Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CZFC > SEC Filings for CZFC > Form 10-K on 25-Mar-2014All Recent SEC Filings

Show all filings for CITIZENS FIRST CORP

Form 10-K for CITIZENS FIRST CORP


25-Mar-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with Item 8 "Financial Statements" as well as other information included in this Form 10-K.

Overview of 2013

Significant developments for the year ended December 31, 2013 were:

Net income decreased $1.4 million, or $0.59 per diluted common share, from a net income of $3.2 million in 2012 to $1.8 million in 2013. Net income declined primarily due to an increase in the provision for loan losses of $1.0 million, a decline in net interest income of $494,000, and an increase in non-interest expense of $546,000.

Net interest margin decreased to 3.91% for 2013 compared to 4.20% for 2012 as interest income decreased farther than our reduction of interest expense. Higher levels of non-performing assets during the first three quarters of 2013, as well as the rates we earned on loans and investments contributed to the decline in interest income.

Nonperforming assets decreased to $2.0 million at December 31, 2013 compared to $6.3 million at December 31, 2012. Nonperforming assets reached a peak of $10.9 million at March 31, 2013. Net charge-offs for 2013 totaled $3.7 million compared to $1.8 million in 2012.

On January 15, 2014, the Company repurchased the remaining 93 shares of the Series A Fixed Rate Cumulative Perpetual Preferred (CPP) Stock that the Company had issued to the Treasury on December 19, 2008 under the TARP Capital Purchase Program of the Emergency Economic Stabilization Act of 2008. The Company had previously repurchased 157 shares of the original 250 shares issued. The Company paid approximately $3.3 million, which was 100% of par value, to repurchase the preferred shares along with the accrued dividend for the shares repurchased. The preferred dividend rate was scheduled to increase from 5% to 9% during 2014, which would have resulted in preferred dividends of $294,000 annually. The warrants associated with the CPP investment remain outstanding at the present time.

Application of Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles and follow general practices within the


Table of Contents

financial services industry. The most significant accounting policies followed by the Company are presented in Note 1 to the Consolidated Financial Statements. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses, the evaluation of our goodwill and other intangible assets, and our valuation of deferred tax assets to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

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 or underlying collateral values 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 loan portfolio also represents the largest asset type on the consolidated balance sheet. Note 1 to the Consolidated Financial Statements describes the methodology used to determine the allowance for loan losses, and a discussion of the factors driving changes in the amount of the allowance for loan losses is included under "Credit Quality and the Allowance for Loan Losses" below.

Goodwill and Other Intangibles

Management is required to assess goodwill and other intangible assets annually for impairment or more often if certain factors are identified which could imply potential impairment. This assessment involves preparing analyses of market multiples for similar operations, and estimating the fair value of the reporting unit to which the goodwill is allocated. If the analysis results in an estimate of fair value materially less than the carrying value we would be required to take a charge against earnings to write down the asset to the lower fair value. Based on management's assessment completed with the help of an outside valuation firm, we believe our goodwill of $4.1 million and other identifiable intangibles of $665,000 are not impaired and are properly recorded in the consolidated financial statements as of December 31, 2013.

Valuation of Deferred Tax Asset

We evaluate deferred tax assets quarterly. We will realize this asset to the extent we are profitable or able to carry back tax losses to periods in which we paid income taxes. Our determination of the realization of the deferred tax asset will be based upon management's judgment of various future events and uncertainties, including the timing and amount of future income we will earn and the implementation of various tax planning strategies to maximize realization of the deferred tax assets. Management


Table of Contents

believes we will generate sufficient operating earnings to realize the deferred tax asset. Examinations of our income tax returns or changes in tax law may impact the tax liabilities and resulting provisions for income taxes.

Results of Operations

Net Interest Income

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

For the year ended December 31, 2013, net interest income was $14.6 million, a decrease of $494,000 or 3.3%, from net interest income of $15.1 million in 2012. The net interest margin in 2013 was 3.91%, compared to 4.20% in 2012. The decrease of 29 basis points in the net interest margin resulted primarily from a decrease in loan income partially offset by a decrease in interest expense. The prime rate remained stable throughout 2013 and 2012 at 3.25%.

