10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2013

Or

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

For the transition period from              to             

Commission file number: 001-33126

CITIZENS FIRST CORPORATION

(Exact name of registrant as specified in its charter)

Kentucky	61-0912615
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1065 Ashley Street, Bowling Green, Kentucky	42103
(Address of principal executive offices)	(Zip Code)

(270) 393-0700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

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

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

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

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

1,968,777 shares of Common Stock, no par value, were outstanding at October 31, 2013.

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	30
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47
ITEM 4	CONTROLS AND PROCEDURES	48
PART II — OTHER INFORMATION
ITEM 6	EXHIBITS	49
SIGNATURES		51

2

Part 1. Financial Information

Item 1. Financial Statements

Citizens First Corporation

Consolidated Balance Sheets

	(In Thousands, Except Share Data)
	September 30,  2013			December 31,  2012
	Unaudited
Assets
Cash and due from financial institutions	$	9,167		$	9,549
Federal funds sold	23,360			25,250
Cash and cash equivalents	32,527			34,799
Available-for-sale securities	50,441			46,639
Loans held for sale	115			61
Loans, net of allowance for loan losses of $4,820 and $5,721 at September 30, 2013 and December 31, 2012, respectively	296,556			293,033
Premises and equipment, net	11,172			11,568
Bank owned life insurance (BOLI)	7,756			7,587
Federal Home Loan Bank (FHLB) stock, at cost	2,025			2,025
Accrued interest receivable	1,648			1,660
Deferred income taxes	2,728			2,180
Goodwill	4,097			4,097
Core deposit intangible	744			997
Other real estate owned	547			191
Other assets	403			1,719
Total Assets	$	410,759		$	406,556
Liabilities
Deposits
Noninterest bearing	40,082			41,724
Savings, NOW and money market	121,129			111,195
Time	176,422			178,814
Total deposits	337,633			331,733
FHLB advances and other borrowings	28,000			26,000
Subordinated debentures	5,000			5,000
Accrued interest payable	270			238
Other liabilities	1,762			2,019
Total Liabilities	$	372,665		$	364,990
Stockholders’ Equity
6.5% cumulative preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $7,998; issued and outstanding 250 shares at September 30, 2013 and December 31, 2012, respectively	$	7,659		$	7,659
5.0% Series A cumulative preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $3,266 and $6,567; issued and outstanding 93 shares at September 30, 2013 and 187 shares at December 31, 2012	3,259			6,519
Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 1,968,777 shares at September 30, 2013 and December 31, 2012, respectively	27,072			27,072
Retained earnings (deficit)	134			(430		)
Accumulated other comprehensive income (loss)	(30		)	746
Total stockholders’ equity	$	38,094		$	41,566
Total liabilities and stockholders’ equity	$	410,759		$	406,556

See Notes to Unaudited Consolidated Financial Statements

3

Citizens First Corporation
Unaudited Consolidated Statements of Income

	Three months ended
	(In Thousands, Except Per Share Data)
	September 30, 2013		September 30, 2012
Interest and dividend income
Loans	$	4,076	$	4,384
Taxable securities	106		100
Non-taxable securities	164		165
Federal funds sold and other	35		32
Total interest and dividend income	4,381		4,681
Interest expense
Deposits	606		685
FHLB advances and other	116		114
Subordinated debentures	25		27
Total interest expense	747		826
Net interest income	3,634		3,855
Provision for loan losses	900		300
Net interest income after provision for loan losses	2,734		3,555
Non-interest income
Service charges on deposit accounts	341		355
Other service charges and fees	156		138
Gain on sale of mortgage loans	81		64
Non-deposit brokerage fees	91		54
Lease income	74		68
BOLI income	53		66
Total non-interest income	796		745
Non-interest expenses
Salaries and employee benefits	1,382		1,406
Net occupancy expense	499		489
Advertising and public relations	70		92
Professional fees	201		158
Data processing services	280		225
Franchise shares and deposit tax	146		141
FDIC insurance	150		83
Core deposit intangible amortization	84		88
Postage and office supplies	35		40
Other real estate owned expenses	7		5
Other	425		266
Total non-interest expenses	3,279		2,993
Income before income taxes	251		1,307
Income taxes	18		366
Net income	$	233	$	941
Dividends and accretion on preferred stock	178		225
Net income available for common stockholders	$	55	$	716
Basic earnings per common share	$	0.03	$	0.36
Diluted earnings per common share	$	0.02	$	0.35

See Notes to Unaudited Consolidated Financial Statements

4

Citizens First Corporation
Unaudited Consolidated Statements of Income

	Nine months ended
	(In Thousands, Except Per Share Data)
	September 30, 2013		September 30,2012
Interest and dividend income
Loans	$	12,223	$	12,863
Taxable securities	302		414
Non-taxable securities	498		490
Federal funds sold and other	111		97
Total interest and dividend income	13,134		13,864
Interest expense
Deposits	1,859		2,246
FHLB advances and other	347		314
Subordinated debentures	73		81
Total interest expense	2,279		2,641
Net interest income	10,855		11,223
Provision for loan losses	2,200		1,120
Net interest income after provision for loan losses	8,655		10,103
Non-interest income
Service charges on deposit accounts	953		1,014
Other service charges and fees	452		400
Gain on sale of mortgage loans	241		219
Non-deposit brokerage fees	234		145
Lease income	223		203
BOLI income	170		198
Gain on sale of securities available-for-sale (includes $37 in 2013 and $55 in 2012 accumulated other comprehensive income reclassifications for unrealized net gains on available-for-sale-securities) comprehensive income reclassifications for unrealized net gains on available-for- sale securities)	37		55
Total non-interest income	2,310		2,234
Non-interest expenses
Salaries and employee benefits	4,240		4,229
Net occupancy expense	1,425		1,427
Advertising and public relations	258		260
Professional fees	539		451
Data processing services	817		675
Franchise shares and deposit tax	428		407
FDIC insurance	261		228
Core deposit intangible amortization	253		265
Postage and office supplies	113		149
Other real estate owned expenses	38		156
Other	1,168		717
Total non-interest expenses	9,540		8,964
Income before income taxes (benefits)	1,425		3,373
Income taxes (includes $13 in 2013 and $19 in 2012 in income tax expense from reclassification items)	289		897
Net income	$	1,136	$	2,476
Dividends and accretion on preferred stock	571		672
Net income available for common stockholders	$	565	$	1,804
Basic earnings (loss) per common share	$	0.29	$	0.92
Diluted earnings (loss) per common share	$	0.27	$	0.88

See Notes to Unaudited Consolidated Financial Statements

5

Citizens First Corporation

Unaudited Consolidated Statements of Comprehensive Income

In thousands, except share data

	Three months ended
	(In Thousands, Except Per Share Data)
	September 30, 2013		September 30, 2012
Comprehensive income, net of tax
Net income	233		941
Other comprehensive income
Reclassification adjustment for gains included in net income, net	—		—
Change in unrealized gain on available for sale securities, net of $87 taxes in 2013 and $70 in 2012	257		207
Total other comprehensive income	257		207
Comprehensive income	$	490	$	1,148

	Nine months ended
	(In Thousands, Except Per Share Data)
	September 30, 2013			September 30,2012
Comprehensive income, net of tax
Net income	1,136			2,476
Other comprehensive income
Reclassification adjustment for gains included in net income, net	(24		)	(36		)
Change in unrealized gain (loss) on available for sale securities, net of $256 taxes in 2013 and $148 in 2012	(752		)	434
Total other comprehensive income (loss)	(776		)	398
Comprehensive income	$	360		$	2,874

See Notes to Unaudited Consolidated Financial Statements

6

Citizens First Corporation

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

In thousands, except share data

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

	Preferred  Stock			Common  Stock		Retained  Earnings  (Deficit)			Accumulated Other  Comprehensive  Income (Loss)			Total
Balance, January 1, 2013	$	14,178		$	27,072	$	(430	)	$	746		$	41,566
Net income						1,136						1,136
Repayment of 93 shares Series A preferred stock	(3,301		)									(3,301		)
Accretion on Series A preferred stock	41					(41		)				—
Change in other comprehensive income, net									(776		)	(776		)
Dividend declared and paid on preferred stock						(530		)				(530		)
Balance, September 30, 2013	$	10,918		$	27,072	$	134		$	(30	)	$	38,094

See Notes to Unaudited Consolidated Financial Statements

7

Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows

	(In Thousands)
	September 30, 2013			September 30, 2012
Operating Activities
Net income	$	1,136		$	2,476
Items not requiring (providing) cash:
Depreciation and amortization	467			478
Provision for loan losses	2,200			1,120
Amortization of premiums and discounts on securities	263			257
Amortization of core deposit intangible	253			265
Deferred income taxes	543			(106		)
BOLI income	(170		)	(198		)
Proceeds from sale of mortgage loans	9,853			11,608
Origination of mortgage loans held for sale	(9,667		)	(11,209		)
Gains on sales of available-for-sale securities	(37		)	(55		)
Gains on sales of mortgage loans	(241		)	(219		)
Write-downs and losses on sale of other real estate owned	13			121
Gain on sale premises and equipment	(9		)	(12		)
Changes in:
Accrued interest receivable	12			51
Other assets	626			551
Accrued interest payable and other liabilities	(225		)	217
Net cash provided by operating activities	5,017			5,345
Investing Activities
Loan originations and payments, net	(6,177		)	(12,576		)
Purchase of premises and equipment	(71		)	(224		)
Proceeds from maturities of available-for-sale securities	7,105			12,921
Proceeds from sales of available-for-sale securities	1,089			962
Proceeds from sales of other real estate owned	85			404
Purchase of available-for-sale securities	(13,398		)	(10,590		)
Proceeds from sales of premises and equipment	9			12
Net cash used in investing activities	(11,358		)	(9,091		)
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts	8,292			(15,745		)
Net change in time deposits	(2,392		)	(1,200		)
Repayment of TARP preferred stock	(3,301		)	—
Proceeds from other borrowings	2,000			12,500
Repayment of FHLB advances	—			(7,500		)
Dividends paid on preferred stock	(530		)	(636		)
Net cash provided by (used in) financing activities	4,069			(12,581		)
Decrease in Cash and Cash Equivalents	(2,272		)	(16,327		)
Cash and Cash Equivalents, Beginning of Year	34,799			30,549
Cash and Cash Equivalents, End of Quarter	$	32,527		$	14,222
Supplemental Cash Flows Information
Interest paid	$	2,247		$	2,676
Income taxes paid	$	270		$	560
Loans transferred to other real estate owned	$	454		$	147

See Notes to Unaudited Consolidated Financial Statements

8

Citizens First Corporation

Notes to Unaudited Consolidated Financial Statements

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

The accounting and reporting policies of Citizens First Corporation (the “Company”) and its subsidiary, Citizens First Bank, Inc. (the “Bank”), conform to U.S. generally accepted accounting principles and general practices within the banking industry.  The consolidated financial statements include the accounts of the Company and the Bank.  All significant intercompany transactions and accounts have been eliminated in consolidation.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy.  Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities.  Actual results could differ from those estimates used in the preparation of the financial statements.

In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in the accompanying unaudited financial statements.  Those adjustments consist only of normal recurring adjustments. Results of interim periods are not necessarily indicative of results to be expected for the full year.  The consolidated balance sheet of the Company as of December 31, 2012 has been derived from the audited consolidated balance sheet of the Company as of that date.

Note 2 - Reclassifications

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

9

Note 3 - Available-For-Sale Securities

The following table summarizes the amortized cost and fair value of the available-for sale securities portfolio at September 30, 2013 and December 31, 2012 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

	(Dollars in Thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2013
U. S. government agencies and government sponsored entities	$	6,005	$	—	$	(150	)	$	5,855
State and municipal	19,910		632		(249		)	20,293
Agency mortgage-backed securities: residential	21,701		315		(113		)	21,903
Trust preferred security	1,871		—		(471		)	1,400
Corporate Bonds	1,000		—		(10		)	990
Total investment securities	$	50,487	$	947	$	(993	)	$	50,441
December 31, 2012
U. S. government agencies and government sponsored entities	$	7,018	$	7	$	(21	)	$	7,004
State and municipal	19,541		1,366		(31		)	20,876
Agency mortgage-backed securities: residential	17,082		477		—			17,559
Trust preferred security	1,867		—		(667		)	1,200
Total investment securities	$	45,508	$	1,850	$	(719	)	$	46,639

The amortized cost and fair value of investment securities at September 30, 2013 by contractual maturity were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	September 30, 2013  (Dollars in Thousands)
	Available-For-Sale
	Amortized Cost		Fair Value
Due in one year or less	256		260
Due from one to five years	5,902		5,986
Due from five to ten years	13,641		13,746
Due after ten years	8,987		8,546
Agency mortgage-backed: residential	21,701		21,903
Total	$	50,487	$	50,441

10

The following table summarizes the investment securities with unrealized losses at September 30, 2013 and December 31, 2012, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2013:
U.S. government agencies and government sponsored entities	$	5,855	$	(150	)	$	—	$	—		$	5,855	$	(150	)
State and municipal	3,657		(249		)	—		—			3,657		(249		)
Agency mortgage-backed: residential	4,469		(113		)	—		—			4,469		(113		)
Trust preferred security	—		—			1,400		(471		)	1,400		(471		)
Corporate bonds	990		(10		)	—		—			990		(10		)
Total temporarily impaired	$	14,971	$	(522	)	$	1,400	$	(471	)	$	16,371	$	(993	)

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2012:
U.S. government agencies and government sponsored entities	$	3,985	$	(21	)	$	—	$	—		$	3,985	$	(21	)
State and municipal	1,131		(31		)	—		—			1,131		(31		)
Trust preferred security	—		—			1,200		(667		)	1,200		(667		)
Total temporarily impaired	$	5,116	$	(52	)	$	1,200	$	(667	)	$	6,316	$	(719	)

Other-Than-Temporary-Impairment

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

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

As of September 30, 2013, our securities portfolio consisted of $50.4 million fair value of securities, $16.4 million, or 21 securities, of which were in an unrealized loss position.

11

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

The Company’s unrealized losses 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.  While market conditions have allowed some increase in the fair market value of the trust preferred security at September 30, 2013, a full recovery has not yet occurred.  No impairment charge is being taken as no loss of principal or interest is anticipated.  All principal and interest payments are being received as scheduled.  On a quarterly basis, we evaluate the creditworthiness of the issuer, a bank holding company with operations in the state of Kentucky.  Based on the issuer’s continued profitability and well-capitalized position, we do not deem that there is credit loss.  The decline in fair value is primarily attributable to illiquidity affecting these markets and not the expected cash flows of the individual securities.  We have evaluated the financial condition and near term prospects of the issuer and expect to fully recover our cost basis.  This security continues to pay interest as agreed and future payments are expected to be made as agreed.  This security is not considered to be other-than-temporarily impaired.

Note 4 - Loans and Allowance for Loan Losses

Categories of loans include:

	(Dollars in Thousands)
	September  30,  2013			December 31,  2012
Commercial	$	46,781		$	49,535
Commercial real estate:
Construction	12,861			8,094
Other	160,209			156,553
Residential real estate	75,055			77,356
Consumer:
Auto	2,854			3,350
Other	3,616			3,866
Total loans	301,376			298,754
Less allowance for loan losses	(4,820		)	(5,721		)
Net loans	$	296,556		$	293,033

The following table sets forth an analysis of our allowance for loan losses for the three months ending September 30, 2013 and 2012.

12

	(Dollars In Thousands)
	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
September 30, 2013 Allowance for loan losses:
Beginning balance	$	1,922		$	3,271		$	521		$	73		$	277	$	6,064
Provision for loan losses	(286		)	967			53			16			150		900
Loans charged-off	—			(2,169		)	(21		)	(8		)	—		(2,198		)
Recoveries	15			32			5			2			—		54
Total ending allowance balance	$	1,651		$	2,101		$	558		$	83		$	427	$	4,820

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

The following table sets forth an analysis of our allowance for loan losses for the nine months ending September 30, 2013 and 2012.

	(Dollars In Thousands)
	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
September 30, 2013 Allowance for loan losses:
Beginning balance	$	2,156		$	2,635		$	589		$	90		$	251	$	5,721
Provision for loan losses	460			1,558			(7		)	13			176		2,200
Loans charged-off	(987		)	(2,183		)	(40		)	(24		)	—		(3,234		)
Recoveries	22			91			16			4			—		133
Total ending allowance balance	$	1,651		$	2,101		$	558		$	83		$	427	$	4,820

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

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

13

as of September 30, 2013 and December 31, 2012.  As of September 30, 2013 and December 31, 2012, accrued interest receivable of $1.4 million, are not considered significant and therefore not included in the recorded investment in loans presented in the following tables. Net deferred loan fees of $258,000 and $168,000, respectively, are included in the following tables.

