UNITED STATES SECURITIES AND EXCHANGE COMMSSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 Commission file number 0-12425 Citizens Bancshares, Inc. (Exact name of small business issuer as specified in its charter) Louisiana 72-0759135 (State of other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 841 West Main Street, Ville Platte, LA 70586 (Address of principal executive offices) Issuer's telephone number, including area code: 337-363-5643 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Class of Number of Shares Common Equity Outstanding As of Common stock, 114,855 June 30, 2000 $5 Par Value CITIZENS BANCSHARES, INC. AND SUBSIDIARY CONTENTS PART I. FINANCIAL INFORMATION Condensed Consolidated Balance Sheet - June 30, 2000 Condensed Consolidated Statements of Income and Comprehensive Income - Six months ended June 30, 2000 and 1999 Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and 1999 Note to Condensed Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holdings Item 6. Exhibits and Reports on Form 8-K PART I. FINANCIAL INFORMATION CITIZENS BANCSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) June 30, 2000 (In thousands of dollars) ASSETS Cash and due from banks $2,673 Federal funds sold 9,750 Cash & cash equivalents 12,423 Interest-bearing deposits with banks 2,971 Securities available for sale, at fair values 29,291 Securities held to maturity 8,842 Loans receivable, net of allowance for loan losses of $1,083 64,587 Premises and equipment 2,950 Other assets 2,211 Total assets $123,275 LIABILITIES Demand deposits $10,919 Savings, NOW and money-market deposits 21,219 Time deposits $100,000 and more 28,921 Other time deposits 49,663 Total deposits 110,722 Accrued expenses and other liabilities 926 Total liabilities 111,648 SHAREHOLDERS' EQUITY Common Stock $5 par value, 300,000 shares authorized, 115,000 shares issued and outstanding 575 Additional paid-in capital 825 Treasury stock at cost, 145 shares (6) Retained earnings 10,707 Accumulated other comprehensive income (474) Total shareholders' equity 11,627 Total liabilities and shareholders' equity $123,275 CITIZENS BANCSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) SIX AND THREE MONTHS ENDED JUNE 30, 2000 & 1999 (In thousands of dollars, except per share data) Year-to-Date Quarter-to-Date 2000 1999 2000 1999 Interest income Loans receivable $2,802 $2,519 $1,445 $1,293 Taxable securities 934 786 487 401 Tax-exempt securities 194 180 93 90 Federal funds sold 271 226 121 111 Deposits with banks 133 139 60 70 Total interest income 4,334 3,850 2,206 1,965 Interest expense Savings, NOW & money- market deposits 219 163 112 79 Time deposit $100,000 and more 819 728 413 381 Other time deposits 1,334 1,280 678 648 Total interest expense 2,372 2,171 1,203 1,108 Net interest income 1,962 1,679 1,003 857 Provision for loan losses 68 47 38 27 Net interest income after provision for loan losses 1,894 1,632 965 830 Non-interest income 377 345 181 167 Non-interest expense Salaries and employee benefits 696 643 353 315 Other expense 582 558 280 273 Total non-interest expense 1,278 1,201 633 588 Income before income taxes 993 776 513 409 Income tax expense 250 216 144 114 Net income $743 $560 $369 $295 Other comprehensive income, (130) (228) 23 (195) net of tax Comprehensive income $613 $332 $392 $100 Net income per share of $6.47 $4.88 $3.21 $2.57 common stock CITIZENS BANCSHARES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (In thousands of dollars) 2000 1999 Cash flows from operating activities Net income $743 $560 Adjustments to reconcile net income to net cash provided by operating activities 306 406 Net cash provided by operating activities 1,049 966 Cash flows from investing activities Maturities and calls of securities 175 2,348 Purchases of securities (5,451) (7,953) Net decrease/(increase) in interest- bearing deposits with banks 2,279 (306) Net (increase)/decrease in loans (3,627) (1,520) Purchases of premises and equipment (43) (284) Net cash (used) by investing activities (6,667) (7,715) Cash flows from financing activities Net increase in deposits 9,393 8,873 Net cash provided by financing activities 9,393 8,873 Net increase in cash and cash equivalents 3,775 2,124 Cash and cash equivalents at beginning of year 8,648 8,482 Cash and cash equivalents at end of period $12,423 $10,606 Income taxes paid $259 $161 Interest paid $2,290 $2,138 Foreclosed real estate acquired in satisfaction of loans $378 $ - CITIZENS BANCSHARES, INC. AND SUBSIDIARY NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The interim financial statements are prepared pursuant to the requirements for reporting on Form 10-QSB. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes included in the Company's latest annual report on Form 10-KSB. In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full year ending December 31, 2000. CITIZENS BANCSHARES, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL STATEMENT For a comprehensive review of financial condition and results of operations of Citizens Bancshares, Inc. (the Company), this discussion and analysis should be reviewed along with the information and financial statements presented elsewhere in this report. The Company is a one-bank holding company whose sole subsidiary is Citizens Bank, Ville Platte, Louisiana (the Bank). Citizens Bank, Ville Platte, Louisiana is a commercial banking institution formed in 1975 under the banking laws of the State of Louisiana. The bank operates a main office located in the City of Ville Platte, Louisiana and also operates branch facilities in the Town of Mamou, Louisiana and the Village of Pine Prairie, Louisiana. The Bank offers a full range of traditional commercial banking services, including demand, savings, and time deposits, consumer, commercial, agriculture, and real estate loans, safe-deposit boxes, two credit card plans, VISA and MASTERCARD. Drive-in facilities are located at all banking locations with ATM service at the main office. FINANCIAL CONDITION Total assets of the Company increased by $10,068,000 or 