Quarterly Report (10-q)

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 September 30, 2015

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 incorporation or organization)	(IRS Employer Identification No.)

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: 2,066,773 shares of Common Stock, $1.00 par value and 90,000 shares of Non-Voting Common Stock, $1.00 par value were outstanding on November 11, 2015.

PART 1. FINANCIAL INFORMATION

ITEM 1. Financial Statements

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2015 AND DECEMBER 31, 2014

(In thousands, except share data)

ASSETS	2015			2014
	(Unaudited)
Cash and due from banks	$	2,849		$	2,758
Federal funds sold		6,500			—
Interest-bearing deposits with banks		39,692			45,653
Certificates of deposit		350			350
Investment securities available for sale, at fair value		117,486			126,611
Investment securities held to maturity, at cost		—			240
Other investments		799			792
Loans receivable, net		184,448			188,739
Premises and equipment, net		6,243			6,395
Cash surrender value of life insurance		10,021			10,082
Other real estate owned		3,892			4,668
Other assets		8,730			9,351

Total assets	$	381,010		$	395,639

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Noninterest-bearing deposits	$	79,648		$	83,818
Interest-bearing deposits		245,773			257,071

Total deposits		325,421			340,889

Accrued expenses and other liabilities		4,763			4,930
Advances from Federal Home Loan Bank		240			254

Total liabilities		330,424			346,073

STOCKHOLDERS’ EQUITY:
Preferred stock - No par value; 10,000,000 shares authorized;
Series B, 7,462 shares issued and outstanding		7,462			7,462
Series C, 4,379 shares issued and outstanding		4,379			4,379
Common stock - $1 par value; 20,000,000 shares authorized;
2,308,228 and 2,303,228 shares issued and outstanding at
September 30, 2015 and December 31, 2014, respectively		2,308			2,303
Nonvoting common stock - $1 par value; 5,000,000 shares authorized; 90,000 issued and outstanding		90			90
Nonvested restricted common stock		(207	)		(107	)
Additional paid-in capital		8,344			8,119
Retained earnings		29,377			28,532
Treasury stock at cost, 241,454 and 235,938 shares at September 30, 2015 and December 31, 2014, respectively		(1,930	)		(1,882	)
Accumulated other comprehensive income, net of income taxes		763			670

Total stockholders’ equity		50,586			49,566

	$	381,010		$	395,639

See notes to condensed consolidated financial statements.

Page 1 of 46

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(2015 Unaudited - In thousands, except per share data)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014
Interest income:
Loans, including fees	$	2,644	$	2,432		$	7,486	$	7,412
Investment securities:
Taxable		478		537			1,455		1,685
Tax-exempt		214		332			667		917
Interest-bearing deposits		31		32			97		88
Total interest income		3,367		3,333			9,705		10,102

Interest expense:
Deposits		172		211			535		634
Total interest expense		172		211			535		634

Net interest income		3,195		3,122			9,170		9,468

Provision for loan losses		75		—			200		—

Net interest income after provision for loan losses		3,120		3,122			8,970		9,468

Noninterest income:
Service charges on deposits		711		720			2,044		2,133
Gain on sales of securities		109		—			421		—
Other operating income		249		270			827		847

Total noninterest income		1,069		990			3,292		2,980

Noninterest expense:
Salaries and employee benefits		1,711		1,612			5,076		4,804
Net occupancy and equipment		526		524			1,551		1,568
Amortization of core deposit intangible		118		118			354		354
FDIC insurance		85		80			253		236
Other real estate owned, net		153		306			264		582
Other operating expenses		1,069		1,118			3,302		3,481

Total noninterest expense		3,662		3,758			10,800		11,025

Income before income taxes		527		354			1,462		1,423

Income tax expense (benefit)		107		(22	)		266		158

Net income	$	420	$	376		$	1,196	$	1,265
Preferred dividends		59		59			178		178

Net income available to common shareholders	$	361	$	317		$	1,018	$	1,087

Net income per common share - basic	$	0.16	$	0.15		$	0.47	$	0.50

Net income per common share - diluted	$	0.16	$	0.14		$	0.46	$	0.50

Weighted average common outstanding shares - basic		2,190		2,169			2,183		2,165

Weighted average common outstanding shares - diluted		2,215		2,193			2,209		2,189

See notes to condensed consolidated financial statements.

Page 2 of 46

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(2015 Unaudited - In thousands)

	Three Months Ended
	September 30,
	2015			2014
Net Income	$	420		$	376

Other Comprehensive Income:

Unrealized holding gain (loss) on investment securities available for sale, net of tax of ($315) for 2015 and $170 for 2014		604			(330	)

Reclassification adjustment for holding gains included in net income, net of tax of ($37) for 2015		(72	)		—

Other Comprehensive Income (loss)	$	532		$	(330	)

Total Comprehensive Income (loss)	$	952		$	46

	Nine Months Ended
	September 30,
	2015			2014
Net Income	$	1,196		$	1,265

Other Comprehensive Income:

Unrealized holding gain on investment securities available for sale, net of tax of ($188) for 2015 and ($659) for 2014		371			1,280

Reclassification adjustment for holding gains included in net income, net of tax of $37 for 2015		(278	)		—

Other Comprehensive Income	$	93		$	1,280

Total Comprehensive Income	$	1,289		$	2,545

See notes to condensed consolidated financial statements

Page 3 of 46

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(Unaudited - In thousands)

																											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, 2013		12	$	11,841		2,293	$	2,293		90	$	90	$	(16	)	$	7,933	$	27,131			(236	)	$	(1,882	)	$	(1,082	)	$	46,308

Net income		—		—		—		—		—		—		—			—		1,265			—			—			—			1,265
Other comprehensive income		—		—		—		—		—		—		—			—		—			—			—			1,280			1,280
Nonvested restricted stock		—		—		—		—		—		—		(124	)		197		—			—			—			—			73
Dividends declared - preferred		—		—		—		—		—		—		—			—		(178	)		—			—			—			(178	)
Dividends declared - common		—		—		—		—		—		—		—			—		(172	)		—			—			—			(172	)
Balance—September 30, 2014		12	$	11,841		2,293	$	2,293		90	$	90	$	(140	)	$	8,130	$	28,046			(236	)	$	(1,882	)	$	198		$	48,576

Balance—December 31, 2014		12	$	11,841		2,303	$	2,303		90	$	90	$	(107	)	$	8,119	$	28,532			(236	)	$	(1,882	)	$	670		$	49,566

Net income		—		—		—		—		—		—		—			—		1,196			—			—			—			1,196
Other comprehensive income		—		—		—		—		—		—		—			—		—			—			—			93			93
Issuance of common stock		—		—		5		5		—		—		—			38		—			(5	)		(48	)		—			(5	)
Nonvested restricted stock		—		—		—		—		—		—		(100	)		187		—			—			—			—			87
Dividends declared - preferred		—		—		—		—		—		—		—			—		(178	)		—			—			—			(178	)
Dividends declared - common		—		—		—		—		—		—		—			—		(173	)		—			—			—			(173	)
Balance—September 30, 2015		12	$	11,841		2,308	$	2,308		90	$	90	$	(207	)	$	8,344	$	29,377			(241	)	$	(1,930	)	$	763		$	50,586

See notes to condensed consolidated financial statements.

Page 4 of 46

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(In thousands)

	2015			2014
	(Unaudited)
OPERATING ACTIVITIES:
Net income	$	1,196		$	1,265
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		200			—
Depreciation		412			408
Amortization and accretion, net		706			717
Provision for deferred income tax		345			109
Gains on sale of assets and investments, net		(421	)		—
Restricted stock based compensation plan		87			73
Decrease in carrying value of other real estate owned		153			309
Net (gain) loss on sale of other real estate owned		(23	)		87
Bank owned life insurance income		(171	)		—
Change in other assets		(125	)		(431	)
Change in accrued expenses and other liabilities		(167	)		180

Net cash provided by operating activities		2,192			2,717

INVESTING ACTIVITIES:
Proceeds from calls of investment securities held to maturity		240			—
Proceeds from sales, maturities, and paydowns of investment securities available for sale		36,479			17,501
Purchases of investment securities available for sale		(27,178	)		(4,900	)
Net change in other investments		(7	)		—
Net change in loans receivable		3,980			(2,725	)
Proceeds from the sale of other real estate owned		789			3,178
Redemption of bank owned life insurance		2,232			—
Purchase of bank owned life insurance		(2,000	)		—
Purchases of premises and equipment, net		(259	)		(57	)

Net cash provided by investing activities		14,276			12,997

FINANCING ACTIVITIES:
Net change in deposits		(15,468	)		10,979
Net change in advances from Federal Home Loan Bank		(14	)		(14	)
Restricted stock remitted by employees for taxes		(5	)		—
Dividends paid - preferred		(178	)		(178	)
Dividends paid - common		(173	)		(172	)
Net cash (used in) provided by financing activities		(15,838	)		10,615

Net change in cash and cash equivalents		630			26,329

Cash and cash equivalents, beginning of period		48,411			29,167

Cash and cash equivalents at end of period	$	49,041		$	55,496

Supplemental disclosures of cash paid during the period for:
Interest	$	536		$	668

Income taxes	$	20		$	—

Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure	$	143			771
Change in unrealized gain on investment securities available for sale, net of taxes	$	93		$	1,280

See notes to condensed consolidated financial statements.

