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 ~~September~~March 3031, ~~2018~~2019


☐	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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “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,~~537~~547,~~605~~042 shares of Common Stock, no par value, were outstanding at ~~November~~May 89, ~~2018~~2019.

Table of Contents

CITIZENS FIRST CORPORATION

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
ITEM 1	FINANCIAL STATEMENTS	3
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2522
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3631
ITEM 4	CONTROLS AND PROCEDURES	3732
PART II – OTHER INFORMATION
ITEM 6	EXHIBITS	3833
SIGNATURES		3935

Table of Contents

Part 1. Financial Information

Item 1. Financial Statements

Citizens First Corporation

Consolidated Balance Sheets

	(In Thousands, Except Share Data)
	September 30,		December 31,
	2018		2017
	Unaudited
	March 31,		December 31,
	2019		2018
Assets
Cash and due from financial institutions	$	76,~~523~~998	$	68,~~444~~875
Interest-bearing deposits in other financial institutions		28,113		13,532
Federal funds sold		—		10,000
Available-for-sale securities		45,450		48,616
Cash and cash equivalents		6,998		18,875
Loans held for sale		—		427
Interest-bearing deposits in other financial institutions		17,337		16,010
Loans, net of allowance for loan losses of $4,776 and $4,724 at September 30, 2018 and December 31, 2017, respectively		365,913		369,515
Available-for-sale securities		45,627		47,098
Premises and equipment, net		8,930		9,140
Loans held for sale		117		269
Bank owned life insurance (BOLI)		8,660		8,528
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
Federal Home Loan Bank (FHLB) stock, at cost		2,065		2,053
Premises and equipment, net		8,790		8,861
Accrued interest receivable		1,596		1,681
Bank owned life insurance (BOLI)		8,751		8,705
Deferred income taxes		766		670
Federal Home Loan Bank (FHLB) stock, at cost		2,065		2,065
Goodwill and other intangible assets		4,168		4,221
Accrued interest receivable		1,651		1,683
Other assets		490		555
Deferred income taxes		430		545
Total assets	$	473,674	$	465,382
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	$	5152,~~679~~542	$	5355,~~259~~006
Savings, NOW and money market		~~188~~191,~~200~~997		~~175~~192,~~087~~762
Time		~~142~~137,~~754~~262		~~143~~140,~~968~~841
Total deposits		~~382~~381,~~633~~801		~~372~~388,~~314~~609
FHLB advances and other borrowings		3530,000		4030,000
Subordinated debentures		5,000		5,000
Accrued interest payable		~~360~~421		~~285~~410
Other liabilities		2,092		1,949
Lease liability		1,892		—
Total liabilities		425,085		419,548
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 2,537,605 shares at September 30, 2018 and 2,526,377 shares at December 31, 2017, respectively		33,232		33,138
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		1618,~~380~~307		1317,~~142~~365
Accumulated other comprehensive (loss)		(~~1,023~~174)		(~~446~~655)
Total stockholders’ equity		4851,~~589~~386		4550,~~834~~019
Total liabilities and stockholders’ equity	$	~~473~~472,~~674~~081	$	~~465~~475,~~382~~982

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

Citizens First Corporation

Unaudited Consolidated Statements of Income

	Three months ended
	(In Thousands, Except Per Share Data)
	September 30, 2018		September 30, 2017
	March 31, 2019		March 31, 2018
Interest and dividend income
Loans	$	4,~~649~~744	$	4,~~316~~497
Taxable securities		~~174~~207		~~142~~168
Non-taxable securities		9388		~~115~~103
Federal funds sold and other		~~178~~117		6792
Total interest and dividend income		5,~~094~~156		4,~~640~~860
Interest expense
Deposits		~~936~~1,076		~~628~~729
FHLB advances and other borrowings		~~196~~182		~~112~~189
Subordinated debentures		5055		3742
Total interest expense		1,~~182~~313		~~777~~960
Net interest income		3,~~912~~843		3,~~863~~900
Provision (credit) for loan losses		30		(30)
Provision for loan losses		—		30
Net interest income after provision (credit) for loan losses		3,882		3,893
Net interest income after provision for loan losses		3,843		3,870
Non-interest income
Service charges on deposit accounts		~~291~~260		~~317~~298
Other service charges and fees		~~319~~281		~~317~~281
Gain on sale of mortgage loans		9580		7950
Non-deposit brokerage fees		~~110~~95		9099
Lease income		5283		5352
BOLI income		4546		4443
Gain on sale of available-for-sale securities		—		25
Total non-interest income		845		823
Total non-interest income		912		925
Non-interest expenses
Salaries and employee benefits		1,~~730~~809		1,~~673~~846
Net occupancy expense		~~457~~448		~~449~~453
Advertising and public relations		~~102~~73		~~111~~81
Professional fees		~~156~~254		~~160~~164
Data processing services		~~208~~209		~~214~~194
Franchise shares and deposit tax		120		~~132~~120
FDIC insurance		4235		5242
Other		~~470~~434		~~415~~459
Total non-interest expenses		3,~~285~~382		3,~~206~~359
Income before income taxes		1,~~509~~306		1,~~612~~334
Income taxes		~~311~~187		~~490~~250
Net income	$	1,~~198~~119	$	1,~~122~~084
Dividends on preferred stock		—		—
Basic earnings per common share	$	0.44	$	0.43
Net income available for common stockholders	$	1,198	$	1,122
Diluted earnings per common share	$	0.44	$	0.43
Basic earnings per common share	$	0.47	$	0.44
Diluted earnings per common share	$	0.47	$	0.44

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

Citizens First Corporation

Unaudited Consolidated Statements of Income

	Nine months ended
	(In Thousands, Except Per Share Data)
	September 30, 2018		September 30, 2017
Interest and dividend income
Loans	$	13,942	$	12,697
Taxable securities		516		433
Non-taxable securities		294		379
Federal funds sold and other		364		181
Total interest and dividend income		15,116		13,690
Interest expense
Deposits		2,492		1,769
FHLB advances and other borrowings		572		305
Subordinated debentures		142		106
Total interest expense		3,206		2,180
Net interest income		11,910		11,510
Provision for loan losses		90		—
Net interest income after provision for loan losses		11,820		11,510
Non-interest income
Service charges on deposit accounts		898		922
Other service charges and fees		919		882
Gain on sale of mortgage loans		214		235
Non-deposit brokerage fees		310		268
Lease income		183		185
BOLI income		132		132
Gain on sale of available-for-sale securities		—		48
Total non-interest income		2,656		2,672
Non-interest expenses
Salaries and employee benefits		5,349		5,062
Net occupancy expense		1,342		1,356
Advertising and public relations		268		259
Professional fees		492		461
Data processing services		607		718
Franchise shares and deposit tax		360		396
FDIC insurance		127		150
Other		1,390		1,308
Total non-interest expenses		9,935		9,710
Income before income taxes		4,541		4,472
Income taxes		885		1,335
Net income		3,656		3,137
Dividends on preferred stock		—		238
Net income available for common stockholders	$	3,656	$	2,899
Basic earnings per common share	$	1.44	$	1.30
Diluted earnings per common share	$	1.44	$	1.23

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

Citizens First Corporation

Unaudited Consolidated Statements of Comprehensive Income

In thousands, except share data

	Three months ended
	(In Thousands, Except Per Share Data)
	September 30, 2018		September 30, 2017
	March 31, 2019		March 31, 2018
Comprehensive income, net of tax
Net income	$	1,~~198~~119	$	1,~~122~~084
Other comprehensive income (loss)
Reclassification adjustment for gains included in net income, net of taxes		—		~~(17)~~—
Change in unrealized gain (loss) on available for sale securities, net of taxes		~~(140)~~481		(34369)
Total other comprehensive income (loss)		~~(140)~~481		(51369)
Comprehensive income	$	1,~~058~~600	$	~~1,071~~715

		Nine months ended
	(In Thousands, Except Per Share Data)
	September 30, 2018		September 30, 2017
Comprehensive income, net of tax
Net income	$	3,656	$	3,137
Other comprehensive income (loss)
Reclassification adjustment for gains included in net income, net of taxes		—		(32)
Change in unrealized gain (loss) on available for sale securities, net of taxes		(489)		472
Total other comprehensive income (loss)		(489)		440
Comprehensive income	$	3,167	$	3,577

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

Citizens First Corporation

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

In thousands, except share data

					Accumulated Other		~~Accumulated Other~~
	Preferred		Common		Retained		Comprehensive
	Common		Retained		Comprehensive
	Stock		~~Stock~~Earnings		~~Earnings~~(Loss)		~~(Loss)~~Total		~~Total~~
Balance, January 1, 2018	$	—	$	33,138	$	13,142	$	(446)	$	45,834
Balance, January 1, 2019	$	33,309	$	17,365	$	(655)	$	50,019
Net income		—		—1,119		~~3,656~~—		—1,119		~~3,656~~
Stock based compensation		—(56)		94—		—		—(56)		94
Change in accumulated other comprehensive income		—		—		—481		~~(489)~~481		~~(489)~~
Dividend declared and paid on common stock ($.20 per share)		—		—		(506)		—		(506)
Dividend declared and paid on common stock ($.07 per share)		—		(177)		—		(177)
Reclassification of disproportionate tax effect		—		—		88		(88)		—
Balance, March 31, 2019	$	33,253	$	18,307	$	(174)	$	51,386
Balance, September 30, 2018	$	—	$	33,232	$	16,380	$	(1,023)	$	48,589

					Accumulated Other		~~Accumulated Other~~
	Preferred		Common		Retained		Comprehensive
	Common		Retained		Comprehensive
	Stock		~~Stock~~Earnings		~~Earnings~~Income (Loss)		~~Income (Loss)~~Total		~~Total~~
Balance, January 1, 2017	$	7,261	$	25,920	$	9,706	$	(523)	$	42,364
Balance, January 1, 2018	$	33,138	$	13,142	$	(446)	$	45,834
Net income		—		—1,084		~~3,137~~—		—1,084		~~3,137~~
Conversion of cumulative preferred		(7,077)		7,077		—		—		—
Stock based compensation		31		—		—		31
Redemption of cumulative preferred		(184)		(8)		—		—		(192)
Change in accumulated other comprehensive loss		—		—		(369)		(369)
Stock based compensation		—		92		—		—		92
Dividend declared and paid on common stock ($.06 per share)		—		(151)		—		(151)
Change in accumulated other comprehensive income		—		—		—		440		440
Reclassification of disproportionate tax effect		—		88		(88)		—
Dividend declared and paid on common stock ($.08 per share)		—		—		(162)		—		(162)
Balance, March 31, 2018	$	33,169	$	14,162	$	(903)	$	46,428
Dividend declared and paid on preferred stock		—		—		(238)		—		(238)
Balance, September 30, 2017	$	—	$	33,081	$	12,443	$	(83)	$	45,441

See Notes to Unaudited Consolidated Financial Statements

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Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows

