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, 1998
( ) 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. $ 8,098,000
State the aggregate market value of the voting stock held by non-
affiliates* of the Registrant as of March 15, 1999 (based on $40.00
per share).
$2,246,720
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, 114,855 shares outstanding as of March
15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-KSB
Documents Incorporated into which Incorporated
Definitive Proxy Statement Part III
for the 1999 Annual
Meeting of Shareholders
1998 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, including a drive-through ATM machine at the Main
Office in Ville Platte, Louisiana.
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, 1998, the Company and the Bank had approximately 45
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,
1998 (in thousands of dollars):
Held-to-Maturity Available-for-Sale
U.S. Treasury Securities
Within 1 year $ --- --- $ 1,312 5.70%
After 1 but within 5 years --- --- --- ---
$ --- --- $ 1,312 5.70%
U.S. Government Securities
Within 1 year --- --- 1,403 5.32%
After 1 but within 5 years --- --- 7,996 5.70%
$ --- --- $ 9,399 5.64%
State and Political subdivisions
With 1 year 543 6.15% --- ---
After 1 but within 5 years 4,812 4.64% --- ---
After 5 but within 10 years 2,047 4.71% --- ---
$ 7,402 4.77% $ --- ---
Mortgage-backed securities 723 5.63% 15,802 5.83%
$ 8,125 4.85% $26,513 5.76%
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, 1998.
LOANS
A distribution of the loan portfolio at December 31, 1998 and 1997 is
summarized as follows (in thousands of dollars):
1998 1997
Commercial $11,935 22.90% $10,020 21.76%
Municipal --- 0.00% --- 0.00%
Real Estae - Mortgage 24,072 46.19% 23,231 50.45%
Agricultural 6,507 12.48% 4,441 9.64%
Consumer 11,117 21.33% 9,760 21.19%
Overdrafts 25 0.05% 21 0.04%
53,656 102.95% 47,473 103.08%
Unearned income (536) (1.03%) (485) (1.05%)
Allowance for possible loan loss (1,001) (1.92%) (937) (1.05%)
$52,119 100.00% $46,051 100.00%
LOAN MATURITY AND INTEREST RATE SENSITIVITY
Maturities of commercial and agricultural loans at December 31, 1998 are
summarized below (in thousands of dollars):
Over
One Year One to Over Five
Total or Less Five Yrs Years
Commercial $11,935 $7,452 $3,861 $ 622
Agricultural 6,507 4,617 1,038 852
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 $4,675 $4,675 $ 0
Agricultural 1,465 1,433 32
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, 1998. 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 $3,369 $1,835 $6,489 $1,125 $2,169 $19,603 $34,590
Fixed Loans $1,310 $5,028 $5,178 $9,126 $4,886 $4,436 $13,192 $43,156
Floating Lns $ 759 $1,224 $ 562 $ 786 $ 359 $ 331 $ 5,942 $ 9,963
Fed Fds & CD $6,625 $1,972 $2,279 $ 891 $11,767
$8,694 $11,593 9,854 $17,292 $6,370 $6,936 $38,737 $99,476
CD & IRA
> 100M $10,173 $5,917 $ 3,820 $ 722 $1,042 $1,000 $22,674
CD & IRA
< 100M $ 701 $13,485 $9,700 $15,693 $1,890 $2,226 $1,529 $45,224
IMM ACCTS $3,552 $ 3,552
CHRISTMAS CLUB $ 44 $ 44
SAVINGS/
NOW ACCTS $ 562 $11,192 $ 11,754
$4,815 $23,658 $15,617 $19,557 $2,612 $3,268 $13,721 $83,248
GAP $3,879($12,065)($ 5,763)($ 2,265) $3,758 $3,668 $25,016 $16,228)
CUMULATIVE
GAP $3,879($ 8,186)($13,949)($16,214)($12,456)($8,788)16,228 0
RISK ELEMENTS
The following summarizes nonperforming loans at December 31, 1998 and 1997
(in thousands of dollars):
1998 1997
Nonaccrual Loans $ 136 $ 47
Loans past due 90 days or more as to
principal or interest and still
accruing interest 142 113
Restructured loans not included above 210 245
$ 488 $ 405
Interest on such loans, had they remained current and in accordance with
their original terms, would have been (in thousands of dollars):
1998 1997
Nonaccruals $ 4 $ 8
Restructured 23 30
$ 27 $ 38
Interest collected on nonaccrual and restructured loans amounted to $ 6,300
for 1998 and $25,000 for 1997.
