SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No:0-14535
December 31, 1995
Citizens Bancshares Corporation
(Name of small business issuer in its charter)
Georgia 58-1631302
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
175 John Wesley Dobbs Avenue., N.E., Atlanta, Georgia 30303
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(404) 659-5959
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of class)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X _
No_.
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form,
and no disclosure will be contained, to the best of the
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB._X
State issuer's revenues for its most recent fiscal year:
$13,943,686
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant: $2,978,294 as of March 1, 1996.
Because there is no established public trading market for the
registrant's Common Stock, the aggregate market value of the
voting stock held by nonaffiliates of the registrant is based
upon the most recent trades of the voting stock of which the
registrant is aware.
State the number of shares outstanding of 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 March 1, 1996.
Transitional Small Business Issurer Format: Yes No X
Documents incorporated by reference: None
Exhibit Index on page 46.
PART I
ITEM 1. BUSINESS
General
Citizens Bancshares Corporation (the "Company") was
organized as a business corporation under the laws of Georgia in
1972 and is registered under the Federal Bank Holding Company Act
of 1956. The Company's principal asset is its wholly-owned
subsidiary, Citizens Trust Bank (the "Bank"), which was organized
as a banking corporation under the laws of Georgia in 1921 and is
a member of the Federal Reserve System.
All of the business of the Company is conducted by the Bank.
The Bank operates a full service banking business in areas of
metropolitan Atlanta, Georgia, providing customary banking
services such as consumer and commercial checking accounts,
negotiable order of withdrawal (NOW) accounts, savings accounts,
various types of time deposits, safe deposit facilities and money
transfers, and financing commercial and consumer transactions,
makes secured and unsecured loans and provides other financial
services. The Bank conducts limited trust activities, which
primarily include serving as trustee for bond issues for three
colleges and for local governments.
The City of Atlanta is located in a Metropolitan Statistical
Area which encompasses 18 counties with an area of 5,147 square
miles and a population of 2,853,511. The central eight metro
Atlanta counties(Clayton, Cobb, DeKalb, Douglas, Fulton,
Gwinnett, Henry and Rockdale), as defined by the Atlanta Regional
Commission, had a combined population as of April 1, 1990 of
2,146,000. The Company's and the Bank's primary market within
the Atlanta SMA is Fulton and DeKalb Counties which had a
combined population as of April 1, 1990 of 1,020,597. As of
April, 1993, the Atlanta MSA ranked nationally ninth in
population, first in number of residential units authorized,
eight in retail sales, and tenth in net effective buying income.
Average income per household in 1993 was $47,557.
Deposits. The Bank offers a full range of depository
accounts which include: interest checking accounts for non-profit
and individual customers; noninterest-bearing checking accounts
for commercial and individual customers; money market accounts
which pay variable interest rates; statement savings accounts;
individual retirement accounts; and fixed-rate, fixed-term time
deposits. At December 31, 1995, noninterest bearing accounts
represented approximately 34.1% of the Bank's total deposits.
Loans. The Bank lending activities include real estate,
consumer, and commercial loans to individuals, firms, and
corporations on a secured and unsecured basis. The real estate
portfolio includes traditional first mortgage loans to
individuals on single-family homes, loans secured by farmland and
construction loans. Its consumer loan portfolio includes
installment loans to individuals for personal, family and
household purposes, including loans for automobiles, home
improvements and investments. The Bank's commercial lending is
directed principally toward businesses located within its trade
area with a demand for funds that falls within the Bank's legal
lending. At December 31, 1995, commercial, financial and
agricultural loans and consumer loans represented approximately
15.6% and 11%, respectively, of the Bank's total loan portfolio,
and real estate mortgage and construction loans represented
approximately 73.4% of the Bank's total loan portfolio.
Credit decisions are based upon determination of the
borrower s ability and willingness to repay the loans, which in
turn are impacted by such factors as an individual borrower's
income, employment stability, previous credit history and
collateral for the loan. For commercial customers, credit
decisions are based upon the borrower s cash flow, sales trend,
inventory levels and relevant economic conditions. Risks
associated with loans can be significant and include, but are not
limited to, fraud, bankruptcy, economic downturn, deteriorated or
non-existing collateral and changes in interest rates.
Minority Control. A majority of the outstanding shares of
the Company's common stock is held by minority individuals. The
Company thus views itself as having a social obligation to help
members of the minority community. Accordingly, a significant
portion of the Bank's customers are from the minority community.
Liquidity Management. At December 31, 1995, the Bank's
ratio of loans to deposits was 60.2%. This ratio is lower than
the comparable ratios for other banks of similar size in the
metropolitan Atlanta area. Liquidity needs are met primarily
through the sale of federal funds and the maturing of loans and
short term securities. Maturities in the Bank's loan portfolio
are monitored monthly to avoid matching short-term deposits with
long-term loans. Other assets and liabilities are also carefully
controlled in an effort to balance liquidity, asset quality and
income.
Correspondent Banks. At December 31, 1995, the Bank had
correspondent relationships with six commercial banks in Georgia
and two commercial banks in other states. Bank South, National
Association in Atlanta, Georgia is the Bank's principal
correspondent bank. The Bank's correspondent banks provide
certain services for the Bank such as processing checks and other
items, buying federal funds, handling money transfers and
exchanges, providing safekeeping of securities or other valuable
items, and furnishing limited management information and advice.
As compensation for these services, the Bank maintains certain
balances with its correspondents in noninterest-bearing accounts.
Employees
On December 31, 1995, the Company and the Bank had full time
equivalent employees of 143. See Note 9, Employee Benefits, of
the Notes to Consolidated Financial Statements . Neither the
Company nor the Bank is a party to any collective bargaining
agreement and the Company believes that its employee relations
are satisfactory.
Monetary Policies
The results of operations of the Bank, and therefore of the
Company, are affected by monetary policies of regulatory
authorities, particularly the Board of Governors of the Federal
Reserve System (the "Board of Governors"). The instruments of
monetary policy employed by the Board of Governors include open
market operations in U.S. Government securities, changes in the
discount rate on bank borrowings, and changes in reserve
requirements against bank deposits. In view of changing
conditions in the national economy and in the money markets and
the unknown effect of action by monetary and fiscal authorities,
including the Federal Reserve System, no prediction can be made
as to possible future changes in interest rates, deposit levels,
loan demand, or the business and earnings of the Company and the
Bank.
Competition
The banking business is highly competitive. The Bank
competes with other financial service organizations, including
other banks, savings and loan associations, finance companies,
insurance companies, credit unions and certain governmental
agencies. To the extent that banks must maintain noninterest-
earning reserves against deposits, they may be at a competitive
disadvantage when compared with other financial service
organizations that are not required to maintain reserves against
substantially equivalent sources of funds. Further, deregulation
of banks, savings and loan associations and other financial
institutions and the increased competition from investment
bankers and brokers and other financial service organizations may
have a significant impact on the competitive environment in which
the Bank operates.
Supervision and Regulation
Bank Holding Company Regulation. The Company is a
registered holding company under the Bank Holding Company Act of
1956, as amended (the "Federal Bank Holding Company Act"), and
the Georgia Bank Holding Company Act (the "Georgia Bank Holding
Company Act") and is regulated under such acts by the Board of
Governors of the Federal Reserve System (the "Board of
Governors") and by the Georgia Department of Banking and Finance
(the "Georgia Department"), respectively.
As a bank holding company, the Company is required to file
an annual report with the Federal Reserve and the Georgia
Department and such additional information as the applicable
regulator may require pursuant to the Federal and Georgia Bank
Holding Company Acts. The Federal Reserve and the Georgia
Department may also conduct examinations of the Company with the
Federal Reserve and the Georgia Department to determine whether
the institution is in compliance with both Bank Holding Company
Acts and the regulations promulgated thereunder.
The Federal Bank Holding Company Act also requires every
bank holding company to obtain prior approval from the Federal
Reserve before acquiring direct or indirect ownership or control
of more than 5% of the voting shares of any bank which is not
already majority owned or controlled by that bank holding
company. The Federal Reserve is prohibited, however, from
approving the acquisition by the Company of the voting shares of,
or substantially all the assets of, any bank located outside
Georgia, unless such acquisition is specifically authorized by
the laws of the state in which the bank is located. Acquisition
of any additional banks would require prior approval from both
the Federal Reserve and the Georgia Department. On March 16,
1994, the Georgia legislature adopted the Georgia Interstate
Banking Act which was subsequently signed into law by the
Governor of the State of Georgia, effective July 1, 1995. As of
such date, interstate acquisitions by institutions located in
Georgia are permitted in states which also allow national
interstate acquisitions, and interstate acquisitions of
institutions located in Georgia are permitted by institutions
located in states which also allow national interstate
acquisitions, provided, however, that if the board of directors
of a Georgia bank or bank holding company adopts a resolution to
except such bank or bank holding company from being acquired
pursuant to the provisions of the Georgia Interstate Banking Act
and properly files a certified copy of such resolution with the
Georgia Department, such Georgia bank or bank holding company may
not be acquired by an institution located outside of the State of
Georgia.
The Federal and Georgia Bank Holding Company Acts further
provide that the Federal Reserve and the Georgia Department will
not approve any acquisition, merger or consolidation (a) which
would result in a monopoly, (b) which would be in furtherance of
any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United
States, (c) the effect of which may be substantially to lessen
competition or to tend to create a monopoly in any section of the
country or (d) which in any other manner would be in restraint of
trade, unless the anti-competitive effects of the proposed
transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and
needs of the community to be served.
In addition to having the right to acquire ownership or
control of other banks, the Company is authorized to acquire
ownership or control of non-banking companies, provided the
activities of such companies are so closely related to banking or
managing or controlling banks that the Federal Reserve considers
such activities to be proper to the operation and control of
banks. Regulation Y, promulgated by the Federal Reserve, sets
forth those activities which are regarded as closely related to
banking or managing or controlling banks and, thus, are
permissible activities for bank holding companies, subject to
approval by the Federal Reserve in individual cases.
Federal Reserve policy requires a bank holding company to
act as a source of financial strength and to take measures to
preserve and protect bank subsidiaries in situations where
additional investments in a troubled bank may not be warranted.
Under these provisions, a bank holding company may be required to
loan money to its subsidiaries in the form of capital notes or
other instruments which qualify for capital under regulatory
rules. Any loans by the holding company to such subsidiary banks
are likely to be unsecured and subordinated to such bank's
depositors and perhaps to its other creditors.
Bank Regulation. The Bank operates as a bank organized
under the laws of the State of Georgia subject to examination by
the Georgia Department. The Georgia Department regulates all
areas of the Bank's commercial banking operations including
reserves, loans, mergers, payment of dividends, interest rates,
establishment of branches, and other aspects of operations.
The Bank is also insured by the Federal Deposit Insurance
Corporation (the "FDIC") and regulated by the Federal Reserve.
The major functions of the FDIC with respect to insured banks
include paying depositors to the extent provided by law in the
event an insured bank is closed without adequately providing for
payment of the claims of depositors, acting as a receiver of
state banks placed in receivership when so appointed by state
authorities, and preventing the continuance or development of
unsound and unsafe banking practices. The Federal Reserve also
approves conversions, mergers, consolidations, and assumption of
deposit liability transactions between insured banks and non-
insured banks or institutions to prevent capital or surplus
diminution in such transactions where the resulting, continued,
or assumed bank is an insured member state bank.
Subsidiary banks of a bank holding company are subject to
certain restrictions imposed by the Federal Bank Holding Company
Act on any extension of credit to the bank holding company or any
of its subsidiaries, on investment in the stock or other
securities of the bank holding company or its subsidiaries, and
on the taking of such stock or securities as collateral for loans
to any borrower. In addition, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or
provision of any property or services.
Under Georgia law, a bank must obtain the approval of the
Georgia Department before cash dividends may be paid if (1) the
total classified assets at the most recent examination of such
bank exceed 80% of the equity capital, (2) the aggregate amount
of dividends declared or anticipated to be declared in the
calendar year exceeds 50% of the net profits, after taxes but
before dividends, for the previous calendar year, or (3) the
ratio of equity capital to adjusted assets is less than 6%.
The Bank is also subject to the provisions of the Community
Reinvestment Act of 1977, which requires the appropriate federal
bank regulatory agency, in connection with its regular
examination of a bank, to assess the Bank's record in meeting the
credit needs of the communities served by the Bank, including
low- and moderate-income neighborhoods. The Bank received an
"outstanding" rating on its most recent Federal Reserve Bank
CRA examination.
Supervisory Agreement. The Board of Directors of the Bank
entered into a Board Resolution (the Agreement ) dated March 15,
1995, with the Georgia Department and the Federal Reserve Bank of
Atlanta (collectively, the "Regulatory Authorities") to take
certain corrective actions, which if not taken could result in
further regulatory action. The Agreement replaces the Memorandum
of Understanding under which the Bank had been operating since
February 27, 1990. The Agreement, among other things, (1)
requires written approval from Regulatory Authorities to declare
or pay dividends, (2) directs the Bank to continue to reduce
asset classifications and improve asset quality with quarterly
reporting, (3) requires maintenance of adeqate capital levels,
with the primary capital ratio to be no less than 7.53 percent,
(4) requires submission of an annual budget, (5) requires
implementation of management review and succession, and (6)
requires quarterly compliance reporting to the Regulatory
Authorities. The Bank believes it is currently in compliance
with the Agreement. See also the Capital Resources section of
"Management's Discussion and Analysis or Plan of Operation" and
Notes 7 and 15 of "Notes to Consolidated Financial Statements."
Capital Requirements. Regulatory agencies measure capital
adequacy with a framework that makes capital requirements
sensitive to the risk profile of the individual banking
institutions. The guidelines define capital as either Tier 1 or
Core capital (primarily shareholders equity) or Tier 2 capital
(certain debt instruments and a portion of the reserve for loan
losses). There are two measures of capital adequacy for bank
holding companies and their subsidiary banks: the leverage ratio
and the risk-based capital requirements. Bank holding companies
and their subsidiary banks must maintain a minimum Tier 1
leverage ratio of 4%. In addition, Tier 1 capital must equal 4%
of risk-weighted assets, and total capital (Tier 1 plus Tier 2)
must equal 8% of risk-weighted assets. These are minimum
requirements, however, and institutions experiencing internal
growth or making acquisitions, as well as institutions with
supervisory or operational weaknesses, will be expected to
maintain capital positions well above these minimum levels.
The Bank s Tier 1 leverage ratio is 13.61%, and Tier 2 ratio
is 14.86%. See Note 15, Regulatory Matters of "Notes to
Consolidated Financial Statements."
Prompt Corrective Action. The Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "FDIC Act") imposes a
regulatory matrix which requires the federal banking agencies to
take prompt corrective action to deal with depository
institutions that fail to meet their minimum capital requirements
or are otherwise in a troubled condition.
The Federal Reserve, the FDIC, the OCC, and the Office of
Thrift Supervision (the "OTS") issued final prompt corrective
action regulations on December 19, 1992. The corrective actions
that the banking agencies either must or may take are tied
primarily to an institution's capital levels. In accordance with
the framework adopted by the FDIC Act, the banking agencies have
developed a classification system, pursuant to which all banks
and thrifts will be placed into one of five categories: well-
capitalized institutions, adequately capitalized institutions,
undercapitalized institutions, significantly undercapitalized
institutions and critically undercapitalized institutions. The
capital thresholds established for each of the categories are as
follows:
Total Tier 1
Capital Tier 1 Risk-Based Risk- Other
Category Capital Capital Based
Capital
Well 5% or more 10% or more 6% or more Not
Capitalized subject
to a
capital
directive
Adequately 4% or more 8% or more 4% or more --
Capitalized
Undercapitalized less than 4% less than 8% less than 4% --
Significantly less than 3% less than 6% less than 3% --
Undercapitalized
Critically 2% or less -- -- --
Undercapitalized tangible
equity
As discussed at Item 6 - Management s Discussion and
Analysis Capital Resources, the Bank qualifies as well-
capitalized institution within the framework established by the
FDIC Act.
Brokered Deposits and Interest Rate Limitations on Deposits.
The FDIC regulations allow well-capitalized institutions to
continue to accept brokered deposits without regulatory approval
but require adequately capitalized institutions to seek FDIC
approval prior to acceptance of brokered deposits. Those
institutions granted approval may not pay interest on their
brokered deposits at a rate that is more than 75 basis points
above (1) the going rate for deposits of comparable size and
maturity in their local markets, or (2) for brokered deposits
originating outside their market areas, a national rate which is
tied to the yield on U.S. Treasury obligations with a similar
maturity. Institutions with lower capital ratings are strictly
prohibited from taking brokered deposits.
Deposit Insurance Premiums. On November 2, 1992, the FDIC
adopted a new system of risk-based insurance assessment that went
into effect in January 1993, and on June 25, 1993, the FDIC made
this system permanent effective January 1, 1994. Under the
FDIC's new rule, each depository institution will be assigned to
category based on an evaluation of the risk posed by the
institution to its insurance fund. The capital standard being
used to set insurance premium rates are the same as those adopted
by the agencies with the prompt corrective action framework. The
rule provides that well-capitalized institutions will pay
assessment rates ranging from 0 to 27 basis points, depending
upon the subgroup to which they are assigned. Adequately
capitalized institutions will pay from 0 to 17 basis points, and
undercapitalized institutions will pay from 10 to 27 basis
points.
Audit and Reporting Requirements. For fiscal years
beginning after December 31, 1992, all insured depository
institutions having total assets of $150 million or greater must
be audited annually by independent public accountants. In
addition to certifying financial statements, the auditor must
"attest to" a report prepared by the institution's management on
matters including internal control structures and compliance with
safety and soundness requirements. The auditor must also report
separately on these matters. If an auditor subsequently ceases
to be the depository institution's accountant, both the auditor
and the institution must notify the FDIC. Insured depository
institutions also must establish audit committees composed
entirely of outside directors independent of the institution's
management.
In the case of a depository institution that is a subsidiary
of a holding company, most of these FDIC requirements may be
satisfied if services and functions comparable to those required
under the FDIC Act are provided at the holding company level and
the depository institution meets certain other qualifications,
including having a rating from its primary regulator of "1" or
"2" on its most recent examination.
In addition, management is required to make annual reports
on its responsibility for preparing financial statements and
establishing and maintaining an internal control structure for
financial reporting and compliance. The Bank's financial
statements are audited by independent public accountants.
