Collectively evaluated	929		1,013		548		75		273		2,838
Total ending allowance balance	$	2,667	$	1,986	$	858	$	81	$	273	$	5,865
Loans:
Individually evaluated for impairment	$	4,186	$	3,624	$	971	$	6	$	—	$	8,787
Collectively evaluated	54,667		140,396		82,515		7,987		—		285,565
Total ending loans balance	$	58,853	$	144,020	$	83,486	$	7,993	$	—	$	294,352

The following table presents information related to impaired loans by class of loans as of September 30, 2012 and for the year ended December 31, 2011. In this table presentation the unpaid principal balance of the loans has been reduced by net charge-offs and is equivalent to the recorded investment.

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	(Dollars in Thousands) September 30, 2012				(Dollars in Thousands) December 31, 2011
	Unpaid Principal Balance		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Allowance for Loan Losses Allocated

Commercial	$	2,345	$	—	$	2,020	$	—
Commercial real estate:
Construction	—		—		—		—
Other	619		—		999		—
Residential real estate	437		—		374		—
Consumer:
Auto	4		—		—		—
Other	2		—		—		—
Subtotal	3,407		—		3,393		—
With an allowance recorded:
Commercial	1,565		1,253		2,166		1,738
Commercial real estate:
Construction	—		—		—		—
Other	7,576		2,427		2,625		973
Residential real estate	154		23		597		310
Consumer:
Auto	15		15		5		5
Other	—		—		1		1
Subtotal	9,310		3,718		5,394		3,027
Total	$	12,717	$	3,718	$	8,787	$	3,027

Information on impaired loans for the three months ending September 30, 2012 and 2011 is as follows:

	(Dollars in Thousands) September 30, 2012						(Dollars in Thousands) September 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

Commercial	$	4,039	58		34		$	2,813	126		—
Commercial real estate:
Construction	—		—		—		—		—		—
Other	7,759		128		70		3,470		33		—
Residential real estate	636		9		3		1,038		13		—
Consumer:
Auto	19		—		—		7				—
Other	2		—		—		3		—		—
Total	$	12,455	$	195	$	107	$	7,331	$	172	$	—

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Information on impaired loans for the nine months ending September 30, 2012 and 2011 is as follows:

	(Dollars in Thousands) September 30, 2012						(Dollars in Thousands) September 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

Commercial	$	4,048	$	111	$	42	$	4,616	$	253	$	—
Commercial real estate:
Construction	—		—		—		95		—		—
Other	5,910		330		250		3,477		147		—
Residential real estate	781		23		8		647		43		—
Consumer:
Auto	12		1		—		8		1		—
Other	1		—		—		2		—		—
Total	$	10,752	$	465	$	300	$	8,845	$	444	$	—

The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2012 and December 31, 2011 are summarized below:

	(Dollars in Thousands) As of September 30, 2012				(Dollars in Thousands) As of December 31, 2011
	Loans Past Due Over 90 Days and Still Accruing		Nonaccrual		Loans Past Due Over 90 Days and Still Accruing		Nonaccrual

Commercial	$	—	$	1,330	$	—	$	1,553
Commercial real estate:
Construction	—		—		—		—
Other	60		5,357		—		1,735
Residential real estate	—		591		—		970
Consumer:
Auto	—		19		—		5
Other	—		2		—		1
Total	$	60	$	7,299	$	—	$	4,264

Nonaccrual loans and loans past due 90 days still on accrual include individually classified impaired loans.

The following tables present the aging of the recorded investment in past due loans as of September 30, 2012 and December 31, 2011 by class of loans. Non-accrual loans are included and have been categorized based on their payment status:

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	(Dollars In Thousands)
September 30, 2012	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
Commercial	$	23	$	11	$	48	$	82	$	52,878	$	52,960
Commercial real estate:
Construction	—		—		—		—		11,775		11,775
Other	1,861		94		669		2,624		151,497		154,121
Residential real estate	124		9		220		353		79,293		79,646
Consumer:
Auto	3		18		4		25		3,410		3,435
Other	—		—		2		2		3,825		3,827
Total	$	2,011	$	132	$	943	$	3,086	$	302,678	$	305,764

	(Dollars In Thousands)
December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
Commercial	$	640	$	100	$	—	$	740	$	58,113	$	58,853
Commercial real estate:
Construction	—		—		—		—		13,720		13,720
Other	102		—		559		661		129,639		130,300
Residential real estate	278		310		515		1,103		82,383		83,486
Consumer:
Auto	26		—		—		26		3,972		3,998
Other	—		—		—		—		3,995		3,995
Total	$	1,046	$	410	$	1,074	$	2,530	$	291,822	$	294,352

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $6.6 million and $2.9 million as of September 30, 2012 and December 31, 2011, respectively. The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. Troubled debt restructurings are included in impaired loans.

During the quarter ending September 30, 2012, one additional loan totaling $952,000 was modified as a troubled debt restructuring. The modification of the terms of this commercial real estate loan included reducing the interest rate, granting an interest only payment period, and extending the amortization term.

The following table presents loans by class modified as troubled debt restructurings outstanding as of September 30, 2012:

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		(Dollars in thousands)
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial	6	$	2,992	$	2,948
Commercial real estate:
Other	4	4,148		3,632
Total	10	$	7,327	$	6,580

The following table presents loans by class modified as troubled debt restructurings outstanding as of December 31, 2011:

		(Dollars in thousands)
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial real estate:
Other	4	$	3,173	$	2,844
Consumer:
Other	1	32		32
Total	5	$	3,206	$	2,877

The following table presents loans by class modified as troubled debt restructurings that occurred during the quarter ending September 30, 2012:

		(Dollars in thousands)
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial real estate:
Other	1	952		952
Total	1	$	952	$	952

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ending September 30, 2012:

		(Dollars in thousands)
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial	5	$	3,147	$	3,147
Commercial real estate:
Other	2	974		977
Total	7	$	4,121	$	4,124

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Specific allocations of $1.9 million and $925,000 were reported for troubled debt restructurings as of September 30, 2012 and December 31, 2011. No payment defaults were reported for troubled debt restructurings during the quarter ending September 30, 2012. One previously reported troubled debt restructuring with a balance of $121,000 was charged off during the quarter ending September 30, 2012.

