Citizens First (CZFC) 10-Q 2019 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2019

Or

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

For the transition period from to

Commission file number: 001-33126

CITIZENS FIRST CORPORATION

(Exact name of registrant as specified in its charter)

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

(270) 393-0700

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common	CZFC	NASDAQ

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

2,547,042 shares of Common Stock, no par value, were outstanding at May 9, 2019.

CITIZENS FIRST CORPORATION

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
ITEM 1	FINANCIAL STATEMENTS	3
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
ITEM 4	CONTROLS AND PROCEDURES	32
PART II – OTHER INFORMATION
ITEM 6	EXHIBITS	33
SIGNATURES		35

2

Part 1. Financial Information

Item 1. Financial Statements

Citizens First Corporation

Consolidated Balance Sheets

	(In Thousands, Except Share Data)
	Unaudited
	March 31,		December 31,
	2019		2018
Assets
Cash and due from financial institutions	$	6,998	$	8,875
Federal funds sold		—		10,000
Cash and cash equivalents		6,998		18,875
Interest-bearing deposits in other financial institutions		17,337		16,010
Available-for-sale securities		45,627		47,098
Loans held for sale		117		269
Loans, net of allowance for loan losses of $4,399 and $4,373 at March 31, 2019 and December 31, 2018, respectively		373,523		367,171
Premises and equipment, net		8,790		8,861
Bank owned life insurance (BOLI)		8,751		8,705
Federal Home Loan Bank (FHLB) stock, at cost		2,065		2,065
Accrued interest receivable		1,651		1,683
Deferred income taxes		430		545
Goodwill  and other intangible assets		4,132		4,150
Right of use lease asset		1,849		—
Other assets		811		550
Total assets	$	472,081	$	475,982
Liabilities
Deposits
Noninterest bearing	$	52,542	$	55,006
Savings, NOW and money market		191,997		192,762
Time		137,262		140,841
Total deposits		381,801		388,609
FHLB advances and other borrowings		30,000		30,000
Subordinated debentures		5,000		5,000
Accrued interest payable		421		410
Lease liability		1,892		—
Other liabilities		1,581		1,944
Total liabilities		420,695		425,963
Stockholders’ equity
Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 2,547,402 shares at March 31, 2019 and 2,526,377 shares at December 31, 2018, respectively		33,253		33,309
Retained earnings		18,307		17,365
Accumulated other comprehensive (loss)		(174)		(655)
Total stockholders’ equity		51,386		50,019
Total liabilities and stockholders’ equity	$	472,081	$	475,982

See Notes to Unaudited Consolidated Financial Statements

3

Citizens First Corporation

Unaudited Consolidated Statements of Income

	Three months ended
	(In Thousands, Except Per Share Data)
	March 31, 2019		March 31, 2018
Interest and dividend income
Loans	$	4,744	$	4,497
Taxable securities		207		168
Non-taxable securities		88		103
Federal funds sold and other		117		92
Total interest and dividend income		5,156		4,860
Interest expense
Deposits		1,076		729
FHLB advances and other borrowings		182		189
Subordinated debentures		55		42
Total interest expense		1,313		960
Net interest income		3,843		3,900
Provision for loan losses		—		30
Net interest income after provision for loan losses		3,843		3,870
Non-interest income
Service charges on deposit accounts		260		298
Other service charges and fees		281		281
Gain on sale of mortgage loans		80		50
Non-deposit brokerage fees		95		99
Lease income		83		52
BOLI income		46		43
Total non-interest income		845		823
Non-interest expenses
Salaries and employee benefits		1,809		1,846
Net occupancy expense		448		453
Advertising and public relations		73		81
Professional fees		254		164
Data processing services		209		194
Franchise shares and deposit tax		120		120
FDIC insurance		35		42
Other		434		459
Total non-interest expenses		3,382		3,359
Income before income taxes		1,306		1,334
Income taxes		187		250
Net income	$	1,119	$	1,084
Basic earnings per common share	$	0.44	$	0.43
Diluted earnings per common share	$	0.44	$	0.43

See Notes to Unaudited Consolidated Financial Statements

4

Citizens First Corporation

Unaudited Consolidated Statements of Comprehensive Income

In thousands, except share data

	Three months ended
	(In Thousands, Except Per Share Data)
	March 31, 2019		March 31, 2018
Comprehensive income, net of tax
Net income	$	1,119	$	1,084
Other comprehensive income (loss)
Reclassification adjustment for gains included in net income, net of taxes		—		—
Change in unrealized gain (loss) on available for sale securities, net of taxes		481		(369)
Total other comprehensive income (loss)		481		(369)
Comprehensive income	$	1,600	$	715

See Notes to Unaudited Consolidated Financial Statements

5

Citizens First Corporation

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

In thousands, except share data

					Accumulated Other
	Common		Retained		Comprehensive
	Stock		Earnings		(Loss)		Total
Balance, January 1, 2019	$	33,309	$	17,365	$	(655)	$	50,019
Net income		—		1,119		—		1,119
Stock based compensation		(56)		—		—		(56)
Change in accumulated other comprehensive income		—		—		481		481
Dividend declared and paid on common stock ($.07 per share)		—		(177)		—		(177)
Balance, March 31, 2019	$	33,253	$	18,307	$	(174)	$	51,386

					Accumulated Other
	Common		Retained		Comprehensive
	Stock		Earnings		Income (Loss)		Total
Balance, January 1, 2018	$	33,138	$	13,142	$	(446)	$	45,834
Net income		—		1,084		—		1,084
Stock based compensation		31		—		—		31
Change in accumulated other comprehensive loss		—		—		(369)		(369)
Dividend declared and paid on common stock ($.06 per share)		—		(151)		—		(151)
Reclassification of disproportionate tax effect		—		88		(88)		—
Balance, March 31, 2018	$	33,169	$	14,162	$	(903)	$	46,428

See Notes to Unaudited Consolidated Financial Statements

6

Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows

	(In Thousands)
	March 31, 2019		March 31, 2018
Operating Activities
Net income	$	1,119	$	1,084
Items not requiring (providing) cash:
Depreciation		95		100
Provision for loan losses		—		30
Amortization of premiums and discounts on securities		40		46
Amortization of core deposit intangible		18		18
Deferred income taxes		(13)		—
Stock based compensation		(56)		31
BOLI Income		(46)		(43)
Proceeds from sale of mortgage loans held for sale		3,528		2,317
Origination of mortgage loans held for sale		(3,296)		(2,410)
Gains on sales of mortgage loans held for sale		(80)		(50)
Loss (gain) on sale of premises and equipment		(4)		(4)
Changes in:
Accrued interest receivable		32		163
Other assets		(261)		(144)
Accrued interest payable and other liabilities		(308)		(165)
Net cash provided by operating activities		768		973
Investing Activities
Loan originations and payments, net		(6,352)		(14,757)
Increase in interest-bearing deposits in other financial institutions		(1,327)		(9,430)
Purchase of premises and equipment		(24)		(19)
Proceeds from maturities of available-for-sale securities		2,040		3,059
Purchase of available-for-sale securities		—		(1,002)
Proceeds from sales of premises and equipment		4		4
Purchase of FHLB stock		—		(12)
Net cash used in investing activities		(5,659)		(22,157)
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts		(3,229)		575
Net change in time deposits		(3,579)		13,619
Proceeds from FHLB advances		—		10,000
Repayment of FHLB advances		—		(3,000)
Dividends paid on common stock		(178)		(151)
Net cash provided by (used in) financing activities		(6,986)		21,043
Decrease in Cash and Cash Equivalents		(11,877)		(141)
Cash and Cash Equivalents, Beginning of Year		18,875		6,444
Cash and Cash Equivalents, End of Year	$	6,998	$	6,303
Supplemental Cash Flows Information
Interest paid	$	1,302	$	917
Income taxes paid	$	—	$	—
Recording of right of use asset in exchange for lease obligations	$	1,947	$	—

