PINX:CZBS Citizens Bancshares Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10 – Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                           to                           

 

Commission File No: 0 - 14535

 

CITIZENS BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)

 

Georgia

 

58 – 1631302

(State or other jurisdiction of

 

(IRS Employer Identification No.)

incorporation or organization)

 

 

 

 

 

75 Piedmont Avenue, N.E., Atlanta, Georgia

 

30303

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (404) 659-5959

 

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 reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. x Yes o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o Yes x No

 

SEC 1296 (08-03)

Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding for each of the issuer’s classes of common stock as of the latest practicable date: 2,025,530 shares of Common Stock, $1.00 par value and 90,000 shares of Non-Voting Common Stock, $1.00 par value were outstanding on August 10, 2012.

 

 

 



 

PART 1.                                                 FINANCIAL INFORMATION

 

ITEM 1.     Financial Statements

 

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2012 AND DECEMBER 31, 2011

(In thousands, except share data)

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

5,674

 

$

5,683

 

Interest-bearing deposits with banks

 

25,259

 

27,769

 

Certificates of deposit

 

100

 

100

 

Investment securities available for sale, at fair value

 

130,565

 

124,242

 

Investment securities held to maturity, at cost

 

2,797

 

3,294

 

Other investments

 

1,671

 

1,312

 

Loans receivable, net

 

195,168

 

195,431

 

Premises and equipment, net

 

7,054

 

7,228

 

Cash surrender value of life insurance

 

9,489

 

11,217

 

Foreclosed real estate

 

7,064

 

10,076

 

Other assets

 

11,672

 

10,808

 

 

 

 

 

 

 

Total assets

 

$

396,513

 

$

397,160

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Noninterest-bearing deposits

 

$

65,416

 

$

59,582

 

Interest-bearing deposits

 

262,577

 

283,449

 

 

 

 

 

 

 

Total deposits

 

327,993

 

343,031

 

 

 

 

 

 

 

Accrued expenses and other liabilities

 

5,035

 

5,286

 

Advances from Federal Home Loan Bank

 

15,301

 

310

 

 

 

 

 

 

 

Total liabilities

 

348,329

 

348,627

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Preferred stock - No par value; 10,000,000 shares authorized; Series B, 7,462 shares issued and outstanding

 

7,462

 

7,462

 

Preferred stock - No par value; 10,000,000 shares authorized; Series C, 4,379 shares issued and outstanding

 

4,379

 

4,379

 

Common stock - $1 par value; 20,000,000 shares authorized; 2,245,364 and 2,237,357 shares issued at June 30, 2012 and December 31, 2011, respectively

 

2,245

 

2,237

 

Nonvoting common stock - $1 par value; 5,000,000 shares authorized; 90,000 issued and outstanding

 

90

 

90

 

Nonvested restricted common stock

 

(150

)

(86

)

Additional paid-in capital

 

7,940

 

7,809

 

Retained earnings

 

25,427

 

25,828

 

Treasury stock at cost, 219,834 and 219,072 shares at June 30, 2012 and December 31, 2011, respectively

 

(1,813

)

(1,810

)

Accumulated other comprehensive income, net of income taxes

 

2,604

 

2,624

 

 

 

 

 

 

 

Total stockholders’ equity

 

48,184

 

48,533

 

 

 

 

 

 

 

 

 

$

396,513

 

$

397,160

 

 

See notes to condensed consolidated financial statements.

 

1



 

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited - In thousands, except per share data)

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

3,201

 

$

3,065

 

$

6,207

 

$

5,992

 

Investment securities:

 

 

 

 

 

 

 

 

 

Taxable

 

$

532

 

603

 

1,036

 

1,218

 

Tax-exempt

 

$

386

 

455

 

795

 

910

 

Interest-bearing deposits

 

$

17

 

17

 

33

 

31

 

Total interest income

 

4,136

 

4,140

 

8,071

 

8,151

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

$

272

 

407

 

569

 

846

 

Other borrowings

 

 

 

 

 

Total interest expense

 

272

 

407

 

569

 

846

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

3,864

 

