CITIZENS FIRST CORP - FORM 10-Q

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the Quarterly Period Ended March 31, 2017


☐	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 ☒ No ◻

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 ☒ No ◻

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


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

2,019,052 shares of Common Stock, no par value, were outstanding at May 11, 2017.

Table of Contents

CITIZENS FIRST CORPORATION

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS	3

ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22

ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31

ITEM 4	CONTROLS AND PROCEDURES	32

PART II – OTHER INFORMATION

ITEM 6	EXHIBITS	33

SIGNATURES		34

Table of Contents

Part 1. Financial Information

Item 1. Financial Statements

Citizens First Corporation

Consolidated Balance Sheets


	(In Thousands, Except Share Data)
	March 31,		December 31,
	2017		2016
	Unaudited
Assets
Cash and due from financial institutions	$	6,715	$	8,542
Federal funds sold		—		—
Cash and cash equivalents		6,715		8,542
Interest-bearing deposits in other financial institutions		22,537		11,018
Available-for-sale securities		47,125		53,547
Loans held for sale		221		264
Loans, net of allowance for loan losses of $4,906 and $4,854 at March 31, 2017 and December 31, 2016, respectively		360,656		354,537
Premises and equipment, net		9,310		9,390
Bank owned life insurance (BOLI)		8,394		8,351
Federal Home Loan Bank (FHLB) stock, at cost		2,025		2,025
Accrued interest receivable		1,386		1,622
Deferred income taxes		1,353		1,464
Goodwill and other intangible assets		4,274		4,291
Other assets		458		371
Total Assets	$	464,454	$	455,422
Liabilities
Deposits
Noninterest bearing	$	48,598	$	52,322
Savings, NOW and money market		174,726		173,620
Time		150,072		144,497
Total deposits		373,396		370,439
FHLB advances and other borrowings		41,000		35,000
Subordinated debentures		5,000		5,000
Accrued interest payable		235		220
Other liabilities		1,436		2,399
Total Liabilities		421,067		413,058
Stockholders’ Equity
6.5% cumulative preferred stock, no par value, authorized 250 shares, aggregate liquidation preference of $7,998; issued and outstanding 229 and 237 shares at March 31, 2017 and December 31, 2016, respectively		7,016		7,261
Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 2,019,052 and 2,000,852 shares at March 31, 2017 and December 31, 2016, respectively		26,186		25,920
Retained earnings		10,493		9,706
Accumulated other comprehensive income (loss)		(308)		(523)
Total stockholders’ equity		43,387		42,364
Total liabilities and stockholders’ equity	$	464,454	$	455,422

See Notes to Unaudited Consolidated Financial Statements

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Citizens First Corporation

Unaudited Consolidated Statements of Income


	Three months ended
	(In Thousands, Except Per Share Data)
	March 31, 2017		March 31, 2016
Interest and dividend income
Loans	$	4,124	$	4,103
Taxable securities		149		178
Non-taxable securities		137		159
Federal funds sold and other		47		36
Total interest and dividend income		4,457		4,476
Interest expense
Deposits		547		528
FHLB advances and other		97		57
Subordinated debentures		33		28
Total interest expense		677		613
Net interest income		3,780		3,863
Provision for loan losses		30		—
Net interest income after provision for loan losses		3,750		3,863
Non-interest income
Service charges on deposit accounts		278		325
Other service charges and fees		264		248
Gain on sale of mortgage loans		68		77
Non-deposit brokerage fees		87		72
Lease income		52		45
BOLI income		43		44
Gain on sale of available-for-sale securities		23		51
Total non-interest income		815		862
Non-interest expenses
Salaries and employee benefits		1,734		1,784
Net occupancy expense		461		483
Advertising and public relations		71		61
Professional fees		130		180
Data processing services		253		256
Franchise shares and deposit tax		132		132
FDIC insurance		49		59
Other real estate owned expenses		—		1
Other		461		498
Total non-interest expenses		3,291		3,454
Income before income taxes		1,274		1,271
Income taxes		367		366
Net income		907		905
Dividends on preferred stock		119		124
Net income available for common stockholders	$	788	$	781
Basic earnings per common share	$	0.39	$	0.39
Diluted earnings per common share	$	0.36	$	0.36

See Notes to Unaudited Consolidated Financial Statements

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Citizens First Corporation

Unaudited Consolidated Statements of Comprehensive Income

In thousands, except share data


	Three months ended
	(In Thousands, Except Per Share Data)
	March 31, 2017		March 31, 2016
Comprehensive income, net of tax
Net income	$	907	$	905
Other comprehensive income (loss)
Reclassification adjustment for gains included in net income, net of taxes		(15)		(34)
Change in unrealized gain on available for sale securities, net of taxes		230		156
Total other comprehensive income (loss)		215		122
Comprehensive income	$	1,122	$	1,027

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


							Accumulated Other
	Preferred		Common		Retained		Comprehensive
	Stock		Stock		Earnings		Income (Loss)		Total
Balance, January 1, 2017	$	7,261	$	25,920	$	9,706	$	(523)	$	42,364
Net income		—		—		907		—		907
Conversion of cumulative preferred		(245)		245		—		—		—
Stock based compensation		—		21		—		—		21
Change in accumulated other comprehensive income (loss)		—		—		—		215		215
Dividend declared and paid on preferred stock		—		—		(119)		—		(119)
Balance, March 31, 2017	$	7,016	$	26,186	$	10,493	$	(308)	$	43,387


							Accumulated Other
	Preferred		Common		Retained		Comprehensive
	Stock		Stock		Earnings		Income (Loss)		Total
Balance, January 1, 2016	$	7,659	$	25,406	$	6,304	$	155	$	39,524
Net income		—		—		905		—		905
Conversion of cumulative preferred		(398)		398		—		—		—
Stock based compensation		—		11		—		—		11
Change in accumulated other comprehensive income (loss)		—		—		—		122		122
Dividend declared and paid on preferred stock		—		—		(124)		—		(124)
Balance, March 31, 2016	$	7,261	$	25,815	$	7,085	$	277	$	40,438

See Notes to Unaudited Consolidated Financial Statements

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Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows


	(In Thousands)
	March 31, 2017		March 31, 2016
Operating Activities
Net income	$	907	$	905
Items not requiring (providing) cash:
Depreciation		120		140
Provision (credit) for loan losses		30		—
Amortization of premiums and discounts on securities		56		81
Amortization of core deposit intangible		18		18
Stock based compensation		21		11
BOLI Income		(43)		(44)
Proceeds from sale of mortgage loans held for sale		3,264		3,609
Origination of mortgage loans held for sale		(3,153)		(3,904)
Gains on sales of available-for-sale securities		(23)		(51)
Gains on sales of mortgage loans held for sale		(68)		(77)
Loss (gain) on sale premises and equipment		(4)		4
Changes in:
Accrued interest receivable		236		217
Other assets		(87)		(213)
Accrued interest payable and other liabilities		(948)		(165)
Net cash provided by operating activities		326		531
Investing Activities
Loan originations and payments, net		(6,149)		635
Purchases of interest-bearing deposits in other financial institutions		(11,519)		—
Purchase of premises and equipment		(40)		(37)
Proceeds from maturities of available-for-sale securities		1,844		2,309
Proceeds from sales of available-for-sale securities		4,869		2,066
Proceeds from sales of premises and equipment		4		—
Purchase of available-for-sale securities		—		(5,692)
Net cash used in investing activities		(10,991)		(719)
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts		(2,618)		5,848
Net change in time deposits		5,575		(13,056)
Proceeds from FHLB advances		13,000		10,000
Repayment of FHLB advances		(7,000)		—
Repayment of other borrowings		—		(1,000)
Dividends paid on preferred stock		(119)		(124)
Net cash provided by financing activities		8,838		1,668
Increase (Decrease) in Cash and Cash Equivalents		(1,827)		1,480
Cash and Cash Equivalents, Beginning of Year		8,542		15,255
Cash and Cash Equivalents, End of Year	$	6,715	$	16,735
Supplemental Cash Flows Information
Interest paid	$	662	$	606
Income taxes paid	$	565	$	310
Conversion of cumulative preferred stock	$	245	$	398

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 wholly owned 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 unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2015 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.

Recent Accounting Pronouncements–In May 2014 the FASB amended existing guidance related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer. These amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March 2016, the FASB issued ASU 2016-08 that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. The amendments in this update affect this guidance issued in 2014 that is not yet effective. The Company does not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue.

In January 2016 the FASB issued ASU 2016-01 which amends existing guidance on the classification and measurement of financial instruments. This new standard revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The new standard is effective for reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements.

In February 2016 the FASB issued ASU 2016-02 which establishes the principles to report information about the assets and liabilities that arise from leases. This new standard changes the way operating leases are accounted for and reflected on the lessee’s balance sheet. The new standard is intended to increase transparency and comparability by requiring lessees to recognize the financial obligation and right-of-use asset associated with operating leases that have a lease term of more than 12 months on the balance sheet. The new standard is effective for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this new accounting standard on the consolidated financial statements. Based on the leases outstanding at March 31, 2017, we do not expect the new standard to have a material impact on our consolidated financial statements.

In March 2016 the FASB issued ASU 2016-09 which provides guidance on share-based payment accounting. The new standard includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The new standard became effective January 1, 2017 and did not have a material impact on the consolidated financial statements.

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In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces the current expected credit loss (CECL) model and replaces the incurred loss model. The most significant impact for financial institutions will be to the allowance for loan and lease losses (ALLL). The standard allows for various expected credit loss estimation methods and is scalable. This standard is effective for public companies for reporting periods beginning after December 15, 2019. We have attended training sessions and are assessing our data and system needs and evaluating the impact of adopting this new accounting standard. The Company expects to recognize a one-time increase to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of this standard on the consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization of Purchased Callable Debt Securities. The final standard will shorten the amortization period for premiums on callable debt securities by requiring that premiums be amortized to the first (or earliest) call date instead of as an adjustment to the yield over the contractual life. The standard is effective for public companies for fiscal years beginning after December 15, 2018. Early adoption is permitted. This new accounting standard is not expected to have a material impact on the consolidated financial statements.

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 stockholders’ equity as previously reported.

Note 3 - Available-For-Sale Securities

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at March 31, 2017 and December 31, 2016 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:


	(Dollars in Thousands)
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
March 31, 2017
U. S. government agencies and government sponsored entities	$	1,998	$	—	$	(22)	$	1,976
Agency mortgage-backed securities: residential		23,007		112		(142)		22,977
State and municipal		20,702		270		(60)		20,912
Trust preferred security		1,885		—		(625)		1,260
Corporate bonds		—		—		—		—
Total Available-for-Sale Securities	$	47,592	$	382	$	(849)	$	47,125

December 31, 2016
U. S. government agencies and government sponsored entities	$	1,998	$	—	$	(41)	$	1,957
Agency mortgage-backed securities: residential		28,148		99		(290)		27,957
State and municipal		21,310		216		(146)		21,380
Trust preferred security		1,884		—		(644)		1,240
Corporate bonds		1,000		13		—		1,013
Total Available-for-Sale Securities	$	54,340	$	328	$	(1,121)	$	53,547

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The amortized cost and fair value of investment securities at March 31, 2017 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.


	March 31, 2017
	(Dollars in Thousands)
	Available-For-Sale
	Amortized Cost		Fair Value
Due in one year or less	$	2,641	$	2,642
Due from one to five years		11,519		11,575
Due from five to ten years		6,024		6,115
Due after ten years		4,401		3,816
Agency mortgage-backed: residential		23,007		22,977
Total	$	47,592	$	47,125

The following table summarizes the investment securities with unrealized losses by portfolio segment at March 31, 2017 and December 31, 2016, 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			Unrealized				Unrealized				Unrealized
Securities	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
March 31, 2017:
U.S. government agencies and government sponsored entities	$	1,976	$	(22)	$	—	$	—	$	1,976	$	(22)
Agency mortgage-backed: residential		10,106		(120)		1,782		(22)		11,888		(142)
State and municipal		4,083		(58)		374		(2)		4,457		(60)
Trust preferred security		—		—		1,260		(625)		1,260		(625)
Total temporarily impaired	$	16,165	$	(200)	$	3,416	$	(649)	$	19,581	$	(849)


	(Dollars in Thousands)
	Less than 12 Months				12 Months or More				Total
Description of			Unrealized				Unrealized				Unrealized
Securities	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
December 31, 2016:
U.S. government agencies and government sponsored entities	$	1,957	$	(41)	$	—	$	—	$	1,957	$	(41)
Agency mortgage-backed: residential		16,722		(290)		—		—		16,722		(290)
State and municipal		9,399		(142)		293		(4)		9,692		(146)
Trust preferred security		—		—		1,240		(644)		1,240		(644)
Total temporarily impaired	$	28,078	$	(473)	$	1,533	$	(648)	$	29,611	$	(1,121)

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.

