SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) TO THE SECURITIES
EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) TO THE EXCHANGE ACT
For the quarterly period end September 30, 1997
CITIZENS BANCSHARES CORPORATION
(Name of small business issuer in its charter)
Georgia 58 - 1631302
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
175 John Wesley Dobbs Avenue, N.E., Atlanta, Georgia 30303
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (404) 659-5959
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the 90 days. Yes _X__ No ___.
State the number of shares outstanding if each of the issuer's classes of
common equity as of the l practicable date: 1,329,684 shares of Common Stock,
$1.00 par value, outstanding on, November 1,1997.
<TABLE>
<CAPTION>
Part I. Financial Information:
Citizens Bancshares Corporation and Subsidiary
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
(unaudited-amounts in thousands, except per share amounts)
ASSETS
1997 1996
<S> <C> <C> <C> <C>
Cash and due from banks $ 8549 $ 8968
Federal funds sold 1000 10200
Investment securities:
Held to maturity 18934 26072
Available for sale 8863 13269
Total investments 27797 39341
Loans, net of unearned income 82805 82408
Less allowance for loan losses 1272 1441
Loans, net 81533 80967
Premises and equipment, net 3162 2891
Real estate acquired through foreclosure 798 218
Other assets 4741 2293
Total assets $ 127580 $ 144878
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 32570 $ 46328
Interest-bearing 83031 86560
Total deposits 115601 132888
Treasury, tax and loan account 161 116
Federal funds purchased - -
Long-term debt and obligations under capital 630 765
Other liabilities 1110 1147
Total liabilities 117502 134916
Shareholders' equity:
Common stock-$1 par value. Authorized
5,000,000 shares; issued and outstanding
1,329,684 shares 1330 1330
Additional paid-in capital 1470 1470
Unrealized (loss)gain on available for sale s -2 -31
Retained earnings 7280 7193
Total shareholders' equity 10078 9962
Total liabilities and sha $ 127580 $ 144878
</TABLE>
<TABLE>
<CAPTION>
Citizens Bancshares Corporation and Subsidiary
Consolidated Statements of Earnings
(unaudited-amounts in thousands, except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
INTEREST INCOME:
<S> <C> <S> <C> <C> <C> <C>
Loans, including fees $ 1932 $ 1850 $ 5535 $ 5096
Investment securities
Taxable 440 740 1681 2147
Tax-exempt 26 19 72 60
Federal funds sold 21 100 127 350
Total interest income 2419 2709 7415 7653
INTEREST EXPENSE:
Deposits 693 767 2298 2170
Treasury, tax, and loan account 1 2 4 5
Long-term debt 15 17 45 46
Other 14 20 14 20
Total interest expense 723 806 2361 2241
Net interest income 1696 1903 5054 5412
Provision for loan losses 30 - 30 -
Net interest income after provision for
possible loan losses 1666 1903 5024 5412
NONINTEREST INCOME:
Service charges on deposit accounts 870 936 2491 2805
Other operating income 113 9 363 225
Total noninterest income 983 945 2854 3030
NONINTEREST EXPENSE:
Salaries and employee benefits 1382 1424 4217 4018
Net occupancy and equipment 450 434 1278 1291
Other operating expenses 735 819 2252 2281
Total noninterest expense 2567 2677 7747 7590
Earnings before income taxes 82 171 131 852
Income tax expense 31 22 44 164
Net earnings $ 51 $ 149 $ 87 $ 688
Net earnings per common share $ 0.04 $ 0.11 $ 0.07 $ 0.52
Average outstanding shares 1330 1330 1330 1330
</TABLE>
<TABLE>
<CAPTION>
Citizens Bancshares Corporation and Subsidiary
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996
(unaudited-amounts in thousands, except per share amounts)
1997 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 87 688
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Provision for possible loan losses 30 -
Depreciation and amortization 592 491
Amortization, net -10 29
Amortization of deferred loan fees 30 96
Gain on sale of securities -13 -
Loss on sale of premises and equipment 2
Increase in other assets -2329 -244
Decrease in accrued expenses and other liabilities -36 -521
Net cash (used) provided by operating activities -1649 541
Cash flows from investing activities:
Proceeds from maturities of investment securities held to ma 7145 9154
Proceeds from maturities of investment securities available 10969 1204
Purchases of investment securities held to maturity - -6500
Purchases of investment securities available for sale -6517 -6574
Net decrease in loans -1422 -8456
Purchases of premises and equipment -863 -1039
Proceeds from sale of real estate acquired through foreclosu 95 123
Proceeds from sale of premises and equipment - 9
