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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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
including area code ------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
-------------------------------------
(Title of class)
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. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
On March 12, 1997, there were 5,897,540 shares of Common Stock, without
par value, of Citizens Bancshares, Inc., outstanding. As of the same date, the
aggregate market value (based on the average of bid and asked prices) of
Citizens Bancshares, Inc.'s Common Stock held by non-affiliates was
$221,157,750.
Documents Incorporated by Reference
-----------------------------------
Portions of Annual Report to Shareholders for the Year ended December
31, 1996 (incorporated into Parts I, II and IV of this Form 10-K).
Portions of Citizens Bancshares, Inc.'s Proxy Statement dated February
14, 1997 (incorporated into Parts II and III of this Form 10-K).
2
Item 1. BUSINESS
- -----------------
(a) General Development of Business
-------------------------------
Citizens Bancshares, Inc. ("the Corporation") is a bank holding company
organized in 1982 under the laws of the State of Ohio and registered with the
Board of Governors of the Federal Reserve Board pursuant to the Bank Holding
Company Act of 1956, as amended. The Corporation has two wholly-owned subsidiary
banks, a wholly-owned reinsurance company subsidiary and a wholly-owned courier
company subsidiary.
THE CITIZENS BANKING COMPANY ("Citizens"), owned by the Corporation since 1982,
was organized and chartered under the laws of the State of Ohio in 1902.
Citizens is an insured bank under the Federal Deposit Insurance Act. This
subsidiary accounts for approximately 96% of the Corporation's consolidated
assets.
FIRST NATIONAL BANK OF CHESTER ("FNB"), owned by the Corporation since January
1, 1990, was organized and chartered as a national banking association under the
laws of the United States on December 29, 1969 and formally opened for business
on January 2, 1970. FNB is an insured bank under the Federal Deposit Insurance
Act. This subsidiary accounts for approximately 4% of the Corporation's
consolidated assets.
FREEDOM FINANCIAL LIFE INSURANCE COMPANY ("Freedom"), owned by the Corporation
since August 1985, was organized and chartered under the laws of the State of
Arizona in 1985. Freedom is a reinsurance company providing credit life and
accident and health insurance coverage to Citizens' and FNB's loan customers.
This subsidiary accounts for less than 1% of the Corporation's consolidated
assets.
FREEDOM EXPRESS, INC. ("Express"), owned by the Corporation since 1994, was
chartered under the laws of the State of Ohio in 1984. Express is a courier
company formed to transport papers and documents between and among the states of
Ohio, Pennsylvania and West Virginia. This subsidiary accounts for less than 1%
of the Corporation's consolidated assets.
(b) Industry Segment Information
----------------------------
The Corporation is a bank holding company engaged in the business of commercial
and retail banking, which accounts for substantially all of its revenue,
operating income and assets. Reference is made to the statistical information
regarding the Corporation included elsewhere herein and to Item 8 of this Form
10-K for financial information about the Corporation's banking business.
(c) Business
--------
The Corporation's business is primarily incident to its two subsidiary banks.
Its principal products and services involve collecting customer deposits, making
loans and purchasing investments.
Interest and fees on loans accounted for 72.0% of total revenue in 1996, 70.6%
in 1995 and 70.0% in 1994. Interest on securities is also a significant source
of revenue, accounting for 21.4% of revenues in 1996, 22.6% in 1995 and 24.0% in
1994, respectively. Total cash and cash equivalents of $27,367,000 at year-end
1996 decreased $13,559,000 from year-end 1995. Citizens' loan portfolio does not
include any foreign-based loans, loans to lesser developed countries, or loans
to the corporation or its other subsidiaries.
2
3
The Corporation's business is not seasonal nor is it dependent upon a single or
small group of customers. In the opinion of management, the Corporation does not
have exposure to material costs associated with environmental hazardous waste
clean-up.
The acquisition of The Navarre Deposit Bank Company in 1996 was accounted for as
a pooling of interests. All prior periods have been restated to reflect the
merger.
Competition-
The primary market area for Citizens is eastern Ohio and consists of all of
Columbiana County, all of Carroll County, portions of Stark and Mahoning
counties and the northern 75% of Jefferson County. A secondary market area is
the southern portion of Jefferson County, the panhandle of West Virginia north
of Follansbee, and a small portion of Pennsylvania south of Beaver and west of
Darlington to the Ohio border.
FNB's primary market area is Hancock County, West Virginia, with overlap into
the East Liverpool, Ohio market.
Citizens competes not only with other locally owned commercial banks and savings
institutions, but with larger regional financial institutions in offering
consumer and commercial financial service products.
FNB primarily competes with locally owned commercial banks, credit unions and
savings institutions.
