<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
-------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
--------------- -----------
Commission file number 333-07914
----------------
CITIZENS EFFINGHAM BANCSHARES, INC.
-----------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
GEORGIA 58-2357619
- ------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
802 South Laurel Street
Post Office Box 379
Springfield, Georgia 31329
--------------------------
(Address of Principal Executive Offices)
(912) 754-0754
--------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: Common Stock $1 par
value, 512,000 shares outstanding at March 31, 2000
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
Citizens Effingham Bancshares, Inc.
and Subsidiary
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are provided for Citizens Effingham
Bancshares, Inc. and the subsidiary bank, Citizens Bank of Effingham.
Consolidated Balance Sheets (unaudited) - March 31, 2000 and
December 31, 1999. 2
Consolidated Statements of Income (unaudited) - For the Three Months
Ended March 31, 2000 and 1999. 3
Consolidated Statements of Cash Flows (unaudited) - For the Three Months
Ended March 31, 2000 and 1999. 4
Notes to Consolidated Financial Statements (unaudited) 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II: OTHER INFORMATION 10
</TABLE>
The consolidated financial statements furnished have not been examined by
independent certified public accountants, but reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the results of
operations for the periods presented.
The results of operations for the three-month period ended March 31, 2000 are
not necessarily indicative of the results to be expected for the full year.
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<PAGE> 3
CITIZENS EFFINGHAM BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
March 31, December 31,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
Cash and due from banks $ 1,740,806 $ 2,787,749
Federal funds sold 4,250,000 2,410,000
------------ ------------
Total cash and cash equivalents 5,990,806 5,197,749
------------ ------------
Securities available for sale, at fair value 3,105,814 2,610,742
Loans, net of unearned income 37,759,351 33,579,810
Less-allowance for loan losses (507,440) (481,035)
------------ ------------
Loans, net 37,251,911 33,098,775
------------ ------------
Bank premises and equipment, less accumulated depreciation 1,908,002 1,935,866
Accrued interest receivable 406,105 366,567
Other assets and accrued income 255,529 261,224
------------ ------------
TOTAL ASSETS $ 48,918,167 $ 43,470,923
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing demand $ 4,704,532 $ 4,843,875
Interest-bearing demand 38,966,566 33,646,248
------------ ------------
Total deposits 43,671,098 38,490,123
Other liabilities and accrued expenses 289,964 219,423
------------ ------------
Total liabilities 43,961,062 38,709,546
------------ ------------
Shareholders' Equity
Common stock, $1 par value, authorized 20,000,000 shares, issued
and outstanding 512,000 shares 512,000 512,000
Paid-in capital surplus 4,608,000 4,608,000
Retained earnings (accumulated deficit) 113,879 (84,269)
Deficit accumulated during development stage (220,645) (220,645)
Accumulated other comprehensive income (56,129) (53,709)
------------ ------------
Total shareholders' equity 4,957,105 4,761,377
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 48,918,167 $ 43,470,923
============ ============
</TABLE>
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<PAGE> 4
CITIZENS EFFINGHAM BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
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<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $923,735 $ 401,529
Income on federal funds sold 33,177 41,198
Interest on securities 39,344 11,838
-------- ---------
Total interest income 996,256 454,565
-------- ---------
INTEREST EXPENSE:
Interest on NOW and money market deposits 101,112 56,911
Interest on savings deposits 3,839 1,592
Interest on time deposits 326,208 139,346
-------- ---------
Total interest expense 431,159 197,849
-------- ---------
Net interest income before loan losses 565,097 256,716
Less - provision for loan losses 51,000 110,000
-------- ---------
Net interest income after provision for loan losses 514,097 146,716
-------- ---------
OTHER OPERATING INCOME:
Service charges on deposit accounts 57,108 18,037
Other service charges, commissions and fees 16,089 14,432
Other income 269 20
-------- ---------
Total other operating income 73,466 32,489
-------- ---------
OTHER OPERATING EXPENSE:
Salaries 149,167 128,365
Employee benefits 20,227 20,279
Net occupancy expenses 29,858 45,319
Equipment rental and depreciation of equipment 41,049 10,844
Other expenses 92,596 74,010
-------- ---------
Total other operating expenses 332,897 278,817
-------- ---------
INCOME BEFORE INCOME TAXES 254,666 (99,612)
Income tax provision 45,000 --
-------- ---------
Net Income $209,666 $ (99,612)
======== =========
INCOME PER SHARE* $ 0.41 $ (0.19)
======== =========
</TABLE>
* Net Income (Loss)/weighted average outstanding shares of 512,000.