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

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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

In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in the accompanying unaudited financial statements.  Those adjustments consist only of normal recurring adjustments. Results of interim periods are not necessarily indicative of results to be expected for the full year.   

Recent Accounting Pronouncements–

Accounting Standards Update No. 2016-02, “Leases” (“ASU 2016-02”), was issued in February 2016 and provides revised guidance related to the accounting and reporting of leases. ASU 2016-02 requires lessees to recognize most leases on the balance sheet. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee depends on its classification as a finance or operating lease. ASU 2016-02 requires a modified retrospective transition, with a package of practical expedients that entities may elect to apply. In January 2018, Accounting Standards Update No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842” was issued to address concerns about the costs and complexity of complying with the transition provisions of ASU 2016-02. In July 2018, Accounting Standards Update No. 2018-10, “Codification Improvements to Topic 842, Leases” was issued to provide more detailed guidance and additional clarification for implementing ASU 2016-02. Also in July 2018, Accounting Standards Update No. 2018-11, “Targeted Improvements” (“ASU 2018-11”) was issued and allows for an optional transition method in which the provisions of Topic 842 would be applied upon the adoption date and would not have to be retroactively applied to the earliest reporting period presented in the consolidated financial statements. The Corporation used this optional transition method for the adoption of Topic 842. In December 2018, Accounting Standards Update No. 2018-20, “Leases (Topic 842) Narrow-Scope Improvement for Lessors” was issued to address lessors’ concerns about sales taxes and other similar taxes collected from lessees, certain lessor costs, and recognition of variable payments for contracts with lease and non-lease components. These ASUs were effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.

The Company adopted Topic 842 “Leases” effective January 1, 2019 and has applied the guidance to all operating leases within the scope of Topic 842 at that date. The Company elected to adopt the package of practical expedients, which among other things, does not require reassessment of lease classification. The Company recognized $1.9 million in operating lease right-of-use-assets, $1.9 million in operating lease liabilities. There was no change to the timing in recognition of operating lease rent expense on the Company’s consolidated financial statements associated with our leases.

In March 2019, Accounting Standards Update No. 2019-01, “Leases (Topic 842) Codification Improvements” (“ASU 2019-01”) was issued to address lessors’ concerns about determining fair value of underlying leased assets and presentation issues in the statement of cash flows for sales-type and direct financing leases. ASU 2019-01 also clarified for both lessees and lessors that transition disclosures related to Topic 250 were not required for annual periods are also not required for

8

interim periods. ASU 2019-01 was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The Corporation early adopted this ASU 2019-01 effective January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

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

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

Note 2 - Reclassifications

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

Note 3 - Available-For-Sale Securities

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at March 31, 2019 and December 31, 2018 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:

	(Dollars in Thousands)
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
March 31, 2019
U. S. government agencies and government sponsored entities	$	7,925		72	$	(34)	$	7,963
Agency mortgage-backed securities: residential		19,655		74		(127)		19,602
State and municipal		16,373		131		(82)		16,422
Trust preferred security		1,894		—		(254)		1,640
Total Available-for-Sale Securities	$	45,847	$	277	$	(497)	$	45,627
December 31, 2018
U. S. government agencies and government sponsored entities	$	8,529	$	29	$	(118)	$	8,440
Agency mortgage-backed securities: residential		20,640		15		(355)		20,300
State and municipal		16,866		57		(195)		16,728
Trust preferred security		1,893		—		(263)		1,630
Total Available-for-Sale Securities	$	47,928	$	101	$	(931)	$	47,098

9

The amortized cost and fair value of investment securities at March 31, 2019 by contractual maturity were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	March 31, 2019
	(Dollars in Thousands)
	Available-For-Sale
	Amortized Cost		Fair Value
Due in one year or less	$	2,658	$	2,660
Due from one to five years		8,418		8,406
Due from five to ten years		10,512		10,629
Due after ten years		4,604		4,330
Agency mortgage-backed: residential		19,655		19,602
Total	$	45,847	$	45,627

The following table summarizes the investment securities with unrealized losses by portfolio segment at March 31, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

	(Dollars in Thousands)
	Less than 12Months				12 Months or More				Total
Description of			Unrealized				Unrealized				Unrealized
Securities	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
March 31, 2019:
U.S. government agencies and government sponsored entities	$	—	$	—	$	3,591	$	(34)	$	3,591	$	(34)
Agency mortgage-backed: residential		—		—		12,543		(127)		12,543		(127)
State and municipal		1,024		(7)		5,563		(75)		6,587		(82)
Trust preferred security		—		—		1,640		(254)		1,640		(254)
Total temporarily impaired	$	1,024	$	(7)	$	23,337	$	(490)	$	24,361	$	(497)

	(Dollars in Thousands)
	Less than 12 Months				12 Months or More				Total
Description of			Unrealized				Unrealized				Unrealized
Securities	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
December 31, 2018:
U.S. government agencies and government sponsored entities	$	—	$	—	$	6,243	$	(118)	$	6,243	$	(118)
Agency mortgage-backed: residential		1,029		(2)		15,431		(353)		16,460		(355)
State and municipal		689		(2)		9,445		(193)		10,134		(195)
Trust preferred security		—		—		1,630		(263)		1,630		(263)
Total temporarily impaired	$	1,718	$	(4)	$	32,749	$	(927)	$	34,467	$	(931)

Other-Than-Temporary-Impairment

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

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

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

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The majority of the Company’s unrealized losses 12 months or more relate to its investment in a single trust preferred security.  The security is a single-issuer trust preferred that is not rated.  No impairment charge is being taken as no loss of principal or interest is anticipated.  All principal and interest payments are being received as scheduled.  On a quarterly basis, we evaluate the creditworthiness of the issuer, a bank holding company with operations in the state of Kentucky.  Based on the issuer’s continued profitability and well-capitalized position, we do not deem that there is credit loss.  The decline in fair value is primarily attributable to illiquidity affecting these markets and not the expected cash flows of the individual securities.  We have evaluated the financial condition and near term prospects of the issuer and expect to fully recover our cost basis.  This security continues to pay interest as agreed and future payments are expected to be made as agreed.  This security is not considered to be other-than-temporarily impaired.