Employees-
The Corporation has no employees; however, Citizens and FNB employ approximately
355 full-time equivalents. The Corporation and its subsidiary banks are not
parties to any collective bargaining agreements. Management considers its
relationship with its employees to be good.
Financial Information about Foreign and Domestic Operations and Export Sales-
The Corporation and its subsidiaries do not have any banking offices located in
a foreign country and with the exception of a $5,000 State of Israel bond, has
no foreign assets, liabilities or related income and expense for the years
presented in the financial statements incorporated by reference herein.
Supervision and Regulation-
Management is not aware of any current recommendations by regulatory authorities
which, if they were to be implemented, would have a material effect on the
Corporation.
The Corporation is a bank holding company under the Bank Holding Company Act of
1956, as amended, which restricts the activities of the Corporation and the
acquisition by the Corporation of voting stock or assets of any bank, savings
association or other company. The Corporation is also subject to the reporting
requirements of, and examination and regulation by, the Board of Governors of
the Federal Reserve Bank on transactions with affiliates, including any loans or
extensions of credit to the bank holding company or any of its subsidiaries,
investments in the stock or other securities thereof and the taking of such
stock or securities as collateral for loans to any borrower; the issuance of
guarantees, acceptances or letters of credit on behalf of the bank holding
company and its subsidiaries; purchases or sales of securities or other assets;
and the payment of money or furnishing of services to the bank holding company
and other subsidiaries. Banks and bank holding companies are prohibited from
engaging in certain tie-in arrangements in connection with extensions of credit
or provision of property or services.
3
4
Bank holding companies are also restricted in acquiring shares or substantially
all of the assets of any bank located outside the state in which the operations
of the holding company's banking subsidiaries are principally conducted. Such an
acquisition must be specifically authorized by statute of the state of the bank
whose shares or assets are to be acquired. Ohio laws permit interstate banking
on a reciprocal basis. Bank holding companies and banks located in Ohio may
acquire or organize bank holding companies and banks in other states;
conversely, bank holding companies and banks in such states may acquire or
organize bank holding companies or acquire or charter banks in Ohio if the other
state enacts effective reciprocal legislation granting Ohio bank holding
companies and banks the same or greater authority.
Banks-
As an Ohio chartered bank, Citizens is supervised and regulated by the Ohio
Division of Financial Institutions. As a national bank, FNB is supervised and
regulated by the Comptroller of the Currency. The deposits of Citizens and FNB
are insured primarily by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation ("FDIC") and both entities are subject to the applicable
provisions of the Federal Deposit Insurance Act. Approximately $131,900,000 of
Citizens' deposits are insured by the Savings Association Insurance Fund of the
FDIC. A subsidiary of a bank holding company can be liable for reimbursing the
FDIC if the FDIC incurs or anticipates a loss because of a default of another
FDIC insured subsidiary of the bank holding company or FDIC assistance provided
to such subsidiary is in danger of default.
Various requirements and restrictions under the laws of the United States and
the State of Ohio affect the operations of Citizens and FNB, including
requirements to maintain reserves against deposits, restrictions on the nature
and amount of loans which may be made and the interest rate which may be charged
thereon, restrictions relating to investments and other activities, limitations
based on capital and surplus, limitations on payment of dividends and
limitations on branching.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies and for state member banks. The risk-based capital guidelines
include both a definition of capital and a framework for calculating risk
weighted assets by assigning assets and off-balance sheet items to broad risk
categories. FNB is subject to similar capital requirements adopted by the
Comptroller of the Currency, and Citizens is subject to similar capital
requirements adopted by the FDIC and the Ohio Division of Financial
Institutions.
The Corporation and its subsidiaries currently satisfy all regulatory capital
requirements. Failure to meet the capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal regulatory
authorities, including the termination of deposit insurance by the FDIC.
CERTAIN STATISTICAL INFORMATION REGARDING THE CORPORATION
---------------------------------------------------------
The following schedules present, for the periods indicated, certain
financial and statistical information relative to the Corporation as required
under the Securities and Exchange Commission's Industry Guide 3,
"Statistical Disclosure By Bank Holding Companies," or a specific reference as
to the location of the required disclosures in the Corporation's 1996 Annual
Report to Shareholders (Exhibit 13), portions of which are incorporated in this
Form 10-K by reference.
4
5
I. A. and B. AVERAGE BALANCE SHEET AND RELATED ANALYSIS OF NET INTEREST
----------------------------------------------------------
EARNINGS:
---------
The information set forth under the heading "Financial Review --
Average Balance Sheets and Related Yields and Rates" on page 30 of the
Corporation's 1996 Annual Report to Shareholders is incorporated herein by
reference.
