SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) TO THE SECURITIES
EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) TO THE EXCHANGE
ACT
For the quarterly period end September 30, 1995
CITIZENS BANCSHARES CORPORATION
(Name of small business issuer in it charter)
Georgia
(State or other jurisdiction ofincorporation or organization)
175 John Wesley Dobbs Avenue, N.E., Atlanta, Georgia
(Address of principal executive office)
Registrant's telephone number, including area code:
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 90 days. Yes _X__ No ___.
State the number of shares outstanding if each of the issuer's
classes of common equity as of the latest practicable date:
1,329,684 shares of Common Stock, $1.00 par value, outstanding on
November 1, 1995.
<TABLE>
Part I. Financial Information:
Citizens Bancshares Corporation and Subsidiary
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
(unaudited-amounts in thousands, except per share amounts)
<CAPTION>
ASSETS
1995 1994
<S> <C> <C> <C>
Cash and due from banks $ 7,121 11,675
Federal funds sold 8,700 4,400
Investment securities:
Held to maturity 32,445 36,535
Available for sale 9,822 7,132
Total investments 42,267 43,667
Loans, net of unearned income 70,174 69,261
Less allowance for possible loan losses 1,483 1,047
Loans, net 68,691 68,214
Premises and equipment, net 2,409 2,425
Real estate acquired through foreclosure 198 823
Other assets 1,890 2,002
Total assets $ 131,276 133,206
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 42,414 39,268
Interest-bearing 77,199 82,877
Total deposits 119,613 122,145
Treasury, tax and loan account 272 425
Long-term debt and obligations under capital 1,001 1,293
Other liabilities 1,235 1,057
Total liabilities 122,121 124,920
Shareholders' equity:
Common stock-$1 par value. Authorized
5,000,000 shares; issued and outstanding
1,329,684 shares 1,330 1,330
Additional Paid-In Capital 1,470 1,470
Unrealized gain(loss) - securities 62 (77)
Retained earnings 6,293 5,563
Total shareholders' equity 9,155 8,286
Total liabilities and sharehol $ 131,276 133,206
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Citizens Bancshares Corporation and Subsidiary
Consolidated Statements of Earnings
(unaudited-amounts in thousands, except per share amounts)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans, including fees $ 1,597 1,265 4,763 3,604
Investment securities
Taxable 697 630 2,061 1,979
Tax-exempt 25 56 90 175
Federal funds sold 92 115 367 189
Total interest income 2,411 2,066 7,281 5,947
INTEREST EXPENSE:
Deposit 712 593 2,170 1,671
Treasury tax, and loan account 3 14 13 16
Long-term debt and obligations
under capital 18 25 64 71
Total interest expense 733 632 2,247 1,758
Net interest income 1,678 1,434 5,034 4,189
Provision for possible loan losses 125 181 375 554
Net interest income after provision
for possible loan losses 1,553 1,253 4,659 3,635
NONINTEREST INCOME:
Service charges on deposit accounts 988 1,015 2,819 3,094
Gain on sale of real estate - - - 127
Other operating income 48 127 210 323
Total noninterest income 1,036 1,142 3,029 3,544
NONINTEREST EXPENSE:
Salaries and employee benefits 1,226 1,166 3,602 3,370
Net occupancy and equipment 412 498 1,230 1,354
Other operating expenses 595 738 1,998 2,028
Total other expense 2,233 2,402 6,830 6,752
Earnings before income taxes 356 (7) 858 427
Income tax expense 52 (5) 128 82
Net earnings $ 304 (2) 730 345
Net earnings per common share $ 0.23 (0.00) 0.55 0.26
Average outstanding shares 1,330 1,330 1,330 1,330
See accompaning notes to consolidated financial statement.
