<PAGE> 1
Page 1 of _________
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
Commission File Number 0-18209
CITIZENS BANCSHARES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1372535
- ---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 East Main Street, Salineville, Ohio 43945
- -------------------------------------- -----
(Address of principal executive offices)
Registrant's telephone number, 330/679-2328
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report(s) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
On May 13, 1997 there were 5,897,540 shares of Common Stock, without par value,
of Citizens Bancshares, Inc., outstanding.
<PAGE> 2
CITIZENS BANCSHARES, INC.
-------------------------
FORM 10-Q
---------
QUARTER ENDED March 31, 1997
Part I - Financial Information
ITEM 1 FINANCIAL STATEMENTS
- ----------------------------
Interim Financial Information required by Rule 10-01 of Regulation S-X is
included in this Form 10-Q as referenced below:
Page
Number
------
Financial Statements
- --------------------
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Condensed Consolidated Statements of Changes in
Shareholders' Equity 5
Condensed Consolidated Statements of
Cash Flows 6
Notes to the Consolidated Financial
Statements 7 - 13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14 - 17
-----------------------------------
PART II - OTHER INFORMATION 18 - 19
- ---------------------------
Signatures 20
Exhibit Index 21 - 22
2
<PAGE> 3
CITIZENS BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, December 31,
(In thousands of dollars, except per share amounts) 1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks.................................................. $ 29,309 $ 25,467
Federal funds sold....................................................... 1,050 1,900
------------ --------
Total cash and cash equivalents..................................... 30,359 27,367
Interest-bearing deposits with financial institutions.................... 255 364
Securities available for sale (Note 2)................................... 302,725 240,375
Securities held to maturity (estimated market value of $53,382
at March 31 and $65,454 at December 31 (Note 2)........................ 53,485 65,230
Total loans (Note 3)..................................................... 605,067 595,247
Less allowance for loan losses (Note 4)................................ (11,439) (11,350)
------------ -------
Net loans........................................................... 593,628 583,897
Premises and equipment, net.............................................. 15,377 15,316
Accrued interest receivable and other assets............................. 15,429 15,381
------------ --------
Total assets........................................................ $ 1,011,258 $947,930
============ ========
LIABILITIES
Deposits
Noninterest-bearing deposits............................................. $ 63,930 $ 67,817
Interest-bearing deposits................................................ 650,861 641,775
------------ --------
Total deposits...................................................... 714,791 709,592
Securities sold under repurchase agreements and
Federal funds purchased................................................ 128,007 87,939
Federal Home Loan Bank advances.......................................... 69,391 49,923
Accrued interest payable and other liabilities........................... 7,613 9,163
Obligation under employee stock ownership plan........................... 350 413
------------ --------
Total liabilities................................................... 920,152 857,030
------------ --------
MINORITY INTEREST IN SUBSIDIARY............................................... 627 1,188
SHAREHOLDERS' EQUITY
Serial preferred stock, $10.00 par value; authorized
200,000 shares; none issued
Common stock, no par value; 12,000,000 shares
authorized; 5,899,790 shares issued.................................... 16,514 16,514
Retained earnings........................................................ 75,335 72,818
Less treasury stock, 2,250 shares at cost................................ (5) (5)
ESOP obligations and unearned shares..................................... (350) (413)
Unrealized gain (loss) on securities available for sale.................. ( 1,015) 798
------------ -------
Total shareholders' equity.......................................... 90,479 89,712
------------ --------
Total liabilities and shareholders' equity.......................... $1,011,258 $947,930
============ ========
</TABLE>
See notes to the consolidated financial statements
3
<PAGE> 4
CITIZENS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
(Dollars in thousands, except per share amounts) MARCH 31
-----------------
1997 1996
---- -----
<S> <C> <C>
INTEREST INCOME
Loans, including fees........................................................ $14,264 $13,926
Securities
Taxable.................................................................... 4,714 3,673
Nontaxable................................................................. 272 212
Federal funds sold and other................................................. 37 190
-------- --------
Total interest income.................................................... 19,287 18,001
-------- --------
INTEREST EXPENSE
Deposits..................................................................... 6,792 6,686
Federal Home Loan Bank advances.............................................. 751 822
Federal funds and repurchase agreements and other............................ 1,272 315
-------- --------
Total interest expense................................................... 8,815 7,823
-------- --------
