Citizens First (CZFC) 10-Q 2011 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2011

Or

oTRANSITION 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)

(279) 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 August 1, 2011.

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	26
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
ITEM 4	CONTROLS AND PROCEDURES	43
PART II —	OTHER INFORMATION
ITEM 6	EXHIBITS	44
SIGNATURES		45

2

Part 1. Financial Information

Item 1. Financial Statements

Citizens First Corporation

Consolidated Balance Sheets

	(In Thousands, Except Share Data)
	Unaudited June 30, 2011			December 31, 2010
Assets
Cash and due from financial institutions	$	6,181		$	4,435
Federal funds sold	10,140			10,376
Cash and cash equivalents	16,321			14,811
Available-for-sale securities	42,806			39,531
Loans held for sale	94			151
Loans, net of allowance for loan losses of $5,215 and $5,001 at June 30, 2011 and December 31, 2010, respectively	264,454			263,302
Premises and equipment, net	10,068			10,352
Bank owned life insurance (BOLI)	7,186			7,051
Federal Home Loan Bank (FHLB) stock, at cost	2,025			2,025
Accrued interest receivable	1,916			1,940
Deferred income taxes	3,464			3,677
Goodwill	2,575			2,575
Core deposit intangible	899			1,029
Other real estate owned	901			1,368
Other assets	1,351			1,919
Total Assets	$	354,060		$	349,731
Liabilities
Deposits
Noninterest bearing	38,174			$	36,250
Savings, NOW and money market	78,629			72,612
Time	176,491			179,878
Total deposits	293,294			288,740
Securities sold under repurchase agreements	957			712
FHLB advances	15,000			15,000
Subordinated debentures	5,000			5,000
Accrued interest payable	325			350
Other liabilities	1,624			1,620
Total Liabilities	$	316,200		$	311,422
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 June 30, 2011 and December 31, 2010, respectively	7,659			7,659
5.0% Series A preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $6,567 and $8,779 as of June 30, 2011, and December 31, 2010, respectively ; issued and outstanding 187 shares at June 30, 2011 and 250 shares at December 31, 2010, respectively	6,447			8,586
Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 1,968,777 shares at June 30, 2011 and December 31, 2010, respectively	27,072			27,072
Retained Earnings (deficit)	(3,421		)	(4,357		)
Accumulated other comprehensive income (loss)	103			(651		)
Total stockholders’ equity	$	37,860		$	38,309
Total liabilities and stockholders’ equity	$	354,060		$	349,731

See Notes to Unaudited Consolidated Financial Statements

3

Citizens First Corporation

Unaudited Consolidated Statements of Operations

	Three months ended (In Thousands, Except for Per Share Data)
	June 30, 2011		June 30, 2010
Interest and Dividend Income
Loans	$	3,943	$	4,096
Taxable securities	157		149
Non-taxable securities	183		183
Federal funds sold and other	35		27
Total interest and dividend income	4,318		4,455
Interest Expense
Deposits	984		1,245
FHLB advances	77		55
Subordinated debentures	25		25
Short-term borrowings	2		2
Total interest expense	1,088		1,327
Net Interest Income	3,230		3,128
Provision for Loan Losses	300		450
Net Interest Income After Provision for Loan Losses	2,930		2,678
Noninterest Income
Service charges on deposit accounts	334		440
Other service charges and fees	99		96
Gain on sale of mortgage loans	56		62
Non-deposit brokerage fees	60		33
Lease income	68		29
BOLI income	68		73
Gain on sale of investment securities	61		—
Other	14		11
Total noninterest income	760		744
Noninterest Expense
Salaries and employee benefits	1,201		1,121
Net occupancy expense	320		324
Equipment expense	143		164
Advertising and public relations	102		86
Professional fees	171		176
Data processing services	172		175
Franchise shares and deposit tax	114		129
Core deposit intangible amortization	65		66
Postage and office supplies	44		37
Telephone and other communication	36		51
Other real estate owned expenses	87		24
FDIC Insurance	112		124
Other	154		150
Total noninterest expense	2,721		2,627
Income Before Income Taxes	969		795
Income Taxes Expense	241		178
Net Income	$	728	$	617
Dividends and accretion on preferred stock	223		256
Net income available/attributable to common stockholders	$	505	$	361
Basic Income per Common Share	$	0.26	$	0.18
Diluted Income per Common Share	$	0.25	$	0.18

See Notes to Unaudited Consolidated Financial Statements

4

Citizens First Corporation

Unaudited Consolidated Statements of Operations

	Six months ended (In Thousands, Except for Per Share Data)
	June 30, 2011		June 30, 2010
Interest and Dividend Income
Loans	$	7,898	$	8,065
Taxable securities	310		304
Non-taxable securities	361		366
Federal funds sold and other	68		53
Total interest and dividend income	8,637		8,788
Interest Expense
Deposits	1,982		2,489
FHLB advances	154		122
Subordinated debentures	49		48
Short-term borrowings	3		5
Total interest expense	2,188		2,664
Net Interest Income	6,449		6,124
Provision for Loan Losses	525		850
Net Interest Income After Provision for Loan Losses	5,924		5,274
Noninterest Income
Service charges on deposit accounts	655		766
Other service charges and fees	199		174
Gain on sale of mortgage loans	125		100
Non-deposit brokerage fees	88		55
Lease income	125		67
BOLI income	135		147
Gain on sale of investment securities	61		0
Other	34		25
Total noninterest income	1,422		1,334
Noninterest Expense
Salaries and employee benefits	2,507		2,222
Net occupancy expense	654		634
Equipment expense	284		325
Advertising and public relations	168		133
Professional fees	285		292
Data processing services	348		383
Franchise shares and deposit tax	228		234
Core deposit intangible amortization	131		132
Postage and office supplies	77		76
Telephone and other communication	79		94
Other real estate owned expenses	137		94
FDIC Insurance	215		248
Other	312		302
Total noninterest expense	5,425		5,169
Income Before Income Taxes	1,921		1,439
Income Taxes Expense	477		291
Net Income	$	1,444	$	1,148
Dividends and accretion on preferred stock	508		510
Net income available/attributable to common stockholders	$	936	$	638
Basic Income per Common Share	$	0.47	$	0.32
Diluted Income per Common Share	$	0.46	$	0.32

5

Citizens First Corporation

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

Dollars in thousands, except share data

	Preferred Stock		Common Stock		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total			Total Comprehensive Income
Balance, January 1, 2010	$	16,182	$	27,072	$	(5,873	)	$	(523	)	$	36,858
Net income					1,148						1,148			1,148
Accretion on Series A preferred stock	32				(32		)
Change in unrealized gain (loss) on available for sale securities, net								362			362			362
Dividend declared and paid on preferred stock					(478		)				(478		)
Total comprehensive income														$	1,510
Balance, June 30, 2010	$	16,214	$	27,072	$	(5,235	)	$	(161	)	$	37,890