Net Interest Analysis Summary



                                               2013   2012
Average yield on interest earning assets       4.68 % 5.13 %
Average rate on interest bearing liabilities   0.89 % 1.08 %
Net interest spread                            3.79 % 4.05 %
Net interest margin                            3.91 % 4.20 %

Our average interest-earning assets were $382.0 million for 2013, compared with $367.4 million for 2012, a 4.0% increase primarily attributable to an increase in federal funds sold. Average fed funds sold were $26.6 million for 2013, compared with $16.0 million for 2012, a 66.3% increase. Average loans were $304.0 million for 2013, compared with $301.3 million for 2012, a 0.9% increase. Our total interest income on a tax-equivalent basis decreased 5.3% to $17.9 million for 2013, compared with $18.9 million for 2012. The change was due primarily to decreased average yields on interest-earning assets.

Our average interest-bearing liabilities increased by 3.5% to $331.8 million for 2013, compared with $320.5 million for 2012. Our total interest expense decreased 14.2% to $3.0 million for 2013, compared with $3.5 million during 2012. The change was due primarily to a decrease in the rates of time deposits. The average interest rate paid on time deposits decreased to 1.10% for 2013, compared with 1.48% for 2012. The cost of


Table of Contents

funds in total decreased from 1.08% in 2012 to .89% in 2013. The decrease in cost of funds was the result of the continued repricing of certificates of deposit at maturity at lower interest rates.

The following table sets forth for the years ended December 31, 2013 and 2012 information regarding average balances of assets and liabilities as well as the amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs. We have calculated the yields and costs for the periods indicated by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented.


Table of Contents

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

Year Ended December 31,

                                      2013                                2012
                         Average      Income/    Average     Average      Income/    Average
                         Balance      Expense      Rate      Balance      Expense      Rate
Interest-earning
assets:
Federal funds sold
and other               $   26,628   $      60       0.23 % $   15,961   $      42       0.26 %
Available-for-sale
securities: (1)
Taxable                     29,803         433       1.45 %     29,988         510       1.70 %
Nontaxable(1)               19,559         997       5.10 %     18,114         994       5.49 %
FHLB stock                   2,025          85       4.18 %      2,025          90       4.44 %
Loans receivable (2)       303,977      16,306       5.36 %    301,292      17,227       5.72 %
                Total
     interest-earning
               assets      381,992      17,881       4.68 %    367,380      18,863       5.13 %
Non-interest earning
assets                      32,761                              35,578
         Total assets   $  414,753                          $  402,958
Interest-bearing
liabilities:
Interest-bearing
transaction accounts    $   82,760         340       0.41 % $   73,442         187       0.25 %
Savings accounts            38,024         111       0.29 %     38,780         140       0.36 %
Time deposits              179,351       1,974       1.10 %    175,623       2,594       1.48 %
                Total
     interest-bearing
             deposits      300,135       2,425       0.81 %    287,845       2,921       1.01 %
Borrowed funds              26,686         437       1.64 %     27,649         422       1.53 %
Subordinated
debentures                   5,000          98       1.95 %      5,000         107       2.14 %
Total
interest-bearing
liabilities                331,821       2,960       0.89 %    320,494       3,450       1.08 %
Non-interest bearing
liabilities:
 Non-interest bearing
             deposits       42,159                              39,806
Other liabilities            2,049                               2,204
Total liabilities          376,029                             362,504
 Shareholders' equity       38,724                              40,454
Total liabilities and
 shareholders' equity   $  414,753                          $  402,958
  Net interest income                $  14,921                           $  15,413
Net interest spread
(1)                                                  3.79 %                              4.05 %
Net interest margin
(1) (3)                                              3.91 %                              4.20 %
Return on average
assets ratio                                         0.44 %                              0.79 %
Return on average
equity ratio                                         4.75 %                              7.84 %
Equity to assets
ratio                                                9.34 %                             10.04 %


Table of Contents



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

(2) Average loans include nonperforming loans. Interest income includes interest and fees on loans, but does not include interest on loans 90 days or more past due.

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

Rate/Volume Analysis

Net interest income can be analyzed in terms of the impact of changing interest rates and changing volumes. The following table sets forth the effect which the varying levels of interest earning assets and interest bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented. Changes in rate-volume are proportionately allocated between rate and volume variances.