	(Dollars In Thousands)
	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
September 30, 2013
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,083	$	334	$	151	$	38	$	—	$	1,606
Collectively evaluated	568		1,767		407		45		427		3,214
Total ending allowance balance	$	1,651	$	2,101	$	558	$	83	$	427	$	4,820
Loans:
Individually evaluated for impairment	$	4,589	$	6,143	$	841	$	38	$	—	$	11,611
Collectively evaluated	42,191		166,927		74,214		6,433		—		289,765
Total ending loans balance	$	46,781	$	173,070	$	75,055	$	6,470	$	—	$	301,376

	(Dollars In Thousands)
	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
December 31, 2012
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,643	$	1,761	$	19	$	28	$	—	$	3,451
Collectively evaluated	513		874		570		62		251		2,270
Total ending allowance balance	$	2,156	$	2,635	$	589	$	90	$	251	$	5,721
Loans:
Individually evaluated for impairment	$	5,726	$	6,900	$	245	$	34	$	—	$	12,905
Collectively evaluated	43,809		157,747		77,111		7,182		—		285,849
Total ending loans balance	$	49,535	$	164,647	$	77,356	$	7,216	$	—	$	298,754

The following table presents information related to impaired loans by class of loans as of September 30, 2013 and December 31, 2012. In this table presentation the unpaid principal balance of the loans has not been reduced by partial net charge-offs. In this table presentation the recorded investment of the loans was reduced by partial net charge-offs.

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	(Dollars in Thousands) September 30, 2013						(Dollars in Thousands) December 31, 2012
	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	$	3,316	$	3,316	$	—	$	3,699	$	3,699	$	—
Commercial real estate:
Construction	—		—		—		—		—		—
Other	6,688		4,598		—		206		206		—
Residential real estate	96		96		—		242		225		—
Consumer:
Auto	—		—		—		4		4		—
Other	—		—		—		2		2		—
Subtotal	10,100		8,010		—		4,153		4,136		—
With an allowance recorded:
Commercial	1,273		1,273		1,083		2,026		2,026		1,643
Commercial real estate:
Construction	—		—		—		—		—		—
Other	1,545		1,545		334		6,695		6,695		1,761
Residential real estate	745		745		151		20		20		19
Consumer:
Auto	23		23		23		28		28		28
Other	15		15		15		—		—		—
Subtotal	3,601		3,601		1,606		8,769		8,769		3,451
Total	$	13,701	$	11,611	$	1,606	$	12,922	$	12,905	$	3,451

Information on impaired loans for the three months ending September 30, 2013 and 2012 is as follows:

	(Dollars in Thousands) September 30, 2013						(Dollars in Thousands) September 30, 2012
	Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized		Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized
Commercial	$	5,283	67		36		$	4,039	58		34
Commercial real estate:
Construction	—		—		—		—		—		—
Other	6,750		163		39		7,759		128		70
Residential real estate	826		17		12		636		9		3
Consumer:
Auto	23		—		—		19		—		—
Other	9		—		—		2		—		—
Total	$	12,891	$	247	$	87	$	12,455	$	195	$	107

Information on impaired loans for the nine months ending September 30, 2013 and 2012 is as follows:

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	(Dollars in Thousands) September 30, 2013						(Dollars in Thousands) September 30, 2012
	Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized		Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized
Commercial	$	5,158	$	207	$	130	$	4,048	$	111	$	42
Commercial real estate:
Construction	—		—		—		—		—		—
Other	6,522		371		83		5,910		330		250
Residential real estate	548		28		19		781		23		8
Consumer:
Auto	27		1		—		12		1		—
Other	9		—		—		1		—		—
Total	$	12,264	$	607	$	232	$	10,752	$	465	$	300

The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2013 and December 31, 2012 are summarized below:

	(Dollars in Thousands) As of September 30, 2013				(Dollars in Thousands) As of December 31, 2012
	Loans Past Due Over 90 Days and Still Accruing		Nonaccrual		Loans Past Due Over 90 Days and Still Accruing		Nonaccrual
Commercial	$	—	$	683	$	—	$	1,791
Commercial real estate:
Construction	—		—		—		—
Other	—		4,580		—		4,072
Residential real estate	19		540		—		245
Consumer:
Auto	—		22		—		32
Other	—		—		—		2
Total	$	19	$	5,825	$	—	$	6,142

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

The following tables present the aging of the recorded investment in past due loans as of September 30, 2013 and December 31, 2012 by class of loans.  Non-accrual loans are included and have been categorized based on their payment status:

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	(Dollars In Thousands)
	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
September 30, 2013
Commercial	$	100	$	30	$	13	$	143	$	46,638	$	46,781
Commercial real estate:
Construction	—		—		—		—		12,861		12,861
Other	—		303		4,134		4,437		155,772		160,209
Residential real estate	343		33		419		795		74,260		75,055
Consumer:
Auto	—		—		—		—		2,854		2,854
Other	—		1		—		1		3,615		3,616
Total	$	443	$	367	$	4,566	$	5,376	$	296,000	$	301,376

	(Dollars In Thousands)
	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
December 31, 2012
Commercial	$	540	$	5	$	8	$	553	$	48,982	$	49,535
Commercial real estate:
Construction	—		—		—		—		8,094		8,094
Other	2,042		3,807		75		5,924		150,629		156,553
Residential real estate	235		—		86		321		77,035		77,356
Consumer:
Auto	8		2		16		26		3,324		3,350
Other	1		—		2		3		3,863		3,866
Total	$	2,826	$	3,814	$	187	$	6,827	$	291,927	$	298,754

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $7.5 million and $7.3 million as of September 30, 2013 and December 31, 2012, 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. Of the 21 troubled debt restructurings reported at quarter end, 14 loans totaling $5.5 million were accruing and 7 loans totaling $2.0 million were on nonaccrual status.

During the quarter ending September 30, 2013, four additional loans totaling $940,000 were modified and four previously reported troubled loans of $2.0 million were further modified as troubled debt restructurings. The modification of the terms of these loans included reducing the interest rate, granting an interest only payment period, and extending the amortization term.

During the nine months ended September 30, 2013, seven additional loans totaling $1.7 million were modified and five previously reported troubled loans of $1.2 million were further modified as troubled debt restructurings. The modification of the terms of these loans included reducing the interest rate, granting an interest only payment period, and extending the amortization term.

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The following table presents loans by class modified as troubled debt restructurings outstanding as of September 30, 2013:

		(Dollars in thousands)
	Number of Loans	Pre-Modification  Outstanding  Recorded  Investment		Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	11	$	5,558	$	5,908
Commercial real estate:
Other	6	3,665		3,667
Residential real estate	3	192		206
Consumer	1	16		15
Total	21	$	9,431	$	9,796

The following table presents loans by class modified as troubled debt restructurings outstanding as of December 31, 2012:

		(Dollars in thousands)
	Number of  Loans	Pre-Modification  Outstanding  Recorded  Investment		Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	7	$	4,613	$	4,613
Commercial real estate:
Other	3	1,067		1,070
Residential real estate	1	11		12
Total	11	$	5,691	$	5,695

The following table presents loans by class modified as troubled debt restructurings that occurred during the quarter ending September 30, 2013:

		(Dollars in thousands)
	Number of  Loans	Pre-Modification  Outstanding  Recorded  Investment		Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	5	$	1,922	$	2,272
Commercial real estate:
Other	1	604		604
Residential real estate	1	71		72
Consumer	1	16		15
Total	8	$	2,613	$	2,963

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

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

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ending September 30, 2013:

		(Dollars in thousands)
	Number of Loans	Pre-Modification  Outstanding  Recorded  Investment	Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	8	2,069	2,419
Commercial real estate:
Other	1	604	604
Residential real estate	2	181	194
Consumer	1	16	15
Total	12	2,870	3,232

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

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

Specific allocations of $1.1 million and $1.4 million were reported for troubled debt restructurings as of September 30, 2013 and December 31, 2012.  No payment defaults were reported for troubled debt restructurings during the quarter or nine months ending September 30, 2013. Specific allocations of $1.9 million were reported for the troubled debt restructurings as of September 30, 2012. A partial charge off of $576,000 was taken during the quarter ending September 30, 2013 on a previously reported troubled debt restructuring. No payment defaults were reported for troubled debt restructurings during the quarter or nine months ending September 30, 2012.

The terms of certain other loans were modified during the nine months ending September 30, 2013 that did not meet the definition of a troubled debt restructuring. These loans modified during the nine months ending September 30, 2013 have a total recorded investment of $2.8 million as of September 30, 2013.  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.

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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.

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:

	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2013
Commercial	$	40,963	$	1,016	$	4,802	—		$	46,781
Commercial real estate:
Construction	12,861		—		—		—		12,861
Other	147,693		—		12,516		—		160,209
Residential real estate	74,094		—		961		—		75,055
Consumer
Auto	2,854		—		—		—		2,854
Other	3,616		—		—		—		3,616
Total	$	282,081	$	1,016	$	18,279	$	—	$	301,376

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	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2012
Commercial	$	41,852	$	99	$	7,584	$	—	$	49,535
Commercial real estate:
Construction	8,094		—		—		—		8,094
Other	145,087		520		10,933		13		156,553
Residential real estate	76,704		—		641		11		77,356
Consumer:
Auto	3,346		—		4		—		3,350
Other	3,864		—		2		—		3,866
Total	$	278,947	$	619	$	19,164	$	24	$	298,754

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

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include certain U.S. agency bonds, collateralized mortgage and debt obligations, and certain municipal securities. The Company does not have any Level 3 securities.

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

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

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

Assets measured on a recurring basis:

	Fair Value Measurements at September 30, 2013 (Dollars in Thousands)
	Quoted Prices  in Active Markets for Identical Assets (Level 1)	Significant Other  Observable Inputs  (Level 2)		Significant  Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		$	5,855
State and municipal		20,293
Agency mortgage-backed securities -residential		21,903
Trust preferred security		1,400
Corporate bonds		990
Total investment securities	—	$	50,441	—

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	Fair Value Measurements at December 31, 2012 (Dollars in Thousands)
	Quoted Prices  in Active Markets for Identical Assets (Level 1)	Significant Other  Observable Inputs  (Level 2)		Significant  Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		$	7,004
State and municipal		20,876
Agency mortgage-backed securities -residential		17,559
Trust preferred security		1,200
Total investment securities	—	$	46,639	—

Assets measured on a non-recurring basis:

Fair Value Measurements at September 30, 2013

(Dollars in Thousands)

	Significant  Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	190
Commercial RE	1,211
Residential	594
Other real estate owned:
Commercial RE	$	337
Residential	210

Fair Value Measurements at December 31, 2012

(Dollars in Thousands)

	Significant  Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	383
Commercial RE	4,934
Residential	1
Other real estate owned:
Residential	$	191

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Impaired loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $3.6 million at September 30, 2013 with a valuation allowance of $1.6 million.  Impaired loans had a principal balance of $8.8 million at December 31, 2012, with a valuation allowance of $3.5 million.  A resulting decrease in the specific allocation for impaired loans of $870,000 was recognized for the nine months ended September 30, 2013, as a result of net changes in fair values on collateral dependent loans and other factors affecting the provision for loan losses.

Other real estate owned, which is measured at fair value less costs to sell, had a net carrying value of $547,000 at September 30, 2013 and $191,000 at December 31, 2012.  Total writedowns of other real estate owned year to date September 30, 2013 and 2012, were $15,000 and $40,000 respectively.

The following table presents quantitative and qualitative information about Level 3 fair value measurements for financial instruments measured on a non-recurring basis at September 30, 2013.

	September  30, 2013		Valuation Techniques	Unobservable Inputs (Dollars in  thousands)	Range (Weighted Avg)
Impaired loans:
Commercial	$	190	Market Approach	Discounts to allow for market value of assets	0%-66.72% (41.92%)
Commercial RE	1,211		Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	(20.00)%

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Residential	594	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	0%-15% (12.18%)
Other real estate owned:
Commercial RE	337	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	21%-49% (45.16%)
Residential	210	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	6%-17.4% (11.16%)

The following table presents quantitative and qualitative information about Level 3 fair value measurements for financial instruments measured on a non-recurring basis at December 31, 2012.

	December  31,2012	Valuation Techniques	Unobservable Inputs (Dollars in  thousands)	Range (Weighted Avg)
Impaired loans:
Commercial	$383	Market Approach	Discounts to allow for market value of assets	0%-50% (40.22%)
Commercial RE	4,934	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	20%-38.97% (32.60%)
Residential	1	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	0%-15% (15%)
Other real estate owned:
Residential	191	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	6%-15% (9.39%)

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

	Carrying		Fair Value Measurements at September 30, 2013
	Amount		Level 1		Level 2	Level 3	Total
Financial Assets
Cash and cash equivalents	$	32,527	$	32,527			$	32,527
Loans held for sale	115				118		118
Loans, net of allowance	294,561					299,373	299,373
Accrued interest receivable	1,648				261	1,387	1,648
Federal Home Loan Bank stock	2,025						N/A
Financial Liabilities
Demand and savings deposits	$	161,211	$	133,267			$	133,267
Time deposits	176,422				177,102		177,102
FHLB advances and other borrowings	28,000				27,811		27,811
Subordinate debentures	5,000					2,392	2,392
Accrued interest payable	270		12		258		270

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	Carrying		Fair Value Measurements at December 31, 2012
	Amount		Level 1		Level 2	Level 3	Total
Financial Assets
Cash and cash equivalents	$	34,799	$	34,799			$	34,799
Loans held for sale	61				62		62
Loans, net of allowance	287,715					290,865	290,865
Accrued interest receivable	1,660				273	1,387	1,660
Federal Home Loan Bank stock	2,025						N/A
Financial Liabilities
Demand and savings deposits	$	152,919	$	152,932			$	152,932
Time deposits	178,814				179,001		179,001
FHLB advances	26,000				26,350		26,350
Subordinate debentures	5,000					2,392	2,392
Accrued interest payable	238		10		228		238

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

(c)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

26

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 third party investors resulting in a Level 2 classification.

(d)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 money market accounts and 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.

(e)FHLB Advances/ 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.

(f)Accrued Interest Receivable/Payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1 or Level 2 classification consistent with the asset/liability they are associated with.

Note 6 - Earnings Per Share

Basic earnings per share have been computed by dividing net income available for common shareholders by the weighted-average number of common shares outstanding for the period.  Diluted earnings per share have been computed the same as basic earnings per share, and assumes the conversion of outstanding vested stock options and convertible preferred stock if dilutive.  The following table reconciles the basic and diluted earnings per share computations for the quarters ending September 30, 2013 and 2012.

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	Quarter ended September 30,  2013						Quarter ended September 30,  2012
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share:
Net income	$	233					$	941
Less: Dividends and accretion on preferred stock	(178		)				(225		)
Net income (loss) available to common shareholders	$	55		1,968,777	$	0.03	$	716		1,968,777	$	0.36
Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			110,143			—			99,112
Diluted earnings per share
Net income (loss) available to common shareholders and assumed conversions	$	55		2,078,920	$	0.02	$	716		2,067,889	$	0.35

	Nine months ended September  30, 2013						Nine months ended September  30, 2012
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share
Net income	$	1,136					$	2,476
Less: Dividends and accretion on preferred stock	(571		)				(672		)
Net income/(loss) available to common shareholders	$	565		1,968,777	$	0.29	$	1,804		1,968,777	$	0.92
Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			109,509			—			88,159
Diluted earnings per share
Net income/(loss) available to common shareholders and assumed conversions	$	565		2,078,286	$	0.27	$	1,804		2,056,936	$	0.88

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Stock options for 72,931 and 86,961 shares of common stock were not considered in computing diluted earnings per common share for September 30, 2013 and 2012, respectively, because they are anti-dilutive.  Convertible preferred shares are not included because they are anti-dilutive as of September 30, 2013 and 2012.  Common stock warrants totaled 254,218 as of September 30, 2013 and 2012.

Note 7 — Subsequent Event

During the third quarter of 2013, the real estate securing our largest non-performing asset, a $3.8 million commercial real estate loan, was sold at auction to a third party for $2.5 million less selling costs.  The deficiency resulted in a charge-off of $1.6 million in the third quarter of 2013. The remaining principal balance of $2.2 million was collected on October 15, 2013.

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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 2012 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 September 30, 2013, we reported net income of $233,000 compared to net income of $941,000 in the third quarter of 2012, a decrease of $708,000.  Net income available to common shareholders was $55,000 or, $0.02 per diluted common share this quarter, compared to net income available to common shareholders of $716,000 or, $0.35 per diluted common share for the third quarter of 2012.  The provision expense was higher in the third quarter of 2013 as a result of an increase in historical charge-offs. Net charge-offs were $2.1 million for the third quarter of 2013. The majority of the charge-offs in the third quarter of 2013 had specific allocations in the allowance for loan losses that had been established prior to the current quarter.

For the nine months ended September 30, 2013, the Company reported net income of $1.1 million, or $.27 per diluted common share. This represents a decrease of $1.4

30

million, or $0.61 per diluted common share, from the net income of $2.5 million in the previous year. The decrease in net income is primarily attributable to an increase in provision for loan losses of $1.1 million due to an increase in net charge-offs. Net income also decreased due to an increase in non-interest expense of $576,000 which is a result of increased legal fees and collection expenses related to non-performing assets.

Our annualized return on average assets was 0.36% for the nine months ended September 30, 2013, compared to 0.82% in the previous year.  Our annualized return on average equity was 3.91% for the nine months ending September 30, 2013, compared to 8.26% for the nine months ending September 30, 2012.

Net Interest Income

Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets, such as loans and securities, and the total interest cost of the deposits and borrowings obtained to fund these assets.  Factors that influence the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and non-earning assets, and the amount of non-interest bearing deposits supporting earning assets.

For the quarter ended September 30, 2013, net interest income was $3.6 million, a decrease of $221,000, or 5.7%, from net interest income of $3.9 million for the comparable period in 2012.  Net interest income decreased as a result of a decrease in interest income of $300,000 offset by lower interest expense on deposits and borrowings of $79,000.  The decrease in interest income was created by a decline in the yields on loans and securities.