Page 5 of 46

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 seven 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, 2014. The results of operations for the interim periods reported herein are not necessarily representative of the results expected for the full 2015 fiscal year.

The consolidated financial statements of the Company for the three and nine month period ended September 30, 2015 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 period 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, 2014. 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”) issued pursuant to the TARP Community Development Capital Initiative, 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”).

Page 6 of 46

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

Recently Issued Accounting Standards

In January 2014, the FASB amended Receivables topic of the Accounting Standards Codification. The amendments are intended to resolve diversity in practice with respect to when a creditor should reclassify a collateralized consumer mortgage loan to other real estate owned (OREO). In addition, the amendments require a creditor reclassify a collateralized consumer mortgage loan to OREO upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. The amendments were effective for the Company for annual periods, and interim periods within those annual period beginning after December 15, 2014, with early implementation of the guidance permitted. In implementing this guidance, assets that are reclassified from real estate to loans are measured at the carrying value of the real estate at the date of adoption. Assets reclassified from loans to real estate are measured at the lower of the net amount of the loan receivable or the fair value of the real estate less costs to sell at the date of adoption. The Company applied the amendments prospectively. These amendments did not have a material effect on the Company’s financial statements.

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted (including during an interim period), provided that the guidance is applied as of the beginning of the annual period containing the adoption date. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2015, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.

Page 7 of 46

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a full retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-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 September 30, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

State, county, and municipal securities	$	27,322	$	1,270	$	—	$	28,592
Mortgage-backed securities		87,009		349		467		86,891
Corporate securities		2,000		3		—		2,003
Totals	$	116,331	$	1,622	$	467	$	117,486

At December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

State, county, and municipal securities	$	28,179	$	1,514	$	—	$	29,693
Mortgage-backed securities		87,548		437		1,070		86,915
Corporate securities		9,867		136		—		10,003
Totals	$	125,594	$	2,087	$	1,070	$	126,611

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

At December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

State, county, and municipal securities	$	240	$	3	$	—	$	243

At September 30, 2015, there were no investment securities held to maturity.

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The amortized costs and fair values of investment securities at September 30, 2015, 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
	Amortized		Fair
	Cost		Value

Due in one year or less	$	2,210	$	2,215
Due after one year through five years		5,260		5,451
Due after five years through ten years		26,475		27,644
Due after ten years		82,386		82,176

	$	116,331	$	117,486

Securities with carrying values of $93,583,000 and $99,299,000 as of September 30, 2015 and December 31, 2014, respectively, were pledged to secure public deposits, FHLB advances and a $21,013,000 line of credit at the Federal Reserve Bank discount window and for other purposes as required by law.

For the three month period ended September 30, 2015, proceeds from the sale of securities were $6,907,000 and gross realized gains on sales of securities were $109,000. There were no sales of securities during the same period in 2014. There were no gross realized losses on sales of securities for the same period during 2015 and 2014.

For the nine month period ended September 30, 2015, proceeds from the sale of securities were $19,292,000 and gross realized gains on sales of securities were $421,000. There were no sales of securities during the same period in 2014. There there were no gross realized losses on sales of securities for the same period during 2015 and 2014.

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.

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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 September 30, 2015 and December 31, 2014. 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):

At September 30, 2015

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	$	27,229	$	(105	)	$	22,728	$	(362	)	$	49,957	$	(467	)

Total	$	27,229	$	(105	)	$	22,728	$	(362	)	$	49,957	$	(467	)

At December 31, 2014

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	$	15,384	$	(151	)	$	40,643	$	(919	)	$	56,027	$	(1,070	)

Total	$	15,384	$	(151	)	$	40,643	$	(919	)	$	56,027	$	(1,070	)

Securities Held to Maturity

There were no securities classified as held to maturity in an unrealized loss position at December 31, 2014.

The Company’s available for sale portfolio had fifteen (15) investment securities at September 30, 2015 that were in an unrealized loss position for longer than twelve months. At December 31, 2014, the Company had twenty-one investment securities 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.

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3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

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

	September 30,		December 31,
	2015		2014

Commercial, financial, and agricultural	$	39,195	$	33,308
Commercial Real Estate		107,439		116,437
Single-Family Residential		31,608		31,940
Construction and Development		1,905		2,925
Consumer		6,549		6,428
		186,696		191,038
Allowance for loan losses		2,248		2,299

	$	184,448	$	188,739

Page 11 of 46

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

	For the Three Month Period Ended September 30, 2015
	Commercial		Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	640	$	1,191		$	290		$	9		$	191		$	2,321
Provision for loan losses		60		(120	)		89			(5	)		51			75
Loans charged-off		—		(55	)		(60	)		—			(54	)		(169	)
Recoveries on loans charged-off		4		6			1			—			10			21
Ending Balance	$	704	$	1,022		$	320		$	4		$	198		$	2,248

	For the Nine Month Period Ended September 30, 2015
	Commercial		Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	415	$	1,366		$	254		$	72		$	192		$	2,299
Provision for loan losses		275		(388	)		271			(74	)		116			200
Loans charged-off		—		(138	)		(230	)		—			(165	)		(533	)
Recoveries on loans charged-off		14		182			25			6			55			282
Ending Balance	$	704	$	1,022		$	320		$	4		$	198		$	2,248

	For the Three Month Period Ended September 30, 2014
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	251		$	1,913		$	508		$	139		$	147		$	2,958
Provision for loan losses		206			(140	)		(162	)		52			44			—
Loans charged-off		(7	)		(108	)		(162	)		(137	)		(46	)		(460	)
Recoveries on loans charged-off		6			9			23			—			18			56
Ending Balance	$	456		$	1,674		$	207		$	54		$	163		$	2,554

	For the Nine Month Period Ended September 30, 2014
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	384		$	1,721		$	731		$	126		$	195		$	3,157
Provision for loan losses		49			167			(352	)		65			71			—
Loans charged-off		(7	)		(244	)		(286	)		(137	)		(144	)		(818	)
Recoveries on loans charged-off		30			30			114			—			41			215
Ending Balance	$	456		$	1,674		$	207		$	54		$	163		$	2,554

	For the Year Ended December 31, 2014
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Total
Beginning balance	$	384		$	1,721		$	731		$	126		$	195		$	3,157
Provision for loan losses		(12	)		27			(129	)		69			120			75
Loans charged-off		(9	)		(562	)		(468	)		(137	)		(182	)		(1,358	)
Recoveries on loans charged-off		52			180			120			14			59			425
Ending Balance	$	415		$	1,366		$	254		$	72		$	192		$	2,299

Page 12 of 46

In determining our allowance for loan losses, we regularly review loans for specific reserves based on the appropriate impairment assessment methodology. Consumer residential loans are evaluated as a homogeneous population and therefore loans are not evaluated individually for impairment. 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 September 30, 2015
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific Reserves:
Impaired loans	$	—	$	212	$	100	$	—	$	—	$	312
Total specific reserves		—		212		100		—		—		312
General reserves		704		810		220		4		198		1,936
Total	$	704	$	1,022	$	320	$	4	$	198	$	2,248

Loans individually evaluated for impairment	$	—	$	6,483	$	424	$	—	$	—	$	6,907
Loans collectively evaluated for impairment		39,195		100,956		31,184		1,905		6,549		179,789
Total	$	39,195	$	107,439	$	31,608	$	1,905	$	6,549	$	186,696

	At December 31, 2014
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development		Consumer		Total
Specific Reserves:
Impaired loans	$	—	$	91	$	51	$	—	$	—	$	142
Total specific reserves		—		91		51		—		—		142
General reserves		415		1,275		203		72		192		2,157
Total	$	415	$	1,366	$	254	$	72	$	192	$	2,299

Loans individually evaluated for impairment	$	—	$	9,787	$	280	$	219	$	—	$	10,286
Loans collectively evaluated for impairment		33,308		106,650		31,660		2,706		6,428		180,752
Total	$	33,308	$	116,437	$	31,940	$	2,925	$	6,428	$	191,038

Page 13 of 46

The following table presents impaired loans by class of loan (in thousands):

	At September 30, 2015
	Impaired Loans - With Allowance						Impaired Loans - With no Allowance
	Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal		Recorded Investment
Residential:
First mortgages	$	—	$	—	$	—	$	—	$	—
HELOC’s and equity		134		134		100		310		290
Commercial
Secured		—		—		—		—		—
Unsecured		—		—		—		—		—
Commercial Real Estate:
Owner occupied		408		408		18		8,210		4,010
Non-owner occupied		691		691		194		1,428		1,374
Multi-family		—		—		—		—		—
Construction and Development:
Construction		—		—		—		—		—
Improved Land		—		—		—		—		—
Unimproved Land		—		—		—		—		—
Consumer and Other		—		—		—		—		—
Total	$	1,233	$	1,233	$	312	$	9,948	$	5,674

The following table presents the average recorded investment and interest income recognized on impaired loans by class of loan (in thousands):

	Nine Months Ended				Nine Months Ended
	September 30, 2015				September 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

Residential:
First mortgages	$	—	$	—	$	231	$	—
HELOC’s and equity		212		34		274		24
Commercial:
Secured		—		—		—		—
Unsecured		—		—		—		—
Commercial Real Estate:
Owner occupied		8,802		296		5,637		603
Non-owner occupied		2,294		179		2,216		79
Multi-family		—		—		97		51
Construction and Development:
Construction		—		—		292		27
Improved Land		—		—		—		—
Unimproved Land		—		—		—		—
Consumer and Other		—		—		—		—
Total	$	11,308	$	509	$	8,747	$	784

