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, 1996
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 ofRegulation 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: $14,418,813
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: $3,107,232 as of March 1, 1997. 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, 1997.
Transitional Small Business Issuer Format: Yes No X
Documents incorporated by reference: None
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 such
customary banking services 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. It finances
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 two colleges
and for local governments.
The City of Atlanta is located in a Metropolitan
Statistical Area ( MSA ) 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 MSA 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,
1996, noninterest bearing accounts represented approximately
34.9% 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.
T h e 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, 1996,
commercial, financial and agricultural loans and consumer
l o ans represented approximately 16.6% and 16.8%,
respectively, of the Bank s total loan portfolio, and real
estate mortgage and construction loans represented
approximately 66.6% 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
o f 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 majority of the Bank's customers are from the
minority communities.
Liquidity Management. At December 31, 1996, the Bank's
ratio of loans to deposits was 62%. 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, 1996, the Bank
had correspondent relationships with five commercial banks
in Georgia and two commercial banks in other states.
NationsBank 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, 1996, the Company and the Bank had full
time equivalent employees of 152. See Note 9, Employee
B e n e f its, of the Notes to Consolidate 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
c o m petes 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
D e p a r t ment 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
b o t h 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 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 6, 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, 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)
t h e 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 additional 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 this 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
e x amination 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 included 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
p l a c ed 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-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 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
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
b y the Bank, including low and moderate-income
neighborhoods. The Bank received an outstanding rating on
its most recent Federal Reserve Bank CRA examination.
Capital Requirements. Regulatory agencies measure
c a p i tal adequacy with 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 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
i n t ernal 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 11.7%, and Tier 2
ratio is 12.9%. See Note 14, 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
c a pital 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
F D I C A ct, the banking agencies have developed a
classification system, pursuant to which all banks and
thrifts will be placed into one of five categories: well-
c a p italized institutions, adequately capitalized
institutions, undercapitalized institutions, significantly
u n d e r c a pitalized 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 subject to
Capitalized a capital
directive
Adequately 4% or more 8% or more 4% or more --
Capitalized
Undercapit- less less than 8% less than 4% --
alized than 4%
Significantly less less than 6% less than 3% --
Undercapit- than 3%
alized
Critically 2% or less -- -- --
Undercapit- tangible
alized 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.
I n stitutions with lower capital ratings are strictly
prohibited from taking brokered deposits.
Under regulations issued by the Federal Deposit Insurance
Corporation ("FDIC"), the Bank generally is required to
maintain a ratio of Tier 1 capital to total assets, as such
terms are defined therein, of at least 4.0%. As of December
31, 1993, the Bank was in compliance with these regulations.
The FDIC also imposes risk-based capital requirements
s u bstantially similar to the rules of the Board of
Governors.
Deposit Insurance Premiums. On November 2, 1992, the
FDIC adopted a 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 rule, each depository institution is
assigned to one of the three groups, well-capitalized,
adequately capitalized or undercapitalized, based on its
capital ratios and is further assigned to one of three
subgroups within its capital 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
i n s t itution'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 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
s t a te 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 restrictions 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
c o m petitive 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,
1996 1995
(amounts in thousands)
ASSETS:
Cash and due from banks $ 10,171 9,273
Interest-earning assets:
Loans,net (a) 73,576 68,325
Taxable investment Securities 43,120 42,661
Tax-exempt investment securities 958 1,348
Federal funds sold 8,188 9,086
Total interest-earning assets 125,842 121,420
Premises and equipment, net 2,866 2,326
Other Assets 2,422 2,484
TOTAL ASSETS $ 141,301 135,503
LIABILITIES AND SHAREHOLDER EQUITY
Noninterest-bearing deposits $ 42,348 40,226
Interest-bearing liabilities:
Savings and interest-bearing demand
deposits 49,593 49,934
Time deposits 36,818 33,789
Other borrowed funds 1,508 1,448
Total interest-bearing
liabilities 87,919 85,171
Accrued expenses and other liabilities 1,217 1,252
Total liabilities 131,484 126,649
Shareholders equity:
Common stock 1,330 1,330
Additional paid-in capital 1,470 1,470
Retained earnings 7,017 6,054
Total shareholders equity 9,817 8,854
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY $141,301 135,503
(a) Average loans are shown net of unearned income and the
allowance for possible loan losses.
Nonperforming loans are also included.
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
(amounts in thousands, except ratios)
<S> <C> <C>
Total interest-earning assets $ 125,842 121,420
Total interest-bearing liabilities 87,919 85,171
Excess of interest-earning assets over
Interest-bearing liabilities $ 37,923 36,249
INTEREST EARNED ON:
Loans, net (b) $ 7,048 6,416
Taxable investment Securities 2,806 2,752
Tax-exempt investment securities (a) 114 162
Federal funds sold 428 528
Total interest income 10,396 9,858
INTEREST PAID ON:
Savings and interest-bearing demand
deposits 1,130 1,207
Time deposits 1,860 1,682
Other borrowed funds 95 93
Total interest expense 3,805 2,982
NET INTEREST EARNED $ 7,311 6,876
AVERAGE YIELD EARNED ON:
Loans, net 9.58% 9.39%
Taxable investment securities 6.51 6.45
Tax-exempt investment securities (a) 11.90 12.02
Federal funds sold 5.23 5.82
TOTAL INTEREST-EARNING ASSETS 8.26 8.12
AVERAGE RATE PAID ON:
Savings and interest-bearing demand
deposits 2.28 2.42
Time deposits 5.05 4.98
Other borrowed funds 6.30 6.42
TOTAL INTEREST-BEARING LIABILITIES 3.51 3.50
INTEREST RATE DIFFERENTIAL 4.75 4.62
NET INTEREST MARGIN 5.81 5.66
<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 $221,000 in 1996 and $224,000 in 1995.
</FN>
</TABLE>
<TABLE>
The following table sets forth, for the year ended December
31, 1996, a summary of the changes in interest earned and
interest paid resulting from changes in volume and changes
in rates:
<CAPTION>
Increase Due to changes in (a)
1996 1995 (decrease) Volume Rate
(amounts in thousands)
INTEREST EARNED ON:
<S> <C> <C> <C> <C> <C>
Loans, net $ 7,048 6,416 632 498 134
Taxable investment
securities 2,806 2,752 54 30 24
Tax-exempt investment
securities (b) 114 162 (48) (47) (1)
Federal funds sold 428 528 (100) (50) (50)
TOTAL INTEREST INCOME 10,396 9,858 538 362 176
INTEREST PAID ON:
Savings and demand deposits 1,130 1,207 (77) (8) (69)
Certificates of deposits 1,860 1,682 178 152 26
Other borrowed funds 95 93 2 4 (2)
TOTAL INTEREST EXPENSE 3,085 2,982 103 96 7
NET INTEREST EARNED $ 7,311 6,876 435 254 181
<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,
1995, 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)
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 1019 165
Taxable investment
securities 2,752 2,617 135 (139) 274
Tax-exempt 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 demand deposits 1,207 978 229 194 5
Certificates of deposits 1,682 1,365 317 (12) 325
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>
INVESTMENT SECURITIES
The carrying values of investment securities - held to maturity
at the indicated dates are presented below:
December 31,
1996 1995
(amounts in thousands)
U.S. Treasury and U.S. Government agencies $ 15,677 19,188
Mortgage-backed securities 9,525 11,795
State, county, and municipal securities 870 1,125
Totals $ 26,072 32,108
The carrying values of investment securities - available for
sale at the indicated dates are presented below:
December 31,
1996 1995
(amounts in thousands)
U.S. Treasury and U.S. Government agencies $ 12,638 8,819
Other equity securities 631 245
Totals $ 13,269 9,064
The following table shows the contractual maturities of all
investment securities at December 31, 1996 and the weighted
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
U.S. Government
agencies $ 5,698 6.53% $ 19,473 6.33% $ 2,662 6.97% $ 482 7.03%
Mortgage-backed
securities (a) 390 6.15 3,483 6.76 1,526 7.57 4,126 7.06
State, county,
and municipal -- -- 870 11.91 -- -- -- --
Other equity
securities (b) -- -- -- -- -- -- 631 (b)
Totals $ 6,088 6.51% $ 23,826 6.60% $ 4,188 7.19% $ 5,239 6.21%
<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 and the
Federal Home Loan Bank of Atlanta. These investments have
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,
1996, 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,
1996 1995
(amounts in thousands)
Commercial, financial, and agricultural $ 13,728 11,003
Installment and single payment 13,850 7,783
Real estate - commercial 31,115 29,772
Real estate - residential 22,064 19,209
Real estate - construction 1,830 2,543
82,587 70,310
Less:
Unearned income 179 226
Allowance for loan losses 1,441 1,566
Loans, net $ 80,967 68,518
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-KBS. 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,
1996, regarding the contractual maturities and interest rate
sensitivity of certain categories of the Company s loans.
<CAPTION>
Due after one Due after
One year year through five
or less five years years Total
(amounts in thousands)
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 6,889 6,109 730 13,728
Installment and single payment individual 4,768 7,554 1,528 13,850
Real estate - commercial 3,483 16,710 10,922 31,115
Real estate - residential 567 4,921 16,576 22,064
Real estate - construction -- 1,632 198 1,830
$ 15,707 36,926 29,954 82,587
Loans due after one year:
Having predetermined interest rates $43,002
Having floating interest rates 23,878
Total $66,880
</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 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 be
restated.
At December 31, 1996 and 1995, the recorded investment in loans that
are considered to be impaired under SFAS No. 114 was 1,959,000 and
$2,051,000, respectively (of which approximately $1,286,000 and
$1,261,000 were on a nonaccrual basis). The related allowance for
loan losses was $302,000 and $308,000, respectively. For the years
ended December 31, 1996 and 1995, the Company recognized $129,000
and $77,000, respectively 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 increased to $1,286,000 at December, 1996, from
$1,261,000 at December 31, 1995. Real estate acquired through
foreclosure decreased $103,000 or 62% from $166,000 at December 31,
1995 to $63,000 at December 31, 1996. Nonperforming assets
represent 1.73% of loans net of unearned income and real estate
acquired through foreclosure at December 31, 1996 as compared to
2.03% at December 31, 1995.
The table below presents a summary of the Company s nonperforming
assets at December 31, 1996 and 1995.
December 31,
1996 1995
(amounts in thousands,
except financial ratios)
Nonperforming assets:
Nonperforming loans
Nonaccrual loans $ 1,286 1,261
Past-due loans 79 --
Nonperforming loans 1,365 1,261
Real estate acquired through foreclosure 63 166
Total nonperforming assets $ 1,428 1,427
Ratios:
Nonperforming loans to loans, net
of unearned income 1.66% 1.80%
Nonperforming assets to loans (net
of unearned income) and real estate acquired
through foreclosure 1.73% 2.03%
Nonperforming assets to total assets .99% 1.11%
Allowance for loan losses to nonperforming loans 105.57% 124.19%
Allowance for loan losses to nonperforming assets 100.91% 109.74%
Interest income on nonaccrual loans which would have been reported
for the years ended December 31, 1996, 1995, and 1994 is summarized
as follows:
1996 1995 1994
(amounts in thousands)
Interest at contracted rate $ 83 91 182
Interest at recorded as income 10 - 16
Reduction of interest income $ 73 91 166
ALLOWANCE FOR LOAN LOSSES
The following table summarizes loans at the end of each year and
average loans during the year, changes in the allowance for 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,
1996 1995
(amounts in thousands)
Loans, net of unearned income at end of year $ 82,408 70,084
Average loans, net of unearned income and
allowance for loan losses $ 73,576 68,325
Allowance for loan losses at beginning of year $ 1,566 1,047
Loans charged off:
Real estate loans 237 171
Commercial, financial, and agricultural 111 66
Installment and single payment individual 76 99
Total loans charged off 424 336
Recoveries of loans previous charged off:
Real estate loans 104 266
Commercial, financial and agricultural 38 52
Installment and single payment individual 92 120
Total loans recovered 234 438
Net loans charged off (recovered) 190 (102)
Additions to allowance for loan losses charged to
operating expense 65 417
Allowance for loan losses at end of year $ 1,441 1,566
Ratio of net loans charged off (recovered) to
average loans, net of unearned Income and the
allowance for loan losses .26% (.15%)
Allowance for loan losses to loans, net of unearned
income at end of year 1.75% 2.23%
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 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 loan losses is adequate at December 31, 1996.
A substantial portion of the Company s loan portfolio is secured by
real estate in the metropolitan Atlanta market. Accordingly, the
ultimate collectibility of 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 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 judgement of
m a n a gement, deserve recognition in estimating loan losses.
Regulatory agencies, as n 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
r e cognize additions to the allowance or adjustments to the
valuations based on their judgements about information available to
them at the time of their examination. Because the allocation is
based on estimates and subjective judgement, 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 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
(amounts in thousands, except percentages)
<S> <C> <C> <C> <C>
December 31, 1996
Allowance amount $ 442 161 838 1,441
Percent of loans in each
category to total loans 16.6% 16.8 66.6 100.0
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
</TABLE>
DEPOSITS
The average amount of and average rate paid on deposits by category
for the last two years are presented below:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
Amount Rate Amount Rate
(amounts in thousands, except percentages)
<S> <C> <S> <C> <S>
Noninterest-bearing deposits $ 42,348 -% 40,226 -%
Savings and interest bearing-deposits 49,593 2.28 49,934 2.42
Time deposits 36,818 5.05 33,789 4.98
Total average deposits $ 128,759 2.35% 123,949 2.33%
</TABLE>
The maturities of time deposits of $100,000 or more as of December
31, 1996 are present below (amounts in thousands):
3 months or less $ 20,840
Over 3 months through 6 months 5,047
Over 6 months through 12 months 2,258
Over 12 months 663
Total outstanding $ 28,808
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 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, 1996.
[CAPTION]
<TABLE>
Cumulative amounts as of December 31, 1996
Maturing and repricing within
Three Twelve Five
Months Months Years Total
(amounts in thousands, except ratios)
<S> <C> <C> <C> <C>
Interest-sesitive assets:
Investments $ 3,670 7,236 35,217 39,341
Loans 26,800 33,687 67,636 82,587
Federal funds sold 10,200 10,200 10,200 10,200
Total interest-sensitive assets 40,670 51,123 113,053 132,128
Interest-sensitive liabilities:
Deposits 65,101 82,235 85,962 85,560
Other borrowings 116 116 881 881
Total interest-sensitive
liabilities 65,217 82,351 86,843 87,441
Interest-sensitivity gap $ (24,547) (31,228) 26,210 44,687
Cumulative interest-sensitivity
gap to total interest-
sensitivity assets (18.58)% (23.63) 19.84 33.82
</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 improve 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 proceeding
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 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
1996 High Low
First Quarter $4.50 $4.50
Second Quarter 5.00 5.00
Third Quarter 5.00 5.00
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, 1997, there were 894 shareholders of record of the
Company s Common Stock.
Dividends
For the fiscal years ended December 31, 1996 and 1995, the Company
paid a $0.10 per share cash dividend. 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, the Bank may
pay dividends only upon prior approval of the Regulatory Agencies.
See "Item 1. Business - Bank Regulation, of this Annual Report . See
Note 14, Regulatory Matters of "Notes to Consolidated Financial
Statements."
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 the
Annual Report on Form 10-KSB.
Net income for the year decreased 49% to $643,000 from $1,253,000
earned in 1995. Net income per share was $.48 compared to $.94 earned
in 1995. Return on assets for 1996 was .46% and return on equity was
6.55%. This compares to return on assets of .92% and return on equity
of 14.15% for 1995. The decrease in net income can be attributed to
the 11.2% increase in noninterest expense and the increase in the
bank s effective tax rate from 5.6% in 1995 to 37.1% in 1996.
The Company s total assets increased 12.8% or $16.5 million during the
year ended December 31, 1996 to $144,879,000. Loans, net of unearned
income, increased 17.5% or $12.3 million and total deposits increased
14.2% or $16.5 million during the year ended December 31, 1996.
A v erage assets for the year ended December 31, 1996 totaled
$141,301,000, an increase of 4.3% or $5.8 million as compared to 1995.
T h e 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>
Years ended December 31,
1996 1995 1994 1993 1992
(amounts in thousands, except per share data and financial ratios)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Net interest income $ 7,274 6,826 5,935 5,278 5,625
Provision for loan losses $ 65 417 735 899 979
Net earnings (loss) $ 643 1,253 701 (386) 171
Per share data:
Net earnings (loss) $ .48 .94 .53 (.29) .13
Book value $ 7.49 7.20 6.23 5.88 6.17
Cash dividends declared $ .10 .10 -- -- --
Balance sheet data:
Loans, net of unearned income $ 82,408 70,084 69,261 50,404 53,081
Deposits $132,889 116,380 122,145 108,710 111,942
Long-term debt and obligations
under capital leases $ 765 900 1,293 760 880
Total assets $144,879 128,389 133,206 118,304 126,818
Average shareholders' equity $ 9,817 8,854 7,873 7,578 8,159
Average assets $141,301 135,503 128,130 124,746 116,607
Ratios:
Net earnings (loss) to aerage
assets .46% .92 .55 (.31) .15
Net earnings (loss) to average
shareholders' equity 6.55% 14.15 8.90 (5.09) 2.10
Dividend payout ratio 20.83% 10.64 - - _
Average shareholders' equity to
average assets 6.95% 6.53 6.14 6.07 7.00
</TABLE>
RESULTS OF OPERATIONS
Net Interest Income
Net interest income represents the amount by which the income received
on interest-bearing 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 a tax rate of 34% for 1996, 1995, and 1994.
<TABLE>
<CAPTION>
Years ended
December 31,
1996 1995 1994
(amounts in thousands)
<S> <C> <C> <C>
Interest income $ 10,359 9,808 8,400
Tax-equivalent adjustment 37 50 101
Interest income, tax-equivalent basis 10,396 9,858 8,501
Interest expense (3,085) (2,982) (2,465)
Net interest income, tax- equivalent
basis 7,311 6,876 6,036
Provision for loan losses (65) (416) (735)
Noninterest income 4,060 4,136 4,633
Noninterest expense (10,247) (9,218) (9,106)
Earnings before income taxes 1,059 1,378 828
Income tax expense (379) (75) (26)
Tax-equivalent adjustment ( 37) (50) (101)
Income tax expense, tax- equivalent
basis (416) (125) (127)
Net earnings $ 643 1,253 701
</TABLE>
Net interest income on a fully taxable equivalent basis accounted for
64.3% of net interest income and noninterest income before any
provision for loan losses in 1996, 62.42% in 1995 and 56.6% in 1994.
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 $435,000 or
6.3% in 1996 as compared to 1995. The combination of stable interest
rates and a $1.9 million increase in the average excess of average
earning assets over average interest-bearing liabilities increased the
Company s net interest margin to 5.81% compared to 5.66% in 1995. The
strategic plan of the Company calls for a redeployment of the mix of
earning assets from lower to higher earning instruments. During 1996,
the average loan portfolio increased $5 million, while the average
investment securities portfolio remained relatively stable. Average
interest-bearing liabilities increased $2.7 million, although savings
and demand deposits decreased $341,000, while time deposits increased
$3 million.
In 1995, net interest income on a tax-equivalent basis increased
$840,000 or 14% as compared to 1994. The Company s net interest
margin increased to 5.66% in 1995 from 5.39% in 1994.
Provision for Loan Losses
The provision for loan losses is the charge to operating earnings that
management considers necessary to maintain an adequate allowance for
loan losses. In 1996, the provision for loan losses was $65,000, a
decrease of $352,000 from the provision of $417,000 for 1995. Due to
improvement in the credit quality of the loan portfolio, it was
determined by management that the current level of allowance for loan
losses was adequate. 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, 1996, the Company's
allowance for loan losses was approximately $1,441,000 or 1.75% as
compared to $1,566,000 or 2.23%, respectively, 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, future
additions to the allowance for loan losses 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 loan losses. Such agencies
may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of
their examination.
Noninterest Income
Noninterest income decreased approximately $76,000 or 1.8% from 1995
to 1996, the decrease is a result of $96,000 net gain on sale of
assets in 1995 compared to $19,000 in 1996.