	Preferred Stock			Common Stock		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total			Total Comprehensive Income
Balance, January 1, 2011	$	16,245		$	27,072	$	(4,357	)	$	(651	)	$	38,309
Net income						1,444						1,444			1,444
Redemption of 63 shares Series A preferred stock	(2,212		)									(2,212		)
Accretion on Series A preferred stock	73					(73		)				—
Change in unrealized gain (loss) on available for sale securities, net									754			754			754
Dividends declared and paid on preferred stock						(435		)				(435		)
Total comprehensive income															$	2,198
Balance, June 30, 2011	$	14,106		$	27,072	$	(3,421	)	$	103		$	37,860

See Notes to Unaudited Consolidated Financial Statements

6

Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows

	(In Thousands)
	June 30, 2011			June 30, 2010
Net income	$	1,444		$	1,148
Items not requiring (providing) cash:
Depreciation and amortization	370			392
Provision for loan losses	525			850
Amortization of premiums and discounts on securities	101			19
Amortization of core deposit intangible	131			132
Deferred income taxes	(177		)	45
Bank-owned life insurance	135			147
Proceeds from sale of mortgage loans held for sale	4,299			5,600
Origination of mortgage loans held for sale	(4,117		)	(6,333		)
Gains on sales of securities available for sale	(61		)	—
Gains on sales of loans	(125		)	(100		)
Losses on sale of other real estate owned	91			81
Loss/(Gain) on sale premises and equipment	(9		)	10
Changes in:
Interest receivable	24			21
Other assets	299			(62		)
Interest payable and other liabilities	(21		)	350
Net cash provided by operating activities	2,909			2,300
Investing Activities
Loan originations and payments, net	(2,079		)	(2,268		)
Purchase of premises and equipment	(89		)	(141		)
Proceeds from maturities of available-for-sale securities	6,583			15,847
Proceeds from sales of available-for-sale securities	1,100			—
Proceeds from sales of other real estate owned	778			131
Purchase of securities available-for-sale	(9,855		)	(16,040		)
Proceeds from sales of premises and equipment	11			0
Net cash provided by/(used in) investing activities	(3,551		)	(2,471		)
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts	7,941			(4,319		)
Net change in time deposits	(3,387		)	8,435
Partial Repayment of TARP preferred stock	(2,212		)	—
Proceeds from FHLB advances	—			7,800
Repayment of FHLB advances	—			(10,800		)
Net change in fed funds purchased and repurchase agreements	245			10
Dividends paid on preferred stock	(435		)	(478		)
Net cash provided by financing activities	2,152			648
Increase in Cash and Cash Equivalents	1,510			477
Cash and Cash Equivalents, Beginning of Year	14,811			9,756
Cash and Cash Equivalents, End of Quarter	$	16,321		$	10,233
Supplemental Cash Flows Information
Interest paid	$	2,213		$	2,686
Income taxes paid	270			—
Loans transferred to other real estate owned	402			423

See Notes to Unaudited Consolidated Financial Statements

7

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 2010 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, 2010 has been derived from the audited consolidated balance sheet of the Company as of that date.

Note 2 -  Reclassifications

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

8

Note 3 - Adoption of New Accounting Standards

Effect of newly issued but not yet effective accounting standards:

In January 2011, the FASB issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.”  The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for the Company’s reporting period ended March 31, 2011.  The amendments in ASU No. 2011-01 defer the effective date related to these disclosures, enabling creditors to provide such disclosures after the FASB completes their project clarifying the guidance for determining what constitutes a troubled debt restructuring.  As the provisions of this ASU only defer the effective date of disclosure requirements related to troubled debt restructurings, the adoption of this ASU will have no impact on the Company’s statements of income and condition.

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.”  The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties.  A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20.  The provisions of ASU No. 2011-02 are effective for the Company’s reporting period ending September 30, 2011.  The adoption of ASU No. 2011-02 is not expected to have a material impact on the Company’s statements of income and condition.

Note 4 - Available-For-Sale Securities

The following table summarizes the amortized cost and fair value of the available for sale investment securities portfolio at June 30, 2011 and December 31, 2010 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

9

	(Dollars in Thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2011
U. S. government agencies and government sponsored entities	$	5,565	$	29	$	—		$	5,594
State and municipal	19,257		768		(4		)	20,021
Agency mortgage-backed securities: residential	15,963		235		(7		)	16,191
Trust preferred security	1,864		—		(864		)	1,000
Total investment securities	$	42,649	$	1,032	$	(875	)	$	42,806
December 31, 2010
U. S. government agencies and government sponsored entities	$	6,510	$	22	$	(16	)	$	6,516
State and municipal	18,238		387		(214		)	18,411
Agency mortgage-backed securities: residential	13,907		91		(294		)	13,704
Trust preferred security	1,863		—		(963		)	900
Total investment securities	$	40,518	$	500	$	(1,487	)	$	39,531

The amortized cost and fair value of investment securities at June 30, 2011 by contractual maturity were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	June 30, 2011
	(Dollars in Thousands)
	Available for Sale
	Amortized Cost		Fair Value
Due in one year or less	1,168		1,168
Due from one to five years	7,395		7,578
Due from five to ten years	8,882		9,232
Due after ten years	9,241		8,637
Agency mortgage-backed: residential	15,963		16,191
Total	$	42,649	$	42,806

The following table summarizes the investment securities with unrealized losses at June 30, 2011 and December 31, 2010, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

10

	(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
June 30, 2011:
Agency mortgage backed securities - residential	$	1,956	$	(7	)	$	—	$	—		1,956		(7		)
State and municipal	1,136		(4		)	—		—			1,136		(4		)
Trust preferred security	—		—			1,000		(864		)	1,000		(864		)
Total temporarily impaired	$	3,092	$	(11	)	$	1,000	$	(864	)	$	4,092	$	(875	)

	(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, 2010:
U.S. government agencies and government sponsored entities	$	1,982	$	(16	)	$	—	$	—		$	1,982	$	(16	)
Agency mortgage backed securities - residential	10,238		(294		)	—		—			10,238		(294		)
State and municipal	6,432		(214		)	—		—			6,432		(214		)
Trust preferred security	—		—			900		(963		)	900		(963		)
Total temporarily impaired	$	18,652	$	(524	)	$	900	$	(963	)	$	19,552	$	(1,487	)

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 June 30, 2011, our securities portfolio consisted of $42.8 million fair value of securities, $4.1 million, or 6 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 relate primarily to its investment in a single trust preferred security.  The security is a single-issuer trust preferred that is not rated.  Current market conditions have allowed some increase in the fair market value of the trust preferred security at June 30, 2011; however, 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 to 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 5 - Loans and Allowance for Loan Losses

Categories of loans include:

	(Dollars in Thousands)
	June 30,  2011			December 31, 2010
Commercial	$	69,396		$	66,124
Commercial real estate:
Construction	15,400			15,423
Other	102,905			101,568
Residential real estate	72,784			75,514
Consumer:
Auto	4,638			4,932
Other	4,546			4,742
Total loans	269,669			268,303
Less allowance for loan losses	(5,215		)	(5,001		)
Net loans	$	264,454		$	263,302

12

The following table sets forth an analysis of our allowance for loan losses for the three months ending June 30, 2011 and 2010.