Net cash provided (used) by investing activities 9407 -12079
Cash flows from financing activities:
Net (decrease) increase in demand deposits -13758 1195
Net (decrease) increase in time deposits -3529 7408
Principal payment on long-term debt -135 -90
Net increase in treasury, tax and loan account 45 172
Dividend paid to shareholders - -66
Net cash (used) provided by financing activities -17377 8619
Net decrease in cash and cash equivalents -9619 -2919
Cash and cash equivalents at beginning of period 19168 14015
Cash and cash equivalents at end of period $ 9549 11096
Supplemental disclosures of cash paid during the period for:
Interest $ 2361 2173
Income taxes $ - 301
Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure $ 836 193
</TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 1997 and 1996
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited statements have been prepared pursuant to the rules
and regulations for reporting on Form 10 - QSB. Accordingly, certain
disclosures required by generally accepted accounting principles are not
included herein. These interim statements should be read in conjunction with
the financial statements and notes thereto included in the company's latest
Annual Report on Form 10 - KSB.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Citizens Trust Bank (the "Bank"). The Bank has a
wholly owned subsidiary, Atlanta Mortgage Brokerage and servicing Co., whose
accounts are also included. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The consolidated financial statements of Citizens Bancshares Corporation and
Subsidiary (the "Company") as of September 30, 1997 and for the three and nine
month periods ended September 30, 1997 and 1996 are unaudited. In the opinion
of management, all adjustments necessary for a fair presentation of the
financial position and results of operations and cash flows for the three
month period have been included. All adjustments are of a normal recurring
nature.
2. ACCOUNTING AND REGULATORY MATTERS
During 1997, the Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income.
" SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements. Comprehensive
income includes all changes in equity during the period except those resulting
from investments by owners or distributions to owners. The statement does not
address issues of recognition or measurement of comprehensive income and its
components. The provisions of this statement shall be effective for the fiscal
years beginning after December 15, 1997 and early application is permitted.
Additionally during 1997, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share
" (SFAS 128). SFAS supersedes APB Opinion 15. SFAS 128 simplifies current
standards by eliminating the presentation of primary EPS and requiring the
presentation of basic EPS, which includes no potential common shares and thus
no dilution. The Statement also requires entities with complex capital
structures to present basic and diluted EPS on the face of the income statement
and also eliminates the modified treasury stock method of computing potential
common shares. The Statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Early
application is not permitted. On adoption, restatement of all prior-period
EPS data presented is required. Based upon the current capital structure of
the Company, this Statement should have no effect on the present EPS
calculation.
SERVICING RIGHTS
The Financial Accounting Standards Board (FASB) has issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" which requires the Company to make certain disclosures regarding
is servicing assets and liabilities, and may also affect the classification of
certain servicing assets and liabilities.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996.
On January 1, 1997, the Company adopted the provisions of SFAS No. 125 which
had no material impact on the consolidated financial statements.
IMPAIRED LOANS
Management considers a loan to be impaired when, based on current information
and events, it is probable that all amounts due according to the contractual
terms of the loan will not be collected. Impaired loans are measured based on
the present value of expected future cash flows, discounted at the loan's
effective interest rate, or at the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent.
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 collateralized 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 the
accrued interest is recoverable through the liquidation of collateral. Interest
income, if any, on nonaccrual loans is generally recognized on the cash basis.