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.

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The majority of the Company’s unrealized losses 12 months or more relate to its investment in a single trust preferred security. The security is a single-issuer trust preferred that is not rated. 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)
	March 31, 2017		December 31, 2016
Commercial	$	59,831	$	60,388
Commercial real estate:
Construction		44,625		38,168
Other		177,157		178,343
Residential real estate		80,133		78,422
Consumer:
Auto		1,176		1,195
Other		2,640		2,875
Total Loans		365,562		359,391
Less: Allowance for loan losses		(4,906)		(4,854)
Net loans	$	360,656	$	354,537

The following table sets forth an analysis of our allowance for loan losses for the three months ending March 31, 2017 and 2016.


	(Dollars in Thousands)
March 31, 2017	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total

Allowance for loan losses:
Beginning balance	$	615	$	3,628	$	527	$	14	$	70	$	4,854
Provision (credit) for loan losses		31		12		7		(1)		(19)		30
Loans charged-off		—		—		—		(1)		—		(1)
Recoveries		19		—		3		1		—		23
Total ending allowance balance	$	665	$	3,640	$	537	$	13	$	51	$	4,906


	(Dollars in Thousands)
March 31, 2016	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total

Allowance for loan losses:
Beginning balance	$	812	$	3,431	$	524	$	28	$	121	$	4,916
Provision (credit) for loan losses		(174)		129		82		(4)		(33)		—
Loans charged-off		—		—		(8)		—		—		(8)
Recoveries		107		25		4		—		—		136
Total ending allowance balance	$	745	$	3,585	$	602	$	24	$	88	$	5,044

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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 March 31, 2017 and December 31, 2016, which includes net deferred loan fees. As of March 31, 2017 and December 31, 2016, accrued interest receivable of $1.1 million and $1.3 million, respectively, are not considered significant and therefore not included in the recorded investment in loans presented in the following tables.


	(Dollars in Thousands)
March 31, 2017	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total

Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	105	$	239	$	—	$	1	$	—	$	345
Collectively evaluated		560		3,401		537		12		51		4,561
Total ending allowance balance	$	665	$	3,640	$	537	$	13	$	51	$	4,906

Loans:
Individually evaluated for impairment	$	157	$	3,327	$	1,241	$	21	$	—	$	4,746
Collectively evaluated		59,674		218,455		78,892		3,795		—		360,816
Total ending loans balance	$	59,831	$	221,782	$	80,133	$	3,816	$	—	$	365,562


	(Dollars in Thousands)
December 31, 2016	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total

Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	5	$	192	$	—	$	1	$	—	$	198
Collectively evaluated		610		3,436		527		13		70		4,656
Total ending allowance balance	$	615	$	3,628	$	527	$	14	$	70	$	4,854

Loans:
Individually evaluated for impairment	$	60	$	1,533	$	837	$	23	$	—	$	2,453
Collectively evaluated		60,328		214,978		77,585		4,047		—		356,938
Total ending loans balance	$	60,388	$	216,511	$	78,422	$	4,070	$	—	$	359,391

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The following table presents information related to impaired loans by class of loans as of March 31, 2017 and December 31, 2016. In this table presentation the unpaid principal balance of the loans has not been reduced by partial net charge-offs and the recorded investment of the loans was reduced by partial net charge-offs.


	(Dollars in Thousands)						(Dollars in Thousands)
	March 31, 2017						December 31, 2016
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial	$	52	$	52	$	—	$	53	$	53	$	—
Commercial real estate:
Construction		—		—		—		—		—		—
Other		2,254		2,254		—		579		579		—
Residential real estate		1,239		1,239		—		837		837		—
Consumer:
Auto		—		—		—		—		—		—
Other		4		4		—		5		5		—
Subtotal	$	3,549	$	3,549	$	—	$	1,474	$	1,474	$	—

With an allowance recorded:
Commercial	$	105	$	105	$	105	$	7	$	7	$	5
Commercial real estate:
Construction		—		—		—		—		—		—
Other		1,073		1,073		239		954		954		192
Residential real estate		2		2		—		—		—		—
Consumer:
Auto		—		—		—		—		—		—
Other		17		17		1		18		18		1
Subtotal	$	1,197	$	1,197	$	345	$	979	$	979	$	198
Total	$	4,746	$	4,746	$	345	$	2,453	$	2,453	$	198

Information on impaired loans for the three months ending March 31, 2017 and 2016 is as follows:


	(Dollars in Thousands)						(Dollars in Thousands)
	March 31, 2017						March 31, 2016
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
Commercial	$	159	$	3	$	3	$	141	$	3	$	3
Commercial real estate:
Construction		—		—		—		—		—		—
Other		3,331		15		13		2,047		26		21
Residential real estate		1,244		9		8		857		9		8
Consumer:
Auto		—		—		—		—		—		—
Other		22		—		—		16		—		—
Total	$	4,756	$	27	$	24	$	3,061	$	38	$	32

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The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2017 and December 31, 2016 are summarized below:


	(Dollars in Thousands)				(Dollars in Thousands)
	March 31, 2017				December 31, 2016
	Loans Past Due Over 90 Days and Still Accruing		Nonaccrual		Loans Past Due Over 90 Days and Still Accruing		Nonaccrual

Commercial	$	—	$	100	$	—	$	—
Commercial real estate:
Other		—		2,382		—		—
Residential real estate		—		559		—		23
Total	$	—	$	3,041	$	—	$	23

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 March 31, 2017 and December 31, 2016 by class of loans. Non-accrual loans are included and have been categorized based on their payment status:


	(Dollars in Thousands)
	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total
March 31, 2017
Commercial	$	30	$	—	$	—	$	30	$	59,801	$	59,831
Commercial real estate:
Construction		—		—		—		—		44,625		44,625
Other		1,099		1,283		—		2,382		174,775		177,157
Residential real estate		155		295		109		559		79,574		80,133
Subtotal	$	1,285	$	1,578	$	109	$	2,972	$	362,590	$	365,562


	(Dollars in Thousands)
	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total
December 31, 2016
Commercial	$	—	$	—	$	—	$	—	$	60,388	$	60,388
Commercial real estate:
Construction		—		—		—		—		38,168		38,168
Other		—		—		—		—		178,343		178,343
Residential real estate		166		29		23		218		78,204		78,422
Consumer:
Auto		1		—		—		1		1,194		1,195
Other		—		—		—		—		2,875		2,875
Subtotal	$	167	$	29	$	23	$	219	$	359,172	$	359,391

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $2.3 million and $2.3 million as of March 31, 2017 and December 31, 2016, 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. The modifications of the terms of these loans included reducing the interest rate, granting an interest only payment period, or extending the terms of the debt for customers experiencing financial difficulties. Of the 11 troubled debt restructurings reported at quarter end, all but one loan was on accrual status.