Insider Loans. FDIC regulations which became effective May
18, 1992, place limitations on mortgage and educational loans
made to executive officers, directors and principal shareholders
of bank holding companies, national banks, and state non-member
banks under the Federal Reserve's Regulation O ("Regulation O"),
and authorize such banks to make limited "other purpose" loans to
executive officers. Similarly, the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 provides that these
restriction on extensions of credit to executive officers,
directors and principal shareholders apply to savings
associations in the same manner and to the same extent as if the
savings association were a bank.
The Federal Reserve has amended Regulation O to place
ceiling restrictions on the amount and terms of the loans from a
bank to its executive officers, directors and principal
shareholders, and to any company controlled by a bank's insiders,
at 100% of capital and unimpaired surplus, with an exception in
the case of banks and thrifts with less than $100 million in
assets, which until February 18, 1994, may lend up to 200% of
capital and unimpaired surplus. See Note 4 of the "Notes to the
Consolidated Financial Statements" for discussion on loans
outstanding to executive officers, directors and principal
shareholders.
Future Legislation. Bills are regularly introduced in the
United States Congress which contain wide-ranging proposals for
altering the structures, regulations, and competitive
relationships of the nation's financial institutions. It cannot
be predicted whether or what form any proposed legislation will
be adopted or the extent to which the business of the Company may
be affected by such legislation.
Selected Statistical Information
The following tables set forth certain selected statistical
information and should be read in conjunction with the
consolidated financial statements and related notes and
"Management's Discussion and Analysis or Plan of Operation"
appearing in other sections of this Annual Report. Averages
referred to in the following statistical information are
generally average daily balances.
AVERAGE BALANCE SHEETS, INTEREST
RATES, AND INTEREST DIFFERENTIAL
Condensed consolidated average balance sheets for the years
indicated are presented below.
Years ended December 31,
1995 1994
(amounts in thousands)
ASSETS:
Cash and due from banks $ 9,273 10,614
Interest-earning assets:
Loans, net(a) 68,325 57,324
Taxable investment securities 42,661 44,918
Tax-exempt investment securities 1,348 2,818
Federal funds sold 9,086 7,015
Total interest-earning assets 121,420 112,075
Premises and equipment, net 2,326 1,934
Other assets 2,484 3,507
TOTAL ASSETS $135,503 128,130
LIABILITIES AND SHAREHOLDERS' EQUITY:
Noninterest-bearing deposits $40,226 41,094
Interest-bearing liabilities:
Savings and interest-bearing demand deposits 49,934 41,783
Time deposits 33,789 34,061
Other borrowed funds 1,448 2,002
Total interest-bearing liabilities 85,171 77,846
Accrued expenses and other liabilities 1,252 1,317
Total liabilities 126,649 120,257
Shareholders' equity:
Common stock 1,330 1,304
Additional paid-in capital 1,470 1,366
Retained earnings 6,054 5,203
Total shareholders' equity 8,854 7,873
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $135,503 128,130
(a)Average loans are shown net of unearned income and the allowance for
possible loan losses. Nonperforming loans are included.
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994
(amounts in thousands, except ratios)
<S> <C> <C>
Total interest-earning assets $ 121,420 112,075
Total interest-bearing liabilities 85,171 77,846
Excess of interest-earning assets over
interest-bearing liabilities $ 36,249 34,229
INTEREST EARNED ON:
Loans, net(b) $ 6,416 5,232
Taxable investment securities 2,752 2,617
Tax-exempt investment securities(a) 162 329
Federal funds sold 528 323
Total interest income 9,858 8,501
INTEREST PAID ON:
Savings and interest-bearing demand deposits 1,207 978
Time deposits 1,682 1,365
Other borrowed funds 93 122
Total interest expense 2,982 2,465
NET INTEREST EARNED $ 6,876 6,036
AVERAGE YIELD EARNED ON:
Loans, net 9.39% 9.13
Taxable investment securities 6.45 5.83
Tax-exempt investment securities(a) 12.02 11.67
Federal funds sold 5.82 4.60
TOTAL INTEREST-EARNING ASSETS 8.12 7.59
AVERAGE RATE PAID ON:
Savings and interest-bearing demand deposits 2.42 2.34
Time deposits 4.98 4.01
Other borrowed funds 6.42 6.09
TOTAL INTEREST-BEARING LIABILITIES 3.50 3.17
INTEREST RATE DIFFERENTIAL 4.62 4.42
NET INTEREST MARGIN 5.66 5.39
<FN>
<F1>
(a) Reflects taxable equivalent adjustments using a tax rate of
34% to adjust interest on tax-exempt investment securities to a
fully taxable basis, including the impact of the disallowed
interest expense related to carrying such tax-exempt securities.
<F2>
(b) Included in interest earned on loans are fees of
approximately $224,000 in 1995 and $176,000 in 1994.
</FN>
</TABLE>
<TABLE>
The following table sets forth, for the year ended December 31,
1995, a summary ofthe changes in interest earned and interest paid
resulting from changes in volume and changes in rates:
<CAPTION>
Increase Due to changes in(a)
1995 1994 (decrease) Volume Rate
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans, net $ 6,416 5,232 1,184 1,019 165
Taxable investment securities 2,752 2,617 135 (139) 274
Tax-exempt investment securities(b) 162 329 (167) (174) 7
Federal funds sold 528 323 205 108 97
TOTAL INTEREST INCOME 9,858 8,501 1,357 734 623
INTEREST PAID ON:
Savings and interest-bearing deposits 1,207 978 229 194 5
Certificates of deposit 1,682 1,365 317 (12) 329
Other borrowed funds 93 122 (29) (35) 6
TOTAL INTEREST EXPENSE 2,982 2,465 517 244 273
NET INTEREST EARNED $ 6,876 6,036 840 516 324
<FN>
<F1>
(a) The change in interest due to both rate and volume has
been allocated proportionately to the volume and rate
components.
<F2>
(b) Reflects taxable equivalent adjustments using a tax rate
of 34% to adjust interest on tax-exempt investment securities to
a fully taxable basis, including the impact of the disallowed
interest expense related to carrying such tax-exempt securities.
</FN>
</TABLE>
The following table sets forth, for the year ended December 31,
1994, a summary of the changes in interest earned and interest
paid resulting from changes in volume and changes in rates:
<TABLE>
<CAPTION>
Increase Due to changes in(a)
1994 1993 (decrease) Volume Rate
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans, net $ 5,232 4,382 850 613 237
Taxable investment securities 2,617 2,855 (238) (143) (95)
Tax-exempt investment securities(b) 329 400 (71) (197) 126
Federal funds sold 323 181 142 30 112
TOTAL INTEREST INCOME 8,501 7,818 683 245 438
INTEREST PAID ON:
Savings and interest-bearing deposits 978 1,070 (92) (42) (50)
Certificates of deposit 1,365 1,190 175 87 88
Other borrowed funds 122 148 (26) (46) 20
TOTAL INTEREST EXPENSE 2,465 2,408 57 (9) 66
NET INTEREST EARNED $ 6,036 5,410 626 172 454
<FN>
<F1>
(a) The change in interest due to both rate and volume has
been allocated proportionately to the volume and rate components.
<F2>
(b) Reflects taxable equivalent adjustments using a tax rate
of 34% to adjust interest on tax-exempt investment securities to
a fully taxable basis, including the impact of the disallowed
interest expense related to carrying such tax-exempt securities.
</FN>
</TABLE>
INVESTMENT SECURITIES
The carrying values of investment securities - held to maturity
at the indicated dates are presented below:
December 31,
1995 1994
(amounts in thousands)
U.S. Treasury and U.S. Government agencies $ 19,188 20,728
Mortgage-backed securities 11,795 13,429
State, county, and municipal securities 1,125 2,378
Totals $ 32,108 36,535
The carrying value of investment securities - available for
sale at the indicated dates are presented below:
December 31,
1995 1994
(amounts in thousands)
U.S. Treasury and U.S. Government agencies $ 8,819 6,913
Other equity securities 245 219
$ 9,064 7,132
The following table shows the contractual maturities of all
investment securities at December 31, 1995 and the average yields
(on a fully taxable basis assuming a 34% tax rate) of such
securities. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Maturing
After 1 but After 5 but
Within 1 year within 5 years within 10 years After 10 years
Amount Yield Amount Yield Amount Yield Amount Yield
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $ 5,517 5.59% $ 18,274 6.29% $ 4,216 6.41% $ - -% %
Mortgage-backed securities(a) 1,054 7.42 4,167 7.04 5,430 7.29 1,144 6.24
State, county, and municipal 100 6.90 855 7.76 170 7.30 - -
Other equity securities(b) - - - - - - 245
Totals $ 6,671 5.90% $ 23,296 6.48% $ 9,816 6.92% $ 1,389 6.24%
<FN>
<F1>
(a) Mortgage-backed securities have been categorized according
to the maturity dates of the underlying loans. Principal
repayments will occur at varying dates throughout the
terms of the mortgages.
<F2>
(b) Other equity securities are primarily comprised of an
investment in stock of the Federal Reserve Bank. This
investment has no specific maturity date or yield.
</FN>
</TABLE>
The Company did not have any investments with a single issuer
which exceeded 10% of the Company's shareholders' equity at
December 31, 1995, except for U.S. Treasury and U.S. Government
agencies as shown in the table above.
LOANS
The amount of loans outstanding at the indicated dates are
shown in the following table according to the type of loan:
December 31,
1995 1994
(amounts in thousands)
Commercial, financial, and agricultural $ 11,003 11,400
Installment and single payment individual 7,783 8,368
Real estate - commercial 29,772 25,864
Real estate - residential 19,209 20,887
Real estate - construction 2,543 3,057
70,310 69,576
Less:
Unearned income 226 315
Allowance for possible loan losses 1,566 1,047
Loans, net $ 68,518 68,214
The Company does not have any concentrations of loans exceeding
10% of total loans of which management is aware and which are not
otherwise disclosed as a category of loans in the table above or
in other sections of this Annual Report on Form 10-KSB. A
substantial portion of the Company's loan portfolio is secured by
real estate in metropolitan Atlanta.
<TABLE>
The following table sets forth certain information at December
31, 1995 regarding the contractual maturities and interest rate
sensitivity of certain categories of the Company's loans.
<CAPTION>
Over one Over
One year year through five
or less five years years Total
(amounts in thousands)
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 7,885 2,908 210 11,003
Installment and single payment individual 2,351 5,148 284 7,783
Real estate - commercial 3,189 13,288 13,295 29,772
Real estate - residential 1,141 1,227 16,841 19,209
Real estate - construction 695 1,303 545 2,543
$ 15,261 23,874 31,175 70,310
Loans due after one year:
Having predetermined interest rates $ 31,227
Having floating interest rates 23,822
Total $ 55,049
</TABLE>
Actual repayments of loans may differ from the contractual
maturities reflected above because borrowers may have the right
to prepay obligations with or without prepayment penalties.
Additionally, the refinancing of such loans or the potential
delinquency of such loans could also cause differences between
the contractual maturities reflected above and the actual
repayments of such loans.
NONPERFORMING ASSETS
Nonperforming assets include nonperforming loans and real estate
acquired through foreclosure. Nonperforming loans consist of
loans which are past due with respect to principal or interest
more than 90 days ("past-due loans") or have been placed on
nonaccrual of interest status ("nonaccrual loans"). Generally,
past-due loans and nonaccrual loans which are delinquent more
than 90 days will be charged off against the Company's allowance
for possible loan losses unless management determines that the
loan has sufficient collateral to allow for the recovery of
unpaid principal and interest and reasonable prospects for the
resumption of principal and interest payments.
Accrual of interest on loans is discontinued when reasonable
doubt exists as to the full, timely collection of interest or
principal or when loans become contractually in default for 90
days or more as to either interest or principal unless the loan
is well secured and in the process of collection. When a loan is
placed on nonaccrual status, previously accrued and uncollected
interest is charged to interest income on loans unless management
feels that the accrued interest is recoverable through the
liquidation of collateral.
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.
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 No. 114 and 118,
the allowance for loan losses related to impaired loans is based
on discounted cash flows using the loan's initial effective
interest rate or the fair market value of the underlying
collateral for certain collateralized dependent loans. Prior to
1995, the allowance for loan losses was based upon nondiscounted
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.
At December 31, 1995, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $2,051,000 (of
which $1,261,000 were on a nonaccrual basis). The related
allowance for loan losses is $308,000. For the year ended
December 31, 1995, the Company recognized $77,000 in interest
income on those impaired loans on an accrual basis income
recognition method.
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 material credits about which management is aware of any
information which causes management to have serious doubts as to
the abilities of such borrower to comply with the loan repayment
terms.
Nonperforming loans decreased to $1,261,000 at December 31, 1995,
from $1,278,000 at December 31, 1994. Real estate acquired
through foreclosure decreased $657,000 or 80% from $823,000 at
December 31, 1994 to $166,000 at December 31, 1995.
Nonperforming assets represented 2.03% of loans, net of unearned
income and real estate acquired through foreclosure at December
31, 1995 as compared to 3.00% at December 31, 1994.
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 December 31, 1995 and 1994.
December 31,
1995 1994
(amounts in thousands,
except financial ratios)
Nonperforming assets:
Nonperforming loans:
Nonaccrual loans $ 1,261 1,278
Past-due loans - -
Nonperforming loans 1,261 1,278
Real estate acquired through foreclosure 166 823
Total nonperforming assets $ 1,427 2,101
Ratios:
Nonperforming loans to loans, net of unearned income 1.80% 1.85
Nonperforming assets to loans (net of unearned income)
and real estate acquired through foreclosure 2.03% 3.00
Nonperforming assets to total assets 1.11% 1.58
Allowance for possible loan losses
to nonperforming loans 124.19% 81.92
Allowance for possible loan losses
to nonperforming assets 109.74% 49.83
Interest income on nonaccrual loans which would have been
reported for the years ended December 31, 1995, 1994, and 1993 is
summarized as follows:
1995 1994 1993
(amounts in thousands)
Interest at contracted rate $ 91 182 240
Interest recorded as income - 16 -
Reduction of interest income $ 91 166 240
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table summarizes loans at the end of each year and
average loans during the year, changes in the allowance for
possible loan losses arising from loans charged off and
recoveries on loans previously charged off by loan category, and
additions to the allowance which have been charged to operating
expense:
December 31,
1995 1994
(amounts in thousands)
Loans, net of unearned income at end of year $ 70,084 69,261
Average loans, net of unearned income and the
allowance for possible loan losses $ 68,325 57,324
Allowance for possible loan losses at
beginning of year $ 1,047 942
Loans charged off:
Real estate loans 171 316
Commercial, financial, and agricultural 66 385
Installment and single payment individual 99 500
Total loans charged off 336 1,201
Recoveries of loans previously charged off:
Real estate loans 266 86
Commercial, financial, and agricultural 52 254
Installment and single payment individual 120 231
Total loans recovered 438 571
Net loans (recovered) charged off (102) 630
Additions to allowance for possible loan
losses charged to operating expense 417 735
Allowance for possible loan losses at end of year $ 1,566 1,047
Ratio of net loans (recovered) charged off
to average loans, net of unearned income and
the allowance for possible loan losses (.15)% 1.10
Allowance for possible loan losses,
net unearned income at end of year 2.23 % 1.51
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
loan 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 with 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 that the allowance for
possible loan losses is adequate at December 31, 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 the substantial portion of the
Company's loan portfolio is susceptible to changes in market
conditions in the metropolitan Atlanta area.
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Company has allocated the allowance for possible loan losses
according to the amount deemed to be reasonably necessary to
provide for the possibility of losses being incurred within the
categories of loans set forth in the table below. This
allocation is based on management's evaluation of the loan
portfolio under current economic conditions, past loan loss
experience, adequacy and nature of collateral, and such other
factors which, in the judgment of management, deserve recognition
in estimating loan losses. Regulatory agencies, as an integral
part of their examination process, periodically review the
Company's allowance for possible loan losses and the Company's
valuation of real estate acquired through foreclosure. Such
agencies may require the Company to recognize additions to the
allowance or adjustments to the valuations based on their
judgments about information available to them at the time of
their examination. Because the allocation is based on estimates
and subjective judgment, it is not necessarily indicative of the
specific amounts or loan categories in which charge-offs may
occur. The amount of such components of the allowance for
possible loan losses and the ratio of each loan category to total
loans outstanding are presented below:
<TABLE>
<CAPTION>
Commercial, Installment
financial, and single
and payment Real
agricultural individual estate Total
<S> <C> <C> <C> <C>
December 31, 1995:
Allowance amount $ 266 313 987 1,566
Percent of loans in each
category to total loans 15.6% 11.1 73.3 100.0
December 31, 1994:
Allowance amount $ 511 117 419 1,047
Percent of loans in each
category to total loans 16.4% 12.0 71.6 100.0
</TABLE>
DEPOSITS
The average amount of and average rate paid on deposits by
category for the last two years are presented below:
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994
Amount Rate Amount Rate
(amounts in thousands, except percentages)
<S> <C> <C> <C> <C>
Noninterest-bearing deposits $ 40,226 - % $ 41,094 - %
Savings and interest-bearing deposits 49,934 2.42 41,783 2.34
Time deposits 33,789 4.98 34,061 4.01
Total average deposits $ 123,949 2.33% $ 116,938 2.00%
</TABLE>
The maturities of time deposits of $100,000 or more as of
December 31, 1995 are presented below (amounts in
thousands):
3 months or less $ 9,713
Over 3 months through 6 months 1,818
Over 6 months through 12 months 1,462
Over 12 months 639
Total outstanding $ 13,632
INTEREST RATE SENSITIVITY MANAGEMENT
Interest rate sensitivity management involves managing the
potential impact of interest rate movements on net interest
income within acceptable levels of risk. The Company seeks to
accomplish this by structuring the balance sheet so that
repricing opportunities exist for both assets and liabilities in
equivalent amounts and time intervals. Imbalances in these
repricing opportunities at any point in time constitutes a
financial institution's interest rate risk. The Company's
ability to reprice assets and liabilities in the same dollar
amounts and at the same time minimizes interest rate risk.
