SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
(x) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
For the transition period from to
Commission file number 0-12425
CITIZENS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-0759135
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 598
Ville Platte, Louisiana 70586-0598
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (318) 363-5643
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class: on which registered:
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $5.00 par value per share
(Title of Class)
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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10 -KSB.(x)
State issuer's revenues for its most recent year. $ 7,706,000
State the aggregate market value of the voting stock held by non-
affiliates* of the Registrant as of March 15, 1998 (based on $40.00
per share).
$1,790,640
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock as of the latest practicable date.
Common Stock, $5.00 par value, 115,000 shares outstanding as of March
15, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-KSB
Documents Incorporated into which Incorporated
Definitive Proxy Statement Part III
for the 1998 Annual
Meeting of Shareholders
1997 Annual Report to Shareholders Part II
*For the purposes of this computation only, shares held by directors,
executive officers, and principal shareholders have been excluded.
Transitional Small Business Disclosure Format: yes no x
FORM 10-KSB CROSS REFERENCE INDEX
PART I PAGE
ITEM 1 BUSINESS....................................................4
SUPPLEMENTAL FINANCIAL INFORMATION:
INVESTMENT SECURITIES.......................................7
LOANS.......................................................8
LOAN MATURITY AND INTEREST RATE SENSITIVITY.................8
INTEREST RATE SENSITIVITY AND LIQUIDITY.....................9
RISK ELEMENTS..............................................10
ALLOWANCE FOR POSSIBLE LOAN LOSSES.........................11
DEPOSITS...................................................13
RETURN ON EQUITY AND ASSETS................................13
RATE/VOLUME ANALYSIS.......................................14
AVERAGE BALANCE SHEETS AND NET INTEREST YIELD ANALYSIS.....15
ITEM 2 PROPERTIES.................................................16
ITEM 3 LEGAL PROCEEDINGS..........................................16
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........16
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................17
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.........................*
ITEM 7 FINANCIAL STATEMENTS .......................................*
CONSOLIDATED BALANCE SHEETS.................................*
CONSOLIDATED STATEMENTS OF INCOME...........................*
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................*
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY..*
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................*
REPORT OF INDEPENDENT AUDITORS..............................*
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................18
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........**
ITEM 10 EXECUTIVE COMPENSATION.....................................**
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.............................................**
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............**
PART IV
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K...........................18
SIGNATURES.................................................19
* INCORPORATED BY REFERENCE TO CITIZENS BANCSHARES, INC. ANNUAL REPORT
** INCORPORATED BY REFERENCE TO CITIZENS BANCSHARES, INC. PROXY
STATEMENT
PART I.
ITEM 1. BUSINESS
GENERAL
Citizens Bancshares, Inc. (the "Company") is a Louisiana business
corporation and a one-bank holding company registered under the federal
Bank Holding Company act of 1956. It was formed in 1983 primarily for
the purpose of holding all of the outstanding stock of Citizens Bank (the
"Bank"), which is the Company's sole subsidiary.
The Bank was formed in 1975 under the banking laws of the State of
Louisiana. The Bank conducts a general commercial banking business
through its main office at Ville Platte, Louisiana and branch offices
in Mamou, Louisiana, and Pine Prairie, Louisiana, all of which are in
Evangeline Parish, Louisiana. The Bank offers a full range of traditional
commercial banking services, including demand, savings and time deposits,
consumer, commercial and real estate loans, safe-deposit boxes and access
to two retail credit plans -- "VISA" and "MASTERCARD". The Bank does not
offer trust services. Drive-in banking facilities are located at all
banking locations.
COMPETITION
The Bank competes actively with national and state banks and savings and
loan institutions in Louisiana for all types of loans and deposits. The
Bank competes for loans with other financial institutions, such as
insurance companies, real estate investment trusts, savings and loans,
small loan companies, credit unions and certain government agencies.
There are 6 financial institutions in Evangeline Parish with a total of
12 banking offices.
EMPLOYEES
As of December 31, 1997, the Company and the Bank had approximately 38
full-time equivalent employees. The Company has no salaried employees,
although certain executive officers hold parallel positions with the Bank.
No employees are represented by unions or other bargaining units, and
management considers its relations with employees to be satisfactory.
SUPERVISION AND REGULATION
General
The Company and the Bank are extensively regulated under both federal and
state laws. To the extent that the following information describes
particular statutory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any
change in applicable law or regulation may have a material effect on the
business and prospects of the Company.
The Company
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Act"), and, as such, is
subject to the provisions of the Act and to regulation and supervision by
the Board of Governors of the Federal Reserve System (the "Board"). The
Company is required to file with the Board annual reports containing such
information as the Board may require pursuant to the Act and also is
subject to periodic examination by the Board.
Under the Act, a bank holding company may not acquire more than 5% of the
voting shares, or substantially all the assets, of any bank without the
prior approval of the Board.
The Act also limits, with certain exceptions, the business in which a bank
holding company may engage, directly or through subsidiaries, to banking,
managing or controlling banks, and furnishing or performing activities so
closely related to banking or managing or controlling banks as to be a
proper incident thereto. In determining whether a particular activity is
a proper incident to banking or managing or controlling banks, the Board
must consider whether its performance by an affiliate of a bank holding
company can reasonably be expected to produce benefits to the public, such
as greater convenience, increased competition or gains in efficiency that
outweigh possible adverse effects, such as undue concentrations of
resources, decreased or unfair competition, conflicts of interest or other
unsound banking practices.
The Board has adopted regulations implementing the provisions of
the Act with respect to the activities of bank holding companies. Whether
or not a particular non-banking activity is permitted under the Act, the
Board is authorized to require a bank holding company to terminate any
activity or to divest itself of any non-banking subsidiary if its actions
represent unsafe or unsound practices or violations of law.
Under the Act, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with the
extension of credit, the lease or sale of property or provision of any
services.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ( the
"1991 Act") subject bank holding companies as well as banks to
significantly increased regulation and supervision. Among other things,
the 1991 Act provides that undercapitalized institutions, as defined by
regulatory authorities, must submit recapitalization plans, and a parent
company of such an institution must either (1) guarantee the institution's
compliance with the capital plan, up to an amount equal to the lesser of
five percent of the institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan, or (2) suffer certain adverse
consequences such as a prohibition of dividends by the parent company to
its shareholders.
The Company is also subject to the Louisiana Bank Holding Company Act, as
amended (the "Louisiana Act") which, among other things, provides that a
bank holding company and its subsidiaries may not engage in any insurance
activity in which a bank may not engage. The Louisiana Commissioner of
Financial Institutions is authorized to administer the Louisiana Act and
to issue orders and regulations thereunder.
Federal and Louisiana laws provide for the enforcement of any pro-rata
assessment of shareholders of a bank to cover impairment of capital stock
by sale, to the extent necessary, of the stock of any assessed shareholder
failing to pay the assessment. The Company, as shareholder of the Bank,
is subject to these provisions.
The Bank
Both federal and state laws extensively regulate various aspects of the
banking business, including requirements regarding the maintenance of
reserves against deposits, limitations on the rates that can be charged on
loans or paid on deposits, branching and restrictions on the nature and
amounts of loans and investments that can be made.
As a state bank, the Bank is subject to the supervisory authority of the
Louisiana Commissioner of Financial Institutions, whose office conducts
periodic examinations of the Bank. As a federally insured bank, the Bank
is also subject to supervision and regulation by the Federal Deposit
Insurance Corporation (the "FDIC"). The foregoing regulation is primarily
intended to protect the Bank's creditors and depositors rather than the
Company's security holders.