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There were no troubled debt restructurings that occurred during the three months ending March 31, 2017, and one troubled debt restructuring that occurred during the three months ending March 31, 2016.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ending March 31, 2017 and 2016.


		(Dollars in Thousands)					(Dollars in Thousands)
	Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans	Pre- Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	March 31, 2017					March 31, 2016
Troubled Debt Restructurings:
Consumer	—		—		—	1		14		14
Total	—	$	—	$	—	1	$	14	$	14

Specific allocations of $194,000 and $234,000 were reported for troubled debt restructurings as of March 31, 2017 and March 31, 2016. No payment defaults or charge-offs were reported for troubled debt restructuring during the three months ending March 31, 2017 and March 31, 2016.

The terms of certain other loans were modified during the three months ending March 31, 2017 and 2016 that did not meet the definition of a troubled debt restructuring. These loans modified during the three months ending March 31, 2017 have a total recorded investment of $7.7 million as of March 31, 2017. These loans modified during the three months ending March 31, 2016 had a total recorded investment of $12.0 million as of March 31, 2016. 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 thousand 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:


	(Dollars in Thousands)
	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2017
Commercial	$	58,399	$	—	$	1,432	$	—	$	59,831
Commercial real estate:
Construction		44,625		—		—		—		44,625
Other		172,253		730		4,174		—		177,157
Residential real estate		79,574		—		559		—		80,133
Consumer:
Auto		1,176		—		—		—		1,176
Other		2,630		—		10		—		2,640
Total	$	358,657	$	730	$	6,175	$	—	$	365,562


	(Dollars in Thousands)
	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2016
Commercial	$	59,990	$	—	$	398	$	—	$	60,388
Commercial real estate:
Construction		38,168		—		—		—		38,168
Other		174,507		741		3,095		—		178,343
Residential real estate		77,982		—		440		—		78,422
Consumer:
Auto		1,195		—		—		—		1,195
Other		2,867		—		8		—		2,875
Total	$	354,709	$	741	$	3,941	$	—	$	359,391

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 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

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obligations, and certain municipal securities. The Company also has one Level 3 security. The value of this single issue trust preferred security is obtained on a quarterly basis directly from the originating broker.

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.

Assets measured at fair value on a recurring basis:


	Fair Value Measurements at:
	(Dollars in Thousands)						(Dollars in Thousands)
	March 31, 2017						December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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		—	$	1,976		—		—	$	1,957		—
Agency mortgage-backed securities-residential		—		22,977		—		—		27,957		—
State and municipal		—		20,912		—		—		21,380		—
Trust preferred security		—		—		1,260		—		—		1,240
Corporate bonds		—		—		—		—		1,013		—
Total investment securities	$	—	$	45,865	$	1,260	$	—	$	52,307	$	1,240

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The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31:


	Trust Preferred Security
	2017		2016

Balance of recurring Level 3 assets at January 1	$	1,240	$	1,340
Total gains or (losses) for the period:
Included in other comprehensive income		20		(40)
Balance of recurring Level 3 assets at March 31	$	1,260	$	1,300

At March 31, 2017, there were significant unobservable inputs (level 3) totaling $78,000 of impaired commercial real estate loans. These loans had adjustments using sales comparison valuation techniques for limited use nature of certain properties, age of appraisal, location, and/or condition. These unobservable inputs resulted in adjustments of 20% (weighted average). There were no financial assets measured at fair value on a non-recurring basis as of December 31, 2016.

Impaired loans, which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $227,000 at March 31, 2017, with a valuation allowance of $149,000, resulting in an additional provision for loan losses of $149,000 in the quarter ending March 31, 2017. There were no loans measured for impairment using the fair value of collateral dependent loans, no valuation allowance, and no resulting provision for loan losses as of December 31, 2016.

There was no other real estate owned to measure at fair value at March 31, 2017 or December 31, 2016. No write-downs of other real estate were taken in the quarters ending March 31, 2017 or March 31, 2016.

The carrying amount and estimated fair values of financial instruments at March 31, 2017 and December 31, 2016 were as follows:


			Fair Value Measurements at
			March 31, 2017
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents	$	6,715	$	6,715	$	—	$	—	$	6,715
Interest-bearing deposits in other financial institutions		22,537		22,537		—		—		22,537
Available-for-sale-securities		47,125		—		45,865		1,260		47,125
Loans, net of allowance		360,656		—		—		359,077		359,077
Loans held for sale		221		—		224		—		224
Accrued interest receivable		1,386		7		253		1,126		1,386
Federal Home Loan Bank stock		2,025		—		—		—		N/A

Financial Liabilities
Demand and savings deposits	$	223,324	$	223,324	$	—	$	—	$	223,324
Time deposits		150,072		—		150,209		—		150,209
FHLB advances		41,000		—		40,875		—		40,875
Other borrowings		—		—		—		—		—
Subordinated debentures		5,000		—		—		2,495		2,495
Accrued interest payable		235		13		189		34		236

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			Fair Value Measurements at
			December 31, 2016
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents	$	8,542	$	8,542	$	—	$	—	$	8,542
Interest-bearing deposits in other financial institutions		11,018		11,018		—		—		11,018
Available-for-sale-securities		53,547		—		52,307		1,240		53,547
Loans, net of allowance		354,537		—		—		354,300		354,300
Loans held for sale		264		—		266		—		266
Accrued interest receivable		1,622		16		268		1,338		1,622
Federal Home Loan Bank stock		2,025		—		—		—		N/A

Financial Liabilities
Demand and savings deposits	$	225,942	$	225,942	$	—	$	—	$	225,942
Time deposits		144,497		—		144,558		—		144,558
FHLB advances		35,000		—		34,897		—		34,897
Other borrowings		—		—		—		—		—
Subordinated debentures		5,000		—		—		2,495		2,495
Accrued interest payable		220		12		175		33		220

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

(a)

Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

(b)

Interest Bearing Deposits in Other Financial Institutions: Fair values are based on quoted market prices.

(c)

FHLB Stock: It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(d)

Loans: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. The fair value of loans held for sale is estimated based upon binding contracts and quotes from first party investors resulting in a Level 2 classification.