	(Dollars in Thousands)
	June 30,
	2011		2010
Balance at beginning of period	$	5,001	$	4,083
Provision for loan losses	300		450
Amounts charged off:
Commercial	—		13
Commercial real estate	—		3
Residential real estate	89		152
Consumer	11		37
Total loans charged off	100		205
Recoveries of amounts previously charged off:
Commercial	8		122
Commercial real estate	—		6
Residential real estate	—		—
Consumer	3		2
Total recoveries	11		130
Net charge-offs	89		75
Balance at end of period	$	5,215	$	4,458

The following table sets forth an analysis of our allowance for loan losses for the six months ending June 30, 2011 and 2010.

	(Dollars in Thousands)
	June 30,
	2011		2010
Balance at beginning of period	$	5,001	$	3,988
Provision for loan losses	525		850
Amounts charged off:
Commercial	187		119
Commercial real estate	—		167
Residential real estate	121		190
Consumer	27		45
Total loans charged off	335		521
Recoveries of amounts previously charged off:
Commercial	12		125
Commercial real estate	—		6
Residential real estate	6		8
Consumer	6		3
Total recoveries	24		142
Net charge-offs	311		380
Balance at end of period	$	5,215	$	4,458

13

As of June 30, 2011 and December 31, 2010, accrued interest receivable of $1.6 million and $1.7 million, respectively, and net deferred loan fees of $99 thousand and $88 thousand, respectively, are not considered significant and therefore not included in the recorded investment in loans presented in the following tables.

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 June 30, 2011 and December 31, 2010.

	(Dollars In Thousands)
June 30, 2011	Commercial		Commercial Real Estate		Residential Real Estate		Consumer Auto		Consumer Other		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	931	$	1,040	$	388	$	6	$	1	$	—	$	2,366
Collectively evaluated	1,278		666		438		85		55		326		2,849
Total ending allowance balance	$	2,209	$	1,706	$	826	$	91	$	56	$	326	$	5,215
Loans:
Individually evaluated for impairment	$	2,863	$	3,628	$	1,217	$	12	$	1	$	—	$	7,721
Collectively evaluated	66,533		114,677		71,567		4,626		4,545		—		261,948
Total ending allowance balance	$	69,396	$	118,305	$	72,784	$	4,638	$	4,546	$	—	$	269,669

	(Dollars In Thousands)
December 31, 2010	Commercial		Commercial Real Estate		Residential Real Estate		Consumer  Auto		Consumer Other		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2,064	$	443	$	157	$	8	$	1	$	—	$	2,673
Collectively evaluated	1,148		459		447		116		75		83		2,328
Total ending allowance balance	$	3,212	$	902	$	604	$	124	$	76	$	83	$	5,001
Loans:
Individually evaluated for impairment	$	6,468	$	3,832	$	434	$	13	$	1	$	—	$	10,748
Collectively evaluated	59,656		113,159		75,080		4,919		4,741		—		257,555
Total ending allowance balance	$	66,124	$	116,991	$	75,514	$	4,932	$	4,742	$	—	$	268,303

14

Information on impaired loans for the three months ending June 30, 2011 and June 30, 2010 is as follows:

	(Dollars in Thousands)
	June 30, 2011		June 30, 2010
Average of individually impaired loans during the period:
Commercial	$	2,956	$	72
Commercial real estate:
Construction	—		2
Other	3,630		145
Residential real estate	953		309
Consumer:
Auto	12		12
Other	—		—
Total	7,551		540

Year to date information on impaired loans is as follows:

	(Dollars in Thousands)
	June 30, 2011		June 30, 2010
Average of individually impaired loans during the period:
Commercial	$	4,666	$	214
Commercial real estate:
Construction	95		169
Other	3,635		145
Residential real estate	825		295
Consumer:
Auto	13		13
Other	—		4
Total	9,234		840
Interest income recognized during impairment (three months ending June 30, 2011 and June 30, 2010):
Commercial	37		1
Commercial real estate:
Construction	—		—
Other	36		3
Residential real estate	7		3
Consumer:
Auto	—		—
Other	—		—
Total	80		7
Interest income recognized during impairment (six months ending June 30, 2011 and June 30, 2010):
Commercial	119		16
Commercial real estate
Construction	—		15
Other	114		77
Residential real estate	30		28
Consumer
Auto	1		1
Other	—		—
Total	264		137

For the three and six months ended June 30, 2011 and 2010, the Company did not recognize any interest income under the cash-basis method of accounting.

15

The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2011 and December 31, 2010:

	(Dollars in Thousands) As of June 30, 2011
	Recorded Investment		Allowance For Loan Losses Allocated
With no related allowance recorded:
Commercial	$	91	$	—
Commercial real estate:
Construction	—		—
Other	235		—
Residential real estate	293		—
Consumer:
Auto	1		—
Other	—		—
With an allowance recorded:
Commercial	2,772		931
Commercial real estate:
Construction	—		—
Other	3,392		1,040
Residential real estate	924		388
Consumer:
Auto	12		6
Other	1		1
Total	$	7,721	$	2,366

	(Dollars in Thousands) As of December 31, 2010
	Recorded Investment		Allowance For Loan Losses Allocated
With no related allowance recorded:
Commercial	$	4,178	$	—
Commercial real estate:
Construction	191		—
Other	2,148		—
Residential real estate	131		—
Consumer:
Auto	—		—
Other	—		—
With an allowance recorded:
Commercial	2,290		2,064
Commercial real estate:
Construction	—		—
Other	1,493		443
Residential real estate	303		157
Consumer:
Auto	13		8
Other	1		1
Total	$	10,748	$	2,673

16

The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans are summarized below:

	(Dollars in Thousands) As of June 30, 2011
	Loans Past Due Over 90 Days and Still Accruing		Nonaccrual
Commercial	$	—	$	308
Commercial real estate:
Construction	—		—
Other	—		1,726
Residential real estate	—		1,123
Consumer:
Auto	—		12
Other	—		1
Total	$	—	$	3,170
	(Dollars in Thousands) As of December 31, 2010
	Loans Past Due Over 90 Days and Still Accruing		Nonaccrual
Commercial	$	—	$	163
Commercial real estate:
Construction	—		191
Other	—		462
Residential real estate	—		434
Consumer:
Auto	—		11
Other	2		1
Total	$	2	$	1,262

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 by class of loans.  Non-accrual loans are included and have been categorized based on their payment status:

