Citizens Independent Bancorp (CZID) 10-Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2014

OR

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

Commission file number:    333-191004     

Citizens Independent Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Ohio	31-1441050
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)

188 West Main Street, Logan Ohio	43138
(Address of principal executive offices)	Zip Code

                     (740) 385-8561                     

(Registrant’s telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report

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 such 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.

Yesx         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).

Yesx         No ¨

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

Large accelerated filers   ¨ Accelerated filer¨ Non-accelerated filer¨ Smaller reporting companyx

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule

12b-2).

Yeso          Nox

As of April 18, 2014, the latest practicable date, 611,113 shares of the registrant’s no par value common stock were issued and outstanding.

CITIZENS INDEPENDENT BANCORP

FORM 10-Q

For the Three Month Periods Ended March 31, 2014 and 2013

Table of Contents

	Page
PART I – FINANCIAL INFORMATION	3
ITEM 1 – Financial Statements	3
Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013	3
Consolidated Statements of Income (unaudited) for the three month periods ended March 31, 2014 and 2013	4
Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three month periods ended March 31, 2014 and 2013	5
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three month periods ended March 31, 2014 and 2013	6
Consolidated Statements of Cash Flows (unaudited) for the three month periods ended March 31, 2014 and 2013	7
Notes to the Consolidated Financial Statements	8
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk	29
ITEM 4 – Controls and Procedures	29
PART II – OTHER INFORMATION	30
ITEM 1 - Legal Proceedings	30
ITEM 1A – Risk Factors	30
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds	30
ITEM 3 - Defaults upon Senior Securities	30
ITEM 4 - Mine Safety Disclosures	30
ITEM 5 - Other Information	30
ITEM 6 - Exhibits	30
SIGNATURES	31

2

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

CITIZENS INDEPENDENT BANCORP, INC.

Logan, Ohio

CONSOLIDATED BALANCE SHEETS

	(Dollars in thousands)
	March 31,2014 (unaudited)			December 31, 2013
ASSETS
Cash and cash equivalents
Cash and amounts due from depository institutions	$	4,803		$	6,758
Federal funds sold		14,508			8,246
Total cash and cash equivalents		19,311			15,004
Securities available for sale		34,101			34,630
Other investment securities		859			859
Loans		143,982			147,017
Allowance for loan losses		(4,349	)		(4,384	)
Net loans		139,633			142,633
Premises and equipment, net		3,241			3,283
Accrued interest receivable		498			446
Other real estate owned		1,514			2,532
Other assets		1,654			1,465
TOTAL ASSETS	$	200,811		$	200,852
LIABILITIES
Deposits
Noninterest bearing	$	21,238		$	20,539
Interest bearing		160,848			165,032
Total deposits		182,086			185,571
Borrowed funds		6,309			6,363
Stock proceeds escrow		190			-
Accrued interest payable		1,717			1,935
Other liabilities		1,459			1,357
TOTAL LIABILITIES		191,761			195,226
SHAREHOLDERS' EQUITY
Cumulative preferred stock of no par value; 100,000 shares authorized, 0 shares issued and outstanding		-			-
Common stock of no par value; 900,000 shares authorized, 611,113 shares issued and outstanding at March 31, 2014 and 399,748 shares issued and outstanding at December 31, 2013, respectively		12,370			9,307
Retained earnings		3,681			3,380
Treasury stock, at cost, 54,380 shares at March 31, 2014 and December 31, 2013, respectively		(6,590	)		(6,590	)
Accumulated other comprehensive income (loss)		(411	)		(471	)
TOTAL SHAREHOLDERS' EQUITY		9,050			5,626
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	200,811		$	200,852

See notes to consolidated financial statements

3

CITIZENS INDEPENDENT BANCORP, INC.

Logan, Ohio

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	(Dollars in thousands, except
	per share data)
	Three Months Ended
	March 31,
	2014		2013
INTEREST INCOME
Interest and fees on loans	$	1,917	$	2,334
Interest and dividends on investment securities		188		198
Interest on federal funds sold		9		3
TOTAL INTEREST INCOME		2,114		2,535
INTEREST EXPENSE
Interest on deposits		323		439
Interest on borrowed funds		113		114
TOTAL INTEREST EXPENSE		436		553
NET INTEREST INCOME		1,678		1,982
Provision for loan losses		-		166
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,678		1,816
NONINTEREST INCOME
Service charges		113		127
Net gain on sale of loans		-		31
Net gain (loss) on sale of other real estate owned		375		(10	)
Credit card income and fees		81		82
Other		57		104
TOTAL NONINTEREST INCOME		626		334
NONINTEREST EXPENSE
Salaries and employee benefits		859		992
Net occupancy and equipment expense		330		261
Other real estate owned expense		80		(40	)
FDIC insurance expense		135		135
Legal and professional fees		108		138
Data processing		77		76
Advertising		46		48
Examinations and audits		39		48
Telephone		20		32
Other operating expenses		309		333
TOTAL NONINTEREST EXPENSE		2,003		2,023
INCOME BEFORE INCOME TAXES		301		127
Income tax expense		-		-
NET INCOME	$	301	$	127
Basic earnings per common share	$	0.68	$	0.40
Diluted earnings per common share	$	0.68	$	0.40

See notes to consolidated financial statements

4

CITIZENS INDEPENDENT BANCORP, INC.

Logan, Ohio

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	(Dollars in thousands)
	Three Months Ended
	March 31,
	2014		2013
Net income	$	301	$	127
Other comprehensive income (loss), net of tax:
Unrealized net holding gain (loss) on securities available for sale, net of income taxes of $32 and $(14) for the three month periods ended March 31, 2014 and 2013, respectively		60		(28	)
Other comprehensive income (loss)		60		(28	)
Comprehensive income	$	361	$	99

See notes to consolidated financial statements

5

CITIZENS INDEPENDENT BANCORP, INC.

Logan, Ohio

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Three Month Periods Ended March 31, 2014 and 2013

(Unaudited)

	(Dollars in thousands)
	2014		2013
Balance at beginning of period	$	5,626	$	5,524
Common Stock Proceeds		3,063		-
Net income		301		127
Other comprehensive income (loss)		60		(28	)
Balance at end of period	$	9,050	$	5,623

See notes to consolidated financial statements

6

CITIZENS INDEPENDENT BANCORP, INC.