Page 14 of 46

	At December 31, 2014
	Impaired Loans - With Allowance						Impaired Loans - With no Allowance
	Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal		Recorded Investment		Average Recorded Investment		Interest Income Recognized
Residential:
First mortgages	$	—	$	—	$	—	$	—	$	—	$	—	$	—
HELOC’s and equity		102		102		51		178		178		86		35
Commercial
Secured		—		—		—		—		—		—		—
Unsecured		—		—		—		—		—		—		—
Commercial Real Estate:
Owner occupied		81		81		81		8,014		7,457		7,575		717
Non-owner occupied		—		—		—		2,388		2,154		2,228		165
Multi-family		95		95		10		—		—		97		69
Construction and Development														.
Construction		—		—		—		356		219		292		30
Improved Land		—		—		—		—		—		—		—
Consumer and Other		—		—				—		—		—		—
Total	$	278	$	278	$	142	$	10,936	$	10,008	$	10,278	$	1,016

The following table is an aging analysis of our loan portfolio (in thousands):

	At September 30, 2015
	30- 59 Days Past Due		60- 89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing		Nonaccrual
Residential:
First mortgages	$	—	$	526	$	950	$	1,476	$	21,459	$	22,935	$	—	$	1,454
HELOC’s and equity		229		24		182		435		8,238		8,673		—		256
Commercial:						—
Secured		30		—		—		30		32,565		32,595		—		—
Unsecured		—		—		—		—		6,600		6,600		—		—
Commercial Real Estate:
Owner occupied		906		689		—		1,595		51,154		52,749		—		1,693
Non-owner occupied		401		—		—		401		49,400		49,801		—		930
Multi-family		—		—		—		—		4,889		4,889		—		—
Construction and Development:
Construction		—		—		—		—		1,905		1,905		—		—
Improved Land		—		—		—		—		—		—		—		—
Consumer and Other		1		14		6		21		6,528		6,549		—		6
Total	$	1,567	$	1,253	$	1,138	$	3,958	$	182,738	$	186,696	$	—	$	4,339

Page 15 of 46

	At December 31, 2014
	30- 59 Days Past Due		60- 89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing		Nonaccrual
Residential:
First mortgages	$	2,273	$	1,190	$	1,036	$	4,499	$	19,960	$	24,459	$	35	$	1,513
HELOC’s and equity		60		550		184		794		6,687		7,481		—		286
Commercial:
Secured		—		187		—		187		28,232		28,419		—		—
Unsecured		—		—		—		—		4,889		4,889		—		—
Commercial Real Estate:
Owner occupied		767		—		228		995		59,065		60,060		—		1,222
Non-owner occupied		1,429		588		84		2,101		42,425		44,526		—		1,026
Multi-family		35		327		95		457		11,394		11,851		—		95
Construction and Development:
Construction		—		—		—		—		2,759		2,759		—		—
Improved Land		103		—		—		103		63		166		—		—
Consumer and Other		6		22		18		46		6,382		6,428		—		18
Total	$	4,673	$	2,864	$	1,645	$	9,182	$	181,856	$	191,038	$	35	$	4,160

Each of our portfolio segments and the classes within those segments are subject to risks that could have an adverse impact on the credit quality of our loan and lease portfolio. Management has identified the most significant risks as described below which are generally similar among our segments and classes. While the list is not exhaustive, it provides a description of the risks that management has determined are the most significant.

Commercial, financial and agricultural loans—We centrally underwrite each of our commercial loans based primarily upon the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. We endeavor to gain a complete understanding of our borrower’s businesses including the experience and background of the principals. To the extent that the loan is secured by collateral, which is a predominant feature of the majority of our commercial loans, we gain an understanding of the likely value of the collateral and what level of strength the collateral brings to the loan transaction. To the extent that the principals or other parties provide personal guarantees, we analyze the relative financial strength and liquidity of each guarantor. Common risks to each class of commercial loans include risks that are not specific to individual transactions such as general economic conditions within our markets, as well as risks that are specific to each transaction including demand for products and services, personal events such as disability or change in marital status, and reductions in the value of our collateral. Due to the concentration of loans in the metro Atlanta and Birmingham areas, we are susceptible to changes in market and economic conditions of these areas.

Consumer—The installment loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination in excess of principal repayment.

Commercial Real Estate—Real estate commercial loans consist of loans secured by multifamily housing, commercial non-owner and owner occupied and other commercial real estate loans. The primary risk associated with multifamily loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result in our customer having to provide rental rate concessions to achieve adequate occupancy rates. Commercial owner-occupied and other commercial real estate loans are primarily dependent on the ability of our customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s business results are significantly unfavorable versus the original projections, the ability for our loan to be serviced on a basis consistent with the contractual terms may be at risk. These loans are primarily secured by real property and can include other collateral such as personal guarantees, personal property, or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation. Also, due to the concentration of loans in the metro Atlanta and Birmingham areas, we are susceptible to changes in market and economic conditions of these areas.

Page 16 of 46

Single-family Residential— Real estate residential loans are to individuals and are secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral. Such a decline in values has led to unprecedented levels of foreclosures and losses during 2008-2012 within the banking industry.

Construction and Development—Real estate construction loans are highly dependent on the supply and demand for residential and commercial real estate in the markets we serve as well as the demand for newly constructed commercial space and residential homes and lots that our customers are developing. Continuing deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our customers. Real estate construction loans can experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can routinely result in foreclosure of partially completed and unmarketable collateral.

Risk categories—The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if appropriately classified and impairment, if any. All other loan relationships greater than $750,000 are reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as if a loan becomes past due, the Company will evaluate the loan grade.

Loans excluded from the scope of the annual review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged off. The Company uses the following definitions for risk ratings:

Special Mention Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Page 17 of 46

The following table presents our loan portfolio by risk rating (in thousands):

	At September 30, 2015
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	22,935	$	21,589	$	—	$	1,346	$	—
HELOC’s and equity		8,673		7,954		106		519		94
Commercial, financial, and agricultural:
Secured		32,595		32,565		—		30		—
Unsecured		6,600		6,600		—		—		—
Commercial Real Estate:
Owner occupied		52,749		45,498		5,369		1,882		—
Non-owner occupied		49,801		47,651		140		2,010		—
Multi-family		4,889		4,581		308		—		—
Construction and Development:
Construction		1,905		1,905		—		—		—
Improved Land		—		—		—		—		—
Consumer		6,549		6,531		—		13		5
Total	$	186,696	$	174,874	$	5,923	$	5,800	$	99

	At December 31, 2014
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Single-Family Residential:
First mortgages	$	24,459	$	22,168	$	—	$	2,291	$	—
HELOC’s and equity		7,481		6,346		557		476		102
Commercial, financial, and agricultural:
Secured		28,419		28,419		—		—		—
Unsecured		4,889		4,889		—		—		—
Commercial Real Estate:
Owner occupied		60,060		50,603		4,673		4,702		82
Non-owner occupied		44,526		37,750		4,805		1,971		—
Multi-family		11,851		10,353		1,368		130		—
Construction and Development:
Construction		2,759		2,540		—		219		—
Improved Land		166		127		39		—		—
Consumer		6,428		6,392		5		13		18
Total	$	191,038	$	169,587	$	11,447	$	9,802	$	202

During the three months ended September 30, 2015, the Company modified one loan that was considered to be a troubled debt restructuring. During the nine months ended September 30, 2015, the Company modified five loans that were considered to be troubled debt restructurings. During the three and nine months ended September 30, 2014, the Company modified one loan that was considered to be a troubled debt restructuring. We extended the terms and decreased the interest rate on these loans (dollars in thousands).

Page 18 of 46

Extended Terms and Decreased Interest Rate
	Nine Months Ended September 30, 2015
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential:
Residential mortgages		5	$	445	$	445
Total		5	$	445	$	445

There was one loan restructured during the last twelve months that has experienced payment default subsequent to restructuring during the three and nine month periods ended September 30, 2015. There were no loans restructured during the last twelve months that experienced payment default subsequent to restructuring during the three and nine month periods ended September 30, 2014.

The Company considers a default as failure to comply with the restructured loan agreement. This would include the restructured loan being past due greater than 90 days, failure to comply with financial covenants, or failure to maintain current insurance coverage or real estate taxes after the loan restructure date.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures or monitors certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities that are elected to be accounted for under ASC guidance as well as certain assets and liabilities in which fair value is the primary basis of accounting. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value, which are in accordance with the guidance for determining the fair value of a financial asset when the market for that asset is not active.

In accordance with ASC guidance, the Company applied the following fair value hierarchy:

Level 1—Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other highly liquid investments that are actively traded in over-the-counter markets.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities, certain derivative contracts and impaired loans.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Page 19 of 46

Investment Securities Available for Sale—Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Other Real Estate Owned— Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. The fair value of other real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. In addition, the Company may further adjust an appraised amount given its knowledge of a specific property or market.