17

	(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
June 30, 2011
Commercial	$	—	$	—	$	309	$	309	$	69,087	$	69,396
Commercial real estate:
Construction	—		—		—		—		15,400		15,400
Other	143		—		1,583		1,726		101,179		102,905
Residential real estate	130		109		937		1,176		71,608		72,784
Consumer:
Auto	16		3		11		30		4,608		4,638
Other	2		1		—		3		4,543		4,546
Total	$	291	$	113	$	2,840	$	3,244	$	266,425	$	269,669

	(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, 2010
Commercial	$	25	$	50	$	113	$	188	$	65,936	$	66,124
Commercial real estate:
Construction	191		—		—		191		15,232		15,423
Other	—		—		—		—		101,568		101,568
Residential real estate	216		—		196		412		75,102		75,514
Consumer:
Auto	10		5		2		17		4,915		4,932
Other	8		—		1		9		4,733		4,742
Total	$	450	$	55	$	312	$	817	$	267,486	$	268,303

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $1.9 million and $1.9 million as of June 30, 2011 and December 31, 2010, respectively.  The Company has no commitments to lend additional amounts as of June 30, 2011 and December 31, 2010 to customers with outstanding loans that are classified as troubled debt restructurings.  Troubled debt restructurings are included in impaired loans.

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 all loans with an outstanding balance greater than $25 thousand and is reviewed on a monthly basis.

18

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:

	June 30, 2011
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	63,260	$	50	$	5,777	$	309	$	69,396
Commercial real estate:
Construction	15,400		—		—		—		15,400
Other	89,797		7,253		5,706		149		102,905
Residential real estate	71,629		—		829		325		72,784
Consumer
Auto	4,626		—		6		6		4,638
Other	4,538		—		7		1		4,546
Total	$	249,250	$	7,303	$	12,326	$	790	$	269,669

	December 31, 2010
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	56,124	$	597	$	9,265	$	138	$	66,124
Commercial real estate:
Construction	15,232		—		191		—		15,423
Other	86,565		9,039		5,964		—		101,568
Residential real estate	75,104		—		294		116		75,514
Consumer:
Auto	4,921		—		11		—		4,932
Other	4,733		—		9		—		4,742
Total	$	242,679	$	9,636	$	15,734	$	254	$	268,303

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Note 6 - Disclosures about Fair Value

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  ASC 820 also establishes a fair value hierarchy which 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 value:

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.

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 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.

Nonrecurring adjustments to certain 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.

20

Assets and liabilities measured at fair value on a recurring basis are summarized below.

	Fair Value Measurements at June 30, 2011 (Dollars in Thousands)
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		$	5,594
State and municipal		20,021
Agency mortgage-backed securities -residential		16,191
Trust preferred security		1,000
Total investment securities	—	$	42,806	—

	Fair Value Measurements at December 31, 2010 (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		$	6,516
State and municipal		18,411
Agency mortgage-backed securities -residential		13,704
Trust preferred security		900
Total investment securities	—	$	39,531	—

21

Financial assets measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements at June 30, 2011 (Dollars in Thousands)
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial			$	1,841
Commercial real estate:
Construction			$	—
Other			$	2,352
Residential			$	537
Consumer:
Auto			$	5
Other			$	—
Other real estate owned:
Commercial real estate			$	537
Residential			$	364

	Fair Value Measurements at December 31, 2010 (Dollars in Thousands)
	Quoted Prices  in Active Markets for Identical Assets  (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial			$	227
Commercial real estate:
Construction			$	191
Other			$	1,050
Residential			$	145
Consumer:
Auto			$	5
Other			$	—
Other real estate owned:
Commercial real estate			$	928
Residential			$	440

Impaired loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $7.1 million at June 30, 2011 with a valuation allowance of $2.4 million.  Impaired loans had a principal balance of $4.3 million at December 31, 2010, with a valuation allowance of $2.7 million.  A reduction in the provision for loan losses of $114,000 was recognized for the six months ended June 30, 2011 as a result of net changes in fair values on collateral dependent loans and other factors affecting the provision for loan losses.

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Other real estate owned, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying value of $901,000 at June 30, 2011 and $1.4 million at December 31, 2010.  Total writedowns of other real estate owned year to date June 31, 2011 and 2010, were $99,000 and $80,000 respectively.

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

	(Dollars in Thousands)
	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets
Cash and cash equivalents	$	16,321	$	16,321	$	14,811	$	14,811
Loans held for sale	94		96		151		153
Loans, net of allowance	259,719		264,236		261,684		262,718
Accrued interest receivable	1,916		1,916		1,940		1,940
Federal Home Loan Bank stock	2,025		N/A		2,025		N/A

	(Dollars in Thousands)
	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Liabilities
Deposits	$	293,294	$	294,444	$	288,740	$	289,706
Securities sold under repurchase agreements	957		957		712		712
FHLB advances	15,000		15,346		15,000		15,328
Subordinate debentures	5,000		3,179		5,000		3,179
Accrued interest payable	325		325		350		350

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

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

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Note 7 - 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 and six months ending June 30, 2011 and 2010.

	Quarter ended June 30, 2011						Quarter ended June 30, 2010
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share:
Net income	$	728					$	617
Less: Dividends and accretion on preferred stock	(223		)				(256		)
Net income (loss) available to common shareholders	$	505		1,968,777	$	0.26	$	361		1,968,777	$	0.18
Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			84,082			—			64,743
Diluted earnings per share
Net income(loss) available to common shareholders and assumed conversions	$	505		2,052,859	$	0.25	$	361		2,033,520	$	0.18

	Six months ended June 30, 2011						Six months ended June 30, 2010
	Income			Weighted Average Shares	Per Share Amount		Income/ (Loss)			Weighted- Average Shares	Per Share Amount
Basic earnings per share
Net income	$	1,444					$	1,148
Less: Dividends and accretion on preferred stock	(508		)				(510		)
Net income/(loss) available to common shareholders	$	936		1,968,777	$	0.47	$	638		1,968,777	$	0.32
Effect of dilutive securities
Convertible preferred stock	—			—			—			—
Stock options	—			—			—			—
Warrants	—			88,368			—			49,420
Diluted earnings per share
Net income/(loss) available to common shareholders and assumed conversions	$	936		2,057,145	$	0.46	$	638		2,018,197	$	0.32

24

Stock options for 90,664 and 91,260 shares of common stock were not considered in computing diluted earnings per common share for June 30, 2011 and 2010, respectively, because they are anti-dilutive.  Convertible preferred shares are not included because they are anti-dilutive as of June 30, 2011 and 2010.  Common stock warrants totaled 254,218.  88,368 and 49,420 warrants were dilutive as of June 30, 2011 and 2010, respectively, and included in the diluted earnings per share computation.