                                                             (Dollars in Thousands)
                                                        Twelve Months Ended December 31,
                                                                  2013 Vs. 2012
                                                   Increase (Decrease) Due to
                                                      Rate              Volume            Net
Interest-earning assets:
Federal funds sold                              $            (10 )   $         28     $        18
Available-for-sale-securities:
Taxable                                                      (74 )             (3 )           (77 )
Nontaxable (1)                                               (76 )             79               3
FHLB stock                                                    (5 )              -              (5 )
Loans, net                                                (1,075 )            154            (921 )
               Total net change in income on
                     interest-earning assets              (1,240 )            258            (982 )
Interest-bearing liabilities:
Interest-bearing transaction accounts                        129               24             153
Savings accounts                                             (26 )             (3 )           (29 )
Time deposits                                               (675 )             55            (620 )
Federal funds purchased                                        -                -               -
FHLB borrowings                                               30              (15 )            15
Notes payable                                                  -                -               -
Subordinated debentures                                       (9 )              -              (9 )
Total net change in expense on
interest-bearing liabilities                                (551 )             61            (490 )
           Net change in net interest income    $           (689 )   $        197     $      (492 )
                           Percentage change              139.91 %         (39.91 )%        100.0 %



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

Provision for Loan Losses

The provision for loan losses for 2013 was $2.7 million, or 0.89% of average loans, compared to a provision of $1.7 million, or 0.56% of average loans during 2012. We had net charge-offs totaling $3.7 million during 2013, compared to $1.8 million during 2012. The provision expense is higher for 2013 due to the increased level of charged-off loans. During the third quarter of 2013, the real estate securing our largest non-performing asset, a $3.8 million commercial real estate loan, was sold at auction to a third party for $2.5 million less selling costs. The deficiency resulted in a charge-off of $1.6 million in the third quarter of 2013, which was larger than previously estimated. The provision for loan losses adequately supports the loans that were not previously


Table of Contents

provided for, loans that required adjustment in the amount provided for due to current conditions, and other impaired loans that required specific allocations.

Non-interest Income

Non-interest income totaled $3.0 million in 2013, compared to $3.0 million in 2012. The Company had $64,000 in gains on the sale of available-for-sale securities for 2013 compared to $55,000 for 2012. Service charges on deposit accounts decreased $93,000 during 2013, while private banking fees increased by $100,000 during 2013. The following table shows the detailed components of non-interest income:

                                                              (Dollars in Thousands)
                                                                                    Increase
                                                        2013           2012        (Decrease)
Service charges on deposit accounts                  $     1,272    $    1,365    $        (93 )
Other non-interest income                                    585           529              56
Gain on the sale of mortgage loans held for sale             277           301             (24 )
Bank owned life insurance                                    219           263             (44 )
Non-deposit brokerage fees                                   306           206             100
Gain on the sale of available-for-sale securities             64            55               9
Lease income                                                 298           279              19
                                                     $     3,021    $    2,998    $         23

Non-interest Expense

Non-interest expense increased 4.5%, or $546,000, from $12.1 million in 2012 to $12.6 million in 2013. Data processing services increased $167,000 from 2012 to 2013. Other operating expenses increased $468,000 from 2012 to 2013 primarily due to collection expenses.

The increases and decreases in expense in 2013 by major categories are as follows:

                                              (Dollars in Thousands)
                                                                 Increase
                                          2013        2012      (Decrease)
Salaries and employee benefits         $    5,659   $  5,718   $        (59 )
Net occupancy expense                       1,910      1,918             (8 )
Advertising and public relations              323        352            (29 )
Professional and legal                        680        627             53
Data processing services                    1,083        916            167
FDIC insurance                                380        314             66
Franchise shares and deposit tax              573        548             25
Postage and office supplies                   151        189            (38 )
Telephone and other communication             175        171              4
Other real estate owned expenses               84        170            (86 )
Core deposit intangible amortization          332        349            (17 )
Other                                       1,251        783            468
                               Total   $   12,601   $ 12,055   $        546


Table of Contents

Income Taxes

Income tax expense was calculated using the Company's expected effective rate for 2013 and 2012. We have recognized deferred tax liabilities and assets to show the tax effects of differences between the financial statement and tax bases of assets and liabilities. Our statutory federal tax rate was 34.0% in both 2013 and 2012. The effective tax rate for 2013 was 21.9%, compared to 26.6% for 2012. The difference between the statutory and effective rates are impacted by such factors as income from tax-exempt loans, tax-exempt income on state and municipal securities, and income on bank owned life insurance.