Logan, Ohio

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three month periods ended March 31, 2014 and 2013

(Unaudited)

	(Dollars in thousands)
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		301			127
Adjustment to reconcile net income to net cash
Provided by operating activities
Provision for loan losses		-			166
Depreciation and amortization		93			94
Provision for loss on real estate owned		26			(50	)
Change in value of bank owned life insurance		-			187
Net (gain) loss on sale of other real estate owned		(375	)		10
Net (gain) loss on disposition of premises and equipment		10			100
Net (gain) on sale of loans		-			(31	)
Proceeds from sale of loans		-			2,085
Loans originated for sale		-			(1,479	)
Net change in:
Accrued interest receivable		(52	)		(153	)
Accrued interest payable		(218	)		(99	)
Other assets		(220	)		(362	)
Other liabilities		290			(237	)
Net cash provided by (used in) operating activities		(145	)		358
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of available for sale securities		622			1,436
Net change in loans		2,538			871
Proceeds from sale of other real estate owned		1,829			1,370
Purchases of premises and equipment		(61	)		(25	)
Net cash provided by investing activities		4,928			3,652
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		(3,485	)		(7,680	)
Payments on loans payable		(54	)		(41	)
Proceeds from sale of common stock		3,063			-
Net cash provided by (used in) financing activities		(476	)		(7,721	)
Net increase (decrease) in cash and cash equivalents		4,307			(3,711	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		15,004			10,215
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	19,311		$	6,504
Supplemental Disclosure of Cash Flows
Cash paid during the period for:
Interest	$	655		$	652
Taxes	$	-		$	-
Supplemental Schedule of Noncash Investing and Financing Activities
Transfer of loans to other real estate owned	$	462		$	-

See notes to consolidated financial statements

7

CITIZENS INDEPENDENT BANCORP, INC.

LOGAN, OHIO

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Citizens Independent Bancorp, Inc. (the Bancorp), a bank holding company for The Citizens Bank of Logan (the Bank), collectively referred to as the “Company” is engaged in the business of commercial and retail banking services with operations conducted through offices in Hocking, Athens and Fairfield counties. These communities and surrounding areas are the source of substantially all the Company's deposit and loan activities. Secured loans are secured by business assets, consumer assets, residential real estate and non-residential real estate. The majority of Company income is derived from commercial, real estate and retail lending activities and investments. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions and federal funds sold.

Basis of Financial Statement Presentation 

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all the information and footnotes required by GAAP for annual year-end financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, have been included and are of a normal, recurring nature. The balance sheet as of December 31, 2013 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles.  Operating results for the three month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

The accounting and reporting policies of the Bancorp and the Bank conform to accounting principles generally accepted in the United States of America and to general practices followed within the banking industry.

The consolidated balance sheet as of December 31, 2013 has been extracted from audited financial statements included in the Company’s Form 10-K filed for the year ended December 31, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2013 Form 10-K.

Principles of Consolidation

The consolidated financial statements include the accounts of Bancorp and Bank. The financial statements of the Bank include the accounts of its wholly-owned subsidiaries, Countywide Mortgage Company and Countywide Loan Company. Citizens Travel Center was closed in third quarter, 2013. The balance sheet and statement of income for the Citizens Travel Center were immaterial to the 2013 consolidated financial statements. All significant intercompany transactions and balances have been eliminated.

8

Recent Accounting Pronouncements 

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this pronouncement did not have a material effect on the consolidated financial statements.

Stock Offering

On October 25, 2013, we commenced an offering for the sale of up to 369,754 of our common shares, without par value, at a subscription price of $15.39 per share (up to $5,690,514), which subscription price was intended to be equal to 90% of the book value per share of the Company on September 30, 2013. The offering has two components, a rights offering, which expired on January 31, 2014, followed by a public offering. Pursuant to the terms of the offering, if the Company does not receive aggregate subscriptions for at least $2,500,000 in the rights offering and the public offering before the expiration of the public offering (the “Minimum Subscription Condition”), the offering would be terminated, all subscriptions would be rejected and all subscription amounts received in the rights offering and the public offering would be returned to the subscribers.

During the 2013 year-end accounting process, the Company discovered an accounting error in the reconciliation of the ATM settlement account that relates to 2012. Essentially a programming error resulted in undercollection of ATM fees due to the Bank. As a result of this program error, net income for 2012 was overstated by $344,000. To correct the error and as reported by the Company in a Form 8-K filed with the Securities and Exchange Commission on March 11, 2014, the Company restated its books for 2012, increasing the net loss previously reported by $344,000. This increased net loss for 2012 caused a reduction in the per share book value of the Company as of September 30, 2013 from $17.10 to $16.10.

The Company has filed correspondence with the Securities and Exchange Commission (SEC) regarding its proposal to address this restatement and its effect on the price of shares being offered. The Company will public ally announce its plans when they are finalized.

9

The Company originally intended to continue the public offering at the new $14.49 per share subscription price until March 31, 2014; however, because of the rescission right being offered to investors that continues until May 31, 2014, the Board of Directors of the Company believes that it is appropriate to extend the public offering period until June 15, 2014. The Board of Directors also believes that it is unlikely that subscribers in the offering will exercise rescission rights in sufficient volume to cause the total amount raised by the Company in the offering (including the amount raised during the remaining period of the public offering) to be less than the $2,500,000 Minimum Subscription Condition. However, in the event that higher than expected rescissions cause the Minimum Subscription Condition not to be satisfied at the time of the expiration of the public offering, the Company will return to each subscriber his or her subscription amount promptly following such expiration (upon presentment of the stock certificate(s) that were issued to such subscriber in the offering). In such event, the Company will need to examine other alternatives to raising capital.

NOTE 2 - EARNINGS PER COMMON SHARE

Earnings per common share are net income available to common shareholders divided by the weighted average common shares outstanding during the period. The factors used in the earnings per share computation for the three month periods ended March 31, 2014 and 2013 follow:

	(Dollars in thousands, except per share data)
	2014		2013
Net income	$	301	$	127
Weighted average common shares outstanding		444,005		317,025
Basic and diluted earnings per common share	$	0.68	$	0.40

NOTE 3 - INVESTMENT SECURITIES

The amortized cost of securities and their approximate fair values are as follows:

	(Dollars in thousands)
	March 31, 2014									December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government Federal agencies	$	13,929	$	9	$	(197	)	$	13,741	$	13,937	$	8	$	(233	)	$	13,712
State and local governments		7,011		294		(3	)		7,302		7,015		334		(10	)		7,339
Mortgage backed securities		13,222		41		(205	)		13,058		13,831		36		(288	)		13,579
Total	$	34,162	$	344	$	(405	)	$	34,101	$	34,783	$	378	$	(531	)	$	34,630

10

The following is a summary of maturities of securities available-for-sale as of March 31, 2014:

	(Dollars in thousands)
	Securities available for sale
	Amortized Cost		Fair Value
Amounts maturing in:
One year or less	$	648	$	657
After one year through five years		17,924		17,999
After five years through ten years		3,350		3,373
After ten years		12,240		12,072
Total	$	34,162	$	34,101

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties.

Investment securities with a carrying amount of approximately $32,635,000 and $31,835,000 were pledged to secure deposits as required or permitted by law at March 31, 2014 and December 31, 2013, respectively.