</TABLE>
<TABLE>
Citizens Bancshares Corporation and Subsidiary
Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and 1994
(unaudited-amounts in thousands, except per share amounts)
<CAPTION>
1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 730 345
Adjustments to reconcile net earnings(loss)
to net cash provided by operating activities:
Provision for possible loan losses 375 554
Depreciation and amortization 415 341
Amortization and (accretion), net (83) (50)
Amortization of deferred loan fees (73) (39)
Loss(Gain) on sale of real estate 2 (127)
Decrease(increase) in other assets 75 (936)
Increase in accrued expenses and other liabi 178 459
Net cash provided by operating activities 1,619 547
Cash flows from investing activities:
Proceeds from maturities of investment securities 46,912 24,991
Proceeds from maturities of investment securities 16,549 3,000
Purchases of investment securities held to matur (42,750) (20,382)
Purchases of investment securities available for (19,017) (500)
Net increase in loans (797) (8,363)
Purchases of premises and equipment (400) (942)
Proceeds from sale of real acquired
through foreclosure 607 913
Net cash provided (used) in investing activities 1,104 (1,283)
Cash flows from financing activities:
Net increase in demand deposits and savings accoun 8,788 6,384
Net (decrease) increase in time deposits (11,320) 6,154
Principal payment on long-term debt and
obligations under capital lease (292) (273)
Net (decrease) increase in treasury,
tax and loan account (153) 1,294
Proceeds from long-term debt - 900
Net cash (used) provided by financing activities (2,977) 14,459
Net (decrease)increase in cash and cash equivalents (254) 13,723
Cash and cash equivalents at beginning of period 16,075 13,421
Cash and cash equivalents at end of period 15,821 27,144
Supplemental disclosures of cash paid during the period for:
Interest $ 2,154 1,424
Income taxes $ 159 141
Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure $ 18 449
See accompanying notes to consolidated financial statements.
</TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 1995 and 1994
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited statements have been prepared pursuant to the
rules and regulations for reporting on Form 10 - QSB. Accordingly, certain
disclosures required by generally accepted accounting principles are not
included herein. These interim statements should be read in conjunction with
the financial statements and notes thereto included in the company's latest
Annual Report on Form 10 - KSB.
The consolidated financial statements of Citizens Bancshares Corporation and
Subsidiary ( the "Company" ) as of September 30, 1995 and for the nine months
ended September 30,1995 and 1994 are unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of the financial position
and results of operations and cash flows for the nine month period have been
included. All adjustments are of a normal recurring nature.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Citizens Trust Bank ( the "Bank" ). The Bank has
a wholly owned subsidiary, Atlanta Mortgage Brokerage and Servicing Co., whose
accounts are also included. All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. ACCOUNTING AND REGULATORY MATTERS
The Financial Accounting Standards Board(FASB) has issued SFAS No. 114,
" Accounting by Creditors for Impairment of a Loan" which requires that all
creditors value all specifically reviewed loans for which it is probable that
the creditor will be unable to collect all amounts due according to the terms
of the loan agreement at either the present value of expected cash flows,
market price of the loan, or value of the underlying collateral. Discounted
cash flows are required to be computed at the loan s original effective
interest rate. SFAS No. 114 is required for fiscal years beginning after
December 15, 1994.
The FASB also has issued SFAS No. 118, Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures, that amends SFAS
No. 114 to allow a creditor to use existing methods for recognizing interest
income on an impaired loan and by not requiring additional disclosures about
how a creditor recognizes interest income on impaired loans. SFAS No. 118
is to be implemented concurrently with SFAS No. 114.
On January 1, 1995, the provisions of SFAS No. 114 and 118 were adopted.
Under the new standard, the 1995 allowance for loan losses related to loans
that are identified for evaluation with SFAS No. 114 is based on discounted
cash flows using the loans initial effective interest rate or the fair
value of the underlying collateral for certain collateralized dependent
loans. Prior to 1995, the allowance for loan losses was based upon non-
discounted cash flows or the fair value of the collateral dependent loans.
The adoption of SFAS No. 114 and 118 required no increase in the total
allowance for loan losses and had no impact on net income in 1995. The
impact to historical and current amounts related to in-substance
foreclosures was not material, and accordingly, historical amounts have not
been restated.
A loan is considered impaired when the ultimate collectibility of the impaired
loan s principal is in doubt, wholly or partially, and all cash receipts are
applied to principal. When this doubt exists, cash receipts are applied under
the contractual terms of the loan agreement first to principal and then to
interest income. Once the recorded principal balance is reduced to zero,
future cash receipts are applied to interest income, to the extent that any
interest has been forgone. Future cash receipts are recorded as recoveries
of amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring after January 1, 1995. For these accruing impaired
loans, cash receipts are typically applied to principal and interest
receivable in accordance with the terms of the restructured loan agreement.