8.89%, from $113,207,000 at December 31, 1999 to $123,275,000 at June 30, 2000. The increase is attributed to an increase in loans and deposits. Earning assets, which include loans, investment securities, federal funds sold, and deposits in other banks were 93.65% of total assets at June 30, 2000. Loans showed an increase of $5,745,000 or 9.76% at June 30, 2000. There was an increase in securities of $2,664,000 or 7.51% at June 30, 2000. The Bank maintains an allowance for loan losses against which impaired or uncollectible loans are charged. The balance in the allowance for loan losses was $1,083,000 at June 30, 2000, which represents 1.68% of total loans outstanding on that date. Provisions to the allowance for loan losses, which were charged to net income as of June 30, 2000, totaled $68,000. Management evaluates the adequacy of the allowance for loan losses on a monthly basis by monitoring the balance in total loans as well as the past due, nonaccrual, classified, and other problem loans. On the basis of this evaluation, the allowance for loan losses is considered adequate to meet possible future charges for losses in the existing loan portfolio. At June 30, 2000, past due loans to total loans were 1.10%. With interest earned on investment securities being one of the primary sources of income, investment securities increased by $2,664,000 or 7.51% at June 30, 2000. The following chart shows what our portfolio is made up of as of June 30, 2000: U.S. Government Agencies 50.85% Mortgage-Backed Securities 28.99% Municipal Securities 20.16% As of June 30, 2000, securities classified as "held to maturity" had an amortized cost/recorded value of $8,842,000 and a fair value of $8,697,000; securities classified as "available for sale" had a fair value of $29,291,000 and an amortized cost of $30,010,000. With deposits being the Bank's primary source of funds, both time and demand, total deposits increased $9,395,000 or 9.27% from $101,327,000 at December 31, 1999 to $110,722,000 at June 30, 2000. Money-market accounts increased by $2,399,000 or 59.46%. The primary functions of asset/liability management are to assure adequate liquidity and maintain an appropriate spread between interest-earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Major elements of the Bank's overall liquidity management capabilities and financial resources are (1) core deposits, (2) closely managed maturity structure of loans and deposits, (3) sale and maturity of assets (primarily investment securities), and, if necessary, (4) extensions of credit, including federal funds purchased and securities sold under repurchase agreements. With the Bank's asset/liability management program, most loan and deposit changes can be anticipated without an adverse impact on earnings. At June 30, 2000, the Bank's liquidity ratio was 37.23%. RESULTS OF OPERATIONS For the second quarter of 2000, the Company reported net income of $743,000 or $6.46 per average share. Net return on assets was 1.21% and net return on equity was 12.78%. Net interest income is the Company's principal source of revenue and is measured by the difference between interest income earned on loans and investments and interest expense incurred on deposits. At June 30, 2000, the Bank's net interest margin was 3.34%, a slight increase from June 30, 1999, which at that time the net interest margin was 3.11%. Net interest income increased $275,000, or 15.85% in 2000 to $2,010,000 compared to $1,735,000 at June 30, 1999. The reason for such increase was $476,000 or 12.19% increase in interest income which was offset by a $201,000 or 9.26% increase in interest expense. Non-interest income, which consists primarily of service charges and fees on financial services increased $32,000 or 9.28% in comparing June 30, 2000 to June 30, 1999. Service charges on deposit accounts increased by $26,000 or 10.00%. Non-interest expense includes salaries and employee benefits, occupancy and equipment expense, and other expense. Non- interest expense amounted to $1,278,000 at June 30, 2000, a $77,000 or 6.41% increase from June 30, 1999. Salaries and employee benefits being the main expense showed an increase of $53,000 or 8.24%. CAPITAL ADEQUACY Primary capital (shareholders' equity plus a portion of the allowance for loan losses) as a percent of adjusted total assets is one of the standard measures of capital adequacy used by bank regulators. This and other measurement ratios serve as the underlying basis for evaluating the Bank's capital adequacy and for determining the Bank's insurance fund deposit assessment charges. At June 30, 2000, the Bank's ratios were as follows: Risk Based Capital 18.36% Tier 1 Capital 17.10% Leverage Ratio 9.88% To be categorized as well capitalized, the Bank must maintain a total risk-based capital ratio of 10% or higher, Tier 1 risk- based capital ratio of 6% or higher, and leverage capital ratio of 5% or higher. PART II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings involving the Bank are limited to proceedings arising from normal business activities, none of which are considered material. Item 4. Submission of Matters to a Vote of Security Holders Pursuant to a notice of meeting mailed March 13, 2000 accompanied by a proxy statement, the annual meeting of shareholders was held April 13, 2000. Proxies for the annual meeting were solicited pursuant to Regulation 14A. There was no solicitation in opposition to management's nominees for the Board of Directors as listed in the Proxy Statement. All of the following nominees were duly nominated and elected: Carl W. Fontenot K. Wayne Vidrine Eugene Fontenot E.J. Deville Jules Hebert Fredrick Phillips Joseph West Roderick Young C. Brent Coreil Bryan L. Fontenot Anita F. Melancon Brod Veillon Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - (27) Financial Data Schedule (b) The Company has not filed any reports on Form 8-K during the quarter ended June 30, 2000. 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. CARL W. FONTENOT PRESIDENT & CEO WAYNE VIDRINE EXECUTIVE VICE PRESIDENT-TREASURER