The terms of certain other loans were modified during the nine months ending September 30, 2012 that did not meet the definition of a troubled debt restructuring. These loans modified during the nine months ending September 30, 2012 have a total recorded investment of $5.6 million as of September 30, 2012. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as, current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes commercial and commercial real estate loans with an outstanding balance greater than $25,000 and is reviewed on a monthly basis. For residential real estate and consumer loans the analysis primarily involves monitoring the past due status of these loans and at such time that these loans are past due, the Company evaluates the loans to determine if a change in risk category is warranted. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans. All loans in all loan categories are assigned risk ratings. Based on the most recent analyses performed, the risk category of loans by class of loans is as follows:

September 30, 2012	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	45,447	$	417	$	7,082	14		$	52,960
Commercial real estate:
Construction	11,775		—		—		—		11,775
Other	141,777		—		11,602		742		154,121
Residential real estate	78,589		—		1,043		14		79,646
Consumer
Auto	3,431		—		4		—		3,435
Other	3,825		—		2		—		3,827
Total	$	284,844	$	417	$	19,733	$	770	$	305,764

December 31, 2011	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	54,021	$	50	$	4,699	$	83	$	58,853
Commercial real estate:
Construction	13,720		—		—		—		13,720
Other	117,798		2,849		8,955		698		130,300
Residential real estate	82,248		—		975		263		83,486
Consumer:
Auto	3,993		—		—		5		3,998
Other	3,994		—		1		—		3,995
Total	$	275,774	$	2,899	$	14,630	$	1,049	$	294,352

Note 5 - Fair Value Measurements

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that are supported by little or no market activity, reflect a company’s own assumptions about market participant

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assumptions of fair value, and are significant to the fair value of the assets or liabilities.

In determining the appropriate levels, the Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment Securities: The fair value of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1 inputs) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (level 2 inputs). The Company does not have any Level 1 securities. Level 2 securities include certain U.S. agency bonds, collateralized mortgage and debt obligations, and certain municipal securities.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned: Commercial and residential real estate properties classified as other real estate owned (OREO) are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for collateral-dependent impaired loans and real estate properties classified as other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by Bank management. The appraisal values for collateral-dependent impaired loans are discounted to allow for selling expenses and fees, the limited use nature of various properties, the age of the most recent appraisal, and additional discretionary discounts for location, condition, etc. The Bank annually obtains an updated current appraisal value for each OREO property to certify that the fair value has not declined. For each parcel of OREO that has declined in value, the Bank records the decline in value by a direct writedown of the asset. In addition, the value for an OREO property held for over one year will be written down by 10% per year.

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Assets measured on a recurring basis:

	Fair Value Measurements at September 30, 2012 (Dollars in Thousands)
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		$	7,546
State and municipal		20,120
Agency mortgage-backed securities -residential		19,060
Trust preferred security		1,100
Total investment securities	—	$	47,826	—

	Fair Value Measurements at December 31, 2011 (Dollars in Thousands)
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		$	11,569
State and municipal		19,514
Agency mortgage-backed securities -residential		18,635
Trust preferred security		1,000
Total investment securities	—	$	50,718	—

Assets measured on a non-recurring basis:

	Fair Value Measurements at September 30, 2012 (Dollars in Thousands)
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial			$	312
Commercial RE			$	5,149
Residential			$	131

Other real estate owned:
Residential			$	200
Commercial			$	59

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	Fair Value Measurements at December 31, 2011 (Dollars in Thousands)
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial			$	427
Commercial RE			$	1,652
Residential			$	287

Other real estate owned:
Commercial RE			$	493
Residential			$	144

Impaired loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $9.3 million at September 30, 2012 with a valuation allowance of $3.7 million. Impaired loans had a principal balance of $5.4 million at December 31, 2011, with a valuation allowance of $3.0 million. An increase in the provision for loan losses of $1.2 million and a reduction of $208,000 were recognized for the nine months ended September 30, 2012 and September 30, 2011, respectively, as a result of net changes in fair values on collateral dependent loans and other factors affecting the provision for loan losses.

Other real estate owned, which is measured at fair value less costs to sell, had a net carrying value of $259,000 at September 30, 2012 and $637,000 at December 31, 2011. Total writedowns of other real estate owned year to date September 30, 2012 and 2011, were $40,000 and $128,000 respectively.

The following table presents quantitative and qualitative information about Level 3 fair value measurements for financial instruments measured on a non-recurring basis at September 30, 2012.

	September 30,2012		Valuation Techniques	Unobservable Inputs (Dollars in thousands)	Range (Weighted Avg)
Impaired loans:
Commercial	$	312	Market Approach	Discounts to allow for market value of assets	0%-50% (49.67%)

Commercial RE	5,149		Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	20%-38.97% (32.15%)

Residential	131		Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	0%-15% (15%)

Other real estate owned:
Residential	199		Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	6%-15% (9.16%)

Commercial	59		Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	0%-10% (10%)

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Carrying amount and estimated fair values of financial instruments, not previously presented, were as follows:

			Fair Value Measurements at September 30, 2012
	Carrying Amount		Level 1		Level 2	Level 3	Total
Financial Assets
Cash and cash equivalents	$	14,222	$	14,222			$	14,222
Loans held for sale	—				—		—
Loans, net of allowance	294,204					296,669	296,669
Accrued interest receivable	1,807				275	1,532	1,807
Federal Home Loan Bank stock	2,025						N/A