Noninterest income decreased approximately $497,000 or 11% from 1994
to 1995 primarily as a result of a decrease in service charges on
deposit accounts. Lower account transaction volume for both retail
a n d 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.
Noninterest Expense
In 1996, noninterest expense increased $1 million or 11.2% to $10.2
million. The primary reasons for the increase were salaries and
employee benefits and other operating expenses.
Salaries and employee benefits, which represents the largest component
of noninterest expense (51.6%), increased $503,000 or 10.5%. This
increase is due to increases in the number of senior level officers,
staffing for system conversion, and normal salary adjustments.
Other operating expense increased $463,000 or 17.3% as compared to
1995. The increase is due to teller and other losses, director fees,
data processing due to the out-sourcing of the proof department and
other miscellaneous expenses.
In 1995, noninterest expense increased $112,000 or 1.2% as compared to
1994. The increase is primarily due to a $320,000 or 7.2% increase
in salaries and employee benefits as a result of increases in the
number of employees, medical claims and normal salary adjustments.
Net occupancy and equipment also increased by $76,000 or 4.5% as a
result of accelerated depreciation on existing computer equipment.
Other operating expense decreased $285,000 or 10% 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.
Income Taxes
At December 31, 1996, the Company s net deferred tax asset was
approximately $396,000. No valuation allowance was recorded for this
asset since it is more likely than not that future tax benefits of
such assets will be fully realized. The Company also has alternative
minimum tax credits of approximately $46,000 for Federal income tax
purposes that can be carried forward for an indefinite period.
In 1996, the Company recognized income tax expense of $379,000, or 37%
of its earnings before income taxes as compared to an income tax
expense of $75,000 and $26,000 in 1995 and 1994, respectively, or 5.6%
or 3.6%, respectively, of its earnings.
Recent Accounting Pronouncements
During 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. . This new standard, which becomes effective for
the Company on January 1, 1997, will require the Company to make
certain disclosures regarding its servicing assets and liabilities,
and may also effect the classification of certain servicing assets
and liabilities. Management does not expect this new standard to
have a material impact on the consolidated financial statements.
Liquidity
Liquidity management 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 Company to meet
those needs. In the normal course of business, the Company'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 Company continues to meet immediate
liquidity needs primarily through maintaining appropriate levels of
cash and due from banks and federal funds sold.
A t December 31, 1996, approximately 16% of the investment
securities portfolio has maturity dates within the next year and
approximately 61% after one but within the next five years. During
1996, federal funds sold averaged approximately $8 million, thereby
providing sufficient funds to meet immediate liquidity needs.
The Company is a member of the Federal Reserve System, the Federal
Home Loan Bank of Atlanta and maintains relationships with several
correspondent banks and, thus, could obtain funds on short notice,
if needed. 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
while net interest margins are maximized.
Capital Resources
The Company has maintained an adequate level of capital as measured
by its average shareholders' equity to average assets ratio of
approximately 6.95% and 6.53% in 1996 and 1995, respectively. At
December 31, 1996, the Company and the Bank's regulatory capital
was well above the required minimum amounts. See note 14,
Regulatory Matters to the Consolidated Financial Statements
included in another section of this Annual Report on Form 10-KSB.
The Company is restricted as to dividend payments to its
shareholders by certain covenants in its long-term debt agreement
and the Bank is restricted as to dividend payments to the Company
by certain regulatory requirements. See notes 7, 13, and 14 to the
consolidated financial statements included in another section of
this Annual Report on Form 10-KSB.
Regulatory Matters
The Bank entered into a Board Resolution dated March 15, 1995, with
the Georgia Department of Banking and Finance and the Federal
Reserve Bank of Atlanta (the Regulatory Authorities ) to take
corrective actions, which if not taken, could result in further
regulatory sanction. During 1996, the Regulatory Authorities
lifted the Board Resolution, and thus neither the Company nor the
Bank are under levels of regulatory scrutiny beyond that to which
all banks are subject.
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
a s set/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
(a) Previous independent accountants
(i) On September 3, 1996, Citizens Bancshares
dismissed KPMG Peat Marwick LLP as its independent accountants.
(ii) The reports of KPMG Peat Marwick LLP on the
financial statements for the past two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle.
(iii) The Registrant s Audit Committee participated in and
approved the decision to change independent accountants.
(iv) In connection with its audits for the two most
recent fiscal years through September 3, 1996, there have been no
disagreements with KPMG Peat Marwick LLP on any matter of
accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of KPMG Peat Marwick LLP would have caused them
to make reference thereto in their report on the financial
statements for such years.
(v) During the two most recent fiscal years and
through September 3, 1996, there have been no reportable events (as
defined in Regulation S-K Item 304(a)(1)(v)).
(vi) The Registrant has requested that KPMG Peat
Marwick LLP furnish it with a letter addressed to the SEC stating
whether or not it agrees with the above statements. A copy of such
letter, dated September 9, 1996 is filed as Exhibit 10.5 to this
Form 10-KSB.
(b) New independent accountants
(I) The Registrant engaged Porter Keadle Moore,
LLP as its new independent accountants as of September 3, 1996.
During the two most recent fiscal years and through September 3,
1996, the Registrant has not consulted with Porter Keadle Moore,
LLP on items which (1) were or should have been subject to SAS 50
or (2) concerned the subject matter of a disagreement or reportable
event with the former auditor, (as described in Regulation S-K Item
304(a)(2)).
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 April 30, 1997. 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 the Company and Principal
Herman J. Russell Chairman of the Board since 1980 and
(66) Director since 1972. Mr. Russell is
Chairman of the Board of H.J. Russell &
Co., a building construction, real
estate investment and wholesale building
supplies distributor. Mr. Russell is
also a director of Georgia Power Company
and Wachovia Corporation, First Union
Real Estate Equity and Mortgage
Investments and Georgia Port Authority.
William L. Gibbs Director since 1993. Mr. Gibbs is
(51) President and Chief Executive Officer of
the Bank and the Company.
William G. Anderson Director since 1993. Dr. Anderson is
(69) Associate Dean of Kirksville College of
Medicine, Michigan region. Dr. Anderson
has been a director of the Bank since
1974.
Thomas E. Boland Director since 1995. Retired. Former
(62) Chairman of the Board of Wachovia Bank
of Georgia. Since October, 1995, he has
been Special Counsel to the President of
Mercer University of Macon and Atlanta.
Johnnie L. Clark Director since 1982. Dr. Clark is a
(65) Certified Public Accountant, consultant,
and real estate developer. Previously, she
served as a Professor of Accounting at
Kennesaw State College.
Norris L. Connally Director since 1982. Retired.
(76) Mr. Connally was formerly employed by
Atlanta Life Insurance Co. as its Senior
Vice President/General Auditor.
Odie C. Donald Director since 1996. Mr. Donald is
(47) President of BellSouth Mobility, Inc., a
cellular telecommunications company,
since 1993. He has held various senior
management positions over fifteen years
at BellSouth Corporation.
H. Jerome Russell Director since 1993. Mr. Russell is
(34) President of H.J. Russell and Co., a
building construction, real estate
investment and wholesale building
supplies distributor, and has held this
position since October, 1994.
Previously, he served as President of
City Beverage Co., a beer distributor.
R.K. Sehgal Director since 1993. Mr. Sehgal is Vice
(56) Chairman and Chief Executive Officer of
H.J. Russell and Co., a building
construction, real estate investment and
wholesale building supplies distributor,
and has held this position since
December, 1996. He previously served as
President and Chief Executive Officer of
Williams Group, Inc.
Annette G. Petty Secretary since 1986. Assistant Vice
(56) President of the Bank and Secretary of
the Company.
Edward N. Williams Mr. Williams is Assistant Secretary of
(45) the Company and has held this position
since 1996. He is Senior Executive Vice
President and Chief Operating Officer of
the Bank and Secretary of the Bank since
1995.
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, 1996, all required reports were filed timely.
ITEM 10. EXECUTIVE COMPENSATION
The Company did not pay any remuneration to its officers in
1996. The following table provides compensation information with
respect to the President and Chief Executive Officer 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
1994, 1995 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation Compensation
<S> <C> <C> <C> <C> <C>
William L. Gibbs 1996 $141,943 $24,000 $ - $13,374
President and 1995 132,096 7,000 6,000 977
Chief Executive Officer 1994 116,000 - 12,000 911
Edward N. Williams 1996 $103,500 - - $16,451
Sr. Executive Vice
President and Chief
Operating Officer
</TABLE>
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 $3,799
in premiums in 1996. The Gibbs Employment Agreement also provides
that the Bank will provide Mr. Gibbs with an automobile and
with such health and disability insurance and other fringe benefits as
the Bank generally makes available to all its employees. The 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 the 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,
1997, and the ownership of the Company's Common Stock as of that
date by all directors and nominees 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 573,601
504 Fair Street, S.W. (43.1%)
Atlanta, Georgia 30313
William G. Anderson 32,713
24535 North Carolina (2.5%)
Southfield, Michigan 48075
Thomas E. Boland 500*
Mercer University
3001 Mercer University Dr.
Atlanta, Georgia 30341
Johnnie L. Clark 15,953
2794 Chaucer Drive, S.W. (1.2%)
Atlanta, Georgia 30311
Norris L. Connally 28*
3033 Continental Colony Pkwy.
#501
Atlanta, Georgia 30331
Odie C. Donald N/A
1100 Peachtree St., Suite 1000
Atlanta, Georgia 30309
William L. Gibbs 3,584*
120 View Hill Court
Atlanta, Georgia 30350
H. Jerome Russell 4,800*
504 Fair Street S.W
Atlanta, Georgia 30313
R. K. Sehgal 500*
55 Cliffside Crossing
Atlanta, Georgia 30338
Annette G. Petty 509*
1940 Penelope Street, N.W.
Atlanta, Georgia 30314
Edward N. Williams 200*
111 Clavin Way
Peachtree City, Georgia 30269
All directors and 632,388
officers as a group (47.6%)
(11persons)
* 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
s h areholders, 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
collectibility 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 Exhibit 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 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).
10.2 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).
10.3 Employment Agreement dated September 8, 1995, First
Amended and Restated between Citizens Trust Bank and
William L. Gibbs. (included as Exhibits 10.11 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 SunTrust, Atlanta dated April 22, 1996.
10.5 KPMG Peat Marwick LLP letter to the Securities and
Exchange Commission regarding statements listed in Item 8
of this Form 10-KSB dated September 9, 1996.
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).
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 , 1997
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 date 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 Executive
William L. Gibbs Officer and Director
(Principal Executive Officer)
/s/William G. Anderson Director
William G. Anderson
/s/Thomas E. Boland Director
Thomas E. Boland
/s/ Norris L. Connally Director
Norris L. Connally
/s/ Odie C. Donald Director
Odie C. Donald
/s/H. Jerome Russell Director
H. Jerome Russell
/s/ R.K. Sehgal Director
R.K. Sehgal
/s/ Ann I. Scott Controller (Principal Financial
Ann I. Scott Officer and Principal
Accounting Officer)
Date: March ____, 1997.
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
(included as Exhibit 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 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).
10.2 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).
10.3 Employment Agreement dated September 8, 1995,
First Amended and Restated between Citizens
Trust Bank and William L. Gibbs. (included as
Exhibits 10.11 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 44
Bancshares Corporation and SunTrust Bank,
Atlanta, dated April 22, 1996.
10.5 KPMG Peat Marwick LLP letter to the Securities 89
Exchange Commission regarding statements
listed in Item 8 of this Form 10-KSB dated
September 9, 1996.
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).
24 Power of Attorney for Directors included
herein after signature page.
27 Financial Data Schedule.
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Financial Statements
Index to Consolidated Financial Statements
Page
Citizens Bancshares Corporation and subsidiary:
Independent Auditors Report.......................................F-2
Consolidated Balance Sheets - December 31, 1996 and 1995..........F-3
Consolidated Statements of Operations for the Years ended
December 31, 1996, 1995, and 1994...................F-4
Consolidated Statements of Shareholders' Equity for
the Years ended December 31, 1996, 1995, 1994.......F-5
Consolidated Statements of Cash Flows for the Years
ended December 31, 1996, 1995, and 1994.............F-6
Notes to Consolidated Financial Statements........................F-8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Citizens Bancshares Corporation
We have audited the accompanying consolidated balance sheet of
Citizens Bancshares Corporation and subsidiary as of December 31,
1996 , and the related statements of earnings, changes in
stockholders equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company s
management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial
statements as of December 31, 1995 and for the two years in the
period then ended were audited by other auditors whose report dated
February 9, 1996 expressed an unqualified opinion on those financial
statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Citizens Bancshares Corporation and subsidiary as of
December 31, 1996, and the results of their operations and their
cash flows for the year then ended, in conformity with generally
accepted accounting principles.
PORTER KEADLE MOORE, LLP
Atlanta, Georgia
January 31, 1997
F-2
<TABLE>
<CAPTION>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets
1996 1995
<S> <C> <C> <C>
Cash and due from banks, including reserve
requirements of $2,165,000 and $2,488,000 $ 8,968,430 10,015,154
Federal funds sold 10,200,000 4,000,000
Cash and cash equivalents 19,168,430 14,015,154
Investment securities available for sale 13,269,047 9,064,320
Investment securities held to maturity 26,072,230 32,108,125
Loans, net 80,966,676 68,518,305
Premises and equipment, net 2,891,437 2,238,381
Other assets 2,510,788 2,444,514
$ 144,878,608 128,388,799
Liabilities and Stockholders Equity
Deposits:
Noninterest-bearing deposits $ 46,328,256 39,694,310
Interest-bearing deposits 86,560,487 76,685,242
Total deposits 132,888,743 116,379,552
Treasury, tax and loan account 116,415 172,801
Long-term debt 765,000 900,000
Accrued expenses and other liabilities 1,145,963 1,365,805
Total liabilities 134,916,121 118,818,158
Commitments
Stockholders equity:
Common stock - $1 par value; 5,000,000
shares authorized; 1,329,684 shares
issued and outstanding 1,329,684 1,329,684
Additional paid-in capital 1,470,210 1,470,210
Retained earnings 7,193,210 6,683,000
Unrealized (loss) gain on investment
securities available for sale, net of tax (30,617) 87,747
Total stockholders equity 9,962,487 9,570,641
$ 144,878,608 128,388,799
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<TABLE>
<CAPTION>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 7,048,133 6,415,508 5,232,136
Investment securities:
Taxable 2,805,944 2,751,717 2,617,378
Tax-exempt 77,052 112,646 227,710
Federal funds sold 427,763 527,748 322,895
Total interest income 10,358,892 9,807,619 8,400,119
Interest expense:
Deposits 2,990,421 2,888,047 2,342,621
Treasury, tax and loan account 6,696 14,315 26,195
Long-term debt 87,675 79,124 96,135
Total interest expense 3,084,792 2,981,486 2,464,951
Net interest income 7,274,100 6,826,133 5,935,168
Provision for loan losses 65,000 416,670 735,004
Net interest income after provision for
loan losses 7,209,100 6,409,463 5,200,164
Noninterest income:
Service charges on deposit accounts 3,745,993 3,771,170 4,060,090
Gain on sale of assets 19,042 96,360 114,529
Other operating income 294,886 268,537 458,565
Total noninterest income 4,059,921 4,136,067 4,633,184
Noninterest expense:
Salaries and employee benefits 5,286,500 4,783,799 4,463,468
Net occupancy and equipment 1,826,313 1,762,799 1,686,830
Other operating expenses 3,134,012 2,671,437 2,956,204
Total noninterest expense 10,246,825 9,218,035 9,106,502
Earnings before income taxes 1,022,196 1,327,495 726,846
Income tax expense 379,018 74,551 25,765
Net earnings $ 643,178 1,252,944 701,081
Net earnings per share $ 0.48 0.94 0.53
Weighted average outstanding shares 1,329,684 1,329,684 1,329,684
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<TABLE>
<CAPTION>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders Equity
For the Years Ended December 31, 1996, 1995 and 1994
Unrealized
gain (loss) on
Additional investment
Common stock paid-in Retained securities
Shares Amount capital earnings available for sale Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,303,655 $ 1,303,655 1,366,094 4,992,088 - 7,661,837
Cumulative effect of change
in accounting principle,
net of tax - - - - 40,920 40,920
Net earnings - - - 701,081 - 701,081
Common stock dividend declared - 2% 26,029 26,029 104,116 (130,145) - -
Change in unrealized gain (loss)
on investment securities
available for sale, net of tax - - - - (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 gain (loss)
on investment securities
available for sale, net of tax - - - - 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
Net earnings - - - 643,178 - 643,178
Dividends paid - $0.10 per share - - - (132,968) - (132,968)
Change in unrealized gain (loss)
on investment securities
available for sale, net of tax - - - - (118,364) (118,364)
Balance, December 31, 1996 1,329,684 $ 1,329,684 1,470,210 7,193,210 (30,617) 9,962,487
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<TABLE>
<CAPTION>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 643,178 1,252,944 701,081
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Provision for loan losses 65,000 416,670 735,004
Depreciation 685,436 643,611 460,100
Amortization and accretion (76,997) (244,233) (61,906)
Provision for deferred income taxes 179,070 (213,730) (211,499)
Gain on sale of assets (19,042) (96,360) (114,529)
Change in other assets (327,022) (148,486) 17,236
Change in accrued expenses and other
liabilities (219,842) 309,156 201,813
Net cash provided by operating activities 929,781 1,919,572 1,727,300
Cash flow from investing activities:
Proceeds from maturities of investment
securities held to maturity 12,557,117 12,828,965 24,409,192
Proceeds from maturities of investment
securities available for sale 2,204,200 3,550,000 4,000,000
Purchases of investment securities
held to maturity (6,500,200) (8,260,943)(19,422,825)
Purchases of investment securities
available for sale (6,574,413) (5,218,435) (2,483,147)
Purchases of loans - - (11,097,636)
Net change in loans (12,603,287) (667,590) (9,074,817)
Purchases of premises and equipment (1,347,892) (456,973) (1,074,324)
Proceeds from sale of premises and equipment 9,400 100,000 -
Proceeds from sale of real estate acquired
through foreclosure 293,733 689,683 1,593,340
Net cash (used) provided by
investing activities (11,961,342) 2,564,707 (13,150,217)
Cash flows from financing activities:
Net change in deposits 16,452,805 (6,017,990) 13,543,777
Principal payments on long-term debt (135,000) (393,223) (367,055)
Proceeds from long-term debt - - 900,000
Dividends paid (132,968) (132,968) -
Net cash provided by financing activities 16,184,837 (6,544,181) 14,076,722
Net change in cash and cash equivalents 5,153,276 (2,059,902) 2,653,805
Cash and cash equivalents at beginning
of year 14,015,154 16,075,056 13,421,251
Cash and cash equivalents at end of year $ 19,168,430 14,015,154 16,075,056
</TABLE>
F-6
<TABLE>
<CAPTION>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C> <C>
Supplemental disclosures of cash paid during
the year for:
Interest $ 2,922,016 2,912,000 2,343,000
Income taxes $ 493,000 159,000 141,000
Supplemental disclosure of noncash
investing transactions:
Real estate acquired through foreclosure $ 186,962 36,000 686,000
Investment securities held to maturity
transferred to available for sale $ - - 8,746,430
Change in unrealized (loss) gain
on investment securities available
for sale, net of tax $ (118,364) 165,210 118,383
</TABLE>
See accompanying notes to consolidated financial statements
F-7
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The following is a description of the more significant
accounting policies.
Business
Citizens Bancshares Corporation and subsidiary (the Company )
is a one-bank holding company that provides a full range of
c o mmercial 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. The Bank has a
w h olly 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.
Basis of Presentation
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and
with general practices within the banking industry. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts in the consolidated financial statements.
Actual results could differ significantly from those estimates.
A material estimate common to the banking industry that is
particularly susceptible to significant change in the near term
is the allowance for loan losses.
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 classifies investments in one of three categories:
held to maturity securites 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
c o mponent of stockholders equity. The Company had no
investment securities classified as trading securities during
1996 and 1995.
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 market value of any security
below cost that is deemed other than temporary is charged to
earnings resulting in the establishment of a new cost basis for
the security.
Loans and Allowance for Loan Losses
Loans are reported at principal amounts outstanding less
unearned income and the allowance for 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
loan purchased.