One method of measuring the impact of interest rate sensitivity
is the cumulative gap analysis. The difference between interest
rate sensitive assets and interest rate sensitive liabilities at
various time intervals is referred to as the gap. The Company
is liability sensitive on a short-term basis as reflected in the
following table. Generally, a net liability sensitive position
indicates that there would be a net negative impact on net
interest income in an increasing rate environment. However,
interest rate sensitivity gap does not necessarily indicate the
impact of general interest rate movements on the net interest
margin, since all interest rates and yields do not adjust at the
same velocity and the repricing of various categories of assets
and liabilities is subject to competitive pressures and the needs
of the Company's customers. In addition, various assets and
liabilities indicated as repricing within the same period may in
fact reprice at different times within such period and at
different rates. For conservative purposes, the Company has
included demand deposits such as NOW, money market and savings
accounts in the three month category. However, these accounts
actual repricing may lag beyond twelve months. The interest rate
sensitivity gap is only a general indicator of potential effects
of interest rate changes on net interest income. The following
table sets forth the distribution of the repricing of the
Company s interest rate sensitive assets and interest rate
sensitive liabilities as of December 31, 1995.
<TABLE>
<CAPTION>
Cumulative amounts as of December 31, 1995
maturing and repricing within
Three Twelve Five
months months years Total
(amounts in thousands, except ratios)
<S> <C> <C> <C> <C>
Interest-sensitive assets:
Investments $ 8,907 22,699 41,030 41,172
Loans 22,347 32,064 59,279 70,310
Federal funds sold 4,000 4,000 4,000 4,000
Total interest-sensitive assets 35,254 58,763 104,309 115,482
Interest-sensitive liabilities:
Deposits 59,561 72,627 76,635 76,685
Other borrowings 173 1,073 1,073 1,073
Total interest-sensitive liabilities 59,734 73,700 77,708 77,758
Interest-sensitivity gap $ (24,480) (14,937) 26,601 37,724
Cumulative interest-sensitivity gap to
total interest-sensitivity assets (21.20) % (12.93) 23.03 32.67
</TABLE>
ITEM 2. PROPERTIES
The Bank's main office, which is located at 175 John Wesley
Dobbs Ave., N.E. in the City of Atlanta, contains approximately
30,000 square feet and is leased by the Bank. The Bank has
eight full service branches, three of which are located in
supermarkets. The branch offices are in Fulton and DeKalb
Counties, Georgia. The Bank owns the land and buildings of
three free-standing branches near the Atlanta University Center
, in the Adamsville section of the City of Atlanta and in the
City of East Point. The Bank leases the space for its
supermarket branches under license agreements, and leases a
free-standing facility in the Midtown section of the City of
Atlanta. See Note 10, " Commitments and Contingent Liabilities"
of "Notes to Consolidated Financial Statements."
The Bank is a member of the Southeast Switch Inc. Network (the
Network ), an organization of Georgia banks, savings and loan
associations and credit unions. The organization has
established a network of automated teller machines ("ATMs")
owned by its members so that customers of each member may use
their ATM cards at machines owned or operated by other members
to transact business with respect to their accounts. The use of
the Network has significantly increased the ability of the
Bank's depositors to withdraw or deposit funds. Management
believes that the Bank's membership in the Network has
substantially improved the Bank's competitive position in
attracting depositors at a much more moderate cost to the Bank
than the alternative of constructing new branch facilities.
Management believes that the Company's physical facilities are
suitable for its current needs.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security shareholders of
the Company during the fourth quarter of the fiscal year covered
by this Report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
There is no established public trading market for the Common
Stock, $1.00 par value, of the Company. The following table sets
forth high and low bid information for the Common Stock for each
of the quarters in which trading has occurred.
Calendar Period
Sales Price
1994 High Low
First Quarter $ - -
Second Quarter 5.00 5.00
Third Quarter - -
Fourth Quarter 4.50 4.00
1995 High Low
First Quarter $ 4.00 4.00
Second Quarter 5.00 4.25
Third Quarter - -
Fourth Quarter 4.25 4.25
At March 1, 1996, there were 870 shareholders of record of the
Company's Common Stock.
Dividends
For the fiscal year ended December 31, 1995, the Company
paid a $0.10 per share dividend. The Company issued a 2%
stock dividend to shareholders of record on December 21,
1994. For the fiscal year of the Company ended December 31,
1993 and 1992, the Company paid no dividends to holders of
its Common Stock. Payment of dividends by the Company is
discretionary with the Board of Directors, subject to
compliance with the provisions of the Georgia Business
Corporation Code, and is dependent upon payment by the Bank
of dividends on its common stock. Under the provisions of
applicable law and the Agreement, the Bank may pay dividends
only upon prior approval of the Regulatory Authorities. See
"Item 1. Business - Bank Regulation, of this Annual Report.
See Note 15, "Regulatory Matters" of " Notes to Consolidated
Financial Statement."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INTRODUCTION
Citizens Bancshares Corporation (the "Company") is a one-
bank holding company whose wholly owned subsidiary is
Citizens Trust Bank (the "Bank"). The Bank operates under a
state charter and serves its customers in metropolitan
Atlanta through eight full-service branch offices. The
following discussion of the Company's financial condition
and results of operations should be read in conjunction with
the Company's consolidated financial statements and related
notes and Selected Statistical Information appearing in
other sections of this Annual Report on Form 10-KSB.
Citizens Bancshares Corporation and its subsidiary (the
" Company" ) reported record results for 1995. Net income for
the year increased 79% to $1,253,000 from $701,000 earned in
1994. Net income per share was $.94 compared to $.53 in
1994. Return on assets for 1995 was .92% and return on
equity was 14.15%. This compares to return on assets of
.55% and return on equity of 8.90% for 1994. The record net
income can be attributed to a 15% increase in net interest
income and a 43% decrease in provision for possible loan
losses.
The Company's total assets decreased 3.6% or $4.8 million
during the year ended December 31, 1995 to $128,389,000.
Loans, net of unearned income, increased 1.2% or $823,000
and total deposits decreased 4.7% or $5.8 million during the
year ended December 31, 1995. The decline in total assets
is considered to be temporary. Average assets for the year
ended December 31, 1995 totaled $135,503,000, an increase of
5.8% or $7.3 million as compared to 1994.
The following selected financial data for Citizens
Bancshares Corporation and subsidiary should be read in
conjunction with the consolidated financial statements and
related notes appearing in another section of this Annual
Report on Form 10-KSB.
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993 1992 1991
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Net interest income $ 6,826 5,935 5,278 5,625 5,442
Provision for possible loan losses $ 417 735 899 979 960
Net earnings (loss) $ 1,253 701 (386) 171 232
Per share data:
Net earnings (loss) $ .94 .53 (.29) .13 .18
Book value $ 7.20 6.23 5.88 6.17 6.04
Cash dividends declared $ .10 __ ___ ___ .10
Balance sheet data:
Loans, net of unearned income $ 70,084 69,261 50,404 53,081 49,993
Deposits $ 116,380 122,145 108,710 111,942 96,422
Long-term debt and obligations
under capital leases $ 900 1,293 760 880 1,209
Total assets $ 128,389 133,206 118,304 126,818 109,738
Average shareholders' equity $ 8,854 7,873 7,578 8,159 7,681
Average assets $ 135,503 128,130 124,746 116,607 115,553
Ratios:
Net earnings (loss) to average
assets .92 % .55 (.31) .15 .20
Net earnings (loss) to average
shareholders' equity 14.15 % 8.90 (5.09) 2.10 3.02
Dividend payout ratio 10.64 % - - - 55.56
Average shareholders' equity
to average assets 6.53 % 6.14 6.07 7.00 6.65
</TABLE>
RESULTS OF OPERATIONS
Net Interest Income
Net interest income represents the amount by which the income
received on interest-earning assets exceeds the interest paid on
interest-bearing liabilities. The following table presents the
Company's net interest income on a tax-equivalent basis.
Interest income on tax-exempt investment securities has been
adjusted to reflect the income on a tax-equivalent basis
(considering the effect of the disallowed interest expense
related to carrying these tax-exempt investment securities),
using tax rates of 34% for 1995, 1994, and 1993.
<TABLE>
<CAPTION>
Years ended
December 31,
1995 1994 1993
(amounts in thousands)
<S> <C> <C> <C>
Interest income $ 9,808 8,400 7,686
Tax-equivalent adjustment 50 101 132
Interest income, tax-equivalent basis 9,858 8,501 7,818
Interest expense (2,982) (2,465) (2,408)
Net interest income, tax-equivalent basis 6,876 6,036 5,410
Provision for possible loan losses (416) (735) (899)
Noninterest income 4,136 4,633 4,249
Noninterest expense (9,218) (9,106) (9,035)
Earnings (loss) before income taxes and
cumulative effect of change in accounting principle 1,378 828 (275)
Income tax (expense) benefit (75) (26) 191
Tax-equivalent adjustment (50) (101) (132)
Income tax (expense) benefit,tax-equivalent basis (125) (127) 59
Earnings (loss) before cumulative effect of
change in accounting principle 1,253 701 (216)
Cumulative effect of change in accounting
principle - - (170)
Net earnings (loss) $ 1,253 701 (386)
</TABLE>
Net interest income on a fully taxable equivalent (FTE) basis
accounted for 62.4% of net interest and noninterest income before
and 55.4% in 1993. The level of such income is influenced
primarily by changes in volume and mix of earning assets and
sources of funding, market rates of interest, and income tax
rates. The Company has an Asset/Liability Management Committee
( ALCO ), which is responsible for managing changes in net
interest income and net worth resulting from changes in interest
rates based on acceptable limits established by the Board of
Directors. ALCO reviews economic conditions, the interest rate
outlook, the demand for loans, the availability of deposits, and
current operating results, liquidity, capital, and interest rate
exposure. Based on such reviews, ALCO formulates a strategy that
is intended to implement objectives set forth in the
asset/liability management policy.
Net interest income on a tax-equivalent basis increased $840,000
or 14% in 1995 as compared to 1994. The combination of higher
levels of market interest rates and a $2.0 million increase in
the average excess of average earning assets over average
interest-bearing liabilities increased the Company's net interest
margin to 5.66% compared to 5.39% in 1994. In addition, the
composition of interest-earning assets and interest-bearing
liabilities changed significantly. The strategic plan of the
Company calls for a redeployment of the mix of earning assets
from lower to higher earning instruments. During 1995, the
average loan portfolio increased $11 million, while the average
investment securities portfolio decreased approximately $4
million. Interest-bearing liabilities increased $7.3 million,
although time deposits decreased $272,000, while savings and
demand deposits increased $8 million.
In 1994, net interest income on a tax-equivalent basis increased
$626,000 or 12% as compared to 1993. The Company's net interest
margin increased to 5.39% in 1994 from 4.97% in 1993.
Provision for Possible Loan Losses
The provision for possible loan losses is the charge to operating
earnings that management considers necessary to maintain an
adequate allowance for possible loan losses. In 1995, the
provision for possible loan losses was $417,000, a decrease of
$318,000 from the provision of $735,000 for 1994. Record levels
of recoveries in 1995 from loans previously charged off as
compared to prior years contributed to the decrease in the
provision for possible loan losses for 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. At December 31, 1995, the Company's allowance for
possible loan losses was approximately 2.23% of loans, net of
unearned income.
Management feels that this level of allowance is adequate based
on consideration of all the factors indicated above. While
management uses available information to recognize losses on
loans and real estate acquired through foreclosure, future
additions to the allowance for possible loan losses and future
adjustments to the valuation of real estate acquired through
foreclosure may be necessary based on changes in economic
conditions, particularly in the Company's primary market,
metropolitan Atlanta. In addition, regulatory agencies, as an
integral part of their examination process, periodically review
the adequacy of the Company's allowance for possible loan losses
and valuation of real estate acquired through foreclosure. Such
agencies may require the Company to recognize additions to the
allowance or adjustments to the carrying value of real estate
acquired through foreclosure based on their judgments about
information available to them at the time of their examination.
Noninterest Income
Noninterest income decreased approximately $497,000 or 11% from
1994 to 1995, as a result of a decrease in service charges on
deposit accounts. Lower account transaction volume for both
retail and commercial customers as a result of branch
restructuring contributed to the decrease of $289,000 or 7% in
service charges on deposit accounts. A large component of the
Company's service charges on deposit accounts continues to be
related to insufficient funds and returned check charges.
Declines in this type of service charge are expected to continue
as the Company focuses its efforts on expanding its customer base
in order to build stable sources of fee income. Management does
not anticipate further declines in overall noninterest income.
The Company has introduced new products and services to broaden
its current range. Aggressive marketing of existing products and
enhancements in delivery systems are planned to help accomplish
future growth in noninterest income.
Noninterest income increased approximately $384,000 or 9% from
1993 to 1994 primarily as a result of management's continued
efforts to maximize noninterest income through optimizing fee
income. Other operating income increased $106,000 in 1994 due to
$115,000 in net gains on sale of other real estate owned and
$85,000 in other recoveries. Service charges on deposit
accounts, increased approximately $82,000 or 2% in 1994. The
moderate increase is principally due to changes in the customer
base.
Noninterest Expense
In 1995, noninterest expense increased $112,000 or 1.2% to $9.2
million. The primary reason for the increase were increases in
salaries and employee benefits and depreciation expense.
Decreases in other operating expenses including FDIC insurance
and other operating losses have helped minimize the impact of
increases in the other noninterest expense categories.
Salaries and employee benefits, which represents the largest
component of noninterest expense (51.9% for 1995), increased
$320,000 or 7.2%. The growth in this expense category is the
result of increases in the number of employees, medical
claims, and normal salary adjustments.
During 1995, the Company evaluated its information system
delivery needs. In order to position itself for future growth
and expansion, the Company plans to obtain a new technologically
advanced computer system during the second quarter of 1996. As a
result of accelerated depreciation on existing computer
equipment, net occupancy and equipment increased $76,000 or 4.5%.
Other operating expense decreased $285,000 or 9.6% as compared to
1994. The decrease is due to a refund received on deposit-
insurance premiums paid and a reduction in the deposit-insurance
assessment rate. In addition, operational losses decreased as
management continues to emphasize controls for monitoring
operations.
During 1994, noninterest expense increased $72,000 as compared to
1993. The increase is primarily due to a $33,000 increase in net
occupancy and equipment. Salaries and employee benefit expenses
also increased $27,000 during 1994.
Noninterest expense reflected an increase of approximately
$461,000 or 5% during 1993 as compared to 1992. An increase in
salaries and employee benefits expense of approximately $394,000
was a significant component of the increase in noninterest
expense. This increase was attributable to high turnover costs
and normal salary adjustments. Other operating expense increased
$160,000 or 6%. This increase was primarily due to an increase
in professional services. Efforts to improve collection on
delinquent credits coupled with improvements in the bank
information technology, contributed to an increase in
professional services expenses.
Income Taxes
In 1995, the Company recognized income tax expense of $75,000, or
5.6% of its earnings before income taxes as compared to an income
tax expense of $26,000 or 3.6% of its earnings in 1994. An
income tax benefit of $191,000, or 46.9% of the loss before
income taxes was realized in 1993. The carryback and
carryforward of net operating losses in 1993, allowed the Company
to recover income taxes previously paid as well as reduce the
current year expense. At December 31, 1995, the Company has
alternative minimum tax credits of approximately $196,000 for
Federal income tax purposes that can be carried forward for an
indefinite period. Upon utilization of such credits, the Company
expects its effective tax rate to approximate statutory rates.
The current year expense also has been positively impacted by the
recognition of deferred tax benefits through a reduction of the
valuation allowance established under Statement of Financial
Accounting Standards (SFAS) No. 109. The Company expects its
effective income tax rate to increase in 1996 to a level that
more closely approximates the statutory federal rate of 34%.
Recent Accounting Pronouncements
In May 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards 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 however those
servicing rights are acquired. 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. SFAS 122 is effective for financial statements issued
for fiscal years beginning after December 15, 1995. The Company
does not believe the provisions of SFAS 122 will have a material
impact on its consolidated financial statements.
LIQUIDITY
Liquidity management of the Bank involves the matching of the
cash flow requirements of customers, either depositors
withdrawing funds or borrowers needing assurance that sufficient
funds will be available to meet their credit needs, and the
ability of the Bank to meet those needs. In the normal course of
business, the Bank's cash flow is generated from interest and fee
income on loans and other interest-earning assets, repayments of
loans, and maturities of investment securities. The Bank
continues to meet immediate liquidity needs primarily through
maintaining appropriate levels of cash and due from banks and
federal funds sold. At December 31, 1995, approximately 16% of
the investment securities portfolio has maturity dates within the
next year and an additional 57% of the portfolio matures after
one but within the next five years. During 1995, federal funds
sold averaged approximately $9 million, thereby providing
sufficient funds to meet immediate liquidity needs. The Bank is
a member of the Federal Reserve System and maintains
relationships with several correspondent banks and, thus, could
obtain funds on short notice, if needed. Bank 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 while net interest margins are
maximized.
In 1994, the Company obtained a $900,000 note from the Resolution
Trust Corporation as interim capital assistance in conjunction
with the assumption of certain liabilities under the receivership
of the Resolution Trust Corporation ( the RTC ). The Company
received $13 million in cash and assumed $13 million in customer
deposits and a call option to purchase mortgage loans.
Subsequently, the Company exercised its option and purchased $11
million in one-to-four family real estate mortgage loans.
Currently, without prior approval of the Georgia Department of
Banking and Finance (DBF) and Federal Reserve Bank of Atlanta,
normal dividends from the Bank will not be sufficient to repay
the entire RTC note payable due on April 22, 1996. Management
believes that the combination of Bank dividends and other capital
and financing alternatives will be sufficient to satisfy its debt
obligations. The Company has a written commitment dated March
21, 1996 from another financial institution that provides for
financing of $900,000 at a rate of prime less 25 basis points
to be paid quarterly over five years, which is secured by a pledge
of the common stock of the Bank.
CAPITAL RESOURCES
The Company has maintained an adequate level of capital as
measured by its average shareholders' equity to average assets
ratio of approximately 6.53% and 6.14% in 1995 and 1994,
respectively. At December 31, 1995, the Bank's regulatory
capital was well above the required minimum amounts. The Bank
qualifies as a well- capitalized institution within the framework
established by the FDIC Act. See Note 15, " Regulatory Matters"
to the " Consolidated Financial Statements" included in another
section of this Annual Report on Form 10-KSB.
