SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) TO THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
( ) 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 for each of the issuer's classes
of common equity as of the latest practicable date: 2,138,213 shares
of Common Stock, $1.00 par value and 90,000 shares of Non-Voting Common
Stock, $1.00 par value outstanding on October 31, 2000.
<TABLE>
Citizens Bancshares Corporation and Subsidiary
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(unaudited - in thousands)
ASSETS September 30, December 31,
2000 1999
<S> <C> <C> <C>
Cash and due from banks $ 11,914 $ 11,898
Federal funds sold 30 655
Interest bearing deposits 7,958 561
Certificates of deposits 995 -
Investment securities 54,926 53,980
Loans, net of unearned income 167,028 133,622
Less: Allowance for loan losses (2,251) (1,612)
Loans, net 164,777 132,010
Loans held for sale 1,300 -
Property held for sale 383 1,405
Premises and equipment, net 6,977 5,993
Cash value of life insurance 6,012 4,923
Other assets 4,772 4,085
Total assets $ 260,044 $ 215,510
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing deposits $ 56,507 $ 52,896
Interest-bearing deposits 166,907 129,917
Total deposits 223,414 182,813
Other borrowed funds 11,496 10,835
Other liabilities 3,923 2,980
Total liabilities 238,833 196,628
Stockholders' equity:
Common stock - $1 par value.
Authorized 5,000,000 shares;
issue and outstanding 2,230,065 shares 2,230 2,230
Common stock, non-voting - $1 par value.
Authorized 5,000,000 shares;
issue and outstanding 90,000 shares 90 90
Additional paid - in capital 7,445 7,445
Treasury stock (920) (920)
Retained earnings 12,754 11,162
Accumulated other comprehensive income (388) (1,125)
Total stockholders' equity 21,211 18,882
Total liabilities and stockholders' equity $ 260,044 $ 215,510
</TABLE>
See notes to the consolidated financial statements.
<TABLE>
Citizens Bancshares Corporation and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(unaudited - in thousands)
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
INTEREST INCOME:
<S> <C> <S> <C> <C> <C> <C> <C>
Loans, including fees $ 3,973 $ 3,076 $ 11,382 $ 8,931
Investment securities:
Taxable 699 707 2,089 2,071
Tax-exempt 117 113 346 338
Federal funds sold 5 (5) 29 7
Interest bearing deposits 76 29 169 221
Total interest income 4,870 3,920 14,015 11,568
INTEREST EXPENSE:
Deposits 1,762 1,300 5,000 3,852
Other borrowed funds 275 77 582 154
Total interest expense 2,037 1,377 5,582 4,006
Net interest income 2,833 2,543 8,433 7,562
Provision for loan losses 90 75 240 212
Net interest income after provision
for loan losses 2,743 2,468 8,193 7,350
NONINTEREST INCOME:
Service charges on deposit accounts 935 936 2,622 2,741
Commission and fees 591 908 1,889 2,682
Gain on sale of real estate held for sale - - 745 -
Other operating income 451 242 1,067 852
Total noninterest income 1,977 2,086 6,323 6,275
NONINTEREST EXPENSE:
Salaries and employee benefits 1,883 2,007 5,664 5,750
Net occupancy and equipment 558 545 1,819 1,753
Other operating expenses 1,570 1,361 4,320 4,123
Total other expense 4,011 3,913 11,803 11,626
Income before income taxes 709 641 2,713 1,999
Income tax expense 200 201 765 609
Net income $ 509 $ 440 $ 1,948 $ 1,390
Other comprehensive income (loss), net of taxes 638 (253) 737 (1,198)
Comprehensive income (loss) $ 1,147 $ 187 $ 2,685 $ 192
Net income per common share, basic and diluted $ 0.23 $ 0.20 $ 0.87 $ 0.64
Weighted average outstanding shares, basic
and diluted 2,228 2,160 2,228 2,160
See notes to the consolidated financial statements.