Interest income is recognized on these loans using the accrual method of
accounting.
At September 30, 1995, the recorded investment in loans that are considered to
be impaired under SFAS No. 114 was $2,113,000( of which $1,321,000 were
on a nonaccrual basis). The related allowance for loan losses is $317,000.
For the nine months ended September 30, 1995, the Company recognized
$60,000 in interest income on those impaired loans on an accrual basis income
recognition method.
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Selected Statistical Information
NONPERFORMING ASSETS
Nonperforming assets include nonperforming loans, real estate acquired through
foreclosure and repossessed assets. Nonperforming loans consist of loans
which are past due with respect to principal or interest more than 90 days or
have been placed on nonaccrual status and restructured loans. The Company
had no restructured loans as of September 30, 1995.
Accrual of interest on loans is discontinued when reasonable doubt exists as
to the full, timely collection of interest or principal or they become
contractually in default for 90 days or more as to either interest or
principal unless the loan is well secured and in process of collection.
When a loan is placed on nonaccrual status, previously accrued and
uncollected interest is charged against interest income on loans unless
management feels the accrued interest is recoverable through the liquidation
of the collateral.
With the exception of the loans included within nonperforming assets in the
table below, management is not aware of any loans classified for regulatory
purposes as loss, doubtful, substandard, or special mention that have not
been disclosed which(1) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results,liquidity, or capital resources, or (2) represent any information on
material credits which management is aware that causes management to have
serious doubts as to the abilities of such borrower to comply with the loan
repayment terms.
Nonperforming loans increased $43,000 to $1,321,000 at September 30, 1995,
from $1,278,000 at December 31, 1994. Real estate acquired through foreclosure
decreased $625,000 or 76% from $823,000 at December 31, 1994 to $198,000
at September 30, 1995. Nonperforming assets represented 2.16% of loans, net
of unearned income and real estate acquired through foreclosure at September
30, 1995 as compared to 3.00% at December 31, 1994.
<TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Selected Statistical Information
The decrease in nonperforming assets relative to loans, net of unearned income
and real estate acquired through foreclosure, reflects management s continuous
effort to reduce nonperforming assets. The table below presents a summary
the Company s nonperforming assets at September 30, 1995 and December 31,1994.
<CAPTION>
1995 1994
(Amounts in thousands, except
financial ratios)
Nonperforming assets:
Nonperforming loans:
<S> <C> <C> <C>
Nonaccrual loans $ 1,321 1,278
Past-due loans - -
Nonperforming loans 1,321 1,278
Real estate acquired through foreclosure 198 823
Total nonperforming assets $ 1,519 2,101
Ratios:
Nonperforming loans to loans, net of
unearned income 1.88 % 1.85
Nonperforming assets to loans(net of unearned
income) and real estate acquired through
foreclosure 2.16 % 3.00 %
Nonperforming assets to total assets 1.16 % 1.58
Allowance for possible loan losses to
nonperforming loans 112.26 % 81.93
Allowance for possible loan losses
to nonperforming assets 97.93 % 49.83
Interest income on nonaccrual loans which would have been reported for the
nine months ended September 30, 1995 totaled $94,000. The Company did
not record interest income on these loans for the nine month ended
September 30, 1995.
</TABLE>
<TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Selected Statistical Information
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table summarizes loans as of September 30, 1995 and December
31, 1994 and average loans during the year, changes in the allowance for
possible loans losses arising from loans charged off and recoveries on loans
previously charged off by loan category, and additions to the
allowance which have been charge to operating expense.