NET INTEREST INCOME............................................................ 10,472 10,178
PROVISION FOR LOAN LOSSES (NOTE 4)............................................. 418 387
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES.................................................... 10,054 9,791
OTHER INCOME
Service charges and fees on deposits......................................... 575 470
Other income................................................................. 777 578
-------- --------
Total other income....................................................... 1,352 1,048
-------- --------
OTHER EXPENSES
Salaries and employee benefits............................................... 2,822 2,752
Occupancy expense............................................................ 388 420
Equipment expense............................................................ 493 491
Other operating expense...................................................... 1,547 1,851
-------- --------
Total other expenses..................................................... 5,250 5,514
-------- --------
INCOME BEFORE INCOME TAXES..................................................... 6,156 5,325
INCOME TAXES................................................................... 2,047 1,727
-------- --------
NET INCOME..................................................................... $ 4,109 $ 3,598
======== ========
EARNINGS PER COMMON SHARE...................................................... $ . 70 $ .61
======== ========
See notes to the consolidated financial statements
</TABLE>
4
<PAGE> 5
CITIZENS BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1997 1996
---- ----
(In thousands of dollars)
<S> <C> <C>
Balances at January 1 $ 89,712 $ 80,111
Net income 4,109 3,598
Change in employee stock ownership plan obligation
and shares earned 63 0
Cash paid for fractional shares (7)
Cash dividends declared ($.27 per share in 1997 and
$.19 in 1996) (1,592) (1,134)
Change in unrealized gain (loss) on securities
available for sale (1,813) (1,245)
-------- --------
Balances at March 31 $ 90,479 $ 81,323
</TABLE>
======== ========
See notes to the consolidated financial statements
5
<PAGE> 6
CITIZENS BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1997 1996
---- -----
(Dollars in thousands)
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES ........................... $ 4,261 $ 3,088
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of other real estate ...................................... 174
Securities available for sale:
Proceeds from paydowns, maturities ............................ 11,408 10,260
Purchases ..................................................... (76,903) (9,805)
Securities held to maturity:
Proceeds from paydowns, maturities ............................ 20,080 842
Purchases ..................................................... (8,336) (21,306)
Net (increase) decrease in loans ................................ (9,853) 5,212
Proceeds from commercial and student loans sold ................. 3,170
Net change in interest-bearing deposits
with financial institutions .................................... 109 (327)
Purchases of premises and equipment ............................. (474) (555)
-------- --------
Net cash from investing activities .......................... (63,969) (12,335)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends and fractional shares paid ....................... (1,474) (1,587)
Net increase in deposit accounts ................................ 5,199 15,744
Net increase in repurchase agreements and Federal funds purchased 40,068 6,984
Net change in short-term FHLB advances .......................... (354)
Proceeds from long-term FHLB advances ........................... 19,650 2,250
Repayment of long-term FHLB advances ............................ (182) (10,874)
Redemption of minority interest in subsidiary ................... (561) (25)
-------- --------
Net cash from financing activities .......................... 62,700 12,138
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............................ 2,992 2,891
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ..................... 27,367 40,926
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 30,359 $ 43,817
======== ========
</TABLE>
See notes to the consolidated financial statements
6
<PAGE> 7
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Citizens
Bancshares, Inc., ("Bancshares") and its wholly-owned subsidiaries, The Citizens
Banking Company ("Citizens"), Freedom Financial Life Insurance Company
("Insurance Company"), Freedom Express, Inc. and First National Bank of Chester
("FNB"). All significant inter-company transactions have been eliminated in
consolidation. Bancshares' consolidated financial statements have been restated
for prior periods due to the October 11, 1996 merger of The Navarre Deposit Bank
Company of Ohio, Navarre, Ohio, ("Navarre") into Citizens.
These interim consolidated financial statements are prepared without audit and
reflect all adjustments which, in the opinion of management, are necessary to
present fairly the consolidated financial position of Bancshares at March 31,
1997 and its results of operations and cash flows for the periods presented. All
such adjustments are of a normal, recurring nature. The consolidated financial
statements do not purport to contain all the necessary financial disclosures
required by generally accepted accounting principles that might otherwise be
necessary under the circumstances and should be read in conjunction with the
1996 consolidated financial statements and notes thereto of Bancshares included
in its Annual Report to Shareholders for the year ended December 31, 1996.