Financial Liabilities
Demand Deposits	$	139,575	$	139,532			$	139,532
Time Deposits	176,211				176,839		176,839
FHLB advances	30,000				30,434		30,434
Subordinate debentures	5,000					2,321	2,321
Accrued interest payable	240		8		232		240

	December 31, 2011
	Carrying Amount		Fair Value
Financial Assets
Cash and cash equivalents	$	30,549	$	30,549
Loans held for sale	180		183
Loans, net of allowance	286,122		295,019
Accrued interest receivable	1,858		1,858
Federal Home Loan Bank stock	2,025		N/A

Financial Liabilities
Deposits	$	332,731	$	333,891
FHLB advances	25,000		25,383
Subordinate debentures	5,000		2,321
Accrued interest payable	275		275

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The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life. Loans are reported net of the allowance for loan losses. Fair value of loans held for sale is based on market quotes. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is not considered material. It is not practicable to determine fair value of FHLB stock due to restrictions placed on its transferability.

Note 6 - Earnings Per Share

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 stock if dilutive. The following table reconciles the basic and diluted earnings per share computations for the quarters ending and year-to-date periods September 30, 2012 and 2011.

	Quarter ended September 30, 2012						Quarter ended September 30, 2011
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share:
Net income	$	941					$	770
Less: Dividends and accretion on preferred stock	(225		)				(225		)
Net income (loss) available to common shareholders	$	716		1,968,777	$	0.36	$	545		1,968,777	$	0.27

Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			99,112			—			64,470

Diluted earnings per share

Net income(loss) available to common shareholders and assumed conversions	$	716		2,067,889	$	0.35	$	545		2,033,247	$	0.26

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	Nine months ended September 30, 2012						Nine months ended September 30, 2011
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share
Net income	$	2,476					$	2,214
Less: Dividends and accretion on preferred stock	(672		)				(733		)
Net income/(loss) available to common shareholders	$	1,804		1,968,777	$	0.92	$	1,481		1,968,777	$	0.75

Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			88,159			—			81,176
Diluted earnings per share

Net income/(loss) available to common shareholders and assumed conversions	$	1,804		2,056,936	$	0.88	$	1,481		2,049,953	$	0.72

Stock options for 86,961 and 89,088 shares of common stock were not considered in computing diluted earnings per common share for September 30, 2012 and 2011, respectively, because they are anti-dilutive. Convertible preferred shares are not included because they are anti-dilutive as of September 30, 2012 and 2011. Common stock warrants totaled 254,218 as of September 30, 2012 and 2011.

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

Management’s discussion and analysis of Citizens First Corporation (the “Company”) is included to provide the shareholders with an expanded narrative of our results of operations, changes in financial condition, liquidity and capital adequacy. This narrative should be reviewed in conjunction with our consolidated financial statements and notes thereto included in our 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Forward-Looking Statements

We 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. Our actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors. Among the risks and uncertainties that could cause actual results to differ materially are economic conditions generally and in our market areas, a continuation or worsening of the current disruption in credit and other markets, goodwill impairment, overall loan demand, increased competition in the financial services industry which could negatively impact our ability to increase total earning assets, and retention of key personnel. Actions by the Department of the Treasury and federal and state bank regulators in response to changing economic conditions, changes in interest rates, loan prepayments by and the financial health of our borrowers, and other factors described in the reports filed by us with the Securities and Exchange Commission could also impact current expectations.

Results of Operations

For the quarter ended September 30, 2012, we reported net income of $941,000 compared to net income of $770,000 in the third quarter of 2011, an increase of $171,000. Net income available to common shareholders was $716,000 or, $0.35 per diluted common share this quarter, compared to net income available to common shareholders of $545,000 or, $0.26 per diluted common share for the third quarter of 2011. Net income increased due to an improved net interest margin.

For the nine months ended September 30, 2012, the Company reported net income of $2.5 million, or $.88 per diluted common share. This represents an increase of $262,000, or $0.16 per share, from the net income of $2.2 million in the previous year. The increase in net income is primarily attributable to an increase in net interest income of $1.5 million, partially offset by an increase in non-interest expense of $818,000.

Our annualized return on average assets was .82% for nine months ended September 30, 2012, compared to .82% in the previous year. Our annualized return on average

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equity was 8.26% for the nine months ending September 30, 2012, compared to 7.83% for the nine months ending September 30, 2011.

Net Interest Income

Net interest income, our 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.

For the quarter ended September 30, 2012, net interest income was $3.9 million, an increase of $553,000, or 16.7%, from net interest income of $3.3 million for the comparable period in 2011. Net interest income increased as a result of lower interest expense on deposits and borrowings of $185,000, combined with an increase in interest income of $368,000. The increase in interest income was fueled by the growth in average loans for the third quarter of 2012 compared to the third quarter of 2011. For the nine months ended September 30, 2012, net interest income was $11.2 million, an increase of $1.5 million, or 15.1%, from net interest income of $9.8 million for the comparable period in 2011.

The net interest margin for the three months ended September 30, 2012 was 4.31%, compared to 4.11% in 2011. This increase of 20 basis points is attributable to both an increase in loan income for the quarter combined with a reduction in interest expense on deposits. Our yield on earning assets (tax equivalent) for the current quarter was 5.21%, a decrease of 13 basis points from 5.34% in the same period a year ago. The net interest margin for the nine months ended September 30, 2012 was 4.18%, an increase of 11 basis points from 4.07% in the previous year.

The following table sets forth for the quarter and nine months ended September 30, 2012 and 2011, 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.