Loans—The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired, and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment. The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At September 30, 2015 and December 31, 2014, substantially all of the impaired loans were evaluated based upon the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. In addition, the Company may further adjust an appraised amount given its knowledge of a specific property or market. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Page 20 of 46

The following tables present financial assets measured at fair value on a recurring and nonrecurring basis and the change in fair value for those specific financial instruments in which fair value has been elected. (there were no financial liabilities measured at fair value for the periods being reported) (in thousands):

	Fair Value Measurements at September 30, 2015
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	28,592	$	—	$	28,592	$	—
Mortgage-backed securities		86,891		—		86,891		—
Corporate securities		2,003		—		2,003		—
		117,486		—		117,486		—

Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	6,271	$	—	$	—	$	6,271
Single-family Residential		324		—		—		324
Other real estate owned		3,892		—		—		3,892
		10,487		—		—		10,487

	Fair Value Measurements at December 31, 2014
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	29,693	$	—	$	29,693	$	—
Mortgage-backed securities		86,915		—		86,915		—
Corporate securities		10,003		—		10,003		—
		126,611		—		126,611		—

Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	9,696	$	—	$	—	$	9,696
Single-family Residential		229		—		—		229
Construction and Development		219		—		—		219
Other real estate owned		4,668		—		—		4,668
		14,812		—		—		14,812

Page 21 of 46

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2015, the significant unobservable inputs used in the fair value measurements were as follows (dollars in thousands):

Fair Value at

Valuation

Unobservable

(Dollars in thousands)

September 30, 2015

Technique

Inputs

Range

Impaired Loans:

Commercial Real Estate

6,271

Appraised Value

Negative adjustment for selling costs and changes in market conditions since appraisal

5% - 20%

Single-family Residential

324

Appraised Value

Negative adjustment for selling costs and changes in market conditions since appraisal

5% - 20%

OREO

3,892

Appraised Value

Negative adjustment for selling costs and changes in market conditions since appraisal

5% - 20%

As of December 31, 2014, the significant unobservable inputs used in the fair value measurements were as follows (dollars in thousands):

Fair Value at

Valuation

Unobservable

(Dollars in thousands)

December 31, 2014

Technique

Inputs

Range

Impaired Loans:

Commercial Real Estate

9,696

Appraised Value

Negative adjustment for selling costs and changes in market conditions since appraisal

5% - 20%

Single-family Residential

229

Appraised Value

Negative adjustment for selling costs and changes in market conditions since appraisal

5% - 20%

Construction & Development

219

Appraised Value

Negative adjustment for selling costs and changes in market conditions since appraisal

5% - 20%

OREO

4,668

Appraised Value

Negative adjustment for selling costs and changes in market conditions since appraisal

5% - 20%

Following are disclosures of fair value information about financial instruments, whethrer o not recognized on the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered an estimate of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance.

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Cash, Due from Banks, Federal Funds Sold, Interest-Bearing Deposits with Banks and Certificates of Deposits—Fair value equals the carrying value of such assets due to their nature and is classified as Level 1.

Investment Securities—Fair value of investment securities is based on quoted market prices and is classified as Level 2.

Other Investments—The carrying amount of other investments approximates its fair value and is classified as Level 1.

Loans—The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings resulting in a Level 3 classification. For variable rate loans, the carrying amount is a reasonable estimate of fair value. The methods utilized to estimate the fair values of loans do not necessarily represent an exit price. The carrying amount of related accrued interest receivable, due to its short-term nature, approximates its fair value, is not significant and is not disclosed.

Cash Surrender Value of Life Insurance—Cash values of life insurance policies are carried at the value for which such policies may be redeemed for cash and are classified as Level 1.

Deposits—The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed rate certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities and is classified as Level 2.

Advances from Federal Home Loan Bank—The fair values of advances from the Federal Home Loan Bank are estimated by discounting the future cash flows using the rates currently available to the Bank for debt with similar remaining maturities and terms and are classified as Level 2.

Commitments to Extend Credit and Commercial Letters of Credit—Because commitments to extend credit and commercial letters of credit are made using variable rates, or are recently executed, the contract value is a reasonable estimate of fair value.

Limitations—Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments; for example, premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

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The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2015 (in thousands):

	September 30, 2015
	Fair Value Measurements
	Carrying
	Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	2,849	$	2,849	$	2,849	$	—	$	—
Interest-bearing deposits with banks		39,692		39,692		39,692		—		—
Federal funds sold		6,500		6,500		6,500		—		—
Certificates of deposit		350		350		350		—		—
Investment securities		117,486		117,486		—		117,486		—
Other investments		799		799		799		—		—
Loans-net		184,448		183,512		—		—		183,512
Cash surrender value of life insurance		10,021		10,021		10,021		—		—

Financial liabilities:
Deposits		325,422		326,048		207,626		118,422		—
Advances from Federal Home Loan Bank		240		240		—		240		—

	Notional		Estimated
	Amount		Fair Value

Off-balance-sheet financial instruments:
Commitments to extend credit	$	34,220	$	—
Commercial letters of credit		1,889		—

The carrying values and estimated fair values of the Company’s financial instruments at December 31, 2014 are as follows:

	December 31, 2014
	Fair Value Measurements
	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	2,758	$	2,758	$	2,758	$	—	$	—
Interest-bearing deposits with banks		45,653		45,653		45,653		—		—
Certificates of deposit		350		350		350		—		—
Investment securities		126,851		126,854		—		126,854		—
Other investments		792		792		792		—		—
Loans-net		188,739		188,195		—		—		188,195
Cash surrender value of life insurance		10,082		10,082		10,082		—		—
Financial liabilities:
Deposits		340,889		341,719		201,994		139,725		—
Advances from Federal Home Loan Bank		254		254		—		254		—

	Notional		Estimated
	Amount		Fair Value
Off-balance-sheet financial instruments:
Commitments to extend credit	$	26,833	$	—
Commercial letters of credit		2,027		—

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5. OTHER REAL ESTATE OWNED

Other real estate owned is reported at the lower of cost or fair value less estimated disposal costs, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. Any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a charge-off against the allowance for loan losses. Any subsequent declines in value are charged to earnings. Transactions in other real estate owned are summarized below (in thousands):

	September 30,			December 31,
	2015			2014

Balance—beginning of period	$	4,668		$	7,404
Additions		143			1,201
Sales		(766	)		(3,411	)
Write downs		(153	)		(526	)

Balance—end of period	$	3,892		$	4,668

6. INTANGIBLE ASSETS

Finite lived intangible assets of the Company represent deposit assumption premiums recorded upon the purchase of certain assets and liabilities from other financial institutions. Deposit assumption premiums are amortized over seven years, the estimated average lives of the deposit bases acquired, using the straight-line method and are included within other assets on the Condensed Consolidated Balance Sheets.

The Company applies a fair value-based impairment test to the carrying value of goodwill on an annual basis and on an interim basis if certain events or circumstances indicate that an impairment loss may have been incurred.

The following table presents information about the Company’s intangible assets (in thousands):

	September 30, 2015				December 31, 2014
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Unamortized intangible asset:
Goodwill	$	362	$	—	$	362	$	—

Amortized intangible assets:
Core deposit intangibles	$	3,303	$	3,067	$	3,303	$	2,714

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The following table presents information about aggregate amortization expense (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Aggregate amortization expense of core deposit intangibles:	$	118	$	118	$	354	$	354

Estimated aggregate amortization expense of core deposit intangibles for the years ending December 31:

2015	$	472
2016	$	117
2017 and thereafter	$	—

7. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Basic and diluted net income per share available to common and potential common stockholders has been calculated based on the weighted average number of shares outstanding.

Options with exercise prices greater than the average market price of the Company’s stock during the periods are excluded from computation of diluted earnings per share. Options with exercise prices lower than the average market price of the Company’s stock during the periods are considered dilutive and are therefore included in the computation of diluted earnings per share.

The following table presents the number of options that are considered antidilutive and dilutive in the computation of diluted earnings per share:

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Options excluded from calculation of diluted earnings per share		24,877		49,277		24,877		49,277

Dilutive options included in calculation of diluted earnings per share		16,500		—		16,500		—

Total number of options outstanding		41,377		49,277		41,377		49,277

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The following schedule reconciles the numerator and denominator of the basic and diluted net income per share available to common and potential common stockholders for the three and nine months ended September 30, 2015 and 2014 (in thousands, except per share data):

	Net Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount

Three Months ended September 30, 2015

Basic earnings per share available to common stockholders	$	361		2,190	$	0.16
Nonvested restricted stock grant		—		8		—
Effect of dilutive securities: options to purchase common shares		—		17		—
Diluted earnings per share	$	361		2,215	$	0.16

Nine Months ended September 30, 2015

Basic earnings per share available to common stockholders	$	1,018		2,183	$	0.47
Nonvested restricted stock grant		—		9		(0.01	)
Effect of dilutive securities: options to purchase common shares		—		17		—
Diluted earnings per share	$	1,018		2,209	$	0.46

Three Months ended September 30, 2014

Basic earnings per share available to common stockholders	$	317		2,169	$	0.15
Nonvested restricted stock grant		—		24		(0.01	)
Effect of dilutive securities: options to purchase common shares		—		—		—
Diluted earnings per share	$	317		2,193	$	0.14

Nine Months ended September 30, 2014

Basic earnings per share available to common stockholders	$	1,087		2,165	$	0.50
Nonvested restricted stock grant		—		24		—
Effect of dilutive securities: options to purchase common shares		—		—		—
Diluted earnings per share	$	1,087		2,189	$	0.50

8. SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date its financial statements were issued.

9. RECLASSIFICATIONS

Certain amounts in the 2014 consolidated financial statements were reclassified to conform to the 2015 presentation. These reclassifications had no effect on shareholders’ equity or the results of operations as previously presented.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION

Citizens Bancshares Corporation (the “Company”) is a holding company that provides a full range of commercial and personal banking services to individuals and corporate customers in its primary market areas, metropolitan Atlanta and Columbus, Georgia, and Birmingham and Eutaw, Alabama through its wholly owned subsidiary, Citizens Trust Bank (the “Bank”). The Bank is a member of the Federal Reserve System and operates under a state charter. The Company serves its customers through 10 full-service financial centers in Georgia and Alabama.

