U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended September 30, 1998 Commission file number 0-12425
Citizens Bancshares, Inc.
(Exact name of small business issuer as specified in its charter)
Louisiana 72-0759135
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
841 West Main Street, Ville Platte, La. 70586
(Address of principal executive offices)
Issuer's telephone number, including area code 318-363-5643
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, and
(2) had been subject to such filing requirements for the past 90 days.
Yes (x) No ( )
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Number of
Class of Common Stock Shares Outstanding As of
Common Stock $5 Par Value 114,855 Sept 30, 1998
CITIZENS BANCSHARES, INC. AND
CITIZENS BANK, VILLE PLATTE, LOUISIANA
INDEX
PART I. FINANCIAL INFORMATION PAGE
Condensed Consolidated Balance Sheets -
Sept 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Income -
Nine and Three months ended
Sept 30, 1998 and Sept 30, 1997
Condensed Consolidated Statements of Cash Flows -
Nine months ended Sept 30, 1998
and Sept 30, 1997
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
PART I. CITIZENS BANCSHARES, INC. AND
CITIZENS BANK, VILLE PLATTE, LOUISIANA
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
(in thousands of dollars)
09/30/98 12/31/97
ASSETS
Cash and due from banks $ 2,453 $ 1,848
Federal funds sold 9,020 6,900
CASH AND CASH EQUIVALENTS 11,473 8,748
Interest-bearing deposits with banks 5,538 4,758
Securities available for sale,
at fair values 25,148 25,316
Securities held to maturity, fair values
of $6,822 & $8,399 6,696 8,329
TOTAL SECURITIES 31,844 33,645
Loans receivable, net of allowance for
loan losses of $992 in 1998 and
$937 in 1997 52,770 46,051
Accrued interest receivable 909 960
Premises and equipment, net 3,180 3,064
Foreclosed real estate -- 14
Deferred tax asset -- 68
Other assets 907 649
TOTAL ASSETS $106,621 $97,957
LIABILITIES
Demand deposits $10,380 $ 9,308
Savings, NOW and money-market deposits 17,652 13,261
Time deposits $100,000 or more 22,539 22,397
Other time deposits 44,516 42,467
TOTAL DEPOSITS 95,087 87,433
Accrued interest payable 588 568
Accrued expenses and other liabilities 620 482
TOTAL LIABILITIES 96,295 88,483
SHAREHOLDERS' EQUITY
Common Stock $5 par value, 300,000
shares authorized, 114,855 shares
issued and (145 shares held in
Treasury Stock) 575 575
Additional paid-in capital 825 825
Treasury Stock, @ cost (6) ---
Retained earnings 8,861 8,027
Unrealized gain on Available-for-Sale
Securities, net of applicable deferred
income taxes 71 47
TOTAL SHAREHOLDERS' EQUITY 10,326 9,474
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $106,621 $97,957
CITIZENS BANCSHARES, INC. AND
CITIZENS BANK, VILLE PLATTE, LOUISIANA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
NINE AND THREE MONTHS ENDED SEPT 30, 1998, 1997
(in thousands of dollars, except per share data)
NINE MONTHS THREE MONTHS
ENDED ENDED
09/30/98 09/30/97 09/30/98 09/30/97
Interest income
Loans receivable $ 3,524 $ 3,250 $ 1,263 $ 1,164
U.S. Treasury Securities 101 225 26 63
U.S. Government Agencies 1,115 1,241 341 405
State & Political Subdivisions 222 198 76 69
Federal Funds sold 390 215 143 65
Deposits with banks 228 171 80 57
Total interest income 5,580 5,300 1,929 1,823
Interest expense
Deposits
Savings, NOW and IMMA 332 284 124 101
Time deposits $100,000 and more 1,015 893 356 312
Other time deposits 1,811 1,749 613 599
Total interest expense 3,158 2,926 1,093 1,012
Net interest income 2,422 2,374 836 811
Provision for loan losses 88 88 30 40
Net interest income after provision
for loan losses 2,334 2,286 806 771
Noninterest income
Service charges 344 314 123 108
Other income 114 107 38 36
Total noninterest income 458 421 161 144
Noninterest expense
Salaries & employee benefits 842 741 311 273
Occupancy & equipment expense 339 173 119 60
Other expense 449 474 152 162
Total noninterest expense 1,630 1,388 582 495