</TABLE>
Citizens Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited-amounts in thousands)
Nine Months
Ended September 30,
2000 1999
Cash flows from operating activities:
Net income 1,948 $ 1,390
Adjustments to reconcile net income
to net cash used in operating activities:
Provision for loan losses 240 212
Depreciation and amortization 644 823
Amortization (accretion), net 64 25
Gain on investments - (7)
Loss on sale of assets - 20
Gain on sale of property held for sale (745) -
Net change in loans held for sale (1,300) 406
Change in property held for sale (383) -
Change in other assets (841) (2,596)
Change in accrued expenses and other liabilitie 447 418
Net cash provided by operating activities 74 691
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 727 6,727
Proceeds from maturities of investment securities
available for sale 14 5,626
Purchases of investment securities available
for sale (1,365) (16,251)
Purchases of Certificates of deposits (995) -
Net (increase) decrease in other investments 418 267
Net change in loans (10,175) (8,265)
Net cash acquired in purchase 3,208 -
Increase in cash surrender value (1,089) (785)
Purchases of premises and equipment (1,230) (2,103)
Net change in interest bearing deposit (7,397) 4,099
Net change in federal funds sold 625 249
Net expenditures on foreclosed real estate (27) -
Proceeds from sale of premises 2,150 -
Proceeds from sale of real estate acquired
through foreclosure - 127
Net cash used in investing activies (15,136) (10,309)
Cash flows from financing activities:
Net change in demand deposits 3,611 (1,739)
Net change in time and savings deposits 11,162 (2,778)
Borrowings from line of credit 861 1,496
Principal payment on debt (200) (200)
Net change in FHLB advances - 10,000
Sale of common stock - 1,482
Purchase of treasury stock - (1,032)
Dividends paid (356) (325)
Net cash provided by financing activities 15,078 6,904
Net change in cash and due from banks 16 (2,714)
Cash and due from banks at beginning of period 11,898 10,367
Cash and due from banks at end of period 11,914 $ 10,367
Supplemental disclosures of cash paid during the period for:
Interest 5,134 $ 3,599
Income taxes 665 $ 565
Supplemental disclosures of noncash transactions:
Change in unrealized gain (loss) on investment
securities available for sale, net of taxes 737 $ (1,198)
See notes to the consolidated financial statements.
Citizens Bancshares Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
(unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Citizens Bancshares Corporation (the "Company") is a holding
company that provides a full range of commercial banking and
mortgage brokerage services to individual and corporate customers
in metropolitan Atlanta through its wholly owned subsidiaries,
Citizens Trust Bank (the "Bank") and Citizens Trust Bank Mortgage
Services, Inc. ("CTBS"). The Bank operates under a state charter
and serves its customers in metropolitan Atlanta through twelve
full-service branches.
The accompanying unaudited consolidated financial 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.
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.
Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term
are the allowance for loan losses and valuation allowances
associated with the recognition of deferred tax assets. These
interim statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-KSB.
The consolidated financial statements of the Company as of
September 30, 2000 and for the three and nine months ended
September 30, 2000 and 1999 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of
the financial position and results of operations and cash flows
for the three and nine month periods have been included. All
adjustments are of a normal recurring nature. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
ACCOUNTING POLICIES
Reference is made to the accounting policies of the Company
described in the notes to the consolidated financial statements
contained in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999. The Company has followed those
policies in preparing this report.
ACQUISITION
On March 10, 2000, the Company entered into a Purchase and
Assumption Agreement (the "Agreement") with the Federal Deposit
Insurance Corporation ("FDIC") to purchase certain assets and
assume all of the deposits of a failed institution, Mutual
Federal Savings Bank of Atlanta, Georgia. The Company paid a
premium of approximately $2.5 million for the deposits assumed
($28.6 million) and received approximately $3.1 million as a
discount on the loans purchased ($26.0 million). The Company
also obtained due from other banks of approximately $2.0 million.