Forward Looking Statements

In addition to historical information, this report on Form 10-Q may contain forward-looking statements. For this purpose, any statements contained herein, including documents incorporated by reference, that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Without limiting the foregoing, the words “believe,” “anticipates,” “plan,” expects,” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are based on current management expectations and, by their nature, are subject to risk and uncertainties because of the possibility of changes in underlying factors and assumptions. Actual conditions, events or results could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons, including: sharp and/or rapid changes in interest rates; significant changes in the economic scenario from the current anticipated scenario which could materially change anticipated credit quality trends and the ability to generate loans and gather deposits; significant delay in or inability to execute strategic initiatives designed to grow revenues and/or control expenses; unanticipated issues during the integration of acquisitions; and significant changes in accounting, tax or regulatory practices or requirements. The Company undertakes no obligation to, nor does it intend to, update forward-looking statements to reflect circumstances or events that occur after the date hereof or to reflect the occurrence of unanticipated events.

The following discussion is of the Company’s financial condition as of September 30, 2015 and December 31, 2014, and the changes in the financial condition and results of operations for the three and nine month periods ended September 30, 2015 and 2014.

Critical Accounting Policies

In response to the Securities and Exchange Commission’s (“SEC”) Release No. 33-8040, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, the Company has identified the following as the most critical accounting policies upon which its financial status depends. The critical policies were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. The Company’s most critical accounting policies relate to:

Investment Securities - The Company classifies investments in one of three categories based on management’s intent upon purchase: held to maturity securities which are reported at amortized cost, trading securities which are reported at fair value with unrealized holding gains and losses included in earnings, and available for sale securities which are recorded at fair value with unrealized holding gains and losses included as a component of accumulated other comprehensive income. The Company had no investment securities classified as trading securities during 2015 or 2014.

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Premiums and discounts on available for sale and held to maturity securities are amortized or accreted using a method which approximates a level yield.

Gains and losses on sales of investment securities are recognized upon disposition, based on the adjusted cost of the specific security. A decline in market value of any security below cost that is deemed other than temporary is charged to earnings or OCI resulting in the establishment of a new cost basis for the security.

Loans - Loans are reported at principal amounts outstanding less unearned income and the allowance for loan losses. Interest income on loans is recognized on a level-yield basis. Loan fees and certain direct origination costs are deferred and amortized over the estimated terms of the loans using the level-yield method. Discounts on loans purchased are accreted using the level-yield method over the estimated remaining life of the loan purchased.

Allowance for Loan Losses - The Company provides for estimated losses on loans receivable when any significant and permanent decline in value occurs. These estimates for losses are based, not only on individual assets and their related cash flow forecasts, sales values, and independent appraisals, but also on the volatility of certain real estate markets, and the concern for disposing of real estate in distressed markets. For loans that are pooled for purposes of determining the necessary provisions, estimates are based on loan types, history of charge-offs, and other delinquency analyses. Therefore, the value used to determine the provision for losses is subject to the reasonableness of these estimates. The adequacy of the allowance for loan losses is reviewed on a monthly basis by management and the Board of Directors. On a semi-annual basis an independent comprehensive review of the methodology and allocation of the allowance for loan losses is performed. This assessment is made in the context of historical losses as well as existing economic conditions, and individual concentrations of credit. Loans are charged against the allowance when, in the opinion of management, such loans are deemed uncollectible and subsequent recoveries are added to the allowance.

Other Real Estate Owned - Other real estate owned is reported at the lower of cost or fair value less estimated disposal costs, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. Any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a charge-off against the allowance for loan losses. Any subsequent declines in value are charged to earnings.

Income Taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required. A valuation allowance is provided for the portion of a deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.

The Company believes that its income tax filing positions taken or expected to be taken in its tax returns will more likely than not be sustained upon audit by the taxing authorities and does not anticipate any adjustments that will result in a material adverse impact on the Company’s financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded.

A description of other accounting policies are summarized in Note 1, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The Company has followed those policies in preparing this report.

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FINANCIAL CONDITION

At September 30, 2015, the Company had total assets of $381,010,000 compared to $395,639,000 at December 31, 2014. The $14,629,000 decline is primarily related to decreases in available for sale investments of $9,125,000, net loans of $4,291,000 and in other assets including other real estate owned (OREO) of $1,397,000. The decline in interest bearing deposits with banks of $5,961,000 is principally due to and offset by the federal funds sold of $6,500,000. Interest-bearing deposits with banks primarily represent funds maintained on deposit at the Federal Reserve Bank (FRB) and the Federal Home Loan Bank (FHLB). These funds fluctuate daily and are used to manage the Company’s liquidity. The decrease in available for sale securities is primarily attributed to securities sold to manage the Company’s asset/liability position in light of the current economic environment. At September 30, 2015, total assets consisted primarily of $117,486,000 in investment securities and $184,448,000 in net loans representing 31% and 48% of total assets, respectively. Investment securities and net loans represented 32% and 48% of total assets at December 31, 2014.

Loans typically provide higher interest yields than other types of interest-earning assets and, therefore, continue to be the largest component of the Company’s assets. Net loans receivable decreased by $4,291,000 at September 30, 2015 compared to December 31, 2014. The decreases were primarily in commercial real estate of $8,998,000, construction and development of $1,020,000 and single-family residential loans of $332,000, offset by an increase in commercial, financial and agriculture loans of $5,887,000 and consumer loans of $121,000. The decline was primarily due to paydowns of $8.7 million in multifamily and hotel loans as these properties were scheduled to be sold. The Company continues to pursue opportunities to enhance its lending as well as investing in the resources needed to strengthen these efforts.

At September 30, 2015, OREO decreased by $776,000 to $3,892,000 compared to $4,668,000 reported at the year-end of 2014. This decrease is primarily related to the sale of OREO properties totaling $766,000 and $153,000 in write-downs, partially offset by $143,000 in additions to the OREO balance during the nine month period of 2015.

Cash value of life insurance, a comprehensive compensation program for directors and certain senior managers of the Company, decreased by $61,000 to $10,021,000 at September 30, 2015. The decrease is primarily due to a payout of $2,232,000, offset by an additional purchase of the bank owned life insurance of $2,000,000 and $171,000 in earnings on the premiums paid over the life of the insurance contract.

The Company’s liabilities at September 30, 2015 totaled $330,424,000 and consisted primarily of $325,421,000 in deposits, which decreased by $15,468,000 compared to total deposits of $340,889,000 at December 31, 2014. The decline is primarily attributable to the decline in time deposits. Accrued expenses and other liabilities were $4,763,000, representing a decrease of $167,000 compared to $4,930,000 at December 31, 2014 primarily due to payment of various claims accrued in the prior year. FHLB advances totaled $240,000 compared to $254,000 at December 31, 2014.

The Company’s asset/liability management program, which monitors the Company’s interest rate sensitivity as well as volume and mix changes in earning assets and interest bearing liabilities, may impact the growth of the Company’s balance sheet as it seeks to maximize net interest income and minimize its interest rate risk.

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INVESTMENT SECURITIES

The composition of the Company’s investment securities portfolio reflects the Company’s investment strategy of maximizing portfolio yields commensurate with risk and liquidity considerations. The primary objective of the Company’s investment strategy is to maintain an appropriate level of liquidity and provide a tool to assist in controlling the Company’s interest rate sensitivity position, while at the same time producing adequate levels of interest income.

At September 30, 2015 and December 31, 2014, the investment securities portfolio represented approximately 31% and 32%, respectively, of the Company’s total assets.

LOANS

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

	September 30,		December 31,
	2015		2014

Commercial, Financial, and Agricultural	$	39,195	$	33,308
Commercial Real Estate		107,439		116,437
Single-Family Residential		31,608		31,940
Construction and Development		1,905		2,925
Consumer		6,549		6,428
		186,696		191,038
Allowance for loan losses		2,248		2,299

	$	184,448	$	188,739

The Company does not have any concentrations of loans exceeding 10% of total loans of which management is aware and which are not otherwise disclosed as a category of loans in the table above or in other sections of this Quarterly Report on Form 10-Q. A substantial portion of the Company’s loan portfolio is secured by real estate in metropolitan Atlanta and Birmingham.

The largest component of loans in the Company’s loan portfolio is real estate loans. At September 30, 2015 and December 31, 2014, real estate loans, which represent commercial and industrial real estate and other loans secured by single-family properties, totaled $139.0 million and $148.4 million, respectively, and represented 74.5% and 77.7% of loans, respectively, net of unearned income for the period.

As stated above, a substantial portion of the Company’s loan portfolio is collateralized by real estate in metropolitan Atlanta and Birmingham markets. Accordingly, the ultimate collectability of a substantial portion of the Company’s loan portfolio is susceptible to changes in market conditions in the metropolitan Atlanta and Birmingham areas.

