SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) TO THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) TO THE EXCHANGE ACT
For the transition period from ____________ to _____________
Commission File No: 0 - 14535
CITIZENS BANCSHARES CORPORATION
(Name of small business issuer in its charter)
Georgia 58 - 1631302
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
175 John Wesley Dobbs Avenue, N.E., Atlanta, Georgia 30303
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (404) 659 - 5959
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months ( or for such
shorter period that the registrant was required to file such reports ), and
(2) has been subject to such filing requirements for the 90 days. Yes X No.
State the number of shares outstanding if each of the issuer's classes of
common equity as of the latest practicable date: 2,164,065 shares of Common
Stock, $1.00 par value, outstanding on May 1, 1998.
Part I. Financial Information:
Citizens Bancshares Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
(unaudited-amounts in thousands, except per share amounts)
ASSETS
1998 1997
Cash and due from banks $ 11,509 10,637
Interest bearing deposits 12,047 857
Federal funds sold 2,485 3,456
Investment securities:
Held to maturity 18,804 13,164
Available for sale 12,053 20,796
Other Investments 1,335 2,017
Total investments 32,192 35,977
Loans, net of unearned income 119,201 121,414
Less allowance for loan losses 1,516 1,752
Loans, net 117,685 119,662
Loans held for sale 301 623
Premises and equipment, net 5,699 5,844
Cash value of life insurance 3,663 3,640
Other assets 5,701 4,437
Total assets $ 191,282 185,133
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 44,860 43,633
Interest-bearing 125,352 120,311
Total deposits 170,212 163,944
Treasury, tax and loan account 174 195
Short-term debt 1,460 1,851
Long-term debt 540 585
Other liabilities 2,190 2,349
Total liabilities 174,576 168,924
Shareholders' equity:
Common stock-$1 par value. Authorized
5,000,000 shares; issued and outstanding
2,164,065 shares 2,164 2,164
Additional Paid-In Capital 6,174 6,174
Accumulated other comprehensive income 24 31
Retained earnings 8,344 7,840
Total shareholders' equity 16,706 16,209
Total liabilities and shareholders' equity $ 191,282 185,133
See accompanying notes to consolidated financial statements.
Citizens Bancshares Corporation and Subsidiaries
Consolidated Statements of Earnings and Comprehensive Income
(unaudited-amounts in thousands, except per share amounts)
Three Months
Ended March 31,
1998 1997
INTEREST INCOME:
Loans, including fees $ 2,866 2,566
Investment securities:
Taxable 485 807
Tax-exempt 58 50
Interest bearing deposits 105 -
Federal funds sold 50 92
Total interest income 3,564 3,515
INTEREST EXPENSE:
Deposits 1,209 1,277
Other borrowed funds 12 20
Long-term debt 12 16
Total interest expense 1,233 1,313
Net interest income 2,331 2,202
Provision for loan losses - 45
Net interest income after provision for
loan losses 2,331 2,157
NONINTEREST INCOME:
Service charges on deposit accounts 941 1,043
Commission and fees 593 234
Other operating income 283 312
Total noninterest income 1,817 1,589
NONINTEREST EXPENSE:
Salaries and employee benefits 1,810 1,969
Net occupancy and equipment 644 572
Other operating expenses 956 1,021
Total other expense 3,410 3,562
Earnings before income taxes 738 184
Income tax expense 234 61
Net earnings $ 504 123
Net earnings 504 123
Other comprehensive income, net of tax:
Unrealized holding losses (7) (201)
Comprehensive income 497 (78)
Net earnings per common share $ 0.23 0.06
Average outstanding shares 2,164 2,164
See accompanying notes to consolidated financial statements
<TABLE>
<CAPTION>
Citizens Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997
(unaudited-amounts in thousands, except per share amounts)
1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 504 123
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Provision for loan losses - 45
Depreciation and amortization 253 260
Provision for deferred taxes - (5)
Amortization (accretion), net (7) 3
Accretion (amortization) of deferred loan fees (7) 10
Increase in other assets (1,224) (2,687)
Decrease in accrued expenses and other liabilities (159) (55)
Net cash (used) provided by operating activities (640) (2,306)
Cash flows from investing activities:
Proceeds from maturities of investment securities held to 4,330 1,887
Proceeds from maturities of investment securities availab 5,263 1,599
Proceeds from sale of investment securities held to matur - 250
Purchases of investment securities available for sale (6,494) (7,025)
Net decrease ( increase) in other investments 682 (51)
Net decrease (increase) in loans 2,247 (76)
Purchases of premises and equipment (108) (94)
Net cash used by investing activities 5,920 (3,510)
Cash flows from financing activities:
Net (decrease) increase in demand deposits 1,227 (11,118)
Net increase in time and savings deposits 5,041 3,070
Net (decrease) increase in short-term debt (391) 3,450
Principal payment on long-term debt (45) (45)
Proceeds from sale of stock - 260
Dividends paid - (3)
Net increase in treasury, tax and loan account (21) 146
Net cash (used) provided by financing activities 5,811 (4,240)
Net (decrease) increase in cash and cash equivalents 11,091 (10,056)
Cash and cash equivalents at beginning of period 14,950 23,327
Cash and cash equivalents at end of period $ 26,041 13,271
Supplemental disclosures of cash paid during the period for:
Interest $ 1,350 1,324
Income taxes $ 75 25
Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure $ 72 -
See accompanying notes to consolidated financial statements.