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 impaired loans is generally recognized on the cash basis.
The allowance for 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.
Management believes the allowance for loan losses is adequate.
While management uses available information to recognize losses
on loans, future additions to the allowance 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 loan losses. Such agencies
may require the Company to recognize additions to the allowance
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 which is computed using the straight-line method
over the estimated useful lives of the related assets. When
assets are retired or otherwise disposed, the cost and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in earnings for the period.
The cost of maintenance and repairs which do not improve or
extend the useful life of the respective asset is charged to
earnings as incurred, whereas significant renewals and
improvements are capitalized. The range of estimated useful
lives for premises and equipment are generally as follows:
Buildings and improvements 5 - 20 years
Furniture and equipment 3 - 7 years
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.
Intangible Assets
Intangible assets includes deposit assumption premiums from the
purchase of certain assets and liabilities of a financial
institution during 1994. The deposit assumption premiums are
being amortized over five years, the estimated average life of
the deposit base acquired, using the straight-line method.
Income Taxes
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 the assets and
liabilities are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income tax expense in the period that includes
the enactment date.
In the event the future tax consequences of differences between
the financial reporting bases and the tax bases of the
Company s assets and liabilities result in deferred tax assets,
an evaluation of the probability of being able to realize the
future benefits indicated by such assets is required. A
valuation allowance is provided for the portion of a deferred
tax asset when it is more likely than not that some portion or
all of the deferred tax asset will not be realized. In
assessing the realizability of the deferred tax assets,
management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning
strategies.
Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform
to the 1996 presentation.
Recent Accounting Pronouncements
During 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 125 Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This new standard, which
becomes effective for the Company on January 1, 1997, will
require the Company to make certain disclosures regarding its
servicing assets and liabilities, and may also affect the
classification of certain servicing assets and liabilities.
Management does not expect this new standard to 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
$275,000 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 approximately $11 million in one-to-four
family residential mortgages. At December 31, 1996 and 1995,
t h e unamortized premium was approximately $126,000 and
$181,000, respectively.
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. 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.
(3) Investment Securities
Investment securities held to maturity are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
At December 31, 1996: Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S Treasury and
U.S. Government agencies $ 15,677,378 14,457 158,044 15,533,791
Mortgage-backed securities 9,525,145 166,717 101,364 9,590,498
State, county, and municipal
securities 869,707 43,035 - 912,742
Totals $ 26,072,230 224,209 259,408 26,037,031
At December 31, 1995:
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>
Investment securities available for sale are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
At December 31, 1996: Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S Treasury and
U.S Government agencies $ 12,684,485 37,407 83,796 12,638,096
Other equity securities 630,951 - - 630,951
Totals $ 13,315,436 37,407 83,796 13,269,047
At December 31, 1995:
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>
The amortized costs and fair values of investment securities at
December 31, 1996, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
b e cause 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
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $1,180,212 1,181,097 4,496,497 4,518,708
Due after one year through
five years 15,366,873 15,265,436 4,989,719 4,976,790
Due after five years
through ten years - - 3,198,269 3,142,598
Mortgage-backed securities 9,525,145 9,590,498 - -
Other equity securities - - 630,951 630,951
$26,072,230 26,037,031 13,315,436 13,269,047
</TABLE>
There were no sales of securities in 1996, 1995 or 1994.
Investment securities with carrying values of approximately
$34,373,000 and $26,493,000 at December 31, 1996 and 1995 ,
respectively, were pledged to secure public funds on deposit and for
other purposes as required by law.
Upon adoption of SFAS No. 115 in 1994, the Company transferred
$8,746,430 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 a n addition to
stockholders equity of $40,920 which represents $62,000 of
unrealized gains, net of deferred taxes of $21,080.
<TABLE>
<CAPTION>
(4) Loans
Loans outstanding, by classification, are summarized as
follows:
December 31,
1996 1995
<S> <C> <C>
Commercial, financial, and agricultural $ 13,727,346 11,002,816
Installment and single payment individual 13,850,289 7,782,645
Real estate - commercial 31,114,851 29,772,443
Real estate - residential 22,064,124 19,208,954
Real estate - construction 1,830,000 2,543,379
82,586,610 70,310,237
Less: Unearned income 178,803 225,792
Allowance for loan losses 1,441,131 1,566,140
$ 80,966,676 68,518,305
</TABLE>
A substantial portion of the Company s loan portfolio is
collateralized by real estate in metropolitan Atlanta.
Accordingly, the ultimate collectibility of a substantial
portion of the Company s loan portfolio is susceptible to
changes in market conditions in the metropolitan Atlanta area.
<TABLE>
<CAPTION>
Activity in the allowance for loan losses are summarized as
follows:
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 1,566,140 1,047,072 941,671
Provision 65,000 416,670 735,004
Loans charged off (423,676) (335,711)(1,200,700)
Recoveries on loans previously
charged off 233,667 438,109 571,097
Balance at end of year $ 1,441,131 1,566,140 1,047,072
</TABLE>
<TABLE>
<CAPTION>
Nonaccrual loans amounted to $1,286,000 and $1,261,000 at December
31, 1996 and 1995, respectively, and the interest income on the
nonaccrual loans which would have been reported for the years ended
December 31, 1996, 1995 and 1994 is summarized as follows:
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Interest at contracted rate $ 83,000 91,000 182,000
Interest recorded as income (10,000) - (16,000)
Reduction of interest income $ 73,000 91,000 166,000
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans that
are considered to be impaired was approximately $1,959,000 and
$2,051,000, respectively. The related allowance for loan losses for
each of these loans was approximately $302,000 and $308,000,
respectively. The average investment in impaired loans during 1996
was approximately $2,000,000.
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
1996:
Balance at December 31, 1995 $ 803,000
New loans 1,723,000
Repayments (589,000)
Balance at December 31, 1996 $1,937,000
(5) Premises and Equipment
Premises and equipment are summarized as follows:
December 31,
1996 1995
Land $ 389,610 388,653
Buildings and improvements 1,578,301 1,440,499
Furniture and equipment 3,607,580 3,405,529
5,575,491 5,234,681
Less accumulated depreciation 2,684,054 2,996,300
$ 2,891,437 2,238,381
Depreciation expense totaled $685,436, $643,611 and $460,100
for the years ended December 31, 1996, 1995 and 1994,
respectively.
<TABLE>
<CAPTION>
(6) Deposits
The following is a summary of interest-bearing deposits:
1996 1995
<S> <C> <C>
NOW and money market accounts $ 24,258,804 29,866,212
Savings accounts 14,440,873 15,076,236
Time deposits of $100,000 or more 28,808,299 13,632,486
Other time deposits 19,052,511 18,110,308
$ 86,560,487 76,685,242
</TABLE>
At December 31, 1996, maturities of time deposits are
approximately as follows:
Years ended December 31,
1997 $ 43,916,000
1998 1,754,000
1999 495,000
2000 1,478,000
2001 and thereafter 218,000
$ 47,861,000
Additionally, at December 31, 1996, demand deposits totaling
approximately $164,500 have been reclassified as loan balances,
and the Bank has deposits from related parties totaling
approximately $471,000.
(7) Long-Term Debt
Long-term debt at December 31, 1996 consists of a term loan
payable to a bank. The loan accrues interest at prime less
0.25% and interest is payable quarterly. Principal is payable
in quarterly installments of $45,000 beginning June 30, 1996
and through March 31, 2001. The loan is collateralized by a
pledge of the common stock of the Bank.
The loan agreement contains certain covenants, the most
restrictive of which relate to limitations on dividend
payments, additional debt, and capital expenditures, and to
minimum capital levels of the Company and the Bank, as well as
certain financial ratios. At December 31, 1996, the Company was
in violation of certain of these covenants and has obtained a
waiver from the bank through 1997 for these violations.
Long-term debt at December 31, 1995 consisted of a $900,000
note payable to the Resolution Trust Corporation. The note bore
a variable interest rate and matured April 22, 1996. The note
was collateralized by all of the common stock of the Bank.
<TABLE>
<CAPTION>
(8) Income Taxes
The components of income tax expense consist of:
1996 1995 1994
<S> <C> <C> <C>
Federal:
Current tax expense $ 199,948 288,281 237,264
Deferred tax expense (benefit) 179,070 (213,730) (211,499)
$ 379,018 74,551 25,765
</TABLE>
<TABLE>
<CAPTION>
Income tax expense for the years ended December 31, 1996, 1995
and 1994 differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% to earnings before income
taxes as follows:
1996 1995 1994
<S> <C> <C> <C>
Income tax expense at statutory rate 347,547 451,348 247,128
Tax-exempt interest income, net of
disallowed interest expense (24,196) (40,662) (73,939)
Utilization of alternative minimum
tax credits - (129,908) -
Change in the valuation allowance
for deferred tax assets (76,000) (211,000) (155,222)
Other, net 131,667 4,773 7,798
Income tax expense $ 379,018 74,551 25,765
</TABLE>
(8) Income Taxes, continued
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities are presented below:
1996 1995
Deferred tax assets:
Loans, principally due to difference in
allowance for loan losses and
deferred loan fees $ 262,106 303,000
Alternative minimum tax credit 45,722 196,000
Postretirement benefit accrual 61,971 46,000
Net unrealized loss on securities
available for sale 15,772 -
Premium paid in acquisition 33,978 21,000
Other 11,144 120,000
Total gross deferred tax assets 430,693 686,000
Less valuation allowance - 76,000
Net deferred tax assets 430,693 610,000
Deferred tax liabilities:
Premises and equipment, principally
due to difference in depreciation 32,905 51,000
Net unrealized gain on securities
available for sale - 45,000
Other 2,136 -
Total gross deferred liabilities 35,041 96,000
Net deferred tax assets $ 395,652 514,000
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 and tax
planning strategies in making this assessment.
The Company s alternative minimum tax credits can be carried
forward for an indefinite period. The Company also has, at
December 31, 1996, net operating loss carryforwards of
approximately $17,165,000 for state income tax purposes, which
expire in years 1999 through 2011, and state income tax credits
of approximately $249,000 which expire in years 1997 through
2001.
(9) Employee Benefits
Pension Plan
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 expense was $36,469 and $116,644 for 1995 and 1994,
respectively.
Defined Contribution Plan
The Company sponsors a defined contribution 401(k) plan
c o vering substantially all full-time employees. Employee
contributions are voluntary. The Company matches employee
contributions at 25% up to a maximum of 6% of compensation.
During the years ended December 31, 1996, 1995 and 1994, the
Company recognized $37,690, $31,735 and $14,611, respectively,
in expense related to this plan.
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 consolidated balance
sheets at December 31, 1996 and 1995:
1996 1995
Accumulated postretirement benefit
obligation $ (302,601) (320,492)
Unrecognized transition obligation 272,772 288,817
Unrecognized prior service cost (125,267) (132,226)
Unrecognized actuarial (gain)loss (31,198) 27,106
Accrued postretirement benefit cost
included in other liabilities $ (186,294) (136,795)
Net periodic postretirement benefit cost includes the
following components:
Years Ended December 31,
1996 1995 1994
Service cost $ 26,805 12,322 23,994
Interest cost 21,976 18,221 24,093
Net amortization 9,328 7,472 12,414
Net periodic postretirement
benefit cost $ 58,109 38,015 60,501
For measurement purposes, an 8% annual rate of increase in the
per capita cost of covered benefits (i.e., health care cost
trend rate) was assumed for 1997; 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
w e ighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% at
January 1, 1997 and 7% at January 1, 1996.
(10) Commitments and Contingencies
The Company is a party to financial instruments with
off-balance sheet risk in the normal course of business to meet
t h e 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,
1996, the Company had approximately $12,503,000 and $1,126,000
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
d o not necessarily represent future cash requirements.
Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and residential and
c o m mercial real estate. Standby letters of credit are
commitments issued by the Company to guarantee the performance
of a customer to a third party.
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.
During 1996, a bonus of $24,000 was accrued and paid pursuant
to this agreement. No bonuses were accrued or paid under the
provisions of the agreement for the years ended December 31,
1995 and 1994.
As of December 31, 1996, future minimum lease payments under
all noncancelable lease agreements inclusive of sales tax and
maintenance costs for the next five years are as follows:
Years ended December 31,
1997 $ 305,043
1998 297,375
1999 279,188
2000 267,408
2001 10,084
$ 1,159,098
Rent expense in 1996, 1995 and 1994 approximated $252,000,
$254,000 and $254,000, 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, 1996 for the next five years are as
follows:
Years ended December 31,
1997 $ 89,775
1998 97,125
1999 101,800
2000 101,800
2001 101,800
Thereafter 1,150,392
$ 1,642,692
License fee expense associated with these agreements for 1996,
1995 and 1994 amounted to $89,000, $125,000 and $231,000,
respectively.
The Company and the Bank 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) Stockholders Equity
On December 21, 1994, the Board of Directors approved a 2%
stock dividend payable on January 3, 1995. All weighted average
s h a r e 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
Following are disclosures 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. The assumptions used in the estimation of the fair
values are based on estimates using discounted cash flows and
other valuation techniques. The use of discounted cash flows
c a n be significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
The following disclosures should not be considered a surrogate
of the liquidation value of the Company, but rather a
good-faith estimate of the increase or decrease in value of
financial instruments held by the Company since purchase,
origination, or issuance.
Cash and Cash Equivalents
For cash, due from banks and federal funds sold, the
carrying amount is a reasonable estimate of fair value.
Investment Securities
Fair value of investment securities are based on quoted
market prices.
Loans
The fair value of fixed rate loans is estimated by
discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar
credit ratings. For variable rate loans, the carrying amount
is a reasonable estimate of fair value.
Deposits
The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed
maturity certificates of deposit is estimated by discounting
the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
Long-term Debt
Since the term loan bears a reasonable variable interest
rate, the carrying value approximates fair value.
Commitments to Extend Credit and Standby Letters of Credit
Because commitments to extend credit and standby letters of
credit are made using variable rates, the contract value is
a reasonable estimate of fair value.
Limitations
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
significant portion of the Company s financial instruments,
fair value estimates are based on many judgments. These
estimates are subjective in nature and involve 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; for example, premises and equipment.
I n a ddition, 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 the estimates.
<TABLE>
<CAPTION>
The carrying value and estimated fair value of the Company s
financial instruments at December 31, 1996 and 1995 are as
follows:
1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 8,968 8,968 10,015 10,015
Federal funds sold $ 10,200 10,200 4,000 4,000
Investment securities $ 39,341 39,306 41,172 41,402
Loans, net $ 80,967 78,958 68,518 68,891
Financial liabilities:
Deposits $ 132,889 132,995 116,370 116,339
Long-term debt $ 765 765 900 900
Off-balance-sheet financial
instruments:
Commitments to extend credit $ 12,503 12,503 2,750 2,750
Stand-by letters of credit $ 1,126 1,126 555 555
</TABLE>
(13) Condensed Financial Information Of Citizens Bancshares
Corporation (Parent Only)
Condensed Balance Sheets
December 31,
Assets: 1996 1995
Cash $ 12,298 16,738
Investment in the Bank, at equity 10,658,711 10,438,364
Other assets 56,478 28,061
$ 10,727,487 10,483,163
Liabilities and Stockholders Equity:
Liabilities:
Long-term debt $ 765,000 900,000
Accrued interest payable - 12,522
765,000 912,522
Stockholders' equity:
Common stock 1,329,684 1,329,684
Additional paid-in capital 1,470,210 1,470,210
Retained earnings 7,193,210 6,683,000
Unrealized (loss) gain on investment
securities available for sale,
net of tax (30,617) 87,747
Total stockholders' equity 9,962,487 9,570,641
$ 10,727,487 10,483,163
Condensed Statements of Earnings
For the Years Ended December 31,
1996 1995 1994
Dividend from the Bank $ 381,484 450,000 300,000
Expenses:
Interest 63,017 60,464 51,620
Other 53,675 45,633 39,754
Total expenses 116,692 106,097 91,374
Earnings before income tax
benefit and equity in
undistributed earnings
of the Bank 264,792 343,903 208,626
Income tax benefit 39,675 23,786 18,275
Earnings before equity in
undistributed earnings of
the Bank 304,467 367,689 226,901
Equity in undistributed earnings
of the Bank 338,711 885,255 474,180
Net earnings $ 643,178 1,252,944 701,081
Condensed Statements of Cash Flows
For the Years Ended December 31,
1996 1995 1994
Cash flows from operating activities:
Net earnings $ 643,178 1,252,944 701,081
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Equity in undistributed earnings
of the Bank (338,711) (885,255) (474,180)
Change in other assets (28,417) (23,786) (4,275)
Change in other liabilities (12,522) 1,271 11,251
Net cash provided by operating
activities 263,528 345,174 233,877
Cash flows from investing activities
- capital contribution to Bank - - (900,000)
Cash flows from financing activities:
Proceeds from long-term debt - - 900,000
Payment on long-term debt (135,000) (225,000) (225,000)
Dividends paid (132,968) (132,968) -
Net cash (used) provided by
financing activities (267,968) (357,968) 675,000
Net change in cash (4,440) (12,794) 8,877
Cash at beginning of year 16,738 29,532 20,655
Cash at end of year $ 12,298 16,738 29,532
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 75,539 59,193 40,369
Income taxes $ 493,000 159,000 141,000
Noncash investing activities:
Change in Bank s unrealized
(loss) gain on investment securities
available for sale, net of tax $ (118,364) 165,210 (118,383)
(14) Regulatory Matters
Capital Adequacy
The Company is subject to various regulatory capital
req uirements administered by state and federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken,
could have a direct material effect on the Company s financial
stat ements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company
must meet specific capital guidelines that involve quantitative
measures of the Company s assets, liabilities, and certain
off - balance-sheet items as calculated under regulatory
accounting practices. The Company s capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company to maintain minimum
amounts and ratios (set forth in the table below) of total and
Tier 1capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of
December 31, 1996, that the Company meets all capital adequacy
requirements to which it is subject.
As of December 31, 1996 the most recent notification from the
various regulators categorized the Company as well capitalized
under the regulatory framework for prompt corrective action. To
be categorized as well capitalized the Company must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the table. There are no conditions or
events since that notification that management believes have
changed the institution s category.
The Company' s actual capital amounts and ratios are also
presented in the table
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to Risk
Weighted Assets):
Consolidated $ 11,002 12% 7,228 >= 8% N/A N/A
Bank $ 11,699 13% 7,227 >= 8% 9,033 >= 10%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $ 9,867 11% 3,614 >= 4% N/A N/A
Bank $ 10,564 12% 3,613 >= 4% 5,420 >= 6%
Tier 1 Capital (to
Average Assets):
Consolidated $ 9,867 7% 5,652 >= 4% N/A N/A
Bank $ 10,564 7% 5,651 >= 4% 7,064 >= 5%
As of December 31, 1995
Total Capital (to Risk
Weighted Assets):
Consolidated $ 10,238 14% 5,978 >= 8% N/A N/A
Bank $ 11,106 15% 5,978 >= 8% 7,473 >= 10%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $ 9,302 12% 2,989 >= 4% N/A N/A
Bank $ 10,170 14% 2,989 >= 4% 4,484 >= 6%
Tier 1 Capital (to
Average Assets):
Consolidated $ 9,302 7% 5,420 >= 4% N/A N/A
Bank $ 10,170 8% 5,420 >= 4% 6,775 >= 5%
</TABLE>
Board Resolution
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. During 1996, the Regulatory Authorities
lifted the Board Resolution and thus neither the Company nor
the Bank are under levels of regulatory scrutiny beyond that to
which all banks are subject.
Dividend Limitation
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
requires prior approval for a bank to pay dividends in excess
of 50% of its prior year s earnings. The amount of dividends
available from the Bank for payment in 1997 is approximately
$320,000.