Information pertaining to securities with gross unrealized losses at March 31, 2014 and December 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	(Dollars in thousands)
	Less than 12 months					12 months or greater				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
March 31, 2014
U.S. government Federal agencies	$	11,444	$	(197	)	$	-	$	-	$	11,444	$	(197	)
State and local governments		576		(3	)		-		-		576		(3	)
Mortgage backed securities		8,540		(205	)		-		-		8,540		(205	)
Total	$	20,560	$	(405	)	$	-	$	-	$	20,560	$	(405	)
December 31, 2013
U.S. government Federal agencies		12,416		(233	)		-		-		12,416		(233	)
State and local governments		570		(10	)		-		-		570		(10	)
Mortgage backed securities		9,791		(288	)		-		-		9,791		(288	)
Total	$	22,777	$	(531	)	$	-	$	-	$	22,777	$	(531	)

The investment portfolio contains unrealized losses of direct obligations of U.S. securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, and debt obligations of a U.S. state or political subdivision. As management has the ability to hold debt securities until maturity, or the foreseeable future if classified as available-for-sale, no declines are deemed to be other than temporary.

Management evaluates securities for other than temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given (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, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any recovery in fair value.

11

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES

The following tables provide information on the activity in the allowance for loan losses by the respective loan portfolio segment for the three month periods indicated:

	(Dollars in thousands)
	March 31,		March 31,
	2014		2013
Allowance at beginning of period	$	4,384	$	5,204
Provision for credit losses		0		166
Charge-offs:
Commercial		7		6
Real Estate		28		49
Consumer		64		90
Total charge-offs	$	99	$	145
Recoveries
Commercial		44		8
Real Estate		5		1
Consumer		15		5
Total Recoveries		64		14
Ending allowance	$	4,349	$	5,239

The following tables present the recorded investment with respect to loans and the related allowance by portfolio segment at the dates indicated:

	(Dollars in thousands)
	Collectively Evaluated				Individually Evaluated				Total
	Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans
March 31, 2014
Commercial	$	2,794	$	77,673	$	1,058	$	11,007	$	3,852	$	88,680
Real estate		149		34,013		100		740		249		34,753
Consumer		194		20,157		54		392		248		20,549
Total	$	3,137	$	131,843	$	1,212	$	12,139	$	4,349	$	143,982
December 31, 2013
Commercial	$	2,802	$	81,716	$	1,071	$	9,874	$	3,873	$	91,590
Real estate		183		33,219		84		778		267		33,997
Consumer		189		21,183		55		247		244		21,430
Total	$	3,174	$	136,118	$	1,210	$	10,899	$	4,384	$	147,017

As part of its monitoring process, the Bank utilizes a risk rating system which quantifies the risk the Bank estimates it has assumed when entering into a loan transaction and during the life of that loan. The system rates the strength of the borrower and the transaction and is designed to provide a program for risk management and early detection of problems. Loans are graded on a scale of 1 through 8, with a grade of 4 or below classified as “Pass” rated credits. Following is a description of the general characteristics of risk grades 5 through 8:

12

5 – Special Mention - The weighted overall risk associated with this credit is considered higher than normal (but still acceptable) or the loan possesses deficiencies which corrective action by the Bank would remedy, thereby reducing risk.

6 – Substandard - The weighted overall risk associated with this credit (based on each of the Bank’s creditworthiness criteria) is considered undesirable, the credit demonstrates a well-defined weakness or the Bank is inadequately protected and there exists the distinct possibility of sustaining some loss if not corrected.

7 – Doubtful - Weakness makes collection or liquidation in full (based on currently existing facts) improbable.

8 – Loss- This credit is of little value and not warranted as a bankable asset. Accordingly, the Bank does not carry any loans on the books that are graded 8 – loss, instead these loans are charged off.

The Bank’s strategy for credit risk management includes ongoing credit examinations and management reviews of loans exhibiting deterioration of credit quality. A deteriorating credit indicates an elevated likelihood of delinquency. When a loan becomes delinquent, its credit grade is reviewed and changed accordingly. Each downgrade to a classified credit results in a higher percentage of reserve to reflect the increased likelihood of loss for similarity graded credits. Further deterioration could result in a certain credit being deemed impaired resulting in a collateral valuation for purposes of establishing a specific reserve which reflects the possible extent of such loss for that credit.

The following tables present the risk category of loans by class of loans based on the most recent analysis performed at March 31, 2014 and December 31, 2013.

Commercial Credit Exposure

Credit risk profile by credit worthiness category

	(Dollars in thousands)
	Commercial				Commercial
	Mortgage				Other
Category	03/31/14		12/31/13		03/31/14		12/31/13
Pass	$	57,011	$	58,765	$	10,597	$	11,424
5		10,345		11,468		2,347		2,480
6		7,721		6,657		585		722
7		74		74		-		-
Total	$	75,151	$	76,964	$	13,529	$	14,626

Consumer Credit Exposure

Credit risk by credit worthiness category

	(Dollars in thousands)
	Residential				Consumer				Consumer				Consumer
	Real Estate				Equity				Auto				Other
Category	03/31/14		12/31/13		03/31/14		12/31/13		03/31/14		12/31/13		03/31/14		12/31/13
Pass	$	33,629	$	32,201	$	7,285	$	7,351	$	11,343	$	11,908	$	1,608	$	1,738
5		578		792		83		210		64		62		-		-
6		546		1,004		101		105		62		53		-		-
7		-		-		-		-		3		3		-		-
Total	$	34,753	$	33,997	$	7,469	$	7,666	$	11,472	$	12,026	$	1,608	$	1,738

13

Loans evaluated for impairment include loans classified as troubled debt restructurings and non-performing commercial, mortgage and consumer loans. The following tables set forth certain information regarding the Bank’s impaired loans by class,segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary for the periods indicated:

	(Dollars in thousands)
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
March 31, 2014
With no related allowance recorded:
Commercial mortgage	$	8,446	$	9,191	$	-
Commercial other		402		524		-
Residential real estate		120		167		-
Consumer equity		101		104		-
Consumer auto		136		140		-
Subtotal		9,205		10,126		-
With an allowance recorded:
Commercial mortgage	$	1,930	$	2,762	$	850
Commercial other		229		235		208
Residential real estate		620		621		100
Consumer equity		155		156		54
Consumer auto		-		-		-
Subtotal		2,934		3,774		1,212
Total	$	12,139	$	13,900	$	1,212

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
December 31, 2013
With no related allowance recorded:
Commercial mortgage	$	6,824	$	7,048	$	-
Commercial other		113		115		-
Residential real estate		558		615		-
Consumer equity		96		97		-
Consumer auto		132		135		-
Subtotal		7,723		8,010		-
With an allowance recorded:
Commercial mortgage		2,352		3,629		624
Commercial other		656		792		447
Residential real estate		452		455		84
Consumer equity		165		166		53
Consumer auto		9		9		2
Subtotal		3,634		5,051		1,210
Total	$	11,357	$	13,061	$	1,210

14

The following tables present the average recorded investments in impaired loans and the amount of interest income recognized on impaired loans after impairment by class for the periods indicated.

