U.S. 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, 1999
( ) TRANSACTION 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.
(Name of small business issuer in its charter)
Louisiana 72-0759135
(State or other jurisdiction (IRS Employer
of incorporation or Identification Number)
organization)
Post Office Box 598
Ville Platte, Louisiana 70586-0598
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (337) 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 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. $8,688,000
State the aggregate market value of the voting stock held by non-
affiliates* of the issuer as of January 26, 2000 (based on $40.00
per share).
$2,121,280
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock as of the latest practical date.
Common Stock, $5.00 par value,
114,855 shares outstanding as of January 26, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-KSB
Documents Incorporated into which Incorporated
Definitive Proxy Statement Part III
for the 2000 Annual
Meeting of Shareholders
1999 Annual Report to Part II
Shareholders
Transitional Small Business Disclosure Format: yes no x .
* For the purpose of this computation only, shares held by
directors, executive officers and principal shareholders have
been excluded.
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.
Furthermore, due to the enactment of the Gramm-Leach-Bliley
Financial Modernization Act (the "Gramm-Leach-Bliley Act") in
1999, which repealed certain provisions of the Glass-Steagall Act
and amended certain provisions of the Bank Holding Company Act,
the Bank will also face competition from a newly-authorized
entity, the Financial Holding Company (an "FHC"). An FHC may be
formed through either the affiliation of one or more banks or
their holding companies, insurance companies and/or securities
firms, or a present bank holding company electing to convert to
an FHC by meeting stated Capital and management qualification
standards. An FHC may engage in a wide range of activities
deemed by the statute to be financial in nature, or incidental or
complementary to such activity as determined by the Federal
Reserve Board and the United States Treasury Department (the
"Treasury Department"), subject to certain activity asset size
limitations, capital and management qualification standards and
regulatory approval.
Additionally, the Gramm-Leach-Bliley Act amends the National Bank
Act to provide for nationally-charted banks to own and operate
"financial subsidiaries" which may engage in the activities
allowed for an FHC. State-charted financial institutions, such
as Citizens Bank, are given companion authority through Gramm-
Leach-Bliley amendments to the Federal Deposit Insurance Act.
However, Louisiana banking law must also authorize such
investment or activity, a requirement that is not present for
national banks. Thus, there may be activities allowed for
national bank financial subsidiaries that may not be available to
state-chartered bank financial subsidiaries.
EMPLOYEES
As of December 31, 1999, the Company and the Bank had
approximately 47 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.
Additionally, the Gramm-Leach-Bliley Act sets forth the
permissible activities an FHC may conduct and the qualifications
necessary for both the initial formation of an FHC and the
conversion of a current bank holding company into an FHC. The
Federal Reserve Board has promulgated an administrative
regulation, which sets forth the particular capital and
management qualifications and other procedural requirements
relative to the formation and operations of an FHC. The Gramm-
Leach-Bliley Act designates the Federal Reserve Board as the
primary "umbrella supervisor" of an FHC, with the proper State
authority and other federal financial regulatory agencies serving
as "functional regulators" over the activities of the various FHC
affiliates. Furthermore, the Treasury Department retains a veto
over specific Federal Reserve Board determinations and the
Federal Deposit Insurance Corporation retains a supervisory role
if the FHC affiliate's activity is deemed to affect the deposit
insurance fund.
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, 1999 (in thousands of dollars):
Held to Available
Maturity for Sale
U.S. Treasury securities
Within 1 year $0 0% $0 0%
After 1 but within 5 years 0 0 0 0
Subtotals 0 0 0 0
U.S. Government Securities
Within 1 year 500 6.18 962 5.42
After 1 but within 5 years 0 0 13,258 5.88
Subtotals 500 6.18 14,220 5.85
State & political
subdivisions
Within 1 year 1,107 4.77 0 0
After 1 but within 5 years 5,409 4.40 0 0
After 5 but within 10 years 2,261 4.75 0 0
Subtotals 8,777 4.67 0 0
Mortgage-backed securities 624 5.39 11,348 6.00
Totals $9,901 4.80% $25,568 5.92%
The above weighted average yield on tax-exempt obligations are
not computed on a tax-equivalent basis. Yields on available for
sale securities are computed on historical amortized cost.
No securities of any single issuer which totaled 10% or more of
shareholders equity were held at December 31, 1999.