3,733

 

7,502

 

7,305

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

750

 

1,478

 

1,500

 

1,953

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

3,114

 

2,255

 

6,002

 

5,352

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Service charges on deposits

 

774

 

854

 

1,554

 

1,717

 

Gain on sales of securities

 

13

 

32

 

335

 

95

 

Gain (loss) on sales of assets

 

 

 

 

6

 

Other operating income

 

778

 

285

 

1,148

 

595

 

 

 

 

 

 

 

 

 

 

 

Total noninterest income

 

1,565

 

1,171

 

3,037

 

2,413

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

1,658

 

1,749

 

3,308

 

3,573

 

Net occupancy and equipment

 

636

 

622

 

1,280

 

1,206

 

Amortization of core deposit intangible

 

118

 

118

 

236

 

236

 

FDIC insurance

 

169

 

192

 

315

 

390

 

Other real estate owned, net

 

1,663

 

275

 

2,430

 

605

 

Other operating expenses

 

1,143

 

1,271

 

2,194

 

2,468

 

 

 

 

 

 

 

 

 

 

 

Total noninterest expense

 

5,387

 

4,227

 

9,763

 

8,478

 

 

 

 

 

 

 

 

 

 

 

loss before income taxes

 

(708

)

(801

)

(724

)

(713

)

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(461

)

(427

)

(610

)

(557

)

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(247

)

$

(374

)

$

(114

)

$

(156

)

Preferred dividends

 

59

 

59

 

118

 

118

 

 

 

 

 

 

 

 

 

 

 

Net loss available to common shareholders

 

$

(306

)

$

(433

)

$

(232

)

$

(274

)

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic

 

$

(0.14

)

$

(0.20

)

$

(0.11

)

$

(0.13

)

 

 

 

 

 

 

 

 

 

 

Net loss per common share - diluted

 

$

(0.14

)

$

(0.20

)

$

(0.11

)

$

(0.13

)

 

 

 

 

 

 

 

 

 

 

Weighted average common outstanding shares - basic

 

2,146

 

2,120

 

2,144

 

2,119

 

 

 

 

 

 

 

 

 

 

 

Weighted average common outstanding shares - diluted

 

2,163

 

2,120

 

2,161

 

2,119

 

 

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$

0.08

 

$

0.08

 

$

0.08

 

$

0.08

 

 

See notes to condensed consolidated financial statements.

 

2



 

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited - In thousands)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net Loss

 

$

(247

)

$

(374

)

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

Unrealized holding gain on investment securities available for sale, net of tax of $52 for 2012 and $555 for 2011

 

109

 

1,077

 

Reclassification adjustment for holding gains included in net income, net of tax of $4 for 2012 and $11 for 2011

 

(9

)

(21

)

 

 

 

 

 

 

Total Comprehensive Income (Loss)

 

$

(147

)

$

682

 

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Disclosure of reclassification amount, net of tax for the periods ended:

 

 

 

 

 

Net unrealized gain arising during the period

 

161

 

1,632

 

Reclassification adjustment for holding gains included in net income

 

(13

)

(32

)

 

 

148

 

1,600

 

Tax effect

 

48

 

544

 

Net unrealized gain on securities available for sale

 

$

100

 

$

1,056

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net Loss

 

$

(114

)

$

(156

)

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

Unrealized holding gain on investment securities available for sale, net of tax of $105 for 2012 and $907 for 2011

 

201

 

1,760

 

Reclassification adjustment for holding gains included in net income, net of tax of $114 for 2012 and $32 for 2011

 

(221

)

(63

)

 

 

 

 

 

 

Total Comprehensive Income (Loss)

 

$

(134

)

$

1,541

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Disclosure of reclassification amount, net of tax for the periods ended:

 

 

 

 

 

Net unrealized gain arising during the year

 

306

 

2,667

 

Reclassification adjustment for holding gains included in net income

 

(335

)

(95

)

 

 

(29

)

2,572

 

Tax effect

 

(9

)

875

 

Net unrealized (loss) gain on securities available for sale

 

$

(20

)