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Average Consolidated Balance Sheets and Net Interest Analysis (Dollars in thousands)

Quarter ended September 30,

	2012						2011
	Average Balance		Income/ Expense		Average Rate		Average Balance		Income/ Expense		Average Rate
Earning assets:
Federal funds sold	$	16,788	$	11	0.26	%	$	13,221	$	9	0.28	%
Available-for-sale securities (1)
Taxable	28,944		100		1.37	%	24,284		142		2.32	%
Nontaxable (1)	18,116		249		5.47	%	18,729		274		5.81	%
Federal Home Loan Bank stock	2,025		21		4.13	%	2,025		20		3.96	%
Loans receivable (2)	297,863		4,384		5.86	%	269,001		3,959		5.84	%
Total interest earning assets	363,736		4,765		5.21	%	327,260		4,405		5.34	%
Non-interest earning assets	33,921						31,217
Total Assets	$	397,657					$	358,477

Interest-bearing liabilities:
Interest-bearing transaction accounts	$	69,538	$	42	0.24	%	$	74,364	$	82	0.44	%
Savings accounts	38,892		35		0.36	%	11,742		7		0.24	%
Time deposits	173,685		608		1.39	%	175,114		817		1.85	%
Total interest-bearing deposits	282,115		685		0.97	%	261,220		906		1.38	%
Borrowings	28,060		114		1.62	%	15,000		80		2.03	%
Subordinated debentures	5,000		27		2.12	%	5,000		25		1.96	%
Total interest-bearing liabilities	315,175		826		1.04	%	281,759		1,011		1.42	%
Non-interest bearing deposits	39,713						36,424
Other liabilities	1,993						1,954
Total liabilities	356,881						320,138
Stockholders’ equity	40,776						38,339
Total Liabilities and Stockholders’ Equity	$	397,657					$	358,447
Net interest income			$	3,939					$	3,395

Net interest spread (1)					4.17	%					3.92	%
Net interest margin (1) (3)					4.31	%					4.11	%
Return on average assets ratio					0.94	%					0.85	%
Return on average equity ratio					9.18	%					7.97	%
Average equity to assets ratio					10.25	%					10.52	%

(1) Income and yield stated at a tax equivalent basis for nontaxable securities using the marginal corporate Federal tax rate of 34.0%

(2) Average loans include nonperforming loans. Interest income includes interest and fees on loans, but does not include interest on loans on non-accrual.

(3) Net interest income as a percentage of average interest-earning assets.

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Average Consolidated Balance Sheets and Net Interest Analysis (Dollars in thousands)

Nine months ended September 30,

	2012						2011
	Average Balance		Income/ Expense		Average Rate		Average Balance		Income/ Expense		Average Rate
Earning assets:
Federal funds sold	$	15,831	$	32	0.27	%	$	15,347	$	32	0.28	%
Available-for-sale securities (1)
Taxable	30,555		414		1.81	%	23,624		452		2.56	%
Nontaxable (1)	17,815		739		5.54	%	18,603		819		5.89	%
Federal Home Loan Bank stock	2,025		66		4.35	%	2,025		66		4.33	%
Loans, net (2)	300,300		12,863		5.72	%	269,254		11,857		5.89	%
Total interest earning assets	360,558		14,114		5.14	%	328,853		13,226		5.37	%
Non-interest earning assets	36,091						30,648
Total Assets	$	402,617					$	359,501

Interest-bearing liabilities:
Interest-bearing transaction accounts	$	74,473	$	134	0.24	%	$	51,071	$	146	0.38	%
Savings accounts	39,341		107		0.36	%	30,190		146		0.65	%
Time deposits	175,027		2,005		1.53	%	179,307		2,596		1.94	%
Total interest-bearing deposits	288,841		2,246		1.04	%	260,568		2,888		1.48	%
Borrowings	27,078		314		1.55	%	15,677		238		2.02	%
Subordinated debentures	5,000		81		2.16	%	5,000		73		1.96	%
Total interest-bearing liabilities	320,919		2,641		1.10	%	281,245		3,199		1.52	%
Non-interest bearing deposits	39,483						38,485
Other liabilities	2,156						1,966
Total liabilities	362,558						321,696
Stockholders’ equity	40,059						37,805
Total Liabilities and Stockholders’ Equity	$	402,617					$	359,501
Net interest income			$	11,473					$	10,028

Net interest spread (1)					4.04	%					3.85	%
Net interest margin (1) (3)					4.18	%					4.07	%
Return on average assets ratio					0.82	%					0.82	%
Return on average equity ratio					8.26	%					7.83	%
Average equity to assets ratio					9.95	%					10.52	%

(1) Income and yield stated at a tax equivalent basis for nontaxable securities using the marginal corporate Federal tax rate of 34.0%

(2) Average loans include nonperforming loans. Interest income includes interest and fees on loans, but does not include interest on loans on non-accrual.

(3) Net interest income as a percentage of average interest-earning assets.

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income for the nine months ended September 30, 2012 and 2011. 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.

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	(Dollars in Thousands)
	Nine Months Ended September 30,
	2012 Vs. 2011
	Increase (Decrease) Due to
	Rate			Volume			Net
Interest-earning assets:
Federal funds sold	$	(1	)	$	1		$	—
Available-for-sale securities:
Taxable	(171		)	133			(38		)
Nontaxable (1)	(45		)	(35		)	(80		)
FHLB stock	—			—			—
Loans, net	(361		)	1,367			1,006
Total net change in income on interest-earning assets	(578		)	1,466			888

Interest-bearing liabilities:
Interest-bearing transaction accounts	(79		)	67			(12		)
Savings accounts	(83		)	44			(39		)
Time deposits	(529		)	(62		)	(591		)
FHLB and other borrowings	(95		)	172			77
Subordinated debentures	8			—			8
Total net change in expense on interest-bearing liabilities	(778		)	221			(557		)
Net change in net interest income	$	200		$	1,245		$	1,445
Percentage change	13.84		%	86.16		%	100.0		%

(1) Income stated at a fully tax equivalent basis using the marginal corporate Federal tax rate of 34.0%.