The provision for income taxes is based upon the effective tax rate expected to
be applicable for the entire year.
For the three months ended March 31, 1997 and 1996, Bancshares paid interest in
the amount of $8,535 and $7,817 respectively, and taxes in the amount of $412
and $177, respectively.
Bancshares' non-cash transactions resulting from transfers from loans to other
real estate owned were $-0- for each of the three months ended March 31, 1997
and 1996.
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding after considering the Bancshares common shares issued in the
merger discussed above. The weighted average number of shares used in the
computation for 1997 and 1996 was 5,897,540.
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities",
revises accounting treatment for transfers of financial assets, such as loans
and securities, and for distinguishing between sales and secured borrowings.
SFAS No. 125 did not materially impact the Company's financial statements for
the first quarter of 1997.
In March 1997, the accounting requirements for calculating earnings per share
were revised. Basic earnings per share for 1997 and later will be calculated
solely on average common shares outstanding. Diluted earnings per share will
reflect the potential dilution of stock options and other common stock
equivalents. All prior calculations will be restated to be comparable to the new
methods. As the company has not had significant dilution from stock options, the
new calculation methods will not significantly affect future basic earnings per
share and diluted earnings per share.
7
<PAGE> 8
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized costs, unrealized gains and losses and estimated fair values are
as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 11,002 $ 17 $ (17) $ 11,002
U.S. Government agencies
and corporations 67,365 (885) 66,480
Obligations of states and political
subdivisions 100 (1) 99
Corporate and other securities 2,000 2,000
Mortgage-backed securities
GNMA, FHLMC and FNMA certificates 186,953 411 (1,817) 185,547
Agency collateralized mortgage obligations 18,692 5 (309) 18,388
Other 5,843 (18) 5,825
-------- ------- -------- --------
Total debt securities available for sale 291,955 433 (3,047) 289,341
Marketable equity securities 12,331 1,118 (65) 13,384
-------- ------- -------- --------
Total investment securities available for sale $304,286 $ 1,551 $ (3,112) $302,725
======== ======= ======== ========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 30,812 $ 98 $ (158) $ 30,752
U.S. Government agencies and corporations 100 (4) 96
Obligations of states and political
subdivisions 22,568 132 (171) 22,529
Corporate and other 5 5
-------- ------- -------- --------
Total investment securities held to maturity $ 53,485 $ 230 $ (333) $ 53,382
======== ======= ======== ========
</TABLE>
8
<PAGE> 9
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES - CONTINUED
The amortized costs, unrealized gains and losses and estimated fair values are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 11,001 $ 80 $ (9) $ 11,072
U.S. Government agencies
and corporations 27,279 379 (77) 27,581
Obligations of states and
political subdivisions 100 100
Corporate and other securities 14 14
Mortgage-backed securities
GNMA, FHLMC and FNMA certificates 164,027 838 (641) 164,224
Agency collateralized mortgage obligations 19,200 (269) 18,931
Other 6,076 7 (7) 6,076
-------- ------- -------- --------
Total debt securities available for sale 227,697 1,304 (1,003) 227,998
Marketable equity securities 11,452 943 (18) 12,377
-------- ------- -------- --------
Total investment securities available for sale $239,149 $ 2,247 $ (1,021) $240,375
======== ======= ======== ========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 42,342 $ 132 $ (13) $ 42,461
U.S. Government agencies and corporations 100 (2) 98
Obligations of states and political
subdivisions 22,783 189 (82) 22,890
Other 5 5
-------- ------- -------- --------
Total investment securities held to maturity $ 65,230 $ 321 $ (97) $ 65,454
======== ======= ======== ========
</TABLE>
9
<PAGE> 10
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES - CONTINUED
The amortized cost and estimated market value of debt securities at March 31,
1997 by contractual maturity are shown below. Expected maturities will likely
differ from contractual maturities because some issuers have the right to call
or repay obligations at any time with or without penalty.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DEBT SECURITIES AVAILABLE FOR SALE:
Due in one year or less $ 6,251 $ 6,248
Due after one year through five years 9,000 8,939
Due after five years through ten years 62,716 61,912
Due after ten years 2,500 2,482
Mortgage-backed securities 211,488 209,760
-------- --------
Total debt securities available for sale $291,955 $289,341
======== ========
DEBT SECURITIES HELD TO MATURITY:
Due in one year or less $ 17,464 $ 17,522
Due after one year through five years 23,889 23,787
Due after five years through ten years 11,547 11,489
Due after ten years 585 584
-------- ---------
Total debt securities held to maturity $ 53,485 $ 53,382
======== =========
</TABLE>
There were no sales of securities for the three months ended March 31, 1997 or
1996.