Other nonperforming assets are:
(in thousands of dollars):
1998 1997
Real estate and other assets acquired
in satisfaction of loans $ 47 $ 43
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):
1998 1997
Allowance of possible loan losses af January 1 $ 937 $ 859
Loans charged off:
Commercial 1 --
Credit Cards 15 15
Real estate - Mortgage 9 4
Agricultural - 5
Consumer 45 42
Other (overdrafts) 5 6
Total Charged-Off 75 72
Recoveries:
Commercial 1 --
Credit Cards 6 3
Real estate - Mortgage 2 1
Agricultural 6 1
Consumer 18 15
Other (overdrafts) 3 2
Total Recoveries 36 22
Net loans charged off 39 50
Provision charged to operating expense 103 128
Allowance at December 31 $ 1,001 $ 937
Loans outstanding at December 31 $53,120 $46,988
Average Loans outstanding for the year $50,443 $45,820
Ratio of net charge-offs to average loans
outstanding 0.08% 0.11%
Ratio of allowance to loans outstanding
at year end 1.88% 1.99%
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 $102,500 in 1998
and $128,000 in 1997.
The allowance for possible loan losses at December 31, 1998 was approximately
$1,001,000 or 1.88% of net loans outstanding, compared to approximately
$937,000 or 1.99% of net loans outstanding at December 31, 1997. It is
management's opinion that the allowance for possible loan losses at December
31, 1998 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
accurancy what amount of the allownce will be required to absord future
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)
1998 1997
Percent of Percent of
Allowance loans in each Allowance loans in each
Amount category to Amount category to
total loans total loans
Commercial 14 22.24% --- 21.11%
Real Estate 121 44.86% 50 48.94%
Agriculture 204 12.13% 70 9.35%
Installment 598 20.72% 739 20.56%
Other 64 .05% 78 .04%
$1,001 100.00% $ 937 100.00%
DEPOSITS
The following is a distribution of average deposits for the two years
ended December 31 (in thousands of dollars)
1998 1997
Demand Deposits $10,690 $10,075
Savings and NOW Accounts 15,418 13,063
Time Deposits, $100,00 or more 22,680 21,835
Other Time Deposits 44,017 41,928
$92,805 $86,901
The following is a maturity distribution of certificate of deposits of
$100,000 or more as of December 31 (in thousands of dollars):
1998 1997
Three months and under $10,173 $ 7,237
Over three through six months 5,917 4,997
Over six through twelve months 3,820 5,774
Over twelve months 2,764 4,389
$22,674 $22,397
RETURN ON EQUITY AND ASSETS
1998 1997
Return on average assets .99% 1.12%
Return on average equity 10.35% 11.09%
Dividend payout ratio 9.55% 7.36%
Average equity to average assets 9.53% 10.11%
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.
1998/1997 1997/1996
Due to Due to
Rate Volume Total Rate Volume Total
(in thousand of dollars)
Interest earning assets:
Interest bearing deposits $(3) $67 64 $ 4 $18 22
Federal Funds Sold (4) 175 171 7 75 82
U.S. Treasury Securities 0 (154) (154) ( 1) ( 25) ( 26)
U.S. Government Securities (92) (62) (154) 55 82 137
State & Municipal (1) ( 6) 63 57 ( 2) 8 6
Loans, net 77 307 384 (165) 685 520
Total int income (1) (28) 396 368 (102) 843 741
Interest bearing funds:
Savings & NOW accounts 1 70 71 10 22 32
Time deposits $100,000> 62 48 110 (19) 149 130
Other Time Deposits (32) 116 84 (4) 216 212
Total interest expense 31 234 265 (13) 387 374
Net interest income (1) ( 59) 162 103 ( 89) 456 367
(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
1998 1997
Earning Assets
Int. bearing deps. $5,179 302 5.83 $4,035 238 5.90
Federal Funds sold 9,383 498 5.31 6,084 327 5.37
U.S. Treasury 2,123 120 5.65 4,854 274 5.64
U.S. Government 24,843 1,481 5.96 25,852 1,635 6.32
State & Municipal (1) 6,017 461 7.66 5,202 404 7.77
Loans, net 49,474 4,768 9.64 46,273 4,384 9.47
Total earning assets 97,019 7,630 7.86 92,300 7,262 7.87
Cash & due from banks 2,677 2,014
Premises & equipment 3,084 1,092
Other assets 861 2,119
Total assets $103,641 $97,525
Liabilities and
Shareholders Equity
Int. bearing funds
Savings & NOW $15,418 456 2.96 $13,063 385 2.95
Time Dep. $100,000 22,680 1,322 5.83 21,835 1,212 5.55
Other Time Deps. 44,017 2,442 5.55 41,928 2,358 5.62
Total int. bearing 82,115 4,220 5.14 76,826 3,955 5.15
Demand deposits 10,690 10,075
Accr. interest
& other liab. 955 764
Total Liabilities 93,760 87,665
Shareholders'equity 9,881 9,860
Total Liabilities &
Sharholders Equity $103,641 $97,525
Net int income, taxable
equivalent basis 3,410 3,307
Taxable equivalent adjustment 157 137
3,253 3,170
Spread 2.73 2.73
Net interest yield (1) 3.51 3.58
(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 1998.