(15) Supplementary Income Statement Information
Components of other operating expenses in excess of 1% of total
income in any of the respective years are approximately as
follows:
1996 1995 1994
Professional services legal $ 262,000 219,000 225,000
Professional services - other 198,000 179,000 162,000
Stationery and supplies 254,000 179,000 226,000
Advertising 147,000 152,000 118,000
Data processing 201,000 135,000 187,000
Postage 147,000 195,000 158,000
Telephone 216,000 157,000 185,000
FDIC insurance premiums 77,000 185,000 276,000
Other losses 471,000 217,000 352,000
TERM LOAN AGREEMENT
$900,000.00
By and Between
CITIZENS BANCSHARES CORPORATION
and
SUNTRUST BANK, ATLANTA
Dated: April 22, 1996
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . 1
Section 1.01. Defined Terms. . . . . . . . . . . . 1
Section 1.02. Accounting Terms. . . . . . . . . . . .3
ARTICLE II
AMOUNT AND TERMS OF THE LOAN . . . . . . . . . . . . .3
Section 2.01. Term Loan. . . . . . . . . . . . . . . 3
Section 2.02. Interest. . . . . . . . . . . . . . . . 4
Section 2.03. Term Note. . . . . . . . . . . . . . . 4
Section 2.04. Method of Payment. . . . . . . . . . . 4
Section 2.05. Use of Proceeds. . . . . . . . . . . . 4
ARTICLE III
FUNDING . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.01. FUNDING. . . . . . . . . . . . . . . 4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . 5
Section 4.01. Incorporation, Good Standing,
and Due Qualification. . . . . . . 5
Section 4.02. Corporate Power and Authority. . . 5
Section 4.03. Legally Enforceable Agreement. . . . . 6
Section 4.04. Financial Statements. . . . . . . . . . 6
Section 4.05. Labor Disputes and Acts of God. . . . . 6
Section 4.06. Other Agreements. . . . . . . . . . . 6
Section 4.07. Litigation. . . . . . . . . . . . . . 6
Section 4.08. No Defaults on Outstanding
Judgments or Orders. . . . . . . . . . 6
Section 4.09. Ownership and Liens. . . . . . . . . 6
Section 4.10. Subsidiaries and Ownership of Stock. 7
Section 4.11. ERISA. . . . . . . . . . . . . . . . . 7
Section 4.12. Operation of Business. . . . . . . . . 7
Section 4.13. Taxes. . . . . . . . . . . . . . . . 7
Section 4.14. Absence of Undisclosed Liabilities. . . 7
Section 4.15. Governmental Approval . . . . . . . . 7
Section 4.16. Regulatory Compliance and Notice of
Regulatory Action . . . . . . . . . . . 7
Section 4.17. Securities Activities. . . . . . . . . 8
Section 4.18. Deposit Insurance. . . . . . . . . . . 8
Section 4.19. Investment Portfolio. . . . . . . . . . 8
Section 4.20. Adversely Classified Assets. . . . . . 8
Section 4.21. Reserves. . . . . . . . . . . . . . . . 8
Section 4.22. Loan Delinquencies. . . . . . . . . . . 8
ARTICLE V
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . 9
Section 5.01. Use of Proceeds. . . . . . . . . . . 9
Section 5.02. Maintenance of Existence. . . . . . . . 9
Section 5.03. Maintenance of Records. . . . . . . . . 9
Section 5.04. Maintenance of Properties. . . . . . . 9
Section 5.05. Conduct of Business. . . . . . . . . . 9
Section 5.06. Maintenance of Insurance. . . . . . . . 9
Section 5.07. Compliance with Laws. . . . . . . . . . 9
Section 5.08. Right of Inspection. . . . . . . . . . 9
Section 5.09. Deposit Insurance. . . . . . . . . . . 9
Section 5.10. Reporting Requirements. . . . . . . . . 9
Section 5.11. Environment. . . . . . . . . . . . . 11
Section 5.12. Composite Rating. . . . . . . . . . 11
Section 5.13. Capital Adequacy. . . . . . . . . . . 11
ARTICLE VI
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 12
Section 6.01. Liens. . . . . . . . . . . . . . . . 12
Section 6.02. Debt. . . . . . . . . . . . . . . . . 12
Section 6.03. Mergers, Acquisitions, Etc. . . . . . 13
Section 6.04. Leases. . . . . . . . . . . . . . . . 13
Section 6.05. Sale and Leaseback. . . . . . . . . . 13
Section 6.06. Dividends. . . . . . . . . . . . . . 13
Section 6.07. Sale of Assets. . . . . . . . . . . . 13
Section 6.08. Guaranties, Etc. . . . . . . . . . . 13
Section 6.09. Transactions with Affiliates. . . . . 13
ARTICLE VII
FINANCIAL COVENANTS . . . . . . . . . . . . . . . 14
Section 7.01. Capital Expenditures. . . . . . . . . 14
Section 7.02. Borrower Capital. . . . . . . . . . . 14
Section 7.03. Subsidiary Capital. . . . . . . . . . 14
Section 7.04. Return on Assets. . . . . . . . . . . 14
Section 7.05. Return on Equity. . . . . . . . . . . 14
Section 7.06. . . . . . . . . . . . . . . . . . . . 14
Loan Delinquencies. . . . . . . . . . . . . . . . . 14
Section 7.07. Reserves. . . . . . . . . . . . . . . 14
Section 7.08. Asset Quality. . . . . . . . . . . 14
ARTICLE VIII
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 14
Section 8.01. Events of Default. . . . . . . . . . 14
Section 8.02. Remedies upon Event of Default. . . . 16
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 17
Section 9.01. Amendments, Etc. . . . . . . . . . . 17
Section 9.02. Notices, Etc. . . . . . . . . . . . . 17
Section 9.03. No Waiver. . . . . . . . . . . . . . 18
Section 9.04. Successors and Assigns. . . . . . . . 18
Section 9.05. Costs, Expenses, and Taxes. . . . . . 18
Section 9.06. Integration. . . . . . . . . . . . . 18
Section 9.07. Indemnity. . . . . . . . . . . . . . 18
Section 9.08. Governing Law. . . . . . . . . . . . 18
Section 9.09. Severability of Provisions. . . . . . 18
Section 9.10. Participations. . . . . . . . . . . . 18
Section 9.11. Headings. . . . . . . . . . . . . . . 19
Section 9.12. Jury Trial Waiver. . . . . . . . . . 19
EXHIBITS
Exhibit Title Referenced Under
A Banks Section 1.01
B Collateral Section 1.01
C Security Agreement Section 1.01
D Term Note Section 2.03
E Opinion of Counsel for Borrower Section 3.01
F Officer's Certificate Section 3.01
G Litigation Section 4.07
H Certificate of No Default Section 5.10
I Permitted Liens Section 6.01
J Permitted Debt Section 6.02
i
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (the "Agreement") dated as of
April 22, 1996 between CITIZENS BANCSHARES CORPORATION, a
Georgia corporation, whose principal place of business is at 75
Piedmont Avenue, Atlanta, Georgia 30303 (the "Borrower") and
SUNTRUST BANK, ATLANTA, a Georgia banking corporation whose
principal place of business is at 25 Park Place, Atlanta, Georgia
30303 (the "Lender"). The parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Defined Terms. As used in this
Agreement, the following terms have the following meanings (terms
defined in the singular to have same meaning when used in the
plural and vice versa):
"Affiliate" means any Person (1) which directly or
indirectly controls, or is controlled by, or is under common
control with Borrower or a Subsidiary; (2) which directly or
indirectly beneficially owns or holds five percent (5.0%) or more
of any class of voting stock of Borrower or any Subsidiary; or
(3) five percent (5.0%) or more of the voting stock of which is
directly or indirectly beneficially owned or held by Borrower or
a Subsidiary. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of
the management and policies of a Person whether through the
ownership of voting securities, by contract, or otherwise.
"Agreement" means this Term Loan Agreement, as amended,
supplemented, or modified from time to time.
"Bank" means each Subsidiary of Borrower that is listed
on Exhibit A, attached hereto and incorporated herein, which is a
banking association or banking corporation organized under either
the laws of the United States or of a state in the United States.
"Business Day" means any day other than a Saturday,
Sunday, or other day on which commercial banks in Georgia are
authorized or required to close under the laws of the State of
Georgia.
"Call Reports" means, with respect to any Bank, such
Bank's Consolidated Reports of Condition and Income filed with
such Bank's applicable federal Regulatory Authority.
"Capital Lease" means all leases which have been or
should be capitalized on the books of the lessee in accordance
with generally accepted accounting principles.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations and published
interpretations thereof.
"Collateral" means all property which is subject to the
Lien granted by any Loan Document, including, without limitation,
the real and personal property identified and described on
Exhibit B attached hereto and incorporated herein.
"Commitment" means Lender's obligation to make Loans to
Borrower pursuant to Section 2.01 in the amount referred to
therein.
"Commonly Controlled Entity" means an entity, whether
or not incorporated, which is under common control with Borrower
within the meaning of Section 414(b) or 414(c) of the Code.
"Debt" means (1) indebtedness or liability of Borrower
or any Subsidiaries for borrowed money; (2) obligations of
Borrower or any Subsidiaries evidenced by bonds, debentures,
notes, or other similar instruments; (3) obligations of Borrower
or any Subsidiaries for the deferred purchase price of property
or services (including trade obligations); (4) obligations of
Borrower or any Subsidiaries as lessee under Capital Leases; (5)
liabilities of Borrower or any Subsidiaries in respect of
unfunded vested benefits under Plans covered by ERISA; (6) all
guarantees, endorsements (other than for collection or deposit in
the ordinary course of business), interest rate swaps, and other
contingent obligations of Borrower or any Subsidiaries to
purchase, to provide funds for payment, to supply funds to invest
in any Person or entity, or otherwise to assure a creditor
against loss (except loans or letters of credit made or issued in
the ordinary course of business); and (7) obligations of Borrower
or any Subsidiaries, other than obligations as a lender, secured
by any Liens, whether or not the obligations have been assumed.
The term "Debt" does not include any deposit liabilities of any
Bank.
" Double Leverage Ratio" means the ratio of the
aggregate investment of Borrower in the capital notes and capital
stock of its Subsidiaries, including its interest in
undistributed earnings and intangibles (determined in accordance
with GAAP) of its Subsidiaries, to consolidated net worth of
Borrower.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
and published interpretations thereof.
"Event of Default" means any of the events specified in
Section 8.01, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has
been satisfied.
"GAAP" means generally accepted accounting principles
in the United States.
"Governmental Authority" means any nation or
government, any state or political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory,
or administrative functions of or pertaining to government.
" Lien" means any charge, encumbrance, security
interest, or right in property of Borrower or its Subsidiaries
created by any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), or preference, priority,
or other security agreement or preferential arrangement, charge,
or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same
economic effect as of the foregoing, or the filing of any
f i nancing statement under the Uniform Commercial Code or
comparable law of any jurisdiction to evidence any of the
foregoing).
"Loan" shall have the meaning assigned to such term in
Section 2.01.
"Loan Document" means this Agreement, the Note, the
Security Agreement, or any deed to secure debt, mortgage, deed of
trust, pledge agreement, security agreement, or other agreement
evidencing or securing the Loan (two or more of the foregoing
b e ing also referred to collectively herein as the "Loan
Documents").
"Multiemployer Plan" means a Plan described in Section
4001(a)(3) of ERISA.
"Note" shall have the meaning assigned to such term in
Section 2.03.
"PBGC" means the Pension Benefit Guaranty Corporation
or any entity succeeding to any or all of its functions under
ERISA.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority, or other
entity of whatever nature.
"Plan" means any pension plan which is covered by Title
IV of ERISA and in respect of which Borrower or a Commonly
Controlled Entity is an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest announced by
the Lender from time to time as its prime commercial lending
rate, which rate is not necessarily the lowest rate of interest
charged by Lender to its borrowers.
"Principal Office" means Lender's office at 25 Park
Place, Atlanta, Georgia 30303.
2
"Prohibited Transaction" means any transaction set
forth in Section 406 of ERISA or Section 4975 of the Code.
"Regulatory Authority" or "Regulatory Authorities"
means the Federal Reserve Board and, as applicable, the
Department of Banking of a state of the United States, the
Federal Deposit Insurance Corporation, the Office of the
Comptroller of the Currency and any other agency with regulatory
control over Borrower, any Bank or any Subsidiary.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
" Security Agreement" means the Stock Pledge and
Security Agreement in substantially the form of Exhibit C, to be
delivered by Borrower under the terms of this Agreement.
"Subsidiary" means, as to Borrower, a corporation of
which shares of stock having ordinary voting power (other than
stock having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or
other managers of such corporation are, at the time, owned, or
the management of which corporation is otherwise controlled,
directly or indirectly, through one or more intermediaries, or
both, by thee Borrower. The term "Subsidiary" shall specifically
include Banks.
"Tier I Capital" means those components of the equity
capital of Borrower or of any Bank which, in the aggregate,
constitute the core or primary capital of Borrower or the
respective Bank, as those components are determined and defined
from time to time by the Regulatory Authority having primary
jurisdiction over Borrower or such Bank.
"Tier II Capital" means those components of the equity
capital of Borrower or of any Bank which, in the aggregate,
c o n stitute the supplementary capital of Borrower or the
respective Bank, as those components are determined and defined
from time to time by the Federal Regulatory Authority having
primary jurisdiction over Borrower or any Bank.
"Total Capital" means the total of the amounts of Tier
I Capital and Tier II Capital that qualify, under the applicable
regulations of the Federal Regulatory Authority having primary
jurisdiction over Borrower or any Bank, for inclusion in the
computation of leverage capital requirements and risk-weighted
capital requirements.
Section 1.02. Accounting Terms. All accounting terms
not specifically defined herein shall be construed in accordance
with generally accepted accounting principles consistent with
those applied in the preparation of the financial statements
referred to in Section 4.04, and all financial data submitted
pursuant to this Agreement shall be prepared in accordance with
such principles.
ARTICLE II
AMOUNT AND TERMS OF THE LOAN
Section 2.01. Term Loan. Lender agrees on the terms
and conditions hereinafter set forth to make a loan (the "Loan")
to Borrower on the date of this Agreement in the principal amount
of NINE HUNDRED THOUSAND AND NO/100 DOLLARS ($900,000.00).
Section 2.02. Interest. Borrower shall pay interest
to Lender on the outstanding and unpaid principal amount of the
Loan made under this Agreement at a rate per annum equal to the
Prime Rate minus twenty-five basis points. Any change in the
interest rate resulting from a change in the Prime Rate shall
become effective as of the opening of business on the day on
which such change in the Prime Rate shall become effective.
Interest shall be calculated on the basis of a year of three
hundred sixty (360) days for the actual number of days elapsed.
Interest shall be paid in immediately available funds on the last
day of each quarter, commencing on June 30, 1996, and at maturity
at the Principal Office. Any principal amount not paid when due
(at maturity, by acceleration, or otherwise) shall bear interest
thereafter until paid in full, payable on demand, at a rate which
shall be two percent (2.0%) above the rate which would otherwise
be applicable.
3
Section 2.03. Term Note. Borrower's obligation to
repay the Loan shall be evidenced by its promissory note (the
"Note") in substantially the form of Exhibit D attached hereto
with blanks appropriately filled in and payable to the order of
Lender. The Note shall be dated the date of this Agreement and
the principal of the Loan shall be repaid in twenty (20) equal
quarterly installments, each in the amount of Forty-Five Thousand
and No/100 Dollars ($45,000.00) and the first installment shall
be due on June 30, 1996, with subsequent installments due on the
last day of each quarter thereafter to and including March 31,
2001; provided, however that the last such installment shall be
in the amount necessary to repay in full the unpaid principal
amount, annual interest, and other charges of the Loan.
Section 2.04. Method of Payment. Borrower shall make
each payment under this Agreement and under the Note on the date
when due in lawful money of the United States to Lender at its
Principal Office in immediately available funds. Borrower hereby
authorizes Lender, if and to the extent payment is not made when
due under this Agreement and under the Note, to charge from time
to time against any account of Borrower with Lender any amount so
due. Whenever any payment to be made under this Agreement or
under the Note shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.
Section 2.05. Use of Proceeds. The proceeds of the
Loan hereunder shall be used by Borrower to refinance existing
debt originally owed to and held by the Resolution Trust
Corporation. Borrower will not, directly or indirectly, use any
part of such proceeds for the purpose of purchasing or carrying
any margin stock within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System or to extend credit to
any Person for the purpose of purchasing or carrying any such
margin stock, or for any purpose which violates, or is
inconsistent with, Regulation X of such Board of Governors.
ARTICLE III
FUNDING
Section 3.01. FUNDING. The obligation of Lender to
fund the Loan is subject to the condition precedent that Lender
shall have received on or before the day of the Loan each of the
following, in form and substance satisfactory to Lender and its
counsel:
(1) Note. The Note duly executed by Borrower;
(2) Security Agreement. A Security Agreement executed
and delivered by Borrower to Lender in form and substance
satisfactory to Lender in which Borrower shall agree to pledge
and assign to Lender and to grant to Lender a first-priority
security interest in, all right, title, and interest of Borrower
in and to all common stock of (i) Citizen Trust Bank, registered
in the name of (street name or otherwise) or owned by Borrower
and all proceeds of such shares, together with such stock
certificates, stock papers, and financing statements as lender
deems necessary to perfect the security interest of Lender in the
Collateral;
(3) Evidence of All Corporate Action by Borrower.
Certified (as of the date of this Agreement) copies of all
corporate action taken by Borrower, including resolutions of its
Board of Directors, authorizing the execution, delivery, and
performance of the Loan Documents to which it is a party and each
other document to be delivered pursuant to this Agreement;
(4) Incumbency and Signature Certificate of Borrower.
A certificate (dated as of the date of this Agreement) of the
Secretary of Borrower certifying the names and true signatures of
officers of Borrower authorized to sign the Loan Documents to
which it is a party and each other documents to be delivered by
Borrower under this Agreement;
(5) Opinion of Counsel for Borrower. A favorable
opinion of Arrington & Hollowell, P.C., legal counsel for
Borrower, in substantially the form of Exhibit E, and as to such
other matters as the Lender may reasonably request;
4
(6) Officer's Certificate. A certificate signed by a
duly authorized officer of Borrower dated the date of this
Agreement, in substantially the form of Exhibit F;
(7) Insurance Certificates. Certificates or policies
of insurance evidencing compliance with the applicable provisions
of this Agreement;
(8) Additional Documentation. Such other approvals,
opinions, or documents as Lender may reasonably request;
(9) Regulatory Approval. Copies of any and all
necessary Governmental Authority or Regulatory Authority
approvals; and
(10) No Material Adverse Change. A certificate signed
by a duly authorized officer of Borrower stating that there has
been no material adverse change in the condition (financial or
o t h e rwise), business, or operations of Borrower or any
Subsidiary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into the Agreement
and to disburse the proceeds of the Loan, Borrower represents and
warrants to Lender that:
Section 4.01. Incorporation, Good Standing, and Due
Qualification. Borrower and each of its non-bank Subsidiaries is
a corporation duly incorporated, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation.
Citizens Trust Bank is a Commercial Bank duly organized, validly
existing, and in good standing under the laws of the State of
Georgia. Borrower and each of its Subsidiaries has the corporate
power and authority to own its assets and to transact the
business in which it is now engaged or proposed to be engaged;
and is duly qualified as a foreign corporation and in good
standing under the laws of each other jurisdiction in which such
qualification is required.
Section 4.02. Corporate Power and Authority. The
execution, delivery, and performance by Borrower of the Loan
Documents and the creation of the security interest provided for
under the Security Agreement are within Borrower's corporate
powers and have been duly authorized by all necessary corporate
action and do not and will not (1) require any consent or
approval of the stockholders of Borrower; (2) contravene such
Borrower's charter or bylaws; (3) violate any provision of any
law, rule, regulation (including, without limitation, Regulations
U and X of the Board of Governors of the Federal Reserve System),
order, writ, judgment, injunction, decree, determination, or
award presently in effect having applicability to Borrower; (4)
result in a breach of or constitute a default under any indenture
or loan or credit agreement or any other agreement, lease, or
instrument to which such corporation is a party or by which it or
its properties may be bound or affected; (5) result in, or
require, the creation or imposition of any Lien, except as
contemplated by the Security Agreement, upon or with respect to
any of the properties now owned or hereafter acquired by
Borrower; and (6) cause Borrower to be in default under any such
law, rule, regulation, order, writ, judgment, injunction, decree,
determination, or award of any such indenture, agreement, lease,
or instrument.