For the nine months ended September 30, 2013, net interest income was $10.9 million, a decrease of $368,000, or 3.3%, from net interest income of $11.2 million for the comparable period in 2012.  Net interest income decreased as a result of a decrease in interest income of $730,000 offset by lower interest expense on deposits and borrowings of $362,000.  The decrease in interest income was created by a decline in the yields on loans and securities.

The net interest margin for the three months ended September 30, 2013 was 3.88%, compared to 4.31% in 2012.  This decrease of 43 basis points is attributable primarily to a decrease in loan income for the quarter. Our yield on earning assets (tax equivalent) for the current quarter was 4.66%, a decrease of 55 basis points from 5.21% in the same period a year ago. Loan income has declined as existing loans have matured and repriced at lower rates, as well as increased competition for new loans has resulted in lower rates.

The following tables set forth for the quarter and nine months ended September 30, 2013 and 2012, 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. 

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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.

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

	2013						2012
Quarter ended September 30,	Average Balance		Income/ Expense		Average Rate		Average Balance		Income/ Expense		Average Rate
Earning assets:
Federal funds sold	$	21,673	$	14	0.25	%	$	16,788	$	11	0.26	%
Available-for-sale securities (1)
Taxable	29,325		106		1.43	%	28,944		100		1.37	%
Nontaxable (1)	19,513		247		5.03	%	18,116		249		5.47	%
Federal Home Loan Bank stock	2,025		21		4.20	%	2,025		21		4.13	%
Loans receivable (2)	307,618		4,076		5.26	%	297,863		4,384		5.86	%
Total interest earning assets	380,154		4,464		4.66	%	363,736		4,765		5.21	%
Non-interest earning assets	33,139						33,921
Total Assets	$	413,293					$	397,657
Interest-bearing liabilities:
NOW accounts	$	82,645	$	89	0.43	%	$	69,538	$	42	0.24	%
Money market accounts	21,303		17		0.32	%	23,211		26		0.45	%
Savings accounts	16,024		9		0.23	%	15,681		9		0.23	%
Time deposits	179,000		491		1.09	%	173,685		608		1.39	%
Total interest-bearing deposits	298,972		606		0.80	%	282,115		685		0.97	%
Borrowings	28,055		116		1.64	%	28,060		114		1.62	%
Subordinated debentures	5,000		25		1.95	%	5,000		27		2.12	%
Total interest-bearing liabilities	332,027		747		0.89	%	315,175		826		1.04	%
Non-interest bearing deposits	41,095						39,713
Other liabilities	2,234						1,993
Total liabilities	375,356						356,881
Stockholders’ equity	37,937						40,776
Total Liabilities and Stockholders’ Equity	$	413,293					$	397,657
Net interest income			$	3,717					$	3,939
Net interest spread (1)					3.77	%					4.17	%
Net interest margin (1) (3)					3.88	%					4.31	%
Return on average assets ratio					0.22	%					0.94	%
Return on average equity ratio					2.44	%					9.18	%
Average equity to assets ratio					9.18	%					10.25	%

(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.

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

	2013						2012
Nine months ended September 30,	Average Balance		Income/ Expense		Average Rate		Average Balance		Income/ Expense		Average Rate
Earning assets:
Federal funds sold	$	27,314	$	46	0.23	%	$	15,831	$	32	0.27	%
Available-for-sale securities (1)
Taxable	29,564		302		1.37	%	30,555		414		1.81	%
Nontaxable (1)	19,528		752		5.15	%	17,815		739		5.54	%
Federal Home Loan Bank stock	2,025		64		4.25	%	2,025		66		4.35	%
Loans, net (2)	305,710		12,223		5.35	%	300,300		12,863		5.72	%
Total interest earning assets	384,141		13,387		4.66	%	366,526		14,114		5.14	%
Non-interest earning assets	32,622						36,091
Total Assets	$	416,763					$	402,617
Interest-bearing liabilities:
NOW accounts	$	79,245	$	238	0.40	%	$	74,473	$	134	0.24	%
Money market accounts	21,850		56		0.34	%	23,337		80		0.46	%
Savings accounts	15,823		27		0.23	%	16,004		27		0.29	%
Time deposits	183,719		1,538		1.12	%	175,027		2,005		1.53	%
Total interest-bearing deposits	300,637		1,859		0.83	%	288,841		2,246		1.04	%
Borrowings	28,120		347		1.65	%	27,078		314		1.55	%
Subordinated debentures	5,000		73		1.96	%	5,000		81		2.16	%
Total interest-bearing liabilities	333,757		2,279		0.91	%	320,919		2,641		1.10	%
Non-interest bearing deposits	42,114						39,483
Other liabilities	2,082						2,156
Total liabilities	377,953						362,558
Stockholders’ equity	38,810						40,059
Total Liabilities and Stockholders’ Equity	$	416,763					$	402,617
Net interest income			$	11,108					$	11,473
Net interest spread (1)					3.75	%					4.04	%
Net interest margin (1) (3)					3.87	%					4.18	%
Return on average assets ratio					0.36	%					0.82	%
Return on average equity ratio					3.91	%					8.26	%
Average equity to assets ratio					9.31	%					9.95	%

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

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

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

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income for the nine months ended September 30, 2013 and 2012.  Information is provided with respect to (1) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (2) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume).  Changes attributable to the combined input of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

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	(Dollars in Thousands)
	Nine Months Ended September 30,
	2013 Vs. 2012
	Increase (Decrease) Due to
	Rate			Volume			Net
Interest-earning assets:
Federal funds sold	$	(9	)	$	23		$	14
Available-for-sale securities:
Taxable	(99		)	(13		)	(112		)
Nontaxable (1)	(58		)	71			13
FHLB stock	(2		)	—			(2		)
Loans, net	(872		)	232			(640		)
Total net change in income on interest-earning assets	(1,040		)	313			(727		)
Interest-bearing liabilities:
NOW accounts	95			9			104
Money market accounts	(19		)	(5		)	(24		)
Savings accounts	—			—			—
Time deposits	(566		)	99			(467		)
FHLB and other borrowings	21			12			33
Subordinated debentures	(8		)	—			(8		)
Total net change in expense on interest-bearing liabilities	(477		)	115			(362		)
Net change in net interest income	$	(563	)	$	198		$	(365	)
Percentage change	154.17		%	(54.17		)%	100.0		%

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

Provision for Loan Losses

The provision for loan losses for the third quarter of 2013 was $900,000 or 0.29% of average loans, compared to $300,000, or 0.10% of average loans for the third quarter of 2012. We had net charge-offs totaling $2.1 million during the third quarter of 2013, compared to $231,000 during the third quarter of 2012. The majority of the charge-offs in the third quarter of 2013 had specific allocations in the allowance for loan losses that had been established prior to the current quarter.

Provision expense for the nine months ended September 30, 2013 totaled $2.2 million compared to $1.1 million for the nine months ended September 30, 2012. Net charge-offs for 2013 total $3.1 million compared to $1.0 million in 2012. The provision expense is higher in 2013 due to the increased level of charged-off loans. The provision for loan losses adequately supports the loans that were previously not provided for, loans that required adjustment in the amount provided for due to current conditions, and newly identified impaired loans that required specific allocations.

Non-Interest Income

Non-interest income for the three months ended September 30, 2013 increased $51,000, or 6.8%, compared to the three months ended September 30, 2012, primarily due to an improvement in non-deposit brokerage fees of $37,000 from the previous year.

Non-interest income for the nine months ended September 30, 2013 increased $76,000, or 3.4% compared to the nine months ending September 30, 2012, primarily due to an improvement in non-deposit brokerage fees of $89,000 from the previous year.

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Non-Interest Expense

Non-interest expense for the three months ended September 30, 2013 increased $286,000, or 9.6%, compared to the three months ended September 30, 2012, primarily due to an increase in collection expenses related to non-performing loans.

Non-interest expense was $9.5 million for the nine months ended September 30, 2013, an increase of $576,000, or 6.4%, from $9.0 million in the same period of 2012.  Data processing expenses increased $142,000 and other operating expenses, primarily collection expense, increased $451,000.

Income Taxes

Income tax expense was calculated using our expected effective rate for 2013 and 2012.  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 2013 and 2012. With the increased loan loss provision in the quarter and the related increased collection costs, income before taxes and the related tax expense were lower this quarter than in previous quarters. As sources of tax-exempt income remained constant, all these factors combined to cause the effective tax rate for the quarter to be lower. The effective tax rate for the quarter was 7.2% compared to 28.0% for 2012. The effective tax rate year-to-date was 20.3% compared to 26.6% for 2012. The difference between the statutory and effective rates are impacted by such factors as income from tax-exempt loans, tax-exempt income on state and municipal securities, and income on bank owned life insurance.

Balance Sheet Review

Overview

Total assets at September 30, 2013 were $410.8 million, an increase of $4.2 million, or 1.0%, from December 31, 2012.  Loans increased $2.6 million, or 0.9%, from $298.8 million at December 31, 2012 to $301.4 million at September 30, 2013.  Deposits at September 30, 2013 were $337.6 million, an increase of $5.9 million, or 1.8%, compared to $331.7 million at December 31, 2012.

Loans

Loans increased from $298.8 million at December 31, 2012 to $301.4 million at September 30, 2013.  Total loans averaged $307.6 million for the quarter ending September 30, 2013, compared to $304.2 million for the quarter ended December 31, 2012, an increase of $3.4 million, or 1.1%.  We experienced increases in commercial real estate loans during the first nine months of the year compared to 2012.  The following table presents a summary of the loan portfolio by category:

	(Dollars in Thousands)
	September 30, 2013				December 31, 2012
			% of Total  Loans				% of Total Loans
Commercial and agricultural	$	46,781	15.52	%	$	49,535	16.58	%
Commercial real estate	173,070		57.43	%	164,647		55.11	%
Residential real estate	75,055		24.90	%	77,356		25.89	%
Consumer	6,470		2.15	%	7,216		2.42	%
	$	301,376	100.00	%	$	298,754	100.00	%

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Substantially all of our loans are to customers located in Warren, Simpson, Hart and Barren counties in Kentucky.  As of September 30, 2013, our twenty largest credit relationships consisted of loans and loan commitments ranging from $3.5 million to $11.4 million.  The aggregate amount of these credit relationships was $95.9 million.

Our lending activities are subject to a variety of lending limits imposed by state and federal law.  Citizens First Bank’s secured legal lending limit to a single borrower was approximately $12.5 million at September 30, 2013.

As of September 30, 2013, we had $23.7 million of participations in loans purchased from, and $6.4 million of participations in loans sold to, other banks.

The following table sets forth the maturity distribution of the loan portfolio as of September 30, 2013. Maturities are based on contractual terms. Our policy is to specifically review and approve all loans renewed; loans are not automatically rolled over.

	(Dollars in Thousands)
Loan Maturities as of September 30, 2013	Within One Year		After One  but Within  Five Years		After Five Years		Total
Commercial and agricultural	$	19,314	$	26,285	$	1,182	$	46,781
Commercial real estate	26,060		85,291		61,719		173,070
Residential real estate	7,609		28,363		39,083		75,055
Consumer	1,798		4,583		89		6,470
Total	$	54,781	$	144,522	$	102,073	$	301,376

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.

The allowance for loans losses at September 30, 2013 was $4.8 million, or 1.60% of total loans, compared to $5.7 million, or 1.91% of total loans as of December 31, 2012. The allowance decreased as a result of charging off specific allocations of the allowance that had been established in previous quarters.

The following table sets forth an analysis of our allowance for loan losses for the nine months ended September 30, 2013 and 2012.

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	(Dollars in Thousands)
	September 30,
	2013			2012
Balance at beginning of period	$	5,721		$	5,865
Provision for loan losses	2,200			1,120
Amounts charged off:
Commercial	987			490
Commercial real estate	2,183			100
Residential real estate	40			445
Consumer	24			14
Total loans charged off	3,234			1,049
Recoveries of amounts previously charged off:
Commercial	22			5
Commercial real estate	91			1
Residential real estate	16			19
Consumer	4			7
Total recoveries	133			32
Net charge-offs	3,101			1,017
Balance at end of period	$	4,820		$	5,968
Total loans, net of unearned income:
YTD Average	$	305,710		$	300,300
At September 30	$	301,376		$	305,764
As a percentage of YTD average loans:
Net charge-offs, annualized	1.35		%	0.45		%
Provision for loan losses, annualized	0.96		%	0.50		%

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

	(Dollars in Thousands)
	September 30,  2013			December 31,  2012
Non-accrual loans	$	3,784		$	5,384
Loans 90+ days past due/accruing	19			—
Restructured loans	2,041			758
Total non-performing loans	5,844			6,142
Other real estate owned	547			191
Total non-performing assets	$	6,391		$	6,333
Allowance for loan losses	$	4,820		$	5,721
Non-performing assets to total assets	1.56		%	1.56		%
Net charge-offs YTD to average YTD total loans, annualized	1.35		%	0.61		%
Allowance for loan losses to non-performing loans	82.48		%	93.14		%
Allowance for loan losses to total loans	1.60		%	1.91		%

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Non-performing assets totaled $6.4 million at September 30, 2013 compared to $6.3 million at December 31, 2012, an increase of $58,000. Compared to the prior quarter at June 30, 2013, non-performing assets decreased $3.6 million. Payoffs and paydowns of two commercial relationships totaling $1.8 million and partial charge offs on two commercial real estate loans totaling $2.2 million were partially offset by the addition of $304,000 in commercial real estate loans, $97,000 in commercial loans, and $151,000 in residential real estate loans. During the third quarter of 2013, the real estate securing our largest non-performing asset, a $3.8 million commercial real estate loan, was sold at auction to a third party for $2.5 million less selling costs. The deficiency balance resulted in a charge-off of $1.6 million in the third quarter of 2013. The remaining principal balance of $2.2 million was collected on October 15, 2013.

Non-performing loans are defined as non-accrual loans and loans accruing but past due 90 days or more. 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, 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

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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.

The following table presents impaired loans and the related allowance for loan losses attributable to loans evaluated for impairment by portfolio segment for the periods indicated.

	(Dollars in Thousands)
	September 30, 2013				December 31, 2012
	Loans		Allowance for Loan Losses		Loans		Allowance for Loan Losses
Commercial and agriculture	$	4,590	$	1,083	$	5,726	$	1,643
Commercial real estate	6,143		334		6,900		1,761
Residential real estate	841		151		245		19
Consumer and other	37		38		34		28
Impaired Loans	11,611		1,606		12,905		3,451
Loans collectively evaluated for impairment	289,765		3,214		285,849		2,270
Total	301,376		$	4,820	298,754		$	5,721

The decrease in impaired loans during the period is primarily attributed to the $2.2 million in partial charge offs taken on two commercial real estate loans, the payoff on two commercial relationships totaling $1.7 million, and the charge off of a commercial relationship of $556,000, that are offset by the addition of $901,000 in commercial real estate and $1.7 million in commercial loans that are now evaluated for impairment as of September 30, 2013.

The percentage of the allowance for loan losses related to loans collectively evaluated for impairment increased from 0.79% as of December 31, 2012 to 1.11% as of September 30, 2013, primarily due to the recent increase in net charge-offs.

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Summary of Allowance for Loan Losses

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.  This allocation is not intended to suggest how actual losses may occur.

	(Dollars in Thousands)
	September 30, 2013				December 31, 2012
	Amount		% of  Loans in Each Category to Total Loans		Amount		% of  Loans in Each Category to Total Loans
Commercial and agricultural	$	1,651	15.52	%	$	2,156	16.58	%
Commercial real estate	2,101		57.43	%	2,635		55.11	%
Residential real estate loans	558		24.90	%	589		25.89	%
Consumer and other loans	83		2.15	%	90		2.42	%
Unallocated	427		0.00	%	251		0.00	%
Total allowance for loan losses	$	4,820	100.00	%	$	5,721	100.00	%

We maintain a modest unallocated amount in the allowance to recognize the imprecision in estimating and measuring losses when evaluating allocations for individual loans or pools of loans.  Allocations on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience. Due to the recent increase in net charge-offs during 2013, the unallocated amount increased from $251,000 at December 31, 2012 to $427,000 at September 30, 2013. The change in this amount from year end is consistent with the re-evaluation of collateral values on existing collateral dependent loans and specific allocations made for newly identified problem loans.

We believe that the allowance for loan losses of $4.8 million at September 30, 2013 is adequate to absorb probable incurred credit losses in the loan portfolio as of that date.  That determination is based on the best information available to management, but necessarily involves uncertainties and matters of judgment and, therefore, cannot be determined with precision and could be susceptible to significant change in the future.  In addition, bank regulatory authorities, as a part of their periodic examinations, may reach different conclusions about the quality of our loan portfolio and the level of the allowance, which could require us to make additional provisions in the future.

Securities

The investment securities portfolio is comprised of U.S. Government agency and government sponsored entity securities, agency mortgage-backed securities, tax-exempt securities of states and political subdivisions, a corporate bond 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 $49.1 million for the first nine months of 2013,

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compared to $48.4 million for 2012.  The table below presents the carrying value of securities by major category.