The Bank is required to maintain a primary capital ratio of at
least 7.53% pursuant to a Board Resolution with banking
regulators which is further discussed in the section below
entitled "Regulatory Matters."
Regulatory authorities have proposed an interest rate risk
component to minimum required regulatory capital for all banks
and bank holding companies which has not yet been finalized.
Such requirement, if implemented, will likely increase the level
of minimum required regulatory capital in the future for which
the effects are not presently determinable.
The Company is restricted as to dividend payments to its
shareholders by certain covenants in its debt agreement with the
RTC and the Bank is restricted as to dividend payments to the
Company by certain regulatory requirements and agreements. See
Notes 7, 13, and 15 to the consolidated financial statements
included in Section VII of this Report.
REGULATORY MATTERS
The Board of Directors of the Bank entered into a Board
Resolution (the "Agreement") dated March 15, 1995 with the
Georgia Department of Banking and Finance and the Federal Reserve
Bank of Atlanta ("Regulatory Authorities") and agreed to take
certain corrective actions, which if not taken could result in
further regulatory sanctions. The Agreement replaces the
Memorandum of Understanding pursuant to which the Bank had been
operating since February 27, 1990. The Agreement includes limits
on payment of dividends without the prior written approval of the
Regulatory Authorities, requires continued improvement in asset
quality with quarterly reporting in the lending area, maintenance
of adequate capital levels, submission of a budget on an annual
basis, implementation of management review and succession, and
requires quarterly compliance reporting to the Regulatory
Authorities on a timely basis. At December 31, 1995, the Bank
was in compliance with the Agreement.
INFLATION
Inflation affects the financial condition and results of
operations of all companies. Financial institutions are more
sensitive to inflation since most of their assets and liabilities
are interest rate sensitive. The Company has adopted strategies
to cope with the effects of inflation. First, the Company has
adopted an asset/liability management program to monitor the
Company's interest rate sensitivity and to ensure the Company is
competitive in the deposit market. Secondly, the Company
performs periodic reviews to ensure its banking services and
products are priced appropriately.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company and the
report of independent auditors are included in this Report
beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the Company's two most recent fiscal years, there has been
no change in the Company's independent accountants or any
disagreement with its accountants on any matter of accounting
principles or practices or financial statement disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT.
The following information has been furnished by each director and
executive officer of the Company and any person nominated by the
Board of Directors for election as a director at the Company's
annual meeting of shareholders to be held May 1, 1996. Except as
otherwise indicated, each person has been or was engaged in his
present or last principal employment, in the same or a similar
position, for more than five years.
Name (Age) Position with Company and Principal Occupation
Herman J. Russell Mr. Russell is Chairman of the Board of
(65) Directors of the Company and has held this
position since 1980. He is Chairman and
Chief Executive Officer of H.J. Russell &
Co., a construction, real estate development
and project management company. Mr. Russell
is also a director of Georgia Power Company,
National Service Industries, Inc. and
Wachovia Corporation of Georgia. Director
since 1972.
Willliam L. Gibbs Mr. Gibbs is President and Chief Executive
(50) Officer of the Bank and Company and has held
these positions since January, 1993. He
became president of the Bank in July 1992.
Prior to joining the Bank, Mr. Gibbs held
various senior management positions over nine
years at Bank South Corporation. Director
since 1993.
William G. Anderson Dr. Anderson is Director of Medical Staff
(68) Development for Riverview Hopsital in
Detroit, Michigan and is President of Life
Choice Quality Health Care Plan, an HMO in
Detroit, Michigan. Director since 1993.
Thomas E. Boland Mr. Boland is the former chairman of the
(61) board of Wachovia Bank of Georgia. He
retired from that position in April, 1994.
He has held several senior management
positions for more than thirty years at the
Wachovia Bank of Georgia, formerly the First
National Bank of Atlanta. Director since
November, 1995.
Johnnie L. Clark Dr. Clark is a certified public accountant,
(64) consultant and real estate developer.
Previously, she served as a Professor of
Accounting at Kennesaw State College.
Director since 1982.
Norris L.Connally Mr. Connally is retired. He was formerly
(75) employed by Atlanta Life Insurance Co. as its
Senior Vice President/General Auditor.
Director since 1982.
H. Jerome Russell Mr. Russell is President of H.J. Russell and
(33) Co., a construction, real estate develoment
and project management company, since
October, 1994. Previously, he served as
President of City Beverage Co.. Director
since 1993.
R.K. Sehgal Mr. Sehgal is President and Chief Executive
(55) Officer of Williams Group, Inc., a
engineering company, and has held this
position since February, 1995. He previously
served as Chairman, President and Chief
Executive Officer of Law Corporate Group
Inc., a engineering company. Director
since 1993.
Odie C. Donald Mr. Donald is President of BellSouth
(46) Mobility, Inc., a cellular telecommunications
company, since 1993. Previously, he has held
several management positions at BellSouth
Corporation. Mr. Donald is a nominee to the
Board of Directors.
Annette G. Petty Ms. Petty is Secretary of the Company and has
(55) held this position since 1986. She is
Assistant Vice President of the Bank and
Assistant Secretary of the Bank.
Audrey M. Alexander Ms. Alexander is Assistant Secretary of the
(29) Company and has held this position since
1994. She is Vice President of the Bank and
Secretary of the Bank since 1994.
There are no family relationships between any of the directors,
executive officers or any other person nominated by the Board of
Directors for election as a director of the Company, except that
H. Jerome Russell is the son of Herman J. Russell.
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors, and persons who
own more than 10% of the Company's Common Stock, to file reports
of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and persons who own
more than 10% of the Company's Common Stock are required by SEC
regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on review of the copies of such forms furnished
to the Company, the Company believes that during the fiscal year
ended December 31, 1995, all required reports were filed timely.
ITEM 10. EXECUTIVE COMPENSATION
The Company did not pay any remuneration to its officers in
1995. The following table provides compensation information with
respect to the Chief Executive Officer and the President of the
Bank and the officers of the Bank who were paid more than
$100,000 per year in salary and bonuses for services rendered to
the Bank during 1993, 1994 and 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Other All
Name and Principal Annual Other
Position Year Salary Bonus Compensation Compensation
<S> <C> <C> <C> <C> <C>
I. Owen Funderburg 1993 - $ 12,619 -- --
Retired
William L. Gibbs 1995 $ 132,096 $ 7,000 $ 6,000 $ 977
President and 1994 116,000 -- 12,000 911
Chief Executive 1993 116,000 -- 12,000 717
Officer
</TABLE>
Mr. Funderburg's compensation as described above was made
pursuant to an employment agreement (the "Funderburg Employment
Agreement") with the Bank. In 1993, pursuant to the Funderburg
Employment Agreement, the Bank paid Mr. Funderburg a cash bonus
of $12,619 consisting of 7 1/2% of any before-tax profits in
excess of $100,000 earned by the Bank in the fiscal year ended
December 31, 1992. Mr. Funderburg resigned his position as Chief
Executive Officer of the Company effective April 28, 1993.
Mr. Gibbs became President of the Bank on July 1, 1992.
Effective January 1, 1993, Mr. Gibbs became President and Chief
Executive Officer of the Bank. Mr. Gibbs' compensation as
described above was made pursuant to an employment agreement (the
"Gibbs Employment Agreement") with the Bank. In 1995, Gibbs
Employment Agreement was amended and restated to extend the
employment term by 36 months. Upon execution of the Amended
Gibbs Employment Agreement, the Bank paid Mr. Gibbs $7,000.
Pursuant to the Gibbs Employment Agreement, Mr. Gibbs is entitled
to an annual salary of $137,000, which is subject to increase
annually at the sole discretion of the Board of Directors, and an
annual bonus calculated on the basis of performance objectives
related to the Bank's return on assets and return on equity. In
addition, pursuant to the Gibbs Employment Agreement, the Bank
maintains a life insurance policy for Mr. Gibbs, for which the
Bank paid $977 in premiums in 1995. The Gibbs Employment
Agreement also provides that the Bank will provide Mr. Gibbs a
monthly car allowance and with such health and disability
insurance and other fringe benefits as the Bank generally makes
available to all its employees. The initial term of the Gibbs
Employment Agreement is three years, beginning on July 1, 1995,
but is subject to automatic extension for an additional period to
be determined by the Board of Directors.
Directors of the Company receive a fee of $300 for each
Board of Directors meeting attended.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information
concerning he only "persons" (as that term is defined by the
Securities and Exchange Commission) who are known to the Company
to be the beneficial owners of more than 5% of the Company's
Common Stock, which is its only class of voting securities, as of
March 1, 1996, and the ownership of the Company's Common Stock as
of that date by each Company director and nominee for director,
each Company officer and all directors and officers as a group.
Number of Shares
Name and Address (Percent of Class)
Herman J. Russell 568,516
504 Fair Street, S.W. (42.8%)
Atlanta, Georgia 30313
William G. Anderson 32,713
24535 North Carolina (2.5%)
Southfield, Michigan 48075
Johnnie L. Clark 15,953
2794 Chaucer Drive, S.W. (1.2%)
Atlanta, Georgia 30311
H. Jerome Russell 6,800*
5410 Vernon Walk
Atlanta, Georgia 30327
Norris L. Connally 1,266*
1950 Niskey Lake Trail, S.W.
Atlanta, Georgia 30331
William L. Gibbs 3.024*
120 View Hill Court
Atlanta, Georgia 30350
Thomas E. Boland NA
191 Peachtree Street, Suite 2100
Atlanta, Georgia 30302
R. K. Sehgal NA
55 Cliffside Crossing
Atlanta, Georgia 30338
Odie C. Donald NA
1100 Peachtree St., Suite 1000
Atlanta, Georgia 30309
Annette G. Petty 509*
1940 Penelope Street, N.W.
Atlanta, Georgia 30314
Audrey M. Alexander 128*
1014 Chateau Lane
Smyrna, Georgia 30082
All directors and 628,909
officers as a group (47.3%)
(11 persons)
* Less than 1%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and expects to have in the future,
banking transactions in the ordinary course of business with
directors and officers of the Company and their associates,
including corporations of which such officers or directors
are shareholders, directors and/or officers, on the same
terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other
persons. Such transactions have not involved more than the
normal risk of collectability or presented other unfavorable
features.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a). The following exhibits are required to be filed
with this Report by Item 601 of Regulation S-B:
Exhibit
Number Description of Exhibit
3.1 & 4.1 Articles of Incorporation of Citizens Bancshares
Corporation (included as Exhibits 3.1 and 4.1 to
the Company's Registration Statement on Form 10,
File No. 0-14535, previously filed with the
Commission and incorporated herein by reference).
3.2 By-laws of Citizens Bancshares Corporation, as
amended. (included as Exhibits 3.2 to the
Company's Registration Statement on Form 10, File
No. 0-14535, previously filed with the Commission
and incorporated herein by reference).
3.3 & 4.2 Amendment to Articles of Incorporation of Citizens
Bancshares Corporation, as filed with the
Secretary of State of Georgia on July 21, 1987
(included as Exhibits 3.3 and 4.2 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, File No. 0-14535,
previously filed with the Commission and
incorporated herein by reference).
10.1 Citizens Trust Bank Pension Plan and Trust (as
amended and restated effective January 1, 1984)
(included as Exhibit 10.1 to the Company's
Registration Statement on Form 10, File No. 0-
14535, previously filed with the Commission and
incorporated herein by reference).
10.4 Loan Agreement by and between Citizens Bancshares
Corporation and Bank South, N.A., dated December
16, 1993. (included as Exhibits 3.1 and 10.4 to
the Company's Registration Statement on Form 10,
File No. 0-14535, previously filed with the
Commission and incorporated herein by reference).
10.5 Employment agreement dated January 6, 1985 between
Citizens Trust Bank and I. Owen Funderburg.
(included as Exhibits 10.5 to the Company's
Registration Statement on Form 10, File No. 0-
14535, previously filed with the Commission and
incorporated herein by reference).
10.6 Employment Agreement dated June 30, 1992 between
Citizens Trust Bank and William L. Gibbs.
(included as Exhibits 10.6 to the Company's
Registration Statement on Form 10, File No. 0-
14535, previously filed with the Commission and
incorporated herein by reference).
10.7 Promissory Note by and between Citizens Bancshares
Corporation and Resolution Trust Corporation.,
dated April 22, 1994. (included as Exhibits 10.7
to the Company's Registration Statement on Form
10, File No. 0-14535, previously filed with the
Commission and incorporated herein by reference).
10.8 Interim Capital Assistance Agreement by and
between Citizens Bancshares Corporation and
Resolution Trust Corporation., dated April 22,
1994. (included as Exhibits 10.8 to the Company's
Registration Statement on Form 10, File No. 0-
14535, previously filed with the Commission and
incorporated herein by reference).
10.9 Stock Pledge Agreement by and between Citizens
Bancshares Corporation and Resolution Trust
Corporation., dated April 22, 1994. (included as
Exhibits 10.9 to the Company's Registration
Statement on Form 10, File No. 0-14535, previously
filed with the Commission and incorporated herein
by reference).
10.10 Lease and Option Agreement by and between Citizens
Trust Bank and Resolution Trust Corporation.,
dated April 22, 1994. (included as Exhibits 10.10
to the Company's Registration Statement on Form
10, File No. 0-14535, previously filed with the
Commission and incorporated herein by reference).
10.11 Employment Agreement dated September 18,
1995, First Amended and Restated between
Citizens Trust Bank and William l. Gibbs.
10.12 Board Resolution dated March 15, 1995 between
Citizens Trust Bank and Regulatory Authorities.
22 List of Subsidiaries of the Company (included as
Exhibit 22 to the Company's Registration Statement
on Form 10, File No. 0-14535, previously filed
with the Commission and incorporated herein by
reference).
(b). The Company did not file a report on Form 8-K
during the last quarter of the Company's fiscal
year ended December 31, 1995.
24 Power of Attorney for Directors included herein
after signature page.
27 Financial Data Schedule.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CITIZENS BANCSHARES CORPORATION
By:/s/William L. Gibbs
William L. Gibbs
President and Chief Executive Officer
Date: March 20, 1996
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints William L. Gibbs
and Ann I. Scott, or either of them, as attorney-in-fact, with
full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any amendment to this
Report on Form 10-KSB and to file the same, with all exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue
hereof.
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
SIGNATURE CAPACITY
/s/ Herman J. Russell Chairman of the Board
Herman J. Russell of Directors
/s/Johnnie L. Clark Vice Chairman of the
Johnnie L. Clark Board of Directors
/s/William L. Gibbs President,Chief
William L. Gibbs Executive Officer
and Director
(Principal Executive
Officer)
/s/William G. Anderson Director
William G. Anderson
/s/Thomas E. Boland Director
Thomas E. Boland
[Signatures continued on following page]
/s/H. Jerome Russell Director
H. Jerome Russell
/s/ R.K. Sehgal Director
R.K. Sehgal
/s/ Ann I. Scott Controller(Principal
Ann I. Scott Financial Officer
and Principal
Accounting Officer)
Date: March 20, 1996.
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
3.1 &
4.1 Articles of Incorporation of Citizens Bancshares
Corporation (included as Exhibits 3.1 and 4.1 to
the Company's Registration Statement on Form 10,
File No. 0-14535, previously filed with the
Commission and incorporated herein by reference).
3.2 By-laws of Citizens Bancshares Corporation, as
amended. (included as Exhibits 3.2 to the
Company's Registration Statement on Form 10, File
No. 0-14535, previously filed with the Commission
and incorporated herein by reference).
3.3 &
4.2 Amendment to Articles of Incorporation of
Citizens Bancshares Corporation, as filed with
the Secretary of State of Georgia on July 21,
1987 (included as Exhibits 3.3 and 4.2 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, File No.
014535 previously filed with the Commission and
incorporated herein by reference).
10.1 Citizens Trust Bank Pension Plan and Trust (as
amended and restated effective January 1, 1984)
(included as Exhibit 10.1 to the Company's
Registration Statement on Form 10,File No. 0-
14535, previously filed with the Commission and
incorporated herein by reference).
10.4 Loan Agreement by and between Citizens Bancshares
Corporation and Bank South, N.A., dated December
16, 1993. (included as Exhibits 3.1 and 10.4 to
the Company's Registration Statement on Form 10,
File No. 0-14535, previously filed with the
Commission and incorporated herein by reference).
10.5 Employment agreement dated January 6, 1985 between
Citizens Trust Bank and I. Owen Funderburg.
(included as Exhibits 10.5 to the Company's
Registration Statement on Form 10, File No. 0-
14535, previously filed with the Commission and
incorporated herein by reference).
10.6 Employment Agreement dated June 30, 1992 between
Citizens Trust Bank and William L. Gibbs.
(included as Exhibits 10.6 to the Company's
Registration Statement on Form 10, File No. 0-
14535, previously filed with the Commission and
incorporated herein by reference).
10.7 Promissory Note by and between Citizens Bancshares
Corporation and Resolution Trust Corporation.,
dated April 22, 1994. (included as Exhibits 10.7
to the Company's Registration Statement on Form
10, File No. 0-14535, previously filed with the
Commission and incorporated herein by reference).
10.8 Interim Capital Assistance Agreement by and
between Citizens Bancshares Corporation and
Resolution Trust Corporation., dated April 22,
1994. (included as Exhibits 10.8 to the Company's
Registration Statement on Form 10, File No. 0-
14535, previously filed with the Commission and
incorporated herein by reference).
10.9 Stock Pledge Agreement by and between Citizens
Bancshares Corporation and Resolution Trust
Corporation., dated April 22, 1994. (included as
Exhibits 10.9 to the Company's Registration
Statement on Form 10, File No. 0-14535, previously
filed with the Commission and incorporated herein
by reference).
10.10 Lease and Option Agreement by and between Citizens
Trust Bank and Resolution Trust Corporation.,
dated April 22, 1994. (included as Exhibits 10.10
to the Company's Registration Statement on Form
10, File No. 0-14535, previously filed with the
Commission and incorporated herein by reference).
10.11 Employment Agreement dated September 18, 1995, First 48
Amended and Restated between Citizens Trust Bank
and William l. Gibbs.
10.12 Board Resolution dated March 15, 1995 between Citizens 58
Trust Bank and Regulatory Authorities.