The assets and liabilities are recorded at their estimated fair
values as of the date of acquisition. Premiums paid on deposits
and discounts received on loans are being accreted/amortized over
the estimated life of the deposits assumed and the loans
purchased. July 14, 2000, the Bank completed its conversion of
the deposits assumed and loans purchased to the Bank's general
ledger system.
On August 15, 2000, the Bank completed the purchase of two former
Mutual Federal Savings Bank branch buildings and several land
lots from the FDIC. The Bank received regulatory approval to
close one of the branch locations due to its close proximity to
the Bank's main office. The second branch acquired is being
operated as a new Citizens Trust Bank branch location.
COMMON STOCK
The par value of the Company's voting and non-voting common stock
is $1, and 5,000,000 shares are authorized for each class of
stock. As of September 30, 2000, 2,230,065 shares of common
voting stock are issued and outstanding, and 90,000 shares of non-
voting common stock are issued and outstanding.
Basic net income per share (EPS) is computed based on net income
divided by the weighted average number of common share
equivalents outstanding. Diluted EPS is computed based on net
income divided by the weighted average number of common and
potential common shares. The only potential common shares are
those related to stock options; however, such options were
antidilutive, so diluted EPS is the same as basic EPS.
The amount of dividends paid by the Bank to the Company is
limited by various banking regulatory agencies. 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 that could be paid by the Bank
to the Company in 2000 without prior regulatory approval is
approximately $918,000. To date, the Bank has paid a cash
dividend of approximately $369,000 to the Company.
On February 15, 2000, the Company paid a cash dividend of
approximately $356,000 or $0.16 per share to stockholders on
record as of December 31, 1999.
IMPACT OF NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognizes all
derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. This statement is
effective for the Bank's fiscal year beginning January 1, 2001.
The Company believes that the impact of adopting SFAS 133 will
not have a significant impact on its financial position and
results of operations.
RECLASSIFICATIONS
Certain 1999 amounts have been reclassified to conform to the
2000 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
Citizens Bancshares Corporation (the "Company") is a holding
company that has two wholly owned subsidiaries, Citizens Trust
Bank (the "Bank") and Citizens Trust Bank Mortgage Services, Inc.
("Mortgage Services"). The Company, through the Bank and
Mortgage Services, provides a full range of commercial banking
and mortgage brokerage services to individuals and corporate
customers in its primary market area, metropolitan Atlanta. The
Bank is a member of the Federal Reserve System and operates under
a state charter. The Company serves its customers through twelve
full-service bank branches and its mortgage subsidiary.
The following discussion is of the Company's financial condition
as of September 30, 2000 and the changes in the financial
condition and results of operations for the three and nine month
periods ended September 30, 2000 and 1999.
FINANCIAL CONDITION
Citizens Bancshares Corporation's total assets at September 30,
2000, were $260,044,000 - an increase of $45,703,000 or 21.32%
over a year ago. From December 31, 1999 to September 30, 2000,
total assets increased $44,534,000 or 20.66%. This increase is
primarily a result of internal growth and the Company's
acquisition of certain assets and the assumption of all the
deposits of a failed institution purchased from the FDIC on March
10, 2000. The Company purchased approximately $22.9 million in
loans, net of $3.1 million in discounts, and obtained due from
other banks of approximately $2.0 million from the FDIC.
For the nine months ended September 30, 2000, the Company's
interest bearing deposits in other banks increased $7,397,000
primarily as result of Corporate and Governmental customers
deposits. These funds can be temporary in nature and fluctuate
monthly. For the nine months ended September 30, 200, federal
funds sold decreased $625,000 or 95.42% and investment securities
increased $946,000 or 1.75%.
During June 2000, the U. S. Department of the Treasury certified
the Bank as a Community Development Financial Institution
("CDFI"). This program provides the Bank the opportunity to
increase loans and financial services within the inner city by
applying for grants through the Bank Enterprise Award Program
administered by the Treasury Department. As of September 30,
2000, the Bank has invested $995,000 in certificates of deposits
with other CDFI institutions.
From December 31, 1999 to September 30, 2000, total loans
increased approximately $33,406,000, net of unearned interest.