$

1,697

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



 

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Unaudited - In thousands, except parenthetical footnotes)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvoting

 

Nonvested

 

Additional

 

 

 

 

 

 

 

Other

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Common Stock

 

Restricted

 

Paid-in

 

Retained

 

Treasury Stock

 

Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Stock

 

Capital

 

Earnings

 

Shares

 

Amount

 

Income (Loss)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2010

 

12

 

$

11,841

 

2,233

 

$

2,233

 

90

 

$

90

 

$

(107

)

$

7,813

 

$

25,965

 

(218

)

$

(1,805

)

$

(213

)

$

45,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

(156

)

 

 

 

(156

)

Unrealized holding gains on investment securities available for sale—net of taxes of $907

 

 

 

 

 

 

 

 

 

 

 

 

1,760

 

1,760

 

Less reclassification adjustment for holding gains included in net income—net of taxes of $32

 

 

 

 

 

 

 

 

 

 

 

 

(63

)

(63

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

 

4

 

4

 

 

 

 

12

 

 

 

 

 

16

 

Nonvested restricted stock

 

 

 

 

 

 

 

6

 

(16

)

 

 

 

 

(10

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

(1

)

(5

)

 

(5

)

Dividends declared - preferred

 

 

 

 

 

 

 

 

 

(118

)

 

 

 

(118

)

Dividends declared - common

 

 

 

 

 

 

 

 

 

(169

)

 

 

 

(169

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—June 30, 2011

 

12

 

$

11,841

 

2,237

 

$

2,237

 

90

 

$

90

 

$

(101

)

$

7,809

 

$

25,522

 

(219

)

$

(1,810

)

$

1,484

 

$

47,072

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2011

 

12

 

$

11,841

 

2,237

 

$

2,237

 

90

 

$

90

 

$

(86

)

$

7,809

 

$

25,828

 

(219

)

$

(1,810

)

$

2,624

 

$

48,533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

(114

)

 

 

 

(114

)

Unrealized holding gains on investment securities available for sale—net of taxes of $105

 

 

 

 

 

 

 

 

 

 

 

 

201

 

201

 

Less reclassification adjustment for holding gains included in net income—net of taxes of $114

 

 

 

 

 

 

 

 

 

 

 

 

(221

)

(221

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

 

8

 

8

 

 

 

 

23

 

 

 

 

 

31

 

Nonvested restricted stock

 

 

 

 

 

 

 

(64

)

108

 

 

 

 

 

44

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

(1

)

(3

)

 

(3

)

Dividends declared - preferred

 

 

 

 

 

 

 

 

 

(118

)

 

 

 

(118

)

Dividends declared - common

 

 

 

 

 

 

 

 

 

(169

)

 

 

 

(169

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—June 30, 2012

 

12

 

$

11,841

 

2,245

 

$

2,245

 

90

 

$

90

 

$

(150

)

$

7,940

 

$

25,427

 

(220

)

$

(1,813

)

$

2,604

 

$

48,184

 

 

See notes to condensed consolidated financial statements.

 

4



 

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In thousands)

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(114

)

$

(156

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

1,500

 

1,953

 

Depreciation

 

334

 

343

 

Amortization and accretion, net

 

677

 

460

 

Provision for deferred income tax benefit

 

127

 

(643

)

Gains on sale of assets and investments, net

 

(335

)

(101

)

Restricted stock based compensation plan

 

44

 

(10

)

Decrease in carrying value of other real estate owned

 

1,970

 

505

 

Change in other assets

 

510

 

(808

)

Change in accrued expenses and other liabilities

 

(251

)

648

 

Net cash provided by operating activities

 

4,462

 

2,191

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Net change in certificates of deposit

 

 

50

 

Proceeds from calls and maturities of investment securities held to maturity

 

496

 

6

 

Proceeds from sales and maturities of investment securities available for sale

 

18,641

 

20,077

 

Purchases of investment securities available for sale

 

(25,464

)

(8,691

)

Net change in loans receivable

 

(2,276

)

(6,294

)

Proceeds from the sale of premises and equipment

 

 

10

 