LOANS
A distribution of the loan portfolio at December 31, 1999 and
1998 is summarized as follows (in thousands of dollars):
1999 1998
Commercial $15,346 26.06% $11,935 22.90%
Real Estate Mortgage 25,544 43.42 24,072 46.19
Agricultural 6,687 11.37 6,507 12.48
Consumer 12,731 21.64 11,117 21.33
Overdrafts 22 0.04 25 0.05
Gross loans 60,330 102.53 53,656 102.95
Unearned income (459) (.78) (536) (1.03)
Allowance for loan loss (1,029) (1.75) (1,001) (1.92)
Net loans $58,842 100.00% $52,119 100.00%
LOAN MATURITY AND INTEREST RATE SENSITIVITY
Maturities of commercial and agricultural loans at December 31,
1999 are summarized below (in thousands of dollars):
Over Over
One Year One to Five
Total or Less Five Yrs Years
Commercial $15,346 $9,947 $4,750 $649
Agricultural 6,687 4,659 1,431 597
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 $6,236 $6,236 $0
Agricultural 1,775 1,557 218
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, 1999.
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
Float Months Months Months
Securities $0 $2,198 $1,484 $4,884
Fixed Loans 555 6,309 5,801 9,228
Floating Loans 691 1,278 873 810
Fed Funds & CD's 6,225 2,674 2,378 198
Totals 7,471 12,459 10,536 15,120
CD & IRA > 100M 0 11,072 2,915 6,298
CD & IRS < 100M 903 18,045 10,779 13,022
IMM Accounts 4,034 0 0 0
Christmas Club 0 0 0 50
Savings/Now Accts 466 0 0 0
Totals 5,403 29,117 13,694 19,370
Gap 2,068 (16,658) (3,158) (4,250)
Cumulative Gap $2,068 ($14,590) ($17,748) ($21,998)
13-18 19-24 Over 2
Months Months Years Total
Securities $1,255 $1,749 $24,421 $35,991
Fixed Loans 4,990 5,418 17,416 49,717
Floating Loans 355 372 5,606 9,985
Fed Funds & CD's 0 0 0 11,475
Totals 6,600 7,539 47,443 107,168
CD & IRA > 100M 1,700 1,963 717 24,665
CD & IRA < 100M 3,515 2,235 1,178 49,677
IMM Accounts 0 0 0 4,034
Christmas Club 0 0 0 50
Savings/Now Accts 0 0 12,178 12,644
Totals 5,215 4,198 14,073 91,070
Gap 1,385 3,341 33,370 16,098
Cumulative Gap ($20,613) ($17,272) $16,098 $0
RISK ELEMENTS
The following summarizes nonperforming loans at December 31, 1999
and 1998 (in thousands of dollars):
1999 1998
Nonaccrual loans $168 $136
Loans past due 90 days or more as
to principal or interest and
still accruing interest 107 142
Restructured loans not included
above 191 210
Totals $466 $488
Interest on such loans, had they remained current and in
accordance with their original terms, would have been (in
thousands of dollars):
1999 1998
Nonaccrual loans $9 $4
Restructured loans 16 23
Totals $25 $27
Interest collected on nonaccrual and restructured loans amounted
to $12,800 for 1999 and $6,300 for 1998.
Other nonperforming assets are(in thousands of dollars):
1999 1998
Real estate & other assets
acquired in satisfaction of loans $79 $47
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 accrued. 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.
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):
1999 1998
Allowance for possible loan losses at
January 1 $1,001 $937
Loans charged off:
Commercial 0 1
Credit cards 13 15
Real estate - mortgage 37 9
Agricultural 0 0
Consumer 50 45
Other (overdrafts) 4 5
Total charged off 104 75
Recoveries:
Commercial 0 1
Credit cards 8 6
Real estate - mortgage 3 2
Agricultural 0 6
Consumer 11 18
Other (overdrafts) 2 3
Total recoveries 24 36
Net loans charged off 80 39
Provision charged to operating expense 108 103
Allowance for possible loan losses at
December 31 $1,029 $1,001
Loans outstanding at December 31 $59,871 $53,120
Average loans outstanding for the year $57,726 $50,443
Ratio of net charge-offs to average
loans outstanding 0.14% 0.08%
Ratio of allowance to loans
outstanding at year end 1.72% 1.88%
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 $108,000 in 1999
and $102,500 in 1998.
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):
1999 1998
Percent of Percent of
loans in loans in
each each
Allowance category Allowance category
to to
Amount total Amount total
loans loans
Commercial $ 0 25.44% $ 14 22.24%
Real estate 369 42.34% 121 44.86%
Agriculture 124 11.08% 204 12.13%
Installment 492 21.10% 598 20.72%
Other 44 0.04% 64 0.05%
Totals $1,029 100.00% $1,001 100.00%
Deposits
The following is a distribution of average deposits for the two
years ended December 31 (in thousands of dollars):
1999 1998
Demand deposits $10,903 $10,690
Savings and NOW accounts 18,615 15,418
Time deposits $100,000 and more 23,213 22,680
Other time deposits 48,910 44,017
Totals $101,641 $92,805
The following is a maturity distribution of certificates of
deposit $100,000 and more as of December 31 (in thousands of
dollars):
1999 1998
Three months and under $6,405 $10,173
Over three months through six months 7,433 5,917
Over six months through twelve months 6,447 3,820
Over twelve months 4,380 2,764
Totals $24,665 $22,674
Return on Equity and Assets
1999 1998
Return on average assets 1.00% 0.99%
Return on average equity 10.58% 10.35%
Dividend payout ratio 10.16% 9.55%
Average equity to average assets 9.43% 9.53%
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.