	(Dollars in thousands)
	No Related				With Related
	Allowance Recorded				Allowance Recorded				Total
			Total				Total				Total
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized
Three Month Period
Ended March 31, 2014
Commercial:
Mortgage	$	7,635	$	36	$	2,141	$	-	$	9,776	$	36
Other		258		1		443		-		701		1
Residential Real Estate		339		1		536		7		875		8
Consumer:										-		-
Equity		98		-		160		2		258		2
Auto		134		4		4		-		138		4
Other		-		-		-		-		-		-
Total	$	8,464	$	42	$	3,284	$	9	$	11,748	$	51
Year Ended
December 31, 2013
Commercial:
Mortgage	$	4,014	$	148	$	3,118	$	-	$	7,132	$	148
Other		2,454		4		951		-		3,405		4
Residential Real Estate		699		3		286		18		985		21
Consumer:
Equity		51		-		167		11		218		11
Auto		175		11		5		-		180		11
Other		15		-		-		-		15		-
Total	$	7,408	$	166	$	4,527	$	29	$	11,935	$	195

The following table summarizes information relative to loan modifications determined to be troubled debt restructurings (TDRs) during the three months ended March 31, 2014. There were no troubled debt restructurings during the three months ended March 31, 2013.

			(Dollars in thousands)
			Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding
	of		Recorded		Recorded
	TDRs		Investment(1)		Investment
March 31, 2014
Commercial mortgage		3	$	310	$	310
Residential mortgage		2		187		187
Consumer auto		1		1		1
Unsecured		1		-		-
Total		7	$	498	$	498

(1) – Pre-modification balance is calculated using the loan balance on the day prior to modification as TDR.

15

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Bank offers various types of concessions when modifying a loan. Loan terms that may be modified due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, a reduction in the face amount of the debt, a reduction of the accrued interest, temporary interest-only payments, or re-aging, extensions, deferrals, renewals and rewrites. In mitigation, additional collateral, a co-borrower or a guarantor may be requested.

During the three month period ended March 31, 2014 loans were modified by either a reduction in rates or a change in the contractual maturity date of the note. Two loans were modified with reduced interest rates and the contractual maturity date of five loans was extended.

Loans modified in a TDR may already be on nonaccrual status and partial charge-offs may have in some cases been taken against the outstanding loan balance. The allowance for impaired loans that has been modified in a TDR is measured based on the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent or on the present value of expected future cash flows, discounted at the loan’s original effective interest rate. Management exercises significant judgment in developing these determinations.

There has been one loan totaling $179,000 which was modified as a TDR within the previous twelve months that has subsequently defaulted as of March 31, 2014.

The following table presents the loan portfolio by class summarized by aging categories, at March 31, 2014 and December 31, 2013:

	(Dollars in thousands)												Recorded
													Investment
	30-59		60-89		>90								>90 Days
	Days		Days		Days		Total				Total		and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
March 31, 2014
Commercial:
Mortgage	$	2,473	$	32	$	4,517	$	7,022	$	68,129	$	75,151	$	41
Other		167		-		29		196		13,333		13,529		-
Residential real estate		314		3		170		487		34,266		34,753		-
Consumer:										-
Equity		36		8		16		60		7,409		7,469		-
Auto		61		10		8		79		11,393		11,472		-
Other		7		2		10		19		1,589		1,608		10
Total	$	3,058	$	55	$	4,750	$	7,863	$	136,119	$	143,982	$	51
December 31, 2013
Commercial:
Mortgage	$	1,923	$	203	$	3,153	$	5,279	$	71,685	$	76,964	$	-
Other		140		74		174		388		14,238		14,626		-
Residential real estate		639		156		259		1,054		32,943		33,997		-
Consumer:
Equity		81		16		-		97		7,569		7,666		-
Auto		46		11		-		57		11,969		12,026		-
Other		71		60		-		131		1,607		1,738		-
Total	$	2,900	$	520	$	3,586	$	7,006	$	140,011	$	147,017	$	-

16

The following summarizes by loan class, the loans on nonaccrual status at March 31, 2014 and December 31, 2013:

	(Dollars in thousands)
	March 31,		December 31,
	2014		2013
Commercial:
Mortgage	$	7,321	$	6,443
Other		584		529
Residential real estate		224		680
Consumer:
Equity		101		105
Auto		42		31
Other		-		-
Total	$	8,272	$	7,788

NOTE 5 -FAIRVALUESOFFINANCIALINSTRUMENTS

Fair Value Measurements and Disclosuresof the FASB ASC, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Fair value accounting guidance excluded certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values.

Investment securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.Other securities consist mainly of shares of Federal Home Loan Bank stock that do not have readily determinable fair values and are carried at cost.

Loans: For variable-rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans (for example, fixed rate commercial real estate and rental property mortgage loans and commercial and industrial loans) are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable.

Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money-market accounts and certificates of deposit approximate their fair values. Fair values for fixed -rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently offered on certificates to a schedule of aggregated contractual expected monthly maturities on time deposits.

Accrued interest: The carrying amounts of accrued interest approximate the fair values.

Borrowed funds: The carrying amounts of borrowed funds which mature within 90 days approximate their fair values. The fair values of other borrowed funds are estimated using discounted cash flow analysis that applies interest rates currently offered on similar instruments.

17

Fair Value Hierarchy

The Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

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

	(Dollars in thousands)
	Fair Value Measurements
	Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets/Liabilities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
March 31, 2014
Assets:
Available for sale securities
U.S. government federal agencies	$	-	$	13,741	$	-
State & local governments		-		7,302		-
Mortgage backed securities		-		13,058		-
December 31, 2013
Assets:
Available for sale securities
U.S. government federal agencies	$	-	$	13,712	$	-
State & local governments		-		7,339		-
Mortgage backed securities		-		13,579		-

18

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

	(Dollars in thousands)
	Fair Value Measurements
	Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets/Liabilities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
March 31, 2014
Assets:
Impaired loans	$	-	$	-	$	10,927
Other real estate owned		-		-		1,514
December 31, 2013
Assets:
Impaired loans	$	-	$	-	$	10,147
Other real estate owned		-		-		2,532

19

The estimated fair values of the Company's financial instruments are as follows:

					Quoted
	(Dollars in thousands)				Prices in
					Active
					Markets		Other		Significant
					for Identical		Observable		Unobservable
	Carrying		Fair		Assets/Liabilities		Inputs		Inputs
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2014
Financial assets:
Cash and cash equivalents	$	19,311	$	19,311	$	-	$	19,311	$	-
Investment securities		34,101		34,101		-		34,101		-
Other investment securities		859		859		-		-		859
Loans, net		139,633		144,164		-		-		144,164
Accrued interest receivable		498		498		-		-		498
Financial liabilities:
Noninterest-bearing deposits	$	21,238	$	21,238	$	-	$	21,238	$	-
Interest-bearing deposits		160,848		160,983		-		160,983		-
Borrowed funds		6,309		6,309		-		6,309		-
Accrued interest payable		1,717		1,717		-		-		1,717
December 31, 2013
Financial assets:
Cash and cash equivalents	$	15,004	$	15,004	$	-	$	15,004	$	-
Investment securities		34,630		34,630		-		34,630		-
Other investment securities		859		859		-		-		859
Loans, net		142,633		147,703		-		-		147,703
Accrued interest receivable		446		446		-		-		446
Financial liabilities:
Noninterest-bearing deposits	$	20,539	$	20,539	$	-	$	20,539	$	-
Interest-bearing deposits		165,032		165,502		-		165,502		-
Borrowed funds		6,363		6,363		-		6,363		-
Accrued interest payable		1,935		1,935		-		-		1,935

The carrying amounts in the preceding table are included in the balance sheet under the applicable captions. No derivatives were held by the Company for trading purposes.