<CAPTION>
1995 1994
<S> <C> <C> <C>
Loans, net of unearned income $ 70,175 69,261
Average loans, net of unearned income and the
allowance for possible loan losses $ 68,443 57,324
Allowance for possible loans losses at the
beginning of year $ 1,047 942
Loans charged off:
Commercial, financial, and agricultural 127 385
Real estate- mortgage 87 316
Installment loans to individuals 70 500
Total loans charged off 285 1,201
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 103 254
Real estate- mortgage 157 86
Installment loans to individuals 85 231
Total loans recovered 345 571
Net loans charged off (recoveries) (61) 630
Additions to allowance for possible loan losses
charged to operating expense 375 735
Allowance for possible loan losses at period end $ 1,483 1,047
Ratio of net loans charged off (recoveries) to average
loans, net of unearned income and the allowance for
possible loan losses -.09 % 1.10
Allowance for possible loan losses to loans, net of
unearned income 2.11 % 1.51
</TABLE>
Credit reviews of the loan portfolio designed to identify potential charges
to the allowance for possible loan losses, as well as to determine the
adequacy of the allowance for possible loans losses, are made on a continuous
basis throughout the year. These reviews are conducted by management,
lending officers, and independent third parties and are reviewed by the
Board of Directors, who consider such factors as the financial strength
of borrowers, the value of applicable collateral, past loan loss experience,
anticipated loan losses, growth in the loan portfolio, and other factors
including prevailing and anticipated economic conditions. Management
believes the allowance for possible loan losses is adequate at
September 30, 1995.
A substantial portion of the Company s loan portfolio is secured by real
estate in the metropolitan Atlanta market. Accordingly, the ultimate
collectibility of a substantial portion of the Company s loan portfolio is
suspectible to changes in the market conditions in the metropolitan Atlanta
area.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
Citizens Bancshares Corporation ( the "Company" ), a one-bank holding company,
provides a full range of commercial banking services to individual and
corporate customers in metropolitan Atlanta through its wholly owned
subsidiary, Citizens Trust Bank ( the "Bank" ). The Bank operates under
a state charter and serves its customers through eight full service branches.
The following discussion is of the Company's financial condition as of
September 30, 1995 and the changes in financial condition and results of
operations for the nine month periods ended September 30, 1995 and 1994.
RESULTS OF OPERATIONS
Net Interest Income:
Net interest income represents the excess of income received on interest-
earning assets and interest paid over interest-bearing liabilities.
Net interest income for the third quarter 1995 increased $244,000 or
17% for the three month period and increased $845,000 or 20% for the nine
month period ended September 30, 1995, over the three and nine month periods
of 1994. The combination of higher levels of market interest rates and
a $2 million increase in the excess of average earning assets over
average interest-bearing liabilities increased the Company's net interest
margin to 5.54% compared to 5.07% in 1994.
Provision for possible loan losses:
The provision for possible loan losses is a charge to earnings that management
considers necessary to maintain an adequate allowance for possible loan
losses. The provision for loan losses decreased $179,000 in 1995 as
compared to the provision in 1994. Higher levels of recoveries from loans
previously charged off as compared to prior years contributed to the
decrease in the provision for possible loan losses. The provision is
determined based on growth of the loan portfolio, the amount of net loan
losses incurred, and management's estimation of potential future loan losses
based on an evaluation of loan portfolio risks, adequacy of underlying
collateral, and economic conditions. As of September 30, 1995, the
allowance for possible loan losses was approximately 2.11% of loans, net of
unearned income which is comparable to prior year. Management feels that
this level of allowance is adequate.
Noninterest income:
Noninterest income decreased approximately $106,000 or 9% for the three month
period ended September 30, 1995 and $515,000 or 15% for the nine month period
as compared to the same periods in 1994. The decrease in noninterest income
is due to a decline in service charges on deposits of 275,000 or 9% and to a
decline in other operating income of $113,000 or 35%. In 1994, the Company
recognized a gain on sale of other real estate owned property of $127,000.
Total proceeds from the sale were $913,000 with a book value of $786,000.
Management continues to explore ways to maximize noninterest income through
competitive product pricing and business development.
Noninterest expense:
Noninterest expense increased approximately $169,000 or 7% during the three
month period and $78,000 or 1% during the nine month period ended September
30, 1995, as compared to an increase of $76,000 or 3.3% and a decrease of
$73,000 or 1.1% during the same periods of 1994. The increase is attributable
to salaries and employee benefits of $232,000. The increase in salaries
and employee benefit costs is due to normal salary adjustments coupled with
high turnover costs. A decrease in occupancy expense of $124,000 year to
date minimized the overall increase in noninterest expense. The decrease in
noninterest expense in 1994 from 1993 was due to a reduction in other
operating expenses, namely, professional services and operating losses.
