THIS CONFORMING PAPER FORMAT IS BEING SUBMITTED PURSUANT TO RULE
901(d) OF REGULATION S-T
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 September 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 November 1, 1996.
<TABLE>
Part I. Financial Information:
Citizens Bancshares Corporation and Subsidiary
Consolidated Balance Sheets
September 30, 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 $ 7,996 10,015
Federal funds sold 3,100 4,000
Investment securities:
Held to maturity 29,456 32,108
Available for sale 14,124 9,064
Total investments 43,580 41,172
Loans, net of unearned income 78,137 70,084
Less allowance for possible loan losses 1,452 1,566
Loans, net 76,685 68,518
Premises and equipment, net 3,017 2,238
Real estate acquired through foreclosure 218 166
Other assets 2,367 2,279
Total assets $ 136,963 128,388
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 40,889 39,694
Interest-bearing 84,093 76,685
Total deposits 124,982 116,379
Treasury, tax and loan account 345 173
Federal Funds Purchased - -
Long-term debt and obligations under capital le 810 900
Other liabilities 845 1,366
Total liabilities 126,982 118,818
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 (124) 87
Retained earnings 7,305 6,683
Total shareholders' equity 9,981 9,570
Total liabilities and sharehol $ 136,963 128,388
</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,
1996 1995 1996 1995
INTEREST INCOME:
<S> <C> <S> <C> <C> <C> <C> <C>
Loans, including fees $ 1,850 1,597 5,096 4,763
Investment securities
Taxable 740 697 2,147 2,061
Tax-exempt 19 25 60 90
Federal funds sold 100 92 350 367
Total interest income 2,709 2,411 7,653 7,281
INTEREST EXPENSE:
Deposits 767 712 2,170 2,170
Treasury tax, and loan account 2 3 5 13
Long-term debt and obligation under cap 17 18 46 64
Other 20 - 20 -
Total interest expense 806 733 2,241 2,247
Net interest income 1,903 1,678 5,412 5,034
Provision for possible loan losses - 125 - 375
Net interest income after provision for
possible loan losses 1,903 1,553 5,412 4,659
NONINTEREST INCOME:
Service charges on deposit accounts 936 988 2,805 2,819
Other operating income 39 48 225 210
Total noninterest income 975 1,036 3,030 3,029
NONINTEREST EXPENSE:
Salaries and employee benefits 1,424 1,226 4,018 3,602
Net occupancy and equipment 434 412 1,291 1,230
Other operating expenses 819 595 2,281 1,998
Total other expense 2,677 2,233 7,590 6,830
Earnings before income taxes 201 356 852 858
Income tax expense 22 52 164 128
Net earnings $ 179 304 688 730
Net earnings per common share $ 0.13 0.23 0.52 0.55
Average outstanding shares 1,330 1,330 1,330 1,330
</TABLE>
<TABLE>
Citizens Bancshares Corporation and Subsidiary
Consolidated Statements of Cash Flows
Nine months ended September 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 $ 688 730
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Provision for possible loan losses - 375
Depreciation and amortization 491 415
Amortization (accretion), net 29 (83)
Amortization (accretion) of deferred loan fees 96 (73)
Loss (gain) on sale of real estate - 2
Loss (gain) on sale of premises and equipment 2 -
Increase (decrease) in other assets (244) 75
( Decrease) increase in accrued expenses and other lia
(521) 178
Net cash provided by operating activities 541 1,619
Cash flows from investing activities:
Proceeds from maturities of investment securities held to 9,154 46,912
Proceeds from maturities of investment securities availab 1,204 16,549
Purchases of investment securities held to maturity (6,500) (42,750)
Purchases of investment securities available for sale (6,574) (19,017)
Net increase in loans (8,456) (797)
Purchases of premises and equipment (1,039) (400)
Proceeds from sale of real estate acquired through forecl 123 607
Proceeds from sale of premises and equipment 9 -
Net cash (used) provided by investing activities (12,079) 1,104
Cash flows from financing activities:
Net increase in demand deposits 1,195 8,788
Net increase (decrease) in time deposits 7,408 (11,320)
Principal payment on long-term debt and
obligations under capital lease (90) (292)
Net increase (decrease) in treasury, tax
and loan account 172 (153)
Dividends paid to shareholders (66) -
Net cash provided (used) by financing activities 8,619 (2,977)
Net decrease in cash and cash equivalents (2,919) (254)
Cash and cash equivalents at beginning of period 14,015 16,075
Cash and cash equivalents at end of period $ 11,096 15,821
Supplemental disclosures of cash paid during the period for:
Interest $ 2,173 2,154
Income taxes $ 301 159
Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure $ 193 18
</TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 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 dis-
closures 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 transac-
tions have been eliminated in consolidation.
The consolidated financial statements of Citizens Bancshares Corporation and
Subsidiary ( the "Company" ) as of September 30, 1996 and for the three and
nine month periods ended September 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 nine 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 September 30, 1996, the recorded investment in loans that are considered to
be impaired under SFAS No. 114 was approximately $1,057,000 (of which
approximately $628,000 were on a nonaccrual basis). The related allowance
for loan losses is approximately $159,000. For the nine month period ended
September 30, 1996, the Company recognized, on an accrual basis, $24,000 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.