Income before income taxes 1,162 1,319 385 420
Income tax expense 327 387 103 147
Net Income $ 835 $ 932 $ 282 $ 273
Net income per share of
common stock $ 7.27 $ 8.11 $ 2.45 $ 2.37
Net Income $ 835 $ 932 $ 282 $ 273
Other comprehensive income,
net of tax 24 11 (1) 72
Comprehensive income $ 859 943 $ 281 $ 345
CITIZENS BANCSHARES, INC AND
CITIZENS BANK, VILLE PLATTE, LOUISIANA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPT 30, 1998 AND SEPT 30, 1997
SEPT SEPT
30, 1998 30, 1997
Cash flows from operating activities:
Net Income $ 829 $ 932
Adjustments to reconcile net income to
net cash provided by operating activities -
Provision for possible loan losses 87 88
Depreciation & Amortization 133 62
Net (accretion) of investment securities 24 (46)
(Gain) on sale of other real estate -- --
Decrease (Increase) in interest receivable 51 (42)
(Increase) in other assets (258) (64)
Increase in interest payable 20 (18)
Increase (decrease) in other liabilities 138 67
Net cash provided by operating activities 1,024 979
Cash flows from investing activities:
Proceeds from maturities and calls of
investment securities 15,026 10,497
Purchase of investment securities (16,683) (8,292)
(Increase) in interest-bearing
deposits with other banks (780) (198)
Proceeds from sales of foreclosed real estate -- --
(Increase) in loans (3,308) (4,710)
Purchase of premises and equipment (207) (1,373)
Net cash (used) by investing activities (5,952) (4,075)
Cash flows from financing activities:
Increase in deposits 7,653 6,357
Net cash provided by financing activities 7,653 6,357
Net increase in cash and cash equivalents 2,725 3,261
Cash and cash equivalents, beginning of year 8,748 6,077
Cash and cash equivalents, end of period $11,473 $ 9,338
Cash paid for income taxes $ 271 $ 411
Cash paid for interest expense $ 3,138 $ 2,944
Foreclosed real estate acquired in
satisfaction of loans $ --- $ --
Total Increase (decrease) in Fair Value of
Securities Available for Sale $ 37 $ 17
CITIZENS BANCSHARES, INC. AND
CITIZENS BANK, VILLE PLATTE, LOUISIANA
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
(1) The interim financial statements are prepared pursuant to the
requirements for reporting on Form 10-QSB. The December 31,
1997 balance sheet data was derived from audited financial
statements but does not include all disclosures required by
generally accepted accounting principles. 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, 1998.
CITIZENS BANCSHARES, INC. AND
CITIZENS BANK, VILLE PLATTE, LOUISIANA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPT 30, 1998
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
The Bank's total assets increased in the thirdd quarter of 1998 from
$97,957,000 to $106,621,000, a $8,664,000 or 8.13% increase. The
increase is attributable to an increase in deposits and loans. In the
third quarter of 1998, Citizens Bank was named the agent paying bank for
a local municipality which resuted in deposits of $4,300,000.
Earning assets, which include loans, investment securities, federal
funds sold, and deposits in other banks were 93.62% of total assets at
September 30, 1998.
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 $992,000 at September 30, 1998, which represents a 1.84%
of total loans outstanding on that date. Provisions to the allowance
for loan losses, which were charged to net income as of September 30,
1998, totaled $87,500. 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 September 30, 1998 past due
loans to total loans were 1.60%.
Another primary source of income is interest earned on investment
securities. The Bank's investment objectives and activities are guided
by a written Investment Policy. As of September 30, 1998, securities
classified as "held-to-maturity" had an amortized cost/recorded value of
$6,262,000 and a fair value of $6,410,000; securities classified as
"available-for-sale" had a fair recorded value of $25,582,000 and an
amortized cost of $25,070,000.