Section 4.03. Legally Enforceable Agreement. This
Agreement is, and each of the other Loan Documents are legal,
valid, and binding obligations of Borrower, and enforceable
against Borrower in accordance with their respective terms,
except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency, and other similar laws
affecting creditors' rights generally.
Section 4.04. Financial Statements. The consolidated
balance sheet of Borrower and its Subsidiaries as of December 31,
1995, and the related consolidated statements of income,
shareholder's equity, and cash flows of Borrower and its
Subsidiaries for the fiscal year then ended, and the accompanying
footnotes, together with the opinion thereon, dated December 31,
1995 of KPMG Peat Marwick LLP, independent certified public
accountants, copies of which have been furnished to Lender, are
complete and correct and fairly present the financial condition
of Borrower and its
5
Subsidiaries as at such dates and the results
of the operations of Borrower and its Subsidiaries for the
periods covered by such statements, all in accordance with GAAP;
and since December 31, 1995, there has been no material adverse
change in the condition (financial or otherwise), business, or
operations of Borrower or any Subsidiary. There are no
liabilities of Borrower or any Subsidiary, fixed or contingent,
which are material but are not reflected in the financial
statements or in the notes thereto, other than liabilities
arising in the ordinary course of business since December 31,
1995. No information, exhibit, or report furnished by Borrower
to Lender in connection with the approval of the Loan or
negotiation of this Agreement contains any material misstatement
of fact or omitted to state a material fact or any fact necessary
to m ake the statement contained therein not materially
misleading.
Section 4.05. Labor Disputes and Acts of God. Neither
the business nor the properties of Borrower or any Subsidiary are
affected by any fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy, or other casualty (whether or
not covered by insurance) materially and adversely affecting such
business or properties or the operation of Borrower or such
Subsidiary.
Section 4.06. Other Agreements. Neither Borrower nor
any Subsidiary is a party to any indenture, loan, credit
agreement, regulatory agreement or imposition, or to any lease or
other agreement or instrument, or subject to any charter or
corporate restriction which could have a material adverse effect
on the business, properties, assets, operations, or conditions,
financial or otherwise, of Borrower or any Subsidiary or the
ability of Borrower to carry out its obligations under the Loan
Documents to which it is a party. Neither Borrower nor any
Subsidiary is in material default in any respect in the
performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement
or instrument to which it is a party.
Section 4.07. Litigation. Except as is set forth
expressly on Exhibit G attached hereto, no action or proceeding
is pending or, threatened against, or affecting, Borrower or any
of its Subsidiaries before any court, board, commission,
governmental agency, or arbitrator, which if determined adversely
to the interests of Borrower could result in an uninsured
liability of Borrower or any of its Subsidiaries of $25,000.00 or
more.
Section 4.08. No Defaults on Outstanding Judgments or
Orders. Borrower and its Subsidiaries have satisfied all
judgments, and neither Borrower nor any Subsidiary is in default
with respect to any judgment, writ, injunction, decree, rule, or
regulation of any court, arbitrator, federal, state, municipal,
or other governmental authority, commission, board, bureau,
agency, or instrumentality, domestic or foreign.
Section 4.09. Ownership and Liens. Borrower and each
Subsidiary have title to, or valid leasehold interests in, all of
their properties and assets, real and personal, including the
properties and assets and leasehold interest reflected in the
financial statements referred to in Section 4.04 (other than any
properties or assets disposed of in the ordinary course of
business), and none of the properties and assets owned by
Borrower or any Subsidiary and none of their leasehold interests
is subject to any Lien, except such as may be permitted pursuant
to Section 6.01 of this Agreement.
Section 4.10. Subsidiaries and Ownership of Stocks.
Borrower's audited and consolidated financial statement, as
provided to Lender, represent a complete and accurate list of the
Subsidiaries of Borrower. All of the outstanding capital stock
of each Subsidiary has been validly issued, is fully paid and
nonassessable, and is owned by Borrower free and clear of all
Liens.
Section 4.11. ERISA. With respect to each plan
maintained by Borrower and each Subsidiary, Borrower and each
Subsidiary are in compliance in all material respects with all
applicable provisions of ERISA. Neither a Reportable Event nor a
Prohibited Transaction has occurred and is continuing with
respect to any Plan; no notice of intent to terminate a Plan has
been filed, nor has any Plan been terminated; no circumstances
exist which constitute grounds entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a
Plan, nor has the PBGC instituted any such proceedings; neither
Borrower nor any Commonly Controlled Entity has completely or
partially withdrawn from a Multiemployer Plan; Borrower and each
Commonly Controlled Entity have met their minimum funding
requirements under ERISA with respect to all of their Plans, and
the present value of all vested benefits under each Plan exceeds
the fair market value of all Plan assets allocable to such
benefits, as determined on the most recent valuation date of the
Plan and in accordance with the provisions of ERISA; and neither
Borrower nor any Commonly Controlled Entity has incurred any
liability to the PBGC under ERISA.
6
Section 4.12. Operation of Business. Borrower and its
Subsidiaries possess all licenses, permits, franchises, patents,
copyrights, trademarks, and trade names, or rights thereto,
necessary to conduct their respective businesses substantially as
now conducted and as presently proposed to be conducted, and
Borrower and its Subsidiaries are not to Borrower's knowledge, in
violation of any valid rights of others with respect to any of
the foregoing.
Section 4.13. Taxes. Borrower and each of its
Subsidiaries have filed all tax returns (federal, state, and
local) required to be filed and have paid all taxes, assessments,
and governmental charges and levies shown thereon to be due,
including interest and penalties. The federal income tax
liabilities of Borrower and its Subsidiaries have been audited
by the Internal Revenue Service and have been finally determined
and satisfied for all taxable years up to and including the
taxable year ended December 31, 1995.
Section 4.14. Absence of Undisclosed Liabilities.
Except as reflected in the audited consolidated balance sheet of
Borrower at December 31, 1995 (including the notes thereto), as
of December 31, 1995, neither Borrower nor any Subsidiary had any
material liability or obligation whatsoever, whether accrued,
absolute, contingent, or otherwise that should, in accordance
with GAAP, have been disclosed in such financial statements and
notes thereto. Since December 31, 1995, neither Borrower nor any
Subsidiary has incurred any material liability or obligation,
except for liabilities and obligations incurred in the ordinary
course of business or that will not have a material adverse
effect on Borrower.
Section 4.15. Governmental Approval. All permits,
consents, authorizations, approvals, declarations, notifications,
filings or registrations with any Governmental Authority or
Regulatory Authority or any third party which are necessary in
connection with the consummation of this transaction have been
obtained on or before the date hereof.
Section 4.16. Regulatory Compliance and Notice of
Regulatory Action. Borrower and each Subsidiary are in
compliance in all material respects with all laws, statutes,
ordinances, and governmental rules, regulations, or requirements
relating to or affecting their business or operations. There are
no outstanding notices of charges, cease-and-desist orders
(temporary or otherwise), or orders to take affirmative action
issued by any Governmental Authority or Regulatory Authority
against Borrower, any Bank or any Subsidiary, or any director,
officer, employee or agent of Borrower, any Bank or any
Subsidiary. No agreement or memorandum of understanding has been
entered into between any Governmental Authority or Regulatory
Authority and Borrower, any Bank or any Subsidiary or any
director, officer, employee or agent of Borrower, any Bank or any
Subsidiary. No notice of intention to remove from office or
notice of intention to suspend from office has been served upon
any officer or director of Borrower, any Bank or any Subsidiary
by any Governmental Authority or Regulatory Authority.
Section 4.17. Securities Activities. Borrower has not
issued any securities except as were (a) duly registered under
the Securities Act of 1933, as amended, and applicable blue sky
laws, or (b) validly exempt from registration.
Section 4.18. Deposit Insurance. Each Bank is an
"insured depository institution" within the meaning of Section 3
(c)(2) of the Federal Deposit Insurance Act, as amended.
Section 4.19. Investment Portfolio. The current fair
market value and book value of the investment portfolio (total
assets less loans, fixed assets, and cash) of each Bank as
reflected on the financial statement for each such Subsidiary as
of December 31, 1995 was as follows:
Bank Market Value Book Value
Citizen Trust Bank $32,337,888.00 $32,108,125.00
Section 4.20. Adversely Classified Assets. The March
29, 1996 internal examination with respect to each Bank reveals
the following adversely classified or special mentioned assets:
7
Bank
Citizen Trust Bank
Asset Type Asset Classification
Special Sub-
Mention standard Doubtful Loss
Loans 2,608,955 3,837,017 0 0
Other Real Estate 0 0 0 0
Repossessions 0 0 0 0
Totals 2,608,955 3,837,017 0 0
Section 4.21. Reserves. As of March 29, 1996, the
reserves created for loan and other losses of each were
sufficient and met the minimum requirements of the Regulatory
Authority with primary jurisdiction over each Bank. As of March
29, 1996, the reserves stated as a percentage of total loans for
each Bank are as follows:
Bank
Citizen Trust Bank - 2.16% $1,546,303/$71,601,470
Reserves / Tot. Loans
Section 4.22. Loan Delinquencies. As of March 29,
1996, the principal outstanding balance plus accrued interest on
delinquent loans (loans ninety (90) days or more in arrears) for
each Bank was as follows:
Bank
Citizens Trust Bank
Aggregate Principal Amount of Delinquent Loans - $1,360,741
ARTICLE V
AFFIRMATIVE COVENANTS
So long as the Note shall remain unpaid, Borrower will:
Section 5.01. Use of Proceeds. Use the proceeds of
the Loan only for the purpose set forth herein, and will furnish
Lender such evidence as it may reasonably require with respect to
such use.
Section 5.02. Maintenance of Existence. Preserve and
maintain, and cause each Subsidiary to preserve and maintain, its
corporate existence and good standing in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each
Subsidiary to qualify and remain qualified, as a foreign
corporation in each jurisdiction in which such qualification is
required.
Section 5.03. Maintenance of Records. Keep, and cause
each Subsidiary to keep, adequate records and books of account,
in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of
Borrower and its Subsidiaries.
8
Section 5.04. Maintenance of Properties. Maintain,
keep, and preserve, and cause each Subsidiary to maintain, keep,
and preserve, all of its properties (tangible and intangible)
necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted.
Section 5.05. Conduct of Business. Continue, and
cause each Subsidiary to continue, to engage in a business of the
same general type as now conducted by it on the date of this
Agreement.
Section 5.06. Maintenance of Insurance. Maintain and
see that its Subsidiaries maintain, or cause to be maintained,
insurance coverages including, but not limited to, bankers'
blanket bonds, public liability insurance, and fire and extended
coverage insurance on all assets owned by them.
Section 5.07. Compliance with Laws. Comply, and cause
each Subsidiary to comply, in all material respects with all
applicable laws, rules, regulations, orders, and material
agreements to which they are subject, such compliance to include,
without limitation, maintaining adequate cash reserves for the
payment of, and paying before the same become delinquent, all
taxes, assessments, and governmental charges imposed upon it or
upon its property except as contested in good faith.
Section 5.08. Right of Inspection. At any reasonable
time and from time to time, permit Lender or any agent or
representatives thereof to examine and make copies of and
abstracts from the records and books of account of, and visit the
properties of, Borrower and any Subsidiary, and to discuss the
affairs, finances, and accounts of Borrower and any Subsidiary
w i th any of their respective officers and directors and
Borrower's independent accountants.
Section 5.09. Deposit Insurance. Borrower will cause
each Bank to maintain federal deposit insurance and to be a
member of the Federal Deposit Insurance Corporation (or any
successor thereto).
Section 5.10. Reporting Requirements. Furnish to
Lender:
(1) Quarterly Financial Statements. As soon as
available and in any event within forty-five (45) days after the
end of each of the first three (3) quarters of each fiscal year
of Borrower, interim unaudited consolidated and unconsolidated
balance sheets of Borrower, and related statements of income,
shareholders equity and cash flows of Borrower for the prior
quarter prepared in accordance with GAAP.
(2) Call Reports. As soon as available, and in any
event within thirty (30) days after the end of each fiscal
quarter of Borrower, copies of all Consolidated Reports of
Condition and Consolidated Reports of Income or Borrower and each
Bank as filed with the Federal Deposit Insurance Corporation (or
any successor thereto) and/or the Comptroller of the Currency (or
any successor), signed by the chief financial officer of Borrower
and each Bank.
(3) Annual Financial Statements. As soon as available
and in any event within one hundred twenty (120) days after the
end of each fiscal year of Borrower, consolidated and
unconsolidated balance sheets of Borrower and its Subsidiaries as
o f t h e end of such fiscal year and consolidated and
unconsolidated statements of income, shareholder's equity, and
cash flows of Borrower and its Subsidiaries for such fiscal year,
all in reasonable detail and stating in comparative form the
respective figures for the corresponding date and period in the
prior fiscal year and all prepared in accordance with GAAP and
accompanied by an opinion thereon acceptable to Lender by KPMG
Peat Marwick, LLP. or other accountants selected by Borrower and
acceptable to Lender;
(4) F.R.Y.-6 Annual Report. As soon as available, and
in any event within ten (10) days after the filing thereof, a
copy of Borrower's F.R.Y.-6 Annual Report to the Federal Reserve
System.
(5) Management Letters. Promptly upon receipt
thereof, copies of any reports submitted to Borrower or any
S u bsidiary by independent certified public accountants in
connection with examination of the financial statements of
Borrower or any Subsidiary made by such accountants;
(6) Certificate of No Default. Within forty-five (45)
days after the end of each fiscal year of Borrower, a
certificate of the chief financial officer of Borrower,
substantially in the form of Exhibit H attached hereto and made a
part
9
hereof (a) certifying, inter alia, that (i) the
representations and warranties contained in Article IV hereof and
in each of the Loan Documents remain true and correct (except to
the extent that such representations and warranties relate solely
to an earlier date), (ii) Borrower and Subsidiaries are in
compliance with the covenants set forth herein, and (iii) that no
Event of Default has occurred and is continuing or, if an Event
of Default has occurred and is continuing, a statement as to the
nature thereof and the action which is proposed to be taken with
r e s pect thereto; and (b) with computations demonstrating
compliance with the covenants contained in Article VII;
(7) Accountant's Report. Simultaneously with the
delivery of the annual financial statements referred to in
Section 5.09(2), such statements to the effect that, in making
the examination necessary for the audit of such statements, they
have obtained no knowledge of any condition or event which
constitutes an Event of Default, or if such accountants shall
h a ve obtained knowledge of any such condition or event,
specifying in such certificate each such condition or event, of
which they have knowledge and the nature and status thereof;
(8) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits, and
proceedings before any court or governmental department,
commission, board, bureau, agency, or instrumentality, domestic
or foreign, affecting Borrower or any Subsidiary which, if
determined adversely to Borrower or such Subsidiary, could have a
material adverse effect on the financial condition, properties,
or operations of Borrower or such Subsidiary;
(9) Notice of Events of Default. Borrower will notify
Lender immediately if it becomes aware of the occurrence of any
Event of Default or of any fact, condition, or event that only
with the giving of notice or passage of time, or both, could
become an Event of Default, or of the failure of Borrower to
observe any of their respective undertakings hereunder;
(10) ERISA Reports. As soon as possible, and in any
event within thirty (30) days after Borrower knows or has reason
to know that any circumstances exist that constitute grounds
entitling the PBGC to institute proceedings to terminate a Plan
with respect to Borrower or any Commonly Controlled Entity, and
promptly, but in any event within two (2) Business Days of
receipt by Borrower or any Commonly Controlled Entity of notice
that the PBGC intends to terminate a Plan or appoint a trustee to
administer the same, and promptly, but in any event within five
(5) Business Days of the receipt of notice concerning the
imposition of withdrawal liability in excess of ONE HUNDRED
THOUSAND AND NO/100 DOLLARS ($100,000) with respect to Borrower
or any Commonly Controlled Entity, Borrower will deliver to
Lender a certificate of the chief financial officer of Borrower
setting forth all relevant details and the action which Borrower
proposes to take with respect thereto;
(11) Reports to Other Creditors. Promptly after
request of Lender, copies of any statement or report furnished by
Borrower or any Subsidiary (except such statements or reports
furnished by Borrower or any Subsidiary in the ordinary course of
their respective business as lenders) to any other party pursuant
to the terms of any indenture, loan, credit, or similar agreement
and not otherwise required to be furnished to Lender pursuant to
any other clause of this Section 5.09;
(12) Proxy Statements, Etc. Promptly after the
sending or filing thereof, copies of all proxy statements,
f i n ancial statements, and reports which Borrower or any
Subsidiary sends to its stockholders, and copies of all regular,
periodic, and special reports, and all registration statements
which Borrower or any Subsidiary files with the Securities and
Exchange Commission or any Governmental Authority which may be
substituted therefor, or with any national securities exchange;
(13) Reports to Regulatory Agencies. Promptly after
the sending or filing of the same, copies of all call reports and
other reports, including without limitation responses to
administrative enforcement actions, and modifications or
amendments thereto, that Borrower or its Subsidiaries sends or
files with any Regulatory Authority, except where providing
copies thereof to Lender is expressly prohibited; and
(14) Notice of Regulatory Action. Promptly, written
notice of (i) the issuance of any notice of charges, cease-and-
d e sist order (temporary or otherwise), or order to take
affirmative action by any Governmental Authority or Regulatory
Authority against Borrower, any Bank or any Subsidiary, or any
director, officer, employee or agent of Borrower, any Bank or any
Subsidiary, (ii) the service of any notice of intention to remove
from office or notice of intention to suspend from office by any
Governmental Authority or Regulatory Authority upon any director
or officer of Borrower, any Bank or
10
any Subsidiary, (iii) the issuance of a notice of termination of
the status of any Bank as an insured bank under the Federal
Deposit Insurance Corporation Act, as amended, or (iv) the
entering into of any agreement or memorandum of understanding
between any Governmental Authority or Regulatory Authority and
Borrower, any Bank or any Subsidiary, or any director, officer,
employee or agent of Borrower, any Bank or any Subsidiary.
(15) Other Financial Data. As soon as available and
in any event within forty-five (45) days after the end of each of
the first three (3) quarters and one hundred twenty (120) days
after the end of the fiscal year, for Borrower and each
Subsidiary, sufficient information to enable Lender to ascertain
whether or not Borrower is in compliance with the Financial
Covenants set forth in Article VII hereof;
(16) Adverse Changes. Promptly after the occurrence
thereof and in no event later than ten (10) days thereafter, full
disclosures of any material adverse changes in the finances or
business of Borrower or any of its Subsidiaries.
(17) General Information. Such other information
respecting the condition or operations, financial or otherwise,
of Borrower or any Subsidiary as Lender may from time to time
reasonably request.
Section 5.11. Environment. Be and remain, and cause
each Subsidiary to be and remain, in all material respects, in
compliance with the provisions of all federal and state
environmental, health, and safety laws, codes and ordinances, and
all rules and regulations issued thereunder; and notify Lender
immediately of any notice of an environmental complaint received
from any governmental agency or any other party.
Section 5.12. Composite Rating. Maintain, and cause
each Bank to maintain, the applicable composite rating (i.e.,
CAMEL, BOPEC, MACRO, or such other applicable composite rating)
of safety and soundness of any banking regulator charged with
examining Borrower or any Bank, which is not less than the
composite rating which exists at the date of this Agreement.
Section 5.13. Capital Adequacy. Maintain, and cause
each Bank to maintain, at all times, the minimum levels of
regulatory capital necessary to maintain the regulatory capital
classification of "Adequately Capitalized," as such term is
defined by the applicable.
