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 June 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:
2,230,065 shares of Common Stock, $1.00 par value and 90,000
shares of Non-Voting Common Stock, $1.00 par value outstanding on
July 31, 2000.
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
(unaudited - in thousands)
Assets June 30, December 31,
2000 1999
Cash and due from banks $ 12,859 $ 11,898
Federal funds sold 300 655
Interest bearing deposits 10,833 561
Certificates of deposits 900 -
Investment securities 53,173 53,980
Loans, net of unearned income 161,938 133,622
Less: Allowance for loan losses (2,778) (1,612)
Loans, net 159,160 132,010
Loans held for sale 347 -
Property held for sale - 1,405
Premises and equipment, net 6,525 5,993
Cash value of life insurance 5,470 4,923
Other assets 4,486 4,085
Total assets $ 254,053 $ 215,510
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing deposits $ 56,234 $ 52,896
Interest-bearing deposits 163,134 129,917
Total deposits 219,368 182,813
Other borrowed funds 11,028 10,835
Other liabilities 3,593 2,980
Total liabilities 233,989 196,628
Stockholders' equity:
Common stock - $1 par value.
Authorized 5,000,000 shares;
issued and outstanding 2,230,065 shares 2,230 2,230
Common stock, non-voting - $1 par value.
Authorized 5,000,000 shares;
issued and outstanding 90,000 shares 90 90
Additional paid - in capital 7,445 7,445
Treasury stock at cost-91,852 shares (920) (920)
Retained earnings 12,245 11,162
Accumulated other comprehensive loss (1,026) (1,125)
Total stockholders' equity 20,064 18,882
Total liabilities and stockholders' equity $ 254,053 $ 215,510
See notes to the consolidated financial statements.
Citizens Bancshares Corporation and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(unaudited-in thousands)
Three Months Six Months
Ended June 30, Ended June 30
2000 1999 2000 1999
INTEREST INCOME:
Loans, including fees 4,037 2,944 $ 7,409 $ 5,855
Investment securities:
Taxable 691 727 1,390 1,364
Tax-exempt 115 113 229 225
Federal funds sold 15 6 24 12
Interest bearing deposits 32 67 93 192
Total interest income 4,890 3,857 9,145 7,648
INTEREST EXPENSE:
Deposits 1,809 1,264 3,238 2,552
Other borrowed funds 162 46 307 77
Total interest expense 1,971 1,310 3,545 2,629
Net interest income 2,919 2,547 5,600 5,019
Provision for loan losses 90 75 150 137
Net interest income after
provision for loan losses 2,829 2,472 5,450 4,882
NONINTEREST INCOME:
Service charges on deposit accounts 877 874 1,687 1,805
Commission and fees 675 927 1,298 1,774
Gain on sale of real estate held
for sale 745 - 745 -
Other operating income 362 258 616 610
Total noninterest income 2,659 2,059 4,346 4,189
NONINTEREST EXPENSE:
Salaries and employee benefits 1,991 1,910 3,781 3,743
Net occupancy and equipment 638 560 1,261 1,208
Other operating expenses 1,427 1,468 2,750 2,762
Total other expense 4,056 3,938 7,792 7,713
Income before income taxes 1,432 593 2,004 1,358
Income tax expense 413 188 565 408
Net income 1,019 405 $ 1,439 $ 950
Other comprehensive income
(loss), net of taxes (43) (687) 99 (945)
Comprehensive income (loss) 976 (282) $ 1,538 $ 5
Net income per common share,
basic and diluted 0.46 0.19 $ 0.65 $ 0.44
Weighted average outstanding shares,
basic and diluted 2,228 2,164 2,228 2,164
Citizens Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited-in thousands)
Six Months
Ended June 30,
2000 1999
Cash flows from operating activities:
Net income $ 1,439 950
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan losses 150 137
Depreciation 644 574
Amortization (accretion), net 4 4
Gain on investments - (7)
Gain on sale of assets - 18
Gain on sale of real estate held for sale (745) -
Net change in loans held for sale (347) (16)
Change in other assets (556) (2,184)
Change in accrued expenses and other liabilities 117 375
Net cash provided by (used in) operating activities 706 (149)
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 10 5,998
Proceeds from maturities of investment securities
available for sale 843 5,619
Purchases of investment securities available for sale (365) (16,254)