25

Item 2. Management’s Discussion and Analysis or Plan of Operation

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 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Forward-Looking Statements

We may from time to time make written or oral statements, including statements contained in this report, which may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  The words “may”, “expect”, “anticipate”, “intend”, “consider”, “plan”, “believe”, “seek”, “should”, “estimate”, and similar expressions are intended to identify such forward-looking statements, but other statements may constitute forward-looking statements.  These statements should be considered subject to various risks and uncertainties.  Such forward-looking statements are made based upon management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  Our actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors.  Among the risks and uncertainties that could cause actual results to differ materially are economic conditions generally and in our market areas, a continuation or worsening of the current disruption in credit and other markets, goodwill impairment, overall loan demand, increased competition in the financial services industry which could negatively impact our ability to increase total earning assets, and retention of key personnel.  Actions by the Department of the Treasury and federal and state bank regulators in response to changing economic conditions, changes in interest rates, loan prepayments by and the financial health of our borrowers, and other factors described in the reports filed by us with the Securities and Exchange Commission could also impact current expectations.

Recent Developments

As previously announced on June 2, 2011, we entered into a definitive agreement to purchase a banking center located in Bowling Green, Kentucky from Republic Bank & Trust Company (Republic), a subsidiary of Republic Bancorp, Inc. (NASDAQ:  RBCAA). The agreement provides that we will purchase certain fixed assets and outstanding loans and assume all deposits of the banking center. The transaction includes approximately $35 million in deposits and approximately $14.5 million in loans.  We also agreed to make employment offers to all branch-based employees of the banking center.  The transaction is subject to customary closing conditions, including regulatory approvals, and is anticipated to be completed during the third quarter of 2011.

Results of Operations

For the quarter ended June 30, 2011, we reported net income of $728,000 compared to net income of $617,000 in the second quarter of 2010, an increase of $111,000.  Net income available to common shareholders was $505,000 or, $0.25 per diluted common share this quarter, compared to net income available to common shareholders of

26

$361,000, or $0.18 per diluted common share for the second quarter of 2010.  Net income increased as a result of improved net interest income of $102,000 and a reduced provision for loan losses of $150,000.

For the six months ended June 30, 2011, the Company reported net income of $1.4 million, or $.46 per diluted common share.  This represents an increase of $296,000, or $0.14 per share, from the net income of $1.1 million in the previous year.  The increase in net income is primarily attributable to a decrease in the provision for loan losses of $325,000 and an increase in net interest income of $325,000, partially offset by an increase in non-interest expense of $256,000.

Our annualized return on average assets was .81% for the six months ended June 30, 2011, compared to .67% for the previous year.  The improvement in the return on average assets is due to the increase in net income.  Our annualized return on average equity was 7.76% for the six months ending June 30, 2011, compared to 6.17% for the six months ending June 30, 2010.

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 June 30, 2011, net interest income was $3.2 million, an increase of $102,000, or 3.3%, from net interest income of $3.1 million for the comparable period in 2010.  Net interest income increased as a result of lower interest expense on deposits and borrowings of $239,000, partially offset by a decrease in interest income of $137,000. For the six months ended June 30, 2011, net interest income was $6.4 million, an increase of $325,000, or 5.3%, from net interest income of $6.1 million for the comparable period in 2010.

The net interest margin for the three months ended June 30, 2011 was 4.01%, compared to 4.08% in 2010.  This decrease of seven basis points is attributable to the decline in the average rate paid on interest-bearing liabilities of 41 basis points.  Our yield on earning assets (tax equivalent) for the current quarter was 5.32%, a decrease of 44 basis points from 5.76% in the same period a year ago.  The net interest margin for the six months ended June 30, 2011 was unchanged at 4.06%, compared to 2010.

The following table sets forth for the quarter and six months ended June 30, 2011 and 2010, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs.  Such yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented.

27

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

	2011						2010
Quarter ended June 30,	Average Balance		Income/ Expense		Average Rate		Average Balance		Income/ Expense		Average Rate
Earning assets:
Federal funds sold	$	17,897	$	13	0.28	%	$	6,167	$	5	0.31	%
Available-for-sale securities (1)
Taxable	23,971		157		2.63	%	20,720		149		2.88	%
Nontaxable (1)	18,837		277		5.90	%	18,767		277		5.93	%
Federal Home Loan Bank stock	2,025		22		4.45	%	2,025		22		4.45	%
Loans, net (2)	269,809		3,944		5.86	%	269,058		4,096		6.11	%
Total interest earning assets	332,538		4,413		5.32	%	316,737		4,549		5.76	%
Non-interest earning assets	27,483						32,771
Total Assets	$	363,007					$	349,508
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	69,030	$	95	0.55	%	$	65,205	$	91	0.57	%
Savings accounts	11,235		8		0.30	%	9,701		7		0.28	%
Time deposits	181,585		881		1.98	%	185,129		1,148		2.49	%
Total interest-bearing deposits	261,850		984		1.53	%	260,035		1,246		1.92	%
Short-term borrowings	0		0		0.00	%	34		0		0.00	%
Securities sold under repurchase agreements	776		1		0.88	%	962		1		0.94	%
FHLB borrowings	15,000		78		2.08	%	6,808		55		3.24	%
Subordinated debentures	5,000		25		1.98	%	5,000		25		1.97	%
Total interest-bearing liabilities	282,626		1,088		1.54	%	272,839		1,327		1.95	%
Non-interest bearing deposits	41,021						37,222
Other liabilities	1,937						1,682
Total liabilities	325,584						311,743
Stockholders’ equity	37,423						37,765
Total Liabilities and Stockholders’ Equity	$	363,007					$	349,508
Net interest income			$	3,325					$	3,222
Net interest spread (1)					3.88	%					3.81	%
Net interest margin (1) (3)					4.01	%					4.08	%
Return on average assets ratio					0.80	%					0.71	%
Return on average equity ratio					7.80	%					6.55	%
Average equity to assets ratio					10.31	%					10.81	%

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

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

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

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

	2011						2010
Six months ended June 30,	Average Balance		Income/ Expense		Average Rate		Average Balance		Income/ Expense		Average Rate
Earning assets:
Federal funds sold	$	16,428	$	23	0.28	%	$	5,219	$	8	0.29	%
Available-for-sale securities (1)
Taxable	23,289		310		2.68	%	20,656		304		2.94	%
Nontaxable (1)	18,538		548		5.96	%	18,787		555		5.96	%
Federal Home Loan Bank stock	2,025		45		4.52	%	2,025		45		4.52	%
Loans, net (2)	269,383		7,898		5.91	%	266,972		8,065		6.09	%
Total interest earning assets	329,663		8,824		5.40	%	313,659		8,977		5.77	%
Non-interest earning assets	30,358						32,945
Total Assets	$	360,021					$	346,604
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	67,914	$	186	0.55	%	$	65,220	$	181	0.57	%
Savings accounts	10,884		16		0.30	%	9,530		13		0.28	%
Time deposits	181,729		1,779		1.97	%	182,528		2,295		2.54	%
Total interest-bearing deposits	260,527		1,981		1.53	%	257,278		2,489		1.98	%
Short-term borrowings	0		0		0.00	%	18		0		0.00	%
Securities sold under repurchase agreements	747		3		0.89	%	936		5		0.94	%
FHLB borrowings	15,000		154		2.08	%	7,735		122		3.19	%
Subordinated debentures	5,000		49		1.96	%	5,000		48		1.92	%
Total interest-bearing liabilities	281,272		2,188		1.57	%	270,967		2,664		1.98	%
Non-interest bearing deposits	39,238						36,427
Other liabilities	1,976						1,659
Total liabilities	322,488						309,053
Stockholders’ equity	37,533						37,551
Total Liabilities and Stockholders’ Equity	$	360,021					$	346,604
Net interest income			$	6,636					$	6,313
Net interest spread (1)					3.83	%					3.79	%
Net interest margin (1) (3)					4.06	%					4.06	%
Return on average assets ratio					0.81	%					0.67	%
Return on average equity ratio					7.76	%					6.17	%
Average equity to assets ratio					10.43	%					10.83	%