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 1998 and 1997 have occurred at $15-$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, 1999 was as follows:
Title of Class Number of Record Holders
Common Stock - $5.00 par value 464
Dividend History and Restrictions
The Board of Directors has declared cash dividends in 1989, 1990, 1991, 1992,
1993, 1994, 1995, 1996, 1997 and 1998. 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, 1997
dividend - .70 per share and 1998 dividend - .85 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 1998 Annual Report is incorporated
herein by reference in response to this item.
ITEM 7. FINANCIAL STATEMENTS
The information appearing in the Company's 1998 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 - 1998 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 1998.
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, 1999 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
1998
PRESIDENT'S MESSAGE
March 8, 1999
Dear Shareholder:
The Board of Directors and Management thank you, our loyal
shareholder, for the support and confidence you have continually
entrusted to the management, directors, and employees of Citizens
Bank and Citizens Bancshares, Inc.
As we approach the end of another successful year, we are pleased
to report another year of significant growth and consistent
earnings. For the year ended December 31, 1998, assets increased
by $7 million to $105 million, with significant increases in
loans, investments, deposits, and equity position. The 1998 cash
dividends paid to shareholders totaled $0.85 per share
representing a 21% increase over last year's dividends.
Management anticipates continued Bank growth and increases in the
value of your Holding Company investment.
As part of the expansion and modernization project completed in
1998, Citizens Bank converted its data processing to an in-house
system. A principal objective of this conversion was to acquire
new computers and related software and equipment to meet the
Bank's needs into the Year 2000 and beyond. Based on conversion
and assessment efforts completed to date, the Bank's date-
sensitive systems have been vendor-certified as Year 2000 ready.
Our continuing efforts are aimed at providing uninterrupted
customer service into the new millennium and beyond.
All Board members, managers, and employees remain committed to
providing the best and most personal banking service possible --
that's "hometown banking." With "hometown banking," decisions
are made quickly and locally by hometown people who live and work
here, who understand our area's culture, and who are committed to
serving community and individual needs. Our commitment to
serving the banking needs of Evangeline Parish continues to be
our principal focus.
Sincerely yours,
Carl W. Fontenot,
President & CEO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL INFORMATION
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 with branch facilities in the Town of Mamou, Louisiana
and the Village of Pine Prairie, Louisiana. Citizens Bank offers
a full range of 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.
YEAR 2000
In late 1997, Citizens Bank decided to convert its data
processing operations from outsource service bureau operations to
an in-house operation. When this decision was made, all hardware
and software data processing acquisitions were made with the
awareness and objective of satisfying the Year 2000 compliance
and conformity issues. After successful conversion of data
processing operations from a service bureau to an in-house
operation, Citizens Bank's Board of Directors adopted an Electric
Data Processing Policy that included a Year 2000 Program policy.
A Y2K Committee, chaired by a board-appointed Y2K Coordinator,
was formed in early 1998 to address Year 2000 issues. The
Committee's objective is to monitor and report the Bank's
progress in achieving Year 2000 compliance for all mission
critical applications. In addition to monitoring, testing and
identifying appropriate changes to in-house operations, the Y2K
committee continues to monitor Year 2000 status of the Bank's
customers, service providers, and suppliers.