Under certain circumstances, regulatory authorities may prohibit the
payment of dividends by a bank or its parent holding company.
The 1991 Act and regulations promulgated thereunder classify banks into
five categories generally relating to their regulatory capital ratios and
institute a system of supervisory actions indexed to a bank's particular
classification. Generally, banks that are classified as "well
capitalized," or "adequately capitalized" are not subject to the
supervisory actions specified in the 1991 Act for prompt corrective
action, but may be restricted from taking certain actions that will lower
their classification. Banks classified as "undercapitalized,"
significantly undercapitalized," or "critically undercapitalized" are
subject to restrictions in supervisory actions of increasing stringency
based on the level of classification.
Under present regulation, the Bank is "well capitalized." While such a
classification would exclude the Bank from the restrictions and actions
envisioned by the prompt corrective action provisions of the 1991 Act, the
regulatory agencies have broad powers under other provisions of federal
law that would permit them to place restrictions on the Bank or to take
other supervisory action regardless of such classification.
SUPPLEMENTAL FINANCIAL INFORMATION
Supplemental financial information for Citizens Bancshares, Inc. and
subsidiary is set forth below and on the following pages:
INVESTMENT SECURITIES
Maturities and weighted average yields on investments as of December 31,
1997 (in thousands of dollars):
Held-to-Maturity Available-for-Sale
U.S. Treasury Securities
Within 1 year $ 1,001 5.67% $ 897 5.48%
After 1 but within 5 years --- --- 1,313 5.70%
$ 1,001 5.67% $ 2,210 5.61%
U.S. Government Securities
Within 1 year 999 5.66% 7,099 6.53%
After 1 but within 5 years 400 5.94% 7,375 6.19%
$ 1,399 5.74% $14,474 6.36%
State and Political subdivisions
With 1 year 1,201 4.85% --- ---
After 1 but within 5 years 3,177 5.36% --- ---
After 5 but within 10 years 979 5.01% --- ---
$ 5,357 5.18% $ --- ---
Mortgage-backed securities 572 6.50% 8,632 6.14%
$ 8,329 5.42% $25,316 6.22%
The above weighted average yields on tax exempt obligations are not computed
on a tax equivalent basis. Yields on available-for-sale securities are
computed on historial amortized cost.
No securities of any single issuer which totaled 10% or more of shareholders
equity were held at December 31, 1997.
LOANS
A distribution of the loan portfolio at December 31, 1997 and 1996 is
summarized as follows (in thousands of dollars):
1997 1996
Commercial $10,020 21.76% $ 9,705 23.20%
Municipal --- 0.00% 22 0.05%
Real Estate - Mortgage 23,231 50.45% 20,425 48.83%
Agricultural 4,441 9.64% 3,895 9.31%
Consumer 9,760 21.19% 9,115 21.79%
Overdrafts 21 0.04% 17 0.04%
47,473 103.08% 43,179 103.22%
Unearned income (485) (1.05%) (488) (1.17%)
Allowance for possible loan loss (937) (2.03%) (859) (2.05%)
$46,051 100.00% $41,832 100.00%
LOAN MATURITY AND INTEREST RATE SENSITIVITY
Maturities of commercial and agricultural loans at December 31, 1997 are
summarized below (in thousands of dollars):
Over
One Year One to Over Five
Total or Less Five Yrs Years
Commercial $10,020 $6,315 $3,220 $ 485
Agricultural 4,441 3,376 623 442
Commercial and Agricultural loans due after one (1) year that have fixed and
adjustable rates are as follows (in thousands of dollars):
Fixed Adjustable
Total Rates Rates
Commercial $3,705 $3,705 $ 0
Agricultural 1,065 1,065 0
INTEREST RATE SENSITIVITY AND LIQUIDITY
The following table shows the interest rate sensitivity gaps for different
time periods and the cumulative interest rate sensitivity gaps for the same
periods as of December 31, 1997. Loans for which the accrual of interest has
been discontinued and overdrafts have not been included.
(in thousands of dollars)
1-3 4-6 7-12 13-18 19-24 OVER
FLOAT MTHS MTHS MTHS MTHS MTHS 2 YRS TOTAL
Securities $3,064 $1,914 $4,783 $4,313 $4,405 $15,096 $33,575
Fixed Loans $ 808 $5,521 $4,788 $8,061 $4,363 $4,818 $ 9,592 $37,951
Floating Lns $ 166 $ 660 $ 931 $ 719 $ 257 $ 247 $ 6,057 $ 9,037
Fed Fds & CD $6,900 $1,488 $2,377 $ 893 $11,658
$7,874 $10,733 10,010 $14,456 $8,933 $9,470 $30,745 $92,221
CD & IRA
> 100M $7,237 $4,997 $ 5,774 $2,163 $1,303 $ 923 $22,397
CD & IRA
< 100M $ 512 $13,700 $9,411 $12,400 $3,050 $2,296 $1,098 $42,467
IMM ACCTS $2,401 $ 2,401
CHRISTMAS CLUB $ 40 $ 40
SAVINGS/
NOW ACCTS $ 846 $9,974 $ 10,820
$3,759 $20,937 $14,408 $18,214 $5,213 $3,599 $11,995 $78,125
GAP $4,115($10,204)($ 4,398)($ 3,758) $3,720 $5,871 $25,104 ($20,450)
CUMULATIVE
GAP $4,115($ 6,089)($10,487)($14,245)($10,525)($4,654)20,450 0
RISK ELEMENTS
The following summarizes nonperforming loans at December 31, 1997 and 1996
(in thousands of dollars):
1997 1996
Nonaccrual Loans $ 47 $ 0
Loans past due 90 days or more as to
principal or interest and still
accruing interest 113 32
Restructured loans not included above 245 241
$ 405 $ 273
Interest on such loans, had they remained current and in accordance with
their original terms, would have been (in thousands of dollars):
1997 1996
Nonaccruals $ 8 $ 11
Restructured 30 28
$ 38 $ 39
Interest collected on nonaccrual and restructured loans amounted to $25,000
for 1997 and $12,000 for 1996.
Other nonperforming assets are:
(in thousands of dollars):
1997 1996
Real estate and other assets acquired
in satisfaction of loans $ 43 $ 150
NONACCRUAL POLICY:
Citizens Bank follows a close policy in scrutinizing past due loans and
their placement in nonaccrual status, as dictated by the Bank's loan policy.
Policy dictates that any loan delinquent for a period of ninety (90) days,
unless the collateral supporting the loan is sufficient to cover the accrued
interest in addition to the principal balance and in process of collection,
will be placed in nonaccrual status. Such loans are not charged-off; however,
interest is no longer accruing. Accrued interest is charged against either
interest income or the allowance for possible loan losses at the time a loan
becomes nonaccrual, depending on the reporting period in which such interest
had accrued.