Provision for Loan Losses

The provision for loan losses for the third quarter of 2012 was $300,000 or 0.10% of average loans, compared to $300,000, or 0.11% of average loans for the third quarter of 2011. For the nine months ended September 30, 2012 and 2011, the provision for loan losses was $1.1 million and $825,000, respectively. We had net charge-offs totaling $231,000 during the third quarter of 2012, compared to $583,000 during the third quarter of 2011. The provision for loan losses adequately supports the loans that were previously not provided for, loans that required adjustment in the amount provided for due to current conditions, or newly identified impaired loans that required specific allocations.

Non-Interest Income

Non-interest income for the three months ended September 30, 2012 decreased $7,000, or 0.9%, compared to the three months ended September 30, 2011, primarily due to a decrease in security gains of $13,000 from the prior year.

Non-interest income for the nine months ended September 30, 2012 and 2011, respectively, was $2.2 million. Other service charges and fees increased $49,000 while security gains decreased $19,000.

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Non-Interest Expense

Non-interest expense for the three months ended September 30, 2012 increased $272,000, or 10.0%, compared to the three months ended September 30, 2011, primarily due to an increase in personnel expenses totaling $166,000 and other expenses totaling $20,000.

Non-interest expense was $9.0 million for the nine months ended September 30, 2012, an increase of $818,000, or 10.0%, from $8.1 million in the same period of 2011. Salaries and benefit expenses increased $483,000, while data processing expenses increased $144,000.

Income Taxes

Income tax expense was calculated using our expected effective rate for 2012 and 2011. We have recognized deferred tax liabilities and assets to show the tax effects of differences between the financial statement and tax bases of assets and liabilities. Our statutory federal tax rate was 34.0% in both 2012 and 2011. The effective tax rate for the quarter was 28.0%, compared to 25.5% for 2011. The effective tax rate year-to-date was 26.6%, compared to 25.1% for 2011. The difference between the statutory and effective rates are impacted by such factors as income from tax-exempt loans, tax-exempt income on state and municipal securities, and income on bank owned life insurance.

Balance Sheet Review

Overview

Total assets at September 30, 2012 were $394.3 million, a decrease of $9.5 million, or 2.4%, from December 31, 2011. Loans increased $11.3 million, or 3.8%, from $294.4 million at December 31, 2011 to $305.7 million at September 30, 2012. Deposits at September 30, 2012 were $315.8 million, a decrease of $16.9 million, or 5.1%, compared to $332.7 million at December 31, 2011.

Loans

Loans increased from $294.4 million at December 31, 2011 to $305.7 million at September 30, 2012. Total loans averaged $297.9 million for the quarter ending September 30, 2012, compared to $269.0 million for the quarter ended September 30, 2011, an increase of $28.9 million, or 10.7%. We experienced an increase in commercial real estate during the first nine months of the year compared to the same period in 2011. The following table presents a summary of the loan portfolio by category:

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	(Dollars in Thousands)
	September 30, 2012				December 31, 2011
			% of Total Loans				% of Total Loans
Commercial and agricultural	$	52,960	17.32	%	$	58,853	19.99	%
Commercial real estate	165,896		54.26	%	144,020		48.93	%
Residential real estate	79,646		26.05	%	83,486		28.36	%
Consumer	7,262		2.37	%	7,993		2.72	%
	$	305,764	100.00	%	$	294,352	100.00	%

Substantially all of our loans are to customers located in Warren, Simpson, Hart and Barren counties in Kentucky. As of September 30, 2012, our twenty largest credit relationships consisted of loans and loan commitments ranging from $2.9 million to $11.5 million. The aggregate amount of these credit relationships was $82.3 million.

Our lending activities are subject to a variety of lending limits imposed by state and federal law. Citizens First Bank’s secured legal lending limit to a single borrower was approximately $12.5 million at September 30, 2012.

As of September 30, 2012, we had $27 million of participations in loans purchased from, and $12.7 million of participations in loans sold to, other banks.

The following table sets forth the maturity distribution of the loan portfolio as of September 30, 2012. Maturities are based on contractual terms. Our policy is to specifically review and approve all loans renewed; loans are not automatically rolled over.

	(Dollars in Thousands)
Loan Maturities as of September 30, 2012	Within One Year		After One but Within Five Years		After Five Years		Total
Commercial and agricultural	$	25,412	$	24,789	$	2,759	$	52,960
Commercial real estate	34,134		83,345		48,417		165,896
Residential real estate	7,328		26,733		45,585		79,646
Consumer	1,709		5,417		136		7,262
Total	$	68,583	$	140,284	$	96,897	$	305,764

Credit Quality and the Allowance for Loan Losses

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.

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The allowance for loan losses is established through a provision for loan losses charged to expense. The allowance totaled $6.0 million at September 30, 2012 and $5.9 million at December 31, 2011, an increase from $4.9 million at September 30, 2011.

The following table sets forth an analysis of our allowance for loan losses for the nine months ended September 30, 2012 and 2011.

	(Dollars in Thousands)
	September 30,
	2012			2011
Balance at beginning of period	$	5,865		$	5,001
Provision for loan losses	1,120			825
Amounts charged off:
Commercial	490			512
Commercial real estate	100			194
Residential real estate	445			207
Consumer	14			44
Total loans charged off	1,049			957
Recoveries of amounts previously charged off:
Commercial	5			14
Commercial real estate	1			—
Residential real estate	19			37
Consumer	7			12
Total recoveries	32			63
Net charge-offs	1,017			894
Balance at end of period	$	5,968		$	4,932
Total loans, net of unearned income:
YTD Average	$	300,300		$	269,254
At September 30	$	305,764		$	280,385
As a percentage of YTD average loans:
Net charge-offs, annualized	0.45		%	0.44		%
Provision for loan losses, annualized	0.50		%	0.41		%

The following table sets forth selected asset quality measurements and ratios for the periods indicated:

