Citizens expands through tough times: aging bank explores acquisitions in attempt to rebound from falling revenue. (B.E. 100s).

America's fourth-largest black-owned bank, Atlanta-based Citizens Trust Bank (No. 4 on the BE BANKS list with $267 million in assets), plans to expand despite its parent company, Citizens Bancshares Corp. (OTC Bulletin Board: CZBS.OB), reporting a second-quarter earnings fall of 54%.

The 80-year-old bank recently closed one of its 12 branches and sold the building, and it is looking to acquire or build new branches. "Most of our 80 years have been mainly in the metro-Atlanta area, and we have determined other areas in the Southeast that could benefit from an alternative bank," says Citizens Trust President and CEO James E. Young.

Citizens Trust opened a branch in Columbus, Georgia, with the full backing of the bank's board in October 2000. "Though this decision was made before the shift in the economy, we are still aggressively looking for other sites in Georgia and beyond," says Young. Thus far, Young says, there are two possible sites in Georgia, as well as one in Alabama. These planned expansions, says Young, may come through partnerships with other minority-owned banks.

For 2001, Citizens Bancshares reported second-quarter earnings of $475,000, or 21 cents a share, excluding charges. For the same quarter last year, the company earned $1 million, or 46 cents a share, including gains. The loan-loss provision for 2001 was raised to $940,000, partly through the sale of a bank branch and the sale of securities. The branch sale, which was previously planned Because of an undisclosed acquisition-related overlap, freed about $250,000, and the sale of equity added another $503,000 before taxes.

According to Joe Gladue, an equity analyst for the Baltimore-based investment bank The Chapman Co. (No. 12 on the BE INVESTMENT BANKS list with $4.3 billion in total issues), the current economic climate might benefit the bank and its expansion plans. "Although there will probably be less lending, in times of economic turmoil people take their money out of the stock market and put it somewhere safer, such as banks, which will mean an increase in deposits," he notes.

The bank's expansion is not only for geographic reach, says Young. "We are looking at ways to create a mixed customer base. We don't want to be just the largest minority-owned bank on the minority side of town. While we know the minority market best, we have a product that is marketable to everyone. Our goal is to make this a billion-dollar institution," says Young.

In July, Citizens Bancshares set aside $940,000 to cover problem loans--a 944% increase over last year's numbers. Compare this to the loan-loss provision for the second quarter of 2000, which was just $90,000. One unnamed corporate borrower, a retailer, is to blame for the company's large jump in the loan-loss provision.

But Gladue says that, even with the losses, Citizens Trust's future looks bright. "The reported loss is due mainly to one problem loan, so this doesn't indicate any sort of trend. And in the previous year, there was some growth. Other than [the second quarter losses], operations seem to be improving," he says.

In August, Citizens Bancshares, which began offering common stock in early 1999, also announced that over the next 24 months, it plans to buy back 260,000 shares of its common stock. Currently, the company has 2,178,213 shares of common stock outstanding. All repurchased shares will become treasury shares, and will be used for general-corporate purposes, including stock options, and also to fund employee and management stock plans.

Loan-Loss Provisions for Citizens Bancshares
(for the three months ending June 30)

1999     -$75,000
2000     -$90,000
2001    -$940,000

Source: B.E. Research

Note: Table made from a bar graph.