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

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

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

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Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income for the six months ended June 30, 2011 and 2010.  Information is provided with respect to (1) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (2) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume).  Changes attributable to the combined input of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	(Dollars in Thousands)
	Six Months Ended June 30, 2011 Vs. 2010
	Increase (Decrease) Due to
	Rate			Volume			Net
Interest-earning assets:
Federal funds sold	$	(3	)	$	18		$	15
Available-for-sale-securities:
Taxable	(33		)	39			6
Nontaxable (1)	—			(7		)	(7		)
FHLB stock	—			—			—
Loans, net	(238		)	73			(165		)
Total net change in income on interest-earning assets	(273		)	122			(151		)
Interest-bearing liabilities:
Interest-bearing transaction accounts	(2		)	7			5
Savings accounts	1			2			3
Time deposits	(505		)	(10		)	(515		)
Securities sold under repurchase agreements	—			(1		)	(1		)
Federal funds purchased	—			—			—
FHLB borrowings	(83		)	115			32
Subordinated debentures	1			—			1
Total net change in expense on interest-bearing liabilities	(588		)	113			(475		)
Net change in net interest income	$	315		$	9		$	324
Percentage change	97.31		%	2.69		%	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 second quarter of 2011 was $300,000, or 0.11% of average loans, compared to $450,000, or 0.15% of average loans for the second quarter of 2010.  For the six months ended June 30, 2011 and 2010, the provision for loan losses was $525,000 and $850,000, respectively.  We had net charge-offs totaling $89,000 during the second quarter of 2011, compared to $75,000 during the second quarter of 2010, an increase of 18.6%.  The decrease in the provision for loan losses is due to the low level of net charge-offs and the current balance of the allowance for loan losses.

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Non-Interest Income

Non-interest income for the three months ended June 30, 2011 increased $16,000, or 2.1%, compared to the three months ended June 30, 2010, primarily due to an increase in gains from sale of investment securities of $61,000.  Rental income increased $39,000 from the prior year, while services charges on deposit accounts declined $105,000.

Non-interest income for the six months ended June 30, 2011 and 2010, respectively, was $1.4 million and $1.3 million, an increase of $88,000, or 6.6%.  Gains on the sale of investment securities increased $61,000, while rental income increased $58,000.  Service charges on deposit accounts decreased $111,000 from the prior year.

Non-Interest Expense

Non-interest expense for the three months ended June 30, 2011 increased $94,000, or 3.5%, compared to the three months ended June 30, 2010, primarily due to an increase in salaries and benefit expenses totaling $80,000.  Other real estate expenses increased $63,000 from the prior year.

Non-interest expense was $5.4 million for the six months ended June 30, 2011, an increase of $256,000, or 5.0%, from $5.2 million in the same period of 2010.  Salaries and benefit expenses increased $285,000.

Income Taxes

Income tax expense was calculated using our expected effective rate for 2011 and 2010.  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 2011 and 2010.  The effective tax rate for 2011 was 24.8%, compared to 20.2% for 2010.  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.

We evaluate the realizability of our deferred tax assets on a quarterly basis as warranted.  In performing our analysis, we consider all information currently available, both positive and negative, in determining whether the deferred tax asset will be realized.  We establish a valuation allowance when it is more likely than not that a recorded tax benefit is not expected to be realized.  At this time, we have determined that a valuation allowance on our deferred tax assets is not considered necessary.  We have determined that future taxable income will be available to absorb existing deferred tax assets.

We do not have any beginning and ending unrecognized tax benefits.  We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.  There were no interest and penalties recorded in the income statement or accrued for the quarter ending June 30, 2011 related to unrecognized tax benefits.

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Citizens First Corporation and its subsidiaries file a consolidated U.S. federal income tax return and a Kentucky and Tennessee income tax return.  These returns are subject to examination by taxing authorities for all years after 2007.

Balance Sheet Review

Overview

Total assets at June 30, 2011 were $354.1 million, up $4.4 million, or 1.3%, from $349.7 million at December 31, 2010.  Loans increased $1.4 million, or 0.5%, from $268.3 million at December 31, 2010 to $269.7 million at June 30, 2011.  Total loans averaged $269.8 million for the second quarter of 2011, compared to $269.0 million for the first quarter of 2011, an increase of $0.8 million, or 0.3%.  Deposits at June 30, 2011 were $293.3 million, an increase of $4.6 million, or 1.6%, compared to $288.7 million at December 31, 2010.  Total deposits averaged $302.9 million for the second quarter of 2011, compared to $296.6 million for the first quarter of 2011, an increase of $6.3 million, or 2.1%.  Brokered deposits were reduced by $4.9 million during the second quarter to $8.2 million.

Loans

Loans increased $1.4 million, or 0.5%, from $268.3 million at December 31, 2010 to $269.7 million at June 30, 2011.  Total loans averaged $269.4 million for the period ending June 30, 2011, compared to $266.7 million for the period ended December 31, 2010, an increase of $2.7 million, or 1.0%.  We experienced an increase in commercial and agricultural loans and commercial real estate during the first six months of the year compared to year-end.  The following table presents a summary of the loan portfolio by category:

	(Dollars in Thousands)
	June 30, 2011				December 31, 2010
			% of Total Loans				% of Total Loans
Commercial and agricultural	$	69,396	25.73	%	$	66,124	24.65	%
Commercial real estate	118,305		43.87	%	116,991		43.60	%
Residential real estate	72,784		26.99	%	75,514		28.14	%
Consumer	9,184		3.41	%	9,674		3.61	%
	$	269,669	100.00	%	$	268,303	100.00	%

Substantially all of our loans are to customers located in Warren, Simpson, Hart and Barren counties in Kentucky.  As of June 30, 2011, our twenty largest credit relationships consisted of loans and loan commitments ranging from $2.4 million to $5.0 million.  The aggregate amount of these credit relationships was $68.2 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 June 30, 2011.

As of June 30 2011, we had $17.0 million of participations in loans purchased from, and $18.2 million of participations in loans sold to, other banks.