	(Dollars in Thousands)
	September 30, 2012			December 31, 2011
Non-performing loans	$	7,359		$	4,264
Non-performing assets	7,617			4,901
Allowance for loan losses	5,968			5,865
Non-performing assets to total assets	1.93		%	1.21		%
Net charge-offs YTD to average YTD total loans, annualized	0.45		%	0.42		%
Allowance for loan losses to non-performing loans	81.10		%	137.54		%
Allowance for loan losses to total loans	1.95		%	1.99		%

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 non-

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performing loans at September 30, 2012 consisted of $7.3 million of non-accrual loans and less than $60,000 of loans past due 90 days or more. Of the non-accrual loans, $1.6 million are loans secured by real estate in the process of collection, $4.3 million are loans secured by real estate not in foreclosure, $48,000 are commercial loans in the process of collection, $1.3 million are commercial loans not in foreclosure, and $21,000 are consumer loans in the process of collection. Non-performing assets also includes other real estate owned of two residential properties and a one tract of farm acreage totaling $258,000 as of September 30, 2012.

The non-performing loan total at December 31, 2011 consisted of 32 non-accrual loans totaling $4.3 million and five loans over 90 days past due balances less than $1,000. Loans over 90 days past due which are still accruing either have adequate collateral or a definite repayment plan in place. Non-performing assets also includes other real estate owned of two commercial properties totaling $493,000 and one residential property and one building lot totaling $144,000.

Management classifies commercial and commercial real estate loans as non-accrual when principal or interest is past due 90 days or more and the loan is not adequately collateralized, or earlier when, in the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the obligation. We charge off consumer loans after 120 days of delinquency unless they are 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.

Troubled debt restructurings (TDRs) are modified loans in which a concession is provided to a borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concession provided is not available to the borrower through either normal channels or other sources. However, not all loan modifications are TDRs. Our standards relating to loan modifications consider, among other factors, minimum verified income requirements, cash flow analysis, and collateral valuations. However, each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower’s specific circumstances at a point in time.TDRs can be classified as either accrual or nonaccrual loans. Non-accrual TDRs are included in non-accrual loans whereas accruing TDRs are excluded because the borrower remains contractually current.

Loans that exhibit probable or observed credit weaknesses are subject to individual review. Where appropriate, allocations for individual loans are included in the allowance calculation 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 us. Included in the review of individual loans are those that are impaired as provided in ASC Topic 310 “Receivables”. We evaluate the collectability of both principal and interest when assessing the need for a loss accrual. Historical loss rates are applied to other loans not subject to individual 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

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administration, changes in internal lending policies and credit standards, and examination results from bank regulatory agencies and our internal credit examiners. We maintain a modest unallocated amount in the allowance to recognize the imprecision in estimating and measuring losses when evaluating allocations for individual loans or pools of loans. Allocations on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for all loan classes by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

The Company reported total impaired loans of $12.7 million and $8.8 million as of September 30, 2012 and December 31, 2011, respectively. The increase in impaired loans during the period is primarily attributed to one commercial real estate loan totaling $952,000 that is now measured for impairment as of September 30, 2012.

Summary of Allowance for Loan Losses

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.

	(Dollars in Thousands)
	September 30, 2012				December 31, 2011
	Amount		% of Loans in Each Category to Total Loans		Amount		% of Loans in Each Category to Total Loans
Commercial and agricultural	$	1,887	17.32	%	$	2,667	19.99	%
Commercial real estate	3,106		54.26	%	1,986		48.93	%
Residential real estate loans	651		26.05	%	858		28.36	%
Consumer and other loans	67		2.37	%	81		2.72	%
Unallocated	257		0.00	%	273		0.00	%
Total allowance for loan losses	$	5,968	100.00	%	$	5,865	100.00	%

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We believe that the allowance for loan losses of $6.0 million at September 30, 2012 is adequate to absorb probable incurred credit losses in the loan portfolio as of that date. That determination is based on the best information available to management, but necessarily involves uncertainties and matters of judgment and, therefore, cannot be determined with precision and could be susceptible to significant change in the future. In addition, bank regulatory authorities, as a part of their periodic examinations, may reach different conclusions about the quality of our loan portfolio and the level of the allowance, which could require us to make additional provisions in the future. We have an unallocated amount within our allowance for loan losses that fluctuates from period to period due to the trends in the loan portfolio. The change in this amount from year end is consistent with the re-evaluation of collateral values on existing collateral dependent loans and specific allocations made for newly identified problem loans.

Securities

The investment securities portfolio is comprised of U.S. Government agency and government sponsored entity securities, agency mortgage-backed securities, tax-exempt securities of states and political subdivisions, and a trust preferred security. The purchase of nontaxable obligations of states and political subdivisions is a part of managing our effective tax rate. Securities are all classified as available-for-sale, and averaged $48.4 million for the first nine months of 2012, compared to $42.2 million for 2011. The table below presents the carrying value of securities by major category.

	(Dollars in Thousands)
	September 30, 2012		December 31, 2011
U.S. Government agencies and government sponsored entities	$	7,546	$	11,569
Municipal securities	20,120		19,514
Agency mortgage-backed securities: residential	19,060		18,635
Trust preferred security	1,100		1,000
Total available-for-sale securities	$	47,826	$	50,718

The table below presents the maturities and yield characteristics of securities as of September 30, 2012. 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.

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September 30, 2012

	(Dollars in Thousands)
	One Year or Less			Over One Year Through Five Years			Over Five Years Through Ten Years			Over Ten Years			Total Maturities			Fair Value
U.S. Government agencies and government sponsored entities	$	—		$	5,518		$	2,015		$	—		$	7,533		$	7,546
Agency mortgage-backed securities: (1)	—			18,521			—			—			18,521			19,060
Municipal securities	250			2,570			9,088			6,824			18,732			20,120
Trust preferred security	—			—			—			1,866			1,866			1,100
Total available-for-sale securities	$	250		$	26,609		$	11,103		$	8,690		$	46,652		$	47,826

Percent of total	.5		%	57.1		%	23.8		%	18.6		%	100.0		%
Weighted average yield(2)	5.43		%	2.31		%	4.07		%	4.70		%	3.19		%

(1) Agency mortgage-backed securities (residential) are grouped into average lives based on September 2012 prepayment projections.