As of December 31, 1998, Citizens Bank had substantially
completed remediating and obtaining Y2K compliance
certifications, on its mission critical systems. Testing and
validations of mission critical systems are scheduled for
completion in early 1999 and monitoring of Year 2000 compliance
will be accomplished throughout 1999. Written acknowledgements
have been received from all mission critical hardware and
software providers, utility and telephone service providers, and
date processing service providers assuring timely remediation,
testing and validation for year 2000 compliance.
The Bank expects to continue incurring expense charges related to
Year 2000 compliance through the remainder of 1998 and throughout
1999; the majority of costs associated with year 2000 compliance,
however, is the responsibility of the Bank's data processing
vendors and service providers. Estimated expenses charges to be
borne directly by the Bank will total $3,000 per month through
1999. These Year 2000 expenses will be included in noninterest
expense categories and do not include equipment and software
scheduled replacement in the ordinary course of business.
The Bank's estimate of Year 2000 investment costs and the
estimated time periods set forth above by which the Bank expects
to substantially complete mission critical system programming and
testing and implementation are based upon management's best
current estimates, which were delivered utilizing numerous
assumptions about future events. There can be no guarantee that
these estimates will be achieved, and actual results could differ
from those anticipated. Because of the critical nature of the
Year 2000 issues to our business and to all of the financial
services industry, if necessary modifications are not made the
Bank's operations could be materially impacted. Citizens Bank
and its data processing vendors remain scheduled to ensure
achievement of Year 2000 compliance, therefore, an adverse impact
on the Bank's operations is not expected.
FINANCIAL CONDITION
Total assets increased by $7,167,000 to $105,124,000, a 7.31%
increase over the year-end 1997 total asset level. Management
feels the bank will continue to grow in core deposits and loans
in the future due to personal service provided by the employees.
Earning assets were 93.72% of total assets for year-end, which
includes loans, investment securities, federal funds sold and
deposits in other banks.
Lending is vital function of the bank and remains the primary
source of income. With the available resources, the Bank will
continue to make sound loans under the guidelines of our written
Loan Policy and Community Reinvestment Act Policy. As of
December 31, 1998, loans (net of the allowance for loan losses)
increased $6,068,000 or 13.18%, which increased the Bank's loan
to deposit ratio to 55.49%.
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 $1,001,000 as of December 31, 1998,
which represents 1.88% of total loans. Provisions to the
allowance for loan losses that were charged to net income totaled
$103,000. 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 evaluating past due loans
and their placement in nonaccrual status, as required by the
Bank's loan policy. The 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. Nonaccrual loans totaled $136,000 and
loans past due ninety (90) days or more and still accruing
interest totaled $172,000 for year ended December 31, 1998. Past
due loans to total loans were 2.22% for the same period.
Another primary source of income is interest on investment
securities. Citizens Bank maintains a written investment policy.
This Policy provides for investments that produce secondary
income, as well as liquidity needs. Management follows its
policy strictly to assure high-grade investments of bank quality.
The Bank categorizes and accounts for these securities
investments as "held to maturity" or "available for sale", as
required by Financial Accounting Standards Board Statement #115.
No investment securities are held in trading accounts. As of
December 31, 1998, securities classified as held to maturity had
an amortized cost of $8,125,000 and a market value of $8,274,000.
The securities classified as available for sale had an amortized
cost of $26,465,000 and a market value of $26,513,000.
Deposits, both time and demand, represent the chief source of
funds for the Bank. At the end of 1998, total deposits increased
$6,498,000 or 7.43%. Much of the increase is in Saving, NOW,
Money Market deposits and other time deposits.
RESULTS OF OPERATIONS
The Company reported a net income of $1,023,000 or $8.90 per
average share outstanding as of December 31, 1998. Net return on
assets was .97% and net return on equity was 9.86%.
The Company's principal source of revenue is net interest income
which 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,
1998 was $3,253,000, a $83,000 or 2.62% increase. On December
31, 1998, the Company's net interest margin was 3.35%.
Noninterest income consists of service charges, fees on financial
services, and investment securities transactions. On December
31, 1998, noninterest income was $625,000, a $44,000 increase
from previous year-end, with commissions on insurance accounting
for $15,000 of that increase.
Noninterest expense increased by $247,000, or 11.72% which is due
to an increase in salaries and occupancy expense for 1998, which
is in direct correlation with the growth in assets.