Purchases of certificates of deposits (900) -
Net (increase) decrease in other investments 453 267
Net change in loans (4,527) (1,679)
Net cash acquired in purchase 3,208 -
Increase in cash surrender value (547) (654)
Purchases of premises and equipment (778) (1,840)
Net change in interest bearing deposit (10,272) 9,010
Net change in federal funds sold 355 289
Net expenditures on foreclosed real estate (27) -
Proceeds from sale of premises 2,150 -
Proceeds from sale of real estate acquired
through foreclosure - 97
Net cash (used in) provided by investing activities (10,397) 853
Cash flows from financing activities:
Net change in demand deposits 3,338 394
Net change in time and savings deposits 7,477 (3,470)
Borrowings from line of credit 393 892
Principal payment on debt (200) -
Dividends paid (356) (325)
Net cash provided by (used in) financing activities 10,652 (2,509)
Net change in cash and due from banks 961 (1,805)
Cash and due from banks at beginning of period 11,898 13,081
Cash and due from banks at end of period 12,859 11,276
Supplemental disclosures of cash paid during the period for:
Interest 3,295 2,451
Income taxes 340 445
Supplemental disclosures of noncash transactions:
Change in unrealized gain (loss) on investment
securities available for sale, net of taxes 99 (945)
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 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 thirteen
full-service branches and its mortgage subsidiary.
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 June
30, 2000 and for the three and six months ended June 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 six 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 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.
On July 14, 2000, the Bank completed its conversion of the deposits
assumed and loans purchased to the Bank's general ledger system.
On June 8, 2000, the Company notified the FDIC of its
intention to exercise its option to purchase two branch buildings
and several land lots from the FDIC. The purchase transaction is
expected to be completed by August 15, 2000. Upon completion of
the purchases, management intents to and has received regulatory
approval to close one of the locations due to its close proximity
to the Bank's main office. The Bank will operate a branch at the
other purchased 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.
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 recognize all
derivatives as either assets or liabilities in the balance sheet
and measures 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
thirteen full-service bank branches and its mortgage subsidiary.
The following discussion is of the Company's financial condition
as of June 30, 2000 and the changes in the financial condition
and results of operations for the three and six month periods
ended June 30, 2000 and 1999.
FINANCIAL CONDITION
Citizens Bancshares Corporation's total assets at June 30, 2000,
were $254,053,000 - an increase of $49,356,000 or 24.11% over a
year ago. From December 31, 1999 to June 30, 2000, total assets
increased $38,543,000 or 17.88%. 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 from the FDIC on March 10, 2000. On March 10, 2000,
the Company purchased approximately $22.9 million in loans, net
of $3.1 million in discounts received from the FDIC and obtained
due from other banks of approximately $2.0 million.
For the six months ended June 30, 2000, the Company's interest
bearing deposits increased $10,272,000 as many Corporate and
Governmental customers made significant deposits during the month
of June. These funds can be temporary in nature and fluctuate
monthly. For the six months ended June 30, 2000, federal funds
sold decreased $355,000 or 54.20% and investment securities
decreased $807,000 or 1.49%. These funds were used to finance
additional loan growth and liquidity needs during the six months
ended June 30, 2000. 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 June 30, 2000, the Bank has invested $900,000 in
certificates of deposits with other CDFI institutions.