1999/1998 Due to
(In thousands of dollars) Rate Volume Total
Interest-earning assets:
Interest-bearing deposits $(18) $8 $(10)
Federal funds sold (34) (5) (39)
US Treasury securities 2 (80) (78)
US Government agencies (59) 93 34
State and municipal(1) (36) 147 111
Loans, net (169) 694 525
Total interest income(1) (314) 857 543
Interest-bearing funds:
Savings and NOW accounts (9) 90 81
Time deposits >or= (50) 31 (19)
$100,000
Other time deposits (100) 264 164
Total interest expense (159) 385 226
Net interest income(1) $(155) $472 $317
1998/1997 Due to
(In thousands of dollars) Rate Volume Total
Interest-earning assets:
Interest-bearing deposits $(3) $67 $64
Federal funds sold (4) 175 171
US Treasury securities 0 (154) (154)
US Government agencies (92) (62) (154)
State and municipal(1) (6) 63 57
Loans, net 77 307 384
Total interest income(1) (28) 396 368
Interest-bearing funds:
Savings and NOW accounts 1 70 71
Time deposits >or= 62 48 110
$100,000
Other time deposits (32) 116 84
Total interest expense 31 234 265
Net interest income(1) $(59) $162 $103
(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 renegotiated
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):
1999
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning Assets
Interest Bearing Deposits $5,324 $292 5.48%
Federal Funds Sold 9,295 459 4.94
U.S. Treasury 731 42 5.75
U.S. Government 26,455 1,515 5.73
State & Municipal (1) 8,056 572 7.10
Loans, net 56,706 5,273 9.30
Total Earning Assets 106,567 8,153 7.65
Cash & Due from Banks 2,276
Premises & Equipment 3,081
Other Assets 1,529
Total Assets $113,453
Liabilities &
Shareholders Equity
Interest Bearing funds
Savings & Now $18,615 540 2.90
Time Deposit $100,000 23,213 1,303 5.61
Other Time Deposits 48,910 2,608 5.33
Total Int. Bearing 90,738 4,451 4.91
Demand Deposits 10,903
Accrued Interest &
Other Liabilities 971
Total Liabilities 102,612
Shareholder's Equity 10,841
Total Liabilities &
Shareholders Equity $113,453
Net Interest Income, Taxable
equivalent basis 3,702
Taxable equivalent adjustment (195)
Net interest income, actual $3,507
Spread 2.74%
Net interest yield (1) 3.50%
1998
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning Assets
Interest Bearing Deposits $5,179 $302 5.83%
Federal Funds Sold 9,383 498 5.31
U.S. Treasury 2,123 120 5.65
U.S. Government 24,843 1,481 5.96
State & Municipal (1) 6,017 461 7.66
Loans, net 49,474 4,768 9.64
Total Earning Assets 97,019 7,630 7.86
Cash & Due from Banks 2,677
Premises & Equipment 3,084
Other Assets 861
Total Assets $103,641
Liabilities &
Shareholders Equity
Interest Bearing funds
Savings & Now $15,418 456 2.96
Time Deposit $100,000 22,680 1,322 5.83
Other Time Deposits 44,017 2,442 5.55
Total Int. Bearing 82,115 4,220 5.14
Demand Deposits 10,690
Accrued Interest &
Other Liabilities 955
Total Liabilities 93,760
Shareholder's Equity 9,881
Total Liabilities &
Shareholders Equity $103,641
Net Interest Income, Taxable
equivalent basis 3,410
Taxable equivalent adjustment (157)
Net interest income, actual $3,253
Spread 2.74%
Net interest yield (1) 3.51%
(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 1999.
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 1999
have occurred at $40 per share, and during 1998 ranged from a low
of $18 to a high of $40. 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 the Company's
common stock, $5.00 par value, as of January 16, 2000 was 475.
The Board of Directors has declared cash dividends in December
1998 and 1999 of $0.85 per share and $1.00 per share,
respectively. Although no assurances can be made, management
currently expects that cash dividends will be paid in the future
years at approximately the same rates as in the past.
The ability of the Company to pay dividends is contingent upon
its subsidiary, Citizens Bank, to pay dividends. 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 1999 Annual Report is
incorporated herein by reference in response to this item.