C. INTEREST RATES AND INTEREST DIFFERENTIAL RATE VOLUME ANALYSIS OF
----------------------------------------------------------------
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE:
------------------------------------------------
The information set forth on page 31 of the Corporation's 1996 Annual
Report to Shareholders is incorporated herein by reference.
5
6
II. INVESTMENT PORTFOLIO
--------------------
A. The amortized costs, unrealized gains and losses and estimated fair values
are as follows at December 31:
1996
-------------------------------------------------
GROSS GROSS ESTIMATED
(dollars in thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- -------- --------
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 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 securities held to maturity $ 65,230 $ 321 $ (97) $ 65,454
======== ======= ======== ========
6
7
II. INVESTMENT PORTFOLIO (Continued)
--------------------------------
1995
------------------------------------------------
GROSS GROSS ESTIMATED
(dollars in thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- ------- --------
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 8,902 $ 72 $ (1) $ 8,973
U.S. Government agencies and corporations 30,657 202 (73) 30,786
Corporate and other securities 444 (7) 437
Obligations of states and political subdivisions 5,931 148 (60) 6,019
Mortgage-backed securities
GNMA, FHLMC and FNMA certificates 135,323 1,031 (319) 136,035
Agency collateralized mortgage obligations 10,463 9 (166) 10,306
Other 7,605 8 (10) 7,603
-------- ------- ------- --------
Total debt securities available for sale 199,325 1,470 (636) 200,159
Marketable equity securities 6,209 620 6,829
-------- ------- ------- --------
Total securities available for sale $205,534 $ 2,090 $ (636) $206,988
======== ======= ======= ========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 35,300 $ 422 $ (1) $ 35,721
U.S. Government agencies and corporations 100 (2) 98
Obligations of states and political subdivisions 17,779 183 (102) 17,860
Other 527 32 559
-------- ------- ------- --------
Total securities held to maturity $ 53,706 $ 637 $ (105) $ 54,238
======== ======= ======= ========
7
8
II. INVESTMENT PORTFOLIO (Continued)
-------------------------------
1994
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
(dollars in thousands) COST GAINS LOSSES VALUE
-------- ----- -------- --------
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 14,923 $ (392) $ 14,531
U.S. Government agencies and corporations 6,065 (191) 5,874
Obligations of states and political subdivisions 10,282 $ 30 (597) 9,715
Mortgage-backed securities
GNMA, FHLMC and FNMA certificates 60,713 8 (3,612) 57,109
Agency collateralized mortgage obligations 16,638 (973) 15,665
Other 291 291
-------- ----- -------- --------
Total debt securities available for sale 108,912 38 (5,765) 103,185
Marketable equity securities 5,876 54 5,930
-------- ----- -------- --------
Total securities available for sale $114,788 $ 92 $ (5,765) $109,115
======== ===== ======== ========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 20,277 $ 2 $ (315) $ 19,964
U.S. Government agencies and corporations 19,813 5 (944) 18,874
Obligations of states and political subdivisions 12,939 32 (747) 12,224
Corporate and other securities 2,848 (47) 2,801
Mortgage-backed securities
GNMA, FHLMC and FNMA certificates 116,859 8 (7,654) 109,213
Other 555 555
-------- ----- -------- --------
Total securities held to maturity $173,291 $ 47 $ (9,707) $163,631
======== ===== ======== ========
8
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II. INVESTMENT PORTFOLIO (Continued)
--------------------------------
B. The following is a schedule of maturities or next rate adjustment date
of securities available for sale and the related weighted average yield
as of December 31, 1996. This schedule is prepared using estimated fair
value except for the yields which are calculated using the amortized
cost of the related securities. Equity securities of $12,377,000 have
been excluded from this schedule.
MATURITY OR NEXT RATE ADJUSTMENT DATE
(dollars in thousands)
0-3 MONTHS 3 MOS -1 YR 1-5 YRS 5-10 YRS OVER 10 YRS
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
U.S. Treasury $ 5,516 5.84% $ 5,556 6.11%
U.S. Government agencies
and corporations 3,231 6.32 $23,856 7.36% $ 494 7.50%
Obligations of states and
political subdivisions 100 7.00
Other securities 14 4.13
------- ------- ------ -------
Total investment securities 5,516 5.84 8,801 6.18 23,956 7.36 494 7.50
Mortgage-backed securities $11,501 6.06% 58,739 6.71 37,222 6.32 11,482 6.47 70,287 7.13
------- ------- ------- ------ -------
Total securities available
for sale $11,501 6.06% $64,255 6.64% $46,023 6.29% $35,438 7.07% $70,781 7.13%
======= ======= ======= ======= =======
The following is a schedule of maturities or next rate adjustment date of each
category of securities held to maturity and the related weighted average yield
as of December 31, 1996. This schedule is prepared with the amortized cost of a
security maturing or being placed within the time bracket at the next interest
rate adjustment without regard to principal repayment.