The local economy continued to thrive during the first nine
months of 2000 and loan demand has been good for all major
product types. As mentioned above, the Company's Bank subsidiary
purchased approximately $22.9 million in loans from the FDIC.
Loans held for sale increased $1,300,000 and represents loans the
Company's mortgage subsidiary had not sold by the end of the
month. These loans were subsequently sold in October 2000.
Property held for sale decreased $1,022,000. On May 4, 2000, the
Company completed the sale of its West Peachtree Street branch
building that was classified as held for sale in the December 31,
1999 financial statements. The Company realized a gain of
approximately $491,000, net of income taxes on this transaction.
Premises and equipment increased $984,000 or 16.42% at September
30, 2000 from December 31, 1999 primarily as a result of
properties purchased from the FDIC and the opening of the Cascade
branch located on Cascade Road in Atlanta, Georgia. In
November, 2000, Citizens Trust Bank will open its thirteenth
branch in Columbus, Georgia.
Cash surrender value of life insurance, a comprehensive
compensation program for senior management and the directors of
the Company, increased $1,089,000 or 22.12% as a result of
additional premiums paid during 2000.
INVESTMENT SECURITIES
The Company invests a portion of its assets in U.S. treasury
bills and notes, U.S. government sponsored agency securities,
mortgage backed bonds, as well as some equity securities. Other
investments includes Federal Home Loan Bank stock and Federal
Reserve Bank stock. At September 30, 2000 and December 31, 1999,
the Company's investment securities portfolio represented
approximately 21.12% and 25.05% of total assets, respectively.
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 in
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 believes the accrued interest is recoverable
through the liquidation of collateral. Interest income, if any,
on impaired loans is recognized on the cash basis.
As of September 30, 2000, the recorded investment in loans that
are considered to be impaired was approximately $3,783,000, an
increase of $1,808,000 from $1,975,000 at December 31, 1999.
This increase is primarily due to the loans purchased from the
FDIC. The related allowance for loan losses for these loans was
approximately $743,000 at September 30, 2000 and $435,000 at
December 31, 1999. For the nine months ended September 30, 2000,
the Company recognized approximately $229,000 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 that 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 $651,000 to
$1,905,000 at September 30, 2000 from $1,254,000 at December 31,
1999. This increase is primarily due to the loans purchased from
the FDIC. In accordance with the Purchase and Assumption
Agreement between the FDIC and the Company, nonperforming loans
purchased by the Company have a loss share arrangement. This
arrangement provides for the reimbursement of 80% of the net
charge-offs of shared loss loans plus reimbursable expenses for
the first two years of the agreement. The amount of
reimbursement associated with the loss share arrangement from the
FDIC is not probable or estimable. Therefore, the Company cannot
determine the impact this arrangement will have on its financial
position and its results of operations. Nonperforming assets
represented 1.32% of loans, net of unearned income and real
estate acquired through foreclosure, at September 30, 2000 as
compared to 1.17% at December 31, 1999.
The table below presents a summary of the Company's nonperforming
assets at September 30, 2000 and December 31, 1999.
2000 1999
(Amounts in thousands, except
financial ratios)
Nonperforming assets:
Nonperforming loans:
Nonaccrual loans $ 1,894 $ 1,114
Past-due loans 11 140
Nonperforming loans 1,905 1,254
Real estate acquired through foreclosure 299 318
Total nonperforming assets $ 2,204 $ 1,572
Ratios:
Nonperforming loans to loans, net of
unearned income 1.14% 0.94%
Nonperforming assets to loans (net of unearned income)
and real estate acquired through foreclosure 1.32% 1.17%
Nonperforming assets to total assets 0.85% 0.73%
Allowance for loan losses to nonperforming loans 118.16% 128.56%
Allowance for loan losses to nonperforming assets 102.13% 102.56%
Interest income on nonaccrual loans which would have been
recorded for the nine month period ended September 30, 2000
totaled approximately $106,000.
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.