	(In Thousands)
	September 30, 2018		September 30, 2017
	March 31, 2019		March 31, 2018
Operating Activities
Net income	$	31,~~656~~119	$	31,~~137~~084
Items not requiring (providing) cash:
Depreciation		~~291~~95		~~337~~100
Provision for loan losses		90—		—30
Amortization of premiums and discounts on securities		~~164~~40		~~166~~46
Amortization of core deposit intangible		5318		5318
Deferred income taxes		(9613)		~~131~~—
Stock based compensation		94(56)		9231
BOLI Income		(~~132~~46)		(~~132~~43)
Proceeds from sale of mortgage loans held for sale		103,~~825~~528		112,~~566~~317
Origination of mortgage loans held for sale		(103,~~184~~296)		(112,~~408~~410)
Gains on sales of available-for-sale securities		—		(48)
Gains on sales of mortgage loans held for sale		(80)		(50)
Gains on sales of mortgage loans held for sale		(214)		(235)
Loss (gain) on sale of premises and equipment		(4)		(4)
Loss (gain) on sale of premises and equipment		(12)		(10)
Changes in:
Accrued interest receivable		8532		~~117~~163
Other assets		65(261)		(~~226~~144)
Accrued interest payable and other liabilities		~~348~~(308)		(~~282~~165)
Net cash provided by operating activities		~~5,033~~768		~~3,258~~973
Investing Activities
Loan originations and payments, net		3(6,~~512~~352)		(214,~~819~~757)
Increase in interest-bearing deposits in other financial institutions		(141,~~581~~327)		(79,~~068~~430)
Purchase of premises and equipment		(8124)		(6419)
Proceeds from maturities of available-for-sale securities		62,~~528~~040		63,~~831~~059
Purchase of available-for-sale securities		~~(4,145)~~—		(41,~~276~~002)
Proceeds from sales of available-for-sale securities		—		6,498
Proceeds from sales of premises and equipment		4		4
Proceeds from sales of premises and equipment		12		12
Purchase of FHLB stock		—		(12)
Purchase of FHLB stock		(12)		(28)
Net cash used in investing activities		(5,659)		(22,157)
Net cash used in investing activities		(8,767)		(914)
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts		11(3,~~533~~229)		~~(2,458)~~575
Net change in time deposits		(13,~~214~~579)		(513,~~384)~~619
Proceeds from FHLB advances		~~25,000~~—		3910,000
Repayment of FHLB advances		~~(30,000)~~—		(343,000)
Redemption of preferred stock		—		(192)
Dividends paid on common stock		(178)		(151)
Dividends paid on common stock		(506)		(162)
Net cash provided by (used in) financing activities		(6,986)		21,043
Dividends paid on preferred stock		—		(238)
Decrease in Cash and Cash Equivalents		(11,877)		(141)
Net cash provided by financing activities		4,813		(3,434)
Cash and Cash Equivalents, Beginning of Year		18,875		6,444
Increase (Decrease) in Cash and Cash Equivalents		1,079		(1,090)
Cash and Cash Equivalents, End of Year	$	6,998	$	6,303
Cash and Cash Equivalents, Beginning of Year		6,444		8,542
Cash and Cash Equivalents, End of Year	$	7,523	$	7,452
Supplemental Cash Flows Information
Interest paid	$	31,~~131~~302	$	~~2,146~~917
Income taxes paid	$	~~740~~—	$	~~1,295~~—
Conversion of cumulative preferred stock	$	—	$	7,077
Recording of right of use asset in exchange for lease obligations	$	1,947	$	—

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

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 ~~2017~~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–

OnAccounting ~~January~~Standards 1,Update ~~2018~~No. 2016-02, ~~the~~“Leases” ~~Company adopted~~ (“ASU ~~2014~~2016-0902”), ~~Revenue~~was ~~from~~issued ~~Contracts~~in ~~with~~February ~~Customers~~2016 and ~~all~~provides ~~subsequent~~revised ~~amendments~~guidance related to the accounting and reporting of leases. ASU ~~(collectively,~~2016-02 ~~“ASC~~requires ~~606”)~~lessees to recognize most leases on the balance sheet. The recognition, ~~which~~measurement ~~(i)~~and ~~creates~~presentation aof ~~single~~expenses ~~framework~~and ~~for~~cash ~~recognizing~~flows ~~revenue~~arising from ~~contracts~~a ~~with~~lease ~~customers~~by ~~that~~a ~~fall~~lessee ~~within~~depends on its ~~scope~~classification ~~and~~as ~~(ii)~~a ~~revises~~finance ~~when~~or itoperating islease. ~~appropriate~~ASU to2016-02 ~~recognize~~requires a ~~gain~~modified ~~(loss)~~retrospective ~~from~~transition, ~~the~~with ~~transfer~~a package of ~~nonfinancial~~practical ~~assets~~expedients that entities may elect to apply. In January 2018, ~~such~~Accounting asStandards ~~OREO~~Update No. ~~The~~2018-01, ~~majority~~“Leases of(Topic ~~the~~842): ~~Company’s~~Land ~~revenues~~Easement ~~come~~Practical ~~from~~Expedient ~~interest~~for ~~income~~Transition ~~related~~to Topic 842” was issued to ~~loans,~~address ~~securities~~concerns ~~and~~about ~~other~~the ~~sources~~costs ~~that~~and ~~are~~complexity ~~outside~~of complying with the ~~scope~~transition provisions of ~~ASC~~ASU ~~606~~2016-02. ~~The~~In ~~Company’s~~July ~~services~~2018, ~~that~~Accounting ~~fall~~Standards ~~within~~Update ~~the~~No. ~~scope~~2018-10, of“Codification ~~ASC~~Improvements ~~606~~to ~~are~~Topic ~~presented~~842, ~~within~~Leases” ~~non-interest~~was ~~income~~issued to provide more detailed guidance and ~~are~~additional ~~recognized~~clarification asfor ~~revenue~~implementing asASU ~~the~~2016-02. ~~Company~~Also ~~satisfies~~in ~~its~~July ~~obligation~~2018, toAccounting ~~the~~Standards ~~customer~~Update No. ~~Services~~2018-11, ~~within~~“Targeted ~~the~~Improvements” ~~scope~~(“ASU of2018-11”) ~~ASC~~was ~~606~~issued and allows for an optional transition method in which the ~~three~~provisions ~~months~~of ~~ended~~Topic ~~September~~842 ~~30,~~would ~~2018~~be ~~include~~applied ~~service~~upon ~~charges~~the onadoption ~~deposit~~date ~~accounts~~and ofwould ~~$291,~~not ~~debit~~have ~~card~~to ~~interchange~~be ~~income~~retroactively ofapplied ~~$220,~~to ~~and~~the ~~non-deposit~~earliest ~~brokerage~~reporting ~~fees~~period ofpresented ~~$110~~in the consolidated financial statements. ~~Services~~The ~~within~~Corporation ~~the~~used ~~scope~~this ofoptional ~~ASC~~transition ~~606~~method for the ~~nine~~adoption ~~months~~of ~~ended~~Topic ~~September~~842. ~~30,~~In December 2018, ~~include~~Accounting ~~service~~Standards ~~charges~~Update onNo. ~~deposit~~2018-20, ~~accounts~~“Leases of(Topic ~~$898,~~842) ~~debit~~Narrow-Scope ~~card~~Improvement ~~interchange~~for ~~income~~Lessors” ofwas ~~$641,~~issued ~~and~~to ~~non-deposit~~address ~~brokerage~~lessors’ ~~fees~~concerns ofabout ~~$310.~~sales Wetaxes ~~elected~~and toother ~~implement~~similar ~~using~~taxes ~~the~~collected ~~modified~~from ~~retrospective~~lessees, ~~application~~certain lessor costs, ~~with~~and ~~the~~recognition ~~cumulative~~of ~~effect~~variable ~~recorded~~payments asfor ancontracts ~~adjustment~~with tolease ~~opening~~and ~~retained~~non-lease ~~earnings~~components. atThese ~~January~~ASUs 1,were ~~2018.~~effective ~~Due~~for toannual ~~immateriality~~periods, weand ~~had~~interim noperiods ~~cumulative~~within ~~effect~~those toannual ~~record~~periods, beginning after December 15, 2018.

InThe ~~January~~Company ~~2016~~adopted ~~the~~Topic ~~FASB~~842 ~~issued~~“Leases” ~~ASU~~effective ~~2016-01~~January ~~which~~1, ~~amends~~2019 ~~existing~~and ~~guidance~~has onapplied the ~~classification~~guidance ~~and~~to ~~measurement~~all ofoperating ~~financial~~leases ~~instruments.~~within ~~This~~the ~~new~~scope ~~standard~~of ~~revises~~Topic an842 ~~entity’s~~at ~~accounting~~that ~~related~~date. toThe ~~the~~Company ~~classification~~elected ~~and~~to ~~measurement~~adopt ofthe ~~investments~~package inof ~~equity~~practical ~~securities~~expedients, ~~and~~which ~~the~~among ~~presentation~~other ofthings, ~~certain~~does ~~fair~~not ~~value~~require ~~changes~~reassessment ~~for~~of ~~financial~~lease ~~liabilities~~classification. ~~measured~~The atCompany ~~fair~~recognized ~~value~~$1.9 ~~The~~million ~~new~~in ~~standard~~operating islease ~~effective~~right-of-use-assets, ~~for~~$1.9 ~~reporting~~million ~~periods~~in ~~beginning~~operating ~~after~~lease ~~December~~liabilities. ~~15,~~There ~~2017.~~was ~~Adopting~~no ~~the~~change ~~provisions~~to ofthe ~~ASU~~timing ~~2016-01~~in ~~did~~recognition ~~not~~of ~~have~~operating alease ~~material~~rent ~~impact~~expense on ~~our~~the Company’s consolidated financial statements. ~~The~~associated ~~Company~~with ~~currently~~our ~~does not have any equity investments~~leases.

In ~~February~~March ~~2016~~2019, ~~the~~Accounting ~~FASB~~Standards ~~issued~~Update ~~ASU~~No. ~~2016~~2019-0201, ~~which~~“Leases ~~establishes~~(Topic ~~the~~842) ~~principles~~Codification toImprovements” ~~report~~(“ASU ~~information~~2019-01”) ~~about~~was ~~the~~issued ~~assets~~to ~~and~~address ~~liabilities that arise from leases. This new standard changes the way operating leases are accounted for and reflected on the lessee~~lessors’s ~~balance~~concerns ~~sheet. The~~about ~~new~~determining ~~standard~~fair isvalue ~~intended~~of tounderlying ~~increase~~leased ~~transparency~~assets and ~~comparability~~presentation byissues ~~requiring~~in ~~lessees to recognize~~ the ~~financial~~statement ~~obligation and right-~~of~~-use~~ ~~asset~~cash ~~associated~~flows ~~with~~for ~~operating~~sales-type ~~leases~~and ~~that~~direct ~~have~~financing ~~a lease term of more than 12 months on the balance sheet~~leases. ~~The~~ ~~new~~ASU ~~standard~~2019-01 isalso ~~effective~~clarified for ~~reporting~~both ~~periods~~lessees ~~beginning~~and ~~after~~lessors ~~December~~that ~~15,~~transition ~~2018. The~~disclosures ~~Company~~related isto ~~currently~~Topic ~~evaluating~~250 ~~the~~were ~~impact~~not ofrequired ~~this~~for ~~new~~annual ~~accounting~~periods ~~standard~~are onalso ~~the consolidated financial statements. Based on the leases outstanding at September 30, 2018, we do~~ not ~~expect~~required ~~the~~for ~~new standard to have a material impact on our consolidated financial statements.~~

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Ininterim ~~September~~periods. ~~2016, the FASB issued~~ ASU ~~No. 2016~~2019-~~13,~~01 ~~“Financial~~was ~~Instruments~~effective –for ~~Credit~~annual ~~Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”~~periods, ~~which introduces the current expected credit loss (CECL) model~~ and ~~replaces~~interim ~~the~~periods ~~incurred~~within ~~loss~~those ~~model. The~~annual most significant impact for financial institutions will be to the allowance for loan and lease losses (ALLL). The standard allows for various expected credit loss estimation methods and is scalable. This standard is effective for public companies for reporting periods, beginning after December 15, 2019~~. We~~, ~~have~~with ~~attended~~early ~~training~~adoption ~~sessions~~permitted. ~~and~~The ~~are~~Corporation ~~assessing~~early ~~our~~adopted ~~data and system needs and evaluating the impact of adopting~~ this ~~new~~ASU ~~accounting standard. The Company expects to recognize a one~~2019-~~time~~01 ~~increase~~effective toJanuary ~~the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective~~1, ~~but~~2019 ~~cannot~~and ~~yet~~it ~~determine~~did ~~the~~not ~~magnitude~~have ofa ~~any~~material ~~such one-time adjustment or the overall~~ impact ~~of this standard~~ on the Company’s consolidated financial statements.

