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 March 31, 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 May 1, 1996.
<TABLE>
Part I. Financial Information:
Citizens Bancshares Corporation and Subsidiary
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(unaudited-amounts in thousands, except per share amounts)
<CAPTION>
ASSETS
1996 1995
<S> <C> <C> <C>
Cash and due from banks $ 8,901 10,015
Federal funds sold 8,500 4,000
Investment securities:
Held to maturity 32,602 32,108
Available for sale 12,393 9,064
Total investments 44,995 41,172
Loans, net of unearned income 71,350 70,084
Less allowance for possible loan losses 1,546 1,566
Loans, net 69,804 68,518
Premises and equipment, net 2,154 2,238
Real estate acquired through foreclosure 112 166
Other assets 3,030 2,279
Total assets $ 137,496 128,388
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 41,286 39,694
Interest-bearing 83,911 76,685
Total deposits 125,197 116,379
Treasury, tax and loan account 465 173
Long-term debt and obligations under capital 900 900
Other liabilities 1,205 1,366
Total liabilities 127,767 118,818
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 sec (21) 87
Retained earnings 6,950 6,683
Total shareholders' equity 9,729 9,570
Total liabilities and sharehol $ 137,496 128,388
</TABLE>
<TABLE>
Citizens Bancshares Corporation and Subsidiary
Consolidated Statements of Earnings
(unaudited-amounts in thousands, except per share amounts)
<CAPTION>
Three Months
Ended March
1996 1995
INTEREST INCOME:
<S> <C> <C> <C>
Loans, including fees $ 1,588 1,541
Investment securities
Taxable 656 671
Tax-exempt 22 39
Federal funds sold 133 127
Total interest income 2,399 2,378
INTEREST EXPENSE:
Deposits 703 707
Treasury tax, and loan account 2 8
Long-term debt and obligation under capital lease 13 24
Total interest expense 718 739
Net interest income 1,681 1,639
Provision for possible loan losses - 125
Net interest income after provision
for possible loan losses 1,681 1,514
NONINTEREST INCOME:
Service charges on deposit accounts 931 884
Other operating income 129 103
Total noninterest income 1,060 987
NONINTEREST EXPENSE:
Salaries and employee benefits 1,238 1,167
Net occupancy and equipment 498 421
Other operating expenses 666 646
Total other expense 2,402 2,234
Earnings before income taxes 339 267
Income tax expense 72 33
Net earnings $ 267 234
Net earnings per common share $ 0.20 0.18
Average outstanding shares 1,330 1,330
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Citizens Bancshares Corporation and Subsidiary
Consolidated Statements of Cash Flows
Three months ended March 31, 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 $ 267 234
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Provision for possible loan losses - 125
Depreciation and amortization 149 137
Amortization (accretion), net 8 (33)
Accretion (amortization) of deferred loan fees (25) 41
Gain on sale of real estate - (37)
Increase in other assets (170) (69)
(Decrease)increase in accrued expenses
and other liabilities (161) 77
Net cash provided by operating activities 68 475
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 6,008 2,082
Proceeds from maturities of investment securities
available for sale 500 550
Purchases of investment securities
held to maturity (6,500) (1,761)
Purchases of investment securities
available for sale (3,999) (1,019)
Net (increase) decrease in loans (1,275) 233
Purchases of premises and equipment (580) (81)
Proceeds from sale of real estate acquired
through foreclosure 54 297
Net cash (used) provided by investing activities (5,792) 301
Cash flows from financing activities:
Net increase in demand deposits and savings
accounts 1,592 12,092
Net increase (decrease) in time deposits 7,226 (1,918)
Principal payment on long-term debt and
obligations under capital lease - (96)
Net increase (decrease) in treasury, tax
and loan account 292 (173)
Net cash provided by financing activities 9,110 9,905
Net increase in cash and cash equivalents 3,386 10,681
Cash and cash equivalents at beginning of period 14,015 16,075
Cash and cash equivalents at end of period $ 17,401 26,756
Supplemental disclosures of cash paid during the period for:
Interest $ 719 682
Income taxes $ 159 109
Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure $ 14 15
See accompanying notes to consolidated financial statements.
</TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 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 March 31, 1996 and for the three months
ended March 31,1996 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 month period 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 March 31, 1996, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was approximately $1,347,000 (of which
approximately $521,000 were on a nonaccrual basis). The related allowance for
loan losses is approximately $196,000. For the Three months ended
March 31, 1996, the Company recognized no interest income on these impaired
loans on an accrual basis.
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 pastdue 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 ofcollection.
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 decreased approximately $435,000 to $826,000 at
March 31, 1996, from $1,261,000 at December 31, 1995. Real estate acquired
through foreclosure decreased approximately $54,000 or 33% from $166,000 at
December 31, 1995 to $112,000 at March 31, 1996. Nonperforming assets
represented 1.31% of loans, net of unearned income and real estate acquired
through foreclosure at March 31, 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 March 31, 1996 and December 31, 1995.