ITEM 7. FINANCIAL STATEMENTS
The information appearing in the Company's 1999 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.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the Company's definitive proxy
statement for the 2000 annual meeting of shareholders is
incorporated herein by reference in response to this item.
ITEM 10. EXECUTIVE COMPENSATION
The information appearing in the Company's definitive proxy
statement for the 2000 annual meeting of shareholders is
incorporated herein by reference in response to this item.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information appearing in the Company's definitive proxy
statement for the 2000 annual meeting of shareholders is
incorporated herein by reference in response to this item.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Company's definitive proxy
statement for the 2000 annual meeting of shareholders is
incorporated herein by reference in response to this item.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 Regulation S-B:
Exhibit 13 - 1999 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
1999.
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.
Small business issuer: Citizens Bancshares, Inc.
Date: February 25, 2000
s/Carl W. Fontenot
Carl W. Fontenot
President & Director
s/Wayne Vidrine
Wayne Vidrine
Treasurer
s/Fredrick Phillips
Fredrick Phillips
Director
s/Brent Coreil
Brent Coreil
Director
s/Bryan Fontenot
Bryan Fontenot
Director
s/Eugene Fontenot
Eugene S. Fontenot
Director
Citizens Bancshares, Inc.
Annual Report
1999
PRESIDENT'S MESSAGE
March 13, 2000
Dear Shareholder:
The Board of Directors and Management thank you, our loyal
shareholders, for the support and confidence you have continually
entrusted to Citizens Bank and in us.
Citizens Bancshares and Citizens Bank have experienced another
year of significant growth and excellent earnings. For the year
ended December 31, 1999, assets increased $8,000,000 to
approximately $113,000,000 with related increases in loans,
deposits, and equity positions. Cash dividends paid to Holding
Company shareholders totaled $1.00 per share (an increase of
$17.60% over 1998 dividends). With the continued commitment to
serve the banking needs of Evangeline Parish, we expect continued
Bank growth and increases in the value of your investment.
Your Bank is positioned with the opportunity to offer new banking
products and services into the new millennium such as telephone
banking, internet banking, and nonbank products such as
investment securities. These efforts are aimed at expanding the
Bank's competitive stance as well as providing uninterrupted
customer service into the new millennium.
All Board members, management, and employees remain committed to
providing the best and most personal banking services possible.
This is our continuing pledge to you now and in the future.
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").
Citizen's 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
The Y2K Coordinator, Committee and the Bank's management and
staff report that their planning, remediation, testing and
monitoring efforts resulted in a smooth and uneventful transition
to the Year 2000. Management feels that effective Y2K
monitoring, continuous employee education and effective public
education were all elements in securing a smooth Year 2000
transition. Public education such as the Y2K Outreach Program
held in June 1999, direct mailings and several statement stuffers
worked successfully to relieve public fear and answer questions.
Because of the critical nature of the Year 2000 issues to our
business and to all of the financial services industry, Citizens
Bank incurred expense charges related to Y2K throughout 1999 in
anticipation of possible costs associated with Year 2000
compliance. In conjunction with the construction of the new bank
building, most equipment was updated and replaced in 1997 and
1998, and Y2K expenses were kept to a minimum. Y2K costs in 1999
were less than $10,000.
Efforts are continuing to ensure that remaining Y2K concerns
(such as month-end transition, leap-year processing, quarter-end
transition and year-end reporting) will all be accomplished in
the same manner. These efforts will be reported by management to
the Audit Committee and the Board of Directors in the form of a
Year 2000 Status Progress Report.
FINANCIAL CONDITION
Total assets increased by $8,083,000 to $113,207,000, a 7.69%
increase over the year-end 1998 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 93.45% 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, 1999, loans (net of the allowance for loan losses)
increased $6,723,000 or 12.90%, which increased the Bank's loan
to deposit ratio to 58.07%.
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 $1,029,000 as of December 31, 1999,
which represents 1.72% of total loans. Provisions to the
allowance for loan losses that were charged to net income totaled
$108,000. 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.
Citizen's 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 $168,000 and
loans past due ninety (90) days or more and still accruing
interest totaled $107,000 for year ended December 31, 1999. Past
due loans to total loans were 2.11% for the same period.
Another primary source of income is interest on investment
securities. Citizen's 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, 1999, securities classified as held to maturity had
an amortized cost of $9,901,000 and a fair value of $9,803,000.
The securities classified as available for sale had an amortized
cost of $26,090,000 and a market value of $25,568,000.
Deposits, both time and demand, represent the chief source of
funds for the Bank. At the end of 1999, total deposits increased
$7,396,000 or 7.88%. Much of the increase is in Savings, NOW,
Money Market deposits and other time deposits.