MATURITY OR NEXT RATE ADJUSTMENT DATE
(dollars in thousands)
0-3 MONTHS 3 MOS-1YR 1-5 YRS 5-10 YRS OVER 10 YRS
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
U.S. Treasury $19,380 5.06% $12,474 6.70% $10,488 6.69%
U.S. Government agencies
and corporations $ 100 6.40%
Obligations of states and
political subdivisions 201 8.63 671 8.41 9,646 7.51 11,680 7.46 $585 8.60%
Other securities 5 5.50
------- ------- ------- ------- ----
Total investment securities $19,581 5.10% $13,145 6.79% $20,139 7.08% $11,780 7.45% $585 8.60%
======= ======= ======= ======= ====
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II. INVESTMENT PORTFOLIO (Continued)
--------------------------------
The weighted average yield is based on the effective yield for all
bonds. The yields on the tax exempt portfolio have been adjusted for a
tax equivalency rate of 35%. Mortgage-backed securities have been
classified at their final stated maturity date, except for variable
rate securities which are classified at their next rate adjustment
date.
C. Excluding those holdings of the investment portfolio in U.S. Treasury
securities and other agencies and corporations of the U.S. Government,
there were no investments in securities of any one issuer which
exceeded 10% of consolidated shareholders' equity of the Corporation at
December 31, 1996.
III. LOAN PORTFOLIO
--------------
A. TYPES OF LOANS - Total loans on the consolidated balance sheet are
comprised of the following classifications at December 31.
(dollars in thousands)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Commercial, financial
and agricultural $254,304 $232,506 $193,310 $159,347 $162,605
Real estate mortgage 280,779 281,060 280,278 274,210 245,727
Construction 4,704 6,202 6,494 7,160 5,233
Consumer 48,269 51,098 50,414 53,267 55,701
Real estate mortgage loans
held for sale 7,191 3,908 584 9,154 5,700
-------- -------- -------- -------- --------
Total Loans $595,247 $574,774 $531,080 $503,138 $474,966
======== ======== ======== ======== ========
B. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES - The
following is a schedule of maturities and sensitivities of loans to changes
in interest rates, excluding $1,158,000 in nonaccrual loans as of December
31, 1996:
MATURING OR NEXT RATE ADJUSTMENT DATE - - - -
3 MONTHS AFTER
THROUGH ONE THROUGH FIVE
(dollars in thousands) 0-3 MONTHS ONE YEAR FIVE YEARS YEARS TOTAL
---------- -------- ---------- ----- -----
Fixed rate $ 12,681 $ 7,072 $ 41,368 $203,744 $264,865
Variable rate 194,650 25,419 109,155 329,224
-------- ------- -------- -------- --------
Total $207,331 $32,491 $150,523 $203,744 $594,089
======== ======= ======== ======== ========
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III. LOAN PORTFOLIO (Continued)
--------------------------
C. Risk Elements
-------------
1) Nonaccrual, Past Due and Restructured Loans at December 31.
(dollars in thousands) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(a) Loans accounted for on
a nonaccrual basis $1,158 $2,593 $2,992 $3,152 $4,340
(b) Accruing loans which are
contractually past due 90
days or more as to interest
or principal payments 674 549 2,152 1,298 1,278
(C) Loans which are "troubled
debt restructurings" as
defined in Statement of
Financial Accounting
Standards No. 15 (exclusive
of loans in (a) or (b) above) 418 825 317
------ ------ ------ ------ ------
Total $2,250 $3,967 $5,144 $4,767 $5,618
====== ====== ====== ====== ======
(dollars in thousands)
1996
----
Gross interest income that would have been
recorded on nonaccrual loans in the
period if the loans had been current, in accordance
with their original terms and had been
outstanding throughout the period or since
origination, if held for part of the period $146
Less:
Interest income actually recorded on nonaccrual
loans and included in net income for the period 33
----
Interest income not recognized during the period $113
====
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III. LOAN PORTFOLIO (Continued)
-------------------------
(dollars in thousands)
Information regarding impaired loans at December 31:
1996 1995
---- ----
Balance of impaired loans at December 31, $ 3,116 $ 4,610
Less portion for which no allowance for loan losses
is allocated (386) (1,608)
------- -------
Portion of impaired loan balance for which an allowance
for credit losses is allocated $ 2,730 $ 3,002
======= =======
Portion of allowance for loan losses allocated to the
impaired loan balance at December 31, $ 416 $ 864
======= =======
Average investment in impaired loans during the year $ 3,801 $ 4,532
======= =======
Interest income recognized on impaired loans including
interest income recognized on cash basis during the year $ 327 $ 258
======= =======
Interest income recognized on impaired loan on cash basis
during the year $ 239 $ 241
======= =======
1) The policy for placing loans on nonaccrual status is to cease accruing
interest on loans when management believes that the collection of interest
is doubtful, or when loans are past due as to principal and interest ninety
days or more, except that in certain circumstances interest accruals are
continued on loans deemed by management to be fully collectible. In such
cases, the loans are individually evaluated in order to determine whether
to continue income recognition after ninety days beyond the due dates. When
loans are charged-off, any interest accrued in the current fiscal year is
charged against interest income.