	(Dollars in Thousands)
	September  30, 2013		December 31,  2012
U.S. Government agencies and government sponsored entities	$	5,855	$	7,004
Municipal securities	20,293		20,876
Agency mortgage-backed securities: residential	21,903		17,559
Trust preferred security	1,400		1,200
Corporate bond	990		—
Total available-for-sale securities	$	50,441	$	46,639

The table below presents the maturities and yield characteristics of securities as of September 30, 2013.  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)
September 30, 2013	One Year or Less			Over One Year Through Five Years			Over Five Years Through Ten Years			Over Ten Years			Total Maturities			Fair Value
U.S. Government agencies and government sponsored entities	$	—		$	2,998		$	3,007		$	—		$	6,005		$	5,855
Municipal securities	256			2,904			9,634			7,116			19,910			20,293
Agency mortgage-backed securities: (1)	326			17,558			3,817			—			21,701			21,903
Trust preferred security	—			—			—			1,871			1,871			1,400
Corporate bond	—			—			1,000			—			1,000			990
Total available-for-sale securities	$	582		$	23,460		$	17,458		$	8,987		$	50,487		$	50,441
Percent of total	1.1		%	46.5		%	34.6		%	17.8		%	100.0		%
Weighted average yield(2)	3.46		%	2.54		%	3.19		%	4.33		%	3.10		%

(1)Agency mortgage-backed securities (residential) are grouped into average lives based on September 2013 prepayment projections.

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

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

Deposits

Our primary funding source for lending and investment activities results from customer deposits and a deposit listing service.  As of September 30, 2013, total deposits were

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$337.6 million, compared to total deposits of $331.7 million at December 31, 2012, an increase of $5.9 million, or 1.8%.  Total deposits averaged $340.1 million for the quarter ending September 30, 2013, compared to $321.8 million during 2012, an increase of $18.3 million, or 5.7%.

We have utilized brokered certificates of deposit in the past and will continue to utilize these sources for deposits when they can be cost-effective. We have also used a deposit listing service to replace brokered deposits. There were no brokered deposits at September 30, 2013.

Time deposits of $100,000 or more totaled $63.1 million at September 30, 2013, compared to $65.9 million at December 31, 2012.  Interest expense on time deposits of $100,000 or more was $596,000 for the first nine months of 2013, compared to $811,000 for the first nine months of 2012.  Our cost has decreased as these certificates of deposit matured and were renewed at lower current market rates.  The following table shows the maturities of time deposits greater than $100,000 as of September 30, 2013.

	(Dollars in Thousands)
	September 30, 2013
Three months or less	$	21,295
Over three through six months	5,641
Over six through twelve months	8,003
Over one year through three years	21,093
Over three years through five years	—
Over five years	7,072
Total	$	63,104

Borrowings

FHLB Advances. We obtain advances from the Federal Home Bank of Cincinnati (FHLB) for funding and liability management.  These advances are collateralized by a blanket agreement of eligible 1-4 family residential mortgage loans and eligible commercial real estate.  Rates vary based on the term to repayment, and are summarized below as of September 30, 2013:

				(Dollars in  Thousands)
Type	Maturity	Rate		Amount
Fixed	October 15, 2013	0.81	%	2,500
Fixed	October 28, 2013	0.35	%	3,500
Fixed	December 10, 2014	1.73	%	2,000
Fixed	December 24, 2014	3.46	%	2,000
Fixed	February 25, 2015	2.85	%	2,000
Fixed	May 22, 2015	0.73	%	3,000
Fixed	December 2, 2015	1.14	%	5,000
Fixed	May 25, 2016	0.99	%	3,000
Fixed	May 24, 2019	1.72	%	3,000
				$	26,000

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At September 30, 2013, we had available collateral to borrow an additional $31.6 million from the FHLB.

Other Borrowings.

We have an outstanding line of credit with another financial institution as of February 2013.  As of September 30, 2013 the balance was $2.0 million.

At September 30, 2013, we had established Federal Funds lines of credit totaling $18.8 million with three correspondent banks.  No amounts were drawn as of September 30, 2013.

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).  The rate as of September 30, 2013 was 1.90%.  The subordinated debentures may be included with tier 1 capital (with certain limitations) under current regulatory guidelines.

Liquidity

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

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

Capital

At September 30, 2013, total stockholder equity was $38.1 million, a decrease of $3.5 million, or 8.4%, from $41.6 million on December 31, 2012.  The decrease is due to the repurchase of 94 of the 250 shares of the Series A preferred stock that the Company had issued to the United States Treasury (Treasury) for $3.3 million in the first quarter of 2013. No common dividends have been paid during 2013.

We are subject to various regulatory capital requirements administered by the federal

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banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken could have a material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under the regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Under quantitative measures established by regulation to ensure capital adequacy, we are required to maintain minimum amounts and ratios of total Tier 1 capital to risk-weighted assets and to total assets.  We believe we met all capital adequacy requirements as of September 30, 2013 and December 31, 2012.

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

	September  30, 2013		December 31,  2012
Tier 1 leverage ratio	9.35	%	10.20	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	N/A		N/A
Tier 1 risk-based capital ratio	12.32	%	13.16	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	N/A		N/A
Total risk-based capital ratio	13.57	%	14.41	%
Regulatory minimum	8.00	%	8.00	%
“Well-capitalized” minimum	N/A		N/A

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

	September  30, 2013		December 31,  2012
Tier 1 leverage ratio	9.81	%	10.20	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	5.00	%	5.00	%
Tier 1 risk-based capital ratio	12.92	%	13.16	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	6.00	%	6.00	%
Total risk-based capital ratio	14.17	%	14.42	%
Regulatory minimum	8.00	%	8.00	%
“Well-capitalized” minimum	10.00	%	10.00	%

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

During the fourth quarter of 2008, 250 shares of Series A preferred stock, at a stated value of $35,116 per share, were issued to the Treasury in connection with the TARP Capital Purchase Program for a purchase price of $8,779,000.  The Series A preferred stock qualifies as Tier 1 capital for regulatory purposes and ranks senior to common stock and pari passu with our Cumulative Convertible preferred stock.  This cumulative preferred stock pays a 5% annual dividend, increasing to 9% in December of 2013.

During the first quarter of 2011, the Company repurchased 63 of the 250 shares of the Series A preferred stock.  The Company paid $2.2 million to repurchase the preferred shares along with the accrued dividend for the shares repurchased. During the first quarter of 2013, the Company repurchased 94 shares of the Series A preferred stock.  The Company paid $3.3 million to repurchase the preferred shares along with the accrued dividend for the shares repurchased.

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

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ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

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

At September 30, 2013, 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 6.02% 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 3.25%.  The table below notes the projected changes in net interest income as indicated by the model for increases in rates up to 400 basis points and decreases in rates to 200 basis points.

Projections for: Oct 2013 - Sep 2014

Projected  Interest  Rate  Change	Estimated  Value	Net Interest  Income $  Change  From Base	% Change  From Base
+400	17,508,136	2,569,576	17.20	%
+300	16,661,927	1,723,367	11.54	%
+200	15,838,128	899,568	6.02	%
Base	14,938,560	0	0.00	%
-200	14,452,994	-485,566	-3.25	%

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Item 4.  Controls and Procedures

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

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

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PART II-OTHER INFORMATION

Item 6. Exhibits

EXHIBIT INDEX

3.1Restated Articles of Incorporation of Citizens First Corporation, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form SB-2 (No. 333-103238)).

3.2Articles of Amendment to Amended and Restated Articles of Incorporation of Citizens First Corporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K dated June 5, 2007).

3.3Articles of Amendment to Amended and Restated Articles of Incorporation of Citizens First Corporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed December 23, 2008).

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

4.1Restated Articles of Incorporation of Citizens First Corporation, as amended (see Exhibit 3.1).

4.2Articles of Amendment to Amended and Restated Articles of Incorporation of Citizens First Corporation (see Exhibits 3.2 and 3.3).

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

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

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

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

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

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

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

101Interactive data files: (i) Consolidated Balance Sheets at September 30, 2013 and December 31, 2012, (ii) the Consolidated Statements of Income for the nine months ended September 30, 2013 and September 30, 2012, (iii) the Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2013 and September 30, 2012, (iv) Consolidated Statements of

49

Cash Flows for the nine month periods ended September 30, 2013 and 2012, and (v) Notes to Consolidated Financial Statements.**

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

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		CITIZENS FIRST CORPORATION
Date:	November 13, 2013	/s/M. Todd Kanipe
		M. Todd Kanipe
		President and Chief Executive Officer
	November 13, 2013	/s/ J. Steven Marcum
		J. Steven Marcum
		Executive Vice President and Chief Financial Officer

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EX-31.1

Exhibit 31.1

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

I, M Todd Kanipe certify that:

1.I have reviewed this Form 10-Q of Citizens First Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to

the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2013

/s/M. Todd Kanipe

M. Todd Kanipe

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

I, J. Steven Marcum certify that:

1.I have reviewed this Form 10-Q of Citizens First Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

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

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2013

/s/J. Steven Marcum

J. Steven Marcum

Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Section 1350 Certification

In connection with the Quarterly Report of Citizens First Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, M. Todd Kanipe, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/M. Todd Kanipe
	M. Todd Kanipe
	President and Chief Executive Officer (Principal Executive Officer)
Date:	November 13, 2013

This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed ‘filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section.  This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act or otherwise subject to the liability of that section.

EX-32.2

Exhibit 32.2

Section 1350 Certification

In connection with the Quarterly Report of Citizens First Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, J. Steven Marcum, Executive Vice President, Finance and Chief Financial Officer, of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ J. Steven Marcum
	J. Steven Marcum
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date:	November 13, 2013

This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed ‘filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act or otherwise subject to the liability of that section.

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Subsequent Event

9 Months Ended

Sep. 30, 2013

Subsequent Event

Subsequent Event

Note 7 — Subsequent Event

During the third quarter of 2013, the real estate securing our largest non-performing asset, a $3.8 million commercial real estate loan, was sold at auction to a third party for $2.5 million less selling costs.  The deficiency resulted in a charge-off of $1.6 million in the third quarter of 2013. The remaining principal balance of $2.2 million was collected on October 15, 2013.

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Interest and dividend income
Loans	$ 4,076	$ 4,384	$ 12,223	$ 12,863
Taxable securities	106	100	302	414
Non-taxable securities	164	165	498	490
Federal funds sold and other	35	32	111	97
Total interest and dividend income	4,381	4,681	13,134	13,864
Interest expense
Deposits	606	685	1,859	2,246
FHLB advances and other	116	114	347	314
Subordinated debentures	25	27	73	81
Total interest expense	747	826	2,279	2,641
Net interest income	3,634	3,855	10,855	11,223
Provision for loan losses	900	300	2,200	1,120
Net interest income after provision for loan losses	2,734	3,555	8,655	10,103
Non-interest income
Service charges on deposit accounts	341	355	953	1,014
Other service charges and fees	156	138	452	400
Gain on sale of mortgage loans	81	64	241	219
Non-deposit brokerage fees	91	54	234	145
Lease income	74	68	223	203
BOLI income	53	66	170	198
Gain on sale of securities available-for-sale (includes $37 in 2013 and $55 in 2012 comprehensive income reclassifications for unrealized net gains on available-for-sale securities)			37	55
Total non-interest income	796	745	2,310	2,234
Non-interest expenses
Salaries and employee benefits	1,382	1,406	4,240	4,229
Net occupancy expense	499	489	1,425	1,427
Advertising and public relations	70	92	258	260
Professional fees	201	158	539	451
Data processing services	280	225	817	675
Franchise shares and deposit tax	146	141	428	407
FDIC insurance	150	83	261	228
Core deposit intangible amortization	84	88	253	265
Postage and office supplies	35	40	113	149
Other real estate owned expenses	7	5	38	156
Other	425	266	1,168	717
Total non-interest expenses	3,279	2,993	9,540	8,964
Income before income taxes	251	1,307	1,425	3,373
Income taxes (includes $13 and $19 in income tax expense from reclassification items for nine month ended September 30, 2013 and September 30, 2012, respectively)	18	366	289	897
Net income	233	941	1,136	2,476
Dividends and accretion on preferred stock	178	225	571	672
Net income available for common stockholders	$ 55	$ 716	$ 565	$ 1,804
Basic earnings per common share (in dollars per share)	$ 0.03	$ 0.36	$ 0.29	$ 0.92
Diluted earnings per common share (in dollars per share)	$ 0.02	$ 0.35	$ 0.27	$ 0.88

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Operating Activities
Net income	$ 1,136	$ 2,476
Items not requiring (providing) cash:
Depreciation and amortization	467	478
Provision for loan losses	2,200	1,120
Amortization of premiums and discounts on securities	263	257
Amortization of core deposit intangible	253	265
Deferred income taxes	543	(106)
BOLI income	(170)	(198)
Proceeds from sale of mortgage loans	9,853	11,608
Origination of mortgage loans held for sale	(9,667)	(11,209)
Gains on sales of available-for-sale securities	(37)	(55)
Gains on sales of mortgage loans	(241)	(219)
Write-downs and losses on sale of other real estate owned	13	121
Gain on sale premises and equipment	(9)	(12)
Changes in:
Accrued interest receivable	12	51
Other assets	626	551
Accrued interest payable and other liabilities	(225)	217
Net cash provided by operating activities	5,017	5,345
Investing Activities
Loan originations and payments, net	(6,177)	(12,576)
Purchase of premises and equipment	(71)	(224)
Proceeds from maturities of available-for-sale securities	7,105	12,921
Proceeds from sales of available-for-sale securities	1,089	962
Proceeds from sales of other real estate owned	85	404
Purchase of available-for-sale securities	(13,398)	(10,590)
Proceeds from sales of premises and equipment	9	12
Net cash used in investing activities	(11,358)	(9,091)
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts	8,292	(15,745)
Net change in time deposits	(2,392)	(1,200)
Repayment of TARP preferred stock	(3,301)
Proceeds from other borrowings	2,000	12,500
Repayment of FHLB advances		(7,500)
Dividends paid on preferred stock	(530)	(636)
Net cash provided by (used in) financing activities	4,069	(12,581)
Decrease in Cash and Cash Equivalents	(2,272)	(16,327)
Cash and Cash Equivalents, Beginning of Year	34,799	30,549
Cash and Cash Equivalents, End of Quarter	32,527	14,222
Supplemental Cash Flows Information
Interest paid	2,247	2,676
Income taxes paid	270	560
Loans transferred to other real estate owned	$ 454	$ 147

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Available-For-Sale Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Amortized Cost
Due in one year or less	$ 256
Due from one to five years	5,902
Due from five to ten years	13,641
Due after ten years	8,987
Agency mortgage-backed: residential	21,701
Total	50,487
Fair Value
Due in one year or less	260
Due from one to five years	5,986
Due from five to ten years	13,746
Due after ten years	8,546
Agency mortgage-backed: residential	21,903
Fair Value	$ 50,441	$ 46,639

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Nature of Operations and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Summary of Significant Accounting Policies

The accounting and reporting policies of Citizens First Corporation (the “Company”) and its subsidiary, Citizens First Bank, Inc. (the “Bank”), conform to U.S. generally accepted accounting principles and general practices within the banking industry.  The consolidated financial statements include the accounts of the Company and the Bank.  All significant intercompany transactions and accounts have been eliminated in consolidation.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy.  Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities.  Actual results could differ from those estimates used in the preparation of the financial statements.

In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in the accompanying unaudited financial statements.  Those adjustments consist only of normal recurring adjustments. Results of interim periods are not necessarily indicative of results to be expected for the full year.  The consolidated balance sheet of the Company as of December 31, 2012 has been derived from the audited consolidated balance sheet of the Company as of that date.

Reclassifications

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.