RESULTS OF OPERATIONS
The Company reported a net income of $1,131,000 or $9.85 per
average share outstanding as of December 31, 1999. Net return on
assets was 1.00% and net return on equity was 10.27%.
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,
1999 was $3,507,000, a $254,000 or 7.81% increase over 1998. On
December 31, 1999, the Company's net interest margin was 3.1%.
Noninterest income consists of service charges, fees on financial
services, and investment securities transactions. On December
31, 1999, noninterest income was $730,000, a $105,000 increase
from the previous year-end. The majority of this change is
attributed to an increase in Service Charges of $93,000.
Noninterest expense increased by $218,000, or 9.26% which is due
primarily to an increase in Salaries, 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, 1999 was
38.94%.
CAPITAL ADEQUACY
As of December 31, 1999, 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 Bank's actual and
required capital amounts and ratios at December 31, 1999 are as
follows (dollars in thousands):
To Be Well
Capitalized
under the
Prompt
For Capital Corrective
Action
Actual Adequacy Provisions
Purposes
Amount Ratio Amount Ratio Amount Ratio
Total Capital (to $11,888 19.0% $5,014 8.0% $6,267 10.0%
Risk Weighted
Assets)
Tier 1 Capital (to $11,102 17.7% $2,507 4.0% $3,760 6.0%
Risk Weighted
Assets)
Tier 1 Capital (to $11,102 9.6% $4,617 4.0% $5,771 5.0%
Adjusted Total
Assets)
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, 1999 and 1998, 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, 1999 and 1998, 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 14, 2000
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
(In thousands of dollars)
1999 1998
Assets
Cash and due from banks (Note 2) $2,423 $1,857
Federal funds sold 6,225 6,625
Cash and cash equivalents 8,648 8,482
Interest-bearing deposits with banks 5,250 5,142
Securities available for sale, at fair 25,568 26,513
values (Note 3)
Securities held to maturity, fair values 9,901 8,125
of $9,803 in 1999 and $8,274 in 1998 (Note
3)
Loans receivable, net of allowance for 58,842 52,119
loan losses of $1,029 in 1999 and $1,001
in 1998 (Note 4)
Accrued interest receivable 1,040 940
Premises and equipment (Note 5) 2,924 2,979
Foreclosed real estate (Note 6) 50 -
Deferred tax asset (Note 9) 285 81
Other assets 699 743
Total assets $113,207 $105,124
Liabilities and Shareholders' Equity
Liabilities
Demand deposits $ 10,256 $ 10,683
Savings, NOW, and money-market deposits 16,729 15,351
Time deposits $100,000 and more (Note 7) 24,665 22,674
Other time deposits (Note 7) 49,677 45,223
Total deposits 101,327 93,931
Accrued interest payable 604 557
Accrued expenses and other liabilities 258 257
Total liabilities 102,189 94,745
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) 9,968 8,952
Treasury stock at cost, 145 shares (6) (6)
Accumulated other comprehensive income (344) 33
Total shareholders' equity 11,018 10,379
Total liabilities and shareholders' $113,207 $105,124
equity
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands of dollars, except per share amounts)
1999 1998
Interest income
Loans receivable $5,273 $4,768
Taxable securities 1,557 1,601
Tax-exempt securities 377 304
Federal funds sold 459 498
Deposits with banks 292 302
Total interest income 7,958 7,473
Interest expense
Deposits
Savings, NOW, and money-market 540 456
deposits
Time deposits $100,000 and more 1,303 1,322
Other time deposits 2,605 2,437
Other 3 5
Total interest expense 4,451 4,220
Net interest income 3,507 3,253
Provision for loan losses (Note 4) 108 103
Net interest income after provision for 3,399 3,150
loan losses
Noninterest income
Service charges 566 473
Insurance commissions 109 97
Other income 55 55
Total noninterest income 730 625
Noninterest expense
Salaries and employee benefits 1,520 1,345
Occupancy and equipment expense 430 403
Other expense 622 606
Total noninterest expense 2,572 2,354
Income before income taxes 1,557 1,421
Income tax expense (Note 9) 426 398
Net income $1,131 $1,023
Net income per share of common stock $9.85 $8.90
Average shares outstanding 114,855 114,902
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands of dollars)
Accumu-
lated
Addi- Other Total
tional
Com- Paid- Retain- Treas- Compre- Share-
mon in ed ury hensive holders'
Stock Capita Earnin Stock Income Equity
l gs
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 - - - - (14) (14)
holding
loss on
securities
arising
during
1998, net
of tax of
$7
TOTAL 1,009
COMPRE-
HENSIVE
INCOME
Purchase - - - (6) - (6)
of stock
Cash - - (98) - - (98)
dividends
- -$0.85 per
share
Balance at 575 825 8,952 (6) 33 10,379
December
31, 1998
COMPRE-
HENSIVE
INCOME
Net income - - 1,131 - - 1,131
for 1999
Other
comprehens
ive
income:
Unrealized - - - - (377) (377)