LIQUIDITY
The asset/liability management primary function is 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 depositors wanting to
withdraw funds or borrowers needing funds to meet their credit
needs. The major components 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 investments
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, 1998 was
42.76%.
CAPITAL ADEQUACY
In accordance with Regulation F, the following table represents
the Bank's ratios as of December 31, 1998 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 18.00% 4.00% 6.00%
Capital Ratio
Total Risk-Based 19.30% 8.00% 10.00%
Capital Ratio
Leverage Ratio 9.70% 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, 1998 and 1997, 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, 1998 and 1997, 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
January 15, 1999
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
(In thousands of dollars)
1998 1997
Assets
Cash and due from banks (Note 2) $1,857 $1,848
Federal funds sold 6,625 6,900
Cash and cash equivalents 8,482 8,748
Interest-bearing deposits with banks 5,142 4,758
Securities available for sale, at fair 26,513 25,316
values (Note 3)
Securities held to maturity, fair values of 8,125 8,329
$8,274 in 1998 and $8,399 in 1997 (Note 3)
Loans receivable, net of allowance for loan 52,119 46,051
losses of $1,001 in 1998 and $937 in 1997
(Note 4)
Accrued interest receivable 940 960
Premises and equipment (Note 5) 2,979 2,938
Foreclosed real estate, net of allowance of - 14
$7 in 1997 (Note 6)
Deferred tax asset (Note 9) 81 68
Other assets 743 775
Total assets $105,124 $97,957
Liabilities and Shareholders' Equity
Liabilities
Demand deposits $ 10,683 $ 9,308
Savings, NOW, and money-market deposits 15,351 13,261
Time deposits $100,000 and more (Note 7) 22,674 22,397
Other time deposits (Note 7) 45,223 42,467
Total deposits 93,931 87,433
Accrued interest payable 557 568
Accrued expenses and other liabilities 257 482
Total liabilities 94,745 88,483
Shareholders' equity (Note 13)
Common stock, $5 par value, 300,000 575 575
shares authorized, 115,000 shares issued
and outstanding
Additional paid-in capital 825 825
Retained earnings (Note 2) 8,952 8,027
Treasury stock at cost, 145 shares (6) -
Accumulated other comprehensive income 33 47
Total shareholders' equity 10,379 9,474
Total liabilities and shareholders' equity $105,124 $97,957
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
(In thousands of dollars, except per share amounts)
1998 1997
Interest income
Loans receivable $4,768 $4,384
Taxable securities 1,601 1,909
Tax-exempt securities 304 267
Federal funds sold 498 327
Deposits with banks 302 238
Total interest income 7,473 7,125
Interest expense
Deposits
Savings, NOW, and money-market deposits 456 385
Time deposits $100,000 and more 1,322 1,212
Other time deposits 2,437 2,358
Other 5 -
Total interest expense 4,220 3,955
Net interest income 3,253 3,170
Provision for loan losses (Note 4) 103 128
Net interest income after provision for loan 3,150 3,042
losses
Noninterest income
Service charges 473 442
Insurance commissions 97 82
Other income 55 57
Total noninterest income 625 581
Noninterest expense
Salaries and employee benefits 1,345 1,167
Occupancy and equipment expense 403 290
Computer and courier 14 126
Stationery and supplies 72 73
Professional fees 66 64
Other expense 454 387
Total noninterest expense 2,354 2,107
Income before income taxes 1,421 1,516
Income tax expense (Note 9) 398 422
Net income $1,023 $1,094
Net income per share of common stock $8.90 $ 9.51
Average shares outstanding 114,902 115,000
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
(In thousands of dollars)
Accum-
ulated
Addi- Other Total
tional
Common Paid-in Retained Treasury Compre- Share-
hensive holders'
Stock Capital Earnings Stock Income Equity
Balance at $575 $825 $7,013 $ - $47 $8,460
December 31,
1996
COMPRE-
HENSIVE
INCOME
Net income - - 1,094 - - 1,094
for 1997
Other compre-
hensive
income:
Unrealized
holding
gains on
securities
arising
during 1997 - - - - - -
TOTAL COMPRE- 1,094
HENSIVE
INCOME
Cash - - (80) - - (80)
dividends -
$0.70 per
share
Balance at 575 825 8,027 - 47 9,474
December 31,
1997
COMPRE-
HENSIVE
INCOME
Net income - - 1,023 - - 1,023
for 1998
Other compre-
hensive
income:
Unrealized
holding loss
on
securities
arising
during 1998, - - - - (14) (14)
net of tax
of $7
TOTAL COMPRE- 1,009
HENSIVE
INCOME
Purchase of - - - (6) - (6)
stock
Cash - - (98) - - (98)
dividends -
$0.85 per
share
Balance at $575 $825 $8,952 $(6) $33 $10,379
December 31,
1998
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(In thousands of dollars)
1998 1997
Cash flows from operating activities
Net income $1,023 $1,094
Adjustments to reconcile net income to net
cash provided by
operating activities:
Deferred income tax (benefit) (6) (26)
Depreciation 184 101