ARTICLE VI
NEGATIVE COVENANTS
So long as the Note shall remain unpaid, Borrower will not:
Section 6.01. Liens. Create, incur and assume, or
suffer to exist, or permit any Subsidiary to create, incur,
assume, or suffer to exist, any Lien upon or with respect to any
of its properties, now owned or hereafter acquired, except:
(1) Liens in favor of Lender;
(2) Liens for taxes or assessments or other
governmental charges or levies if not yet due and payable or, if
due and payable, if they are being contested in good faith by
appropriate proceedings and for which appropriate reserves are
maintained;
(3) Liens imposed by law, such as mechanics',
materialmen's, landlords', warehousemen's, and carriers' Liens,
securing obligations incurred in the ordinary course of business
which are not yet due and payable or which are being contested in
good faith by appropriate proceedings and for which appropriate
reserves have been established;
(4) Liens under workers' compensation, unemployment
insurance, Social Security, or similar legislation;
(5) Liens, deposits, or pledges to secure the
performance of bids, tenders, contracts (other than contracts for
the payment of money), leases (permitted under the terms of this
Agreement), public or statutory obligations, surety, stay,
11
appeal, indemnity, performance, or other similar bonds, or other
similar obligations arising in the ordinary course of business;
(6) Judgment and other similar Liens arising in
connection with court proceedings, provided the execution or
other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good faith
and by appropriate proceedings;
(7) Easements, rights-of-way, restrictions, and other
similar encumbrances which, in the aggregate, do not materially
interfere with the occupation, use, and enjoyment by Borrower or
any Subsidiary of the property or assets encumbered thereby in
the normal course of its business or materially impair the value
of the property subject thereto;
(8) Liens incidental to the conduct of banking
business, not incurred in connection with the borrowing of money,
arising out of transactions in federal funds, repurchaser
agreements, interbank credit facilities, bank deposits, or other
obligations to customers or depositors of Borrower's
Subsidiaries, as such, arising under the leases of real and
personal property, or arising out of transactions by Borrower or
any of its Subsidiaries as trustee.
(9) Liens incurred in connection with the borrowing by
a Subsidiary from the Federal Reserve Bank, or the Federal Home
Loan Bank, in the ordinary course of business; and
(10) Those Liens specified in Exhibit I attached
hereto and made a part hereof.
Section 6.02. Debt. Create, incur, assume, or suffer
to exist, or permit any Subsidiary to create, incur, assume, or
suffer to exist, any Debt, except:
(1) Debt of Borrower under this Agreement or the Note;
(2) Debt described in Exhibit J, but no voluntary
prepayments, renewals, extensions, or refinancings thereof;
(3) Debt of a Subsidiary to the Federal Reserve Bank,
or the Federal Home Loan Bank, in the ordinary course of
business;
(4) Accounts payable to trade creditors for goods or
services which are not aged more than sixty (60) days from the
billing date and current operating liabilities (other than for
borrowed money) which are not more than sixty (60) days past due,
in each case incurred in the ordinary course of business, as
presently conducted, and paid within the specified time, unless
contested in good faith and by appropriate proceedings.
Section 6.03. Mergers, Acquisitions, Etc. Wind up,
liquidate, or dissolve itself, reorganize, merge, or consolidate
with or into, or convey, sell, assign, transfer, lease, or
otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to any Person, acquire all or
substantially all of the assets or the business of any Person, or
commence or acquire any new business not conducted by it on the
date of this Agreement, or permit any Subsidiary to do so.
Section 6.04. Leases. Create, incur, assume, or
suffer to exist, or permit any Subsidiary to create, incur,
assume, or suffer to exist, any obligation as lessee for the
rental or hire of any real or personal property, except: (1)
leases existing on the date of this Agreement and any extensions
or renewals thereof; (2) leases (other than Capital Leases) which
do not in the aggregate require Borrower and its Subsidiaries on
a consolidated basis to make payments (including taxes,
insurance, maintenance, and similar expense which Borrower or any
Subsidiary is required to pay under the terms of any lease) in
any fiscal year of Borrower in excess of TWO HUNDRED FIFTY
THOUSAND AND NO/100 DOLLARS ($250,000.00); (3) leases between
Borrower and any Subsidiary or between any Subsidiaries.
Section 6.05. Sale and Leaseback. Sell, transfer, or
otherwise dispose of, or permit any Subsidiary to sell, transfer,
or otherwise dispose of, any real or personal property to any
Person and thereafter directly or indirectly lease back the same
or similar property.
12
Section 6.06. Dividends. After the date hereof, make
any distribution in respect of its capital stock or purchase, or
redeem or otherwise acquire any shares of its outstanding capital
stock unless such action has been approved by the necessary
regulatory authorities and Lender and provided such distribution,
redemption or acquisition shall not impair Borrower's ability to
service Debt nor cause Borrower to be in violation of any
Financial Covenants contained in Article VII of this Agreement.
Section 6.07. Sale of Assets. Sell, lease, assign,
transfer, or otherwise dispose of, or permit any Subsidiary to
sell, lease, assign, transfer, or otherwise dispose of, any of
its now owned or hereafter acquired assets (including, without
limitation, shares of stock and indebtedness of Subsidiaries,
receivables, and leasehold interest), except: (1) inventory
disposed of in the ordinary course of business; (2) the sale or
other disposition of assets no longer used or useful in the
conduct of its business; (3) that any Subsidiary may sell, lease,
assign, or otherwise transfer its assets to Borrower; and (4)
sales of loans in the ordinary course of business.
Section 6.08. Guaranties, Etc. Assume, guarantee,
endorse, or otherwise be or become directly or contingently
responsible or liable, or permit any Subsidiary to assume,
guarantee, endorse, or otherwise be or become directly or
contingently responsible or liable (including, but not limited
to, an agreement to purchase any obligation, stock, assets,
goods, or services, or to supply or advance any funds, assets,
goods, or services, or an agreement to maintain or cause such
Person to maintain a minimum working capital or net worth, or
otherwise to assure the creditors of any person against loss) for
obligations of any Person, except guaranties by endorsement of
negotiable instruments for deposits or collection or similar
transactions in the ordinary course of business and except
pursuant to letters of credit issued by any Bank in the ordinary
course of business.
Section 6.09. Transactions with Affiliates. Enter
into any transaction, including, without limitation, the
purchase, sale, or exchange of property or the rendering of any
services, with any Affiliate, or permit any Subsidiary to enter
into any transaction, including, without limitation, the
purchase, sale, or exchange of property or the rendering of any
service, with any Affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's or such
Subsidiary's business, upon fair and reasonable terms no less
favorable to Borrower or such Subsidiary than would obtain in a
comparable arm's-length transaction with a Person not an
Affiliate, and in compliance with all applicable regulatory and
statutory requirements.
ARTICLE VII
FINANCIAL COVENANTS
So long as the Note shall remain unpaid:
Section 7.01. Capital Expenditures. Neither Borrower
nor any Bank will make any expenditures for fixed or capital
assets if, after giving effect thereto, the aggregate of all such
expenditures made by Borrower or any Bank would exceed ONE
MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($1,800,000.00)
in 1996; and ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) each
year thereafter.
Section 7.02. Borrower Capital. Borrower shall
maintain, on a consolidated basis, tangible equity capital, as
determined under GAAP, in an amount which is the greater of (i)
NINE MILLION AND NO/100 DOLLARS ($9,000,000.00), (ii) an amount
equal to eight percent (8%) of the total assets stated in the
most recent financial statements of Borrower, or (iii) the
minimum amount of Total Capital required by applicable law or
regulation.
Section 7.03. Subsidiary Capital. Each Bank will
maintain, at all times, tangible equity capital, as determined
under GAAP, in an amount which is not less than the greater of
(i) seven and one-half percent (7.5%) of assets, or (ii) the
minimum amount of Total Capital required by applicable law or
regulation. Each Bank will, at all times, maintain Tier I
Capital, Tier II Capital, and Total Capital in such minimum
amounts required by applicable law or regulation, so as to
maintain an "adequately capitalized" status as defined thereby.
13
Section 7.04. Return on Assets. Income from
operations after taxes, divided by average assets, for each Bank
shall be not less than eight-tenths of one percent (.8%).
Section 7.05. Return on Equity. Income from
operations after taxes, divided by average equity, for each Bank
shall be not less than ten percent (10%).
Section 7.06. Loan Delinquencies. Loan delinquencies
(loans ninety (90) days or more in arrears) divided by total
loans for each Bank shall not exceed one and eight-tenths of one
percent (1.8%).
Section 7.07. Reserves. Each Bank shall maintain at
all times reserves equal to the greater of (i) one and three-
quarters of one percent (1.75%) of total loans, (ii) one hundred
twenty-five percent (125%) of total non-performing assets, or
(iii) the minimum amount required by its primary regulator.
Section 7.08. Asset Quality. The ratio of loans 90
days past due + non accrual loans plus other real estate owned
divided by net loans plus other real estate owned shall not
exceed two percent (2.0%).
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default. An Event of Default
shall be deemed to exist if any of the following events shall
occur:
(1) Borrower shall fail to pay the principal of, or
interest on, the Note, or any fee, when due;
(2) Any representation, warranty or certification made
or deemed made by Borrower in this Agreement, the Security
Agreement, or any of the other Loan Documents, or which is
contained in any certificate, document, opinion, or financial or
other statement furnished at any time under or in connection with
a n y Loan Document, shall prove to have been incorrect,
incomplete, or misleading in any respect on or as of the date
made or deemed made;
(3) Borrower shall fail to perform or observe any
term, covenant, condition or agreement contained herein or in any
other of the Loan Documents;
(4) Any Event of Default as defined herein or in any
other of the Loan Documents shall occur;
(5) Borrower or any of its Subsidiaries shall (a) fail
to pay any indebtedness for borrowed money (other than the Note)
of Borrower or such Subsidiary, as the case may be, or any
interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or
otherwise); or (b) fail to perform or observe any term, covenant,
or condition on its part to be performed or observed under any
agreement or instrument relating to any such indebtedness, when
required to be performed or observed, if the effect of such
failure to perform or observe is to accelerate, or to permit the
acceleration of, after the giving of notice or passage of time,
or both, the maturity of such indebtedness, whether or not such
failure to perform or observe shall be waived by the holder of
such indebtedness; or any such indebtedness shall be declared to
be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated
maturity thereof and Borrower or its Subsidiaries fails to pay
such indebtedness in full;
(6) Borrower or any of its Subsidiaries (a) shall
generally not pay, or shall be unable to pay, or shall admit in
writing its inability to pay its debts as such debts become due;
or (b) shall make an assignment for the benefit of creditors, or
petition or apply to any tribunal for the appointment of a
custodian, receiver, or trustee for it or a substantial part of
its assets; or (c) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution, or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; or (d) shall have had any
such petition or application filed or any such proceeding
commenced against it in which an order for relief is entered or
an adjudication or appointment is made, and which remains
undismissed for a period of thirty (30) days or more; or (e)
shall take any corporate action indicating its consent to,
approval of, or acquiescence in any such petition, application,
proceeding,
14
or order for relief or the appointment of a
custodian, receiver, or trustee for all or any substantial part
of its properties; or (f) shall suffer any such custodianship,
receivership, or trusteeship to continue undischarged for a
period of thirty (30) days or more;
(7) One or more judgments, decrees, or orders for the
payment of money shall be rendered against Borrower or any of its
Subsidiaries, the UNINSURED amount of said judgment(s) shall
e x c e e d Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00), and such judgments, decrees, or orders shall
continue unsatisfied and in effect for a period of thirty (30)
consecutive days without being vacated, discharged, satisfied, or
stayed or bonded pending appeal;
(8) The Security Agreement shall at any time after its
execution and delivery and for any reason cease (a) to create a
valid and perfected first priority security interest in and to
the property purported to be subject to such Security Agreement;
or (b) to be in full force and effect or shall be declared null
and void, or the validity or enforceability thereof shall be
contested by Borrower, or Borrower shall deny it has any
further liability or obligation under the Security Agreement, or
Borrower shall fail to perform any of its obligations under the
Security Agreement;
(9) Any of the following events shall occur or exist
with respect to Borrower and any Commonly Controlled Entity under
ERISA; any Reportable Event shall occur; complete or partial
withdrawal from any Multiemployer Plan shall take place; any
Prohibited Transaction shall occur; a notice of intent to
terminate a Plan shall be filed, or a Plan shall be terminated;
or circumstances shall exist which constitute grounds entitling
the PBGC to institute proceedings to terminate a Plan, or the
PBGC shall institute such proceedings; and in each case above,
such event or condition, together with all other events or
conditions, if any, could subject Borrower to any tax, penalty,
or other liability which in the aggregate may exceed Two Hundred
Fifty Thousand and No/100 Dollars ($250,000.00); or
(10) If Lender received its first notice of a hazardous
discharge or an environmental complaint relating to Borrower or a
Subsidiary from a source other than Borrower, and Lender does not
receive notice (which may be given in oral form, provided same is
followed with all due dispatch by written notice given by
Certified Mail, Return Receipt Requested) of such hazardous
discharge or environmental complaint from Borrower within twenty-
four (24) hours of the time Lender receives said notice from a
source other than Borrower; or if any Governmental Authority
asserts or creates a Lien upon any or all of the assets,
equipment, property, leaseholds, or other facilities of Borrower
by reason of the occurrence of a hazardous discharge or any
e n vironmental complaint; or if any Governmental Authority
asserts a claim against Borrower and/or its assets, equipment,
property, leaseholds, or other facilities for damages or cleanup
costs relating to a hazardous discharge or an environmental
c o m plaint; provided, however, that such claim shall not
constitute a default if, within ten (10) Business Days of the
occurrence giving rise to the claim, (a) Borrower can prove to
L e nder's satisfaction that Borrower has commenced and is
diligently pursuing either: (i) a cure or correction of the
event which constitutes the basis for the claim, and continues
diligently for any injunction, a restraining order, or other
a p p ropriate emergency relief preventing such Governmental
Authority from asserting such claim, which relief is granted
within ten (10) Business Days of the occurrence giving rise to
the claim and the injunction, order, or emergency relief is not
thereafter resolved or reversed on appeal; and (b) in either of
the foregoing events, Borrower has posted a bond, letter of
credit, or other security satisfactory in form, substance, and
amount to both Lender and the Governmental Authority asserting
the claim to secure the proper and complete cure or correction of
the event which constitutes the basis for the claim;
(11) If Borrower or any Bank, or the directors,
officers, or employees thereof, becomes subject to any regulatory
enforcement action, which includes without limitation a
memorandum of understanding, written agreement, supervisory
directive, capital directive, removal action, or cease and desist
order, which regulatory enforcement action limits or restricts
the ability of Borrower or any Bank to engage in its normal
business;
(12) CEO and COO or any one of them, shall cease,
without the prior written consent of Lender, to be actively
involved in the senior management of Borrower or Borrower
otherwise shall fail to maintain senior management having
sufficient skill and experience in Borrower's industry to manage
Borrower and each Subsidiary competently and efficiently.
(13) If the ownership of Borrower as presently
constituted shall change such that more than ten percent (10%) of
the outstanding voting stock shall be transferred to any Person
other than (i) an existing shareholder who prior to the transfer
owned not less than ten percent (10%) of the outstanding voting
stock of Borrower or (ii) an immediate family
15
member of the transferring shareholder or a trust which benefits
only the immediate family members of the transferring shareholder.
(14) Any Bank shall be unable or shall be deemed to be
unable to declare and distribute dividends as a result of
r e s trictions imposed by applicable regulation or by any
Regulatory Authority.
Section 8.02. Remedies upon Event of Default.
Upon the occurrence of an Event of Default, Lender may:
(1) By notice to Borrower, declare the Note, all
interest thereon, and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Note,
all such interest, and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest,
or further notice of any kind, all of which are hereby expressly
waived by Borrower;
(2) At any time and from time to time, without notice
to Borrower (any such notice being expressly waived by
Borrower), set off and apply (i) any and all deposits (general or
special, time or demand, provisional or final) at any time held
by Lender, and (ii) other indebtedness at any time owing by
Lender to or for the credit or the account of Borrower against
any and all of the obligations of Borrower, now or hereafter
existing under this Agreement or the Note or any other Loan
Document, irrespective of whether or not Lender shall have made
any demand under this Agreement or the Note or under any other of
t h e Loan Documents and although such obligations may be
unmatured;
(3) Exercise from time to time any and all rights and
remedies available to a secured party when a debtor is in default
under a security agreement as provided in the Uniform Commercial
Code of Georgia, or available to Lender under any other
applicable law or in equity, including without limitation the
right to any deficiency remaining after disposition of the
Collateral;
(4) At its option, and without notice or demand of any
kind, exercise from time to time any and all other rights and
remedies available to it under this Agreement or any of the other
Loan Documents;
(5) Borrower shall pay all of the reasonable costs and
expenses incurred by Lender in enforcing its rights under this
Agreement and the other Loan Documents. In the event any claim
under this Agreement or under any of the other Loan Documents is
referred to an attorney for collection, or collected by or
through an attorney at law, Borrower will be liable to Lender for
all expenses incurred by it in seeking to enforce its rights
hereunder, under any other of the Loan Documents or in the
Collateral, including without limitation reasonable attorneys'
fees; and
(6) Any proceeds from disposition of any of the
Collateral may be applied by Lender first to the payment of all
expenses and costs incurred by Lender in enforcing the rights of
Lender under each of the Loan Documents and in collecting,
retaking, holding, preparing the Collateral for and advertising
the sale or other disposition of and realizing upon the
Collateral, including without limitation reasonable attorneys'
fees actually incurred, as well as all other legal expenses and
court costs. Any balance of such proceeds may be applied by
Lender toward the payment of the Loan and in such order of
application as the Lender may from time to time elect. Lender
shall pay the surplus, if any, to Borrower. Borrower shall pay
the deficiency, if any, to Lender.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Amendments, Etc. No amendment,
modification, termination, or waiver of any provision of any Loan
Document to which Borrower is a party, nor consent to any
departure by Borrower from any Loan Document to which it is a
party, shall in any event be effective unless the same shall be
in writing and signed by Lender, and then such waiver or consent
shall be effective only in the specific instance and for the
specific purpose for which given.
16
Section 9.02. Notices, Etc. All notices and other
communications provided for under this Agreement and under the
other Loan Documents shall be in writing (including telegraphic,
telex, and facsimile transmissions) and mailed or transmitted or
delivered as follows:
If to Borrower: If to Lender:
75 Piedmont Avenue 25 Park Place
Atlanta, Georgia 30303 Atlanta, Georgia 30302
Attention: William Gibbs Attention: Jim Rountree
Southeastern Financial
Institutions
or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section 9.02.
Except as otherwise provided in this Agreement, all such notices
and communications shall be effective when deposited in mails or
delivered to the telegraph company, or sent, answerback received,
respectively, addressed as aforesaid.
Section 9.03. No Waiver. No failure or delay on the
part of Lender in exercising any right, power, or remedy granted
hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any such right, power, or remedy preclude
any other or further exercise thereof or the exercise of any
other right, power, or remedy hereunder.
Section 9.04. Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of Borrower and
Lender and their respective successors and assigns, except that
Borrower may not assign or transfer any of its rights under any
Loan Document to which Borrower is a party without the prior
written consent of Lender.
Section 9.05. Costs, Expenses, and Taxes. Borrower
agrees to pay on demand all costs and expenses incurred by Lender
in connection with the preparation, execution, delivery, filing,
and administration of the Loan Documents, and of any amendment,
modification, or supplement to the Loan Documents, including,
without limitation, the fees and out-of-pocket expenses of
counsel for Lender incurred in connection with advising Lender as
to its rights and responsibilities hereunder. Borrower also
agrees to pay all such costs and expenses, including court costs,
incurred in connection with enforcement of the Loan Documents, or
any amendments, modification, or supplement thereto, whether by
negotiation, legal proceedings, or otherwise. In addition,
Borrower shall pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the
execution, delivery, filing, and recording of any of the Loan
Documents and the other documents to be delivered under any such
Loan Documents, and agrees to hold Lender harmless from and
against any and all liabilities with respect to or resulting from
any delay in paying or omission to pay such taxes and fees. This
provision shall survive termination of this Agreement.
Section 9.06. Integration. This Agreement and the
Loan Documents contain the entire agreement between the parties
relating to the subject matter hereof and supersede all oral
statements and prior writing with respect thereto.
Section 9.07. Indemnity. Borrower hereby agrees to
defend, indemnify, and hold Lender harmless from and against any
and all claims, damages, judgments, penalties, costs, and
expenses (including attorney's fees and court costs now or
hereafter arising from the aforesaid enforcement of this clause)
arising directly or indirectly from the activities of Borrower
and its Subsidiaries, and its predecessors in interest, or
arising directly or indirectly from Borrower's or any
Subsidiaries', or any predecessors in interest's, violation of
any environmental protection, health, or safety law, whether such
claims are asserted by any governmental agency or any other
person. This indemnity shall survive termination of this
Agreement.