holding
loss on
securities
arising
during
1999, net
of tax of
$194
TOTAL 754
COMPRE-
HENSIVE
INCOME
Cash - - (115) - - (115)
dividends
- -$1.00 per
share
Balance at $575 $825 $9,968 $(6) $(344) $11,018
December
31, 1999
CITIZENS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands of dollars)
1999 1998
Cash flows from operating activities
Net income $1,131 $1,023
Adjustments to reconcile net income to net
cash provided by
operating activities:
Deferred income tax (benefit) (10) (6)
Depreciation 194 184
Provision for loan losses 108 103
Net amortization of securities 62 39
(Increase) decrease in accrued interest (100) 20
receivable
Decrease in other assets 44 32
Increase (decrease) in accrued interest 47 (11)
payable
Increase (decrease) in accrued expenses 1 (225)
and other liabilities
Net cash provided by operating activities 1,477 1,159
Cash flows from investing activities
Net (increase) in interest-bearing (108) (384)
deposits with banks
Purchases of securities available for sale (8,792) (24,658)
Maturities of securities available for 9,101 23,021
sale
Purchases of securities held to maturity (2,823) (3,698)
Maturities of securities held to maturity 1,050 4,282
Net (increase) in loans (6,912) (6,209)
Sales of foreclosed real estate 31 52
Purchases of premises and equipment (139) (225)
Net cash (used) by investing activities (8,592) (7,819)
Cash flows from financing activities
Net increase in deposits 7,396 6,498
Purchase of treasury stock - (6)
Dividends paid (115) (98)
Net cash provided by financing activities 7,281 6,394
Net increase (decrease) in cash and cash 166 (266)
equivalents
Cash and cash equivalents at beginning of 8,482 8,748
year
Cash and cash equivalents at end of year $ 8,648 $ 8,482
Interest paid $ 4,404 $ 4,231
Income taxes paid $ 409 $ 389
Foreclosed real estate acquired in $ 81 $ 38
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, 1999 and
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 reserve balances by the Federal
Reserve Bank. The average amounts of these reserves for the
years ended December 31, 1999 and 1998 were $330,000 and
$308,000, 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, 1999
Gross Gross
Amort- Unreal- Unreal- Fair
ized ized ized
Securities available for Cost Gains Losses Value
sale
U.S. Government agencies $14,635 $ - $415 $14,220
and corporations
Mortgage-backed 11,455 30 137 11,348
securities
$26,090 $30 $552 $25,568
Securities held to
maturity
U.S. Government agencies $ 500 $ - $ 4 $ 496
and corporations
States and political 8,777 25 114 8,688
subdivisions
Mortgage-backed 624 - 5 619
securities
$9,901 $25 $123 $9,803
Securities pledged to $15,847 $15,588
secure public deposits
and for other purposes
Securities available for December 31, 1998
sale
U.S. Treasury securities $1,304 $ 8 $ - $1,312
U.S. Government agencies 9,391 15 7 9,399
and corporations
Mortgage-backed 15,770 73 41 15,802
securities
$26,465 $96 $48 $26,513
Securities held to
maturity
States and political $7,402 $147 $ - $7,549
subdivisions
Mortgage-backed 723 2 - 725
securities
$8,125 $149 $ - $8,274
Securities pledged to $13,843 $13,933
secure public deposits
and for other purposes
The scheduled maturities of securities available for sale and
held to maturity at December 31, 1999 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 $1,773 $1,736 $1,731 $1,728
After one year through 22,813 22,342 5,909 5,878
five years
After five years through 1,504 1,490 2,261 2,197
ten years
$26,090 $25,568 $9,901 $9,803
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 1999 and 1998.
(4) Loans Receivable
The components of loans in the consolidated statements of
financial condition at December 31 were as follows (in thousands
of dollars):
1999 1998
Commercial $15,346 $11,935
Agricultural 6,687 6,507
Real estate mortgage 25,544 24,072
Consumer 12,731 11,117
Other 22 25
60,330 53,656
Unearned income (459) (536)
Allowance for loan losses (1,029) (1,001)
$58,842 $52,119
An analysis of the change in the allowance for loan losses
follows (in thousands of dollars):
1999 1998
Balance at January 1 $1,001 $937
Loans charged off (104) (75)
Recoveries 24 36
Net loans charged off (80) (39)
Provision for loan losses 108 103
Balance at December 31 $1,029 $1,001
At December 31, 1999 and 1998, loans totaling $684,000 and
$309,000 were classified as impaired. Of the total impaired
loans at December 31, 1999 and 1998, $684,000 and $309,000 had a
related allowance for loan losses of $64,000 and $22,000,
respectively. The average balances of these loans in 1999 and
1998 were approximately $716,000 and $318,000. In 1999 and 1998,
interest income recognized on impaired loans was approximately
$48,000 and $24,000, respectively. No commitments to loan
additional funds to borrowers of impaired loans were outstanding
at December 31, 1999.