Proceeds from the sale of other real estate owned

 

2,088

 

1,975

 

Purchases of premises and equipment, net

 

(160

)

(211

)

Net cash provided by (used in) investing activities

 

(6,675

)

6,922

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Net change in deposits

 

(15,038

)

7,954

 

Net change in advances from Federal Home Loan Bank

 

14,991

 

(9

)

Proceeds from issuance of common stock

 

31

 

16

 

Purchase of treasury stock

 

(3

)

(5

)

Dividends paid - preferred

 

(118

)

(118

)

Dividends paid - common

 

(169

)

(169

)

Net cash provided by (used in) financing activities

 

(306

)

7,669

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(2,519

)

16,782

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

33,452

 

23,797

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

30,933

 

$

40,579

 

 

 

 

 

 

 

Supplemental disclosures of cash paid during the period for:

 

 

 

 

 

Interest

 

$

619

 

$

916

 

 

 

 

 

 

 

Income taxes

 

$

28

 

$

8

 

 

 

 

 

 

 

Supplemental disclosures of noncash transactions:

 

 

 

 

 

Real estate acquired through foreclosure

 

$

1,046

 

4,278

 

Change in unrealized gain on investment securities available for sale, net of taxes

 

$

(20

)

$

1,697

 

 

See notes to condensed consolidated financial statements.

 

5



 

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

Citizens Bancshares Corporation (the “Company”) is a holding company that provides a full range of commercial and personal banking services to individual and corporate customers in metropolitan Atlanta and Columbus, Georgia, and in Birmingham and Eutaw, Alabama, through its wholly owned subsidiary, Citizens Trust Bank (the “Bank”).  The Bank operates under a state charter and serves its customers through eight full-service financial centers in metropolitan Atlanta, Georgia, one full-service financial center in Columbus, Georgia, one full-service financial center in Birmingham, Alabama, and one full-service financial center in Eutaw, Alabama.

 

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q.  Accordingly, certain disclosures required by generally accepted accounting principles are not included herein. 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-K filed with the Securities and Exchange Commission for the year ended December 31, 2011.  The results of operations for the interim periods reported herein are not necessarily representative of the results expected for the full 2012 fiscal year.

 

The consolidated financial statements of the Company for the three and six month periods ended June 30, 2012 are unaudited.  In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations and cash flows for the three and nine month periods have been included.  All adjustments are of a normal recurring nature.  All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Accounting Policies

 

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which often require the judgment of management in the selection and application of certain accounting principles and methods.  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-K for the year ended December 31, 2011.  The Company has followed those policies in preparing this report.  Management believes that the quality and reasonableness of its most critical policies enable the fair presentation of its financial position and of its results of operations.

 

Troubled Asset Relief Program

 

On August 13, 2010, as part of the U.S. Department of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Community Development Capital Initiative, the Company entered into a Letter Agreement, and an Exchange Agreement—Standard Terms (“Exchange Agreement”), with the Treasury, pursuant to which the Company agreed to exchange 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Shares”), issued on March 6, 2009, pursuant to the Company’s participation in the TARP Capital Purchase Program, for 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred Shares”), both of which have a liquidation preference of $1,000 (the “Exchange Transaction”).  No new monetary consideration was exchanged in connection with the Exchange Transaction.  The Exchange Transaction closed on August 13, 2010 (the “Closing Date”).

 

On September 17, 2010, the Company issued 4,379 shares of its Series C Preferred Shares to the

 

6



 

Treasury as part of its TARP Community Development Capital Initiative for a total of 11,841 shares of Series B and C Preferred Shares issued to Treasury.  The issuance of the Series B and Series C Preferred Shares was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

 

The Series B and Series C Preferred Shares qualify as Tier 1 capital and will pay cumulative dividends at a rate of 2% per annum for the first eight years after the Closing Date and 9% per annum thereafter.  The Company may, subject to consultation with the Federal Reserve Bank of Atlanta, redeem the Series B and Series C Preferred Shares at any time for its aggregate liquidation amount plus any accrued and unpaid dividends.