20

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

Forward-Looking Information

Certain statements contained in this quarterly report are not historical facts, including but not limited to statements that can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, or “continue” or the negative thereof or other variations thereon or comparable terminology, and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those indicated in such statements due to risks, uncertainties and changes with respect to a variety of market and other factors. The Company assumes no obligation to update any forward-looking statements.

Management Discussion and Analysis as of March 31, 2014

Overview. Citizens Independent Bancorp. Inc. (“Holding Company,” “Bancorp,” “we” or “our”) was organized under the laws of the State of Ohio in 1994 as the bank holding company for The Citizens Bank of Logan (“Citizens Bank” or “Bank”) under the Bank Holding Company Act of 1956, as amended. Bancorp and the Bank are sometimes collectively referred to herein as the Company. Holding Company is headquartered in Logan, Ohio, and offers a broad range of financial services through Citizens Bank, an Ohio chartered commercial bank. The Bank is currently regulated by the Federal Deposit Insurance Corporation (FDIC) and the Ohio Division of Financial Institutions (DFI). Holding Company is regulated by the Federal Reserve Bank of Cleveland.

Citizens Bank is engaged in the business of commercial and retail banking. The Bank’s primary market area is Hocking, Fairfield and Athens Counties, Ohio. The Bank serves this market through four full service locations, which include the Bank’s main office located at 188 West Main Street, Logan, Hocking County, Ohio, and four limited service locations. The Bank maintains drive-up facilities as well as ATM equipment at all branches. The principal economic activities in the Bank’s market area include manufacturing, the service sector for local universities, tourism, construction, healthcare, retailing, and food services. The Bank grants residential real estate, commercial real estate, commercial and industrial and consumer loans to customers primarily located in the Bank’s footprint of Hocking, Athens and Fairfield counties.

In October 2012, the Bank entered into publicly available Consent Orders with the FDIC and DFI (collectively referred to as the Orders) which require the Bank to take a number of actions. Significant among the required actions is the development of a capital plan which will result in the Bank meeting and maintaining its level of Tier 1 capital as a percentage of its total assets at a minimum of 8.50% and its level of qualifying total capital as a percentage of risk-weighted assets at a minimum of 11.50%. The Orders contain a number of listed deliverables and filing deadlines.

This Management Discussion and Analysis is intended to provide shareholders with a more comprehensive analysis of the issues facing management than can be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and selected financial data elsewhere in this prospectus.

The Bank’s profitability, as with most financial institutions, is significantly dependent upon net interest income, which is the difference between interest received on interest earning assets, such as loans and security and the interest paid on interest bearing liabilities, principally deposits and borrowings. During a period of economic slowdown the lack of interest income from non-performing assets and additional provision for loan loss can greatly reduce profitability. Results of operations are also impacted by non-interest income, such as service charges on deposit accounts and fees on other services, income from lending services as well as non-interest expense such as salaries and employee benefits, occupancy expense, professional and other services and other expenses.

For the three months ended March 31, 2014, the Company earned net income of $301 thousand or $0.68 per share, compared to net income of $127 thousand or $0.40 per share for the three months ended March 31, 2013.

21

Key items affecting the Company’s results for the first three months of 2014 –

· Net interest income decreased by $304 thousand year-over-year for the three months ended March 31, 2014 from the three months ended March 31, 2013. A $421 thousand decline in interest income was partially offset by a $117 thousand decrease in interest expense.

· Non-interest income increased by $292 thousand or 87.4% to $626 thousand for the three months ended March 31, 2014 from the three months ended March 31, 2013. The quarter over quarter increase can be attributed to gains on the sale of repossessed assets totaling $375 thousand for the quarter ended in 2014.

· Non-interest expense declined by $20 thousand or 1.0% for the three months ended March 31, 2014 in comparison to the three months ended March 31, 2013. The decline in expense can be attributed to reductions in salaries and employee benefits.

· Non-performing loans were $8.3 million and $7.8 million respectively as of March 31, 2014 and December 31, 2013. The period over period increase can primarily be attributed to the re-classification of a single $1.0 million principal loan to non-accrual loans and the transfer of $0.5 million to other real estate owned (OREO) during the most recent quarter. Management believes that the loan is well collateralized and expects that all interest and principal due will be collected.

· Gross loans declined $3.0 million or 2.1% to $144.0 million as of March 31, 2014 from $147.0 million as of December 31, 2013. The decline results from loan originations of $3.2 million offset by $6.2 million in principal reductions received during the first three months of 2014.

· Deposits declined $3.5 million or 1.9% to $182.1 million as of March 31, 2014 from $185.6 million as of December 31, 2013.

· Shareholder equity at the Company increased $3.4 million or 60.9% to $9.1 million as of March 31, 2014 from the December 31, 2013 equity position. This increase was due to proceeds of $3.0 million from the sale of common stock and net income of $301 thousand and an increase of $60 thousand in other comprehensive income resulting from the recognition in equity of an unrealized gain on the Company’s available for sale investment portfolio during the first three months of 2014. Tier I Leverage Capital and Total Risk Based Capital at the Bank were 6.03% and 10.57%, respectively, as of March 31, 2014 and 5.71% and 10.36% as of December 31, 2013. Both ratios are under the 8.5% and 11.5% required under the Orders.

Comparison of Results of Operations for the Three Months Ended March 31, 2014 and March 31, 2013

For the three months ended March 31, 2014, the Company earned net income of $301 thousand, a $174 thousand increase from the $127 thousand net income reported as of March 31, 2013. The increase in profitability can primarily be attributed to a $166 thousand reduction in loan loss provision and gains on the sale of repossessed assets of $375 thousand, partially offset by a reduction of $304 thousand in net interest income during the three months ended March 31, 2014 in comparison to the three months ended March 31, 2013. Net interest income for the three months ended March 31, 2014 was $1.7 million, a decrease of $304 thousand or 15.3% from the three months ended March 31, 2013.