(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):
1999 1998
Cost:
Land $342 $241
Buildings 2,728 2,718
Furniture and equipment 762 734
Automobiles 55 55
3,887 3,748
Accumulated depreciation (963) (769)
$2,924 $2,979
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%. 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):
1999 1998
Balance at January 1 $ - $ 7
Provision charged to income - -
Charge-offs, net of recoveries - (7)
Balance at December 31 $ - $ -
(7) Deposits
At December 31, 1999, the scheduled maturities of time deposits
are as follows (in thousands of dollars):
$100,000 Other
time
Year maturing and more deposits
2000 $20,285 $42,749
2001 3,663 5,755
2002 717 1,130
2003 - -
2004 and thereafter - 43
$24,665 $49,677
(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, 1999 and 1998, commitments to extend credit
totaled $8,103,000 and $5,917,000, 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, 1999 and 1998, commitments under standby letters
of credit totaled $190,000 and $267,000, 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 are as follows (in thousands
of dollars):
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets
Cash and due from banks $ 2,423 $ 2,423 $ 1,857 $ 1,857
Federal funds sold 6,225 6,225 6,625 6,625
Securities 35,469 35,371 34,638 34,787
Loans receivable 58,842 58,324 52,119 52,229
Financial liabilities
Deposits 101,327 101,576 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):
1999 1998
Current expense $436 $404
Deferred expense (benefit) (10) (6)
Income tax expense $426 $398
The effective tax rates differed from the statutory federal
income tax rates as follows:
1999 1998
Statutory federal income tax rate 34.0% 34.0%
Nontaxable income (8.7%) (7.9%)
Nondeductible expenses 2.1% 2.1%
Other - % (0.2%)
Effective tax rate 27.4% 28.0%
Deferred tax assets and (liabilities) at December 31 consist of
the following (in thousands of dollars):
1999 1998
Net depreciation (appreciation) of $177 $(17)
securities available for sale
Allowance for loan losses 165 156
Accumulated depreciation (121) (113)
Deferred compensation payable 57 46
Accreted discount on investments (18) (16)
Tax basis over book value of land 25 25
Deferred tax asset $285 $81
No valuation allowance was recorded to reduce the deferred tax
asset at December 31, 1999 and 1998.
(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, 1999 and 1998 was $553,000 and $548,000,
respectively. During 1999, new loans to such related parties
amounted to $401,000 and repayments amounted to $396,000.
Deposits held by the Bank at December 31, 1999 and 1998 for
related parties were $3,504,000 and $2,664,000, respectively.
Fees paid for goods and services provided by related parties
amounted to $12,000 in 1999 and $10,000 in 1998.
(11) Commitments
At December 31, 1999 and 1998, the Bank had unused lines of
credit with other banks which totaled $3,500,000 and $3,000,000,
respectively. The lines were unsecured and have variable
interest rates based on the lending bank's daily federal funds
rate.
In addition, the Bank may make advances from the Federal Reserve
Bank of Atlanta's discount window. At December 31, 1999, no
advances were outstanding. A pledge of collateral, such as
investment securities and loans, is necessary before the Bank may
borrow from the discount window.