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Loans and Allowance for Loan Losses (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Allowance for loan losses:
Beginning balance	$ 6,064	$ 5,899	$ 5,721	$ 5,865
Provision for loan losses	900	300	2,200	1,120
Loans charged-off	(2,198)	(243)	(3,234)	(1,049)
Recoveries	54	12	133	32
Total ending allowance balance	4,820	5,968	4,820	5,968
Accrued interest receivable	1,648		1,648		1,660
Net deferred loan fees	258		258		168
Allowance for loan losses, Ending allowance balance attributable to loans:
Individually evaluated for impairment	1,606		1,606		3,451
Collectively evaluated	3,214		3,214		2,270
Total ending allowance balance	4,820	5,968	4,820	5,968
Loans:
Individually evaluated for impairment	11,611		11,611		12,905
Collectively evaluated	289,765		289,765		285,849
Total Loans	301,376		301,376		298,754
Commercial
Allowance for loan losses:
Beginning balance	1,922	2,055	2,156	2,667
Provision for loan losses	(286)	17	460	(295)
Loans charged-off		(190)	(987)	(490)
Recoveries	15	5	22	5
Total ending allowance balance	1,651	1,887	1,651	1,887
Allowance for loan losses, Ending allowance balance attributable to loans:
Individually evaluated for impairment	1,083		1,083		1,643
Collectively evaluated	568		568		513
Total ending allowance balance	1,651	1,887	1,651	1,887
Loans:
Individually evaluated for impairment	4,589		4,589		5,726
Collectively evaluated	42,191		42,191		43,809
Total Loans	46,781		46,781		49,535
Commercial Real estate
Allowance for loan losses:
Beginning balance	3,271	2,737	2,635	1,986
Provision for loan losses	967	384	1,558	1,219
Loans charged-off	(2,169)	(15)	(2,183)	(100)
Recoveries	32		91	1
Total ending allowance balance	2,101	3,106	2,101	3,106
Allowance for loan losses, Ending allowance balance attributable to loans:
Individually evaluated for impairment	334		334		1,761
Collectively evaluated	1,767		1,767		874
Total ending allowance balance	2,101	3,106	2,101	3,106
Loans:
Individually evaluated for impairment	6,143		6,143		6,900
Collectively evaluated	166,927		166,927		157,747
Total Loans	173,070		173,070		164,647
Residential Real Estate
Allowance for loan losses:
Beginning balance	521	805	589	858
Provision for loan losses	53	(122)	(7)	219
Loans charged-off	(21)	(37)	(40)	(445)
Recoveries	5	5	16	19
Total ending allowance balance	558	651	558	651
Allowance for loan losses, Ending allowance balance attributable to loans:
Individually evaluated for impairment	151		151		19
Collectively evaluated	407		407		570
Total ending allowance balance	558	651	558	651
Loans:
Individually evaluated for impairment	841		841		245
Collectively evaluated	74,214		74,214		77,111
Total Loans	75,055		75,055		77,356
Consumer
Allowance for loan losses:
Beginning balance	73	70	90	81
Provision for loan losses	16	(4)	13	(7)
Loans charged-off	(8)	(1)	(24)	(14)
Recoveries	2	2	4	7
Total ending allowance balance	83	67	83	67
Allowance for loan losses, Ending allowance balance attributable to loans:
Individually evaluated for impairment	38		38		28
Collectively evaluated	45		45		62
Total ending allowance balance	83	67	83	67
Loans:
Individually evaluated for impairment	38		38		34
Collectively evaluated	6,433		6,433		7,182
Total Loans	6,470		6,470		7,216
Unallocated
Allowance for loan losses:
Beginning balance	277	232	251	273
Provision for loan losses	150	25	176	(16)
Total ending allowance balance	427	257	427	257
Allowance for loan losses, Ending allowance balance attributable to loans:
Collectively evaluated	427		427		251
Total ending allowance balance	$ 427	$ 257	$ 427	$ 257

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Loans and Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Categories of loans
Total loans	$ 301,376		$ 298,754
Less allowance for loan losses	(4,820)	(6,064)	(5,721)	(5,968)	(5,899)	(5,865)
Net loans	296,556		293,033
Commercial
Categories of loans
Total loans	46,781		49,535
Less allowance for loan losses	(1,651)	(1,922)	(2,156)	(1,887)	(2,055)	(2,667)
Commercial real estate: Construction
Categories of loans
Total loans	12,861		8,094
Commercial real estate: Other
Categories of loans
Total loans	160,209		156,553
Residential real estate
Categories of loans
Total loans	75,055		77,356
Less allowance for loan losses	(558)	(521)	(589)	(651)	(805)	(858)
Consumer: Auto
Categories of loans
Total loans	2,854		3,350
Consumer: Other
Categories of loans
Total loans	$ 3,616		$ 3,866

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Fair Value Measurements (Details 2) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Valuation techniques
Impaired loans	$ 11,611	$ 12,905
Other real estate owned	547	191
Market Approach | Commercial
Valuation techniques
Impaired loans	190	383
Market Approach | Commercial | Minimum
Valuation techniques
Range (as a percent)	0.00%	0.00%
Market Approach | Commercial | Maximum
Valuation techniques
Range (as a percent)	66.72%	50.00%
Market Approach | Commercial | Weighted Average
Valuation techniques
Range (as a percent)	41.92%	40.22%
Sales Comparison | Commercial RE | Minimum
Valuation techniques
Range (as a percent)		20.00%
Sales Comparison | Commercial RE | Maximum
Valuation techniques
Range (as a percent)		38.97%
Sales Comparison | Commercial RE | Weighted Average
Valuation techniques
Range (as a percent)		32.60%
Sales Comparison | Residential
Valuation techniques
Impaired loans	594	1
Other real estate owned	210	191
Sales Comparison | Residential | Minimum
Valuation techniques
Range (as a percent)	0.00%	0.00%
Sales Comparison | Residential | Maximum
Valuation techniques
Range (as a percent)	15.00%	15.00%
Sales Comparison | Residential | Weighted Average
Valuation techniques
Range (as a percent)	12.18%	15.00%
Sales Comparison | Real estate owned residential | Minimum
Valuation techniques
Range (as a percent)	6.00%	6.00%
Sales Comparison | Real estate owned residential | Maximum
Valuation techniques
Range (as a percent)	17.40%	15.00%
Sales Comparison | Real estate owned residential | Weighted Average
Valuation techniques
Range (as a percent)	11.16%	9.39%
Sales Comparison | Impaired loans: Commercial RE
Valuation techniques
Impaired loans	1,211	4,934
Sales Comparison | Impaired loans: Commercial RE | Weighted Average
Valuation techniques
Range (as a percent)	20.00%
Sales Comparison | Other real estate owned: Commercial RE
Valuation techniques
Other real estate owned	$ 337
Sales Comparison | Other real estate owned: Commercial RE | Minimum
Valuation techniques
Range (as a percent)	21.00%
Sales Comparison | Other real estate owned: Commercial RE | Maximum
Valuation techniques
Range (as a percent)	49.00%
Sales Comparison | Other real estate owned: Commercial RE | Weighted Average
Valuation techniques
Range (as a percent)	45.16%

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Loans and Allowance for Loan Losses (Details 6) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013 item	Sep. 30, 2012 item	Sep. 30, 2013 item	Sep. 30, 2012 item	Dec. 31, 2012 item
Loans and Allowance for Loan Losses
Total troubled debt restructurings	$ 7,500,000		$ 7,500,000		$ 7,300,000
Commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings	0		0		0
Number of loans accruing that are classified as troubled debt restructurings			14
Loans accruing that are classified as troubled debt restructurings	5,500,000		5,500,000
Number of loans on nonaccrual status that are classified as troubled debt restructurings			7
Loans on nonaccrual status that are classified as troubled debt restructurings	2,000,000		2,000,000
Number of loans modified as troubled debt restructurings	4		7
Additional loan outstanding pre-modification	940,000		1,700,000
Number of loans further modified as troubled debt restructurings	4		5
Loan further modified outstanding pre-modification	2,000,000		1,200,000
Troubled Debt Restructurings
Number of Loans	21		21		11
Pre-Modification Outstanding Recorded Investment	9,431,000		9,431,000		5,691,000
Post-Modification Outstanding Recorded Investment	9,796,000		9,796,000		5,695,000
Number of Loans	8	1	12	7
Pre-Modification Outstanding Recorded Investment	2,613,000	952,000	2,870,000	4,121,000
Post-Modification Outstanding Recorded Investment	2,963,000	952,000	3,232,000	4,124,000
Specific allocations reported for the troubled debt restructurings	1,100,000	1,900,000	1,100,000	1,900,000	1,400,000
Number of payment defaults reported for troubled debt restructurings	0	0	0	0
Previously reported troubled debt restructuring partial charge off	576,000
Total recorded investment for loans modified (other than through troubled debt restructuring)	2,800,000		2,800,000
Commercial
Troubled Debt Restructurings
Number of Loans	11		11		7
Pre-Modification Outstanding Recorded Investment	5,558,000		5,558,000		4,613,000
Post-Modification Outstanding Recorded Investment	5,908,000		5,908,000		4,613,000
Number of Loans	5		8	5
Pre-Modification Outstanding Recorded Investment	1,922,000		2,069,000	3,147,000
Post-Modification Outstanding Recorded Investment	2,272,000		2,419,000	3,147,000
Commercial real estate: Other
Troubled Debt Restructurings
Number of Loans	6		6		3
Pre-Modification Outstanding Recorded Investment	3,665,000		3,665,000		1,067,000
Post-Modification Outstanding Recorded Investment	3,667,000		3,667,000		1,070,000
Number of Loans	1	1	1	2
Pre-Modification Outstanding Recorded Investment	604,000	952,000	604,000	974,000
Post-Modification Outstanding Recorded Investment	604,000	952,000	604,000	977,000
Residential real estate
Troubled Debt Restructurings
Number of Loans	3		3		1
Pre-Modification Outstanding Recorded Investment	192,000		192,000		11,000
Post-Modification Outstanding Recorded Investment	206,000		206,000		12,000
Number of Loans	1		2
Pre-Modification Outstanding Recorded Investment	71,000		181,000
Post-Modification Outstanding Recorded Investment	72,000		194,000
Consumer: Other
Troubled Debt Restructurings
Number of Loans	1		1
Pre-Modification Outstanding Recorded Investment	16,000		16,000
Post-Modification Outstanding Recorded Investment	15,000		15,000
Number of Loans	1		1
Pre-Modification Outstanding Recorded Investment	16,000		16,000
Post-Modification Outstanding Recorded Investment	$ 15,000		$ 15,000

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Available-For-Sale Securities (Details 3) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013 item	Dec. 31, 2012
Investment securities with unrealized losses
Fair Value, Less than 12 Months	$ 14,971	$ 5,116
Unrealized Losses, Less than 12 Months	(522)	(52)
Fair Value, 12 Months or More	1,400	1,200
Unrealized Losses, 12 Months or More	(471)	(667)
Fair Value, Total	16,371	6,316
Unrealized Losses, Total	(993)	(719)
Number of available-for-sale securities in an unrealized loss position	21
Number of adverse conditions identified, related to repayment of securities that are not rated	0
Impairment charge on available for sale securities	0
Loss of principal anticipated	0
Loss of interest anticipated	0
U. S. government agencies and government sponsored entities
Investment securities with unrealized losses
Fair Value, Less than 12 Months	5,855	3,985
Unrealized Losses, Less than 12 Months	(150)	(21)
Fair Value, Total	5,855	3,985
Unrealized Losses, Total	(150)	(21)
State and municipal
Investment securities with unrealized losses
Fair Value, Less than 12 Months	3,657	1,131
Unrealized Losses, Less than 12 Months	(249)	(31)
Fair Value, Total	3,657	1,131
Unrealized Losses, Total	(249)	(31)
Trust preferred security
Investment securities with unrealized losses
Fair Value, 12 Months or More	1,400	1,200
Unrealized Losses, 12 Months or More	(471)	(667)
Fair Value, Total	1,400	1,200
Unrealized Losses, Total	(471)	(667)
Agency mortgage-backed: residential
Investment securities with unrealized losses
Fair Value, Less than 12 Months	4,469
Unrealized Losses, Less than 12 Months	(113)
Fair Value, Total	4,469
Unrealized Losses, Total	(113)
Corporate Bonds
Investment securities with unrealized losses
Fair Value, Less than 12 Months	990
Unrealized Losses, Less than 12 Months	(10)
Fair Value, Total	990
Unrealized Losses, Total	$ (10)

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Comprehensive income, net of tax
Net income	$ 233	$ 941	$ 1,136	$ 2,476
Other comprehensive income
Reclassification adjustment for gains included in net income, net			(24)	(36)
Change in unrealized gain (loss) on available for sale securities, net of $87 and $256 taxes for the three and nine months ending 2013; and, net of $70 and $148 taxes for the three and nine months ended 2012, respectively	257	207	(752)	434
Total other comprehensive income (loss)	257	207	(776)	398
Comprehensive income	$ 490	$ 1,148	$ 360	$ 2,874

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Consolidated Statements of Changes in Stockholders' Equity (USD $) In Thousands, unless otherwise specified	Total	Preferred Stock	Common Stock	Retained Earnings (Deficit)	Accumulated Other Comprehensive Income (Loss)
Balance at Dec. 31, 2011	$ 38,872	$ 14,130	$ 27,072	$ (2,706)	$ 376
Increase (Decrease) in Stockholders' Equity
Net income	2,476			2,476
Accretion on Series A preferred stock		36		(36)
Change in other comprehensive income, net	398				398
Dividend declared and paid on preferred stock	(636)			(636)
Balance at Sep. 30, 2012	41,110	14,166	27,072	(902)	774
Balance at Dec. 31, 2012	41,566	14,178	27,072	(430)	746
Increase (Decrease) in Stockholders' Equity
Net income	1,136			1,136
Repayment of 93 shares Series A preferred stock	(3,301)	(3,301)
Accretion on Series A preferred stock		41		(41)
Change in other comprehensive income, net	(776)				(776)
Dividend declared and paid on preferred stock	(530)			(530)
Balance at Sep. 30, 2013	$ 38,094	$ 10,918	$ 27,072	$ 134	$ (30)

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Nature of Operations and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Summary of Significant Accounting Policies

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

The accounting and reporting policies of Citizens First Corporation (the “Company”) and its subsidiary, Citizens First Bank, Inc. (the “Bank”), conform to U.S. generally accepted accounting principles and general practices within the banking industry.  The consolidated financial statements include the accounts of the Company and the Bank.  All significant intercompany transactions and accounts have been eliminated in consolidation.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy.  Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities.  Actual results could differ from those estimates used in the preparation of the financial statements.

In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in the accompanying unaudited financial statements.  Those adjustments consist only of normal recurring adjustments. Results of interim periods are not necessarily indicative of results to be expected for the full year.  The consolidated balance sheet of the Company as of December 31, 2012 has been derived from the audited consolidated balance sheet of the Company as of that date.

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) (Preferred Stock)	9 Months Ended
	Sep. 30, 2013
Preferred Stock
Repayment of shares Series A preferred stock	93

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Loans and Allowance for Loan Losses (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Unpaid Principal Balance
With no related allowance recorded	$ 10,100		$ 10,100		$ 4,153
With an allowance recorded	3,601		3,601		8,769
Total	13,701		13,701		12,922
Recorded Investment
With no related allowance recorded	8,010		8,010		4,136
With an allowance recorded	3,601		3,601		8,769
Total	11,611		11,611		12,905
Allowance for Loan Losses Allocated
Total	1,606		1,606		3,451
Average Recorded Investment
Total	12,891	12,455	12,264	10,752
Interest Income Recognized
Total	247	195	607	465
Cash Basis Interest Recognized
Total	87	107	232	300
Commercial
Unpaid Principal Balance
With no related allowance recorded	3,316		3,316		3,699
With an allowance recorded	1,273		1,273		2,026
Recorded Investment
With no related allowance recorded	3,316		3,316		3,699
With an allowance recorded	1,273		1,273		2,026
Allowance for Loan Losses Allocated
Total	1,083		1,083		1,643
Average Recorded Investment
Total	5,283	4,039	5,158	4,048
Interest Income Recognized
Total	67	58	207	111
Cash Basis Interest Recognized
Total	36	34	130	42
Commercial real estate: Other
Unpaid Principal Balance
With no related allowance recorded	6,688		6,688		206
With an allowance recorded	1,545		1,545		6,695
Recorded Investment
With no related allowance recorded	4,598		4,598		206
With an allowance recorded	1,545		1,545		6,695
Allowance for Loan Losses Allocated
Total	334		334		1,761
Average Recorded Investment
Total	6,750	7,759	6,522	5,910
Interest Income Recognized
Total	163	128	371	330
Cash Basis Interest Recognized
Total	39	70	83	250
Residential real estate
Unpaid Principal Balance
With no related allowance recorded	96		96		242
With an allowance recorded	745		745		20
Recorded Investment
With no related allowance recorded	96		96		225
With an allowance recorded	745		745		20
Allowance for Loan Losses Allocated
Total	151		151		19
Average Recorded Investment
Total	826	636	548	781
Interest Income Recognized
Total	17	9	28	23
Cash Basis Interest Recognized
Total	12	3	19	8
Consumer: Auto
Unpaid Principal Balance
With no related allowance recorded					4
With an allowance recorded	23		23		28
Recorded Investment
With no related allowance recorded					4
With an allowance recorded	23		23		28
Allowance for Loan Losses Allocated
Total	23		23		28
Average Recorded Investment
Total	23	19	27	12
Interest Income Recognized
Total			1	1
Consumer: Other
Unpaid Principal Balance
With no related allowance recorded					2
With an allowance recorded	15		15
Recorded Investment
With no related allowance recorded					2
With an allowance recorded	15		15
Allowance for Loan Losses Allocated
Total	15		15
Average Recorded Investment
Total	$ 9	$ 2	$ 9	$ 1

XML

Loans and Allowance for Loan Losses (Details 7) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Credit Quality Indicators
Total loans	$ 301,376	$ 298,754
Commercial and commercial real estate loans
Credit Quality Indicators
Minimum outstanding balance of loans to be reviewed on a monthly basis	25
Commercial
Credit Quality Indicators
Total loans	46,781	49,535
Commercial real estate: Construction
Credit Quality Indicators
Total loans	12,861	8,094
Commercial real estate: Other
Credit Quality Indicators
Total loans	160,209	156,553
Residential real estate
Credit Quality Indicators
Total loans	75,055	77,356
Consumer: Auto
Credit Quality Indicators
Total loans	2,854	3,350
Consumer: Other
Credit Quality Indicators
Total loans	3,616	3,866
Pass
Credit Quality Indicators
Total loans	282,081	278,947
Pass | Commercial
Credit Quality Indicators
Total loans	40,963	41,852
Pass | Commercial real estate: Construction
Credit Quality Indicators
Total loans	12,861	8,094
Pass | Commercial real estate: Other
Credit Quality Indicators
Total loans	147,693	145,087
Pass | Residential real estate
Credit Quality Indicators
Total loans	74,094	76,704
Pass | Consumer: Auto
Credit Quality Indicators
Total loans	2,854	3,346
Pass | Consumer: Other
Credit Quality Indicators
Total loans	3,616	3,864
Special Mention
Credit Quality Indicators
Total loans	1,016	619
Special Mention | Commercial
Credit Quality Indicators
Total loans	1,016	99
Special Mention | Commercial real estate: Other
Credit Quality Indicators
Total loans		520
Substandard
Credit Quality Indicators
Total loans	18,279	19,164
Substandard | Commercial
Credit Quality Indicators
Total loans	4,802	7,584
Substandard | Commercial real estate: Other
Credit Quality Indicators
Total loans	12,516	10,933
Substandard | Residential real estate
Credit Quality Indicators
Total loans	961	641
Substandard | Consumer: Auto
Credit Quality Indicators
Total loans		4
Substandard | Consumer: Other
Credit Quality Indicators
Total loans		2
Doubtful
Credit Quality Indicators
Total loans		24
Doubtful | Commercial real estate: Other
Credit Quality Indicators
Total loans		13
Doubtful | Residential real estate
Credit Quality Indicators
Total loans		$ 11