10
<PAGE> 11
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 3 - LOANS
The loan portfolio at March 31, 1997 and December 31, 1996 was as follows:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1997 1996
--------- ----
<S> <C> <C>
Commercial, financial and agricultural $149,074 $140,977
Residential real estate mortgage 279,789 280,779
Commercial real estate 116,664 113,327
Construction 2,475 4,704
Consumer 47,430 48,269
Real estate mortgage loans held for sale 9,635 7,191
-------- --------
Total loans $605,067 $595,247
======== ========
Nonaccrual and past due loans:
MARCH 31, December 31,
1997 1996
---- ----
Loans accounted for on a nonaccrual basis $1,693 $1,158
Loans past due more than 90 days and
still accruing interest 1,125 674
------ ------
$2,818 $1,832
====== ======
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses for the three months
ended March 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Balance at January 1 $11,350 $10,895
Provision for loan losses 418 387
Recoveries 244 338
Loans charged-off (573) (529)
------- -------
Balance at March 31 $11,439 $11,091
======= =======
Information regarding impaired loans is as follows:
<CAPTION>
Three Months Ended
MARCH 31, March 31,
1997 1996
---- ----
Average investment in impaired loans $3,091 $3,966
Interest income recognized on impaired loans 84 103
Interest income received on impaired loans 68 60
</TABLE>
11
<PAGE> 12
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES - CONTINUED
<TABLE>
<CAPTION>
MARCH 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Balance of impaired loans $2,914 $3,116
Specific allocation associated with
impaired loans $ 194 $ 416
</TABLE>
The balance of impaired loans includes certain delinquent and nonaccrual loans
previously disclosed in Note 3 in the aggregate amount of $1,156 and $981 at
March 31, 1997 and December 31, 1996 respectively.
NOTE 5 - CONCENTRATIONS OF CREDIT RISK
Bancshares, through its subsidiary banks, grants residential, consumer and
commercial loans to customers located primarily in the eastern Ohio counties of
Columbiana, Jefferson, Stark, Mahoning and Carroll and in the West Virginia
county of Hancock.
Real estate mortgage loans, including construction loans and loans held for
sale, totaled $291,899 of loans at March 31, 1997, and are secured primarily by
1 - 4 family residences. Commercial real estate loans comprised 19.28% of loans
at March 31, 1997, and represent borrowings secured by commercial buildings and
real estate primarily in the Citizens and FNB market areas.
Also at March 31, 1997, 11.9% of total loans were to a group of related
enterprises involved in purchasing pools of one-to-four family residential, home
equity and other consumer loans. The primary repayment source for the latter is
the underlying pools of consumer and mortgage debt that represent diverse loan
types and geographic distribution.
Citizens and FNB are parties to financial instruments which involve off-balance
sheet risk. These instruments are entered into in the normal course of business
to meet the financing needs of their customers. These financial instruments
include commitments to make loans. There were $43,919 in variable rate
commitments and $9,370 in fixed rate commitments at March 31,1997. The fixed
rate commitments have an interest rate range of 6.375% to 8.875%. There were
$45,450 in variable rate commitments and $3,237 in fixed rate commitments at
year end 1996. The fixed rate commitments have an interest rate range of 6.50%
to 8.75%. All fixed rate mortgage real estate commitments expire after sixty
days. Since many expire without being used, these amounts do not necessarily
represent future cash commitments.
The exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to make loans and lines and letters of
credit is represented by the contractual amount of those instruments. Citizens
and FNB follow the same credit policy to make such commitments as is followed
for those loans recorded in the financial statements. In management's opinion,
these commitments represent normal banking transactions and no material losses
are expected to result therefrom. Collateral obtained upon exercise of the
commitments is determined using management's credit evaluation of the borrower
and may include real estate and/or business assets.
12
<PAGE> 13
CITIZENS BANCSHARES, INC.
-------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Citizens and FNB are involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the outcome of these matters
will not have a material effect on Bancshares.