22

Distribution Liabilities, and Shareholders' Equity

For the three months ended March 31,

	(Dollars in thousands)
	2014							2013
	Average Balance		Interest		Yield /   Rate			Average Balance		Interest		Yield /   Rate
Interest-Earning Assets:
Loans receivable (1), (2)	$	140,613	$	1,917		5.45	%	$	161,877	$	2,334		5.77	%
Securities (3)		33,765		179		2.12	%		42,868		189		1.76	%
Fed Funds Sold		17,605		9		0.20	%		5,777		3		0.21	%
FHLB stock		859		9		4.19	%		907		9		3.97	%
Total interest-earning assets		192,842		2,114		4.38	%		211,429		2,535		4.80	%
Non-interest-earning assets		14,033							13,237
Total Assets	$	206,875						$	224,666
Interest-Bearing Liabilities
Interest-bearing deposits		166,985		323		0.77	%		189,928		439		0.92	%
FHLB advances		-		-		0.00	%		-		-		0.00	%
Other borrowings		6,344		113		7.12	%		6,539		114		6.97	%
Total interest-bearing liabilities		173,329		436		1.01	%		196,467		553		1.13	%
Non-interest-bearing liabilities		22,644							18,531
Total including non-interest-bearing demand deposits		195,973		436					214,998		553
Other non-interest liabilities		3,489							4,048
Total Liabilities		199,462							219,046
Shareholders' equity		7,413							5,620
Total liabilities and shareholders' equity	$	206,875						$	224,666
Net interest income; interest rate spread			$	1,678		3.38	%			$	1,982		3.67	%
Net interest margin						3.48	%						3.75	%
Average interest-earning assets to average interest-bearing liabilities						111.26	%						107.62	%

⁽¹⁾Loan fees are immaterial amounts

⁽²⁾Non-accrual loans are included in average loan balance

⁽³⁾ Interest income for tax-exempt securities is not calculated on a tax-exempt basis

Interest income for the three months ended March 31, 2014 was $2.1 million, a $421 thousand or 16.6% decrease from the $2.5 million earned during the three months ended March 31, 2013. The yield on earning assets declined 42 bps to 4.38% for the three months ended March 31, 2014 from 4.80% for the three months ended March 31, 2013. Interest income earned from the loan portfolio decreased $417 thousand or 17.9% to $1.9 million for the three months ended March 31, 2014 from $2.3 million for the three months ended March 31, 2013. The decrease in interest income from the loan portfolio can be attributed to both the $21.3 million decrease in average loans year-over year and a 32 basis point (bps) decrease in the yield, which was 5.45% for the three months ended March 31, 2014.

23

Interest income from the investment portfolio declined $10 thousand or 5.1% to $188 thousand for the three months ended March 31, 2014 from $198 thousand for the three months ended March 31, 2013. Average assets for the securities portfolio declined $9.1 million and the yield increased by 36 bps. There were no purchases or sales of investment securities during the periods ending March 31, 2014 or March 31, 2013.

Interest expense for the three months ended March 31, 2014 was $436 thousand, a $117 thousand or 21.2% decrease from the $553 thousand in interest expense for the three months ended March 31, 2013. Interest expense for deposits declined $116 thousand or 26.4% to $323 thousand for the three months March 31, 2014. Average balances of interest bearing deposits decreased by $22.9 million or 12.1%, declining to $167.0 million at March 31, 2014 from $189.9 million at March 31, 2013.

Interest expense for other borrowings was $113 thousand for the three months ended March 31, 2014 and $114 thousand for the three months ended March 31, 2013.

Non-Interest Income.Non-interest income, which consists primarily of fees and commissions earned on services that are provided to the Bank’s customers, and to a lesser extent, gains on sales of OREO and other repossessed assets and other miscellaneous income, increased $292 thousand or 87.4% to $626 thousand for the three months ended March 31, 2014 from $334 thousand for the three months ended March 31, 2013. The period-over-period increase in non-interest income can primarily be attributed to a $375 thousand gain recognized from the sale of other repossessed assets during the first quarter of 2014. The following is a discussion of other significant year-over-year changes in other material non-interest income categories:

· Income from service fees decreased $14 thousand or 11.0% to $113 thousand for the three months ended March 31, 2014 from $127 thousand for the three months ended March 31, 2013. The decrease can primarily be attributed to a $13 thousand period over period decrease in revenue from the Bank’s overdraft protection product.

· Secondary market commission income on loans held for sale in the secondary market declined by $31 thousand for the three months ended March 31, 2014. There were no bank funded loans sold in the first quarter of 2014, versus gains of $31 thousand for the three months ended March 31, 2013. The decline is due, in part, to a management decision to begin retaining a larger percentage of mortgage loans in-house rather than selling to the secondary market.

· Gains on sale of OREO properties totaled $375 thousand for the three months ended March 31, 2014, an increase of $385 thousand from the three months ended March 31, 2013. During the first three months of 2014, the Company sold 10 properties with a carrying value of $882 thousand.

· Other income declined $47 thousand or 45.2% during the first three months of 2014 to $57 thousand. The decline can primarily be attributed to a $32 thousand decline in loan servicing fees and a $12 thousand decline in loan sales commissions.

Non-Interest Expense.Non-interest expense, which consists primarily of personnel, occupancy, equipment and other operating expenses, remained relatively flat for the three month periods ended March 31, 2014 and March 31, 2013. The decline of $20 thousand or 1.0% is primarily attributable to changes in only a few categories. The following is a discussion of significant year-over-year changes for other material non-interest expense categories:

· Salary and benefit expense declined by $133 thousand or 13.4% to $859 thousand for the three months ended March 31, 2014 relative to the three months ended March 31, 2013.

· Net occupancy and equipment expenses increased by $69 thousand or 26.4% during the three months ended March 13, 2014 as a new boiler was installed in a property under contract to be sold. The carrying value of the property was $120 thousand, equal to the net realizable value. Software maintenance expenses increased year over year by $14 thousand or 46.7%.

· Expenses on other real estate owned were $120 thousand greater for the three months ended March 31, 2014 relative to the period ended March 31, 2013. During the quarter ended March 31, 2014, expenses of $48 thousand were required to adjust the carrying value of other real estate owned properties to net realizable value as opposed to the first quarter of 2013 which had an adjustment to a valuation allowance of $50 thousand.

24

Provision for Loan Losses.The Company establishes an allowance for loan losses through charges to earnings, which are shown in the consolidated statement of income as the provision for loan losses. Through the provision for loan losses, an allowance is maintained that reflects management’s best estimate of probable incurred loan losses related to specifically identified loans as well as the inherent risk of loss related to the remaining portfolio. In evaluating the allowance for loan losses, management considers various factors that include loan growth, the amount and composition of the loan portfolio, (including non-performing and potential problem loans), diversification, or conversely, concentrations by industry, geography or collateral within the portfolio, historical loan loss experience, current delinquency levels, the estimated value of the underlying collateral, prevailing economic conditions and other relevant factors. Loan charge-offs are recorded to this allowance when loans are deemed uncollectible, in whole or in part. Impacting the provision for loan losses in any accounting period are several factors including the amount of loan growth during the period, broken down by loan type, the level of charge-offs during the period, the changes in the amount of impaired loans, changes in risk ratings assigned to loans, specific loan impairments, credit quality, and ultimately, the results of management’s assessment of the inherent risks of the loan portfolio.