With deposits being the bank's primary source of funds, both time and
demand, total deposits increased $7,654,000 or 8.05% since December 31,
1997. Noninterest-bearing deposits increased by $1,072,000 and
interest-bearing deposits increased by $6,582,000. At September 30,
1998, the Bank's Loan to Deposit Ratio was 56.51%. As stated above,
$4,300,000 was for the accounts of the local municipality.
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. As of September 30, 1998, the
Bank's liquidity ratio was 41.66%.
RESULTS OF OPERATIONS
The Bank reported a net income of $835,000 or $7.27 per average share
outstanding at September 30, 1998. Net return on assets was 1.08% and
net return on equity was 9.97%.
Net interest income is the Bank'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. In comparing
September 30, 1998 to September 30, 1997, the Bank's net interest income
increased by $48,000.
Noninterest income, which consists primarily of service charges and fees
on financial services increased by $37,000 as of September 30, 1998.
Noninterest expense as of September 30, 1998 increased by $242,000 from
September 30, 1997. Salaries and employee benefits being the main
expense had an increase of $101,000 or 11.99%. Occupancy and equipment
expenses had a 48.97% increase. With the continue growth of Citizens
Bank management is aware of these increases, therefore monitors other
expensed closely and tries to keep costs down. In comparing other
expenses for September 30, 1998 to September 30, 1997, it shows a
decrease of $25,000.
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 September 30, 1998, the Bank's
ratios were as follows:
Capital to Assets 9.97%
Risk Based Capital 18.75%
Tier 1 Capital 17.50%
Leverage Ratio 9.68%
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.
YEAR 2000
In late 1997, Citizens Bank decided to convert its data processing
operations from an outsourced service bureau operations to an in-house
operation. When this decision was made, all hardware and software data
processing acquisitions were made with the awareness and objective of
satisfying the Year 2000 compliance and conformity issues. After
successful conversion of data processing operations from a service
bureau to an in-house operation, Citizens Bank's Board of Directors
adopted an Electric Data Processing Policy which included a Year 2000
Program policy.
A Y2K Committee, chaired by a board-appointed Y2K Coordinator, was
formed in early 1998 to address Year 2000 issues. The Committee's
objective is to monitor and report the Bank's progress in achieving Year
2000 compliance for all mission critical applications. In addition to
monitoring, testing and identifying appropriate changes to in house
operations, the Y2K committee continues to monitor Year 2000 status of
the Bank's customers, service providers, and suppliers.
As of September 30, 1998, Citizens Bank had substantially completed
remediating and obtaining Y2K compliance certifications on its mission
critical systems. Testing and validations of mission critical systems
are scheduled for completion in early 1999 and monitoring of Year 2000
compliance will be accomplished throughout 1999. Written
acknowledgments have been received from all mission critical hardware
and software providers, utility and telephone service providers, and
date processing service providers assuring timely remediation, testing
and validation for Year 2000 compliance.
The Bank expects to continue incurring expense charges related to Year
2000 compliance through the remainder of 1998 and throughout 1999; the
majority of costs associated with Year 2000 compliance, however, is the
responsibility of the Bank's data processing vendors and service
providers. Estimated expenses charges to be borne directly by the Bank
will total $3,000 per month through 1999. These Year 2000 expenses will
be included in noninteret expense categories and do not include
equipment and software scheduled replacement in the ordinary course of
business.
The Bank's estimate of Year 2000 investment costs and the estimated time
periods set forth above by which the Bank expects to substantially
complete mission critical system programming and testing and
implementation are based upon management's best current estimates, which
were delivered utilizing numerous assumptions about future events.
There can be no guarantee that these estimates will be achieved, and
actual results could differ from those anticipated. Because of the
critical nature of the Year 2000 issues to our business and to all of
the financial services industry, if necessary modifications are not made
the Bank's operations could be materially impacted. Citizens Bank and
its data processing vendors remain scheduled to ensure achievement of
Year 2000 compliance, therefore, an adverse impact on the Bank's
operations is not expected.
CITIZENS BANCSHARES, INC. AND
CITIZENS BANK, VILLE PLATTE, LOUISIANA
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 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 September 30, 1998.
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 PRES.-TREASURER