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The following table sets forth the maturity distribution of the loan portfolio as of June 30, 2011.  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 June 30, 2011	Within One Year		After One but Within Five Years		After Five Years		Total
Commercial and agricultural	$	34,040	$	28,632	$	6,724	$	69,396
Commercial real estate	24,767		56,103		37,435		118,305
Residential real estate	5,928		21,117		45,739		72,784
Consumer	2,627		6,222		335		9,184
Total	$	67,362	$	112,074	$	90,233	$	269,669

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 loan losses is established through a provision for loan losses charged to expense.  The allowance totaled $5.2 million at June 30, 2011, increasing from $5.0 million at December 31, 2010, and $4.4 million at June 30, 2010.

The following table sets forth an analysis of our allowance for loan losses for the six months ended June 30, 2011 and 2010.

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	(Dollars in Thousands)
	June 30,
	2011			2010
Balance at beginning of period	$	5,001		$	3,988
Provision for loan losses	525			850
Amounts charged off:
Commercial	187			119
Commercial real estate	—			167
Residential real estate	121			190
Consumer	27			45
Total loans charged off	335			521
Recoveries of amounts previously charged off:
Commercial	12			125
Commercial real estate	—			6
Residential real estate	6			8
Consumer	6			3
Total recoveries	24			142
Net charge-offs	311			380
Balance at end of period	$	5,215		$	4,458
Total loans, net of unearned income:
YTD Average	$	269,383		$	266,972
At June 30	$	269,669		$	265,386
As a percentage of YTD average loans:
Net charge-offs, annualized	0.23		%	0.28		%
Provision for loan losses, annualized	0.39		%	0.64		%

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

	(Dollars in Thousands)
	June 30, 2011			December 31, 2010
Non-performing loans	$	3,170		$	1,264
Non-performing assets	4,072			2,632
Allowance for loan losses	5,215			5,001
Non-performing assets to total assets	1.15		%	0.75		%
Net charge-offs YTD to average YTD total loans, annualized	0.23		%	0.21		%
Allowance for loan losses to non-performing loans	164.48		%	395.96		%
Allowance for loan losses to total loans	1.93		%	1.86		%

Non-performing loans are defined as non-accrual loans, loans accruing but past due 90 days or more, and restructured loans.  Non-performing assets are defined as non-performing loans, other real estate owned, and repossessed assets.  The non-performing loans at June 30, 2011 consisted of $3.2 million of non-accrual loans and less than $1,000 of loans past due 90 days or more.  Of the non-accrual loans, $1,115,000 are loans secured by real estate in the process of collection, $1,734,000 are loans secured by real estate not in foreclosure, $309,000 are commercial loans in the process of collection, and $13,000 are consumer loans in the process of collection.  Non-performing assets also includes other real estate owned of two commercial

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properties totaling $537,000 and three residential properties and one building lot totaling $364,000.

The non-performing loan total at December 31, 2010 consisted of 22 non-accrual loans totaling $1.3 million, and six loans over 90 days past due totaling $2,000.  Loans over 90 days past due which are still accruing either have adequate collateral or a definite repayment plan in place.  Non-performing assets also includes other real estate owned of three commercial properties totaling $928,000 and three residential properties and one building lot totaling $440,000.

Loans are placed on a non-accrual basis when principal or interest is past due 90 days or more and the loan is not adequately collateralized and is in the process of collection, or when, in the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the obligation.  Non-accrual loans are not reclassified as accruing until principal and interest payments are brought current and future payments appear reasonably certain.  Loans are categorized as restructured if the original interest rate, repayment terms, or both were restructured due to deterioration in the financial condition of the borrower.  However, restructured loans that demonstrate performance under the restructured terms and that yield a market rate of interest may be removed from restructured status in the year following the restructure.  Consumer loans are charged off after 120 days of delinquency unless adequately secured and in the process of collection.

Loans that exhibit probable or observed credit weaknesses are subject to individual review.  Where appropriate, allocations for individual loans are included in the allowance calculation based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and legal options available to us.  Included in the review of individual loans are those that are impaired as provided in ASC Topic 310 “Receivables”.  We evaluate the collectability of both principal and interest when assessing the need for a loss accrual.  Historical loss rates are applied to other loans not subject to individual allocations.  These historical loss rates may be adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition.  Factors which management considers in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs and nonaccrual loans), changes in mix, asset quality trends, risk management and loan administration, changes in internal lending policies and credit standards, and examination results from bank regulatory agencies and our internal credit examiners.

We maintain a modest unallocated amount in the allowance to recognize the imprecision in estimating and measuring losses when evaluating allocations for individual loans or pools of loans.  Allocations on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due.  Loans for which the terms have been modified resulting in a concession, and for which the

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borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis for all loan classes by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

The Company reported total impaired loans of $7.7 million and $10.7 million as of June 30, 2011 and December 31, 2010, respectively.  The decrease in impaired loans during the period is primarily attributed to one large credit totaling $2.7 million that is no longer measured for impairment.

The Company reported total troubled debt restructurings of $1.9 million and $1.9 million as of June 30, 2011 and December 31, 2010, respectively.  The Company has no commitments to lend additional amounts as of June 30, 2011 and December 31, 2010 to customers with outstanding loans that are classified as troubled debt restructurings.  Troubled debt restructurings are included in impaired loans.

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)
	June 30, 2011				December 31, 2010
	Amount		% of Loans in Each Category to Total Loans		Amount		% of Loans in Each Category to Total Loans
Residential real estate loans	$	826	26.99	%	$	605	28.14	%
Consumer and other loans	147		3.41	%	200		3.61	%
Commercial and agricultural	2,209		25.73	%	3,211		24.65	%
Commercial real estate	1,706		43.87	%	902		43.60	%
Unallocated	326		0.00	%	83		0.00	%
Total allowance for loan losses	$	5,215	100.00	%	$	5,001	100.00	%

We believe that the allowance for loan losses of $5.2 million at June 30, 2011 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.

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In addition, bank regulatory authorities, as a part of their periodic examinations, may reach different conclusions about the quality of our loan portfolio and the level of the allowance, which could require us to make additional provisions in the future.  We have an unallocated amount within our allowance for loan losses that fluctuates from period to period due to the trends in the loan portfolio.  The change in this amount from year end is consistent with the overall weaker economic conditions and increase in the level of net charge-offs.

Securities

The investment securities portfolio is comprised of U.S. Government agency and government sponsored entity securities, agency mortgage-backed securities, tax-exempt securities of states and political subdivisions, and a trust preferred security.  The purchase of nontaxable obligations of states and political subdivisions is a part of managing our effective tax rate.  Securities are all classified as available-for-sale, and averaged $41.8 million for the first six months of 2011, compared to $39.4 million for 2010.  The table below presents the carrying value of securities by major category.