(e)

Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable rate certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(f)

FHLB Advances and Other Borrowings/Subordinated Debentures: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification. The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

(g)

Accrued Interest Receivable/Payable: The carrying amounts of accrued interest approximate fair value resulting in a classification consistent with the asset/liability they are associated with.

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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 stock options, convertible preferred stock and warrants, if dilutive. The following table reconciles the basic and diluted earnings per share computations for the three months ended March 31, 2017 and 2016.


	Three months ended March 31, 2017					Three months ended March 31, 2016
			Weighted					Weighted
			Average	Per Share				Average	Per Share
	Income		Shares	Amount		Income		Shares	Amount
Basic earnings per share:
Net income	$	907				$	905
Dividends on preferred stock during the year		(119)					(124)
Net income available to common shareholders	$	788	2,012,126	$	0.39	$	781	1,993,577	$	0.39

Effect of dilutive securities:
Stock options		—	—				—	95
Performance share units		—	8,122				—	4,658
Convertible preferred stock		119	527,901				124	543,950


Diluted earnings per share:
Net income available to common stockholders and assumed conversions	$	907	2,548,149	$	0.36	$	905	2,542,280	$	0.36

Note 7 - Regulatory Capital Matters

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of March 31, 2017 and December 31, 2016, the Company and Citizens First Bank, Inc. met all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

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. Interim Final Basel III rules require the Bank to maintain minimum amounts and ratios of common equity Tier I capital to risk-weighted assets. Under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in computing regulatory capital. The rules also established a "capital conservation buffer" of 2.5%, to be phased in through January 1, 2019, above the new regulatory minimum risk-based capital ratios. The buffer is 1.25% as of March 31, 2017. The buffer could limit the payment of dividends and discretionary bonuses to officers if a bank fails to maintain required capital levels.

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The Company’s and Citizens First Bank, Inc.’s actual capital amounts and ratios are also presented in the following table.


	(Dollars in Thousands)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
March 31, 2017	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets)
Consolidated	$	49,541	12.50	%	$	31,711	8.00	%		N/A	N/A
Citizens First Bank, Inc.		49,050	12.38	%		31,701	8.00	%	$	39,627	10.00	%

Tier I Capital (to Risk-Weighted Assets)
Consolidated		44,634	11.26	%		23,783	6.00	%		N/A	N/A
Citizens First Bank, Inc.		44,144	11.14	%		23,776	6.00	%		31,701	8.00	%

Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		32,619	8.23	%		17,835	4.50	%		N/A	N/A
Citizens First Bank, Inc.		44,144	11.14	%		17,832	4.50	%		25,757	6.50	%

Tier I Leverage Capital to average assets
Consolidated		44,634	9.96	%		17,925	4.00	%		N/A	N/A
Citizens First Bank, Inc.		43,497	9.85	%		17,921	4.00	%		22,401	5.0	%


	(Dollars in Thousands)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
December 31, 2016	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets)
Consolidated	$	48,671	12.62	%	$	30,848	8.00	%		N/A	N/A
Citizens First Bank, Inc.		48,316	12.53	%		30,843	8.00	%	$	38,554	10.00	%

Tier I Capital (to Risk-Weighted Assets)
Consolidated		43,852	11.37	%		23,136	6.00	%		N/A	N/A
Citizens First Bank, Inc.		43,497	11.28	%		23,132	6.00	%		30,843	8.00	%

Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		31,585	8.19	%		17,352	4.50	%		N/A	N/A
Citizens First Bank, Inc.		43,497	11.28	%		17,349	4.50	%		25,060	6.50	%

Tier I Leverage Capital to average assets
Consolidated		43,852	9.97	%		17,600	4.00	%		N/A	N/A
Citizens First Bank, Inc.		43,497	9.89	%		17,600	4.00	%		22,000	5.0	%

(1)

When fully phased-in on January 1, 2019, Basel III Capital Rules will require banking organizations to maintain: a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer”; a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer; a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer; and a minimum ratio of Tier 1 capital to adjusted average consolidated assets of at least 4.0%.

Note 8 - Preferred Stock

In 2004, the Company issued 250 shares of Cumulative Convertible Preferred Stock, stated value $31,992 per share (Cumulative Preferred Stock), for an aggregate purchase price of $7,998,000. The Cumulative Preferred Stock was sold for $31,992 per share, 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 an initial conversion price per share of $15.50 (currently $14.06, adjusted for stock dividends) on and after three years after the date of issuance. As of March 31, 2017, 21 preferred shares have converted to 47,775 common shares.

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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 2016 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 current and future economic conditions generally and in our market areas, changes in the interest rate environment, 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 March 31, 2017, we reported net income of $907,000 or $0.36 per diluted common share, compared to net income of $905,000, or $0.36 per diluted common share in the first quarter of 2016, an increase of $2,000. The increase in net income is attributable primarily to a reduction in non-interest expenses of $163,000, offset by a decrease in non-interest income of $47,000 and a decrease in net interest income of $83,000.

Our annualized return on average assets, defined as net income divided by average assets, was 0.81% for the quarter ended March 31, 2017, compared to 0.84% for the quarter ended March 31, 2016. Our annualized return on average equity, defined as net income divided by average equity, was 8.59% for the quarter ended March 31, 2017, compared to 9.06% for the quarter ended March 31, 2016.

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.

Net interest income for the quarter ended March 31, 2017 decreased $83,000, or 2.1%, compared to March 31, 2016. During the first quarter, $95,000 of loan income was reversed as loans totaling $3.0 million were placed on non-accrual status. The Company’s net interest margin was 3.68% for the three months ended March 31, 2017, and 3.94% for the three months ended March 31, 2016, a decrease of 26 basis points. The net interest margin decreased due to a decline in the yield on loans.