 

Acquisition

 

On March 27, 2009, the Company’s subsidiary, Citizens Trust Bank (“Citizens”), acquired the Lithonia branch (the “Branch”) of The Peoples Bank, a Georgia state bank (“Peoples”).  Citizens acquired the in-market deposits of the Branch which totaled approximately $50 million. Under the Agreement, Citizens also acquired the branch office and related real estate and certain personal property at the Branch.  The Company recorded a finite lived intangible asset related to the value of deposit accounts acquired of approximately $3,303,000 and is amortizing the amount over 7 years.

 

Recently Issued Accounting Standards

 

The following is a summary of recent authoritative pronouncements that could affect the accounting, reporting, and disclosure of financial information by the Company:

 

In September 2011, the Intangibles topic was amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.  These amendments were effective for the Company on January 1, 2012.

 

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03. The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control. The other criteria to assess effective control were not changed. The amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.

 

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements.  The amendments were effective for the Company beginning January 1, 2012 and had no effect on the financial statements.

 

The Comprehensive Income topic of the ASC was amended in June 2011.  The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity and requires consecutive presentation of the statement of net income and other comprehensive income. The amendments were applicable to the Company on January 1, 2012 and have been applied retrospectively. In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements. Companies should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the amendments while FASB redeliberates future requirements.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-

 

7



 

setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

2. INVESTMENTS

 

Investment securities available for sale are summarized as follows (in thousands):

 

At June 30, 2012

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

State, county, and municipal securities

 

$

39,013

 

$

2,968

 

$

 

$

41,981

 

Mortgage-backed securities

 

77,891

 

1,437

 

217

 

79,111

 

Corporate securities

 

9,714

 

55

 

296

 

9,473

 

Totals

 

$

126,618

 

$

4,460

 

$

513

 

$

130,565

 

 

At December 31, 2011

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

State, county, and municipal securities

 

$

42,640

 

$

3,269

 

$

1

 

$

45,908

 

Mortgage-backed securities

 

67,941

 

1,405

 

117

 

69,229

 

Corporate securities

 

9,685

 

 

580

 

9,105

 

Totals

 

$

120,266

 

$

4,674

 

$

698

 

$

124,242

 

 

Investment securities held to maturity are summarized as follows (in thousands):

 

At June 30, 2012

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

State, county, and municipal securities

 

$

2,797

 

$

50

 

$

 

$

2,847

 

 

 

 

 

 

 

 

 

 

 

Totals

 

$

2,797

 

$

50

 

$

 

$

2,847

 

 

At December 31, 2011

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

State, county, and municipal securities

 

$

3,293

 

$

84

 

$

 

$

3,377

 

Mortgage-backed securities

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

Totals

 

$

3,294

 

$

84

 

$

 

$

3,378

 

 

8



 

The amortized costs and fair values of investment securities at June 30, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with and without call or prepayment penalties (in thousands).

 

 

 

Available for Sale

 

Held to Maturity

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

130

 

$

130

 

$

 

$

 

Due after one year through five years

 

9,130

 

8,970

 

1,252

 

1,266

 

Due after five years through ten years

 

28,320

 

29,876

 

1,545

 

1,581

 

Due after ten years

 

89,038

 

91,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

126,618

 

$

130,565

 

$

2,797

 

$

2,847

 

 

Securities with carrying values of $67,791,000 and $85,776,000 at June 30, 2012 and December 31, 2011, respectively, were pledged to secure public deposits, FHLB advances and a $22.0 million line of credit at the Federal Reserve Bank discount window and for other purposes as required by law.

 

Proceeds from the sale of securities were $3,955,000 and $6,634,000 at June 30, 2012 and June 30, 2011, respectively. Gross realized gains on securities were $335,000 and $219,000 for the six months ended June 30, 2012 and 2011, respectively. For the three month period ended June 30, 2012 and 2011, gross realized gains on securities were $13,000 and $151,000, respectively. Gross realized losses on securities were $119,000 and $124,000 for the three month and six month period ended June 30, 2011. There were no realized losses for the three month and six month period ended June 30, 2012.