At September 30, 1997 and December 31, 1997, the recorded investment in loans
that are considered to be impaired was approximately $1,258,000 and $1,959,000,
respectively, a decrease of $701,000 when compared to December 31, 1996. The
related allowance for loan losses for each of these loans was approximately
$159,000 and $293,000, respectively. For the three month and the nine month
periods ended September 30, 1997, the Company recognized approximately $4,000
and $23,000 interest income on these impaired loans on an accrual basis,
respectively.
NONPERFORMING ASSETS
Nonperforming assets include nonperforming loans, real estate acquired through
foreclosure and repossessed assets. Nonperforming loans consist of loans which
are past due with respect to principal or interest more than 90 days or have
been placed on nonaccrual status and restructured loans.
Accrual of interest on loans is discontinued when reasonable doubt exists as
to the full, timely collection of interest or principal or they become
contractually in default for 90 days or more as to either interest or principal
unless the loan is well secured and in process of collection. When a loan is
placed on nonaccrual status, previously accrued and uncollected interest is
charged against interest income on loans unless management feels the accrued
interest is recoverable through the liquidation of the collateral.
With the exception of the loans included within nonperforming assets in the
table below, management is not aware of any loans classified for regulatory
purposes as loss, doubtful, substandard, or special mention that have not been
disclosed which (1) represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (2) represent any information on
material credits which management is aware that causes management to have
serious doubts as to the abilities of such borrower to comply with the loan
repayment terms.
Nonperforming loans decreased approximately $262,000 to $1,103,000 at September
30, 1997, from $1,365,000 at December 31, 1996. Real estate acquired through
foreclosure increased approximately $735,000 from $63,000 at December 31, 1996
to $798,000 at September 30, 1997. Nonperforming assets represented 2.32% of
loans, net of unearned income and real estate acquired through foreclosure at
September 30, 1997 as compared to 1.73% at December 31, 1996.
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Selected Statistical Information, continued
<TABLE>
<CAPTION>
The increase in nonperforming assets relative to loans, net of unearned income
and real estate acquired through foreclosure, was primarily caused by the
foreclosure of a commercial property with a recorded book value of $765,000.
Management has actively marketed the property and expects to close on the sale
of the building during the fourth quarter of 1997. The table below presents
a summary of the Company's nonperforming assets at September 30, 1997 and
December 31, 1996.
1997 1996
(Amounts in
thousands, except
financial ratios)
Nonperforming assets:
<S> <C> <C> <C> <C>
Nonperforming loans: $ 1,062 1,286
Past-due loans 41 79
Nonperforming loans 1,103 1,365
Repossessed property 32
Real estate acquired through foreclosure 798 63
Total nonperforming assets $ 1,933 1,428
Ratios:
Nonperforming loans to loans, net of unearned income 1.33% 1.66%
Nonperforming assets to loans(net of unearned income)
and real estate acquired through foreclosure 2.32% 1.73%
Nonperforming assets to total assets 1.49% .99%
Allowance for loan losses to nonperforming loans 115% 106%
Allowance for loan losses to nonperforming assets 66% 101%
</TABLE>
Interest income on nonaccrual loans which would have been reported for the
three and nine months ended September 30, 1997 totaled approximately $61,000
and $115,000, as compared to $19,000 and $50,000 for the respective periods
ending September 30, 1996. The Company recorded approximately $0 and $43,000
interest income on these loans for the three and nine months period ended
September 30, 1997.
ALLOWANCE FOR LOAN LOSSES
The following table summarizes loans, changes in the allowance for loan losses
arising from loans charged off, recoveries on loans previously charged off by
loan category, and additions to the allowance which have been charged to
operating expense as of and for the period ended September 30, 1997 and
December 31, 1996.