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 off against 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 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, deserves
recognition in estimating loan losses. The Company's process for
determining an appropriate allowance for loan losses includes
management's judgment and use of estimates. A general reserve of
between 0.8% to 1.0% is applied to the portion of the loan
portfolio that is non-criticized. A specific reserve is applied
to all criticized loans using a percentage formula related to the
degree of impairment based on the standard industry and
regulatory grading systems as follows: 2.5% for loans graded
"Special Mention", 15% for loans graded "Substandard", 50%, for
loans graded "Doubtful" and 100% for loans graded "Loss."
The aggregate of these reserves plus specific allowances as
needed is compared to the actual reserve to determine the
adequacy of the allowance for loan losses. The adequacy of the
allowance for loan losses is reviewed on a monthly basis by
management and the Board of Directors. On a monthly basis, a
comprehensive review of the adequacy of allowance for loan losses
is performed. This assessment is made in the context of
historical losses as well as existing economic conditions,
performance trends within specific portfolio segments and
individual concentrations of credit.
Additions to the allowance for loan losses are made by monthly
charges to the provision for loan losses. The level of provision
for loan losses is established annually based on historical net
charge-offs, projected growth of the loan portfolio and economic
conditions. Loans are charged against the allowance when, in the
opinion of management, such loans are deemed to be uncollectible.
Subsequent recoveries are added to the allowance for loan losses.
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.
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. The Company's loans
to area churches amount to approximately $39.2 million at
September 30, 2000 compared to $36.7 million at December 31, 1999
which and are generally secured by real estate. The balance of
such loans represents the accounting loss the Company would incur
if any party to the financial instrument failed completely to
perform according to the terms of the contract and the collateral
proved to be of no value.
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 nine month period and year ended September 30, 2000
and December 31, 1999, respectively.
ALLOWANCE FOR LOAN LOSSES
2000 1999
(Amounts in thousands, except
financial ratios)
Loans, net of unearned income $ 167,028 $ 133,622
Average loans, net of unearned income and the
allowance for loan losses $ 158,800 $ 120,185
Allowance for loans losses at the
beginning of year $ 1,612 $ 1,703
Loans charged off:
Commercial, financial, and agricultural 445 104
Real estate - loans 559 240
Installment loans to individuals 651 301
Total loans charged off 1,655 645
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 58 2
Real estate - loans 356 139
Installment loans to individuals 240 126
Total loans recovered 654 267
Net loans charged off 1,001 378
Initial allowance established for loans purchased
from the FDIC 1,400 -
Additions to allowance for loan losses
charged to operating expense 240 287
Allowance for loan losses at period end $ 2,251 $ 1,612
Ratio of net loans charged off to average loans, net of
unearned income and the allowance for loan losses 0.63% 0.31%
Allowance for loan losses to loans, net of
unearned income 1.35% 1.21%
At March 31, 2000, an initial allowance was established for the
loans purchased from the FDIC. Based on its methodology for
recording the allowance for loan losses, the Company allocated
$1,400,000 of the $3,055,000 discount on loans purchased it
received from the FDIC to the allowance for loan losses. This is
a preliminary allocation and is subject to revision based on the
resolution of certain pre-acquisition contingencies.
DEPOSITS
Total deposits increased $40,601,000 or 22.21% from December 31,
1999. Noninterest bearing deposits increased $3,611,000 or
6.83%, while interest-bearing deposits increased $36,990,000 or
28.47%. These increases are primarily due to approximately $28.6
in deposits of a failed institution the Company assumed from the
FDIC. The remaining increase represents normal growth in the
Company's deposit base as a result of Corporate and Governmental
customers depositors. These funds can be temporary in nature and
fluctuate monthly.
OTHER BORROWED FUNDS
At September 30, 2000 and December 31, 1999, the Company had
$635,000 and $835,000, respectively, outstanding under an
unsecured note payable. The note bears interest at a rate 50
basis points below the lender's prime rate (9.50% at September
30, 2000) and is payable quarterly. The unsecured note payable
was renewed May 1, 2000 and the principal balance is due May 1,
2001.