The officers' Loan Committee reviews the Bank's nonaccrual listing monthly
and determines whether a loan should remain on nonaccrual status, be returned
to accruing status, or be charged-off. The Board of Directors is provided a
listing of nonaccrual loans at its monthly meetings. After review, the Board
recommends to management to take any appropriate steps for collection and/or
measures to protect the Bank's position.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
A detail of the activity in the allowance for possible loan losses for the
past two (2) years and its relationship to year-end loans outstanding follows
(in thousands of dollars):
1997 1996
Allowance of possible loan losses af January 1 $ 859 $ 832
Loans charged off:
Commercial -- 29
Credit Cards 15 --
Real estate - Mortgage 4 22
Agricultural 5 11
Consumer 42 21
Other (overdrafts) 6 8
Total Charged-Off 72 91
Recoveries:
Commercial -- 20
Credit Cards 3 --
Real estate - Mortgage 1 --
Agricultural 1 2
Consumer 15 20
Other (overdrafts) 2 1
Total Recoveries 22 43
Net loans charged off 50 48
Provision charged to operating expense 128 75
Allowance at December 31 $ 937 $ 859
Loans outstanding at December 31 $46,988 $42,691
Average Loans outstanding for the year $45,820 $39,938
Ratio of net charge-offs to average loans
outstanding 0.11% 0.12%
Ratio of allowance to loans outstanding
at year end 1.99% 2.01%
The provision for possible loan losses which is charged to income from
operations, is based upon the changes in the loan portfolio, the amount of net
loan losses incurred and management's estimates of potential future losses
based on several factors including, but not limited to, current economic
conditions, loan portfolio composition, nonaccrual loans, problem loans, and
prior loan loss experience. The provision for loan losses was $128,000 in 1997
and $75,000 in 1996.
The allowance for possible loan losses at December 31, 1997 was approximately
$937,000 or 1.99% of net loans outstanding, compared to approximately $859,000
or 2.01% of net loans outstanding at December 31, 1996. It is management's
opinion that the allowance for possible loan losses at December 31, 1997 is
adequate, based upon the Bank's aggressive charge-off and collection practices.
The following chart represents management's estimate of the manner in which the
allowance for possible loan losses might be allocated to categories of loans if
the Company was required to do so under generally accepted accounting principles
uniformly applied. The reader is cautioned that, in the opinion of management,
it is not possible to predict with complete accuracy what amount of the
allowance will be required to absorb future losses in each category.
Furthermore, under generally accepted accounting principles as well as
regulations promulgated by federal and state banking regulatory agencies, the
entire allowance is available to absorb losses in all categories, so the
critical function of the allowance is to be adequate in view of the aggregate
risk of all losses.
An allocation of the allowance for possible loan losses by major categories of
loans follows (in thousands of dollars)
1997 1996
Percent of Percent of
Allowance loans in each Allowance loans in each
Amount category to Amount category to
total loans total loans
Commercial --- 21.11% 271 22.48%
Real Estate 50 48.94% 209 47.30%
Agriculture 70 9.35% 109 9.02%
Installment 739 20.56% 198 21.11%
Other 78 .04% 72 .09%
$937 100.00% $ 859 100.00%
DEPOSITS
The following is a distribution of average deposits for the two years
ended December 31 (in thousands of dollars)
1997 1996
Demand Deposits $10,075 $ 8,535
Savings and NOW Accounts 13,063 12,310
Time Deposits, $100,00 or more 21,835 19,160
Other Time Deposits 41,928 38,080
$86,901 $78,085
The following is a maturity distribution of certificate of deposits of
$100,000 or more as of December 31 (in thousands of dollars):
1997 1996
Three months and under $ 7,237 $ 6,775
Over three through six months 4,997 5,699
Over six through twelve months 5,774 6,898
Over twelve months 4,389 1,400
$22,397 $20,772
RETURN ON EQUITY AND ASSETS
1997 1996
Return on average assets 1.12% 1.21%
Return on average equity 11.09% 13.33%
Dividend payout ratio 7.36% 6.55%
Average equity to average assets 10.11% 9.11%
RATE/VOLUME ANALYSIS
A comparative analysis of the increases and decreases in the major categories
of interest income and expense resulting from changes in rate and volume for
the periods indicated follows. Changes which are not due solely to rate or
volume have been allocated proportionally.
1997/1996 1996/1995
Due to Due to
Rate Volume Total Rate Volume Total
(in thousand of dollars)
Interest earning assets:
Interest bearing deposits $ 4 $18 22 ($20) $ 3 (17)
Federal Funds Sold 7 75 82 ( 21) 46 25
U.S. Treasury Securities ( 1) ( 25) (26) 37 (106) ( 69)
U.S. Government Securities 55 82 137 65 63 128
State & Municipal (1) ( 2) 8 6 (13) 102 89
Loans, net (165) 685 520 42 356 398
Total int income (1) (102) 843 741 90 464 554
Interest bearing funds:
Savings & NOW accounts 10 22 32 3 (9) (6)
Time deposits $100,000> (19) 149 130 26 74 100
Other Time Deposits (4) 216 212 117 136 253
Total interest expense (13) 387 374 146 201 347
Net interest income (1) ( 89) 456 367 ( 56) 263 207
(1) Fully taxable equivalent basis using a 34% tax rate.
AVERAGE BALANCES, INTEREST and AVERAGE RATES
The following table shows the major consolidated assets and liabilities,
together with their respective interest amounts and rates earned or paid by
the Company. Cash basis and renegoiated loans are included in the averages
to determine an effective yield on all loans. The average balances are
principally daily averages (in thousands of dollars):
Int. Avg Int. Avg
Inc. Yield Inc. Yield
Avg. Bal Exp Rate Avg. Bal Exp. Rate
1997 1996
Earning Assets
Int. bearing deps. $4,035 238 5.90 $3,729 216 5.79
Federal Funds sold 6,084 327 5.37 4,691 245 5.22
U.S. Treasury 4,854 274 5.64 5,305 300 5.66
U.S. Government 25,852 1,635 6.32 24,541 1,498 6.10
State & Municipal (1) 5,202 404 7.77 5,100 398 7.80
Loans, net 46,273 4,384 9.47 39,097 3,864 9.88
Total earning assets 92,300 7,262 7.87 82,463 6,521 7.91
Cash & due from banks 2,014 1,922
Premises & equipment 1,092 919
Other assets 2,119 1,390
Total assets $97,525 $86,694
Liabilities and
Shareholders Equity
Int. bearing funds
Savings & NOW $13,063 385 2.95 $12,310 353 2.87
Time Dep. $100,000 21,835 1,212 5.55 19,160 1,082 5.65
Other Time Deps. 41,928 2,358 5.62 38,086 2,146 5.63
Total int. bearing 76,826 3,955 5.15 69,556 3,581 5.15
Demand deposits 10,075 8,535
Accr. interest
& other liab. 764 703
Total Liabilities 87,665 78,794
Shareholders'equity 9,860 7,900
Total Liabilities &
Sharholders Equity $97,525 $86,694
Net int income, taxable
equivalent basis 3,037 2,940
Taxable equivalent adjustment 137 135
3,170 2,805
Spread 2.72 2.76
Net interest yield (1) 3.58 3.57
(1) Fully taxable equivalent basis using 34% tax rate.
ITEM 2. PROPERTIES
The Bank's main office is located at 841 West Main Street, Ville Platte,
Louisiana. This property includes the Bank's parking lot containing 74
parking places. The Bank's office building is approximately 12,665 square
feet and includes staff and storage rooms and drive-up facilities.
One of the Bank's branch offices is located at 601 Poinciana Avenue,
Mamou, Louisiana. This property includes the branch office's parking lot
containing 30 parking spaces. The branch office building is approximately
3600 square feet and contains staff and storage rooms and drive-up
facilities.