Provision for loan losses 103 128
Net (accretion) amortization of securities 39 (52)
(Increase) decrease in accrued interest 20 (70)
receivable
(Increase) decrease in other assets 32 (133)
Increase (decrease) in accrued interest (11) 28
payable
Increase (decrease) in accrued expenses and (225) 13
other liabilities
Net cash provided by operating activities 1,159 1,083
Cash flows from investing activities
Net (increase) in interest-bearing deposits (384) (992)
with banks
Purchases of securities available for sale (24,658) (9,739)
Maturities of securities available for sale 23,021 11,038
Purchases of securities held to maturity (3,698) (3,446)
Maturities of securities held to maturity 4,282 5,462
Net (increase) in loans (6,209) (4,388)
Sales of foreclosed real estate 52 29
Purchases of premises and equipment (225) (1,796)
Net cash (used) by investing activities (7,819) (3,832)
Cash flows from financing activities
Net increase in deposits 6,498 5,500
Purchase of treasury stock (6) -
Dividends paid (98) (80)
Net cash provided by financing activities 6,394 5,420
Net increase (decrease) in cash and cash (266) 2,671
equivalents
Cash and cash equivalents at beginning of 8,748 6,077
year
Cash and cash equivalents at end of year $8,482 $8,748
Interest paid $4,231 $3,927
Income taxes paid $389 $519
Foreclosed real estate acquired in $38 $43
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 accumulated other comprehensive
income in shareholders' equity. 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) Fair values of financial instruments - In cases where quoted
market prices of financial instruments are not available, fair
values are based on estimates using present value or other
valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instruments. The fair values of
certain financial instruments and all nonfinancial instruments
are not required to be disclosed. Accordingly, the aggregate
fair value amounts presented do not represent the underlying
value of the Company. The following methods and assumptions were
used by the Company in estimating fair values of financial
instruments:
(1) Cash, due from banks, federal funds sold and interest-
bearing deposits with banks. The carrying amount is a reasonable
estimate of fair value.
(2) Securities. Fair value is based on quoted market price, if
available. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
(3) Loans receivable. The fair value is estimated by
discounting the estimated future cash flows using the current
rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
(4) Deposits. The fair value of demand, savings, NOW and money
market accounts is the amount payable on demand at the reporting
date. The fair value of fixed-maturity time deposits is
estimated using the rates currently offered for deposits of
similar remaining maturities.
(5) Commitments to extend credit and standby letters of credit.
If material, the fair value is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present
creditworthiness of the counterparties. At December 31, 1998,
the fair values of these instruments are not material.
(k) 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.
(l) 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.
(m) 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, 1998 and 1997 were $308,000 and
$266,000, 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, 1998
Gross Gross
Amort- Unreal- Unreal- Fair
ized ized ized
Securities available for Cost Gains Losses Value
sale
U. S. Treasury securities $1,304 $ 8 $ - $1,312
U. S. Government agencies 9,391 15 7 9,399
and corporations
Mortgage-backed securities 15,770 73 41 15,802
$26,465 $96 $48 $26,513
Securities held to
maturity
States and political $7,402 $147 $ - $7,549
subdivisions
Mortgage-backed securities 723 2 - 725
$8,125 $149 $ - $8,274
Securities pledged to
secure public deposits
and for other purposes $13,843 $13,933
Securities available for December 31, 1997
sale
U. S. Treasury securities $2,211 $ 3 $ 4 $2,210
U. S. Government agencies 14,457 30 13 14,474
and corporations
Mortgage-backed securities 8,578 90 36 8,632
$25,246 $123 $53 $25,316
Securities held to
maturity
U. S. Treasury securities $1,001 $ - $ - $1,001
U. S. Government agencies 1,399 - - 1,399
and corporations
States and political 5,357 74 - 5,431
subdivisions
Mortgage-backed securities 572 - 4 568
$8,329 $74 $4 $8,399
Securities pledged to
secure public deposits
and for other purposes $7,505 $7,520
The scheduled maturities of securities available for sale and
held to maturity at December 31, 1998 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 $3,133 $3,143 $ 894 $ 900
After one year through 17,174 17,224 5,184 5,271
five years
After five years through 5,675 5,661 1,982 2,036
ten years
After ten years 483 485 65 67
$26,465 $26,513 $8,125 $8,274
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 1998 and 1997.