At September 30, 2000, Mortgage Services had $861,000 outstanding
under a $5,000,000 line of credit. The line of credit bears
interest at a rate equal to 200 basis points above LIBOR and is
payable monthly. The line of credit expires November 30, 2000
and is secured by the underlying mortgages originated using
proceeds from draws on the line of credit.
The Bank had term advances of $10,000,000 from the Federal Home
Loan Bank (the "FHLB") at September 30, 2000 and at December 31,
1999. The outstanding advances bear interest at a fixed rate of
5.82% at September 30, 2000. The advances are due April 5, 2010;
however, the FHLB has the option to convert the advances into a
floating rate advance, based on LIBOR, quarterly after October 5,
2000.
RESULTS OF OPERATIONS
Net Interest Income:
Net interest income represents the excess of income received on
interest-earning assets and interest paid on interest-bearing
liabilities. Net interest income for the three months ended
September 30, 2000 increased $290,000 or 11.40% to $2,833,000, as
compared to the same three months in 1999. The growths in loan
volume and the higher interest rates earned on these loans during
the third quarter of 2000 were generally higher than during the
same period of 1999. At September 30, 2000 , the prime rate was
9.50% compared to 8.25% at September 30, 1999. Interest income
earned on loans, including fees for the three month period ended
September 30, 2000 increased $897,000 or 29.19% higher compared
to the same three months in 1999. Also contributing to these
results were the rates paid on interest bearing deposits
increased to a lesser extent than rates received on the loan
portfolio. For the third quarter 2000, interest on deposits
increased $462,000 or 35.54 compared to the same period last
year.
For the first nine month period 2000, Net interest income
increased $871,000 or 17.35% over the same period of 1999. Loans
income, including fees increased $2,451,000 or 41.86% to
$11,382,000 for the nine month period compared to $8,931,000 in
1999. Total interest expense increased $1,576,000 or 59.95% to
$5,582,000 for the first nine month period compared to $4,006,000
for the same nine months in 1999. This increase is primarily due
the rise in interest rates, which increase the cost of funds at
the Bank and the increase in interest bearing deposits assumed
from a failed institution. Also impacting interest expense was
the borrowing from the FHLB to finance temporary liquidity needs
and loan growth.
Noninterest income:
The Company offers a wide variety of fee generating services and
considers the expansion of these services a major source of
profitability in view of continuing market pressure on net
interest income. This year, the Company has expanded its product
line to offer investment and insurance products. Recently, the
Company added MasterMoney Debit Card to its product line. For the
three month period ended September 30, 2000, noninterest income
decreased approximately $109,000 or 5.23% from a year ago. The
primary reason for this drop in noninterest income is the
Company's mortgage subsidiary which is experiencing a decline in
revenues. Commissions and origination fees decreased $317,000 or
34.91% compared to the same three month period in 1999. Service
charges on deposits increased slightly by $1,000 during the
quarter ended September 30, 2000 as compared to the same quarter
last year. Other operating income increased $209,000 or 86.36%
in the third quarter of 2000 as compared to last year. This
increase is primarily due to $51,000 in investment fees earned on
investment products in the third quarter of 2000 which were not
offered until this year. Also contributing to the increase in
other operating income were $60,000 in collections fees earned
for collecting charged-off loans on a failed institution for the
FDIC.
For the first nine months of 2000, noninterest income increased
$48,000 or 1.15%. Services charges on deposits, and Commissions
and origination fees decreased $119,000 and $793,000,
respectively. A large component of the Company's service charges
on deposit accounts is related to insufficient funds, returned
check charges and other customer service fees. Insufficient
funds and returned check charges tends to inversely track the
economic conditions of the economy which continues to be strong
in the metro-Atlanta area. The primary factor affecting the
Company's mortgage subsidiary is a rapid rise in interest rates.