XML

Subsequent Event (Details) (USD $)	3 Months Ended		9 Months Ended			9 Months Ended	0 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Sep. 30, 2013 Commercial real estate loan	Oct. 15, 2013 Subsequent Events Commercial real estate loan
Subsequent Events
Largest non-performing asset	$ 5,825,000		$ 5,825,000		$ 6,142,000	$ 3,800,000
Sale price of real estate securing largest non-performing asset, net of selling costs						2,500,000
Loans charged-off	2,198,000	243,000	3,234,000	1,049,000		1,600,000
Remaining principal balance collected							$ 2,200,000

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013 6.5% Cumulative preferred stock	Dec. 31, 2012 6.5% Cumulative preferred stock	Sep. 30, 2013 5.0% Series A cumulative preferred stock	Dec. 31, 2012 5.0% Series A cumulative preferred stock
Loans, allowance for loan losses (in dollars)	$ 4,820	$ 5,721
Preferred stock, dividend rate (as a percent)			6.50%	6.50%	5.00%	5.00%
Preferred stock, authorized shares			250	250	250	250
Preferred stock, aggregate liquidation preference (in dollars)			$ 7,998	$ 7,998	$ 3,266	$ 6,567
Preferred stock, issued shares			250	250	93	187
Preferred stock, outstanding shares			250	250	93	187
Preferred stock no par value
Common stock, authorized shares	5,000,000	5,000,000
Common stock, issued shares	1,968,777	1,968,777
Common stock, outstanding shares	1,968,777	1,968,777
Common stock no par value

XML

Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2013

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

Note 4 - Loans and Allowance for Loan Losses

Categories of loans include:

	(Dollars in Thousands)
	September  30,  2013			December 31,  2012
Commercial	$	46,781		$	49,535
Commercial real estate:
Construction	12,861			8,094
Other	160,209			156,553
Residential real estate	75,055			77,356
Consumer:
Auto	2,854			3,350
Other	3,616			3,866
Total loans	301,376			298,754
Less allowance for loan losses	(4,820		)	(5,721		)
Net loans	$	296,556		$	293,033

The following table sets forth an analysis of our allowance for loan losses for the three months ending September 30, 2013 and 2012.

	(Dollars In Thousands)
	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
September 30, 2013 Allowance for loan losses:
Beginning balance	$	1,922		$	3,271		$	521		$	73		$	277	$	6,064
Provision for loan losses	(286		)	967			53			16			150		900
Loans charged-off	—			(2,169		)	(21		)	(8		)	—		(2,198		)
Recoveries	15			32			5			2			—		54
Total ending allowance balance	$	1,651		$	2,101		$	558		$	83		$	427	$	4,820

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

The following table sets forth an analysis of our allowance for loan losses for the nine months ending September 30, 2013 and 2012.

	(Dollars In Thousands)
	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
September 30, 2013 Allowance for loan losses:
Beginning balance	$	2,156		$	2,635		$	589		$	90		$	251	$	5,721
Provision for loan losses	460			1,558			(7		)	13			176		2,200
Loans charged-off	(987		)	(2,183		)	(40		)	(24		)	—		(3,234		)
Recoveries	22			91			16			4			—		133
Total ending allowance balance	$	1,651		$	2,101		$	558		$	83		$	427	$	4,820

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

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of September 30, 2013 and December 31, 2012.  As of September 30, 2013 and December 31, 2012, accrued interest receivable of $1.4 million, are not considered significant and therefore not included in the recorded investment in loans presented in the following tables. Net deferred loan fees of $258,000 and $168,000, respectively, are included in the following tables.

	(Dollars In Thousands)
	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
September 30, 2013
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,083	$	334	$	151	$	38	$	—	$	1,606
Collectively evaluated	568		1,767		407		45		427		3,214
Total ending allowance balance	$	1,651	$	2,101	$	558	$	83	$	427	$	4,820
Loans:
Individually evaluated for impairment	$	4,589	$	6,143	$	841	$	38	$	—	$	11,611
Collectively evaluated	42,191		166,927		74,214		6,433		—		289,765
Total ending loans balance	$	46,781	$	173,070	$	75,055	$	6,470	$	—	$	301,376

	(Dollars In Thousands)
	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
December 31, 2012
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,643	$	1,761	$	19	$	28	$	—	$	3,451
Collectively evaluated	513		874		570		62		251		2,270
Total ending allowance balance	$	2,156	$	2,635	$	589	$	90	$	251	$	5,721
Loans:
Individually evaluated for impairment	$	5,726	$	6,900	$	245	$	34	$	—	$	12,905
Collectively evaluated	43,809		157,747		77,111		7,182		—		285,849
Total ending loans balance	$	49,535	$	164,647	$	77,356	$	7,216	$	—	$	298,754

The following table presents information related to impaired loans by class of loans as of September 30, 2013 and December 31, 2012. In this table presentation the unpaid principal balance of the loans has not been reduced by partial net charge-offs. In this table presentation the recorded investment of the loans was reduced by partial net charge-offs.

	(Dollars in Thousands) September 30, 2013						(Dollars in Thousands) December 31, 2012
	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	$	3,316	$	3,316	$	—	$	3,699	$	3,699	$	—
Commercial real estate:
Construction	—		—		—		—		—		—
Other	6,688		4,598		—		206		206		—
Residential real estate	96		96		—		242		225		—
Consumer:
Auto	—		—		—		4		4		—
Other	—		—		—		2		2		—
Subtotal	10,100		8,010		—		4,153		4,136		—
With an allowance recorded:
Commercial	1,273		1,273		1,083		2,026		2,026		1,643
Commercial real estate:
Construction	—		—		—		—		—		—
Other	1,545		1,545		334		6,695		6,695		1,761
Residential real estate	745		745		151		20		20		19
Consumer:
Auto	23		23		23		28		28		28
Other	15		15		15		—		—		—
Subtotal	3,601		3,601		1,606		8,769		8,769		3,451
Total	$	13,701	$	11,611	$	1,606	$	12,922	$	12,905	$	3,451

Information on impaired loans for the three months ending September 30, 2013 and 2012 is as follows:

	(Dollars in Thousands) September 30, 2013						(Dollars in Thousands) September 30, 2012
	Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized		Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized
Commercial	$	5,283	67		36		$	4,039	58		34
Commercial real estate:
Construction	—		—		—		—		—		—
Other	6,750		163		39		7,759		128		70
Residential real estate	826		17		12		636		9		3
Consumer:
Auto	23		—		—		19		—		—
Other	9		—		—		2		—		—
Total	$	12,891	$	247	$	87	$	12,455	$	195	$	107

Information on impaired loans for the nine months ending September 30, 2013 and 2012 is as follows:

	(Dollars in Thousands) September 30, 2013						(Dollars in Thousands) September 30, 2012
	Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized		Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized
Commercial	$	5,158	$	207	$	130	$	4,048	$	111	$	42
Commercial real estate:
Construction	—		—		—		—		—		—
Other	6,522		371		83		5,910		330		250
Residential real estate	548		28		19		781		23		8
Consumer:
Auto	27		1		—		12		1		—
Other	9		—		—		1		—		—
Total	$	12,264	$	607	$	232	$	10,752	$	465	$	300

The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2013 and December 31, 2012 are summarized below:

	(Dollars in Thousands) As of September 30, 2013				(Dollars in Thousands) As of December 31, 2012
	Loans Past Due Over 90 Days and Still Accruing		Nonaccrual		Loans Past Due Over 90 Days and Still Accruing		Nonaccrual
Commercial	$	—	$	683	$	—	$	1,791
Commercial real estate:
Construction	—		—		—		—
Other	—		4,580		—		4,072
Residential real estate	19		540		—		245
Consumer:
Auto	—		22		—		32
Other	—		—		—		2
Total	$	19	$	5,825	$	—	$	6,142

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

The following tables present the aging of the recorded investment in past due loans as of September 30, 2013 and December 31, 2012 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		Loans Not Past Due		Total
September 30, 2013
Commercial	$	100	$	30	$	13	$	143	$	46,638	$	46,781
Commercial real estate:
Construction	—		—		—		—		12,861		12,861
Other	—		303		4,134		4,437		155,772		160,209
Residential real estate	343		33		419		795		74,260		75,055
Consumer:
Auto	—		—		—		—		2,854		2,854
Other	—		1		—		1		3,615		3,616
Total	$	443	$	367	$	4,566	$	5,376	$	296,000	$	301,376

	(Dollars In Thousands)
	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
December 31, 2012
Commercial	$	540	$	5	$	8	$	553	$	48,982	$	49,535
Commercial real estate:
Construction	—		—		—		—		8,094		8,094
Other	2,042		3,807		75		5,924		150,629		156,553
Residential real estate	235		—		86		321		77,035		77,356
Consumer:
Auto	8		2		16		26		3,324		3,350
Other	1		—		2		3		3,863		3,866
Total	$	2,826	$	3,814	$	187	$	6,827	$	291,927	$	298,754

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $7.5 million and $7.3 million as of September 30, 2013 and December 31, 2012, 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. Of the 21 troubled debt restructurings reported at quarter end, 14 loans totaling $5.5 million were accruing and 7 loans totaling $2.0 million were on nonaccrual status.

During the quarter ending September 30, 2013, four additional loans totaling $940,000 were modified and four previously reported troubled loans of $2.0 million were further modified as troubled debt restructurings. The modification of the terms of these loans included reducing the interest rate, granting an interest only payment period, and extending the amortization term.

During the nine months ended September 30, 2013, seven additional loans totaling $1.7 million were modified and five previously reported troubled loans of $1.2 million were further modified as troubled debt restructurings. The modification of the terms of these loans included reducing the interest rate, granting an interest only payment period, and extending the amortization term.

The following table presents loans by class modified as troubled debt restructurings outstanding as of September 30, 2013:

		(Dollars in thousands)
	Number of Loans	Pre-Modification  Outstanding  Recorded  Investment		Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	11	$	5,558	$	5,908
Commercial real estate:
Other	6	3,665		3,667
Residential real estate	3	192		206
Consumer	1	16		15
Total	21	$	9,431	$	9,796

The following table presents loans by class modified as troubled debt restructurings outstanding as of December 31, 2012:

		(Dollars in thousands)
	Number of  Loans	Pre-Modification  Outstanding  Recorded  Investment		Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	7	$	4,613	$	4,613
Commercial real estate:
Other	3	1,067		1,070
Residential real estate	1	11		12
Total	11	$	5,691	$	5,695

The following table presents loans by class modified as troubled debt restructurings that occurred during the quarter ending September 30, 2013:

		(Dollars in thousands)
	Number of  Loans	Pre-Modification  Outstanding  Recorded  Investment		Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	5	$	1,922	$	2,272
Commercial real estate:
Other	1	604		604
Residential real estate	1	71		72
Consumer	1	16		15
Total	8	$	2,613	$	2,963

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

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

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ending September 30, 2013:

		(Dollars in thousands)
	Number of Loans	Pre-Modification  Outstanding  Recorded  Investment	Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	8	2,069	2,419
Commercial real estate:
Other	1	604	604
Residential real estate	2	181	194
Consumer	1	16	15
Total	12	2,870	3,232

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

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

Specific allocations of $1.1 million and $1.4 million were reported for troubled debt restructurings as of September 30, 2013 and December 31, 2012.  No payment defaults were reported for troubled debt restructurings during the quarter or nine months ending September 30, 2013. Specific allocations of $1.9 million were reported for the troubled debt restructurings as of September 30, 2012. A partial charge off of $576,000 was taken during the quarter ending September 30, 2013 on a previously reported troubled debt restructuring. No payment defaults were reported for troubled debt restructurings during the quarter or nine months ending September 30, 2012.

The terms of certain other loans were modified during the nine months ending September 30, 2013 that did not meet the definition of a troubled debt restructuring. These loans modified during the nine months ending September 30, 2013 have a total recorded investment of $2.8 million as of September 30, 2013.  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.

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:

	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2013
Commercial	$	40,963	$	1,016	$	4,802	—		$	46,781
Commercial real estate:
Construction	12,861		—		—		—		12,861
Other	147,693		—		12,516		—		160,209
Residential real estate	74,094		—		961		—		75,055
Consumer
Auto	2,854		—		—		—		2,854
Other	3,616		—		—		—		3,616
Total	$	282,081	$	1,016	$	18,279	$	—	$	301,376

	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2012
Commercial	$	41,852	$	99	$	7,584	$	—	$	49,535
Commercial real estate:
Construction	8,094		—		—		—		8,094
Other	145,087		520		10,933		13		156,553
Residential real estate	76,704		—		641		11		77,356
Consumer:
Auto	3,346		—		4		—		3,350
Other	3,864		—		2		—		3,866
Total	$	278,947	$	619	$	19,164	$	24	$	298,754

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Consolidated Statements of Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Consolidated Statements of Income
Comprehensive income reclassification adjustment for unrealized net gains on available-for-sale securities included in net income, before tax	$ 37	$ 55
Reclassification of income tax expense	$ 13	$ 19

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets
Cash and due from financial institutions	$ 9,167	$ 9,549
Federal funds sold	23,360	25,250
Cash and cash equivalents	32,527	34,799
Available-for-sale securities	50,441	46,639
Loans held for sale	115	61
Loans, net of allowance for loan losses of $4,820 and $5,721 at September 30, 2013 and December 31, 2012, respectively	296,556	293,033
Premises and equipment, net	11,172	11,568
Bank owned life insurance (BOLI)	7,756	7,587
Federal Home Loan Bank (FHLB) stock, at cost	2,025	2,025
Accrued interest receivable	1,648	1,660
Deferred income taxes	2,728	2,180
Goodwill	4,097	4,097
Core deposit intangible	744	997
Other real estate owned	547	191
Other assets	403	1,719
Total Assets	410,759	406,556
Deposits
Noninterest bearing	40,082	41,724
Savings, NOW and money market	121,129	111,195
Time	176,422	178,814
Total deposits	337,633	331,733
FHLB advances and other borrowings	28,000	26,000
Subordinated debentures	5,000	5,000
Accrued interest payable	270	238
Other liabilities	1,762	2,019
Total Liabilities	372,665	364,990
Stockholders' Equity
Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 1,968,777 shares at September 30, 2013 and December 31, 2012, respectively	27,072	27,072
Retained earnings (deficit)	134	(430)
Accumulated other comprehensive income (loss)	(30)	746
Total stockholders' equity	38,094	41,566
Total liabilities and stockholders' equity	410,759	406,556
6.5% Cumulative preferred stock
Stockholders' Equity
Preferred stock	7,659	7,659
5.0% Series A cumulative preferred stock
Stockholders' Equity
Preferred stock	$ 3,259	$ 6,519

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Loans and Allowance for Loan Losses (Details 4) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Recorded investment in nonaccrual and loans past due over 90 days
Loans Past Due Over 90 Days and Still Accruing	$ 19
Nonaccrual	5,825	6,142
Commercial
Recorded investment in nonaccrual and loans past due over 90 days
Nonaccrual	683	1,791
Commercial real estate: Other
Recorded investment in nonaccrual and loans past due over 90 days
Nonaccrual	4,580	4,072
Residential real estate
Recorded investment in nonaccrual and loans past due over 90 days
Loans Past Due Over 90 Days and Still Accruing	19
Nonaccrual	540	245
Consumer: Auto
Recorded investment in nonaccrual and loans past due over 90 days
Nonaccrual	22	32
Consumer: Other
Recorded investment in nonaccrual and loans past due over 90 days
Nonaccrual		$ 2

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Available-For-Sale Securities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Amortized cost and fair value of the available for sale investment securities portfolio
Amortized Cost	$ 50,487	$ 45,508
Gross Unrealized Gains	947	1,850
Gross Unrealized Losses	(993)	(719)
Fair Value	50,441	46,639
U. S. government agencies and government sponsored entities
Amortized cost and fair value of the available for sale investment securities portfolio
Amortized Cost	6,005	7,018
Gross Unrealized Gains		7
Gross Unrealized Losses	(150)	(21)
Fair Value	5,855	7,004
State and municipal
Amortized cost and fair value of the available for sale investment securities portfolio
Amortized Cost	19,910	19,541
Gross Unrealized Gains	632	1,366
Gross Unrealized Losses	(249)	(31)
Fair Value	20,293	20,876
Agency mortgage-backed: residential
Amortized cost and fair value of the available for sale investment securities portfolio
Amortized Cost	21,701	17,082
Gross Unrealized Gains	315	477
Gross Unrealized Losses	(113)
Fair Value	21,903	17,559
Trust preferred security
Amortized cost and fair value of the available for sale investment securities portfolio
Amortized Cost	1,871	1,867
Gross Unrealized Losses	(471)	(667)
Fair Value	1,400	1,200
Corporate Bonds
Amortized cost and fair value of the available for sale investment securities portfolio
Amortized Cost	1,000
Gross Unrealized Losses	(10)
Fair Value	$ 990