In ~~March~~June ~~2017~~2016, the FASB issued ASU No. ~~2017~~2016-0813, ~~Receivables -~~“Financial ~~Nonrefundable~~Instruments ~~Fees~~– ~~and~~Credit ~~Other~~Losses ~~Costs~~ (~~Subtopic~~Topic ~~310-20~~326): ~~Premium~~Measurement ~~Amortization~~ of ~~Purchased~~Credit ~~Callable~~Losses ~~Debt~~on ~~Securities.~~Financial ~~The~~Instruments”, ~~final~~which ~~standard~~introduces ~~will~~the ~~shorten~~current ~~the~~expected ~~amortization~~credit ~~period~~loss ~~for~~(CECL) ~~premiums~~model onand ~~callable~~replaces ~~debt~~the ~~securities~~incurred byloss ~~requiring~~model. The ~~that~~most ~~premiums~~significant beimpact ~~amortized~~for financial institutions will be to the ~~first~~allowance ~~(or~~for ~~earliest)~~loan ~~call~~and ~~date~~lease ~~instead~~losses of(ALLL). The asstandard anallows ~~adjustment~~for tovarious ~~the~~expected ~~yield~~credit ~~over~~loss ~~the~~estimation ~~contractual~~methods ~~life.~~and ~~The~~is ~~standard~~scalable. This standard is effective for public companies for ~~fiscal~~reporting ~~years~~periods beginning after December 15, ~~2018~~2019. ~~Early~~We ~~adoption~~have isattended ~~permitted. This~~training sessions and are assessing our data and system needs and evaluating the impact of adopting this new accounting standard. The isCompany ~~not~~expects ~~expected~~ to ~~have~~recognize a ~~material~~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 ~~February~~March ~~2018~~2017, the FASB issued ASU No. ~~2018~~2017-0208, ~~Income~~Receivables - ~~Statement~~Nonrefundable –Fees ~~Reporting~~and ~~Comprehensive~~Other ~~Income~~Costs (~~Topic~~Subtopic ~~220~~310-20): ~~Reclassification~~Premium Amortization of ~~Certain~~Purchased ~~Tax~~Callable ~~Effects~~Debt ~~from Accumulated Other Comprehensive Income~~Securities. The ~~ASU~~standard ~~permitted~~shorted athe ~~reclassification~~amortization ~~from~~period ~~accumulated~~for ~~other~~premiums ~~comprehensive~~on ~~income~~callable todebt ~~retained~~securities ~~earnings~~by ~~for~~requiring ~~stranded~~that ~~tax~~premiums ~~effects~~be ~~resulting~~amortized ~~from~~to the ~~newly~~first ~~enacted~~(or ~~federal~~earliest) ~~corporate~~call ~~income~~date ~~tax~~instead ~~rate~~of as aan ~~result~~adjustment ofto the ~~Tax~~yield ~~Cuts~~over ~~and~~the ~~Jobs~~contractual ~~Act~~life. The ~~amount~~standard ofbecame ~~the~~effective ~~reclassification~~for ispublic ~~the~~companies ~~difference~~for ~~between~~fiscal ~~the~~years ~~historical~~beginning ~~corporate~~after ~~income~~December ~~tax~~15, ~~rate~~2018. ~~and~~This ~~the~~accounting ~~newly~~standard ~~enacted~~did ~~twenty-one~~not ~~percent~~have ~~corporate~~a ~~income~~material ~~tax~~impact ~~rate.~~on ~~The Company adopted during~~ the ~~first~~consolidated ~~quarter~~financial ~~of 2018 and recorded an increase to retained earnings and an increase to accumulated other comprehensive loss of approximately $88,000~~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 ~~September 30~~March 31, ~~2018~~2019 and December 31, ~~2017~~2018 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income:

(Dollars in Thousands)

Gross

Amortized

Unrealized

Fair

Cost

Gains

Losses

Value

September 30, 2018

March 31, 2019

U. S. government agencies and government sponsored entities

87,~~608~~925

—72

(~~241~~34)

87,~~367~~963

Agency mortgage-backed securities: residential

1819,~~489~~655

—74

(~~571~~127)

1719,~~918~~602

State and municipal

1716,~~756~~373

39131

(~~330~~82)

1716,~~465~~422

Trust preferred security

1,~~892~~894

—

(~~192~~254)

1,~~700~~640

Total Available-for-Sale Securities

4645,~~745~~847

39277

(~~1,334~~497)

45,~~450~~627

December 31, 2017

December 31, 2018

U. S. government agencies and government sponsored entities

18,~~998~~529

—29

(21118)

18,~~977~~440

Agency mortgage-backed securities: residential

2620,~~024~~640

1415

(~~227~~355)

2520,~~811~~300

State and municipal

1916,~~381~~866

~~143~~57

(~~136~~195)

1916,~~388~~728

Trust preferred security

1,~~889~~893

—

(~~449~~263)

1,~~440~~630

Total Available-for-Sale Securities

4947,~~292~~928

~~157~~101

(~~833~~931)

4847,~~616~~098

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The amortized cost and fair value of investment securities at ~~September 30~~March 31, ~~2018~~2019 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	September 30, 2018
	March 31, 2019
	(Dollars in Thousands)
	Available-For-Sale
	Amortized Cost		Fair Value
Due in one year or less	$	2,~~941~~658	$	2,~~933~~660
Due from one to five years		8,~~911~~418		8,~~791~~406
Due from five to ten years		10,~~752~~512		10,~~461~~629
Due after ten years		54,~~652~~604		54,~~347~~330
Agency mortgage-backed: residential		1819,~~489~~655		1719,~~918~~602
Total	$	4645,~~745~~847	$	45,~~450~~627

The following table summarizes the investment securities with unrealized losses by portfolio segment at ~~September 30~~March 31, ~~2018~~2019 and December 31, ~~2017~~2018, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

(Dollars in Thousands)

Less than 12 Months

12 Months or More

Total

Description of

Unrealized

Securities

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

September 30, 2018:

March 31, 2019:

U.S. government agencies and government sponsored entities

~~5,949~~—

~~(151)~~—

23,~~281~~591

(9034)

83,~~230~~591

(~~241~~34)

Agency mortgage-backed: residential

~~10,338~~—

~~(262)~~—

712,~~579~~543

(~~309~~127)

1712,~~917~~543

(~~571~~127)

State and municipal

81,~~413~~024

(~~107~~7)

35,~~637~~563

(~~223~~75)

126,~~050~~587

(~~330~~82)

Trust preferred security

—

1,~~700~~640

(~~192~~254)

1,~~700~~640

(~~192~~254)

Total temporarily impaired

241,~~700~~024

(~~520~~7)

1523,~~197~~337

(~~814~~490)

3924,~~897~~361

(~~1,334~~497)

(Dollars in Thousands)

Less than 12 Months

12 Months or More

Total

Description of

Unrealized

Securities

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

December 31, 2017:

December 31, 2018:

U.S. government agencies and government sponsored entities

—

16,~~977~~243

(21118)

16,~~977~~243

(21118)

Agency mortgage-backed: residential

171,~~798~~029

(~~113~~2)

415,~~754~~431

(~~114~~353)

2216,~~552~~460

(~~227~~355)

State and municipal

~~8,270~~689

(~~116~~2)

~~294~~9,445

(20193)

810,~~564~~134

(~~136~~195)

Trust preferred security

—

1,~~440~~630

(~~449~~263)

1,~~440~~630

(~~449~~263)

Total temporarily impaired

261,~~068~~718

(~~229~~4)

832,~~465~~749

(~~604~~927)

34,~~533~~467

(~~833~~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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AtThe ~~September~~majority ~~30, 2018, 23.6%~~ 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)
	September 30, 2018		December 31, 2017
	March 31, 2019		December 31, 2018
Commercial	$	6064,~~139~~710	$	61,~~221~~551
Commercial real estate:
Construction		4641,~~018~~186		4436,~~391~~829
Other		~~173~~179,~~699~~692		~~182~~180,~~443~~800
Residential real estate		8689,~~864~~061		8288,~~230~~797
Consumer:
Auto		~~937~~837		~~1,184~~841
Other		32,~~032~~436		2,~~770~~726
Total Loans		~~370~~377,~~689~~922		~~374~~371,~~239~~544
Less: Allowance for loan losses		(4,~~776~~399)		(4,~~724~~373)
Net loans	$	~~365~~373,~~913~~523	$	~~369~~367,~~515~~171

The following table sets forth an analysis of our allowance for loan losses for the three months ~~ended~~ending ~~September 30~~March 31, ~~2018~~2019 and ~~2017~~2018.

	(Dollars in Thousands)
September 30, 2018	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
March 31, 2019	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	~~626~~592	$	3,~~499~~122	$	~~593~~611	$	109	$	2239	$	4,~~750~~373
Provision (credit) for loan losses		1459		(362)		65		25		11(7)		30—
Loans charged-off		—		—		~~(6)~~—		(25)		—		(85)
Recoveries		—18		—12		41		—		—		431
Total ending allowance balance	$	~~640~~669	$	3,~~496~~072	$	~~597~~617	$	109	$	3332	$	4,~~776~~399

	(Dollars in Thousands)
September 30, 2017	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
March 31, 2018	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	~~681~~633	$	3,~~622~~515	$	~~517~~554	$	1110	$	6712	$	4,~~898~~724
Provision (credit) for loan losses		~~(105)~~22		(840)		45		29—		93		(30)
Loans charged-off		—(38)		—		—(27)		(231)		—		(2366)
Recoveries		3—		—		4		—1		—		75
Total ending allowance balance	$	~~579~~617	$	3,~~614~~475	$	~~566~~576	$	1710	$	7615	$	4,~~852~~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

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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

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The following table ~~sets~~presents ~~forth~~information anrelated ~~analysis~~to ofimpaired ~~our~~loans ~~allowance~~by ~~for~~class ~~loan~~of ~~losses~~loans ~~for~~as ~~the~~of ~~nine~~March ~~months~~31, ~~ended~~2019 ~~September 30~~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 ~~2017~~the recorded investment of the loans was reduced by partial net charge-offs.