</TABLE>
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited statements have been prepared pursuant to the
rules and regulations for reporting on Form 10 - QSB. Accordingly, certain
disclosures required by generally accepted accounting principles are not
included herein. These interim statements should be read in conjunction with
the financial statements and notes thereto included in the company's latest
Annual Report on Form 10 - KSB.
On January 30, 1998, Citizens Bancshares Corporation ( the "Company" ) and
First Southern Bancshares, Inc. (" First Southern"), a bank holding company
that wholly owned one bank and a non-bank subsidiary, merged. The
transaction was a tax-free exchange. The merger was accounted for as a
pooling of interest with the Company being the surviving entity.
First Southern also owned FSB Mortgage Services, Inc. ("FSB Mortgage") which
originates residential mortgages through a variety of products. The mortgage
subsidiary is now wholly owned by the Company.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Citizens Trust Bank ( the "Bank" ) and FSB
Mortgage. The Bank has a wholly owned subsidiary, Atlanta Mortgage Brokerage
and Servicing Co., whose accounts are also included. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements of the Company as of March 31, 1998
and for the three months ended March 31,1998 and 1997 are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of
the financial position and results of operations and cash flows for the three
month period have been included. All adjustments are of a normal recurring
nature.
2. ACCOUNTING AND REGULATORY MATTERS
IMPAIRED LOANS
Management considers a loan to be impaired when, based on current information
and events, it is probable that all amounts due according to the contractual
terms of the loan will not be collected. Impaired loans are measured based
on the present value of expected future cash flows, discounted at the loan's
effective interest rate, or at the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent.
Loans are generally placed on nonaccrual status when the full and timely
collection of principal or interest becomes uncertain or the loan becomes
contractually in default for 90 days or more as to either principal or
interest unless the loan is well collateralized and in the process of
collection. When a loan is placed on nonaccrual status, current period
accrued and uncollected interest is charged to interest income on loans
unless management feels the accrued interest is recoverable through the
liquidation of collateral. Interest income, if any, on nonaccrual loans is
generally recognized on the cash basis.
At March 31, 1998, the recorded investment in loans that are considered to be
impaired was approximately $1,069,000 a decrease of $161,000 from December
31, 1997. At The related allowance for loan losses for each of these loans
was approximately $158,000 and $244,000, respectively. For the Three months
ended March 31, 1998, the Company recognized approximately $ 3,000 in
interest income on these impaired loans on an accrual basis.
NONPERFORMING ASSETS
Nonperforming assets include nonperforming loans, real estate acquired
through foreclosure and repossessed assets. Nonperforming loans consist of
loans which are past due with respect to principal or interest more than 90
days or have been placed on nonaccrual status.
With the exception of the loans included within nonperforming assets in the
table below, management is not aware of any loans classified for regulatory
purposes as loss, doubtful, substandard, or special mention that have not
been disclosed which(1) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (2) represent any information
on material credits which management is aware that causes management to have
serious doubts as to the abilities of such borrowers to comply with the loan
repayment terms.