Note 4 - Loans and Allowance for Loan Losses

Categories of loans include:

	(Dollars in Thousands)
	March 31, 2019		December 31, 2018
Commercial	$	64,710	$	61,551
Commercial real estate:
Construction		41,186		36,829
Other		179,692		180,800
Residential real estate		89,061		88,797
Consumer:
Auto		837		841
Other		2,436		2,726
Total Loans		377,922		371,544
Less: Allowance for loan losses		(4,399)		(4,373)
Net loans	$	373,523	$	367,171

The following table sets forth an analysis of our allowance for loan losses for the three months ending March 31, 2019 and 2018.

	(Dollars in Thousands)
March 31, 2019	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	592	$	3,122	$	611	$	9	$	39	$	4,373
Provision (credit) for loan losses		59		(62)		5		5		(7)		—
Loans charged-off		—		—		—		(5)		—		(5)
Recoveries		18		12		1		—		—		31
Total ending allowance balance	$	669	$	3,072	$	617	$	9	$	32	$	4,399

	(Dollars in Thousands)
March 31, 2018	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	633	$	3,515	$	554	$	10	$	12	$	4,724
Provision (credit) for loan losses		22		(40)		45		—		3		30
Loans charged-off		(38)		—		(27)		(1)		—		(66)
Recoveries		—		—		4		1		—		5
Total ending allowance balance	$	617	$	3,475	$	576	$	10	$	15	$	4,693

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of March 31, 2019 and December 31, 2018, which includes net deferred

11

loan fees.  Accrued interest receivable of $1.4 million at both March 31, 2019 and December 31, 2018, is not considered significant and therefore not included in the recorded investment in loans presented in the following tables.

	(Dollars in Thousands)
March 31, 2019	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	50	$	—	$	—	$	—	$	50
Collectively evaluated		669		3,022		617		9		32		4,349
Total ending allowance balance	$	669	$	3,072	$	617	$	9	$	32	$	4,399
Loans:
Individually evaluated for impairment	$	—	$	1,249	$	137	$	3	$	—	$	1,389
Collectively evaluated		64,710		219,629		88,924		3,270		—		376,533
Total ending loans balance	$	64,710	$	220,878	$	89,061	$	3,273	$	—	$	377,922

	(Dollars in Thousands)
December 31, 2018	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	48	$	—	$	—	$	—	$	48
Collectively evaluated		592		3,074		611		9		39		4,325
Total ending allowance balance	$	592	$	3,122	$	611	$	9	$	39	$	4,373
Loans:
Individually evaluated for impairment	$	—	$	1,270	$	147	$	4	$	—	$	1,421
Collectively evaluated		61,551		216,359		88,650		3,563		—		370,123
Total ending loans balance	$	61,551	$	217,629	$	88,797	$	3,567	$	—	$	371,544

12

The following table presents information related to impaired loans by class of loans as of March 31, 2019 and December 31, 2018. In this table presentation the unpaid principal balance of the loans has not been reduced by partial net charge-offs and the recorded investment of the loans was reduced by partial net charge-offs.

	(Dollars in Thousands)						(Dollars in Thousands)
	March 31, 2019						December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance forLoan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Other		1,182		1,182		—		1,202		1,202		—
Residential real estate		137		137		—		147		147		—
Consumer:
Other		3		3		—		4		4		—
Subtotal	$	1,322	$	1,322	$	—	$	1,353	$	1,353	$	—
With an allowance recorded:
Commercial real estate:
Other	$	67	$	67	$	50	$	68	$	68	$	48
Subtotal	$	67	$	67	$	50	$	68	$	68	$	48
Total	$	1,389	$	1,389	$	50	$	1,421	$	1,421	$	48

Information on impaired loans for the three months ending March 31, 2019 and 2018 is as follows:

	(Dollars in Thousands)						(Dollars in Thousands)
	March 31, 2019						March 31, 2018
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
Commercial	$	—	$	—	$	—	$	1	$	—	$	—
Commercial real estate:
Other		1,260		17		1		2,078		25		1
Residential real estate		137		2		—		157		2		1
Consumer:
Other		3		—		—		6		—		—
Total	$	1,400	$	19	$	1	$	2,242	$	27	$	2

The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2019 and December 31, 2018 are summarized below:

	(Dollars in Thousands)				(Dollars in Thousands)
	March 31, 2019				December 31, 2018
	Loans Past Due 90 Days and Over and Still Accruing		Nonaccrual		Loans Past Due 90 Days and Over and Still Accruing		Nonaccrual
Commercial real estate:
Other		—		1,183		—		1,202
Residential real estate		—		87		—		96
Total	$	—	$	1,270	$	—	$	1,298

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

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The following tables present the aging of the recorded investment in past due loans as of March 31, 2019 and December 31, 2018 by class of loans.  Non-accrual loans are included and have been categorized based on their payment status:

	(Dollars in Thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 and Over Days Past Due		Total Past Due		Current		Total
March 31, 2019
Commercial	$	156	$	—	$	—	$	156	$	64,554	$	64,710
Commercial real estate:
Construction		—		—		—		—		41,186		41,186
Other		117		—		—		117		179,575		179,692
Residential real estate		53		74		87		214		88,847		89,061
Consumer:
Auto		—		—		—		—		837		837
Other		—		—		—		—		2,436		2,436
Subtotal	$	326	$	74	$	87	$	487	$	377,435	$	377,922

	(Dollars in Thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 and Over Days Past Due		Total Past Due		Current		Total
December 31, 2018
Commercial	$	—	$	11	$	—	$	11	$	61,540	$	61,551
Commercial real estate:
Construction		—		—		—		—		36,829		36,829
Other		—		—		—		—		180,800		180,800
Residential real estate		—		37		97		134		88,663		88,797
Consumer:
Auto		—		—		—		—		841		841
Other		5		—		—		5		2,721		2,726
Subtotal	$	5	$	48	$	97	$	150	$	371,394	$	371,544

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $1.3 million as of March 31, 2019 and December 31, 2018.  The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.  Troubled debt restructurings are included in impaired loans. The modifications of the terms of these loans included reducing the interest rate, granting an interest only payment period, or extending the terms of the debt for customers experiencing financial difficulties. Of the five troubled debt restructurings reported at quarter end, three loans totaling $120,000 were on accrual status and two loans totaling $1.2 million were on non-accrual status. 

There were no troubled debt restructurings that occurred during the three months ending March 31, 2019, and no troubled debt restructuring that occurred during the three months ending March 31, 2018.

Specific allocations of $50,000 and $46,000 were reported for troubled debt restructurings as of March 31, 2019 and March 31, 2018. No payment defaults or charge-offs were reported for troubled debt restructuring during  the three months ending March 31, 2019 and March 31, 2018.  