Bancshares' subsidiary banks were required to have approximately $8,361 of cash
on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve
requirements at March 31, 1997. These balances do not earn interest.
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
Bancshares' Federal Home Loan Bank advances at March 31, 1997 were:
<TABLE>
<CAPTION>
Maturity or first
Amount Rate Repricing date
------ ---- --------------
<S> <C> <C>
$50,891 5.56% 1997
2,000 5.45 1998
1,500 5.96 1999
15,000 5.93 2002
-------
$69,391
=======
</TABLE>
13
<PAGE> 14
CITIZENS BANCSHARES, INC.
-------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
- ----------------------
(Dollars in thousands, except per share data)
The purpose of this discussion is to focus on information concerning the
consolidated financial condition of Bancshares at March 31, 1997, compared to
December 31, 1996, and the results of operations for the quarter ended March 31,
1997, as compared to the same period in 1996, which is not otherwise apparent
from the financial statements. This discussion should be read in conjunction
with the interim consolidated financial statements and the footnotes thereto
included elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1997, was $4,109, compared to
$3,598 for the same period in 1996. Bancshares' 14.2% increase in net income for
the three months ended March 31, 1997, compared to the same period in 1996, was
due primarily to a 2.9% increase in net interest income and a 29.0% increase in
other income. Additionally, other expense decreased 4.8% for the quarter ended
March 31, 1997 as compared to the same period in 1996.
Earnings per common share for the three months ended March 31, 1997, were $.70,
up 14.8% over the same period in 1996.
The provision for loan losses of $418 for the three months ended March 31, 1997
increased $31 from the comparable period in 1996.
Return on average shareholders' equity for the first three months of 1997 was
18.17%, as compared to 17.74% for the same period in 1996. Return on average
assets for the first three months of 1997 increased to 1.73%, as compared to
1.66% for the same period in 1996.
Service charges and fees on deposits have increased due to fee increases.
<TABLE>
<CAPTION>
NET INTEREST INCOME
THREE MONTHS ENDED Three months ended
MARCH 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net interest income $10,472 $10,178
Taxable equivalent adjustment 213 213
------- -------
Net interest income taxable equivalent $10,685 $10,391
======= =======
Net interest margin 4.63% 4.88%
Taxable equivalent adjustment .09 .10
---- ----
Net interest margin taxable equivalent 4.72% 4.98%
==== ====
</TABLE>
Average gross earning assets increased $58,378 during the first quarter of 1997,
while the average rate earned on these assets decreased from 8.67% at December
31, 1996 to 8.52% at March 31, 1997.
14
<PAGE> 15
CITIZENS BANCSHARES, INC.
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS (CONTINUED).
- -----------------------
(Dollars in thousands, except per share data)
CHANGES IN FINANCIAL CONDITION
Total assets of $1,011,258 at March 31, 1997 increased $63,328 or 6.7% compared
to year-end 1996. Total deposits and repurchase agreements at March 31, 1997 of
$714,791 and $128,007, increased $5,199, and $40,068, respectively, from
December 31, 1996. These lower cost sources of funds were used to purchase
investment and mortgage-backed securities available for sale. Net loans totaled
$593,628 at March 31, 1997, representing an increase of $9,731 or 1.7% since
year-end 1996.
Forward-looking statements contained in this discussion involve risks and
uncertainties and are subject to change based on various important factors.
Actual results could differ from those expressed or implied.
During the first quarter 1997, there were $25,000 in variable rate
mortgaged-backed securities purchased, with rates to change annually, initially
yielding 6.64%. There were $40,000 in fixed rate callable agencies with call
dates from one to three years in the future, and final maturity dates between
five and eight years. Yields on these callable bonds ranged from 7.13% to 7.47%.
The variable rate securities were purchased with variable rate borrowings. The
callable bonds were purchased with like Federal Home Loan Bank advances. Net
interest rate spreads on the purchases approximated 110-113 basis points.
NONPERFORMING ASSETS
Nonperforming loans as a percentage of total loans were .47% at March 31, 1997
as compared to .31% at December 31, 1996. The allowance for loan losses as a
percentage of total loans decreased at March 31, 1997 to 1.89% from 1.91% at
December 31, 1996. Nonperforming loans as a percentage of the allowance for loan
losses increased to 24.64% at March 31, 1997, from 16.14% at December 31, 1996.