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 $486,000 to 775,000 at September 30,
1996, from $1,261,000 at December 31, 1995. Real estate acquired through
foreclosure increased approximately $52,000 or 31% from $166,000 at
December 31, 1995 to $218,000 at September 30, 1996. Nonperforming assets
represented 1.27% of loans, net of unearned income and real estate acquired
through foreclosure at September 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 September 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 $ 628 1,261
Past-due loans 147 -
Nonperforming loans 775 1,261
Real estate acquired through foreclosure 218 166
Total nonperforming assets $ 993 1,427
Ratios:
Nonperforming loans to loans, net of
unearned income .99% 1.80
Nonperforming assets to loans(net of unearned
income) and real estate acquired through
foreclosure 1.27% 2.03
Nonperforming assets to total assets .73 % 1.11
Allowance for possible loan losses to
nonperforming loans 187.60% 124.19
Allowance for possible loan losses
to nonperforming assets 146.22% 109.74
Interest income on nonaccrual loans which would have been reported for the three
and nine month periods ended September 30, 1996 totaled approximately $19,000
and $50,000, respectively, as compared to $37,000 and $91,000 in 1995. The
Company recorded interest income on these loans of approximately $2,000 for the
nine months period ended September 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 September 30, 1996
and December 31, 1995.
1996 1995
<S> <C> <S> <C> <C> <C>
Loans, net of unearned income $ 78,137 70,084
Average loans, net of unearned income and the
allowance for possible loan losses $ 70,654 68,325
Allowance for possible loans losses at the
beginning of year $ 1,566 1,047
Loans charged off:
Commercial, financial, and agricultural 74 171
Real estate- mortgage 169 66
Installment loans to individuals 65 99
Total loans charged off 308 336
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 25 266
Real estate- mortgage 94 52
Installment loans to individuals 75 120
Total loans recovered 194 438
Net loans charged off (recovered) 114 (102)
Additions to allowance for possible loan losses
charged to operating expense - 417
Allowance for possible loan losses at period end $ 1,452 1,566
Ratio of net loans charged off (recovered) to average
loans, net of unearned income and the allowance
for possible loan losses .16% (.15)
Allowance for possible loan losses to loans, net of
unearned income 1.86% 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 September 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 and serves
its customers through eight full service branches.
The following discussion is of the Company's financial condition as of
September 30, 1996 and the changes in financial condition and results of
operations for the three and nine month periods ended September 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 nine month periods ended September 30, 1996 increased
approximately $225,000 and $378,000 or 13% and 8%, respectively, over the three
and nine month periods of 1995. Combination of increased federal funds activity
and higher levels of market interest rates increased the Company's net interest
margin to 5.84% compared to 5.59% 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 $375,000 for the three
and nine month periods ended September 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 ofloan
portfolio risks, adequacy of underlying collateral, and economic conditions.
As of September 30, 1996, the allowance for possible loan losses was
approximately 1.86% 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 $61,000 or 6% for the three month
period ended September 30, 1996 and increased approximately $1,000 for the
nine month period ended September 30, 1996 as compared to the same period in
1995.
Noninterest expense:
Noninterest expense increased approximately $444,000 or 20% for the three month
period ended September 30, 1996 and $760,000 or 11% during the nine month period
ended September 30, 1996, respectively, as compared to the same period in
1995. The increase is attributable to salaries and employee benefits and other
operating expense of $416,000 and $283,000, respectively. The increase in
salaries and employee benefit costs is due to a combination of new hires,
temporary staffing for information system conversion and normal salary
adjustments. The increase in other operating expense is due to increase in
telephone expense, other losses, director fees, professional services
attributed to garnishments and other miscellaneous expenses.
Net earnings:
The Company had net earnings of approximately $179,000 or $0.13 per share for
the three month period ended September 30, 1996 and $688,000 or $0.52 per
share for the nine month period ended September 30,1996, as compared to
$304,000 and $730,000 or $0.13 and $0.55 per share in 1995.
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 30,1996, approximately 21% of the investment portfolio matures
within the next year, 57% after one year but before five years. In addition,
federal funds sold averaged approximately $8.9 million during the nine month
period ended September 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 8.64% at September 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 Under-
standing 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 September 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
On September 6, 1996, the Company filed a Form 8-K to report changes
in it's certifying accountant from KPMG Peat Marwick LLP to Porter
Keadle Moore, LLP. No financial statements were filed at that time.
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 under-
signed thereunto duly authorized.
CITIZENS BANCSHARES CORPORATION
Date: November 13, 1996 By: /s/ William L. Gibbs
William L. Gibbs
President and Chief Executive Officer
Date: November 13, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7886
<INT-BEARING-DEPOSITS> 84093
<FED-FUNDS-SOLD> 3100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29456
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 14124
<LOANS> 78137
<ALLOWANCE> 1452
<TOTAL-ASSETS> 136963
<DEPOSITS> 124982
<SHORT-TERM> 0
<LIABILITIES-OTHER> 845
<LONG-TERM> 810
0
0
<COMMON> 1330
<OTHER-SE> 2367
<TOTAL-LIABILITIES-AND-EQUITY> 136963
<INTEREST-LOAN> 5096
<INTEREST-INVEST> 2207
<INTEREST-OTHER> 350
<INTEREST-TOTAL> 7653
<INTEREST-DEPOSIT> 2170
<INTEREST-EXPENSE> 2241
<INTEREST-INCOME-NET> 7653
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7590
<INCOME-PRETAX> 852
<INCOME-PRE-EXTRAORDINARY> 852
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 688
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.52
<YIELD-ACTUAL> 0
<LOANS-NON> 884
<LOANS-PAST> 121
<LOANS-TROUBLED> 1273
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 308
<RECOVERIES> 194
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