The Company’s loans to area churches, which are generally secured by real estate, were approximately $42.2 million and $41.9 million at September 30, 2015 and December 31, 2014, respectively.

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The Company’s loans to area convenience stores were approximately $7.0 million and $7.3 million at September 30, 2015 and December 31, 2014, respectively. Loans to convenience stores are generally secured by real estate.

The Company’s loans to area hotels, which are generally secured by real estate, were approximately $18.0 million and $21.3 million at September 30, 2015 and December 31, 2014, respectively.

NONPERFORMING ASSETS

Nonperforming assets include nonperforming loans, real estate acquired through foreclosure, and repossessed assets. Nonperforming loans generally include loans and leases whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties or are past due with respect to principal or interest more than 90 days and have been placed on nonaccrual status.

Accrued interest income is reversed when a loan is placed on nonaccrual status. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Nonperforming loans may be restored to accrual status when all principal and interest is current and the full repayment of the remaining contractual principal and interest is expected, or when the loan becomes well-secured and is in the process of collection.

With the exception of the loans included within nonperforming assets in the table below, management is not aware of any loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been disclosed which (1) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources, or (2) represent any information on material credits of which management is aware that causes management to have serious doubts as to the abilities of such borrowers to comply with the loan repayment terms.

For the nine months ended September 30, 2015, nonperforming assets decreased by $632,000, or 7.13%, to $8,231,000 compared to December 31, 2014, and decreased by $1,665,000 compared to the second quarter of 2015. The year-to-date decrease is primarily attributed to a $776,000 decline in other real estate owned (OREO), offset by an increase in nonperforming loans of $144,000. The Company charged-off $533,000 in nonperforming loans during the nine months of 2015 which is a decrease of $285,000 compared to the $818,000 charged-off for the same period last year. Charged-offs net of recoveries for the same period decreased by $352,000. At September 30, 2015, nonperforming assets represent 2.16% of total assets compared to 2.24% at December 31, 2014. There were no loans greater than 90 days past due and still accruing interest at September 30, 2015. At December 31, 2014, there was one loan greater than 90 days past due and still accruing interest.

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The table below presents a summary of the Company’s nonperforming assets at September 30, 2015 and December 31, 2014.

	September 30,			December 31,
	2015			2014
	(in thousands, except financial ratios)
Nonperforming assets:
Nonperforming loans:
Restructured nonperforming loans (TDRs)	$	3,263		$	2,883
Other nonaccrual loans		1,076			1,277
Past-due loans of 90 days or more and still accruing		—			35
Nonperforming loans		4,339			4,195

Real estate acquired through foreclosure		3,892			4,668
Total nonperforming assets	$	8,231		$	8,863

Ratios:
Nonperforming loans to loans, net of unearned income		2.32	%		2.20	%

Nonperforming assets to loans, net of unearned income, and real estate acquired through foreclosure		4.32	%		4.53	%

Nonperforming assets to total assets		2.16	%		2.24	%

Allowance for loan losses to nonperforming loans		51.81	%		54.80	%

Allowance for loan losses to nonperforming assets		27.31	%		25.94	%

TROUBLED DEBT RESTRUCTURINGS

Loans to be restructured are identified based on an assessment of the borrower’s credit status, which involves, but is not limited to, a review of financial statements, payment delinquency, non-accrual status, and risk rating. Determining the borrower’s credit status is a continual process that is performed by the Company’s staff with periodic participation from an independent external loan review group.

Troubled debt restructurings (“TDR”) generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term and it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company seeks to assist these borrowers by working with them to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan while ensuring compliance with the Federal Financial Institutions Examination Council (FFIEC) guidelines. To facilitate this process, a formal concessionary modification that would not otherwise be considered may be granted resulting in classification of the loan as a TDR. All concessionary modifications are considered troubled debt restructurings.

The modification may include a change in the interest rate or the payment amount or a combination of both. Substantially all modifications completed under a formal restructuring agreement are considered TDRs. Modifications can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accruing status, depending on the individual facts and circumstances of the borrower. These restructurings rarely result in the forgiveness of principal or interest.

With respect to commercial TDRs, an analysis of the credit evaluation, in conjunction with an evaluation of the borrower’s performance prior to the restructuring, are considered when evaluating the borrower’s ability to meet the restructured terms of the loan agreement. Nonperforming commercial TDRs may be returned to accrual status based on a current, well-documented credit evaluation of the borrower’s financial condition and prospects for repayment under the modified terms. This evaluation must include consideration of the borrower’s sustained historical repayment performance for a reasonable period (generally a minimum of six months) prior to the date on which the loan is returned to accrual status.

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In connection with consumer loan TDRs, a nonperforming loan will be returned to accruing status when current as to principal and interest and upon a sustained historical repayment performance (generally a minimum of six months).

The following table summarizes the Company’s TDRs and loans modifications (in thousands):

	September 30, 2015		December 31, 2014

Troubled Debt Restructured Loans:
Restructured loans still accruing	$	5,335	$	5,839
Restructured loans nonaccruing		3,263		2,883
Total restructured and modified loans	$	8,598	$	8,722

Troubled debt restructured loans that have performed in accordance with the restructured terms of the agreement for one year and for which an interest rate concession was not granted are removed from the TDR classification.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is primarily available to absorb losses inherent in the loan portfolio. Credit exposures deemed uncollectible are charged against the allowance for loan losses.

The Company provides for estimated losses on loans receivable when any significant and permanent decline in value occurs. These estimates for losses are based on individual assets and their cash flow forecasts, sales values, independent appraisals, the volatility of certain real estate markets, and concern for disposing of real estate in distressed markets. For loans that are pooled for purposes of determining the necessary provisions, estimates are based on loan types, history of charge-offs, and other delinquency analyses. Therefore, the value used to determine the provision for losses is subject to the reasonableness of these estimates. The adequacy of the allowance for loan losses is reviewed on a monthly basis by management and the Board of Directors. On a semi-annual basis an independent review of the adequacy of allowance for loan losses is performed. This assessment is made in the context of historical losses as well as existing economic conditions, and individual concentrations of credit.

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. For the nine month period ended September 30, 2015, a provision for loan losses of $200,000 was charged against operating earnings based on growth of the loan portfolio and the Company’s evaluation of the loan portfolio. For the same period in 2014, a provision for loan losses was deemed not necessary. Approximately $312,000 of the allowance for loan losses was allocated to loans management considered impaired at September 30, 2015 compared to $142,000 at December 31, 2014.

Page 34 of 46

At September 30, 2015, management believes the allowance for loan losses is adequate. Management uses available information to recognize losses on loans; however, future additions to the allowance may be necessary based on changes in economic conditions, particularly in the metropolitan Atlanta, Georgia and Birmingham, Alabama areas. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The following table summarizes loans, changes in the allowance for loan losses arising from loans charged off, recoveries on loans previously charged off by loan category, and additions to the allowance which have been charged to operating expense as of and for the nine months ended September 30, 2015 and 2014 (amount in thousands, except financial ratios):

	2015			2014

Loans, net of unearned income	$	186,696		$	186,598

Average loans, net of unearned income and the allowance for loan losses	$	189,072		$	180,669

Allowance for loan losses at the beginning of period	$	2,299		$	3,157

Loans charged-off:
Commercial, financial, and agricultural		—			7
Real estate - loans		368			667
Installment loans to individuals		165			144
Total loans charged-off		533			818

Recoveries of loans previously charged off:
Commercial, financial, and agricultural		14			30
Real estate - loans		213			144
Installment loans to individuals		55			41
Total loans recovered		282			215

Net loans charged-off		251			603

Additions to allowance for loan losses charged to operating expense		200			—

Allowance for loan losses at period end	$	2,248		$	2,554

Ratio of net loans charged-off to average loans, net of unearned income and the allowance for loan losses		0.13	%		0.33	%

Ratio of allowance for loan losses to loans, net of unearned income		1.20	%		1.37	%

Page 35 of 46

The following table presents the allocation of the allowance for loan losses. The allocation is based on an evaluation of defined loan problems, historical ratios of loan losses, and other factors that may affect future loan losses in the categories of loans shown (amount in thousands):

	September 30, 2015					December 31, 2014
			Percent of					Percent of
	Amount		Total Loans			Amount		Total Loans

Commercial, financial, and agricultural	$	704		21	%	$	415		17	%
Commercial Real Estate		1,022		58	%		1,366		61	%
Single-family Residential		320		17	%		254		17	%
Construction and Development		4		1	%		72		2	%
Consumer		198		3	%		192		3	%

Total allowance for loan losses	$	2,248		100	%	$	2,299		100	%

DEPOSITS

Deposits are the Company’s primary source of funding loan growth. Total deposits at September 30, 2015 decreased by 4.5% or $15,468,000 to $325,421,000 compared to December 31, 2014. The bank has a stable core deposit base with a high percentage of non-interest bearing deposits. Noninterest-bearing deposits decreased by $4,170,000, or approximately 5.0% to $79,648,000 and interest-bearing deposits decreased by $11,298,000, or 4.4%, to $245,773,000 for the nine month period ending September 30, 2015. On an average basis, noninterest-bearing deposits increased by $5,196,000 to $88,341,000 for the nine month period in 2015 compared to $83,537,000 for the year ended December 31, 2014. Average interest-bearing deposits decreased by $13,795,000 to $254,157,000 at September 30, 2015 compared to $267,952,000 for the year ended December 31, 2014. At September 30, 2015, the Company’s cost of funds was approximately 0.20% compared to 0.23% for the same period last year.