Other real estate totaled $212 at March 31, 1997, and $214 at December 31, 1996.
Bancshares continues to analyze the adequacy of its allowance for loan losses as
a percentage of total loans on a quarterly basis. Annualized net charge-offs
constituted .22% of average loans in the first quarter of 1997 as compared to
.20% for the year ended December 31, 1996.
LIQUIDITY
Bancshares' liquidity position remained strong during the first quarter of 1997.
Core deposits, representing Bancshares' largest most stable and generally least
costly source of funds, totaled $655,647 and were 108.4% of total loans at March
31, 1997. The core deposit levels at March 31, 1997 approximated the levels at
year-end 1996.
Cash and cash equivalents, interest-bearing time deposits and securities
available for sale are Bancshares' most liquid assets. At March 31, 1997, these
assets totaled $333,339, an increase of $65,233 or 24.3% from December 31, 1996.
Management believes that Bancshares' liquidity position is strong based on its
high level of cash, cash equivalents, core deposits, the stability of its other
funding sources and its capital base.
15
<PAGE> 16
CITIZENS BANCSHARES, INC.
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS (CONTINUED).
- -----------------------
(Dollars in thousands, except per share data)
CAPITAL RESOURCES
Shareholders' equity totaled $90,479 at March 31, 1997, compared to $89,712 at
December 31, 1996. The ratio of shareholders' equity to assets was 8.9% at March
31, 1997 and 9.5% at December 31, 1996, respectively.
<TABLE>
<CAPTION>
MARCH 31, 1997 December 31, 1996
-------------- -----------------
AMOUNT PERCENT Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Tier 1 risk-based capital
Actual $90,813 15.86% $88,753 16.23%
Required 22,909 4.00 21,876 4.00
Total risk-based capital
Actual $98,050 17.12% $95,645 17.49%
Required 45,818 8.00 43,753 8.00
</TABLE>
The following table summarizes Bancshares' consolidated leverage capital ratio
and required amounts at March 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
MARCH 31, 1997 December 31, 1996
---------------------- -------------------
Leverage Ratio AMOUNT PERCENT Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Actual $90,813 9.42% $88,753 9.91%
Minimum required 28,912 3.00 26,879 3.00
Maximum required 48,186 5.00 44,799 5.00
</TABLE>
The unrealized loss on securities available for sale, net of tax effect, was
$1,015 at March 31, 1997, compared to an unrealized gain of $798 at December 31,
1996. The change of $1,813 was primarily attributable to the changing interest
rate environment.
GENERAL
The Corporation also reached a significant milestone in exceeding $1 billion in
assets for the first time in its history.
Elden L. Surbey was appointed a Director of the Corporation and of its
wholly-owned subsidiary, The Citizens Banking Company. Mr. Surbey previously
served as Chairman of the Board of Directors of The Navarre Deposit Bank
Company, which the Corporation acquired in 1996. Mr. Surbey's vast business
experience and familiarity with the western Stark County market will be
tremendous assets to us.
16
<PAGE> 17
CITIZENS BANCSHARES, INC.
-------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS (CONTINUED).
- -----------------------
GENERAL - CONTINUED
The Corporation's intentions are to form a new wholly-owned subsidiary
specializing in offering trust and investment services. The new Trust Company
will offer comprehensive services, including personal trust, estate
administration, IRA and employee benefit plan accounts, and investment services.
Three experienced and talented trust executives will provide leadership as the
senior officers of the Trust Company, which will initially have offices at The
Citizens Banking Company at 80 Boardman-Poland Road (Route 224) in Boardman,
Ohio. Attorney Patrick A. Sebastiano will serve as Chief Executive Officer and
direct the daily operation, administration, and management activities of the
company; Attorney Stephen D. Panak will focus on operation and administration of
employee benefit accounts; and Mr. John Zador will manage the personal trust
division and administer custody, investment, estate, and other client accounts.
Three experienced operational and administrative employees were also added to
the initial staff. We are excited about the long-term prospects for the Trust
Company to add fee income to the Corporation while providing a valuable service.
The Corporation's 1997 core earnings will be reduced by $.03 per common share
due to the after tax impact of planned Trust Company expenses.
17
<PAGE> 18
CITIZENS BANCSHARES, INC.
-------------------------
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.