	(Dollars in Thousands)						(Dollars in Thousands)
September 30, 2018	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
	March 31, 2019						December 31, 2018
Allowance for loan losses:
	UnpaidPrincipalBalance		RecordedInvestment		Allowancefor LoanLossesAllocated		UnpaidPrincipalBalance		RecordedInvestment		Allowancefor LoanLossesAllocated
Beginning balance	$	633	$	3,515	$	554	$	10	$	12	$	4,724
With no related allowance recorded:
Provision (credit) for loan losses		41		(20)		39		9		21		90
Commercial	$	—	$	—	$	—	$	—	$	—	$	—
Loans charged-off		(37)		—		(34)		(10)		—		(81)
Commercial real estate:
Recoveries		3		1		38		1		—		43
Other		1,182		1,182		—		1,202		1,202		—
Total ending allowance balance	$	640	$	3,496	$	597	$	10	$	33	$	4,776
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

	(Dollars in Thousands)
September 30, 2017	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	615	$	3,628	$	527	$	14	$	70	$	4,854
Provision (credit) for loan losses		(47)		(15)		29		27		6		—
Loans charged-off		(17)		—		—		(26)		—		(43)
Recoveries		28		1		10		2		—		41
Total ending allowance balance	$	579	$	3,614	$	566	$	17	$	76	$	4,852

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

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of September 30, 2018 and December 31, 2017, which includes net deferred loan fees. As of September 30, 2018 and December 31, 2017, accrued interest receivable of $1.4 million, was not considered significant and therefore not included in the recorded investment in loans presented in the following tables.


	(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

	(Dollars in Thousands)
September 30, 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	$	—	$	352	$	3	$	—	$	—	$	355
Collectively evaluated		640		3,144		594		10		33		4,421
Total ending allowance balance	$	640	$	3,496	$	597	$	10	$	33	$	4,776
Loans:
Individually evaluated for impairment	$	—	$	1,963	$	174	$	4	$	—	$	2,141
Collectively evaluated		60,139		217,754		86,690		3,965		—		368,548
Total ending loans balance	$	60,139	$	219,717	$	86,864	$	3,969	$	—	$	370,689

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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	(Dollars in Thousands)
December 31, 2017	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	45	$	—	$	—	$	—	$	45
Collectively evaluated		633		3,470		554		10		12		4,679
Total ending allowance balance	$	633	$	3,515	$	554	$	10	$	12	$	4,724
Loans:
Individually evaluated for impairment	$	2	$	1,393	$	82	$	7	$	—	$	1,484
Collectively evaluated		61,219		225,441		82,148		3,947		—		372,755
Total ending loans balance	$	61,221	$	226,834	$	82,230	$	3,954	$	—	$	374,239

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:

The following table presents information related to impaired loans by class of loans as of September 30, 2018 and December 31, 2017. 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)
	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)						~~(Dollars in Thousands)~~
	September 30, 2018						December 31, 2017
	30-59Days PastDue		60-89Days PastDue		90 and OverDays PastDue		Total PastDue		Current		Total
	UnpaidPrincipalBalance		RecordedInvestment		Allowance for Loan Losses Allocated		UnpaidPrincipalBalance		RecordedInvestment		Allowancefor LoanLossesAllocated
December 31, 2018
With no related allowance recorded:
Commercial	$	—	$	11	$	—	$	11	$	61,540	$	61,551
Commercial	$	—	$	—	$	—	$	2	$	2	$	—
Commercial real estate:
Other		1,240		1,240		—		1,317		1,317		—
Construction		—		—		—		—		36,829		36,829
Residential real estate		120		120		—		82		82		—
Other		—		—		—		—		180,800		180,800
Residential real estate		—		37		97		134		88,663		88,797
Consumer:
Other		4		4		—		7		7		—
Auto		—		—		—		—		841		841
Subtotal	$	1,364	$	1,364	$	—	$	1,408	$	1,408	$	—
Other		5		—		—		5		2,721		2,726
With an allowance recorded:
Subtotal	$	5	$	48	$	97	$	150	$	371,394	$	371,544
Commercial	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Other		723		723		352		76		76		45
Residential real estate		54		54		3		—		—		—
Consumer:
Other		—		—		—		—		—		—
Subtotal	$	777	$	777	$	355	$	76	$	76	$	45
Total	$	2,141	$	2,141	$	355	$	1,484	$	1,484	$	45

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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Information on impaired loans for the three months ended September 30, 2018 and 2017 is as follows:

	(Dollars in Thousands)						(Dollars in Thousands)
	September 30, 2018						September 30, 2017
	AverageRecordedInvestment		InterestIncomeRecognized		Cash BasisInterestRecognized		AverageRecordedInvestment		InterestIncomeRecognized		Cash BasisInterestRecognized
Commercial	$	—	$	—	$	—	$	104	$	2	$	—
Commercial real estate:
Construction		—		—		—		—		—		—
Other		2,001		20		7		3,310		31		24
Residential real estate		175		1		1		220		2		1
Consumer:
Auto		—		—		—		—		—		—
Other		4		—		—		9		—		—
Total	$	2,180	$	21	$	8	$	3,643	$	35	$	25

Information on impaired loans for the nine months ended September 30, 2018 and 2017 is as follows:

	(Dollars in Thousands)						(Dollars in Thousands)
	September 30, 2018						September 30, 2017
	Average Recorded Investment		Interest Income Recognized		Cash BasisInterestRecognized		AverageRecordedInvestment		InterestIncomeRecognized		Cash BasisInterestRecognized
Commercial	$	—	$	—	$	—	$	105	$	3	$	2
Commercial real estate:
Construction		—		—		—		—		—		—
Other		2,067		52		2		3,318		88		48
Residential real estate		174		4		1		222		6		4
Consumer:
Auto		—		—		—		—		—		—
Other		5		—		—		10		1		1
Total	$	2,246	$	56	$	3	$	3,655	$	98	$	55

The recorded investment in nonaccrual and loans past due 90 days and over still on accrual by class of loans as of September 30, 2018 and December 31, 2017 are summarized below:

	(Dollars in Thousands)				(Dollars in Thousands)
	September 30, 2018				December 31, 2017
	Loans Past Due90 Days and Over andStill Accruing		Nonaccrual		Loans Past Due90 Days and Over andStill Accruing		Nonaccrual
Commercial real estate:
Other		—		1,892		—		1,317
Residential real estate		—		122		—		27
Total	$	—	$	2,014	$	—	$	1,344

Nonaccrual loans and loans past due 90 days and over 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 September 30, 2018 and December 31, 2017 by class of loans. Non-accrual loans are included and have been categorized based on their payment status:

	(Dollars in Thousands)
	30-59Days PastDue		60-89Days PastDue		90 and Over Days Past Due		Total PastDue		Current		Total
September 30, 2018
Commercial	$	85	$	—	$	—	$	85	$	60,054	$	60,139
Commercial real estate:
Construction		—		—		—		—		46,018		46,018
Other		71		—		652		723		172,976		173,699
Residential real estate		93		256		122		471		86,393		86,864
Consumer:
Auto		—		—		—		—		937		937
Other		—		—		—		—		3,032		3,032
Subtotal	$	249	$	256	$	774	$	1,279	$	369,410	$	370,689

	(Dollars in Thousands)
	30-59Days PastDue		60-89Days PastDue		90 and OverDays PastDue		Total PastDue		Current		Total
December 31, 2017
Commercial	$	9	$	—	$	—	$	9	$	61,212	$	61,221
Commercial real estate:
Construction		—		—		—		—		44,391		44,391
Other		—		—		—		—		182,443		182,443
Residential real estate		90		—		27		117		82,113		82,230
Consumer:
Auto		—		—		—		—		1,184		1,184
Other		3		—		—		3		2,767		2,770
Subtotal	$	102	$	—	$	27	$	129	$	374,110	$	374,239

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $1.4 million and $1.5 million as of September 30, 2018 and December 31, 2017, respectively. The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. Troubled debt restructurings are included in impaired loans. The modifications of the terms of these loans included reducing the interest rate, granting an interest only payment period, or extending the terms of the debt for customers experiencing financial difficulties. Of the five troubled debt restructurings reported at quarter end, three loans totaling $127,000 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 ended September 30, 2018 and 2017.

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The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2018 and 2017.

		(Dollars in Thousands)					(Dollars in Thousands)
	Numberof Loans	Pre-ModificationOutstandingRecordedInvestment		Post-ModificationOutstandingRecordedInvestment		Numberof Loans	Pre-ModificationOutstandingRecordedInvestment		Post-Modification Outstanding RecordedInvestment
	September 30, 2018					September 30, 2017
Troubled Debt Restructurings:
Commercial	—	$	—	$	—	1	$	5	$	5
Total	—	$	—	$	—	1	$	5	$	5

Specific allocations of $48,000 and $188,000 were reported for troubled debt restructurings as of September 30, 2018 and September 30, 2017. For the three and nine months ended September 30, 2018 no payment defaults or charge-offs were reported for troubled debt restructurings made during the prior 12 months, and for the three and nine months ended September 30, 2017, no payment defaults or charge-offs were reported for the troubled debt restructurings made during the prior 12 months.

The terms of certain other loans were modified during the nine months ended September 30, 2018 and 2017 that did not meet the definition of a troubled debt restructuring. These loans modified during the nine months ended September 30, 2018 have a total recorded investment of $21.7 million as of September 30, 2018. The loans modified during the nine months ended September 30, 2017 had a total recorded investment of $19.8 million as of September 30, 2017. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

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

Credit Quality Indicators:

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

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

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

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

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

	(Dollars in Thousands)
	Pass		SpecialMention		Substandard		Doubtful		Total
September 30, 2018
March 31, 2019
Commercial	$	5964,~~512~~459	$	—	$	~~627~~251	$	—	$	6064,~~139~~710
Commercial real estate:
Construction		4641,~~018~~186		—		—		—		4641,~~018~~186
Other		~~171~~178,~~617~~342		—		21,~~082~~350		—		~~173~~179,~~699~~692
Residential real estate		8688,~~759~~974		—		~~105~~87		—		8689,~~864~~061
Consumer:
Auto		~~937~~837		—		—		—		~~937~~837
Other		32,~~023~~428		—		98		—		32,~~032~~436
Total	$	~~367~~376,~~866~~226	$	—	$	21,~~823~~696	$	—	$	~~370~~377,~~689~~922

	(Dollars in Thousands)
	Pass		SpecialMention		Substandard		Doubtful		Total
December 31, 2017
Commercial	$	60,306	$	—	$	915	$	—	$	61,221
Commercial real estate:
Construction		44,391		—		—		—		44,391
Other		178,462		703		3,278		—		182,443
Residential real estate		82,148		55		27		—		82,230
Consumer:
Auto		1,184		—		—		—		1,184
Other		2,762		—		8		—		2,770
Total	$	369,253	$	758	$	4,228	$	—	$	374,239

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	(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 each type of financial instrument:

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

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

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

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

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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)

September 30, 2018

December 31, 2017

March 31, 2019

December 31, 2018

QuotedPrices inActiveMarkets forIdenticalAssets(Level 1)

SignificantOtherObservableInputs(Level 2)

SignificantUnobservableInputs(Level 3)

QuotedPrices inActiveMarkets forIdenticalAssets(Level 1)

SignificantOtherObservableInputs(Level 2)

SignificantUnobservableInputs(Level 3)

Assets:

Securities available-for-sale

U. S. government agencies and government sponsored entities

—

87,~~367~~963

—

18,~~977~~440

—

Agency mortgage-backed securities-residential

—

1719,~~918~~602

—

2520,~~811~~300

—

State and municipal

—

1716,~~465~~422

—

1916,~~388~~728

—

Trust preferred security

—

1,~~700~~640

—

1,~~440~~630

Corporate bonds

—

Total investment securities

—

43,~~750~~987

1,~~700~~640

—

4745,~~176~~468

1,~~440~~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 ~~nine~~three months ended ~~September 30~~March 31:

	Trust Preferred Security
	2018		2017
	2019		2018
Balance of recurring Level 3 assets at January 1	$	1,~~440~~630	$	1,~~240~~440
Total gains or (losses) for the period included in other comprehensive income		~~260~~10		~~160~~120
Balance of recurring Level 3 assets at September 30	$	1,700	$	1,400
Balance of recurring Level 3 assets at March 31	$	1,640	$	1,560

19There 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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AsThe ofcarrying ~~September 30, 2018,~~amount ~~there~~and ~~were~~estimated ~~impaired loans with a~~ fair ~~value~~values ~~totaling $400,000 measured using significant unobservable inputs (level 3). These loans had adjustments using sales comparison valuation techniques for limited used nature~~ of ~~certain~~financial ~~properties,~~instruments ~~age~~at ofMarch ~~appraisal~~31, ~~location,~~2019 and~~/or~~ ~~condition.~~December ~~There~~31, 2018 were ~~no financial assets measured at fair value on a non-recurring basis~~ as ~~of December 31, 2017.~~follows:

The following table presents quantitative and qualitative information about Level 3 fair value measurements for financial instruments measured on a non-recurring basis at September 30, 2018.