There was no additional provision for loan loss required during the quarter ended March 31, 2014 versus a provision for loan losses totaling $166 thousand for the three months ended March 31, 2013. The $166 thousand reduction in provision resulted from a $22.0 million or 13.3% decline in gross loans from the March 31, 2013 balance of $166.0 million to the March 31, 2014 balance of $144.0 million.

Management considers the allowance for loan losses at March 31, 2014 adequate to cover loan losses based on its assessment of various factors affecting the loan portfolio, including the level of problem loans, overall delinquencies, business conditions, estimated collateral values and loss experience. A further decline in local and national economic conditions, or other factors, could result in a material increase in the allowance for loan losses which could adversely affect the Company financial condition and results of operations.

Changes in Condition from December 31, 2013 to March 31, 2014.

Overview.Total assets were relatively flat, declining $41 thousand to $200.8 million on March 31, 2014 from $200.9 million on December 31, 2013.

Loan Portfolio.Gross loans decreased $3.0 million or 2.1% to $144.0 million as of March 31, 2014 from a balance of $147.0 million on December 31, 2013. The decrease is the net effect of new origination activity totaling $3.2 million, and $6.2 million of principal reduction for the first three months of 2014. Principal reductions also included loan charge-offs of $0.1 million and transfers to OREO totaling $0.5 million. The new originations were primarily consumer loans, with mortgage originations totaling $1.3 million and other consumer loan originations of $1.1 million. The emphasis on consumer lending is part of a strategic initiative to re-balance the loan portfolio to be more equally weighted between commercial and consumer loans. This trend is expected to continue for the remainder of 2014 and is incorporated into the 2014 budget.

Loan Portfolio Distribution
	(Dollars in thousands)
	March 31,		December 31,
	2014		2013
	Amount		Amount
Commercial	$	88,680	$	91,590
Real estate		34,753		33,997
Consumer		20,549		21,430
	$	143,982	$	147,017

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The Company’s loan portfolio represents its largest and highest yielding assets. The fundamental lending business of the Company is based on understanding, measuring and controlling the credit risk inherent in the loan portfolio. The Company’s loan portfolio is subject to varying degrees of credit risk. Credit risk entails both general risks, which are inherent in the process of lending, and risk specific to individual borrowers. The Company’s credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry or collateral type. Typically, each consumer and residential lending product has a generally predictable level of credit losses based on historical loss experience. Home mortgage and home equity loans and lines generally have the lowest credit loss experience, while loans secured by personal property, such as auto loans, are generally expected to experience more elevated credit losses. Credit risk in commercial lending can vary significantly, as losses as a percentage of outstanding loans can shift widely during economic cycles and are particularly sensitive to changing economic conditions. Generally, improving economic conditions result in improved operating results on the part of commercial customers, enhancing their ability to meet their particular debt service requirements. Improvements, if any, in operating cash flows can be offset by the impact of rising interest rates that may occur during improved economic times. Declining economic conditions have an adverse effect on the operating results of commercial customers, reducing their ability to meet debt service obligations.

To control and manage credit risk, management has a credit process in place to ensure credit standards are maintained along with strong oversight and review procedures. The primary purpose of loan underwriting is the evaluation of specific lending risks and involves the analysis of the borrower’s ability to service the debt as well as the assessment of the value of the underlying collateral. Oversight and review procedures include the monitoring of portfolio credit quality, early identification of potential problem credits and the aggressive management of problem credits. Executive management has implemented the following measures to manage credit risk in the loan portfolios:

1) Reviewed all underwriting guidelines for various loan portfolios and have strengthened underwriting guidelines where needed;

2) Evaluated outside loan review parameters, engaging the services of a well-established firm to continue with such loan review, addressing not only specific loans but underwriting analysis, documentation, credit evaluation and risk identification;

3) Increased the frequency of internal reviews of past due and delinquent loans to assess probable credit risks early in the delinquency process to minimize losses;

4) Aggressively seeks ownership and control, when appropriate, of real estate properties, which would otherwise go through time-consuming and costly foreclosure proceedings to effectively control the disposition of such collateral;

5) Aggressively obtaining updated financial information on commercial credits and performing analytical reviews to determine debt source capacities in business performance trends; and

6) Engaged a well-established auditing firm to analyze the Company’s loan loss reserve methodology and documentation.

Allowance for Loan Loss (ALLL). The ALLL represents management’s estimate of losses inherent in the loan portfolio. The allowance is actively maintained to ensure future earnings are not impacted by credit losses. Reserves are based on historical loss analysis, assessment of current portfolio and market conditions, and any identified loss potential in specific credits. Reserve levels are recommended by senior management on a quarterly basis and approved by the Board of Directors.

The ALLL is composed of a reserve to absorb probable and quantifiable losses based on current knowledge of the loan portfolio and a reserve to absorb losses which are not specifically identified, but can be reasonably expected.

Following the guidelines set forth in GAAP, Interagency Policy Statements on the Allowance for Loan and Lease Losses and all other relevant supervisory guidance, the adequacy of the ALLL is ensured by applying consistent methods of identification, analysis, computation, documentation and reporting.

The Bank’s ALLL has two components, the general reserve and the specific reserve. Included in the general reserve is the environmental reserve.

The general reserve is calculated by applying annualized net loan losses taken during a 36 month rolling look back period to the current loan portfolio, less any loans considered in the specific reserve analysis. To reflect the variations in risk of different loan products, the portfolio is segmented by collateral type, borrower type, and underwriting process.

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The specific reserve is the calculated impairment of all loans classified as impaired, with a minimum outstanding principal balance of $100,000. A loan is classified as impaired when it is probable that the Bank will not be able to collect all amounts due according to the loan agreement’s contractual terms. All loans classified as TDRs are also evaluated in the specific reserve. Impairment is measured based on one of the three following methods:

· Present value of expected future cash flows discounted at the loan’s effective interest rate;

· Loan’s observable market price; or

· Fair value of the collateral if the loan is collateral dependent.

The environmental reserve allows management to consider qualitative or environmental factors that are likely to cause estimated credit losses to differ from historical loss experience. The Bank’s environmental reserve considers 11 risk factors which are evaluated as minimal, low, moderate, or high risk. As the overall risk level of the environmental factors increases, the proportion of the loan portfolio held in reserve also increases. Risk factors considered in the analysis are:

· Lending experience, with particular attention paid to new lenders;

· Exceptions to loan policy;

· Rate of total portfolio delinquency;

· Growth rate of loan portfolio;

· Exposure to commercial loan concentrations;

· Exposure to “watch list” loans;

· Consumer sentiment;

· General economic conditions;

· Regulatory risk;

· Unemployment, with particular attention paid to local unemployment; and

· Vintage risk, with particular attention paid to underwriting procedures at time loans were made.