Net earnings:
The Company had net earnings of approximately $730,000 or $0.55 per share
during the nine months ended 1995 as compared to $345,000 or $0.26 per
share in 1994. The $385,000 or 112% increase in net earnings as compared to
1994 reflects improved net interest income of $845,000 which offsets the
decrease in noninterest income and the increase noninterest expense.
LIQUIDITY
Liquidity is a bank's ability to meet deposit withdrawals, while also,
providing for the credit needs of customers. In the normal course of business,
the Company's cash flow is generated from interest and fees on loans and
other interest-earning assets, repayments of loans, and maturities of
investment securities. The Company continues to meet liquidity needs primarily
through the sale of federal funds and managing the maturities of investment
securities. At September 30,1995, approximately 21.4% of the investment
portfolio matures within the next year and approximately 78.6% after
one year but before five years. In addition, federal funds sold averaged
approximately $8.4 million during the nine month period ended September 30,
1995. The Company is a member of the Federal Reserve System and maintains
relationships with several correspondent banks and, thus, could obtain funds
on short notice. Company management closely monitors and maintains
appropriate levels of interest-earning assets and interest-bearing
liabilities, so that maturities of assets are such that adequate funds
are provided to meet customer withdrawals and loan demand.
CAPITAL RESOURCES
The Company has maintained an adequate level of primary capital as measured
by its shareholders' equity and the allowance for possible loan losses to
adjusted total assets of approximately 8.51% at September 30, 1995 and 7.66%
at December 31, 1994.
The Board of Directors of the Bank entered into a Board Resolution
(the "Resolution") dated March 15, 1995 with the Georgia Department of
Banking and Finance and the Federal Reserve Bank of Atlanta
("Regulatory Authorities") to take certain corrective actions, which
if not taken could result in further regulatory sanctions. The Board
Resolution replaces the Memorandum of Understanding under which the Bank
previously operated. The Resolution includes provisions on asset quality,
capital adequacy and management succession; requires the Bank to improve its
information system controls; specifies that the Bank shall maintain at least
a 7.53% primary capital to adjusted total assets ratio during the term of
the Agreement; and limits the payment of dividends without the prior written
consent of the Regulatory Authorities. The Bank is in compliance with the
Resolution at September 30, 1995.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings to which
the Company or its subsidiary is a party or to which any of their property
is subject.
ITEM 2. CHANGES IN SECURITIES
The Company is restricted as to dividend payments to its shareholders by
certain covenants in its long-term debt agreement and the Bank is restricted
as to dividend payments to the Company by regulatory requirements and
agreements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CITIZENS BANCSHARES CORPORATION
Date: November 8, 1995
By: /s/ William L. Gibbs
William L. Gibbs
President and Chief Executive Officer
Date: November 8, 1995
By: /s/ Ann I. Scott
Ann I. Scott
Senior Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,121
<INT-BEARING-DEPOSITS> 77,199
<FED-FUNDS-SOLD> 8,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,445
<INVESTMENTS-CARRYING> 9,822
<INVESTMENTS-MARKET> 0
<LOANS> 70,174
<ALLOWANCE> 1,483
<TOTAL-ASSETS> 131,276
<DEPOSITS> 119,613
<SHORT-TERM> 272
<LIABILITIES-OTHER> 1,235
<LONG-TERM> 1,001
<COMMON> 1,330
0
0
<OTHER-SE> 7,825
<TOTAL-LIABILITIES-AND-EQUITY> 131,276
<INTEREST-LOAN> 4,763
<INTEREST-INVEST> 2,151
<INTEREST-OTHER> 367
<INTEREST-TOTAL> 7,281
<INTEREST-DEPOSIT> 2,170
<INTEREST-EXPENSE> 2,247
<INTEREST-INCOME-NET> 5,034
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,830
<INCOME-PRETAX> 858
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 730
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 5.54
<LOANS-NON> 1,321
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,047
<CHARGE-OFFS> 285
<RECOVERIES> 345
<ALLOWANCE-CLOSE> 1,483
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