2) Potential Problem Loans - As of December 31, 1996, there were approximately
$2,060,000 of loans representing the remaining balances of loans classified
as substandard for regulatory purposes that have not been disclosed in Item
III C. These loans and their potential loss exposure have been considered
in management's analysis of the adequacy of the allowance for loan losses.
These loans do not represent trends or uncertainties which management
reasonably expects will materially impact future operating results,
liquidity, or capital resources.
3) Foreign Outstandings - There were no foreign outstandings for any year
presented.
4) Loan Concentrations - As of December 31, 1996, there were no concentrations
of loans greater than 10% of total loans which were not otherwise disclosed
as a category of loans pursuant to Item III.A. above. Also refer to Note 1
to the Consolidated Financial Statements regarding concentration of credit
risk on page 17 of the 1996 Annual Report to Shareholders incorporated
herein by reference. Citizens provided financing to enterprises involved in
purchasing pools of one-to-four family residential, home equity and other
consumer loans. Such loans totaled approximately $65,464,000 at December
31, 1996. The source of repayment for these loans is the underlying pools
of residential mortgage and consumer debt which represent diverse loan
types and geographic distribution.
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III. LOAN PORTFOLIO (Continued)
--------------------------
5) No material amount of loans classified during Citizens' and FNB's most
recent regulatory examinations as loss, substandard, doubtful or special
mention have been excluded from the amounts discussed as nonaccrual, past
due ninety days or more, restructured or potential problem loans.
D. OTHER INTEREST BEARING ASSETS - As of December 31, 1996, there were no
other interest bearing assets that would be required to be disclosed under
Item III.C.1. if such assets were loans.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
-------------------------------
A. The following schedule presents an analysis of the allowance for loan
losses, average loan data and related ratios for the years ended December
31:
(dollars in thousands) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
LOANS
- -----
Average loans outstanding
during period (1) $ 580,616 $ 543,285 $ 510,219 $ 487,152 $ 467,300
========= ========= ========= ========= =========
ALLOWANCE FOR LOAN LOSSES
- -------------------------
Balance at the beginning of
the period $ 10,895 $ 10,393 $ 9,728 $ 7,889 $ 5,782
Loans charged-off:
Commercial and
agricultural loans (588) (1,325) (1,609) (2,134) (2,162)
Real estate-mortgage loans (668) (549) (346) (197) (797)
Consumer loans (1,188) (878) (966) (647) (1,177)
Loans secured by leases (254)
--------- --------- --------- --------- ---------
Total loans charged-off (2,444) (2,752) (2,921) (2,978) (4,390)
--------- --------- --------- --------- ---------
Recoveries:
Commercial and agricultural
loans 866 706 829 856 1,076
Real estate-mortgage loans 70 214 101 62 43
Consumer loans 349 310 291 298 297
Loans secured by leases 28 17
--------- --------- --------- --------- ---------
Total loan recoveries 1,285 1,230 1,221 1,244 1,433
--------- --------- --------- --------- ---------
Net loans charged-off (1,159) (1,522) (1,700) (1,734) (2,957)
--------- --------- --------- --------- ---------
Provision charged to
operating expense 1,614 2,024 2,365 3,573 5,064
--------- --------- --------- --------- ---------
Balance at the end of
the period $ 11,350 $ 10,895 $ 10,393 $ 9,728 $ 7,889
========= ========= ========= ========= =========
Ratio of net charge-offs to average
loans outstanding for the period .20% .28% .33% .36% .63%
- ----------------------
(1) Net of unearned income.
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IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
-------------------------------------------
The allowance for loan losses balance and the provision charged to
expense are determined by management based upon periodic reviews of the
loan portfolio, prior loan loss experience, economic conditions and
various other circumstances which are subject to change over time. In
making this judgment, management reviews selected large loans,
delinquent loans, nonaccrual loans and problem loans. The
collectibility of these loans is evaluated after considering the
current financial position of the borrower, the estimated market value
of the collateral and guarantees, and the priority of the Corporation's
lien position. Subjective judgments as to the probability of loss and
the amount of such loss are formed on these loans, as well as other
loans in the aggregate.
B. The following schedule is a breakdown of the allowance for loan
losses allocated by type of loan and related percentages.