The terms of certain other loans were modified during the three months ending March 31, 2019 and 2018 that did not meet the definition of a troubled debt restructuring. These loans modified during the three months ending March 31, 2019 have a total recorded investment of $16.0 million as of March 31, 2019. These loans modified during the three months ending March 31, 2018 had a total recorded investment of $8.7 million as of March 31, 2018. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

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

Credit Quality Indicators:

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

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

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

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

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

	(Dollars in Thousands)
	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2019
Commercial	$	64,459	$	—	$	251	$	—	$	64,710
Commercial real estate:
Construction		41,186		—		—		—		41,186
Other		178,342		—		1,350		—		179,692
Residential real estate		88,974		—		87		—		89,061
Consumer:
Auto		837		—		—		—		837
Other		2,428		—		8		—		2,436
Total	$	376,226	$	—	$	1,696	$	—	$	377,922

15

	(Dollars in Thousands)
	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2018
Commercial	$	60,961	$	—	$	590	$	—	$	61,551
Commercial real estate:
Construction		36,829		—		—		—		36,829
Other		179,419		—		1,381		—		180,800
Residential real estate		88,664		—		133		—		88,797
Consumer:
Auto		841		—		—		—		841
Other		2,719		—		7		—		2,726
Total	$	369,433	$	—	$	2,111	$	—	$	371,544

Note 5 - Fair Value Measurements

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

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

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

Level 3 – Significant unobservable inputs that are supported by little or no market activity, reflect a company’s own assumptions about market participant assumptions of fair value, and are significant to the fair value of the assets or liabilities.

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

Investment Securities: The fair value of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1 inputs) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (level 2 inputs).  The Company does not have any Level 1 securities.  Level 2 securities include certain U.S. agency bonds, collateralized mortgage and debt obligations, and certain municipal securities. The Company also has one Level 3 security. The value of this single issue trust preferred security is obtained on a quarterly basis directly from the originating broker.

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

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

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

Assets measured at fair value on a recurring basis:

	Fair Value Measurements at:
	(Dollars in Thousands)						(Dollars in Thousands)
	March 31, 2019						December 31, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Securities available-for-sale
U. S. government agencies and government sponsored entities		—	$	7,963		—		—	$	8,440		—
Agency mortgage-backed securities-residential		—		19,602		—		—		20,300		—
State and municipal		—		16,422		—		—		16,728		—
Trust preferred security		—		—		1,640		—		—		1,630
Corporate bonds		—		—		—		—		—		—
Total investment securities	$	—	$	43,987	$	1,640	$	—	$	45,468	$	1,630

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

	Trust Preferred Security
	2019		2018
Balance of recurring Level 3 assets at January 1	$	1,630	$	1,440
Total gains or (losses) for the period included in other comprehensive income		10		120
Balance of recurring Level 3 assets at March 31	$	1,640	$	1,560

There were no financial assets measured at fair value on a non-recurring basis as of March 31, 2019 or December 31, 2018.

There were no loans measured for impairment using the fair value of collateral dependent loans, no valuation allowance, and no resulting provision for loan losses as of March 31, 2019 or December 31, 2018.

There was no other real estate owned to measure at fair value at March 31, 2019 or December 31, 2018.  No write-downs of other real estate were taken in the quarters ending March 31, 2019 or March 31, 2018.

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The carrying amount and estimated fair values of financial instruments at March 31, 2019 and December 31, 2018 were as follows:

			Fair Value Measurements at
			March 31, 2019
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and due from financial institutions	$	6,998	$	6,998	$	—	$	—	$	6,998
Federal funds sold and interest-bearing deposits in other financial institutions		17,337		17,337		—		—		17,337
Available-for-sale-securities		45,627		—		43,987		1,640		45,627
Loans, net of allowance		373,523		—		—		371,482		371,482
Loans held for sale		117		—		119		—		119
Accrued interest receivable		1,651		11		217		1,423		1,651
Federal Home Loan Bank stock		2,065		—		—		—		N/A
Financial Liabilities
Demand and savings deposits	$	244,539	$	244,539	$	—	$	—	$	244,539
Time deposits		137,262		—		136,373		—		136,373
FHLB advances		30,000		—		29,965		—		29,965
Subordinated debentures		5,000		—		—		2,722		2,722
Accrued interest payable		421		20		344		57		421

			Fair Value Measurements at
			December 31, 2018
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and due from financial institutions	$	8,875	$	8,875	$	—	$	—	$	8,875
Federal funds sold and interest-bearing deposits in other financial institutions		26,010		26,010		—		—		26,010
Available-for-sale-securities		47,098		—		45,468		1,630		47,098
Loans, net of allowance		367,171		—		—		364,862		364,862
Loans held for sale		269		—		274		—		274
Accrued interest receivable		1,683		13		255		1,415		1,683
Federal Home Loan Bank stock		2,065		—		—		—		N/A
Financial Liabilities
Demand and savings deposits	$	247,768	$	247,768	$	—	$	—	$	247,768
Time deposits		140,841		—		138,869		—		138,869
FHLB advances		30,000		—		29,837		—		29,837
Subordinated debentures		5,000		—		—		2,722		2,722
Accrued interest payable		410		17		339		54		410

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

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

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

(c) Loans, Net: Fair values of loans, excluding loans held for sale, was estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values were based on carrying values resulting in a Level 3 classification. Fair values for other loans were estimated using discounted cash flow analyses, using interest rates being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost fair value as described previously. The methods utilized to estimate the fair value of loans did not necessarily represent an exit price.

18

(d) Loans Held for Sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

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

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

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

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

Note 6 - Earnings Per Share

Basic earnings per share have been computed by dividing net income available for common shareholders by the weighted-average number of common shares outstanding for the period.  Diluted earnings per share have been computed the same as basic earnings per share, and assumes the conversion of outstanding performance share units. The following table reconciles the basic and diluted earnings per share computations for the three months ended March 31, 2019 and 2018.

	(Income in Thousands)
	2019					2018
	Quarter ended March 31, 2019					Quarter ended March 31, 2018
			Weighted	Per				Weighted	Per
			Average	Share				Average	Share
	Income		Shares	Amount		Income		Shares	Amount
Net income	$	1,119				$	1,084
Basic earnings per share:	$	1,119	2,539,597	$	0.44	$	1,084	2,526,377	$	0.43
Effect of dilutive securities
Performance share units		—	3,340				—	14,993
Diluted earnings per share:
Net income available to common stockholders and assumed conversions	$	1,119	2,542,937	$	0.44	$	1,084	2,541,370	$	0.43

Note 7 - Regulatory Capital Matters

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.  Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators.  Failure to meet capital requirements can initiate regulatory action.  Management believes as of March 31, 2019 and December 31, 2018, the Company and Citizens First Bank, Inc. met all capital adequacy requirements to which they are subject.