Nonperforming loans increased approximately $52,000 to $1,164,000 at
March 31, 1998, from $1,112,000 at December 31, 1997. Nonperforming assets
represented 1.86% of loans, net of unearned income and real estate acquired
through foreclosure at March 31, 1998 as compared to 1.79% at
December 31, 1997.
The table below presents a summary of the Company's nonperforming assets
at March 31, 1998 and December 31, 1997.
1998 1997
(Amounts in thousands, except
financial ratios)
Nonperforming assets:
Nonperforming loans:
Nonaccrual loans $ 925 1,005
Past-due loans 239 107
Nonperforming loans 1,164 1,112
Real estate acquired through foreclosure 1,073 1,075
Total nonperforming assets $ 2,237 2,187
Ratios:
Nonperforming loans to loans, net of
unearned income .97% .92
Nonperforming assets to loans(net of unearned
income) and real estate acquired through
foreclosure 1.86% 1.79
Nonperforming assets to total assets 1 .17% 1.18
Allowance for loan losses to
Nonperforming loans 130.24% 157.55
Allowance for loan losses to
nonperforming assets 67.77% 80.11
Interest income on nonaccrual loans which would have been reported for
the three months ended March 31, 1998 totaled approximately $24,000.
ALLOWANCE FOR LOAN LOSSES
The following table summarizes loans, changes in the allowance for loans
losses arising from loans charged off, recoveries on loans previously
charged off by loan category, and additions to the allowance which have been
charged to operating expense as of and for the periods ended March 31, 1998
and December 31, 1997.
1998 1997
Loans, net of unearned income $ 119,201 121,414
Average loans, net of unearned income and the
allowance for loan losses $ 119,869 115,657
Allowance for loans losses at the
beginning of year $ 1,752 1,806
Loans charged off:
Commercial, financial, and agricultural 88 68
Real estate- mortgage 35 169
Installment loans to individuals 157 436
Total loans charged off 280 673
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 4 84
Real estate- mortgage 12 85
Installment loans to individuals 28 149
Total loans recovered 44 318
Net loans charged off 236 355
Additions to allowance for loan losses
charged to operating expense - 301
Allowance for loan losses at period end $ 1,516 1,752
Ratio of net loans charged off to average
loans, net of unearned income and the allowance
for loan losses .20% .31
Allowance for loan losses to loans, net of
unearned income 1.27% 1.44
Credit reviews of the loan portfolio designed to identify potential charges
to the allowance for loan losses, as well as to determine the adequacy of
the allowance for loan losses, are made on a continuous basis throughout the
year. These reviews are conducted by management, lending officers, and
independent third parties. These reviews are also reviewed by the Board of
Directors, who consider such factors as the financial strength of borrowers,
the value of applicable collateral, past loan loss experience, anticipated
loan losses, growth in the loan portfolio, and other factors including
prevailing and anticipated economic conditions. Management believes the
allowance for loan losses is adequate at March 31, 1998.
A substantial portion of the Company's loan portfolio is secured by real
estate in the metropolitan Atlanta market. Accordingly, the ultimate
collectibility of a substantial portion of the Company?s loan portfolio is
susceptible to changes in market conditions in the metropolitan Atlanta area.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
Citizens Bancshares Corporation ( the "Company" ), a one-bank holding
company, provides a full range of commercial banking services to individual
and corporate customers in metropolitan Atlanta through its wholly owned
subsidiary, Citizens Trust Bank ( the "Bank" ). The Bank operates under a
state charter and serves its customers through ten full service branches.
The following discussion is of the Company's financial condition as of
March 31, 1998 and the changes in the financial condition and results of
operations for the three month periods ended March 31, 1998 and 1997.
RESULTS OF OPERATIONS
Net Interest Income:
Net interest income represents the excess of income received on
interest-earning assets and interest paid on interest-bearing liabilities.
Net interest income for the first quarter 1998 increased compared to the
three month period of 1997. The combination of higher loan volume, lower
rates paid on interest bearing liabilities and lower volume and yield on the
investment portfolio increased the Company's net interest margin to 5.62% for
the first quarter 1998 compared to 5.30% in 1997.
Noninterest income:
Noninterest income increased approximately $228,000 or 14% for the three
month period ended March 31, 1998 as compared to the same period in 1997.
The increase in noninterest income is due primarily to an increase in
commission and fees on mortgage loans, of approximately $359,000, as a
result of an increase in the volume of loan closings.