- ----------------------------
There is no pending litigation, other than routine litigation
incidental to the business of Bancshares and its affiliates, or of a
material nature involving or naming Bancshares or any of its affiliates
as a defendant. Further, there are no material legal proceedings in
which any director, executive officer, principal shareholder or
affiliate of Bancshares is a party or has a material interest which is
adverse to Bancshares or any of its affiliates. None of the routine
litigation in which Bancshares or any of its affiliates are involved is
expected to have a material adverse impact upon the financial position
or results of operations of Bancshares or any of its affiliates.
ITEM 2. CHANGES IN SECURITIES.
- --------------------------------
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- ------------------------------------------
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- --------------------------------------------------------------
(a) Annual Meeting held March 27, 1997.
(b) The following directors were elected at the Annual Meeting:
Fred H. Johnson
Gerard P.Mastroianni
James C. McBane
The following directors were not up for election at the Annual
Meeting and their respective terms in office continued after the
Annual Meeting:
Marty E. Adams
Keith D. Burgett
Willard L. Davis
Fred H. Johnson, III
Kenneth E. McConnell
Glenn F. Thorne
(c) The election of directors was voted upon at the Annual Meeting.
The number of votes cast for, against or withheld, with respect
to each nominee was as follows:
<TABLE>
<S> <C>
Fred H. Johnson by 4,377,850 votes for, and 186,680 votes withheld
Gerard P. Mastroianni by 4,366,818 votes for, and 197,712 votes withheld
James C. McBane by 4,534,463 votes for, and 30,067 votes withheld
</TABLE>
(d) Not applicable
18
<PAGE> 19
CITIZENS BANCSHARES, INC.
-------------------------
PART II - OTHER INFORMATION - CONTINUED
---------------------------------------
ITEM 5. OTHER INFORMATION.
- ---------------------------
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- -------------------------------------------
(a) The following Exhibits are included in this Form 10-Q or are
incorporated by reference as noted in the following index:
19
<PAGE> 20
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Citizens Bancshares, Inc.
Date: May 13, 1997
-------------
Marty E. Adams
-------------------------------
Marty E. Adams
President & Chief Executive Officer
Vice Chairman
Date: May 13, 1997
--------------
William L. White III
--------------------------------
William L. White III
Senior Vice President
Chief Financial Officer
20
<PAGE> 21
CITIZENS BANCSHARES, INC.
-------------------------
PART II - OTHER INFORMATION - CONTINUED
---------------------------------------
EXHIBIT INDEX
-------------
EXHIBIT 3 Articles of Incorporation, By laws
(1) Registrant's Fourth Amended Articles of Incorporation,
(incorporated by reference in Exhibit 3 (1) to the Form 10-K
of Citizens Bancshares, Inc. for the quarter ended December
31, 1996).
(2) Registrant's Regulations, as amended (incorporated by
reference in Exhibit 3 (2) to the Form S- 4 Registration
Statement No. 0-18209 of Citizens Bancshares, Inc.).
EXHIBIT 10 Material Contracts
(1) The Citizens Bancshares Inc. Profit-Sharing Plan and Trust
(formerly known as the CBC Salineville Profit Sharing Plan and
Trust) (incorporated by reference in Exhibit 10 (2) to the
Form S-4 Registration Statement No. 0-18209 of Citizens
Bancshares, Inc.).
(2) Citizens Bancshares, Inc. Employee Stock Ownership Plan
(incorporated by reference in Exhibit 10 (3) to the Form S-4
Registration Statement No. 0-18209 of Citizens Bancshares,
Inc.).
(3) Form of Indemnification Agreement between Citizens Bancshares,
Inc. and Individual Directors, Officers or Representatives
(incorporated by reference in Exhibit 10 (4) to the Form 10-K
of Citizens Bancshares, for the fiscal year ended December 31,
1989).
(4) Employment Agreement by and among Citizens Bancshares, Inc.,
The Citizens Banking Company and Marty E. Adams (incorporated
by reference in Exhibit 10 (5) to the Form 10-K of Citizens
Bancshares, Inc. for the fiscal year ended December 31, 1992).
(5) Amendment to Executive Employment Agreement by and among
Citizens Bancshares, Inc., The Citizens Banking Company and
Marty E. Adams. (incorporated by reference in Exhibit 10 (8)
to the Form 10-K of Citizens Bancshares, Inc. for the fiscal
year ended December 31, 1993).