The following tables set forth for the quarter ended March 31, 2017 and 2016, 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)


	2017						2016
	Average		Income/		Average		Average		Income/		Average
Three months ended March 31,	Balance		Expense		Rate		Balance		Expense		Rate
Earning assets:
Federal funds sold	$	—	$	—	—	%	$	4,156	$	5	0.48	%
Interest-bearing deposits in other financial institutions		8,674		23	1.08	%		2,726		11	1.62	%
Available-for-sale securities (1)
Taxable		29,828		149	2.03	%		37,716		178	1.90	%
Nontaxable		19,998		203	4.12	%		23,015		240	4.19	%
Federal Home Loan Bank stock		2,025		23	4.61	%		2,025		20	3.97	%
Loans receivable (2)		363,824		4,125	4.60	%		333,000		4,103	4.96	%
Total interest earning assets		424,349		4,523	4.32	%		402,638		4,557	4.55	%
Non-interest earning assets		27,916						30,505
Total Assets	$	452,265					$	433,143

Interest-bearing liabilities:
NOW Accounts	$	122,509	$	133	0.44	%	$	126,996	$	122	0.39	%
Money market Accounts		26,462	$	31	0.48	%	$	26,111	$	26	0.40	%
Savings accounts		21,767		10	0.19	%		20,451		9	0.18	%
Time deposits		144,202		373	1.05	%		146,805		371	1.02	%
Total interest-bearing deposits		314,940		547	0.70	%		320,363		528	0.66	%
Borrowings		38,078		97	1.03	%		18,394		57	1.25	%
Subordinated debentures		5,000		33	2.68	%		5,000		28	2.25	%
Total interest-bearing liabilities		358,018		677	0.77	%		343,757		613	0.72	%
Non-interest bearing deposits		49,288						47,034
Other liabilities		2,132						2,196
Total liabilities		409,438						392,987
Stockholders’ equity		42,827						40,156
Total Liabilities and Stockholders’ Equity	$	452,265					$	433,143
Net interest income			$	3,846					$	3,944

Net interest spread (1)					3.56	%					3.83	%
Net interest margin (1) (3)					3.68	%					3.94	%
Return on average assets ratio					0.81	%					0.84	%
Return on average equity ratio					8.59	%					9.06	%
Average equity to assets ratio					9.47	%					9.27	%

(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 non-performing 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 three months ended March 31, 2017 and 2016. 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)
	Three Months Ended March 31, 2017
	Vs. 2016
	Increase (Decrease) Due to
	Rate	Volume	Net
Interest-earning assets:
Federal funds sold	76	(81)	(5)
Interest-bearing deposits in other financial institutions	(376)	388	12
Available-for-sale securities:
Taxable	573	(602)	(29)
Nontaxable (1)	472	(509)	(37)
Federal Home Loan Bank stock	3	—	3
Loans, net	(6,121)	6,143	22
Total Net Change in income on interest-earning assets	(5,373)	5,339	(34)

Interest-bearing liabilities:
NOW Accounts	81	(70)	11
Money market accounts	(1)	6	5
Savings accounts	(8)	9	1
Time deposits	108	(106)	2
FHLB and other borrowings	164	(145)	19
Subordinated debentures	(947)	987	40
Total Net Change in expense on interest-earning liabilities	(603)	681	78
Net change in net interest income	(4,770)	4,658	(112)
Percentage Change	4259.3%	-4159.3%	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

There was a $30,000 provision for loan losses in the first quarter of 2017 compared to no provision for loan losses for the first quarter of 2016 due to the growth of the loan portfolio and an increase in non-performing assets.

Non-Interest Income

Non-interest income for the three months ended March 31, 2017 decreased $47,000, or 5.5%, compared to the three months ended March 31, 2016, due to a decrease in service charges on deposit accounts of $47,000.

Non-Interest Expense

Non-interest expense for the three months ended March 31, 2017 decreased $163,000, or 4.7%, compared to the three months ended March 31, 2016, primarily due to a reduction in professional fees of $50,000 and a decrease in personnel expense of $50,000.

Income Taxes

Income tax expense was calculated using our expected effective rate for 2017 and 2016. 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 2017 and 2016. The effective tax rate was 28.8% for the first quarter of 2017 and 2016. 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 March 31, 2017 were $464.4 million, an increase of $9.0 million, or 2.0%, from $455.4 million at December 31, 2016. Average assets during the first quarter of 2017 were $452.3 million, an increase of 4.4%, or $19.2 million, from

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$433.1 million in the first quarter of 2016. Average interest earning assets increased 5.4%, or $21.7 million, from $402.6 million in the first quarter of 2016 to $424.3 million in the first quarter of 2017.

Loans

Loans increased $6.2 million, or 1.7%, from $359.4 million at December 31, 2016 to $ 365.6 million at March 31, 2017. Total loans averaged $363.8 million the first quarter of 2017, compared to $333.0 million the first quarter of 2016, an increase of $30.8 million, or 9.3%. We experienced an increase in the commercial real estate and residential real estate portfolios during the first three months of the year compared to December 31, 2016. The following table presents a summary of the loan portfolio by category:


	(Dollars in Thousands)
	March 31, 2017				December 31, 2016
			% of Total				% of Total
			Loans				Loans
Commercial and agricultural	$	59,831	16.37	%	$	60,388	16.80	%
Commercial real estate		221,782	60.67	%		216,511	60.25	%
Residential real estate		80,133	21.92	%		78,422	21.82	%
Consumer		3,816	1.04	%		4,070	1.13	%
	$	365,562	100.00	%	$	359,391	100.00	%

The majority of our loans are to customers located in south central Kentucky and central Tennessee. As of March 31, 2017, our twenty largest credit relationships consisted of loans and loan commitments ranging from $4.2 million to $10.6 million. The aggregate amount of these credit relationships was $120.2 million. As of December 31, 2016, our twenty largest credit relationships consisted of loans and loan commitments ranging from $4.1 million to $11.2 million. The aggregate amount of these credit relationships was $119.1 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 March 31, 2017 and December 31, 2016.

As of March 31, 2017, we had $19.1 million of participations in loans purchased from, and $24.4 million of participations in loans sold to, other banks. As of December 31, 2016, we had $17.7 million of participations in loans purchased from, and $24.7 million of participations in loans sold to, other banks.

The following table sets forth the maturity distribution of the loan portfolio as of March 31, 2017. 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)
			After One but
Loan Maturities	Within One		Within Five		After Five
as of March 31, 2017	Year		Years		Years		Total
Commercial and agricultural	$	18,548	$	32,174	$	9,109	$	59,831
Commercial real estate		37,707		113,906		70,169		221,782
Residential real estate		10,663		35,214		34,256		80,133
Consumer		1,027		2,744		45		3,816
Total	$	67,945	$	184,038	$	113,579	$	365,562

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 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)
	March 31, 2017				December 31, 2016
	Amount		% of Loans in Each Category to Total Loans		Amount		% of Loans in Each Category to Total Loans
Residential real estate loans	$	537	21.92	%	$	527	21.82	%
Consumer and other loans		13	1.04	%		14	1.13	%
Commercial and agricultural		665	16.37	%		615	16.80	%
Commercial real estate		3,640	60.67	%		3,628	60.25	%
Unallocated		51	0.00	%		70	0.00	%
Total allowance for loan losses	$	4,906	100.00	%	$	4,854	100.00	%

We maintain a modest unallocated amount in the allowance to assist in mitigating inherent risk that cannot be quantitatively or qualitatively determined, including, but not limited to, new loan products and new markets for which insufficient history exists for a robust analysis. 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. The unallocated portion of the allowance was $51,000 at March 31, 2017 and $70,000 at December 31, 2016.