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

Under quantitative measures established by regulation to ensure capital adequacy, we are required to maintain minimum amounts and ratios of total Tier 1 capital to risk-weighted assets and to total assets. Interim Final Basel III rules require the Bank to maintain minimum amounts and ratios of common equity Tier I capital to risk-weighted assets. Under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in computing regulatory capital. The rules also established a "capital conservation buffer" of 2.5%, to be phased in through January 1, 2019, above the new regulatory minimum risk-based capital ratios. The buffer is 2.5% as of March 31, 2019 and was 1.87% for 2018.  The buffer could limit the payment of dividends and discretionary bonuses to officers if a bank fails to maintain required capital levels.

Citizens First Bank, Inc.’s actual capital amounts and ratios (excluding capital conservation buffer) are presented in the following tables at the date indicated.

	(Dollars in Thousands)
									To Be Well Capitalized
					For CapitalAdequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
March 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to risk-weighted assets)		56,359	14.21	%		31,731	8.00	%	$	39,664	10.00	%
Tier I Capital (to risk-weighted assets)		51,960	13.10	%		23,798	6.00	%		31,731	8.00	%
Common Equity Tier I Capital (to risk-weighted assets)		51,960	13.10	%		17,849	4.50	%		25,781	6.50	%
Tier I Leverage Capital (to average assets)		51,960	11.17	%		18,606	4.00	%		23,257	5.0	%

	(Dollars in Thousands)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to risk-weighted assets)		55,115	14.03	%		31,424	8.00	%	$	39,280	10.00	%
Tier I Capital (to risk-weighted assets)		50,742	12.92	%		23,568	6.00	%		31,424	8.00	%
Common Equity Tier I Capital (to risk-weighted assets)		50,742	12.92	%		17,676	4.50	%		25,532	6.50	%
Tier I Leverage Capital (to average assets)		50,742	10.82	%		18,764	4.00	%		23,455	5.0	%

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

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Note 8 - Leases

The Company has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception.

The Company adopted the provisions of ASU 2016-02 (Topic 842) on January 1, 2019. Operating lease right-of-use (“ROU”) assets represent a right to use an underlying asset for the contractual lease term. Operating lease liabilities represent an obligation to make lease payments arising from the lease. Upon adoption, operating lease ROU assets totaling $1.9 million and operating lease liabilities totaling $1.9 million were recognized in our Unaudited Consolidated Balance Sheets for leases that existed at the adoption date, based on the present value of lease payments over the remaining lease term. Operating leases entered into after the adoption date will be recognized as an operating lease ROU asset and operating lease liability at the commencement date of the new lease.

The Corporation’s leases do not provide an implicit interest rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating lease liabilities. The weighted average discount rate used to discount operating lease liabilities at March 31, 2019 was 1.04%.

Operating lease terms include options to extend when it is reasonably certain that the Corporation will exercise such options, determined on a lease-by-lease basis. As of March 31, 2019, the Corporation does not have any leases that have not yet commenced. At March 31, 2019, lease expiration dates ranged from 11 months to 6 years, with additional renewal options on certain leases for 5 years. At March 31, 2019, the weighted average remaining lease term for the Corporation’s operating leases was 5 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $98 thousand and $105 thousand, respectively, for the three months ended March 31, 2019 and 2018. Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Corporation is reasonably certain to renew, at March 31, 2019:

	(Dollars In
	Thousands)
2019	$	290
2020		394
2021		403
2022		293
2023		243
Thereafter		269
	$	1,892

Note 9 – Business Combination

On February 21, 2019, German American Bancorp, Inc. (NASDAQ: GABC) ("German American") and the Company announced that they have entered into a definitive agreement to merge the Company into German American. Upon completion of the transaction, the Bank will be merged into German American's subsidiary bank, German American Bank. Under terms of the definitive agreement, the Company’s common shareholders (excluding 401(k) shareholders) will receive a fixed exchange ratio of 0.6629 shares of German American common stock for each share of the Company in a tax free exchange, and a cash payment of $5.80 per Company share. Shareholders who hold Company common shares in the Citizens First Bank 401(k) Profit Sharing Plan will receive a cash payment equal to $5.80 plus the exchange ratio multiplied by the 20-day volume weighted average price of German American’s common shares on the second day prior to closing (provided that such average price will not be less than the closing price of German American’s common shares on the last trading day preceding the closing).

The Company will hold a special meeting of its shareholders on June 25, 2019 to vote on the merger agreement. Completion of the transaction is subject to approval by regulatory authorities and the Company’s shareholders, as well as certain other closing conditions. The transaction is expected to be completed in the third quarter of 2019.

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

Management’s discussion and analysis of Citizens First Corporation (the “Company”) is included to provide the shareholders with an expanded narrative of our results of operations, changes in financial condition, liquidity and capital adequacy.  This narrative should be reviewed in conjunction with our consolidated financial statements and notes thereto included in our 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Forward-Looking Statements

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

Recently Issued Accounting Pronouncements

See Note 1 to the Unaudited Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on the Company’s financial statements.

Results of Operations

For the quarter ended March 31, 2019, we reported net income of $1.12 million or $0.44 per diluted common share, compared to net income of $1.08 million, or $0.43 per diluted common share in the first quarter of 2018, an increase of $35,000 or 3.2%.  The increase in net income is attributable primarily to an increase in non-interest income of $22,000 and a reduction in income tax expense of $63,000. This was offset by a decrease in net interest income of $57,000 and an increase in non-interest expense of $23,000.

Our annualized return on average assets, defined as net income divided by average assets, was 0.97% for the quarter ended March 31, 2019, compared to 0.92% for the quarter ended March 31, 2018.  Our annualized return on average equity, defined as net income divided by average equity, was 9.00% for the quarter ended March 31, 2019, compared to 9.55% for the quarter ended March 31, 2018. 

Net Interest Income

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

Net interest income for the quarter ended March 31, 2019 decreased $57,000, or 1.5%, compared to March 31, 2018. The Company’s net interest margin was 3.55% for the three months ended March 31, 2019 and March 31, 2018. 

The following tables set forth for the quarter ended March 31, 2019 and 2018, 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

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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.