<TABLE>
1997 1996
<S> <C> <S> <C> <C>
Loans, net of unearned income $ 82,805 82,408
Average loans, net of unearned income and the
allowance for loan losses $ 80,803 73,576
Allowance for loans losses at the beginning of year $ 1,441 1,566
Loans charged off:
Commercial, financial, and agricultural 3 111
Real estate- mortgage 148 285
Installment loans to individuals 285 76
Total loans charged off 436 424
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 64 38
Real estate mortgage 81 104
Installment loans to individuals 92 92
Total loans recovered 237 234
Net loans charged off 199 190
Addition to allowance for loan losses charged
to operating expense 30 65
Allowance for loan losses at period end $ 1,272 1,441
Ratio ofnet loans charged off to average loans,
net of unearned income .25% .26%
Allowance for loan loses to loan, net of unearned income 1.54% 1.75%
</TABLE>
Credit reviews of the loan portfolio designed to identify potential charges
to the allowance for loan losses, as well as to determine the adequacy of the
allowance for loan losses, are made on a continuous basis throughout the year.
These reviews are conducted by management, lending officers, and independent
third parties. These reviews are also reviewed by the Board of Directors,
who consider such factors as the financial strength of borrowers, the value
of applicable collateral, past loan loss experience, anticipated loan losses,
growth in the loan portfolio, and other factors including prevailing and
anticipated economic conditions. Management believes the allowance for loan
losses is adequate at September 30, 1997.
A substantial portion of the Company's loan portfolio is secured by real estate
in the metropolitan Atlanta market. Accordingly, the ultimate collectibility of
a substantial portion of the Company's loan portfolio is susceptible to changes
in the market conditions in the metropolitan Atlanta area.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
Citizens Bancshares Corporation (the "Company" ), a one-bank holding company,
provides a full range of commercial banking services to individual and corporate
customers in metropolitan Atlanta through its wholly owned subsidiary, Citizens
Trust Bank ( the "Bank"). The Bank operates under a state charter and serves
its customers through eight full service branches.
The following discussion is of the Company's financial condition as of
September 30, 1997 and the changes in financial condition and results of
operations for the three and the nine month periods ended September 30, 1997
and 1996.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income represents the excess of income received on interest-earning
assets and interest paid on interest-bearing liabilities. Net interest income
for the three month and nine month periods ended September 30, 1997 decreased
approximately $207,000 and $358,000 or 11% and 7%, respectively. The decrease
in net interest income is due to the combination of higher relative reliance
on interest bearing deposits to fund assets and the decrease in the
investments portfolio. This combination decreased the Company's net interest
margin to 5.63% for the period ended September 30, 1997 compared to 5.84% in
1996.
Noninterest income
Noninterest income increased approximately $38,000 or 4% for the three month
period ended September 30, 1997 and while decreasing approximately $176,000 or
6% for the nine month period ended September 30, 1997 as compared to the same
period in 1996. The increase in the three month period is due to individually
insignificant items. The decrease in noninterest income is primarily due to a
decrease in service charges on deposits of $314,000 or 11% for the nine month
period ended September 30, 1997. This change is consistent with the change in
the volume of deposit accounts outstanding.
Noninterest expense
Noninterest expense decreased approximately $110,000 or 4% for the three month
period while increasing $157,000 or 2% for the nine month periods ended
September 30, 1997, as compared to the same period in 1996. The decrease during
the third quarter is a result of a reduction in staff during the period.
However for the nine month period, the increase is attributable
to a combination of an increase in salaries and employee benefits of $199,000,
offset by a decrease in occupancy expense of $13,000 and an increase in other
operating expenses of $29,000. The increase in salaries and employee benefit
costs is due to new hires, normal salary adjustments and increased employee
benefits.
Net earnings
The Company had a net earnings of approximately $51,000 or $0.04 per share
for the three month period ended September 30, 1997 and net earnings of $87,000
or $0.07 per share for the nine month period ended September 30, 1997 as
compared to $149,000 and $688,000 or $0.11 and $0.52 per share in 1996. The
$601,000 or 87% decrease in net earnings for the nine months ended September 30,
1997 as compared to the same period in 1996 is attributable to the combination
of declining net interest income and noninterest income of $358,000 and $176,000
respectively, and an increase in noninterest expense of approximately $157,000.
PART II. OTHER INFORMATION
LIQUIDITY
Liquidity is a bank's ability to meet deposit withdrawals, while also,
providing for the credit needs of customers. In the normal course of
business, the Company's cash flow is generated from interest and fees on
loans and other interest-earning assets, repayments of loans, and maturities
of investment securities. The Company continues to meet liquidity needs
primarily through the sale of federal funds and managing the maturities of
investment securities.
