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
For the quarterly period ended June 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) TO THE EXCHANGE ACT
For the transition period from ____________ to _____________
Commission File No: 0 - 14535
CITIZENS BANCSHARES CORPORATION
(Name of small business issuer in its charter)
Georgia 58 - 1631302
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
175 John Wesley Dobbs Avenue, N.E., Atlanta, Georgia 30303
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (404) 659 - 5959
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 August 1, 1996.
<TABLE>
Part I. Financial Information:
Citizens Bancshares Corporation and Subsidiary
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(unaudited-amounts in thousands, except per share amounts)
<CAPTION>
ASSETS
1996 1995
<S> <C> <C> <C>
Cash $ 7,753 10,015
Federal funds sold - 4,000
Investment securities:
Held to maturity 32,583 32,108
Available for sale 13,724 9,064
Total investments 46,307 41,172
Loans, net of unearned income 73,722 70,084
Less allowance for possible loan losses 1,540 1,566
Loans, net 72,182 68,518
Premises and equipment, net 3,019 2,238
Real estate acquired through foreclosure 136 166
Other assets 2,284 2,279
Total assets $ 131,681 128,388
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 42,166 39,694
Interest-bearing 75,607 76,685
Total deposits 117,773 116,379
Treasury, tax and loan account 567 173
Federal Funds Purchased 1,600 -
Long-term debt and obligations under capital
lease 855 900
Other liabilities 1,020 1,366
Total liabilities 121,815 118,818
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 (loss)gain on available for sale
securities (125) 87
Retained earnings 7,191 6,683
Total shareholders' equity 9,866 9,570
Total liabilities and shareholders' equity $ 131,681 128,388
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 Six Months
Ended June Ended June 30,
1996 1995 1996 1995
INTEREST INCOME:
<S> <C> <C> <C> <C> <C>
Loans, including fees $ 1,658 1,625 3,246 3,166
Investment securities
Taxable 751 693 1,407 1,364
Tax-exempt 19 26 41 65
Federal funds sold 117 148 250 275
Total interest income 2,545 2,492 4,944 4,870
INTEREST EXPENSE:
Deposits 700 751 1,403 1,458
Treasury tax, and loan account 1 2 3 10
Long-term debt and obligation under capital
lease 16 22 29 46
Total interest expense 717 775 1,435 1,514
Net interest income 1,828 1,717 3,509 3,356
Provision for possible loan losses - 125 - 250
Net interest income after provision for
possible loan losses 1,828 1,592 3,509 3,106
NONINTEREST INCOME:
Service charges on deposit accounts 938 947 1,869 1,831
Other operating income 57 64 186 167
Total noninterest income 995 1,011 2,055 1,998
NONINTEREST EXPENSE:
Salaries and employee benefits 1,356 1,209 2,594 2,376
Net occupancy and equipment 359 397 857 818
Other operating expenses 796 762 1,462 1,408
Total other expense 2,511 2,368 4,913 4,602
Earnings before income taxes 312 235 651 502
Income tax expense 70 43 142 76
Net earnings $ 242 192 509 426
Net earnings per common share $ 0.18 0.14 0.38 0.32
Average outstanding shares 1,330 1,330 1,330 1,330
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Citizens Bancshares Corporation and Subsidiary
Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995
(unaudited-amounts in thousands, except per share amounts)
<CAPTION>
1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 509 426
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Provision for possible loan losses - 250
Depreciation and amortization 305 291
Amortization (accretion), net 17 (57)
Amortization (accretion) of deferred loan fees 15 (66)
Gain on sale of real estate - (5)
Increase in other assets (158) 19
(Decrease) increase in accrued expenses and other
liabilities (346) 251
Net cash provided by operating activities 342 1,109
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 6,414 5,401
Proceeds from maturities of investment securities
available for sale 1,000 1,550
Purchases of investment securities held to maturity (6,500) (2,761)
Purchases of investment securities available for sale (6,370) (4,019)
Net increase in loans (3,771) (630)
Purchases of premises and equipment (841) (99)
Proceeds from sale of real estate acquired through
foreclosure 121 569
Net cash (used) provided by investing activities (9,947) 11
Cash flows from financing activities:
Net increase in demand deposits 2,472 5,707
Net decrease in time deposits (1,078) (4,035)
Net increase in federal funds purchased 1,600 -
Principal payment on long-term debt and
obligations under capital lease (45) (193)
Net increase in treasury, tax and loan account 394 12
Net cash provided by financing activities 3,343 1,491
Net (decrease) increase in cash and cash equivalents (6,262) 2,611
Cash and cash equivalents at beginning of period 14,015 16,075
Cash and cash equivalents at end of period $ 7,753 18,686
Supplemental disclosures of cash paid during the period for:
Interest $ 1,412 1,432
Income taxes $ 294 159
Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure $ 92 15
See accompanying notes to the consolidated financial statements.
</TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1996 and 1995
(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 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.
The consolidated financial statements of Citizens Bancshares Corporation and
Subsidiary ( the "Company" ) as of June 30, 1996 and for the three and six
month periods ended March 31,1996 and June 30, 1996, respectively and 1995
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 three and six month periods have been included. All adjustments
are of a normal recurring nature.
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.
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 Company adopted the provisions of SFAS No. 114 and 118.
Under the provisions of SFAS 114 and 118, the allowance for loan losses related
to loans that are identified for evaluation with SFAS No. 114 is based on
discounted cash flows using the loan s 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 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 exist, 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 June 30, 1996, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was approximately $1,328,000 (of which
approximately $807,000 were on a nonaccrual basis). The related allowance for
loan losses is approximately $199,000. For the six month period ended
June 30, 1996, the Company recognized, on an accrual basis, $8,000 in interest
income on these impaired loans.
The FASB also issued SFAS No. 122, Accounting for Mortgage Servicing Rights an
amendment of SFAS Statement No. 65, (SFAS 122). SFAS 122 amends SFAS 65 and
requires that a mortgage banking enterprise recognize as separate assets, rights
to service mortgage loans for others regardless of whether their servicing
rights are acquired through the purchase or origination of mortgage loans.
SFAS 122 also requires that a mortgage banking enterprise assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. Impairment should be recognized through a valuation allowance.
On January 1, 1995, the Company adopted the provisions of SFAS 122. However,
such adoption did not have a material impact on the Company's consolidated
financial statements.
<PAGE>
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.
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 borrowers to comply with the loan repayment
terms.
Nonperforming loans decreased approximately $432,000 to $829,000 at June 30,
1996, from $1,261,000 at December 31, 1995. Real estate acquired through
foreclosure decreased approximately $30,000 or 18% from $166,000 at
December 31, 1995 to $136,000 at June 30, 1996. Nonperforming assets
represented 1.31% of loans, net of unearned income and real estate acquired
through foreclosure at June 30, 1996 as compared to 2.03% at December 31, 1995.
<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 of
the Company's nonperforming assets at June 30, 1996 and December 31, 1995.
<CAPTION>
1996 1995
(Amounts in thousands, except
financial ratios)
Nonperforming assets:
Nonperforming loans:
<S> <C> <C> <C>
Nonaccrual loans $ 807 1,261
Past-due loans 22 -
Nonperforming loans 829 1,261
Real estate acquired through foreclosure 136 166
Total nonperforming assets $ 965 1,427
Ratios:
Nonperforming loans to loans, net of
unearned income 1.12% 1.80
Nonperforming assets to loans(net of unearned
income) and real estate acquired through
foreclosure 1.31% 2.03
Nonperforming assets to total assets .73 % 1.11
Allowance for possible loan losses to
nonperforming loans 185.77% 124.19
Allowance for possible loan losses
to nonperforming assets 159.59% 109.74
Interest income on nonaccrual loans which would have been reported for the three
and six month periods ended June 30, 1996 totaled approximately $18,000 and
$31,000, respectively, as compared to $29,000 and $54,000 in 1995. The Company
did not record interest income on these loans for the six months period ended
June 30, 1996.
</TABLE>
<TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Selected Statistical Information
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table summarizes loans, changes in the allowance for possible
loan losses arising from loans charged off, recoveries on loans previously
charged off by loan category, and additions to the allowance which have been
charged to operating expense as of and for the period ended June 30, 1996 and
December 31, 1995.
<CAPTION>
1996 1995
<S> <C> <C> <C>
Loans, net of unearned income $ 73,722 70,084
Average loans, net of unearned income and the
allowance for possible loan losses $ 70,854 68,325
Allowance for possible loans losses at the
beginning of year $ 1,566 1,047
Loans charged off:
Commercial, financial, and agricultural 19 171
Real estate- mortgage 80 66
Installment loans to individuals 50 99
Total loans charged off 149 336
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 13 266
Real estate- mortgage 69 52
Installment loans to individuals 41 120
Total loans recovered 123 438
Net loans charged off (recovered) 26 (102)
Additions to allowance for possible loan losses
charged to operating expense - 417
Allowance for possible loan losses at period end $ 1,540 1,566
Ratio of net loans charged off (recovered) to average
loans, net of unearned income and the allowance
for possible loan losses .04% (.15)
Allowance for possible loan losses to loans, net of
unearned income 2.09% 2.23
</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. These reviews are also 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 June 30, 1996.