From December 31, 1999 to June 30, 2000, total loans increased
approximately $4,500,000, net of unearned interest and excluding
loans purchased from the FDIC. Premises and equipment increased
$532,000 or 8.88% primarily as a result of two transactions that
occurred during the second quarter. On May 4, 2000, the Company
completed the sale of its West Peachtree Street branch building
that was classified as held for sale at December 31, 1999. The
Company realized a gain of approximately $491,000, net of income
taxes on this transaction. On June 16, 2000, the Bank opened its
thirteenth full-service branch located on Cascade Road in
Atlanta, Georgia. Cash value of life insurance, a comprehensive
compensation program for senior management and the directors of
the Company, increased $547,000 or 11.11% 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 June 30, 2000 and December 31, 1999, the
Company's investment securities portfolio represented
approximately 20.93% 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 feels the accrued interest is recoverable
through the liquidation of collateral. Interest income, if any,
on impaired loans is recognized on the cash basis.
At June 30, 2000, the recorded investment in loans that are
considered to be impaired was approximately $3,529,000, an
increase of $1,554,000 from $1,975,000 at December 31, 1999. The
increase in impaired loans includes $1,636,000 related to loans
purchased from the FDIC. The related allowance for loan losses
for these loans was approximately $1,276,000 at June 30, 2000 and
$435,000 at December 31, 1999. For the six months ended June 30,
2000, the Company recognized approximately $165,000 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 $703,000 to
$1,957,000 at June 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 1.41% of
loans, net of unearned income and real estate acquired through
foreclosure at June 30, 2000 as compared to 1.17% at December 31,
1999.
The table below presents a summary of the Company's nonperforming
assets at June 30, 2000 and December 31, 1999.
2000 1999
(Amounts in thousands, except
financial ratios)
Nonperforming assets:
Nonperforming loans:
Nonaccrual loans $ 1,824 $ 1,114
Past-due loans 133 140
Nonperforming loans 1,957 1,254
Real estate acquired through foreclosure 322 318
Total nonperforming assets $ 2,279 $ 1,572
Ratios:
Nonperforming loans to loans, net of
unearned income 1.21% 0.94%
Nonperforming assets to loans(net of unearned
income) and real estate acquired through foreclosure 1.41% 1.17%
Nonperforming assets to total assets 0.90% 0.73%
Allowance for loan losses to nonperforming loans 141.95% 128.56%
Allowance for loan losses to nonperforming assets 121.90% 102.56%
Interest income on nonaccrual loans which would have been
recorded for the six month period ended June 30, 2000 totaled
approximately $76,000.
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, deserve
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
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.
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 was approximately $40.4 million at June 30, 2000
compared to $36.7 million at December 31, 1999 which is 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 six month period and year ended June 30, 2000 and
December 31, 1999, respectively.
ALLOWANCE FOR LOAN LOSSES
2000 1999
(Amounts in thousands, except
financial ratios)
Loans, net of unearned income $ 161,938 $ 133,622
Average loans, net of unearned income and the
allowance for loan losses $ 161,245 $ 120,185
Allowance for loans losses at the
beginning of year $ 1,612 $ 1,703
Loans charged off:
Commercial, financial, and agricultural 255 104
Real estate - loans 25 240
Installment loans to individuals 235 301
Total loans charged off 515 645
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 14 2
Real estate - loans 20 139
Installment loans to individuals 97 126
Total loans recovered 131 267
Net loans charged off 384 378
Initial allowance established for loans purchased
from the FDIC 1,400 - -
Additions to allowance for loan losses
charged to operating expense 150 287
Allowance for loan losses at period end $ 2,778 $ 1,612
Ratio of net loans charged off to average
loans, net of unearned income and the allowance
for loan losses 0.24% 0.31%
Allowance for loan losses to loans, net of
unearned income 1.72% 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 $36,555,000 or 20.00% from December 31,
1999. Noninterest bearing deposits increased $3,338,000 or
6.31%, while interest-bearing deposits increased $33,217,000 or
25.57%. 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 and is attributed to several marketing
programs enacted by the Company.