(6) Agreement by and among Citizens Bancshares, Inc., The Citizens
Banking Company and Frank J. Koch. (incorporated by reference
in Exhibit 10 (9) to the Form 10-K of Citizens Bancshares,
Inc. for the fiscal year ended December 31, 1993).
(7) Affiliation Agreement by and among Citizens Bancshares, Inc.,
The Citizens Banking Company, Unity Bancorp, Inc., and the New
Waterford Bank (incorporated by reference in Exhibit 3 (1) to
the Form S-4 Registration Statement No. 33-80210 of Citizens
Bancshares, Inc.).
(8) Agreement of Merger by and between Citizens Bancshares, Inc.
and Unity Bancorp, Inc. (incorporated by reference in Exhibit
10 (10) to the Form 10-K of Citizens Bancshares, Inc. for the
fiscal year ended December 31, 1994).
21
<PAGE> 22
CITIZENS BANCSHARES, INC.
-------------------------
PART II - OTHER INFORMATION
---------------------------
EXHIBIT INDEX (CONTINUED)
-------------------------
(9) Citizens Bancshares, Inc. Non-Statutory Stock Option and Stock
Appreciation Rights Plan.(incorporated by reference in Exhibit
10 (11) to the Form 10-Q of Citizens Bancshares, Inc. for the
quarter ended June 30, 1995).
(10) The Employee Retirement Plan for Citizens Bancshares, Inc.
(incorporated by reference in Exhibit 10 (12) to the Form 10-Q
of Citizens Bancshares, Inc. for the quarter ended June 30,
1995).
(11) Affiliation Agreement by and among Citizens Bancshares, Inc.,
The Citizens Banking Company, Western Reserve Bank of Ohio
(incorporated by reference in Exhibit 2 (1) to the Form S-4
Registration Statement No.33-99036 of Citizens Bancshares,
Inc.).
(12) Agreement of Merger by and among Citizens Bancshares, Inc.,
The Citizens Banking Company and Western Reserve Bank of Ohio
(incorporated by reference in Exhibit 10 (12) to the Form 10-K
of Citizens Bancshares, Inc. for the fiscal year ended
December 31, 1995).
(13) Plan and Agreement of Merger by and among Citizens Bancshares,
Inc., The Citizens Banking Company and the Navarre Deposit
Bank Company (incorporated by reference in Exhibit 10 (13) to
the Form 10-Q of Citizens Bancshares, Inc. for the quarter
ended March 31, 1996).
EXHIBIT 11 Statement regarding Computation of Per Share Earnings
(included in Note 1 to the Consolidated Financial Statements).
EXHIBIT 27 Financial Data Schedule
REPORTS ON FORM 8-K
-------------------
None
22
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000855876
<NAME> CITIZENS BANCSHARES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 29,309
<INT-BEARING-DEPOSITS> 255
<FED-FUNDS-SOLD> 1,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 302,725
<INVESTMENTS-CARRYING> 53,485
<INVESTMENTS-MARKET> 53,382
<LOANS> 605,067
<ALLOWANCE> 11,439
<TOTAL-ASSETS> 1,011,258
<DEPOSITS> 714,791
<SHORT-TERM> 153,935
<LIABILITIES-OTHER> 7,613
<LONG-TERM> 43,813
<COMMON> 16,514
0
0
<OTHER-SE> 73,965
<TOTAL-LIABILITIES-AND-EQUITY> 1,011,258
<INTEREST-LOAN> 14,264
<INTEREST-INVEST> 4,986
<INTEREST-OTHER> 37
<INTEREST-TOTAL> 19,287
<INTEREST-DEPOSIT> 6,792
<INTEREST-EXPENSE> 8,815
<INTEREST-INCOME-NET> 10,472
<LOAN-LOSSES> 418
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,250
<INCOME-PRETAX> 6,156
<INCOME-PRE-EXTRAORDINARY> 6,156
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,109
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
<YIELD-ACTUAL> 8.52
<LOANS-NON> 1,693
<LOANS-PAST> 1,125
<LOANS-TROUBLED> 411
<LOANS-PROBLEM> 1,348
<ALLOWANCE-OPEN> 11,350
<CHARGE-OFFS> 573
<RECOVERIES> 244
<ALLOWANCE-CLOSE> 11,439
<ALLOWANCE-DOMESTIC> 2,059
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,380
</TABLE>