13 Consolidated Financial Statements
22 List of Subsidiaries of the registrant (included as
Exhibit 22 to the Company's Registration Statement on
Form 10, File No. 0-14535, previously filed with the
Commission and incorporated herein by reference).
27 Financial Data Schedule
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Financial Statements
Index to Consolidated Financial Statements
Citizens Bancshares Corporation and Subsidiary:
Independent Auditors' Report F-2
Consolidated Balance Sheets - December 31, 1995 and 1994 F-3
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994, and 1993 F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1994, and 1993 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993 F-7
Notes to Consolidated Financial Statements F-9
Independent Auditors' Report
The Board of Directors and Shareholders
Citizens Bancshares Corporation:
We have audited the accompanying consolidated balance sheets of
Citizens Bancshares Corporation and subsidiary (the" Company" ) as
of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Citizens Bancshares Corporation and subsidiary at
December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements,
the Company changed its method of accounting for investment
securities in 1994 to adopt the provisions of Statement of
Financial Accounting Standards No. 115," Accounting for Certain
Investments in Debt and Equity Securities." In addition, as
discussed in notes 1 and 8 to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Also, as discussed in notes 1 and 9 to the consolidated
financial statements, the Company changed its method of
accounting for costs of retiree health care and other
postretirement benefits in 1993 to adopt the provisions of
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 9, 1996
<TABLE>
<CAPTION>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and 1994
1995 1994
ASSETS
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $2,488,000 at December 31, 1995
and $1,890,000 at December 31, 1994 $ 10,015,154 11,675,056
Federal funds sold 4,000,000 4,400,000
Investment securities held to maturity (approximate
market values of $32,238,000 at December 31,
1995 and $35,378,000 at December 31, 1994)
(note 3) 32,108,125 36,534,944
Investment securities available for sale(note 3) 9,064,320 7,131,682
Loans, net of unearned income (note 4) 70,084,445 69,261,415
Less allowance for possible loan losses 1,566,140 1,047,072
Loans, net 68,518,305 68,214,343
Premises and equipment, net (notes 5 and 10) 2,238,381 2,425,019
Real estate acquired through foreclosure 166,091 823,311
Other assets 2,278,423 2,001,315
$ 128,388,799 128,388,799
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing deposits $ 39,694,310 39,267,897
Interest-bearing deposits (note 6) 76,685,242 82,877,156
Total deposits 116,379,552 122,145,053
Treasury, tax, and loan account 172,801 425,290
Long-term debt obligations under capital
leases (note 7) 900,000 1,293,223
Accrued expenses and other
liabilities (notes 9 and 10) 1,365,805 1,056,649
Total liabilities 118,818,158 124,920,215
Shareholders' equity (notes 7, 11, 13, and 15)
Common stock - $1 par value. Authorized
5,000,000 shares; issued and outstanding
1,329,684 shares at December 31, 1995
and 1994 1,329,684 1,329,684
Additional paid-in capital 1,470,210 1,470,210
Retained earnings 6,683,000 5,563,024
Unrealized holding gains (losses) on
investment securities available for sale,
net of deferred taxes of $45,206 in 1995 and
($39,838 ) in 1994 87,747 (77,463)
Total shareholders' equity 9,570,641 8,285,455
Commitments (notes 4, 9, 10, and 13)
$ 128,388,799 133,205,670
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1995, 1994, and 1993
1995 1994 1993
<S> <C> <C> <C>
Interest income:
Loans, including fees (note 4) $ 6,415,508 5,232,136 4,381,752
Investment securities:
Taxable 2,751,717 2,617,378 2,854,634
Tax-exempt 112,646 227,710 268,637
Federal funds sold 527,748 322,895 181,323
9,807,619 8,400,119 7,686,346
Interest expense:
Deposits (note 6) 2,888,047 2,342,621 2,260,628
Treasury, tax, and loan account 14,315 26,195 51,674
Long-term debt and obligations
under capital leases 79,124 96,135 96,156
Total interest expense 2,981,486 2,464,951 2,408,458
Net interest income 6,826,133 5,935,168 5,277,888
Provision for possible loan losses (note 4) 416,670 735,004 899,000
Net interest income after provision
for possible loan losses 6,409,463 5,200,164 4,378,888
Noninterest income:
Service charges on deposit accounts 3,771,170 4,060,090 3,978,079
Securities gains (note 3) - - 23,000
Gain on sale of premises and equipment 100,000 - -
(Loss) gain on sale of real estate (3,640) 114,529 (104,792)
Other operating income 268,537 458,565 352,374
Total noninterest income 4,136,067 4,633,184 4,248,661
Noninterest expense:
Salaries and employee benefits (note 9) 4,783,799 4,463,468 4,436,358
Net occupancy and equipment (note 10) 1,762,799 1,686,830 1,653,567
Other operating expenses (note 14) 2,671,437 2,956,204 2,944,762
Total noninterest expense 9,218,035 9,106,502 9,034,687
Earnings (loss) before income taxes
and cumulative effect of a change
in accounting principle 1,327,495 726,846 (407,138)
Income tax expense (benefit) - (note 8) 74,551 25,765 (190,871)
Earnings (loss) before cumulative effect
of a change in accounting principle 1,252,944 701,081 (216,267)
Cumulative effect of a change in accounting
principle - - (170,000)
Net earnings (loss) $ 1,252,944 701,081 (386,267)
Earnings(loss) per share before cumulative effect
of change in accounting principles $ 0.94 0.53 (0.16)
Cumulative effect of change in accounting
principles - - (0.13)
Net earnings(loss) per share $ 0.94 0.53 (0.29)
Weighted average outstanding shares 1,329,684 1,329,684 1,329,684
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Year ended December 31, 1995, 1994, and 1993
Unrealized
holding gains
(losses) on
investment
Additional securities
______Common Stock______ paid- in Retained available
Shares Amount capital earnings for sale Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,303,655 $ 1,303,655 1,366,094 5,378,355 - 8,048,104
Net loss - - - (386,267) - (386,267)
Balance, December 31, 1993 1,303,655 1,303,655 1,366,094 4,992,088 - 7,661,837
Effect of change in
accounting principle (note 3) - - - - 40,920 40,920
Net earnings - - - 701,081 - 701,081
Common stock dividend
declared-2% (note 11) 26,029 26,029 104,116 (130,145) - -
Change in unrealized holding
gains (losses) on investment
securities available for sale,
net of change in deferred
taxes of $60,918 - - - - - (118,383) (118,383)
Balance, December 31, 1994 1,329,684 1,329,684 1,470,210 5,563,024 (77,463) 8,285,455
Net earnings - - - 1,252,944 - 1,252,944
Dividends paid - $0.10 per share - - - (132,968) - (132,968)
Change in unrealized holding gains
(losses) on investment securities
available for sale, net of change
in deferred taxes of $85,044 - - - - 165,210 165,210
Balance, December 31, 1995 1,329,684 $ 1,329,684 1,470,210 6,683,000 87,747 9,570,641
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,252,944 701,081 (386,267)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Provision for possible loan losses 416,670 735,004 899,000
Depreciation and amortization 643,611 460,100 436,819
Amortization and (accretion), net (244,233) (61,906) 100,707
Cumulative effect of a change in accounting
principle - - 170,000
Deferred income tax benefit (213,730) (211,499) -
Securities gains - - (23,000)
Loss (gain) on sale of real estate 3,640 (114,529) 104,792
Gain on sale of premises and equipment (100,000) - -
(Increase) decrease in other assets (148,486) 17,236 (94,469)
Increase (decrease) in accrued expenses and
other liabilities 309,156 201,813 26,752
Net cash provided by operating activities 1,919,572 1,727,300 1,234,334
Cash flows from investing activities:
Proceeds from maturities of investment securities 12,828,965 24,409,192 34,428,876
held to maturity
Proceeds from maturities of investment securities 3,550,000 4,000,000 -
available for sale
Proceeds from sales of investment securities - - 83,000
Purchases of investment securities held to maturity (8,260,943) (19,422,825)(32,450,411)
Purchases of investment securities available for
sale (5,218,435) (2,483,147) -
Purchases of loans - (11,097,636)-
Net (increase) decrease in loans (667,590) (9,074,817) 768,056
Purchases of premises and equipment (456,973) (1,074,324) (477,909)
Proceeds from sale of premises and equipment 100,000 - -
Proceeds from sale of real estate acquired
through foreclosure 689,683 1,593,340 744,026
Net cash (used in) provided by investing activities 2,564,707 (13,150,217) 3,095,638
Cash flows from financing activities:
Net (decrease) increase in demand deposits and
savings accounts 2,650,446 4,986,691 (2,886,542)
Net (decrease) increase in time deposits (8,415,947) 8,447,938 (344,869)
Principal payments on long-term debt and obligations
under capital leases (393,223) (367,055) (120,025)
Proceeds from long-term debt - 900,000 -
Dividends paid (132,968) - -
Net (decrease) increase in treasury, tax, and loan (252,489) 109,148 (4,803,906)
Net cash provided by (used in) financing activities (6,544,181) 14,076,722 (8,155,342)
Net increase (decrease) in cash and cash equivalents (2,059,902) 2,653,805 (3,825,370)
Cash and cash equivalents at beginning of the year 16,075,056 13,421,251 17,246,621
Cash and cash equivalents at end of the year $ 14,015,154 16,075,056 13,421,251
Supplemental disclosures of cash paid during the year for:
Interest $ 2,912,000 2,343,000 2,384,000
Income taxes $ 159,000 141,000 57,000
Supplemental disclosure of noncash transactions:
Real estate acquired through foreclosure $ 36,000 686,000 911,000
Investment securities held to maturity
transferred to available for sale $ - 8,746,430 -
See accompanying notes to consolidated financial statements.
</TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Citizens Bancshares
Corporation and subsidiary (the "Company") conform to generally
accepted accounting principles and to general practices within
the banking industry. The following is a description of the more
significant of those policies.
BUSINESS
The Company is a one-bank holding company that 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 in metropolitan Atlanta through eight
full-service branches.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared
in conformity with generally accepted accounting
principles. In preparing the consolidated financial
statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated balance
sheet and income and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to
significant change in the near term relate to the
determination of the allowance for possible loan losses
and the valuation of real estate acquired through
foreclosure. In connection with the determination of the
allowance for possible loan losses and the valuation of
real estate acquired through foreclosure, management
obtains independent appraisals and reviews available
market data such as comparable sales and recent market
trends through discussions with local real estate
professionals.
The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Citizens
Trust Bank. The Bank has a wholly owned subsidiary,
Atlanta Mortgage Brokerage and Servicing Co., Inc. whose
accounts are also included. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks
and federal funds sold. Generally, federal funds are sold
for periods less than 90 days.
INVESTMENT SECURITIES
The Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, effective January 1, 1994. SFAS 115
requires investments to be classified in one of three
categories: held to maturity securities which are
reported at amortized cost, trading securities which
are reported at fair value with unrealized holding
gains and losses included in earnings, and available
for sale securities which are recorded at fair value
with unrealized holding gains and losses included as a
separate component of shareholders equity. Based on
the requirements of SFAS 115, the Company transferred
approximately $8,746,000 of investment securities
previously accounted for as held to maturity to the
available for sale category. The effect of this change
in accounting principle was an addition to
shareholders equity of $40,920 which represents
$62,000 of unrealized gains, net of deferred taxes of
$21,080. The Company had no investment securities
classified as trading securities during 1995 or 1994.
Premiums and discounts on held-to-maturity securities
are amortized and accreted using a method which
approximates a level yield. Principal repayments
received on mortgage-backed securities are included in
proceeds from maturities of investment securities in the
consolidated statements of cash flows.
Gains and losses on sales of investment securities are
recognized upon disposition, based on the adjusted cost
of the specific security. A decline in the market value
of any security below cost that is deemed other than
temporary is charged to income resulting in the
establishment of a new cost basis for the security.
LOANS AND INTEREST INCOME
Loans are reported at principal amounts outstanding less
unearned income and the allowance for possible loan
losses. Interest income on loans is recognized on a
level-yield basis.
Loan fees and certain direct origination costs are
deferred and amortized over the estimated terms of the
loans using the level-yield method.
Discounts on loans purchased are accreted using the
level-yield method over the estimated remaining life of
the loans purchased.
Loans are generally placed on nonaccrual status when the
full and timely collection of principal or interest
becomes uncertain or the loan becomes contractually in
default for 90 days or more as to either principal or
interest unless the loan is well secured and in the
process of collection. When a loan is placed on
nonaccrual status, current period accrued and
uncollected interest is charged to interest income on
loans unless management feels that the accrued interest
is recoverable through the liquidation of collateral.
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.
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 No.
114 and 118, the allowance for loan losses related to
impaired loans 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 nondiscounted 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 foregone. 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.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is based on
management's evaluation of the loan portfolio under
current economic conditions, historical loan loss
experience, adequacy of collateral, and such other factors
which, in management's judgment, deserve recognition in
estimating loan losses. Loans are charged against the
allowance when, in the opinion of management, such loans
are deemed to be uncollectible and subsequent recoveries
are added to the allowance.
A substantial portion of the Company's loan portfolio is
secured by real estate in metropolitan Atlanta. In
addition, a substantial portion of the Company's real
estate acquired through foreclosure is located in that
same market. Accordingly, the ultimate collectibility of
a substantial portion of the Company's loan portfolio and
the recovery of a substantial portion of the carrying
amount of the Company's real estate acquired through
foreclosure are susceptible to changes in market
conditions in the metropolitan Atlanta area.
Management believes that the allowance for possible loan
losses and the valuation of real estate acquired through
foreclosure are adequate. While management uses available
information to recognize losses on loans and real estate
acquired through foreclosure, future additions to the
allowance and future valuation adjustments to real estate
acquired through foreclosure may be necessary based on
changes in economic conditions, particularly in the
metropolitan Atlanta area. In addition, regulatory
agencies, as an integral part of their examination
process, periodically review the Company's allowance for
possible loan losses and valuation of real estate acquired
through foreclosure. Such agencies may require the
Company to recognize additions to the allowances based on
their judgments about information available to them at the
time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation and amortization which are computed using the
straight-line method over the estimated useful lives of
the related assets. Amortization of leasehold
improvements and equipment leased under capital lease
agreements is recorded over the shorter of the lives of
the related assets or the lease terms.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is reported at
the lower of cost or fair value less estimated disposal
costs, determined on the basis of current appraisals,
comparable sales, and other estimates of value obtained
principally from independent sources. Any excess of the
loan balance at the time of foreclosure over the fair
value of the real estate held as collateral is treated as
a loan loss. Any subsequent declines in value are charged
to operations.
OTHER ASSETS
Included in other assets are core deposit premium amounts
which represent the excess of the purchase price over the
fair value of tangible net assets acquired from the
Resolution Trust Corporation (note 2). Such amounts are
amortized over a period of five years on a straight-line
basis.
INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes", and has reported the
cumulative effect of that change in the method of
accounting for income taxes in the 1993 statement of
operations. Under the asset and liability method as
described in SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in
which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes
the enactment date.
PENSION AND OTHER POSTRETIREMENT PLANS
In 1994 and 1993, the Company had a defined benefit
pension plan covering substantially all of its employees.
The benefits were based on years of service and the
employee's compensation. During 1995, the plan was
terminated and the assets of the plan were distributed to
the participants (note 9).
The Company also sponsors a defined benefit health care
plan for certain retired employees. Effective January 1,
1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than
Pensions" which establishes a new accounting principle for
the cost of retiree health care and other postretirement
benefits. The Company has adopted SFAS 106 by amortizing
the effects over a 20-year period as a component of net
periodic postretirement benefit cost (note 9).
RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to
conform to the 1995 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1995, the Financial Accounting Standards Board
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, however, those
servicing rights are acquired. 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. SFAS 122 is effective for
financial statements issued for fiscal years beginning
after December 15, 1995. The Company does not believe the
provisions of SFAS 122 will have a material impact on the
consolidated financial statements.
(2) ACQUISITION
On April 22, 1994, the Bank assumed the insured deposits of
the main office branch of the former Southern Federal Savings
Association from the Resolution Trust Corporation (RTC). The
deposit base assumed totaled $13 million for which a premium
of $250,000 was paid. The RTC paid approximately $3.6
million in cash to fund the difference between the cash on
hand and liabilities assumed, and the premium paid. Also,
the Bank received an option to purchase performing
residential mortgage loans as part of the transaction. The
Bank exercised this option and purchased $11 million in one-
to-four family residential mortgages. At December 31, 1995,
the amount of unamortized premium totaled approximately
$181,000.
In conjunction with the acquisition, the Company issued a
promissory note to the RTC totaling $900,000 to provide
interim capital assistance to the Bank (see notes 7 and 13).
In addition, the Bank entered into a lease and option
agreement with the RTC. The Bank leases the branch facility
rent-free for five years with an option to purchase.
The acquisition described above is not material to the
financial position or net earnings of the Company and pro
forma information is not deemed necessary.
(3) INVESTMENT SECURITIES
Investment securities held to maturity are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Amortized Unrealized Unrealized Fair
cost gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $ 19,187,698 133,054 191,863 19,128,889
Mortgage-backed securities 11,795,245 297,244 84,498 12,007,991
State, county, and municipal
securities 1,125,182 75,826 - 1,201,008
Totals $ 32,108,125 506,124 276,361 32,337,888
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Amortized Unrealized Unrealized Fair
cost gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $ 20,727,531 - 742,531 19,985,000
Mortgage-backed securities 13,429,451 57,037 554,488 12,932,000
State, county, and municipal
securities 2,377,962 83,038 - 2,461,000
Totals $ 36,534,944 140,075 1,297,019 35,378,000
</TABLE>
Investment securities available for sale are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Amortized Unrealized Unrealized Fair
cost gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $ 8,685,916 134,493 1,540 8,818,869
Other equity securities 245,451 - - 245,451
Totals $ 8,931,367 134,493 1,540 9,064,320
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Amortized Unrealized Unrealized Fair
cost gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $ 7,030,532 591 117,892 6,913,231
Other equity securities 218,451 - - 218,451
Totals $ 7,248,983 591 117,892 7,131,682
</TABLE>
The carrying and fair values of investment securities at
December 31, 1995, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
because issuers may have the right to call or prepay
obligations with and without call or prepayment penalties.