OTHER BORROWED FUNDS
At June 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 June 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 June 30, 2000, Mortgage Services had $393,000 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 (9.81%
at June 30, 2000) 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 outstanding advances of $10,000,000 from the Federal
Home Loan Bank (the "FHLB") at June 30, 2000 and at December 31,
1999. The outstanding advances bear interest at a fixed rate of
5.82% at June 30, 2000. The advances are due April 5, 2010;
however, the FHLB has the option on October 5, 2000 to convert
the advances into a floating rate advance based on LIBOR. The
advances are collateralized by investment securities with a market
value of $10,709,000 at June 30, 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 six months ended June
30, 2000 increased $581,000 to $5,600,000 compared to $5,019,000
for the six month period ended June 30, 1999. For the three
month period ended June 30, 2000, net interest income increased
$372,000 or 14.61% compared to the same period last year. The
growth in loan volume, which pays a higher yield than other
income earning assets, contributed to these results. For the
second quarter, loans income, including fees increased $1,093,000
or 37.13% compared to the same period of last year. For the six
month period, loans income, including fees increased $1,554,000
or 26.54% compared to June 30, 1999. Loan growth for the six
months ended June 30, 2000 increased approximately $28,316,000 or
21.19%, net of unearned interest. For the three month period new
loans, net of maturing loans, decreased slightly by $1,237,000.
Interest expense for the six months ended June 30, 2000 increased
$916,000 or 34.84% compared to the same period last year. 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
six month period, noninterest income increased approximately
$157,000 or 3.75% from a year ago. For the second quarter,
noninterest income increased $600,000 compared to the prior year
second quarter. This increase is primarily due to a $745,000
gain on property held for sale in the second quarter. Excluding
this gain, noninterest income decreased $145,000 for the three
month period and $588,000 for the six month period. 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 $476,000 or 26.83%
compared to the six months ended June 30, 1999 and $252,000 or
27.18% when compared to the prior year's second quarter results.
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.
Other operating income increased $104,000 for the three month
period ended June 30, 2000 but service charges on deposits
accounts were flat, increasing only $3,000 for the same period. 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.
Noninterest expense:
Noninterest expense increased slightly by approximately $118,000
or 3.00% during the three month period ended June 30, 2000 as
compared to the same period in 1999. For the six month period,
noninterest expense increased $79,000 or 1.02%. Salaries and net
occupancy and equipment cost increased approximately $81,000 and
$78,000, respectively, as a result of operating the failed
institution's two branch network during the second quarter ended
June 30, 2000. Effective, July 14, 2000, the Company closed one
of the branches. Other operating expenses were down
approximately $41,000 or 2.79% during the second quarter and are
attributable to the closing of a branch in the first quarter.
Net income:
The Company had net income of approximately $1,019,000 or $0.46
per share during the three months ended June 30, 2000. Excluding
the gain on property held for sale, net of taxes which
contributed $0.22 per share, the Company had net income of
approximately $528,000 or $0.24 per share as compared to $405,000
or $0.19 per share for the same period in 1999. For the six
month period, the Company earned $0.65 per share compared to
$0.44 per share for the same period last year. 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
turned a profit of $11,000 in the second quarter compared to a
loss of $21,000 in the first quarter of 2000. For the six month
period, the mortgage subsidiary has a net loss of $10,000
compared to a net income of $162,000 for the same period last
year due 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 June 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 $3.0 million
during the six month period ended June 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 June 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 June 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 subsidiary is a
party or to which any of their property is subject.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
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: August 14, 2000 By: /s/ James E. Young
James E. Young
President and Chief Executive
Officer
Date: August 14, 2000 By: /s/ Willard C. Lewis
Willard C. Lewis
Senior Executive Vice President and
Chief Operating Officer
Date: August 14, 2000 By: /s/ Samuel J. Cox
Samuel J. Cox
Senior Vice President and Chief
Financial Officer