At September 30,1997, approximately 11% of the investment portfolio matures
within the next year, 74% after one year but before five years. In addition,
federal funds sold averaged approximately $2.9 million during the nine month
period ended September 30, 1997. The Company is a member of the Federal
Home Loan Bank of Atlanta, the Federal Reserve System and maintains relation-
ships with several correspondent banks and, thus, could obtain funds on short
notice. Company management closely monitors and maintains appropriate levels
of interest-earning assets and interest-bearing liabilities, so that maturities
of assets are such that adequate funds are provided to meet customer
withdrawals and loan demand.
CAPITAL RESOURCES
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total Tier 1
capital to risk weighted assets and Tier 1 capital to average assets. As of
September 30, 1997 the Company's actual capital amounts (in thousands) and
ratios are as follows:
For Capital
Actual Adequacy Purposes
Amount Ratio Amount Ratio
Total Capital (to Risk Weighted Assets):
Consolidated $ 11,267 12% $ 7,254 >8%
Bank $ 11,842 13% 7,251 >8%
Tier 1 capital (to Risk Weight Assets):
Consolidated $ 10,080 11% $ 3,627 >4%
Bank $ 10,655 12% $ 3,625 >4%
Tier 1 Capital (to Average Assets):
Consolidated $ 10,080 7% $ 5,528 >4%
Bank $ 10,655 8% $ 5,527 >4%
PART II. OTHER INFormation
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings to which
the Company or its subsidiary is a party or to which any of their property
is subject.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Effective July 1, 1997, Mr. William L. Gibbs resigned as the President and Chief
Executive Officer of the Bank. Dr. Johnnie L. Clark, Vice Chairman of the
Company's Board of Directors, was named as his temporary replacement.
Effective July 27, 1997, the Company signed a letter of intent to merge with
First Southern Bancshares, Inc.. The merger is contingent upon regulatory
and shareholder approval. On October 23, 1997, an S-4 was filed with the SEC
in connection with the merger.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CITIZENS BANCSHARES CORPORATION
Date: November 13, 1997 By: /s/ Johnnie L. Clark
Johnnie L. Clark
President and Chief Executive Officer
Date: November 13, 1997 By: /s/ Ann I. Scott
Ann I. Scott
Senior Vice President and Controller
[ARTICLE] 9
[CIK]
[NAME]
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] sep-30-1997
[CASH] 8549
[INT-BEARING-DEPOSITS] 83031
[FED-FUNDS-SOLD] 1000
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 18934
[INVESTMENTS-CARRYING] 0
[INVESTMENTS-MARKET] 8863
[LOANS] 82805
[ALLOWANCE] 1272
[TOTAL-ASSETS] 127580
[DEPOSITS] 115601
[SHORT-TERM] 0
[LIABILITIES-OTHER] 1271
[LONG-TERM] 630
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 1330
[OTHER-SE] 8748
[TOTAL-LIABILITIES-AND-EQUITY] 127580
[INTEREST-LOAN] 5535
[INTEREST-INVEST] 1753
[INTEREST-OTHER] 127
[INTEREST-TOTAL] 7415
[INTEREST-DEPOSIT] 2298
[INTEREST-EXPENSE] 2361
[INTEREST-INCOME-NET] 5054
[LOAN-LOSSES] 0
[SECURITIES-GAINS] 13
[EXPENSE-OTHER] 7747
[INCOME-PRETAX] 131
[INCOME-PRE-EXTRAORDINARY] 131
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 87
[EPS-PRIMARY] .07
[EPS-DILUTED] .07
[YIELD-ACTUAL] 4.54
[LOANS-NON] 1062
[LOANS-PAST] 41
[LOANS-TROUBLED] 200
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 1441
[CHARGE-OFFS] 436
[RECOVERIES] 237
[ALLOWANCE-CLOSE] 1272
[ALLOWANCE-DOMESTIC] 1272
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