			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

	September 30, 2018		Valuation Techniques		Unobservable Inputs (Dollars in thousands)	Range (Weighted Avg)
				Fair Value Measurements at
Impaired loans:
				December 31, 2018
Commercial RE	348		Sales Comparison		Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	(22.69)				%
	CarryingAmount			Level 1		Level 2		Level 3		Total
Residential RE	52		Sales Comparison		Adjustments for limited use nature of certain properties, age of appraisal, location, and/or condition	(20.00)				%
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

Impaired loans, which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $707,000 at September 30, 2018 with a valuation allowance of $307,000, resulting in an allocated provision for loan losses of $307,000 in the nine months ending September 30, 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 December 31, 2017.

There was no other real estate owned to measure at fair value at September 30, 2018 or December 31, 2017. No writedowns of other real estate owned were taken in the nine months ended September 30, 2018 or September 30, 2017.

The carrying amount and estimated fair values of financial instruments at September 30, 2018 and December 31, 2017 were as follows:

			Fair Value Measurements at
			September 30, 2018
	CarryingAmount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and due from financial institutions	$	7,523	$	7,523	$	—	$	—	$	7,523
Interest-bearing deposits in other financial institutions		28,113		28,113		—		—		28,113
Available-for-sale-securities		45,450		—		43,750		1,700		45,450
Loans, net of allowance		365,913		—		—		357,877		357,877
Loans held for sale		—		—		—		—		—
Accrued interest receivable		1,596		10		230		1,356		1,596
Federal Home Loan Bank stock		2,065		—		—		—		N/A
Financial Liabilities
Demand and savings deposits	$	239,879	$	239,879	$	—	$	—	$	239,879
Time deposits		142,754		—		140,664		—		140,664
FHLB advances		35,000		—		34,724		—		34,724
Subordinated debentures		5,000		—		—		2,543		2,543
Accrued interest payable		360		19		289		52		360

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			Fair Value Measurements at
			December 31, 2017
	CarryingAmount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and due from financial institutions	$	6,444	$	6,444	$	—	$	—	$	6,444
Interest-bearing deposits in other financial institutions		13,532		13,532		—		—		13,532
Available-for-sale-securities		48,616		—		47,176		1,440		48,616
Loans, net of allowance		369,515		—		—		367,159		367,159
Loans held for sale		427		—		435		—		435
Accrued interest receivable		1,681		18		234		1,429		1,681
Federal Home Loan Bank stock		2,053		—		—		—		N/A
Financial Liabilities
Demand and savings deposits	$	228,346	$	228,346	$	—	$	—	$	228,346
Time deposits		143,968		—		142,440		—		142,440
FHLB advances		40,000		—		39,776		—		39,776
Subordinated debentures		5,000		—		—		2,543		2,543
Accrued interest payable		285		14		232		39		285

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

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

(b) Interest~~-bearing~~ ~~deposits~~Bearing Deposits in ~~other~~Other ~~financial~~Financial ~~institutions~~Institutions: Fair values are based on quoted market prices~~, resulting in a Level 1 classification~~.

(c) Loans, ~~net~~Net: AtFair ~~September 30, 2018, fair~~ values of loans, excluding loans held for sale, ~~are~~was ~~determined using an~~ estimated ~~exit~~as ~~price.~~follows: ~~Contractual~~For ~~cash~~variable ~~flow estimates are projected using a loan's balance, interest~~ rate, ~~repricing~~loans ~~characteristics,~~that ~~maturity~~reprice frequently and ~~payment~~with ~~amounts.~~no ~~Loans~~significant ~~are~~change ~~grouped~~in ~~into~~credit ~~homogenous~~risk, ~~pools~~fair ~~for~~values ~~valuation~~were ~~purposes~~ based on ~~type~~carrying ~~and~~values ~~credit~~resulting ~~risk~~in ~~metrics.~~a ~~Contractual~~Level ~~cash~~3 ~~flows~~classification. ~~are~~Fair ~~adjusted~~values for ~~potential~~other ~~prepayment~~loans ~~estimates,~~were asestimated ~~well~~using asdiscounted ~~potential~~cash ~~defaults~~flow ~~over~~analyses, ~~the~~using ~~expected~~interest ~~life~~rates ofbeing ~~each~~offered ~~pool.~~for Aloans ~~discount~~with ~~rate~~similar isterms ~~determined~~to ~~based~~borrowers ~~upon current financial conditions and the nature~~ of ~~the~~similar ~~cash~~credit ~~flow~~quality ~~forecast. The~~ resulting ~~exit~~in ~~price for the portfolio is~~ a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans did not necessarily represent an exit price.

At December 31, 2017, 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

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(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.

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(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 ~~Level 1 or Level 2~~ classification consistent with the asset/liability they are associated with.

Note 6 - Earnings Per Share

Basic earnings per share have been computed by dividing net income available for common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share have been computed the same as basic earnings per share, and assumes the conversion of outstanding performance share units ~~and convertible preferred stock, if dilutive~~. The following table reconciles the basic and diluted earnings per share computations for the three months ~~and nine months~~ ended ~~September 30~~March 31, ~~2018~~2019 and ~~2017~~2018.

	2018					2017
	(Income in Thousands)
	Quarter ended September 30, 2018					Quarter ended September 30, 2017
	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,~~198~~119				$	1,~~122~~084
Dividends on preferred stock		—					—
Basic earnings per share:	$	1,119	2,539,597	$	0.44	$	1,084	2,526,377	$	0.43
Basic earnings per share:	$	1,198	2,537,605	$	0.47	$	1,122	2,526,377	$	0.44
Effect of dilutive securities
Performance share units		—	93,~~923~~340				—	1214,~~524~~993
Convertible preferred stock		—	—				—	—
Diluted earnings per share:
Net income available to common stockholders and assumed conversions	$	1,~~198~~119	2,~~547~~542,~~528~~937	$	0.4744	$	1,~~122~~084	2,~~538~~541,~~901~~370	$	0.4443

		(Dollars in Thousands)
	Nine months ended September 30, 2018					Nine months ended September 30, 2017
			Weighted					Weighted
			Average	Per Share				Average	Per Share
	Income		Shares	Amount		Income		Shares	Amount
Basic earnings per share:
Net income	$	3,656				$	3,137
Dividends on preferred stock		—					(238)
Net income available to common shareholders	$	3,656	2,533,077	$	1.44	$	2,899	2,216,052	$	1.30
Effect of dilutive securities:
Performance share units		—	9,851				—	12,031
Convertible preferred stock		—	—				238	319,325
Diluted earnings per share:
Net income available to common stockholders and assumed conversions	$	3,656	2,542,928	$	1.44	$	3,137	2,547,408	$	1.23

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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 ~~September 30~~March 31, ~~2018~~2019 and December 31, ~~2017~~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 12.~~875~~5% as of ~~September 30~~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.

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

	(Dollars in Thousands)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
September 30, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets)
Total Capital (to risk-weighted assets)		56,359	14.21	%		31,731	8.00	%	$	39,664	10.00	%
Consolidated	$	55,399	14.14	%	$	31,347	8.00	%		N/A	N/A
Tier I Capital (to risk-weighted assets)		51,960	13.10	%		23,798	6.00	%		31,731	8.00	%
Citizens First Bank, Inc.		54,355	13.88	%		31,332	8.00	%	$	39,165	10.00	%
Common Equity Tier I Capital (to risk-weighted assets)		51,960	13.10	%		17,849	4.50	%		25,781	6.50	%
Tier I Capital (to Risk-Weighted Assets)
Tier I Leverage Capital (to average assets)		51,960	11.17	%		18,606	4.00	%		23,257	5.0	%
Consolidated		50,624	12.92	%		23,511	6.00	%		N/A	N/A
Citizens First Bank, Inc.		49,579	12.66	%		23,499	6.00	%		31,332	8.00	%
Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		45,624	11.64	%		17,633	4.50	%		N/A	N/A
Citizens First Bank, Inc.		49,579	12.66	%		17,624	4.50	%		25,457	6.50	%
Tier I Leverage Capital to average assets
Consolidated		50,624	10.58	%		19,141	4.00	%		N/A	N/A
Citizens First Bank, Inc.		49,579	10.35	%		19,168	4.00	%		23,960	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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	(Dollars in Thousands)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
December 31, 2017	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets)
Consolidated	$	51,988	13.07	%	$	31,823	8.00	%		N/A	N/A
Citizens First Bank, Inc.		51,112	12.86	%		31,802	8.00	%	$	39,753	10.00	%
Tier I Capital (to Risk-Weighted Assets)
Consolidated		47,264	11.88	%		23,867	6.00	%		N/A	N/A
Citizens First Bank, Inc.		46,388	11.67	%		23,852	6.00	%		31,802	8.00	%
Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		42,502	10.68	%		17,900	4.50	%		N/A	N/A
Citizens First Bank, Inc.		46,388	11.67	%		17,889	4.50	%		25,839	6.50	%
Tier I Leverage Capital to average assets
Consolidated		47,264	10.31	%		18,343	4.00	%		N/A	N/A
Citizens First Bank, Inc.		46,388	10.14	%		18,301	4.00	%		22,876	5.0	%

Note 8 - Leases

~~(1)~~ The ~~When~~Company ~~fully~~has ~~phased-in~~committed ~~on January 1, 2019, Basel III Capital Rules will require banking organizations~~ to ~~maintain:~~rent apremises ~~minimum~~used ~~ratio~~in ofbusiness ~~common~~operations ~~equity~~under ~~Tier 1 to risk~~non-~~weighted~~cancelable ~~assets~~operating ofleases atand ~~least~~determines ~~4.5%,~~if ~~plus~~an aarrangement ~~2.5%~~meets ~~“capital conservation buffer”; a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus~~ the ~~2.5%~~definition ~~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~~lease ~~ratio~~upon ~~of Tier 1 capital to adjusted average consolidated assets of at least 4~~inception.~~0%.~~

24The 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 ~~2017~~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 ~~September 30~~March 31, ~~2018~~2019, we reported net income of $1.2012 million or $0.4744 per diluted common share, compared to net income of $1.1208 million, or $0.4443 per diluted common share in the ~~third~~first quarter of ~~2017~~2018, an increase of $7635,000 or 3.2%. The increase in net income is attributable primarily to an increase in ~~net~~ non-interest income of $4922,000 and a ~~decrease~~reduction in income tax expense of $~~179~~63,000,. ~~partially~~This was offset by ana ~~increase~~decrease in ~~non-~~net interest ~~expense~~income of $7957,000 and an increase in ~~the~~non-interest ~~provision~~expense ~~for loan losses~~ of $6023,000.