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

	2019						2018
	Average		Income/		Average		Average		Income/		Average
Three months ended March 31,	Balance		Expense		Rate		Balance		Expense		Rate
Earning assets:
Federal funds sold	$	1,556	$	9	2.35	%	$	875	$	3	—	%
Interest-bearing deposits in other financial institutions		13,056		77	2.39	%		14,479		59	1.65	%
Available-for-sale securities (1)
Taxable		31,376		207	2.68	%		30,144		168	2.26	%
Nontaxable		14,870		112	3.05	%		17,116		131	3.10	%
Federal Home Loan Bank stock		2,065		31	6.09	%		2,055		30	5.92	%
Loans receivable (2)		378,524		4,744	5.08	%		384,184		4,497	4.75	%
Total interest earning assets		441,447		5,180	4.76	%		448,853		4,888	4.42	%
Non-interest earning assets		27,755						27,210
Total Assets	$	469,202					$	476,063
Interest-bearing liabilities:
NOW accounts	$	134,884	$	313	0.94	%	$	120,608	$	172	0.58	%
Money market accounts		33,037	$	74	0.91	%	$	34,895	$	63	0.73	%
Savings accounts		22,468		9	0.16	%		21,632		10	0.19	%
Time deposits		139,344		680	1.98	%		145,492		484	1.35	%
Total interest-bearing deposits		329,733		1,076	1.32	%		322,627		729	0.92	%
Borrowings		30,000		182	2.46	%		47,167		189	1.63	%
Subordinated debentures		5,000		55	4.46	%		5,000		42	3.41	%
Total interest-bearing liabilities		364,733		1,313	1.46	%		374,794		960	1.04	%
Non-interest bearing deposits		51,378						52,990
Other liabilities		2,688						2,256
Total liabilities		418,799						430,040
Stockholders’ equity		50,403						46,023
Total Liabilities and Stockholders’ Equity	$	469,202					$	476,063
Net interest income			$	3,867					$	3,928
Net interest spread (1)					3.30	%					3.38	%
Net interest margin (1) (3)					3.55	%					3.55	%
Return on average assets ratio					0.97	%					0.92	%
Return on average equity ratio					9.00	%					9.55	%
Average equity to assets ratio					10.74	%					9.67	%

(1) Income and yield stated at a tax equivalent basis for nontaxable securities using the marginal corporate Federal tax rate of 21.0% for 2019 and 2018.

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

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

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income for the three months ended March 31, 2019 and 2018. Information is provided with respect to (1) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (2) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume).  Changes attributable to the combined input of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

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	(Dollars in Thousands)
	Three Months Ended March 31, 2019
	Vs. 2018
	Increase (Decrease) Due to
	Rate	Volume	Net
Interest-earning assets:
Federal funds sold	—	6	6
Interest-bearing deposits in other financial institutions	24	(6)	18
Available-for-sale securities:
Taxable	32	7	39
Nontaxable (1)	(2)	(17)	(19)
Federal Home Loan Bank stock	1	0	1
Loans, net	313	(66)	247
Total Net Change in income on interest-earning assets	368	(76)	292
Interest-bearing liabilities:
NOW Accounts	121	20	141
Money market accounts	14	(3)	11
Savings accounts	(1)	0	(1)
Time deposits	216	(20)	196
FHLB and other borrowings	62	(69)	(7)
Subordinated debentures	13	—	13
Total Net Change in expense on interest-earning liabilities	425	(72)	353
Net change in net interest income	(57)	(4)	(61)
Percentage Change	92.8%	7.2%	100.0%

(1) Income stated at a fully tax equivalent basis using the marginal corporate Federal tax rate of 21.0% for 2019 and 2018.

Provision for Loan Losses

There was no provision for loan losses in the first quarter of 2019 compared to a $30,000 provision for loan losses in the first quarter of 2018.

Non-Interest Income

Non-interest income for the three months ended March 31, 2019 increased $22,000, or 2.7%, compared to the three months ended March 31, 2018, primarily due to an increase in gains on sale of mortgage loans of $30,000, and an increase in lease income of $31,000, partially offset by a decrease in service charges on deposit accounts of $38,000.

Non-Interest Expense

Non-interest expense for the three months ended March 31, 2019 increased $23,000, or 0.7%, compared to the three months ended March 31, 2018, primarily due to an increase in professional fees of $90,000 and an increase in data processing expense of $15,000, offset by a decrease in personnel expense of $37,000 and decrease in other operating expenses of $25,000.

Income Taxes

Income tax expense was calculated using our expected effective rate for 2019 and 2018.  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 21.0% for 2018 and 2019. The effective tax rate was 14% for the first quarter of 2019 and 19% for the same period in 2018. 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, income on bank owned life insurance and equity-based compensation.

The Company had state net operating loss carryforwards (NOLs) of approximately $8 million at March 31, 2019.  In April 2019, tax legislation was enacted in Kentucky which allowed for certain Kentucky NOLs to be utilized in a combined filing return. Therefore, the Company will begin filing a Kentucky combined filing in 2021 that will include the Bank. 

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The Company estimates that based on the default combined filing requirement, a state NOL tax benefit, net of federal impact, of $317,000 would be recognized in the second quarter of 2019.

Balance Sheet Review

Overview

Total assets at March 31, 2019 were $472.1 million, a decrease of $3.9 million, or 0.8%, from $476.0 million at December 31, 2018.  Average assets during the first quarter of 2019 were $469.2 million, a decrease of 1.4%, or $6.9 million, from $476.1 million in the first quarter of 2018.  Average interest earning assets increased 1.7%, or $7.5 million, from $448.9 million in the first quarter of 2018 to $441.4 million in the first quarter of 2019.

Loans

Loans increased $6.4 million, or 1.7%, from $371.5 million at December 31, 2018 to $ 377.9 million at March 31, 2019.  Total loans averaged $378.5 million the first quarter of 2019, compared to $384.2 million the first quarter of 2018, a decrease of $5.7 million, or 1.5%.  We experienced an increase in the commercial and agricultural, commercial real estate, and residential real estate portfolios during the first three months of the year compared to December 31, 2018. The following table presents a summary of the loan portfolio by category:

	(Dollars in Thousands)
	March 31, 2019				December 31, 2018
			% of Total				% of Total
			Loans				Loans
Commercial and agricultural	$	64,710	17.12	%	$	61,551	16.57	%
Commercial real estate		220,878	58.44	%		217,629	58.57	%
Residential real estate		89,061	23.57	%		88,797	23.90	%
Consumer		3,273	0.87	%		3,567	0.96	%
	$	377,922	100.00	%	$	371,544	100.00	%

The majority of our loans are to customers located in south central Kentucky and central Tennessee. As of March 31, 2019, our twenty largest credit relationships (which could involve more than a single borrower) consisted of loans and loan commitments ranging from $4.7 million to $13.2 million.  The aggregate amount of these credit relationships was $113.6 million, with total commitments of $130.6 million. As of December 31, 2018, our twenty largest credit relationships consisted of loans and loan commitments ranging from $4.7 million to $14.7 million.  The aggregate amount of these credit relationships was $107.3 million, with total commitments of $123.6 million.

Our lending activities are subject to a variety of lending limits imposed by state and federal law.  Citizens First Bank’s secured legal lending limit to a single borrower was approximately $12.5 million at March 31, 2019 and December 31, 2018.

As of March 31, 2019, we had $16.9 million of participations in loans purchased from, and $12.1 million of participations in loans sold to, other banks. As of December 31, 2018, we had $17.2 million of participations in loans purchased from, and $12.3 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 March 31, 2019.  Maturities are based on contractual terms. Our policy is to specifically review and approve all loans renewed; loans are not automatically rolled over.