(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 1999 and 1998 were $33,000 and $27,000,
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, 1999, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1999, 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 Bank's actual and
required capital amounts and ratios are as follows (dollars in
thousands):
To Be Well
Capitalized
under the
Prompt
For Capital Corrective
Action
Actual Adequacy Provisions
Purposes
At December 31, Amount Ratio Amount Ratio Amount Ratio
1999
Total Capital (to $11,888 19.0% $5,014 8.0% $6,267 10.0%
Risk Weighted
Assets)
Tier 1 Capital $11,102 17.7% $2,507 4.0% $3,760 6.0%
(to Risk Weighted
Assets)
Tier 1 Capital $11,102 9.6% $4,617 4.0% $5,771 5.0%
(to Adjusted
Total Assets)
At December 31,
1998
Total Capital (to $10,760 19.3% $4,466 8.0% $5,582 10.0%
Risk Weighted
Assets)
Tier 1 Capital $10,062 18.0% $2,233 4.0% $3,349 6.0%
(to Risk Weighted
Assets)
Tier 1 Capital $10,062 9.7% $4,134 4.0% $5,168 5.0%
(to Adjusted
Total 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 1999 1998
Assets
Investment in Citizens Bank, at equity $11,011 $10,375
Cash and equivalents 7 4
Total assets $11,018 $10,379
Liabilities and Shareholders' Equity
Total liabilities $ - $ -
Common stock 575 575
Additional paid-in capital 825 825
Retained earnings 9,968 8,952
Treasury stock (6) (6)
Accumulated other comprehensive income (344) 33
Total shareholders' equity 11,018 10,379
Total liabilities and shareholders' $11,018 $10,379
equity
Statements of Income
Income
Equity in undistributed net income of $1,013 $ 921
Citizens Bank
Dividends received from Citizens Bank 121 105
Total income 1,134 1,026
Expenses
Other expense 3 3
Total expenses 3 3
Net income $1,131 $1,023
Statements of Cash Flows
Cash flows from operating activities
Net income $1,131 $1,023
Adjustments to reconcile net income to
net cash provided
by operating activities:
Equity in undistributed net income of (1,013) (921)
Citizens Bank
Net cash provided by operating activities 118 102
Cash flows from investing activities - -
Cash flows from financing activities
Purchase of treasury stock - (6)
Dividends paid (115) (98)
Net cash (used) by financing activities (115) (104)
Net increase (decrease) in cash and 3 (2)
equivalents
Cash and equivalents at beginning of year 4 6
Cash and equivalents at end of year $ 7 $ 4
(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 1999 1998
Assets
Cash and due from banks $2,423 $1,857
Federal funds sold 6,225 6,625
Interest-bearing deposits with banks 5,250 5,142
Investment securities 35,469 34,638
Loans receivable 58,842 52,119
Accrued interest receivable 1,040 940
Premises and equipment 2,924 2,979
Foreclosed real estate 50 -
Deferred tax asset 285 81
Other assets 699 743
Total assets $113,207 $105,124
Liabilities and Shareholder's Equity
Deposits $101,334 $93,935
Accrued interest payable 604 557
Accrued expenses and other liabilities 258 257
Common stock 575 575
Additional paid-in capital 4,000 4,000
Retained earnings 6,780 5,767
Accumulated other comprehensive income (344) 33
Total liabilities and shareholder's $113,207 $105,124
equity
Statements of Income
Interest income
Loans $5,273 $4,768
Investment securities 1,934 1,905
Federal funds sold 459 498
Deposits with banks 292 302
Total interest income 7,958 7,473
Interest expense 4,451 4,220
Net interest income 3,507 3,253
Provision for loan losses 108 103
Net interest income after provision for 3,399 3,150
loan losses
Noninterest income 730 625
Noninterest expense 2,569 2,351
Income tax expense 426 398
Net income $1,134 $1,026
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, 1999, the Company and the Bank had
approximately 47 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, 1999, there were 472
holders of record of the Company's common stock.
1999 1998
Per share stock High Low High Low
transactions
First quarter $40 $40 $40 $18
Second quarter $40 $40 $40 $20
Third quarter $40 $40 $40 $40
Fourth quarter $40 $40 $40 $40
Dividends per share $1.00 $0.85
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
C. Brent Coreil Practicing attorney and District Attorney
of the Parish of Evangeline. Director of
the Bank and the Company since January
2000.
E. J. Deville Retired realtor and businessman. Director
of the Bank since January 2000.
Bryan Fontenot Farmer. Director of the Bank and the
Company since January 2000.
Carl W. Fontenot President and CEO of the Bank and the
Company. Director of the Bank since 1975.
Director of the Company since 1983.
Eugene S. Fontenot Owner and President of Euco Finance
Company, Inc. Director and Secretary of
the Bank since 1975. Director and
Secretary of the Company since 1983.
Jules Hebert President of Farmers Gas Company, Inc.,
propane and butane gas distributor.
Director of the Bank since 1980. Director
of the Company since 1983.
Stephen P. Mayeux Senior Vice President of the Bank.
Anita Fontenot Public Relations and Education Director
Melancon for Savoy Medical Center. Director of the
Bank and the Company since January 2000.
Fredrick Phillips General contractor. Director of the Bank
since 1975. Director of the Company since
1983.
Brod Veillon Commander of Louisiana Air National Guard.
Director of the Bank and the Company since
January 2000.
Wayne Vidrine Executive Vice President and Cashier of
the Bank. Treasurer of the Company.
Director of the Bank since January 2000.
Joseph West General and residential contractor.
Director of the Bank since January 2000.
Roderick Young Businessman and investor. Director of the
Bank since 1977. Director of the Company
since 1983.
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<PERIOD-END> DEC-31-1999
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