Section 9.08. Governing Law. This Agreement and the
Note shall be governed by, and construed in accordance with, the
laws of the State of Georgia and the applicable laws of the
United States of America.
17
Section 9.09. Severability of Provisions. Any
provision of any Loan Document which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of
such Loan Document or affecting the validity or enforceability of
such provision in any other jurisdiction.
Section 9.10. Participations. Lender shall have the
right at any time and from time to time to grant participations
in the Note and any other Loan Documents. Each actual or
proposed participant shall be entitled to receive all information
received by Lender regarding Borrower and its Subsidiaries,
including, without limitation, information required to be
disclosed to a participant pursuant to Banking Circular 181
(Rev., August 2, 1984), issued by the Comptroller of the Currency
(whether the actual or proposed participant is subject to the
circular or not).
Section 9.11. Headings. Article and Section headings
in the Loan Documents are included in such Loan Documents for the
convenience of reference only and shall not constitute a part of
the applicable Loan Documents for any other purpose.
Section 9.12. Jury Trial Waiver. LENDER AND BORROWER
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR
COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY,
ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE
LOAN DOCUMENTS. NO OFFICER OF LENDER HAS AUTHORITY TO WAIVE,
CONDITION, OR MODIFY THIS PROVISION.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
CITIZENS BANCSHARES CORPORATION
By: /s/ William L. Gibbs
Title: President & Chief
Executive Officer
[CORPORATE SEAL]
Attest:/s/ Audrey M. Alexander
Title: Assistant Secretary
SUNTRUST BANK, ATLANTA
By:/s/ James E. Rountree
Title: First Vice President
Attest: /s/ C.K. Gruehn
Title: Vice President
18
EXHIBIT A
BANKS
Citizens Trust Bank
EXHIBIT B
COLLATERAL
100,000 and 50,000 shares of common stock of Citizens Trust
Bank represented by stock certificate numbers 2785 and 2784.
EXHIBIT C
STOCK PLEDGE AND SECURITY AGREEMENT
THIS STOCK PLEDGE AGREEMENT made and entered into as of
April 22, 1996 between CITIZENS BANCSHARES CORPORATION, a Georgia
corporation, having its principal place of business at 75
Piedmont Avenue, Atlanta, Georgia 30303 ("Pledgor"), and
SUNTRUST BANK, ATLANTA, a Georgia banking corporation, having its
principal place of business in Atlanta, Georgia ("Bank").
W I T N E S S E T H :
WHEREAS, pursuant to a Term Loan Agreement, dated of
even date herewith (the "Loan Agreement"), between Pledgor and
the Bank, the Bank has agreed to extend a Term Loan ("Loan") to
Pledgor, as evidenced by the Promissory Note of the Pledgor
evidencing the obligation of the Pledgor under the Loan Agreement
(the "Note"); and
WHEREAS, Pledgor desires to secure the due and punctual
payment of the Loan, and to secure the due and punctual
performance under the Loan Agreement;
NOW, THEREFORE, for Ten Dollars ($10.00) and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Secured Obligations. This Stock Pledge and Security
Agreement (the "Stock Pledge Agreement") is given to secure (i)
the due and punctual payment and performance of the Pledgor's
obligations under the Loan as evidenced by the Note, including
all indebtedness arising upon any extensions and renewals of the
Loan; (ii) the due and punctual payment and performance of
Pledgor's obligations under the Loan Agreement; and (iii) all
other further indebtedness of any amount which is now or may be
hereafter owed by Pledgor to Bank, whether individually or
jointly with others not parties hereto and whether direct or
indirect, as maker, endorser, guarantor, surety, or otherwise
(collectively, or any portion thereof, the "Secured
Obligations").
2. Pledge and Security Interest.
a. Pledgor hereby pledges and grants to
Bank a security interest in (i) 150,000 shares of Citizens Trust
Bank (which shares shall be evidenced by the stock certificates
which Pledgor has contemporaneously herewith delivered to Bank),
and (iv) any additional shares hereafter at any time and from
time to time acquired by Pledgor together with all dividends,
stock dividends, stock splits, warrants, options, stock purchase
rights, and all other property at any time and from time to time
distributed in respect of, or in exchange for, or in substitution
of, any and all of said shares, and all proceeds thereof, whether
now existing or at any time hereafter acquired or issued (all of
which shall be referred to herein collectively as the "Stock
Collateral"); provided, however, prior to the occurrence of any
Event of Default hereunder, Pledgor shall be entitled to receive
and retain all dividends of cash and noncash property (other than
stock dividends, stock splits, warrants, options, and stock
purchase rights), and such dividends shall not constitute part of
the Stock Collateral. Upon delivery to the Bank, any security
now or thereafter included in the Stock Collateral shall be
accompanied by executed stock powers in blank and by such other
documents or instruments as Bank may reasonably request. Each
delivery of certificates for such Stock Collateral shall be
accompanied by a schedule showing the number of shares and the
numbers of certificates theretofore and then being pledged
hereunder, which schedule shall be attached hereto and made a
part hereof.
b. Upon the request of Bank, Pledgor will
execute such financing statements and other documents, pay the
cost of filing or recording the same in all public offices deemed
necessary or appropriate by Bank, and do such other acts and
things as Bank may from time to time reasonably request,
including delivery of the Stock Collateral to the Bank, to
establish and maintain a valid security interest in all the Stock
Collateral, free of all other liens and claims except those
expressly permitted or granted herein.
3. Representations and Warranties. Pledgor hereby
represents and warrants to Bank as follows:
a. The stock certificate(s) identified in
Section 2 hereof and delivered to the Bank contemporaneously
herewith are genuine and in all respects what they purport to be;
b. Pledgor is the legal, registered owner
of the Stock Collateral and holds full and absolute beneficial
title to the Stock Collateral, free and clear of all liens,
charges, encumbrances, security interest, and voting trust
restrictions of every kind and nature;
c. That no consent or approval of any
person, entity, or government or regulatory authority is
necessary to the validity of the pledge contained in this
Agreement, except such as have been obtained;
d. That Pledgor has full corporate power
and authority to pledge the Stock Collateral to Bank as security
for the Secured Obligations, and will defend its title thereto
against the claims of all persons whomsoever;
e. That Pledgor has granted to Bank a
security interest in the Stock Collateral which is at the time
hereof valid and of first priority under applicable law, and no
financing statement, security interest, or other lien or
encumbrance covering the Stock Collateral or its proceeds is
outstanding or on file in any public office, except any that may
have been filed in favor of the Bank;
f. That Pledgor has revoked all proxies
heretofore given and covenants not to extend further proxies or
powers of attorney with respect to the Stock Collateral so long
as this Stock Pledge Agreement remains in full force and effect;
and
g. That Pledgor has the full corporate
power and authority to enter into this Stock Pledge Agreement and
to perform its obligations hereunder, and this Stock Pledge
Agreement constitutes the valid, binding, and enforceable
agreement of Pledgor, enforceable against it in accordance with
its terms, except as enforcement may be limited by bankruptcy,
insolvency, or other similar laws affecting the rights of
creditors generally, and except with respect to the applicability
of general equitable principals which may limit the availability
of specific performance or other equitable remedies.
2
4. Registration in Nominee Name; Denominations. Bank
shall have the right (in its sole and absolute discretion) to
have the stock certificate(s) representing the Stock Collateral
assigned in blank in favor of Bank. Upon an Event of Default
under this Stock Pledge Agreement, Bank may have such Stock
Collateral registered in the name of Bank or any nominee or
nominees of Bank. Bank shall at all times have the right to
exchange the stock certificate(s) representing the Stock
Collateral for stock certificate(s) of smaller or larger
denominations for any purpose consistent with its performance of
this Stock Pledge Agreement.
5. Covenants. So long as any of the Secured
Obligations remain unpaid or unperformed, Pledgor covenants and
agrees with Bank as follows:
a. Pledgor shall keep the Stock Collateral
free from all security interests, liens, levies, attachments,
voting restrictions, and all other encumbrances, except for the
interest of Bank herein granted;
b. Pledgor shall not assign, sell,
transfer, deliver, or otherwise dispose of any of the Stock
Collateral or any interest therein; and
c. Pledgor shall pay all taxes,
assessments, and all other charges of any nature which may be
levied or assessed with respect to the Stock Collateral; provided
that Pledgor shall have the right to contest in good faith any
tax assessments or other charges.
d. Pledgor shall deliver to Bank,
immediately upon Pledgor's receipt of same, any and all stock
certificates representing the Stock Collateral which Pledgor
shall hereinafter acquire. The delivery of such after acquired
Stock Collateral to Bank shall be accompanied by a Power of
Attorney To Transfer Stock executed in blank in a form
promulgated by Bank and shall be deemed to be a reaffirmation by
Pledgor of all of the terms and provisions of this Stock Pledge
Agreement.
6. Voting Rights: Dividends, Etc.
a. Unless and until an Event of Default
hereunder shall have occurred:
(i) Pledgor shall be entitled to
exercise any and all voting and consensual rights and powers
accruing to an owner of the Stock Collateral or any part thereof
for any purpose not inconsistent with the terms of this Stock
Pledge Agreement;
(ii) Pledgor shall be entitled to
receive and retain any and all cash dividends payable on the
Stock Collateral. Any and all stock or liquidating dividends,
stock warrants, stock options, stock purchase rights, other
distribution in property, return of capital, or distribution made
on or in respect of the Stock Collateral, whether resulting from
a subdivision, combination, or reclassification of capital stock
or received in exchange for the Stock Collateral, or any part
thereof, or as a result of any merger, consolidation,
acquisition, or other exchange or assets shall be and become part
of the Stock Collateral pledged hereunder and, if received by
Pledgor, shall forthwith and immediately be delivered to Bank to
be held subject to the terms of this Stock Pledge Agreement,
except to the extent permitted to be retained by Pledgor pursuant
to Section 2 hereof; and
3
(iii) Bank shall execute and deliver to
Pledgor, or cause to be executed and delivered to Pledgor, as
appropriate, all such proxies, powers of attorney, and other
instruments as Pledgor may reasonably request for the purpose of
enabling Pledgor to exercise the voting and consensual rights and
powers which it is entitled to exercise pursuant to clause (i).
b. Upon the occurrence and during the
continuance of any Event of Default, and provided Bank has given
Pledgor written notice of said Event of Default:
(i) Pledgor agrees to deliver
immediately to Bank any and all cash, checks, drafts, items, or
other instruments for the payment of money which may be received
after such default by Pledgor as dividends or otherwise with
respect to the Stock Collateral, duly endorsed and assigned to
Bank;
(ii) Pledgor agrees to deliver to Bank
immediately upon Pledgor's receipt thereof, any and all stock,
stock dividends, stock splits, warrants, and stock purchase
rights received with respect to any of the Stock Collateral,
together with stock powers duly executed in blank with respect to
all stock and other certificates evidencing same; and
(iii) All rights of Pledgor to exercise
the voting and consensual rights and powers which it is entitled
to exercise pursuant to Section 6(a)(i) hereof shall cease, and
all such rights shall thereupon become vested in Bank, which
shall have the sole and exclusive right and authority to exercise
such voting and consensual rights and powers.
7. Performance of Pledgor's Obligations. At its
option, Bank may (but shall not be obligated to) from time to
time perform any agreement of Pledgor hereunder which Pledgor
shall fail to perform, and may take any other reasonable action
which Bank deems necessary for the maintenance or preservation of
the value of the Collateral or its interest therein.
8. Attorney-in-Fact. Pledgor hereby irrevocably
constitutes and appoints Bank as Pledgor's agent and attorney-in-
fact, upon the occurrence and continuance of an Event of Default,
for the purposes of carrying out the provisions of this Stock
Pledge Agreement and taking any action and executing any interest
which Bank or Pledgor may deem necessary or advisable to
accomplish the purposes hereof. Without limiting the generality
of the foregoing, upon the occurrence and continuance of an Event
of Default, Bank shall have the right and power upon notice to
Pledgor to receive, endorse, and collect all checks and other
orders for the payment of money made payable to Pledgor,
representing any interest or dividend or other distribution
payable in respect of the Stock Collateral or any part thereof,
and give full discharge for the same. The foregoing power of
attorney is coupled with an interest and shall be terminated only
upon payment in full of the Secured Obligations.
9. Events of Default. An Event of Default shall
occur under this Stock Pledge Agreement upon the occurrence of
any one or more of the following events: (i) any Event of
Default shall occur under, and as defined in, the Loan Agreement;
or (ii) upon the breach by Pledgor of any of the covenants set
forth herein; or (iii) upon default by Pledgor in the performance
or observance of any other of the agreements, terms, or
conditions herein contained, which default shall not be fully
cured within ten (10) days after Pledgor receives written notice
thereof; or (iv) any of the representations or warranties herein
made by Pledgor shall prove to be false or misleading in any
material respect.
4
10. Rights and Remedies on Default. Upon the
occurrence of an Event of Default under this Stock Pledge
Agreement, Bank may, in its sole discretion and without further
notice or demand, (i) declare all the Secured Obligations to be
immediately due and payable; (ii) proceed immediately to exercise
any and all of Bank's rights, powers, and privileges with respect
to the Stock Collateral, including, without limitation, the right
to sell or otherwise dispose of the Stock Collateral or any part
thereof at private or public sale, in such manner as Bank shall
deem reasonable; and (iii) exercise any other right or remedy
available to Bank under the applicable Uniform Commercial Code or
otherwise available by agreement or under federal or state law.
All rights and remedies herein specified are cumulative and are
in addition to such other rights and remedies as may be available
to Bank.
Bank shall act as the authorized agent and attorney-in-
fact of Pledgor in disposing of the Stock Collateral, and in that
capacity is authorized to take such action on behalf of Pledgor
as will further such a disposition, including, without
limitation, any necessary endorsement or signature in its own
name. Pledgor expressly acknowledges that compliance with
federal or state securities and other laws may limit the
disposition of the Stock Collateral by Bank. No disposition of
the Stock Collateral by Bank upon an Event of Default shall be
deemed to be a breach of any duty to Pledgor or to be
commercially unreasonable because a better sales price might have
been attained through an alternative disposition, if Bank in good
faith has determined that the alternative disposition might
constitute a violation of state or federal laws. Without
limiting the generality of the foregoing, Bank may at any sale of
the Stock Collateral restrict the prospective bidders or
purchasers of the Stock Collateral to persons who will represent
and agree that they are purchasing the Stock Collateral for their
own account for investment, and not with a view to distribution
or sale. Any purchaser at a sale conducted pursuant to the terms
of this Stock Pledge Agreement shall hold the property sold
absolutely, free from any claim or right on the part of Pledgor,
and Pledgor hereby waives any right of redemption, stay, or
appraisal under present or future law. Each and every purchaser
of any of the Stock Collateral shall be vested with all
shareholder's rights provided by the stock purchased, including,
without limitation, all voting and dividend rights. Pledgor
agrees that Bank may purchase the Stock Collateral or any part
thereof at any sale. Any requirement imposed by law regarding
the giving to Pledgor of prior notice of any sale or other
disposition of the Stock Collateral shall be deemed reasonable if
given by Bank in writing at least ten (10) days prior to such
sale or other disposition specifying the time and place thereof.
11. Application of Proceeds. The proceeds derived
from a disposition of the Stock Collateral shall be applied
toward payment of the Secured Obligations, in such order of
application as Bank may from time to time elect, and any
remaining balance shall be paid to Pledgor.
12. Term of Agreement. This Stock Pledge Agreement
shall terminate upon payment in full of the Secured Obligations,
at which time Bank shall reassign and deliver to Pledgor, or to
such person or persons as Pledgor may in writing designate,
against receipt, any Stock Collateral still held by Bank,
together with appropriate instruments of reassignment and
release. Such reassignment shall be without recourse upon or
warranty by Bank.
13. Securities. In view of the position of Pledgor in
relation to the Stock Collateral, or because of other present or
future circumstances, a question may arise under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, as now or hereafter in effect, or any similar statute
hereafter enacted analogous in purpose or effect (such Act and
any such similar statute as from time to time in effect being
hereinafter called the "Federal Securities Laws") with respect to
any disposition of the Stock Collateral permitted hereunder.
Pledgor understands that compliance with the Federal Securities
Laws
5
may very strictly limit the course of conduct of Bank if
Bank were to attempt to dispose of all or any part of the Stock
Collateral and may also limit the extent to which or the manner
in which any subsequent transferee of any Stock Collateral may
dispose of the same. Similarly, there may be other legal
restrictions or limitations affecting Bank in any attempt to
dispose of all or any part of the Stock Collateral under
applicable Blue Sky or other state securities laws or similar
laws analogous in purpose or effect. Under applicable law, in
the absence of an agreement to the contrary, Bank may perhaps be
held to have certain general duties and obligations to Pledgor to
make some effort towards obtaining a fair price even though the
Secured Obligations and other obligations may be discharged or
reduced by the proceeds of a sale at a lesser price. Pledgor
clearly understands that Bank is not to have any such general
duty and obligation to Pledgor, and Pledgor will not attempt to
hold Bank responsible for selling all or any part of the Stock
Collateral at an inadequate price even if Bank shall accept the
first offer received or does not approach more than one possible
purchaser, provided Bank acts in a commercially reasonable
manner. Without limiting the generality of the foregoing, the
provisions of this paragraph would apply if, for example, Bank
were to place all or any part of the Stock Collateral for sale by
an investment banking firm, or if such investment banking firm
purchased all or any part of the Stock Collateral for its own
account or if Bank placed all or any part of the Stock Collateral
with a purchaser or purchasers. The provisions of this paragraph
will apply notwithstanding the existence of a public or private
market upon which the quotations or sale prices may exceed
substantially the price at which Bank sells.
14. Miscellaneous.
a. Notices. All notices and other
communications to Pledgor under this Stock Pledge Agreement shall
be deemed to have been effectively given when delivered in person
to Pledgor or five (5) days after sending thereof, by first class
U.S. Mail, postage prepaid, to the following address:
If to Pledgor: If to Bank:
Citizens BancShares SunTrust Bank, Atlanta
Corporation 25 Park Place
75 Piedmont Avenue Center Code: 121
Atlanta, Georgia 30303 Atlanta, Georgia 30303
Attention: William Gibbs Attention: Mr. James Rountree
or to such other address as Pledgor has notified Bank in writing
to be the appropriate address for the sending of notices under
this Stock Pledge Agreement.
b. Survival. All representations,
warranties, covenants, and agreements herein contained shall
survive the execution and delivery of this Stock Pledge
Agreement.
c. No Waiver. No failure on the part of
Bank to exercise, and no delay in exercising, any right, power,
or remedy granted hereunder, or available at law, in equity, or
otherwise, shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power, or remedy by
Bank preclude any other or further exercise thereof, or the
exercise of any other right, power, or remedy.
6
d. Entire Agreement. This Stock Pledge
Agreement, the Loan Agreement, and the Loan Documents (as defined
in the Loan Agreement) contain the entire agreement between the
parties with respect to the pledge of and security interest in
the Stock Collateral and supersede any prior agreements or
understandings.
e. Amendments. This Stock Pledge Agreement
may be amended only by written agreement between the parties
hereto.
f. Time of Essence. Time is of the essence
under this Stock Pledge Agreement.
g. Governing Law. This Stock Pledge
Agreement and the construction and enforcement hereof shall be
governed in all respects by the laws of the State of Georgia and
the applicable laws of the United States of America.
h. Successors and Assigns. This Stock
Pledge Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective heirs,
administrators, legal representatives, successors, and assigns,
except that Pledgor shall not be permitted to assign its
obligations under this Agreement or any interest herein or
otherwise pledge, encumber, or grant any options with respect to
all or any of the cash, securities, certificates, instruments, or
other property held as Stock Collateral under this Stock Pledge
Agreement.
i. Severability. If any provision of this
Stock Pledge Agreement or any portion thereof shall be invalid or
unenforceable under applicable law, such part shall be
ineffective to the extent of such invalidity or unenforceability
only, without in any way affecting the remaining parts of such
provision or other remaining provisions.
j. Further Assurances. Pledgor agrees to
do such further acts, and to execute and deliver such additional
conveyances, assignments, agreements, and instruments as Bank may
at any time request in connection with the administration and
enforcement of this Stock Pledge Agreement or relative to the
Stock Collateral or any part thereof, or in order better to
assure and confirm to Bank its rights, powers, and remedies
hereunder.
k. Execution in Counterparts. This Stock
Pledge Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same instrument.
l. Headings and Capitalized Terms. The
descriptive headings of the several paragraphs are for
convenience only and are not to affect the construction of or to
be taken into consideration in interpreting this Stock Pledge
Agreement. Capitalized terms used herein and not otherwise
defined shall have the meanings described to them in the Loan
Agreement.