	(Dollars in Thousands)
			After One but
Loan Maturities	WithinOne		Within Five		After Five
as of March 31, 2019	Year		Years		Years		Total
Commercial and agricultural	$	22,437	$	34,572	$	7,701	$	64,710
Commercial real estate		36,965		126,123		57,790		220,878
Residential real estate		9,240		41,041		38,780		89,061
Consumer		807		2,423		43		3,273
Total	$	69,449	$	204,159	$	104,314	$	377,922

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

	(Dollars in Thousands)
	March 31, 2019				December 31, 2018
	Amount		%of Loans in Each Category to Total Loans		Amount		% of Loans in Each Category to Total Loans
Commercial and agricultural	$	669	17.12	%		592	16.57	%
Commercial real estate		3,072	58.44	%		3,122	58.57	%
Residential real estate loans		617	23.57	%		611	23.90	%
Consumer and other loans		9	0.87	%		9	0.96	%
Unallocated		32	0.00	%		39	0.00	%
Total allowance for loan losses	$	4,399	100.00	%	$	4,373	100.00	%

We maintain a modest unallocated amount in the allowance to assist in mitigating inherent risk that cannot be quantitatively or qualitatively determined, including, but not limited to, new loan products and new markets for which insufficient history exists for a robust analysis.  Allocations on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience. The unallocated portion of the allowance was $32,000 at March 31, 2019 and $39,000 at December 31, 2018.

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

	(Dollars in Thousands)
	March 31, 2019			December 31, 2018
Non-accrual loans	$	87		$	96
Loans 90+ days past due/accruing		—			—
Restructured loans on non-accrual		1,183			1,202
Total non-performing loans		1,270			1,298
Other real estate owned		—			—
Total non-performing assets	$	1,270		$	1,298
Non-performing loans to total loans		0.34	%		0.35	%
Non-performing assets to total assets		0.27	%		0.27	%
Net charge-offs (recoveries) YTD	$	(27)		$	511
Net charge-offs (recoveries) YTD to average YTD total loans, annualized		(0.03)	%		0.13	%
Allowance for loan losses to non-performing loans		346.53	%		336.90	%
Allowance for loan losses to total loans		1.16	%		1.18	%

Non-performing assets totaled $1.3 million at March 31, 2019 and December 31, 2018. Payoffs and paydowns totaling $66,000 were made during the first quarter with no non-performing loans charged off. Increases in non-performing assets included the addition of a $37,000 residential real estate loan.

Non-performing loans consist of non-accrual loans and loans 90 days or more past due and still accruing interest. Non-performing assets are defined as non-performing loans, other real estate owned, and repossessed assets. Management classifies commercial and commercial real estate loans as non-accrual when principal or interest is past due 90 days or more and the loan is not adequately collateralized, or earlier when, in the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the obligation. We charge off consumer loans after 120 days of delinquency unless they are adequately secured and in the process of collection. Non-accrual loans are not reclassified as accruing until principal and interest payments are brought current and future payments appear reasonably certain.

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

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

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due.  Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.  Loans that experience insignificant payment delays and payment shortfalls

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

Securities

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

The investment securities portfolio is comprised of U.S. Government agency securities, mortgage-backed securities, tax-exempt securities of states and political subdivisions, taxable municipal securities, and a trust preferred security. The purchase of nontaxable obligations of states and political subdivisions is a part of managing our effective tax rate, but will have less of an effect in future years due to recent tax law changes. Securities are all classified as available-for-sale, and averaged $46.2 million for the first three months of 2019, compared to $47.2 million for 2018.

The tables below present the maturities and yield characteristics of securities as of March 31, 2019 and December 31, 2018.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	(Dollars in Thousands)
				Over			Over
				One Year			Five Years
	One Year or			Through			Through			Over Ten			Total
March 31, 2019	Less			Five Years			Ten Years			Years			Maturities			Fair Value
U.S. Government agencies	$	3		$	2,288		$	5,634		$	—		$	7,925		$	7,963
Agency mortgage-backed securities: (1)		—			19,655			—			—			19,655			19,602
Municipal securities		2,655			6,130			4,878			2,710			16,373			16,422
Trust preferred security		—			—			—			1,894			1,894			1,640
Total available-for-sale securities	$	2,658		$	28,073		$	10,512		$	4,604		$	45,847		$	45,627
Percent of total		5.80	%		61.23	%		22.93	%		10.04	%		100.00	%
Weighted average yield(2)		2.15	%		2.58	%		3.20	%		4.02	%		2.85	%

(1) Agencymortgage‑backed securities (residential) are grouped into average lives based on March 2019 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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	(Dollars in Thousands)
				Over			Over
				One Year			Five Years
	One Year or			Through			Through			Over Ten			Total
December 31, 2018	Less			Five Years			Ten Years			Years			Maturities			Fair Value
U.S. Government agencies	$	56		$	2,495		$	5,978		$	—		$	8,529		$	8,440
Agency mortgage-backed securities: (1)		—			19,287			1,353			—			20,640			20,300
Municipal securities		2,573			6,680			4,882			2,731			16,866			16,728
Trust preferred security		—			—			—			1,893			1,893			1,630
Total available-for-sale securities	$	2,629		$	28,462		$	12,213		$	4,624		$	47,928		$	47,098
Percent of total		5.49	%		59.38	%		25.48	%		9.65	%		100.00	%
Weighted average yield(2)		2.17	%		2.56	%		3.11	%		3.86	%		2.81	%

(1) Agencymortgage‑backed securities (residential) are grouped into average lives based on December 2018 prepayment projections.

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

The trust preferred security category consists of one single issue trust preferred security which has experienced a decline in fair value due to inactivity in the market. No impairment charge is being taken as no loss of principal is anticipated and all principal and interest payments are being received as scheduled. The Company does not intend to sell this security and does not believe it will be required to sell this security.

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.

Deposits

Our primary funding source for lending and investment activities results from customer deposits.  Deposits at March 31, 2019 were $381.8 million, a decrease of $6.8 million, or 1.7%, compared to $388.6 million at December 31, 2018. Total deposits averaged $381.1 million the first quarter of 2019, an increase of $5.5 million, or 1.5%, compared to $375.6 million during the first quarter of 2018.  Time deposits that meets or exceed the FDIC insurance limit of $250,000 were $13.1 million and $11.0 million at March 31, 2019 and December 31, 2018, respectively. 

We utilize brokered certificates of deposit and will continue to utilize these sources for deposits when they can be cost-effective.  There were $11.7 million in brokered deposits at March 31, 2019, compared to $14.8 million at December 31, 2018. We also utilize a deposit listing service to obtain additional deposits totaling $5.1 million at March 31, 2019, compared to $8.4 million at December 31, 2018.