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Fair Value Measurements (Details 3) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financial Assets
Loans, net of allowance	$ 296,556	$ 293,033
Accrued interest receivable	1,648	1,660
Federal Home Loan Bank stock	2,025	2,025
Financial Liabilities
FHLB advances and other borrowings	28,000	26,000
Subordinated debentures	5,000	5,000
Accrued interest payable	270	238
Level 1
Financial Assets
Cash and cash equivalents	32,527	34,799
Financial Liabilities
Demand and savings deposits	133,267	152,932
Accrued interest payable	12	10
Level 2
Financial Assets
Loans held for sale	118	62
Accrued interest receivable	261	273
Financial Liabilities
Time deposits	177,102	179,001
FHLB advances and other borrowings	27,811
FHLB advances		26,350
Accrued interest payable	258	228
Level 3
Financial Assets
Loans, net of allowance	299,373	290,865
Accrued interest receivable	1,387	1,387
Financial Liabilities
Subordinated debentures	2,392	2,392
Carrying Amount
Financial Assets
Cash and cash equivalents	32,527	34,799
Loans held for sale	115	61
Loans, net of allowance	294,561	287,715
Accrued interest receivable	1,648	1,660
Federal Home Loan Bank stock	2,025	2,025
Financial Liabilities
Demand and savings deposits	161,211	152,919
Time deposits	176,422	178,814
FHLB advances and other borrowings	28,000
FHLB advances		26,000
Subordinated debentures	5,000	5,000
Accrued interest payable	270	238
Total
Financial Assets
Cash and cash equivalents	32,527	34,799
Loans held for sale	118	62
Loans, net of allowance	299,373	290,865
Accrued interest receivable	1,648	1,660
Financial Liabilities
Demand and savings deposits	133,267	152,932
Time deposits	177,102	179,001
FHLB advances and other borrowings	27,811
FHLB advances		26,350
Subordinated debentures	2,392	2,392
Accrued interest payable	$ 270	$ 238

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Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Basic earnings per share, Income
Net income	$ 233	$ 941	$ 1,136	$ 2,476
Less: Dividends and accretion on preferred stock	(178)	(225)	(571)	(672)
Net income available for common stockholders	$ 55	$ 716	$ 565	$ 1,804
Weighted Average Shares
Weighted Average Shares, basic	1,968,777	1,968,777	1,968,777	1,968,777
Effect of dilutive securities
Warrants (in shares)	110,143	99,112	109,509	88,159
Weighted Average Shares, diluted	2,078,920	2,067,889	2,078,286	2,056,936
Per Share Amount
Basic earnings per common share (in dollars per share)	$ 0.03	$ 0.36	$ 0.29	$ 0.92
Diluted earnings per common share (in dollars per share)	$ 0.02	$ 0.35	$ 0.27	$ 0.88
Stock options not considered in computing diluted earnings per common share (in shares)			72,931	86,961
Common stock warrants outstanding	254,218	254,218	254,218	254,218

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Available-For-Sale Securities

9 Months Ended

Sep. 30, 2013

Available-For-Sale Securities

Available-For-Sale Securities

Note 3 - Available-For-Sale Securities

The following table summarizes the amortized cost and fair value of the available-for sale securities portfolio at September 30, 2013 and December 31, 2012 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

	(Dollars in Thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2013
U. S. government agencies and government sponsored entities	$	6,005	$	—	$	(150	)	$	5,855
State and municipal	19,910		632		(249		)	20,293
Agency mortgage-backed securities: residential	21,701		315		(113		)	21,903
Trust preferred security	1,871		—		(471		)	1,400
Corporate Bonds	1,000		—		(10		)	990
Total investment securities	$	50,487	$	947	$	(993	)	$	50,441
December 31, 2012
U. S. government agencies and government sponsored entities	$	7,018	$	7	$	(21	)	$	7,004
State and municipal	19,541		1,366		(31		)	20,876
Agency mortgage-backed securities: residential	17,082		477		—			17,559
Trust preferred security	1,867		—		(667		)	1,200
Total investment securities	$	45,508	$	1,850	$	(719	)	$	46,639

The amortized cost and fair value of investment securities at September 30, 2013 by contractual maturity were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	September 30, 2013  (Dollars in Thousands)
	Available-For-Sale
	Amortized Cost		Fair Value
Due in one year or less	256		260
Due from one to five years	5,902		5,986
Due from five to ten years	13,641		13,746
Due after ten years	8,987		8,546
Agency mortgage-backed: residential	21,701		21,903
Total	$	50,487	$	50,441

The following table summarizes the investment securities with unrealized losses at September 30, 2013 and December 31, 2012, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2013:
U.S. government agencies and government sponsored entities	$	5,855	$	(150	)	$	—	$	—		$	5,855	$	(150	)
State and municipal	3,657		(249		)	—		—			3,657		(249		)
Agency mortgage-backed: residential	4,469		(113		)	—		—			4,469		(113		)
Trust preferred security	—		—			1,400		(471		)	1,400		(471		)
Corporate bonds	990		(10		)	—		—			990		(10		)
Total temporarily impaired	$	14,971	$	(522	)	$	1,400	$	(471	)	$	16,371	$	(993	)

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2012:
U.S. government agencies and government sponsored entities	$	3,985	$	(21	)	$	—	$	—		$	3,985	$	(21	)
State and municipal	1,131		(31		)	—		—			1,131		(31		)
Trust preferred security	—		—			1,200		(667		)	1,200		(667		)
Total temporarily impaired	$	5,116	$	(52	)	$	1,200	$	(667	)	$	6,316	$	(719	)

Other-Than-Temporary-Impairment

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

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

As of September 30, 2013, our securities portfolio consisted of $50.4 million fair value of securities, $16.4 million, or 21 securities, of which were in an unrealized loss position.

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

The Company’s unrealized losses 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.  While market conditions have allowed some increase in the fair market value of the trust preferred security at September 30, 2013, a full recovery has not yet occurred.  No impairment charge is being taken as no loss of principal or interest is anticipated.  All principal and interest payments are being received as scheduled.  On a quarterly basis, we evaluate the creditworthiness of the issuer, a bank holding company with operations in the state of Kentucky.  Based on the issuer’s continued profitability and well-capitalized position, we do not deem that there is credit loss.  The decline in fair value is primarily attributable to illiquidity affecting these markets and not the expected cash flows of the individual securities.  We have evaluated the financial condition and near term prospects of the issuer and expect to fully recover our cost basis.  This security continues to pay interest as agreed and future payments are expected to be made as agreed.  This security is not considered to be other-than-temporarily impaired.

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Loans and Allowance for Loan Losses (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Aging of the recorded investment in past due loans
30-59 Days Past Due	$ 443	$ 2,826
60-89 Days Past Due	367	3,814
Over 90 Days Past Due	4,566	187
Total Past Due	5,376	6,827
Loans Not Past Due	296,000	291,927
Total Loans	301,376	298,754
Commercial
Aging of the recorded investment in past due loans
30-59 Days Past Due	100	540
60-89 Days Past Due	30	5
Over 90 Days Past Due	13	8
Total Past Due	143	553
Loans Not Past Due	46,638	48,982
Total Loans	46,781	49,535
Commercial real estate: Construction
Aging of the recorded investment in past due loans
Loans Not Past Due	12,861	8,094
Total Loans	12,861	8,094
Commercial real estate: Other
Aging of the recorded investment in past due loans
30-59 Days Past Due		2,042
60-89 Days Past Due	303	3,807
Over 90 Days Past Due	4,134	75
Total Past Due	4,437	5,924
Loans Not Past Due	155,772	150,629
Total Loans	160,209	156,553
Residential real estate
Aging of the recorded investment in past due loans
30-59 Days Past Due	343	235
60-89 Days Past Due	33
Over 90 Days Past Due	419	86
Total Past Due	795	321
Loans Not Past Due	74,260	77,035
Total Loans	75,055	77,356
Consumer: Auto
Aging of the recorded investment in past due loans
30-59 Days Past Due		8
60-89 Days Past Due		2
Over 90 Days Past Due		16
Total Past Due		26
Loans Not Past Due	2,854	3,324
Total Loans	2,854	3,350
Consumer: Other
Aging of the recorded investment in past due loans
30-59 Days Past Due		1
60-89 Days Past Due	1
Over 90 Days Past Due		2
Total Past Due	1	3
Loans Not Past Due	3,615	3,863
Total Loans	$ 3,616	$ 3,866

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Earnings Per Share

9 Months Ended

Sep. 30, 2013

Earnings Per Share

Earnings Per Share

Note 6 - Earnings Per Share

Basic earnings per share have been computed by dividing net income available for common shareholders by the weighted-average number of common shares outstanding for the period.  Diluted earnings per share have been computed the same as basic earnings per share, and assumes the conversion of outstanding vested stock options and convertible preferred stock if dilutive.  The following table reconciles the basic and diluted earnings per share computations for the quarters ending September 30, 2013 and 2012.

	Quarter ended September 30,  2013						Quarter ended September 30,  2012
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share:
Net income	$	233					$	941
Less: Dividends and accretion on preferred stock	(178		)				(225		)
Net income (loss) available to common shareholders	$	55		1,968,777	$	0.03	$	716		1,968,777	$	0.36
Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			110,143			—			99,112
Diluted earnings per share
Net income (loss) available to common shareholders and assumed conversions	$	55		2,078,920	$	0.02	$	716		2,067,889	$	0.35

	Nine months ended September  30, 2013						Nine months ended September  30, 2012
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share
Net income	$	1,136					$	2,476
Less: Dividends and accretion on preferred stock	(571		)				(672		)
Net income/(loss) available to common shareholders	$	565		1,968,777	$	0.29	$	1,804		1,968,777	$	0.92
Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			109,509			—			88,159
Diluted earnings per share
Net income/(loss) available to common shareholders and assumed conversions	$	565		2,078,286	$	0.27	$	1,804		2,056,936	$	0.88

Stock options for 72,931 and 86,961 shares of common stock were not considered in computing diluted earnings per common share for September 30, 2013 and 2012, respectively, because they are anti-dilutive.  Convertible preferred shares are not included because they are anti-dilutive as of September 30, 2013 and 2012.  Common stock warrants totaled 254,218 as of September 30, 2013 and 2012.

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Reclassifications

9 Months Ended

Sep. 30, 2013

Reclassifications

Reclassifications

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.

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Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Consolidated Statements of Comprehensive Income
Unrealized gain (loss) on available for sale securities, taxes	$ 87	$ 70	$ 256	$ 148

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Fair Value Measurements (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012
Assets:
Securities available-for-sale	$ 50,441,000	$ 46,639,000
Impaired loans	11,611,000	12,905,000
Other real estate owned	547,000	191,000
Writedowns of other real estate owned	15,000		40,000
Principal balance of impaired loans	3,601,000	8,769,000
Valuation allowance	1,606,000	3,451,000
Decrease in the specific allocation for impaired loans	870,000
Commercial
Assets:
Principal balance of impaired loans	1,273,000	2,026,000
Valuation allowance	1,083,000	1,643,000
Residential
Assets:
Principal balance of impaired loans	745,000	20,000
Valuation allowance	151,000	19,000
U. S. government agencies and government sponsored entities
Assets:
Securities available-for-sale	5,855,000	7,004,000
State and municipal
Assets:
Securities available-for-sale	20,293,000	20,876,000
Agency mortgage-backed: residential
Assets:
Securities available-for-sale	21,903,000	17,559,000
Trust preferred security
Assets:
Securities available-for-sale	1,400,000	1,200,000
Corporate Bonds
Assets:
Securities available-for-sale	990,000
Recurring basis | Significant Other Observable Inputs (Level 2) | U. S. government agencies and government sponsored entities
Assets:
Securities available-for-sale	5,855,000	7,004,000
Recurring basis | Significant Other Observable Inputs (Level 2) | State and municipal
Assets:
Securities available-for-sale	20,293,000	20,876,000
Recurring basis | Significant Other Observable Inputs (Level 2) | Agency mortgage-backed: residential
Assets:
Securities available-for-sale	21,903,000	17,559,000
Recurring basis | Significant Other Observable Inputs (Level 2) | Trust preferred security
Assets:
Securities available-for-sale	1,400,000	1,200,000
Recurring basis | Significant Other Observable Inputs (Level 2) | Corporate Bonds
Assets:
Securities available-for-sale	990,000
Non-recurring basis | Significant Unobservable Inputs (Level 3) | Commercial
Assets:
Impaired loans	190,000	383,000
Non-recurring basis | Significant Unobservable Inputs (Level 3) | Commercial RE
Assets:
Impaired loans	1,211,000	4,934,000
Other real estate owned	337,000
Non-recurring basis | Significant Unobservable Inputs (Level 3) | Residential
Assets:
Impaired loans	594,000	1,000
Other real estate owned	$ 210,000	$ 191,000

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Available-For-Sale Securities (Tables)

9 Months Ended

Sep. 30, 2013

Available-For-Sale Securities

Summary of the amortized cost and fair value of the available for sale investment securities portfolio

	(Dollars in Thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2013
U. S. government agencies and government sponsored entities	$	6,005	$	—	$	(150	)	$	5,855
State and municipal	19,910		632		(249		)	20,293
Agency mortgage-backed securities: residential	21,701		315		(113		)	21,903
Trust preferred security	1,871		—		(471		)	1,400
Corporate Bonds	1,000		—		(10		)	990
Total investment securities	$	50,487	$	947	$	(993	)	$	50,441
December 31, 2012
U. S. government agencies and government sponsored entities	$	7,018	$	7	$	(21	)	$	7,004
State and municipal	19,541		1,366		(31		)	20,876
Agency mortgage-backed securities: residential	17,082		477		—			17,559
Trust preferred security	1,867		—		(667		)	1,200
Total investment securities	$	45,508	$	1,850	$	(719	)	$	46,639

Summary of the amortized cost and fair value of investment securities by contractual maturity

	September 30, 2013  (Dollars in Thousands)
	Available-For-Sale
	Amortized Cost		Fair Value
Due in one year or less	256		260
Due from one to five years	5,902		5,986
Due from five to ten years	13,641		13,746
Due after ten years	8,987		8,546
Agency mortgage-backed: residential	21,701		21,903
Total	$	50,487	$	50,441

Summary of the investment securities with unrealized losses aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2013:
U.S. government agencies and government sponsored entities	$	5,855	$	(150	)	$	—	$	—		$	5,855	$	(150	)
State and municipal	3,657		(249		)	—		—			3,657		(249		)
Agency mortgage-backed: residential	4,469		(113		)	—		—			4,469		(113		)
Trust preferred security	—		—			1,400		(471		)	1,400		(471		)
Corporate bonds	990		(10		)	—		—			990		(10		)
Total temporarily impaired	$	14,971	$	(522	)	$	1,400	$	(471	)	$	16,371	$	(993	)

	(Dollars in Thousands)
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2012:
U.S. government agencies and government sponsored entities	$	3,985	$	(21	)	$	—	$	—		$	3,985	$	(21	)
State and municipal	1,131		(31		)	—		—			1,131		(31		)
Trust preferred security	—		—			1,200		(667		)	1,200		(667		)
Total temporarily impaired	$	5,116	$	(52	)	$	1,200	$	(667	)	$	6,316	$	(719	)

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Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Measurements

Fair Value Measurements

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 obligations, and certain municipal securities. The Company does not have any Level 3 securities.

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

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

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

Assets measured on a recurring basis:

	Fair Value Measurements at September 30, 2013 (Dollars in Thousands)
	Quoted Prices  in Active Markets for Identical Assets (Level 1)	Significant Other  Observable Inputs  (Level 2)		Significant  Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		$	5,855
State and municipal		20,293
Agency mortgage-backed securities -residential		21,903
Trust preferred security		1,400
Corporate bonds		990
Total investment securities	—	$	50,441	—

	Fair Value Measurements at December 31, 2012 (Dollars in Thousands)
	Quoted Prices  in Active Markets for Identical Assets (Level 1)	Significant Other  Observable Inputs  (Level 2)		Significant  Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		$	7,004
State and municipal		20,876
Agency mortgage-backed securities -residential		17,559
Trust preferred security		1,200
Total investment securities	—	$	46,639	—

Assets measured on a non-recurring basis:

Fair Value Measurements at September 30, 2013

(Dollars in Thousands)

	Significant  Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	190
Commercial RE	1,211
Residential	594
Other real estate owned:
Commercial RE	$	337
Residential	210

Fair Value Measurements at December 31, 2012

(Dollars in Thousands)

	Significant  Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	383
Commercial RE	4,934
Residential	1
Other real estate owned:
Residential	$	191

Impaired loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $3.6 million at September 30, 2013 with a valuation allowance of $1.6 million.  Impaired loans had a principal balance of $8.8 million at December 31, 2012, with a valuation allowance of $3.5 million.  A resulting decrease in the specific allocation for impaired loans of $870,000 was recognized for the nine months ended September 30, 2013, as a result of net changes in fair values on collateral dependent loans and other factors affecting the provision for loan losses.

Other real estate owned, which is measured at fair value less costs to sell, had a net carrying value of $547,000 at September 30, 2013 and $191,000 at December 31, 2012.  Total writedowns of other real estate owned year to date September 30, 2013 and 2012, were $15,000 and $40,000 respectively.

The following table presents quantitative and qualitative information about Level 3 fair value measurements for financial instruments measured on a non-recurring basis at September 30, 2013.