Percentage of
Loans in Each
Allowance Category to
Amount Total Loans
--------- -------------
(dollars in thousands)
December 31, 1996
Commercial, financial and agricultural $ 1,119 42.7%
Real estate - mortgage 789 47.2
Real estate - construction .8
Consumer 636 8.1
Unallocated 8,806
Real estate mortgage loans
held for sale 1.2
------- -----
Total $11,350 100.0%
======= =====
December 31, 1995
Commercial, financial and agricultural $ 2,088 40.5%
Real estate - mortgage 546 48.9
Real estate - construction 1.0
Consumer 669 8.9
Unallocated 7,592
Real estate mortgage loans
held for sale .7
------- -----
Total $10,895 100.0%
======= =====
December 31, 1994
Commercial, financial and agricultural $ 2,926 36.4%
Real estate - mortgage 908 52.8
Real estate - construction 58 1.2
Consumer 589 9.5
Unallocated 5,912
Real estate mortgage loans
held for sale .1
------- ------
Total $10,393 100.0%
======= ======
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IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
-------------------------------------------
(dollars in thousands) Percentage of
Loans in Each
Allowance Category to
Amount Total Loans
--------- -----------
December 31, 1993
Commercial, financial and agricultural $3,812 31.7%
Real estate - mortgage 937 54.5
Real estate - construction 1.4
Consumer 893 10.6
Unallocated 4,086
Real estate mortgage loans
held for sale 1.8
------ -----
Total $9,728 100.0%
====== =====
December 31, 1992
Commercial, financial and agricultural $4,016 34.2%
Real estate - mortgage 403 51.8
Real estate - construction 1.1
Consumer 632 11.7
Unallocated 2,838
Real estate mortgage loans
held for sale 1.2
------ -----
Total $7,889 100.0%
====== =====
While management's periodic analysis of the adequacy of the allowance for loan
losses may allocate portions of the allowance for specific problem loan
situations, the entire allowance is available for any loan charge-offs that
occur.
V. DEPOSITS
--------
The following is a schedule of average deposit amounts and average rates paid on
each category for the period indicated:
AVERAGE AMOUNTS OUTSTANDING AVERAGE RATE PAID
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------------- -----------------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
(dollars in thousands)
Noninterest-bearing
demand deposits $ 63,951 $ 61,487 $ 58,434
Interest-bearing
demand deposits 88,963 92,377 83,970 2.23% 2.27% 2.39%
Savings deposits 243,635 254,011 303,210 3.17 3.42 3.22
Time deposits 310,252 274,138 236,302 5.51 5.37 4.36
-------- -------- --------
Total $706,801 $682,013 $681,916
======== ======== ========
15
16
V. DEPOSITS (Continued)
---------------------
The following is a schedule of maturities of time deposits in amounts of
$100,000 or more as of December 31, 1996:
(dollars in thousands)
DECEMBER 31, 1996
-----------------
Three months or less $30,569
Three through six months 6,912
Six through twelve months 7,427
Over twelve months 9,693
-------
Total $54,601
=======
VI. RETURN ON EQUITY AND ASSETS
---------------------------
The information required by this section is set forth under the
heading "Selected Financial Data" on pages 28 and 29 of the
Corporation's 1996 Annual Report to Shareholders and is
incorporated herein by reference.
VII. SHORT-TERM BORROWINGS
---------------------
The following table sets forth certain information relative to the
securities sold under agreements to repurchase and Federal funds
purchased. Generally, repurchase agreements are sold to local
government entities and businesses and have maturity terms of
overnight to 30 days. Federal funds purchased generally have
overnight terms.
DECEMBER 31,
------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
Total securities sold under agree-
ment to repurchase and Federal
funds purchased at period-end $87,939 $20,536 $28,974
Weighted average interest
rate at period-end 6.08% 5.12% 4.99%
Maximum outstanding at any
month-end during the year $87,939 $39,526 $28,974
Average amount outstanding 43,952 31,254 32,125
Weighted average rates during
the year 5.22% 5.52% 3.87%
16
17
Item 2. PROPERTIES
The Corporation does not own any properties. Citizens owns the properties listed
below. All properties owned by Citizens are free from any major encumbrances.