(2) The weighted average yields are based on amortized cost and municipal securities are calculated on a full tax- equivalent basis.

Other securities consist of one single issue trust preferred security which has experienced a decline in fair value due to inactivity in the market. No impairment charge is being taken as no loss of principal is anticipated and all principal and interest payments are being received as scheduled. All rated securities are investment grade. For those that are not rated, the financial condition has been evaluated and no adverse conditions were identified related to repayment. Declines in fair value are a function of rate changes in the market and market illiquidity. We do not intend to sell these securities and do not believe we will be required to sell these securities.

Deposits

Our primary funding source for lending and investment activities results from customer and brokered deposits. As of September 30, 2012, total deposits were $315.8 million, compared to total deposits of $332.7 million at December 31, 2011, a decrease of $16.9 million, or 5.1%. Total deposits averaged $321.8 million for the quarter ending September 30, 2012, compared to $321.8 million for the quarter ending June 30, 2012, a decrease of $10.0 million, or 3.0%,

We utilize brokered certificates of deposit and will continue to utilize these sources for deposits when they can be cost-effective. At September 30, 2012 and December 31, 2011, these brokered deposits totaled $1.7 million and $6.1 million, respectively. At September 30, 2012 and December 31, 2011, these brokered deposits constituted approximately 0.5% and 1.8% of our total deposits, respectively.

Time deposits of $100,000 or more totaled $67.9 million at September 30, 2012 compared to $59.4 million at December 31, 2011. Interest expense on time deposits of $100,000 or more was $811,000 for the first nine months of 2012, compared to $1.2 million for the first nine months of 2011. Our cost has decreased as these certificates of deposit matured and were renewed at lower current market rates. The following table shows the maturities of time deposits greater than $100,000 as of September 30, 2012.

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	(Dollars in Thousands)
	September 30, 2012
Three months or less	$	13,387
Over three through six months	10,402
Over six through twelve months	16,621
Over one year through three years	23,422
Over three years through five years	450
Over five years	3,658
Total	$	67,940

Borrowings

FHLB Advances. We obtain advances from the Federal Home Bank of Cincinnati (FHLB) for funding and liability management. These advances are collateralized by a blanket agreement of eligible 1-4 family residential mortgage loans and eligible commercial real estate. Rates vary based on the term to repayment, and are summarized below as of September 30, 2012:

				(Dollars in Thousands)
Type	Maturity	Rate		Amount
Fixed	December 10, 2012	0.85	%	2,000
Fixed	December 24, 2012	3.36	%	2,000
Fixed	October 15, 2013	0.81	%	2,500
Fixed	October 28, 2013	0.35	%	3,500
Fixed	December 10, 2014	1.73	%	2,000
Fixed	December 24, 2014	3.46	%	2,000
Fixed	February 25, 2015	2.85	%	2,000
Fixed	May 22, 2015	0.73	%	3,000
Fixed	December 2, 2015	1.14	%	5,000
Fixed	May 25, 2016	0.99	%	3,000
Fixed	May 24, 2019	1.72	%	3,000
				$	30,000

At September 30, 2012, we had available collateral to borrow an additional $9.5 million from the FHLB.

Other Borrowings.

At September 30, 2012, we had established Federal Funds lines of credit totaling $18.8 million with three correspondent banks. No amounts were drawn as of September 30, 2012.

We issued $5.0 million in subordinated debentures in October, 2006. These trust preferred securities bear an interest rate, which reprices each calendar quarter, of 165

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basis points over 3-month LIBOR (London Inter Bank Offering Rate). The rate as of September 30, 2012 was 2.11%. The subordinated debentures may be included with tier 1 capital (with certain limitations) under current regulatory guidelines.

Liquidity

Our objective for liquidity management is to ensure that we have funds available to meet deposit withdrawals and credit demands without unduly penalizing profitability. In order to maintain a proper level of liquidity, the Bank has several sources of funds available on a daily basis that can be used for liquidity purposes. Those sources of funds include the Bank’s core deposits, cash flow generated by repayment of principal and interest on loans and investment securities; FHLB borrowings; and federal funds purchased and securities sold under agreements to repurchase. While maturities and scheduled amortization of loans and investment securities are generally a predictable source of funds, deposit outflows and mortgage prepayments are influenced significantly by general interest rates, economic conditions, and competition in our local markets.

Our asset and liability management committee meets monthly and monitors the composition of the balance sheet to ensure comprehensive management of interest rate risk and liquidity. We prepare a monthly cash flow report which forecasts funding needs and availability for the coming months, based on forecasts of loan closings and payoffs, potentially callable securities, and other factors.

Capital

At September 30, 2012, total stockholders’ equity was $41.1 million, an increase of $2.2 million, or 5.8%, from $38.9 million on December 31, 2011. The increase is due to the increase in retained earnings and the change in accumulated other comprehensive income. Retained earnings increased due to the increase in our net income reduced by the payment of preferred dividends. No common dividends have been paid during 2012.

We 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 our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under the regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Under quantitative measures established by regulation to ensure capital adequacy, we are required to maintain minimum amounts and ratios of total Tier 1 capital to risk-weighted assets and to total assets. We believe we met all capital adequacy requirements as of September 30, 2012 and December 31, 2011.