 

The Company’s investment portfolio consists principally of obligations of the United States, its agencies, or its corporations, general obligation and revenue municipals and corporate securities. In the opinion of management, there is no concentration of credit risk in its investment portfolio.  The company places its deposits and correspondent accounts with and sells its federal funds to high quality institutions.  Management believes credit risk associated with correspondent accounts is not significant.

 

The following tables show investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2012 and December 31, 2011. Except as explicitly identified below, all unrealized losses on investment securities are considered by management to be temporarily impaired given the credit ratings on these investment securities and the short duration of the unrealized loss (in thousands).

 

9



 

At June 30, 2012

 

Securities Available for Sale

 

 

 

Securities in a loss position for

 

Securities in a loss position for

 

 

 

 

 

 

 

less than twelve months

 

twelve months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Fair value

 

losses

 

Fair value

 

losses

 

Fair value

 

losses

 

Mortgage-backed securities

 

$

19,384

 

$

(184

)

$

2,124

 

$

(33

)

$

21,508

 

$

(217

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

1,318

 

(75

)

5,779

 

(221

)

7,097

 

(296

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

20,702

 

$

(259

)

$

7,903

 

$

(254

)

$

28,605

 

$

(513

)

 

Securities Held to Maturity

 

There were no securities classified as held to maturity in an unrealized loss position at June 30, 2012.

 

At December 31, 2011

 

Securities Available for Sale

 

 

 

Securities in a loss position for

 

Securities in a loss position for

 

 

 

 

 

 

 

less than twelve months

 

twelve months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Fair value

 

losses

 

Fair value

 

losses

 

Fair value

 

losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

16,456

 

$

(86

)

$

2,180

 

$

(31

)

$

18,636

 

$

(117

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

 

 

189

 

(1

)

189

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

5,227

 

(458

)

3,878

 

(122

)

9,105

 

(580

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

21,683

 

$

(544

)

$

6,247

 

$

(154

)

$

27,930

 

$

(698

)

 

Securities Held to Maturity

 

There were no securities classified as held to maturity in an unrealized loss position at December 31, 2011.

 

The Company’s available for sale portfolio had five investment securities at June 30, 2012 and December 31, 2011 that were in an unrealized loss position for longer than twelve months. The Company reviews these securities for other-than-temporary impairment on a quarterly basis by monitoring their credit support and coverage, constant payment of the contractual principal and interest, loan to value and delinquencies ratios.

 

We use prices from third party pricing services and, to a lesser extent, indicative (non-binding) quotes from third party brokers, to measure fair value of our investment securities. Fair values of the investment securities portfolio could decline in the future if the underlying performance of the collateral for collateralized mortgage obligations or other securities deteriorates and the levels do not provide sufficient protection for contractual principal and interest. As a result, there is risk that an other-than-temporary impairment may occur in the future particularly in light of the current economic environment.

 

As of the date of its evaluation, the Company did not intend to sell and has the ability to hold these securities and it is more likely than not that the Company will not be required to sell those securities before recovery of its amortized cost or the security matures. The Company believes, based on industry analyst reports and credit ratings, that it will continue to receive scheduled interest payments as well as the entire principal balance, and the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary.

 

10



 

3. LOANS

 

Loans outstanding, by classification, are summarized as follows (in thousands):

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Commercial, financial, and agricultural

 

$

23,166

 

$

22,706

 

Commercial Real Estate

 

125,844

 

126,675

 

Single-Family Residential

 

36,612

 

37,539

 

Construction and Development

 

6,946

 

5,377

 

Consumer

 

6,943

 

7,090

 

 

 

199,511

 

199,387

 

Allowance for loan losses

 

4,343

 

3,956

 

 

 

 

 

 

 

 

 

$

195,168

 

$

195,431

 

 

Activity in the allowance for loan losses is summarized as follows (in thousands):

 

 

 

June 30,
2012

 

December 31,
2011

 

June 30,
2011

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

3,956

 

$

4,188

 

$

4,188

 

Provision for loan losses

 

1,500

 

3,883

 

1,953

 