The Company participates in Certificate of Deposit Account Registry Services (“CDARS”), a program that allows its customers the ability to benefit from the FDIC insurance coverage on their time deposits over the $250,000 limit. At September 30, 2015 and December 31, 2014, the Company had $21,072,000 and $24,789,000, respectively, in CDARS deposits. Participation in this program has enhanced the Company’s ability to retain customers with time deposits higher than the FDIC $250,000 insurance coverage limit.

Time deposits that meet or exceed the FDIC Insurance limit of $250,000 were $36,283,000 and $47,478,000 at September 30, 2015 and December 31, 2014, respectively.

The following is a summary of interest-bearing deposits (in thousands):

	September 30,		December 31,
	2015		2014

NOW and money market accounts	$	92,966	$	84,620
Savings accounts		34,975		33,556
Time deposits of $100,000 or more		88,398		108,109
Other time deposits		29,434		30,786
	$	245,773	$	257,071

Page 36 of 46

OTHER BORROWED FUNDS

The Company continues to emphasize funding earning asset growth through core deposits; however, the Company has relied on other borrowings as a supplemental funding source. Other borrowings consist of Federal funds purchased, short-term borrowings, and FHLB advances.

These advances are collateralized by FHLB stock, a blanket lien on 1-4 family and multifamily mortgage loans, certain commercial real estate loans and investment securities. As of September 30, 2015 and December 31, 2014, total loans pledged as collateral were $29,051,000 and $31,727,000, respectively.

Maturity	Callable	Type		September 30, 2015					December 31, 2014
				(in thousands)

August 2026			(1)		—		$	240		—		$	254

Total Principal Outstanding							$	240				$	254

Weighted Average Rate at Period End					—	%				—	%

(1) Represents an Affordable Housing Program (AHP) award used to subsidize loans for homeownership or rental initiatives. The AHP is a principal reducing credit, scheduled to mature on August 17, 2026 with an interest rate of zero.

At September 30, 2015 the Company had approximately an $78.0 million line of credit facility at the FHLB of which $20.2 million was committed consisting of advances of $240,000 and a letter of credit to secure public deposits in the amount of $20.0 million. The Company also had approximately $21.0 million of borrowing capacity at the Federal Reserve Bank discount window.

RESULTS OF OPERATIONS

Net Interest Income:

Net interest income is the principal component of a financial institution’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates as well as volume and mix changes in earning assets and interest bearing liabilities can materially impact net interest income.

For the three-month period ended September 30, 2015, net interest income increased by $73,000 or 2.34% to $3,195,000 compared to $3,122,000 reported for the same period last year. Total interest income increased by $34,000, or 1.02%, to $3,367,000 compared to $3,333,000 for the same three month period in 2014. Interest income on loans increased by $212,000 due to a 40 bps increase in yields earned on loans compared to the same period last year. Interest income on investment securities decreased by $177,000 primarily due to a 55 bps decrease in investment yields compared to third quarter of 2014 coupled with the investment portfolio having a lower average investment balance. Total interest expense for the period decreased by $39,000 or 18.48% compared to the same three month period in 2014 as the Company continues to manage the funding cost and deposit mix. At September 30, 2015, the Company’s cost of funds was approximately 0.20% compared to 0.23% for the same period last year.

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On a year-to-date basis, net interest income decreased by $298,000 or 3.15% to $9,170,000 compared to $9,468,000 reported for the same period last year. Total interest income decreased by $397,000 or 3.93% to $9,705,000 compared to the same nine month period in 2014. Interest income on investment securities decreased by $480,000 primarily due to a 46 bps decrease in investment yields coupled with the investment portfolio having a lower average investment balance compared to the same period in 2014. Total interest expense for the nine month period ended September 30, 2015, decreased by $99,000 or 15.62% compared to the same period in 2014 as the Company lowered its funding cost and improved its deposit mix.

At September 30, 2015, the Company maintained an annualized net interest margin on a fully tax equivalent basis of 3.47% compared to 3.36% in the previous quarter-end and 3.60% reported at September 30, 2014. The decrease in the net interest margin on a fully tax equivalent basis compared to the same period last year is primarily due to the paydown of higher rate legacy loans that are being replaced by lower yielding loans. Similarly, interest income on investment securities declined due to lower investment yields caused by higher yielding bonds being paid down, maturing or being called and being replaced with lower yielding securities, coupled with the investment portfolio having a lower average investment balance compared to 2014. The Company is mindful of the interest rate risk of investing its excess liquidity in this low rate environment which could negatively impact its liquidity and capital position with an interest rate increase on the horizon. Management continues to re-evaluate its business model and risk appetite to generate returns in this prolonged low rate environment.

The Company has an asset/liability management program which monitors the Company’s interest rate sensitivity and ensures the Company is competitive in the loan and deposit market. The Company continues to monitor its asset/liability mix and will make changes as appropriate to ensure it is properly positioned to react to changing interest rates and inflationary trends.

Provision for loan losses

For the three and nine months ended September 30, 2015, the Company charged against operating earnings a provision for loan losses of $75,000 and $200,000, respectively. During the same periods in 2014, a provision for loan losses was deemed not necessary.

The allowance for loan losses was $2,248,000, $2,299,000, and $2,554,000 at September 30, 2015, December 31, 2014, and September 30, 2014, respectively. The allowance for loan losses was 51.81%, 54.80%, and 43.27% of nonperforming loans at September 30, 2015, December 31, 2014, and September 30, 2014, respectively. The provision for loan losses and the resulting allowance for loan losses are based on changes in the size and character of the Company’s loan portfolio, changes in nonperforming and past due loans, the existing risk of individual loans, concentrations of loans to specific borrowers or industries, and economic conditions. At September 30, 2015 the Company considered its allowance for loan losses to be adequate.

Noninterest income:

Noninterest income consists of revenues generated from a broad range of financial services and activities, including fee-based services and commissions earned through insurance sales. In addition, gains and losses realized from the sale of investment portfolio securities and sales of assets are included in noninterest income.

Noninterest income totaled $1,069,000 for the three month period ended September 30, 2015, an increase of $79,000, or 7.98% compared with the same period last year. This increase is primarily due to gains on the sale of investment securities of $109,000 reported for the third quarter of 2015. There were no gains on sale of investment securities for the same period in 2014. The service charges on deposits and other operating income decreased by $9,000 and $21,000, respectively, compared to the same period last year.

For the year-to-date, noninterest income increased by $312,000 or 10.47% to $3,292,000 compared to the same period last year. This increase is primarily due to gains on the sale of investments of $421,000 reported for the nine month period in 2015. There were no gains on sale of investment securities for the same period in 2014. Service charges on deposits and other operating income declined by $89,000 and $20,000. respectively. The decline in service charges on deposits is primarily attributed to customers’ increased awareness of the overdraft fee and the current economic conditions.

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Noninterest expense:

Noninterest expense includes compensation and benefits, occupancy expenses, advertising and marketing, professional fees, office supplies, data processing, telephone expenses, miscellaneous items, and other losses.

Non-interest expense in the third quarter of 2015 decreased by $96,000 to $3,662,000 compared to $3,758,000 for the same quarter last year. Salaries and employee benefits expense increased by $99,000 due to the hiring of additional lending officers to enhance loan production, and the filling of two officer level positions that were vacant in 2014. Net occupancy and equipment expense increased by a nominal $2,000 compared to the same period of last year. OREO related expenses decreased by $153,000 compared to the same period last year. Other operating expenses decreased by $49,000 compared to the same period in the prior year. The decline in other operating expenses is in multiple expense categories as the Company continues to manage its expenses in line with declines in interest income.

For the nine month period ended September 30, 2015, non-interest expense decreased by $225,000 to $10,800,000 compared to $11,025,000 for the same period last year. Salaries and employee benefits expense increased by $272,000 due to the hiring of additional lending officers to enhance loan production, and the filling of two officer level positions that were vacant in 2014. Net occupancy and equipment expense decreased by $17,000 primarily due to lower building maintenance expense and insurance costs compared to the same period of last year. OREO related expenses declined by $318,000 compared to the same period last year. Other operating expenses decreased by $179,000 compared to the same period in the prior year. The decline in other operating expenses is in multiple expense categories as the Company continues to manage its expenses in line with the decline in interest income.

INTEREST RATE SENSITIVITY MANAGEMENT

Interest rate sensitivity management involves managing the potential impact of interest rate movements on net interest income within acceptable levels of risk. The Company seeks to accomplish this by structuring the balance sheet so that repricing opportunities exist for both assets and liabilities in equivalent amounts and time intervals. Imbalances in these repricing opportunities at any point in time constitute a financial institution’s interest rate risk. The Company’s ability to reprice assets and liabilities in the same dollar amounts and at the same time minimizes interest rate risk.