<TABLE>
<CAPTION>
Held to maturity Available for sale
Amortized Fair Amortized Fair
cost value cost value
<S> <C> <C> <C> <C>
Due in one year or less $ 3,603,472 3,583,065 1,997,886 2,014,068
Due after one year through
five years 13,539,408 13,551,041 5,488,673 5,591,515
Due after five years
through ten years 3,170,000 3,195,791 1,199,357 1,213,286
Subtotal 20,312,880 20,329,897 8,685,916 8,818,869
Mortgage-backed securities 11,795,245 12,007,991 - -
Other equity securities - - 245,451 245,451
$ 32,108,125 32,337,888 8,931,367 9,064,320
</TABLE>
Proceeds from sales of investment securities were
approximately $83,000 in 1993. Gains of approximately
$23,000 were recognized on the 1993 transactions. There were
no sales of securities in 1995 and 1994.
Investment securities with carrying values of approximately
$26,493,000 and $36,553,000 at December 31, 1995 and 1994,
respectively, were pledged to secure public funds on deposit
and for other purposes as required by law.
(4) LOANS
Loans outstanding, by classification, are summarized as
follows:
DECEMBER 31,
1995 1994
Commercial, financial, and agricultural $ 11,002,816 11,400,250
Installment and single payment individual 7,782,645 8,368,195
Real estate - commercial 29,772,443 25,864,056
Real estate - residential 19,208,954 20,887,000
Real estate - construction 2,543,379 3,056,551
70,310,237 69,576,052
Less unearned income 225,792 314,637
$ 70,084,445 69,261,415
At December 31, 1995, 1994, and 1993, the Company was
servicing loans for others totaling $5,244,000, $4,340,000,
and $4,450,000, respectively.
At December 31, 1995, the Company had commitments to loan
funds on unused lines of credit of approximately 7,710,000.
The Company is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets.
The contract amounts of those instruments reflect the extent
of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit loss in the event of
nonperformance by the other party of the financial
instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount
of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations
related to off-balance sheet financial instruments as it
does for the financial instruments recorded in the
consolidated balance sheet. At December 31, 1995, the
Company had approximately $2,750,000 and $555,000 of
commitments to originate loans and standby letters of
credit, respectively.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Collateral held varies but
may include accounts receivable; inventory; property, plant, and
equipment; and residential and commercial real estate. Standby
letters of credit are commitments issued by the Company to
guarantee the performance of a customer to a third party.
Transactions in the allowance for possible loan losses are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $ 1,047,072 941,671 1,040,313
Provision charged to operating expense 416,670 735,004 899,000
Loans charged off (335,711) (1,200,700) (1,299,382)
Recoveries on loans previously charged off 438,109 571,097 301,740
Balance at end of year $ 1,566,140 1,047,072 941,671
</TABLE>
Nonaccrual loans amounted to $1,261,000 and $1,278,000 at
December 31, 1995 and 1994, respectively, and the interest income
on the nonaccrual loans which would have been reported for the
years ended December 31, 1995, 1994, and 1993 is summarized as
follows:
Years ended December 31,
1995 1994 1993
Interest at contracted rate $ 91,000 182,000 240,000
Interest recorded as income - 16,000 -
Reduction of interest income $ 91,000 166,000 240,000
At December 31, 1995, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $2,051,000 (of
which $1,261,000 were on a nonaccrual basis). The related
allowance for loan losses is $308,000. For the year ended
December 31, 1995, the Company recognized $77,000 in interest
income on those impaired loans on an accrual basis income
recognition method.
The Company has direct and indirect loans outstanding to certain
executive officers, directors, and principal holders of equity
securities (including their associates). Management believes
such loans are made substantially on the same terms as those
prevailing at the time for comparable transactions with
unaffiliated customers. The following table summarizes the
activity in these loans during 1995:
Balance at December 31, 1994 $1,037,000
New loans 36,000
Repayments (270,000)
Balance at December 31, 1995 $ 803,000
(5) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
Estimated December 31,
useful lives 1995 1994
Land - $ 388,653 181,257
Buildings and leasehold
improvements 5-20 years 1,440,499 1,956,487
Furniture, fixtures, and equip 5-6 years 3,405,529 3,208,515
Subtotal 5,234,681 5,346,259
Less accumulated depreciation
and amortization 2,996,300 2,921,240
Net premises and equipment $ 2,238,381 2,425,019
Depreciation and amortization expense totaled $643,611,
$460,100, and $436,819 for the years ended December 31,
1995, 1994, and 1993.
(6) INTEREST-BEARING DEPOSITS
The following is a summary of interest-bearing deposits:
DECEMBER 31,
1995 1994
NOW and money market accounts $ 29,866,212 27,329,531
Savings accounts 15,076,236 15,388,884
Time deposits of $100,000 or more 13,632,486 21,400,331
Other time deposits 18,110,308 18,758,410
Total interest-bearing deposits $ 76,685,242 82,877,156
Interest expense on time deposits of $100,000 or more was
approximately $748,000, $591,000, and $484,000 for the years
ended December 31, 1995, 1994, and 1993, respectively.
(7) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases consist
of the following:
December 31,
1995 1994
Parent:
Note payable to the Resolution Trust Corporation,
interest rate adjusted quarterly at the 13-week
Treasury plus 13 basis points (5.52% at
December 31, 1995), interest payable quarterly,
principal due at maturity, April 22, 1996,
secured by all of the common stock of the Bank
(see note 13) $ 900,000 900,000
Subordinated note payable to bank at 6% with
interest payable quarterly, due in equal
quarterly principal installments of
$56,250 through December 1995, secured by
all of the common stock of the Bank - 225,000
Bank:
Obligation under capital lease, implicit
rate of approximately 17%, monthly payments
of $15,333 through December 1995 - 168,223
$ 900,000 1,293,223
The Parent Company's debt service requirement for 1996 is
$900,000. See note 13 for Parent Company liquidity
discussion.
The sources of repayment of the above note payable are
dividends from the Bank to the Parent Company and alternative
financing with other institutions. Management believes
regulatory approval will be obtained to pay dividends to
service a portion of the note payable principal and interest.
The Company has obtained a written commitment dated March
21, 1996 from another financial institution that provides for
financing of $900,000 at a rate of prime less 25 basis
points to be paid quarterly over five years, which is secured
by a pledge of the common stock of the Bank. See notes 13
and 15 for further discussion of dividend restrictions on the
Bank.
(8) INCOME TAXES
The Company adopted SFAS 109 as of January 1, 1993. The
cumulative effect of this change in accounting for income taxes
of $170,000 has been determined as of January 1, 1993 and
reported separately in the statement of operations for the year
ended December 31, 1993.
The components of income tax expense (benefit) attributable
to income from continuing operations consist of:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal:
Current tax (benefit) expense $ 288,281 237,264 (190,871)
Deferred tax benefit (213,730) (211,499) -
$ 74,551 25,765 (190,871)
</TABLE>
Income tax expense (benefit) attributable to income from
continuing operations for the years ended December 31,
1995, 1994, and 1993 differed from the amounts computed
by applying the U.S. Federal income tax rate of 34% to
earnings before income tax expense (benefit) as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $ 451,348 247,128 (138,426)
Increase (decrease) in income tax expense
(benefit) resulting from:
Tax-exempt interest income, net of
disallowed interest expense (40,662) (73,939) (86,936)
Utilization of alternative minimum
tax credits (129,908) - -
Change in the beginning of the year
balance of the valuation allowance
for deferred tax assets allocated to
income tax expense (211,000) (155,222) 33,000
Other, net 4,773 7,798 1,491
Actual income tax expense (benefit) $ 74,551 25,765 (190,871)
</TABLE>
The tax effects of temporary differences that give rise
to significant portions of deferred tax assets and
deferred tax liabilities are presented below:
1995 1994
Deferred tax assets:
Loans, principally due to
difference in allowance for
loan loss and deferred loan fees $ 303,000 286,000
Alternative minimum tax credit 196,000 326,000
Postretirement benefit accrual 46,000 37,000
Unrealized holding losses on
securities available for sale - 40,000
Premium paid in acquisition 21,000 2,000
Real estate acquired through
foreclosure 16,000 44,000
Other 104,000 45,000
Total gross deferred tax assets 686,000 780,000
Less valuation allowance 76,000 287,000
Net deferred tax assets 610,000 493,000
Deferred tax liabilities:
Building and equipment, principally
due to difference in depreciation 51,000 102,000
Unrealized holding gains on securities
available for sale 45,000 -
Other - 6,000
Total gross deferred liabilities 96,000 108,000
Net deferred tax assets $ 514,000 385,000
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.
At December 31, 1995, the Company has alternative minimum tax
credits of approximately $196,000 for Federal income tax
purposes that can be carried forward for an indefinite
period. The Company also has, at December 31, 1995, net
operating loss carryforwards of approximately $16,428,000 for
state income tax purposes, which expire in years 1999 through
2008, and state income tax credits of approximately $235,000
which expire in years 1996 through 2001.
(9) EMPLOYEE BENEFITS
(a) PENSION PLAN
In 1994 and 1993, the Company had a noncontributory,
defined benefit pension plan which covered substantially
all full-time employees. The benefits payable under the
plan were based on years of service and the employee's
compensation during the last five years of employment.
During 1994, the Company approved the curtailment of the
pension plan and the establishment of a defined
contribution 401(k) plan. In 1995, the Company terminated
the pension plan and distributed the net plan assets to
the plan participants. In connection with the
termination, the Company recorded an expense of $36,469,
which represents the final required contribution, net of
previously accrued amounts. Pension costs were $36,469,
$116,644, and $35,898 for 1995, 1994, and 1993,
respectively.
The following sets forth the plan's funding status and
other information with respect to the plan at December 31,
1994 giving effect to the curtailment of the plan in 1994:
1994
Actuarial present value of accumulated benefit
obligations, including vested benefits of
$1,865,829 at December 31, 1994 $ 2,298,768
Actuarial present value of projected benefit
obligations for services rendered to date $ 2,298,768
Plan assets at fair value, primarily consisting
of investments in unaffiliated common trust funds 2,146,591
Deficiency of plan assets under projected benefit
obligations (152,177)
Unrecognized prior service costs 136,378
Unrecognized losses from experience -
Unamortized transition gain -
Accrued pension cost included in accompanying
consolidated balance sheets $ (15,799)
Net pension expense for 1994 and 1993 included the following
components:
1994 1993
Service cost for benefits earned $ 139,291 87,852
Interest cost on projected benefit obligations 190,973 170,315
Actual return on assets 159,284 (240,076)
Net amortization and deferral (372,904) 17,807
Net pension expense $ 116,644 35,898
The weighted average discount rate used in determining the
actuarial present value of the accumulated and projected
benefit obligations was 7.25% in 1994 and 1993. The
assumed rate of increase used to project future
compensation levels was 4.5% in 1994. The expected long-
term rate of return on assets was 9% in 1994 and 1993.
(b) DEFINED CONTRIBUTION PLAN
The Company began sponsoring a defined contribution 401(k)
plan during 1994. The plan covers substantially all full-
time employees. Employee contributions are voluntary and
are limited to $9,240 in 1995 with such amount adjusted
for inflation. The Company matches employee contributions
at 25% up to a maximum of 6% of compensation. During the
years ended December 31, 1995 and 1994, Company
contributions to the plan totaled $31,735 and $14,611,
respectively.
(c) OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's defined contribution plan,
the Company sponsors postretirement medical and life
insurance benefits to full-time employees who meet certain
minimum age and service requirements. The plan contains
cost sharing features with retirees.
The following table presents the plan's funded status
reconciled with amounts recognized in the Bank's
consolidated balance sheets at December 31, 1995 and 1994:
1995 1994
Accumulated postretirement benefit
obligation $ (320,492) (219,501)
Unrecognized transition obligation 288,817 304,862
Unrecognized prior service cost (132,226) (139,185)
Unrecognized actuarial cost 27,106 (55,203)
Accrued postretirement benefit cost
included in other liabilities $(136,795) (109,027)
Net period postretirement benefit cost includes the following
components:
1995 1994
Service cost $ 12,322 23,994
Interest cost 18,221 24,093
Net amortization 7,472 12,414
Net periodic postretirement benefit cost $ 38,015 60,501
For measurement purposes, a 9% annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend
rate) was assumed for 1996; the rate was assumed to decrease
gradually to 5% over 28 years and remain level thereafter. The
effect of a one percentage point increase in the assumed health
care cost trend rate is not significant. The weighted average
discount rate used in determining the accumulated postretirement
benefit obligation was 8.50% at January 1, 1995 and 7.00% at
December 31, 1995.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
The Bank has an employment agreement, expiring in June 1998, with
its president and chief executive officer whereby such officer
can earn bonuses each year equivalent to 30% of his base salary
if certain predetermined performance goals are met. No bonuses
have been accrued or paid under the provisions of the agreement
as of December 31, 1995, 1994, or 1993.
The Company leased computer equipment under capital lease
agreements which expired in 1995. Premises and equipment
includes the following amounts related to these leased assets:
DECEMBER 31,
1995 1994
Total cost of leased assets $ 687,000 687,000
Less accumulated amortization 687,000 545,000
$ - 142,000
Amortization of capital leases is included in depreciation
expense.
As of December 31, 1995, future minimum lease payments under
all noncancelable lease agreements inclusive of sales tax and
maintenance costs for the next five years and in the
aggregate are as follows:
YEAR ENDED DECEMBER 31:
1996 $ 254,067
1997 254,067
1998 254,067
1999 254,067
2000 254,067
$ 1,270,335
The Company has entered into a noncancelable operating lease
agreement for its main office facility. Rental expense
under this agreement in 1995, 1994, and 1993 approximated
$254,000, $254,000, and $393,000, respectively.
The Bank has entered into long-term license agreements for
the operation of branch offices in supermarkets which expire
in 2013. Future minimum license fee payments under these
agreements at December 31, 1995 for the next five years and
in the aggregate are as follows:
YEAR ENDED DECEMBER 31,
1996 $ 98,100
1997 90,033
1998 97,675
1999 101,800
2000 101,800
Thereafter 1,437,880
$1,927,288
License fee expense associated with these agreements for
1995, 1994, and 1993 amounted to $125,000, $231,000, and
$220,000, respectively.
The Company or its subsidiary are involved in various claims
and legal actions arising in the ordinary course of business.
In the opinion of management, based in part on the advice of
counsel, the ultimate disposition of these matters will not
have a material adverse impact on the Company's consolidated
financial position.
(11) SHAREHOLDERS' EQUITY
On December 21, 1994, the Board of Directors approved a 2%
stock dividend payable on January 3, 1995. All weighted
average share and per share information in the accompanying
consolidated financial statements and notes have been
restated to reflect the effect of the additional shares
outstanding resulting from this stock dividend.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS 107, " Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized on the
face of the balance sheet, for which it is practicable to
estimate that value. Fair value estimates are made at a
specific point in time, based on relevant market information
and information about the financial instrument. These
estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company s
entire holdings of a particular financial instrument.
Because no market exists for a portion of the Company s
financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates
are subjective in nature and involved uncertainties and
matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could
significantly affect the estimates. Fair value estimates are
based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of
anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
In addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered
in any of the estimates. The assumptions used in the
estimation of the fair value of the Company s financial
instruments are explained below. Where quoted market prices
are not available, fair values are based on estimates using
discounted cash flow and other valuation techniques.
Discounted cash flows can be significantly affected by the
assumptions used, including the discount rate and estimates
of future cash flows. The following fair value estimates
cannot be substantiated by comparison to independent markets
and should not be considered representative of the
liquidation value of the Company s financial instruments, but
rather a good-faith estimate of the fair value of financial
instruments held by the Company. FAS 107 excludes certain
financial instruments and all nonfinancial instruments from
its disclosure requirements.
The following methods and assumptions were used by the
Company in estimating the fair value of its financial
instruments:
(a) CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD
Fair value equals the carrying value of such assets.
(b) INVESTMENT SECURITIES
The fair value of investment securities is based on
quoted market prices.
(c) LOANS
The fair value of loans is calculated using discounted
cash flows by loan type. The discount rate used to
determine the present value of the loan portfolio is an
estimated market discount rate that reflects the credit
and interest rate risk inherent in the loan portfolio.
The estimated maturity is based on the Company s
historical experience with repayments adjusted to
estimate the effect of current market conditions. The
carrying amount of accrued interest approximates its
fair value.
(d) DEPOSITS
As required by FAS 107, the fair value of deposits with
no stated maturity, such as noninterest-bearing demand
deposits, NOW accounts, savings, and money market
deposit accounts, is equal to the carrying value.
Certificates of deposit have been valued using
discounted cash flows. The discount rate used is based
on estimated market rates for deposits of similar
remaining maturities.
(e) BORROWINGS
The fair value of borrowings has been determined using
discounted cash flows. The discount rate used is based
on estimated market rates for borrowings of similar
remaining maturities.
The carrying value and estimated fair value of the
Company's financial instruments at December 31, 1995 are
as follows (in thousands):
CARRYING ESTIMATED
AMOUNT FAIR VALUE
Financial assets:
Cash and due from banks $ 10,015 10,015
Federal funds sold $ 4,000 4,000
Investment securities $ 41,172 41,402
Loans, net $ 68,518 68,891
Financial liabilities:
Deposits $ 116,370 116,339
Notes payable $ 900 900
(13) CONDENSED FINANCIAL INFORMATION OF CITIZENS BANCSHARES
CORPORATION (PARENT ONLY)
The following represents parent only financial information of
Citizens Bancshares Corporation.