Loans charged-off

 

(1,216

)

(4,302

)

(2,783

)

Recoveries on loans previously charged-off

 

103

 

187

 

76

 

Balance at end of year

 

$

4,343

 

$

3,956

 

$

3,434

 

 

11



 

Activity in the allowance for loan losses by portfolio segment is summarized as follows (in thousands):

 

 

 

For the Three Month Period Ended June 30, 2012

 

 

 

Commercial

 

Commercial
Real Estate

 

Single-family
Residential

 

Construction &
Development

 

Consumer

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

385

 

$

1,996

 

$

770

 

$

568

 

$

208

 

$

3,927

 

Provision for loan losses

 

(79

)

502

 

255

 

6

 

66

 

750

 

Loans charged-off

 

 

(35

)

(243

)

(58

)

(57

)

(393

)

Recoveries on loans charged-off

 

7

 

1

 

37

 

 

14

 

59

 

Ending Balance

 

$

313

 

$

2,464

 

$

819

 

$

516

 

$

231

 

$

4,343

 

 

 

 

For the Six Month Period Ended June 30, 2012

 

 

 

Commercial

 

Commercial
Real Estate

 

Single-family
Residential

 

Construction &
Development

 

Consumer

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

394

 

$

2,206

 

$

696

 

$

449

 

$

211

 

$

3,956

 

Provision for loan losses

 

(89

)

916

 

459

 

154

 

60

 

1,500

 

Loans charged-off

 

(7

)

(666

)

(376

)

(87

)

(80

)

(1,216

)

Recoveries on loans charged-off

 

15

 

8

 

40

 

 

40

 

103

 

Ending Balance

 

$

313

 

$

2,464

 

$

819

 

$

516

 

$

231

 

$

4,343

 

 

 

 

For the Three Month Period Ended June 30, 2011

 

 

 

Commercial

 

Commercial
Real Estate

 

Single-family
Residential

 

Construction &
Development

 

Consumer

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

368

 

$

2,453

 

$

208

 

$

290

 

$

522

 

$

3,841

 

Provision for loan losses

 

(44

)

853

 

471

 

143

 

55

 

1,478

 

Loans charged-off

 

(15

)

(1,253

)

(204

)

(368

)

(84

)

(1,924

)

Recoveries on loans charged-off

 

2

 

1

 

3

 

 

33

 

39

 

Ending Balance

 

$

311

 

$

2,054

 

$

478

 

$

65

 

$

526

 

$

3,434

 

 

 

 

For the Six Month Period Ended June 30, 2011

 

 

 

Commercial

 

Commercial
Real Estate

 

Single-family
Residential

 

Construction &
Development

 

Consumer

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

365

 

$

2,616

 

$

376

 

$

290

 

$

541

 

$

4,188

 

Provision for loan losses

 

(44

)

1,328

 

471

 

143

 

55

 

1,953

 

Loans charged-off

 

(15

)

(1,891

)

(375

)

(368

)

(134

)

(2,783

)

Recoveries on loans charged-off

 

5

 

1

 

6

 

 

64

 

76

 

Ending Balance

 

$

311

 

$

2,054

 

$

478

 

$

65

 

$

526

 

$

3,434

 

 

12



 

Portions of the allowance for loan losses may be allocated for specific loans or portfolio segments.  However, the entire allowance for loan losses is available for any loan that, in the judgment of management, should be charged-off.

 

In determining our allowance for loan losses, we regularly review loans for specific reserves based on the appropriate impairment assessment methodology.  General reserves are determined using historical loss trends measured over a rolling four quarter average for consumer loans, and a three year average loss factor for commercial loans which is applied to risk rated loans grouped by Federal Financial Examination Council (“FFIEC”) call code.  For commercial loans, the general reserves are calculated by applying the appropriate historical loss factor to the loan pool. Impaired loans greater than a minimum threshold established by management are excluded from this analysis.  The sum of all such amounts determines our total allowance for loan losses.

 

The allocation of the allowance for loan losses by portfolio segment was as follows (in thousands):

 

 

 

At June 30, 2012