Borrowed funds totaled $6.3 million as of March 31, 2014, a $54 thousand or 0.9% decrease from December 31, 2013 balance. The borrowings consist of three loans to the Bancorp from outside creditors. The loans must be repaid from Bancorp cash. Per the Consent Order with the FDIC, the Bank is not permitted to make any forms of payments to Bancorp. As of March 31, 2014, Bancorp’s cash position was $69 thousand. The Company believes that adequate liquidity remains at the Holding Company to make all remaining debt service payments in 2014. Management is engaged in the sale of the remainder of the OREO property held at the Bancorp, which should generate adequate liquidity to meet all required debt servicing payments in 2014. The Bancorp is also presently engaged in a stock offering, a portion of which will be maintained at the Bancorp for debt service and other general corporate purposes.

Other Borrowings

	(Dollars in thousands)
Description	Balance of Loan as of 03/31/14		Interest Rate			Frequency of Payments	Status	Maturity Date
Loan 1	$	5,000,000		8.00	%	Monthly	Interest Only	12/29/2015
Loan 2	$	750,082		4.75	%	Monthly	Amortizing	11/21/2019
Loan 3	$	559,564		4.25	%	Monthly	Amortizing	6/26/2019

No FHLB borrowings were outstanding as of March 31, 2014 or December 31, 2013. The Bank had an approved FHLB line-of-credit of $14.8 million as of March 31, 2014. In addition, the Company has collateralized federal fund lines of $6.7 million with the Federal Reserve and $1.0 million with Great Lakes Bankers Bank. Neither line was drawn upon as of March 31, 2014. The FHLB line was secured via the pledge of mortgage loans totaling $27.2 million, the Federal Reserve federal fund line is secured via the pledge of $9.3 million of automobile loans and the Great Lakes Bankers Bank line is secured via the pledge of cash.

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Concentrations of Credit Risk.Financial institutions such as Citizens Bank generate income primarily through lending and investing activities. The risk of loss from lending and investing activities includes the possibility that losses may occur from the failure of another party to perform according to the terms of the loan or investment agreement. This possibility is known as credit risk.

Lending or investing activities that concentrate assets in a way that exposes the Company to a material loss from any single occurrence or group of occurrences increases credit risk. Diversifying loans and investments to prevent concentrations of risks is one way a financial institution can reduce potential losses due to credit risk. Examples of asset concentrations would include multiple loans made to a single borrower and loans of inappropriate size relative to the total capitalization of the institution. Management believes adherence to its loan and investment policies allows it to control its exposure to concentrations of credit risk at acceptable levels. The Bank’s loan portfolio is concentrated geographically in central Ohio. Management has identified lending for non-owner occupied residential real estate as a lending concentration. Total loans for income generating property totaled $26.5 million at March 31, 2014, which represents 18.4% of the Company’s loan portfolio. Management believes it has the skill and experience to manage any risks associated with this type of lending. Loans in this category are generally paying as agreed without any unusual or unexpected levels of delinquency. The delinquency rate in this category, which is any loan 30 days or more past due, was 3.2% at March 31, 2014. Management has also identified sub-prime loans (less than a 660 credit score) and unsecured loans as concentrations. As of March 31, 2014, loans to sub-prime borrowers totaled $11.5 million (8.0% of total portfolio), with 3.0% of these loans 30 days or more past due. In addition, unsecured loans totaled $4.9 million as of March 31, 2014, or 3.4% of the loan portfolio, with a delinquency rate, which is any loan 30 days or more past due, of 4.1% at March 31, 2014.

Liquidity and Capital Resources.The Company’s primary source of liquidity is its core deposit base, raised through the Bank’s branch network, along with wholesale sources of funding and its capital base. These funds, along with investment securities, provide the ability to meet the needs of depositors while funding new loan demand and existing commitments.

Cash (used) generated by operating activities was $(145) thousand and $358 thousand for the first three months of 2014 and 2013. The adjustments to reconcile net income to cash provided by or used in operations during the periods presented consist primarily of proceeds from the sale of other real estate owned, provision for loan losses, depreciation expense and increases and decreases in other assets and liabilities.

The primary investing activity of the Bank is lending, which is funded with cash provided from operating and financing activities, as well as proceeds from payment on existing loans and proceeds from maturities of investment securities.

In considering the more typical investing activities, during the first three months of 2014, $1.8 million was generated from sale of other real estate owned and $2.5 million was provided by a decline in the loan portfolio. During the first three months of 2013, $1.4 million was generated from the combination of maturity, pay-downs, or calls of available-for-sale investment securities, $0.9 million was provided by a decline in the loan portfolio and $1.4 million from the sale of other real estate owned. No securities were purchased during the first three months of 2014 or 2013.

For the first three months of 2014, total deposits decreased by $3.5 million. For the same period in 2013, total deposits decreased by $7.7 million. For additional information about cash flows from the Bank’s operating, investing, and financing activities, see the Consolidated Statements of Cash Flows included in the Consolidated Financial Statements. During the quarter ended March 31, 2014 the Company deposited $3.2 million from the sale of common stock. In accordance with the proposed settlement outlined in Note 1, $190 thousand of the proceeds have been placed in a payable account pending return to investors and the remainder is designated as common stock equity

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There are no matters required to be reported under this item.

Item 4. Controls and Procedures.

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures as of March 31, 2014 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) were effective as of March 31, 2014.

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended March 31, 2014, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.”

This quarterly report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

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FORM 10-Q

Quarter ended March 31, 2014

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

There are no matters required to be reported under this item.

Item 1A. Risk Factors

There has been no material change in the nature of the risk factors as set forth in the Company’s Registration Statement No. 333-191004 on Form 10-K filed on March 31, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There are no matters required to be reported under this item.

Item 3. Defaults upon Senior Securities.

There are no matters required to be reported under this item.

Item 4. Mine Safety Disclosures.

There are no matters required to be reported under this item.

Item 5. Other Information.

There are no matters required to be reported under this item.

Item 6. Exhibits.

Exhibit No.	Exhibit
3.1	Amended and Restated Articles of Citizens Independent Bancorp, Inc. incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, filed September 5, 2013 (Registration No. 333-191004).
3.2	Amended and Restated Regulations of Citizens Independent Bancorp, Inc. incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, filed September 5, 2013 (Registration No. 333-191004).
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from Citizens Independent Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

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Citizens Independent Bancorp

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CITIZENS INDEPENDENT BANCORP
	(Registrant)
Date: May 15, 2014	/s/ Ronald R. Reed
	Ronald R. Reed
	President and Chief Executive Officer
Date: May 15, 2014	/s/ James Livesay
	James Livesay
	SVP and Chief Financial Officer

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