	(Dollars in Thousands)
	June 30, 2011		December 31, 2010
U.S. Government agencies and government sponsored entities	$	5,594	$	6,516
Agency mortgage-backed securities: residential	16,191		13,704
Municipal securities	20,021		18,411
Other securities	1,000		900
Total available-for-sale securities	$	42,806	$	39,531

The table below presents the maturities and yield characteristics of securities as of June 30, 2011.  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)
June 30, 2011	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	$	—		$	4,545		$	1,020		$	—		$	5,565		$	5,594
Agency mortgage-backed securities: (1)	178			12,808			2,977			—			15,963			16,191
Municipal securities	1,168			2,849			7,863			7,377			19,257			20,021
Other Securities	—			—			—			1,864			1,864			1,000
Total available-for-sale securities	$	1,346		$	20,202		$	11,860		$	9,241		$	42,649		$	42,806
Percent of total	3.1		%	47.4		%	27.8		%	21.7		%	100.0		%
Weighted average yield(2)	8.08		%	2.72		%	4.19		%	6.01		%	4.03		%

(1)Agency mortgage-backed securities (residential) are grouped into average lives based on June 2011 prepayment projections.

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

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

Deposits

Our primary source of funding for lending and investment activities results from customer and brokered deposits.  As of June 30, 2011, total deposits were $293.3 million, compared to total deposits of $288.7 million at December 31, 2010, an increase of $4.6 million or 1.6%.  Total deposits averaged $299.8 million during the first six months of 2011, an increase of $6.1 million, or 2.1%, compared to $293.7 million in the first six months of 2010.

We utilize brokered certificates of deposit and will continue to utilize these sources for deposits when they can be cost-effective.  At June 30, 2011 and December 31, 2010, these brokered deposits totaled $8.2 million and $19.2 million, respectively.  At June 30, 2011 and December 31, 2010, these brokered deposits constituted approximately 2.8% and 6.6% of our total deposits, respectively.

Time deposits of $100,000 or more totaled $59.5 million at June 30, 2011 compared to $66.3 million at December 31, 2010. Interest expense on time deposits of $100,000 or more was $797,000 for the first six months of 2011, compared to $1.0 million for the first six months of 2010. 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 June 30, 2011.

	(Dollars in Thousands)
	June 30, 2011
Three months or less	$	11,021
Over three through six months	11,555
Over six through twelve months	18,825
Over one year through three years	14,405
Over three years through five years	3,694
Over five years	—
Total	$	59,500

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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 June 30, 2011:

				(Dollars in Thousands)
Type	Maturity	Rate		Amount
Fixed	August 22, 2012	1.09	%	2,000
Fixed	August 28, 2012	4.25	%	500
Fixed	December 10, 2012	0.85	%	2,000
Fixed	December 24, 2012	3.36	%	2,000
Fixed	October 15, 2013	0.81	%	2,500
Fixed	December 10, 2014	1.73	%	2,000
Fixed	December 24, 2014	3.46	%	2,000
Fixed	February 25, 2015	2.85	%	2,000
				$	15,000

At June 30, 2011, we had available collateral to borrow an additional $14.9 million from the FHLB.

Other Borrowings.

At June 30, 2011, we had established Federal Funds lines of credit totaling $21.7 million with four correspondent banks.  No amounts were drawn as of June 30, 2011.

Repurchase agreements mature in one business day.  The rate paid on these accounts is variable at the Bank’s discretion and is based on a tiered balance calculation.   Information regarding federal funds purchased and securities sold under repurchase agreements as of June 30, 2011, is presented below.

(Dollars in thousands)	June 30, 2011
Federal funds purchased and repurchase agreements:
Balance at period end	957
Weighted average rate at period end	.96	%
Average balance during the six months ended June 30, 2011	747
Weighted average rate for the six months ending June 30, 2011	.89	%
Maximum month-end balance	957

We issued $5.0 million in subordinated debentures in October, 2006 in conjunction with the acquisition of Kentucky Banking Centers.  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 June 30, 2011 was 1.95%.  The subordinated debentures may be included with tier 1 capital (with certain limitations) under current regulatory guidelines.

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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

Stockholders’ equity was $37.9 million on June 30, 2011, a decrease of $449,000, or 1.2%, from $38.3 million on December 31, 2010.  The decrease is due to the repayment of $2.2 million in Series A preferred stock less the increase in retained earnings and the change in accumulated other comprehensive income.  Retained earnings increased due to the increase in our net income reduced by the payment of preferred dividends.  No common dividends have been paid during 2011.

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

Under quantitative measures established by regulation to ensure capital adequacy, we are required to maintain minimum amounts and ratios of total Tier 1 capital to risk-weighted assets and to total assets.  We believe we met all capital adequacy requirements as of June 30, 2011 and December 31, 2010.

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

	June 30, 2011		December 31, 2010
Tier 1 leverage ratio	10.55	%	10.98	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	N/A		N/A
Tier 1 risk-based capital ratio	13.28	%	13.31	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	N/A		N/A
Total risk-based capital ratio	14.53	%	14.57	%
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:

	June 31, 2011		December 31, 2010
Tier 1 leverage ratio	10.40	%	9.99	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	5.00	%	5.00	%
Tier 1 risk-based capital ratio	13.10	%	12.12	%
Regulatory minimum	4.00	%	4.00	%
“Well-capitalized” minimum	6.00	%	6.00	%
Total risk-based capital ratio	14.36	%	13.37	%
Regulatory minimum	8.00	%	8.00	%
“Well-capitalized” minimum	10.00	%	10.00	%

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

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

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

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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 June 30, 2011, 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 0.96% 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 0.70%.  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: July 2011 - June 2012

Projected Interest Rate Change	Estimated Value	Net Interest Income $ Change From Base	% Change From Base
+400	14,456,265	1,150,143	8.64	%
+300	13,946,285	640,163	4.81	%
+200	13,433,896	127,774	0.96	%
Base	13,306,122	0	0.00	%
-200	13,212,682	-93,440	-0.70	%

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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 were no significant changes in our internal controls or in other factors that could significantly affect these controls 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

2Branch Purchase and Assumption Agreement between Citizens First Bank, Inc. and Republic Bank and Trust Company dated June 1, 2011.

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, 3.3 and 3.4).

4.3Amended and Restated Bylaws of Citizens First Corporation (see Exhibit 3.5).

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. Section1350.

32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section1350.

101Interactive data files: (i) Consolidated Balance Sheets at June 30, 2011 and December 30, 2010, (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2011 and June 30, 2010, (iii) the Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2010, and June 30, 2011, (iv) Consolidated Statements of Cash Flows for the six month periods ended June 30, 2011 and 2010, and (v) Notes to Consolidated Financial Statements.**

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

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

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SIGNATURES

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

		CITIZENS FIRST CORPORATION
Date:	August 8, 2011	/s/M. Todd Kanipe
		M. Todd Kanipe
		President and Chief Executive Officer
	August 8, 2011	/s/ J. Steven Marcum
		J. Steven Marcum
		Executive Vice President and Chief Financial Officer

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