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 susceptible 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
serves and its customers through eight full service branches.
The following discussion is of the Company's financial condition as of
June 30, 1996 and the changes in financial condition and results of operations
for the three and six month periods ended June 30, 1996 and 1995.
RESULTS OF OPERATIONS
Net Interest Income:
Net interest income represents the excess of income received on interest-earning
assets over interest paid on interest-bearing liabilities. Net interest
income for the three and six month periods ended June 30, 1996 increased
approximately $111,000 and $153,000 or 6% and 5%, respectively, over the three
and six month periods of 1995. Higher levels of market interest rates
increased the Company's net interest margin to 5.79% compared to 5.56% in 1995.
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 $125,000 and $250,000 for the three and
six month periods ended June 30,1996, respectively, as compared to the same
period in 1995. 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 June
30, 1996, the allowance for possible loan losses was approximately 2.09% 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 $16,000 or 2% for the three month
period ended June 30, 1996 and increased approximately $57,000 or 3% for the
six month period ended June 30, 1996 as compared to the same period in 1995.
The increase in noninterest income is due to an increase in service charges on
deposits of approximately $38,000 or 2% and an increase in other operating
income of approximately $19,000 or 11%.
Noninterest expense:
Noninterest expense increased approximately $143,000 or 6% for the three month
period ended June 30, 1996 and $311,000 or 7% during the six month period ended
June 30, 1996, respectively, as compared to the same period in 1995.
The increase is attributable to salaries and employee benefits and occupancy
expense of $218,000 and $102,000, respectively. The increase in salaries and
employee benefit costs is due to a combination of new hires, temporary staffing
for system conversion and normal salary adjustments. The increase in
occupancy expense is due to normal depreciation and the lease of computer
equipment.
Net earnings:
The Company had net earnings of approximately $242,000 or $0.18 per share for
the three month period ended June 30, 1996 and $509,000 or $0.38 per share for
the six month period ended June 30, 1996, as compared to $192,000 and $426,000
or $0.14 and $0.32 per share in 1995. The $83,000 or 19% increase in net
earnings for the six month period as compared to 1995 is attributable to a
combination of improved net interest income, noninterest income and reduction in
provision for possible loan losses of $153,000, $57,000 and $250,000,
respectively which was offset by an increase in noninterest expense of
approximately $311,000.
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 June 30,1996, approximately 23% of the investment portfolio matures within
the next year, 55% after one year but before five years. In addition, federal
funds sold averaged approximately $9.5 million during the six month period
ended June 30, 1996. The Company is a member of the Federal Reserve and Federal
Home Loan Bank Systems and also 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 Bank 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 9.18% at June 30, 1996 and 9.04% at
December 31, 1995.
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 over 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 believes it is in compliance with the
Resolution at June 30, 1996.
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 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 Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITIZENS BANCSHARES CORPORATION
Date: August 14, 1996 By: /s/ William L. Gibbs
William L. Gibbs
President and Chief Executive Officer
Date: August 14, 1996 By: /s/ Ann I. Scott
Ann I. Scott
Senior Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 7753
<INT-BEARING-DEPOSITS> 75607
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13724
<INVESTMENTS-CARRYING> 32583
<INVESTMENTS-MARKET> 0
<LOANS> 73722
<ALLOWANCE> 1540
<TOTAL-ASSETS> 131681
<DEPOSITS> 117773
<SHORT-TERM> 567
<LIABILITIES-OTHER> 1020
<LONG-TERM> 855
0
0
<COMMON> 1330
<OTHER-SE> 8536
<TOTAL-LIABILITIES-AND-EQUITY> 131681
<INTEREST-LOAN> 3246
<INTEREST-INVEST> 1448
<INTEREST-OTHER> 250
<INTEREST-TOTAL> 4944
<INTEREST-DEPOSIT> 1403
<INTEREST-EXPENSE> 32
<INTEREST-INCOME-NET> 3509
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4913
<INCOME-PRETAX> 651
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 509
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
<YIELD-ACTUAL> 5.79
<LOANS-NON> 807
<LOANS-PAST> 22
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1566
<CHARGE-OFFS> 149
<RECOVERIES> 123
<ALLOWANCE-CLOSE> 1540
<ALLOWANCE-DOMESTIC> 0
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</TABLE>