(4) Loans Receivable
The components of loans in the consolidated statements of
financial condition at December 31 were as follows (in thousands
of dollars):
1998 1997
Commercial $11,935 $10,020
Agricultural 6,507 4,441
Real estate mortgage 24,072 23,231
Consumer 11,117 9,760
Other 25 21
53,656 47,473
Unearned income (536) (485)
Allowance for loan losses (1,001) (937)
$52,119 $46,051
An analysis of the change in the allowance for loan losses
follows (in thousands of dollars):
1998 1997
Balance at January 1 $937 $859
Loans charged off (75) (72)
Recoveries 36 22
Net loans charged off (39) (50)
Provision for loan losses 103 128
Balance at December 31 $1,001 $937
At December 31, 1998 and 1997, loans totaling $309,000 and
$172,000 were classified as impaired. Of the total impaired
loans at December 31, 1998 and 1997, $309,000 and $172,000 had a
related allowance for loan losses of $22,000 and $23,000,
respectively. The average balances of these loans in 1998 and
1997 were approximately $318,000 and $255,000. In 1998 and 1997,
interest income recognized on impaired loans was approximately
$24,000 and $9,000, respectively. No commitments to loan
additional funds to borrowers of impaired loans were outstanding
at December 31, 1998.
(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):
1998 1997
Cost:
Land $ 241 $ 241
Buildings 2,718 2,621
Furniture and equipment 734 606
Automobiles 55 55
3,748 3,523
Accumulated depreciation (769) (585)
$2,979 $2,938
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 recorded 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):
1998 1997
Balance at January 1 $ 7 $ 16
Provision charged to income - -
Charge-offs, net of recoveries (7) (9)
Balance at December 31 $ - $ 7
(7) Deposits
At December 31, 1998, the scheduled maturities of time deposits
are as follows (in thousands of dollars):
$100,000 Other time
Year maturing and more deposits
1999 $19,910 $39,578
2000 1,764 4,116
2001 1,000 1,316
2002 - 213
$22,674 $45,223
(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, 1998 and 1997, commitments to extend credit
totaled $5,917,000 and $4,435,000, 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, 1998 and 1997, commitments under standby letters
of credit totaled $267,000 and $286,000, 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.
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31, 1998 are as follows (in
thousands of dollars):
Carrying Fair
Amount Value
Financial assets
Cash and due from banks $1,857 $1,857
Federal funds sold 6,625 6,625
Securities 34,638 34,787
Loans receivable 52,119 52,229
Financial liabilities
Deposits 93,931 94,213
(9) Income Taxes
The consolidated provision for income taxes consisted of the
following for the years ended December 31 (in thousands of
dollars):
1998 1997
Current expense $404 $448
Deferred expense (benefit) (6) (26)
Income tax expense $398 $422
The effective tax rates differed from the statutory federal
income tax rates as follows:
1998 1997
Statutory federal income tax rate 34.0% 34.0%
Nontaxable income (7.9%) (6.4%)
Nondeductible expenses 2.1% 1.6%
Other (0.2%) (1.4%)
Effective tax rate 28.0% 27.8%
Deferred tax assets and (liabilities) at December 31 consist of
the following (in thousands of dollars):
1998 1997
Net (appreciation) of securities available $(17) $(24)
for sale
Allowance for loan losses 156 134
Allowance for foreclosed real estate losses - 3
Accumulated depreciation (113) (89)
Deferred compensation payable 46 36
Accreted discount on investments (16) (17)
Tax basis over book value of land 25 25
Deferred tax asset $81 $ 68
No valuation allowance was recorded to reduce the deferred tax
asset at December 31, 1998 and 1997.