Noninterest expense:
Noninterest expense decreased approximately $173,000 or 4% during the three
month period as compared to the same period in 1997. The decrease is
attributable to a decrease in salaries and employee benefits of $159,000 The
decrease in salaries and employee benefit costs is due to a reduction in
staff due to the merger.
Net earnings:
The Company had net earnings of approximately $504,000 or $0.23 per share
during the first quarter ended 1998 as compared to $123,000 or $0.06 per
share in 1997. The $381,000 increase in net earnings as compared to 1997 is
attributable to an increase in net interest income and noninterest income of
approximately $174,000 and $228,000 and a decrease in noninterest expense of
approximately $152,000.
LIQUIDITY
Liquidity is a bank's ability to meet deposit withdrawals, while also,
providing for the credit needs of customers. In the normal course of
business, the Company's cash flow is generated from interest and fees on
loans and other interest-earning assets. The Company continues to meet
liquidity needs primarily through the sale of federal funds and managing the
maturities of investment securities. At March 31,1998, approximately 9% of
the investment portfolio matures within the next year, 42% after one year
but before five years. In addition, interest bearing deposits and federal
funds sold averaged approximately $6.8 and $4.5 million, respectively,
during the three month period ended March 31, 1998. The Company is a member
of the Federal Home Loan Bank of Atlanta, the Federal Reserve System and
maintains relationships with several correspondent banks and, thus, could
obtain funds on short notice. Company management closely monitors and
maintains appropriate levels of interest-earning assets and interest-bearing
liabilities, so that maturities of assets are such that adequate funds are
provided to meet customer withdrawals and loan demand.
CAPITAL RESOURCES
Quantitive measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and
Tier 1 capital to risk weighted assets, and Tier 1 capital to average assets.
As of March 31, 1998, the Company's total and Tier 1 capital to risk weighted
assets and Tier 1 to average assets were 13%, 12% and 9% respectively.
Management believes, as of March 31, 1998, that the Company meets all
capital adequacy requirements to which it is subject.
Year 2000 Processing Risk
The Board and management consider the Year 2000 ("Y2K") computer processing
risk to be a very serious risk for the banking and financial services
industry in particular and for all businesses which depend on computer
hardware and software to perform the critical functions of their businesses.
In the third quarter of 1997, the Board established a Y2K Policy and Y2K
Compliance Committee. The Committee is headed by senior management, meets
monthly and regularly reports to the Audit and Compliance Committee of
the Board of the full Board.
The Company and Bank do not use proprietary computer hardware or software.
Therefore, they depend upon outsourced data processing services and third
party software. Management has identified all mission critical hardware
and software applications and is following the general guidelines
promulgated by the FDIC to assure that all mission critical applications
will be renovated with testing in progress, by December 31, 1998, or
contingency plans will be in the process of implementation. At this time,
the servicing vendors appear to have completed their assessments and have
described to the Bank their time lines for renovation and testing. Management
has no reason to believe at this time, that all mission critical applications
for the Bank and Company will not be adequately addressed by our vendors'
plans.
Management is currently reviewing all of the Bank's significant commercial
loan relationships to determine how much Y2K risk may exist in the Bank's
customer base. To the extent that such risk is identified, management will
request such customers to develop their own compliance strategy and will
require those customers to keep us informed of their progress. The Bank's
contingency plans for customers who fail to adequately address this risk may
include but will not be limited to, requiring such customers to pay off their
loans.
The costs of implementing Y2K solutions on mission critical systems have not
been fully determined as of the date of this report. The Bank's local area
computer network was already budgeted for upgrade in 1998 to workstations
and file-servers that will be Y2K ready. The budget for these upgrades is
approximately $500,000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings to which
the Company or its subsidiary is a party or to which any of their property
is subject.
ITEM 2. CHANGES IN SECURITIES
The Bank is restricted as to dividend payments to the Company by regulatory
requirements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CITIZENS BANCSHARES CORPORATION
Date: May 15, 1998 By: /s/ James E. Young
James E. Young
President and Chief Executive Officer
Date: May 15, 1998 By: /s/ Willard C. Lewis
Willard C. Lewis
Senior Executive Vice President and
Chief Operating Officer
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<INVESTMENTS-HELD-FOR-SALE> 13388
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