One method of measuring the impact of interest rate sensitivity is the cumulative gap analysis. The difference between interest rate sensitive assets and interest rate sensitive liabilities at various time intervals is referred to as the gap. The Company is liability sensitive on a short-term basis as reflected in the following table. Generally, a net liability sensitive position indicates that there would be a negative impact on net interest income in an increasing rate environment. However, interest rate sensitivity gap does not necessarily indicate the impact of general interest rate movements on the net interest margin, since all interest rates and yields do not adjust at the same velocity and the repricing of various categories of assets and liabilities is subject to competitive pressures and the needs of the Company’s customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within such period and at different rates. The following table shows the contractual maturities of all interest rate sensitive assets and liabilities at September 30, 2015. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Taking a conservative approach, the Company has included demand deposits such as NOW, money market, and savings accounts in the three month category. However, the actual repricing of these accounts may extend beyond twelve months. The interest rate sensitivity gap is only a general indicator of potential effects of interest rate changes on net interest income.

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The following table sets forth the distribution of the repricing of the Company’s interest rate sensitive assets and interest rate sensitive liabilities as of September 30, 2015.

	Cumulative amounts as of September 30, 2015
	Maturing and repricing within
	3			3 to 12			1 to 5			Over
	Months			Months			Years			5 Years			Total
	(amounts in thousands, except ratios)
Interest-sensitive assets:
Interest-bearing deposits with other banks	$	39,692		$	—		$	—		$	—		$	39,692
Federal funds sold	$	6,500		$	—		$	—		$	—		$	6,500
Certificates of deposit		—			350			—			—			350
Investments		—			2,215			5,451			109,820			117,486
Loans		34,532			40,575			75,984			35,605			186,696
Total interest-sensitive assets	$	80,724		$	43,140		$	81,435		$	145,425		$	350,724

Interest-sensitive liabilities:
Interest bearing deposits ^(a)	$	152,684		$	58,881		$	34,097		$	111		$	245,773
Other borrowings		—			—			—			240			240
Total interest-sensitive liabilities	$	152,684		$	58,881		$	34,097		$	351		$	246,013

Interest-sensitivity gap	$	(71,960	)	$	(15,741	)	$	47,338		$	145,074		$	104,711

Cumulative interest-sensitivity gap		(71,960	)		(87,701	)		(40,363	)		104,711			104,711

Cumulative interest-sensitivity gap to total interest-sensitive assets		(20.52	)%		(25.01	)%		(11.51	)%		29.86	%		29.86	%

(a) Savings, NOW, and money market deposits totaling $127,941 are included in the maturing in 3 months classification.

LIQUIDITY

Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves. Additionally, the Company requires cash for various operating needs including: dividends to shareholders; business combinations; capital injections to its subsidiary; the servicing of debt; and the payment of general corporate expenses. The Company has access to various capital markets and on March 6, 2009, the Company issued 7,462 shares of a Fixed Rate Cumulative Perpetual Preferred Stock, Series A, to the U.S. Department of the Treasury (“Treasury”) under the TARP Program for an investment of $7,462,000. On August 13, 2010, the Company exchanged the outstanding 7,462 shares of Series A Preferred Stock for 7,462 shares of Series B Preferred Stock. No monetary consideration was given in connection with this exchange. The Company also issued 4,379 shares of Series C Preferred Stock for $4,379,000 to the Treasury on September 17, 2010. However, the primary source of liquidity for the Company is dividends from its bank subsidiary. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Company as well as the Company’s payment of dividends to its stockholders. The Georgia Department of Banking and Finance regulates the Bank’s dividend payments and must approve dividend payments that exceed 50 percent of the Bank’s prior year net income. The payment of dividends may also be affected or limited by other factors, such as the requirement by federal agencies to maintain adequate capital above regulatory guidelines and that bank holding companies and insured banks pay dividends out of current earnings.

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Asset and liability management functions not only serve to assure adequate liquidity in order to meet the needs of the Company’s customers, but also to maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities so that the Company can earn a return that meets the investment requirements of its shareholders. Daily monitoring of the sources and uses of funds is necessary to maintain an acceptable cash position that meets both requirements.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities of investment securities and, to a lesser extent, sales or paydowns of investment securities available for sale and held to maturity. Other short-term investments such as federal funds sold and maturing interest bearing deposits with other banks are additional sources of liquidity funding.

The liability portion of the balance sheet provides liquidity through various customers’ interest bearing and noninterest bearing deposit accounts. Federal funds purchased and other short-term borrowings from the Federal Reserve Bank Discount Window and the Federal Home Loan Bank are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. At September 30, 2015 the Company had approximately a $78.0 million line of credit facility at the FHLB of which $20.2 million was committed consisting of advances of $240,000 and a letter of credit to secure public deposits in the amount of $20.0 million. The Company also had approximately $21.0 million of borrowing capacity at the Federal Reserve Bank discount window. These sources of liquidity are short-term in nature and are used as necessary to fund asset growth and meet short-term liquidity needs. The Company does not anticipate any liquidity requirements in the near future that it will not be able to meet.

CAPITAL RESOURCES

Stockholders’ equity increased by $1,020,000 for the nine month period ended September 30, 2015 due to multiple factors. Accumulated other comprehensive income, net of income taxes, increased by $93,000. This increase is attributed to the volatility in interest rates and swings in credit spreads, and their impact on the fair value of the Company’s available for sale securities portfolio. Retained earnings increased by $845,000 primarily due to a net income of $1,196,000, partially offset by $178,000 of preferred dividends paid to the U.S. Treasury and a $173,000 in cash dividends paid to common stockholders. Additional paid-in-capital increased by $225,000 due to issuance of common stock and nonvested restricted stock grants, offset by the increase of nonvested restricted common stock and treasury stock of $100,000 and $48,000, respectively.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amount and ratios of total and Tier 1 capital to risk weighted assets, and Tier 1 capital to average assets. Effective January 1, 2015, the regulation now also requires the Company to maintain a minimum amount and ratio of common equity Tier 1 capital to risk weighted assets. At September 30, 2015, the Company and the Bank met all capital adequacy requirements to which it is subject and is considered to be ’‘well capitalized” under regulatory standards.

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The following table presents regulatory capital adequacy ratios for the Company and the Bank as at September 30, 2015 and December 31, 2014:

	September 30,						December 31,
	2015						2014
	The Company			The Bank			The Company			The Bank

Tier 1 Capital (to average assets)		12	%		12	%		11	%		11	%
Tier 1 Capital (to risk weighted assets)		25	%		20	%		19	%		18	%
Tier 1 Common Equity (to risk weighted assets)		N/A			20	%		N/A			N/A
Total Capital (to risk weighted assets)		26	%		21	%		19	%		19	%

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is not required since the Company qualifies as a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we conducted, under the supervision of and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2015 in accumulating and communicating information to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures of that information under the SEC’s rules and forms and that the Company’s disclosure controls and procedures are designed to ensure that the information required to be disclosed in reports filed or submitted by the Company under the Securities Exchange Act is recorded, processed, summarized and reported within the specified time periods. During the quarter ended September 30, 2015, there have been no changes in the Company’s internal controls over financial reporting or, to the Company’s knowledge, in other factors that could significantly change those internal controls subsequent to the date the Company carried out its evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Page 42 of 46

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS

	The Company and the Bank are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, based in part on the advice of counsel, the ultimate disposition of these matters will not have a material adverse impact on the Company’s consolidated financial position.

ITEM 1A.	RISK FACTORS

	We believe there have been no material changes from the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014. You should carefully consider the factors discussed in our Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.


ITEM 2.	UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

	None


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

	None


ITEM 4.	MINE SAFETY DISCLOSURES

	Not Applicable


ITEM 5.	OTHER INFORMATION

	None



ITEM 6.	EXHIBITS

	Exhibit 31

	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	Exhibit 32

	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	Exhibit 101

	Interactive data files providing financial information from the Registrant’s Report on Form 10-Q as of and for the three and nine months ended September 30, 2015 in XBRL. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

Page 43 of 46

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CITIZENS BANCSHARES CORPORATION



Date: November 16, 2015	By:	/s/ Cynthia N. Day
		Cynthia N. Day
		President and Chief Executive Officer


Date: November 16, 2015	By:	/s/ Samuel J. Cox
		Samuel J. Cox
		Executive Vice President and
		Chief Financial Officer

Page 44 of 46

Exhibit 31

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

We, Cynthia N. Day, and Samuel J. Cox certify that:

We have reviewed this quarterly report of Citizens Bancshares Corporation on Form 10-Q for the quarterly period ended September 30, 2015;

Based on our knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on our knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

We are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

We have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 16, 2015	By:	/s/ Cynthia N. Day
		Cynthia N. Day
		President and Chief Executive Officer


Date: November 16, 2015	By:	/s/ Samuel J. Cox
		Samuel J. Cox
		Executive Vice President and
		Chief Financial Officer

Page 45 of 46

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certifications set forth below are hereby submitted to the Securities and Exchange Commission pursuant to, and solely for the purpose of complying with, Section 1350 of Chapter 63 of Title 18 of the United States Code in connection with the filing on the date hereof with the Securities and Exchange Commission of the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2015.

Each of the undersigned hereby certifies in their capacity as an officer of Citizens Bancshares Corporation and subsidiary (the “Company”) that, to their knowledge on the date of this certification, the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

Date: November 16, 2015	By:	/s/ Cynthia N. Day
		Cynthia N. Day
		President and Chief Executive Officer


Date: November 16, 2015	By:	/s/ Samuel J. Cox
		Samuel J. Cox
		Executive Vice President and
		Chief Financial Officer

Page 46 of 46

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Citizens Bancshares (PK) (USOTC:CZBS)
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From Feb 2024 to Feb 2025

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