Balance Sheet Review

Our assets at year end 2013 totaled $410.2 million, compared with $406.6 million at December 31, 2012, an increase of $3.6 million, or 0.89%. Average interest earning assets increased 4.0% or $14.6 million in 2013, from $367.4 million in 2012 to $382.0 million in 2013.

Loans

Total loans averaged $304.0 million in 2013, compared to $301.3 million in 2012. At year-end 2013, loans totaled $295.1 million, compared to $298.8 million at year-end 2012, a decrease of $3.7 million, or 1.2%. We experienced declines in the commercial, residential real estate, and consumer segments of our loan portfolio, while increasing the commercial real estate segment. The following table presents a summary of the loan portfolio by category:

                                        (Dollars in Thousands)
                               December 31, 2013      December 31, 2012
                                             % of                   % of
                                            Total                  Total
                                            Loans                  Loans
Commercial and agricultural   $    45,254    15.34 % $    49,535    16.58 %
Commercial real estate            170,027    57.62 %     164,647    55.11 %
Residential real estate            74,040    25.09 %      77,356    25.89 %
Consumer                            5,747     1.95 %       7,216     2.42 %
                              $   295,068   100.00 % $   298,754   100.00 %

Our commercial real estate loans include financing for industrial developments, residential developments, retail shopping centers, industrial buildings, restaurants, and hotels. The percentage distribution of our loans by industry as of December 31, 2013 and 2012 is shown in the following table:


Table of Contents

                                                              2013         2012
Agriculture, forestry, and fishing                              11.51 %      11.11 %
Mining                                                           0.00 %       0.00 %
Construction                                                     8.07 %       6.44 %
Manufacturing                                                    3.95 %       3.96 %
Transportation, communication, electric, gas, and
sanitary services                                                3.37 %       4.62 %
Wholesale trade                                                  1.68 %       1.67 %
Retail trade                                                     5.31 %       7.69 %
Finance, insurance, and real estate                             27.08 %      17.22 %
Services                                                        18.57 %      19.09 %
Public administration                                            0.19 %       0.07 %
             Total commercial and commercial real estate        79.73 %      71.87 %
Residential real estate loans                                   18.58 %      25.92 %
Other consumer loans                                             1.69 %       2.21 %
                                             Total loans       100.00 %     100.00 %

The majority of our loans are to customers located in south central Kentucky and central Tennessee. As of December 31, 2013, the Company's 20 largest credit relationships consisted of loans and loan commitments ranging from $3.6 million to $10.2 million. The aggregate amount of these credit relationships was $87.7 million, with total commitments of $96.3 million.

Our lending activities are subject to a variety of lending limits imposed by state and federal law. Citizens First Bank's secured legal lending limit to a single borrower was approximately $12.5 million at December 31, 2013.

As of December 31, 2013, we had $19.7 million of participations in loans purchased from, and $5.3 million of participations in loans sold to, other banks. As of December 31, 2012, we had $26.6 million of participations in loans purchased from, and $7.4 million of participations in loans sold to, other banks.

The following table sets forth the maturity distribution of our loan portfolio as of December 31, 2013. Maturities are based upon contractual terms. Our policy is to specifically review and approve all loans renewed; loans are not automatically rolled over.


Table of Contents

                                              (Dollars in Thousands)
                                              After One
Loan Maturities                Within One     but Within      After Five
as of December 31, 2013           Year        Five Years        Years         Total
Commercial and agricultural   $     15,998   $      25,561   $      3,695   $  45,254
Commercial real estate              24,023          91,205         54,799     170,027
Residential real estate              6,514          28,914         38,612      74,040
Consumer                             1,423           4,205            119       5,747
                      Total   $     47,958   $     149,885   $     97,225   $ 295,068

The table below presents loans outstanding as of December 31, 2013 with maturities greater than one year categorized by fixed and variable interest rates:

                                          (Dollars in
As of December 31, 2013                    Thousands)
Fixed Rate                               $      165,122
Variable Rate                                    81,988
Total maturities greater than one year   $      247,110

Asset and Liability Management

We manage our assets and liabilities to provide a consistent level of liquidity to accommodate normal fluctuations in loans and deposits. The yield on approximately 33.6% of our earning assets as of December 31, 2013, adjusts simultaneously with changes in an external index, primarily the highest prime rate as quoted in the Wall Street Journal. A majority of our interest bearing . . .

  Add CZFC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CZFC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.