(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, 1998 and 1997 was $548,000 and $602,000,
respectively. During 1998, new loans to such related parties
amounted to $485,000 and repayments amounted to $539,000.
Deposits held by the Bank at December 31, 1998 and 1997 for
related parties were $2,664,000 and $2,958,000, respectively.
Fees paid for goods and services provided by related parties
amounted to $10,000 in 1998 and $14,000 in 1997.
(11) Commitments
At December 31, 1998 and 1997, the Bank had unused lines of
credit with other banks which totaled $3,000,000 and $3,750,000.
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 contributions in 1998 and 1997 were $27,000 and $23,000,
respectively.
(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, 1998, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1998, 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):
1998 1997
Amount Ratio Amount Ratio
Total Capital (to Risk $10,760 19.3% $9,731 19.8%
Weighted Assets)
Tier 1 Capital (to $10,062 18.0% $9,117 18.5%
Risk Weighted Assets)
Tier 1 Capital (to $10,062 9.7% $9,117 9.5%
Average 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 1998 1997
Assets
Investment in Citizens Bank, at equity $10,375 $9,468
Cash and equivalents 4 6
Total assets $10,379 $9,474
Liabilities and Shareholders' Equity
Total liabilities $ - $ -
Common stock 575 575
Additional paid-in capital 825 825
Retained earnings 8,952 8,027
Treasury stock (6) -
Accumulated other comprehensive income 33 47
Total shareholders' equity 10,379 9,474
Total liabilities and shareholders' $10,379 $9,474
equity
Statements of Income
Income
Equity in undistributed net income of $ 921 $1,013
Citizens Bank
Dividends received from Citizens Bank 105 86
Total income 1,026 1,099
Expenses
Other expense 3 5
Total expenses 3 5
Net income $1,023 $1,094
Statements of Cash Flows
Cash flows from operating activities
Net income $1,023 $1,094
Adjustments to reconcile net income to
net cash provided by operating
activities:
Equity in undistributed net income of (921) (1,013)
Citizens Bank
Net cash provided by operating 102 81
activities
Cash flows from investing activities - -
Cash flows from financing activities
Purchase of treasury stock (6) -
Dividends paid (98) (80)
Net cash (used) by financing (104) (80)
activities
Net increase (decrease) in cash and (2) 1
equivalents
Cash and equivalents at beginning of 6 5
year
Cash and equivalents at end of year $ 4 $ 6
(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 1998 1997
Assets
Cash and due from banks $1,857 $1,848
Federal funds sold 6,625 6,900
Interest-bearing deposits with banks 5,142 4,758
Investment securities 34,638 33,645
Loans receivable 52,119 46,051
Accrued interest receivable 940 960
Premises and equipment 2,979 3,064
Foreclosed real estate - 14
Deferred tax asset 81 68
Other assets 743 649
Total assets $105,124 $97,957
Liabilities and Shareholder's Equity
Deposits $93,935 $87,440
Accrued interest payable 557 568
Accrued expenses and other liabilities 257 481
Common stock 575 575
Additional paid-in capital 4,000 4,000
Retained earnings 5,767 4,846
Accumulated other comprehensive income 33 47
Total liabilities and shareholder's $105,124 $97,957
equity
Statements of Income
Interest income
Loans $4,768 $4,384
Investment securities 1,905 2,176
Federal funds sold 498 327
Deposits with banks 302 238
Total interest income 7,473 7,125
Interest expense 4,220 3,956
Net interest income 3,253 3,169
Provision for loan losses 103 128
Net interest income after provision 3,150 3,041
for loan losses
Noninterest income 625 580
Noninterest expense 2,351 2,101
Income tax expense 398 422
Net income $1,026 $1,098
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, 1998, the Company and the Bank had
approximately 45 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, 1998, there were 464
holders of record of the Company's common stock.
1998 1997
Per share stock transactions High Low High Low
First Quarter $40 $18 $18 $15
Second Quarter $40 $20 $20 $15
Third Quarter $40 $40 $40 $18
Fourth Quarter $40 $40 $40 $18
Dividends per share $0.85 $0.70
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 of 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 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 1975; 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; Director
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 retailor.
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 Bank.
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