~~For~~Our ~~the~~annualized ~~nine~~return ~~months~~on ~~ended~~average ~~September 30~~assets, ~~2018~~defined weas ~~reported~~ net income ofdivided ~~$3.66~~by ~~million~~average orassets, $1was 0.4497% ~~per~~for ~~diluted~~the ~~common~~quarter ~~share~~ended March 31, 2019, compared to ~~net income of $3~~0.1492% ~~million,~~for orthe ~~$1.23~~quarter ~~per~~ended ~~diluted~~March ~~common~~31, ~~share in the previous year~~2018. Our ~~This~~annualized ~~represents~~return anon ~~increase~~average ~~of $519~~equity,~~000.~~ ~~The~~defined ~~increase~~as in net income isdivided ~~attributable~~by toaverage ~~an increase in net interest income of $400~~equity,~~000~~ ~~and~~was a9.00% ~~decrease~~for inthe ~~income~~quarter ~~tax~~ended ~~expense~~March of31, ~~$450~~2019,~~000,~~ ~~partially~~compared ~~offset~~to by9.55% anfor ~~increase~~the inquarter ~~non-interest~~ended ~~expense~~March ~~of $225~~31,~~000~~ ~~and an increase in provision expense of $90,000~~2018.

Our annualized return on average assets, defined as net income divided by average assets, was 0.99% for the quarter ended September 30, 2018, and for the quarter ended September 30, 2017. The annualized return on average assets was 1.02% for the nine months ended September 30, 2018, compared to 0.93% in September 30, 2017. Our annualized return on average equity, defined as net income divided by average equity, was 9.85% for the quarter ended September 30, 2018, compared to 9.91% for the quarter ended September 30, 2017. Our annualized return on average equity was 10.38% for the nine months ended September 30, 2018, compared to 9.55% for the nine months ended September 30, 2017.

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 ~~September 30~~March 31, ~~2018~~2019 ~~increased~~decreased $4957,000, or 1.35%, compared to ~~September 30~~March 31, ~~2017~~2018. The Company’s net interest margin was 3.4355% for the three months ended ~~September 30,~~March ~~2018~~31, ~~compared~~2019 toand ~~3.68%~~March ~~for the three months ended September 30~~31, ~~2017, a decrease of 25 basis points~~2018. ~~The Company’s net interest margin~~

25 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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~~decreased~~expense ~~primarily~~on ~~due~~average tointerest-bearing anliabilities ~~increase~~and inaverage ~~the~~yields ~~cost~~and ofcosts. Such ~~interest-bearing~~yields ~~liabilities~~and ~~which~~costs ~~exceeded~~for the ~~increase~~periods inindicated are derived by dividing income or expense by the ~~yield~~average onbalances ~~earning~~of assets or liabilities, respectively, for the periods presented.

Net interest income for the nine months ended September 30, 2018 increased $400,000 or 3.5%, compared to September 30, 2017. The net interest margin for the nine months ended September 30, 2018 was 3.55%, compared to 3.68% for the nine months ended September 30, 2017. The decrease of 13 basis points is attributable to an increase in the cost of average interest-bearing liabilities.

The following tables set forth for the quarter and nine months ended September 30, 2018 and 2017, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs. Such yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented.

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

	2018						2017
	2019						2018
	Average		Income/		Average		Average		Income/		Average
Quarter ended September 30,	Balance		Expense		Rate		Balance		Expense		Rate
Three months ended March 31,	Balance		Expense		Rate		Balance		Expense		Rate
Earning assets:
Federal funds sold	$	111,~~152~~556	$	539	—2.35	%	$	—875	$	—3	—	%
Interest-bearing deposits in other financial institutions		1813,~~613~~056		9477	2.0039	%		1114,~~398~~479		4059	1.3965	%
Available-for-sale securities (1)
Taxable		2931,~~850~~376		~~174~~207	2.3168	%		2830,~~899~~144		~~142~~168	12.9526	%
Nontaxable		1614,~~094~~870		~~118~~112	23.9105	%		17,~~565~~116		~~171~~131	3.8610	%
Federal Home Loan Bank stock		2,065		31	56.9609	%		2,~~052~~055		2730	5.2292	%
Loans receivable (2)		~~377~~378,~~140~~524		4,~~649~~744	45.8908	%		~~362~~384,~~343~~184		4,~~316~~497	4.7375	%
Total interest earning assets		~~454~~441,~~914~~447		5,~~119~~180	4.4676	%		~~422~~448,~~257~~853		4,~~696~~888	4.4142	%
Non-interest earning assets		27,~~592~~755						27,~~513~~210
Total Assets	$	~~482~~469,~~506~~202					$	~~449~~476,~~770~~063
Interest-bearing liabilities:
NOW Accounts	$	130,571	$	252	0.77	%	$	116,589	$	150	0.51	%
NOW accounts	$	134,884	$	313	0.94	%	$	120,608	$	172	0.58	%
Money market Accounts		35,532		83	0.93	%		33,817		64	0.75	%
Money market accounts		33,037	$	74	0.91	%	$	34,895	$	63	0.73	%
Savings accounts		2122,~~995~~468		109	0.1816	%		2221,~~091~~632		10	0.1819	%
Time deposits		~~144~~139,~~944~~344		~~591~~680	1.6298	%		~~140~~145,~~170~~492		~~404~~484	1.1435	%
Total interest-bearing deposits		~~333~~329,~~042~~733		~~936~~1,076	1.1232	%		~~312~~322,~~667~~627		~~628~~729	0.8092	%
Borrowings		3830,~~685~~000		~~196~~182	2.0146	%		3247,~~696~~167		~~112~~189	1.3663	%
Subordinated debentures		5,000		5055	34.9746	%		5,000		3742	23.9441	%
Total interest-bearing liabilities		~~376~~364,~~727~~733		1,~~182~~313	1.2446	%		~~350~~374,~~363~~794		~~777~~960	01.8804	%
Non-interest bearing deposits		5551,~~081~~378						52,~~130~~990
Other liabilities		2,~~456~~688						2,~~361~~256
Total liabilities		~~434~~418,~~264~~799						~~404~~430,~~854~~040
Stockholders’ equity		4850,~~242~~403						4446,~~916~~023
Total Liabilities and Stockholders’ Equity	$	~~482~~469,~~506~~202					$	~~449~~476,~~770~~063
Net interest income			$	3,~~937~~867					$	3,~~919~~928
Net interest spread (1)					3.2230	%					3.5338	%
Net interest margin (1) (3)					3.4355	%					3.6855	%
Return on average assets ratio					0.9997	%					0.9992	%
Return on average equity ratio					9.8500	%					9.9155	%
Average equity to assets ratio					10.0074	%					9.9967	%

(1) Income and yield stated at a tax equivalent basis for nontaxable securities using the marginal corporate Federal tax rate of 21.0% for ~~2018~~2019 and 342018.~~0% for 2017.~~

(2)

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

(3)

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

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

	2018						2017
	Average		Income/		Average		Average		Income/		Average
Nine months ended September 30,	Balance		Expense		Rate		Balance		Expense		Rate
Earning assets:
Federal funds sold	$	4,047	$	56	1.85	%	$	—	$	—	—	%
Interest-bearing deposits in other financial institutions		15,672		218	1.86	%		11,788		107	1.21	%
Available-for-sale securities (1)
Taxable		29,787		516	2.32	%		28,787		433	2.01	%
Nontaxable		16,528		372	3.01	%		18,840		564	4.00	%
Federal Home Loan Bank stock		2,061		90	5.84	%		2,044		74	4.84	%
Loans receivable (2)		383,620		13,942	4.86	%		363,294		12,697	4.67	%
Total interest earning assets		451,715		15,194	4.50	%		424,753		13,875	4.37	%
Non-interest earning assets		27,443						27,424
Total Assets	$	479,158					$	452,177
Interest-bearing liabilities:
NOW Accounts	$	124,233	$	603	0.65	%	$	120,884	$	430	0.48	%
Money market Accounts		36,103	$	223	0.83	%	$	28,863	$	127	0.59	%
Savings accounts		21,801		29	0.18	%		21,945		30	0.18	%
Time deposits		146,102		1,637	1.50	%		144,129		1,183	1.10	%
Total interest-bearing deposits		328,239		2,492	1.02	%		315,821		1,770	0.75	%
Borrowings		42,505		572	1.80	%		35,161		305	1.16	%
Subordinated debentures		5,000		142	3.80	%		5,000		106	2.83	%
Total interest-bearing liabilities		375,744		3,206	1.14	%		355,982		2,181	0.82	%
Non-interest bearing deposits		54,102						50,103
Other liabilities		2,214						2,154
Total liabilities		432,060						408,239
Stockholders’ equity		47,098						43,938
Total Liabilities and Stockholders’ Equity	$	479,158					$	452,177
Net interest income			$	11,988					$	11,694
Net interest spread (1)					3.36	%					3.55	%
Net interest margin (1) (3)					3.55	%					3.68	%
Return on average assets ratio					1.02	%					0.93	%
Return on average equity ratio					10.38	%					9.55	%
Average equity to assets ratio					9.83	%					9.72	%

(1) Income and yield stated at a tax equivalent basis for nontaxable securities using the marginal corporate Federal tax rate of 21.0% for 2018 and 34.0% for 2017.

(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 ~~nine~~three months ended ~~September 30~~March 31, ~~2018~~2019 and ~~2017~~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)
	Nine Months Ended September 30, 2018
	Three Months Ended March 31, 2019
	Vs. 2017
	Vs. 2018
	Increase (Decrease) Due to
	Rate	Volume	Net
Interest-earning assets:
Federal funds sold	—	566	566
Interest-bearing deposits in other financial institutions	7624	35(6)	~~111~~18
Available-for-sale securities:
Taxable	6832	157	8339
Nontaxable (1)	(~~123~~2)	(6917)	(~~192~~19)
Federal Home Loan Bank stock	151	10	161
Loans, net	~~535~~313	~~710~~(66)	~~1,245~~247
Total Net Change in income on interest-earning assets	~~571~~368	~~748~~(76)	~~1,319~~292
Interest-bearing liabilities:
NOW Accounts	~~161~~121	1220	~~173~~141
Money market accounts	6414	32(3)	9611
Savings accounts	(1)	(0)	(1)
Time deposits	~~438~~216	16(20)	~~454~~196
FHLB and other borrowings	~~203~~62	64(69)	~~267~~(7)
Subordinated debentures	3613	—	3613
Total Net Change in expense on interest-earning liabilities	~~901~~425	~~124~~(72)	~~1,025~~353
Net change in net interest income	(~~330~~57)	~~624~~(4)	~~294~~(61)
Percentage Change	~~-112~~92.18%	~~212~~7.12%	100.0%

(1) Income stated at a fully tax equivalent basis using the marginal corporate Federal tax rate of 21.0% for ~~2018~~2019 and 342018.~~0% for 2017.~~

Provision for Loan Losses

There was ano provision for loan losses ofin ~~$30,000 recorded for~~ the ~~third~~first quarter of ~~2018~~2019 compared to a $30,000 ~~credit~~ provision ~~in the third quarter of 2017. The allowance~~ for loan losses ~~to total loans was 1.29% of total loans at September 30, 2018 compared to 1.34% at September 30, 2017. Net charge-offs were $4,000 for the third quarter of 2018 compared to $16,000~~ in the ~~third~~first quarter of ~~2017~~2018.