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<PAGE> 5
CITIZENS EFFINGHAM BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 209,666 $ (99,612)
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 51,000 110,000
Depreciation 31,563 25,146
Changes in accrued income and other assets (33,843) (106,656)
Changes in accrued expenses and other liabilities 50,268 206,396
----------- -----------
Net cash provided by operating activities 308,654 135,274
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in loans made to customers (4,204,136) (7,540,639)
Purchase of securities available for sale (497,492) (1,509,337)
Purchases of property and equipment (3,699) (35,105)
----------- -----------
Net cash used in investing activities (4,705,327) (9,085,081)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand and savings account 2,588,110 809,774
Net change in other time deposits 2,601,620 6,699,958
----------- -----------
Net cash provided by financing activities 5,189,730 7,509,732
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 793,057 (1,440,075)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,197,749 5,523,185
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,990,806 $ 4,083,110
=========== ===========
SUPPLEMENT CASH FLOW INFORMATION:
Cash paid for interest $ 411,966 $ 100,355
=========== ===========
Cash paid for income taxes $ 2,586 $ --
=========== ===========
</TABLE>
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<PAGE> 6
Citizens Effingham Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
================================================================================
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information, and with the instructions to Form
10-QSB and Item 310 (b) of Regulation S-B of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2000, are
not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. For further information refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1999.
(2) NEW AND PENDING PRONOUNCEMENTS
During 1999, the Company adopted FASB Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities". The
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities.
During 1998, the Company adopted FASB Statement No. 130,
"Reporting Comprehensive Income." The statement requires the reporting
of comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net
income.
(3) OTHER COMPREHENSIVE INCOME
During the three months ended March 31, 2000, the Company had
unrealized holding gains on investment securities which were reported
as comprehensive income. An analysis of accumulated other comprehensive
income since December 31, 1999 follows:
<TABLE>
<S> <C>
Accumulated other comprehensive income at December 31, 1999 $53,709
Other comprehensive income, net of tax:
Change in unrealized gain (loss)
on securities available for sale, net
of deferred income tax benefit of $28,915 2,420
Less: Reclassification adjustment for (gains) losses
realized in net income --
-------
2,420
-------
Accumulated other comprehensive income at March 31, 2000 $56,129
=======
</TABLE>
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<PAGE> 7
Citizens Effingham Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
================================================================================
(4) SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses greater than 1% of
total interest income and other income for the periods ended March 31,
2000 and 1999 are:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------- ------
<S> <C> <C>
Data Processing $15,121 $5,750
Supplies/Printing $10,474 $7,852
Telephone and communications $ 6,416 $5,870
</TABLE>
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<PAGE> 8
Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Three Months in the Period Ended
March 31, 2000 and 1999
================================================================================
INTERIM FINANCIAL CONDITION
Citizens Effingham Bancshares, Inc. (the "Company") reported total
assets of $48,918,167 as of March 31, 2000, compared to $43,470,923 at December
31, 1999. The most significant change in the composition of assets was an
increase in net loans from $33,098,775 to $37,251,911. There was also
investments purchased during the first quarter whose market value total at March
31, 2000 was $497,534.
LIQUIDITY
The Bank's liquid assets as a percentage of total deposits were 13.7%
at March 31, 2000, compared to 13.5% at December 31, 1999. The Company has
approximately $2,250,000 in available federal fund lines of credit with
correspondent banks. However, the Company has not advanced on these lines during
2000. At least monthly, management analyzes the level of off-balance sheet
commitments such as unfunded loan equivalents, loan repayments, maturity of
investment securities, liquid investment, and available fund lines in an attempt
to minimize the possibility that a potential shortfall will exist.
CAPITAL
The capital of the Company totaled $4,957,105 as of March 31, 2000. The
capital of the Company and the Bank exceeded all prescribed regulatory capital
guidelines. Regulations require that the most highly rated banks maintain a Tier
1 leverage ratio of 3% plus an additional cushion of at least 1 to 2 percentage
points. Tier 1 capital consists of common shareholders' equity, less certain
intangibles. The Bank's Tier 1 leverage ratio was 11.0% at March 31, 2000,
compared to 11.9% at December 31, 1999. Regulations require that the Bank
maintain a minimum total risk weighted capital ratio of 8%, with one-half of
this amount, or 4%, made up of Tier 1 capital. Risk-weighted assets consist of
balance sheet assets adjusted by risk category, and off-balance sheet assets or
equivalents similarly adjusted. At March 31, 2000, the Bank had a risk-weighted
total capital ratio of 14.1% compared to 14.5% at December 31, 1999, and a Tier
I risk-weighted capital ratio of 12.8%, compared to 13.3% at December 31, 1999.
The decrease is primarily caused by the continued growth in the loans.