The scheduled maturities or next repricing dates of time deposits as of March 31, 2019 were as follows:

	(Dollars in Thousands)
	March 31, 2019
Three months or less	$	10,629
Over three through twelve months		76,154
Over one year through three years		38,020
Over three years		12,459
Total	$	137,262

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

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and eligible commercial real estate. Total advances as of March 31, 2019 were $30.0 million compared to $30.0 million at December 31, 2018. Rates vary based on the term to repayment, and are summarized below as of March 31, 2019:

				(Dollarsin Thousands)
Type	Maturity	Rate		Amount
Fixed	May 24, 2019	1.72	%		3,000
Fixed	September 11, 2019	1.57	%		4,000
Fixed	December 27, 2019	2.70	%		5,000
Fixed	March 27, 2020	2.95	%		7,000
Fixed	April 24, 2020	2.70	%		3,000
Fixed	July 17, 2020	2.34	%		5,000
Fixed	January 15, 2021	1.88	%		3,000
				$	30,000

With our available collateral and the Company’s current holding of FHLB stock, we are eligible to borrow an additional $47.0 million from the FHLB as of March 31, 2019 compared to $44.7 million at December 31, 2018.

Other Borrowings. At March 31, 2019, we had established Federal Funds lines of credit totaling $18.8 million with three correspondent banks.  No amounts were drawn as of March 31, 2019 or December 31, 2018.

We issued $5.0 million in subordinated debentures in October, 2006.  These trust preferred securities bear an interest rate, which reprices each calendar quarter, of 165 basis points over 3-month LIBOR (London Inter Bank Offering Rate).  Our rate as of March 31, 2019 was 4.45%.  The subordinated debentures may be included with tier 1 capital (with certain limitations) under current regulatory guidelines.

Liquidity

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

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

Capital

Stockholders’ equity increased to $51.4 million at March 31, 2019 from $50.0 million at December 31, 2018.  The book value per common share improved to $20.18 at March 31, 2019 compared to $19.71 at December 31, 2018.  The Company declared and paid a quarterly common dividend of $0.07 per share during the first quarter of 2019 and $0.06 per share during the first quarter of 2018. Subsequently, the Company declared a quarterly common dividend of $0.07 per share in April, 2019 to be paid in May, 2019.

We are subject to regulatory capital requirements administered by federal banking agencies.  Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off‑balance‑sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators.  Failure to meet capital requirements can initiate regulatory action.  The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks, (Basel III rules) became effective for the Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The rules established a "capital conservation buffer" of 2.5%, to be phased in over three years, above the new regulatory minimum risk-based capital ratios. The buffer as of March 31, 2019 is 2.5%.  The buffer could limit the payment of dividends and discretionary bonuses to officers if a bank fails to

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maintain required capital levels. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. We believe as of March 31, 2019 and December 31, 2018, the Company and the Bank met all capital adequacy requirements to which it is subject.

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

	(Dollars in Thousands)
									To Be Well Capitalized
					For CapitalAdequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
March 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to risk-weighted assets)		56,359	14.21	%		31,731	8.00	%	$	39,664	10.00	%
Tier I Capital (to risk-weighted assets)		51,960	13.10	%		23,798	6.00	%		31,731	8.00	%
Common Equity Tier I Capital (to risk-weighted assets)		51,960	13.10	%		17,849	4.50	%		25,781	6.50	%
Tier I Leverage Capital (to average assets)		51,960	11.17	%		18,606	4.00	%		23,257	5.0	%

	(Dollars in Thousands)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to risk-weighted assets)		55,115	14.03	%		31,424	8.00	%	$	39,280	10.00	%
Tier I Capital (to risk-weighted assets)		50,742	12.92	%		23,568	6.00	%		31,424	8.00	%
Common Equity Tier I Capital (to risk-weighted assets)		50,742	12.92	%		17,676	4.50	%		25,532	6.50	%
Tier I Leverage Capital (to average assets)		50,742	10.82	%		18,764	4.00	%		23,455	5.0	%

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

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 March 31, 2019, 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 11.57% 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 10.90%.  The

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table below notes the projected changes in net interest income as indicated by the model for increases in rates up to 400 basis points and decreases in rates to 200 basis points.

Projections for: Apr 2019 - Mar 2020

Projected			Net Interest Income
Interest Rate			$ Change From		% Change From
Change	Estimated Value		Base		Base
+400	$	19,695	$	3,196	19.37	%
+300		19,129		2,630	15.94	%
+200		18,407		1,908	11.57	%
Base		16,499		—	—	%
-200		14,700		(1,799)	(10.90)	%

Item 4.  Controls and Procedures

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

There was no change in our internal controls over financial reporting that occurred during the quarter ending March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, nor were there any material weaknesses in the controls which required corrective action.

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PART II-OTHER INFORMATION

Item 6. Exhibits 

EXHIBIT INDEX

2.0	Agreement and Plan of Reorganization dated February 21, 2019, by and among Citizens First Corporation, Citizens First Bank, Inc., German American Bancorp, Inc. and German American Bank (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed February 22, 2019).
3.1	Articles of Incorporation of Citizens First Corporation, (incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q filed August 9, 2018).
3.2	Amended and Restated Bylaws of Citizens First Corporation (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed May 21, 2018).
4.1	Articles of Incorporation of Citizens First Corporation (see Exhibit 3.1).
4.2	Amended and Restated Bylaws of Citizens First Corporation (see Exhibit 3.2).
4.3	Copy of Registrants’ Agreement Pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K dated March 30, 2007 with respect to certain debt instruments (incorporated by reference to Exhibit 4.4 of the Registrant’s Form 10K-SB dated June 30, 2007; file number 001-33126).
10.1	First Amendment to Employment Agreement between Citizens First Corporation and M. Todd Kanipe dated February 21, 2019 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed February 22, 2019).
10.2	First Amendment to Employment Agreement between Citizens First Corporation and Steve Marcum dated February 21, 2019 (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed February 22, 2019).
10.3	First Amendment to Employment Agreement between Citizens First Corporation and Marc Lively dated February 21, 2019 (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed February 22, 2019).
10.4	Success Bonus Agreement between Citizens First Corporation and M. Todd Kanipe dated February 21, 2019 (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed February 22, 2019).
10.5	Success Bonus Agreement between Citizens First Corporation and Steve Marcum dated February 21, 2019 (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed February 22, 2019).
10.6	Success Bonus Agreement between Citizens First Corporation and Marc Lively dated February 21, 2019 (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed February 22, 2019).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

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101 Interactive data files: (i) Consolidated Balance Sheets at March 31, 2019 and December 31, 2018, (ii) the Consolidated Statements of Income for the three months ended March 31, 2019 and March 31, 2018, (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and March 31, 2018, (iv) the Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2019 and March 31, 2018, (v) Consolidated Statements of Cash Flows for the three month periods ended March 31, 2019 and 2018, and (vi) Notes to Consolidated Financial Statements.

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SIGNATURES

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

	CITIZENS FIRST CORPORATION
Date: May 9, 2019	/s/M. Todd Kanipe
	M. Todd Kanipe
	President and Chief Executive Officer
Date: May 9, 2019	/s/ J. Steven Marcum
	J. Steven Marcum
	Executive Vice President and Chief Financial Officer

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