<CAPTION>
1996 1995
(Amounts in thousands, except
financial ratios)
Nonperforming assets:
Nonperforming loans:
<S> <C> <C> <C>
Nonaccrual loans $ 826 1,261
Past-due loans - -
Nonperforming loans 826 1,261
Real estate acquired through foreclosure 112 166
Total nonperforming assets $ 938 1,427
Ratios:
Nonperforming loans to loans, net of
unearned income 1.16% 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 .68 % 1.11
Allowance for possible loan losses to
nonperforming loans 187.17% 124.19
Allowance for possible loan losses
to nonperforming assets 164.82% 109.74
Interest income on nonaccrual loan which would have been reported for the three
months ended March 31, 1996 totaled approximately $219,000. The Company
recorded approximately $123,000 interest income on these loans for the three
months period.
</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
loans 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 March 31, 1996 and
December 31, 1995.
<CAPTION>
1996 1995
<S> <C> <C> <C>
Loans, net of unearned income $ 71,350 70,084
Average loans, net of unearned income and the
allowance for possible loan losses $ 67,981 68,325
Allowance for possible loans losses at the
beginning of year $ 1,566 1,047
Loans charged off:
Commercial, financial, and agricultural 1 171
Real estate- mortgage 32 66
Installment loans to individuals 41 99
Total loans charged off 74 336
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 11 266
Real estate- mortgage 9 52
Installment loans to individuals 34 120
Total loans recovered 54 438
Net loans charged off (recovered) 20 (102)
Additions to allowance for possible loan losses
charged to operating expense - 417
Allowance for possible loan losses at
period end $ 1,546 1,566
Ratio of net loans charged off (recovered) to
average loans, net of unearned income and
the allowance for possible loan losses .03% (.15)
Allowance for possible loan losses to loans, net of
unearned income 2.17% 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 March 31, 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 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 March
31, 1996 and the changes in financial condition and results of operations for
the three month period ended March 31, 1996 and 1995.
RESULTS OF OPERATIONS
Net Interest Income:
Net interest income represents the excess of income received on interest-
earning assets and interest paid on interest-bearing liabilities. Net
interest income for the first quarter 1996 increased approximately $42,000 or
3% for the three month period over the three month period of 1995. The
ombination of higher levels of market interest rates and a $1 million
increase in the excess of average earning assets over average interest-bearing
liabilities increased the Company's net interest margin to 5.65% compared to
5.42% 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 in 1996 as compared to the
provision in 1995. 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 March 31, 1996, the allowance for possible loan losses was approximately
2.17% 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 increased approximately $73,000 or 7% for the three month
period ended March 31, 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 47,000 or 5% and to an increase in other operating income of
$26,000 or 25%.
Noninterest expense:
Noninterest expense increased approximately $168,000 or 8% during the three
month period as compared to the same period in 1995. The increase is
attributable to salaries and employee benefits and occupancy expense of
$71,000 and $77,000, respectively. The increase in salaries and employee
benefit costs is due to 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 $267,000 or $0.20 per share
during the first quarter ended 1996 as compared to $234,000 or $0.18 per
share in 1995. The $33,000 or 14% increase in net earnings 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
$42,000, $73,000 and $125,000, respectively which was offset by an increase
in noninterest expense of approximately $168,000.
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 March 31,1996, approximately 22% of the investment
portfolio matures within the next year, 60% after one year but before five
years. In addition, federal funds sold averaged approximately $10.4
million during the three month period ended March 31, 1996. 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 8.62% at March 31, 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 for which the Bank previously operated under. 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.
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
The annual shareholders' meeting was held on May 1, 1996 and the following
individuals were elected to the Board of Directors Herman J. Russell, William
L. Gibbs, William G. Anderson, Thomas E. Boland, Johnnie L. Clark, Norris L.
Connally, H. Jerome Russell, R. K. Sehgal and Odie C. Donald. There were
907,021.57 votes for, zero against and 422,662.43 non votes for the election
of the above mentioned Board members.
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: March 14, 1996 By: /s/ William L. Gibbs
William L. Gibbs
President and Chief Executive Officer
Date: March 14, 1996 By: /s/ Ann I. Scott
Ann I. Scott
Senior Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 8901
<INT-BEARING-DEPOSITS> 83911
<FED-FUNDS-SOLD> 8500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12393
<INVESTMENTS-CARRYING> 32602
<INVESTMENTS-MARKET> 0
<LOANS> 71350
<ALLOWANCE> 1546
<TOTAL-ASSETS> 137496
<DEPOSITS> 125197
<SHORT-TERM> 465
<LIABILITIES-OTHER> 1205
<LONG-TERM> 900
0
0
<COMMON> 1330
<OTHER-SE> 8399
<TOTAL-LIABILITIES-AND-EQUITY> 137496
<INTEREST-LOAN> 1588
<INTEREST-INVEST> 678
<INTEREST-OTHER> 133
<INTEREST-TOTAL> 2399
<INTEREST-DEPOSIT> 703
<INTEREST-EXPENSE> 718
<INTEREST-INCOME-NET> 1681
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2402
<INCOME-PRETAX> 339
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 5.65
<LOANS-NON> 826
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 1566
<CHARGE-OFFS> 74
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 1546
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</TABLE>