ASSET QUALITY
Nonperforming assets which includes nonaccruing loans, repossessed
collateral and loans for which payments are more than 90 days past due totaled
$110,827, an increase of $21,191 from December 31, 1999. There were no related
party loans which were considered nonperforming at March 31, 2000. The
composition of the nonperforming assets is presented in the following table:
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<PAGE> 9
Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Three Months in the Period Ended
March 31, 2000 and 1999
================================================================================
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------- --------
<S> <C> <C>
Loans on nonaccrual $13,393 $ --
Loans greater than 90 days past due 15,656 --
Other real estate owned -- --
Other repossessed collateral -- --
------- --------
Total nonperforming assets $29,049 $ --
======= ========
Total nonperforming assets as a percentage
of total loans (gross) and other real estate 0.07% 0.30%
---- ----
</TABLE>
The allowance for loan losses totaled $507,440 at March 31, 2000, a net
increase of $26,405 from December 31, 1999. The allowance for loan losses
represented 1.3% and 1.4% of total loans at March 31, 2000 and December 31,
1999, respectively. An analysis of the allowance for loan losses since December
31, 1999 follows:
<TABLE>
<S> <C>
Allowance for loan losses at December 31, 1999 $481,035
Charge-offs:
Commercial --
Real Estate --
Installment 25,036
--------
Total 25,036
--------
Recoveries:
Commercial --
Real Estate --
Installment 441
--------
Total 441
--------
Provision charged to income 51,000
--------
Allowance for loan losses at March 31, 2000 $507,440
========
</TABLE>
The loan portfolio is reviewed periodically to evaluate the outstanding
loans and to measure the performance of the portfolio and the adequacy of the
allowance for loan losses. This analysis includes a review of delinquency
trends, actual losses, and internal credit ratings. Management's judgment as to
the adequacy of the allowance is based upon a number of assumptions about future
events which it believes to be reasonable, but which may or may
-8-
<PAGE> 10
Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Three Months in the Period Ended
March 31, 2000 and 1999
================================================================================
not be reasonable. However, because of the inherent uncertainty of assumptions
made during the evaluation process, there can be no assurance that loan losses
in future periods will not exceed the allowance for loan losses of that
additional allocations to the allowance will not be required.
The Bank was most recently examined by its primary regulatory authority
in March 1999. There were no recommendations by the regulatory authority that in
management's opinion will have material effects on the Bank's liquidity, capital
resources or operations.
INVESTMENT SECURITIES
At March 31, 2000, the Bank had $3,105,814 in investment securities
available-for-sale. The net unrealized loss on available for sale securities,
net of deferred taxes, was $56,129 on March 31, 2000. During the period ended
March 31, 2000, there were no maturities and calls of investment.
RESULTS OF OPERATIONS
Net interest income for the first three months of 2000 was $514,097,
and increase of $367,381 (71.4%) compared to the same period for 1999. Interest
income for the first three months of 2000 was $996,256, representing an increase
of $541,691 (54.3%) over the same period in 1999. The increase in interest
income was due to an increase in total loans outstanding as a result of the
Company's growth. The Company opened for business in September 1998. Interest
expense for the first three months of 2000 increased $233,310 (54.1%) compared
to the same period in 1999. The increase in interest expense is primarily due to
an increase in interest bearing deposits since the Company opened for
operations.
Amounts charged to expense related to the allowance for loan losses for
the first three months of 2000 and 1999 were $51,000 and $110,000, respectively.
Other operating income for the first three months of 2000 was $73,466,
an increase of $40,977 (55.7%) compared to the same period in 1999. The increase
in service charges on deposit accounts of $39,071 (68%) is due to an increase in
the number of accounts and deposit activity.
Other operating expenses for the first three months of 2000 were
$332,897, an increase of $54,080 (16.2%) compared to the same period for 1999.
The increase is primarily attributable to an increase of employee salaries and
benefits of $20,750 and an increase in equipment rental and depreciation of
$30,205.
-9-
<PAGE> 11
Citizens Effingham Bancshares, Inc.
and Subsidiary
================================================================================
PART II: OTHER INFORMATION:
Item 1. Legal Proceedings
There are no material legal proceedings to which the Company is a party or
of which their property is the subject.
Item 2. Changes in Securities
(a) Not Applicable
(b) Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security-Holders
There were no matters submitted to security holders for a vote during the
three months ended March 31, 2000.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits - 27.1 Financial Data Schedule (for SEC use only)
B. There have been no reports filed on form 8-K for the three months ended
March 31, 2000.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Citizens Effingham Bancshares, Inc.
/s/Harry H. Shearouse
- -----------------------
Harry H. Shearouse
President/Chief Executive Officer
Date: May 8, 2000
-10-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> DEC-31-2000
<CASH> 1,740,806
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,105,814
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 33,759,351
<ALLOWANCE> 507,440
<TOTAL-ASSETS> 48,918,167
<DEPOSITS> 43,671,098
<SHORT-TERM> 0
<LIABILITIES-OTHER> 289,964
<LONG-TERM> 0
0
0
<COMMON> 512,000
<OTHER-SE> 4,445,105
<TOTAL-LIABILITIES-AND-EQUITY> 48,918,167
<INTEREST-LOAN> 923,735
<INTEREST-INVEST> 39,344
<INTEREST-OTHER> 33,177
<INTEREST-TOTAL> 996,256
<INTEREST-DEPOSIT> 431,159
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 565,097
<LOAN-LOSSES> 51,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 332,897
<INCOME-PRETAX> 254,666
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209,666
<EPS-BASIC> .41
<EPS-DILUTED> .41
<YIELD-ACTUAL> 4.7
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 481,035
<CHARGE-OFFS> 25,036
<RECOVERIES> 441
<ALLOWANCE-CLOSE> 507,440
<ALLOWANCE-DOMESTIC> 507,440
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