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


	(Dollars in Thousands)
	March 31, 2017			December 31, 2016
Non-accrual loans	$	2,462		$	23
Loans 90+ days past due/accruing		—			—
Restructured loans on non-accrual		579			—
Total non-performing loans		3,041			23
Other real estate owned		—			—
Total non-performing assets	$	3,041		$	23

Non-performing loans to total loans		0.83	%		0.01	%
Non-performing assets to total assets		0.65	%		0.01	%
Net charge-offs (recoveries) YTD	$	(22)		$	(23)
Net charge-offs (recoveries) YTD to average YTD total loans		(0.02)	%		(0.01)	%
Allowance for loan losses to non-performing loans		161.33	%		21,104.35	%
Allowance for loan losses to total loans		1.34	%		1.35	%

Non-performing assets totaled $3.0 million at March 31, 2017, compared to $23,000 at December 31, 2016, an increase of $3.0 million. Payoffs and paydowns were related to the payoff of a $5,000 residential real estate loan; there were no charge-offs related to non-performing assets in the three months ended March 31, 2017. Increases in non-performing assets included the addition of $2.4 million in commercial real estate loans, $540,000 in residential real estate loans, and $100,000 in commercial loans.

Non-performing loans consist of non-accrual loans and loans 90 days or more past due and still accruing interest. Non-performing assets are defined as non-performing loans, other real estate owned, and repossessed assets. 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,

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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 non-accrual loans), changes in mix, asset quality trends, risk management and loan administration, changes in internal lending policies and credit standards, and examination results from bank regulatory agencies and our internal credit examiners.

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.

Securities

Our securities portfolio serves as a source of liquidity and earnings and contributes to the management of interest rate risk. Our portfolio also provides us with securities to pledge as required collateral for certain governmental deposits and borrowed funds

The investment securities portfolio is comprised of U.S. Government agency securities, mortgage-backed securities, tax-exempt securities of states and political subdivisions, a taxable municipal security, 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 $49.8 million for the first three months of 2017, compared to $60.7 million for 2016.

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The tables below present the maturities and yield characteristics of securities as of March 31, 2017 and December 31, 2016. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	(Dollars in Thousands)
				Over			Over
				One Year			Five Years
	One Year or			Through			Through			Over Ten			Total
March 31, 2017	Less			Five Years			Ten Years			Years			Maturities			Fair Value
U.S. Government agencies	$	1,000		$	998		$	—		$	—		$	1,998		$	1,976
Agency mortgage-backed securities: (1)		51			16,761			6,195			—			23,007			22,977
Municipal securities		1,641			10,521			6,024			2,516			20,702			20,912
Trust preferred security		—			—			—			1,885			1,885			1,260
Total available-for-sale securities	$	2,692		$	28,280		$	12,219		$	4,401		$	47,592		$	47,125

Percent of total		5.66	%		59.42	%		25.67	%		9.25	%		100.00	%

Weighted average yield(2)		2.58	%		2.61	%		3.27	%		4.17	%		2.85	%

(1)

Agency mortgage‑backed securities (residential) are grouped into average lives based on March 2017 prepayment projections.

(2)

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


	(Dollars in Thousands)
				Over			Over
				One Year			Five Years
	One Year or			Through			Through			Over Ten			Total
December 31, 2016	Less			Five Years			Ten Years			Years			Maturities			Fair Value
U.S. Government agencies	$	—		$	1,998		$	—		$	—		$	1,998		$	1,957
Agency mortgage-backed securities: (1)		85			21,700			6,363			—			28,148			27,957
Municipal securities		1,264			9,924			7,606			2,516			21,310			21,380
Trust preferred security		—			—			—			1,884			1,884			1,240
Corporate bond		—			—			1,000			—			1,000			1,013
Total available-for-sale securities	$	1,349		$	33,622		$	14,969		$	4,400		$	54,340		$	53,547

Percent of total		2.48	%		61.87	%		27.55	%		8.10	%		100.00	%

Weighted average yield (2)		3.06	%		2.47	%		3.31	%		4.14	%		2.85	%

(1)

Agency mortgage‑backed securities (residential) are grouped into average lives based on December 2016 prepayment projections.

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

The trust preferred security category consists 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. The Company does not intend to sell this security and does not believe it will be required to sell this security.

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Deposits

Our primary funding source for lending and investment activities results from customer deposits. Deposits at March 31, 2017 were $373.4 million, an increase of $3.0 million, or 0.8%, compared to $370.4 million at December 31, 2016. Total deposits averaged $364.2 million the first quarter of 2017, a decrease of $3.2 million, or 0.9%, compared to $367.4 million during the first quarter of 2016. Time deposits that meets or exceed the FDIC insurance limit of $250,000 were $17.5 million and $10.7 million at March 31, 2017 and December 31, 2016, respectively.

We utilize brokered certificates of deposit and will continue to utilize these sources for deposits when they can be cost-effective. There were $10.2 million in brokered deposits at March 31, 2017, compared to $1.9 million at December 31, 2016. We also utilize a deposit listing service to obtain additional deposits totaling $21.0 million at March 31, 2017, compared to $25.1 million at December 31, 2016.

The scheduled maturities or next repricing dates of time deposits as of March 31, 2017 were as follows:


	(Dollars in Thousands)
	March 31, 2017
Three months or less	$	14,557
Over three through twelve months		78,266
Over one year through three years		47,335
Over three years		9,914
Total	$	150,072

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. Total advances as of March 31, 2017 were $41.0 million compared to $35.0 million at December 31, 2016. Rates vary based on the term to repayment, and are summarized below as of March 31, 2017:


				(Dollars in Thousands)
Type	Maturity	Rate		Amount
Fixed	April 25, 2017	0.89	%		5,000
Fixed	May 12, 2017	0.77	%		5,000
Fixed	July 07, 2017	0.84	%		3,000
Fixed	July 28, 2017	0.84	%		3,000
Fixed	July 28, 2017	0.88	%		4,000
Fixed	August 23, 2017	0.84	%		5,000
Fixed	August 30, 2017	0.84	%		2,000
Fixed	March 07, 2018	1.26	%		3,000
Fixed	April 20, 2018	1.05	%		5,000
Fixed	May 24, 2019	1.72	%		3,000
Fixed	January 15, 2021	1.88	%		3,000
				$	41,000

With our available collateral and the Company’s current holding of FHLB stock, we are eligible to borrow an additional $34.3 million from the FHLB as of March 31, 2017 compared to $40.3 million at December 31, 2016.