As a result, the mortgage subsidiary has been unfavorably
impacted by decreased loan volume and price pressures. A gain
on the sale of property held for sale increased $745,000 for the
first nine months and was the results of a branch closed during
the first quarter of 2000. There was no sale of property held
for sale in 1999. Other operating income increased by $215,000
for the nine month period ended on September 30, 2000 compared to
the same period in 1999.
Noninterest expense:
Noninterest expense for the quarter ended September 30, 2000 were
$4,011,000 increasing approximately $98,000 or 2.50% from the
same quarter last year. On an annualized basis, noninterest
expense increased $177,000 during 2000 compared to last year.
For the third quarter 2000, salaries and employee benefits
decreased $124,000 or 6.18% and for the first nine months of 2000
decreased $86,000 compared to the same periods in 1999.
Personnel efficiencies gained from a branch closure during the
first quarter of 2000 and normal attrition of some personnel who
were not replaced attributed these results. Net occupancy and
equipment for the three month and nine month periods in 2000
increased $13,000 and $ 66,000, respectively, compared to the
same periods last year. This increase is primarily due to the
depreciation of three new branches. One branch opened on August
27, 1999, the second branch opened on June 16, 2000, and the
third branch, purchased from the FDIC, started operation in July
2000. Other operating expenses for the three month and nine
month periods in 2000 increased $209,000 and $215,000,
respectively, compared to the same periods in 1999. Printing and
supplies expenses increased by $22,000, data processing expenses
increased by 40,000, and losses from retail operations increased
by $41,000 during the third quarter of 2000 compared the same
period in 1999. These increases are attributable to the growth
in the Company's bank branch network, check imaging which started
in November 1999, and data processing cost related to the
conversion of deposits and loans purchased from the FDIC. In
1999, the Company operated 10 branches compared to 12 branches in
the third quarter of 2000.
Net income:
The Company had consolidated net income for the quarter ended
September 30, 2000 of $509,000 or $0.23 per share, an increase of
$69,000 or 15.68%, as compare to net income of $440,000 for the
same period in 1999. The consolidated net income for the nine
months ended September 30, 2000 was $1,948,000 or $.87 per share,
an increase of $558,000 or 58.74%, as compared to net income of
$1,390,000 for the same period in 1999. Excluding the gain on
property held for sale of $491,000, net of taxes, the Company had
consolidated net income of for the nine months of 2000 of
$1,457,000, an increase of $67,000 for the same nine months in
1999. The increase in net income is primarily due to growth in
loan volume and maintaining a strong net interest margin in a
rising rate environment. Additionally, the Company's mortgage
subsidiary reported a profit for the nine month period ending
September 30, 1999 of $205,000, and reported a loss of $9,000 or
a decrease of $214,000 in net income for the same period in 2000.
These losses at the mortgage subsidiary are attributable to
rising interest rates having a negative impact on loan
originations.
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
interest bearing deposits and managing the maturities of
investment securities. At September 30, 2000, approximately 4%
of the investment portfolio will mature within the next year, 41%
after one year but before five years. In addition, interest
bearing deposits in other banks averaged approximately $3..3
million during the nine month period ended September 30, 2000.
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
Quantitative 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 September 30, 2000, the
Company's total and Tier 1 capital to risk weighted assets and
Tier 1 to average assets were 13%, 12% and 8% respectively. As
of September 30, 2000, the Company meets all capital adequacy
requirements to which it is subject.
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 subsidiaries are
a party or to which any of their property is subject.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On March 24, 2000, the Company filed a report
on Form 8-K related to the purchase of certain Mutual
Federal Savings Bank of Atlanta, Georgia assets and the
assumption of all of its deposits from the Federal
Deposit Insurance Corporation.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CITIZENS BANCSHARES
CORPORATION
Date: November 13, 2000 By: /s/ James E. Young
James E. Young
President and Chief Executive
Officer
Date: November 13, 2000 By: /s/ Willard C. Lewis
Willard C. Lewis
Senior Executive Vice President and
Chief Operating Officer
Date: November 13, 2000 By: /s/ Samuel J. Cox
Samuel J. Cox
Senior Vice President and Chief
Financial Officer