Location Principal Use
-------- -------------
Salineville Office Branch Office
50 East Main Street
Salineville, Ohio
Richmond Office Branch Office
Main Street
Richmond, Ohio
Bergholz Office Branch Office
256 Second Street
Bergholz, Ohio
Wellsville 39 Office Storage Facility
41985 State Route 39
Wellsville, Ohio
Island Creek Office Branch Office
State Route 213
Steubenville, Ohio
Wellsville Downtown Office Branch Office
1210 Main Street
Wellsville, Ohio
Carrollton Downtown Office Branch Office
111 Second Street, S.W.
Carrollton, Ohio
Carrollton Trump Office Branch Office
1045 Trump Road
Carrollton, Ohio
East Palestine Office Branch Office
187 North Market Street
East Palestine, Ohio
17
18
Location Principal Use
-------- -------------
East Palestine Office Branch Office
76 East Main Street
East Palestine, Ohio
Washingtonville Office Branch Office
795 West Main Street
Washingtonville, Ohio
Salem West Office Branch Office
193 South Lincoln Avenue
Salem, Ohio
Salem East Office Branch Office
2525 Southeast Boulevard
Salem, Ohio
Steubenville Office Branch Office
127 South Fourth Street
Steubenville, Ohio
Lisbon North Office Branch Office
7470 SR 45
Lisbon, Ohio
Lisbon Firestone Office Branch Office
24 North Park Avenue
Lisbon, Ohio
Kaiser Building Storage Facility
10 East Main Street
Salineville, Ohio
Central Office Data Processing
70 East Main Street
Salineville, Ohio
Baker Building Legal Department
66 East Main Street
Salineville, Ohio
18
19
Location Principal Use
-------- -------------
Rawlings Building Loan Servicing Center
110 East Main Street
Salineville, Ohio
Thompson Building Programming and Audit
60 East Main Street Department Offices
Salineville, Ohio
Johnson Building Administrative
10 East Main Street
Salineville, Ohio
Hart Building Storage Facility
23 East Main Street
Salineville, Ohio
Leetonia Office Branch Office
243 Main Street
Leetonia, Ohio
Alliance Office (Downtown) Branch Office
101 East Main Street
Alliance, Ohio
Minerva Office Branch Office
622 East Lincolnway
Minerva, Ohio
Alliance (Carnation Mall) Office ATM Office
2490 West State Street
Alliance, Ohio
Sebring Office Branch Office
146 East Ohio Avenue
Sebring, Ohio
Columbiana Office Branch Office
104 South Main Street
Columbiana, Ohio
19
20
Location Principal Use
-------- -------------
New Garden Office Branch Office
7346 State Route 9
Hanoverton, Ohio
New Waterford Office Branch Office
3761 Silliman Street
New Waterford, Ohio
Boardman Office Branch Office
80 Boardman-Poland Road
Boardman, Ohio
Boardman Office Closed Branch Office
7295 Market Street
Boardman, Ohio
Lowellville Office Branch Office
102 East Water Street
Lowellville, Ohio
Navarre Office Branch Office
15 North Main Street
Navarre, Ohio
Plains Office Branch Office
5150 Erie Avenue , SW
Navarre, Ohio
Brewster Office Branch Office
301 Wabash Avenue
Brewster, Ohio
Richville Office Branch Office
6248 Navarre Road, SW
Canton, Ohio
Citizens also leases six offices located in Alliance, Canton, Wintersville, East
Liverpool, Boardman and Struthers, Ohio.
FNB owns its one branch located at 253 Carolina Avenue, Chester, West Virginia.
In the opinion of management, the properties owned or leased by Citizens and FNB
are suitable and adequate for the continuing operations of the Corporation and
its subsidiaries.
20
21
Item 3. LEGAL PROCEEDINGS.
------------------
There is no pending litigation, other than routine litigation incidental to the
business of the Corporation and its affiliates, or of a material nature
involving or naming the Corporation or any of its affiliates as a defendant.
Further, there are not material legal proceedings in which any director,
executive officer, principal shareholder or affiliate of the Corporation is a
party or has a material interest which is adverse to the Corporation or any of
its affiliates. None of the routine litigation in which the Corporation or any
of its affiliates are involved is expected to have a material adverse impact
upon the financial position or results of operations of the Corporation or any
of its affiliates.
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY-HOLDERS.
---------------------------------------------------
No matters were submitted to a vote of the Corporation's security- holders
during the fourth quarter of 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS.
--------
The information set forth under the heading "Common Stock" on page 35 of the
Corporation's 1996 Annual Report to Shareholders is incorporated herein by
reference (Exhibit 13).
Item 6. SELECTED FINANCIAL DATA.
------------------------
The information set forth under the heading "Selected Financial Data" on pages
28 and 29 of the Corporation's 1996 Annual Report to Shareholders is
incorporated herein by reference (Exhibit 13).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATION.
---------------------
The information set forth under the heading "Financial Review" on pages 29
through 35 of the Corporation's 1996 Annual Report to Shareholders is
incorporated herein by reference (Exhibit 13). Management is not aware of any
known trends, events or uncertainties that will have or that are reasonably
likely to have a material effect on the liquidity, capital resources or
operations of the Corporation. Management is not aware of any current
recommendations by the Corporation's, Citizens' or FNB's regulatory authorities
which, if they were to be implemented, would have such an effect.