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Our capital ratios (calculated in accordance with regulatory guidelines) were as follows:

	September 30, 2012		December 31, 2011
Tier 1 leverage ratio	10.23	%	9.46	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	N/A		N/A
Tier 1 risk-based capital ratio	12.93	%	11.94	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	N/A		N/A
Total risk-based capital ratio	14.18	%	13.19	%
Regulatory minimum	8.00	%	8.00	%
“Well-capitalized” minimum	N/A		N/A

The Bank’s capital ratios (calculated in accordance with regulatory guidelines) were as follows:

	September 30, 2012		December 31, 2011
Tier 1 leverage ratio	10.22	%	9.32	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	5.00	%	5.00	%
Tier 1 risk-based capital ratio	12.83	%	11.79	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	6.00	%	6.00	%
Total risk-based capital ratio	14.09	%	13.05	%
Regulatory minimum	8.00	%	8.00	%
“Well-capitalized” minimum	10.00	%	10.00	%

During the third quarter of 2004, we completed the private placement of 250 shares of Cumulative Convertible Preferred Stock at a stated value of $31,992 per share, for an aggregate purchase price of $7,998,000. The preferred stock is entitled to quarterly cumulative dividends at an annual fixed rate of 6.5% and is convertible into shares of common stock of the Company at a conversion price per share of $14.06.

During the fourth quarter of 2008, 250 shares of Series A preferred stock, at a stated value of $35,116 per share, were issued to the U.S. Treasury in connection with the TARP Capital Purchase Program for a purchase price of $8,779,000. The Series A preferred stock qualifies as Tier 1 capital for regulatory purposes and ranks senior to common stock and pari passu with our cumulative convertible preferred stock. This cumulative preferred stock pays a 5% annual dividend, increasing to 9% after 5 years.

During the first quarter of 2011, the Company repurchased 63 of the 250 shares of the Series A preferred stock that the Company had issued to the Treasury on December 19, 2008 under the TARP Capital Purchase Program. The Company paid $2.2 million to repurchase the preferred shares along with the accrued dividend for the shares repurchased.

With improved capital levels, the Company anticipates that it will be able to continue redeeming its TARP preferred stock this year, subject to regulatory approval. Redemption of the preferred stock will reduce the level of preferred dividends and improve the Company’s earnings per share.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

We use a simulation model as a tool to monitor and evaluate interest rate risk exposure. The model is designed to measure the sensitivity of net interest income and net income to changing interest rates over future time periods. Forecasting net interest income and its sensitivity to changes in interest rates requires us to make assumptions about the volume and characteristics of many attributes, including assumptions relating to the replacement of maturing earning assets and liabilities. Other assumptions include, but are not limited to, projected prepayments, projected new volume, and the predicted relationship between changes in market interest rates and changes in customer account balances. These effects are combined with our estimate of the most likely rate environment to produce a forecast of net interest income and net income. The forecasted results are then adjusted for the effect of a gradual increase and decrease in market interest rates on our net interest income and net income. Because assumptions are inherently uncertain, the model cannot precisely estimate net interest income or net income or the effect of interest rate changes on net interest income and net income. Actual results could differ significantly from simulated results.

At September 30, 2012, the model indicated that if rates were to increase by 200 basis points during the remainder of the calendar year, then net interest income would increase 3.55% over the next twelve months. The model indicated that if rates were to decrease by 200 basis points over the same period, then net interest income would increase 2.50%. The table below notes the projected changes in net interest income as indicated by the model for increases in rates up to 400 basis points and decreases in rates to 200 basis points.

Projections for: Oct 2012 - Sep 2013

Projected Interest Rate Change	Estimated Value	Net Interest Income $ Change From Base	% Change From Base
+400	17,522,984	1,991,074	12.82	%
+300	16,811,171	1,279,261	8.24	%
+200	16,083,973	552,063	3.55	%
Base	15,531,910	0	0.00	%
-200	15,143,044	-388,866	-2.50	%

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Item 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and have concluded that our disclosure controls and procedures were adequate and effective in all material respects to ensure that all material information required to be disclosed in this report has been made known to them in a timely fashion.

There was no change in our internal controls over financial reporting that occurred during the relevant period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, subsequent to the date of the Chief Executive Officer’s and Chief Financial Officer’s evaluation, nor were there any significant deficiencies or material weaknesses in the controls which required corrective action.

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PART II-OTHER INFORMATION

Item 6. Exhibits

EXHIBIT INDEX

2		Branch Purchase and Assumption Agreement between Citizens First Bank, Inc. and Republic Bank and Trust Company dated June 1, 2011 (incorporated by reference to Exhibit 2 of the Registrant’s Form 10Q dated June 30, 2011).

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. 1 of the Registrant’s Form 8-K dated June 5, 2007).

3.3		Articles of Amendment to Amended and Restated Articles of Incorporation of Citizens First Corporation (incorporated by reference to Exhibit 3. 1 of the Registrant’s Form 8-K filed December 23, 2008).

3.4		Amended and Restated Bylaws of Citizens First Corporation (incorporated by reference to Exhibit 3 of the Registrant’s Current Report on Form 8-K/A filed April 27, 2009).

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 Exhibits 3.2 and 3.3).

4.3		Amended and Restated Bylaws of Citizens First Corporation (see Exhibit 3.4).

4.4		Copy of Registrants’ Agreement Pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K dated March 30, 2007 with respect to certain debt instruments (incorporated by reference to Exhibit 4.4 of the Registrant’s Form 10K-SB dated March 31, 2007).

4.5		Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed December 23, 2008).

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

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101

Interactive data files: (i) Consolidated Balance Sheets at September 30, 2012 and December 31, 2011, (ii) the Consolidated Statements of Income for the three and nine months ended September 30, 2012 and September 30, 2011, (iii) the Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2011 and September 30, 2012, (iv) Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2012 and 2011, and (v) Notes to Consolidated Financial Statements.**

*This certification shall not be deemed “filed” for purposes for Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

**Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

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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 13, 2012	/s/M. Todd Kanipe
		M. Todd Kanipe
		President and Chief Executive Officer


	November 13, 2012	/s/ J. Steven Marcum
		J. Steven Marcum
		Executive Vice President and Chief Financial Officer