	September  30, 2013		Valuation Techniques	Unobservable Inputs (Dollars in  thousands)	Range (Weighted Avg)
Impaired loans:
Commercial	$	190	Market Approach	Discounts to allow for market value of assets	0%-66.72% (41.92%)
Commercial RE	1,211		Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	(20.00)%

Residential	594	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	0%-15% (12.18%)
Other real estate owned:
Commercial RE	337	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	21%-49% (45.16%)
Residential	210	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	6%-17.4% (11.16%)

The following table presents quantitative and qualitative information about Level 3 fair value measurements for financial instruments measured on a non-recurring basis at December 31, 2012.

	December  31,2012	Valuation Techniques	Unobservable Inputs (Dollars in  thousands)	Range (Weighted Avg)
Impaired loans:
Commercial	$383	Market Approach	Discounts to allow for market value of assets	0%-50% (40.22%)
Commercial RE	4,934	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	20%-38.97% (32.60%)
Residential	1	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	0%-15% (15%)
Other real estate owned:
Residential	191	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	6%-15% (9.39%)

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

	Carrying		Fair Value Measurements at September 30, 2013
	Amount		Level 1		Level 2	Level 3	Total
Financial Assets
Cash and cash equivalents	$	32,527	$	32,527			$	32,527
Loans held for sale	115				118		118
Loans, net of allowance	294,561					299,373	299,373
Accrued interest receivable	1,648				261	1,387	1,648
Federal Home Loan Bank stock	2,025						N/A
Financial Liabilities
Demand and savings deposits	$	161,211	$	133,267			$	133,267
Time deposits	176,422				177,102		177,102
FHLB advances and other borrowings	28,000				27,811		27,811
Subordinate debentures	5,000					2,392	2,392
Accrued interest payable	270		12		258		270

	Carrying		Fair Value Measurements at December 31, 2012
	Amount		Level 1		Level 2	Level 3	Total
Financial Assets
Cash and cash equivalents	$	34,799	$	34,799			$	34,799
Loans held for sale	61				62		62
Loans, net of allowance	287,715					290,865	290,865
Accrued interest receivable	1,660				273	1,387	1,660
Federal Home Loan Bank stock	2,025						N/A
Financial Liabilities
Demand and savings deposits	$	152,919	$	152,932			$	152,932
Time deposits	178,814				179,001		179,001
FHLB advances	26,000				26,350		26,350
Subordinate debentures	5,000					2,392	2,392
Accrued interest payable	238		10		228		238

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

(c) 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 third party investors resulting in a Level 2 classification.

(d) 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 money market accounts and 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.

(e) FHLB Advances/ 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.

(f) Accrued Interest Receivable/Payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1 or Level 2 classification consistent with the asset/liability they are associated with.

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2013

Earnings Per Share

Schedule of reconciliation of basic and diluted earnings per share computations

	Quarter ended September 30,  2013						Quarter ended September 30,  2012
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share:
Net income	$	233					$	941
Less: Dividends and accretion on preferred stock	(178		)				(225		)
Net income (loss) available to common shareholders	$	55		1,968,777	$	0.03	$	716		1,968,777	$	0.36
Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			110,143			—			99,112
Diluted earnings per share
Net income (loss) available to common shareholders and assumed conversions	$	55		2,078,920	$	0.02	$	716		2,067,889	$	0.35

	Nine months ended September  30, 2013						Nine months ended September  30, 2012
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share
Net income	$	1,136					$	2,476
Less: Dividends and accretion on preferred stock	(571		)				(672		)
Net income/(loss) available to common shareholders	$	565		1,968,777	$	0.29	$	1,804		1,968,777	$	0.92
Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			109,509			—			88,159
Diluted earnings per share
Net income/(loss) available to common shareholders and assumed conversions	$	565		2,078,286	$	0.27	$	1,804		2,056,936	$	0.88

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Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2013

Loans and Allowance for Loan Losses

Schedule of categories of loans

	(Dollars in Thousands)
	September  30,  2013			December 31,  2012
Commercial	$	46,781		$	49,535
Commercial real estate:
Construction	12,861			8,094
Other	160,209			156,553
Residential real estate	75,055			77,356
Consumer:
Auto	2,854			3,350
Other	3,616			3,866
Total loans	301,376			298,754
Less allowance for loan losses	(4,820		)	(5,721		)
Net loans	$	296,556		$	293,033

Schedule of activity in the allowance for loan losses

The following table sets forth an analysis of our allowance for loan losses for the three months ending September 30, 2013 and 2012.

	(Dollars In Thousands)
	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
September 30, 2013 Allowance for loan losses:
Beginning balance	$	1,922		$	3,271		$	521		$	73		$	277	$	6,064
Provision for loan losses	(286		)	967			53			16			150		900
Loans charged-off	—			(2,169		)	(21		)	(8		)	—		(2,198		)
Recoveries	15			32			5			2			—		54
Total ending allowance balance	$	1,651		$	2,101		$	558		$	83		$	427	$	4,820

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

The following table sets forth an analysis of our allowance for loan losses for the nine months ending September 30, 2013 and 2012.

	(Dollars In Thousands)
	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
September 30, 2013 Allowance for loan losses:
Beginning balance	$	2,156		$	2,635		$	589		$	90		$	251	$	5,721
Provision for loan losses	460			1,558			(7		)	13			176		2,200
Loans charged-off	(987		)	(2,183		)	(40		)	(24		)	—		(3,234		)
Recoveries	22			91			16			4			—		133
Total ending allowance balance	$	1,651		$	2,101		$	558		$	83		$	427	$	4,820

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

Schedule of balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method

	(Dollars In Thousands)
	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
September 30, 2013
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,083	$	334	$	151	$	38	$	—	$	1,606
Collectively evaluated	568		1,767		407		45		427		3,214
Total ending allowance balance	$	1,651	$	2,101	$	558	$	83	$	427	$	4,820
Loans:
Individually evaluated for impairment	$	4,589	$	6,143	$	841	$	38	$	—	$	11,611
Collectively evaluated	42,191		166,927		74,214		6,433		—		289,765
Total ending loans balance	$	46,781	$	173,070	$	75,055	$	6,470	$	—	$	301,376

	(Dollars In Thousands)
	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
December 31, 2012
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,643	$	1,761	$	19	$	28	$	—	$	3,451
Collectively evaluated	513		874		570		62		251		2,270
Total ending allowance balance	$	2,156	$	2,635	$	589	$	90	$	251	$	5,721
Loans:
Individually evaluated for impairment	$	5,726	$	6,900	$	245	$	34	$	—	$	12,905
Collectively evaluated	43,809		157,747		77,111		7,182		—		285,849
Total ending loans balance	$	49,535	$	164,647	$	77,356	$	7,216	$	—	$	298,754

Schedule of impaired loans by class of loans

	(Dollars in Thousands) September 30, 2013						(Dollars in Thousands) December 31, 2012
	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	$	3,316	$	3,316	$	—	$	3,699	$	3,699	$	—
Commercial real estate:
Construction	—		—		—		—		—		—
Other	6,688		4,598		—		206		206		—
Residential real estate	96		96		—		242		225		—
Consumer:
Auto	—		—		—		4		4		—
Other	—		—		—		2		2		—
Subtotal	10,100		8,010		—		4,153		4,136		—
With an allowance recorded:
Commercial	1,273		1,273		1,083		2,026		2,026		1,643
Commercial real estate:
Construction	—		—		—		—		—		—
Other	1,545		1,545		334		6,695		6,695		1,761
Residential real estate	745		745		151		20		20		19
Consumer:
Auto	23		23		23		28		28		28
Other	15		15		15		—		—		—
Subtotal	3,601		3,601		1,606		8,769		8,769		3,451
Total	$	13,701	$	11,611	$	1,606	$	12,922	$	12,905	$	3,451

Information on impaired loans for the three months ending September 30, 2013 and 2012 is as follows:

	(Dollars in Thousands) September 30, 2013						(Dollars in Thousands) September 30, 2012
	Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized		Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized
Commercial	$	5,283	67		36		$	4,039	58		34
Commercial real estate:
Construction	—		—		—		—		—		—
Other	6,750		163		39		7,759		128		70
Residential real estate	826		17		12		636		9		3
Consumer:
Auto	23		—		—		19		—		—
Other	9		—		—		2		—		—
Total	$	12,891	$	247	$	87	$	12,455	$	195	$	107

Information on impaired loans for the nine months ending September 30, 2013 and 2012 is as follows:

	(Dollars in Thousands) September 30, 2013						(Dollars in Thousands) September 30, 2012
	Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized		Average  Recorded  Investment		Interest  Income  Recognized		Cash Basis  Interest  Recognized
Commercial	$	5,158	$	207	$	130	$	4,048	$	111	$	42
Commercial real estate:
Construction	—		—		—		—		—		—
Other	6,522		371		83		5,910		330		250
Residential real estate	548		28		19		781		23		8
Consumer:
Auto	27		1		—		12		1		—
Other	9		—		—		1		—		—
Total	$	12,264	$	607	$	232	$	10,752	$	465	$	300

Schedule of recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans

	(Dollars in Thousands) As of September 30, 2013				(Dollars in Thousands) As of December 31, 2012
	Loans Past Due Over 90 Days and Still Accruing		Nonaccrual		Loans Past Due Over 90 Days and Still Accruing		Nonaccrual
Commercial	$	—	$	683	$	—	$	1,791
Commercial real estate:
Construction	—		—		—		—
Other	—		4,580		—		4,072
Residential real estate	19		540		—		245
Consumer:
Auto	—		22		—		32
Other	—		—		—		2
Total	$	19	$	5,825	$	—	$	6,142

Schedule of aging of the recorded investment in past due loans by class of loans

	(Dollars In Thousands)
	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
September 30, 2013
Commercial	$	100	$	30	$	13	$	143	$	46,638	$	46,781
Commercial real estate:
Construction	—		—		—		—		12,861		12,861
Other	—		303		4,134		4,437		155,772		160,209
Residential real estate	343		33		419		795		74,260		75,055
Consumer:
Auto	—		—		—		—		2,854		2,854
Other	—		1		—		1		3,615		3,616
Total	$	443	$	367	$	4,566	$	5,376	$	296,000	$	301,376

	(Dollars In Thousands)
	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
December 31, 2012
Commercial	$	540	$	5	$	8	$	553	$	48,982	$	49,535
Commercial real estate:
Construction	—		—		—		—		8,094		8,094
Other	2,042		3,807		75		5,924		150,629		156,553
Residential real estate	235		—		86		321		77,035		77,356
Consumer:
Auto	8		2		16		26		3,324		3,350
Other	1		—		2		3		3,863		3,866
Total	$	2,826	$	3,814	$	187	$	6,827	$	291,927	$	298,754

Schedule of loans by class modified as troubled debt restructurings

The following table presents loans by class modified as troubled debt restructurings outstanding as of September 30, 2013:

		(Dollars in thousands)
	Number of Loans	Pre-Modification  Outstanding  Recorded  Investment		Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	11	$	5,558	$	5,908
Commercial real estate:
Other	6	3,665		3,667
Residential real estate	3	192		206
Consumer	1	16		15
Total	21	$	9,431	$	9,796

The following table presents loans by class modified as troubled debt restructurings outstanding as of December 31, 2012:

		(Dollars in thousands)
	Number of  Loans	Pre-Modification  Outstanding  Recorded  Investment		Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	7	$	4,613	$	4,613
Commercial real estate:
Other	3	1,067		1,070
Residential real estate	1	11		12
Total	11	$	5,691	$	5,695

The following table presents loans by class modified as troubled debt restructurings that occurred during the quarter ending September 30, 2013:

		(Dollars in thousands)
	Number of  Loans	Pre-Modification  Outstanding  Recorded  Investment		Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	5	$	1,922	$	2,272
Commercial real estate:
Other	1	604		604
Residential real estate	1	71		72
Consumer	1	16		15
Total	8	$	2,613	$	2,963

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

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

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ending September 30, 2013:

		(Dollars in thousands)
	Number of Loans	Pre-Modification  Outstanding  Recorded  Investment	Post-Modification  Outstanding Recorded  Investment
Troubled Debt Restructurings:
Commercial	8	2,069	2,419
Commercial real estate:
Other	1	604	604
Residential real estate	2	181	194
Consumer	1	16	15
Total	12	2,870	3,232

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

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

Schedule of risk category of loans by class of loans based on the most recent analyses performed

	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2013
Commercial	$	40,963	$	1,016	$	4,802	—		$	46,781
Commercial real estate:
Construction	12,861		—		—		—		12,861
Other	147,693		—		12,516		—		160,209
Residential real estate	74,094		—		961		—		75,055
Consumer
Auto	2,854		—		—		—		2,854
Other	3,616		—		—		—		3,616
Total	$	282,081	$	1,016	$	18,279	$	—	$	301,376

	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2012
Commercial	$	41,852	$	99	$	7,584	$	—	$	49,535
Commercial real estate:
Construction	8,094		—		—		—		8,094
Other	145,087		520		10,933		13		156,553
Residential real estate	76,704		—		641		11		77,356
Consumer:
Auto	3,346		—		4		—		3,350
Other	3,864		—		2		—		3,866
Total	$	278,947	$	619	$	19,164	$	24	$	298,754

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 31, 2013
Document and Entity Information
Entity Registrant Name	CITIZENS FIRST CORP
Entity Central Index Key	0001073475
Document Type	10-Q
Document Period End Date	Sep. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		1,968,777
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value Measurements

Schedule of assets measured at fair value on a recurring basis

	Fair Value Measurements at September 30, 2013 (Dollars in Thousands)
	Quoted Prices  in Active Markets for Identical Assets (Level 1)	Significant Other  Observable Inputs  (Level 2)		Significant  Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		$	5,855
State and municipal		20,293
Agency mortgage-backed securities -residential		21,903
Trust preferred security		1,400
Corporate bonds		990
Total investment securities	—	$	50,441	—

	Fair Value Measurements at December 31, 2012 (Dollars in Thousands)
	Quoted Prices  in Active Markets for Identical Assets (Level 1)	Significant Other  Observable Inputs  (Level 2)		Significant  Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		$	7,004
State and municipal		20,876
Agency mortgage-backed securities -residential		17,559
Trust preferred security		1,200
Total investment securities	—	$	46,639	—

Schedule of financial assets measured at fair value on a non-recurring basis

Fair Value Measurements at September 30, 2013

(Dollars in Thousands)

	Significant  Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	190
Commercial RE	1,211
Residential	594
Other real estate owned:
Commercial RE	$	337
Residential	210

Fair Value Measurements at December 31, 2012

(Dollars in Thousands)

	Significant  Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	383
Commercial RE	4,934
Residential	1
Other real estate owned:
Residential	$	191

Schedule of quantitative and qualitative information about Level 3 fair value measurements for financial instruments measured on a non-recurring basis

	September  30, 2013		Valuation Techniques	Unobservable Inputs (Dollars in  thousands)	Range (Weighted Avg)
Impaired loans:
Commercial	$	190	Market Approach	Discounts to allow for market value of assets	0%-66.72% (41.92%)
Commercial RE	1,211		Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	(20.00)%

Residential	594	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	0%-15% (12.18%)
Other real estate owned:
Commercial RE	337	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	21%-49% (45.16%)
Residential	210	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	6%-17.4% (11.16%)

	December  31,2012	Valuation Techniques	Unobservable Inputs (Dollars in  thousands)	Range (Weighted Avg)
Impaired loans:
Commercial	$383	Market Approach	Discounts to allow for market value of assets	0%-50% (40.22%)
Commercial RE	4,934	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	20%-38.97% (32.60%)
Residential	1	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	0%-15% (15%)
Other real estate owned:
Residential	191	Sales Comparison	Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	6%-15% (9.39%)

Schedule of carrying amount and estimated fair values of financial instruments

	Carrying		Fair Value Measurements at September 30, 2013
	Amount		Level 1		Level 2	Level 3	Total
Financial Assets
Cash and cash equivalents	$	32,527	$	32,527			$	32,527
Loans held for sale	115				118		118
Loans, net of allowance	294,561					299,373	299,373
Accrued interest receivable	1,648				261	1,387	1,648
Federal Home Loan Bank stock	2,025						N/A
Financial Liabilities
Demand and savings deposits	$	161,211	$	133,267			$	133,267
Time deposits	176,422				177,102		177,102
FHLB advances and other borrowings	28,000				27,811		27,811
Subordinate debentures	5,000					2,392	2,392
Accrued interest payable	270		12		258		270

	Carrying		Fair Value Measurements at December 31, 2012
	Amount		Level 1		Level 2	Level 3	Total
Financial Assets
Cash and cash equivalents	$	34,799	$	34,799			$	34,799
Loans held for sale	61				62		62
Loans, net of allowance	287,715					290,865	290,865
Accrued interest receivable	1,660				273	1,387	1,660
Federal Home Loan Bank stock	2,025						N/A
Financial Liabilities
Demand and savings deposits	$	152,919	$	152,932			$	152,932
Time deposits	178,814				179,001		179,001
FHLB advances	26,000				26,350		26,350
Subordinate debentures	5,000					2,392	2,392
Accrued interest payable	238		10		228		238

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

(c) 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 third party investors resulting in a Level 2 classification.

(d) 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 money market accounts and 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.

(e) FHLB Advances/ 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.

(f) Accrued Interest Receivable/Payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1 or Level 2 classification consistent with the asset/liability they are associated with.