The Bank's other branch office is located at Sanders & Hwy 13, Pine Prairie,
Louisiana. This property includes the branch office's parking lot containing
20 parking spaces. The branch office building is approximately 2400 square
feet and contains staff and storage rooms and drive-in facilities.
ITEM 3. LEGAL PROCEEDINGS
Other than normal and routine collection matters in which demand letters,
lawsuits filed seeking personal judgment or mortgage foreclosures and/or
real estate as well as proofs of claim in bankruptcy and/or reorganization
proceedings, none of which are considered to be of a material nature, the
Company and its subsidiary are not engaged in any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters voted upon by the shareholders of the Company during
the fourth quarter of 1997.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for the Company's common
stock. The primary market area for the Company's common stock is Evangeline
Parish. All sales of the Company's common stock that have come to the
attention of management during 1997 and 1996 have occurred at $13-$40 per
share. Such prices reflect only those limited number of transactions that
have come to the attention of management, and other transactions may have
occurred at higher or lower sales prices during the periods indicated. No
assurance can be given that such prices represent the actual market value of
the Company's common stock.
The approximate number of holders of record of each class of the Company's
equity securities as of March 15, 1998 was as follows:
Title of Class Number of Record Holders
Common Stock - $5.00 par value 434
Dividend History and Restrictions
The Board of Directors has declared cash dividends in 1989, 1990, 1991, 1992,
1993, 1994, 1995, 1996 and 1997. These dividends were declared and paid to
shareholders in December of each year. 1989 dividend - .10 per share, 1990
dividend - .12 per share, 1991 dividend - .15 per share, 1992 dividend - .18
per share, 1993 dividend - .25 per share, 1994 dividend - .50 per share, 1995
dividend - .50 per share, 1996 dividend -.60 per share and 1997 dividend -
.70 per share. Management currently expects that cash dividends will be paid
in the future years at approximately the same rate as in the past with a
small increase per year, should the profits allow.
Prior approval of the Commissioner of the Louisiana Office of Financial
Institutions is required for the Bank to pay dividends if the total of all
dividends declared and paid during any one year would exceed the total of net
profits of that year combined with the net profits of the immediately
preceding year.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information appearing in the Company's 1997 Annual Report is incorporated
herein by reference in response to this item.
ITEM 7. FINANCIAL STATEMENTS
The information appearing in the Company's 1997 Annual Report is incorporated
herein by reference in response to this item.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with our independent accountants on any
matter of accounting principles or practice, financial statement disclosure
or auditing scope or procedure.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to Citizens Bancshares, Inc. Proxy Statement.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to Citizens Bancshares, Inc. Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to Citizens Bancshares, Inc. Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to Citizens Bancshares, Inc. Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 Regulation S-B:
Exhibit 13 - 1997 Annual Report to Shareholders
Exhibit 27 - Financial Data Schedule
Other exhibits have been omitted because they are either not
applicable or have been filed in previous reports.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused the
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
March 27, 1998 CITIZENS BANCSHARES, INC.
Date REGISTRANT
s/Carl W. Fontenot
Carl W. Fontenot
President & Director
s/Wayne Vidrine
Wayne Vidrine
Treasurer
s/Fredrick Phillips
Fredrick Phillips
Director
s/JB Veillon
J.B. Veillon
Director
s/Otis Fontenot
Otis Fontenot
Director
s/Eugene Fontenot
Eugene S. Fontenot
Director
Citizens Bancshares, Inc.
Annual Report
1997
PRESIDENT'S MESSAGE
March, 1998
Dear Shareholder:
The Board of Directors and management thank you, our loyal
shareholder and customer, for the support and confidence you have
continually entrusted to Citizens Bank and in us.
Your Holding Company and Bank have experienced yet another year
of significant growth and excellent earnings. For the year ended
December 31, 1997, assets increased almost $7,000,000 to
approximately $98,000,000, with related increases in loans,
deposits, and equity positions. For 1997, cash dividends paid to
Holding Company shareholders totaled $0.70 per share (an increase
of 17% over 1996 dividends), and the year-end 1997 book value
totaled over $82 per share. With the continued commitment to
serving the banking needs of Evangeline Parish, we expect
continued Bank growth and increases in the value of your
investment.
The major expansion and renovation of the Bank's main office was
substantially completed by the end of 1997. This expansion and
renovation more than doubled the square footage of the Bank's
physical plant, afforded the opportunity to provide new banking
products and services, and included the addition of internal data
processing capability. This major undertaking has positioned the
Bank to meet customer needs and demands with uninterrupted
service into the new millennium. We thank you and our many loyal
customers for the support and patience demonstrated throughout
the construction and transition phases of these projects.
All Board members, management, and employees remain committed to
providing the best and most personal banking service possible.
This is our pledge to you now and in the future.
Sincerely,
Carl W. Fontenot
President & CEO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL STATEMENT
For a comprehensive review of financial condition and results of
operations of Citizens Bancshares, Inc. (the "Company"), this
discussion and analysis should be reviewed along with the
information and financial statements presented elsewhere in this
report. The Company is a one-bank holding company whose sole
subsidiary is Citizens Bank, Ville Platte, Louisiana (the
"Bank").
Citizens Bank is a commercial banking institution formed in 1975
under the banking laws of the State of Louisiana. The Bank
operates a main office located in the City of Ville Platte,
Louisiana and also operates branch facilities in the Town of
Mamou, Louisiana and the Village of Pine Prairie, Louisiana. The
Bank offers a full range of traditional commercial banking
services, including demand, savings and time deposits, consumer,
commercial, agricultural and real estate loans, safe deposit
boxes, and two credit card plans, VISA and MasterCard. Drive-
through facilities are located at all banking locations,
including a drive-through ATM machine at the Main Office in Ville
Platte, Louisiana.
With the year 2000 approaching, management sees the challenge it
has created for data processing and has taken the following
steps:
O Prepared a listing of various systems, both internal and
external, which may be affected by Year 2000 transition.
O Identified Year 2000 readiness status of each system and, if
not certifiable as Year 2000 ready, identified readiness target
date.
O Maintained correspondence log of Year 2000 readiness
certifications received from hardware and software systems
vendors and from outside service producers, including the Bank's
investment portfolio.
O Prepare quarterly progress reports (commencing April, 1998
through Year 2000) for the Bank's Audit Committee and Board of
Directors which details the readiness status of each system
exposed to Year 2000 transition, the expected readiness date, and
possible alternatives if not functionally ready with an
acceptable timeframe.
FINANCIAL CONDITION
Total assets increased by $6,907,000 to $97,957,000, a 7.59%
increase over the year-end 1996 total asset level. Management
feels that growth represents core deposits and envisions a
moderate continuing growth in the future, now that the
construction of the Ville Platte expansion is complete.
Earning assets, which include loans, investment securities,
federal funds sold and deposits in other banks were 93.26% of
total assets.
Loans constitute a primary source of income for the Bank. The
Bank desires to make all sound loans its resources will permit.
This lending objective is specifically articulated in the Bank's
written Loan Policy and its written Community Reinvestment Act
Policy. As of December 31, 1997, loans net of the allowance for
loan losses increased $4,219,000 or 10.09%. The Bank's loan to
deposit ratio at December 31, 1997 was 52.67%.