Other Borrowings. In 2016, we renewed a credit agreement with a community bank to be used for operating capital and general corporate purposes. The line has a total availability of $3.0 million, matures November 21, 2017, and bears interest at the prime rate as published in the Money Rates section of The Wall Street Journal, plus 0.25%, with interest payable monthly. The line has a floor rate of 4.5%. The line is secured by the Bank’s common stock. There was no balance on the line at March 31, 2017 and December 31, 2016.

At March 31, 2017, we had established Federal Funds lines of credit totaling $18.8 million with three correspondent banks. No amounts were drawn as of March 31, 2017 or December 31, 2016.

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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 basis points over 3-month LIBOR (London Inter Bank Offering Rate). Our rate as of March 31, 2017 was 2.65%. 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. 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

Stockholders’ equity increased to $43.4 million at March 31, 2017, an increase of $1.0 million, or 2.4%, from $42.4 million at December 31, 2016. The book value per common share improved to $18.01 at March 31, 2017 compared to $17.54 at December 31, 2016. The Company has declared a dividend of $0.08 per share in April, 2017 to be paid in May, 2017.

The Company previously issued 250 shares of Cumulative Convertible Preferred Stock, (Preferred Stock), for an aggregate purchase price of $8.0 million. The Preferred Stock was sold for $31,992 per share, is entitled to quarterly cumulative dividends at an annual fixed rate of 6.5% and is currently convertible into shares of common stock of the Company at an initial conversion price per share of $15.50 (currently $14.06, adjusted for stock dividends). Approximately 8% of preferred shareholders (holding 21 shares of Preferred Stock) have converted their shares into 47,775 shares of common stock as of March 31, 2017.

We are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off‑balance‑sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks, (Basel III rules) became effective for the Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The rules also established a "capital conservation buffer" of 2.5%, to be phased in over three years, above the new regulatory minimum risk-based capital ratios. The buffer as of March 31, 2017 is 1.25%. The buffer could limit the payment of dividends and discretionary bonuses to officers if a bank fails to maintain required capital levels. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. We believe as of March 31, 2017 and December 31, 2016, the Company and the Bank met all capital adequacy requirements to which it is subject.

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


	(Dollars in Thousands)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
March 31, 2017	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets)
Consolidated	$	49,541	12.50	%	$	31,711	8.00	%		N/A	N/A
Citizens First Bank, Inc.		49,050	12.38	%		31,701	8.00	%	$	39,627	10.00	%

Tier I Capital (to Risk-Weighted Assets)
Consolidated		44,634	11.26	%		23,783	6.00	%		N/A	N/A
Citizens First Bank, Inc.		44,144	11.14	%		23,776	6.00	%		31,701	8.00	%

Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		32,619	8.23	%		17,835	4.50	%		N/A	N/A
Citizens First Bank, Inc.		44,144	11.14	%		17,832	4.50	%		25,757	6.50	%

Tier I Leverage Capital to average assets
Consolidated		44,634	9.96	%		17,925	4.00	%		N/A	N/A
Citizens First Bank, Inc.		43,497	9.85	%		17,921	4.00	%		22,401	5.0	%


	(Dollars in Thousands)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
December 31, 2016	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets)
Consolidated	$	48,671	12.62	%	$	30,848	8.00	%		N/A	N/A
Citizens First Bank, Inc.		48,316	12.53	%		30,843	8.00	%	$	38,554	10.00	%

Tier I Capital (to Risk-Weighted Assets)
Consolidated		43,852	11.37	%		23,136	6.00	%		N/A	N/A
Citizens First Bank, Inc.		43,497	11.28	%		23,132	6.00	%		30,843	8.00	%

Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		31,585	8.19	%		17,352	4.50	%		N/A	N/A
Citizens First Bank, Inc.		43,497	11.28	%		17,349	4.50	%		25,060	6.50	%

Tier I Leverage Capital to average assets
Consolidated		43,852	9.97	%		17,600	4.00	%		N/A	N/A
Citizens First Bank, Inc.		43,497	9.89	%		17,600	4.00	%		22,000	5.0	%

(2)

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

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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 March 31, 2017, 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 9.64% 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 decrease 5.16%. 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: Apr 2017 - Mar 2018


Projected			Net Interest Income
Interest Rate			$ Change From		% Change From
Change	Estimated Value		Base		Base
+400	$	19,170,616	$	3,047,694	18.90	%
+300		18,434,847		2,311,925	14.34	%
+200		17,676,682		1,553,760	9.64	%
Base		16,122,922			—	%
(200)		15,291,164		(831,758)	(5.16)	%

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 quarter ending March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, nor were there any material weaknesses in the controls which required corrective action.

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PART II-OTHER INFORMATION

Item 6. Exhibits

EXHIBIT INDEX


3.1	Second Amended and Restated Articles of Incorporation of Citizens First Corporation, (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed November 24, 2015).

3.2	Amended and Restated Bylaws of Citizens First Corporation (incorporated by reference to Exhibit 3 of the Registrant’s Current Report on Form 8-K filed March 22, 2017).

4.1	Second Amended and Restated Articles of Incorporation of Citizens First Corporation, (see Exhibit 3.1).

4.2	Amended and Restated Bylaws of Citizens First Corporation (see Exhibit 3.2).

4.3	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 June 30, 2007; file number 001-33126).

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.

101	Interactive data files: (i) Consolidated Balance Sheets at March 31, 2017 and December 31, 2016, (ii) the Consolidated Statements of Income for the three months ended March 31, 2017 and March 31, 2016, (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and March 31, 2016, (iv) the Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2017 and March 31, 2016, (v) Consolidated Statements of Cash Flows for the three month periods ended March 31, 2017 and 2016, and (vi) Notes to Consolidated Financial Statements.

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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: May 11, 2017	/s/M. Todd Kanipe
	M. Todd Kanipe
	President and Chief Executive Officer


Date: May 11, 2017	/s/ J. Steven Marcum
	J. Steven Marcum
	Executive Vice President and Chief Financial Officer

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