IN WITNESS WHEREOF, Pledgor and Bank have caused
this Stock Pledge Agreement to be duly executed and delivered
under hand and seal, as of the day and year first above written.
7
CITIZENS BANCSHARES CORPORATION
By:/s/ William L. Gibbs
Title: President and Chief
Executive Officer
[CORPORATE SEAL]
Attest:/s/ Audrey M. Alexander
Title: Assistant Secretary
SUNTRUST BANK, ATLANTA
By: /s/ James E. Rountree
Title: First VP
Attest: /s/ C. K. Gruehn
Title: Vice President
8
TERM NOTE
$900,000.00 April 22, 1996
Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, CITIZENS
BANCSHARES CORPORATION, a Georgia corporation (the "Borrower"),
hereby promises to pay to the order of SUNTRUST BANK, ATLANTA
(the "Bank"), at its Principal Office located at 25 Park Place,
Atlanta, Georgia the principal amount of NINE HUNDRED THOUSAND
AND NO/100 DOLLARS ($900,000.00) plus interest at a per annum
rate of the Prime Rate minus twenty-five (25) basis points in
lawful money of the United States and in immediately available
funds. Principal shall be repaid in twenty (20) consecutive
equal quarterly installments of Forty-Five Thousand and No/100
Dollars ($45,000.00) beginning on June 30, 1996 and continuing
thereafter on the last day of eachcalendar quarter thereafter;
provided, however, that the last such installment on March 31,
2001 shall be in the amount necessary to repay in full the unpaid
amount of this Term Note. Interest (computed on the basis of a
year of three hundred sixty (360) days for the actual number of
days elapsed) shall be paid on the unpaid principal amount of
this Term Note from the date of this Term Note until all
principal due hereunder has been repaid beginning on June 30,
1996 and continuing thereafter on the last day of each calendar
quarter until maturity. Any amount of the principal hereof which
is not paid when due (giving effect to any applicable grace
period), whether at stated maturity, by acceleration, or
otherwise, shall bear interest from the date when due until said
principal amount is paid in full, payable on demand, at a rate
per annum equal at all times to two percent (2%) above the rate
otherwise applicable thereto. Any change in the interest rate
resulting from a change in the Prime Rate shall be effective at
the beginning of the day on which such change in the Prime Rate
shall become effective.
If any installment of this Term Note becomes due and
payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day, and
interest shall be payable thereon at the rate herein specified
during such extension.
This Term Note is the Note referred to in, and is
entitled to the benefits of, the Term Loan Agreement, dated as of
April 22, 1996 between the Borrower and the Bank (the "Loan
Agreement"). Terms used herein which are defined in the Loan
Agreement shall have their defined meanings when used herein.
The Loan Agreement, among other things, contains provisions for
acceleration of the maturity of this Term Note upon the happening
of certain stated events and also for prepayments on account of
principal hereof prior to the maturity of this Term Note upon the
terms and conditions specified in the Loan Agreement. This Term
Note is secured by a Security Agreement referred to in the Loan
Agreement, reference to which is hereby made for a description of
the collateral provided for under the Security Agreement and the
rights of the Borrower and the Bank with respect to such
collateral.
In addition to and not in limitation of the foregoing
and the provisions of the Loan Agreement, the Borrower further
agrees to pay all expenses of collection, including reasonable
attorneys' fees, if this Note shall be collected by law or
through an attorney at law, or in bankruptcy, receivership, or
other court proceedings.
TIME IS OF THE ESSENCE UNDER THIS NOTE. This Note has
been delivered in Atlanta, Georgia, and shall be governed by and
construed under the laws of Georgia.
PRESENTMENT, PROTEST, AND NOTICE OF DISHONOR ARE HEREBY
WAIVED BY THE BORROWER.
IN WITNESS WHEREOF, the Borrower has caused this Note
to be executed and delivered by its duly authorized officer as of
the date first above written.
CITIZENS BANCSHARES CORPORATION
By:/s/ William L. Gibbs
Title:President & Chief
Executive Officer
Attest:/s/Audrey M. Alexander
Title:Assistant Secretary
(CORPORATE SEAL)
2
EXHIBIT E
FORM OF OPINION OF COUNSEL FOR BORROWER
ARRINGTON & HOLLOWELL
ATTORNEY AT LAW
ONE NINETY ONE PEACHTREE TOWER
191 PEACHTREE STREET, SUITE 3550
ATLANTA, GEORGIA 30303-1735
SunTrust Bank, Atlanta
25 Park Place, N.E.
Atlanta, Georgia 30302
Attention: Mr. James Rountree
RE: $900,000.00 Term Loan Agreement, by and between
Citizens Bancshares Corporation and SunTrust Bank,
Atlanta, dated April 22, 1996
Gentlemen:
We have acted as counsel to Citizens Bancshares Corporation,
a Georgia corporation (the "Company"), in connection with the
preparation, execution, and delivery of the Term Loan Agreement
dated as of April 22, 1996 (the "Loan Agreement"), between
SunTrust Bank, Atlanta (the "Bank") and the Company. Capitalized
terms not otherwise defined herein are defined as set forth in
the Loan Agreement. Reference is this opinion to any section,
schedule or exhibit shall mean any section, schedule as exhibit
to the Loan Agreement as amended and supplemented to the date of
this opinion.
In connection with our representation of the Company as set
forth above, we have examined the Loan Agreement and each and
every agreement, document and instrument provided for in the Loan
Agreement (collectively the Transactions Documents ). We have
also examined such resolutions adopted by the Executive Committee
of the Board of Directors of the Company relating to the
Transaction Documents and have also made such examination of law
as we have considered necessary as the basis for this opinion.
We have relied, as to factual matters upon the representations
and warranties in the Transaction Documents and information
furnished by the Company in the form of certificates. In
connection herewith, we have also examined and relied upon the
originals, or copies certified to our satisfaction, of such
documents, certificates and other instruments as in our judgment
are necessary or appropriate to enable us to render the opinions
expressed below. We have assumed the authenticity of all
documents submitted to us as originals and the conformity to
original documents of all documents submitted to us copies.
With your consent, we have assumed that all
signatures appearing on documents delivered to us are genuine,
all such documents are authentic and, where we have received
copies, that the copies conform to the original documents. We
have also assumed with your agreement, that the Bank is duly
organized, validly existing and in good standing under the laws
governing its organization and that the Bank has all requisite
power and authority and has taken all necessary corporate action
to execute and deliver the Transaction Documents to which it is a
party, to effect the transaction contemplated thereby, and that
the Bank is bound by the Transaction Documents in accordance with
their terms.
This opinion letter is limited by, and is delivered in
accordance with, the January 1, 1992 edition of the Interpreter s
Standards (the Interpretative Standards ) applicable to Legal
Opinions to Third Parties in Corporate Transactions adopted by
the Legal Opinion Committee of the Corporate and Banking Law
Section of the State Bar of Georgia, which Interpretative
Standards are incorporated in this opinion letter by this
reference.
Subject to the foregoing, and subject to the qualifications
set forth below, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly
existing, and in good standing under the laws of the jurisdiction
of its the State of Georgia. Citizens Trust bank is a wholly
owned subsidiary of Company and is a Commercial Bank duly
organized, validly existing, and in good standing under the laws
of the State of Georgia. The Company and each of its
Subsidiaries has the corporate power and authority to own its
assets and to transact the business in which it is now engaged.
2. The execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Loan
Documents to which it is a party have been duly authorized by all
requisite corporate action on the part of the Company and do not
and will not (i) violate any provision of any law, rule, or
regulation of the State of Georgia, or any judgment, order, or
ruling of any Georgia court or Georgia governmental agency of
which we have knowledge, or the articles of incorporation or
bylaws of the Company, or any indenture or material agreement to
which the Company is a party or by which the Company or any of
its properties are bound of, or (ii) to which we have knowledge,
be in conflict with, result in a breach of, or constitute with
notice or lapse of time, or both, a default under any such
indenture or material agreement.
3. To our knowledge, there are no actions, suits,
investigations, or proceedings pending or overtly threatened
against the Company or its properties before any court,
arbitrator, or administrative or governmental body required to be
disclosed to the Bank by Seciton 4.07 of the Loan Agreement,
except for those actions, suits, investigations, or proceedings
identified and disclosed to you in Exhibit G attached to the Loan
Agreement.
4. The Loan Agreement, the Note, and all other Loan
Documents to which the Company is a part are legal, valid, and
binding agreements of the Company enforceable against the Company
in accordance with their terms.
5. No consent, permission, authorization, order, or
license of any governmental authority is necessary in connection
with the execution, delivery, performance, or enforcement of the
Loan Documents.
The opinions expressed herein are qualified by
effect of: (a) applicable bankruptcy, insolvency, reorganization,
moratorium, arrangement or similar laws relating to or affecting
the enforcement of creditors rights generally, including,
without limitation, any state or federal fraudulent conveyance
or fraudulent transfer law; (b) any statutes, rules or
procedures and applicable case law limiting the availability of,
or proscribing procedural requirements for the exercise of,
creditors remedies; and ( c) the fact that equitable remedies or
relief (including, but not limited to, the remedy of specific
performance) are subject to the discretion of the court before
which any such remedies or relief may be sought.
As provided in the Interpretive Standards,
this opinion is limited to the matters stated herein and no
opinion is implied or may be inferred beyond the matters
expressly stated. As provided in the Interpretive Standards,
opinions rendered herein are as of the date hereof, and we make
no undertaking and expressly disclaim any duty to supplement such
opinions if, after the date hereof, facts and circumstances come
to our attention or changes in the law occur which could affect
such opinions.
The opinions expressed herein are subject to the
following qualifications:
Our opinion is based exclusively on the internal lows
of the State of Georgia, and (except as expressly provided
herein) without reference to any choice-of-law provisions
contained int he documents referenced herein or conflict-of-law
provision under the laws of Georgia or any other state or federal
law.
This opinion is delivered to you pursuant to Article III,
Section 3.01 of the Loan Agreement for your use in connection
with the term loan and may not be utilized or quoted by you or
anyone else for any other purpose.
Very truly yours,
Arrington & Hollowell
By:/s/ Stanley Foster
EXHIBIT F
OFFICER'S CERTIFICATE
The undersigned certifies that he is Chief Executive
Officer of Citizens Bancshares Corporation (the "Company") and
that as such he is familiar with the business and affairs of the
Company and is authorized to execute this Certificate on behalf
of the Company, and, with reference to the Term Loan Agreement
(the "Loan Agreement") dated April 22, 1996 between the Company
and SunTrust Bank, Atlanta, that he duly has made such
investigations as were necessary for the provision of this
Certificate and the certifications, representations, and
warranties contained herein and that he hereby further certifies,
represents, and warrants as follows:
1. That the representations and warranties of the
Company contained in Article IV of the Loan Agreement and
otherwise made in writing by or on behalf of the Company in
connection with the transactions contemplated by the Loan
Agreement, and the schedules and exhibits attached to the Loan
Agreement, are true and correct on and as of the date hereof; and
2. That the Company has performed and complied with
all agreements and conditions contained in the Loan Agreement
required to be performed or complied with by it, and that on and
as of the date hereof no condition or lapse of time, or both,
will constitute an Event of Default as defined in Article VIII of
the Loan Agreement.
3. That neither the execution, delivery, and
performance of the Loan Agreement or of the Note nor fulfillment
of or compliance with the terms and provisions thereof will
conflict with, or result in a breach of, the terms, conditions,
or provisions of or constitute a default under, or result in any
violation of, any other agreement to which the Company or any of
its Subsidiaries is subject. Neither the Company nor any
Subsidiary is a party to, or otherwise subject to any provision
contained in, any instrument evidencing indebtedness of the
Company or such Subsidiary, any agreement relating thereto, or
any other contract or agreement which limits the amount of, or
otherwise imposes restrictions on the incurring of the type of
debt to be evidenced by the Note.
4. That there has been no material adverse change in
the assets, liabilities, financial positions, operations or
business prospects of Borrower since December 31, 1995.
Capitalized terms not otherwise defined herein are
defined as set forth in the Loan Agreement.
WITNESS the seal of the Company and the signature of
the undersigned, as of this 22 day of April, 1996.
/s/ William L. Gibbs (SEAL)
William L. Gibbs
EXHIBIT G
LITIGATION
Martin v.CTB , U.S. District Court, Northern District of Georgia,
Case No. 1:95-CV-2802-JOF.
Martin claims she was terminated because of her age, 47, in
violation of the ADEA. The matter is currently in the discovery
stage and will not go to trial in 1996, if ever. If Martin is
successful, liability could exceed $25,000. The Bank vigorously
denies liability in this matter.
Lewis v. CTB, EEOC Charge No. 110951914
Lewis alleges unlawful discrimination based on her termination.
The EEOC is investigating her charge; no litigation has been
filed. If Lewis is successful, liability could exceed $25,000.
The Bank vigorously denies liability in this matter.
Citizens Trust Bank v. Grady L. Cornish, Cornish Electrical and
Mill Supply, Inc., and Charles W. Shepherd, State Court of Clark
County, Civil Action File No. ST-93-CV-0259
This is a proceeding brought by the bank for collections against
notes and the guarantors of the notes. Charles W. Shepherd has
asserted various counterclaims against Citizens Trust Bank
( CTB ), praying for, inter alia, cancellation, recession and
revocations of the promissory notes and guarantees upon which his
liability arises. CTB prevailed on a Motion for Summary
Judgment. Shepherd then appealed. CTB and Shepherd then entered
into a Settlement Agreement, wherein for consideration paid to
CTB, CTB and Shepherd will dismiss their claims against each
other upon completion of the payments due to CTB under the
Settlement, CTB will assign its interest in the judgments it
obtained against the other defendants. As of today s date all
sums due under the Settlement have been paid, but the mutual
dismissal and assignment have not been executed.
Harry Pettigrew as Trustee of Windsor-Eastman Group, Inc. v.
Citizens Trust Bank, U.S. Bankruptcy Court, N.D. Ga Adversary
Proceeding No. 95-6766
Mr. Pettigrew as the Chapter 7 Trustee of the Bankruptcy Estate
of Windsor-Eastmann Group, Inc. filed a complaint against CTB
alleging that CTB was negligent in honoring a check of Windsor-
Eastmann Group, Inc., made payable to CTB when CTB had no
relationship with the corporate debtor, nor with the person who
presented the check and who deposited the check into his personal
savings account. The Trustee, alternatively, on the same facts
alleged that CTB converted the corporate check. The Trustee has
prayed for damages in the sum of the check honored. One Hundred
Thousand ($100,000) Dollars.
Occupational Medicine Clinic West, Inc., v. Citizens Trust Bank,
Fulton County Superior Court Civil Action No. E-38151
Occupational Medicine Clinic West, Inc. ( OMCW ) filed a
complaint in the Superior Court of Fulton County, Georgia,
seeking to enjoin CTB from conducting a foreclosure sale of
improved real property which was pledged as security for
indebtedness owed by OMCW to CTB, and requesting an accounting
and praying for damages in an unspecified amount and seeking
punitive damages for the alleged wrongful foreclosure of One
Million ($1,000,000.00) Dollars. CTB has counterclaimed for the
amounts due under the notes executed by OMCW.
Citizens Trust Bank v. Angenette B. Jones, State Court of Fulton
County Civil Action No. 95-VS-0101298
CTB commenced this action against the defendant to collect the
deficiencies due on a note after collateral securing her debt was
repossessed and sold pursuant to statute. Ms. Jones
counterclaimed against CTB alleging the repossession was
wrongful. She seeks unspecified damages for the loss of the
equity in the vehicles and the consequential damages for the loss
of the use of the vehicles. She has, also, prayed for punitive
damages in an unspecified amount.
Angelina Eubosi Williams v. Citizens Trust Bank, State Court of
Fulton County, Georgia, Civil Action File No. 92-VS53343-B
On February 25, 1992, CTB was served with a complaint alleging
that CTB wrongfully dishonored various checks, initiating a chain
reaction that ultimately caused the plaintiff various damages,
including loss of income, loss of business reputation, and mental
and emotional distress. Plaintiff seeks actual and punitive
damages.
Boston Bank of Commerce v. Citizens Trust Bank; Superior Court of
Suffolk County; State of Massachusetts, Civil Action No. 95-2024B
On April 27, 1995, Boston Bank of Commerce ( BBOC ) filed suit
against Citizens Trust Bank alleging that CTB wrongfully released
collateral securing a loan to Communication International,
Inc. ( CCI ). The plaintiff, Boston Bank of Commerce, was a 30%
participant in the CII loan and contends that it has been damaged
int he amount of approximately $70,000.
EXHIBIT H
CERTIFICATE OF NO DEFAULT AND RELATED MATTERS
The undersigned, being, respectively, theChief
Executive Officer and Comptroller of Citizens Bancshares
Corporation, a Georgia corporation ("Borrower"), hereby give this
Certificate to induce SunTrust Bank, Atlanta ("Bank") to enter
into and to continue to perform pursuant to that certain Term
Loan Agreement dated April , 1996 between Borrower and Bank
(the "Loan Agreement"; unless otherwise defined herein, the
capitalized terms shall have the meanings ascribed thereto in the
Loan Agreement) hereby certify as follows:
1. They are, respectively, Chief Executive Officer and
Comptroller of Borrower and, in such capacities, are
authorized and empowered to issue this Certificate for and
on behalf of Borrower.
2. The representations and warranties of Borrower set forth in
the Loan Agreement and any other of the documents executed
in connection therewith, the terms of which are incorporated
herein by reference, are true and correct in all material
respects on and as of the date hereof with the same effect
as though made and on as of the date hereof.
3. The Borrower is, on the date hereof, in compliance with all
the terms and provisions set forth in the Loan Agreement and
the other documents executed in connection therewith.
4. On the date hereof, no default or Event of Default, nor any
event or condition which with notice, lapse of time, or any
combination thereof, would constitute such an Event of
Default, has occurred or is continuing.
5. The quarterly financial statements delivered herewith
pursuant to Section 5.09 of the Loan Agreement present the
financial condition of Borrower and its Subsidiaries fairly
and accurately and not misleading in the context in which
presented.
6. Borrower and its Subsidiaries are in compliance with the
financial covenants set forth in Article VII of the Loan
Agreement and the following computations demonstrate
compliance therewith:
[list relevant financial covenants]
7. No regulatory or other impediment exists which would impair
or prohibit the payment of dividends by the bank
Subsidiaries to the Bank.
8. No litigation, investigation, proceeding, injunction, writ
or restraining order or regulatory enforcement action is
pending or threatened.
IN WITNESS WHEREOF, the undersigned have set their
hands and seals, this _____ day of _____________, 19__.
_____________________________(SEAL)
William L. Gibbs
____________________________(SEAL)
Amy I. Scott
EXHIBIT I
PERMITTED LIENS
None.
EXHIBIT J
PERMITTED DEBT
None.
September 9, 1996
Securities and Exchange Commission
Washington, DC 20549
Ladies and Gentlemen:
We were previously principal accountants for Citizens
Bancshares Corporation and, under the date of February 9,
1996, we reported on the consolidated financial statements
of Citizens Bancshares Corporation and subsidiaries as of
and for the years ended December 31, 1995 and 1994. On
September 3, 1996 our appointment as principal accountants
was terminated. We have read Citizens Bancshares
Corporation's statements included under item 4 of its Form
8-K dated September 6, 1996 and we agree with such
statements, except that we are not in a position to agree or
disagree with Citizens Bancshares Corporation's statements
under item 4(a)(iii) and the statements under item 4(b)(I)
regarding new independent accountants.
Very truly yours,
KPMG Peat Marwick LLP
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