The Bank maintains an allowance for loan losses against which
impaired or uncollectible loans are charged. The balance in the
allowance for loan losses was $937,000 as of December 31, 1997,
which represents 1.99% of total loans. Provisions to the
allowance for loan losses that were charged to net income totaled
$128,000. Management evaluates the adequacy of the allowance for
loan losses on a monthly basis by monitoring the balance in total
loans as well as the past due, nonaccrual, classified and other
problem loans. Based on this evaluation, the allowance for loan
losses is considered adequate to meet possible future charges for
losses in the loan portfolio.
Citizens Bank follows a close policy in scrutinizing past due
loans and their placement in nonaccrual status, as dictated by
the Bank's loan policy. Policy states that any loan delinquent
for a period of ninety (90) days, unless the collateral
supporting the loan is sufficient to cover the accrued interest
in addition to the principal balance and in process of
collection, will be placed in nonaccrual status. Such loans are
not charged-off; however, interest is no longer accruing.
Accrued interest is charged either against interest income or the
allowance for possible loan losses at the time a loan becomes
nonaccrual, depending on the reporting period in which such
interest had accrued. At December 31, 1997, nonaccrual loans
totaled $47,000 and loans past due ninety (90) days or more and
still accruing interest totaled $113,000. Past due loans to
total loans at December 31, 1997 were 2.13%.
Besides interest income on loans, another primary source of
income is interest on investment securities. Citizens Bank
maintains a written investment policy. The Policy provides for
investments that provide secondary income and primary liquidity.
Management follows its policy strictly to assure high-grade
investments of bankable quality. Under Financial Accounting
Standards Board Statement number 115, the Bank categorizes and
accounts for debt securities investments as either "held to
maturity" or "available for sale." No investment securities are
held in trading accounts. At December 31, 1997, securities
classified as held to maturity had an amortized cost of
$8,329,000 and a fair value of $8,399,000. Securities classified
as available for sale had an amortized cost of $25,246,000 and a
fair value of $25,316,000.
Deposits, both time and demand, represent the chief source of
funds for the Bank. At the end of 1997, total deposits increased
$5,500,000 or 6.71%. Much of this increase is in time deposits,
which increased by $4,312,000 or 7.12%.
RESULTS OF OPERATIONS
The Company reported a net income of $1,094,000 or $9.51 per
average share outstanding as of December 31, 1997. Net return on
assets was 1.13% and net return on equity was 10.58%.
Net interest income is the Company's principal source of revenue
and is measured by the difference between interest income earned
on loans and investments and interest expense incurred on
deposits. The Company's net interest income for December 31,
1997 was $3,170,000, a $365,000 or 13.01% increase. At December
31, 1997, the Company's net interest margin was 3.35%.
Noninterest income, which consists primarily of service charges,
fees on financial services and investment security transactions,
was $581,000 at December 31, 1997, a 3.65% decrease from December
31, 1996.
In 1997 noninterest expense increased by $247,000 or 13.28%,
which is mainly due to the data processing conversion which took
place in October, 1997.
LIQUIDITY
The primary functions of asset/liability management are to assure
adequate liquidity and maintain an appropriate spread between
interest-earning assets and interest-bearing liabilities.
Liquidity management involves the ability to meet cash flow
requirements of customers who may be either depositors wanting to
withdraw funds or borrowers needing assurance that sufficient
funds will be available to meet their credit needs. Major
elements of the Bank's overall liquidity management capabilities
and financial resources are (1) core deposits, (2) closely
managed maturity structure of loans and deposits, (3) sale and
maturity of assets (primarily investment securities) and, if
necessary, (4) extensions of credit, including federal funds
purchased and securities sold under repurchase agreements. With
the Bank's asset/liability management program, most loan and
deposit changes can be anticipated and provided for without an
adverse impact on earnings. The Bank's liquidity ratio at
December 31, 1997 was 49.33%.
CAPITAL ADEQUACY
In accordance with Regulation F, the following table represents
the Bank's ratios as of December 31, 1997 along with information
concerning minimum ratios that the Bank must meet in order to be
classified as either "Adequately Capitalized" or "Well
Capitalized."
Adequately Well
Citizens Capitalized Capitalized
Bank Minimum Minimum
Tier 1 Risk-Based Capital 18.53% 4.00% 6.00%
Ratio
Total Risk-Based Capital 19.78% 8.00% 10.00%
Ratio
Leverage Ratio 9.51% 3.00% 5.00%
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Citizens Bancshares, Inc.
We have audited the accompanying consolidated statements of
financial condition of Citizens Bancshares, Inc. and its
subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Citizens Bancshares, Inc. and its
subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Basil M. Lee And Company
Baton Rouge, Louisiana
February 3, 1998
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
(In thousands of dollars)
1997 1996
Assets
Cash and due from banks (Note 2) $ 1,848 $ 2,352
Federal funds sold 6,900 3,725
Cash and cash equivalents 8,748 6,077
Interest-bearing deposits with banks 4,758 3,766
Securities available for sale, at fair values 25,316 25,999
(Note 3)
Securities held to maturity, fair values of 8,329 10,909
$8,399 in 1997 and $10,997 in 1996 (Note 3)
Loans receivable, net of allowance for loan 46,051 41,832
losses of $937 in 1997 and $859 in 1996 (Note
4)
Accrued interest receivable 960 890
Premises and equipment (Note 5) 3,064 1,017
Foreclosed real estate, net of allowance of 14 -
$7 in 1997 and $16 in 1996 (Note 6)
Deferred tax asset (Note 9) 68 44
Other assets 649 516
Total assets $97,957 $91,050
Liabilities and Shareholders' Equity
Liabilities
Demand deposits $ 9,308 $ 9,235
Savings, NOW, and money-market deposits 13,261 12,146
Time deposits $100,000 and more (Note 7) 22,397 20,772
Other time deposits (Note 7) 42,467 39,780
Total deposits 87,433 81,933
Accrued interest payable 568 540
Accrued expenses and other liabilities 482 117
Total liabilities 88,483 82,590
Shareholders' equity (Note 13)
Common stock, $5 par value, 300,000 shares 575 575
authorized, 115,000 shares issued and
outstanding
Additional paid-in capital 825 825
Retained earnings (Note 2) 8,027 7,013
Net unrealized appreciation on securities 47 47
available for sale, net of tax of $24 in 1997
and $24 in 1996
Total shareholders' equity 9,474 8,460
Total liabilities and shareholders' equity $97,957 $91,050
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
(In thousands of dollars, except per share amounts)
1997 1996
Interest income
Loans receivable $4,384 $3,864
Taxable securities 1,909 1,798
Tax-exempt securities 267 263
Federal funds sold 327 245
Deposits with banks 238 216
Total interest income 7,125 6,386
Interest expense
Deposits
Savings, NOW, and money-market deposits 385 353
Time deposits $100,000 and more 1,212 1,082
Other time deposits 2,358 2,146
Total interest expense 3,955 3,581
Net interest income 3,170 2,805
Provision for loan losses (Note 4) 128 75
Net interest income after provision for loan 3,042 2,730
losses
Noninterest income
Service charges 442 426
Insurance commissions 82 101
Other income 57 76
Total noninterest income 581 603
Noninterest expense
Salaries and employee benefits 1,167 1,086
Occupancy and equipment expense 290 214
Computer and courier 126 138
Stationery and supplies 73 61
Professional fees 64 62
FDIC assessment 10 2
Other expense 377 297
Total noninterest expense 2,107 1,860
Income before income taxes 1,516 1,473
Income tax expense (Note 9) 422 420
Net income $1,094 $1,053
Net income per share of common stock $ 9.51 $ 9.16