Provision expense for the nine months ended September 30, 2018 totaled $90,000 compared to no provision in 2017. Net charge-offs were $38,000 for the nine months ended September 30, 2018 compared to $2,000 for the nine months ended September 30, 2017.

Non-Interest Income

Non-interest income for the three months ended ~~September 30~~March 31, ~~2018~~2019 ~~decreased~~increased $1322,000, or 12.47%, compared to the three months ended ~~September 30~~March 31, ~~2017~~2018, primarily due to aan ~~decrease~~increase in ~~service~~gains ~~charges~~ on ~~deposit~~sale ~~accounts~~of mortgage loans of $2630,000, and aan ~~decrease~~increase in ~~gains~~lease onincome ~~sale~~ of ~~securities of~~ $2531,000, partially offset by ana ~~increase~~decrease in ~~non-deposit~~service ~~brokerage~~charges ~~fees of $20,000 and gain~~ on ~~sale~~deposit ofaccounts ~~mortgage loans~~ of $1638,000.

Non-interest income for the nine months ended September 30, 2018 decreased $16,000, or 0.6%, compared to the nine months ended September 30, 2017, primarily due to a reduction in service charges on deposit accounts of $24,000 and gains on the sale of securities of $48,000, offset by an increase in other service charges and fees of $37,000 and non-deposit brokerage fees of $42,000.

Non-Interest Expense

Non-interest expense for the three months ended ~~September 30~~March 31, ~~2018~~2019 increased $7923,000, or 20.57%, compared to the three months ended ~~September 30~~March 31, ~~2017~~2018, primarily due to an increase in ~~personnel~~professional ~~expense~~fees of $5790,000, and an increase in ~~other~~data processing expense of $5515,000, offset by a decrease in personnel expense of $37,000 and decrease in other operating expenses of $25,000.

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Non-interest expense for the nine months ended September 30, 2018 increased $225,000, or 2.3% compared to the nine months ended September 30, 2017, primarily due to an increase of $287,000 in personnel expenses and an $82,000 increase in other expenses offset by a decrease of $111,000 in data processing services.

Income Taxes

Income tax expense was calculated using our expected effective rate for ~~2018~~2019 and ~~2017~~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% infor 2018 and 342019.0% ~~in 2017.~~ The effective tax rate ~~for the third quarter of 2018~~ was ~~20.6~~14% ~~compared to a 30.4% effective tax rate~~ for the ~~third~~first quarter of ~~2017.~~2019 ~~The~~and ~~effective tax rate for the nine months ended September 30, 2018 was~~ 19.5% ~~compared to 29.9%~~ for the ~~nine~~same ~~months~~period ~~ended~~in ~~September 30, 2017~~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, ~~and~~ 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 ~~September 30~~March 31, ~~2018~~2019 were $~~473~~472.71 million, a 1decrease of $3.9 million, or 0.8%, ~~increase~~ from $~~465~~476.40 million at December 31, ~~2017~~2018. Average assets during the ~~third~~first quarter of 2019 were $~~482~~469.52 million, ana ~~increase~~decrease of 71.34%, or $326.79 million, from $~~449~~476.81 million in the ~~third~~first quarter of ~~2017~~2018. Average interest earning assets increased 71.7%, or $327.65 million, from $~~422~~448.39 million in the ~~third~~first quarter of ~~2017~~2018 to $~~454~~441.94 million in the ~~third~~first quarter of ~~2018~~2019.

Loans

Loans ~~decreased~~increased $3.6.4 million, or 1.07%, from $~~374~~371.25 million at December 31, ~~2017~~2018 to $ ~~370~~377.79 million at ~~September 30~~March 31, ~~2018~~2019. Total loans averaged $~~377~~378.15 million the ~~third~~first quarter of ~~2018~~2019, compared to $~~362~~384.32 million the ~~third~~first quarter of ~~2017~~2018, ana ~~increase~~decrease of $145.87 million, or 4.1.5%. We experienced an increase in the commercial and agricultural, commercial real estate, and residential real estate ~~portfolio~~portfolios during the first ~~nine~~three months of the year compared to December 31, ~~2017~~2018. The following table presents a summary of the loan portfolio by category:

	(Dollars in Thousands)
	September 30, 2018				December 31, 2017
	March 31, 2019				December 31, 2018
			% of Total				% of Total
			Loans				Loans
Commercial and agricultural	$	6064,~~139~~710	1617.2312	%	$	61,~~221~~551	16.3657	%
Commercial real estate		~~219~~220,~~717~~878	5958.2744	%		~~226~~217,~~834~~629	6058.6157	%
Residential real estate		8689,~~864~~061	23.4357	%		8288,~~230~~797	2123.9790	%
Consumer		3,~~969~~273	10.0787	%		3,~~954~~567	10.0696	%
	$	~~370~~377,~~689~~922	100.00	%	$	~~374~~371,~~239~~544	100.00	%

The majority of our loans are to customers located in south central Kentucky and central Tennessee. As of ~~September 30~~March 31, ~~2018~~2019, our twenty largest credit relationships (which could involve more than a single borrower) consisted of loans and loan commitments ranging from $4.47 million to $1113.12 million. The aggregate amount of these credit relationships was $~~111~~113.46 million, with total commitments of $~~120~~130.56 million. As of December 31, ~~2017~~2018, our twenty largest credit relationships consisted of loans and loan commitments ranging from $4.37 million to $1114.97 million. The aggregate amount of these credit relationships was $~~108~~107.63 million, with total commitments of $~~124~~123.76 million.

Our lending activities are subject to a variety of lending limits imposed by state and federal law. ~~The~~Citizens First Bank’s secured legal lending limit to a single borrower was approximately $12.5 million at ~~September 30~~March 31, ~~2018~~2019 and December 31, ~~2017~~2018.

As of ~~September 30~~March 31, ~~2018~~2019, we had $2016.39 million of participations in loans purchased from, and $12.41 million of participations in loans sold to, other banks. As of December 31, ~~2017~~2018, we had $1817.62 million of participations in loans purchased from, and $1712.03 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 ~~September 30~~March 31, ~~2018~~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

Within One

Within Five

After Five

as of September 30, 2018

Year

Years

Total

as of March 31, 2019

Year

Years

Total

Commercial and agricultural

2022,~~082~~437

3134,~~740~~572

87,~~317~~701

6064,~~139~~710

Commercial real estate

4436,~~441~~965

~~123~~126,~~083~~123

5257,~~193~~790

~~219~~220,~~717~~878

Residential real estate

9,~~081~~240

3641,~~749~~041

4138,~~034~~780

8689,~~864~~061

Consumer

~~730~~807

32,~~199~~423

4043

3,~~969~~273

Total

7469,~~334~~449

~~194~~204,~~771~~159

~~101~~104,~~584~~314

~~370~~377,~~689~~922

Credit Quality and the Allowance for Loan Losses

The allowance for loan losses represents management's estimate of probable credit losses incurred in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change.

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

	(Dollars in Thousands)
	September 30, 2018				December 31, 2017
	March 31, 2019				December 31, 2018
	Amount		% of Loansin EachCategory toTotal Loans		Amount		% of Loansin EachCategory toTotal Loans
Commercial and agricultural	$	~~640~~669	1617.2312	%		~~633~~592	16.3657	%
Commercial real estate		3,~~496~~072	5958.2744	%		3,~~515~~122	6058.6157	%
Residential real estate loans		~~597~~617	23.4357	%		~~554~~611	2123.9790	%
Consumer and other loans		109	10.0787	%		109	10.0696	%
Unallocated		3332	0.00	%		1239	—0.00	%
Total allowance for loan losses	$	4,~~776~~399	100.00	%	$	4,~~724~~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 $3332,000 at ~~September 30~~March 31, ~~2018~~2019 and $1239,000 at December 31, ~~2017~~2018.

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

	(Dollars in Thousands)
	September 30, 2018			December 31, 2017
	March 31, 2019			December 31, 2018
Non-accrual loans	$	~~774~~87		$	2796
Loans 90+ days past due/accruing		—			—
Restructured loans on non-accrual		1,~~240~~183			1,~~317~~202
Total non-performing loans		21,~~014~~270			1,~~344~~298
Other real estate owned		—			—
Total non-performing assets	$	21,~~014~~270		$	1,~~344~~298
Non-performing loans to total loans		0.5434	%		0.3635	%
Non-performing assets to total assets		0.4327	%		0.2927	%
Net charge-offs (recoveries) YTD	$	38(27)		$	~~(20)~~511
Net charge-offs (recoveries) YTD to average YTD total loans, annualized		(0.0103)	%		(0.~~01)~~13	%
Allowance for loan losses to non-performing loans		~~237~~346.1453	%		~~351~~336.4990	%
Allowance for loan losses to total loans		1.2916	%		1.2618	%

Non-performing assets totaled $~~2.0 million at September 30 2018, compared to $~~1.3 million at ~~December~~March 31, ~~2017,~~2019 ~~an increase of $670,000. Payoffs~~ and ~~paydowns~~December ~~of $77~~31,~~000~~ ~~in the nine months ending September 30,~~ 2018 ~~included the charge off of a $27,000 residential real estate loan~~. Payoffs and paydowns oftotaling $2366,000 ~~in the nine months ended September 30, 2017~~ were ~~related~~made toduring the ~~payoff~~first ofquarter ~~two~~with ~~residential real estate loans; there were~~ no ~~charge offs related to~~ non-performing ~~assets~~loans incharged ~~the nine months ending September 30, 2017~~off. Increases in non-performing assets ~~in the nine months ended September 30, 2018~~ included the addition of a $~~652~~37,000 ~~in commercial real estate loans, and three~~ residential real estate ~~loans totaling $122,000~~loan.