CONDENSED BALANCE SHEETS
DECEMBER 31,
ASSETS 1995 1994
Cash $ 16,738 29,532
Investment in bank subsidiary,
at equity 10,438,364 9,387,899
Other assets 28,061 4,275
$ 10,483,163 9,421,706
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term debt $ 900,000 1,125,000
Accrued interest payable 12,522 11,251
912,522 1,136,251
Shareholders' equity:
Common stock 1,329,684 1,329,684
Additional paid-in capital 1,470,210 1,470,210
Retained earnings 6,683,000 5,563,024
Unrealized holding gains (losses)
on investmentsecurities available
for sale, net 87,747 (77,463)
Total shareholders' equity 9,570,641 8,285,455
$ 10,483,163 9,421,706
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Income - dividends from bank subsidiary $ 450,000 300,000 82,500
Expenses:
Interest 60,464 51,620 29,700
Other 45,633 39,754 51,747
Total expenses 106,097 91,374 81,447
Earnings before income taxes
and equity in undistributed
earnings of subsidiary 343,903 208,626 1,053
Income tax benefit, including
cumulative effect of a change in
method of accounting for income
taxes - allocated from consolidated
income tax return 23,786 18,275 27,694
Earnings before equity in
undistributed earnings of
subsidiary 367,689 226,901 28,747
Equity in undistributed earnings
(excess of distributions over
equity in earnings) of
subsidiary 885,255 474,180 (415,014)
Net earnings (loss) $ 1,252,944 701,081 (386,267)
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,252,944 701,081 (386,267)
Adjustments to reconcile
net earnings (loss)to net
cash provided by operating
activities: (Equity in
undistributed earnings)
excess of distributions
over equity in earnings
of subsidiary (885,255) (474,180) 415,014
Increase in other liabilities 1,271 11,251 -
Increase in other assets (23,786) (4,275) (27,693)
Net cash provided by
operating activities 345,174 233,877 1,054
Cash flows from investing activities:
Capital contribution to Bank - (900,000) -
Cash flows from financing activities:
Proceeds from long-term debt - 900,000 -
Payments on long-term debt (225,000) (225,000) -
Dividends paid (132,968) - -
Net cash provided by (used in)
financing activities (357,968) 675,000 -
Net increase (decrease) in cash (12,794) 8,877 1,054
Cash at beginning of year 29,532 20,655 19,601
Cash at end of year $ 16,738 29,532 20,655
</TABLE>
Bank regulatory authorities require that banks and their
holding companies maintain a minimum ratio of primary
capital, as defined, to total assets of approximately 6%.
Additionally, banks and their holding companies are subject
to certain risk-based capital requirements according to their
respective asset composition. At December 31, 1995, the
Parent Company and the Bank were in compliance with these
requirements and the more restrictive capital requirements
discussed in note 15.
The amount of dividends paid to the Parent Company from the
Bank is limited by various banking regulatory agencies. Any
such dividends will be subject to maintenance of required
capital levels and will require prior approval from
regulatory authorities. The Georgia Department of Banking
and Finance (the "DBF") requires prior approval for a bank to
pay dividends in excess of 50% of its prior year's earnings.
During 1993, the Bank paid dividends in excess of those
available and, accordingly, received prior approval from the
DBF. The amount of cash dividends available from the Bank
for payment in 1996 is approximately $668,000, subject to
maintenance of required capital. As a result of these
regulatory limitations, at December 31, 1995, approximately
$9,770,000 of the Parent Company's investment in consolidated
bank subsidiary of $10,438,000 was restricted from transfer
by the Bank to the Parent Company in the form of cash
dividends.
Currently, without prior approval of the DBF and Federal
Reserve Bank of Atlanta, normal dividends from the Bank
will not be sufficient to repay the entire RTC note
payable due on April 22, 1996. Management believes that
the combination of Bank dividends and other capital and
financing alternatives will be sufficient to satisfy its
debt obligations. The Company has obtained a written
commitment dated March 21, 1996 from another financial
institution that provides for financing of $900,000 at
a rate of prime less 25 basis points to be paid
quarterly over five years, which is secured by a pledge
of the common stock of the Bank. Refer to note 15 for
further discussion on regulatory restrictions.
(14) SUPPLEMENTARY INCOME STATEMENT INFORMATION
Components of other operating expenses in excess of 1% of
total income for the respective years are as follows:
1995 1994 1993
Other operating expenses:
Professional services - legal $ 219,000 225,000 231,000
Professional services - other 179,000 162,000 156,000
Stationery and supplies 179,000 226,000 230,000
Advertising 152,000 118,000 203,000
Data processing 135,000 187,000 191,000
Postage 195,000 158,000 265,000
Telephone 157,000 185,000 139,000
FDIC insurance premiums 185,000 276,000 275,000
Other losses 217,000 352,000 211,000
Real estate acquired through
foreclosure 107,000 67,000 201,000
(15) REGULATORY MATTERS
In January 1989, the Federal Reserve Board adopted risk-based
capital guidelines for bank holding companies. The minimum
guidelines for the ratio of total capital to risk-weighted
assets is 8%. At least half of the total capital is to be
composed of common stock, related surplus, and retained
earnings ("Tier 1 Capital"). The remainder may consist of a
limited amount of loan loss reserves ("Tier 2 Capital"). In
addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies of 3%
of Tier 1 Capital to average total assets.
The Federal Deposit Insurance Corporation Improvement Act
("FDICIA") was signed into law on December 19, 1991.
Regulations implementing the prompt corrective action
provisions of FDICIA became effective on December 19, 1992.
In addition to the prompt corrective action requirements,
FDICIA includes significant changes to the legal and
regulatory environment for insured depository institutions,
including reductions in insurance coverage for certain kinds
of deposits, increased supervision by the Federal regulatory
agencies, increased reporting requirements for insured
institutions, and new regulations concerning internal
controls, accounting, and operations.
The prompt corrective action regulations define specific
capital categories based on an institution's capital ratios.
The capital categories, in declining order, are "well
capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain
restrictions, including the requirement to file a capital
plan with its primary Federal regulator, prohibitions on the
payment of dividends and management fees, restrictions on
executive compensation, and increased supervisory monitoring,
among other things. Other restrictions may be imposed on the
institution either by its primary Federal regulator or by the
FDIC, including requirement to raise additional capital, sell
assets, or sell the entire institution. Once an institution
becomes "critically undercapitalized," it must generally be
placed in receivership or conservatorship within 90 days.
The following table summarizes the Bank's regulatory capital
and the required minimum amounts at December 31, 1995 under
existing regulations:
Required
Regulatory capital minimum amount
Percent Amount Percent Amount
(Unaudited) (Unaudited)
Primary and total capital 9.04% $11,736,000 7.53%* $9,776,000
Risk-based capital 14.86% $11,287,000 8.00% $5,978,000
*Under the Board Resolution dated March 15, 1995, the
Bank's required primary capital requirement is 7.53%
rather than the established regulatory percentage of
7.00%.
The Board of Directors of the Bank entered into a Board
Resolution (the "Agreement") dated March 15, 1995, with the
Georgia Department of Banking and Finance and the Federal
Reserve Bank of Atlanta ("Regulatory Authorities") to take
corrective actions, which if not taken, could result in
further regulatory sanctions. The Agreement replaces the
Memorandum of Understanding under which the Bank had been
operating since February 27, 1990. The Agreement includes
limits on payment of dividends without the prior written
approval of the Regulatory Authorities, requires continued
improvement in asset quality with quarterly reporting in the
lending area, maintenance of adequate capital levels,
submission of a budget on an annual basis, implementation of
management review and succession, and requires quarterly
compliance reporting to the Regulatory Authorities on a
timely basis. At December 31, 1995, management believes the
Company is operating in compliance with the Agreement.
FIRST AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS FIRST AMENDED AND RESTATED AGREEMENT
(hereafter referred to as the "Restated Agreement") is made
this 18 day of September, 1995, by and between
CITIZENS TRUST BANK, a state banking institution, whose
principal place of business is located at 175 Houston
Street, N.E., Atlanta, Georgia 30303 (hereinafter
referred to as "Bank"), and WILLIAM L. GIBBS, whose
residence is 120 View Hill Court, Atlanta Georgia 30350
(hereinafter referred to as "Executive ).
W I T N E S S E T H
WHEREAS, Bank entered into that certain Executive
Employment Agreement, dated June 30, 1992; and
WHEREAS, the Agreement expired on June 30, 1995;
and
WHEREAS, Bank and Executive desire to set forth in
writing the terms and conditions on which Executive's
employment will continue;
NOW, THEREFORE, for and in consideration of
the mutual covenants and promises contained herein, and
for other good and valuable consideration, the receipt
and sufficiency of which hereby are acknowledged and
accepted, the parties hereto agree as follows:
1. Term of Employment.
1.1 Employment. Bank hereby
employs Executive and Executive hereby accepts employment
with Bank, for the Employment Term (as hereinafter
defined), under the terms and conditions provided for
herein.
1.2 Initial Term. The initial term (the
"Initial Term") of this Restated Agreement shall be three
(3) months, beginning on July 1, 1995 (the "Continuation
Date") and ending on September 30, 1995 (the
"Transition Date"), unless earlier terminated in
accordance with this Agreement or unless subsequently
extended by the Board of Directors of the Bank (the
"Board") and Executive as provided by Section 1.3.
1.3 Renewal Term. Th Initial Term will
automatically be extended for an additional period of
thirty-three (33) months beginning on October 1, 1995
and ending on June 30, 1998 (the "Renewal Term"),
unless earlier terminated in accordance with this
Agreement, without further action by the parties unless
written notice of nonrenewal is given by either Executive
or Bank on the Transition Date or not more than sixty
(60) days nor less than thirty (30) days prior to the
expiration of the Renewal Term, in which case this
Agreement shall terminate on the Transition Date or at the
end of the Renewal Term, whichever is applicable.
In the event Bank gives proper notice of
nonrenewal in accordance with this Section 1.3, Executive,
at his election, may treat such notice of nonrenewal as
a notice of termination of employment under Paragraph
4.1. The failure by either party to give written notice
of nonrenewal on the Transition Date shall be deemed
acceptance of the Renewal Term.
1.4. Rollover Renewal Term. Upon
each twelve (12) month anniversary of the Continuation
Date, and provided that Executive shall have met at his
most recent performance review the minimum performance
standards set forth in Section 2.2, the Renewal Term
will automatically be extended for a period of an additional
twelve (12) months (the "Rollover Renewal Term"),
unless earlier terminated in accordance with this
Agreement.
1.5 "Employment Term" Defined. As used
herein, the phrase "Employment Term" refers to the entire
period of employment of Executive by the Bank hereunder,
including the Initial Term provided in Section 1.2
above together with the Renewal Term provided in
Section 1.3 above and Rollover Renewal Term provided in
section 1.4, if applicable.
2. Duties of the Executive. For the duration of the
Employment Term, except as otherwise provided in this
Agreement, Executive shall have those duties set forth in
this Section 2.
2.1 General Duties. Executive shall
serve as the President of the Bank, and shall continue to
serve in that position with the duties and
responsibilities normally and customarily associated with
that office in a financial institution of the Bank's
size and type unless otherwise mutually agreed to in
writing by the Bank and Executive. In addition, Executive
shall serve as a member of the Board. Notwithstanding
the foregoing, during the Employment Term, Executive's
title and specific reporting responsibilities may be
changed by the action of the Bank's Board of Directors
in its sole discretion, in light of changing
circumstances of the Bank. Executive shall report directly
to the Chairman of the Board and the Board itself.
Executive shall do and perform all service, acts or
things necessary or advisable to manage and conduct the
business of the Bank, in accordance with the strategic
business plan, the rules and regulations of the Bank or
of any governmental agencies regulating the business of
the Bank.
2.2 Minimum Performance Standards. As
Executive's minimum performance standards during each year
of the Employment Term, Executive shall manage the
operations of the Bank so as to generate a return on
assets of one percent (1%) and a return on equity of
fifteen percent (15%). Return on Assets and Return on
Equity will be determined by the Bank's accountant in
accordance with generally accepted accounting principles.
2
2.3 Devotion of Entire Time to the Bank's
Business. Except as hereinafter provided, Executive shall
devote his entire productive time, ability and attention
during normal business hours to the business of the Bank.
Executive will not directly or
indirectly render any services of a business, commercial or
professional nature to any other person or organization
whether for compensation or otherwise, without the prior
written consent of the Board, provided, however, that
the foregoing shall not preclude (a) reasonable
participation as a member in professional,
community, Civic or similar organizations, or the
Pursuit of personal investments which do not interfere
with normal business activities for the Bank; (b)
participation as a member of the Board of Directors of
no more than two (2) organizations providing
compensation to its board members; and ( c ) teaching, not
to exceed ten (10) days per year, at Banker Education
programs approved in advance by the Board.
2.4 No Other Agreements. During the Employment
Term, Executive shall have no other employment contract or
other written or oral agreements concerning employment with
any entity or person other than the Bank.
3. Compensation of Executive. For the duration of
the Employment Term, except as otherwise provided in
this Agreement, the Bank shall compensate Executive in the
manner set forth in this Section 3.
3.1 Base Salary. As compensation for
his services hereunder, the Executive shall receive a
base salary per annum of no less than One Hundred
Thirty-Seven Thousand and No/100 Dollars ($137,000.00),
which salary shall be payable in accordance with the
general payroll practices of the Bank.
3.2 Salary Evaluation Program. During each
succeeding calendar year of the Employment Term or portion
thereof Executive's salary shall be reviewed by the
Board, taking into consideration the operations of the
Bank during the prior calendar year and Executive's
achievement of the performance standards set forth
herein. Increases in the Executive's then-current salary
may be made in the sole discretion of the Board. If no
such other salary increases are made, Executive's salary
shall remain at its then- current level.
3.3 Additional Compensation. Bank
shall provide additional compensation as follows:
(a) Upon the execution of this
Agreement, Bank shall pay and Executive shall receive a
bonus of Seven Thousand and No/100 Dollars ($7,000.00).
(b) Executive will be eligible to
receive an annual bonus in the amount of one-third of his
base salary if he achieves
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the performance standards set forth below for each
year of the Employment Term.
Year Return on Assets Return on Equity
1 1% 15%
2 1.2% 15%
3 1.4% 15%
In addition, Executive must ensure that the Bank's
budget established by the Board is met on an annual
basis. Return on Assets and Return on Equity will be
determined by the Bank's accountant in accordance
with generally accepted accounting principles. The
performance standards set forth herein will be
evaluated by the Board on a bi-annual basis and may be
changed, in the Board's sole discretion, after any
said bi-annual evaluation.
3.4 Executive Benefit Programs. Executive
shall be eligible to participate in all employee
benefit programs of the Bank, including, but not limited
to, programs of health, disability insurance, retirement
and all other benefits currently made available by
the Bank to senior management personnel. The specific
terms of such benefits are described in appropriate
documents published by the Bank and delivered to
employees generally. Except as otherwise provided in
this agreement, the Bank may change any benefit
programs made available to employees or executives
generally, provided, Executive shall be entitled to
receive any and all benefits of the Bank generally
provided to employees or executives of the same
status as Executive. Notwithstanding the foregoing,
however, Bank may provide a retirement plan for
Executive in the event that, in the Board's sole
discretion, the financial position of Bank improves to
support the cost and expense of any such plan.
3.5 Life Insurance Benefit. Bank shall
obtain and pay the annual premiums due on a life
insurance policy on Executive in the amount of at
least two and one-half times his base salary, payable
to a beneficiary designated by Executive. Bank may
increase the amount of said life insurance policy in
the event that, in the Board's sole discretion, the
financial position of the Bank improves to support said
increase.
3.6 Vacation. Executive shall have four
(4) weeks paid vacation each year during the Employment
Term.
3.7 Automobile expenses. Bank shall pay
all costs and expenses associated with Executive
owning and maintaining his automobile, provided that
said costs and expenses do not exceed One Thousand One
Hundred and 00/100 Dollars ($1,100.00) per month (the
"Auto Limit") . Executive shall assume and pay all
costs and
4
expenses associated with his automobile in excess of
the Auto Limit.
3.8 Memberships. Bank shall pay for
Executive's membership in appropriate professional
organizations approved by the Board, as well as
Executive's membership in the 191 Club or a comparable
dining club in Downtown Atlanta, Georgia; provided,
however, that should Executive voluntarily terminate this
Agreement during the Initial Term hereof, Executive shall
reimburse the Bank for the amount of any initiation fee
paid by the Bank.
3.9 Tax Consultant. During the
Employment Term, Bank shall pay its regular tax
consultant to provide personal tax consulting to
Executive, to include preparation and analysis of
personal financial statements for tax purposes and
income tax filing preparation. Executive's income tax
returns will be reviewed by the Chairman of the Audit
Committee of the Board on an annual basis.
4. Termination of Employment.
4.1 Termination Without Cause. The Board
may terminate Executive's employment at any time without
"cause" (as hereafter defined) by giving written notice
of such termination to the Executive in the manner
provided below for the giving of notices, such
termination to be effective on a date specified herein
which is not less than sixty (60) days from the date of
such notice; provided, however, that in the event of
termination under this Section 4.1 and in the event that
Executive shall have met the minimum performance
standards set forth in Section 2.2 at his then most
recent performance review, Executive shall be paid
twenty-four (24) months base salary as severance
compensation and be able to participate for an
additional six (6) months after termination in all
benefit programs of the Bank, as if Executive were still
an employee. In the event that Executive shall not
have met the minimum performance standards set forth in
Section 2.2 at his then most recent performance review,
Executive shall be paid twelve (12) months base salary
as severance compensation and be able to participate
for an additional six (6) months in all benefit
programs of the Bank, as if Executive were still an
employee. Following receipt of notice of termination under
this Section 4.1, Executive shall resign from the
Board of Directors and as an officer of the Bank.
Until the effective date of termination pursuant to this
Section 4.1, Executive shall continue to serve as an
employee of the Bank at the same salary, compensation and
other benefits payable under Section 3 of this Agreement,
but with such reduction in duties as may be
appropriate. In the event Executive's employment is
terminated pursuant to this Section 4.1, the provisions of
Section 5.1 hereof shall upon such termination be of no
further force or effect. Executive shall have no
further duties pursuant to Section 2 hereof following the
effective date of termination under this Section 4.1.
5
4.2 Termination for Cause. Executive shall
have no right to receive salary, bonus or other
compensation or benefits set forth in Section 3 hereof
for any period after termination for "cause ; provided,
however, that such termination shall not affect vested
rights of the parties under this Agreement. For the
purposes of this Agreement, the term "vested rights"
shall mean compensation accrued through the effective
date of termination and rights and benefits of
Executive that have become vested pursuant to the
terms of an employee benefit plan or arrangement of
the Bank. For the purposes of this Agreement,
"cause" shall mean termination for personal dishonesty,
incompetence, willful misconduct, breach of fiduciary
duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law,
rule or regulation (other than traffic violations
or similar breach by Executive of any provision of
this Agreement, any of which events shall have
occurred during the term of this Agreement.