Average shares outstanding 115,000 115,000
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
(In thousands of dollars)
Net
Unrealized
Appreciation
Addi- (Depreci- Total
tional ation)
Com- Paid- Re- on Available Share-
mon in tained for holders'
Stock Capi- Earn- Sale Equity
tal ings Securities
Balance at $575 $825 $6,029 $123 $7,552
December
31, 1995
Net income - - 1,053 - 1,053
for 1996
Cash - - (69) - (69)
dividends
paid -
$0.60 per
share
Net change - - - (76) (76)
in
unrealized
appreci-
ation of
securities
available
for sale,
net of tax
of $39
Balance at 575 825 7,013 47 8,460
December
31, 1996
Net income - - 1,094 - 1,094
for 1997
Cash - - (80) - (80)
dividends
paid -
$0.70 per
share
Balance at $575 $825 $8,027 $ 47 $9,474
December
31, 1997
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(In thousands of dollars)
1997 1996
Cash flows from operating activities
Net income $1,094 $1,053
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income tax expense (benefit) (26) (24)
Depreciation and amortization 101 87
Provision for loan losses 128 75
Net (accretion) of securities (52) (46)
(Increase) in accrued interest receivable (70) (22)
(Increase) decrease in other assets (133) 41
Increase in accrued interest payable 28 60
Increase in accrued expenses and other 13 11
liabilities
Net cash provided by operating activities 1,083 1,235
Cash flows from investing activities
Net (increase) decrease in interest-bearing (992) (1)
deposits with banks
Purchases of securities available for sale (9,739) (14,429
)
Maturities of securities available for sale 11,038 13,577
Purchases of securities held to maturity (3,446) (7,105)
Maturities of securities held to maturity 5,462 5,898
Net (increase) in loans (4,388) (5,973)
Sales of foreclosed real estate 29 178
Purchases of premises and equipment (1,796) (229)
Net cash (used) by investing activities (3,832) (8,084)
Cash flows from financing activities
Net increase in deposits 5,500 6,922
Dividends paid (80) (69)
Net cash provided by financing activities 5,420 6,853
Net increase in cash and cash equivalents 2,671 4
Cash and cash equivalents at beginning of year 6,077 6,073
Cash and cash equivalents at end of year $ 8,748 $ 6,077
Interest paid $ 3,927 $ 3,521
Income taxes paid $ 519 $ 393
Foreclosed real estate acquired in $ 43 $ 150
satisfaction of loans
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Citizens Bancshares,
Inc. (the "Company") and its subsidiary are based on generally
accepted accounting principles and conform to predominant banking
industry practices. Citizens Bank, Ville Platte, Louisiana (the
"Bank") is wholly owned by the Company.
(a) Principles of consolidation - The consolidated financial
statements of the Company include the accounts of the Company and
its subsidiary. All material intercompany transactions and
accounts have been eliminated.
(b) Nature of operations - The Bank provides a variety of
financial services to individual and business customers through
its three offices in Evangeline Parish, Louisiana, which is
primarily an agricultural area. The Bank's primary deposit
products are checking and savings accounts and certificates of
deposit. Its primary lending products are agricultural, real
estate and consumer loans.
(c) Use of estimates - The preparation of financial statements
in conformity with 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 at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. Material estimates that are particularly
susceptible to significant change relate to the determination of
the allowance for losses on loans and the valuation of real
estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of
the allowances for losses on loans and foreclosed real estate,
management obtains independent appraisals for significant
properties. While management uses available information to
recognize losses on loans and foreclosed real estate, future
additions to the allowances may be necessary based on changes in
local economic conditions, which depends heavily on the
agricultural industry. In addition, regulatory agencies, as an
integral part of their examination process, periodically review
the Bank's allowances for losses on loans and foreclosed real
estate. Such agencies may require the Bank to recognize
additions to the allowances based on their judgments about
information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the
allowances for losses on loans and foreclosed real estate may
change materially in the near term.
(d) Cash equivalents - For the purpose of presentation in the
consolidated statements of cash flows, the Company considers due
from bank accounts and federal funds sold to be cash equivalents.
(e) Securities held to maturity - Bonds and notes for which the
Bank has the positive intent and ability to hold to maturity are
reported at cost, adjusted for premiums and discounts that are
recognized in interest income using the interest method over the
period to maturity. Declines in the fair value of individual
securities below their cost that are other than temporary result
in write-downs of the individual securities to their fair value.
The related write-downs are included in earnings as realized
losses.
(f) Securities available for sale - Securities available for
sale consist of bonds and notes not classified as held to
maturity. Unrealized holding gains and losses, net of tax, on
these securities are reported as a net amount in a separate
component of shareholders' equity until realized. Gains and
losses on the sale of securities available for sale are
determined using the specific-identification method. Premiums
and discounts are recognized in interest income using the
interest method over the period to maturity. Declines in the
fair value of individual securities below their cost that are
other than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are
included in earnings as realized losses.
(g) Loans receivable and allowance for loan losses - Loans
receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported
at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and unearned income. Unearned income
on discounted loans is recognized as income over the term of the
loans using a method that approximates the interest method.
Interest on other loans is calculated by using the simple
interest method on daily balances of the principal amount
outstanding. The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower may be
unable to meet payments as they become due. Interest income
generally is not recognized on these loans unless the likelihood
of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance.
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
(h) Premises and equipment - Land is carried at cost. Bank
premises, furniture and equipment are carried at cost, less
accumulated depreciation and amortization computed principally by
the straight-line method.
(i) Foreclosed real estate - Real estate properties acquired
through, or in lieu of, loan foreclosure are to be sold and are
initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost
to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in operations.
(j) Income taxes - Deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable to the
period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
(k) Net income per share - Net income per share of common stock
has been computed on the basis of the weighted-average number of
shares of common stock outstanding.
(l) Reclassifications - Certain reclassifications have been made
to the prior year's financial statements, which have no effect on
net income as previously reported, to conform to current year
reporting.
(2) Restrictions
The Bank is required to maintain average reserve balances by the
Federal Reserve Bank. The average amounts of these reserves for
the years ended December 31, 1997 and 1996 were $266,000 and
$206,000, respectively.
In addition, prior approval of the Commissioner of the Louisiana
Office of Financial Institutions is required for the Bank to pay
dividends if the total of all dividends declared and paid during
any one year would exceed the total of net profits of that year
combined with the net profits from the immediately preceding
year.