Non-performing loans consist of non-accrual loans and loans 90 days ~~and~~or ~~over~~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 ~~and~~or ~~over~~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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agreement. Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for all loan classes by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Securities

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

~~borrowed~~The ~~funds~~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 ~~investment~~tables ~~securities~~below ~~portfolio~~present isthe ~~comprised~~maturities ~~of U.S. Government agency~~ and ~~government~~yield ~~sponsored~~characteristics ~~entity~~of securities, ~~agency~~as ~~mortgage-backed securities, tax-exempt securities~~ of ~~states~~March ~~and political subdivisions~~31, ~~taxable~~2019 ~~municipal securities,~~ and aDecember ~~trust~~31, ~~preferred security~~2018. Expected ~~The~~maturities ~~purchase~~will ofdiffer ~~nontaxable~~from ~~obligations~~contractual ofmaturities ~~states~~because ~~and~~borrowers ~~political~~may ~~subdivisions~~have isthe aright ~~part~~to ofcall ~~managing~~or ~~our~~prepay ~~effective~~obligations ~~tax~~with ~~rate. Securities~~or ~~are~~without ~~all~~call ~~classified~~or asprepayment ~~available-for-sale, and averaged $46~~penalties.~~3 million for the first nine months of 2018, compared to $47.6 million for 2017.~~

The tables below present the maturities and yield characteristics of securities as of September 30, 2018 and December 31, 2017. 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	%

	(Dollars in Thousands)
				Over			Over
				One Year			Five Years
	One Year or			Through			Through			Over Ten			Total
September 30, 2018	Less			Five Years			Ten Years			Years			Maturities			Fair Value
U.S. Government agencies	$	13		$	1,723		$	5,867		$	1,005		$	8,608		$	8,367
Agency mortgage-backed securities: (1)		—			17,088			1,401			—			18,489			17,918
Municipal securities		2,928			7,188			4,885			2,755			17,756			17,465
Trust preferred security		—			—			—			1,892			1,892			1,700
Total available-for-sale securities	$	2,941		$	25,999		$	12,153		$	5,652		$	46,745		$	45,450
Percent of total		6.29	%		55.62	%		26.00	%		12.09	%		100.00	%
Weighted average yield(2)		1.85	%		2.48	%		3.04	%		3.91	%		2.73	%

(1)

Agency mortgage‑backed securities (residential) are grouped into average lives based on March 2019 prepayment projections.

(1) Agency mortgage‑backed securities (residential) are grouped into average lives based on September 2018 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, 2017	Less			Five Years			Ten Years			Years			Maturities			Fair Value
December 31, 2018	Less			Five Years			Ten Years			Years			Maturities			Fair Value
U.S. Government agencies	$	~~1,000~~56		$	~~998~~2,495		$	—5,978		$	—		$	18,~~998~~529		$	18,~~977~~440
Agency mortgage-backed securities: (1)		12—			1819,~~981~~287			71,~~031~~353			—			2620,~~024~~640			2520,~~811~~300
Municipal securities		12,~~963~~573			86,~~375~~680			64,~~224~~882			2,~~819~~731			1916,~~381~~866			1916,~~388~~728
Trust preferred security		—			—			—			1,~~889~~893			1,~~889~~893			1,~~440~~630
Total available-for-sale securities	$	2,~~975~~629		$	28,~~354~~462		$	1312,~~255~~213		$	4,~~708~~624		$	4947,~~292~~928		$	4847,~~616~~098
Percent of total		65.0449	%		5759.5238	%		2625.8948	%		9.5565	%		100.00	%
Weighted average yield(2)		32.0317	%		2.4556	%		3.1511	%		3.5986	%		2.7981	%

(1) Agency mortgage‑backed securities (residential) are grouped into average lives based on December ~~2017~~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 ~~before recovery~~. 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 ~~September 30~~March 31, ~~2018~~2019 were $~~382~~381.68 million, ana ~~increase~~decrease of $106.38 million, or 21.87%, compared to $~~372~~388.36 million at December 31, ~~2017~~2018. Total deposits averaged $~~388~~381.1 million ~~for~~ the ~~third~~first quarter of ~~2018~~2019, an increase of $235.35 million, or 61.45%, compared to $~~364~~375.86 million during the ~~third~~first quarter of ~~2017~~2018. Time deposits that meets or exceed the FDIC insurance limit of $250,000 were $1113.01 million and $11.90 million at ~~September 30~~March 31, ~~2018~~2019 and December 31, ~~2017~~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 $1711.37 million in brokered deposits at ~~September~~March 3031, ~~2018~~2019, compared to $1814.18 million at December 31, ~~2017~~2018. We also utilize a deposit listing service to obtain additional deposits totaling $95.71 million at ~~September 30~~March 31, ~~2018~~2019, compared to $138.14 million at December 31, ~~2017~~2018.

The scheduled maturities or next repricing dates of time deposits as of ~~September 30~~March 31, ~~2018~~ 2019 were as follows:

	(Dollars in Thousands)
	September 30, 2018
	March 31, 2019
Three months or less	$	2610,~~402~~629
Over three through twelve months		5476,~~801~~154
Over one year through three years		5238,~~191~~020
Over three years		912,~~360~~459
Total	$	~~142~~137,~~754~~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 ~~September 30~~March 31, ~~2018~~2019 were $3530.0 million compared to $4030.0 million at December 31, ~~2017~~2018. Rates vary based on the term to repayment, and are summarized below as of ~~September 30~~March 31, ~~2018~~2019:

				(Dollars inThousands
				(Dollars inThousands)
Type	Maturity	Rate		Amount
Fixed	December 28, 2018	1.52	%		5,000
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
				$	3530,000

With our available collateral and ~~our~~the Company’s current holding of FHLB stock, we are eligible to borrow an additional $4047.30 million from the FHLB as of ~~September 30,~~March ~~2018~~31, 2019 compared to $3544.37 million at December 31, ~~2017~~2018.

Other Borrowings. At ~~September~~March 3031, ~~2018~~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.

~~correspondent~~We ~~banks~~issued $5.0 Nomillion ~~amounts~~in ~~were~~subordinated ~~drawn~~debentures asin ofOctober, ~~September~~2006. These 30trust preferred securities bear an interest rate, ~~2018~~which orreprices ~~December~~each calendar quarter, of 165 basis points over 3-month LIBOR (London Inter Bank Offering Rate). Our rate as of March 31, ~~2017~~2019 was 4.45%. The subordinated debentures may be included with tier 1 capital (with certain limitations) under current regulatory guidelines.

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 for interest payable as of September 30, 2018 was 3.99%. 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 $4851.64 million at ~~September 30~~March 31, ~~2018~~2019 from $4550.80 million at December 31, ~~2017~~2018. The book value per common share improved to $1920.1418 at ~~September 30~~March 31, ~~2018~~2019 compared to $1819.1471 at December 31, ~~2017~~2018. The Company declared and paid a quarterly common dividend of $0.0607 per share during the first quarter of ~~2018~~2019 and $0.0706 per share during the ~~second~~first ~~and~~quarter ~~third quarters~~ of 2018. Subsequently, the Company declared a quarterly common dividend of $0.07 per share in ~~October~~April, ~~2018~~2019 to be paid in ~~November~~May, ~~2018~~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 ~~also~~ established a "capital conservation buffer" of 2.5%, to be phased in over three years, above the new regulatory minimum risk-based capital ratios. The buffer as of March 31, 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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~~September 30, 2018 is 1.875%. The buffer could limit the payment of dividends and discretionary bonuses to officers if a bank fails to~~ maintain required capital levels. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. We believe as of ~~September 30~~March 31, ~~2018~~2019 and December 31, ~~2017~~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 Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
September 30, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets)
Total Capital (to risk-weighted assets)		56,359	14.21	%		31,731	8.00	%	$	39,664	10.00	%
Consolidated	$	55,399	14.14	%	$	31,347	8.00	%		N/A	N/A
Tier I Capital (to risk-weighted assets)		51,960	13.10	%		23,798	6.00	%		31,731	8.00	%
Citizens First Bank, Inc.		54,355	13.88	%		31,332	8.00	%	$	39,165	10.00	%
Common Equity Tier I Capital (to risk-weighted assets)		51,960	13.10	%		17,849	4.50	%		25,781	6.50	%
Tier I Capital (to Risk-Weighted Assets)
Tier I Leverage Capital (to average assets)		51,960	11.17	%		18,606	4.00	%		23,257	5.0	%
Consolidated		50,624	12.92	%		23,511	6.00	%		N/A	N/A
Citizens First Bank, Inc.		49,579	12.66	%		23,499	6.00	%		31,332	8.00	%
Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		45,624	11.64	%		17,633	4.50	%		N/A	N/A
Citizens First Bank, Inc.		49,579	12.66	%		17,624	4.50	%		25,457	6.50	%
Tier I Leverage Capital to average assets
Consolidated		50,624	10.58	%		19,141	4.00	%		N/A	N/A
Citizens First Bank, Inc.		49,579	10.35	%		19,168	4.00	%		23,960	5.0	%

	(Dollars in Thousands)
									To Be Well Capitalized
					For Capital Adequacy				Under Prompt Corrective
	Actual				Purposes (1)				Action Provisions
December 31, 2017	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk-Weighted Assets)
Total Capital (to risk-weighted assets)		55,115	14.03	%		31,424	8.00	%	$	39,280	10.00	%
Consolidated	$	51,988	13.07	%	$	31,823	8.00	%		N/A	N/A
Tier I Capital (to risk-weighted assets)		50,742	12.92	%		23,568	6.00	%		31,424	8.00	%
Citizens First Bank, Inc.		51,112	12.86	%		31,802	8.00	%	$	39,753	10.00	%
Common Equity Tier I Capital (to risk-weighted assets)		50,742	12.92	%		17,676	4.50	%		25,532	6.50	%
Tier I Capital (to Risk-Weighted Assets)
Tier I Leverage Capital (to average assets)		50,742	10.82	%		18,764	4.00	%		23,455	5.0	%
Consolidated		47,264	11.88	%		23,867	6.00	%		N/A	N/A
Citizens First Bank, Inc.		46,388	11.67	%		23,852	6.00	%		31,802	8.00	%
Common Equity Tier I Capital (to Risk-Weighted Assets)
Consolidated		42,502	10.68	%		17,900	4.50	%		N/A	N/A
Citizens First Bank, Inc.		46,388	11.67	%		17,889	4.50	%		25,839	6.50	%
Tier I Leverage Capital to average assets
Consolidated		47,264	10.31	%		18,343	4.00	%		N/A	N/A
Citizens First Bank, Inc.		46,388	10.14	%		18,301	4.00	%		22,876	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%.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

At ~~September 30~~March 31, ~~2018~~2019, the ~~table~~model ~~below~~indicated ~~provides~~that anif ~~assessment~~rates ofwere ~~the~~to ~~risk~~increase toby ~~net~~200 ~~interest~~basis ~~income~~points ~~over~~during the ~~next~~remainder ~~twelve~~of ~~months in~~ the ~~event~~calendar ofyear, athen ~~sudden~~net ~~and~~interest ~~sustained~~income would increase or11.57% ~~decrease~~over inthe ~~prevailing~~next ~~interest~~twelve ~~rates~~months. The ~~projected~~model ~~changes in net interest income are~~ indicated bythat ~~the~~if ~~model for increases in~~ rates upwere to ~~400~~decrease by 200 basis points ~~and~~over ~~decreases~~the insame ~~rates~~period, tothen ~~200~~net ~~basis~~interest ~~points~~income ~~(dollars~~would indecrease ~~thousands)~~10. 90%. The

~~Projections for: October 2018 - September 2019~~31

Projected			Net Interest Income
Interest Rate			$ Change From		% Change From
Change	Estimated Value		Base		Base
+400	$	20,062	$	3,407	20.46	%
+300		19,434		2,779	16.69	%
+200		18,652		1,997	11.99	%
Base		16,655		—	—	%
-200		14,513		(2,141)	(12.86)	%

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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 ~~September 30~~March 31, ~~2018~~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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