Termination for cause shall be determined after the
giving of seven (7) days notice heard before the Board of
Directors. Executive shall have no further duties
pursuant to Section 2 hereof following the effective
date of termination hereunder.
4.3 Temporary Suspension. If Executive is
suspended from office or temporarily prohibited from
participating in the conduct of the Bank's affairs by
the Georgia Department of Banking, the Bank's
obligations under this Agreement shall be suspended
as of the date of service, unless stayed by
appropriate proceedings. Executive shall have no duties
pursuant to Section 2 hereof for the period he is
suspended from office or temporarily prohibited from
participating in the conduct of the Bank's affairs
for which no stay is in effect.
4.4 Permanent Removal from Office. If
Executive is removed from office or permanently prohibited
from participating in the conduct of the Bank's
affairs by the Georgia Department of Banking, all
obligations of the Bank under this Agreement shall
terminate as of the effective date of the order;
provided, however, that all vested rights of
Executive shall not be affected. Executive shall
have no duties pursuant to Section 2 hereof for the
period following the effective date of said order.
5. Covenant Not to Engage in Competing Business;
Confidential Information and the Bank Property.
5.1 Covenants Not to Engage in Competing
Business. In consideration of his employment by the Bank
and in consideration of the Bank's investment of
time, money and effort in building relationships with
customers, and as a further inducement to the Bank to
enter into this Agreement, Executive agrees as follows:
6
(a) For one (1) year following the
date that Executive's obligations under Section 2
hereof terminate by reason of Executive's voluntary
termination of employment, during the remainder of the
Employment Term Executive shall not, within the City of
Atlanta, Georgia, own, manage, operate, control,
direct, become a director of or accept employment in
a managerial or executive operating position with any
other business that operates as a state or federally
chartered banking institution.
(b) Pursuant to this Section 5.1,
the Board of Directors of the Bank may release, in
its sole discretion, Executive from all or a
portion of Executive's obligations hereunder. Such
release must be in writing and may be on such terms
and conditions as said Board of Directors may determine.
( c) Without limitation of any other
rights of the Bank (whether under this Agreement, at law
or in equity), in the event Executive breaches or
violates any covenants or agreements contained in this
Section 5.1 during the period of time Executive is
receiving any benefits from the Bank under Section 3
of this Agreement, said benefits shall immediately
terminate at the Bank's option, and the Bank shall have
no further obligation to Executive under Section 3 of
this Agreement.
(d) Notwithstanding anything to the
contrary contained in this Section 5.1, the terms of
subsection (a) shall not apply in the event
Executive's employment hereunder is terminated under
the terms of Section 4.1.
5.2 Confidential Information. In recognition of
the Bank's significant investment of time, effort and
money in developing and preserving "Confidential
Information," as hereinafter defined, and as an inducement
to the Bank to enter into this Agreement, Executive
agrees he will not, for one (1) year following the
date Executive's obligations under Section 2 hereof
terminate, irrespective of the time, manner or cause
of such termination, directly or indirectly, use for his
personal benefit or disclose to any other person, firm
or corporation, Confidential Information. "Confidential
Information" is publicly unavailable information which
Executive shall have acquired, discovered or
developed while an employee concerning the business of
the Bank, including, without limitation, customer list and
customer requirements, operation procedures, marketing
plans, systems, techniques, and know-how of Bank's
business. The Bank takes numerous steps, including
these provisions, to protect the confidentiality of the
Confidential Information, which it considers a unique,
valuable and special asset.
5.3 The Bank Property. Executive, upon
termination of employment with the Bank, for whatever
reason and in whatever manner such termination occurs,
shall return to the Bank all writings and records
relating to the Bank's business or to
7
Confidential Information that are in Executive's possession
at the date Executive's obligations under Section 2 hereof
terminate. All improvements and ideas created or produced
by Executive alone or in conjunction with others during the
Employment Term in the course of performance of his duties
hereunder or relating to or arising out of programs or
projections being carried on or being planned or considered
by the Bank during the period of Executive's employment
by the Bank are the sole and exclusive property of the Bank
or its designee. Executive agrees to execute such
instruments as the Bank may request in order to effect the
provisions of this section 5.3, including, without
limiting the generality of the foregoing, applications
for or assignments of copyrights or renewals thereof,
patents and trademarks or trade names, or registration and
renewals of registration thereof.
5.4 Enforcement of Covenants. The Bank
and Executive acknowledge the value of Executive's
knowledge, expertise and ability upon the success of the
Bank's business and the detrimental effect and
irreparable damage upon the Bank's business that a
violation of the restrictive covenants set forth in this
Section 5 would cause. Accordingly, Executive consents
to an injunction by any court of competent
jurisdiction enjoining any breach or threatened
breach by Executive of the restrictive covenants set
forth in this Section 5, without prejudice to any other
right or remedy to which the Bank may be entitled.
6. General Provisions.
6.1 Expenses. The Bank shall reimburse
Executive for all reasonable expenses of Executive
incurred in the conduct of his duties hereunder upon
receipt of documentation reasonably satisfactory to the
Bank substantiating such expenses.
6.2 Key Man and Disability Insurance.
The Bank may maintain key man insurance on the life of
Executive in the amount of $1,000,000 and long term
disability insurance in the event that Executive becomes
permanently disabled (as defined by any such policy
in effect) during the term of this Agreement. The Bank
shall pay the annual premiums associated with any said key
man and long term disability insurance, and all benefits
therefrom shall be payable to the Bank. Executive
shall take such medical examinations and execute such
documents as are reasonably required to enable the Bank
to obtain said insurance.
6.3 Notices. Any notices to be given
hereunder by either party to the other may be effected by
personal delivery in writing or by mail, registered or
certified, postage prepaid with return receipt
requested. Mailed notices shall be addressed to the
parties at the addresses appearing in the introductory
paragraph of this Agreement, but each party may change his
or its address by written notice in accordance with this
paragraph. Notices delivered personally shall be deemed
communicated as of actual
8
receipt; mailed notices shall be deemed communicated as
of the second day following deposit in the United States
mail.
6.4 Entire Agreement. Except for
certain employee benefit plans or arrangements
contemplated by this Agreement, this Agreement supersedes
any and all other agreements, either oral or in
writing, between the parties hereto with respect to
the employment of Executive by the Bank and contains
all of the covenants and agreement between the parties
with respect to such employment in any manner whatsoever.
Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements,
orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not
embodied herein, and that no other agreements shall be
valid or binding. Any modification of this Agreement will
be effective only if it is in writing signed by the party
to be charged.
6.5 Partial Invalidity. If any
provision in this Agreement is held by a court of
competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall
nevertheless continue in full force without being
impaired or invalidated in any way.
6.6 Law Governing Agreement. This
Agreement shall be governed by and construed in accordance
with the laws of the State of Georgia.
6.7 Survival. Except as otherwise expressly
provided in this Agreement, the restrictive covenant in
Section 5 of this Agreement will survive for the
prescribed period following the date Executive's obligations
under Section 2 hereof terminate. In addition, except as
otherwise expressly provided in this Agreement, all
provisions which contemplate payment of compensation or
grant of other rights to Executive subsequent to the
date Executive's obligations under Section 2 hereof
terminate shall survive said termination.
6.8 Miscellaneous. Failure or delay of
either party to insist upon compliance with any provision
hereof will not operate as and is not construed to
be a waiver or amendment of the provision or the
right of the aggrieved party to insist upon
compliance with such provision or to take remedial
steps to recovery damages or other relief for
noncompliance. Any express waiver of any provision of this
Agreement will not operate and is not to be construed
as a waiver of any subsequent breach, irrespective
of whether occurring under similar or dissimilar
circumstances. This Agreement shall be binding upon and
inure the benefit of the parties hereto and their
successors, heirs, executors and personal representatives,
including the successors to the business of the Bank, but
neither this Agreement nor any rights hereunder shall be
assignable by Executive.
9
IN WITNESS WHEREOF, the individual party has hereunto
affixed his hand and seal, and the Bank has caused this
Employment Agreement to be executed by its duly authorized
officers and its corporate seal to be affixed hereto, as
of the day and year first above written.
BANK:
CITIZENS TRUST BANK
By:/s/ Herman J. Russell
Herman J. Russell, Chairman
Attest:/s/ Audrey M. Alexander
Audrey M. Alexander, Secretary
EXECUTIVE:
/s/ William L. Gibbs (Seal)
William L. Gibbs
10
BOARD RESOLUTION
Citizens Trust Bank
Atlanta, Georgia
WHEREAS, The Federal Reserve Bank commercial examination dated
October 31, 1994, revealed that the bank's overall condition had
improved to allow for the termination of the February 27, 1990
Memorandum of Understanding, but has recommended certain actions
designed to further strengthen the financial condition of the
Bank, and
WHEREAS, it is believed that a continued, structured program of
informal corrective action focusing on the bank's remaining
problems should be adopted by the Board of Directors of Citizens
Trust Bank, and
WHEREAS, it is believed that a structured program of informal
corrective action focusing on the bank's problems in its
electronic data processing area should be adopted by the Board
of Directors of Citizens Trust Bank, and
WHEREAS, the Bank through its management agrees that it will
act in good faith to comply with these Resolutions and make an
effort to follow the actions recommended by the Federal Reserve
Bank of Atlanta and the Department of Banking and Finance of
the State of Georgia (the Supervisory Authorities) for the
benefit of the Bank, as set forth in the commercial examination
report dated October 31, 1994, and the EDP examination report
dated January 4, 1995.
NOW THEREFORE, the Board hereby adopts the following Resolution
(unless otherwise specified, all time requirements contained in
the Resolution shall start with its effective date):
1 . DIVIDENDS.
The Bank shall not declare or pay any dividends without
the prior written approval of the Supervisory Authorities.
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2. ASSET QUALITY.
Within 60 days of this Resolution, the Bank shall submit to
the Supervisory Authorities its written plan to further reduce
asset classifications and otherwise improve asset quality to
satisfactory levels. The plan shall establish target
classification reduction levels and deadlines by which management
will achieve these goals. Classifications will include those
assets adversely classified in the October 31, 1994 examination
report and subsequent examination reports issued by the
Supervisory Authorities in addition to the bank's internal loan
reviewprogram. The plan shall also address management's
continuingefforts at identifying and reporting portfolio risks,
the accuracy of internal risk ratings, continued adherence to the
Bank's loan policy, and the continued maintenance of an adequate
loan loss reserve. The plan will also provide quarterly reporting
by management to the Bank's board of directors of the current
progress towards the classification reduction goal and an overall
assessment of the lending area.
3. CAPITAL ADEQUACY.
a. Within 60 days of this Resolution, the Bank shall
develop and submit to the Supervisory Authorities a written plan
designed to maintain an adequate capital position. The plan
shall, at a minimum, address and consider: (1) the Bank's current
and future capital requirements including the maintenance of an
adequate risk-based capital ratio and tier I leverage ratio in
conformity with the requirements of the Capital Adequacy
Guidelines for State Member Banks: Risk-Based Measure and Tier I
Leverage Measure (Appendices A and B of Regulation H of the Board
of Governors, 12 C.F.R. Part 208, App. A and App. B); (2) the
volume of the Bank's adversely classified assets; (3) the growth
in the Bank's assets and its relationship to the Bank's capital
ratios; (4)the Bank's anticipated level of retained earnings; (5)
the source and timing of additional funds to fulfill future
capital and loan loss reserve requirements set forth in this
Resolution; and (6) the debt service requirements of the parent
holding company;
b. Not withstanding the provisions of paragraph 3.a hereof,
in the event that the Bank's primary capital ratio falls below
7.53 percent, (that being the Bank's capital level before the
Southern Federal branch acquisition in 1994) the Bank, shall
within 5 days of such event, notify the Supervisory Authorities
about the capital deficiency and shall submit a written statement
detailing the steps that will be taken by the Bank to increase
its primary capital ratio to no less than 7.53 percent within 60
days.
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4. BUDGET AND STRATEGIC PLAN.
For the remainder of 1995, the Bank shall continue to
operate under the budget and earnings forecast in the 1995
Strategic Plan (dated November 23, 1994) submitted to the
Supervisory Authorities under the February 27, 1990 Memorandum
of Understanding. A 12-month budget for each calendar year after
1995 shall be submitted to the Supervisory Authorities at least
one (1) month before the beginning of such calendar year. The
budget and earnings plan shall include a quarterly review process
to monitor and document income and expense variances of 10
percent from budget expectations.
5. MANAGEMENT REVIEW AND SUCCESSION. Within 60 days of this
Resolution, the Bank's board of directors shall conduct a review
of the Bank's middle management and branch administration. The
Bank shall forward to the Supervisory Authorities the written
findings and conclusions of the review along with a written
description of any management or operational changes that may
be proposed as a result of the review. The review shall include
an assessment of the duties performed by each officer, the
ability of that officer to perform competently his or her
assigned duties, including the need for the officer to receive
additional training. The primary purpose of this review shall be
to aid in developing a management structure and support staff
that is adequately staffed with qualified and trained personnel
to provide for management succession.
6. INTERNAL AUDIT FUNCTION.
Within 45 days of this Resolution, the board of directors' audit
committee, which shall include only outside directors, shall
conduct and complete a review of the adequacy of the Bank's
internal audit function and shall forward to the Supervisory
Authorities written findings and conclusions of its review along
with written descriptions of any changes that may be proposed as
a result of the review. The review shall focus on the coverage,
frequency, and scope of internal audits and shall take into
consideration the comments concerning the audit function cited in
the October 31, 1994 examination report, including, but not
limited to, the following steps:
a. Develop a formal written annual audit plan and adhere to this
schedule;
b. Improve workpaper documentation of audit findings and
recommendations;
c. Implement follow-up procedures to ensure that corrective
d. Increase the scope of the audit function to include the
Bank's compliance with all applicable laws and regulations,
with a particular emphasis on the Bank Secrecy Act;
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The review shall also consider the adequacy and frequency
of internal audit reports and the board of directors' review of
these reports. The primary purpose of the review is to ensure
that the Bank has an effective internal audit function, that the
deficiencies revealed and reported by the audit process are
addressed in promptly, and that the board of directors of the
Bank receives and regularly reviews the reports generated by the
internal audit staff.
7. BANK SECRECY ACT COMPLIANCE.
The Bank shall not, directly or indirectly, engage in any
violation of the Currency and Foreign Transaction Reporting Act
(31 U.S.C. 5311 et seq.) and the accompanying regulations issued
thereunder by the United States Department of the Treasury
(31 C.F.R.103.11 et seq.)(collectively referred to as the Bank
Secrecy Act (the "BSA")). To ensure that the Bank shall not
violate any of the provisions of the BSA, the Bank shall:
a. Provide and document training to all appropriate
personnel at the Bank, including but not limited to, tellers,
customer service representatives, lending officers, private and
personal banking officers, and to all other customer contact
personnel. This training shall include all aspects of regulatory
and internal policies and procedures related to the BSA. The
training shall be provided regularly to ensure that all personnel
are provided with the most current and up-to-date information;
b. Provide for an internal review process in the Bank
to ensure that the Bank is complying with the BSA, that
appropriate personnel possess the requisite knowledge necessary
to comply with the BSA, that all procedures are in writing, and
that these procedures are complete and accurate, and that the
results of the internal review are reported to senior management
of the Bank;
8. EDP AUDIT.
Within 90 days of the date of this Resolution, the Bank
shall correct the weaknesses within the EDP audit function as
noted in the January 4, 1995 EDP examination report by expanding
the scope of its EDP audit function to consider the following:
on going risk assessment, the timely scheduling and completion of
audits reports, and the implementation of corrective action to
address previously cited deficiencies. Towards this goal, the
Bank will implement the following:
a. Submit to the Supervisory Authorities completed written
internal audit reports for the general controls review
and the data security audit; and
b. Submit to the Supervisory Authorities target dates by
which the following EDP audits will be completed during
1995: (1) electronic networks and telecommunications; (2)
wiretransfers;(3)operating systems;(4)proof input /research/
adjustments, and (5)the bookkeeping and ACH areas.
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9. DATA SECURITY.
Within 90 days of the date of this Resolution, the Bank
shall take all necessary steps consistent with sound banking
practices to eliminate or correct all criticisms relating to data
security in the January 4, 1995 EDP examination report. These
corrective actions shall include the following:
a. A reorganization of the duties of the Data Security
Officer (DSO) to allow for the adequate separation of duties,
independence, and functional back-up of this position to promote
compliance with established data security policies and
procedures.
b. The development and implementation of written policies
and procedures to further strengthen data security in the Bank
by:
(1) Defining the role and responsibilities of the DSO;
(2) Establishing procedures to monitor the DSO's
activities on the Bank's information and data processing systems;
(3) Establishing procedures to grant, restrict, and
remove access to the Bank's information and data processing
systems;
(4) Establishing procedures to monitor user activity
on the Bank's systems including the usage of data altering
utility programs;
(5) Defining a method to ensure compliance with
established data security policies and procedures.
The plans and procedures required by paragraph 10 shall be
submitted to the Supervisory Authorities for review within the
allotted time frame.
10. OUARTERLY COMPLIANCE REPORTS.
Within 30 days of each calendar quarter (March 31,
June 30, September 30, and December 31) following the date of
this Resolution, the Bank shall furnish to the Supervisory
Authorities written progress reports detailing the form and
manner of all actions taken to ensure compliance with this
Resolution and the results thereof. The board of directors shall
review each quarterly progress report required by this paragraph.
The quarterly compliance report shall detail the means by which
the bank is complying with each provision of the Resolution and
shall be cross-referenced with the specific provision number.
Such reports may be discontinued when corrections required by
this Resolution have been accomplished, and the Supervisory
Authorities have released the Bank in writing from making further
reports.
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The effective date of this Board Resolution is March 15. 1995.
The undersigned directors of Citizens Trust Bank, Atlanta,
Georgia acknowledge receipt, and agree to the terms of this
Resolution this 15th day of March 1995.
/s/William G. Anderson /s/Johnnie L. Clark
William G. Anderson Johnnie L. Clark
/s/William L. Gibbs /s/James V. Paschal
William L. Gibbs James V. Paschal
/s/ H. Jerome Russell /s/ Herman J. Russell
H. Jerome Russell Herman J. Russell
/s/ R.K. Sehgal /s/ Juanita Sellers Stone
Raghibir K. Sehgal Juanita Sellers Stone
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