(3) Investment Securities
The amortized costs and approximate fair values of investments
in debt securities at December 31 follow (in thousands of
dollars):
December 31, 1997
Gross Gross
Amort- Unreal- Unreal- Fair
ized ized ized
Securities available for Cost Gains Losses Value
sale
U. S. Treasury $2,211 $ 3 $ 4 $2,210
securities
U. S. Government 14,457 30 13 14,474
agencies and
corporations
Mortgage-backed 8,578 90 36 8,632
securities
$25,246 $123 $53 $25,316
Securities held to
maturity
U. S. Treasury $1,001 $ - $ - $1,001
securities
U. S. Government 1,399 - - 1,399
agencies and
corporations
States and political 5,357 74 - 5,431
subdivisions
Mortgage-backed 572 - 4 568
securities
$8,329 $74 $4 $8,399
Securities pledged to
secure public deposits
and for other purposes $7,505 $7,520
Securities available for December 31, 1996
sale
U. S. Treasury $ 3,560 $ 7 $12 $ 3,555
securities
U. S. Government 14,798 77 40 14,835
agencies and
corporations
Mortgage-backed 7,571 73 35 7,609
securities
$25,929 $157 $87 $25,999
Securities held to
maturity
U. S. Treasury $ 2,200 $ 2 $ 2 $ 2,200
securities
U. S. Government 3,427 2 5 3,424
agencies and
corporations
States and political 5,012 98 4 5,106
subdivisions
Mortgage-backed 270 - 3 267
securities
$10,909 $102 $14 $10,997
Securities pledged to
secure public deposits
and for other purposes $ 5,892 $ 5,876
The scheduled maturities of securities available for sale and
held to maturity at December 31, 1997 were as follows (in
thousands of dollars):
Available for sale Held to maturity
Amort- Fair Amort- Fair
ized ized
Contractual maturities Cost Value Cost Value
One year or less $8,399 $8,406 $3,201 $3,202
After one year through 14,160 14,177 4,150 4,204
five years
After five years through 2,284 2,329 978 993
ten years
After ten years 403 404 - -
$25,246 $25,316 $8,329 $8,399
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. No
securities were sold in 1997 and 1996.
(4) Loans Receivable
The components of loans in the consolidated statements of
financial condition at December 31 were as follows (in thousands
of dollars):
1997 1996
Commercial $10,020 $ 9,705
Agricultural 4,441 3,895
Real estate mortgage 23,231 20,425
Consumer 9,760 9,115
Other 21 39
47,473 43,179
Unearned income (485) (488)
Allowance for loan losses (937) (859)
$46,051 $41,832
An analysis of the change in the allowance for loan losses
follows (in thousands of dollars):
1997 1996
Balance at January 1 $859 $832
Loans charged off (72) (91)
Recoveries 22 43
Net loans charged off (50) (48)
Provision for loan losses 128 75
Balance at December 31 $937 $859
At December 31, 1997 and 1996, loans totaling $172,000 and
$109,000 were classified as impaired. Of the total impaired
loans at December 31, 1997 and 1996, $172,000 and $109,000 had a
related allowance for loan losses of $23,000 and $18,000,
respectively. The average balances of these loans in 1997 and
1996 were approximately $255,000 and $111,000. In 1997 and 1996,
interest income recognized on impaired loans was approximately
$9,000 and $9,000, respectively. No commitments to loan
additional funds to borrowers of impaired loans were outstanding
at December 31, 1997.
(5) Premises and Equipment
Components of premises and equipment included in the consolidated
statements of financial condition at December 31 were as follows
(in thousands of dollars):
1997 1996
Cost:
Land $ 241 $ 241
Buildings 2,621 725
Furniture and equipment 740 421
Automobiles 55 37
Construction in progress - 176
3,657 1,600
Accumulated depreciation (593) (583)
$3,064 $1,017
The Company is the lessee of computer hardware and software under
capital leases that expire in 2000 at which time the assets can
be purchased for $1. The assets are included in furniture and
equipment at a cost of $96,000. Amortization of the cost is over
five years and is included in depreciation expense. The related
capital lease payable is included in other liabilities and is
being amortized over the lease term of three years at an average
interest rate of 4.6%. Future minimum lease payments are $40,000
per year in the years 1998 through 2000.
(6) Foreclosed Real Estate
Activity in the allowance for losses on foreclosed real estate is
as follows (in thousands of dollars):
1997 1996
Balance at January 1 $16 $ 27
Provision charged (credited) to income - -
Charge-offs, net of recoveries (9) (11)
Balance at December 31 $ 7 $ 16
(7) Deposits
At December 31, 1997, the scheduled maturities of time deposits
are as follows (in thousands of dollars):
$100,000 Other time
Year maturing and more deposits
1998 $18,008 $36,023
1999 3,466 5,346
2000 523 712
2001 - 173
2002 and thereafter 400 213
$22,397 $42,467
(8) Financial Instruments
The Bank is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit, which
involve credit risk in excess of the amounts recognized in the
statement of financial condition. The Bank's exposure to credit
loss in the event of nonperformance by the other party to these
financial instruments is represented by the contractual amounts
of the instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-
balance sheet instruments, including collateral or other security
to support the financial instruments.
At December 31, 1997 and 1996, commitments to extend credit
totaled $4,435,000 and $3,183,000, respectively. These
commitments are agreements to lend to a customer as long as there
is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many
of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.
At December 31, 1997 and 1996, commitments under standby letters
of credit totaled $286,000 and $212,000, respectively. Standby
letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loans to customers.
(9) Income Taxes
The consolidated provision for income taxes consisted of the
following for the years ended December 31 (in thousands of
dollars):
1997 1996
Current expense $448 $444
Deferred expense (benefit) (26) (24)
Income tax expense $422 $420
The effective tax rates differed from the statutory federal
income tax rates as follows:
1997 1996
Statutory federal income tax rate 34.0% 34.0%
Nontaxable income (6.4%) (7.2%)
Nondeductible expenses 1.6% 2.5%
Other (1.4%) (0.8%)
Effective tax rate 27.8% 28.5%
Deferred tax assets and (liabilities) at December 31 consist of
the following (in thousands of dollars):
1997 1996
Net (appreciation) of securities available $(24) $(24)
for sale
Allowance for loan losses 134 108
Allowance for foreclosed real estate losses 3 6
Accumulated depreciation (89) (72)
Deferred compensation payable 36 32
Accreted discount on investments (17) (31)
Tax basis over book value of land 25 25
Deferred tax asset $ 68 $ 44
No valuation allowance was recorded to reduce the deferred tax
asset at December 31, 1997 and 1996.
(10) Related Parties
The Bank has entered into transactions with its directors,
executive officers, significant shareholders, and their
affiliates. The aggregate amount of loans to such related
parties at December 31, 1997 and 1996 was $602,000 and $885,000,
respectively. During 1997, new loans to such related parties
amounted to $826,000 and repayments amounted to $1,109,000.
Deposits held by the Bank at December 31, 1997 and 1996 for
related parties were $2,958,000 and $3,580,000, respectively.
Fees paid for goods and services provided by related parties
amounted to $14,000 in 1997 and $50,000 in 1996.
(11) Commitments
At December 31, 1997 and 1996, the Bank had unused lines of
credit with other banks which totaled $3,750,000 and $2,750,000.
The lines were unsecured and have variable interest rates based
on the lending bank's daily federal funds rate.
(12) Pension Plan
Effective January 1, 1997, the Bank offers a Savings Incentive
Match Plan for Employees (SIMPLE) with no minimum age or years of
service eligibility requirements. All employees who have earned
at least $5,000 during one of the two preceding calendar years
and are expected to earn at least $5,000 during the current
calendar year are eligible to participate. Participants may
elect to defer up to $6,000 of their compensation as elective
contributions. The Bank is required to match employee
contributions up to 3% of each employee's total compensation. The
Bank contribution in 1997 was $23,000.