Any loans classified for regulatory purposes as loss, doubtful, substandard or
special mention and not disclosed under Item III of Industry Guide 3 on pages
10, 11 and 12 of this Form 10-K do not represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity or capital resources. Any such loans also do not
represent material credits about which management is aware of any information
which causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.
21
22
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The information set forth under the headings listed below on pages 12 through 28
of the Corporation's 1996 Annual Report to Shareholders is incorporated herein
by reference (Exhibit 13).
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Three Years Ended December 31, 1996,
1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity - Three Years
Ended December 31, 1996
Consolidated Statements of Cash Flows - Years Ended December 31, 1996,
1995 and 1994
Notes to the Consolidated Financial Statements
Report of Independent Auditors
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
There has been no change in accountants for the applicable reporting period and
there were no disagreements with accountants on accounting and financial
disclosure.
PART III
Information relating to the following items is included in the Corporation's
definitive Proxy Statement, dated February 14, 1997, for its Annual Meeting of
Shareholders to be held on March 27, 1997 filed with the Commission, the
following portions of which are incorporated herein by reference:
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
Set forth under the headings "Election of Directors", "Identification of
Executive Officers", and "Section 16 Late Filings" on pages 1-2, 6 and 15,
respectively, of the Corporation's Proxy Statement.
Item 11. EXECUTIVE COMPENSATION.
-----------------------
Set forth under the headings "Bancshares Personnel and Compensation Committee
and Citizens Personnel and Compensation Committee Report on Executive
Compensation", "Summary Compensation Table", "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements", "Compensation
Pursuant to Plans", "Pension Plan Table", "Option/SAR Grants in 1996",
"Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Option/SAR Values" and "Performance Graph" on page 3, 4, 7, 8, 9-11, 11, 12-13,
13 and 14 respectively, of the Corporation's Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
Set forth under the heading "Security Ownership of Directors, Executive Officers
and Certain Beneficial Owners" on pages 5 and 6 of the Corporation's Proxy
Statement.
22
23
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Set forth under the heading "Transactions with Bancshares" on page 9 of the
Corporation's Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON
--------------------------------------------------------
FORM 10-K.
----------
(a) The following documents are filed as part of this report:
1. Financial Statements - The following consolidated financial statements
of the Corporation contained on pages 12 through 28 of the
Corporation's 1996 Annual Report to Shareholders (Exhibit 13) are
incorporated herein by reference under Item 8 of this Form 10-K:
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years Ended December 31, 1996, 1995
and 1994
Consolidated Statements of Changes of Shareholders' Equity - Three
Years Ended December 31, 1996
Consolidated Statements of Cash Flows - Years Ended December 31, 1996,
1995 and 1994
Notes to the Consolidated Financial Statements
Report of Independent Auditors
2. Financial Statement Schedules are omitted as they are not required or
not applicable, or the required information is included in the
Financial Statements.
3. Exhibits -- Reference is made to the Exhibit Index which is found on
page 25 of this Form 10-K.
23
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: s/Marty E. Adams
-----------------------------
Marty E. Adams
President and Chief Executive Officer
And By: s/William L. White III
-----------------------------
William L. White III
Senior Vice President, Chief Financial Officer
And By: s/Paula Meiler
-----------------------------
Paula Meiler, Comptroller
Date: March 7, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in their indicated capacities and as of this 7th day of
March 1997.
s/James C. McBane
- --------------------------------
James C. McBane, Chairman
s/Marty E. Adams
- --------------------------------
Marty E. Adams, Director
President, Chief Executive Officer
s/Keith Burgett
- --------------------------------
Keith Burgett, Director
s/Willard L. Davis
- --------------------------------
Willard L. Davis, Director
- --------------------------------
Fred H. Johnson, Director
s/Fred H. Johnson, III
- -------------------------------- ----------------------------
Fred H. Johnson, III, Director Kenneth E. McConnell, Director
- -------------------------------- ----------------------------
Glenn F. Thorne, Director Gerard P. Mastroianni, Director
24
25
EXHIBIT INDEX
- -------------
The following Exhibits are included in this Form 10-K or are incorporated by
reference as noted in the following table:
EXHIBIT 3 Articles of Incorporation and by-laws
(1) Registrant's Fourth Amended Articles of
Incorporation.
(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, Inc. 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.
25
26
EXHIBIT INDEX - Continued
- -------------------------
(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).
(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 13 The Corporation's Annual Report to Shareholders for the
Fiscal Year Ended December 31, 1996.
EXHIBIT 21 Subsidiaries of the Registrant
EXHIBIT 23 Consents of Experts and Counsel
EXHIBIT 27 Financial Data Schedule
26