(13) Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and
possibly discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must
meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-
balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios
of total and Tier 1 capital, as defined in the regulations, to
risk-weighted assets, as defined, and of Tier 1 capital to
average assets, as defined. Management believes, as of December
31, 1997, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1997, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as
well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the
Bank must maintain a total risk-based capital ratio of 10% or
higher, Tier 1 risk-based capital ratio of 6% or higher, and Tier
1 leverage capital ratio of 5% or higher. No conditions or
events have occurred since that notification that management
believes have changed the Bank's category. The following table
presents the Bank's actual capital amounts and ratios as of
December 31 (dollars in thousands):
1997 1996
Amount Ratio Amount Ratio
Total Capital (to Risk $9,731 19.8% $8,618 20.0%
Weighted Assets)
Tier 1 Capital (to Risk $9,117 18.5% $8,079 18.7%
Weighted Assets)
Tier 1 Capital (to Average $9,117 9.5% $8,079 9.4%
Assets)
(14) Parent Company Statements
The financial statements of Citizens Bancshares, Inc. (parent
company only) at December 31 and for the years then ended follow
(in thousands of dollars):
Statements of Financial Condition 1997 1996
Assets
Investment in Citizens Bank, at equity $9,468 $8,455
Cash and equivalents 6 5
Total assets $9,474 $8,460
Liabilities and Shareholders' Equity
Total liabilities $ - $ -
Common stock 575 575
Additional paid-in capital 825 825
Retained earnings 8,027 7,013
Net unrealized appreciation on securities 47 47
available for sale
Total shareholders' equity 9,474 8,460
Total liabilities and shareholders' equity $9,474 $8,460
Statements of Income
Income
Equity in undistributed net income of $1,013 $983
Citizens Bank
Dividends received from Citizens Bank 86 74
Total income 1,099 1,057
Expenses
Other expense 5 4
Total expenses 5 4
Net income $1,094 $1,053
Statements of Cash Flows
Cash flows from operating activities
Net income $1,094 $1,053
Adjustments to reconcile net income to net
cash provided by operating
activities:
Equity in undistributed net income of (1,013) (983)
Citizens Bank
Net cash provided by operating activities 81 70
Cash flows from investing activities - -
Cash flows from financing activities
Dividends paid (80) (69)
Net cash (used) by financing activities (80) (69)
Net increase in cash and equivalents 1 1
Cash and equivalents at beginning of year 5 4
Cash and equivalents at end of year $ 6 $ 5
(15) Bank Subsidiary Statements
The statements of financial condition and income of Citizens Bank
(bank only) at December 31 and for the years then ended follow
(in thousands of dollars):
Statements of Financial Condition 1997 1996
Assets
Cash and due from banks $ 1,848 $ 2,352
Federal funds sold 6,900 3,725
Interest-bearing deposits with banks 4,758 3,766
Investment securities 33,645 36,908
Loans receivable 46,051 41,832
Accrued interest receivable 960 890
Premises and equipment 3,064 1,017
Foreclosed real estate 14 -
Deferred tax asset 68 44
Other assets 649 517
Total assets $97,957 $91,051
Liabilities and Shareholder's Equity
Deposits $87,440 $81,938
Accrued interest payable 568 540
Accrued expenses and other liabilities 481 118
Common stock 575 575
Additional paid-in capital 4,000 4,000
Retained earnings 4,846 3,833
Net unrealized appreciation on
securities available for sale 47 47
Total liabilities and shareholder's equity $97,957 $91,051
Statements of Income
Interest income
Loans $4,384 $3,864
Investment securities 2,176 2,062
Federal funds sold 327 245
Deposits with banks 238 216
Total interest income 7,125 6,387
Interest expense on deposits 3,956 3,581
Net interest income 3,169 2,806
Provision for loan losses 128 75
Net interest income after provision for 3,041 2,731
loan losses
Noninterest income 580 603
Noninterest expense 2,101 1,857
Income tax expense 422 420
Net income $1,098 $1,057
DESCRIPTION OF BUSINESS
Citizens Bancshares, Inc. (the "Company") is a Louisiana business
corporation and a one-bank holding company registered under the
federal Bank Holding Company Act of 1956. The Company was formed
in 1983 primarily for the purpose of holding all of the
outstanding stock of Citizens Bank, Ville Platte, Louisiana (the
"Bank"), which is the Company's sole subsidiary.
The Bank was formed under the banking laws of the State of
Louisiana. The Bank conducts a general commercial banking
business through its main office in Ville Platte, Louisiana and
branch offices in Mamou, Louisiana and Pine Prairie, Louisiana.
The Bank offers a full range of traditional commercial banking
services, including demand, savings and time deposits, consumer,
credit card, and commercial and real estate loans, and safe-
deposit boxes. The Bank does not offer trust services. Drive-in
banking facilities are located at all banking locations.
The Bank competes actively with national and state banks, savings
institutions, and credit unions in Louisiana for all types of
loans and deposits. The Bank also competes with other financial
institutions such as insurance companies, real estate investment
trusts, small loan companies, and certain government agencies.
As of December 31, 1997, the Company and the Bank had
approximately 38 full-time equivalent employees. The Company has
no salaried employees, although certain executive officers hold
parallel positions with the Bank. No employees are represented
by unions or other bargaining units, and management considers its
relations with employees to be satisfactory.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Citizens Bancshares, Inc. stock is not listed on any stock
exchange or over-the-counter market. The transaction prices
listed below reflect only a limited number of transactions that
have come to the attention of management. No assurance can be
given that such prices represent the actual market value of the
Company's common stock. At December 31, 1997, there were 434
holders of record of the Company's common stock.
1997 1996
Per share stock transactions High Low High Low
First quarter $18 $15 $15 $13
Second quarter 20 15 15 14
Third quarter 40 18 15 15
Fourth quarter 40 18 16 15
Dividends per share $0.70 $0.60
AVAILABILITY OF ANNUAL REPORT ON FORM 10-KSB
The annual report of Citizens Bancshares, Inc. and subsidiary as
filed with the Securities and Exchange Commission on Form 10-KSB
is available on request to any shareholder free of charge by writing
to Carl Fontenot, President, Citizens Bancshares, Inc., Post Office
Box 598, Ville Platte, Louisiana, 70586.
DIRECTORS AND EXECUTIVE OFFICERS
Directors and executive officers of the Company and its only subsidiary,
Citizens Bank, their principal occupations and the year each of the
directors took office are as follows:
Name Principal Occupation
Curley Courville Director of the Bank since 1975; Director of the
Company since 1983; Retired investor.
Carl W. Fontenot Director of the Bank since 1975; Director of the
Company since 1983; President and CEO of the Bank
and the Company.
Eugene S. Fontenot Director and Secretary of the Bank since 1975;
Director and Secretary of the Company since 1983;
Owner and President of Euco Finance Company, Inc.
J. Jake Fontenot Director of the Bank since 1977; Director of the
Company since 1983; Attorney at Law.
Otis Fontenot Director of the Bank since 1975; Director of the
Company since 1983; Retired planter.
Fredrick Phillips Director of the Bank since 1975; Directors of the
Company since 1983; Owner of F. Phillips General
Contractors, Inc.
J. B. Veillon Director and Vice President of the Bank since 1975;
Director and Vice President of the Company since
1983; Retired retailer.
Roderick Young Director of the Bank since 1977; Director of the
Company since 1983; Owner of R&R Auto Parts.
Jules Hebert Director of the Bank since 1980; Director of the
Company since 1983; Owner and President of Farmers
Gas Company, Inc., propane and butane gas
distributor.
Wayne Vidrine Executive Vice President and Cashier of the Bank;
Treasurer of the Company.
Stephen P. Mayeux Senior Vice President of the Company.
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